<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1997 Commission File number 0-7491
MOLEX INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 36-2369491
- ---------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
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
---------------------
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, par value $0.05
-----------------------------
Class A Common Stock, par value, $0.05
--------------------------------------
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
----- -----
On August 29, 1997, the following numbers of shares of the Company's
common stock were outstanding:
<TABLE>
<S> <C>
Common Stock 66,109,049
Class A Common Stock 65,658,158
Class B Common Stock 94,255
</TABLE>
The aggregate market value of the voting shares (based on the closing
price of these shares on the National Association of Securities Dealers
Automated Quotation System on such date) held by non-affiliates was
approximately $1.3 billion.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended June 30,
1997, are incorporated by reference into Parts I, II and IV of this report.
Portions of the Proxy Statement for the annual meeting of Stockholders, to
be held on October 24, 1997 are incorporated by reference into Part III of this
report.
Index to Exhibits listed on Pages 21 through 22.
1
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Part I Page
----
<S> <C>
Item 1. Business 3
Item 2. Properties 8
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Executive Officers of the Registrant 10
Part II
Item 5. Market for the Registrant's Common Equity and 12
Related Stockholder Matters
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of Financial 13
Condition and Results of Operations
Item 8. Financial Statements and Supplementary Data 13
Item 9. Changes in and Disagreements with Accountants on 14
Accounting and Financial Disclosure
Part III
Item 10. Directors and Executive Officers of the Registrant 14
Item 11. Executive Compensation 14
Item 12. Security Ownership of Certain Beneficial Owners 14
and Management.
Item 13. Certain Relationships and Related Transactions 14
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports 15
on Form 8-K
Statements of Changes in Shares Outstanding 17
Schedule II - Valuation and Qualifying Accounts 18
Independent Auditors' Report on Schedule 19
Signature Page 20
Index to Exhibits 21
</TABLE>
2
<PAGE> 3
PART I
ITEM 1 - BUSINESS
GENERAL DEVELOPMENT OF THE BUSINESS
Molex Incorporated originated from an enterprise established in 1938. It was
incorporated in 1972 in the state of Delaware. As used herein the term "Molex"
or "Company" includes Molex Incorporated and its United States and
international subsidiaries.
GENERAL DESCRIPTION OF THE BUSINESS
Molex is a leading manufacturer of electronic, electrical and fiber optic
interconnection products and systems; switches; and application tooling. Molex
operates 47 plants in 21 countries and employs 12,000 people worldwide. More
than 67% of Fiscal 1997 sales were generated from products manufactured and
sold outside the U.S.
Molex serves original equipment manufacturers in industries that include
automotive, computer, business equipment, consumer products, telecommunications
and premise wiring. Molex offers more than 100,000 products to customers
primarily through direct sales people and authorized distributors. The
worldwide market for electronic connectors, cable assemblies and backplanes was
estimated at $27.1 billion*. With a 5.7% market share, Molex is the
second-largest connector manufacturer in the world in what is a fragmented but
highly competitive industry.
Molex conducts business in one industry segment: the manufacture and sale of
electrical components. The Company designs, manufactures, and distributes
electrical and electronic devices such as terminals, connectors, planer cables,
cable assemblies, interconnection systems, fiber optic interconnection systems,
backplanes and mechanical and electronic switches. Crimping machines and
terminal inserting equipment (known as "application tooling") are offered on a
lease or purchase basis to the Company's customers for the purpose of applying
the Company's components to the customers' products. Net revenue from
application tooling constitutes approximately 1% of the Company's net revenues.
Molex products are designed for use in a broad range of electrical and
electronic applications as set forth below:
* Source: Fleck International
3
<PAGE> 4
<TABLE>
<CAPTION>
Percentage of
Fiscal 1997
Market Net Revenue Products
------ ------------- --------
<S> <C> <C>
Computer/business equipment/ 51% Computers, peripheral telecommunications equipment,
calculators, copiers, pagers and dictation equipment
Consumer Products 25% Televisions, stereo high fidelity systems, compact
disc players, video tape recorders, camcorders,
electronic games, microwave ovens, refrigerators,
freezers, dishwashers, disposals and air conditioners
Automotive 15% Automobiles, trucks, recreational vehicles and farm
equipment
Other 9% Electronic medical equipment, vending machines,
security equipment and modular office furniture and
premise wiring
</TABLE>
The Company sells its products primarily to original equipment manufacturers
and their subcontractors and suppliers. The Company's customers include
various multinational companies, including Apple, AT&T, Canon, Compaq, Delco,
Ford, Hewlett Packard, IBM, JVC, Matsushita, Motorola, Philips, Sony, Thomson,
Toshiba, and Xerox, many of which Molex serves on a global basis. Net revenues
contributed by different industry groups fluctuate due to various factors
including model changes, new technology, introduction of new products and
composition of customers. No customer accounted for 10% or more of net
revenues in fiscal years 1997, 1996 or 1995. While its customers generally
make purchasing decisions on a decentralized basis, Molex believes that, due to
its financial strength and product development capabilities, it has and will
continue to benefit from the trend of many of its customers towards the use of
fewer vendors.
4
<PAGE> 5
In the United States and Canada, the Company sells its products primarily
through direct sales engineers and industrial distributors. Internationally,
Molex sells primarily through its own sales organizations in Japan, Hong Kong,
Singapore, Taiwan, Republic of Korea, Malaysia, Thailand, China, Australia,
England, Italy, Ireland, France, Spain, Germany, the Netherlands, Switzerland,
Poland, Sweden, Norway, Denmark, South Africa, India, Canada, Mexico and
Brazil.
Outside of the United States and Canada, Molex also sells its products through
manufacturers' representative organizations, some of which act as distributors,
purchasing from the Company for resale. The manufacturers' representative
organizations are granted exclusive territories and are compensated on a
commission basis. These relationships are terminable by either party on short
notice. All sales orders received are subject to approval by the Company.
The Company promotes its products through leading trade magazines, direct
mailings, catalogs and other promotional literature. Molex is a frequent
participant in trade shows and also conducts educational seminars for its
customers and its manufacturers' representative organizations.
There was no significant change in the Company's suppliers, products, markets
or methods of distribution during the last fiscal year.
Molex generally seeks to locate manufacturing facilities to serve local
customers and currently has 47 manufacturing facilities in 21 countries on six
continents.
The principal raw materials and component parts Molex purchases for the
manufacture of its products include brass, copper, aluminum, steel, tin,
nickel, gold, silver, nylon and other molding materials, and nuts, bolts,
screws and rivets. Virtually all materials and components used in the
Company's products are available from several sources. Although the
availability of such materials has generally been adequate, no assurance can be
given that additional cost increases or material shortages or allocations
imposed by its suppliers in the future will not have a materially adverse
effect on the operations of the Company.
5
<PAGE> 6
COMPETITION
The business in which the Company is engaged is highly competitive. Most of
the Company's competitors offer products in some but not all of the industries
served by the Company. Molex believes that the ability to meet customer
delivery requirements and maintenance of product quality and reliability are
competitive factors that are as important as product pricing. Some of the
Company's competitors have been established longer and have substantially
larger manufacturing, sales, research and financial resources.
PATENTS/TRADEMARKS
As of June 30, 1997, the Company owned 633 United States patents and had 198
patent applications on file with the United States Patent Office. The Company
also has 1,629 corresponding patents issued and 2,486 applied for in other
countries as of June 30, 1997. No assurance can be given that any patents will
be issued on pending or future applications. As the Company develops products
for new markets and uses, it normally seeks available patent protection. The
Company believes that its patents are of importance but does not consider
itself materially dependent upon any single patent or group of related patents.
BACKLOG
The backlog of unfilled orders at June 30, 1997 was approximately $261.1
million; this compares to $225.7 million at June 30, 1996. Substantially all
of these orders are scheduled for delivery within twelve months. The Company's
experience is that orders are normally delivered within ninety days from
acceptance.
RESEARCH AND DEVELOPMENT
Molex incurred total research and development costs of $89.5 million in 1997,
$85.5 million in 1996, and $78.1 million in 1995. The Company incurred costs
relating to obtaining patents of $5.6 million in 1997, $6.7 million in 1996,
and $4.9 million in 1995 which are included in total research and development
costs. The Company's policy is to charge these costs to operations as incurred.
The Company introduced many new products during the year; however, in the
aggregate, these products did not require a material investment of assets.
6
<PAGE> 7
COMPLIANCE
The Company believes it is in full compliance with federal, state and local
regulations pertaining to environmental protection. The Company does not
anticipate that the costs of compliance with such regulations will have a
material effect on its capital expenditures, earnings or competitive position.
EMPLOYEES
As of June 30, 1997, the Company employed 12,000 people worldwide. The Company
believes its relations with its employees are favorable.
INTERNATIONAL OPERATIONS
The Company is engaged in material operations in foreign countries. Net
revenue derived from international operations for the fiscal year ended June
30, 1997 was approximately 67% of consolidated net revenue.
The Company believes the international net revenue and earnings will continue
to be significant. The analysis of the Company's operations by geographical
area appears in footnote 10 on page 40 of the 1997 Annual Report to
Shareholders and is incorporated herein by reference.
7
<PAGE> 8
ITEM 2 - PROPERTIES
Molex owns and leases manufacturing, warehousing and office space in over
110 locations around the world. The total square footage of these
facilities is presented below:
Owned Leased Total
----- ------ -----
3,478,773 469,960 3,948,733
The leases are of varying terms with expirations ranging from fiscal 1997
through fiscal 2025. The leases in aggregate are not considered material
to the financial position of the Company.
The Company's buildings, machinery and equipment have been well maintained
and are adequate for its current needs.
