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 March 31, 2003
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 March 31, 2003:
Common Stock 100,078,406 shares
Class A Common Stock 90,948,219 shares
Class B Common Stock 94,255 shares
MOLEX INCORPORATED
FORM 10-Q
MARCH 31, 2003
INDEX
Page
------
PART I - FINANCIAL INFORMATION
Item 1. Financial Information - Unaudited
Condensed Consolidated Balance Sheets 2
March 31, 2003 and June 30, 2002
Condensed Consolidated Statements of Income 3
Three and Nine Months Ended March 31, 2003 and 2002
Condensed Consolidated Statements of Cash Flows 4
Nine Months Ended March 31, 2003 and 2002
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 March 31, June 30,
2003 2002
--------- ---------
CURRENT ASSETS:
Cash and cash equivalents $ 188,357 $ 213,477
Marketable securities 145,636 99,848
Accounts receivable - net 375,963 386,150
Inventories 174,890 167,253
Other current assets 40,539 48,615
--------- ---------
Total current assets 925,385 915,343
PROPERTY, PLANT AND EQUIPMENT - NET 1,023,446 1,067,590
GOODWILL 160,180 160,180
OTHER ASSETS 136,576 110,807
--------- ---------
$2,245,587 $2,253,920
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 157,138 $ 184,630
Accrued expenses 106,445 121,942
Other current liabilities 38,734 53,021
--------- ---------
Total current liabilities 302,317 359,593
DEFERRED ITEMS 4,098 6,346
ACCRUED POSTRETIREMENT BENEFITS 48,058 41,999
LONG-TERM DEBT 13,348 14,223
OBLIGATIONS UNDER CAPITAL LEASES 725 3,626
MINORITY INTEREST 593 481
SHAREHOLDERS' EQUITY
Common stock 10,665 10,628
Paid-in capital 333,551 311,631
Retained earnings 2,006,255 1,937,488
Treasury stock (422,345) (362,479)
Deferred unearned compensation (31,176) (27,262)
Cumulative translation & other adjustments (20,502) (42,354)
--------- ---------
Total shareholders' equity 1,876,448 1,827,652
--------- ---------
$2,245,587 $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 NINE MONTHS ENDED
March 31, March 31,
2003 2002 2003 2002
-------- -------- --------- ---------
NET REVENUE $443,177 $408,307 $1,367,032 $1,255,220
COST OF SALES 294,645 276,035 912,550 860,299
-------- -------- --------- ---------
Gross Profit 148,532 132,272 454,482 394,921
-------- -------- --------- ---------
OPERATING EXPENSES:
Selling 38,579 34,442 120,003 108,971
Administrative 78,829 72,654 231,039 219,064
Total Operating Expenses 117,408 107,096 351,042 328,035
--------- -------- --------- ---------
Income from Operations 31,124 25,176 103,440 66,886
OTHER INCOME:
Impairment charge on
investments in other companies - (2,570) - (12,570)
Foreign currency transaction
gain/(loss) (10) (22) (505) (302)
Interest income, net 1,620 1,148 6,557 4,046
Other income/(expense) 3 2,147 (90) (809)
-------- -------- --------- ---------
Total Other Income/(Expense) 1,613 703 5,962 (9,635)
INCOME BEFORE INCOME TAXES 32,737 25,879 109,402 57,251
INCOME TAX EXPENSE 7,933 6,196 26,448 8,108
-------- -------- --------- ---------
NET INCOME $24,804 $19,683 $82,954 $49,143
-------- -------- --------- ---------
EARNINGS PER COMMON SHARE:
BASIC 0.13 0.10 0.43 0.25
DILUTED 0.13 0.10 0.43 0.25
CASH DIVIDENDS PER COMMON SHARE 0.025 0.025 0.075 0.075
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
DURING THE PERIOD: BASIC 191,493 194,034 192,151 194,636
DILUTED 192,394 195,793 193,373 196,231
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)
NINE MONTHS ENDED
March 31, March 31,
2003 2002
-------- --------
CASH AND CASH EQUIVALENTS, Beginning of Period $213,477 $138,438
CASH AND CASH EQUIVALENTS
PROVIDED FROM (USED FOR):
Operations:
Net income 82,954 49,143
Add (deduct) non-cash items included in net income:
Depreciation and amortization 166,830 166,379
Amortization of deferred unearned compensation 9,473 8,501
Impairment charge on investments in other companies - 12,570
Fixed asset write downs included in special charges - 3,652
(Gain)/Loss on sale of property, plant and equipment 5,110 1,343
Deferred income taxes (1,946) (883)
Other charges to net income 3,423 (176)
Current items:
Accounts receivable 13,913 57,108
Inventories (5,515) 37,133
Other current assets 8,238 3,401
Accounts payable (27,919) (41,938)
Accrued expenses (12,836) (20,284)
Other current liabilities (12,520) (41,639)
------- -------
NET CASH PROVIDED FROM OPERATIONS 229,205 234,310
Investing Activities:
Purchases of property, plant and equipment (127,644) (127,013)
