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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 September 30, 2004
Commission File Number 0-7491
____________
MOLEX INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 36-2369491
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2222 Wellington Court, Lisle, Illinois 60532
(Address of principal executive offices)
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
On September 30, 2004, the following numbers of shares
of the Company's common stock were outstanding:
Common Stock 100,553,124
Class A Common Stock 87,769,304
Class B Common Stock 94,255
The financial statements included in this Quarterly Report
on Form 10-Q have not been reviewed by an independent public
accountant as required by Rule 10-01(d) of Regulation S-X. See
"Statement Regarding Review of Financial Statements" in Item 1
of Part I of this Report.
Molex Incorporated
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements Page
Statement Regarding Review of Financial Statements 3
Condensed Consolidated Balance Sheets
September 30, 2004 and June 30, 2004 4
Condensed Consolidated Statements of Income
Three Months Ended September 30, 2004 and 2003 5
Condensed Consolidated Statements of Cash Flows
Three Months Ended September 30, 2004 and 2003 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 11
Item 3. Quantitative and Qualitative Disclosure About Market Risk 14
Item 4. Controls and Procedures 15
PART II - OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities
and Use of Proceeds 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 16
Item 6. Exhibits 17
SIGNATURES 19
2
PART I
Item 1. Financial Statements
Statement Regarding Review of Financial Statements
This Quarterly Report on Form 10-Q contains financial
statements for the fiscal quarter ended September 30, 2004, which
have not been reviewed by an independent public accountant as
required by Rule 10-01(d) of Regulation S-X because Deloitte &
Touche LLP, Molex's previous independent public accounting firm,
resigned on November 13, 2004. For additional information
regarding this matter, please refer to Item 5 of Part II below and
our Current Report on Form 8-K being filed on the date hereof.
Molex expects to engage a new independent registered public
accounting firm shortly and that the review of its financial
statements for the fiscal quarter ended September 30, 2004 will be
completed as soon as practicable following Molex's engagement of a
new accounting firm. Upon the completion of such review, Molex
intends to file an amendment to this Quarterly Report on Form 10-Q.
Molex believes that the following unaudited financial
statements and notes thereto include all adjustments necessary for
a fair presentation of the consolidated financial position and
results from operations for the periods presented.
3
Molex Incorporated
Condensed Consolidated Balance Sheets
(In thousands, except per share data)
Sept. 30, June 30,
2004 2004
----------- -----------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 238,292 $ 234,431
Marketable securities 93,153 104,223
Accounts receivable, net 544,736 529,630
Inventories 283,417 265,344
Other current assets 40,027 35,016
----------- -----------
Total current assets 1,199,625 1,168,644
Property, plant and equipment, net 1,009,163 1,022,378
Goodwill 164,969 164,915
Other assets 194,930 216,409
----------- -----------
Total assets $ 2,568,687 $ 2,572,346
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 225,731 $ 234,823
Accrued expenses 132,625 143,160
Other current liabilities 47,508 50,481
----------- -----------
Total current liabilities 405,864 428,464
Other non-current liabilities 9,361 10,487
Accrued pension and postretirement benefits 51,435 52,151
Long-term debt 10,075 10,243
Obligations under capital leases 3,143 3,796
Minority interest in subsidiaries 3,383 1,211
Shareholders' equity:
Common Stock 10,747 10,734
Paid-in capital 376,518 369,660
Retained earnings 2,209,211 2,160,368
Treasury stock (532,216) (509,161)
Deferred unearned compensation (32,722) (32,180)
Accumulated other comprehensive income 53,888 66,573
----------- -----------
Total shareholders' equity 2,085,426 2,065,994
----------- -----------
Total liabilities and shareholders' equity $ 2,568,687 $ 2,572,346
----------- -----------
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
Molex Incorporated
Condensed Consolidated Statements of Income
(Unaudited - in thousands, except per share data)
Three Months Ended
September 30,
-------------------------
2004 2003
