<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 September 30, 1998
-----------------------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- --------SECURITIES EXCHANGE ACT OF 1934
For the transition period from
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Commission File Number 0-7491
MOLEX INCORPORATED
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(Exact name of registrant as specified in its charter)
DELAWARE 36-2369491
- ----------------------------------- ---------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2222 WELLINGTON COURT, LISLE, ILLINOIS 60532
- ----------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 630-969-4550
------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
-------- --------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date (applicable only to corporate
registrants). At September 30, 1998:
Common Stock 76,333,188 shares
Class A Common Stock 79,395,309 shares
Class B Common Stock 94,255 shares
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MOLEX INCORPORATED
FORM 10-Q
SEPTEMBER 30, 1998
INDEX
<TABLE>
<CAPTION>
Page
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PART I - FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Information - Unaudited
Condensed Consolidated Balance Sheets -- 2
September 30, 1998 and June 30, 1998
Condensed Consolidated Statements of Income -- 3
Three Months Ended September 30, 1998 and 1997
Condensed Consolidated Statements of Cash Flows -- 4
Three Months Ended September 30, 1998 and 1997
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II - OTHER INFORMATION 12
</TABLE>
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MOLEX INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED - IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS Sept. 30, June 30,
1998 1998
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents 185,549 205,262
Marketable securities 101,337 117,151
Accounts receivable - net 374,096 328,560
Inventories 177,187 184,433
Other current assets 35,373 32,385
---------- ----------
Total current assets 873,542 867,791
PROPERTY, PLANT AND EQUIPMENT - NET 710,636 676,161
OTHER ASSETS 120,861 95,682
---------- ----------
$1,705,039 $1,639,634
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable 133,681 140,350
Accrued expenses 136,356 119,161
Other current liabilities 69,953 73,363
---------- ----------
Total current liabilities 339,990 332,874
DEFERRED ITEMS 6,479 6,504
ACCRUED POSTRETIREMENT BENEFITS 30,791 30,536
LONG-TERM DEBT, less portion due currently 5,659 5,566
MINORITY INTEREST 2,570 2,584
SHAREHOLDERS' EQUITY
Common stock 8,279 8,272
Paid-in capital 150,313 147,782
Retained earnings 1,358,161 1,322,775
Treasury stock (152,881) (143,714)
Deferred unearned compensation (18,213) (19,988)
Cumulative translation adjustments (26,109) (53,557)
---------- ----------
Total shareholders' equity 1,319,550 1,261,570
---------- ----------
$1,705,039 $1,639,634
========== ==========
</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
------------------------------
Sept. 30, Sept. 30,
1998 1997
----------- -----------
<S> <C> <C>
NET REVENUE $409,892 $410,194
COST OF SALES 244,315 239,861
-------- --------
Gross Profit 165,577 170,333
OPERATING EXPENSES:
Selling 33,812 32,308
Administrative 76,115 72,152
-------- --------
Total Operating Expenses 109,927 104,460
Income from Operations 55,650 65,873
OTHER INCOME:
Foreign currency transaction gain/<loss> (267) (283)
Interest income, net 3,448 3,664
-------- --------
Total Other Income 3,181 3,381
INCOME BEFORE INCOME TAXES 58,831 69,254
INCOME TAXES 19,658 24,798
-------- --------
NET INCOME $ 39,173 $ 44,456
======== ========
EARNINGS PER COMMON SHARE:
BASIC $ 0.25 $ 0.28
======== ========
DILUTED $ 0.25 $ 0.28
======== ========
CASH DIVIDENDS PER COMMON SHARE 0.015 0.012
======== ========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
DURING THE PERIOD: BASIC 155,834 156,869
======== ========
DILUTED 157,399 158,743
======== ========
</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>
THREE MONTHS ENDED
----------------------------------------
Sept. 30, Sept. 30,
1998 1997
------------- -------------
<S> <C> <C>
CASH AND CASH EQUIVALENTS, Beginning of Period $ 205,262 $ 199,767
CASH AND CASH EQUIVALENTS
PROVIDED FROM (USED FOR):
Operations:
Net income 39,173 44,456
Add (deduct) non-cash items included in net income:
Depreciation and amortization 36,004 33,900
Amortization of deferred unearned compensation 1,775 1,357