A listing of principal manufacturing facilities is presented below:
<TABLE>
<S> <C> <C>
AUSTRALIA IRELAND REPUBLIC OF KOREA
Melton, Victoria Millstreet Town Ansan City (2)
Shannon
BRAZIL SINGAPORE
Manaus ITALY Jurong Town
Seo Paulo Padova
SOUTH AFRICA
Midrand
CANADA JAPAN
Scarborough, Ontario Kagoshima
Okayama TAIWAN
CHINA (P.R.C.) Shioya Taipei
Dongguan Shizuoka Shanghai
Yamato THAILAND
Bangkok
ENGLAND MALAYSIA
Bordon Prai, Penang UNITED STATES
Southhampton North Little Rock, Arkansas
MEXICO Maumelle, Arkansas
FRANCE Guadalajara Menlo Park, California
Chateau Gontier Magdalena Orange, California Nogales
Pinellas Park, Florida
GERMANY St. Petersburg, Florida
Biberach POLAND Downers Grove, Illinois
Ettlingen Starogard Lisle, Illinois (2)
Naperville, Illinois
INDIA PUERTO RICO Lincoln, Nebraska (3)
Bangalore Ponce (2) Manchester, New Hampshire
</TABLE>
8
<PAGE> 9
ITEM 3 - LEGAL PROCEEDINGS
None deemed material to the Company's financial position or consolidated
results of operations.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
9
<PAGE> 10
Executive Officers of the Registrant
The following information relates to the executive officers of the
Registrant who serve at the discretion of the Board of Directors and are
customarily elected for one-year terms at the Regular Meeting of the Board of
Directors held immediately following the Annual Stockholders' Meeting. All of
the executive officers named hold positions as officers and/or directors of one
or more subsidiaries of the Registrant. For purposes of this disclosure, only
the principal positions are set forth.
<TABLE>
<CAPTION>
Year
Employed
Positions Held with Registrant by
Name During the Last Five Years Age Registrant
---- ------------------------------ --- ----------
<S> <C> <C> <C>
Frederick A. Krehbiel(a) Chairman (1993-); Chief 56 1965(b)
Executive Officer (1988-);
Vice Chairman (1988-1993).
John H. Krehbiel, Jr.(a) President (1975-); Chief 60 1959(b)
Operating Officer (1996-).
J. Joseph King Executive Vice President
(1996-); Group Vice President- 53 1975
International Operations (1988-
1996).
Raymond C. Wieser Senior Vice President, Americas
Region (1996-); Corporate Vice
President and President, 59 1965(b)
Commercial Division-U.S.
Operations (1994-1996);
Group Vice President-
U.S. Operations (1989-1994).
Robert B. Mahoney Corporate Vice President, 44 1995
Treasurer and Chief Financial
Officer (1996-).
Ronald L. Schubel Corporate Vice President (1982-) 54 1981
and Regional President, Far East
South (1994-); President,
Commercial Division-U.S. Operations
(1982-1994).
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
Year
Employed
Positions Held with Registrant by
Name During the Last Five Years Age Registrant
---- ------------------------------ --- ----------
<S> <C> <C> <C>
Werner W. Fichtner Corporate Vice President 54 1981
(1987-) and Regional President,
Europe (1981-).
Goro Tokuyama Corporate Vice President 63 1985
(1990-), Regional President,
Far East North (1988-) and
President of Molex Japan Co.,
Ltd. (1985-).
Martin P. Slark Corporate Vice President 42 1976
(1990-) and Regional President,
Americas (1996-); Regional
President, U.S. (1994-1996);
Regional President, Far East
South (1988-1994).
James E. Fleischhacker Corporate Vice President 53 1984
(1994-) and President,
DataComm Division Americas
(1989-).
Kathi M. Regas Corporate Vice President 41 1985
(1994-); Director, Human
Resources-U.S. Operations
(1989-1994).
Louis A. Hecht Corporate Secretary (1977-) 53 1974
and General Counsel (1975-).
</TABLE>
__________________________________________________________________________
(a) John H. Krehbiel, Jr. and Frederick A. Krehbiel (the "Krehbiel Family")
are brothers. The members of the Krehbiel Family may be considered to be
"control persons" of the Registrant. The other officers listed above have no
relationship, family or otherwise, to the Krehbiel family, Registrant or each
other.
(b) Includes period employed by Registrant's predecessor.
11
<PAGE> 12
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) Molex is traded on the National Market System of the NASDAQ in the
United States & and on the London Stock Exchange. The information
set forth under the captions
(b) "Financial Highlights" and "Fiscal 1997, 1996, and 1995 by Quarter
(Unaudited)" in the foldout and page 41, respectively, of the 1997
Annual Report to Shareholders is incorporated herein by reference.
(c) The following table presents quarterly dividends per common share for
the last two fiscal years. The fiscal 1997 and 1996 dividends per
share have been restated for the February, 1997 25% stock dividend.
Class A
Common Stock Common Stock
Fiscal 1997 Fiscal 1996 Fiscal 1997 Fiscal 1996
----------- ----------- ----------- -----------
Quarter Ended -
September 30, 0.0120 0.0120 0.0120 0.0120
December 31, 0.0120 0.0120 0.0120 0.0120
March 32, 0.0150 0.0120 0.0150 0.0120
June 30, 0.0150 0.0120 0.0150 0.0120
------ ------ ------ ------
Total 0.0540 0.0480 0.0540 0.0480
====== ====== ====== ======
Cash dividends on Common Shares have been paid every year since 1977.
A description of the Company's Common Stock appears in footnote 3 on page
36 of the 1997 Annual Report to Shareholders and is incorporated
herein by reference.
On June 6, 1997, the Company issued 59,477 shares of Class A Common Stock
to holders of a class of securities in a subsidiary of the Company in
exchange for all of the shares of that class of securities owned by such
holders. The transaction was exempt from registration under the
Securities Act of 1933 pursuant to Section 4(2) thereunder in that the
issuance to this limited group of sophisticated investors did not involve
a public offering.
12
<PAGE> 13
ITEM 6 - SELECTED FINANCIAL DATA
The information set forth under the caption "Ten Year Financial Highlight
Summary" (only the five years ended June 30, 1997) on page 23 of the 1997
Annual Report to Shareholders is incorporated herein by reference.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information set forth under the caption "Management's Discussion of
Financial Condition and Results of Operations" on pages 24 through 27 of
the 1997 Annual Report to Shareholders is incorporated herein by
reference.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of the Company set forth
on pages 30 through 40 of the 1997 Annual Report to Shareholders and the
independent auditors' report set forth on page 29 of the 1997 Annual
Report to Shareholders are incorporated herein by reference:
Independent Auditors' Report
Consolidated Balance Sheets - June 30, 1997 and 1996
Consolidated Statements of Income for the years ended June 30, 1997,
1996 and 1995
Consolidated Statements of Shareholders' Equity for the years ended
June 30, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended June 30,
1997, 1996 and 1995
Notes to Consolidated Financial Statements
The supplementary data regarding quarterly results of operations, set
forth under the caption "Fiscal 1997, 1996, and 1995 by Quarter
(Unaudited)" on page 41 of the 1997 Annual Report to Shareholders, is
incorporated herein by reference.
13
<PAGE> 14
The statement of changes in shares outstanding appears on Page 17 of this
Form 10-K.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information under the caption "Election of Directors" in the
Company's Proxy Statement for the annual meeting of Stockholders to be
held on October 24, 1997 (the "Company's 1997 Proxy Statement") is
incorporated herein by reference. The information called for by Item 401
of Regulation S-K relating to the Executive Officers is furnished in a
separate item captioned "Executive Officers of the Registrant" in Part I
of this report.
ITEM 11 - EXECUTIVE COMPENSATION
The information under the caption "Executive Compensation" in the
Company's 1997 Proxy Statement is incorporated herein by reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information under the caption "Security Ownership of Management
and of Certain Beneficial Owners" in the Company's 1997 Proxy Statement is
incorporated herein by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the captions "Election of Directors,"
"Indebtedness of Management" and "Security Ownership of Management and of
Certain Beneficial Owners" in the Company's 1997 Proxy Statement is herein
incorporated by reference.
14
<PAGE> 15
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) 1. Financial Statements
The following consolidated financial statements contained in the
Company's 1997 Annual Report to Shareholders have been incorporated by
reference in Item 8.
<TABLE>
<CAPTION>
Page(s) in
Annual Report
Item to Shareholders
------------------------------- ----------------
<S> <C>
Independent Auditors' Report 29
Consolidated Balance Sheets - June 30, 1997
and 1996 30-31
Consolidated Statements of Income - for
the years ended June 30, 1997, 1996 and 1995 32
Consolidated Statements of Shareholders' Equity -
for the years ended June 30, 1997, 1996 and 1995 33
Consolidated Statements of Cash Flows - for the
years ended June 30, 1997, 1996 and 1995 34
Notes to Consolidated Financial Statements 35-40
Fiscal 1997, 1996 and 1995 by Quarter (Unaudited) 41
(a) 2. Financial Statement Schedule
Page in the
Form 10-K
---------
Schedule II - Valuation and Qualifying Accounts 18
</TABLE>
15
<PAGE> 16
All other schedules are omitted because they are inapplicable, not
required under the instructions, or the information is included in the
consolidated financial statements or notes thereto.
Separate financial statements for the Company's unconsolidated affiliated
companies, accounted for by the equity method, have been omitted because
they do not constitute significant subsidiaries.
(a) 3. Exhibits
The exhibits listed on the accompanying Index to Exhibits are filed or
incorporated herein as part of this Report.
(b) Reports on Form 8-K
Molex filed no reports on Form 8-K with the Securities and Exchange
Commission during the last quarter of the fiscal year ended June 30,
1997.
