UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 2003
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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act.) 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, 2003:
Common Stock 100,423,567 shares
Class A Common Stock 89,879,851 shares
Class B Common Stock 94,255 shares
MOLEX INCORPORATED
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -- 2
December 31, 2003 and June 30, 2003
Condensed Consolidated Statements of Income -- 3
Three and Six Months Ended December 31, 2003 and 2002
Condensed Consolidated Statements of Cash Flows -- 4
Six Months Ended December 31, 2003 and 2002
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 11
Item 3. Quantitative and Qualitative Disclosure About
Market Risk 13
Item 4. Controls and Procedures 14
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 20
1
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
MOLEX INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS December 31, June 30,
2003 2003
_________ _________
(unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 157,443 $ 178,976
Marketable securities 170,109 171,235
Accounts receivable - net 490,395 396,780
Inventories 216,386 179,256
Other current assets 45,362 35,866
_________ _________
Total current assets 1,079,695 962,113
PROPERTY, PLANT AND EQUIPMENT - NET 1,027,870 1,007,948
GOODWILL 160,743 160,732
OTHER ASSETS 221,846 204,097
_________ _________
$2,490,154 $2,334,890
_________ _________
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 203,926 $ 175,815
Accrued expenses 125,665 117,994
Other current liabilities 58,809 62,339
_________ _________
Total current liabilities 388,400 356,148
OTHER NON-CURRENT LIABILITIES 6,470 6,123
ACCRUED PENSION AND POSTRETIREMENT BENEFITS 64,675 58,430
LONG-TERM DEBT 10,731 13,137
OBLIGATIONS UNDER CAPITAL LEASES 3,175 3,731
MINORITY INTEREST 1,295 753
SHAREHOLDERS' EQUITY
Common stock 10,712 10,680
Paid-in capital 364,417 341,530
Retained earnings 2,067,204 2,003,440
Treasury stock (463,280) (437,234)
Deferred unearned compensation (41,134) (32,094)
Cumulative translation and
other adjustments 77,489 10,246
_________ _________
Total shareholders' equity 2,015,408 1,896,568
_________ _________
$2,490,154 $2,334,890
_________ _________
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,
___________________ ___________________
2003 2002 2003 2002
________ ________ _________ ________
NET REVENUE $548,982 $454,609 $1,045,745 $923,855
COST OF SALES 368,129 308,215 695,511 617,905
________ ________ _________ ________
Gross Profit 180,853 146,394 350,234 305,950
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES:
Selling 48,845 40,547 93,261 81,424
General and Administrative 81,429 72,619 162,985 152,210
________ ________ _________ ________
Total selling, general and
administrative expenses 130,274 113,166 256,246 233,634
Income from operations 50,579 33,228 93,988 72,316
OTHER INCOME (EXPENSE):
Gain on sale of affiliate stock 10,363 - 10,363 -
Impairment and write-down of
investments (4,986) - (4,986) -
Interest, net 1,089 3,927 2,324 4,937
Other income (expense) (352) (5) (1,018) (588)
________ ________ _________ ________
Total other income (expense) 6,114 3,922 6,683 4,349
INCOME BEFORE INCOME TAXES
AND MINORITY INTEREST 56,693 37,150 100,671 76,665
INCOME TAXES AND MINORITY INTEREST 15,477 8,962 27,393 18,515
________ ________ _________ ________
NET INCOME $ 41,216 $ 28,188 $ 73,278 $ 58,150
________ ________ _________ ________
EARNINGS PER COMMON SHARE:
BASIC $ 0.17 $ 0.16 $ 0.38 $ 0.30
DILUTED $ 0.17 $ 0.15 $ 0.38 $ 0.30
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:
BASIC 190,459 192,002 190,599 192,462
DILUTED 192,450 193,312 192,462 193,863
CASH DIVIDENDS PER COMMON SHARE $ 0.025 $ 0.025 $ 0.050 $ 0.050
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,
___________________
2003 2002
________ ________
CASH AND CASH EQUIVALENTS, Beginning of Period $178,976 $213,477
OPERATING ACTIVITIES:
Net income 73,278 58,150
Add (deduct) non-cash items included
in net income -
Depreciation and amortization 109,599 111,225
