UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1999 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from Commission File Number 0-7491 __________________MOLEX INCORPORATED__________________ (Exact name of registrant as specified in its charter) Delaware 36-2369491 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 2222 Wellington Court, Lisle, Illinois 60532 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 630-969-4550 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date (applicable only to corporate registrants). At September 30, 1999: 		 Common Stock 78,508,793 shares Class A Common Stock 78,262,183 shares Class B Common Stock 94,255 shares MOLEX INCORPORATED FORM 10-Q SEPTEMBER 30, 1999 INDEX Page 	 ---- PART I - FINANCIAL INFORMATION Item 1. Financial Information - Unaudited Condensed Consolidated Balance Sheets -- 2 		September 30, 1999 and June 30, 1999 		Condensed Consolidated Statements of Income --	 3 		Three Months Ended September 30, 1999 and 1998 Condensed Consolidated Statements of Cash Flows -- 4 		Three Months Ended September 30, 1999 and 1998 Notes to Condensed Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Item 3. Quantitative and Qualitative Disclosure About Market Risk 10 PART II - OTHER INFORMATION 11 -1- MOLEX INCORPORATED CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited - In Thousands) ASSETS Sept. 30, June 30, 1999 1999 _________ _________ CURRENT ASSETS: Cash and cash equivalents $ 167,649 $ 182,992 Marketable securities 92,456 83,874 Accounts receivable - net 424,580 391,120 Inventories 209,689 188,861 Other current assets 37,889 34,491 Total current assets 932,263 881,338 PROPERTY, PLANT AND EQUIPMENT - NET 856,904 809,602 GOODWILL 135,775 137,378 OTHER ASSETS 79,141 73,694 $2,004,083 $1,902,012 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 185,693 $ 156,556 Accrued expenses 144,204 130,969 Other current liabilities 14,145 54,916 Total current liabilities 344,042 342,441 DEFERRED ITEMS 15,714 6,968 ACCRUED POSTRETIREMENT BENEFITS 38,730 30,706 LONG-TERM DEBT 24,310 20,148 MINORITY INTEREST 1,435 1,212 SHAREHOLDERS' EQUITY Common stock 8,421 8,415 Paid-in capital 234,501 233,806 Retained earnings 1,534,606 1,491,337 Treasury stock (206,641) (193,317) Deferred unearned compensation (20,580) (21,996) Cumulative translation and other adjustments 29,545 (17,708) Total shareholders' equity 1,579,852 1,500,537 $2,004,083 $1,902,012 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 Sept. 30, Sept. 30, 1999 1998 NET REVENUE $491,870 $409,892 COST OF SALES 298,447 244,315 Gross Profit 193,423 165,577 OPERATING EXPENSES: Selling 37,904 33,812 Administrative 91,227 76,115 Total Operating Expenses 129,131 109,927 Income from Operations 64,292 55,650 OTHER INCOME: Foreign currency transaction loss (638) (267) Interest income, net 1,651 3,448 Total Other Income 1,013 3,181 INCOME BEFORE INCOME TAXES 65,305 58,831 INCOME TAXES 19,808 19,658 NET INCOME $45,497 $39,173 EARNINGS PER COMMON SHARE: BASIC $0.29 $0.25 DILUTED $0.29 $0.25 CASH DIVIDENDS PER COMMON SHARE $0.025 $0.015 WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING DURING THE PERIOD: BASIC 156,991 155,834 DILUTED 158,278 157,399 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) THREE MONTHS ENDED Sept. 30, Sept. 30, 1999 1998 CASH AND CASH EQUIVALENTS, Beginning of Period $182,992 $205,262 CASH AND CASH EQUIVALENTS PROVIDED FROM (USED FOR): Operations: Net income 45,497 39,173 Add (deduct) non-cash items included in net income: Depreciation and amortization 45,669 36,004 Amortization of deferred unearned compensation 800 1,775 Other (credits)/charges to net income 3,963 (137) Current items: Accounts receivable (18,527) (18,695) Inventories (15,837) 11,053 Other current assets (8) (2,773) Accounts payable 19,040 (20,766) Accrued expenses (2,224) 11,772 Other current liabilities (27,381) (4,822) NET CASH PROVIDED FROM OPERATIONS 50,992 52,584 Investments: Purchases of property, plant and equipment (58,943) (51,518) Proceeds from sale of property, plant and equipment 4,480 181 Proceeds from sale of marketable securities 821,679 1,029,858 Purchases of marketable securities (830,261)(1,014,043) Increase in other assets (9,921) (31,860) NET CASH USED FOR INVESTMENTS (72,966) (67,382) Financing: Increase in long-term debt 4,413 94 Decrease in long-term debt (251) - Cash dividends paid (2,358) (2,266) Purchase of treasury stock (13,658) (9,491) Reissuance of treasury stock 301 972 Exercise of stock options 678 822 NET CASH USED FOR FINANCING (10,875) (9,869) EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 17,506 4,954 CASH AND CASH EQUIVALENTS, End of Period $167,649 $185,549 The accompanying notes are an integral part of these condensed consolidated financial statements. - 4 - MOLEX INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (1) Condensed Consolidated Financial Statements The condensed consolidated financial statements have been prepared from the Company's books and records without audit and are subject to year-end adjustments. The interim financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of information for the interim periods presented. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Molex Incorporated 1999 Annual Report to Shareholders and the 1999 Annual Report on Form 10-K. The results of operations for the interim periods should not be considered indicative of results to be expected for the full year. (2) Earnings per Common Share The reconciliation of common shares outstanding to dilutive common shares outstanding is as follows: Three Months Ended September 30, 1999 1998 Weighted average shares outstanding - basic 156,991 155,834 Dilutive effect of stock options 1,287 1,565 Weighted average shares outstanding - diluted 158,278 157,399 (3) Comprehensive Income Comprehensive income includes all non-shareowner changes in equity and consists of net income, foreign currency translation adjustments and unrealized gains and losses on available-for-sale securities. Total comprehensive income, in thousands of dollars, is as follows: Three Months Ended September 30, 1999 1998 Net income $45,497 $39,173 Currency translation and other adjustments 45,941 25,817 Total comprehensive income $91,438 $64,990 -5- 4) Inventories Inventories are valued at the lower of first-in, first-out cost or market. Inventories, in thousands of dollars, consist of the following: Sept. 30, June 30, 1999 1999 Raw Materials $ 32,271 $ 46,767 Work in Process 50,720 58,893 Finished Goods 126,698 83,201 $209,689 $188,861 (5) New Accounting Pronouncements In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." Originally effective for all fiscal quarters of all fiscal years beginning after June 15, 1999, it has since been delayed one year. It establishes accounting and reporting standards for derivative instruments and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The Company is assessing the impact this statement will have on its statement of financial position and the results of its operations. -6- MOLEX INCORPORATED MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Consolidated net revenues were $491.9 million for the quarter ended September 30, 1999, increasing 20.0 percent in US dollars and 15.7 percent in local currencies over the first quarter of last year. This growth included the revenues of the Cardell acquisition, without which the US dollar revenue growth for the current quarter would have been 12.9 percent. The strengthening of other currencies against the US dollar caused net revenues to increase $17.5 million for the quarter. Management believes that Molex continues to grow at a rate higher than the worldwide connector market. All geographic regions experienced local currency sales growth for the quarter. Net revenue in the Americas region increased 27.1 percent in US dollars and 26.9 percent in local currencies over the prior year period. Excluding the sales of the Cardell acquisition, net revenue rose 10.7 percent. Growth in the region was a result of strong demand in the fiber optic, telecommunications and networking markets, as well as improved business through distributors. Quarterly net revenue in the Far East North increased 32.5 percent in US dollars and 7.0 percent in local currencies compared to the prior year. Strong demand in the Japanese market for DVDs, LCDs, CD-Roms, games, mobile phones, PCs and printers was partially offset by shipment delays resulting from the installation of the global information system. Strength in the Korean automotive and home electronics markets also contributed to the growth. Far East South net revenue for the quarter increased 11.5 percent in US dollars and 8.0 percent in local currencies over the prior year due to strong bookings in the personal computer and computer-peripheral product markets. In Europe, net revenue grew 2.0 percent in US dollars and 9.2 percent in local currencies over the prior year quarter due to strong growth in the fiber optic, telecommunications and value-added markets. For the three months ended September 30, 1999, 61.8 percent of Molex's worldwide net revenue was generated from its international operations. International operations are subject to currency fluctuations and government actions. Molex monitors its currency exposure in each country and continues to implement defensive strategies to respond to changing economic environments. Due to the uncertainty of the foreign exchange markets, Molex cannot reasonably predict future trends related to foreign currency fluctuations. Foreign currency fluctuations have impacted results in the past and may impact results in the future. -7- Gross profit as a percent of net revenue was 39.3 percent for the quarter ended September 30, 1999 compared with 40.4 percent last year. The current quarter was partially impacted by the results of the Cardell division, which currently has a lower gross profit margin than the overall Molex gross margin. Selling and administrative expenses were $129.1 million for the first quarter compared with $109.9 million in the prior year period. As a percent of net revenue, selling and administrative expenses were 