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, 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 September 30, 2003: 	 	Common Stock 	 100,398,884 shares 		Class A Common Stock 	 89,863,740 shares 		Class B Common Stock	 94,255 shares MOLEX INCORPORATED INDEX PART I - FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets -- 2 September 30, 2003 and June 30, 2003 Condensed Consolidated Statements of Income -- 3 Three Months Ended September 30, 2003 and 2002 Condensed Consolidated Statements of Cash Flows -- 4 Three Months Ended September 30, 2003 and 2002 Notes to Condensed Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 9 Item 3. Quantitative and Qualitative Disclosure About Market Risk 11 Item 4. Controls and Procedures 12 PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 12 Item 5. Other Information 13 Item 6. Exhibits and Reports on Form 8-K 13 SIGNATURES 14 - 1 - PART I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS MOLEX INCORPORATED CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) ASSETS September 30, June 30, 2003 2003 _________ _________ (unaudited) CURRENT ASSETS: Cash and cash equivalents $ 158,794 $ 178,976 Marketable securities 161,848 171,235 Accounts receivable - net 441,280 396,780 Inventories 195,653 179,256 Other current assets 49,921 35,866 _________ _________ Total current assets 1,007,496 962,113 PROPERTY, PLANT AND EQUIPMENT - NET 1,023,584 1,007,948 GOODWILL 160,729 160,732 OTHER ASSETS 202,192 204,097 _________ _________ $2,394,001 $2,334,890 _________ _________ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 188,650 $ 175,815 Accrued expenses 131,561 117,994 Other current liabilities 60,956 62,339 _________ _________ Total current liabilities 381,167 356,148 OTHER NON-CURRENT LIABILITIES 3,297 6,123 ACCRUED PENSION AND POSTRETIREMENT BENEFITS 61,870 58,430 LONG-TERM DEBT 10,860 13,137 OBLIGATIONS UNDER CAPITAL LEASES 3,461 3,731 MINORITY INTEREST 825 753 SHAREHOLDERS' EQUITY Common stock 10,700 10,680 Paid-in capital 346,478 341,530 Retained earnings 2,030,750 2,003,440 Treasury stock (458,049) (437,234) Deferred unearned compensation (29,544) (32,094) Cumulative translation and other adjustments 32,186 10,246 _________ _________ Total shareholders' equity 1,932,521 1,896,568 _________ _________ $2,394,001 $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 September 30, ___________________ 2003 2002 ________ ________ NET REVENUE $496,763 $469,246 COST OF SALES 327,382 309,690 ________ ________ Gross Profit 169,381 159,556 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling 44,416 40,877 General and Administrative 81,556 79,591 ________ _______ Total selling, general and administrative expenses 125,972 120,468 Income from operations 43,409 39,088 OTHER INCOME (EXPENSE): Interest, net 1,235 1,010 Other income (expense) (666) (583) ________ ________ Total other income (expense) 569 427 INCOME BEFORE INCOME TAXES 43,978 39,515 INCOME TAXES 11,916 9,553 ________ ________ NET INCOME $ 32,062 $ 29,962 ________ ________ EARNINGS PER COMMON SHARE: BASIC $0.17 $0.16 DILUTED $0.17 $0.15 WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: BASIC 190,679 192,865 DILUTED 192,372 194,439 CASH DIVIDENDS PER COMMON SHARE $0.025 $0.025 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) THREE MONTHS ENDED September 30, ___________________ 2003 2002 ________ ________ CASH AND CASH EQUIVALENTS, Beginning of Period $178,976 $213,477 OPERATING ACTIVITIES: Net income 32,062 29,962 Add (deduct) non-cash items included in net income - Depreciation and amortization 55,475 56,396 Amortization of deferred unearned compensation 3,007 3,281 Other charges to net income (394) (204) Changes in assets and liabilities, excluding effects of foreign currency adjustments - Accounts receivable (36,008) (8,702) Inventories (13,767) (9,944) Other current assets (10,953) 654 Accounts payable 7,121 (8,737) Accrued expenses 7,886 13,327 Other liabilities (12,520) (13,707) _______ _______ CASH PROVIDED FROM OPERATING ACTIVITIES 31,909 62,326 INVESTING ACTIVITIES: Capital expenditures (45,324) (38,098) Proceeds from sale of property, plant and equipment 985 786 (Increase)decrease in marketable securities 9,387 (22,558) Other investing activities (3,044) (5,337) _______ _______ CASH USED FOR INVESTING ACTIVITIES (37,996) (65,207) FINANCING ACTIVITIES: Net decrease in debt (2,855) (1,878) Principal payments on capital lease obligations (1,362) (1,507) Cash dividends paid (4,773) (4,829) Purchase of treasury stock (19,985) (25,020) Reissuance of treasury stock 539 602 Exercise of stock options 2,177 968 _______ _______ CASH USED FOR FINANCING ACTIVITIES (26,259) (31,664) EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 12,164 (2,937) _______ _______ CASH AND CASH EQUIVALENTS, End of Period $158,794 $175,995 _______ _______ 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 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 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 September 30, __________________ 2003 2002 _______ _______ Weighted average shares outstanding - basic 190,679 192,865 Dilutive effect of stock options 1,693 1,574 _______ _______ Weighted average shares outstanding - diluted 192,372 194,439 _______ _______ (3) Comprehensive Income Total comprehensive income is summarized as follows (in thousands): Three Months Ended September 30, __________________ 2003 2002 _______ _______ Net income $32,062 $29,962 Foreign currency transalation adjustments 21,698 (15,876) Unrealized gain (loss) on available-for-sale securities 242 (77) _______ _______ Total comprehensive income $54,002 $14,009 _______ _______ - 5 - MOLEX INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 4) 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): September 30, June 30, 2003 2003 ____________ ____________ Raw Materials $ 24,750 $ 26,155 Work in Process 56,254 63,807 Finished Goods 114,650 89,294 ____________ ____________ $195,653 $179,256 ____________ ____________ 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." 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 September 30, __________________ 2003 2002 _______ _______ Net Income, as reported $32,062 $29,962 Add: Stock-based compensation expense included in reported net income, net of tax 2,196 2,494 Deduct: Total stock-based compensation expense determined under fair value method for all awards, net of tax (3,814) (4,274) _______ _______ Pro forma net income $30,444 $28,182 _______ _______ Earnings per share: Basic $ 0.17 $ 0.16 Diluted 0.17 0.15 Pro forma earnings per share: Basic $ 0.16 $ 0.15 Diluted 0.16 0.15 - 6 - MOLEX INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 6) Segment and Related Information The Company and its subsidiaries operate in one product segment: the manufacture and sale of electrical 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 September 30, 2003 - ________ ________ ________ _______ Americas $151,491 $ 38,869 $ 23,025 $10,583 Far East North 116,313 48,693 282,866 13,653 Far East South 142,872 17,528 261,067 17,482 Europe 74,407 8,365 167,594 (1,603) Corporate and Other 11,680 2,857 31 (8,053) Eliminations - (116,312) (171,566) - ________ ________ ________ _______ Total $496,763 - $496,763 $32,062 ________ ________ ________ _______ September 30, 2002 - Americas $165,797 $ 25,193 $190,990 $ 8,951 Far East North 103,027 41,588 144,615 11,694 Far East South 116,367 12,051 128,418 17,891 Europe 72,969 6,949 79,918 975 Corporate and Other 11,086 3,329 14,325 (9,549) Eliminations - (89,020) (89,020) - ________ ________ ________ _______ Total $469,246 - $469,246 $29,962 ________ ________ ________ _______ Revenue is recognized based on the location of the selling entity. 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, $5.1 million for the write-off of licenses and investments and $11.9 million for severance costs related to a workforce reduction of 537 people. Some employment reductions occurred during fiscal 2003, and all remaining employment reductions are expected to occur 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 September 30, 2003, $1.8 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 _________ _________ _________ _________ 8) Subsequent Event On October 28, 2003, Molex announced that it has 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, expected in the third 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. Molex expects incremental sales of approximately $25 to $35 million in fiscal 2004 if the transaction is completed as planned. - 8 - MOLEX INCORPORATED Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS _____________________ Consolidated revenue was $496.8 million for the first quarter ended September 30, 2003, up $27.6 million, or 5.9 percent, over the prior year period. The strengthening of other currencies compared with the U.S. dollar increased revenue by $10.3 million in the first quarter. Total revenue in the Americas region of $190.4 million was essentially flat compared with the prior year quarter. An increase in demand in the computer network and mobile telephone markets was offset by the transfer of production by customers to the Far East. Quarterly revenue in the Far East North region increased 14.1 percent to $165.0 million, as compared with last year's first quarter revenue of $144.6 million. Demand for new products developed for the digital consumer electronics market, such as mobile phones, digital still cameras, flat panel displays and DVDs, was especially strong. Far East South revenue for the quarter was $160.4 million, up 24.9 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 $82.8 million, as compared with $79.9 million in the prior year quarter. Foreign currency translation, driven by the stronger euro, favorably impacted sales by $10.5 million. The region continues to feel the impact of the recession, experiencing difficulty in the high-end telecom market as well as the effect from the transfer of mobile phone production by customers to the Far East. Gross profit was $169.4 million for the quarter ended September 30, 2003, up $9.8 million over the prior quarter. The increase was primarily due to leverage from the higher sales. Gross profit as a percent of revenue was 34.1 percent for the quarter ended September 30, 2003 compared with 34.0 percent last year. Selling and