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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, 2002
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, 2002:
Common Stock 100,004,717 shares
Class A Common Stock 91,689,633 shares
Class B Common Stock 94,255 shares
MOLEX INCORPORATED
FORM 10-Q
DECEMBER 31, 2002
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Information - Unaudited
Condensed Consolidated Balance Sheets -- 2
December 31, 2002 and June 30, 2002
Condensed Consolidated Statements of Income -- 3
Six Months Ended December 31, 2002 and 2001
Condensed Consolidated Statements of Cash Flows -- 4
Six Months Ended December 31, 2002 and 2001
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosure About
Market Risk 14
Item 4. Controls and Procedures 15
PART II - OTHER INFORMATION 15
- 1 -
MOLEX INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited - In Thousands)
ASSETS Dec. 31, June 30,
2002 2002
_________ _________
CURRENT ASSETS:
Cash and cash equivalents $ 195,323 $ 213,477
Marketable securities 131,716 99,848
Accounts receivable - net 380,761 386,150
Inventories 166,705 167,253
Other current assets 41,890 48,615
_________ _________
Total current assets 916,395 915,343
PROPERTY, PLANT AND EQUIPMENT - NET 1,033,935 1,067,590
GOODWILL 160,198 160,180
OTHER ASSETS 130,065 110,807
_________ _________
$2,240,593 $2,253,920
_________ _________
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 159,538 $ 184,630
Accrued expenses 117,009 121,942
Other current liabilities 34,963 53,021
_________ _________
Total current liabilities 311,510 359,593
DEFERRED ITEMS 5,250 6,346
ACCRUED POSTRETIREMENT BENEFITS 47,745 41,999
LONG-TERM DEBT 13,462 14,223
OBLIGATIONS UNDER CAPITAL LEASES 516 3,626
MINORITY INTEREST 81 481
SHAREHOLDERS' EQUITY
Common stock 10,654 10,628
Paid-in capital 331,223 311,631
Retained earnings 1,986,250 1,937,488
Treasury stock (407,942) (362,479)
Deferred unearned compensation (33,829) (27,262)
Cumulative translation and
other adjustments (24,327) (42,354)
_________ _________
Total shareholders' equity 1,862,029 1,827,652
_________ _________
$2,240,593 $2,253,920
_________ _________
The accompanying notes are an integral part of these condensed consolidated
financial statements.
- 2 -
MOLEX INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited - In Thousands Except per Share Data)
THREE MONTHS ENDED SIX MONTHS ENDED
December 31, December 31,
2002 2001 2002 2001
________ ________ ________ ________
NET REVENUE $454,609 $416,460 $923,855 $846,913
COST OF SALES 308,215 291,115 617,905 584,264
________ ________ ________ ________
Gross Profit 146,394 125,345 305,950 262,649
OPERATING EXPENSES:
Selling 40,547 37,220 81,424 74,529
Administrative 72,619 80,652 152,210 146,410
________ _______ ________ ________
Total Operating Expenses 113,166 117,872 233,634 220,939
Income from Operations 33,228 7,473 72,316 41,710
OTHER INCOME:
Impairment charge on investments
in other companies - (10,000) - (10,000)
Foreign currency transaction
gain/(loss) (5) (2,085) (588) (3,236)
Interest income, net 3,927 855 4,937 2,898
________ ________ ________ ________
Total Other Income/(Expense) 3,922 (11,230) 4,349 (10,338)
INCOME/(LOSS) BEFORE INCOME TAXES 37,150 (3,757) 76,665 31,372
INCOME TAX EXPENSE/(BENEFIT) 8,962 (8,021) 18,515 1,912
________ ________ ________ ________
NET INCOME $ 28,188 $ 4,264 $ 58,150 $ 29,460
EARNINGS PER COMMON SHARE:
BASIC $0.15 $0.02 $0.30 $0.15
DILUTED $0.15 $0.02 $0.30 $0.15
CASH DIVIDENDS PER COMMON SHARE $0.025 $0.025 $0.050 $0.050
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
DURING THE PERIOD: BASIC 192,002 194,636 192,462 194,931
DILUTED 193,312 196,247 193,863 196,515
The accompanying notes are an integral part of these condensed consolidated
financial statements.