Amortization of deferred unearned compensation 6,210 6,562
Other charges to net income (1,921) 3,845
Changes in assets and liabilities, excluding
effects of foreign currency adjustments -
Accounts receivable (72,384) 8,399
Inventories (29,359) 2,395
Other current assets (5,793) 6,742
Accounts payable 16,848 (25,673)
Accrued expenses 2,186 (2,548)
Other liabilities (4,626) (15,154)
_______ _______
CASH PROVIDED FROM OPERATING ACTIVITIES 94,038 153,943
INVESTING ACTIVITIES:
Capital expenditures (83,939) (79,724)
Proceeds from sale of property, plant
and equipment 2,265 1,165
(Increase)decrease in marketable securities 1,126 (31,868)
Other investing activities (3,363) (18,499)
_______ _______
CASH USED FOR INVESTING ACTIVITIES (83,911) (128,926)
FINANCING ACTIVITIES:
Net decrease in debt (3,062) (1,729)
Principal payments on capital lease obligations (2,569) (3,839)
Cash dividends paid (9,535) (9,640)
Purchase of treasury stock (25,406) (45,001)
Reissuance of treasury stock 1,022 707
Exercise of stock options 4,946 4,066
_______ _______
CASH USED FOR FINANCING ACTIVITIES (34,604) (55,436)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS 2,944 12,265
_______ _______
CASH AND CASH EQUIVALENTS, End of Period $157,443 $195,323
_______ _______
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
MOLEX INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Basis of Presentation
Molex Incorporated manufactures electronic components, including electrical and
fiber optic interconnection products and systems; switches; integrated
products; and application tooling in 58 plants in 19 countries.
The unaudited financial statements have been prepared from the Company's books
and records and reflect all adjustments that, in the opinion of management, are
necessary for a fair presentation of information for the interim periods
presented. The condensed consolidated financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission
and therefore, do not include all information and footnote disclosures included
in the annual consolidated financial statements. These financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Molex Incorporated 2003 Annual Report to
Shareholders and the 2003 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 2004 classifications.
(2) Earnings Per Common Share
The reconciliation of basic average common shares outstanding to dilutive
average common shares outstanding is as follows (in thousands):
Three Months Ended Six Months Ended
December 31, December 31,
__________________ __________________
2003 2002 2003 2002
________ ________ ________ ________
Weighted average shares
outstanding - basic 190,459 192,002 190,599 192,462
Dilutive effect of stock options 1,991 1,310 1,863 1,401
________ ________ ________ ________
Weighted average shares
outstanding - diluted 192,450 193,312 192,462 193,863
________ ________ ________ ________
(3) Comprehensive Income
Total comprehensive income is summarized as follows (in thousands):
Three Months Ended Six Months Ended
December 31, December 31,
__________________ __________________
2003 2002 2003 2002
________ ________ ________ ________
Net Income $41,216 $28,188 $ 73,278 $58,150
Foreign currency
translation adjustments 45,234 33,991 66,932 18,115
Unrealized gain (loss) on
available-for-sale securities 69 (11) 311 (88)
________ ________ ________ ________
Total comprehensive income $86,519 $62,168 $140,521 $76,177
________ ________ ________ ________
5
MOLEX INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4) New Accounting Pronouncements
The Financial Accounting Standards Board (FASB) has issued Staff Position (FSP)
No. 106-1, "Accounting and Disclosure Requirements Related to the Medicare
Prescription Drug, Improvement and Modernization Act of 2003 (The "Act")."
The purpose of this FSP is to permit a one-time election to defer recognition
of the effects of the Act until the FASB issues accounting guidance, and to
provide disclosure guidance based on that election. Molex has elected to defer
recognition of the effects of the Act until accounting guidance is provided by
the FASB.