----------- -----------
Net revenue $ 640,230 $ 496,763
Cost of sales 411,558 328,739
----------- -----------
GROSS PROFIT 228,672 168,024
----------- -----------
Selling, general and administrative expenses:
Selling 54,020 44,416
General and administrative 102,192 83,048
----------- -----------
Total selling, general and
administrative expenses 156,212 127,464
----------- -----------
INCOME FROM OPERATIONS 72,460 40,560
Other (income) expense:
Equity income (2,029) (2,183)
(Gain)/loss on investments (1,152) -
Interest, net (925) (1,235)
----------- -----------
Total other (income) expense (4,106) (3,418)
INCOME BEFORE INCOME TAXES
AND MINORITY INTEREST 76,566 43,978
Income taxes and minority interest 20,924 11,916
----------- -----------
NET INCOME $ 55,642 $ 32,062
----------- -----------
EARNINGS PER SHARE:
Basic $ 0.29 $ 0.17
Diluted $ 0.29 $ 0.17
DIVIDENDS PER SHARE $ 0.0375 $ 0.0250
AVERAGE COMMON SHARES OUTSTANDING:
Basic 188,763 190,679
Diluted 190,617 192,372
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
Molex Incorporated
Condensed Consolidated Statements of Cash Flows
(Unaudited - In thousands)
Three Months Ended
September 30,
------------------------
2004 2003
----------- -----------
Restated (Note 2)
Cash and cash equivalents, beginning of period $ 234,431 $ 178,976
OPERATING ACTIVITIES
Net income 55,642 32,062
Add (deduct) non-cash items included in net income:
Depreciation and amortization 57,193 55,475
Amortization of deferred unearned compensation 3,787 3,007
Changes in assets and liabilities, excluding effects of
foreign currency adjustments:
Accounts receivable (14,632) (36,008)
Inventories (18,144) (13,767)
Accounts payable (7,332) 7,121
Other current assets and liabilities (20,328) (10,953)
Other assets and liabilities (1,770) 5,972
----------- -----------
Cash provided from operating activities 54,416 42,909
INVESTING ACTIVITIES
Capital expenditures (48,435) (45,324)
Sales (purchases) of marketable securities 11,036 9,387
Other investing activities 13,275 (2,059)
----------- -----------
Cash used for investing activities (24,124) (37,996)
FINANCING ACTIVITIES
Net decrease in debt (65) (2,855)
Principal payments on capital leases (827) (1,362)
Cash dividends paid (4,730) (4,773)
Purchase of treasury stock (21,905) (19,985)
Reissuance of treasury stock 213 539
Exercise of stock options 1,360 2,177
----------- -----------
Cash used for financing activities (25,954) (26,259)
Effect of exchange rate changes on
cash and cash equivalents (477) 1,164
----------- -----------
Net increase (decrease) in cash and
cash equivalents 3,861 (20,182)
----------- -----------
Cash and cash equivalents, end of period $ 238,292 $ 158,794
----------- -----------
The accompanying notes are an integral part of these condensed
consolidated financial statements.
6
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 and integrated products in 55 plants in 19
countries throughout the world.
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 2004 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 2005
classifications.
2. Restatement of Cash Flow Activities
During the fourth quarter of fiscal 2004, the Company
implemented a new process to capture and analyze the various
financial data used in the preparation of the consolidated
statement of cash flows. The new financial reporting process was
designed to improve management's ability to analyze and review all
significant cash flow activity. During the testing of the new
process, the Company determined that certain changes in other
assets and liabilities that historically had been reported as
investing activities should have been reported as operating
activities.
As reported in the Molex Incorporated 2004 Annual Report on
Form 10-K, cash provided from operating activities and cash used for
investing activities was restated in the consolidated statement of
cash flows for the year ended June 30, 2003 as follows (in
thousands):
Previously
Restated Reported
--------- ----------
Cash provided from operating activities $ 304,872 $ 349,473
--------- ----------
Cash used for investing activities $(249,225) $(293,826)
--------- ----------
The impact on reported cash flow activity related to this
issue was not material for the Company's fiscal 2004 quarters
ended March 31, December 31 and September 30.
During the first quarter of fiscal 2005, the Company
determined that it had made a clerical error, unrelated to the
issue discussed above, in the condensed consolidated statement of
cash flows for the three months ended September 30, 2003.