26.3 percent compared with 26.8 percent for the same period in the prior year. Also included in selling and administrative expenses are research and development expenditures, which for the three months ended September 30, 1999, increased as a percent of net revenue to 6.6 percent from 6.1 percent in the prior year period. Interest income, net of interest expense, was $1.7 million for the quarter ended September 30, 1999 compared with $3.4 million in the prior year. The decline is primarily due to a lower level of short-term investments than in the prior year quarter as well as an increased level of debt. The effective tax rate was 30.2 percent for the first quarter compared with 33.4 percent in the prior year period. The reduction was caused by the Company implementing a more aggressive repatriation strategy, Japanese tax rate reductions, and the continuing effort to reduce the overall tax burden through better planning. Net income for the quarter was $45.5 million or 29 cents per basic and diluted share, a 16.1 percent increase compared with $39.2 million or 25 cents per basic and diluted share for the same quarter last fiscal year. Excluding the effects of currency translation, net income increased 8.8 percent for the quarter ended September 30, 1999 from the comparable prior year period. LIQUIDITY AND CAPITAL RESOURCES Molex's balance sheet continues to be exceptionally strong. Working capital at September 30, 1999 was $588.2 million, an increase from $538.9 million at June 30, 1999. During the three months ended September 30, 1999, the Company purchased an aggregate of 450,000 shares of treasury stock at an aggregate cost of $13.7 million. This is in accordance with authorization by the Board of Directors allowing for the purchase of up to $50 million of Company stock during the current fiscal year. Management believes that the Company's current liquidity and financial flexibility are adequate to support its continued growth. -8- YEAR 2000 Molex recognizes the importance of the Year 2000 issue and has been giving high priority to it. The Company has completed an assessment of its business and other information systems, as well as the non-information system aspects of its business that could be impacted by the Year 2000 issue. Over the past few years, the Company has developed and is currently implementing its Global Information System (GIS), which is Year 2000 compliant. The GIS now covers more than 80 percent of the Company's business and the legacy business systems in the remaining operations have been remediated. The Company believes that with the modifications to existing software and the GIS implementation, the Year 2000 issue will not pose material operational problems for its information systems. While the GIS implementation addresses many of the Company's Year 2000 issues, the Company does not consider the GIS implementation costs to be related to the Year 2000 issue as such costs are a strategic expenditure to enhance future operations and would be incurred regardless of the Year 2000 issue. Total costs related to the GIS project are expected to reach $60 million once complete. Expenditures related to the Year 2000 date conversion effort, principally the cost to remediate existing software or microprocessors embedded in the Company's manufacturing systems, are not expected to be significant, and management expects the total costs of such remediation effort to be less than $3 million. Most of these costs have already been incurred during fiscal year 1999. Any remaining costs should not have a material impact on the Company's financial position, results of operations or cash flows. Part of the risk inherent in the Year 2000 issue results from the general uncertainty of the readiness of material third-party relationships. Although the company cannot know or foresee every eventuality that suppliers and customers may face that could impact its operations, the Company is actively involved in a broad-structured contingency planning effort to mitigate the impact of potential failures in any of its critical third-party relationships. The Company cannot estimate the cost it may incur as a result of the failure of third parties to address their Year 2000 issues, and there can be no assurance that there will not be a material adverse effect on the Company if third parties do not convert their systems in a timely manner and in a way that is compatible with the Company's systems. However, management believes that the likelihood of such a significant failure is low. OUTLOOK The outlook for the remainder of fiscal 2000 is encouraging, based on improved business levels for the first quarter. Due to the uncertainty of the foreign currency exchange markets, Molex cannot reasonably predict future trends -9- related to foreign currency fluctuations. Foreign currency fluctuations have impacted the Company's results in the past and may impact results in the future. To further expand the Company's global presence, offer innovative products at an accelerated pace, and improve internal productivity, Molex plans