5) Inventories
Inventories are valued at the lower of first-in, first-out cost or market.
Inventories, net of reserves, consist of the following (in thousands):
December 31, June 30,
2003 2003
___________ __________
Raw Materials $ 30,719 $ 26,155
Work in Process 78,372 63,807
Finished Goods 107,295 89,294
___________ __________
$216,386 $179,256
___________ __________
6
MOLEX INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6) Stock Option Plans
As permitted by Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation", the Company has elected to account
for its stock-based compensation programs according to the provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." Had the Company elected to apply the provisions of SFAS No. 123
regarding recognition of compensation expense to the extent of the calculated
fair value of stock options granted, the effects on reported net income and
earnings per share would have been as follows (in thousands, except per share
data):
Three Months Ended Six Months Ended
December 31, December 31,
__________________ _________________
2003 2002 2003 2002
_______ _______ _______ _______
Net Income, as reported $41,216 $28,188 $73,278 $58,150
Add: Stock-based compensation
expense included in reported
net income, net of tax 2,338 2,494 4,534 4,988
Deduct: Total stock-based
compensation expense
determined under fair value
method for all awards,
net of tax (4,545) (4,274) (8,095) (8,548)
_______ _______ _______ _______
Pro forma net income $39,009 $26,408 $69,717 $54,590
_______ _______ _______ _______
Earnings per share:
Basic $ 0.22 $ 0.15 $ 0.38 $ 0.30
Diluted 0.21 0.15 0.38 0.30
Pro forma earnings per share:
Basic $ 0.20 $ 0.14 $ 0.37 $ 0.28
Diluted 0.20 0.14 0.37 0.28
7) Other Charges
During the fourth quarter of fiscal 2003, the Company recorded a pretax charge
of $40.1 million ($28.6 million, net of a tax benefit of $11.5 million). This
charge included $23.1 million relating to write-offs of manufacturing assets
and facilities, $11.9 million for severance costs related to a workforce
reduction of 537 people and $5.1 million for the write-off of investments.
Some employment reductions occurred during fiscal 2003, and all remaining
employment reductions occurred in the first half of fiscal 2004. Most severance
payments will continue for up to a year.
During the fourth quarter of fiscal 2001 and the second quarter of fiscal 2002,
the Company recorded charges for severance and other termination benefits of
$46.4 million associated with global workforce reductions of approximately
1,750 employees. At December 31, 2003, $1.4 million of severance payments
related to these workforce reduction actions remained in the consolidated
balance sheet.
7
MOLEX INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The change in the accrued severance balance is summarized as follows
(in thousands):
June 2003 Dec. 2001 June 2001
Charge Charge Charge Total
_________ _________ _________ _________
Balance at June 30, 2003 $10,126 $ 1,831 $ 757 $ 12,714
Charges to expense - - - -
Cash payments (2,086) (484) (316) (2,886)
_________ _________ _________ _________
Balance at September 30, 2003 8,040 1,347 441 9,828
Charges to expense - - - -
Cash payments (1,537) (337) (61) (1,935)
_________ _________ _________ _________
Balance at December 31, 2003 $ 6,503 $ 1,010 $ 380 $ 7,893
_________ _________ _________ _________
During the second quarter of fiscal 2004, the Company recorded a pretax charge
of $5.0 million to exit other investments in start-up technologies.
8) Other Income (Expense)
The Company recognized a pretax gain of $10.4 million from the sale of stock of
an affiliate and an equity gain resulting from the IPO completed by this
affiliate. Molex retains a 20 percent ownership.
