EX-13 6 annrpt.txt EXHIBIT 13 EXHIBIT 13 Ten-Year Financial Highlights Summary (in thousands, except per share data)
Operations 2001 2000 1999 1998 1997 Net revenue $2,365,549 $2,217,096 $1,711,649 $1,622,975 $1,539,712 Gross profit 858,489 854,889 673,338 670,709 640,895 Income before income taxes and minority interest 291,416 323,694 230,214 274,823 262,369 Income taxes 87,424 100,810 52,363 92,490 95,581 Net income 203,919 222,454 178,029 182,243 166,716 Earnings per common share:(1) Basic 1.04 1.13 0.92 0.93 0.85 Diluted 1.03 1.12 0.91 0.92 0.84 Net income as a percent of net revenue 8.6% 10.0% 10.4% 11.2% 10.8% Financial Position Current assets $ 891,865 $1,023,009 $ 881,338 $ 867,791 $ 873,614 Current liabilities 374,106 475,449 342,441 336,275 342,026 Working capital 517,759 547,560 538,897 531,516 531,588 Current ratio 2.4 2.2 2.6 2.6 2.6 Property, plant and equipment, net 1,092,567 980,775 809,602 676,161 665,468 Total assets 2,213,627 2,247,106 1,902,012 1,639,634 1,636,931 Long-term debt 19,351 21,593 20,148 5,566 7,350 Capital leases 6,114 Shareholders' equity 1,765,640 1,705,804 1,500,537 1,261,570 1,235,912 Return on beginning shareholders' equity 12.0% 14.8% 14.1% 14.7% 14.7% Dividends per common share(1) 0.10 0.09 0.05 0.05 0.04 Weighted average common shares outstanding:(1) Basic 195,471 196,060 194,340 195,750 196,389 Diluted 197,633 198,208 195,631 197,971 198,349
(1) Restated for the following stock dividends: 25%-January 2000; 25%-November 1997; 25%-February 1997. Management's Discussion of Financial Condition and Results of Operations Financial Highlights Fiscal 2001 turned out to be a challenging year for Molex. A strong first half helped net revenue grow to $2.37 billion for the fiscal year, up 6.7 percent over last year. Net income for the year of $203.9 million, which included a fourth quarter charge of $30.3 million (net of tax benefit of $13.2 million), declined 8.3 percent from the prior year. The Company's continued year-over-year revenue 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. 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 17.8 percent on Molex Common Stock and 14.9 percent on Molex Class A Common Stock. A $100 investment in Molex Common Stock at June 30, 1996, together with the reinvestment of dividends, would be worth $227 at June 30, 2001, and a similar investment in Molex Class A Common Stock would be worth $201 at June 30, 2001. In January 2000, the Molex Board of Directors distributed a 25 percent stock dividend. All shares outstanding and earnings and dividends per share have been retroactively restated for the stock dividend. Financial Position and Liquidity Molex's balance sheet continues to be strong. Cash and marketable securities at June 30, 2001, equaled $207.8 million and represented 9.4 percent of total consolidated assets. Cash and marketable securities decreased $33.4 million during fiscal 2001 due to cash requirements necessary for 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 $84.6 million, of which $72.4 million remain unused at June 30, 2001. Cash provided from operations was $416.6 million during fiscal 2001. The Company's operations generate sufficient cash to support the current level of capital expenditures and financing activities. Cash flow from operations is primarily provided by net income and depreciation. Accounts receivable decreased due to lower second half revenues compared with the prior year while inventories were down due to more efficient inventory management and reductions in stocks as revenues slowed. Cash used for investing activities was $377.0 million in fiscal 2001, primarily due to capital expenditures. Molex continued its commitment to investing in new tooling, equipment and facilities, with capital expenditures totaling $376.3 million for fiscal 2001. Molex added new facilities in China, Korea, Ireland, the United States, Slovakia and Mexico. In addition, facilities were expanded in China, Singapore and the United States. In fiscal 2001, Molex facility floor space worldwide increased 12 percent to 6.3 million square feet. Cash used for financing activities was $47.9 million in fiscal 2001, primarily for the purchase of Treasury Stock. The Company purchased 1,230,000 shares of common stock during fiscal 2001. During fiscal 2000, Molex purchased 1,365,000 shares of common stock on the open market. The Company's Board of Directors has authorized the purchase of up to $100 million of common stock during fiscal 2002. Percentage of Net Revenue Fiscal Year Ended June 30, U.S. Dollar Percentage Change 2002 2000 1999 2001-2000 2000-1999 Net revenue 100.0% 100.0% 100.0% 6.7% 29.5% Cost of sales 63.7 61.4 60.7 10.6 31.2 Gross profit 36.3 38.6 39.3 0.4 27.0 S, G & A expenses 24.5 24.3 26.1 7.4 20.6 Income from operations 11.8 14.3 13.2 (11.5) 39.6 Total other income 0.5 0.3 0.3 53.4 99.3 Income before income taxes 12.3 14.6 13.5 (10.0) 40.6 Income taxes 3.7 4.6 3.1 13.3 94.0 Net income 8.6% 10.0% 10.4% (8.3)% 25.0% Fiscal 2001 Compared with Fiscal 2000 Net revenue rose 6.7 percent to $2.37 billion during fiscal 2001, compared with $2.22 billion during fiscal 2000. Excluding the effect of exchange rates due to the generally stronger U.S. dollar, net revenue increased 10.7 percent. The strongest growth occurred in the first half of the fiscal year, with a sequential decline in the rate of growth in the ensuing quarters. In fiscal 2001, international operations generated net revenue of $1.38 billion, or 58.4 percent of total Molex net revenue. Net revenue in the Americas region rose 15.4 percent in both U.S. dollars and local currencies in fiscal 2001. Growth in the fiber optics and datacommunications markets was based on high demand levels from manufacturers of telecom, network and computer equipment during the first half of the year. Revenue in the second half remained in line with prior year levels. In the Far East North, net revenue decreased 6.4 percent in U.S. dollars and remained steady with the prior year in local currencies during fiscal 2001. A strong first half in the consumer markets was tempered by a weaker second half in which a general slowdown of the overall export market for Japan, as well as the continued sluggishness in the Japanese economy, weakened domestic capital and personal consumption. Investment in new products continues in order to be well positioned for an economic recovery. In the Far East South, net revenue grew 5.5 percent in U.S. dollars during fiscal 2001 and 7.6 percent in local currencies. The first half of fiscal 2001 was driven by strong sales in the personal computer, computer-peripheral and mobile product markets. Inventory reductions by contract manufacturers and OEMs whom the Company supplies resulted in lower than expected growth during the second half of the year. A slowdown in markets such as personal computers, coupled with price erosion that offset any volume gains, also impacted results in the second half. Europe's net revenue increased 27.4 