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 March 31, 2004
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 March 31, 2004:
Common Stock 100,447,785 shares
Class A Common Stock 89,086,731 shares
Class B Common Stock 94,255 shares
MOLEX INCORPORATED
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 2
March 31, 2004 and June 30, 2003
Condensed Consolidated Statements of Income 3
Three and Nine Months Ended March 31, 2004 and 2003
Condensed Consolidated Statements of Cash Flows 4
Nine Months Ended March 31, 2004 and 2003
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 10
Item 3. Quantitative and Qualitative Disclosure About
Market Risk 13
Item 4. Controls and Procedures 14
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 14
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
MOLEX INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31, June 30,
ASSETS 2004 2003
---------- ---------
(unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 260,127 $ 178,976
Marketable securities 90,386 171,235
Accounts receivable - net 493,738 396,780
Inventories 246,665 179,256
Other current assets 39,027 35,866
--------- ---------
Total current assets 1,129,943 962,113
PROPERTY, PLANT AND EQUIPMENT - NET 1,025,689 1,007,948
GOODWILL 160,733 160,732
OTHER ASSETS 219,280 204,097
--------- ---------
Total assets $ 2,535,645 $ 2,334,890
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 223,264 $ 175,815
Accrued expenses 130,152 117,994
Other current liabilities 58,418 62,339
--------- ---------
Total current liabilities 411,834 356,148
OTHER NON-CURRENT LIABILITIES 5,965 6,123
ACCRUED PENSION AND POSTRETIREMENT BENEFITS 66,065 58,430
LONG-TERM DEBT 10,458 13,137
OBLIGATIONS UNDER CAPITAL LEASES 3,108 3,731
MINORITY INTEREST 1,251 753
SHAREHOLDERS' EQUITY:
Common stock 10,723 10,680
Paid-in capital 368,349 341,530
Retained earnings 2,107,911 2,003,440
Treasury stock (489,243) (437,234)
Deferred unearned compensation (37,804) (32,094)
Cumulative translation and other
adjustments 77,028 10,246
--------- ---------
Total shareholders' equity 2,036,964 1,896,568
--------- ---------
Total liabilities and stockholders' equity $ 2,535,645 $ 2,334,890
--------- ---------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
MOLEX INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited - in thousands, except per share data)
Three Months Ended Nine Months Ended
March 31, March 31,
------------------ ---------------------
2004 2003 2004 2003
-------- -------- ---------- ----------
REVENUE $569,153 $443,177 $1,614,898 $1,367,032
COST OF SALES 367,021 294,645 1,062,532 912,550
Gross profit 202,132 148,532 552,366 454,482
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES:
Selling 52,095 38,579 145,356 120,003
General and administrative 88,866 78,829 251,851 231,039
------- ------- ------- -------
Total selling, general
and administrative expenses 140,961 117,408 397,207 351,042
Income from operations 61,171 31,124 155,159 103,440
OTHER INCOME (EXPENSE):
Gain on sale of affiliate stock 30 - 10,393 -
Impairment and write-down of
investments - - (4,986) -
Interest, net 926 1,620 3,250 6,557
Other income (expense) 239 (7) (779) (595)
------- ------- ------- -------
Total other income (expense) 1,195 1,613 7,878 5,962
INCOME BEFORE INCOME TAXES
AND MINORITY INTEREST 62,366 32,737 163,037 109,402
INCOME TAXES AND MINORITY INTEREST 16,895 7,933 44,288 26,448
------- ------- ------- -------
NET INCOME $ 45,471 $ 24,804 $ 118,749 $ 82,954
------- ------- ------- -------
EARNINGS PER COMMON SHARE:
BASIC $0.24 $0.13 $0.62 $0.43
DILUTED $0.24 $0.13 $0.62 $0.43
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:
BASIC 190,252 191,493 190,480 192,151
DILUTED 192,417 192,394 192,450 193,373
CASH DIVIDENDS PER COMMON SHARE $0.025 $0.025 $0.075 $0.075
The accompanying notes are an integral part of these condensed consolidated
financial statements.