8
MOLEX INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9) Segment and Related Information
The Company and its subsidiaries operate in one product segment: the
manufacture and sale of electronic components. Management operates the
business by geographic region and information by geographic region is
summarized as follows (in thousands):
Inter-
Three Customer company Total Net
Months Ended: Revenue Revenue Revenue Income
December 31, 2003 - ________ ________ ________ _______
Americas $167,478 $ 41,791 $209,269 $11,346
Far East North 131,283 57,688 188,971 21,597
Far East South 152,665 24,007 176,672 13,033
Europe 85,395 10,172 95,567 (5,779)
Corporate and Other 12,161 19,363 31,524 1,019
Eliminations - (153,021) (153,021) -
________ ________ ________ _______
Total $548,982 - $548,982 $41,216
________ ________ ________ _______
December 31, 2002 -
Americas $158,721 $ 25,762 $184,483 $ 7,458
Far East North 100,781 37,470 138,251 9,418
Far East South 114,194 9,719 123,913 15,943
Europe 70,266 6,787 77,053 622
Corporate and Other 10,647 23,109 33,756 (5,253)
Eliminations - (102,847) (102,847) -
________ ________ ________ _______
Total $454,609 - $454,609 $28,188
________ ________ ________ _______
Inter-
Six Customer company Total Net
Months Ended: Revenue Revenue Revenue Income
December 31, 2003 - ________ ________ ________ _______
Americas $ 318,969 $ 80,660 $ 399,629 $21,929
Far East North 247,596 106,381 353,977 35,251
Far East South 295,537 41,535 337,072 30,515
Europe 159,802 18,537 178,339 (7,382)
Corporate and Other 23,841 6,034 29,875 (7,035)
Eliminations - (253,147) (253,147) -
________ ________ ________ _______
Total $1,045,745 - $1,045,745 $73,278
________ ________ ________ _______
December 31, 2002 -
Americas $324,518 $ 50,955 $375,473 $16,409
Far East North 203,808 79,058 282,866 21,112
Far East South 230,561 21,770 252,331 33,834
Europe 143,235 13,736 156,971 1,597
Corporate and Other 21,733 6,047 27,780 (14,802)
Eliminations - (171,566) (171,566) -
________ ________ ________ _______
Total $923,855 - $923,855 $58,150
________ ________ ________ _______
Revenue is recognized based on the location of the selling entity.
9
MOLEX INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
10) Pending Acquisition
On October 28, 2003, Molex announced that it had reached a tentative agreement
to purchase in a cash transaction, the assets and business of Connecteurs
Cinch S.A. and its subsidiaries in India, China and Portugal from the Snecma
Group, its Paris, France based parent. The parties are working together toward
finalization of a definitive Asset Purchase and Sale Agreement. Completion of
the transaction, currently expected in late third quarter or early fourth
quarter of fiscal 2004, is subject to receipt of certain regulatory approvals
and to approval by the Board of Directors of Molex and the Board of Directors
of Snecma S.A.
10
MOLEX INCORPORATED
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
Second Quarter Results
Consolidated revenue was $549.0 million for the second quarter ended
December 31, 2003, an increase of $94.4 million, or 20.8 percent, over the
prior year period. The strengthening of other currencies compared with the
U.S. dollar increased revenue by $28.0 million for the second quarter.
Second quarter customer revenue in the Americas region of $167.5 million
increased 5.5 percent from the prior year quarter based on a broad improvement
in end markets. In the Far East North region (Japan and Korea), customer
revenue for the second quarter was $131.3 million, up 30.3 percent from the
prior year period. New products, especially for the digital, mobile and
personal electronics markets, drove this growth. Revenue was also favorably
impacted by foreign currency translation of $12.1 million. Customer revenue
in the Far East South region for the second quarter was $152.7 million, an
increase of 33.7 percent, primarily driven by the digital consumer, personal
computers and mobile phone markets. In Europe, revenue for the three months
ended December 31, 2003 increased $15.1 million, or 21.5 percent, to $85.4
million. Foreign currency translation, driven by the stronger euro, favorably
impacted sales by $13.1 million.