percent in local currencies over the prior year, however only 13.5 percent in U.S. dollars. The region benefited from strength in the telecommunications and fiber optic markets. The consolidated gross profit declined to 36.3 percent of net revenue in fiscal 2001 from 38.6 percent during fiscal 2000. The first half of the year remained steady, but the second half was impacted by reduced absorption of fixed costs into inventory, a significant reduction in demand and inventory reductions. Included in the fiscal 2001 gross profit is a $16.4 million pretax charge related to slow-moving and excess inventory write-offs and employment reductions. Selling, general and administrative expenses as a percentage of net revenue increased slightly from 24.3 percent in fiscal 2000 to 24.5 percent during fiscal 2001. Fiscal 2001 included a $27.1 million pretax charge related to employment reductions and asset write-offs. Research and development expenditures increased to $134.6 million, a 4.5 percent increase from the $128.8 million expended in fiscal 2000. These expenditures contributed to the release of 445 new product families and the granting of 562 new patents during fiscal 2001. During fiscal 2001, 32.4 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 declined 7.6 percent during fiscal 2001 due to a lower level of cash and marketable securities than in fiscal 2000, as well as lower interest rates. The effective income tax rate decreased from 31.1 percent in fiscal 2000 to 30.0 percent during fiscal 2001, a result of the Company's continued repatriation strategy, the reduction of pretax earnings in higher rate jurisdictions in which the Company operates and the ongoing global effort to reduce its income tax burden through better planning. Net income decreased 8.3 percent to $203.9 million during fiscal 2001. Excluding the effect of foreign exchange rates, which decreased net income by $8.1 million, net income was down 4.7 percent. Included in net income is a charge of $30.3 million (net of tax benefit of $13.2 million) related to slow and excess inventory write-offs, employment reductions and asset write-offs. Earnings per share was $1.03 during fiscal 2001 compared with $1.12 during fiscal 2000. Fiscal 2000 Compared with Fiscal 1999 Net revenue reached another all-time-high during fiscal 2000, rising 29.5 percent to $2.22 billion, compared with $1.71 billion during fiscal 1999. Excluding the effect of exchange rates due to the generally stronger U.S. dollar, net revenue increased 27.9 percent. In fiscal 2000, international operations generated net revenue of $1.3 billion or 60.9 percent of total Molex net revenue. Net revenue in the Americas region rose 39.1 percent in U.S. dollars and 39.0 percent in local currencies in fiscal 2000. Excluding the former Cardell Corporation, which was acquired in June 1999, the Americas region fiscal 2000 net revenue growth was 24.3 percent in both U.S. dollars and in local currencies. A strong U.S. economy led to impressive growth across all business units. Outstanding growth in the fiber optic and telecommunications markets was driven by high demand levels from manufacturers of telecommunications, networking and computer equipment. Molex has invested heavily in fiber optics to be well positioned for the future. The consumer and automotive markets demonstrated continued healthy growth due to steady demand in traditional products and a strong year for the Big Three automotive manufacturers. In the Far East North, net revenue increased 39.7 percent in U.S. dollars and 22.2 percent in local currencies during fiscal 2000. Molex capitalized on its miniaturization strengths with rapid new product introductions. High end telecommunications, mobile phones, personal computers, and digital audio/visual equipment, including the game machine market, continued to play an important role, with increased emphasis on consumer electronics, industrial, automotive and office automation. In the Far East South, net revenue grew 15.1 percent in U.S. dollars during fiscal 2000 and 13.3 percent in local currencies. New business in notebook computers and computer peripherals, consumer electronics and cellular phones contributed to regional growth. The Asean countries had a strong year, with contract manufacturers playing a dominant role as OEMs continue to outsource production and assembly. The Company essentially completed the transition of its Taiwan manufacturing operations to China. The overall economic strength of the region, as well as the stability of its currencies is in stark contrast with two years ago. Europe's net revenue increased 24.9 percent in local currencies over the prior year, however only 11.4 percent in U.S. dollars due to the strong U.S. dollar. The region benefited from market share gains in mobile and cellular business. The impact from severe pricing pressures that affected automotive and consumer products last year lessened in fiscal 2000. The distribution channel was stronger in the year just concluded compared with the prior year. During fiscal 2000, consolidated gross profit was 38.6 percent of net revenue versus 40.5 percent during fiscal 1999 and 39.3 percent excluding Cardell. The change from last year reflected higher start-up costs incurred to meet stronger than expected demand in several new product areas, final costs associated with the transfer of manufacturing from Taiwan to China and an increase in inventory reserves due to GIS standardization. Selling, general and administrative expenses as a percentage of net revenue decreased from 25.8 percent in fiscal 1999 to 24.3 percent during fiscal 2000, the result of expenses increasing at at lower rate than that of net revenue. Research and development expenditures were $128.8 million or 5.8 percent of sales, a 21.5 percent increase from the $105.9 million expended in fiscal 1999. These expenditures contributed to the release of 406 new product families and the granting of 533 new patents during fiscal 2000. During fiscal 2000, 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 declined 16.5 percent during fiscal 2000 due to a lower level of short-term investments, as well as a slightly higher level of debt than in fiscal 1999. The effective tax rate during fiscal 2000 was 31.1 percent. The comparable tax rate in fiscal 1999 was 31.8 percent, which excludes a positive adjustment due to the recognition of prior-year foreign tax credits in fiscal 1999. Including the positive adjustment, the effective tax rate during fiscal 1999 was 22.8 percent. Net income increased 25.0 percent to $222.5 million during fiscal 2000. Excluding the effect of foreign exchange rates, which increased net income by $7.3 million, net income rose 20.8 percent. Earnings per share climbed to $1.12 during fiscal 2000 from $0.91 during fiscal 1999. Future Accounting Changes The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." These statements establish new accounting and reporting standards for business combinations and