1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - ----- EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1997 --------------------------- OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - ----- EXCHANGE ACT OF 1934 For the transition period from --------------------------- Commission File Number 0-7491 MOLEX INCORPORATED ------------------------------------------------------ (Exact name of registrant as specified in its charter) DELAWARE 36-2369491 - ---------------------------------- -------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 2222 WELLINGTON COURT, LISLE, ILLINOIS 60532 - ----------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 630-969-4550 ---------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------- ------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date (applicable only to corporate registrants). At September 30, 1997: Common Stock 61,885,171 shares Class A Common Stock 63,506,832 shares Class B Common Stock 94,255 shares 2 MOLEX INCORPORATED FORM 10-Q SEPTEMBER 30, 1997 INDEX Page ---- PART I - FINANCIAL INFORMATION Item 1. Financial Information - Unaudited Condensed Consolidated Balance Sheets -- 2 September 30, 1997 and June 30, 1997 Condensed Consolidated Statements of Income -- 3 Three Months Ended September 30, 1997 and 1996 Condensed Consolidated Statements of Cash Flows -- 4 Three Months Ended September 30, 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- 3 MOLEX INCORPORATED CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited - In Thousands) ASSETS Sept. 30, June 30, 1997 1997 ----------- ----------- CURRENT ASSETS: Cash and cash equivalents 183,606 199,767 Marketable securities 138,054 125,570 Accounts receivable - net 339,082 337,765 Inventories 162,946 166,660 Other current assets 47,353 43,852 ----------- ----------- Total current assets 871,041 873,614 PROPERTY, PLANT AND EQUIPMENT - NET 659,794 665,468 OTHER ASSETS 89,365 97,849 ----------- ----------- $ 1,620,200 $ 1,636,931 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable 145,812 151,934 Accrued expenses 116,098 109,010 Other current liabilities 64,290 81,082 ----------- ----------- Total current liabilities 326,200 342,026 DEFERRED ITEMS 13,955 14,758 ACCRUED POSTRETIREMENT BENEFITS 32,790 33,779 LONG-TERM DEBT, less portion due currently 7,350 7,350 MINORITY INTEREST 2,630 3,106 SHAREHOLDERS' EQUITY Common stock 6,597 6,591 Paid-in capital 133,253 131,265 Retained earnings 1,192,563 1,149,720 Treasury stock (99,745) (94,494) Deferred unearned compensation (15,004) (16,499) Cumulative translation adjustments 19,611 59,329 ----------- ----------- Total shareholders' equity 1,237,275 1,235,912 ----------- ----------- $ 1,620,200 $ 1,636,931 =========== =========== The accompanying notes are an integral part of these condensed consolidated financial statements. -2- 4 MOLEX INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited - In Thousands Except per Share) THREE MONTHS ENDED ------------------------ Sept. 30, Sept. 30, 1997 1996 --------- --------- NET REVENUE $ 410,194 $ 359,595 COST OF SALES 239,861 216,769 --------- --------- Gross Profit 170,333 142,826 OPERATING EXPENSES: Selling 32,308 38,053 Administrative 72,152 48,905 --------- --------- Total Operating Expenses 104,460 86,958 Income from Operations 65,873 55,868 OTHER INCOME: Foreign currency transaction loss/(gain) 283 (344) Interest expense/(income) (3,664) (2,427) --------- --------- Total Other Income (3,381) (2,771) INCOME BEFORE INCOME TAXES 69,254 58,639 INCOME TAXES 24,798 22,784 --------- --------- NET INCOME $ 44,456 $ 35,855 ========= ========= EARNINGS PER COMMON SHARE $ 0.35 $ 0.29 ========= ========= CASH DIVIDENDS PER COMMON SHARE $ 0.015 $ 0.012 ========= ========= WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING DURING THE PERIOD 125,495 125,988 ========= ========= The accompanying notes are an integral part of these condensed consolidated financial statements. -3- 5 MOLEX INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited - In Thousands) THREE MONTHS ENDED ------------------------ Sept. 30, Sept. 30, 1997 1996 --------- --------- CASH AND CASH EQUIVALENTS, Beginning of Period $ 199,767 $ 242,779 CASH AND CASH EQUIVALENTS PROVIDED FROM (USED FOR): Operations: Net income 44,456 35,855 Add (deduct) non-cash items included in net income: Depreciation and amortization 33,900 32,560 Amortization of deferred unearned compensation 1,357 1,294 Other charges to net income 62 257 Current items: Accounts receivable (4,179) (16,569) Inventories 1,676 (3,039) Prepaid expenses (3,549) (5,453) Accounts payable (4,133) (1,039) Accrued expenses 14,839 9,368 Income taxes (22,719) (5,949) --------- --------- NET CASH PROVIDED FROM OPERATIONS 61,710 47,285 