Gross profit was $180.9 million for the quarter ended December 31, 2003, up
$34.5 million over the prior year quarter. Gross profit as a percent of
revenue was 32.9 percent for the quarter ended December 31, 2003 compared
with 32.2 percent in the prior year period. The increase was principally due
to the gross profit impact of the higher sales volume.
Selling and administrative expenses were $130.3 million for the second quarter
as compared with $113.2 million in the prior year. As a percent of revenue,
selling and administrative expenses for the quarter were 23.7 percent compared
with 24.9 percent in the prior year.
Other income (expense) included a pretax gain of $10.4 million from the sale
of stock of an affiliate and an equity gain resulting from the IPO completed
by this affiliate. Molex retains a 20 percent ownership. In addition, the
Company recorded a pretax charge of $5.0 million to exit other investments in
start-up technologies. Interest income, net of interest expense, was $1.1
million in the quarter ended December 31, 2003 compared with $3.9 million in
the prior year quarter. The prior year included an interest benefit from the
favorable closure of corporate tax audits in certain jurisdictions.
The effective tax rate was 27 percent for the quarter ended December 31, 2003
compared with 24 percent in the prior year period as a result of increased
pretax income in jurisdictions with higher tax rates.
Net income for the quarter was $41.2 million, or $0.22 per basic and $0.21 per
diluted share. This compares with $28.2 million, or $0.15 per basic and diluted
share, for the same quarter last fiscal year. Foreign currency translation
increased net income by $1.0 million for the second quarter.
11
Six Months Results
Consolidated revenue was $1,045.7 million for the first six months ended
December 31, 2003, compared with $923.9 million last year. The strengthening
of other currencies compared with the U.S. dollar increased revenue by $38.4
million in the first six months of fiscal 2004.
Customer revenue in the Americas region of $319.0 million was down slightly
compared with the prior year revenue of $324.5 million. Year-to-date customer
revenue in the Far East North region increased 21.5 percent to $247.6 million,
as compared with last year's first six months of $203.8 million. Demand for
new products such as mobile phones, digital still cameras, flat panel displays
and DVDs, was especially strong and foreign currency translation increased
revenue by $12.6 million. In the Far East South region, revenue for the six
months ended December 31, 2003 was $295.5 million, up 28.2 percent over the
prior year period. Strong demand in the digital consumer, mobile telephone,
and notebook and desktop computer markets drove the increase. In Europe,
revenue was $159.8 million, as compared with $143.2 million in the prior year
period. Foreign currency translation, driven by the stronger euro, favorably
impacted sales by $22.5 million.
Gross profit was $350.2 million for the six months ended December 31, 2003, up
$44.3 million from the prior year. The increase was primarily due to leverage
from the higher sales. Gross profit as a percent of revenue was 33.5 percent
for the six months ended December 31, 2003 compared with 33.1 percent last
year.
Selling and administrative expenses were $256.2 million for the first six
months as compared with $233.6 million for the corresponding period in the
prior year. As a percent of revenue, selling and administrative expenses for
the first half of fiscal 2004 were 24.5 percent compared with 25.3 percent in
the prior year.
Other income (expense) included the gain of $10.4 million and charge of $5.0
million related to investment transactions discussed above. Interest income,
net of interest expense, was $2.3 million in the six months ended December 31,
2003 compared with $4.9 million in the prior year period.
The effective tax rate was 27 percent for six months ended December 31, 2003
compared with 24 percent in the prior year period as a result of increased
pretax income in jurisdictions with higher tax rates.
Year-to-date net income was $73.3 million, or $0.38 per basic and diluted
share, a 26.0 percent increase from $58.2 million, or $0.30 per basic and
diluted share, reported for last year's first six months. Foreign currency
translation increased net income by $0.7 million for the six-month period.
FINANCIAL CONDITION AND LIQUIDITY
The Company's long-term financing strategy is to rely on internal sources of
funds for investing in plant, equipment and acquisitions. Management remains
confident that the Company's liquidity and financial flexibility are adequate
to support both current, as well as future growth. Molex has historically
used external borrowings only when a clear financial advantage exists.