16
<PAGE> 17
Molex Incorporated
Statements of Changes in Shares
For the Year Ended June 30, 1997, 1
<TABLE>
<CAPTION>
Class A Class B
Common Common Common Treasury
Stock Stock Stock Stock
----------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Shares outstanding at
June 30, 1994 32,918,837 32,755,289 94,255 2,170,287
Exercise of stock options 310,593 24,528
Purchase of treasury stock 125,452
Disposition of treasury stock (47,247)
Purchase of business 974,998
Stock splits effected in the form 18,666,350 18,677,884 1,236,233
of dividends ----------- ---------- --------- ----------
Shares outstanding at
June 30, 1995 51,895,780 52,432,699 94,255 3,484,725
Exercise of stock options 471,229
Purchase of treasury stock 785,000
Disposition of treasury stock (72,162)
Purchase of business 108,257
Issuance of stock bonus 11,812
Other (1,017)
----------- ---------- --------- ----------
Shares outstanding at
June 30, 1996 52,378,821 52,539,939 94,255 4,197,563
Exercise of stock options 448,849 39,447
Purchase of treasury stock 1,026,250
Disposition of treasury stock
Purchase of business (59,477)
Stock splits effected in the form 13,214,185 13,130,067 1,164,575
of dividends
Other 11,856 (11,856) (40,933)
----------- ---------- --------- ----------
Shares outstanding at
June 30, 1997 66,053,711 65,658,150 94,255 6,327,425
=========== ========== ========= ==========
</TABLE>
17
<PAGE> 18
Molex Incorporated
Schedule II - Valuation and Qualifying Accounts
For the Year Ended June 30, 1997, 1996, and 1995
<TABLE>
<CAPTION>
Allowance for Losses Balance at Balance
and Adjustments on Beginning Charged to Accounts Translation at End
Receivables: of Period Income Written Off Adjustments of Period
- -------------------- ---------- ---------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
1997 $12,566 $3,019 ($488) ($511) $14,586
========== ========== ============ =========== =========
1996 $11,934 $1,831 ($548) ($651) $12,566
========== ========== ============ =========== =========
1995 $8,916 $3,332 ($828) $514 $11,934
========== ========== ============ =========== =========
</TABLE>
18
<PAGE> 19
[DELOITTE & TOUCHE LLP LETTERHEAD]
INDEPENDENT AUDITORS REPORT
To the Board of Directors and
Shareholders of Molex Incorporated
Lisle, Illinois
We have audited the consolidated financial statements of Molex Incorporated and
its subsidiaries as of June 30, 1997 and 1996, and for each of the three years
in the period ended June 30, 1997, and have issued our report thereon dated
July 22, 1997; such financial statements and report are included in your 1997
Annual Report to Shareholders and are incorporated herein by reference. Our
audits also included the statements of changes in shares outstanding and the
financial statement schedule of Molex Incorporated and its subsidiaries, listed
in Item 14 (a) 2. These statements of changes in shares outstanding and
financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, such statements of changes in shares outstanding and financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
/S/ Deloitte & Touche LLP
Deloitte & Touche LLP
Chicago, Illinois
July 22, 1997
19
<PAGE> 20
S I G N A T U R E S
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Company has duly caused this Annual Report to be signed on its
behalf by the undersigned, there unto duly authorized.
MOLEX INCORPORATED
------------------------------
Company)
/S/ ROBERT B. MAHONEY
------------------------------
September 23, 1997 By: Robert B. Mahoney
Corporate Vice President, Treasurer
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
September 23, 1997 /S/ F. A. KREHBIEL F. A. Krehbiel
------------------------------
Chairman of the Board and
Chief Executive Officer
September 23, 1997 /S/ J. H. KREHBIEL, JR.
------------------------------
J. H. Krehbiel, Jr.
President, Chief Operating Officer and
Director
September 23, 1997 /S/ ROBERT B. MAHONEY
------------------------------
Robert B. Mahoney
Corporate Vice President, Treasurer
and Chief Financial Officer
September 23, 1997 /S/ F. L. KREHBIEL
------------------------------
F. L. Krehbiel
Director
September 23, 1997 /S/ MICHAEL J. BIRCK
--------------------
Michael J. Birck
Director
September 23, 1997 /S/ DONALD G. LUBIN
------------------------------
Donald G. Lubin
Director
20
<PAGE> 21
MOLEX INCORPORATED
EXHIBIT INDEX
<TABLE>
Exhibit
Number Exhibit
- ------- ----------------------------------
<S> <C> <C>
3 3.1 Certificate of Incorporation
(incorporated by reference to 1990
Form 10-K, Exhibit 3.1)
3.2 By-Laws (as amended)
(incorporated by reference to 1995
Form 10-K, Exhibit 3.2)
4 Instruments defining rights of
security holders including
indentures. See Exhibit 3.1
10 Material Contracts
10.1 The Molex Deferred Compensation
Plan (incorporated by reference
to 1984 Form 10-K, Exhibit 10.6)
10.2 The 1990 Molex Incorporated
Executive Stock Bonus Plan
(incorporated by reference to
1991 From 10-K, Exhibit 10.4)
10.3 The 1990 Molex Incorporated
Stock Option Plan (incorporated
by reference to 1991 Form 10-K,
Exhibit 10.5)
10.4 The 1991 Molex Incorporated
Incentive Stock Option Plan
(incorporated by reference to
Appendix A of the registrant's
Proxy Statement for 1991).
13 Molex Incorporated Annual report to
Shareholders for the year ended
June 30, 1997. (Such Report, except
to the extent incorporated herein by
reference, is being furnished for the
information of the Securities and
Exchange Commission only and is not
to be deemed filed as a part of this
annual report on Form 10-K)
</TABLE>
21
<PAGE> 22
<TABLE>
Exhibit
Number Exhibit
- ------- -----------------------------
<S> <C>
22 Subsidiaries of registrant
24 Independent Auditors' Consent
27 Financial Data Schedule
</TABLE>
(All other exhibits are either inapplicable or not required)
22
<PAGE> 1
TEN-YEAR FINANCIAL HIGHLIGHTS SUMMARY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993(2)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATIONS
Net revenue $ 1,539,712 $ 1,382,673 $ 1,197,747 $ 964,108 $ 859,283
Gross profit 629,255 555,284 505,697 406,079 352,603
Income before income taxes
and minority interest 262,369 228,953 214,492 159,477 133,478
Income taxes 95,581 83,300 90,273 63,186 58,371
Net income 166,716 145,586 124,035 94,852 71,055
Earnings per common share(1) 1.33 1.16 0.99 0.77 0.58
Net income as a percent of
net revenue 10.8% 10.5% 10.4% 9.8% 8.3%
FINANCIAL POSITION
Current assets $873,614 $734,589 $773,036 $635,104 $497,560
Current liabilities 342,026 275,182 278,046 205,394 165,368
Working capital 531,588 459,407 494,990 429,710 332,192
Current ratio 2.6 2.7 2.8 3.1 3.0
Property, plant &
equipment, net 665,468 613,125 567,303 440,995 385,828
Total assets 1,636,931 1,460,999 1,441,020 1,138,517 961,775
Long-term debt 7,350 7,450 8,122 7,350 7,510
Shareholders equity 1,235,912 1,131,271 1,107,268 881,614 751,654
Return on beginning
shareholders equity 14.7% 13.1% 14.1% 12.6% 10.8%
Dividends per common share(1) 0.06 0.05 0.02 0.02 0.02
Weighted average common
shares outstanding(1) 125,689 125,931 125,019 123,720 123,049
<CAPTION>
1992 1991 1990 1989 1988
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATIONS
Net revenue $ 776,192 $ 707,950 $ 594,372 $ 571,892 $ 502,368
Gross profit 318,361 297,954 256,581 257,154 240,062
Income before income taxes
and minority interest 117,412 117,936 110,041 104,672 106,133
Income taxes 49,814 53,402 47,495 46,475 46,473
Net income 67,464 64,631 62,087 57,698 59,276
Earnings per common share(1) 0.55 0.53 0.51 0.47 0.48
Net income as a percent of
net revenue 8.7% 9.1% 10.4% 10.1% 11.8%
FINANCIAL POSITION
Current assets $ 434,277 $ 402,208 $ 355,107 $ 315,958 $ 298,295
Current liabilities 168,209 155,593 109,949 99,270 96,111
Working capital 266,068 246,615 245,158 216,688 202,184
Current ratio 2.6 2.6 3.2 3.2 3.1
Property, plant &
equipment, net 362,719 280,761 228,968 214,373 183,461
Total assets 849,689 726,740 606,899 541,253 498,953
Long-term debt 7,949 9,136 8,046 5,760 6,566
Shareholders equity 660,389 550,742 481,281 428,788 389,735
Return on beginning
shareholders equity 12.2% 13.4% 14.5% 14.8% 18.8%
Dividends per common share(1) 0.01 0.01 0.01 0.01 0.01
Weighted average common
shares outstanding(1) 122,365 121,695 122,119 123,591 123,815
</TABLE>
(1)Restated for the following stock split/dividends: 25%-February, 1997;
25%-August, 1995; 25%-November, 1994; 25%-November, 1992; 100%-June, 1990.
(2)1993 results include a charge of $3,605, net of tax, for the cumulative
effect of the change in accounting for postretirement benefits other than
pensions.
MOLEX 1997 ANNUAL REPORT - 23
<PAGE> 2
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL HIGHLIGHTS
Molex continued to produce strong revenue growth while maintaining profitability
goals in fiscal 1997, reflecting the general improvement in economic conditions
in several geographic regions in which the Company operates. Net revenue
increased 11.4 percent to a record $1.54 billion for the fiscal year. The
Company's net revenue continues to increase faster than the worldwide connector
industry. Net income increased 14.5 percent to a record $167 million, or 10.8
percent of net revenue. The Company's continued 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 global and
multinational companies worldwide.
THE GROWTH OF MOLEX VS.