- 3 -
MOLEX INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - In Thousands)
SIX MONTHS ENDED
December 31,
2002 2001
CASH AND CASH EQUIVALENTS, Beginning of Period $213,477 $138,438
CASH AND CASH EQUIVALENTS
PROVIDED FROM (USED FOR) Operations:
Net income 58,150 29,460
Add (deduct) non-cash items included
in net income:
Depreciation and amortization 111,225 111,593
Amortization of deferred unearned compensation 6,562 5,126
Impairment charge on investments in other companies - 10,000
Fixed asset write downs included in special charges - 3,652
Other charges to net income 3,845 1,412
Changes in working capital:
Accounts receivable 8,399 64,022
Inventories 2,395 23,602
Other current assets 6,742 1,916
Accounts payable (25,673) (49,824)
Accrued expenses (2,548) (18,762)
Other current liabilities (15,154) (35,801)
_______ _______
NET CASH PROVIDED FROM OPERATIONS 153,943 146,396
Investments:
Purchases of property, plant and equipment (79,724) (89,020)
Proceeds from sale of property, plant
and equipment 1,165 4,232
(Increase)decrease in marketable securities (31,868) 56,855
(Increase)decrease in other assets (18,499) 4,492
_______ _______
NET CASH PROVIDED FROM(USED FOR)
INVESTING ACTIVITIES (128,926) (23,441)
Financing:
Increase(decrease) in short-term loans (967) 959
Increase in long-term debt 21 809
Decrease in long-term debt (783) (4,724)
Principal payments on capital leases (3,839) (4,768)
Cash dividends paid (9,640) (9,760)
Purchase of treasury stock (45,001) (35,043)
Reissuance of treasury stock 707 1,223
Exercise of stock options 4,066 2,997
_______ _______
NET CASH USED FOR FINANCING ACTIVITIES (55,436) (48,307)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS 12,265 1,862
_______ _______
CASH AND CASH EQUIVALENTS, End of Period $195,323 $214,948
The accompanying notes are an integral part of these condensed consolidated
financial statements.
- 4 -
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 2002
Annual Report to Shareholders and the 2002 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. Certain
reclassifications have been made to the prior year's financial statements to
conform to the fiscal year 2003 classifications.
(2) Earnings per Common Share
The reconciliation of common shares outstanding to dilutive common shares
outstanding is as follows:
Three Months Ended Six Months Ended
December 31, December 31,
2002 2001 2002 2001
Weighted average shares
outstanding - basic 192,002 194,636 192,462 194,931
Dilutive effect of stock options 1,310 1,611 1,401 1,584
_______ _______ _______ _______
Weighted average shares
outstanding - diluted 193,312 196,247 193,863 196,515
(3) Comprehensive Income
Comprehensive 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, is as follows:
Three Months Ended Six Months Ended
December 31, December 31,
2002 2001 2002 2001
Net income $28,188 $ 4,264 $58,150 $29,460
Currency translation
and other adjustments 33,980 (54,969) 18,027 (10,750)
_______ ________ _______ _______
Total comprehensive income $62,168 $(50,705) $76,177 $18,710
- 5 -
4) Inventories
Inventories are valued at the lower of first-in, first-out cost or market.