Long-term debt at December 31, 2003 totaled $10.7 million.
12
Cash provided from operating activities of $94.0 million was down from the
prior year due primarily to an increase in working capital. A higher level of
revenue in the current year resulted in higher levels of accounts receivable
and inventory than in the prior year. Working capital at December 31, 2003 was
$691.3 million compared with $606.0 million at June 30, 2003.
Cash used for investing activities was $83.9 million, a decrease of $45.0
million from the prior year. Capital expenditures were $83.9 million, an
increase of $4.2 million over the prior year spending of $79.7 million.
Marketable securities decreased $1.1 million in the six months ended
December 31, 2003, as compared with a $31.9 million increase in the same
period of fiscal 2003.
Cash used for financing activities was $34.6 million compared with $55.4
million in the prior period. During the six months ended December 31, 2003,
the Company purchased an aggregate of 995,000 shares of treasury stock at an
aggregate cost of $25.4 million. This is in accordance with authorization by
the Company's Board of Directors for the purchase of up to $100 million of
Common stock during fiscal 2004.
OUTLOOK
Although visibility remains difficult beyond the third quarter, management
believes that a majority of the Company's global markets continues to improve
and that inventory in the majority of the Company's worldwide sales channels
remains below normal levels. The level of new orders remains encouraging,
especially in the Far East and the Americas. 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.
For the third quarter ending March 31, 2004, management is forecasting revenues
in a range of $550 to $560 million. Based on these revenues, earnings per
share is expected in the range of $0.21 to $0.23.
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.
CRITICAL ACCOUNTING POLICIES
See the information concerning the Company's critical accounting policies
included under Management's Discussion of Financial Condition and Results of
Operations in the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 2003, which is incorporated in this Form 10-Q by reference.
Item 3. 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
13
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 to protect or
preserve the value of intercompany cash flows. No material foreign exchange
contracts were in use at December 31, 2003 and 2002.
The Company has implemented a formalized treasury risk management policy that
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 speculative purposes, and the use of such
instruments is subject to strict approval levels by senior officers.
Typically, the use of derivative instruments is limited to hedging activities
related to specific foreign currency cash flows.
The Company's $170.1 million of marketable securities are principally debt
instruments that generate interest income for the Company on temporary excess
cash balances. These instruments contain embedded derivative features that
enhance the liquidity of the portfolio by enabling the Company to liquidate
the instrument prior to the stated maturity date. The Company's exposure
related to derivative instrument transactions is, in the aggregate, not
material to the Company's financial position, results of operations or cash
flows.
Interest rate exposure is principally limited to the $170.1 million of
marketable securities owned by the Company and the Company's $10.7 million of
long-term debt. The Company does not actively manage the risk of interest rate
fluctuations. However, such risk is mitigated by the relatively short-term
nature of its investments - less than twelve months - and the fixed-rate
nature of its long-term debt.
Molex does not have material exposure to off-balance-sheet arrangements,
including special purpose entities and activities that include non-exchange
traded contracts accounted for at fair value. Due to the nature of its
operations, Molex is not subject to significant concentration risks relating
to customers, products or geographic locations.
The Company monitors the environmental laws and regulations in the countries
in which it operates. Molex has implemented an environmental program to
reduce the generation of potentially hazardous materials during its
manufacturing process and believes it continues to meet or exceed local
government regulations.
Item 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, the Company conducted an
evaluation, under the supervision and with the participation of the principal
executive officer and principal financial officer, of the Company's disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934 (the 'Exchange Act')). Based on this
evaluation, the principal executive officer and principal financial officer
have concluded that the Company's disclosure controls and procedures are
effective to ensure that information required to be disclosed by the Company
in reports that it files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in
Securities and Exchange Commission's rules and forms. There have been no
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changes in the Company's internal control over financial reporting during the
Company's most recently completed fiscal quarter that has materially affected,
or is reasonably likely to materially affect, the Company's internal control
over financial reporting.