7
Cash provided from operating activities and the effect of
exchange rate changes on cash and cash equivalents has been
restated in the condensed consolidated statement of cash flows for
the three months ended September 30, 2003 as follows (in
thousands):
Previously
Restated Reported
--------- ----------
Cash provided from operating activities $ 42,909 $ 31,909
--------- ----------
Effect of exchange rate changes on
cash and cash equivalents $ 1,164 $ 12,164
--------- ----------
3. Prior Year Adjustment
Included in the results for the three months ended September
30, 2004 is a charge of $8.0 million ($5.8 million after-tax, or
$0.03 per share), of which $3.0 million ($2.2 million after-tax)
related to fiscal 2004. This adjustment related to the omission of
certain intercompany inventory in the Company's calculation of
profit-in-inventory elimination. The Company has concluded that
the amounts related to fiscal 2004 and prior years are not material,
both individually and in the aggregate, to the trends of the financial
statements for those periods affected, and to a fair presentation
of the Company's results of operations and financial statements.
Accordingly, results for fiscal 2004 and prior years have not been
restated.
Also included in the results for the three months ended
September 30, 2004 is a reversal of a prior year insurance accrual
of $2.7 million ($2.0 million after-tax), which was no longer required
and a reduction in inventory allowance of $1.5 million ($1.1 million
after-tax).
4. Earnings Per Share
A reconciliation of the basic average common shares
outstanding to dilutive average common shares outstanding is as
follows (in thousands):
Three Months Ended
September 30,
------------------
2004 2003
-------- --------
Basic average common shares outstanding 188,763 190,679
Effect of dilutive stock options 1,854 1,693
-------- --------
Diluted average common shares outstanding 190,617 192,372
-------- --------
5. Comprehensive Income
Total comprehensive income is summarized as
follows (in thousands):
Three Months Ended
September 30,
------------------
2004 2003
-------- --------
Net income $ 55,642 $ 32,062
Translation adjustments (12,672) 21,698
Unrealized investment gain (loss) (13) 242
-------- --------
Total comprehensive income $ 42,957 $ 54,002
-------- --------
8
6. Inventories
Inventories are valued at the lower of first-in, first-out
cost or market. Inventories, net of allowances, consist of the
following (in thousands):
Sept. 30, June 30,
2004 2004
--------- ---------
Raw materials $ 39,762 $ 39,743
Work in process 95,029 91,168
Finished goods 148,626 134,433
--------- ---------
Total inventories $ 283,417 $ 265,344
--------- ---------
7. Pensions and Other Postretirement Benefits
The components of pension and retiree health care benefit
cost are as follows for the three months ended September 30, 2004
and 2003 (in thousands).
Pension Retiree Health Care
---------------- -------------------
2004 2003 2004 2003
------- ------- -------- --------
Service cost $ 1,997 $ 1,754 $ 470 $ 485
Interest cost 952 1,225 471 499
Expected return on plan assets (1,047) (1,221) - -
Amortization of prior service cost 51 60 (66) (68)
Recognized actuarial losses 349 172 159 189
Amortization of transition obligation 15 17 - -
------- ------- ------- -------
Benefit cost $ 2,317 $ 2,007 $ 1,034 $ 1,105
------- ------- ------- -------
8. 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 for the three months
ended September 30 would have been as follows (in thousands,
except per share data):
Three Months Ended
September 30,
------------------
2004 2003
-------- --------
Net income as reported $ 55,642 $ 32,062
Add: Stock-based compensation included in reported
net income, net of related tax effects 2,765 2,196
Deduct: Stock-based compensation determined under
fair value method, net of related tax effects (5,881) (3,814)
-------- --------
Pro forma net income $ 52,526 $ 30,444
-------- --------
Earnings per share:
Basic $ 0.29 $ 0.17
Diluted $ 0.29 $ 0.17
Pro forma earnings per share:
Basic $ 0.28 $ 0.16
Diluted $ 0.28 $ 0.16
9
For purposes of computing pro forma net income and earnings
per share, the fair value of each option grant is estimated as of
the date of grant using the Black-Scholes option pricing model.