Other (credits)/charges to net income (137) 62
Current items:
Accounts receivable (18,695) (4,179)
Inventories 11,053 1,676
Prepaid expenses (2,773) (3,549)
Accounts payable (20,766) (4,133)
Accrued expenses 11,772 14,839
Income taxes (4,822) (22,719)
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NET CASH PROVIDED FROM OPERATIONS 52,584 61,710
Investments:
Purchases of property, plant and equipment (51,518) (49,701)
Proceeds from sale of property, plant and equipment 181 -
Proceeds from sale of marketable securities 1,029,858 673,477
Purchases of marketable securities (1,014,043) (691,276)
Increase/(decrease) in other assets (31,860) 3,094
--------- --------
NET CASH USED FOR INVESTMENTS (67,382) (64,406)
Financing:
Increase in long-term debt 94 -
Cash dividends paid (2,266) (1,895)
Purchase of treasury stock (9,491) (5,108)
Reissuance of treasury stock 972 329
Exercise of stock options 822 1,779
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NET CASH USED FOR FINANCING (9,869) (4,895)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS 4,954 (8,570)
--------- --------
--------- --------
CASH AND CASH EQUIVALENTS, End of Period $ 185,549 $183,606
========= ========
</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 1998 Annual
Report to Shareholders and the 1998 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.
The reconciliation of common shares outstanding to dilutive common shares
outstanding is as follows:
<TABLE>
<CAPTION>
Three Months Ended
------------------
Sept. 30, Sept. 30,
1998 1997
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<S> <C> <C>
Weighted average shares outstanding - basic 155,834 156,869
Dilutive effective of stock options 1,565 1,874
------- -------
Weighted average shares outstanding - diluted 157,399 158,743
======= =======
</TABLE>
(3) COMPREHENSIVE INCOME
Effective July 1, 1998, the Company adopted the Financial Accounting Standards
Board's (FASB) Statement of Financial Accounting Standards (SFAS) No. 130,
"Reporting Comprehensive Income". SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components. Comprehensive
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income includes all non-shareowner changes in equity and consists of net income,
foreign currency translation adjustments and unrealized gains and losses on
available-for-sale securities. Total comprehensive income, in thousands of
dollars, for the three months ended September 30, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
Three months ended
September 30,
1998 1997
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<S> <C> <C>
Net income $ 39,173 $ 44,456
Currency trans. and other adjustments 25,817 (39,718)
-------- --------
Total comprehensive income $ 64,990 $ 4,738
======== ========
</TABLE>
(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>
Sept.30, June 30,
1998 1998
-------- --------
<S> <C> <C>
Raw Materials $ 44,538 $ 48,324
Work in Process 49,798 49,025
Finished Goods 82,851 87,084
-------- --------
$177,187 $184,433
======== ========
</TABLE>
(4) NEW ACCOUNTING PRONOUNCEMENTS
In 1997 FASB issued 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." Both are
effective for fiscal years beginning after December 15, 1997, or the Company's
fiscal year ending June 30, 1999. 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 employers' disclosures about pensions and other postretirement benefit
plans. 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.
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Also in 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," effective for all fiscal quarters of all
fiscal years beginning after June 15, 1999. It establishes accounting and
reporting standards for derivative instruments and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. The Company is assessing the impact this statement will have on
its statement of financial position and the results of its operations.
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MOLEX INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Consolidated net revenue for the first fiscal quarter ended September 30, 1998
remained flat at $409.9 million compared to $410.2 million in the prior year
period. The generally higher value of the US dollar compared to other currencies
worldwide decreased net revenue by $29.6 million for the quarter. Excluding the
negative effects of currency fluctuation, net revenue grew 7.1 percent over last
year.