associated goodwill and intangible assets. They require, among other things, elimination of the pooling of interests method of accounting, no amortization of acquired goodwill, separate identification of certain identifiable intangible assets and a periodic assessment for impairment of all goodwill and intangible assets acquired in a business combination. SFAS No. 141 is effective for all business combinations accounted for by the purchase method that are completed after June 30, 2001. The Company plans to adopt SFAS No. 142 for the Company's fiscal year beginning July 1, 2001. At June 30, 2001, the Company had $155.2 million of goodwill, and for the year ended June 30, 2001, the Company recorded $10.1 million of goodwill amortization. The Company is evaluating SFAS No. 141 and SFAS No. 142 to determine their impact on the consolidated financial statements. Outlook Fiscal 2001 ended amidst difficult global economic conditions that Molex expects will impact its operations for the first three quarters of fiscal 2002. Worldwide, the electronics industry is not expecting growth for the year. The Company expects revenues to be down 5 percent to 13 percent from fiscal 2001. To further expand the Company's global presence, offer innovative products at an accelerated pace and position itself for growth when the global economy rebounds, Molex plans to invest approximately $250 million in capital expenditures and approximately $140 million in research and development for the fiscal year ending June 30, 2002. The Company continues to emphasize expansion in still promising markets such as telecommunications, networking, automotive and systems sales, 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 2002, the Company plans to open additional manufacturing facilities in China and Mexico. The Company is encouraged by the high levels of new product development by its customers in the current business environment. Coupled with its own new product development, Molex expects it will emerge from the current slowdown with an expanded share of industry sales and profits. The timing and degree of a return to the industry growth rates of the past is very difficult to determine in the current environment. 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 government 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 to protect or preserve the value of intercompany cash flows. No foreign exchange contracts were in use at June 30, 2001. The Company has implemented a formalized treasury risk management policy 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 speculative purposes, and the use of such instruments is subject to strict approval levels by senior officers. Typically, the use of derivative instruments is limited to hedging activities related to specific foreign currency cash flows or to enhance the liquidity of the Company's portfolio of marketable securities. The Company's $69.4 million of marketable securities are principally debt instruments that generate interest income for the Company on temporary excess cash balances. These instruments contain embedded derivative features that enhance the liquidity of the portfolio by enabling the Company to liquidate the instrument prior to the stated maturity date. The Company's exposure related to derivative instrument transactions is, in the aggregate, not material to Molex's financial position, results of operations or cash flows. Interest rate exposure is principally limited to the $69.4 million of marketable securities owned by the Company and $19.4 million of long-term debt. The Company does not actively manage the risk of interest rate fluctuations, however, such risk is mitigated by the relatively short-term nature of its investments-less than 12 months-and the fixed-rate nature of its long-term debt. 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 accounting principles generally accepted in the United States of America. 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's internal control is designed to provide reasonable assurance for the safeguarding of assets against loss from unauthorized use or disposition and the 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 auditing standards generally accepted in the United States of America 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 accounting principles generally accepted in the United States of America. /S/ Frederick A. Krehbiel Co-Chairman of the Board /S/ John H. Krehbiel, Jr. Co-Chairman of the Board /S/ J. Joseph King Vice Chairman and Chief Executive Officer /S/ Robert B. Mahoney Corporate Vice President, Treasurer and Chief Financial Officer 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, 2001 and 2000, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended June 30, 2001. 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 auditing standards generally accepted in the United States of America. 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, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2001, in conformity with accounting principles generally accepted in the United States of America. /S/ Deloitte & Touche LLP Chicago, Illinois July 23, 2001 Consolidated Balance Sheets (in thousands, except per share data) Assets June 30, 2001 2000 Current assets: Cash and cash equivalents $ 138,438 $ 164,288 Marketable securities 69,394 76,955 Accounts receivable: Trade, less allowance of $19,741 in 2001 and $23,712 in 2000 for returns and doubtful accounts 415,798 514,855 Inventories (Note 2) 213,637 236,209 Deferred income taxes (Note 4) 39,445 24,664 Prepaid expenses 15,153 6,038 Total current assets 891,865 1,023,009 Property, plant and equipment at cost (Note 2): Land and improvements 70,433 67,072 Buildings and leasehold improvements 446,148 411,161 Machinery and equipment 1,181,168 1,051,732 Molds and dies 473,941 449,673 Construction-in-progress 123,393 123,995 2,295,083 2,103,633 Less accumulated depreciation and amortization 1,202,516 1,122,858 Net property, plant and equipment 1,092,567 980,775 Goodwill, less accumulated amortization of $30,469 in 2001 and $30,519 in 2000 (Notes 2 and 8) 155,197 165,307 Other assets 73,998 78,015 $2,213,627 $2,247,106 The accompanying notes are an integral part of these consolidated financial statements. Liabilities and Shareholders' Equity June 30, 2001 2000 Current liabilities: Short-term loans (Note 7) $ 2,302 $ 2,115 Current portion of long-term debt (Note 7) 1,197 1,426 Accounts payable 178,035 277,303 Accrued expenses: Salaries, commissions and bonuses 48,578 60,980 Severance 25,328 - Other 75,028 67,177 Income taxes payable (Note 4) 38,638 61,548 Dividends payable 5,000 4,900 Total current liabilities 374,106 475,449 Deferred items: Investment grants 1,186 1,700 Income taxes (Note 4) 7,212 4,734 Total deferred items 8,398 6,434 Accrued postretirement benefits (Note 5) 37,660 36,099 Long-term debt (Note 7) 19,351 21,593 Obligations under capital leases (Note 6) 6,114 - Minority interest in subsidiaries 