administrative expenses were $126.0 million for the first fiscal quarter as compared with $120.5 million for the corresponding period in the prior year. As a percent of revenue, selling and administrative expenses for the quarter were 25.4 percent compared with 25.7 percent in the prior year. Interest income, net of interest expense, was $1.2 million in the quarter ended September 30, 2003 compared with $1.0 million in the prior year's first quarter. - 9 - The effective tax rate was 27.0 percent for the quarter ended September 30, 2003 compared with 24.0 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 $32.1 million, or $0.17 per basic and diluted share, a 7.0 percent increase compared with $30.0 million, or $0.16 per basic and $0.15 per diluted share, for the same quarter last fiscal year. Foreign currency translation decreased net income by $0.3 million for the quarter. 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, 2003 totals $10.9 million. Cash provided from operating activities of $31.9 million was down from the prior year due primarily to an increase in working capital. A higher level of revenue in the current quarter resulted in higher levels of accounts receivable and inventory than in the prior year quarter. Working capital at September 30, 2003 was $626.3 million compared with $606.0 million at June 30, 2003. Cash used for investing activities was $38.0 million, a decrease of $27.2 million from the prior year. Capital expenditures were $45.3 million, an increase of $7.2 million over the prior year spending of $38.1 million. Marketable securities decreased $9.4 million in the three months ended September 30, 2003, as compared with a $22.6 million increase in the same period of fiscal 2003. Cash used for financing activities was $26.3 million compared with $31.7 million in the prior period. During the three months ended September 30, 2003, the Company purchased an aggregate of 795,000 shares of treasury stock at an aggregate cost of $20.0 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 ________ The outlook for the remainder of fiscal 2004 is cautiously optimistic. The overall level of new orders during the first quarter was encouraging, and it appears that a majority of the Company's global markets are now in an initial phase of cautious expansion. Operations in the Far East regions continue to drive the Company's results. Management believes that inventory in the majority of the Company's worldwide sales channels remains below normal levels, and when combined with expanding demand should lead to continued improvement in the Company's financial results. 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 second quarter ending December 31, 2003, management is forecasting revenues in a range of $500 to $510 million, representing 10 to 12 percent growth from the prior year period. Based on these revenues, earnings per share is expected in the range of $0.18 to $0.19, an increase of 20 to 26 percent from the prior year's second quarter. - 10 - 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 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, 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 $161.8 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 $161.8 million of marketable securities owned by the Company and the Company's $10.9 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. - 11 - 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 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 Items 1-3. Not Applicable Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the Annual Meeting of Stockholders held on October 24, 2003, the following directors were elected to hold office for their respective terms according to their class: Fred L. Krehbiel, Douglas K. Carnahan, J. Joseph King, Joe W. Laymon, and Michelle L. Collins. No candidate for director received less than 85,123,548 votes in favor of their election nor more than 7,183,684 votes withheld. One other proposal before the stockholders, the amendment and restatement of the 2000 Molex Incorporated Long-Term Stock Option Plan, was approved. The number of Common shares voted for the proposal was 81,681,388; against - 4,496,452; abstaining - 912,794; and broker non-votes - 5,123,344. All Class B Common shares, 93,255, were voted for the proposal. - 12 - 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. 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 b. Reports on Form 8-K were filed on: July 23, 2003 containing: 1) A press release announcing its results of operations for the fourth fiscal quarter and year ended June 30, 2003 July 28, 2003 containing: 1) a press release announcing that its Board of Directors has renewed its authorization to permit certain discretionary stock purchases by the Company during its fiscal year ending June 30, 2004 - 13 - 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 13, 2003 /s/ ROBERT B. MAHONEY ----------------- -------------------- Robert B. Mahoney Executive Vice President, Treasurer and Chief Financial Officer Date November 13, 2003 /s/ LOUIS A. HECHT ----------------- -------------------- Louis A. Hecht Corporate Secretary and General Counsel - 14 -