PART II - OTHER INFORMATION
Item 1. Not Applicable
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On October 24, 2003, the Company issued options to purchase 13,200
shares of Class A Common Stock to the eight non-employee directors
of the Company, pursuant to the terms of The 2000 Molex Incorporated
Incentive Stock Option Plan. In addition, on October 24, 2003 and
November 4, 2003, options to purchase 46,000 shares were issued to
employee directors pursuant to the terms of the plan. The issuance
of these options to purchase shares of Class A Common Stock was
exempt from registration under the Securities Act of 1933, as a
transaction not involving a public offering under Section 4(2).
Per the terms of the plan, the option price is the fair market value
of the stock on the date of grant, and the option term is four to
ten years from the date of grant.
Items 3-4 Not applicable
Item 5. OTHER INFORMATION
a. Cautionary 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 that 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.
b. CORPORATE GOVERNANCE UPDATE
On January 29, 2004, the Board of Directors adopted changes to its
corporate governance policies and procedures in three general areas:
1. The Nominating Committee changed its name and mission to include
corporate governance initiatives and adopted a new charter to reflect
these changes.
2. Michelle L. Collins, an independent director, was appointed as the
third member of the newly constituted Nominating and Corporate
Governance Committee.
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3. Certain corporate governance policies were adopted, many of which
formalized the corporate governance environment already in place.
1. RECONSITITUTED NOMINATING AND CORPORATE GOVERNANCE COMMITTEE
The revised charter, (see Exhibit 99) incorporates the following changes:
* In addition to recommending Board nominees, the Committee will review
issues and developments relating to corporate governance and make
recommendations to the Board on how best to implement any new
initiatives.
* The revised charter makes it clearer that the Committee is responsible
for assessing the effectiveness of the Board and its different
committees.
* The minimum number of members of the Committee is increased from two to
three.
* The revised charter makes it clearer that the Committee is responsible
for recommending who should serve on the different committees of the
Board.
* In view of the latest SEC and NASD rules changes, the Committee will be
responsible for developing policies and procedures regarding how
shareholders may interact with the Board for the purpose of submitting
nominations.
* The Chairman of the Committee will lead the executive sessions of the
Board when management is absent.
* The Committee will be responsible for overseeing that corporate
executive succession planning is reviewed with the Board annually.
2. MICHELLE L. COLLINS APPOINTED TO THE NOMINATING AND CORPORATE GOVERNANCE
COMMITTEE
Michelle L. Collins, who has served on Molex's Board of Directors since
February 2003, became the third member of the newly constituted Nominating and
Corporate Governance Committee. Ms. Collins is a managing director of Svoboda
Collins LLC, a private equity firm. She currently serves on the board of
directors of CDW Corporation and Coldwater Creek, Inc.
3. NEWLY FORMALIZED CORPORATE GOVERNANCE POLICIES
The Board of Directors adopted the following policies:
* BOARD SERVICE LIMITATION - Because of the increasing demands of board
service, the number of public company boards of directors on which any
director or executive officer may serve will be restricted. This is to
ensure that each of the members of this Board and the executive officers
will have enough time to devote to the interests of this Corporation. In
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addition to board service with Molex, the following policies were adopted
for each person listed below:
o Outside directors shall be limited to service on three other public
company boards of directors.
o The CEO and COO shall be limited to service on two other public
company boards of directors.
o All other executive officers, except the Chairman or any Co-Chairman,
shall be limited to service on one other public company board of
directors subject to the approval of the Molex Board of Directors.
* RESIGNATION UPON CHANGE OF EMPLOYMENT - A director's change of employment
might affect an individual's qualifications or desirability for Board
membership. Accordingly, upon change of employment, a director will be
required to submit his or her resignation to the Board of Directors.
* ATTENDANCE AT MEETINGS - It was decided to formalize a policy that has
always been implied that directors are expected to attend the annual
stockholder meetings, the board of directors meetings and his or her
committee meetings. This is to ensure that the individual members of
the Board can discharge his or her respective duties and obligations
and address any issues and questions first hand.