2,358 1,727 Commitments and contingencies (Note 6) - - Shareholders' equity (Notes 3 and 10): Common Stock, $0.05 par value; 200,000 shares authorized; 109,097 shares issued at 2001 and 108,363 shares issued at 2000 5,455 5,418 Class A Common Stock, $0.05 par value; 200,000 shares authorized;102,752 shares issued at 2001 and 102,629 shares issued at 2000 5,137 5,132 Class B Common Stock, $0.05 par value; 146 shares authorized; 94 shares issued at 2001 and 2000 5 5 Paid-in capital 289,683 259,806 Retained earnings 1,880,450 1,696,162 Treasury stock (Common Stock, 9,915 shares at 2001 and 9,945 shares at 2000; Class A Common Stock, 6,717 shares at 2001 and 5,486 shares at 2000), at cost (281,469) (241,893) Deferred unearned compensation (Note 10) (28,407) (25,788) Accumulated other comprehensive income: Cumulative translation and other adjustments (105,214) 6,962 Total shareholders' equity 1,765,640 1,705,804 $2,213,627 $2,247,106 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, 2001 2000 1999 Net revenue $2,365,549 $2,217,096 $1,711,649 Cost of sales 1,507,060 1,362,207 1,038,311 Gross profit 858,489 854,889 673,338 Selling, general and administrative expenses: Selling 180,485 162,373 134,526 General and administrative 398,414 376,530 312,454 Total selling, general and administrative expenses 578,899 538,903 446,980 Income from operations 279,590 315,986 226,358 Other income (expense): Interest, net 6,854 7,417 8,883 Other 4,972 291 (5,027) Total other income 11,826 7,708 3,856 Income before income taxes and minority interest 291,416 323,694 230,214 Income taxes (Note 4) 87,424 100,810 52,363 Income before minority interest 203,992 222,884 177,851 Minority interest (73) (430) 178 Net income $ 203,919 $ 222,454 $ 178,029 Earnings per common share (Based upon weighted average common shares outstanding) (Notes 2 and 3): Basic $ 1.04 $ 1.13 $ 0.92 Diluted $ 1.03 $ 1.12 $ 0.91 Dividends per common share (Note 3) $ 0.10 $ 0.09 $ 0.05 Weighted average common shares outstanding (Notes 2 and 3): Basic 195,471 196,060 194,340 Diluted 197,633 198,208 195,631 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, 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 Comprehensive income: Net income 222,454 222,454 Translation adjustments 26,131 26,131 Unrealized investment loss (1,461) (1,461) Total comprehensive income 247,124 Cash dividends declared (17,629) (17,629) Stock dividend 1,086 1,026 (2,112) - Stock options -granted 12,571 (12,571) - -exercised 22 2 5,431 (584) 4,871 -cancelled (1,071) 1,059 (12) Stock bonus 1 828 829 Treasury stock-purchases (49,607) (49,607) -reissuances 1,405 1,315 2,720 Deferred unearned compensation amortization 7,720 7,720 Stock option tax benefit and other 3 8,948 300 9,251 Balance, June 30, 2000 5,418 5,132 5 259,806 1,696,162 (241,893) (25,788) 6,962 1,705,804 Comprehensive income: Net income 203,919 203,919 Translation adjustments (110,583) (110,583) Unrealized investment loss (1,593) (1,593) Total comprehensive income 91,743 Cash dividends declared (19,631) (19,631) Stock options -granted 13,787 (13,787) - -exercised 35 5 10,449 (921) 9,568 -cancelled (1,544) 1,770 226 Stock bonus 2 974 976 Treasury stock-purchases (39,908) (39,908) -reissuances 1,907 1,253 3,160 Deferred unearned compensation amortization 9,398 9,398 Stock option tax benefit 4,304 4,304 Balance, June 30, 2001 $5,455 $5,137 $5 $289,683 $1,880,450 $(281,469) $(28,407) $(105,214) $1,765,640
The accompanying notes are an integral part of these consolidated financial statements. Consolidated Statements of Cash Flows (in thousands) For the year ended June 30, 2001 2000 1999 Cash and cash equivalents, beginning of year $ 164,288 $ 182,992 $ 205,262 Cash and cash equivalents were provided from (used for): Operations: Net income 203,919 222,454 178,029 Add (deduct) non-cash items included in net income: Depreciation and amortization 217,954 196,352 168,856 Deferred income taxes (3,804) (17,942) 1,875 Loss on sale of property, plant and equipment 2,450 325 16,383 Minority interest 73 430 (178) Amortization of deferred unearned compensation 9,398 7,720 7,171 Amortization of deferred investment grants (514) (599) (601) Other debits (credits) to earnings, net (808) (1,290) 209 Current items: Accounts receivable 63,463 (111,734) (35,661) Inventories 11,358 (43,066) 7,299 Prepaid expenses (24,663) 1,585 859 Accounts payable (77,164) 111,389 (7,720) Accrued expenses 33,655 (7,287) 4,987 Income taxes payable (18,765) 9,590 (26,990) Net cash provided from operations 416,552 367,927 314,518 Investments: Purchases of property, plant and equipment (376,300) (337,316) (228,722) Proceeds from sale of property, plant and equipment 5,731 15,590 4,793 Purchases of businesses, net of cash acquired - (38,877) (34,935) Proceeds from sale of marketable securities 4,418,250 4,557,854 5,096,583 Purchases of marketable securities (4,410,689) (4,550,935) (5,063,306) (Increase) decrease in other assets (14,002) 15,527 (22,080) Net cash used for investments (377,010) (338,157) (247,667) Financing: Increase in investment grants - - 243 Increase (decrease) in short-term loans 187 (2,349) 4,464 Decrease in long-term debt (1,678) (2,955) (41,283) Increase in long-term debt 308 4,400 6,490 Cash dividends paid (19,555) (15,087) (9,333) Exercise of stock options 9,568 4,871 4,648 Purchase of treasury stock (39,908) (49,607) (49,430) Reissuance of treasury stock 3,160 2,720 1,860 Net cash used for financing (47,918) (58,007) (82,341) Effect of exchange rate changes on cash (17,474) 9,533 (6,780) Net increase (decrease) in cash and cash equivalents (25,850) (18,704) (22,270) Cash and cash equivalents, end of year $ 138,438 $ 164,288 $ 182,992 Supplemental disclosure of cash flow information Cash paid during the year for: Interest $ 2,837 $ 1,740 $ 875 Income taxes $ 87,862 $ 85,561 $ 64,768 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. Subsidiaries in which the Company's ownership is between 20 and 50 percent are accounted for using the equity method. (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 revenue 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) 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. (E) 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. These investments, which are principally government and municipal debt securities, are carried at their fair value. (F) 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. (G) Inventories Inventories are valued at the lower of first-in, first-out cost or market.Inventories at June 30 consist of the following: 2001 2000 Raw materials $ 33,729 $ 44,595 Work in progress 87,776 82,341 Finished goods 92,132 109,273 $ 213,637 $ 236,209 (H) Property, Plant and Equipment and Related Reserves Depreciation and amortization are provided substantially on a straight-line 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. (I) 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 $134,637 in 2001; $128,839 in 2000; and $105,940 in 1999. Included