Inventories, net of reserves, in thousands of dollars, consist of the
following:
Dec. 31, June 30,
2002 2002
________ ________
Raw Materials $ 25,518 $ 25,753
Work in Process 62,148 63,180
Finished Goods 79,039 78,320
________ ________
$166,705 $167,253
5) Segment and Related Information
The Company and its subsidiaries operate in one product segment:
the manufacture and sale of electrical components. Revenue is recognized based
on the location of the selling entity. Management operates the business by
geographic segments. Information by geographic area is summarized in the
following table (in thousands):
As of and Inter-
for the three Customer company Total Net Identifiable
Months Ended: Revenue Revenue Revenue Income* Assets
December 31, 2002:
United States $156,753 $ 19,299 $176,052 $ 6,060 $ 980,819
Americas (Non-US) 5,219 7,046 12,265 796 70,527
Far East North 100,781 37,470 138,251 9,418 509,259
Far East South 117,043 11,308 128,351 15,913 446,446
Europe 74,795 7,423 82,218 (571) 436,489
Corporate and Other 18 - 18 (3,428) 117,149
Eliminations - (82,546) (82,546) - (320,096)
Total $454,609 - $454,609 $28,188 $2,240,593
December 31, 2001:
United States $157,868 $ 13,133 $171,001 $(5,618) $ 979,965
Americas (Non-US) 2,121 9,161 11,282 (247) 50,025
Far East North 87,191 33,107 120,298 7,854 450,787
Far East South 91,303 13,315 104,618 11,906 360,023
Europe 77,958 7,318 85,276 (2,153) 396,371
Corporate and Other 19 - 19 (7,478) 91,528
Eliminations - (76,034) (76,034) - (236,811)
Total $416,460 - $416,460 $ 4,264 $2,091,888
- 6 -
As of and Inter-
for the six Customer company Total Net Identifiable
Months Ended: Revenue Revenue Revenue Income* Assets
December 31, 2002:
United States $323,262 $ 37,576 $360,838 $14,613 $ 980,819
Americas (Non-US) 8,346 14,679 23,025 746 70,527
Far East North 203,808 79,058 282,866 21,112 509,259
Far East South 235,699 25,368 261,067 33,643 446,446
Europe 152,709 14,885 167,594 (95) 436,489
Corporate and Other 31 - 31 (11,869) 117,149
Eliminations - (171,566) (171,566) - (320,096)
Total $923,855 - $923,855 $58,150 $2,240,593
December 31, 2001:
United States $327,529 $ 25,973 $353,502 160 $ 979,965
Americas (Non-US) 4,242 18,322 22,564 (493) 50,025
Far East North 177,345 64,931 242,276 17,808 450,787
Far East South 185,983 25,412 211,395 22,545 360,023
Europe 151,788 14,092 165,880 (1,054) 396,371
Corporate and Other 26 - 26 (9,506) 91,528
Eliminations - (148,730) (148,730) - (236,811)
Total $846,913 - $846,913 $29,460 $2,091,888
* Net income in the prior year periods includes a special charge as discussed
in Note 6.
6) Other items
During the second quarter of fiscal 2002, the Company recorded a pretax charge
of $34.2 million ($25.3 million, net of tax benefit of $8.9 million) to reflect
costs associated with a reduction in the global work force of approximately 800
people, the lower current value of investments in other companies, and asset
write-down costs related to operations being closed. In addition, a one-time
positive tax planning adjustment of $5.0 million related to certain operations
being closed was recorded.
During the fourth quarter of fiscal 2001, the Company recorded a $43.5 million
($30.3 million, net of tax benefit of $13.2 million) charge to reflect costs
associated with a reduction in the global work force of approximately 950
people, write-off of slow-moving and excess inventories and asset write-offs
related to operations being closed.
-7-
The major components of the fiscal 2001 fourth quarter and fiscal 2002 second
quarter charges, and the remaining accrual balance as of December 31, 2002 were
as follows:
Accrued
June December Cash Assets Balance at
2001 2001 Payments Disposed December 31,
(In thousands) Charge Charge Made and Other 2002
_______________ _________ _________ _________ _________ _________
Severance and
other benefits $27,690 $18,675 ($31,942) ($ 3,201) $11,222
Inventory write-offs 12,714 - - (12,714) -
Asset write-offs 3,043 15,483 - (18,526) -
________ _________ ________ _________ _________
Total $43,447 $34,158 ($31,942) ($34,441) $11,222
All of the employment reductions have occurred with severance payments being
made over a period of up to twenty-four months after the severance date. The
remaining severance payments will be paid during the next ten months.
7) New accounting pronouncements
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 143, "Accounting for Asset Retirement Obligations," and No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets," as of July 1,
2002. These statements address the recognition and remeasurement of
obligations associated with the retirement of tangible long-lived assets and
the accounting and reporting for the impairment or disposal of long-lived
assets, including discontinued operations, respectively. SFAS No. 144
establishes a single accounting model for long-lived assets to be disposed of
by sale. The Company has evaluated SFAS No. 143 and SFAS No. 144 and
determined that the impact on the consolidated financial statements is not
material.