Management believes that Molex continues to grow at a rate higher than the
worldwide connector market. All geographic regions experienced local currency
sales growth for the quarter.
In the Americas region, net revenue increased 8.6 percent in US dollars and 8.8
percent in local currencies over the prior year period. Revenue growth in the
region was driven by strong sales for data communications and telecommunications
products, as well as consumer and automotive products.
Net revenue in the Far East North region was down 14.5 percent in US dollars for
the quarter but rose 2.3 percent in local currencies. Strong demand in the
Japanese market for personal computer and computer-peripheral products as well
as telecommunication products contributed to the regional local currency growth.
Far East South net revenue for the quarter remained basically unchanged in US
dollars but increased 17.2 percent in local currencies due to the continuing
strength in the personal computer and computer-peripheral product markets.
In Europe, net revenue increased 6.4 percent in US dollars and 4.5 percent in
local currencies over the same quarter of the prior year. The regional growth
was attributable to increased sales of telecommunications products.
For the three months ended September 30, 1998, 65.5 percent of Molex's worldwide
net revenue was generated from its international operations. International
operations are subject to currency fluctuations and government actions. Molex
monitors its currency exposure in each country and continues to implement
defensive strategies to respond to changing economic environments. Due to the
uncertainty of the foreign exchange markets, Molex cannot reasonably predict
future trends related to foreign currency
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fluctuations. Foreign currency fluctuations have impacted results in the past
and may impact results in the future.
The gross profit percentage of 40.4 percent for the quarter ended September 30,
1998 decreased from 41.5 percent for the quarter ended September 30, 1997. A
labor strike in the US automotive industry had a negative impact as well as
increased depreciation expense resulting from continued strong capital
investments. The Company has also been aggressive with new product
introductions.
Selling and administrative expenses were $109.9 million for the quarter ended
September 30, 1998 as compared to $104.5 million in the same period the prior
year. As a percentage of net revenue, selling and administrative expenses were
26.8 percent as compared to 25.5 percent for the first quarter periods. Costs
incurred during the automotive strike and the US implementation of the Company's
Global Information System contributed to the increase as well as investments in
research and development. Research and development expenditures for the first
quarter increased 7.6 percent over the same period in the prior year.
Interest income, net of interest expense, was relatively flat at $3.4 million in
the quarter ended September 30, 1998 as compared to $3.7 million for the same
period in the prior year.
The effective tax rate was 33.4 percent for the quarter ended September 30, 1998
as compared to 35.8 percent for the same period in the prior fiscal year. This
change is primarily caused by increased pretax margins in countries with lower
effective tax rates and the positive effects of a reduction in Japanese tax
rates.
Net income for the quarter was $39.2 million or 25 cents per share for both
basic and diluted earnings per share, an 11.9 percent decrease compared with
$44.5 million or 28 cents per share for basic and diluted earnings per share for
the same period last year. Excluding the effects of currency translation, net
income for the quarter declined 2.8 percent.
LIQUIDITY AND CAPITAL RESOURCES
Molex's balance sheet continues to be exceptionally strong. Working capital at
September 30, 1998 was $533.6 million, a slight decrease from the $544.8 million
at June 30, 1998.
During the three months ended September 30, 1998, the Company has purchased an
aggregate of 350,000 shares of treasury stock at an aggregate cost of $9.5
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
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<PAGE> 11
financial flexibility are adequate to support its continued growth.
YEAR 2000
Molex recognizes the importance of the Year 2000 issue and has been giving high
priority to it. The Company has completed an assessment of its business and
other information systems as well as the non-information system aspects of its
business that could be impacted by the Year 2000 issue. Over the past few years,
the Company has developed and is currently implementing its Global Information
System (GIS), which is Year 2000 compliant. The GIS project is approximately 50
percent implemented and is expected to be fully complete by October 1999. The
Company presently believes that with modifications to existing software and the
GIS implementation, the Year 2000 issue will not pose material operational
problems for its information systems. While considered unlikely, management
believes that the most likely, worst case Year 2000 scenario would be a delay in
the completion of the GIS implementation at one or more of its operating
subsidiaries. At this time management has not determined the impact this worst
case scenario would have on its financial position, results of operations or
cash flows, but believes that its experience implementing GIS to date mitigates
this risk.