in these totals are patent costs of $6,740; $5,921; and $5,192 for the years ended June 30, 2001, 2000 and 1999, respectively. (J) Revenue Recognition The Company recognizes revenue at the date of shipment. A liability for estimated returns based on historical return data is established at the time of sale to cover returns of defective product. (K) Derivative Instruments and Hedging Activities The use of derivative instruments is limited primarily to hedging activities related to specific foreign currency cash flows or to enhance the liquidity of the Company's portfolio of marketable securities. At year-end, all outstanding derivatives were recorded on the consolidated balance sheet at fair value. For the year ended June 30, 2001, holding gains and losses on such instruments were not material to the results of operations. (L) Earnings Per Share (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: 2001 2000 1999 Basic 195,471 196,060 194,340 Effect of dilutive stock options 2,162 2,148 1,291 Diluted 197,633 198,208 195,631 Anti-dilutive shares 621 - 7 (M) 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 majority of the Company's goodwill has a 20 to 25 year life. The Company periodically re-evaluates the original assumptions and rationale used in the establishment of the carrying value and estimated life of this asset. (N) New Accounting Pronouncements The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." These statements establish new accounting and reporting standards for business combinations and associated goodwill and intangible assets. They require, among other things, elimination of the pooling of interests method of accounting, no amortization of acquired goodwill, separate identification of certain identifiable intangible assets and a periodic assessment for impairment of all goodwill and intangible assets acquired in a business combination. SFAS No. 141 is effective for all business combinations accounted for by the purchase method that are completed after June 30, 2001. The Company plans to adopt SFAS No. 142 for the Company's fiscal year beginning July 1, 2001. At June 30, 2001, the Company had $155.2 million of goodwill, and for the year ended June 30, 2001, the Company recorded $10.1 million of goodwill amortization. The Company is evaluating SFAS No. 141 and SFAS No. 142 to determine their impact on the consolidated financial statements. (O) Reclassifications Certain reclassifications have been made to the prior years' financial statements to conform to the 2001 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 percent 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, 2001. 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 Company's Class B Common Stock has remained at 94,255 shares throughout the three-year period ended June 30, 2001. 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 January 2000, the Board of Directors declared a 25 percent stock dividend. 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 dividend. Changes in shares of common stock for the years ended June 30 are as follows (in thousands): Class A Common Common Treasury Stock Stock Stock Shares outstanding at July 1, 1998 83,262 82,073 9,532 Exercise of stock options 585 76 Purchase of treasury stock 1,707 Disposition of treasury stock (76) Purchase of business 2,261 Issuance of stock bonus 41 Other (16) Shares outstanding at June 30, 1999 86,133 82,073 11,239 Exercise of stock options 429 40 15 Purchase of treasury stock 1,365 Disposition of treasury stock (69) Issuance of stock bonus 24 Stock splits effected in the form of dividends 21,674 20,520 2,967 Other 103 (4) (86) Shares outstanding at June 30, 2000 108,363 102,629 15,431 Exercise of stock options 704 123 22 Purchase of treasury stock 1,230 Issuance of stock bonus (77) Other 30 26 Shares outstanding at June 30,2001 109,097 102,752 16,632 (4) Income Taxes The provision for income taxes is determined under the liability method pursuant to SFAS No. 109. 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: 2001 2000 1999 United States $ 98,435 $ 117,517 $ 54,820 International 192,981 206,177 175,394 $ 291,416 $ 323,694 $ 230,214 Income tax provisions are as follows: 2001 2000 1999 Currently payable: U.S. federal $ 34,528 $ 22,237 $ (20,399) State 1,067 2,691 1,755 International 55,633 93,824 69,132 91,228 118,752 50,488 Deferred: United States (6,013) (5,717) 856 International 2,209 (12,225) 1,019 (3,804) (17,942) 1,875 Total provision for income taxes $ 87,424 $ 100,810 $ 52,363 The Company's tax rate differs from the U.S. federal income tax rate as follows: 2001 2000 1999 U.S. federal income tax rate 35.0% 35.0% 35.0% Permanent tax exemptions (2.6) (2.6) (6.0) Foreign tax credit (0.6) - (14.5) State income taxes, net of federal tax benefit 0.4 0.8 0.8 Foreign tax rates in excess of (less than) U.S. federal rate (net) (2.0) (1.0) 7.5 Other (0.2) (1.1) - 30.0% 31.1% 22.8% Net deferred income taxes arise from temporary differences as follows: 2001 2000 International/local taxes $ 1,184 $ 2,038 Employee benefit programs 28,240 26,617 Depreciation and amortization (19,057) (15,211) Allowance for doubtful accounts 4,602 5,441 Inventory reserves 24,514 15,287 Inventory-other 4,721 4,387 Investments (2,312) (1,917) Patent costs 4,204 3,298 Severance 7,406 - Foreign tax credit carryforwards - 4,610 Other deferred items 5,530 7,017 $ 59,032 $ 51,567 The net deferred tax accounts reported on the balance sheet as of June 30 are as follows: 2001 2000 Net deferred: Current asset $ 39,445 $ 24,664 Non-current asset 26,800 31,639 Current liability (1) (2) Non-current liability (7,212) (4,734) $ 59,032 $ 51,567 U.S. income taxes are generally not provided on the accumulated undistributed earnings of certain international subsidiaries as 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. (5) Pension and Other Postretirement Benefits 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 their 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 $9,382; $14,141; and $10,903 were charged to operations during 2001, 2000 and 1999, 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. The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation was 6.3 percent in 2001, declining annually to an ultimate rate of 5.0 percent by 2016. 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 $ 363 $ (284) Effect on postretirement benefit obligation $ 2,678 $ (2,127) 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 2001 Pension: U.S. plans $ 1,621 $ 1,282 $ (1,661) $ 231 $ - $ (200) $ 1,273 International plans 4,234 1,922 (1,442) - 87 (432) 4,369 Postretirement Other plans 781 927 - (292) - 396 1,812 2000 Pension: U.S. plans 1,383 1,216 (1,526) 231 66 - 1,370 International plans 3,677 1,861 (1,304) - 90 (915) 3,409 Postretirement Other plans 587 607 - (292) - (21) 881 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
The following provides a reconciliation of benefit obligations, plan assets and funded status of the plans.
