<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- ---------SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
------------------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- ---------SECURITIES EXCHANGE ACT OF 1934
For the transition period from
------------------------------
Commission File Number 0-7491
MOLEX INCORPORATED
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 36-2369491
- --------------------------------- ------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2222 WELLINGTON COURT, LISLE, ILLINOIS 60532
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 630-969-4550
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------- -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date (applicable only to corporate
registrants). At March 31, 1998:
Common Stock 77,244,972 shares
Class A Common Stock 79,389,948 shares
Class B Common Stock 94,255 shares
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MOLEX INCORPORATED
FORM 10-Q
MARCH 31, 1998
INDEX
Page
----
<TABLE>
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Information - Unaudited
Condensed Consolidated Balance Sheets -- 2
March 31, 1998 and June 30, 1997
Condensed Consolidated Statements of Income -- 3
Three and Nine Months Ended March 31, 1998 and 1997
Condensed Consolidated Statements of Cash Flows -- 4
Nine Months Ended March 31, 1998 and 1997
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II - OTHER INFORMATION 11
</TABLE>
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MOLEX INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited - In Thousands)
<TABLE>
<CAPTION>
ASSETS March 31 June 30,
------ 1998 1997
---------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents 185,345 199,767
Marketable securities 116,604 125,570
Accounts receivable - net 331,128 337,765
Inventories 173,315 166,660
Other current assets 48,469 43,852
---------- ----------
Total current assets 854,861 873,614
PROPERTY, PLANT AND EQUIPMENT - NET 662,197 665,468
OTHER ASSETS 91,168 97,849
---------- ----------
$1,608,226 $1,636,931
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable 117,563 151,934
Accrued expenses 114,780 109,010
Other current liabilities 64,255 81,082
---------- ----------
Total current liabilities 296,598 342,026
DEFERRED ITEMS 12,994 14,758
ACCRUED POSTRETIREMENT BENEFITS 32,814 33,779
LONG-TERM DEBT, less portion due currently 5,555 7,350
MINORITY INTEREST 2,577 3,106
SHAREHOLDERS' EQUITY
Common stock 8,263 6,591
Paid-in capital 145,059 131,265
Retained earnings 1,277,510 1,149,720
Treasury stock (122,515) (94,494)
Deferred unearned compensation (22,304) (16,499)
Cumulative translation adjustments (28,325) 59,329
---------- ----------
Total shareholders' equity 1,257,688 1,235,912
---------- ----------
$1,608,226 $1,636,931
========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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MOLEX INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited - In Thousands Except per Share)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------ -------------------------
March 31 March 31, March 31, March 31,
1998 1997 1998 1997
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
NET REVENUE $409,228 $387,053 $1,224,919 $1,123,653
COST OF SALES 240,705 228,712 717,554 669,433
-------- -------- ---------- ----------
Gross Profit 168,523 158,341 507,365 454,220
OPERATING EXPENSES:
Selling 31,921 38,526 97,324 116,785
Administrative 69,924 54,865 210,486 156,439
-------- -------- ---------- ----------
Total Operating Expenses 101,845 93,391 307,810 273,224
Income from Operations 66,678 64,950 199,555 180,996
OTHER INCOME:
Foreign currency transaction gain/<loss> (234) 751 (439) 789
Interest income, net 2,662 2,260 8,877 7,329
Other, net 4 627
-------- -------- ---------- ----------
Total Other Income 2,428 3,015 8,438 8,745
INCOME BEFORE INCOME TAXES 69,106 67,965 207,993 189,741
INCOME TAXES 22,688 24,775 71,568 70,499
-------- -------- ---------- ----------
NET INCOME $46,418 $43,190 $136,425 $119,242
======== ======== ========== ==========
EARNINGS PER COMMON SHARE
BASIC $0.30 $0.28 $0.87 $0.76
======== ======== ========== ==========
DILUTED $0.29 $0.27 $0.86 $0.75
======== ======== ========== ==========
CASH DIVIDENDS PER COMMON SHARE 0.015 0.012 0.042 0.031
======== ======== ========== ==========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
DURING THE PERIOD: BASIC 156,657 156,885 156,757 157,210
======== ======== ========== ==========
DILUTED 158,742 158,795 159,015 159,006
======== ======== ========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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MOLEX INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - In Thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------------
March 31, March 31,
1998 1997
---------- ----------
<S> <C> <C>
CASH AND CASH EQUIVALENTS, Beginning of Period $199,767 $242,779
CASH AND CASH EQUIVALENTS
PROVIDED FROM (USED FOR):
Operations:
Net income 136,425 119,243
Add (deduct) non-cash items included in net income:
Depreciation and amortization 109,066 93,500