MOLEX INCORPORATED
CONDENSED CONSOLIDATED STATESMENTS OF CASH FLOWS
(Unaudited - In thousands)
Nine Months Ended
March 31,
------------------
2004 2003
-------- --------
CASH AND CASH EQUIVALENTS, Beginning of Period $178,976 $213,477
OPERATING ACTIVITIES:
Net Income 118,749 82,954
Add (deduct) non-cash items included in net income-
Depreciation and amortization 166,828 166,830
Amortization of deferred unearned compensation 10,061 9,473
Other charges to net income (4,028) 6,587
Changes in assets and liabilities, excluding
effects of foreign currency adjustments-
Accounts receivable (75,578) 13,913
Inventories (59,629) (5,515)
Other current assets 514 8,238
Accounts payable 34,723 (27,919)
Accrued expenses 8,210 (12,836)
Other liabilities (6,583) (12,520)
------- -------
CASH PROVIDED BY OPERATING ACTIVITIES 193,267 229,205
INVESTING ACTIVITIES:
Capital expenditures (134,248) (127,644)
Proceeds from sale of property, plant and equipment 176 597
Decrease (increase) in marketable securities 80,849 (45,788)
Other investing activities (5,399) (23,404)
------- -------
CASH USED FOR INVESTING ACTIVITIES (58,622) (196,239)
FINANCING ACTIVITIES:
Net decrease in debt (4,016) (715)
Principal payments on capital lease obligations (3,677) (5,573)
Cash dividends paid (14,298) (14,438)
Purchase of treasury stock (50,222) (60,004)
Reissuance of treasury stock 1,517 1,580
Exercise of stock options 6,975 5,815
------- -------
CASH USED FOR FINANCING ACTIVITIES (63,721) (73,335)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS 10,227 15,249
------- -------
CASH AND CASH EQUIVALENTS, End of Period $260,127 $188,357
------- -------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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 Nine Months Ended
March 31, March 31,
------------------ -----------------
2004 2003 2004 2003
-------- -------- -------- --------
Weighted average shares
outstanding - basic 190,252 191,493 190,480 192,151
Dilutive effect of stock
options 2,165 901 1,970 1,222
Weighted average shares -------- -------- -------- --------
outstanding - diluted 192,417 192,394 182,450 193,373
-------- -------- -------- --------
(3) Comprehensive Income
Total comprehensive income is summarized as follows (in thousands):
Three Months Ended Nine Months Ended
March 31, March 31,
------------------ -----------------
2004 2003 2004 2003
-------- -------- -------- --------
Net Income $ 45,471 $ 24,804 $118,749 $ 82,954
Foreign currency
translation adjustments (473) 3,792 66,459 21,907
Unrealized gain (loss) on
available-for-sale securities 12 33 323 (55)
-------- -------- -------- --------
Total comprehensive income $ 45,010 $ 28,629 $185,531 $104,806
-------- -------- -------- --------
MOLEX INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4) New Accounting Pronouncements
In December 2003, the Financial Accounting Standards Board (FASB)
revised Statement of Financial Accounting Standards (SFAS) No.
132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits." The revised statement requires
additional disclosures for pension plans and postretirement
benefit plans. The interim period disclosures required by this
statement are included in Note 6.
In January 2004, the FASB issued Staff Position (FSP) No. 106-1,
"Accounting and Disclosure Requirements Related to the Medicare
Prescription Drug, Improvement and Modernization Act of 2003 (The
'Act')." The purpose of this FSP is to permit a one-time election
to defer recognition of the effects of the Act until the FASB
issues accounting guidance, and to provide disclosure guidance
based on that election. Molex has elected to defer recognition of
the effects of the Act until accounting guidance is provided by
the FASB.
5) Inventories
Inventories are valued at the lower of first-in, first-out cost or
market. Inventories, net of reserves, consist of the following (in
thousands):
March 31, June 30,
2004 2003
-------- --------
Raw Materials $ 31,833 $ 26,155
Work in Process 86,798 63,807
Finished Goods 128,034 89,294
-------- --------
$ 246,665 $ 179,256
-------- --------
6) Pensions and Other Postretirement Benefits
The components of net periodic benefit cost are as follows for the
three and nine months ended March 31, 2004 and 2003 (in thousands).