While the GIS implementation addresses many of the Company's Year 2000 issues,
the Company does not consider the GIS implementation costs to be related to the
Year 2000 issue as such costs are a strategic expenditure to enhance future
operations and would be incurred regardless of the Year 2000 issue. Total costs
related to the GIS project are expected to reach $55 million once complete.
Expenditures related to the Year 2000 date conversion effort, principally the
cost to repair existing software or microprocessors embedded in the Company's
manufacturing systems, are expected to be minor and management expects the total
costs of such remediation effort to be less than $2.0 million. Such costs will
be incurred principally during fiscal 1999 and should not have a material impact
on the Company's financial position, results of operations or cash flows.
The Company is initiating communications with its critical external
relationships to determine the extent to which the Company may be vulnerable to
such parties' failure to resolve their own Year 2000 issues. Where practicable,
the Company will assess and attempt to mitigate its risks with respect to the
failure of these entities to be Year 2000 ready. The Company cannot estimate the
cost to the Company of the failure of third parties to address their Year 2000
issues and there can be no assurance that there will not be a material adverse
effect on the Company if third parties do not convert their systems in a timely
manner and in a way that is compatible with the Company's systems.
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OUTLOOK
The outlook for the remainder of fiscal 1999 remains cautious for Molex in light
of continuing difficult economic conditions in many parts of the world.
Notwithstanding the significantly adverse effect of currency devaluation 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 evidence of a
recent slow down in Europe and the possibility of one in the Americas, the
outlook for the remaining year is a mixture of caution and guarded optimism.
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 $105
million in research and development for the fiscal year ending June 30, 1999.
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 - 3. Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Stockholders held on October 23, 1998,
the following directors were elected to hold office for the
coming year: Frederick A. Krehbiel, J.H. Krehbiel, Jr., Fred L.
Krehbiel, Robert J. Potter, Edgar D. Jannotta, Donald G. Lubin,
Masahisa Naitoh, Michael J. Birck, Douglas K. Carnahan.
A second proposal before the stockholders, the amendment and
restatement of the 1991 Molex Incorporated Incentive Stock Option
Plan, which is set forth in detail in the proxy statement dated
September 15, 1998 was approved.
ITEMS 5 - 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 November 13, 1998 /s/ ROBERT B. MAHONEY
----------------- -------------------------
Robert B. Mahoney
Corporate Vice President,
Treasurer and
Chief Financial Officer
Date November 13, 1998 /s/ LOUIS A. HECHT
----------------- -------------------------
Louis A. Hecht
Corporate Secretary and
General Counsel
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> SEP-30-1998
<CASH> $185,549
<SECURITIES> 101,337
<RECEIVABLES> 391,834
<ALLOWANCES> 17,738
<INVENTORY> 177,187
<CURRENT-ASSETS> 35,373
<PP&E> 710,636
<DEPRECIATION> 36,004
<TOTAL-ASSETS> 873,542
<CURRENT-LIABILITIES> 339,990
<BONDS> 0
0
0
<COMMON> 158,592
<OTHER-SE> 1,097,425
<TOTAL-LIABILITY-AND-EQUITY> 1,705,039
<SALES> 409,892
<TOTAL-REVENUES> 409,892
<CGS> 244,315
<TOTAL-COSTS> 354,242
<OTHER-EXPENSES> 109,927
<LOSS-PROVISION> 267
<INTEREST-EXPENSE> (3,448)
<INCOME-PRETAX> 58,831
<INCOME-TAX> 19,658
<INCOME-CONTINUING> 39,173
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39,173
<EPS-PRIMARY> $0.25
<EPS-DILUTED> $0.25
</TABLE>