THE WORLD CONNECTOR INDUSTRY
[CHART]
The Growth of Molex vs the Worldwide Connector Industry
Using 1987 as a base year.
Worldwide Molex
--------- -----
1987 100* 100*
1988 112* 130*
1989 113* 148*
1990 116* 154*
1991 117* 183*
1992 118* 200*
1993 118* 221*
1994 123* 248*
1995 150* 308*
1996 159* 336*
1997 164* 397*
* Source: Fleck International
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
23.5 percent on Molex Common Stock and 24.2 percent on Molex Class A Common
Stock. This compares to the 17.6 percent return on the S & P MidCap 400 over the
same period.
A $100 investment in Molex Common Stock at June 30, 1992, together with
the reinvestment of dividends, would be worth $287 at June 30, 1997, and a
similar investment in Molex Common Class A Stock would be worth $296 at June
30, 1997. During this same period, an investment in an index fund weighted
exclusively by the S&P MidCap 400 would be worth $225.
In April, 1997, the Molex Board of Directors distributed a 25 percent
stock dividend. In addition, the Board increased the annual cash dividend by 25
percent to $0.06 per share. All shares outstanding, earnings and dividends per
share have been retroactively restated for the stock dividend.
MOLEX COMMON STOCK/
HIGH-LOW-CLOSE BY QUARTER
[LINE GRAPH]
<TABLE>
<S> <C> <C> <C>
1993 High Low Close
- ---- ---- --- -----
1st 15.50 12.20 14.34
2nd 15.80 13.30 13.63
3rd 16.90 13.20 16.38
4th 16.50 14.70 15.87
1994 High Low Close
- ---- ---- --- -----
1st 19.60 15.62 18.56
2nd 18.70 16.30 18.18
3rd 19.70 17.20 17.28
4th 19.90 15.50 19.46
1995 High Low Close
- ---- ---- --- -----
1st 22.50 19.20 21.76
2nd 23.00 19.80 22.08
3rd 23.30 19.80 22.88
4th 25.10 22.60 24.80
1996 High Low Close
- ---- ---- --- -----
1st 29.23 21.57 23.20
2nd 29.60 24.40 25.40
3rd 29.00 21.80 27.90
4th 29.30 24.20 25.40
1997 High Low Close
- ---- ---- --- -----
1st 30.20 22.00 29.80
2nd 31.80 28.40 31.30
3rd 32.00 28.00 28.40
4th 39.50 27.00 36.50
</TABLE>
Restated for the following stock splits: 25% - February, 1997; 25% - August,
1995; 25% - November, 1994; 25% - November, 1992
FIVE-YEAR CUMULATIVE TOTAL RETURN
(Fiscal Years ended June 30)
[LINE GRAPH]
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C>
Molex Common Stock 100.00 124.12 152.31 194.34 199.42 287.02
Molex CL A Comm Stock 100.00 120.88 158.70 197.28 198.86 295.67
S & P MidCap 400 100.00 122.69 122.62 150.01 182.38 224.93
</TABLE>
INTERNATIONAL OPERATIONS
With Molexs almost 30 years in the international connector market, foreign
operations generated, in fiscal 1997, net revenue in excess of $1.0 billion for
the first time, and represented 67.3 percent of total Molex net revenue. Net
revenue from foreign operations in fiscal 1997 were nearly four times greater
than in fiscal 1987. International operations are subject to currency exchange
rate fluctuations and government actions. Molex 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
and
24 - MOLEX 1997 ANNUAL REPORT
<PAGE> 3
occasional use of forward exchange contracts. Due to the uncertainty of the
foreign currency exchange markets, Molex cannot reasonably predict future trends
related to foreign currency fluctuations. Foreign currency fluctuations have
impacted the Company's results in the past and may impact results in the future.
FINANCIAL POSITION AND LIQUIDITY
Molex has an exceptionally strong balance sheet. Cash and marketable securities
at June 30, 1997, equaled $325.3 million and represented 19.9 percent of total
consolidated assets. Cash and marketable securities increased $42.7 million
during fiscal 1997.
The Company's long-term financing strategy is to rely almost exclusively 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 $20.5 million, which remain unused at
June 30, 1997.
Cash provided from operations was $275.4 million during fiscal 1997. The
Company's operations generate sufficient cash to support the current level of
capital expenditures and financing activities. In U.S. dollars, the 76 average
days' sales outstanding in trade accounts receivable remained the same as in the
prior year. Average inventory days in U.S. dollars have improved to 71 days from
the 73 days reported last fiscal year.
Cash used for investing activities was $278.0 million in fiscal 1997,
primarily due to capital expenditures. Molex continued its commitment to
investing in new tooling, equipment and facilities, with capital expenditures
totaling $208.6 million for fiscal 1997. Molex added new facilities in China and
Puerto Rico. In addition, facilities were expanded in the Republic of Korea,
Taiwan, India and Florida. These additions increased the worldwide facility
floor space to 3.9 million square feet.
The weighted average shares outstanding of Common Stock, Class A Common
Stock and Class B Common Stock for the current fiscal year decreased to 125.7
million from the 125.9 million for fiscal 1996. The Company purchased 1,077,500
shares of common stock during fiscal 1997. During fiscal 1996, Molex purchased
785,000 shares of common stock on the open market.
Percentage of Net Revenue
Fiscal Year Ended June 30,
<TABLE>
<CAPTION>
U.S. Dollar
Percentage Change
1997 1996 1995 1997-96 1996-95
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenue 100.0% 100.0% 100.0% 11.4% 15.4%
Cost of sales 59.1 59.8 57.8 10.0 19.6
- -----------------------------------------------------------------------------
Gross profit 40.9 40.2 42.2 13.3 9.8
Operating expenses 24.5 24.5 24.9 11.3 13.6
- -----------------------------------------------------------------------------
Income from operations 16.4 15.7 17.3 16.5 4.4
Total other income 0.6 0.9 0.6 (17.7) 74.2
- -----------------------------------------------------------------------------
Income before income taxes 17.0 16.6 17.9 14.6 6.7
Income taxes 6.2 6.1 7.5 14.7 -7.7
- -----------------------------------------------------------------------------
Net income 10.8% 10.5% 10.4% 14.5% 17.4%
=============================================================================
</TABLE>
FISCAL 1997 COMPARED TO FISCAL 1996
Net revenue increased 11.4 percent to an all-time high of $1.54 billion during
fiscal 1997, compared to $1.38 billion during fiscal 1996. Excluding the effect
of exchange rates due to the generally stronger U.S. dollar, which had the
affect of reducing reported revenue, net revenue increased 16.3 percent.
In the Far East North, customer net revenue increased 15.4 percent in local
currencies. The increase in domestic sales in fiscal 1997 was achieved despite
difficult economic conditions in the Republic of Korea during much of the year
and continuing price erosion in Japan. Net revenue in the region increased 2.6
percent in U.S. dollars as the dollar strengthened considerably against both the
Japanese yen and the Korean won. Development of high precision and miniaturized
products have made Molex Japan a leading supplier to the notebook PC industry.
Molex became the No. 3 connector maker in Japan. Molex further advanced its
entry into NTT-related telecommunications and mobile phone business with release
of several new interconnection products.
Customer net revenue in the Americas region increased 15.9 percent in U.S.
dollars and 18.8 percent in local currencies in fiscal 1997. In the Commercial
Division, revenue growth and profitability continue in competitive traditional
markets and growth increased in niche markets. Sales growth in the Data/Comm
Division was a result of continued strength in the PC market, introduction of
new products and high speed cable assemblies used in the telecommunications
industry. The Fiber Optics Division continued its strong sales growth, and the
Value-Added Division experienced significant growth in the computer and computer
peripheral markets.
Customer net revenue in the Far East South increased 20.4 percent in U.S.
dollars and 21.0 percent in local currencies. The region continues to experience
revenue growth due to demand for personal computers and related peripheral
products, along with new products developed for local demand and export.
MOLEX 1997 ANNUAL REPORT - 25
<PAGE> 4
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
Europe's net revenue increased 6.2 percent in U.S. dollars and 12.7 percent
in local currencies. Slow growth and softened demand during the first half of
the year was compensated by strong sales in the second half of the year. Price
erosion and initial start-up costs affecting profitability were offset by
reductions in material costs and an increase in new product sales.
The consolidated gross profit increased from 40.2 percent of net revenue in
fiscal 1996 to 40.9 percent during fiscal 1997. The gross margin performance
improvement in fiscal 1997 can be attributed to improvement in overall
manufacturing effiencies, general softening of raw material prices and the
Company's ability to overcome the prior year's start-up costs, which plagued
automotive and other new product programs.
Operating expenses as a percentage of net revenue remained steady at 24.5
percent in fiscal 1997 and fiscal 1996. Net revenue per employee decreased to
$128.9 thousand during fiscal 1997 from $136.9 during fiscal 1996. Employee
headcount increased 18.3 percent compared to the 11.4 percent increase in net
revenue. This increase in headcount can be attributed to the aforementioned
growth in revenue, as well as significant increases in the Value-Added
Division.
Research and development expenditures increased to $89.5 million or 5.8
percent of sales, a 4.7 percent increase from the $85.5 million in fiscal 1996.
These expenditures contributed to the release of 319 new product families and
the granting of 541 new patents during fiscal 1997. During fiscal 1997, 30.5
percent of net revenue was derived from the sale of products released by the
Company within the last three years. Molex has a long-term commitment to
reinvesting its profits in new product design and tooling in order to maintain
and enhance the Company's competitive position.
The foreign currency transactions balanced out through the year, resulting
in a net de minimus gain in fiscal 1997, compared to a net gain of $2.1 million
in fiscal 1996.
Interest income decreased slightly from fiscal 1996. This decrease can be
attributed to the relatively lower interest rates earned on the cash balances in
many countries where the Company has significant short-term investments.
Interest expense remained relatively unchanged from fiscal 1996.