Pension Postretirement
-------------- ----------------
Three months ended March 31, 2004 2003 2004 2003
------ ------ ------- -------
Service cost $1,832 $1,846 $ 487 $ 219
Interest cost 980 996 486 264
Expected return on plan assets (957) (817) - -
Amortization of prior service cost 58 57 (66) (65)
Amortization of net (gain) loss 260 90 198 (8)
Amortization of transition amount 14 14 - -
------ ------ ------ ------
Net periodic benefit cost $2,187 $2,186 $1,105 $ 410
------ ------ ------ ------
MOLEX INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Pension Postretirement
-------------- ----------------
Nine months ended March 31, 2004 2003 2004 2003
------ ------ ------- -------
Service cost $5,496 $5,537 $1,461 $ 656
Interest cost 2,940 2,988 1,458 791
Expected return on plan assets (2,870) (2,452) - -
Amortization of prior service cost 174 171 (197) (194)
Amortization of net (gain) loss 260 90 198 (8)
Amortization of transition amount 40 45 - -
------ ------ ------- -------
Net periodic benefit cost $6,560 $6,559 $3,316 $1,230
------ ------ ------- -------
7) 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 Nine Months Ended
March 31, March 31,
------------------ -----------------
2004 2003 2004 2003
------- ------- ------- -------
Net Income as reported $45,471 $24,804 $118,749 $82,954
Add: Stock-based compensation
expense included in reported
net income, net of tax 2,833 2,212 7,367 7,199
Deduct: Total stock-based
compensation expense
determined under fair value
method for all awards, net
of tax (4,575) (3,230) (12,670) (9,457)
------- ------- ------- -------
Pro forma net income $43,729 $23,786 $113,446 $80,696
------- ------- ------- -------
Earnings per share:
Basic $0.24 $0.13 $0.62 $0.43
Diluted 0.24 0.13 0.62 0.43
Pro forma earnings per share:
Basic $0.23 $0.12 $0.60 $0.42
Diluted $0.23 0.12 0.59 0.42
For purposes of computing pro forma net income and earnings per
common share, the fair value of each option grant is estimated as
of the date of grant using the Black-Scholes option pricing model.
MOLEX INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8) Restructuring Charges
During the fourth quarter of fiscal 2003, the Company recorded a
pretax charge of $35.0 million ($24.8 million after-tax). This
charge included $23.1 million relating to write-offs of
manufacturing assets and facilities and $11.9 million for
severance costs related to a workforce reduction of 537 employees.
Some employment reductions occurred during fiscal 2003, and all
remaining employment reductions occurred in the first half of
fiscal 2004. Most severance payments will continue for up to a
year.
During the fourth quarter of fiscal 2001 and the second quarter of
fiscal 2002, the Company recorded charges for severance and other
termination benefits of $46.4 million associated with global
workforce reductions of approximately 1,750 employees. At March
31, 2004, $0.9 million of severance payments related to these
workforce reductions remained in the consolidated balance sheet.
The change in the accrued severance balance is summarized as
follows (in thousands):
Fiscal Fiscal Fiscal
2003 2002 2001
Charge Charge Charge Total
------ ------ ------ -------
Balance at June 30, 2003 $10,126 $1,831 $757 $12,714
Charges to expense - - - -
Cash payments (2,086) (484) (316) (2,886)
Balance at September 30, 2003 8,040 1,347 441 9,828
Charges to expense - - - -
Cash payments (1,537) (337) (61) (1,935)
Balance at December 31, 2003 6,503 1,010 380 7,893
Charges to expense - - - -
Cash payments (2,201) (407) (34) (2,642)
------ ------ ------ -------
Balance at March 31, 2004 $ 4,302 $ 603 $346 $ 5,251
------ ------ ------ -------
Substantially all of the severance benefits related to the fiscal
2002 and 2001 charges will be paid during fiscal 2004.
9) Other Income (Expense)
During the second quarter of fiscal 2004, the Company recognized a
pre-tax gain of $10.4 million from the sale of stock of an
affiliate and an equity gain resulting from an IPO completed by
the affiliate. Molex retains a 20 percent ownership. The Company
also recorded pre-tax charges totaling $5.0 million to exit other
investments in start-up technologies.
10) Subsequent Event
On April 1, 2004, Molex completed its previously announced
agreement to purchase the assets and business of Connecteurs Cinch
SA "Cinch" and its subsidiary in Portugal, from the SNECMA Group,
its parent. Completion of the transaction with respect to Cinch's
subsidiaries in India and China are subject to receipt of certain
regulatory approvals in those countries.