Investments: Purchases of property, plant and equipment (49,701) (41,835) Proceeds from sale of marketable securities 673,477 399,585 Purchases of marketable securities (691,276) (395,949) Increase/(decrease) in other assets 3,094 (2,918) --------- --------- NET CASH USED FOR INVESTMENTS (64,406) (41,117) Financing: Decrease in long-term debt -- (29) Cash dividends paid (1,895) (1,515) Purchase of treasury stock (5,108) (5,549) Disposition of treasury stock 329 334 Exercise of stock options 1,779 719 --------- --------- NET CASH USED FOR FINANCING (4,895) (6,040) EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (8,570) (814) --------- --------- (16,161) (686) --------- --------- CASH AND CASH EQUIVALENTS, End of Period $ 183,606 $ 242,093 ========= ========= The accompanying notes are an integral part of these condensed consolidated financial statements. -4- 6 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 1997 Annual Report to Shareholders and the 1997 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. 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. In February 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share," effective for fiscal and interim periods ending after December 15, 1997. This statement replaces primary Earnings Per Share (EPS) with basic EPS. Basic EPS is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted EPS, formerly fully diluted EPS, must be presented in all cases with basic EPS. Early adoption prior to December 15, 1997, is not permitted, but had both computations been made for the quarter ended September 30,1997, basic and diluted EPS would not have been materially different than the primary EPS presented. -5- 7 (3) INVENTORIES Inventories are valued at the lower of first-in, first-out cost or market. Inventories, in thousands of dollars, consists of the following: Sept. 30 June 30, 1997 1997 -------- -------- Raw Materials $ 39,002 $ 38,335 Work in Process 53,191 55,309 Finished Goods 70,753 73,016 -------- -------- $162,946 $166,660 ======== ======== (4) NEW ACCOUNTING PRONOUNCEMENTS In June 1997 FASB issued SFAS No. 130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," both of which are effective for fiscal years beginning after December 15, 1997. SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components. SFAS No. 131 establishes standards for reporting information about operating segments and related disclosures about products and services, geographic areas and major customers. The requirements of both statements only impact financial statement disclosure. Accordingly, these statements are not expected to have a material impact on the Company's financial position or the results of its operations. (5) RECLASSIFICATIONS Certain reclassifications have been made to the prior year's financial statements in order to conform to the fiscal 1998 classifications. -6- 8 MOLEX INCORPORATED MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Consolidated net revenues were $410.2 million for the quarter ended September 30, 1997, increasing 14.1 percent over net revenues for the corresponding quarter of the prior fiscal year. The generally higher value of the US dollar compared to other currencies worldwide decreased net revenues by $26.5 million for the quarter. Excluding the effects of currency fluctuation, growth in net revenues would have been 21.4 percent for the quarter and three months ending September 30, 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 experienced local currency sales growth in excess of 15 percent for the quarter and the three months ended September 30, 1997. For the quarter ended September 30, 1997, revenues in the Americas region increased 22.7 percent in U.S. dollars and 22.7 percent in local currency over the same quarter in the prior year. Strong sales of data communications and telecommunications products, increases in computer and computer-peripheral products, and increased customer sales to the commercial and industrial market continue to drive revenue growth in this region. Net revenues in the Far East North increased 5.8 percent in U.S. dollars for the quarter compared to the same period in the prior year and increased 15.9 percent in local currencies. Recent improvement in the electronics industry within Japan, greater acceptance of Molex Japan advanced interconnect products and growth for now of export sales by Japanese end-customers served by Molex have all created stronger demand in this region. Far East South net revenues for the quarter ended September 30, 1997 increased 11.9 percent in U.S. dollars and 18.0 percent in local currencies. Sales in this region remain strong due to continued demand for personal computers and related computer-peripheral products. The recent devaluations of