Ten-Year Financial Highlights Summary EXHIBIT 13
(in thousands, except per share data)
1999 1998 1997 1996 1995
Operations
Net revenue $ 1,711,649 $ 1,622,975 $ 1,539,712 $ 1,382,673 $ 1,197,747
Gross profit 673,338 670,709 640,895 562,731 512,498
Income before income taxes
and minority interest 230,214 274,823 262,369 228,953 214,492
Income taxes 52,363 92,490 95,581 83,300 90,273
Net income 178,029 182,243 166,716 145,586 124,035
Earnings per common share:(1)
Basic 1.15 1.16 1.06 0.92 0.79
Diluted 1.14 1.15 1.05 0.92 0.79
Net income as a percent of
net revenue 10.4% 11.2% 10.8% 10.5% 10.4%
Financial Position
Current assets $ 881,338 $ 867,791 $ 873,614 $ 734,589 $ 773,036
Current liabilities 342,441 336,275 342,026 275,182 278,046
Working capital 538,897 531,516 531,588 459,407 494,990
Current ratio 2.6 2.6 2.6 2.7 2.8
Property, plant &
equipment, net 809,602 676,161 665,468 613,125 567,303
Total assets 1,902,012 1,639,634 1,636,931 1,460,999 1,441,020
Long-term debt 20,148 5,566 7,350 7,450 8,122
Shareholders' equity 1,500,537 1,261,570 1,235,912 1,131,271 1,107,268
Return on beginning
shareholders' equity 14.1% 14.7% 14.7% 13.1% 14.1%
Dividends per common share(1) 0.06 0.06 0.05 0.04 0.02
Weighted average common
shares outstanding:(1)
Basic 155,472 156,600 157,111 157,414 156,274
Diluted 156,505 158,377 158,679 159,055 157,931
(1) Restated for the following stock split/dividends: 25%-November 1997;
25%-February 1997; 25%-August 1995; 25%-November 1994.
Management's Discussion of Financial Condition and Results of Operations
Financial Highlights
In fiscal 1999, Molex continued to produce revenue growth exceeding that of the
worldwide connector industry while maintaining profitability goals, despite
difficult economic conditions in certain geographic regions in which the
Company operates. Net revenue increased 5.5 percent to a record $1.71 billion
for the fiscal year. Net income was $178.0 million for fiscal 1999, a decline
of 2.3 percent from the prior year. The Company's continued growth is believed
to be the result of the Company's ability to expand and increase market share
in the fastest growing market segments and geographic regions of the world. The
Company's global presence allows it to be a primary supplier for multinational
and/or multi-market companies worldwide.
The Growth of Molex vs. the Worldwide Connector Industry
Worldwide Molex
--------- -----
1989 100 100
1990 103 104
1991 104 124
1992 105 136
1993 105 150
1994 109 169
1995 133 209
1996 141 242
1997 147 269
1998 147 284
1999 147 299
Investor Returns
Molex is committed to providing its shareholders with a high return on their
investment. The Company's total shareholder return (including reinvestment of
dividends) over the last five years has averaged an annual compounded return of
19.1 percent on Molex Common Stock and 16.1 percent on Molex Class A Common
Stock.
A $100 investment in Molex Common Stock at June 30, 1994, together with the
reinvestment of dividends, would be worth $240 at June 30, 1999, and a similar
investment in Molex Common Class A Stock would be worth $211 at June 30, 1999.
In November 1997, the Molex Board of Directors distributed a 25 percent stock
dividend. All shares outstanding, earnings and dividends per share have been
retroactively restated for the stock dividend.
Molex Common Stock/High-Low-Close By Quarter
1995 1996 1997 1998 1999
1st QTR - High 18 23.4375 24.15625 36.20313 31
Low 15.36 17.3125 17.59375 29.25 23.625
Close 17.4375 23.2 23.84 35.5 29
2nd QTR - High 18.4375 23.67188 25.4375 38.40625 39
Low 15.875 19.53125 22.71875 25.75 24.5625
Close 17.75 20.32 25.04 32.125 38.125
3rd QTR - High 18.625 23.20313 25.59375 32.125 38
Low 15.875 17.4375 22.40625 24.8125 25.5
Close 18.3125 22.32 22.72 27.5 29.375
4th QTR - High 20.125 23.4375 31.59375 30.5 37.125
Low 18.4375 19.35938 21.59375 23 26.1875
Close 19.84 20.32 29.2 25 36.875
Five-Year Cumulative Total Return
Molex Molex S&P Peer
Common Class A MidCap Group
Stock Com Stk 400
1994 100.00 100.00 100.00 100.00
1995 127.60 124.29 122.34 143.08
1996 130.93 125.28 148.75 121.51
1997 188.47 186.27 183.45 172.54
1998 161.67 156.39 233.26 170.13
1999 239.71 211.20 262.58 229.62
Financial Position and Liquidity
Molex has an exceptionally strong balance sheet. Cash and marketable securities
at June 30, 1999 equaled $266.9 million and represented 14.0 percent of total
consolidated assets. Cash and marketable securities decreased $55.5 million
during fiscal 1999 due, in large part, to cash requirements necessary for
acquisitions and investments made during the year.
The Company's long-term financing strategy is to rely on internal sources of
funds for investing in plant, equipment and acquisitions. Management is
confident that the Company's liquidity and financial flexibility are adequate
to support current and future growth. Molex has historically used external
borrowings only when a clear financial advantage exists. The Company has
available lines of credit totaling $18.8 million, of which $11.8 million
remains unused at June 30, 1999.
Cash provided from operations was $314.5 million during fiscal 1999. The
Company's operations generate sufficient cash to support the current level of
capital expenditures and financing activities. In U.S. dollars, the average
days of sales outstanding in trade accounts receivable increased to 72 days
from the 70 days reported last fiscal year. Average inventory days in U.S.
dollars have increased to 79 days from the 77 days reported last fiscal year.
Cash used for investing activities was $247.7 million in fiscal 1999, primarily
due to capital expenditures and acquisitions. Molex continued its commitment to
investing in new tooling, equipment and facilities, with capital expenditures
totaling $228.7 million for fiscal 1999. Molex added new facilities in China
and Australia. In addition, facilities were expanded in Mexico, France, Germany
and the United States. These additions increased the worldwide facility floor
space to 5.2 million square feet.
Cash used for financing activities was $82.3 million in fiscal 1999, primarily
due to the assumption and repayment of $41.1 million of debt in connection with
the Cardell Corporation acquisition and $49.4 million to purchase Treasury
Stock. The Company purchased 1,707,323 shares of common stock during fiscal
1999. During fiscal 1998, Molex purchased 1,661,250 shares of common stock on
the open market.