9. Segments and Related Information
The Company operates in one product segment: the manufacture
and sale of electronic components. Management operates the
business through four regions. Information by region is
summarized as follows (in thousands):
Inter-
Customer Company Total Net
Three months ended: Revenue Revenue Revenue Income
September 30, 2004 -------- -------- -------- --------
Americas $176,623 $ 55,286 $231,909 $ 16,027
Far East South 190,339 36,344 226,683 25,108
Far East North 131,639 76,902 208,541 25,137
Europe 128,414 10,589 139,003 2,625
Corporate and other 13,215 27,199 40,414 (13,255)
Eliminations - (206,320) (206,320) -
-------- -------- -------- --------
Total $640,230 $ - $640,230 $ 55,642
-------- -------- -------- --------
September 30, 2003
Americas $151,491 $ 38,869 $190,360 $ 10,583
Far East South 142,872 17,528 160,400 17,482
Far East North 116,313 48,693 165,006 13,653
Europe 74,407 8,365 82,772 (1,603)
Corporate and other 11,680 26,933 38,613 (8,053)
Eliminations - (140,388) (140,388) -
-------- -------- -------- --------
Total $496,763 $ - $496,763 $ 32,062
-------- -------- -------- --------
Revenue is recognized based on the location of the selling
entity.
10. Subsequent Event
On November 13, 2004, the Company was notified that its
independent auditor, Deloitte & Touche LLP, was resigning as the
Company's independent public accountant. The Company has not yet
retained a new independent public accountant. Consequently, the
unaudited financial statements included in this Form 10-Q have not
been reviewed by an independent public accountant as required by
Rule 10-01(d) of Regulation S-X.
10
Molex Incorporated
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
Results of Operations
First Quarter Results
Revenue was $640.2 million for the three months ended
September 30, 2004, an increase of 29 percent over last year's
first quarter of $496.8 million. Revenue for the first quarter
included $18 million from the automotive acquisition in Europe
that was completed on April 2, 2004. The strengthening of certain
foreign currencies, principally the euro and the yen, compared
with the U.S. dollar increased revenue by approximately $19
million over the prior year quarter.
Customer revenue in the Americas region was $176.6 million,
up 17 percent from last year's first quarter revenue of $151.5
million, due to stronger demand for high-speed, industrial and
medical electronics products, which more than offset lower demand
in automotive. In the Far East South region, customer revenue was
$190.3 million, an increase of $47.5 million, or 33 percent,
compared with the prior year first quarter. The revenue growth in
this region was primarily driven by demand from the digital
consumer, personal computer and mobile phone markets, serving both
local and multinational customers. Customer revenue in the Far
East North region, increased 13 percent to $131.6 million in the
first quarter of fiscal 2005, compared with $116.3 million in the
prior year quarter. Foreign currency translation contributed $8.8
million to the revenue increase. Demand for new products in the
digital consumer and communication markets was also strong. In
Europe, customer revenue was $128.4 million, up 73 percent from
last year's first quarter revenue of $74.4 million. As noted
above, the Company's automotive acquisition during the fourth
quarter of fiscal 2004, added revenue of $18 million. Foreign
currency translation, led by the strong euro, also favorably
impacted customer revenue by approximately $8 million.
Gross profit was $228.7 million for the three months ended
September 30, 2004, up $60.7 million, or 36 percent over the
prior year quarter. Gross profit margin was 35.7 percent of net
revenue, up from 33.8 percent in last year's first quarter. The
improvement in gross profit margin was primarily due to leverage
from the higher sales volumes. Included in the results for the
three months ended September 30, 2004 is a charge of $8.0 million
($5.8 million after-tax, or $0.03 per share) related to prior years.
This adjustment related to the omission of certain intercompany
inventory in the Company's calculation of profit-in-inventory
elimination. See Note 3 to the Notes to Condensed Consolidated
Financial Statements for further discussion. Also included in the
results for the three months ended September 30, 2004 is a reversal
of a prior year insurance accrual of $2.7 million ($2.0 million
after-tax), which was no longer required, and a reduction in
inventory allowance of $1.5 million ($1.1 million after-tax).
Selling, general and administrative expenses were $156.2
million for the first three months of fiscal 2005, as compared
with $127.5 million in the prior year quarter. As a percent of net
revenue, selling, general and administrative expenses decreased
from 25.7 percent in the prior year quarter to 24.4 percent in
this year's first quarter.
Total other income was $4.1 million in the first quarter
ended September 30, 2004, compared with $3.4 million in the prior
year quarter. The effective tax rate was 27.0 percent for the
first quarter of fiscal 2005, the same rate as last year's first
quarter.
Net income for the three months ended September 30, 2004 was
$55.6 million, up 74 percent from $32.1 million in last year's
first quarter. Foreign currency translation increased net income
by $2.0 million. Earnings per share was $0.29 in the first quarter
of fiscal 2005 compared with $0.17 in the prior year quarter.
11
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 September 30, 2004 totaled $10.1 million.
