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| MOLX > SEC Filings for MOLX > Form 10-Q on 31-Oct-2008 | All Recent SEC Filings |
31-Oct-2008
Quarterly Report
• The Transportation segment manufactures and sells products that withstand environments such as heat, cold, dust, dirt, liquid and vibration for automotive and other transportation applications.
• The Custom & Electrical segment manufactures and sells integrated and customizable electronic components across all industries that provide original, differentiated solutions to customer requirements. It also leverages expertise in the use of signal, power and interface technology in industrial automation and other harsh environment applications.
During fiscal 2007, we undertook a restructuring plan designed to reduce costs and to improve return on invested capital in connection with a new global organization that was effective July 1, 2007. A majority of the plan relates to facilities located in North America and Europe and in general, the movement of manufacturing activities at these plants to other facilities. Net restructuring cost during the quarter ended September 30, 2008 was $21.8 million, consisting of $2.7 million of asset impairments and $19.1 million of severance. These costs included $12.1 million relating to a planned plant closing in France. The cumulative expense since we announced the restructuring plan totals $89.9 million.
We expect to incur total restructuring and asset impairment costs related to
these actions ranging from $125 - $140 million, of which the impact on each
segment will be determined as the actions become more certain. Management and
the Board of Directors approved several actions related to this plan. A portion
of this plan involves cost savings or other actions that do not result in
incremental expense, such as better utilization of assets, reduced spending and
organizational efficiencies. This plan includes employee reduction targets
throughout the company, and we expect to achieve these targets through ongoing
employee attrition and terminations. We expect to complete the actions under
this plan by June 30, 2010. See Note 2 of the "Notes to the Condensed
Consolidated Financial Statements" for further discussion.
Our financial results are influenced by factors in the markets in which we
operate and by our ability to successfully execute our business strategy.
Marketplace factors include competition for customers, raw material prices,
product and price competition, economic conditions in various geographic
regions, foreign currency exchange rates, interest rates, changes in technology,
fluctuations in customer demand, patent and intellectual property issues,
availability of credit and general market liquidity, litigation results and
legal and regulatory developments. We expect that the marketplace environment
will remain highly competitive. Our ability to execute our business strategy
successfully will require that we meet a number of challenges, including our
ability to accurately forecast sales demand and calibrate manufacturing to such
demand, manage volatile raw material costs, develop, manufacture and
successfully market new and enhanced products and product lines, control
operating costs, and attract, motivate and retain key personnel to manage our
operational, financial and management information systems.
Critical Accounting Policies and Estimates
This discussion and analysis of financial condition and results of operations
is based on our condensed consolidated financial statements, which have been
prepared in conformity with accounting principles generally accepted in the
United States. The preparation of these financial statements requires the use of
estimates and assumptions related to the reporting of assets, liabilities,
revenues, expenses and related disclosures. In preparing these financial
statements, we have made our best estimates and judgments of certain amounts
included in the financial statements. Estimates are revised periodically. Actual
results could differ from these estimates.
The information concerning our critical accounting policies can be found
under Management's Discussion of Financial Condition and Results of Operations
in our Annual Report on Form 10-K for the fiscal year ended June 30, 2008 filed
with the Securities and Exchange Commission, which is incorporated by reference
in this Form 10-Q.