The effective tax rate remained unchanged at 36.4 percent from fiscal 1996
to 1997.
Net income increased 14.5 percent to $166.7 million. Earnings per share
increased to $1.33 during fiscal 1997 from $1.16 during fiscal 1996.
FISCAL 1996 COMPARED TO FISCAL 1995
Net revenue increased 15.4 percent to an all-time high of $1.4 billion during
fiscal 1996, compared to $1.2 billion during fiscal 1995. Excluding the change
in exchange rates due to the generally stronger U.S. dollar, which had the
affect of reducing reported revenue, net revenue increased 19.0 percent.
In the Far East North, customer net revenue increased 3.7 percent in local
currencies. The increase in domestic sales in fiscal 1996 was achieved despite
difficult economic conditions in Japan during much of the year and the impact of
price erosion. Net revenue in the region decreased 3.6 percent in U.S. dollars
as the dollar strengthened against the Japanese yen. Development of high
precision and miniaturized products has made Molex a leading supplier to the
notebook PC industry, as well as positioned the Company to further penetrate
growth industries such as telecommunications and automotive.
Customer net revenue in the Americas region increased 29.2 percent in U.S.
dollars and 32.6 percent in local currencies in fiscal 1996, including the net
revenue for Mod-Tap for the full fiscal year. In the U.S. Commercial Division,
sales to the automotive market increased substantially over the prior year as
several major programs began commercial production in fiscal 1996. Revenues and
profits in the U.S. Data/Comm Division were strong in the first half of the
fiscal year, with slower growth in the second half. Price erosion in this sector
continues to offset unit growth. Fiber optics and related telecommunications
products continue to be the fastest-growing market segments in the Americas
region. The newly-formed Value-Added Division, centered in Mexico, experienced
strong growth during the year. Molex is well-positioned to take advantage of
opportunities in this rapidly growing market as well.
Customer net revenue in the Far East South increased 15.8 percent in U.S.
dollars and 14.3 percent in local currencies. The region continues to experience
revenue growth due to demand for personal computers and related peripheral
products, as well as introduction of new products for local demand and export.
26 - MOLEX 1997 ANNUAL REPORT
<PAGE> 5
Europe's net revenues increased 22.5 percent in U.S. dollars and 16.0
percent in local currencies. Sales to the mobile telephone and automotive
industries were strong during the first half of the fiscal year, but demand
softened during the second half and revenue growth slowed somewhat. Start-up
costs for automotive programs placed pressure on profitability in the region
during much of the year.
The consolidated gross profit increased from 42.2 percent of net revenue in
fiscal 1995 to 40.2 percent during fiscal 1996. Price erosion, coupled with
start-up costs for automotive programs in the U.S. and Europe and new products
in Japan, placed pressure on margins during fiscal 1996.
Operating expenses as a percentage of net revenue decreased slightly from
24.9 percent in fiscal 1995 to 24.5 percent in fiscal 1996. Net revenue per
employee increased to $136.9 thousand in fiscal 1996 from $126.1 thousand during
fiscal 1995. Employee headcount increased only 6.3 percent, as compared to the
15.4 percent increase in net revenue.
Research and development expenditures reached an all-time high of $85.5
million or 6.2 percent of sales, a 9.5 percent increase from the $78.1 million
spent in fiscal 1995. These expenditures, coupled with the efforts of the
engineering department, resulted in the release of 283 new product families and
the granting of 519 new patents during fiscal 1996. During fiscal 1996, 27.5
percent of net revenue was derived from the sale of products released by the
Company within the last three years. Molex has a long-term commitment to
reinvesting its profits in new product design and tooling in order to maintain
and improve the Company's competitive position.
Foreign currency transactions resulted in a net gain of $2.1 million in
fiscal 1996, compared to a net loss of $2.8 million in fiscal 1995 mainly due to
the weakening of the Japanese yen when compared to the U.S. dollar.
Interest income, net of interest expense for fiscal 1996 increased 5.2
percent from fiscal 1995. This increase is the result of higher interest rates
earned on relatively constant cash balances in many of the countries where the
Company has significant short-term investments. Interest expense remained
relatively unchanged from fiscal 1995.
The effective tax rate decreased to 36.4 percent during fiscal 1996 from
42.1 percent during fiscal 1995. The decrease was due to the mix of pretax
earnings between the U.S. and Japan and to changes in the valuation reserve for
losses that can be recognized for tax purposes.
Net income increased 17.4 percent to $145.6 million. Earnings per share
increased to $1.16 during fiscal 1996 from $0.99 during fiscal 1995.
OUTLOOK
Fiscal 1997 was another fine year for Molex, with sales growing significantly
faster than the overall connector industry. The outlook for fiscal 1998 is for
another good year. Management anticipates steady growth in sales and earnings
throughout the year.
To further expand the Company's global presence and provide customers with
innovative products at an accelerated pace, 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. During fiscal 1998, the
Company plans to open new facilities in Segensworth, England; Merrimack, New
Hampshire; and Indianapolis, Indiana. Further expansion is planned for existing
operations in Kagoshima, Japan; Chateau Gontier, France; Guadalajara and
Nogales, Mexico; and Maumelle, Arkanas. Molex is also planning to increase its
presence in the southern region of the Republic of Korea and Northern China.
Worldwide, the connector industry is expected to increase between five
percent and six percent. The Company expects to once again surpass its goal of
growing at twice the connector industry while generating a 10 percent net return
on sales. The Company continues to emphasize expansion in rapidly growing
markets such as computers, computer peripherals, telecommunications and
automotive. Molex remains committed to providing high quality products and a
full range of services to customers wherever they may be located in the world.
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
governmental regulations.
The Company is a defendant in several pending proceedings incidental to the
normal conduct of business. Management believes that the ultimate disposition of
these matters will not have a materially adverse impact on the financial
condition or consolidated results of operations of the Company.
MOLEX 1997 ANNUAL REPORT - 27
<PAGE> 6
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 generally accepted
accounting principles. 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 maintains an internal control structure designed to provide
reasonable assurance for the safeguarding of assets against loss from
unauthorized use or disposition and 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 generally accepted auditing standards 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 generally accepted accounting principles.
Frederick A. Krehbiel John H. Krehbiel, Jr. Robert B. Mahoney
Frederick A. Krehbiel John H. Krehbiel, Jr. Robert B. Mahoney
Chairman of the Board and President and Corporate Vice President,
Chief Executive Officer Chief Operating Officer Treasurer and Chief
Financial Officer
28 - MOLEX 1997 ANNUAL REPORT
<PAGE> 7
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, 1997 and 1996, and the related
consolidated statements of income, shareholders' equity, and cash flows for
each of the three years in the period ended June 30, 1997. 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 generally accepted auditing
standards. 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, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1997 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Chicago, Illinois
July 22, 1997
MOLEX 1997 ANNUAL REPORT - 29
<PAGE> 8
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Assets June 30,
1997 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 199,767 $ 242,779
Marketable securities 125,570 39,883
Accounts receivable:
Trade, less allowance of $14,586 in 1997 and
$12,566 in 1996 for doubtful accounts 332,350 269,675
Employee 5,415 4,356
Inventories 166,660 147,612
Deferred income taxes (Note 5) 35,801 22,562
Prepaid expenses 8,051 7,722
- ---------------------------------------------------------------------------------------------------------
Total current assets 873,614 734,589
- ---------------------------------------------------------------------------------------------------------
Property, plant and equipment
- ---------------------------------------------------------------------------------------------------------
at cost (Note 4):
Land and improvements 44,107 42,815
Buildings and leasehold improvements 277,020 252,372
Machinery and equipment 730,258 633,990
Molds and dies 307,627 281,038
Construction-in-progress 56,886 82,682
- ---------------------------------------------------------------------------------------------------------
1,415,898 1,292,897
Less accumulated depreciation and amortization 750,430 679,772
- ---------------------------------------------------------------------------------------------------------
Net property, plant and equipment 665,468 613,125
- ---------------------------------------------------------------------------------------------------------
Other assets 97,849 113,285
- ---------------------------------------------------------------------------------------------------------
$ 1,636,931 $ 1,460,999
=========================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
30 - MOLEX 1997 ANNUAL REPORT
<PAGE> 9
<TABLE>
<CAPTION>
Liabilities and Shareholders' Equity June 30,
1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Current liabilities:
Current portion of long-term debt (Note 4) $ -- $ 103
Accounts payable 151,934 127,557
Accrued expenses:
Salaries, commissions and bonuses 44,111 28,384
Other 64,899 63,205
Income taxes (Note 5) 79,197 54,418
Dividends payable 1,885 1,515
- -----------------------------------------------------------------------------------------------------
Total current liabilities 342,026 275,182
- -----------------------------------------------------------------------------------------------------
Deferred items:
Investment grants 3,341 2,991
Income taxes (Note 5) 11,417 10,986
- -----------------------------------------------------------------------------------------------------
Total deferred items 14,758 13,977
- -----------------------------------------------------------------------------------------------------
Accrued postretirement benefits (Notes 6 and 7) 33,779 30,401
- -----------------------------------------------------------------------------------------------------
Long-term debt (Note 4) 7,350 7,450
- -----------------------------------------------------------------------------------------------------
Minority interest in subsidiaries 3,106 2,718
- -----------------------------------------------------------------------------------------------------
Shareholders equity (Notes 3 and 9):
Common Stock, $.05 par value; 100,000 shares authorized;
66,054 shares issued at 1997 and 65,474 shares issued at 1996 3,303 2,619
Class A Common Stock, $.05 par value; 100,000 shares authorized;
65,658 shares issued at 1997 and 65,675 shares issued at 1996 3,283 2,627
Class B Common Stock, $.05 par value; 146 shares authorized;
94 shares issued at 1997 and 1996 5 5
Paid-in capital 131,265 116,510
Retained earnings 1,149,720 989,928
Treasury stock (Common Stock, 4,171 shares at 1997 and 3,015
shares at 1996; Class A Common Stock, 2,157 shares at 1997
