<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 December 31, 1997
-----------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
- -------- EXCHANGE ACT OF 1934
For the transition period from
------------------
Commission File Number 0-7491
MOLEX INCORPORATED
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 36-2369491
- --------------------------------- --------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2222 WELLINGTON COURT, LISLE, ILLINOIS 60532
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 630-969-4550
------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------------- -------------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date (applicable only to corporate
registrants). At December 31, 1997:
Common Stock 77,108,814 shares
Class A Common Stock 79,386,622 shares
Class B Common Stock 94,255 shares
<PAGE> 2
MOLEX INCORPORATED
FORM 10-Q
DECEMBER 31, 1997
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Information - Unaudited
Condensed Consolidated Balance Sheets -- 2
December 31, 1997 and June 30, 1997
Condensed Consolidated Statements of Income -- 3
Three and Six Months Ended December 31, 1997 and 1996
Condensed Consolidated Statements of Cash Flows -- 4
Six Months Ended December 31, 1997 and 1996
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II - OTHER INFORMATION 11
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MOLEX INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited - In Thousands)
<TABLE>
<CAPTION>
ASSETS
Dec. 31 June 30,
1997 1997
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents 150,857 199,767
Marketable securities 156,382 125,570
Accounts receivable - net 320,104 337,765
Inventories 169,994 166,660
Other current assets 46,229 43,852
------------ ------------
Total current assets 843,566 873,614
PROPERTY, PLANT AND EQUIPMENT - NET 643,866 665,468
OTHER ASSETS 89,925 97,849
------------ ------------
$1,577,357 $1,636,931
============ ============
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable 122,895 151,934
Accrued expenses 109,328 109,010
Other current liabilities 70,105 81,082
------------ ------------
Total current liabilities 302,328 342,026
DEFERRED ITEMS 13,651 14,758
ACCRUED POSTRETIREMENT BENEFITS 30,600 33,779
LONG-TERM DEBT, less portion due currently 5,591 7,350
MINORITY INTEREST 2,531 3,106
SHAREHOLDERS' EQUITY
Common stock 8,255 6,591
Paid-in capital 133,654 131,265
Retained earnings 1,235,816 1,149,720
Treasury stock (115,269) (94,494)
Deferred unearned compensation (13,647) (16,499)
Cumulative translation adjustments (26,153) 59,329
------------ ------------
Total shareholders' equity 1,222,656 1,235,912
------------ ------------
$ 1,577,357 $ 1,636,931
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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<PAGE> 4
MOLEX INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited - In Thousands Except per Share)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------------- -------------------------
Dec. 31 Dec. 31 Dec. 31 Dec. 31
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET REVENUE $405,497 $377,005 $815,691 $736,600
COST OF SALES 236,989 223,952 476,850 440,721
-------- -------- -------- --------
Gross Profit 168,508 153,053 338,841 295,879
OPERATING EXPENSES:
Selling 33,062 40,206 65,370 78,259
Administrative 68,442 52,669 140,595 101,573
-------- -------- -------- --------
Total Operating Expenses 101,504 92,875 205,965 179,832
Income from Operations 67,004 60,178 132,876 116,047
OTHER INCOME:
Foreign currency transaction gain/<loss> 76 (281) (206) 37
Interest income, net 2,552 2,643 6,216 5,070
Other, net 0 597 0 622
-------- -------- -------- --------
Total Other Income 2,628 2,959 6,010 5,729
INCOME BEFORE INCOME TAXES 69,632 63,137 138,886 121,776
INCOME TAXES 24,081 22,940 48,879 45,724
-------- -------- -------- --------
NET INCOME $ 45,551 $ 40,197 $ 90,007 $ 76,052
======== ======== ======== ========
EARNINGS PER COMMON SHARE:BASIC $ 0.29 $ 0.26 $ 0.57 $ 0.48
======== ======== ======== ========
EARNINGS PER COMMON SHARE:DILUTED $ 0.29 $ 0.25 $ 0.57 $ 0.48
======== ======== ======== ========
CASH DIVIDENDS PER COMMON SHARE 0.015 0.012 0.027 0.024
======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
DURING THE PERIOD: BASIC 156,729 157,265 156,791 157,379
======== ======== ======== ========
DILUTED 159,029 159,100 159,119 159,124
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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<PAGE> 5
MOLEX INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - In Thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------------------------
Dec. 31 Dec. 31
1997 1996
----------- -----------
<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 90,007 76,052
Add (deduct) non-cash items included in net income
Depreciation and amortization 74,555 63,179
Amortization of deferred unearned compensation 2,852 2,588
Other charges to net income (573) (1,280)
Current items:
Accounts receivable (10,454) (37,560)
Inventories (19,368) (11,478)
Prepaid expenses (6,246) (7,822)
Accounts payable (15,076) 2,861
Accrued expenses 11,404 6,339
Income taxes (10,328) 3,899
----------- -----------
NET CASH PROVIDED FROM OPERATIONS 116,773 96,778
Investments:
Purchases of property, plant and equipment (108,148) (96,410)
Proceeds from sale of marketable securities 3,137 1,160
Proceeds from sale of marketable securities 1,024,384 1,055,767
Purchases of marketable securities (1,051,550) (1,109,916)
Increase/(decrease) in other assets 5,746 6,527
----------- -----------
NET CASH USED FOR INVESTMENTS (126,431) (142,872)
Financing:
Increase in long-term debt 1,231 54
Decrease in long-term debt (3,000) (64)
Cash dividends paid (3,835) (3,065)
Purchase of treasury stock (20,851) (10,571)
Disposition of treasury stock 1,155 244
Exercise of stock options 3,331 2,865
----------- -----------
NET CASH USED FOR FINANCING (21,969) (10,537)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS (17,283) (2,629)
----------- -----------
(48,910) (59,260)
----------- -----------
CASH AND CASH EQUIVALENTS, End of Period $150,857 $183,519
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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<PAGE> 6
MOLEX INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated financial statements have been prepared from the
Company's books and records without audit and are subject to year-end
adjustments. The interim financial statements reflect all adjustments which
are, in the opinion of management, necessary for a fair presentation of
information for the interim periods presented. The condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Molex Incorporated 1997
Annual Report to Shareholders and the 1997 Annual Report on Form 10-K. The
results of operations for the interim periods should not be considered
indicative of results to be expected for the full year.