Cash provided from operating activities and the effect of
exchange rate changes on cash and cash equivalents has been restated
in the Condensed Consolidated Statement of Cash Flows for the three
months ended September 30, 2003. See Note 2 to the Notes to
Condensed Consolidated Financial Statements for further discussion.
Cash provided from operating activities for the three months
ended September 30, 2004 was $54.4 million, up from $42.9 million
in the prior year period. The increase in cash provided from
operations was driven by higher net income in the current period.
For the three months ended September 30, 2004, cash was used to
support higher working capital levels. Working capital at
September 30, 2004 was $793.8 million compared with $740.2 million
at June 30, 2004.
Cash used for investing activities was $24.1 million and
$38.0 million for the three months ended September 30, 2004 and
2003, respectively. Capital expenditures were $48.4 million in
the current period, an increase of $3.1 million over the prior
year's capital spending of $45.3 million. During the first
quarter of fiscal 2005, the Company sold its investment in an
affiliate and generated cash from this transaction of $14.1
million.
Cash used for financing activities was $26.0 million in the
first quarter of fiscal 2005 compared with $26.3 million in the
prior year period. Cash was used primarily for the purchase of
treasury stock and the payment of dividends. The Company's Board
of Directors authorized the purchase of up to $100 million of
Common Stock and/or Class A Common Stock during fiscal 2005.
During the three months ended September 30, 2004, the Company
purchased 875,000 shares of Class A Common Stock at an aggregate
cost of $21.9 million.
Molex has a strong cash balance and cash flow and very little
debt. The Company believes at this time that share repurchases
are a good investment as compared with investing cash in short-
term money instruments or marketable securities, particularly with
the current low interest rates. The Company also uses shares
repurchased to replenish stock used for exercises of employee
stock options, employee stock awards and the employee stock
purchase plan.
Outlook
Molex's operations in the Far East continue to drive the
Company's results. Management expects this trend to continue,
based on the magnitude of production transferred by global
customers to the region and supported by Molex's technical
capabilities and long-term history of working in the region.
In the Americas region, many customers appear to be adjusting
their finished goods inventory to more conservative levels.
Management believes that the amount of actual connector inventory
within these channels is reasonable, and therefore the outlook in
the majority of the Company's markets remains encouraging. In
addition, management expects to gain market share based on the
Company's positions within key markets, such as digital consumer,
mobile communication and mobile computing, that are growing faster
than the overall connector market, as well as the focus on the
emerging medical electronics market.
For the second quarter ending December 30, 2004, management
is forecasting revenues in a range of $635 million to $650
million. Based on these revenues, the Company expects earnings
per share in the range of $0.29 to $0.31.
12
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,
2004, 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 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 September 30, 2004 and 2003.
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
management. Typically, the use of derivative instruments is
limited to hedging activities related to specific foreign currency
cash flows.
The Company's $93.2 million of marketable securities at
September 30, 2004 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 limited to marketable securities
owned by the Company and 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 exposure to any off-balance-sheet
arrangements with the exception of certain operating leases. 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, Molex
conducted an evaluation, under the supervision and with the
participation of the principal executive officer and principal
financial officer, of Molex's disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
13
Exchange Act of 1934 (the `Exchange Act')). Based on that
evaluation, the principal executive officer and principal
financial officer have concluded that, except as described below,
Molex's disclosure controls and procedures are effective to ensure
that information required to be disclosed by Molex 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.
During the fiscal quarter ended September 30, 2004, Molex's
management identified the omission of certain intercompany
inventory in its calculation of profit-in-inventory elimination
for prior periods as described in Note 3 to the Notes to Condensed
Consolidated Financial Statements. Molex concluded that the
amounts related to fiscal 2004 and prior years are not material,
both individually and in the aggregate, to the trends of the
financial statements for those periods affected, and to a fair
presentation of Molex's results of operations and financial
statements. Molex's Audit Committee concurs with management's
recommendations as to the accounting treatment for such omission.
Molex's independent public accounting firm, Deloitte & Touche
LLP ("Deloitte"), expressed to the Audit Committee that the
omission described above should have been disclosed in the
representation letter dated August 20, 2004 of Molex's Chief
Executive Officer and Chief Financial Officer delivered to
Deloitte on September 10, 2004 in connection with the audit of
Molex's financial statements as of and for the year ended June 30,
2004 and the filing of Molex's Annual Report on Form 10-K on
September 10, 2004. The signatories did not believe that the
matter was required to be addressed in that letter.