Percentage of Net Revenue
Fiscal Year Ended June 30,
U.S. Dollar
Percentage Change
1999 1998 1997 1999-98 1998-97
Net revenue 100.0% 100.0% 100.0% 5.5 % 5.4%
Cost of sales 60.7 58.7 58.4 9.0 5.9
Gross profit 39.3 41.3 41.6 0.4 4.7
S, G & A expenses 26.1 25.1 25.3 9.8 4.5
Income from operations 13.2 16.2 16.3 (14.1) 4.9
Total other income 0.3 0.7 0.7 (39.7) 1.0
Income before income taxes 13.5 16.9 17.0 (16.2) 4.7
Income taxes 3.1 5.7 6.2 (43.4) (3.2)
Net income 10.4% 11.2% 10.8% (2.3)% 9.3%
Fiscal 1999 Compared to Fiscal 1998
Net revenue reached another all-time-high during fiscal 1999, rising 5.5
percent to $1.71 billion, compared to $1.62 billion during fiscal 1998.
Excluding the effect of exchange rates, net revenue increased 5.7 percent. In
fiscal 1999, international operations generated net revenue in excess of $1.0
billion for the third year in a row and represented 65.8 percent of total Molex
net revenue.
Customer net revenue in the Americas region increased 6.1 percent in U.S.
dollars and 6.3 percent in local currencies in fiscal 1999. While slower
economic growth in traditional products and intensified price erosion tempered
the region's growth within the highly competitive commercial and computer
desktop markets, fiscal 1999 proved to be another strong growth year within the
automotive sector helped by the healthy U.S. automotive market and the focus on
the Big Three auto manufacturers. Molex has increased penetration into the
automotive market and enhanced the potential to capture additional market share
with the recent acquisition of Cardell Corporation. Cardell is a Detroit-based
manufacturer of stamped and overmolded connector products. Outstanding
performance within the fiber optic and high speed cabling markets resulted in
continued rapid growth.
In the Far East North, customer net revenue increased 12.0 percent in U.S.
dollars and 9.1 percent in local currencies during fiscal 1999. Despite the
nation's stagnant economic situation, and unlike other competitors in the
market, Molex Japan has increased its market share in mobile telephones, PCs,
DVDs, LCDs and games and has shipped NTT-related telecommunications products.
Despite the continuing Korean economic crisis, Molex Korea maintained the
number-one position in the market, with growth mainly due to sales expansion
in the automotive and telecommunications markets.
In the Far East South, customer net revenue increased 19.7 percent in local
currencies during fiscal 1999 and 14.4 percent in U.S. dollars as several
regional currencies weakened against the dollar. Despite poor economic
conditions, Molex Singapore achieved record revenue in fiscal 1999, regaining
lost share in the storage industry. Despite steep desktop market price erosion,
Malaysia surpassed last year, and Molex Thailand has positioned itself as the
preferred connector company in Thailand. Molex Taiwan increased share in the
ODM-Taiwan notebook market and the motherboard PC market and entered the LCD
monitor market. In the face of a difficult economy in Hong Kong, Molex Hong
Kong and Molex Dongguan nevertheless exceeded last year. Capital expenditures,
including investment in China, continued.
Europe's net revenue declined 3.2 percent in U.S. dollars and 4.8 percent in
local currencies. A slowdown in business coupled with a reduction in planned
volumes by some key customers impacted the mobile and cellular business while
sales of automotive and consumer products experienced minimal growth due to
severe volume and pricing pressures.
The Company's consolidated gross profit declined to 39.3 percent of net revenue
in fiscal 1999 from 41.3 percent during fiscal 1998. The decrease was partially
due to a charge in fiscal 1999 of $20.4 million relating to the write-off of
certain production tooling and related capacity adjustments. Excluding the
charge, gross profit margin in fiscal 1999 would have been 40.5 percent.
Selling, general and administrative expenses as a percentage of net revenue
increased from 25.1 percent in fiscal 1998 to 26.1 percent during fiscal 1999,
including a charge of $6.0 million related to the cost to close manufacturing
operations in Taiwan, South Africa and Canada, and would have been 25.8 percent
in 1999 excluding the charge. Net revenue per employee decreased to $120,918 in
fiscal 1999 from $123,740 in 1998. Employee headcount, excluding Cardell
Corporation, increased 7.9 percent compared to the 5.5 percent increase in net
revenue.
Research and development expenditures increased to $105.9 million or 6.2
percent of sales, a 12.8 percent increase from the $93.9 million expended in
fiscal 1998. These expenditures contributed to the release of 350 new product
families and the granting of 476 new patents during fiscal 1999. During fiscal
1999, 31.1 percent of net revenue was derived from the sale of products
released by the Company within the last three years. Molex continued its
long-term commitment to reinvesting its profits in new product design and
tooling in order to maintain and enhance the Company's competitive position.
Net interest income decreased 20.2 percent during fiscal 1999 due to a lower
level of short-term investments than in fiscal 1998.
Other income consists mainly of net foreign exchange losses realized during
fiscal 1999.
The effective tax rate declined from 33.7 percent in fiscal 1998 to 22.8
percent during fiscal 1999, due to the utilization of foreign tax credits, a
tax holiday in several Far East jurisdictions, and resolution of various tax
issues.
Net income decreased 2.3 percent to $178.0 million during fiscal 1999 with a
negligible effect from foreign exchange rates. Earnings per share were $1.14
for fiscal 1999 and $1.15 for fiscal 1998.
Fiscal 1998 Compared to Fiscal 1997
Net revenue reached another all-time-high during fiscal 1998, rising 5.4
percent to $1.62 billion, compared to $1.54 billion during fiscal 1997.
Excluding the effect of exchange rates due to the generally stronger U.S.
dollar, which had the effect of reducing reported revenue by $124.3 million,
net revenue increased 13.5 percent.
Customer net revenue in the Americas region increased 13.4 percent in U.S.
dollars and 13.5 percent in local currencies in fiscal 1998. In the competitive
commercial products market, revenue and profits continued to increase. Molex
achieved solid growth in several niche markets. The Company continued its
penetration initiative with greater automotive product sales to the Big Three.
Sales growth in the telecommunications market was enhanced by a series of new
product introductions, as well as by sales of high speed cable assemblies.
Value-added assemblies experienced strong growth with increased sales into the
computer, computer peripheral, automotive and telecommunications markets. The
sale of fiber optic products continued its rapid growth in several market
segments.
In the Far East North, customer net revenue increased 1.8 percent in local
currencies during fiscal 1998. The increase in domestic sales was achieved
despite difficult economic conditions in both Japan and the Republic of Korea.
Molex Japan recorded the highest growth rate of any connector company in Japan
for the fiscal year, while Molex Korea maintained the number-one position in
its local market. Net revenue in the region decreased 9.9 percent in U.S.
dollars as the dollar strengthened considerably against both the Japanese yen
and the Korean won.
Customer revenue in the Far East South increased 10.0 percent in local
currencies, but decreased 3.9 percent in U.S. dollars due to the $41.7 million
unfavorable revenue impact of foreign currency translation in fiscal 1998.
Higher imported material costs, due primarily to currency devaluation, caused
a 6.2 percentage point drop in gross profit as a percent of net revenue. This
drop was partially offset by effective cost containment programs. Despite the
difficult current economic environment characterized by a slowing PC market and
currency devaluation, the Company continued its investment to pursue further
penetration in this very attractive market. Capital expenditures, which include
expansion in China, increased in fiscal 1998.