Amortization of deferred unearned compensation 4,131 3,883
Other charges to net income 1,333 (1,227)
Current items:
Accounts receivable (21,500) (50,604)
Inventories (19,039) 1,176
Prepaid expenses (7,910) (6,190)
Accounts payable (19,633) 18,714
Accrued expenses 19,292 19,051
Income taxes (6,620) 1,258
---------- ----------
NET CASH PROVIDED FROM OPERATIONS 195,545 198,804
Investments:
Purchases of property, plant and equipment (162,662) (148,601)
Proceeds from sale of property, plant and equipment 2,976 1,189
Proceeds from sale of marketable securities 1,507,892 1,655,523
Purchases of marketable securities (1,516,198) (1,725,050)
Increase/(decrease) in other assets (4,796) 4,603
---------- ----------
NET CASH USED FOR INVESTMENTS (172,788) (212,336)
Financing:
Increase in long-term debt 1,231 654
Decrease in long-term debt (3,000) (64)
Cash dividends paid (6,187) (4,582)
Purchase of treasury stock (20,851) (23,507)
Disposition of treasury stock 1,574 640
Exercise of stock options 3,879 3,680
---------- ----------
NET CASH USED FOR FINANCING (23,354) (23,179)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS (13,825) (19,890)
---------- ----------
---------- ----------
CASH AND CASH EQUIVALENTS, End of Period $185,345 $186,178
========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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MOLEX INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated financial statements have been prepared from the
Company's books and records without audit and are subject to year-end
adjustments. The interim financial statements reflect all adjustments which
are, in the opinion of management, necessary for a fair presentation of
information for the interim periods presented. The condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Molex Incorporated 1997
Annual Report to Shareholders and the 1997 Annual Report on Form 10-K. The
results of operations for the interim periods should not be considered
indicative of results to be expected for the full year.
(2) EARNINGS PER COMMON SHARE
On October 24, 1997, the Board of Directors of Molex Incorporated declared a
twenty-five percent (25%) stock dividend. One quarter (1/4) share of Common
Stock was paid on December 1,1997 to shareholders of record as of November 10,
1997 for each share of Common Stock and Class B Common Stock outstanding. In
addition, one quarter (1/4) share of Class A Common Stock was distributed for
each share of Class A Common Stock outstanding. All shares outstanding,
earnings and dividends have been retroactively restated for the stock split
effected in the form of a stock dividend.
On December 31, 1997 the Company adopted Statement of Financial Accounting
Standards No. 128, "Earnings Per Share". This statement replaces the primary
and fully diluted Earnings Per Share (EPS) computations with basic and diluted
EPS. Basic EPS is computed by dividing net income by the weighted average
number of common shares outstanding during the period. Diluted EPS is computed
by dividing net income by the weighted average number of common shares and
dilutive securities outstanding during the period and must be presented in all
cases with basic EPS. Dilutive securities consist of common stock options.
The reconciliation of common shares outstanding to dilutive common shares
outstanding is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
Mar. 31, Mar. 31, Mar. 31, Mar. 31,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Weighted average shares outstanding - basic 156,657 156,885 156,757 157,210
Dilutive effective of stock options 2,085 1,910 2,258 1,796
-------- -------- -------- --------
Weighted average shares outstanding - diluted 158,742 158,795 159,015 159,006
======== ======== ======== ========
</TABLE>
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(3) INVENTORIES
Inventories are valued at the lower of first-in, first-out cost or market.
Inventories, in thousands of dollars, consist of the following:
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
-------- -------
<S> <C> <C>
Raw Materials $48,637 $38,335
Work in Process 50,353 55,309
Finished Goods 74,325 73,016
-------- --------
$173,315 $166,660
======== ========
</TABLE>
(4) NEW ACCOUNTING PRONOUNCEMENTS
In 1997 FASB issued SFAS No. 130, "Reporting Comprehensive Income," and SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information."
In 1998, FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and
Other Postretirement Benefits." All are effective for fiscal years beginning
after December 15, 1997, or the Company's fiscal year ending June 30, 1999.
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. SFAS No. 132 revises current
disclosure requirements for employers' pensions and other retiree benefits.
The requirements of these statements only impact financial statement
disclosure. Accordingly, these statements will have no impact on the Company's
financial position or the results of its operations.
(5) RECLASSIFICATIONS
Certain reclassifications have been made to the prior year's financial
statements in order to conform to fiscal 1998 classifications.
