UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE ------- SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 1996 --------------------------- OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE ------- SECURITIES EXCHANGE ACT OF 1934 For the transition period from --------------------------------- Commission File Number 0-7491 MOLEX INCORPORATED ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 36-2369491 -------------------------------- ------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 2222 Wellington Court, Lisle, Illinois 60532 ---------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 630-969-4550 ------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---------- ----------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date (applicable only to corporate registrants). At December 31, 1996 as restated for the February 1997 stock dividend: Common Stock 62,134,819 Class A Common Stock 63,447,534 Class B Common Stock 94,255 MOLEX INCORPORATED FORM 10-Q DECEMBER 31, 1996 INDEX Page ---- PART I - FINANCIAL INFORMATION Item 1. Financial Information - Unaudited Condensed Consolidated Balance Sheets -- 2 December 31, 1996 and June 30, 1996 Condensed Consolidated Statements of Income -- 3 Three Months and Six Months Ended December 31, 1996 and 1995 Condensed Consolidated Statements of Cash Flows -- 4 Six Months Ended December 31, 1996 and 1995 Notes to Condensed Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 PART II - OTHER INFORMATION 11 -1- MOLEX INCORPORATED CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited - In Thousands) ASSETS ------ Dec. 31, June 30, 1996 1996 CURRENT ASSETS: --------- --------- Cash and cash equivalents $ 183,519 $ 242,779 Marketable securities 92,242 39,883 Accounts receivable - net 305,518 274,031 Inventories 155,835 147,612 Other current assets 36,963 30,284 --------- --------- Total current assets 774,077 734,589 PROPERTY, PLANT AND EQUIPMENT - NET 635,552 613,125 OTHER ASSETS 105,389 113,285 --------- --------- $1,515,018 $1,460,999 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES: Accounts payable $ 126,870 $ 127,557 Accrued expenses 96,397 93,104 Other current liabilities 57,578 54,521 --------- --------- Total current liabilities 280,845 275,182 DEFERRED ITEMS 16,746 13,977 ACCRUED POSTRETIREMENT BENEFITS 32,130 30,401 LONG-TERM DEBT, less portion due currently 7,264 7,450 MINORITY INTEREST 2,841 2,718 SHAREHOLDERS' EQUITY Common stock 6,522 6,508 Paid-in capital 118,698 115,253 Retained earnings 1,062,911 989,928 Treasury stock (80,543) (62,726) Deferred unearned compensation (10,995) (13,583) Cumulative translation adjustments 78,599 95,891 --------- --------- Total shareholders' equity 1,175,192 1,131,271 --------- --------- $1,515,018 $1,460,999 ========= ========= 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) THREE MONTHS ENDED SIX MONTHS ENDED ----------------------- ----------------------- Dec. 31, Dec. 31, Dec. 31, Dec, 31, 1996 1995 1996 1995 -------- -------- -------- -------- NET REVENUE $377,005 $344,483 $736,600 $682,659 COST OF SALES 223,952 207,545 440,721 408,843 -------- -------- -------- -------- Gross Profit 153,053 136,938 295,879 273,816 OPERATING EXPENSES: Selling 40,206 35,621 78,259 71,495 Administrative 52,072 46,871 100,951 94,634 -------- -------- -------- -------- Total Operating Expenses 92,278 82,492 179,210 166,129 Income from Operations 60,775 54,446 116,669 107,687 OTHER INCOME: Foreign currency transaction gain (loss) (281) 50 37 757 Interest, net 2,643 2,807 5,070 5,929 -------- -------- -------- -------- Total Other Income 2,362 2,857 5,107 6,686 INCOME BEFORE INCOME TAXES 63,137 57,303 121,776 114,373 INCOME TAXES 22,940 22,246 45,724 44,159 -------- -------- -------- -------- NET INCOME $ 40,197 $ 35,057 $ 76,052 $ 70,214 ======== ======== ======== ======== EARNINGS PER COMMON SHARE $ 0.32 $ 0.28 $ 0.61 $ 0.56 ======== ======== ======== ======== CASH DIVIDENDS PER COMMON SHARE $ 0.012 $ 0.012 $ 0.024 $ 0.024 ======== ======== ======== ======== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING DURING THE PERIOD 125,813 125,828 125,903 125,889 ======== ======== ======== ======== The accompanying notes are an integral part of these condensed consolidated financial statements. -3- MOLEX INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited - In Thousands) SIX MONTHS ENDED ----------------------- Dec, 31, Dec. 31, 1996 1995 -------- -------- CASH AND CASH EQUIVALENTS, Beginning of Period $242,779 $253,552 CASH AND CASH EQUIVALENTS PROVIDED FROM (USED FOR): Operations: Net income 76,052 70,214 Add (deduct) non-cash items included in net income: Depreciation and amortization 63,179 58,432 Amortization of deferred unearned compensation 2,588 2,180 Loss on sale of property, plant and equipment 35 204 Other charges (credits) to net income (1,315) 2,039 Current items: Accounts receivable (37,560) 6,291 Inventories (11,478) (18,560) Prepaid expenses (7,822) (6,193) Accounts payable 2,861 (20) Accrued expenses 6,339 724 Income taxes 3,899 417 -------- -------- NET CASH PROVIDED FROM OPERATIONS 96,778 115,728 Investments: Purchases of property, plant and equipment (96,410) (109,776) Proceeds from sale of property, plant and equipment 1,160 590 Proceeds from sale of marketable securities 1,055,767 947,428 Purchase of marketable securities (1,109,916) (950,692) Decrease (Increase) in other assets 6,527 (8,948) -------- -------- NET CASH USED FOR INVESTMENTS (142,872) (121,398) Financing: Increase in long-term debt 54 272 Decrease in long-term debt (64) (898) Cash dividends paid (3,065) (2,464) Purchase of treasury stock (10,571) (24,992) Disposition of treasury stock 244 410 Exercise of stock options 2,865 1,713 -------- -------- NET CASH USED FOR FINANCING (10,537) (25,959) EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (2,629) (19,434) -------- -------- (59,260) (51,063) -------- -------- CASH AND CASH EQUIVALENTS, End of Period $183,519 $202,489 ======== ======== 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 1996 Annual Report to Shareholders and the 1996 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 On February 10, 1997 The Board of Directors of Molex Incorporated declared a twenty-five percent (25%) stock dividend. The dividend is payable on April 25, 1997 to shareholders of record on March 31, 1997. One quarter (1/4) share of Common Stock will be paid for each share of Common Stock and Class B Common Stock outstanding, and one quarter (1/4) share of Class A Common Stock will be paid for each share of Class A Common Stock. All shares outstanding, earnings and dividends have been retroactively restated for the stock split effected in the form of a stock dividend. Earnings per common share (including Common Stock, Class A Common Stock and Class B Common Stock) have been computed using the weighted average number of common shares outstanding during the periods. For the periods ended December 31, 1996 and 1995, the shares shown as outstanding in the Condensed Consolidated Statements of Income do not require adjustments for common stock equivalents, as they do not have a material dilutive effect after applying the treasury stock method. - 5 - (3) Inventories Inventories are valued at the lower of first-in, first-out cost or market. Inventories, in thousands of dollars, consisted of the following: Dec. 31, June 30, 1996 1996 Raw Materials $ 35,842 $ 33,841 Work in Process 57,659 54,687 Finished Goods 62,334 59,084 -------- -------- $155,835 $147,612 ======== ======== (4) Reclassifications Certain prior year amounts have been reclassified in the condensed consolidated financial statements to conform to their current year classifications. -6- MOLEX INCORPORATED MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Consolidated net revenues were $377.0 million for the quarter ended December 31, 1996, increasing 9.4 percent over net revenues for the corresponding quarter of the prior fiscal year. For the six months ended December 31, 1996, net revenues were $736.6 million, a 7.9 percent increase from the same period a year ago. The generally higher value of the US dollar compared to other currencies worldwide decreased net revenues by $14.5 million for the quarter. Excluding the effects of currency fluctuation, growth in net revenues would have been 13.7 percent for the quarter and 12.5 percent for the six months ended December 31, 1996. Management believes that Molex has continued to exceed its goal of increasing net revenues at twice the growth rate of the worldwide connector market. All geographic regions with the exception of Europe experienced local currency growth in excess of 10 percent for the quarter and the six months ended December 31, 1996. Far East South net revenues for the quarter ended December 31, 1996 increased 23.9 percent in U.S. dollars and 24.1 percent in local currencies. For the six months ended December 31, 1996, the percentage of growth over the same period in the prior year was 21.4 percent in U.S. dollars and 22.0 percent in local currencies. Sales in this region remain strong due to continued demand for personal computers and related peripheral products. For the three months ended December 31, 1996, revenues in the Americas region increased 14.5 percent in U.S. dollars and 15.1 percent in local currency over the same quarter in the prior year. For the six months ended December 31, 1996, the percentage of growth over the same period in the prior year was 14.4 percent in U.S. dollars and 15.5 percent in local currency. Increased customer sales to the automotive market and strong sales of communications products continue to drive revenue growth in this region. Net revenues in the Far East North increased 9.8 percent in U.S. dollars for the quarter compared to the same period in the prior year and increased 23.0 percent in local currencies. For the six months ended December 31, 1996, the percentage of growth over the same period in the prior year was 3.4 percent in U.S. dollars and 16.6 percent in local currencies. Improvement in the overall Japanese economy has created increased demand for interconnection products in the region and the weaker value of the Japanese Yen has resulted in stronger demand for Japanese products outside the region. - 7 - In Europe, net revenues declined 2.7 percent in U.S. dollars but increased 1.5 percent in local currency over the same quarter in the prior year. For the six months ended December 31, 1996, net revenues decreased 7.0 percent in U.S. dollars and 3.4 percent in local currency over the same period in the prior year. Demand continues to be soft within the region due to difficult economic conditions in several European countries, although some improvement