Europe's net revenue increased 17.9 percent in U.S. dollars and 31.2 percent in
local currencies. Strong growth in telecommunications and consumer products,
steady improvement in automotive and a general resurgence in European markets
served by Molex have all contributed to the growth. Higher volumes along with
the introduction of new products more than offset the effects of price erosion,
resulting in substantially improved profitability.
The consolidated gross profit as a percent of net revenue remained relatively
flat in fiscal 1998 at 41.3 percent, compared to 41.6 percent in fiscal 1997.
This gross margin performance can be attributed to higher imported material
costs in international operations, due primarily to the effect of currency
devaluation in those regions, offset by improvements in overall manufacturing
efficiencies and utilization.
Selling, general and administrative expenses as a percentage of net revenue
remained relatively flat during fiscal 1998 at 25.1 percent versus 25.3 percent
in the prior year period. Net revenue per employee increased to $130,307 in
fiscal 1998 from $128,879 in 1997. Employee headcount increased 4.3 percent
compared to the 5.4 percent increase in net revenue. This increase in headcount
can be attributed to continued focus on the value-added business.
Research and development expenditures increased to $93.9 million or 5.8 percent
of sales, a 4.9 percent increase from the $89.5 million expended in fiscal
1997. These expenditures contributed to the release of 428 new product families
and the granting of 498 new patents during fiscal 1998. During fiscal 1998,
30.2 percent of net revenue was derived from the sale of products released by
the Company within the last three years. Molex continued its long-term
commitment to reinvesting its profits in new product design and tooling in
order to maintain and enhance the Company's competitive position.
Net interest income increased 7.0 percent during fiscal 1998 due to a higher
level of short-term investments than in fiscal 1997 along with the improved
interest rates on those investments.
The effective tax rate declined from 36.4 percent in fiscal 1997 to 33.7
percent during fiscal 1998, due mainly to the current utilization of prior
years' foreign tax carryforwards and a change in the mix of pretax earnings
between countries.
Net income increased 9.3 percent to $182.2 million during fiscal 1998.
Excluding the effect of foreign exchange rates, which lowered net income by
$14.0 million, net income climbed 17.7 percent. Diluted earnings per share
increased to $1.15 during fiscal 1998 from $1.05 during fiscal 1997.
Future Accounting Changes
In March 1998, the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," effective for fiscal years
beginning after December 15, 1998. SOP 98-1 provides guidance on accounting for
the costs of computer software developed or obtained for internal use. This
statement will not have a material impact on the Company's financial position
or the results of its operations.
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (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.
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. This 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
implementation 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 $3.0 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
Fiscal 1999 was a challenging year for Molex as a result of difficult economic
conditions in Europe, a slowdown in distribution channels for commercial
products and price erosion above historical levels affecting the data
communications and desktop markets. The Company expects the impact from these
external factors to continue into the new fiscal year, but to a lesser degree
than in fiscal 1999. Management believes that the Company has strong overall
momentum and a positive outlook for fiscal 2000.
To further expand the Company's global presence, offer innovative products at
an accelerated pace and improve internal productivity, Molex plans to invest
approximately $210 million in capital expenditures and approximately $122
million in research and development for the fiscal year ending June 30, 2000.
The Company continues to emphasize expansion in rapidly growing markets such as
telecommunications, networking, automotive and value-added, while working to
further strengthen its significant position as a leader in the computer and
consumer markets. Molex remains committed to providing high quality products
and a full range of services to customers wherever they may be located in the
world. During fiscal 2000, the Company plans to open a new facility in Kosice,
Slovak Republic. Further expansion is planned for existing operations in Japan;
Shanghai, China; and Nogales, Mexico.
Worldwide, the connector industry is expected to experience minimal growth.
The Company expects to have dollar denominated growth rates in the range of 17
percent to 19 percent while generating a 10 percent net return on sales.
The Company is subject to environmental laws and regulations in the countries
where it operates. Molex has designed an environmental program to reduce the
generation of potentially hazardous materials during its manufacturing process
and believes it continues to meet or exceed local governmental regulations.
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 18 months. A formalized treasury
risk management policy has been implemented by the Company that 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 is 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 $83.9 million of
marketable securities owned by the Company. Such securities are debt
instruments that 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
nature - less than 12 months - of these investments.
Management's Statement of Responsibility
The management of the Company is responsible for the information contained in
the consolidated financial statements and in the other parts of this report.
The accompanying consolidated financial statements of Molex Incorporated and
its subsidiaries have been prepared in accordance with generally accepted
accounting principles. In preparing these statements, management has made
judgments based upon available information. To ensure that this information
will be as complete, accurate and factual as possible, management has
communicated to all appropriate employees requirements for accurate record
keeping and accounting.
The Company maintains an internal control structure designed to provide
reasonable assurance for the safeguarding of assets against loss from
unauthorized use or disposition and reliability of financial records.
Management believes that through the careful selection of employees, the
division of responsibilities and the application of formal policies and
procedures, the Company has an effective and responsive internal control
structure that is intended, consistent with reasonable cost, to provide
reasonable assurance that transactions are executed as authorized.
The Company's independent auditors, Deloitte & Touche LLP, are responsible for
conducting an audit of the Company's consolidated financial statements in
accordance with generally accepted auditing standards and for expressing their
opinion as to whether these consolidated financial statements present fairly,
in all material respects, the financial position, results of operations and
cash flows of Molex Incorporated and its subsidiaries in conformity with
generally accepted accounting principles.
Independent Auditors' Report
To the Shareholders and Board of Directors,
Molex Incorporated
Lisle, Illinois
We have audited the accompanying consolidated balance sheets of Molex
Incorporated and its subsidiaries as of June 30, 1999 and 1998, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended June 30, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Molex Incorporated and its
subsidiaries as of June 30, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1999, in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Chicago, Illinois
July 28, 1999
Consolidated Balance Sheets
(in thousands, except per share data)
Assets June 30,
1999 1998
Current assets:
Cash and cash equivalents $ 182,992 $ 205,262
Marketable securities 83,874 117,151
Accounts receivable:
Trade, less allowance of $19,215 in 1999 and
$17,114 in 1998 for doubtful accounts 387,525 324,279
Employee 3,595 4,281
Inventories (Note 2) 188,861 184,433
Deferred income taxes (Note 5) 19,137 15,101
Prepaid expenses 15,354 17,284
Total current assets 881,338 867,791
Property, plant and equipment
at cost (Note 2):
Land and improvements 53,972 39,114
Buildings and leasehold improvements 355,980 269,607
Machinery and equipment 877,011 740,246
Molds and dies 372,272 315,537
Construction-in-progress 89,573 75,773
1,748,808 1,440,277
Less accumulated depreciation and amortization 939,206 764,116
Net property, plant and equipment 809,602 676,161
Goodwill, less accumulated amortization of
$22,547 in 1999 and $15,190 in 1998 (Notes 2 and 10) 137,378 40,660
Other assets 73,694 55,022
$ 1,902,012 $ 1,639,634
The accompanying notes are an integral part of these consolidated financial
statements.