Results of Operations
The following table sets forth consolidated statements of income data as a
percentage of net revenue as of September 30 (in thousands):
Percentage Percentage
2008 of Revenue 2007 of Revenue
Net revenue $ 838,985 100.0 % $ 792,610 100.0 %
Cost of sales 589,513 70.3 % 556,460 70.2 %
Gross profit 249,472 29.7 % 236,150 29.8 %
Selling, general and administrative 166,351 19.8 % 160,635 20.3 %
Restructuring and other costs, net 21,778 2.6 % 2,629 0.3 %
Income from operations 61,343 7.3 % 72,886 9.2 %
Other income, net 3,800 0.5 % 3,262 0.4 %
Income before income taxes 65,143 7.8 % 76,148 9.6 %
Income taxes 20,846 2.5 % 22,844 2.9 %
Net income $ 44,297 5.3 % $ 53,304 6.7 %
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Net Revenue
We sell our products in five primary markets. The estimated change in revenue
from each market during the first quarter of fiscal 2009 compared with the same
quarter last year (Comparable Quarter) and the fourth quarter of fiscal 2008
(Sequential Quarter) follows:
Comparable Sequential
Quarter Quarter
Consumer 5 % (3 )%
Telecommunications 28 3
Automotive (11 ) (16 )
Data 5 1
Industrial (9 ) (9 )
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Following are highlights of revenue changes by these primary markets:
• Consumer market revenue for the first three months of fiscal 2009 increased
over the comparable quarter in fiscal 2008 due to higher revenue from
connectors used in home appliance products. However, revenue in the consumer
market has declined over the sequential quarter primarily due to our
customers' concerns regarding global economies and lower than expected
pre-holiday production volumes.
• Telecommunications market revenue increased during the first quarter of fiscal 2009 over the same period for fiscal 2008. We experienced strong revenue growth during the second half of fiscal 2008 in our antenna products for mobile devices and that growth trend has continued into the first quarter of fiscal 2009.
• Automotive market revenue has declined against both the comparable quarter and the sequential quarter due to a sharp decrease in demand related to concerns over the current economic conditions. During fiscal 2008, the automotive market benefited from new products reflecting higher electronic content in automobiles. We believe the number of automobiles manufactured by our customers continues to decrease and automotive manufacturing inventories are at elevated levels.
• Data market revenue for the first quarter of fiscal 2009 increased over the first quarter of fiscal 2008 due to increased revenue from networking products. Demand for our networking products increased during the second half of fiscal 2008 and first quarter of fiscal 2009 as our customers were releasing new high end products and expanding into new optical and high speed technologies. Revenue growth in the data market has moderated during the first quarter of fiscal 2009 due in part to our customers' concerns regarding global economies.
• Industrial market revenue for fiscal 2009 has decreased compared with fiscal 2008 due to lower demand in industrial communications business worldwide, particularly in North America and Europe.
The following table shows the percentage of our net revenue by geographic region:
Three Months Ended
September 30,
2008 2007
Americas 27 % 29 %
Asia Pacific 54 52
Europe 19 19
Total 100 % 100 %
The following table provides an analysis of the change in net revenue
compared with the prior fiscal year period (in thousands):
Three Months
Ended
Sept. 30, 2008
Net revenue for prior year period $ 792,610
Components of net revenue increase:
Organic net revenue decline (705 )
Currency translation 43,977
Acquisitions 3,103
Total change in net revenue from prior year period 46,375
Net revenue for current year period $ 838,985
Organic net revenue decline as a percentage of net revenue from prior
year period (0.1 )%
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The decline in organic revenue is primarily attributable to the weakening of
the automotive market. Of our five primary markets, the automotive market has
experienced the sharpest decline in demand over the first three months of fiscal
2009 as consumers are not purchasing as many new automobiles in the current
economy. This decline was offset by increased demand in technology
infrastructure, telecommunications devices and cable products.
The general weakening of the U.S. dollar increased revenue by approximately
$44.0 million for the three months ended September 30, 2008 over the prior year
period. The following tables show the effect on the change in geographic net
revenue from foreign currency translations to the U.S. dollar (in thousands):
Three Months Ended September 30, 2008
Local Currency Net
Currency Translation Change
Americas $ (9,165 ) $ 214 $ (8,951 )
Asia Pacific 17,525 24,761 42,286
Europe (15,484 ) 19,002 3,518
Corporate & Other 9,522 - 9,522
Net change $ 2,398 $ 43,977 $ 46,375
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The change in revenue on a local currency basis was as follows:
Three Months
Ended
Sept. 30, 2008
Americas (4.0 )%
Asia Pacific 4.3
Europe (10.0 )
Total 0.3
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The following table sets forth information on revenue by segment as of September 30 (in thousands):
Percentage Percentage
2008 of Revenue 2007 of Revenue
Connector $ 474,868 56.6 % $ 452,254 57.1 %
Transportation 106,242 12.6 120,053 15.1
Custom & Electrical 257,334 30.7 218,203 27.5
Corporate & Other 541 0.1 2,100 0.3
Total $ 838,985 100.0 % $ 792,610 100.0 %
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Gross Profit
The following table provides a summary of gross profit and gross margin for
the three months ended September 30 (in thousands):
2008 2007
Gross profit $ 249,472 $ 236,150
Gross margin 29.7 % 29.8 %
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The reduction in gross margin was primarily due to higher commodity cost and
price erosion offset by general cost reductions, a portion of which is related
to restructuring activities.