Proceeds from sale of property, plant and equipment 597 1,252
(Increase)decrease in marketable securities (45,788) 55,229
(Increase)/decrease in other assets (23,404) 12,818
------- -------
NET CASH USED FOR INVESTING ACTIVITIES (196,239) (57,714)
Financing Activities:
Increase(decrease) in short-term loans 75 (286)
Increase in long-term debt 11 318
Decrease in long-term debt (801) (4,818)
Principal payments on capital leases (5,573) (7,108)
Cash dividends paid (14,438) (14,620)
Purchase of treasury stock (60,004) (60,134)
Reissuance of treasury stock 1,580 964
Exercise of stock options 5,815 4,412
------- -------
NET CASH USED FOR FINANCING ACTIVITIES (73,335) (81,272)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS 15,249 (4,070)
------- -------
CASH AND CASH EQUIVALENTS, End of Period $188,357 $229,692
------- -------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
- 4 -
MOLEX INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(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 that
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 (in thousands):
Three Months Ended Nine Months Ended
March 31, March 31,
2003 2002 2003 2002
------- ------- ------- -------
Weighted average shares
outstanding - basic 191,493 194,034 192,151 194,636
Dilutive effect of stock
options 901 1,759 1,222 1,595
------- ------- ------- -------
Weighted average shares
outstanding - diluted 192,394 195,793 193,373 196,231
------- ------- ------- -------
(3) Comprehensive Income
Comprehensive income includes all non-shareholder 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 Nine Months Ended
March 31, March 31,
2003 2002 2003 2002
------- ------- ------- -------
Net Income $24,804 $19,683 $ 82,954 $49,143
Currency translation and
other adjustments 3,825 (2,765) 21,852 (13,515)
------- ------- ------- -------
Total comprehensive income $28,629 $16,918 $104,806 $35,628
------- ------- ------- -------
- 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:
March 31, June 30,
2003 2002
--------- ---------
Raw Materials $ 24,773 $ 25,753
Work in Process 62,211 63,180
Finished Goods 87,906 78,320
--------- ---------
$174,890 $167,253
--------- ---------
5) 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." The Company has adopted the disclosure provisions of SFAS No.148,
"Accounting for Stock-Based Compensation - Transition and Disclosure" for its
fiscal third quarter and nine-months ended March 31, 2003. Had the Company
elected to apply the provisions of SFAS No. 123 as amended by SFAS No. 148
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 common share would have been as follows (in thousands except per
share data):
Three Months Ended Nine Months Ended
March 31, March 31,
2003 2002 2003 2002
------- ------- ------- -------
Net Income, as reported $24,804 $19,683 $82,954 $49,143
Add: Stock-based employee
compensation expense included
in reported net income, net of
related tax effects 2,212 2,023 7,199 5,918
Deduct: Total stock-based
employee compensation expense
determined under fair value
based method for all awards,
net of related tax effects (3,230) (3,435) (9,457) (9,974)
------- ------- ------- -------
Pro forma net income $23,786 $18,271 $80,696 $45,087
------- ------- ------- -------
Earnings per share:
Basic 0.13 0.10 0.43 0.25
Diluted 0.13 0.10 0.43 0.25
Pro forma earnings per share:
Basic 0.12 0.09 0.42 0.23
Diluted 0.12 0.09 0.42 0.23
- 6 -
6) 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):
Inter-
As of and for Customer Company Total Identifiable
three months ended: Revenue Revenue Revenue Net Income Assets
March 31, 2003: -------- ------- -------- ---------- ------------
United States $157,894 $22,659 $180,553 $ 8,960 $ 992,866
Americas (Non-US) 5,502 6,872 12,374 820 56,159
Far East North 96,055 35,027 131,082 6,449 481,021
Far East South 110,118 14,865 124,983 14,534 468,336
Europe 73,593 7,108 80,701 (1,350) 444,254
Corporate & Other 15 - 15 (4,609) 129,410
Eliminations - (86,531) (86,531) - (326,459)
-------- ------- -------- --------- ----------
Total $443,177 - $443,177 $24,804 $2,245,587
-------- ------- -------- --------- ----------
March 31, 2002:
United States $165,043 $15,188 $180,231 $11,930 $ 963,452
Americas (Non-US) 2,370 9,112 11,482 291 74,648
Far East North 78,175 25,386 103,561 6,399 449,290
Far East South 89,365 12,072 101,437 12,501 381,836
Europe 73,333 6,060 79,393 2,099 396,950
Corporate & Other 21 - 21 (13,537) 82,251