Liabilities and Shareholders' Equity June 30,
1999 1998
Current liabilities:
Short-term loans (Note 4) $ 4,464 $ -
Current portion of long-term debt (Note 4) 499 -
Accounts payable 156,556 140,350
Accrued expenses:
Salaries, commissions and bonuses 68,084 51,231
Other 62,885 71,331
Income taxes (Note 5) 47,553 71,097
Dividends payable 2,400 2,266
Total current liabilities 342,441 336,275
Deferred items:
Investment grants 2,460 2,535
Income taxes (Note 5) 4,508 3,969
Total deferred items 6,968 6,504
Accrued postretirement benefits (Note 6) 30,706 27,135
Long-term debt (Note 4) 20,148 5,566
Minority interest in subsidiaries 1,212 2,584
Commitments and contingencies (Note 7) - -
Shareholders' equity (Notes 3 and 8):
Common Stock, $.05 par value; 200,000 shares authorized;
86,133 shares issued at 1999 and 83,261 shares issued at 1998 4,306 4,163
Class A Common Stock, $.05 par value; 200,000 shares authorized;
82,073 shares issued at 1999 and 1998 4,104 4,104
Class B Common Stock, $.05 par value; 146 shares authorized;
94 shares issued at 1999 and 1998 5 5
Paid-in capital 233,806 147,782
Retained earnings 1,491,337 1,322,775
Treasury stock (Common Stock, 7,794 shares at 1999 and 6,850
shares at 1998; Class A Common Stock, 3,445 shares at 1999
and 2,682 shares at 1998), at cost (193,317) (143,714)
Deferred unearned compensation (Note 8) (21,996) (19,988)
Accumulated other comprehensive income:
Cumulative translation and other adjustments (17,708) (53,557)
Total shareholders' equity 1,500,537 1,261,570
$ 1,902,012 $ 1,639,634
The accompanying notes are an integral part of these consolidated financial
statements.
Consolidated Statements of Income
(in thousands, except per share data)
For the year ended June 30,
1999 1998 1997
Net revenue $ 1,711,649 $ 1,622,975 $ 1,539,712
Cost of sales 1,038,311 952,266 898,817
Gross profit 673,338 670,709 640,895
Selling, general and administrative expenses:
Selling 134,526 127,643 140,080
Administrative 312,454 279,444 249,537
Total selling, general and administrative expenses 446,980 407,087 389,617
Income from operations 226,358 263,622 251,278
Other income (expense):
Interest, net 8,883 11,134 10,405
Other (5,027) 67 686
Total other income 3,856 11,201 11,091
Income before income taxes and minority interest 230,214 274,823 262,369
Income taxes (Note 5) 52,363 92,490 95,581
Income before minority interest 177,851 182,333 166,788
Minority interest 178 (90) (72)
Net income $ 178,029 $ 182,243 $ 166,716
Earnings per common share (Based upon weighted average
common shares outstanding) (Notes 2 and 3):
Basic $ 1.15 $ 1.16 $ 1.06
Diluted $ 1.14 $ 1.15 $ 1.05
Dividends per common share (Note 3) $ 0.06 $ 0.06 $ 0.05
Weighted average common shares outstanding (Notes 2 and 3):
Basic 155,472 156,600 157,111
Diluted 156,505 158,377 158,679
The accompanying notes are an integral part of these consolidated financial
statements.
Consolidated Statements of Shareholders' Equity
(in thousands)
Accumulated
Deferred Other Total
Common Stock Paid-In Retained Treasury Unearned Comprehensive Shareholders'
Common Class A Class B Capital Earnings Stock Compensation Income Equity
Balance, July 1, 1996 $ 2,619 $ 2,627 $ 5 $ 116,510 $ 989,928 $ (62,726) $ (13,583) $ 95,891 $ 1,131,271
Comprehensive income:
Net income 166,716 166,716
Translation adjustments (36,962) (36,962)
Unrealized investment gain 400 400
Total comprehensive income 130,154
Cash dividends declared (6,924) (6,924)
Stock split (dividend) 661 656 (1,317) -
Stock options -granted 8,655 (8,655) -
-exercised 23 5,947 (917) 5,053
-cancelled (955) 682 (273)
Stock bonus 550 550
Treasury stock -purchases (31,918) (31,918)
-reissuances 203 583 786
Purchase of business 1,672 484 2,156
Deferred unearned
compensation amortization 5,057 5,057
Balance, June 30, 1997 3,303 3,283 5 131,265 1,149,720 (94,494) (16,499) 59,329 1,235,912
Comprehensive income:
Net income 182,243 182,243
Translation adjustments (112,486) (112,486)
Unrealized investment loss (400) (400)
Total comprehensive income 69,357
Cash dividends declared (9,188) (9,188)
Stock split (dividend) 829 821 (1,650) -
Stock options -granted 11,040 (11,040) -
-exercised 29 5,927 (792) 5,164
-cancelled (834) 834 -
Issuance of stock 2 2
Stock bonus 962 962
Treasury stock -purchases (49,255) (49,255)
-reissuances 1,072 827 1,899
Deferred unearned
compensation amortization 6,717 6,717
Balance, June 30, 1998 4,163 4,104 5 147,782 1,322,775 (143,714) (19,988) (53,557) 1,261,570
Comprehensive income:
Net income 178,029 178,029
Translation adjustments 36,906 36,906
Unrealized investment loss (1,057) (1,057)
Total comprehensive income 213,878
Cash dividends declared (9,467) (9,467)
Stock options -granted 9,179 (9,179) -
-exercised 28 5,672 (1,052) 4,648
-cancelled (185) (185)
Purchase of business 113 69,310 69,423
Stock bonus 2 1,067 1,069
Treasury stock -purchases (49,430) (49,430)
-reissuances 981 879 1,860
Deferred unearned
compensation amortization 7,171 7,171
Balance, June 30, 1999 $ 4,306 $ 4,104 $ 5 $ 233,806 $ 1,491,337 $(193,317) $ (21,996) $ (17,708) $ 1,500,537
Consolidated Statements of Cash Flows
(in thousands)
For the year ended June 30,
1999 1998 1997
Cash and cash equivalents, beginning of period $ 205,262 $ 199,767 $ 242,779
Cash and cash equivalents were provided from (used for):
Operations:
Net income 178,029 182,243 166,716
Add (deduct) non-cash items included in net income:
Depreciation and amortization 168,856 148,920 138,675
Deferred income taxes 1,875 13,470 (13,671)
(Gain)/loss on sale of property, plant and equipment 16,383 696 (236)
Minority interest (178) 90 72
Amortization of deferred unearned compensation 7,171 6,717 5,057
Amortization of deferred investment grants (601) (608) (486)
Other debits (credits) to earnings, net 209 (1,232) (1,552)
Current items:
Accounts receivable (35,661) (31,146) (78,645)
Inventories 7,299 (31,926) (23,334)
Prepaid expenses 859 (13,810) (1,062)
Accounts payable (7,720) 16,780 31,143
Accrued expenses 4,987 14,843 25,842
Income taxes (26,990) (382) 26,833
Net cash provided from operations 314,518 304,655 275,352
Investments:
Purchases of property, plant and equipment (228,722) (227,188) (208,558)
Proceeds from sale of property, plant and equipment 4,793 7,207 3,104
Purchases of businesses, net of cash acquired (34,935) (1,171) -
Proceeds from sale of marketable securities 5,096,583 1,996,229 2,179,269
Purchases of marketable securities (5,063,306) (2,005,512) (2,260,518)
(Increase)/decrease in other assets (22,080) (4,170) 8,693
Net cash used for investments (247,667) (234,605) (278,010)
Financing:
Increase in investment grants 243 511 1,067
Increase in short-term loans 4,464 - -
Decrease in long-term debt (41,283) (3,000) (857)
Increase in long-term debt 6,490 1,216 654
Cash dividends paid (9,333) (8,622) (6,924)
Exercise of stock options 4,648 5,164 5,053
Purchase of treasury stock (49,430) (49,255) (31,918)
Reissuance of treasury stock 1,860 1,899 786
Net cash used for financing (82,341) (52,087) (32,139)
Effect of exchange rate changes on cash (6,780) (12,468) (8,215)
Net increase (decrease) in cash and cash equivalents (22,270) 5,495 (43,012)
Cash and cash equivalents, end of period $ 182,992 $ 205,262 $ 199,767
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest $ 875 $ 604 $ 628
Income taxes $ 64,768 $ 80,983 $ 72,372
The accompanying notes are an integral part of these consolidated financial
statements.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
(1) Nature of Operations
Molex Incorporated manufactures electronic, electrical and fiber optic
interconnection products and systems; switches; value-added assemblies;
and application tooling.