2001 2000 Pension Postretirement Pension Postretirement U.S. Plans Int'l Plans Other Plans U.S. Plans Int'l Plans Other Plans Change in benefit obligation Benefit obligation at beginning of year $ 16,255 $ 51,966 $ 11,724 $ 16,971 $ 38,999 $ 8,763 Service cost 1,621 4,234 781 1,383 3,677 587 Interest cost 1,282 1,922 927 1,215 1,861 607 Participants contributions - 156 142 - 212 - Special termination benefits - - 419 - - - Benefits paid (412) (1,964) (316) (415) (2,071) (111) Liability (gains) losses 3,183 (7,007) 393 (2,899) 7,016 1,878 Changes in foreign currency - (6,908) - - 2,272 - Benefit obligation at end of year $ 21,929 $ 42,399 $ 14,070 $ 16,255 $ 51,966 $ 11,724 Change in plan assets Fair value of plan assets at beginning of year $ 18,690 $ 21,319 $ - $ 17,157 $ 19,942 $ - Actual return on plan assets (135) 615 - 1,948 2,060 - Employer contributions - 654 174 - 299 255 Participants contributions - 156 142 - 212 - Benefits paid (412) (1,964) (316) (415) (1,573) (255) Asset gains (losses) - - - - - - Changes in foreign currency - (1,176) - - 379 - Fair value of plan assets at end of year $ 18,143 $ 19,604 $ - $ 18,690 $ 21,319 $ - Funded status $ (3,786) $(22,795) $(14,070) $ 2,435 $(30,647) $(11,724) Unrecognized net transition liability - 1,271 - - 1,407 - Unrecognized net actuarial (gain) loss 1,021 (138) 1,210 (4,159) 6,229 793 Unrecognized prior service cost 1,046 - (1,419) 1,277 - (1,710) Accrued pension asset (liability) included in the consolidated balance sheet $ (1,719) $(21,662) $(14,279) $ (447) $(23,011) $(12,641)
The weighted average assumptions used in computing the previous information are presented below:
2001 2000 Pension Postretirement Pension Postretirement U.S. Plans Int'l Plans Other Plans U.S. Plans Int'l Plans Other Plans Discount rates 7.25% 4.0% 7.25% 8.0% 4.0% 8.0% Rates of increase in compensation 4.5% 2.3% - 4.5% 3.6% - Expected long-term rates of return on plan assets 9.0% 6.9% - 9.0% 7.2% -
(6) Leases and Commitments The Company and its subsidiaries rent certain facilities and equipment under lease arrangements classified as both capital and operating leases. Some of the leases have renewal options. Assets under capital leases consist primarily of data processing equipment. Future minimum lease payments are presented below: Capital Operating Leases Leases Fiscal Year 2002 $ 8,049 $ 9,281 2003 4,942 4,182 2004 1,317 1,735 2005 315 994 2006 and thereafter 630 6,905 $ 15,253 $ 23,097 Less amount representing interest, at 2 to 8% 1,437 Present value of minimum lease payments (includes current portion of $7,702) $ 13,816 Rental expense was $11,005 in 2001; $15,053 in 2000; and $9,999 in 1999. (7) Debt The details relative to long-term debt are as follows: 2001 2000 Mortgages $ 7,784 $ 8,278 Bank loans 3,706 4,890 Industrial development bonds 8,750 8,750 Other 308 1,101 20,548 23,019 Less current portion 1,197 1,426 Total long-term debt $ 19,351 $ 21,593 Mortgages consist of two loans that are secured by certain buildings, carry an interest rate of 7.79 percent and require periodic principal payments through 2012. The Company has two bank loans with interest rates of 4.5 percent and 4.75 percent, respectively, payable in periodic installments through March 2007. Industrial development bonds, secured by certain land, buildings and equipment, have interest rates ranging from two percent to five percent, with periodic principal payments through August 2029. The long-term debt as of June 30, 2001 matures as follows: $1,248 in 2003; $1,248 in 2004; $1,248 in 2005; $3,248 in 2006; and $12,359 thereafter. At June 30, 2001, the Company had available lines of credit of $84.6 million. Short-term loans bear interest rates ranging from 4.5 percent to 6.4 percent and mature within a 12-month period. (8) Acquisitions On March 20, 2000, the Company acquired all of the assets and assumed certain liabilities of the Beau Interconnect Division of Axsys Technologies for $32.5 million in cash. Beau is a manufacturer of electronic interconnect devices. On March 1, 2000, Molex acquired the remaining 30 percent of the common stock of Silent Systems, Inc. for $6.3 million in cash. 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 their 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 allocated to the assets acquired based on their estimated fair values as follows: (In thousands) 2000 1999 Current assets $ 5,858 $ 21,694 Property, plant and equipment 5,959 52,160 Intangibles and other assets 28,981 107,258 Liabilities assumed (1,921) (35,637) Net assets acquired 38,877 145,475 Value of stock issued - (69,423) Long-term debt repaid at acquisition - (41,117) Cash paid for acquisitions $ 38,877 $ 34,935 (9) Other Items During the fourth quarter of fiscal 2001, the Company recorded a pretax charge of $43.5 million ($30.3 million, net of tax benefit of $13.2 million) to reflect costs associated with a reduction in the global workforce of approximately 950 people ($27.7 