* RATIFICATION OF INDEPENDENT AUDITORS - In the future, the Corporation
will seek stockholder ratification of the independent auditors at the
annual stockholders' meeting.
* EXECUTIVE OFFICER STOCK OWNERSHIP GUIDELINES - New executive officer
stock ownership guidelines shall be instituted. This is to show the
investors that top management has a suitable and substantial equity
stake in the Corporation. With respect to officers, stock ownership
guidelines are usually expressed in terms of the ratio of the value of
the stock ownership to the base salary. At this time, the 9 officers
(excluding the Krehbiel Family) have a stock ownership ratio that ranges
from under 1 to over 14. A ratio of at least 2 times the base salary is
adopted with certain exceptions. Only two officers currently do not
comply, but they would fall under one of the exceptions noted below.
The exceptions to the ownership guidelines would include
o someone who is retiring within 3 years; or
o someone who is new to Molex or his or her corporate executive officer
position will have 5 years to achieve the ratio; or
o special circumstances, e.g., someone who, in the opinion of the
Committee, would suffer hardship.
* DIRECTOR STOCK OWNERSHIP GUIDELINES - Like the executive officers, the
outside directors should also have stock ownership guidelines. These are
expressed in terms of number of shares. The outside directors are able to
participate in the ownership or its equivalent either by acquiring Molex
stock in the open market, by exercising stock options that are granted
annually and/or by participating in the deferred compensation plan that
pays in cash based on the value of phantom stock units that track the
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price of Molex stock. It was decided that each director should own at
least 500 shares of Molex stock or phantom stock units after 3 years of
service and 1,000 shares after 6 years of service. The only exception to
the ownership guidelines is special circumstances, e.g., someone who, in
the opinion of the Committee, would suffer hardship.
* BOARD SIZE - Currently, the By-Laws of the Corporation call for the size
of the Board to be a number chosen by the Board that is not less than 6
or more than 15. As a matter of current policy, the number of directors
will be not less than 12 or more than 15. This size gives the Board an
opportunity to have a number of directors to accommodate a sufficient
representation of inside directors while maintaining the overall
independence of the Board. In addition, this size affords the ability to
have a broad cross section of the types of business and personal
experiences that would be an asset to Molex while not making the Board
too large that its effectiveness might be compromised.
* TERM LIMITS AND RETIREMENT - The pros and cons of limiting the term that
a director may serve on the Board or adopting a strict retirement age
were considered. It was decided that the experience acquired over a long
tenure with Molex outweighs any potentially negative consequences. Molex
is in a specialized global industry that is not easily understood. The
experience obtained at Molex over a prolonged period through different
business cycles in the marketplace is an extremely valuable asset.
* SHAREHOLDER COMMUNICATIONS AND NOMINATIONS - It is recognized that there
is no legal compulsion to give access to shareholders - only the
disclosure of whether we do and the procedures for doing so. It was
decided to address this matter in June or July 2004 prior to the next
Annual Stockholders' Meeting.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
31 Rule 13a-14(a)/15d-14(a) Certifications
31.1 Section 302 certification by Chief Executive Officer
31.2 Section 302 certification by Chief Financial Officer
32 Section 1350 Certifications
32.1 Section 906 certification by Chief Executive Officer
32.2 Section 906 certification by Chief Financial Officer
99 Corporate Governance and Nominating Committee Charter
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b. A Report on Form 8-K was filed on:
October 15, 2003 containing:
1) A press release announcing its results of operations for the
first fiscal quarter ended September 30, 2003
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SIGNATURES
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 12, 2004 /s/ DIANE S. BULLOCK
----------------- --------------------
Diane S. Bullock
Vice President, Treasurer
and Chief Financial Officer
Date February 12, 2004 /s/ LOUIS A. HECHT
----------------- --------------------
Louis A. Hecht
Corporate Secretary and
General Counsel
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