(2) Summary of Significant Accounting Policies
The following is a summary of the major accounting policies and practices of
Molex Incorporated and subsidiaries that affect significant elements of the
accompanying consolidated financial statements.
(A) Principles of Consolidation
The consolidated financial statements include the accounts of Molex
Incorporated and its majority-owned subsidiaries (the Company). All material
intercompany balances and transactions have been eliminated.
(B) Use of Estimates in Financial Statement Preparation
The preparation of financial statements requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(C) Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents.
(D) Marketable Securities
Marketable securities are available for sale and consist of a variety of
highly liquid investments, with maturities generally between three and 12
months. Unrealized holding gains and losses are recognized as a separate
component of shareholders' equity.
(E) Fair Value of Financial Instruments
The Company's financial instruments include accounts receivable and payable,
marketable securities and long-term debt. The carrying amounts of the financial
instruments approximate their fair value.
(F) Inventories
Inventories are valued at the lower of first-in, first-out cost or market.
Inventories at June 30 consisted of the following:
1999 1998
Raw materials $ 46,767 $ 48,324
Work in progress 58,893 49,025
Finished goods 83,201 87,084
$ 188,861 $ 184,433
(G) Property, Plant and Equipment and Related Reserves
Depreciation and amortization are provided substantially on a straightline
basis for financial statement purposes and on accelerated methods for tax
purposes. The estimated useful lives are as follows:
Buildings 25-45 years
Machinery and equipment 3-10 years
Molds and dies 3-4 years
Costs of leasehold improvements are amortized over the terms of the related
leases using various methods. The carrying value of all long-lived assets is
evaluated periodically to determine if adjustment to the depreciation and
amortization period or to the unamortized balance is warranted.
(H) Research and Development and Patent Costs
Costs incurred in connection with the development of new products and
applications are charged to operations as incurred. Total research and
development costs equaled $105,940 in 1999; $93,945 in 1998; and $89,450 in
1997.
Included in these totals are patent costs of $5,192, $5,379 and $5,607 for the
years ended June 30, 1999, 1998 and 1997, respectively.
(I) Revenue Recognition
The Company recognizes revenue at the date of shipment.
(J) Currency Translation
Assets and liabilities of international entities have been translated at
period-end exchange rates, and income and expenses have been translated using
average exchange rates for the period.
(K) Goodwill
Goodwill represents acquisition cost in excess of the fair value of net assets
acquired and is amortized using the straight-line method over periods ranging
from 10 to 25 years. The Company periodically re-evaluates the original
assumptions and rationale used in the establishment of the carrying value and
estimated life of this asset.
(L) Earnings Per Share
On December 31, 1997, the Company adopted SFAS No. 128, "Earnings Per Share."
This statement replaces primary and fully diluted earnings per share (EPS) with
basic and diluted EPS. Basic EPS is computed by dividing net income by the
weighted average number of common shares outstanding during the period.
Diluted EPS is computed by dividing net income by the weighted average number
of common shares and dilutive securities outstanding during the period.
The basic weighted-average shares outstanding reconciles to diluted
weighted-average shares outstanding as follows:
1999 1998 1997
Basic 155,472 156,600 157,111
Effect of dilutive
stock options 1,033 1,777 1,568
Diluted 156,505 158,377 158,679
(M) New Accounting Pronouncements
During the first quarter of fiscal 1999, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income," which establishes standards for reporting
and display of comprehensive income and its components.
In March 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use,"
effective for fiscal years beginning after December 15, 1998. SOP 98-1 provides
guidance on accounting for the costs of computer software developed or obtained
for internal use. The Company is assessing the impact this statement will have
on its statement of financial position and the results of its operations.
In June 1998, the 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.
(N) Reclassifications
Certain reclassifications have been made to the prior years' financial
statements in order to conform to the 1999 classifications.
(3) Capital Stock
The shares of Common Stock, Class A Common Stock and Class B Common Stock are
identical except as to voting rights. Class A Common Stock has no voting rights
except in limited circumstances. So long as more than 50% of the authorized
number of shares of Class B Common Stock continues to be outstanding, all
matters, other than the election of directors, submitted to a vote of the
shareholders must be approved by a majority of the Class B Common Stock, voting
as a class, and by a majority of the Common Stock, voting as a class. During
such period, holders of a majority of the Class B Common Stock could veto
corporate action, other than the election of directors, that requires
shareholder approval. There are 25 million shares of preferred stock
authorized, none of which were issued or outstanding during the three years
ended June 30, 1999. The Class B Common Stock can be converted into Common
Stock on a share-for-share basis at any time at the option of the holder. The
authorized Class A Common Stock would automatically convert into Common Stock
on a share-for-share basis at the discretion of the Board of Directors upon the
occurrence of certain events. Upon such conversion, the voting interests of the
holders of Common Stock and Class B Common Stock would be diluted.
The holders of the Common Stock, Class A Common Stock and Class B Common Stock
participate equally, share-for-share, in any dividends that may be paid
thereon, if, as and when declared by the Board of Directors, or in any assets
available upon liquidation or dissolution of the Company.
In November 1997, the Board of Directors declared 25 percent stock dividends.
One quarter share of Molex Common Stock was distributed for each share of
Common Stock and Class B Common Stock outstanding. In addition, one quarter
share of Class A Common Stock was distributed for each share of Class A Common
Stock outstanding. All stock and stock option amounts, as well as earnings,
dividends and market prices per common share, have been retroactively restated
for the stock dividends.