The Audit Committee, with the assistance of independent legal
and accounting advisors, conducted an inquiry into the omission
and related matters. No additional adjustments were identified as
a result of this inquiry. The Audit Committee presented the
findings of the inquiry to Deloitte. Deloitte requested
additional information relating to this matter and the Audit
Committee responded to those requests. As disclosed in Part II,
Item 5 below, Deloitte ultimately advised Molex on November 13,
2004 that Deloitte was prepared to complete its review, under
Statement of Auditing Standards No. 100 "Interim Financial
Information" (SAS 100), of the unaudited financial statements
included in this Form 10-Q in time to permit a filing of the Form
10-Q in substantially the form hereof by the November 15 extended
deadline for such report, but only if Molex's Chief Executive
Officer and Chief Financial Officer who had signed the
representation letter dated August 20, 2004 no longer served as
officers of Molex and certain disclosures relating to the matters
in question were agreed upon. Molex's Audit Committee and Board
of Directors each unanimously rejected this condition imposed by
Deloitte. Following the communication of Molex's position,
representatives of Deloitte advised Molex on November 13, 2004
that Deloitte was resigning as Molex's independent auditors
effective immediately.
Molex's management is not aware of any information which
would result in any adjustments to the financial information
included in this Form 10-Q. Molex's management has established a
remediation plan to correct the deficiency in internal controls
described above and has discussed the plan for remediation with
Molex's Audit Committee. Molex intends to continue to evaluate
the effectiveness of its disclosure controls and procedures and
will take corrective action as appropriate.
Except as described above, there have been no changes in the
Company's disclosure controls and procedures in the fiscal quarter
ended September 30, 2004 that have materially affected or are
reasonably likely to materially affect the Company's disclosure
controls and procedures.
14
PART II
Item 1. Not applicable
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On July 29, 2004, the Company issued options to purchase
88,000 shares of Class A Common Stock to employee directors of the
Company with an aggregate exercise price of $2,186,437, pursuant to
the terms of the 2000 Incentive Stock Option 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
five years from the date of grant.
Share purchases of Molex Class A Common Stock for the
quarter ended September 30, 2004 were as follows:
Total Number Dollar Value
of Shares of Shares
Purchased as that May Yet
Part of Be Purchased
Total Number Average Publicly Under the
of Shares Price Paid Announced Plan
Period Purchased Per Share Plan
- ---------------- ------------ ---------- ------------ ------------
July 1 - July 31 - - - $100,000,000
Aug. 1 - Aug. 31 635,000 $24.91 635,000 $84,179,324
Sept. 1 - Sept. 30 240,000 $25.35 240,000 $78,094,624
Total 875,000 $25.03 875,000 $78,094,624
Item 3. Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders held on October 22,
2004, the following directors were elected to hold office for
their respective terms according to their class: Frederick A.
Krehbiel, 76,919,923 votes in favor and 17,974,492 withheld;
Masahisa Naitoh, 93,471,527 votes in favor and 1,422,888 withheld;
Michael J. Birck, 86,868,952 votes in favor and 8,025,463
withheld; and Martin P. Slark, 76,983,471 votes in favor and
17,910,944 withheld.
The second proposal before the stockholders, the amendment
and restatement of the 2004 Molex Incorporated Employee Stock
Purchase Plan, was approved. The number of Common Stock shares
voted for the proposal was 82,503,248; against - 6,288,159;
abstaining - 853,562; and broker non-votes - 5,155,340.
Substantially all Class B Common Stock shares, 94,105, were voted
for the proposal.
The final proposal before the stockholders, the ratification
of Deloitte & Touche LLP as the independent auditors, was
approved. The number of Common Stock shares voted for the
proposal was 86,404,079; against - 7,555,982; abstaining -
840,248; and broker non-votes - 0. Substantially all Class B
Common Stock shares, 94,105, were voted for the proposal.
Item 5. Other Information
Change in Molex's Certifying Accountant. On November 13,
2004, Deloitte & Touche LLP notified Molex that Deloitte was
resigning as Molex's independent public accounting firm. Molex
expects to engage a new independent registered public accounting
firm in the near future. A summary of the circumstances
surrounding these developments is set forth below. During the
fiscal quarter ended September 30, 2004, Molex's management
identified the omission of certain intercompany inventory in its
calculation of profit-in-inventory elimination for prior periods.