Eliminations - (67,818) (67,818) - (270,912)
-------- ------- -------- -------- ----------
Total $408,307 - $408,307 $19,683 $2,077,515
-------- ------- -------- -------- ----------
Inter-
As of and for Customer Company Total Identifiable
nine months ended: Revenue Revenue Revenue Net Income Assets
March 31, 2003: -------- ------- -------- ---------- ------------
United States $ 481,156 $60,235 $ 541,391 $23,573 $ 992,866
Americas (Non-US) 13,848 21,551 35,399 1,566 56,159
Far East North 299,863 114,085 413,948 27,561 481,021
Far East South 345,817 40,233 386,050 48,177 468,336
Europe 226,302 21,993 248,295 (1,445) 444,254
Corporate & Other 46 - 46 (16,478) 129,410
Eliminations - (258,097) (258,097) - (326,459)
--------- ------- --------- -------- ----------
Total $1,367,032 - $1,367,032 $82,954 $2,245,587
--------- ------- --------- -------- ----------
March 31, 2002:
United States $ 492,572 $41,113 $ 533,685 $12,090 $ 963,452
Americas (Non-US) 6,612 27,482 34,094 (202) 74,648
Far East North 255,520 90,317 345,837 24,207 449,290
Far East South 275,348 37,484 312,832 35,046 381,836
Europe 225,121 20,152 245,273 1,045 396,950
Corporate & Other 47 - 47 (23,043) 82,251
Eliminations - (216,548) (216,548) - (270,912)
--------- ------- --------- ------- ----------
Total $1,255,220 - $1,255,220 $49,143 $2,077,515
--------- ------- --------- ------- ----------
- 7 -
7) 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.
The major components of the fiscal 2001 fourth quarter and fiscal 2002 second
quarter charges, and the remaining accrual balance as of March 31, 2003 were as
follows:
Accrued
June December Cash Assets Balance at
2001 2001 Payments Disposed March 31,
(In thousands) Charge Charge Made & Other 2003
------- -------- -------- -------- ----------
Severance & other
benefits $27,690 $18,675 ($35,302) ($ 6,301) $4,762
Inventory write-offs 12,714 - - (12,714) -
Asset write-offs 3,043 15,483 - (18,526) -
------- -------- -------- -------- ----------
Total $43,447 $34,158 ($35,302) ($37,541) $4,762
------- -------- -------- -------- ----------
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 seven months.
8) New accounting pronouncements
The Company adopted 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 adoption of SFAS No. 143 and
SFAS No. 144 had no material impact on the consolidated financial statements.
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
- 8 -
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 Interpretation ("FIN") 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 adoption
of FIN 45 had no material impact on the Company.
In January 2003, the FASB issued FIN 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 $443.2 million for the quarter ended March 31,
2003, up 8.5 percent in U.S. dollars and 2.3 percent in local currencies over
the prior year period. For the nine months ended March 31, 2003, net revenues
were $1.37 billion compared with $1.26 billion last year, rising 8.9 percent in
U.S. dollars and 5.4 percent in local currencies. The strengthening of other
currencies compared with the U.S. dollar increased net revenues by $25.5
million and $44.4 million for the quarter and year-to-date periods,
respectively.
Net revenue in the Americas region was up slightly over the prior year quarter
and rose 2 percent over the prior year-to-date period, but demand in the
telecom infrastructure and fiber optics markets continues to be difficult in
the current economic environment.
Quarterly net revenue in the Far East North region increased 27 percent in U.S.
dollars and 13 percent in local currencies compared with last year. For the
nine months ended March 31, 2003, revenue rose 20 percent in U.S. dollars and
14 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 both quarter and year-to-date periods rose 23
percent in U.S. dollars and 22 percent in local currencies over the respective
prior year periods. 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 increased 2 percent in U.S. dollars, but was down 16
percent in local currencies compared with the prior year quarter. For the
nine months ended March 31, 2003, revenue was up 1 percent in U.S. dollars but
down 11 percent in local currencies. The decline was a result of the depressed
telecom infrastructure market, reflecting a downturn that started later than
those in the U.S. and Asia. The transfer of manufacturing to China by our
customers has also impacted the region.