(4) Debt
The details relative to long-term debt are as follows:
1999 1998
Mortgages $ 8,736 $ -
Bank loans 6,292 1,216
Industrial development bonds 4,350 4,350
Other 1,269 -
20,647 5,566
Less current portion 499 -
Total long-term debt $ 20,148 $ 5,566
Mortgages consist of two loans acquired as part of the purchase of Cardell
Corporation (see Note 10). Both loans are secured by certain buildings, carry
an interest rate of 7.79% and require periodic principal payments through 2012.
The Company has two bank loans with interest rates of 4.5% and 4.75%,
respectively, payable in periodic installments through March 2007.
Industrial development bonds, secured by certain land, buildings and equipment,
have interest rates ranging from 2% to 5%, with periodic principal payments
through November 2009.
The long-term debt as of June 30, 1999 matures as follows: $1,334 in 2001;
$1,396 in 2002; $1,433 in 2003; $1,478 in 2004; and $14,507 thereafter.
At June 30, 1999, the Company had available lines of credit of $18.8 million.
Short-term loans bear interest rates ranging from 2% to 3% and mature within a
12-month period.
(5) Income Taxes
The tax provision is determined under the liability method. Under this method,
deferred tax assets and liabilities are recognized based on differences between
the financial statement and tax bases of assets and liabilities using presently
enacted tax rates.
Income before income taxes and minority interest is summarized as follows:
1999 1998 1997
United States $ 54,820 $ 89,945 $ 65,164
International 175,394 184,878 197,205
$ 230,214 $ 274,823 $ 262,369
Income tax provisions are as follows:
1999 1998 1997
Currently payable:
U.S. federal $ (20,399) $ 7,380 $ 33,397
State 1,755 5,839 4,952
International 69,132 65,801 70,903
50,488 79,020 109,252
Deferred:
United States 856 7,806 (8,843)
International 1,019 5,664 (4,828)
1,875 13,470 (13,671)
Total provision for
income taxes $ 52,363 $ 92,490 $ 95,581
The Company's tax rate differs from the U.S. federal income tax rate as
follows:
1999 1998 1997
U.S. federal income
tax rate 35.0% 35.0% 35.0%
Permanent tax exemptions (6.0) (4.7) (4.0)
Foreign tax credit (net) (14.5) - -
State income taxes,
net of federal
tax benefit 0.8 1.4 1.2
Foreign tax rates
in excess of
U.S. federal rate 7.5 2.0 4.2
22.8% 33.7% 36.4%
Net deferred income taxes arise from temporary differences as follows:
1999 1998
International/local taxes $ 2,060 $ 1,184
Employee benefit programs 12,196 10,329
Depreciation and amortization (13,361) (10,634)
Allowance for doubtful accounts 3,674 2,414
Inventory reserves 4,186 4,994
Inventory - other 3,956 3,938
Investments 368 1,209
Foreign tax credit carryforwards 5,396 5,670
Other deferred items 5,973 2,012
$ 24,448 $ 21,116
The net deferred tax accounts reported on the balance sheet as of June 30 are
as follows:
1999 1998
Net deferred:
Current asset $ 19,137 $ 15,101
Non-current asset 10,697 10,520
Current liability (878) (536)
Non-current liability (4,508) (3,969)
$ 24,448 $ 21,116
U.S. income taxes are generally not provided on the accumulated undistributed
earnings of certain international subsidiaries. It is intended that these
earnings will be permanently reinvested. Should these earnings be distributed,
no additional U.S. income tax expense will be incurred, due to the availability
of foreign tax credits.
(6) Pension and Other Postretirement Benefits
Effective for fiscal 1999, the Company adopted SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits." The provisions
of SFAS No. 132 revise employers' disclosures about pensions and other
postretirement benefit plans, but do not change the measurement or recognition
of these plans.
Pension
The Company sponsors and/or contributes to pension plans, including defined
benefit plans, covering substantially all U.S. hourly employees and certain
employees in international subsidiaries. The benefits are primarily based on
years of service and the employees' compensation for certain periods during
the last years of employment.
The Company and certain of its subsidiaries also provide discretionary savings
and other defined contribution plans covering substantially all of their
salaried employees. Employer contributions to such plans of $10,903; $10,348;
and $7,226 were charged to operations during 1999, 1998 and 1997, respectively.
Other Postretirement Benefits
The Company provides certain retiree health care and life insurance benefits to
its employees. The cost of retiree insurance benefits is accrued over the
period in which the employees become eligible for such benefits. The majority
of the Company's U.S. employees may become eligible for these benefits if they
reach age 55, with age plus years of service equal to 70. There are no
significant postretirement health care benefit plans outside of the United
States. The Company continues to fund benefit costs primarily as claims are
paid.
Notes to Consolidated Financial Statements
(Continued)
Net periodic pension and postretirement benefit costs for the Company's plans
consist of the following for the year ended June 30:
Interest Costs Recognized Amortization of Net
on Projected Expected Prior Unrecognized Recognized Periodic
Service Benefit Return on Service Transition (Gains) Pension
Costs Obligation Plan Assets Cost Obligation Losses Expense
1999: Pension
U.S. Plans $ 1,233 $ 1,070 $ (1,331) $ 231 $ 110 $ - $ 1,313
International Plans 2,871 1,532 (1,227) - 3 (1,248) 1,931
Postretirement
Other Plans 635 651 - (313) - - 973
1998: Pension
U.S. Plans 944 734 (639) 231 110 - 1,380
International Plans 2,445 1,511 (868) - (201) - 2,887
Postretirement
Other Plans 630 632 - (280) - 3 985
1997: Pension
U.S. Plans 856 655 (641) - 340 - 1,210
International Plans 2,642 1,448 (860) - (17) - 3,213
Postretirement
Other Plans 668 563 - (214) - 11 1,028
The following provides a reconciliation of benefit obligations, plan assets
and funded status of the plans.