(2) EARNINGS PER COMMON SHARE
On 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 Six Months Ended
-------------------- --------------------
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Weighted average shares outstanding - basic 156,729 157,265 156,791 157,379
Dilutive effective of stock options 2,300 1,835 2,328 1,745
------- ------- ------- -------
Weighted average shares outstanding - diluted 159,029 159,100 159,119 159,124
======= ======= ======= =======
</TABLE>
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<PAGE> 7
(3) INVENTORIES
Inventories are valued at the lower of first-in, first-out cost or market.
Inventories, in thousands of dollars, consists of the following:
Dec. 31 June 30,
1997 1997
-------- --------
Raw Materials $ 44,407 $ 38,335
Work in Process 56,063 55,309
Finished Goods 69,524 73,016
-------- --------
$169,994 $166,660
======== ========
(4) NEW ACCOUNTING PRONOUNCEMENTS
In 1997 FASB issued SFAS No. 130, "Reporting Comprehensive Income," SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information," and
SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits," all of which are effective for fiscal years beginning after December
15, 1997. SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components. SFAS No. 131 establishes standards
for reporting information about operating segments and related disclosures
about products and services, geographic areas and major customers. 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 are not expected to have a
material impact on the Company's financial position or the results of its
operations.
(5) RECLASSIFICATIONS
Certain reclassifications have been made to the prior year's financial
statements in order to conform to fiscal 1998 classifications.
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<PAGE> 8
MOLEX INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Consolidated net revenues were $405.5 million for the quarter ended December
31, 1997, increasing 7.6 percent over net revenues for the corresponding
quarter of the prior fiscal year. For the six months ended December 31, 1997
revenues grew to $815.7 million from $736.6 million in the corresponding period
a year earlier. For the six months ended December 31, 1997, the percentage of
growth over the same period in the prior year was 10.7 percent in U.S. dollars
and 19.2 percent in local currencies. The generally higher value of the U.S.
dollar compared to other currencies worldwide decreased net revenues by $35.7
million for the quarter, and by $62.2 million for the six months ended December
31, 1997.
Management believes that Molex has continued to exceed its goal of increasing
net revenues at twice the growth rate of the worldwide connector market. All
geographic regions experienced local currency sales growth in excess of 10
percent for the six months ended December 31, 1997.
For the quarter ended December 31, 1997, revenues in the Americas region
increased 19.6 percent in both U.S. dollars and local currency over the same
quarter in the prior year. For the six months ended December 31, 1997, the
percentage of growth over the same period in the prior year was 21.1 percent in
both U.S. dollars and 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 revenues in the Far East North decreased 4.0 percent in U.S. dollars for
the quarter compared to the prior year and increased 8.4 percent in local
currencies. For the six months ended December 31, 1997, the percentage of
growth over the same period in the prior year was 0.9 percent in U.S. dollars
and 12.1 percent in local currencies. The recent deterioration in the economic
climate within Korea and an apparent slowdown in Japan as well, have for now
reduced the rates of growth Molex historically has enjoyed in this region.
Business levels appear to be constrained by the lack of liquidity in Korea
though the full potential impact on Molex is still to be determined.
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<PAGE> 9
Far East South net revenues for the quarter ended December 31, 1997 decreased
5.8 percent in U.S. dollars but increased 9.8 percent in local currencies. For
the six months ended December 31, 1997, the percentage of growth over the same
period in the prior year was 2.8 percent in U.S. dollars and 13.8 percent in
local currencies.