Molex's management determined that Molex's financial statements
for the fiscal quarter ended September 30, 2004 would include a
charge of $8.0 million ($5.8 million after-tax or $0.03 per share)
related to the omission in prior fiscal periods, of which
approximately $3.0 million ($2.2 million after-tax) was related to
fiscal 2004. This charge was reflected in the financial results
included in Molex's October 20, 2004 earnings release and is
reflected in the unaudited financial statements included in this
15
Form 10-Q. Molex concluded that the amounts related to fiscal
2004 and prior years are not material, both individually and in
the aggregate, to the trends of the financial statements for those
periods affected, and to a fair presentation of Molex's results of
operations and financial statements.
Molex's independent public accounting firm, Deloitte & Touche
LLP, expressed to the Audit Committee that the omission described
above should have been disclosed in the representation letter
dated August 20, 2004 of Molex's Chief Executive Officer and Chief
Financial Officer delivered to Deloitte on September 10, 2004 in
connection with the audit of Molex's financial statements as of
and for the year ended June 30, 2004 and the filing of Molex's
Annual Report on Form 10-K on September 10, 2004. The signatories
did not believe that the matter was required to be addressed in
that letter.
The Audit Committee, with the assistance of independent legal
and accounting advisors, conducted an inquiry into the omission
and related matters. The Audit Committee of Molex's Board of
Directors concluded that it concurs with management's
recommendations as to the accounting treatment for such omission.
No additional adjustments were identified as a result of this
inquiry. The Audit Committee presented the findings of the
inquiry to Deloitte. Deloitte requested additional information
relating to this matter and the Audit Committee provided the
information responsive to those requests.
The Molex Board of Directors on November 10 named Robert B.
Mahoney, a current Executive Vice President and former Chief
Financial Officer of Molex, as the Acting Chief Financial Officer,
and reassigned the prior Chief Financial Officer to the position
of Vice President and Treasurer. The Board's action was in
response to Deloitte having advised Molex that, because of its
view that this matter should have been disclosed in the August 20,
2004 representation letter, Deloitte would require representations
and certifications from a new principal accounting and financial
officer in connection with Molex's future filings with the
Securities and Exchange Commission containing financial
statements, including this Quarterly Report on Form 10-Q.
Deloitte had concurrently advised Molex that it was considering
whether it would require representations and certifications from a
new principal executive officer in connection with Molex's future
SEC filings.
On Saturday, November 13, 2004, representatives of Deloitte
advised Molex that Deloitte was prepared to complete its SAS 100
review in time to permit a filing of this Form 10-Q in
substantially the form in which it is filed by the November
15 extended deadline for such report, but only if Molex's
principal executive officer and former principal financial and
accounting officer, who was recently reassigned as Vice President
and Treasurer as described in Molex's November 11 press release
attached as Exhibit 99.1 hereto, no longer served as officers of
Molex and certain disclosures relating to the matters in question
were agreed upon. Molex's Audit Committee and Board of Directors
each unanimously rejected this condition imposed by Deloitte.
Following the communication of Molex's position, representatives
of Deloitte advised Molex that Deloitte was resigning as Molex's
independent auditors effective immediately. Deloitte did not
advise the Company that its resignation was due to any
disagreements with Molex on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or
procedures which, if not resolved to the satisfaction of Deloitte,
would have caused Deloitte to make reference thereto in its audit
report.
Due to the timing of Deloitte's resignation, Molex could not
retain a new independent public accounting firm prior to the
filing of this Quarterly Report on Form 10-Q. Consequently, the
financial statements included in this Form 10-Q have not been
reviewed by an independent public accounting firm as required by
Rule 10-01(d) of Regulation S-X. As a result, Molex's Chief
Executive Officer and Molex's Acting Chief Financial Officer
cannot certify that this Form 10-Q "fully complies" with the
requirement of Section 13(a) or 15(d) of the Exchange Act as
required by Section 906 of the Sarbanes-Oxley Act of 2002.