A significant portion of our material cost is comprised of copper and gold
costs. We purchased approximately 6 million pounds of copper and approximately
27,000 troy ounces of gold during the first quarter of fiscal 2009. The
following table shows the change in average prices related to our purchases of
copper and gold for the three months ended September 30 (in thousands):
2008 2007
Copper (price per pound) $ 3.74 $ 3.49
Gold (price per troy ounce) 872.00 680.00
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Generally, we are able to pass through to our customers only a small portion
of the increased cost of copper and gold. However, we mitigate the impact of any
significant increase in gold and copper prices by hedging approximately 50% and
40% of our projected net global purchases of gold and copper, respectively. The
hedges did not materially affect operating results for the three months ended
September 30, 2008 and 2007.
The effect of certain significant impacts on gross profit compared with the
prior year period was as follows for the three months ended September 30 (in
thousands):
2008
Price erosion $ (32,257 )
Currency translation 13,703
Currency transaction (10,534 )
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Price erosion reduces our gross profit, particularly in our Connector
segment, where we have the largest impacts of price erosion. Certain products
that we manufacture in Japan and Europe are sold in other regions of the world
at selling prices primarily denominated in or closely linked to the U.S. dollar.
As a result, changes in currency exchange rates may affect our cost of sales
reported in U.S. dollars without a corresponding effect on net revenue. The
decrease in gross profit due to currency transactions was primarily due to a
general weakening of the U.S. dollar against other currencies during the three
months ended September 30, 2008 as compared to the prior year period.
Operating Expenses
Operating expenses were as follows as of September 30 (in thousands):
2008 2007
Selling, general and administrative $ 166,351 $ 160,635
Selling, general and administrative as a percentage of revenue 19.8 % 20.3 %
Restructuring costs and asset impairments $ 21,778 $ 2,629
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Selling, general and administrative expenses for the three months ended
September 30, 2008 decreased slightly as a percent of net revenue from the prior
year quarter primarily due to the impact of a lower cost structure resulting
from our restructuring initiative which began in fiscal 2007 and specific cost
containment activities. The impact of currency translation increased selling,
general and administrative expenses by approximately $11.0 million for the three
months ended September 30, 2008.
Research and development expenditures, which are classified as selling,
general and administrative expense, were approximately 5.2% and 5.0% of net
revenue for the first quarter of fiscal 2009 and 2008 respectively.
Restructuring costs during the three months ended September 30, 2008 included
$19.1 million for employee termination benefits and $2.7 million for asset
impairments. This restructuring expense primarily impacts manufacturing
facilities in our transportation segment.
Effective Tax Rate
The effective tax rate was 32% and 30.0%, respectively, for the three months
ended September 30, 2008 and 2007. The effective tax rates represent estimates
of the full year effective tax rate. The effective tax rate for the first
quarter of fiscal 2009 is higher than the prior year period due to our
anticipation of reduced foreign tax credit availability in fiscal year 2009.
Backlog
Our order backlog on September 30, 2008 was approximately $385.5 million
compared with $353.3 million at September 30, 2007. Backlog increased due to
orders received in the telecommunications and data markets. Foreign currency
translation increased the backlog by $6.7 million compared with September 30,
2007. Orders for the three months ended September 30, 2008 were $795.9 million
compared with $811.5 million for the prior year period. Orders decreased due to
a weakening in the automotive and mobile phone markets, offset by increases in
foreign currency translation. Foreign currency translation increased orders by
$43.0 million.