In Europe, net revenues increased 25.0 percent in U.S. dollars and
approximately 41.0 percent in local currency over the same quarter of the prior
year. For the six months ended December 31, 1997, the percentage of growth over
the same period in the prior year was 28.3 percent in U.S. dollars and
approximately 43.0 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 with resulting reductions in demand for telecom and mobile
communications products.
For the six months ended December 31, 1997, 62.0 percent of Molex's worldwide
net revenues were 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 41.6 percent for the quarter ended December 31,
1997 increased from 40.6 percent for the quarter ended December 31, 1996. For
the six months ended December 31, 1997 the gross profit percentage was 41.5
percent, an increase from 40.2 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 $101.5 million for the quarter ended
December 31, 1997 as compared to $92.8 million the same period the prior year.
For the six months ended December 31, 1997, selling and administrative expenses
were $206.0 million as compared to $179.8 million for the six months ended
December 31, 1996. For the quarter and six months ending December 31, 1997,
selling and administrative expenses were 25.0 and 25.3% respectively, as
compared to 24.6% and 24.4% for the same period in the prior year. The
Company's implementation of its Global
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<PAGE> 10
Information Systems and the general increase in sales levels across the Company
contributed to the slightly higher spending. Research and Development, which
is included in administrative expense, increased at a slightly higher rate than
the rate of revenue growth.
Interest income, net of interest expense, was $2.5 million in the quarter ended
December 31, 1997 as compared to $2.6 million for the same period in the prior
year. Interest income, net of interest expense, increased to $6.2 million for
the six months ended December 31, 1997 as compared to $5.1 million for the six
months ended December 31, 1996. Higher average cash balances account for this
increase.
The effective tax rate was 34.6 percent for the quarter ended December 31,
1997, as compared to 36.3 percent for the same period in the prior fiscal year.
The effective tax rate was 35.2 percent as compared to 37.5 percent for the
six months ended December 31, 1997. 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 $45.6 million or 29 cents per basic and diluted
share, a 13.3 percent increase compared with $40.2 million or 26 cents per
basic share and 25 cents per diluted share for the same quarter last fiscal
year. Net income for the six months ended December 31, 1997 was $90.0 million
or 57 cents per basic and diluted share, as compared to net income $76.1
million or 48 cents per basic and diluted share, for the same period in the
prior year. Net income for the quarter increased 24.1 percent over the same
quarter last fiscal year, excluding the effects of currency translation. For
the six months ended December 31, 1997, net income increased 27.9% over the
same period in the prior year, excluding the effects of currency translation.
LIQUIDITY AND CAPITAL
Molex's balance sheet continues to be exceptionally strong. Working capital at
December 31, 1997 was $541.2 million, a slight increase from the $531.6 million
at June 30, 1997.
The Company purchased 498,500 shares of treasury stock at an aggregate cost of
$15.7 million during the quarter. This is part of an up to $50 million stock
buyback authorized by the Board of Directors for the current fiscal year. For
year to date the Company has purchased an aggregate of 661,000 shares of
treasury stock at an aggregate cost of $20.9 million.
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 turmoil in much of Asia. Notwithstanding
the significantly adverse effect of currency devaluations and the Company's
sizable exposure to the Asian economy, 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 $240 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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<PAGE> 12
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 24, 1997,
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.
The vote for the second proposal before the stockholders, namely,
the amendment to the Certificate of Incorporation which is set
forth in detail in the proxy statement dated September 16, 1997
was approved.
Items 5 - 6. Not Applicable
- ------------
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<PAGE> 13
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MOLEX INCORPORATED
--------------------
(Registrant)
Date 1997 /s/ ROBERT B. MAHONEY
----------------- --------------------
Robert B. Mahoney
Corporate Vice President
and Treasurer
Date 1997 /s/ LOUIS A. HECHT
----------------- --------------------
Louis A. Hecht
Corporate Secretary and
General Counsel
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> SEP-30-1997
<CASH> 150,857
<SECURITIES> 156,382
<RECEIVABLES> 320,104
<ALLOWANCES> 0
<INVENTORY> 169,994
<CURRENT-ASSETS> 46,229
<PP&E> 643,866
<DEPRECIATION> 74,555
<TOTAL-ASSETS> 843,566
<CURRENT-LIABILITIES> 302,328
<BONDS> 0
0
0
<COMMON> 141,909
<OTHER-SE> 1,097,425
<TOTAL-LIABILITY-AND-EQUITY> 1,577,357
<SALES> 405,497
<TOTAL-REVENUES> 405,497
<CGS> 236,989
<TOTAL-COSTS> 338,493
<OTHER-EXPENSES> 101,504
<LOSS-PROVISION> 76
<INTEREST-EXPENSE> 2,552
<INCOME-PRETAX> 69,632
<INCOME-TAX> 24,081
<INCOME-CONTINUING> 45,551
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 45,551
<EPS-PRIMARY> 0.29
<EPS-DILUTED> 0.29
</TABLE>