In June 2002, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 146, "Accounting for Costs Associated with Exit or Disposal Activities".
This statement requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred. It also
establishes that fair value is the objective for initial measurement of the
liability. This statement is effective for exit or disposal activities that
are initiated after December 31, 2002. In November 2002, the FASB issued
-8-
Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others". This
Interpretation establishes accounting and disclosure requirements for a
company's obligations under certain guarantees that it has issued. A guarantor
is required to recognize a liability for the obligation it has undertaken in
issuing a guarantee, including the ongoing obligation to stand ready to perform
over the term of the guarantee in the event that the specified triggering
events or conditions occur. The objective of the initial measurement of that
liability is the fair value of the guarantee at its inception. The initial
recognition and measurement provisions of this Interpretation are applicable on
a prospective basis to guarantees issued or modified after December 31, 2002.
The disclosure provisions became effective this quarter and have been
determined to have no material impact on the Company.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure", an amendment to SFAS No. 123.
This standard provides alternative methods of transition for a voluntary change
to the fair valued based method of accounting for stock-based employee
compensation. It also amends the disclosure requirements to require prominent
disclosure in both the annual and interim financial statements about the method
of accounting for stock-based employee compensation and the effect of the
method used on reported results. The new disclosure requirements will be
effective for interim periods beginning after December 15, 2002.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities". It requires that the assets, liabilities and
results of the activity of variable interest entities be consolidated into the
financial statements of the company that has the controlling financial
interest. It also provides the framework for determining whether a variable
interest entity should be consolidated based on voting interest or significant
financial support provided to it. For the Company, this Interpretation is
effective immediately for variable interest entities created after January 31,
2003, and effective July 1, 2003 for variable interest entities acquired before
February 1, 2003. The Company does not expect the adoption of this
Interpretation to have any impact on its fiscal 2004 consolidated financial
statements.
-9-
MOLEX INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Consolidated net revenues were $454.6 million for the quarter ended
December 31, 2002, up 9.2 percent in U.S. dollars and 7.7 percent in local
currencies over the prior year period. For the six months ended December 31,
2002, net revenues were $923.9 million compared with $846.9 million last year,
rising 9.1 percent in U.S. dollars and 6.9 percent in local currencies. The
strengthening of other currencies compared with the U.S. dollar increased net
revenues by $6.1 million and $18.9 million for the quarter and year-to-date
periods, respectively.
Net revenue in the Americas region was up 3 percent over the prior year quarter
and 2 percent over the prior year-to-date period, but the telecom
infrastructure and fiber optics markets continue to be a challenge in the
current economic environment.
Quarterly net revenue in the Far East North region increased 15 percent in U.S.
dollars and in local currencies compared with last year. For the six months
ended December 31, 2002, revenue rose 17 percent in U.S. dollars and 15 percent
in local currencies. New products developed for the digital consumer
electronics market aided the year-over-year revenue growth.
Far East South net revenue for the quarter rose 23 percent in U.S. dollars and
22 percent in local currencies over the prior year quarter. Year-to-date,
revenue increased 24 percent in U.S. dollars and 23 percent in local currencies
over last year. The region was helped by strong demand in consumer electronics,
personal computers and mobile telephones as well as our introduction of new
products and the continued movement of manufacturing to the region by our
global customers.
In Europe, net revenue was down 4 percent in U.S. dollars and 11 percent in
local currencies compared with the prior year quarter. For the six months
ended December 31, 2002, revenue was up 1 percent in U.S. dollars but down 8
percent in local currencies. The decline was a result of the depressed
telecom infrastructure market, reflecting a downturn which started later than
those in the U.S. and Asia. The transfer of manufacturing to China by our
customers has also impacted the region.
- 10 -
For the six months ended December 31, 2002, 65.0 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 foreign currency exposure in each country and implements
strategies to respond to changing economic and political 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.