several of the Asian currencies have had an adverse effect on reported sales and profits, but the majority of the company's revenue is generated outside of those countries which have experienced the greatest decline in currency values. - 7 - 9 In Europe, net revenues increased 32.0 percent in U.S. dollars and approximately 47.0 percent in local currency over the same quarter of the prior year. Strong growth in telecommunications and personal communications product sales, steady improvement in automotive and a general resurgence in European markets served by Molex have all contributed to the growth. It is notable that in the prior year, European sales were significantly depressed due to weak economic conditions across Europe with resulting reductions in demand for telecom and mobile communications products. For the three months ended September 30, 1997, 66 percent of Molex's worldwide net revenues were generated from its international operations. International operations are subject to currency fluctuations and government actions. Molex monitors its currency exposure in each country and continues to implement defensive strategies to respond to changing economic environments. Due to the uncertainty of the foreign exchange markets, Molex cannot reasonably predict future trends related to foreign currency fluctuations. Foreign currency fluctuations have impacted results in the past and may impact results in the future. The gross profit percentage of 41.5 percent for the quarter ended September 30, 1997 increased from 39.7 percent for the quarter ended September 30, 1996. This is primarily due to improvements in manufacturing efficiency and utilization, significant reductions in start-up costs for the European automotive programs, a general strengthening of the dollar which reduces the cost of foreign-sourced operations and general declines in raw material prices worldwide. Selling, general and administrative expenses as a percent of net revenue for the three months ended September 30, 1997 increased to 25.5 from 24.6 for the three corresponding months in the prior year. The Company's implementation of it Global Information Systems and the general increase in sales levels across the company contributed to the higher level of spending. Research and Development increased at a slightly lower rate than the rate of revenue growth. Interest income, net of interest expense, increased to $3.7 million in the quarter ended September 30, 1997 as compared to $2.4 million for the same period in the prior year. The increase reflects comparable average interest rates versus prior year in countries where Molex has significant short-term investments, applied to higher average cash balances. The effective tax rate was 35.8 percent for the quarter and three months ended September 30, 1997, as compared to 38.8 percent for the same period in the prior fiscal year. This change is primarily caused by increased pretax margins in countries with lower effective tax rates, as well as the successful - 8 - 10 restructuring of the European Region with a resulting overall lower effective tax rate. Net income for the quarter was $44.5 million or 35 cents per share, a 24.0 percent increase compared with $35.9 million or 29 cents per share (after the March, 1997 25% stock dividend), for the same quarter last fiscal year. Net income for the quarter increased 32.2 percent over the same quarter last fiscal year, excluding the effects of the currency translation. LIQUIDITY AND CAPITAL Molex's balance sheet continues to be exceptionally strong. Working capital at September 30, 1997 was $544.8 million, a slight increase from the $531.6 million at June 30, 1997. The Company purchased 130,000 shares of treasury stock at an aggregate cost of $5.1 million during the quarter. This is part of an up to $50 million stock buyback authorized by the Board of Directors for the current fiscal year. 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 1998 continue to be encouraging. To further expand the Company's global presence, offer innovative products at an accelerated pace, and improve internal productivity, Molex plans to invest approximately $240 million in capital expenditures and $100 million in research and development for the fiscal year ending June 30, 1998. 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 - 11 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- 12 PART II - OTHER INFORMATION Items 1 - 6. Not Applicable -11- 13 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 1997 /s/ ROBERT B. MAHONEY ----------------- --------------------- Robert B. Mahoney Corporate Vice President and Treasurer Date 1997 /s/ LOUIS A. HECHT ----------------- --------------------- Louis A. Hecht Corporate Secretary and General Counsel