million), write-off of slow-moving and excess inventories ($12.7 million) and asset write-offs related to operations being closed ($3.1 million). Of the approximately 950 people included in the workforce reduction, approximately 400 were directly involved in manufacturing operations and approximately 550 were involved in sales and administrative positions. Employment reductions of approximately 100 occurred during the fourth quarter of fiscal 2001, resulting in cash payments of $2.4 million. The majority of the remaining employment reductions will occur during the first quarter of fiscal 2002, and severance payments will continue for up to 18 to 24 months for certain individuals. The inventory being written off will be disposed of during the first quarter of fiscal year 2002. Pretax charges of $16.4 million were included in cost of sales and $27.1 million in selling, general and administrative expenses. The charges relating to fixed asset and inventory write-offs were credited to the respective items on the balance sheet, and the employment reductions were included in accrued expenses. (10) Stock Option Plans The Company has five stock option plans currently in effect, three of which may issue future grants: the 1990 Stock Option Plan ("1990 Plan"), the 1991 Stock Option Plan ("1991 Plan"), the 1998 Stock Option Plan ("1998 Plan"), the Incentive Stock Option Plan ("ISO Plan"), and the Long-Term Stock Plan ("LT 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 grant. Under the 1990 Plan, all shares issued are nonqualified. 1991 Plan: This plan expired as of June 30, 2000. 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 3.1 million shares of Common Stock and (2) the option price shall be the fair market value of the stock on date of grant. The option term is five to 11 years from date of grant. 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 Common Stock of the Company on the date of grant. The option term is five to nine years from the date of grant. ISO Plan: The most significant terms of this plan, available to executives and directors, provide that (1) options may be granted for 500,000 shares of Class A Common Stock and (2) the option price shall be the fair market value of the stock on the date of grant. The option term is four to 10 years from the date of grant. Under the ISO Plan, the options granted can be either incentive or nonqualified. Unless specifically stated otherwise, all options granted shall be incentive. Stock option transactions relating to the ISO Plan are summarized as follows: Shares Wtd. Avg. Price (thousands) Per Share Outstanding at 6/30/00 - $ - Granted 67 34.18 Exercised 2 33.00 Canceled - - Outstanding at 6/30/01 65 $ 34.22 Options exercisable at 6/30/01 - $ - LT Plan: The most significant terms of this plan, available to executives and management, provide that (1) options may be granted for three million shares of Class A Common Stock and (2) the option price shall be the fair market value of the stock on the date of grant. The option term is four to seven years from the date of grant. Stock option transactions relating to the LT Plan are summarized as follows: Shares Wtd. Avg. Price (thousands) Per Share Outstanding at 6/30/00 - $ - Granted 556 33.00 Exercised - - Canceled - - Outstanding at 6/30/01 556 $ 33.00 Options exercisable at 6/30/01 - $ - 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 2001, $9,398 was charged to operations ($7,720 in 2000 and $7,171 in 1999). The Company grants stock awards to certain executives based on meeting performance targets established in the Company's stock bonus plans. The awards vest over a period of generally four years and are valued at fair market value at date of grant. As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation," the Company has elected 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: 2001 2000 1999 Net income, as reported $ 203,919 $ 222,454 $ 178,029 Pro forma net income 199,666 219,314 177,441 Earnings per share: Basic 1.04 1.13 0.92 Diluted 1.03 1.12 0.91 Pro forma earnings per share: Basic 1.02 1.12 0.91 Diluted 1.01 1.11 0.91 Weighted average fair value of options granted during the year 18.23 15.78 12.79 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: 2001 2000 1999 Dividend yield 0.2% 0.2% 0.2% Expected volatility 58.93% 41.31% 29.84% Risk-free interest rate 5.89% 6.00% 6.00% Expected life of option (years) 4.31 4.20 4.86 Stock option transactions relating to the 1990, 1991 and 1998 Plans are summarized as follows (shares are in thousands):
1990 Plan 1991 Plan 1998 Plan Wtd. Avg. Price Wtd. Avg. Price Wtd. Avg. Price Shares Per Share Shares Per Share Shares Per Share Outstanding at 6/30/98 3,324 $ 8.94 1,336 $ 16.46 - $ - Granted 29 10.37 627 20.91 964 9.43 Exercised 613 7.47 119 13.12 - - Canceled 47 10.14 3 9.35 10 9.43 Outstanding at 6/30/99 2,693 $ 9.28 1,841 $ 18.20 954 $ 9.43 Granted - - 400 27.40 925 13.71 Exercised 481 8.55 82 16.84 51 9.67 Canceled 63 10.84 3 14.25 90 11.11 Outstanding at 6/30/00 2,149 $ 9.40 2,156 $ 19.96 1,738 $ 11.64 Granted - - - - 781 13.44 Exercised 360 9.47 298 17.40 117 11.13 Canceled 60 9.27 5 17.55 64 12.68 Outstanding at 6/30/01 1,729 $ 9.39 1,853 $ 20.38 2,338 $ 12.27 Options exercisable at 6/30/00 369 $ 9.87 181 $ 19.67 68 $ 9.69 Options exercisable at 6/30/01 258 $ 10.99 241 $ 22.35 260 $ 12.12