1999 1998
Pension Postretirement Pension Postretirement
U.S. Int'l. Other U.S. Int'l. Other
Plans Plans Plans Plans Plans Plans
Change in benefit obligation
Benefit obligation at beginning of year $ 15,456 $ 32,676 $ 9,439 $ 10,180 $ 34,573 $ 8,528
Service cost 1,233 2,871 635 944 2,445 630
Interest cost 1,070 1,532 651 734 1,511 632
Participants contributions - 191 - - 217 -
Benefits paid (329) (1,576) (155) (300) (712) (49)
Liability (gains) losses (459) 1,413 (1,807) 3,898 (745) (304)
Changes in foreign currency - 1,892 - - (4,613) -
Benefit obligation at end of year $ 16,971 $ 38,999 $ 8,763 $ 15,456 $ 32,676 $ 9,439
Change in plan assets
Fair value of plan assets
at beginning of year $ 14,408 $ 19,186 $ - $ 9,529 $ 14,161 $ -
Actual return on plan assets 1,984 1,357 - 3,873 868 -
Employer contributions 1,094 286 302 1,306 523 181
Plan participants' contributions - 191 - - 217 -
Benefits paid (329) (27) (302) (300) (168) (181)
Assets gains (losses) - - - - 4,671 -
Changes in foreign currency - (1,051) - - (1,086) -
Fair value of plan assets at end of year $ 17,157 $ 19,942 $ - $ 14,408 $ 19,186 $ -
Funded status $ 186 $(19,057) $ (8,763) $ (1,048) $(13,490) $ (9,439)
Unrecognized net transition liability 66 1,456 - 176 1,461 -
Unrecognized net actuarial (gain) loss (837) (1,234) (1,106) 275 (4,054) 680
Unrecognized prior service cost 1,508 - (2,002) 1,739 0 (2,293)
Accrued pension asset (liability) included
in the consolidated balance sheet $ 923 $(18,835) $(11,871) $ 1,142 $(16,083) $ (11,052)
The weighted average assumptions used in computing the previous information are
presented below:
1999 1998
Post- Post-
Pension retirement Pension retirement
U.S. Int'l. Other U.S. Int'l. Other
Plans Plans Plans Plans Plans Plans
Discount rates 7.25% 4.6% 7.25% 7.0% 5.1% 7.0%
Rates of increase in compensation 4.5% 3.3% - 4.5% 3.8% -
Expected long-term rates of return
on plan assets 9.0% 6.8% - 7.0% 7.0% -
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 6.4 percent in 1999, declining annually
to an ultimate rate of 4.75 percent by 2017. The health care cost trend rate
assumption has a significant effect on the amount of the obligation and
periodic cost reported. A one-percentage-point change in assumed health care
cost trend rates would have the following effects:
1 Percentage 1 Percentage
Point Increase Point Decrease
Effect on total of service and
interest cost components $ 1,546 $ (1,081)
Effect on postretirement
benefit obligation $ 11,007 $ (8,157)
(7) Commitments
The Company and its subsidiaries rent certain facilities and equipment under
lease arrangements classified as operating leases. Some of the leases have
renewal options.
Future minimum rental payments under noncancellable operating leases with
initial or remaining terms of one year or more as of June 30, 1999 are $9,066
in 2000; $4,930 in 2001; $2,839 in 2002; $1,584 in 2003; $561 in 2004; and
$8,849 thereafter, totaling $27,829.
Rental expense was $9,999 in 1999; $9,656 in 1998; and $8,541 in 1997.
(8) Stock Option Plans
The Company has three stock option plans currently in effect, two of which may
issue future grants: the 1990 Stock Option Plan (the "1990 Plan"), the 1991
Stock Option Plan (the "1991 Plan"), and the 1998 Stock Option Plan (the "1998
Plan").
1990 Plan: This plan expired as of June 30, 1999. Future grants cannot be
issued from this plan, but all grants issued prior to this date can be
exercised. The most significant terms of this plan provide that (1) options
may be granted for 5.5 million shares of Common Stock and (2) the option price
shall be 50 percent of the fair market value of the stock of the Company on the
date of grant. The option term is five to nine years from the date of the
grant. Under the 1990 Plan, all shares issued are nonqualified.
Stock option transactions relating to the 1990 Plan are summarized as follows:
Wtd. Avg. Price
Shares Per Share
Outstanding at 6/30/96 2,394 $ 7.94
Granted 719 11.75
Exercised 513 6.59
Canceled 101 8.82
Outstanding at 6/30/97 2,499 $ 9.28
Granted 734 15.34
Exercised 483 7.61
Canceled 91 12.47
Outstanding at 6/30/98 2,659 $ 11.18
Granted 23 13.07
Exercised 490 9.35
Canceled 38 12.54
Outstanding at 6/30/99 2,154 $ 11.60
Options exercisable at 6/30/98 503 $ 8.91
Options exercisable at 6/30/99 395 $ 10.72
1991 Plan: The most significant terms of this plan provide that (1) options may
be granted for 3.1 million shares of Common Stock and (2) the option price
shall be the fair market value of the stock on the date of the grant. The
option term is five to 11 years from the date of the grant.
Stock option transactions relating to the 1991 Plan are summarized as follows:
Wtd. Avg. Price
Shares Per Share
Outstanding at 6/30/96 841 $ 14.36
Granted 395 22.99
Exercised 144 11.27
Canceled 13 19.17
Outstanding at 6/30/97 1,079 $ 17.88
Granted 156 30.37
Exercised 164 12.28
Canceled 2 11.80
Outstanding at 6/30/98 1,069 $ 20.57
Granted 501 26.17
Exercised 95 16.43
Canceled 2 14.02
Outstanding at 6/30/99 1,473 $ 22.74
Options exercisable at 6/30/98 142 $ 18.17
Options exercisable at 6/30/99 135 $ 22.38
1998 Plan: The most significant terms of this plan provide that (1) options may
be granted for 10 million shares of Class A Common Stock and (2) the option
price shall be not less than 10 percent nor more than 100 percent of the fair
market value of the Class A stock of the Company on the date of grant. The
option term is five to nine years from the date of grant.
Stock option transactions relating to the 1998 Plan are summarized as follows:
Wtd. Avg. Price
Shares Per Share
Outstanding at 6/30/98 - $ -
Granted 771 11.79
Exercised - -
Canceled 8 11.79
Outstanding at 6/30/99 763 $ 11.79
Options exercisable at 6/30/99 - -
The option price per share for certain options in the 1990 and 1998 plans was
less than the fair market value at the date of grant, thus creating deferred
unearned compensation. Deferred unearned compensation is charged to operations
over the term of the option. In fiscal 1999, $7,171 was charged to operations
($6,717 in 1998 and $5,057 in 1997).
In fiscal 1997, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation." As provided by SFAS No. 123, the Company has elected to continue
to account for its stock-based compensation programs according to the
provisions of Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees." The Company has adopted the disclosure provisions
required by SFAS No. 123. Had the Company elected to apply the provisions of
SFAS No. 123 regarding recognition of compensation expense to the extent of the
calculated fair value of stock options granted, the effects on reported net
income and earnings per common share would have been as follows:
1999 1998 1997
Net income,
as reported $ 178,029 $ 182,243 $ 166,716
Pro forma net income 177,880 181,349 166,133
Earnings per share:
Basic 1.15 1.16 1.06
Diluted 1.14 1.15 1.05
Pro forma earnings per share:
Basic 1.14 1.16 1.05
Diluted 1.14 1.15 1.05
For purposes of computing pro forma net income and earnings per common share,
the fair value of each option grant is estimated as of the date of grant using
the Black-Scholes option pricing model with the following assumptions:
1999 1998 1997
Dividend yield 0.2% 0.2% 0.2%
Expected volatility 29.84% 25.22% 30.25%
Risk-free interest rate 6.00% 6.00% 6.07-6.54%
Expected life of
option (years) 4.86 4.25 3.01-10.50
The following table summarizes information about options outstanding
at June 30, 1999:
Wtd. Avg.
Range of Number Remaining Wtd. Avg. Number Wtd. Avg.