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MOLEX INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Consolidated net revenue was $409.2 million for the quarter ended March 31,
1998, increasing 5.7 percent in U.S. dollars and 12.9 percent in local
currencies over the corresponding quarter of the prior fiscal year. For the
nine months ended March 31, 1998 revenue grew to $1,224.9 million from $1,123.7
million in the corresponding period a year earlier. For the nine months ended
March 31, 1998, the percentage of growth over the same period in the prior year
was 9.0 percent in U.S. dollars and 17.0 percent in local currencies. The
generally higher value of the U.S. dollar compared to other currencies
worldwide decreased net revenue by $27.8 million for the quarter, and by $90.0
million for the nine months ended March 31, 1998.
Management believes that Molex has continued to exceed its goal of increasing
net revenue at twice the growth rate of the worldwide connector market. All
geographic regions experienced local currency sales growth well in excess of
8.0 percent for the nine months ended March 31, 1998.
For the quarter ended March 31, 1998, revenue in the Americas region increased
17.4 percent in U.S. dollars and 17.6 percent in local currencies over the same
quarter in the prior year. For the nine months ended March 31, 1998, the
percentage of growth over the same period in the prior year was 19.8 percent in
U.S. dollars and 19.9 percent in local currencies. Strong sales of data
communications and telecommunications products, increases in computer and
computer-peripheral products, and increased customer sales to the commercial
and industrial market continue to drive revenue growth in this region.
Net revenue in the Far East North decreased 7.0 percent in U.S. dollars for the
quarter compared to the prior year and remained flat in local currencies. For
the nine months ended March 31, 1998, revenue decreased over the same period in
the prior year by 1.7 percent in U.S. dollars but increased by 8.4 in local
currencies. The recent deterioration in the Korean economic climate since
latter part of calendar year 1997 combined with a slowdown in Japan have
reduced the rate of growth Molex historically has enjoyed in this region.
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<PAGE> 9
Far East South net revenue for the quarter ended March 31, 1998 decreased 10.1
percent in U.S. dollars but increased 7.6 percent in local currencies. For the
nine months ended March 31, 1998, revenue over the same period in the prior
year decreased by 1.4 percent in U.S. dollars but increased by 11.8 percent in
local currencies.
In Europe, net revenue increased 23.3 percent in U.S. dollars and 34.4 percent
in local currencies over the same quarter of the prior year. For the nine
months ended March 31, 1998, the percentage of growth over the same period in
the prior year was 26.4 percent in U.S. dollars and 43.6 percent in local
currencies. Strong growth in telecommunications and personal communications
product sales, steady improvement in automotive and a general resurgence in
European markets served by Molex have all contributed to the growth. In the
prior year, the Company's European sales were somewhat depressed due to weak
economic conditions across Europe, especially in the first half of fiscal year
1997.
For the nine months ended March 31, 1998, 69.1 percent of Molex's worldwide net
revenue was generated from its international operations. International
operations are subject to currency fluctuations and government actions. The
recent devaluations of several Asian currencies have had an adverse effect on
reported sales and profits. Molex monitors its currency exposure in each
country and continues to implement defensive strategies to respond to changing
economic environments. Due to the uncertainty of the foreign exchange markets,
Molex cannot reasonably predict future trends related to foreign currency
fluctuations. Foreign currency fluctuations have impacted results in the past
and may impact results in the future.
The gross profit percentage of 41.2 percent for the quarter ended March 31,
1998 increased from 40.9 percent for the quarter ended March 31, 1997. For
the nine months ended March 31, 1998, the gross profit percentage was 41.4
percent, an increase from 40.4 percent for the same period in the prior year.
This increase is primarily due to improvements in manufacturing efficiency and
utilization, significant reductions in start-up costs for the European
automotive programs and general declines in raw material prices worldwide.
Selling and administrative expenses were $101.8 million for the quarter ended
March 31, 1998 as compared to $93.4 million the same period the prior year.
For the nine months ended March 31, 1998, selling and administrative expenses
were $307.8 million as compared to $273.2 million for the nine months ended
March 31, 1997. For the quarter and nine months ending March 31, 1998, selling
and administrative expenses as a percentage of net revenue were 24.9% and 25.1%
respectively, as compared to 24.1% and 24.3% for the same period in the prior
year. The Company's implementation of its Global Information Systems and the
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<PAGE> 10
general increase in sales levels across the Company contributed to the
slightly higher spending. Research and Development expenditures for the nine
months ended March 31, 1998 increased 6.3% over the same period in the prior
year.
Interest income, net of interest expense, was $2.7 million in the quarter ended
March 31, 1998 as compared to $2.3 million for the same period in the prior
year. Interest income, net of interest expense, increased to $8.9 million for
the nine months ended March 31, 1998 as compared to $7.3 million for the nine
months ended March 31, 1997.