For the nine months ended March 31, 2003, 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.
- 10 -
Gross profit as a percent of net revenue was 33.5 percent for the quarter ended
March 31, 2003 compared with 32.4 percent last year. For the nine months ended
March 31, 2003, the gross profit percentage was 33.2 percent compared with 31.5
percent in the prior year. The prior year-to-date gross profit margin was
impacted by a $7.1 million charge taken in the second quarter 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 on a more favorable mix of product sales.
Selling and administrative expenses were $117.4 million and $351.0 million,
respectively, for the quarter and nine-month period ended March 31, 2003 as
compared with $107.1 million and $328.0 million, respectively, for the
corresponding periods in the prior year. As a percent of net revenue, selling
and administrative expenses for the quarter were 26.5 percent compared with
26.2 percent in the prior year, and for the year-to-date period were 25.7
percent compared with 26.1 percent in the prior year. The prior year-to-date
number includes a $15.7 million charge taken in the second quarter 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 nine months
ended March 31, 2003, increased $5.8 million but decreased slightly as a
percent of net revenue to 6.5 percent from 6.6 percent in the prior year
period due to higher revenues.
Interest income, net of interest expense, was $1.6 million in the quarter ended
March 31, 2003 compared with $1.1 million in the prior year and was $6.6
million for the nine months ended March 31, 2003 as compared with $4.0 million
a year ago. The current year-to-date balance 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.
The effective tax rate was 24.0 percent for both the quarter and year-to-date
periods ended March 31, 2003 compared with 24.0 percent and 14.1 percent in the
comparable prior year periods. Excluding the impact of prior year charges, the
effective tax rate for the nine months ended March 31, 2003 was consistent with
the fiscal 2002 nine-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 $24.8 million or 13 cents per basic and diluted
share compared with $19.7 million or 10 cents per basic and diluted share for
the same quarter last fiscal year. For the nine months ended March 31, 2003,
net income was $83.0 million or 43 cents per basic and diluted share, as
compared with net income of $49.1 million or 25 cents per basic and diluted
share for the same period last year. Currency translation increased net
income by $0.8 million for the quarter and by $1.5 million for the nine-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 March 31, 2003. When comparing
- 11 -
with the same period last year, June 30, 2001 to March 31, 2002, 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 March 31, 2003 was $623.1 million compared with $555.8 million at
June 30, 2002.
Net cash provided from operations was down from the prior year due primarily to
a $30.4 million change in working capital that was partially offset by higher
net income. A rising level of business and profits in the current year
required higher levels of accounts receivable and inventory than in the prior
year.
Net cash used for investments was $196.2 million, a change of $138.5 million
from the prior year, driven mainly by a $101.0 million change in marketable
securities that increased $45.8 million in the nine-months ended March 31, 2003
versus a $55.2 million decrease in the same period of fiscal 2002. Capital
expenditures were $127.6 million, slightly higher than the prior year total of
$127.0 million.
Net cash used for financing activities was $73.3 million compared with $81.3
million in the prior period. During the nine months ended March 31, 2003, the
Company purchased an aggregate of 2,677,500 shares of treasury stock at an
aggregate cost of $60.0 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.
NEW ACCOUNTING PRONOUNCEMENTS
- -----------------------------
The Company adopted 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 adoption of SFAS No. 143 and
SFAS No. 144 had no material impact on the consolidated financial statements.
In June 2002, the 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 FIN 45, "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others". This Interpretation establishes
- 12 -
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 adoption
of FIN 45 had no material impact on the Company.
In January 2003, the FASB issued FIN 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.
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 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.
- 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 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 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 $145.6 million of
marketable securities owned by the Company and the Company's $13.3 million of
long-term debt. The securities are debt instruments that 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
Reports on Form 8-K were filed on:
February 13, 2003 containing:
1) a press release announcing the election of a new director,
Michelle L. Collins, to its Board.
2) the certification under Section 906 of the
Sarbanes-Oxley Act of 2002 "Corporate Responsibility
for Financial Reports".
April 16, 2003 containing:
1) a press release announcing its results of operations for the
third fiscal quarter and nine months ended March 31, 2003
- 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 May 14, 2003 /s/ ROBERT B. MAHONEY
----------------- --------------------
Robert B. Mahoney
Executive Vice President,
Treasurer and
Chief Financial Officer
Date May 14, 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: May 14, 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: May 14, 2003
/s/ROBERT B. MAHONEY
Robert B. Mahoney
Executive Vice President, Treasurer
and Chief Financial Officer