The following table summarizes information about options outstanding at June 30, 2001:
Wtd. Avg. Number Remaining Number Range of Outstanding Contractual Wtd. Avg. Exercisable Wtd. Avg. Exercise Prices (thousands) Life (in years) Exercise Price (thousands) Exercise Price Common $ 6.63-$ 9.79 1,094 2.6 $ 7.84 122 $ 9.23 10.00- 11.84 726 4.3 11.27 18 11.06 11.85- 20.80 1,184 5.5 18.55 258 16.73 20.84- 28.08 558 6.3 26.28 92 25.17 30.03- 30.89 20 2.5 30.33 9 30.56 Class A $ 9.20-$ 9.20 447 6.7 $ 9.20 - $ - 9.40- 11.90 335 2.3 9.66 119 9.67 12.00- 12.72 492 3.7 12.04 78 12.00 13.00- 13.00 631 4.6 13.00 - - 13.08- 20.88 433 4.8 16.65 63 16.91 33.00- 38.19 621 5.9 33.13 - - 6,541 759
(11) 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 2001 Customer revenue $ 984,754 $ 71,514 $ 499,271 $ 404,955 $ 404,985 $ 70 $ - $2,365,549 Intercompany revenue 119,973 12,469 172,473 56,132 50,138 - (411,185) - Total revenue 1,104,727 83,983 671,744 461,087 455,123 70 (411,185) 2,365,549 Depreciation and amortization 73,682 3,346 78,440 19,079 27,077 16,330 - 217,954 Tax expense 45,569 (585) 38,394 11,304 6,759 (14,017) - 87,424 Net income 91,750 (724) 79,188 52,099 20,124 (38,518) - 203,919 Identifiable assets 1,013,701 49,736 497,381 337,280 387,578 149,865 (221,914) 2,213,627 Capital expenditures 156,531 1,747 111,251 40,983 43,507 22,281 - 376,300 2000 Customer revenue $ 867,765 $ 72,836 $ 521,165 $ 394,067 $ 361,166 $ 97 $ - $2,217,096 Intercompany revenue 98,371 14,063 196,259 48,373 50,168 - (407,234) - Total revenue 966,136 86,899 717,424 442,440 411,334 97 (407,234) 2,217,096 Depreciation and amortization 67,731 2,898 66,826 21,058 29,112 8,727 - 196,352 Tax expense 46,026 (952) 46,550 11,530 5,733 (8,077) - 100,810 Net income 90,104 (1,496) 81,819 45,884 29,157 (23,014) - 222,454 Identifiable assets 975,217 47,571 616,027 329,064 402,900 135,275 (258,948) 2,247,106 Capital expenditures 99,373 2,676 130,185 42,541 51,199 11,342 - 337,316 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 Depreciation and amortization 59,801 3,158 50,753 27,744 27,883 (483) - 168,856 Tax expense 31,337 2,011 46,390 7,920 3,317 (38,612) - 52,363 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 Capital expenditures 92,016 5,950 62,581 17,604 50,081 490 - 228,722
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 2001, 2000 and 1999, no customer accounted for more than 10% of consolidated net revenue. Fiscal 2001, 2000 and 1999 by Quarter (in thousands, except per share data-unaudited) Quarter 2001 2000 1999 Net revenue 1st $ 625,925 $ 491,870 $ 409,892 2nd 629,319 543,009 429,718 3rd 599,801 567,569 426,178 4th 510,504 614,648 445,861 Gross profit 1st 244,690 193,423 165,577 2nd 240,849 209,455 176,597 3rd 219,036 221,137 173,674 4th 153,914 230,874 157,490 Income before income taxes and minority interest 1st 93,637 65,305 58,831 2nd 98,451 77,504 64,570 3rd 85,793 84,019 63,971 4th 13,535 96,866 42,842 Income taxes 1st 29,027 19,808 19,590 2nd 30,520 23,386 20,699 3rd 24,880 26,224 19,181 4th 2,997 31,392 (7,107) Net income 1st 64,522 45,497 39,173 2nd 67,834 54,118 43,873 3rd 60,735 57,795 44,960 4th 10,828 65,044 50,023 Earnings per common share(1) Basic 1st 0.33 0.23 0.20 2nd 0.35 0.28 0.22 3rd 0.31 0.29 0.23 4th 0.06 0.33 0.26 Diluted 1st 0.33 0.23 0.20 2nd 0.34 0.27 0.22 3rd 0.31 0.29 0.23 4th 0.05 0.33 0.26
LOW HIGH LOW HIGH LOW HIGH National Market System Price of Stock: Common Stock(1) 1st 43 11/16 56 24 13/32 30 1/2 18 29/32 24 51/64 2nd 34 3/16 57 5/8 25 27/32 45 19/32 19 21/32 31 13/64 3rd 34 1/8 48 37 19/64 63 3/4 20 13/32 30 13/32 4th 31 3/5 42 1/2 42 1/2 58 7/8 21 61/64 29 45/64 Class A Common Stock(1) 1st 32 1/2 42 5/16 26 7/8 33 7/8 17 51/64 22 16/32 2nd 24 5/8 43 15/16 29 1/16 46 5/8 17 13/32 27 29/32 3rd 25 7/16 34 13/16 35 1/8 47 1/4 18 25 19/32 4th 25 1/4 32 2/5 31 3/4 43 3/4 18 13/64 25 13/64
(1) Restated for the January 2000 25% stock dividend. During the fourth quarter of fiscal 2001, gross profit was impacted by a pretax charge of $16.4 million relating to the write-off of slow-moving and excess inventory and employment reductions. Selling, general and administrative expenses included a pretax charge of $27.1 million related to employment reductions and asset write-offs. These combined charges reduced net income by $30.3 million (net of tax benefit of $13.2 million). During the fourth quarter of fiscal 1999, gross profit was impacted by a pretax 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 pretax 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 by $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.