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
$ 8.09 - $ 8.09 115 0.4 $ 8.09 115 $ 8.09
8.28 - 8.28 571 4.1 8.28 - -
8.58 - 11.52 890 4.8 11.19 221 10.76
11.75 - 13.94 1,010 5.4 12.58 3 12.29
14.00 - 16.00 624 5.2 15.32 56 15.87
16.10 - 23.68 507 6.1 22.37 101 20.09
24.64 - 24.64 9 1.3 24.64 7 24.64
26.00 - 35.10 659 7.8 27.05 26 29.74
38.61 - 38.61 5 3.3 38.61 1 38.61
4,390 530
9) Segment and Related Information
The Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information" for fiscal 1999, which requires the Company to report
information about its operating segments based on how management views its
business. The Company and its subsidiaries operate in one product segment: the
manufacture and sale of electrical components. Management operates the business
by geographic segments. The Americas region consists primarily of operations in
North America. The Far East North region is substantially Japan, but also
includes Korea, while the Far East South region includes China, Singapore and
the remaining countries in Asia. European operations are primarily located in
western Europe. Information by geographic area is summarized in the following
table:
United Americas Far East Far East Corporate
States (Non-U.S.) North South Europe and Other Eliminations Total
1999
Customer revenue $585,120 $88,683 $364,606 $341,526 $331,711 $ 3 $ - $1,711,649
Intercompany revenue 86,971 6,758 149,105 38,817 40,908 - (322,559) -
Total revenue 672,091 95,441 513,711 380,343 372,619 3 (322,559) 1,711,649
Net income 59,530 1,573 57,793 33,547 24,141 1,445 - 178,029
Identifiable assets 895,634 51,112 459,700 272,203 397,917 121,819 (296,373) 1,902,012
1998
Customer revenue $557,272 $93,274 $327,741 $290,908 $353,575 $ 205 $ - $1,622,975
Intercompany revenue 69,661 5,351 131,822 37,021 32,796 - (276,651) -
Total revenue 626,933 98,625 459,563 327,929 386,371 205 (276,651) 1,622,975
Net income 61,516 4,022 42,907 32,844 43,344 (2,528) 138 182,243
Identifiable assets 650,858 52,188 374,926 229,495 393,699 171,623 (233,155) 1,639,634
1997
Customer revenue $503,576 $69,970 $363,605 $302,305 $299,771 $ 485 $ - $1,539,712
Intercompany revenue 55,257 3,149 127,943 33,213 23,798 4,000 (247,360) -
Total revenue 558,833 73,119 491,548 335,518 323,569 4,485 (247,360) 1,539,712
Net income 48,517 6,621 46,560 51,711 28,072 (14,838) 73 166,716
Identifiable assets 571,051 39,224 477,799 283,022 249,642 80,060 (63,867) 1,636,931
Intercompany net revenue is generally recorded at cost plus the normal mark-up
charged to unaffiliated customers.
Identifiable assets are those assets of the Company that are identified with
operations in each country. During 1999, 1998 and 1997, no customer accounted
for more than 10% of consolidated net revenue.
10) Acquisitions
On June 16, 1999, the Company acquired Cardell Corporation, an automotive
terminal and connector manufacturer. The purchase price of $129.0 million
consists of the issuance of $69.4 million of Molex common stock (approximately
2.26 million shares) to Cardell shareholders, cash of $18.5 million and the
repayment of $41.1 million in debt of Cardell assumed upon acquisition.
On September 4, 1998, the Company acquired 70 percent of the common stock of
Silent Systems, Inc., a manufacturer of acoustic noise reduction, heat sink
and thermal management products, for $14.8 million in cash.
On August 19, 1998, the Company acquired 51 percent of Mafatlal Micron, which
primarily supplies connectors to the telecommunications industry in India, for
$1.7 million in cash.
These acquisitions were accounted for by the purchase method of accounting. The
results of operations of the acquired businesses are included in the
consolidated financial statements from the dates of acquisition. These
acquisitions are not material to the results of operations of the Company,
therefore proforma financial data is not presented. The purchase price for the
acquisitions was preliminarily allocated to the assets acquired based on their
estimated fair values as follows:
(In thousands)
Current assets $ 21,694
Property, plant and equipment 52,160
Intangibles and other assets 107,258
Liabilities assumed (35,637)
Net assets acquired 145,475
Value of stock issued (69,423)
Long-term debt repaid at acquisition (41,117)
Cash paid for acquisitions $ 34,935
Fiscal 1999, 1998 and 1997 by Quarter
(in thousands, except per share data-unaudited)
Quarter 1999 1998 1997
Net revenue 1st $409,892 $410,194 $359,595
2nd 429,718 405,497 377,005
3rd 426,178 409,228 387,053
4th 445,861 398,056 416,059
Gross profit 1st 165,577 170,333 145,252
2nd 176,597 168,508 155,680
3rd 173,674 168,523 161,091
4th 157,490 163,345 178,872
Income before income taxes and minority interest
1st 58,831 69,254 58,639
2nd 64,570 69,632 63,137
3rd 63,971 69,106 67,964
4th 42,842 66,831 72,628
Income taxes 1st 19,590 24,798 22,777
2nd 20,699 24,081 22,925
3rd 19,181 22,688 24,751
4th (7,107) 20,923 25,128
Net income 1st 39,173 44,456 35,855
2nd 43,873 45,551 40,197
3rd 44,960 46,418 43,190
4th 50,023 45,818 47,473
Earnings per common share(1)
Basic 1st 0.25 0.28 0.23
2nd 0.28 0.29 0.26
3rd 0.29 0.30 0.28
4th 0.32 0.29 0.30
Diluted 1st 0.25 0.28 0.23
2nd 0.28 0.29 0.25
3rd 0.29 0.29 0.27
4th 0.32 0.29 0.30
LOW HIGH LOW HIGH LOW HIGH
National Market System
Price of Stock: Common Stock(1) 1st 23 5/8 31 29 1/4 36 13/64 17 19/32 24 5/32
2nd 24 9/16 39 25 3/4 38 13/32 22 23/32 25 7/16
3rd 25 1/2 38 24 13/16 32 1/8 22 13/32 25 19/32
4th 26 3/16 37 1/8 23 30 1/2 21 19/32 31 19/32
Class A Common Stock(1) 1st 22 1/4 28 1/8 27 1/2 33 19/64 16 15/64 21 59/64
2nd 21 3/4 34 7/8 23 35 1/2 20 9/16 23 17/32
3rd 22 1/2 32 23 3/4 30 3/8 20 31/32 24 5/32
4th 22 3/4 31 1/2 21 3/4 29 1/4 20 31/32 30 3/32
(1) Restated for the following 25% stock dividends: November 1997 and February
1997.
During the fourth quarter of fiscal 1999, gross profit was impacted by a charge
of $20.4 million relating to the write-off of certain production tooling and
related capacity adjustments. Selling, general and administrative expenses
included a charge of $6.0 million related to the costs to close manufacturing
operations in Taiwan, South Africa and Canada. These combined charges reduced
net income $20.7 million (net of tax benefit of $5.7 million). The fourth
quarter also included a $20.7 million favorable tax adjustment due to the
utilization of foreign tax credits, a tax holiday in several Far East
jurisdictions and resolution of various tax issues.