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 March 31, 1997 ------------------------- OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE ------- SECURITIES EXCHANGE ACT OF 1934 ---------------------- 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 March 31, 1997, as restated for the February 1997 stock dividend: Common Stock 61,825,159 Class A Common Stock 63,452,275 Class B Common Stock 94,255 MOLEX INCORPORATED FORM 10-Q MARCH 31, 1997 INDEX Page ---- PART I - FINANCIAL INFORMATION Item 1. Financial Information - Unaudited Condensed Consolidated Balance Sheets -- 2 March 31, 1997 and June 30, 1996 Condensed Consolidated Statements of Income -- 3 Three Months and Nine Months Ended March 31, 1997 and 1996 Condensed Consolidated Statements of Cash Flows -- 4 Nine Months Ended March 31, 1997 and 1996 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 ------ March 31, June 30, 1997 1996 CURRENT ASSETS: --------- --------- Cash and cash equivalents $ 183,519 $ 242,779 Marketable securities 92,242 39,883 Accounts receivable - net 306,471 274,031 Inventories 146,167 147,612 Other current assets 33,825 30,284 --------- --------- Total current assets 785,435 734,589 PROPERTY, PLANT AND EQUIPMENT - NET 630,804 613,125 OTHER ASSETS 102,374 113,285 --------- --------- $1,518,613 $1,460,999 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES: Accounts payable $ 135,032 $ 127,557 Accrued expenses 107,893 93,104 Other current liabilities 53,614 54,521 --------- --------- Total current liabilities 296,539 275,182 DEFERRED ITEMS 15,408 13,977 ACCRUED POSTRETIREMENT BENEFITS 28,154 30,401 LONG-TERM DEBT, less portion due currently 7,952 7,450 MINORITY INTEREST 2,916 2,718 SHAREHOLDERS' EQUITY Common stock 6,586 6,508 Paid-in capital 119,804 115,253 Retained earnings 1,088,569 989,928 Treasury stock (79,257) (62,726) Deferred unearned compensation ( 9,700) (13,583) Cumulative translation adjustments 41,642 95,891 --------- --------- Total shareholders' equity 1,167,644 1,131,271 --------- --------- $1,518,613 $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 NINE MONTHS ENDED ----------------------- ----------------------- March 31, March 31, March 31, March 31, 1997 1996 1997 1996 -------- -------- -------- -------- NET REVENUE $387,053 $ 347,065 $1,123,653 $1,029,724 COST OF SALES 228,712 208,771 669,433 617,614 -------- -------- -------- -------- Gross Profit 158,341 138,294 454,220 412,110 OPERATING EXPENSES: Selling 38,526 36,130 116,785 107,625 Administrative 54,861 47,518 155,812 142,152 -------- -------- -------- -------- Total Operating Expenses 93,387 83,648 272,597 249,777 Income from Operations 64,954 54,646 181,623 162,333 OTHER INCOME: Foreign currency transaction loss 751 540 789 1,297 Interest 2,260 2,179 7,329 8,108 -------- -------- -------- -------- Total Other Income 3,011 2,719 8,118 9,405 INCOME BEFORE INCOME TAXES 67,965 57,365 189,741 171,738 INCOME TAXES 24,774 21,242 70,499 65,401 -------- -------- -------- -------- NET INCOME $ 43,191 $ 36,123 $119,242 $106,337 ======== ======== ======== ======== EARNINGS PER COMMON SHARE $ 0.34 $ 0.29 $ 0.95 $ 0.84 ======== ======== ======== ======== CASH DIVIDENDS PER COMMON SHARE $ 0.0120 $ 0.0120 $ 0.0360 $ 0.0360 ======== ======== ======== ======== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING DURING THE PERIOD 125,508 125,871 125,766 125,903 ======== ======== ======== ======== 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) NINE MONTHS ENDED ----------------------- March 31, March 31, 1997 1996 -------- -------- CASH AND CASH EQUIVALENTS, Beginning of Period $242,779 $253,552 CASH AND CASH EQUIVALENTS PROVIDED FROM (USED FOR): Operations: Net income 119,243 106,337 Add (deduct) non-cash items included in net income: Depreciation and amortization 93,500 88,704 Amortization of deferred unearned compensation 3,883 3,092) (Gain) loss on sale of property, plant and equipment (134) Other charges to net income (1,227) 1,058 Current items: Accounts receivable (50,604) (9,472) Inventories 1,176 (17,062) Prepaid expenses (6,190) (7,966) Accounts payable 18,714 (2,130) Accrued expenses 19,051 9,156 Income taxes 417 8,291 -------- -------- NET CASH PROVIDED FROM OPERATIONS 114,980 100,216 Investments: Purchases of property, plant and equipment (109,776) (74,749) Proceeds from sale of property, plant and equipment 590 1,069 Proceeds from sale of marketable securities (8,948) (9,152) Purchase of marketable securities (3,264) (5,826) Increase in other assets -------- -------- NET CASH USED FOR INVESTMENTS (121,398) (87,923) Financing: Increase in long-term debt 272 - Decrease in long-term debt (898) (185) Cash dividends paid (2,464) (1,387) Purchase of treasury stock (24,992) - Disposition of treasury stock 1,158 934 Exercise of stock options 1,713 991 -------- -------- NET CASH USED FOR FINANCING (25,211) 353 EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (19,434) (820) -------- -------- (51,063) 11,826 -------- -------- CASH AND CASH EQUIVALENTS, End of Period $202,489 $231,772 ======== ======== The accompanying notes are an integral part of these condensed consolidated financial statements. -4- MOLEX INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (1) 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 are not necessarily 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. One quarter (1/4) share of Common Stock was paid on April 25, 1997 to shareholders of record as of March 31, 1997 for each share of Common Stock and Class B Common Stock outstanding. In addition, one quarter (1/4) share of Class A Common Stock was distributed for each share of Class A Common Stock outstanding. 