was seen during the quarter ended December 31, 1996. For the six months ended December 31, 1996, 68 percent of Molex's worldwide net revenues were generated from its international operations, compared to 69 percent for the same period during the prior fiscal year. Strong sales to the automotive and telecommunications industries have increased the Company's U.S. domestic revenue during the six months ended December 31, 1996 compared to the same period in the prior year. International operations are subject to currency fluctuations and government actions. Molex monitors its currency exposure in each country and implements strategies to respond to changing economic and political 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. The gross profit percentage of 40.6 percent and 40.2 percent for the quarter and six months ended December 31, 1996, respectively, increased from 39.8 percent and 40.1 percent reported for the quarter and six months ended December 31, 1995, respectively. These improvements were primarily due to improvements in the U.S. automotive programs. Operating expenses as a percent of net revenue for the six months ended December 31, 1996 improved slightly from the same period a year ago, reflecting continued management focus on the control of expenses. Foreign currency transaction gains and losses did not significantly impact net income in the quarter or year-to-date. Interest income, net of interest expense, decreased 5.9 percent for the quarter ended December 31, 1996 and 14.5 percent for the six months ended December 31, 1996 when compared to the same period in the prior year. The decrease reflects the lower average interest rates in countries where Molex has significant short-term investments. Interest expense has remained relatively unchanged from the prior year. The effective tax rate was 36.3 percent and 37.5 percent for the quarter and six months ended December 31, 1996, respectively, as compared to 38.8 percent and 38.5 percent for the same respective periods in the prior fiscal year. This decrease is primarily caused by increased pretax profitability in countries with lower effective tax rates. - 8 - Net income for the quarter was $40.2 million or 32 cents per share, a 14.7 percent increase compared with $35.1 million or 28 cents per share for the same quarter last fiscal year. Excluding the effects of currency fluctuations, net income for the quarter increased 19.2 percent over the same quarter last fiscal year. For the six months ended December 31, 1996, net income was $76.1 million or 61 cents per share, an 8.3 percent increase compared to $70.2 million or 56 cents per share for the same period in the prior fiscal year. Excluding the effects of currency fluctuations, net income for the six months increased 13.2 percent over the prior fiscal year. On February 10, 1997 The Board of Directors of Molex Incorporated declared a twenty-five percent (25%) stock dividend. The dividend is payable on April 25, 1997 to shareholders of record on March 31, 1997. One quarter (1/4) share of Common Stock will be paid for each share of Common Stock and Class B Common Stock outstanding, and one quarter (1/4) share of Class A Common Stock will be paid for each share of Class A Common Stock. All shares outstanding, earnings and dividends have been retroactively restated for the stock split effected in the form of a stock dividend. LIQUIDITY AND CAPITAL Molex's balance sheet continues to be quite strong. Working capital at December 31, 1996 was $493.2 million, an increase from the $459.4 million at June 30, 1996. The Company purchased 400,000 shares of common stock for the treasury during the quarter, for a total of 619,000 shares purchased during the six months ended December 31, 1996. Management believes that the Company's current liquidity and financial flexibility are adequate to support its continued growth. OUTLOOK The prospects for the remainder of fiscal 1997 continue to look promising. To further expand the Company's global presence, offer innovative products at an accelerated pace, and improve internal productivity, Molex plans to invest approximately $215 million in capital expenditures and $90 million in research and development during the fiscal year ending June 30, 1997. 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. - 9 - 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 rate changes, 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. -10- 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 25, 1996, the following directors were elected to hold office for the coming year: Frederick A. Krehbiel, J.H. Krehbiel, Jr., Fred L. Krehbiel, Robert J. Potter, Edgar D. Jannotta, Donald G. Lubin, Masahisa Naitoh, Michael J. Birck. Items 5. Other Information On February 10, 1997, Douglas K. Carnahan was appointed as a Director of Molex Incorporated. Mr. Carnahan is a Senior Vice President of Hewlett- Packard Company and General Manager of the company's Measurement Systems Organization. His election expands the Molex Board to nine directors. 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 February 14, 1997 /s/ ROBERT B. MAHONEY ----------------- -------------------- Robert B. Mahoney Corporate Vice President and Treasurer Date February 14, 1997 /s/ LOUIS A. HECHT ----------------- -------------------- Louis A. Hecht Corporate Secretary and General Counsel