The effective tax rate was 32.8 percent for the quarter ended March 31, 1998,
as compared to 36.4 percent for the same period in the prior fiscal year. The
effective tax rate was 34.4 percent as compared to 37.1 percent for the nine
months ended March 31, 1998. This change is primarily caused by increased
pretax margins in countries with lower effective tax rates, as well as the
successful restructuring of the European Region with a resulting overall lower
effective tax rate.
Net income for the quarter was $46.4 million or 30 cents per basic and 29 cents
per diluted share, a 7.5 percent increase compared with $43.2 million or 28
cents per basic share and 27 cents per diluted share for the same quarter last
fiscal year. Net income for the nine months ended March 31, 1998 was $136.4
million or 87 cents per basic and 86 cents per diluted share, as compared to
net income $119.2 million or 76 cents per basic and 75 per diluted share, for
the same period in the prior year. Net income for the quarter increased 13.0
percent over the same quarter last fiscal year, excluding the effects of
currency translation. For the nine months ended March 31, 1998, net income
increased 22.5 percent over the same period in the prior year, excluding the
effects of currency translation.
LIQUIDITY AND CAPITAL RESOURCES
Molex's balance sheet continues to be exceptionally strong. Working capital at
March 31, 1998 was $558.3 million, a slight increase from the $531.6 million at
June 30, 1997.
During the nine months ended March 31, 1998, the Company has purchased an
aggregate of 911,000 shares of treasury stock at an aggregate cost of $28.4
million. This is in accordance with authorization by the Board of Directors
allowing for the purchase of up to $50 million of Company stock during the
current fiscal year.
Management believes that the Company's current liquidity and financial
flexibility are adequate to support its continued growth.
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<PAGE> 11
OUTLOOK
The prospects for the remainder of fiscal 1998 continue to be reasonable for
Molex despite the current economic conditions in much of Asia. Notwithstanding
the significantly adverse effect of currency devaluations and the Company's
sizable exposure to the Asian economy, the underlying Molex growth rates in
this part of the world are still encouraging. With the Company's balance of
business in Europe and the Americas currently enjoying strong growth, the
outlook for the second half is a mixture of caution in Asia and guarded
optimism elsewhere.
To further expand the Company's global presence, offer innovative products at
an accelerated pace, and improve internal productivity, Molex plans to invest
approximately $230 million in capital expenditures and approximately $100
million in research and development for the fiscal year ending June 30, 1998.
Management believes the Company is well positioned to continue growing faster
than the overall connector industry. The Company continues to emphasize
expansion in rapidly growing industry segments, product lines and geographic
regions. Molex remains committed to providing high quality products and a full
range of services to its customers worldwide.
FORWARD LOOKING STATEMENT
This document contains various forward looking statements. Statements that are
not historical are forward looking statements and are subject to various risks
and uncertainties which could cause actual results to vary materially from
those stated. Such risks and uncertainties include: economic conditions in
various regions, product and price competition, raw material prices, foreign
currency exchange rates, technology changes, patent issues, litigation results,
legal and regulatory developments, and other risks and uncertainties described
in documents filed with the Securities and Exchange Commission.
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PART II - OTHER INFORMATION
Items 1 - 6. Not Applicable
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S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MOLEX INCORPORATED
---------------------
(Registrant)
Date April 27, 1998 /s/ ROBERT B. MAHONEY
---------------------
Robert B. Mahoney
Corporate Vice President,
Treasurer and
Chief Financial Officer
Date April 27, 1998 /s/ LOUIS A. HECHT
---------------------
Louis A. Hecht
Corporate Secretary and
General Counsel
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 185345
<SECURITIES> 116604
<RECEIVABLES> 349588
<ALLOWANCES> 18459
<INVENTORY> 173315
<CURRENT-ASSETS> 854861
<PP&E> 1417064
<DEPRECIATION> 754867
<TOTAL-ASSETS> 1608226
<CURRENT-LIABILITIES> 296598
<BONDS> 0
0
0
<COMMON> 153322
<OTHER-SE> 1104366
<TOTAL-LIABILITY-AND-EQUITY> 1608226
<SALES> 409228
<TOTAL-REVENUES> 409228
<CGS> 240705
<TOTAL-COSTS> 342550
<OTHER-EXPENSES> 101845
<LOSS-PROVISION> 153
<INTEREST-EXPENSE> 2662
<INCOME-PRETAX> 69106
<INCOME-TAX> 22688
<INCOME-CONTINUING> 46418
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 46418
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0.29
</TABLE>