to invest approximately $208 million in capital expenditures and approximately $125 million in research and development for the fiscal year ending June 30, 2000. Management believes the Company is well positioned to continue growing faster than the overall connector industry. The Company continues to emphasize expansion in rapidly growing industry segments, product lines and geographic regions. Molex remains committed to providing high quality products and a full range of services to its customers worldwide. FORWARD LOOKING STATEMENT This document contains various forward looking statements. Statements that are not historical are forward looking statements and are subject to various risks and uncertainties which could cause actual results to vary materially from those stated. Such risks and uncertainties include: economic conditions in various regions, product and price competition, raw material prices, foreign currency exchange rates, technology changes, patent issues, litigation results, legal and regulatory developments, and other risks and uncertainties described in documents filed with the Securities and Exchange Commission. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is subject to market risk associated with changes in foreign currency exchange rates, interest rates and certain commodity prices. The Company mitigates its foreign currency exchange rate risk principally through the establishment of local production facilities in the markets it serves and invoicing of customers in the same currency as the source of the products. Molex also monitors its foreign currency exposure in each country and implements strategies to respond to changing economic and political environments. Examples of these strategies include the prompt payment of intercompany balances utilizing a global netting system, the establishing of contra-currency accounts in several international subsidiaries, development of natural hedges and occasional use of foreign exchange contracts. One of the Company's subsidiaries utilizes derivative commodity futures contracts to hedge against fluctuations in commodity price fluctuations. Such commodity futures contracts are limited to a maximum duration of eighteen months. A formalized treasury risk management policy has been implemented by the Company which describes the procedures and controls over derivative financial and commodity instruments. Under the policy, the Company does not use derivative financial or commodity instruments for trading purposes and the use of such instruments are subject to strict approval levels by senior officers. Typically, the use of such derivative instruments is limited to hedging activities related to specific foreign currency cash flows or inventory purchases. The Company's exposure related to such transactions is, in the aggregate, not material to the Company's financial position, results of operations and cash flows. Interest rate exposure is principally limited to the $92.5 million of marketable securities owned by the Company. Such securities are debt instruments which generate interest income for the Company on temporary excess cash balances. The Company does not actively manage the risk of interest rate fluctuations, however, such risk is mitigated by the relatively short term, less than twelve months, nature of these investments. Part II - Other Information Items 1-3. Not Applicable Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the Annual Meeting of Stockholders held on October 22, 1999, a proposal to amend the Certificate of Incorporation to provide for a Classified Board of Directors, which is set forth in detail in the proxy statement dated September 14, 1999, was approved with 53,180,669 votes cast in favor of the amendment, 13,826,491 votes against and 76,824 votes withheld. The following directors were elected to hold office for their respective terms according to their class: Frederick A. Krehbiel, J.H. Krehbiel, Jr., Fred L. Krehbiel, J. Joseph King, Robert J. Potter, Edgar D. Jannotta, Donald G. Lubin, Masahisa Naitoh, Michael J. Birck, Douglas K. Carnahan. No one candidate for director received less than 71,170,000 votes in favor of their election nor more than 662,000 votes withheld. Item 5. Other Information On July 26, 1999, Molex announced that its Board of Directors increased the Company's regular quarterly cash dividend to $.025 per share, an increase of 67 percent from the previous cash dividend of $.015 per share. The dividend will be paid on October 25, 1999 to shareholders of record on September 30, 1999 and will continue quarterly until further action by the Board. Item 6. Not applicable -11- S I G N A T U R E S Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MOLEX INCORPORATED -------------------- (Registrant) Date November 12, 1999 /s/ ROBERT B. MAHONEY ----------------- -------------------- Robert B. Mahoney Corporate Vice President, Treasurer and Chief Financial Officer Date November 12, 1999 /s/ LOUIS A. HECHT ----------------- -------------------- Louis A. Hecht Corporate Secretary and General Counsel -12-