Gross profit as a percent of net revenue was 32.2 percent for the quarter ended
December 31, 2002 compared with 30.1 percent last year. For the six months
ended December 31, 2002, the gross profit percentage was 33.1 percent compared
with 31.0 percent in the prior year. The prior year gross profit margins were
impacted by a $7.1 million charge taken last year. The increase for the current
year was also partially due to higher revenues and absorption of fixed
manufacturing costs, as well as a benefit from favorable pricing of raw
materials.
Selling and administrative expenses were $113.2 million and $233.6 million,
respectively, for the quarter and six-month period ended December 31, 2002 as
compared with $117.9 million and $220.9 million, respectively, for the
corresponding periods in the prior year. As a percent of net revenue, selling
and administrative expenses for the quarter were 24.9 percent compared with
28.3 percent in the prior year, and for the year-to-date period were 25.3
percent compared with 26.1 percent in the prior year. The prior year numbers
include a $15.7 million charge taken last year. The current year included the
reinstatement of salaries and certain employee retirement benefits to normal
levels as well as increased expenses for travel and other revenue related
expenses. Also included in selling and administrative expenses are research and
development expenditures, which for the six months ended December 31, 2002,
increased $3.3 million but decreased slightly as a percent of net revenue to
6.4 percent from 6.6 percent in the prior year period due to higher revenues.
Interest income, net of interest expense, was $3.9 million in the quarter ended
December 31, 2002 compared with $0.9 million in the prior year and was $4.9
million for the six months ended December 31, 2002 as compared with $2.9
million a year ago. The current year included an interest benefit from the
favorable closure of corporate tax audits in several jurisdictions, as well as
additional interest on our higher cash balances.
- 11 -
The effective tax rate was 24.0 percent for both the quarter and year-to-date
periods ended December 31, 2002 compared with 213.5 percent and 6.0 percent in
the comparable prior year periods. Excluding the impact of prior year charges,
the effective tax rate for the six months ended December 31, 2002 was
consistent with the fiscal 2002 six-month effective tax rate after adjusting
the tax rate for the $5.0 million one-time tax benefit recorded in the second
quarter of last year.
Net income for the quarter was $28.2 million or 15 cents per basic and diluted
share compared with $4.3 million or 2 cents per basic and diluted share for the
same quarter last fiscal year. For the six months ended December 31, 2002, net
income was $58.2 million or 30 cents per basic and diluted share, as compared
with net income of $29.5 million or 15 cents per basic and diluted share for
the same period last year. Currency translation had no impact on the quarter
but increased net income by $0.7 million for the six-month period.
The change in comprehensive income in Note 3 is mainly due to foreign currency
translation adjustments due to the stronger Euro versus the U.S. dollar when
comparing rates at June 30, 2002 to those at December 31, 2002. When comparing
the same period last year, June 30, 2001 to December 31, 2001, foreign
currencies were generally weaker versus the U.S. dollar.
LIQUIDITY AND CAPITAL RESOURCES
Molex continues to maintain a strong financial position, funding capital
projects and working capital needs principally out of operating cash flow and
cash reserves, while maintaining a relatively low level of debt. Working
capital at December 31, 2002 was $604.9 million compared with $555.8 million
at June 30, 2002.
Net cash provided from operations was up over the prior year due to higher net
income that was partially offset by an $11.0 million change in working capital
and by charges taken in the prior year.
Net cash used for investments was $128.9 million, a change of $105.5 million
from the prior year, driven mainly by a $88.7 million change in marketable
securities which increased $31.9 million in the first half of fiscal 2003
versus a $56.9 million decrease in the first half of fiscal 2002. Capital
expenditures were $79.7 million, down from the prior year total of $89.0
million.
- 12 -
Net cash used for financing activities was $55.4 million compared with $48.3
million in the prior period. During the six months ended December 31, 2002,
the Company purchased an aggregate of 1,867,500 shares of treasury stock at an
aggregate cost of $45.0 million. This is in accordance with authorization by
the Board of Directors allowing for the purchase of up to $100 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 current and future growth.