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 March 31, 1997 and 1996, the shares shown as outstanding in the Condensed Consolidated Statements of Income do not require adjustments for common stock equivalents. In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 128, Earnings per Share, which the Company must adopt in its fiscal 1997 quarter ended December 31, 1997, SFAS No. 128 requires the presentation of both basic and diluted earnings per share. Basic earnings per share presents net income available to common shareholders on a per share basis based only upon the number of common shares outstanding without consideration of dilutive securities. Diluted earnings per share presents the same information after giving effect to all dilutive securities. Basic and fully diluted earnings per share for the quarter ended March 31, 1997 under the new presentation requirements prescribed in SFAS No. 128 would not be materially different than the primary earnings per share amount presented in the Condensed Consolidated Statement of Income. (3) Reclassifications Certain reclassifications have been made to the prior year's financial statements in order to conform to the 1997 classifications. -5- (4) Inventories Inventories are valued at the lower of first-in, first-out cost or market. Inventories, in thousands of dollars, consisted of the following: March 31, June 30, 1997 1996 Raw Materials $ 29,234 $ 33,841 Work in Process 52,620 54,687 Finished Goods 64,313 59,084 -------- --------- $146,167 $147,612 ======== ========= -6- MOLEX INCORPORATED MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Consolidated net revenues were $387.1 million for the quarter ended March 31, 1997, increasing 11.5 percent over net revenues for the corresponding quarter of the prior fiscal year. For the nine months ended March 31, 1997, net revenues were $1,123.7 million, a 9.1 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 $19.5 million for the quarter. Excluding the effects of currency fluctuation, growth in net revenues would have been 17.1 percent for the quarter and 14.1 percent for the nine months ended March 31, 1997. 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, except Europe, experienced local currency growth in excess of 10 percent for the quarter and the nine months ended March 31, 1997. Far East South net revenues for the quarter ended March 31, 1997 increased 19.6 percent in U.S. dollars and 19.8 percent in local currencies over the same period in the prior year. For the nine months ended March 31, 1997, the percentage of growth over the same period in the prior year was 20.8 percent in U.S. dollars and 21.3 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 March 31, 1997, revenues in the Americas region increased 15.9 percent in U.S. dollars and 16.3 percent in local currencies over the same quarter in the prior year. For the nine months ended March 31, 1997, the percentage of growth over the same period in the prior year was 14.9 percent in U.S. dollars and 15.8 percent in local currencies. Increased customer sales to the automotive market and strong sales of telecommunications products continue to drive revenue growth in this region. Net revenues in the Far East North increased 7.9 percent in U.S. dollars for the quarter compared to the same period in the prior year and increased 24.5 percent in local currencies. For the nine months ended March 31, 1997, the percentage of growth over the same period in the prior year was 4.8 percent in U.S. dollars and 19.1 percent in local currencies. Improvement in the overall Japanese economy has created stronger demand for interconnection products in this region. In Europe, net revenues increased 11.2 percent in U.S. dollars and increased 20.2 percent in local currencies over the same quarter in the prior year. For the nine months ended March 31, 1997, net revenues decreased 0.9 percent in U.S. dollars and increased 4.5 percent in local currencies over the same period in the prior year. Strong sales of telecommunications products drove revenue growth for the quarter. - 7 - For the nine months ended March 31, 1997, 69 percent of Molex's worldwide net revenues were generated from its international operations, compared to 68 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 nine months ended March 31, 1997 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 40.9 percent and 40.4 percent for the quarter and nine months ended March 31, 1997, respectively, increased from 39.8 percent and 40.0 percent reported for the quarter and nine months ended March 31, 1996, respectively. These improvements were primarily due to improvements in the U.S. automotive programs. Operating expenses as a percent of net revenue for the nine months ended March 31, 1997 did not change as compared to the same period a year ago. Foreign currency transaction gains were $0.8 million for the nine months ended March 31, 1997 compared to the $1.3 million in the same period of the prior year. Interest income, net of interest expense, increased 3.7 percent for the quarter ended March 31, 1997 but decreased 9.6 percent for the nine months ended March 31, 1997 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 36.4 percent and 37.1 percent for the quarter and nine months ended March 31, 1997, respectively, as compared to 37.0 percent and 38.0 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. Net income for the quarter was $43.2 million or 34 cents per share (reflecting the 25% stock dividend), a 19.6 percent increase compared with $36.1 million or 29 cents per share for the same quarter last fiscal year. Excluding the effects of currency fluctuations, net income for the quarter increased 25.0 percent over the same quarter last fiscal year. For the nine months ended March 31, 1997, net income was $119.2 million or 95 cents per share, a 12.1 percent increase compared to $106.3 million or 84 cents per share for the same period in the prior fiscal year. Excluding the effects of currency fluctuations, net income for the nine months increased 17.2 percent over the prior fiscal year. - 8 - LIQUIDITY AND CAPITAL Molex's balance sheet continues to be exceptionally strong. Working capital at March 31, 1997 was $488.9 million, an increase from the $459.4 million at June 30, 1996. The Company purchased 419,000 shares of common stock for the treasury during the quarter, for a total of 1,038,000 shares purchased during the nine months ended March 31, 1997. 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 for 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. 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. - 9 - Part II - Other Information Items 1 - 6. Not Applicable - 10 - 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 May 15, 1997 /s/ ROBERT B. MAHONEY ----------------- -------------------- Robert B. Mahoney Corporate Vice President and Treasurer Date May 15, 1997 /s/ LOUIS A. HECHT ----------------- -------------------- Louis A. Hecht Corporate Secretary and General Counsel