and 2,231 shares at 1996), at cost (94,494) (62,726)
Deferred unearned compensation (16,499) (13,583)
Cumulative translation and other adjustments 59,329 95,891
- -----------------------------------------------------------------------------------------------------
Total shareholders' equity 1,235,912 1,131,271
- -----------------------------------------------------------------------------------------------------
$ 1,636,931 $ 1,460,999
=====================================================================================================
</TABLE>
MOLEX 1997 ANNUAL REPORT - 31
<PAGE> 10
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
For the year ended June 30,
1997 1996 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net revenue $ 1,539,712 $ 1,382,673 $ 1,197,747
Cost of sales 910,457 827,389 692,050
- --------------------------------------------------------------------------------------------
Gross profit 629,255 555,284 505,697
- --------------------------------------------------------------------------------------------
Operating expenses:
Selling 153,483 142,805 129,152
Administrative 223,833 196,202 169,331
- --------------------------------------------------------------------------------------------
Total operating expenses 377,316 339,007 298,483
- --------------------------------------------------------------------------------------------
Income from operations 251,939 216,277 207,214
- --------------------------------------------------------------------------------------------
Other income (expense):
Foreign currency transaction gain (loss) 25 2,114 (2,759)
Interest, net 10,405 10,562 10,037
- --------------------------------------------------------------------------------------------
Total other income 10,430 12,676 7,278
- --------------------------------------------------------------------------------------------
Income before income taxes and minority interest 262,369 228,953 214,492
Income taxes (Note 5) 95,581 83,300 90,273
- --------------------------------------------------------------------------------------------
Income before minority interest 166,788 145,653 124,219
Minority interest (72) (67) (184)
- --------------------------------------------------------------------------------------------
Net income $ 166,716 $ 145,586 $ 124,035
============================================================================================
Earnings per common share (Based upon weighted
average common shares outstanding) $ 1.33 $ 1.16 $ 0.99
- --------------------------------------------------------------------------------------------
Dividends per common share (Note 3) $ 0.06 $ 0.05 $ 0.02
- --------------------------------------------------------------------------------------------
Weighted average common shares outstanding (Note 3) 125,689 125,931 125,019
- --------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
32 - MOLEX 1997 ANNUAL REPORT
<PAGE> 11
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
For the year ended June 30,
1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock
Balance at beginning of period $ 2,619 $ 2,075 $ 1,646
Exercise of stock options 23 23 16
Stock split effected in the form of a dividend 661 521 413
- ----------------------------------------------------------------------------------------------------------------------
Balance at end of period 3,303 2,619 2,075
Class A Common Stock
Balance at beginning of period 2,627 2,097 1,637
Exercise of stock options -- -- 1
Purchase of business -- 6 49
Stock split effected in the form of a dividend 656 524 410
- ----------------------------------------------------------------------------------------------------------------------
Balance at end of period 3,283 2,627 2,097
Class B Common Stock
Balance at beginning and end of period 5 5 5
Paid-in capital
Balance at beginning of period 116,510 101,534 56,464
Exercise of stock options 5,947 6,822 4,493
Disposition of treasury stock 203 920 1,112
Stock options granted 8,655 4,396 9,983
Stock option cancellations (955) -- --
Purchase of business 1,672 3,516 30,420
Issuance of stock bonus 550 367 --
Stock split effected in the form of a dividend (1,317) (1,045) (938)
- ----------------------------------------------------------------------------------------------------------------------
Balance at end of period 131,265 116,510 101,534
Retained earnings
Balance at beginning of period 989,928 850,533 729,547
Net income 166,716 145,586 124,035
Cash dividends (6,924) (6,191) (3,049)
- ----------------------------------------------------------------------------------------------------------------------
Balance at end of period 1,149,720 989,928 850,533
Treasury stock
Balance at beginning of period (62,726) (35,749) (31,749)
Purchase of treasury stock (31,918) (26,662) (3,712)
Exercise of stock options (917) (1,049) (898)
Purchase of business 484 -- --
Disposition of treasury stock 583 734 610
- ----------------------------------------------------------------------------------------------------------------------
Balance at end of period (94,494) (62,726) (35,749)
Deferred unearned compensation
Balance at beginning of period (13,583) (13,771) (7,223)
Stock options granted (8,655) (4,396) (9,983)
Stock option cancellations 682 -- --
Amortization of deferred unearned compensation 5,057 4,584 3,435
- ----------------------------------------------------------------------------------------------------------------------
Balance at end of period (16,499) (13,583) (13,771)
Cumulative translation and other adjustments
Balance at beginning of period 95,891 200,544 131,287
Net effect of translation adjustment (36,962) (104,653) 69,257
Unrealized investment gain 400 -- --
- ----------------------------------------------------------------------------------------------------------------------
Balance at end of period 59,329 95,891 200,544
- ----------------------------------------------------------------------------------------------------------------------
Total shareholders' equity $ 1,235,912 $ 1,131,271 $ 1,107,268
======================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
MOLEX 1997 ANNUAL REPORT - 33
<PAGE> 12
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
For the year ended June 30,
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash and cash equivalents, beginning of period $ 242,779 $ 253,552 $ 220,681
Cash and cash equivalents were provided from (used for):
Operations:
Net income 166,716 145,586 124,035
Add (deduct) non-cash items included in net income:
Depreciation and amortization 138,675 119,909 104,857
Deferred income taxes (13,671) (4,629) (603)
Gain on sale of property, plant and equipment (236) (361) (51)
Minority interest 72 67 184
Amortization of deferred unearned compensation 5,057 4,584 3,435
Amortization of deferred investment grants (486) (289) (187)
Other (credits) charges to earnings net (1,552) (1,055) (553)
Current items:
Accounts receivable (78,645) (19,533) (35,289)
Inventories (23,334) (12,355) (23,705)
Prepaid expenses (1,062) (4,451) (257)
Accounts payable 31,143 15,784 16,846
Accrued expenses 25,842 12,878 15,482
Income taxes 26,833 (2,903) 20,455
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided from operations 275,352 253,232 224,649
- ------------------------------------------------------------------------------------------------------------------------
Investments:
Purchases of property, plant and equipment (208,558) (222,389) (186,877)
Proceeds from sale of property, plant and equipment 3,104 3,860 3,041
Purchases of businesses, net of cash acquired -- (1,677) (16,338)
Proceeds from sale of marketable securities 2,179,269 1,921,024 1,454,008
Purchases of marketable securities (2,260,518) (1,901,504) (1,456,834)
Increase in other assets 8,693 (10,290) (1,329)
- ------------------------------------------------------------------------------------------------------------------------
Net cash used for investments (278,010) (210,976) (204,329)
- ------------------------------------------------------------------------------------------------------------------------
Financing:
Increase in investment grants 1,067 787 --
Decrease in long-term debt (857) (987) (945)
Increase in long-term debt 654 269 --
Cash dividends paid (6,924) (5,556) (2,998)
Exercise of stock options 5,053 5,796 2,992
Purchase of treasury stock (31,918) (26,662) (3,712)
Disposition of treasury stock 786 1,654 1,722
- ------------------------------------------------------------------------------------------------------------------------
Net cash used for financing (32,139) (24,699) (2,941)
- ------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (8,215) (28,330) 15,492
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (43,012) (10,773) 32,871
- ------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 199,767 $ 242,779 $ 253,552
========================================================================================================================
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest $ 628 $ 1,140 $ 931
Income taxes $ 72,372 $ 78,611 $ 70,251
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
34 - MOLEX 1997 ANNUAL REPORT
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(1) NATURE OF OPERATIONS
Molex Incorporated manufactures a broad line of electronic, electrical and
fiber optic connectors, flat cables, switches and associated 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. Supplemental disclosure of
noncash investing and financing activities are included in note 11.
(A) Principles of Consolidation
The consolidated financial statements include the accounts of Molex
Incorporated (the Company) and its subsidiaries. All material intercompany
balances and transactions have been eliminated.
(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 revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(C) Marketable Securities
Marketable securities are available for sale and consist of a variety of highly
liquid investments, with maturities generally less than 12 months. Gross
unrealized holding gains and losses are not material as of June 30, 1997 and
1996.
(D) 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.
(E) Inventories
Inventories are valued at the lower of first-in, first-out cost or market.
Inventories at June 30 consist of the following:
1997 1996
- -----------------------------------------------------------------
Raw materials $ 38,335 $ 33,841
Work in progress 55,309 54,687
Finished goods 73,016 59,084
- -----------------------------------------------------------------
$ 166,660 $ 147,612
=================================================================
(F) 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 annually to determine if adjustment to the depreciation and
amortization period or to the unamortized balance is warranted.
(G) 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 $89,450 in 1997; $85,484 in 1996; and $78,092 in
1995.
Included in these totals are patent costs of $5,607; $6,739; and $4,895
for the years ended June 30, 1997, 1996 and 1995, respectively.
(H) Revenue Recognition
The Company recognizes revenue at the date of shipment.
(I) Currency Translation
Assets and liabilities of international entities have been translated at
current exchange rates, and income and expenses have been translated using
average exchange rates.
(J) Goodwill
Goodwill is charged to earnings on a straight-line basis over the periods
estimated to be benefited, currently not exceeding 20 years.
(K) New Accounting Pronouncements
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. Basic and diluted EPS for the
year ended June 30, 1997 would not be materially different than the primary
EPS presented in the Consolidated Statements of Income.
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
MOLEX 1997 ANNUAL REPORT - 35
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
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 will not have a material impact on
the Company's financial position or the results of its operations.