Molex expects to engage a new independent registered public
accounting firm in the near future. Molex also expects that the
review of its financial statements for the fiscal quarter ended
September 30, 2004 will be completed as soon as practicable
following Molex's engagement of a new independent public
accounting firm. Upon the completion of such review, Molex plans
to file an amendment to this Form 10-Q, which amendment would
include the certifications required by Section 906 of the Sarbanes-
Oxley Act of 2002. Until such planned amendment to this Form 10-Q
is filed, Molex is not deemed by the SEC to be current or timely
16
in its Exchange Act filings. After the planned amendment to this
Form 10-Q is filed, Molex will be current in its SEC reporting
obligations.
Compliance with Nasdaq Continued Listing Requirements.
Nasdaq Marketplace Rule 4310(c)(14) requires Molex to file with
the Nasdaq Stock Market, Inc. ("Nasdaq") copies of all reports
filed or required to be filed with the SEC. On November 15, 2004,
Molex will have notified Nasdaq that Deloitte had resigned and
that as a result the unaudited financial statements included in
this Form 10-Q filing have not been reviewed by an independent
registered public accounting firm. Because the SEC does not deem
this Form 10-Q to be current and timely, Molex will not be in
compliance with Nasdaq's continued listing standards and Molex
expects that Nasdaq will issue a letter to Molex regarding such
non-compliance and potential delisting. Molex would in such
circumstance appeal to the Nasdaq Hearing Panel and request an
extension sufficient to allow Molex's independent registered
public accounting firm to complete its SAS 100 review and for
Molex to remedy such noncompliance by filing the planned amendment
to this Form 10-Q.
Departure and Appointment of Principal Officers. On November
10, 2004, Molex's Board of Directors appointed Robert B. Mahoney,
a current Executive Vice President and former Chief Financial
Officer of Molex, as the Acting Chief Financial Officer and
reassigned the prior Chief Financial Officer, Diane S. Bullock, to
the position of Vice President and Treasurer.
Robert B. Mahoney, age 51, has been employed by Molex since
1995. In addition to his appointment as Acting Chief Financial
Officer, Mr. Mahoney will continue to serve as an Executive Vice
President of Molex (since 2002) and as President, Far East South
(beginning in 2004). Previously, he served as Molex's Treasurer
and Chief Financial Officer from 1996 to 2004 and as a Corporate
Vice President of Molex from 1996 to 2002. There is no family
relationship between Mr. Mahoney and any director, executive
officer, or person nominated or chosen by Molex to become a
director or executive officer. There is no written employment
agreement between Mr. Mahoney and Molex.
Additional Information. You should refer to Molex's Current
Report on Form 8-K dated November 15, 2004, including Molex's
press release dated November 15, 2004 for additional information
regarding the foregoing matters. You should also refer to Molex's
November 11, 2004 press release attached hereto as Exhibit 99.1.
Cautionary Statement
This Quarterly Report on Form 10-Q contains certain statements
that are "forward-looking statements" as defined in the Private
Securities Litigation Reform Act of 1995. Forward-looking
statements, in general, predict, forecast, indicate or imply
future results, performance or achievements and are typically
identified by words or phases such as "believe", "expect",
"estimate" and similar expressions. Such forward-looking
statements are subject to various risks and uncertainties that may
cause actual results or performance to vary materially from those
projected. Certain of these risks and uncertainties are set forth
in this and other documents filed with the Securities and Exchange
Commission and include, but are not limited to, Molex's
ability to timely hire a new independent registered public accounting
firm, Molex's ability to timely comply with SEC and Nasdaq reporting
obligations, economic conditions in various regions, product and price
competition, raw material prices, foreign currency exchange rates,
interest rates, changes in technology, patent issues, litigation
results and legal and regulatory developments. Molex undertakes
no obligation to update or revise these forward-looking statements,
whether as a result of new information, future events or otherwise,
except as required by law.
Item 6. Exhibits
Number Description
------ -----------
31 Rule 13a-14(a)/15d-14(a) Certifications
17
31.1 Section 302 certification by Chief Executive Officer
31.2 Section 302 certification by Acting Chief Financial Officer
99 Additional Exhibits
99.1 Press release dated November 11, 2004
18
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: November 15, 2004 /s/ ROBERT B. MAHONEY
______________________
Robert B. Mahoney
Acting Chief Financial Officer
Executive Vice President, and
President, Far East South
Date: November 15, 2004 /s/ LOUIS A. HECHT
___________________
Louis A. Hecht
Corporate Secretary and
General Counsel
19