Segments
Connector
The following table provides an analysis of the change in net revenue
compared with the prior fiscal year (in thousands):
Three Months
Ended
Sept. 30, 2008
Net revenue for prior year period $ 452,254
Components of net revenue increase:
Organic net revenue decline (3,607 )
Currency translation 26,221
Total change in net revenue from prior year period 22,612
Net revenue for current year period $ 474,868
Organic net revenue decline percentage (0.8 )%
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The Connector segment sells primarily to the telecommunications, data
products and consumer markets, which are discussed above. Revenue in the
telecommunications market grew due to higher demand for our antenna products for
mobile devices. Organic revenue in the data products and consumer markets
declined due to general weakness in these markets. The decline in these markets
was offset by favorable currency translation due to a weaker U.S. dollar.
Additionally, price erosion is generally higher in the Connector segment
compared with our other segments, particularly in the mobile phone business.
The following table provides information on income from operations and
operating margins for the periods indicated (in thousands):
Three Months Ended
September 30,
2008 2007
Income from operations $ 76,020 $ 75,344
Operating margin 16.0 % 16.5 %
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Connector segment operating margin declined compared with the prior year
period because a portion of the revenue growth was in a product line with high
material content, and due to the impact of price erosion and higher raw material
cost. Most of the price erosion that we experienced was in the connector
division.
Transportation
The following table provides an analysis of the change in net revenue
compared with the prior fiscal year (in thousands):
Three Months
Ended
Sept. 30, 2008
Net revenue for prior year period $ 120,053
Components of net revenue decrease:
Organic net revenue decline (20,452 )
Currency translation 6,641
Total change in net revenue from prior year period (13,811 )
Net revenue for current year period $ 106,242
Organic net revenue decline percentage (17.0 )%
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Transportation segment revenue declined in fiscal 2009 due to a decrease in
the automotive market revenue discussed above. We believe that the volume of
automobiles manufactured by our customers during the first quarter of fiscal
2009 is lower than the volume in the same period last year.
The following table provides information on income from operations and
operating margins for the periods indicated (in thousands):
Three Months Ended
September 30,
2008 2007
Income (loss) from operations $ (17,516 ) $ 4,403
Operating margin (16.5 )% 3.6 %
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Segment operating income declined in the first quarter of fiscal 2009 as
compared with the same period last year due to lower revenue in the automotive
market. Additionally, the Transportation segment had restructuring charges of
$15.0 million in the first quarter of fiscal 2009 compared with $0.5 million in
the prior year period.
Custom & Electrical
The following table provides an analysis of the change in net revenue
compared with the prior fiscal year (in thousands):
Three Months
Ended
Sept. 30, 2008
Net revenue for prior year period $ 218,203
Components of net revenue increase:
Organic net revenue growth 22,645
Currency translation 11,045
Acquisitions 5,441
Total change in net revenue from prior year period 39,131
Net revenue for current year period $ 257,334
Organic net revenue growth percentage 10.4 %
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Custom and Electrical segment revenue increased in fiscal 2009 due to higher
demand in our telecommunications market, particularly networking and cable
products. We also acquired a flexible circuit manufacturing business during
first quarter of fiscal 2009 and a fiber optics manufacturing business during
the first quarter of 2008.
The following table provides information on income from operations and
operating margins for the periods indicated (in thousands):
Three Months Ended
September 30,
2008 2007
Income from operations $ 22,530 $ 17,058
Operating margin 8.8 % 7.8 %
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Income from operations increased during the first three months of fiscal 2009 compared with the same period of fiscal 2008 due to the increased organic net revenue described above. Income from operations was unfavorably impacted by an increase in restructuring charges of $3.8 million. Operating margin increased due to a favorable material mix in certain electrical product lines.
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