(L) Reclassifications
Certain reclassifications have been made to the prior years' financial
statements in order to conform to the 1997 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% 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 that requires shareholder approval other than the
election of directors. There are 25 million shares of preferred stock
authorized, none of which were issued or outstanding during the three years
ended June 30, 1997.
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 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.
On August 2, 1995 and February 10, 1997, the Board of Directors declared
25 percent stock dividends. 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. The August 1995
stock dividend was distributed on September 15, 1995 to shareholders of record
as of August 25, 1995. The February 1997 stock dividend was distributed on
April 25, 1997 to shareholders of record as of March 31, 1997. All stock and
stock option amounts, as well as earnings, dividends and market prices per
common share have been retroactively restated for the stock dividends.
(4) DEBT
The details relative to long-term debt are as follows:
1997 1996
- --------------------------------------------------------------
Industrial development bonds
2% to 5%, secured by certain
land, buildings and equipment;
payable in periodic installments
through November, 2009 $ 7,350 $ 7,350
Other - 203
- --------------------------------------------------------------
7,350 7,553
Less current portion - 103
- --------------------------------------------------------------
Long-term portion $ 7,350 $ 7,450
==============================================================
The long-term portion as of June 30, 1997 is due in 2002 and thereafter.
The provisions of certain loan agreements contain restrictive covenants, the
more significant of which require the Company to maintain specified liquidity
and debt-to-equity ratios.
(5) INCOME TAXES
The deferred tax provision is determined under the liability method. 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:
1997 1996 1995
- --------------------------------------------------------------
United States $ 75,014 $ 68,713 $ 52,740
International 187,355 160,240 161,752
- --------------------------------------------------------------
$ 262,369 $ 228,953 $ 214,492
==============================================================
Income tax provisions are as follows:
1997 1996 1995
- --------------------------------------------------------------
Currently payable:
U.S. federal $ 33,397 $ 22,480 $ 21,685
State 4,952 4,152 3,130
International 70,903 61,152 66,350
- --------------------------------------------------------------
109,252 87,784 91,165
- --------------------------------------------------------------
Deferred:
United States (8,843) (4,049) (307)
International (4,828) (435) (585)
- --------------------------------------------------------------
(13,671) (4,484) (892)
- --------------------------------------------------------------
Total provision for
income taxes $ 95,581 $ 83,300 $ 90,273
==============================================================
36 - MOLEX 1997 ANNUAL REPORT
<PAGE> 15
The Company's tax rate differs from the U.S. federal income tax rate as follows:
1997 1996 1995
- -------------------------------------------------------------------------
U.S. federal income tax rate 35.0% 35.0% 35.0%
Certain tax exemptions (4.0) (3.9) (3.8)
State income taxes,
net of federal tax benefit 1.2 1.2 1.0
International tax rates
different from U.S. federal rate 4.2 4.1 9.9
- -------------------------------------------------------------------------
36.4% 36.4% 42.1%
=========================================================================
Net deferred taxes arise from temporary differences as follows:
1997 1996
- ---------------------------------------------------------------------------
International/local taxes $ 6,892 $ 4,084
Employee benefit plans 13,135 8,562
Depreciation and amortization (9,074) (8,110)
Allowance for doubtful accounts 1,979 1,682
Inventory reserves 3,198 2,677
Inventory - other 5,170 4,318
Investments 3,647 1,159
Other deferred items 9,639 7,336
- ---------------------------------------------------------------------------
$34,586 $21,708
===========================================================================
The net deferred tax accounts reported on the balance sheet as of June
30 are as follows:
1997 1996
- ---------------------------------------------------------------------------
Net deferred:
Current asset $35,801 $22,562
Long-term asset 10,430 10,502
Current liability (228) (370)
Long-term liability (11,417) (10,986)
- ---------------------------------------------------------------------------
$34,586 $21,708
===========================================================================
Income taxes are generally not provided on the accumulated undistributed
earnings of certain international subsidiaries. It is intended that these
earnings will be permanently reinvested. Should these earnings be distributed,
foreign withholding taxes can be used, with limitations, to reduce U.S. income
taxes.
(6) POSTRETIREMENT BENEFITS
OTHER THAN PENSIONS
The Company and certain of its subsidiaries provide 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.
Net periodic postretirement benefit cost for fiscal years 1997, 1996
and 1995 included the following components:
1997 1996 1995
- ------------------------------------------------------------------------------
Service cost, benefits attributed
to employee service during the period $ 668 $ 573 $ 515
Interest cost on accumulated
postretirement benefit obligation 563 538 422
Unrecognized prior service cost (374) (515) (354)
Unrecognized net gain 171 295 118
- ------------------------------------------------------------------------------
Net periodic postretirement benefit cost $1,028 $ 891 $ 701
==============================================================================
The following table sets forth the plans' combined status as
of June 30:
1997 1996
- ---------------------------------------------------------------------------
Accumulated postretirement
benefit obligation (APBO):
Retirees and beneficiaries $ 1,210 $ 801
Active employees 7,318 7,320
- ---------------------------------------------------------------------------
Total accumulated postretirement
benefit obligation 8,528 8,121
Fair value of plan assets -- --
- ---------------------------------------------------------------------------
Unfunded accumulated benefit
obligation in excess of plan assets 8,528 8,121
Unrecognized prior service cost 2,585 1,907
Unrecognized net loss (997) (915)
- ---------------------------------------------------------------------------
Accrued postretirement benefit costs $10,116 $ 9,113
===========================================================================
The discount rate used in determining the APBO was 7.5 percent at
June 30, 1997, and 7.0 percent at June 30, 1996 and 7.5 percent at June 30,
1995. The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 7.6 percent in 1997, declining per year to
an ultimate rate of 5.0 percent by 2017. The health care cost trend rate
assumption has a significant effect on the amount of the obligation and periodic
cost reported. An increase in the assumed health care cost trend rate by 1.0
percent in each year would increase the APBO as of June 30, 1997 by $1,476 and
the aggregate of the service and interest cost components of the net periodic
postretirement benefit cost for the year then ended by $249.
MOLEX 1997 ANNUAL REPORT - 37
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(7) PENSION AND PROFIT SHARING PLANS
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 the
last years of employment.
Total pension expense for all benefit plans, including defined benefit
plans, amounted to $6,633 in 1997, $6,330 in 1996 and $6,044 in 1995. Net
periodic pension expense for the Company's defined benefit plans consists of
the following for the year ended June 30:
<TABLE>
<CAPTION>
1997 1997 1996 1996 1995 1995
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Int'l U.S. Int'l U.S. Int'l
Plans Plans Plans Plans Plans Plans
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service costs $ 856 $2,642 $ 597 $2,541 $ 515 $2,211
Interest costs on projected
benefit obligation 655 1,448 560 1,343 487 1,356
Actual return on plan assets (641) (860) (500) (793) (207) (585)
Net amortization and deferral 340 (17) 215 75 (99) 343
- ------------------------------------------------------------------------------------------------------------------------------------
Net periodic pension expense $1,210 $3,213 $ 872 $3,166 $ 696 $3,325
====================================================================================================================================
</TABLE>
The funded status for the Company's defined benefit plans is as follows:
<TABLE>
<CAPTION>
1997 1997 1996 1996
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Int'l U.S. Int'l
Plans Plans Plans Plans
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of:
- ------------------------------------------------------------------------------------------------------------------------------------
Vested benefit obligation $ 7,058 $ 20,216 $ 7,006 $ 16,497
Nonvested benefit obligation 447 162 296 108
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulated benefit obligation 7,595 20,378 7,302 16,605
Projected benefit obligation 10,180 29,711 9,987 26,642
Plans assets at fair value 9,529 11,945 8,998 10,238
- ------------------------------------------------------------------------------------------------------------------------------------
Plans assets in excess of (less than) projected
benefit obligation (651) (17,766) (989) (16,404)
Unrecognized net transition liability 287 56 397 62
Unrecognized prior service costs 1,969 -- 2,200 --
Unrecognized net gain (389) 1,318 (732) 654
- ------------------------------------------------------------------------------------------------------------------------------------
Accrued pension asset (liability) included
in the consolidated balance sheet $ 1,216 $(16,392) $ 876 $(15,688)
====================================================================================================================================
</TABLE>
The assumption used in computing the above information are presented
below:
<TABLE>
<CAPTION>
1997 1997 1996 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Int'l Int'l
Plans Plans
U.S. (weighted U.S. (weighted
Plans average) Plans average)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Discount rates 7.5% 5.2% 7.0% 5.4%
Rates of increase in compensation 4.5% 4.0% 4.5% 4.3%
Expected long-term rates of return on
plan assets 7.5% 7.5% 7.0% 8.5%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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 of $7,226, $6,611 and $5,626 were
charged to operations during 1997, 1996, and 1995, respectively.
38 - MOLEX 1997 ANNUAL REPORT
<PAGE> 17
(8) COMMITMENTS
The Company and its subsidiaries rent certain facilities and equipment under
lease arrangements classified as operating leases. Some of the leases have
renewal options.
Future minimum rental payments under noncancellable operating leases with
initial or remaining terms of one year or more as of June 30, 1997 are $7,003
in 1998; $4,683 in 1999; $2,765 in 2000; $1,921 in 2001; $1,375 in 2002; and
$17,037 thereafter, totaling $34,784.
Rental expense was $8,541 in 1997; $9,961 in 1996; and $11,132 in 1995.
(9) STOCK OPTION PLANS
The Company has two stock option plans currently in effect under which future
grants may be issued: the 1990 Stock Option Plan (the "1990 Plan") and the 1991
Stock Option Plan (the "1991 Plan").
1990 Plan: The most significant terms of this plan provide that (1)
options may be granted for 3.7 million shares of Common Stock and (2) the
option price shall be fifty 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 the grant.
Stock option transactions relating to the 1990 Plan are summarized as
follows:
Wtd. Avg.