OUTLOOK
The outlook for the remainder of fiscal 2003 remains challenging based on the
uncertainty of the current worldwide economic conditions and the limited
visibility in our industry. We continue to see customers ordering only for
their short-term requirements with little advance notice. New product
development continues to remain a high priority this fiscal year. Molex's
global team has considerable experience in managing through difficult market
conditions and is focused on maintaining profitability while developing the
new products necessary to expand its market share. 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.
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.
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.
- 13 -
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to market risk associated with changes in foreign
currency exchange rates, interest rates and certain commodity prices. The
Company mitigates its foreign currency exchange rate risk principally through
the establishment of local production facilities in the markets it serves and
invoicing of customers in the same currency as the source of the products.
Molex also 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 establishment of
contra-currency accounts in several international subsidiaries, development of
natural hedges and occasional use of foreign exchange contracts.
A formalized treasury risk management policy has been implemented by the
Company which describes the procedures and controls over derivative financial
and commodity instruments. Under the policy, the Company does not use
derivative financial or commodity instruments for trading purposes and the use
of such instruments are subject to approval levels by senior officers.
Typically, the use of such derivative instruments is limited to hedging
activities related to specific foreign currency cash flows. The Company's
exposure related to such transactions is, in the aggregate, not material to the
Company's financial position, results of operations and cash flows.
Interest rate exposure is principally limited to the $131.7 million of
marketable securities owned by the Company and the Company's $13.5 million of
long-term debt. The securities are debt instruments which generate interest
income for the Company on temporary excess cash balances. The Company does not
actively manage the risk of interest rate fluctuations on the marketable
securities. However, such risk is mitigated by the relatively short term, less
than twelve months, nature of these investments. The Company's long-term debt
is generally at fixed rates and primarily consists of bank loans and mortgages.
The Company does not enter into derivative transactions (i.e., interest rate
swaps) with respect to its long-term debt as the current interest expense on
this debt is not deemed material to operations.
- 14 -
CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures
The term "disclosure controls and procedures" is defined in Rules 13a-14(c) and
15d-14(c) of the Securities Exchange Act of 1934 (Exchange Act). These rules
refer to the controls and other procedures of a company that are designed to
ensure that information required to be disclosed by a company in the reports
that it files under the Exchange Act is recorded, processed, summarized and
reported within required time periods. Our Chief Executive Officer and our
Chief Financial Officer have evaluated the effectiveness of our disclosure
controls and procedures as of a date within ninety days before the filing of
this quarterly report (the Evaluation Date), and they have concluded that, as
of the Evaluation Date, such controls and procedures were effective at ensuring
that required information will be disclosed on a timely basis in our reports
filed under the Exchange Act.
(b) Changes in internal controls
Molex maintains a system of internal accounting controls that are designed to
provide reasonable assurance that the Company's books and records accurately
reflect its transactions and that its established policies and procedures are
followed. There were no significant changes to the Company's internal controls
or in other factors that could significantly affect the internal controls based
on an evaluation of controls within 90 days of the filing date of this report.
Part II - Other Information
Items 1-5. Not Applicable
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
A report on Form 8-K was filed on November 8, 2002
containing:
1) the certification under Section 906 of the
Sarbanes-Oxley Act of 2002 "Corporate Responsibility
for Financial Reports".
- 15 -
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 February 13, 2003 /s/ ROBERT B. MAHONEY
----------------- --------------------
Robert B. Mahoney
Executive Vice President,
Treasurer and
Chief Financial Officer
Date February 13, 2003 /s/ LOUIS A. HECHT
----------------- --------------------
Louis A. Hecht
Corporate Secretary and
General Counsel
- 16 -
CERTIFICATIONS
I, J. Joseph King, Vice Chairman and Chief Executive Officer of Molex
Incorporated, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Molex Incorporated;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: February 13, 2003 /s/ J.JOSEPH KING
J. Joseph King
Vice Chairman and Chief
Executive Officer
I, Robert B. Mahoney, Executive Vice President, Treasurer and Chief Financial
Officer of Molex Incorporated, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Molex Incorporated;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: February 13, 2003 /s/ROBERT B. MAHONEY
Robert B. Mahoney
Executive Vice President, Treasurer
and Chief Financial Officer