Shares Price
(in thousands) Per Share
- -----------------------------------------------------------------
Outstanding at 6/30/95 2,059 $ 8.66
Granted 348 12.85
Exercised 429 6.38
Canceled 63 9.17
- -----------------------------------------------------------------
Outstanding at 6/30/96 1,915 $ 9.92
Granted 575 14.69
Exercised 410 8.25
Canceled 81 11.00
- -----------------------------------------------------------------
Outstanding at 6/30/97 1,999 $ 11.60
Options exercisable at 6/30/96 423 7.83
Options exercisable at 6/30/97 403 9.24
- -----------------------------------------------------------------
Under the 1990 Plan, all shares issued are nonqualified. The option price per
share is less than the fair market value at the date of grant, thus creating
deferred unearned compensation. The difference between the fair market value and
the option price was recorded as deferred unearned compensation and is charged
to operations over the term of the option. In fiscal 1997, $5,057 was charged to
operations ($4,584 in 1996 and $3,435 in 1995).
1991 Plan: The most significant terms of this plan provide that (1) options may
be granted for 2.4 million shares of Common Stock and (2) the option price
shall be the fair market value of the stock on the date of the grant. The option
term is five to eleven years from the date of the grant.
Stock option transactions relating to the 1991 Plan are summarized as
follows:
Wtd. Avg.
Shares Price
(in thousands) Per Share
- -----------------------------------------------------------------
Outstanding at 6/30/95 660 $ 16.21
Granted 94 27.51
Exercised 71 14.36
Canceled 10 18.42
- -----------------------------------------------------------------
Outstanding at 6/30/96 673 $ 17.95
Granted 316 28.74
Exercised 115 14.11
Canceled 11 22.65
- -----------------------------------------------------------------
Outstanding at 6/30/97 863 $ 22.35
Options exercisable at 6/30/96 181 14.47
Options exercisable at 6/30/97 167 17.28
- -----------------------------------------------------------------
In fiscal 1997 the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation." As provided by SFAS No. 123, the Company has elected to
continue 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 in 1996 and 1997, the effects on
reported net income and earnings per common share would have been as follows:
1997 1996
- -----------------------------------------------------------------
Net income, as reported $166,716 $145,586
Pro forma net income 166,133 145,312
Earnings per share, as reported 1.33 1.16
Pro forma earnings per share 1.32 1.15
- -----------------------------------------------------------------
For purpose of the SFAS No. 123 pro forma net income and earnings per common
share calculation, 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:
1997 1996
- -----------------------------------------------------------------
Dividend yield 0.2% 0.2%
Expected volatility 30.25% 31.45%
Risk-free interest rate 6.07-6.54% 5.21-6.18%
Expected life of option (years) 3.01-10.50 3.01-10.62
- -----------------------------------------------------------------
MOLEX 1997 ANNUAL REPORT - 39
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The following table summarizes information about options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------- -----------------------
Wtd. Avg.
Range of Remaining Wtd. Avg. Wtd. Avg.
Exercise Number Life of Exercise Number Exercise
Prices Outstanding Contract Price Exercisable Price
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0 to 10 346,036 0.9 yrs. $ 8.05 242,172 $ 7.91
10 to 15 1,493,488 2.9 yrs. 11.91 216,890 11.76
15 to 20 550,693 4.5 yrs. 16.16 64,056 16.13
20 to 33 471,984 7.2 yrs. 27.45 46,420 23.72
--------- -------
2,862,201 569,538
========= =======
</TABLE>
(10) OPERATIONS BY GEOGRAPHIC AREA
The Company and its subsidiaries operate in one product segment: the manufacture
and sale of electrical components.
Net revenue by geographic area is summarized in the following tables:
<TABLE>
<CAPTION>
Customer Intercompany
1997 Revenue Revenue Total
- --------------------------------------------------------------------
<S> <C> <C> <C>
United States $ 503,576 $ 55,257 $ 558,833
Americas (Non-U.S.) 69,970 3,149 73,119
Far East North 363,605 127,943 491,548
Far East South 302,305 33,213 335,518
Europe 299,771 23,798 323,569
Other 485 4,000 4,485
Eliminations -- (247,360) (247,360)
- --------------------------------------------------------------------
Consolidated $1,539,712 -- $1,539,712)
====================================================================
</TABLE>
<TABLE>
<CAPTION>
Customer Intercompany
1996 Revenue Revenue Total
- --------------------------------------------------------------------
<S> <C> <C> <C>
United States $ 443,116 $ 42,881 $ 485,997
Americas (Non-U.S.) 51,757 1,441 53,198
Far East North 354,522 103,242 457,764
Far East South 251,063 29,016 280,079
Europe 282,164 18,450 300,614
Other 51 40,213 40,264
Eliminations -- (235,243) (235,243)
- --------------------------------------------------------------------
Consolidated $1,382,673 -- $1,382,673
====================================================================
</TABLE>
<TABLE>
<CAPTION>
Customer Intercompany
1995 Revenue Revenue Total
- --------------------------------------------------------------------
<S> <C> <C> <C>
United States $ 344,653 $ 38,548 $ 383,201
Americas (Non-U.S.) 38,353 1,405 39,758
Far East North 367,689 95,727 463,416
Far East South 216,749 24,175 240,924
Europe 230,248 11,874 242,122
Other 55 41,339 41,394
Eliminations -- (213,068) (213,068)
- --------------------------------------------------------------------
Consolidated $1,197,747 -- $1,197,747
====================================================================
</TABLE>
Net income by geographic area is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------
<S> <C> <C> <C>
United States $ 48,517 $ 43,773 $ 34,655
Americas (Non-U.S.) 6,621 5,492 3,209
Far East North 46,560 41,592 50,623
Far East South 51,711 39,193 35,956
Europe 28,072 21,039 22,200
Other (14,838) (5,097) (22,782)
Eliminations 73 (406) 174
- --------------------------------------------------------------------
Consolidated $ 166,716 $ 145,586 $ 124,035
====================================================================
</TABLE>
Identifiable assets by geographic area are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------
<S> <C> <C> <C>
United States $ 563,721 $ 475,207 $ 423,971
Americas (Non-U.S.) 39,224 27,018 18,395
Far East North 477,799 440,438 543,557
Far East South 283,022 245,280 210,888
Europe 256,972 239,236 211,415
Other 80,060 56,318 54,419
Eliminations (63,867) (22,498) (21,625)
- --------------------------------------------------------------------
Consolidated $1,636,931 $1,460,999 $1,441,020
====================================================================
</TABLE>
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 1997,
1996 and 1995, no customer accounted for more than 10% of consolidated net
revenue.
(11) ACQUISITIONS AND INVESTMENTS
The Company periodically engages in the acquisition and/or divestiture of
companies within the connector industry. These transactions have not been
material to the financial position or results of operations of the Company,
either individually or in the aggregate. Therefore, pro forma financial data is
not presented. Such transactions are accounted for as purchases and,
accordingly, any purchase price in excess of the fair value of the net assets
acquired has been classified as goodwill and included in other assets in the
accompanying consolidated balance sheet.
The majority owned investments have been accounted for as purchases.
Operating results have been included in the financial statements from the date
of acquisition and did not have a significant effect on consolidated operating
results. The minority investments have been accounted for on the equity basis of
accounting.
On June 6, 1997, the Company issued 59,477 shares of Class A Common
Stock to holders of a class of securities in a subsidiary of the Company in
exchange for all of the shares of that class of securities owned by such
holders.
40 - MOLEX 1997 ANNUAL REPORT
<PAGE> 19
FISCAL 1997, 1996 AND 1995 BY QUARTER
(IN THOUSANDS, EXCEPT PER SHARE DATA-UNAUDITED)
<TABLE>
<CAPTION>
Quarter 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenue 1st $ 359,595 $ 338,176 $ 268,899
2nd 377,005 344,483 274,961
3rd 387,053 347,065 305,755
4th 416,059 352,949 348,132
Gross profit 1st 142,826 136,878 115,475
2nd 153,053 136,938 116,466
3rd 158,340 138,294 127,697
4th 175,035 143,174 146,059
Income before income taxes and minority interest 1st 58,639 57,070 48,374
2nd 63,137 57,303 47,861
3rd 67,964 57,365 54,328
4th 72,628 57,215 63,929
Income taxes 1st 22,777 21,856 20,957
2nd 22,925 22,228 19,884
3rd 24,751 21,244 22,504
4th 25,128 17,972 26,928
Net income 1st 35,855 35,157 27,354
2nd 40,197 35,057 27,910
3rd 43,190 36,123 31,794
4th 47,473 39,249 36,977
Earnings per common share(1) 1st 0.29 0.28 0.22
2nd 0.32 0.28 0.22
3rd 0.34 0.29 0.25
4th 0.38 0.31 0.30
LOW HIGH LOW HIGH LOW HIGH
- -----------------------------------------------------------------------------------------------------------------------------
National Market System
Price of Stock: Common Stock(1) 1st 22 30 13/64 21 41/64 29 19/64 19 13/64 22 1/2
2nd 28 13/32 31 51/64 24 13/32 29 19/32 19 51/64 23
3rd 28 32 21 51/64 29 19 51/64 23 19/64
4th 27 39 1/2 24 13/64 29 19/64 22 19/32 25 3/32
Class A Common Stock(1) 1st 20 19/64 27 13/32 23 13/64 27 19/32 18 13/32 21
2nd 25 45/64 29 13/32 23 13/64 27 13/32 18 13/64 21 19/32
3rd 26 13/64 30 13/64 22 13/64 27 51/64 30 29/32 22 13/64
4th 26 13/64 37 5/8 22 27 21 19/64 24
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Restated for the following 25% stock dividends: February, 1997;
August, 1995; November, 1994.
MOLEX 1997 ANNUAL REPORT - 41