MOLEX INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
11) Segment and Related Information
The Company and its subsidiaries operate in one product segment:
the manufacture and sale of electronic components. Management
operates the business by geographic region and information by
geographic region is summarized as follows (in thousands):
Inter-
Customer Company Total Net
Three months ended: Revenue Revenue Revenue Income
March 31, 2004- -------- ------- -------- -------
Americas $181,628 $47,199 $228,827 $16,333
Far East North 122,559 62,286 184,845 20,415
Far East South 151,917 30,168 182,085 17,730
Europe 99,374 10,410 109,784 (1,523)
Corporate & Other 13,675 1,222 14,897 (7,484)
Eliminations - (151,285) (151,285) -
-------- ------- -------- -------
Total $569,153 - $569,153 $45,471
-------- ------- -------- -------
March 31, 2003-
Americas $159,887 $28,928 $188,815 $10,148
Far East North 96,055 35,027 131,082 6,449
Far East South 107,533 13,148 120,681 14,944
Europe 68,928 6,639 75,567 (659)
Corporate & Other 10,774 1,157 11,931 (6,078)
Eliminations - (84,899) (84,899) -
-------- ------- -------- -------
Total $443,177 - $443,177 $24,804
-------- ------- -------- -------
Nine months ended:
March 31, 2004-
Americas $500,597 $127,859 $628,456 $38,262
Far East North 370,155 168,667 538,822 55,666
Far East South 447,454 71,703 519,157 48,245
Europe 259,176 28,947 288,123 (8,905)
Corporate & Other 37,516 3,463 40,979 (14,519)
Eliminations - (400,639) (400,639) -
--------- ------- --------- -------
Total $1,614,898 - $1,614,898 $118,749
--------- ------- --------- -------
March 31, 2003-
Americas $484,405 $79,883 $564,288 $26,557
Far East North 299,863 114,085 413,948 27,561
Far East South 338,094 34,918 373,012 48,778
Europe 212,163 20,375 232,538 938
Corporate & Other 32,507 3,099 35,606 (20,880)
Eliminations - (252,360) (252,360) -
--------- ------- --------- -------
Total $1,367,032 - $1,367,032 $82,954
--------- ------- --------- -------
Revenue is recognized based on the location of the selling entity.
MOLEX INCORPORATED
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
- ---------------------
Third Quarter Results
Revenue for the third quarter ended March 31, 2004 was $569.2
million, an increase of $126.0 million, or 28.4 percent, over the
prior year's third quarter. The strengthening of other currencies
against the U.S. dollar increased revenue by $27.0 million over
the prior year quarter.
In the Americas region, customer revenue was $181.6 million, up 14
percent from the prior year's quarter, the strongest increase in
several years due to a broad improvement in end markets. Customer
revenue in the Far East South region was $151.9 million, an
increase of 41 percent, primarily driven by demand from the
digital consumer, personal computer and mobile phone markets,
serving both local and multinational customers. In the Far East
North region (Japan and Korea), customer revenue was $122.6
million, up 28 percent, driven by demand for advanced digital home
entertainment products and high-end mobile phones, all with
substantial connector content. Total revenue in the Far East
North region was also favorably impacted by foreign currency
translation of $9.7 million. In the European region, customer
revenue was $99.4 million, an increase of 44 percent, also the
strongest gain in several years. Foreign currency translation led
by the strong Euro favorably impacted total revenue in Europe by
$14.2 million.
Gross profit was $202.1 million for the quarter ended March 31,
2004, up $53.6 million over the prior year quarter. Gross profit
as a percent of revenue was 35.5 percent, up from 33.5 percent in
the prior year period. The improvement in gross profit was
primarily due to the impact of higher manufacturing volumes.
Selling and administrative expenses were $141.0 million for the
third quarter as compared with $117.4 million in the prior year.
As a percent of revenue, selling and administrative expenses for
the quarter were 24.8 percent compared with 26.5 percent in the
prior year, reflecting the leverage from higher revenues in the
current quarter.
Interest income, net of interest expense, was $0.9 million in the
quarter ended March 31, 2004 compared with $1.6 million in the
prior year quarter. The prior year quarter included an interest
benefit from the favorable closure of corporate tax audits in
certain jurisdictions.
The effective tax rate was 27.0 percent for the third quarter of
fiscal 2004 as compared with 24.0 percent in last year's third
quarter. The increase was primarily a result of higher pretax
income in jurisdictions with higher income tax rates.
Net income for the third quarter of fiscal 2004 was $45.5 million,
or $0.24 per basic and diluted share, up $20.7 million, or 83.3
percent, from 24.8 million, $0.13 per basic and diluted share, in
last year's third quarter. Foreign currency translation increased
net income by $1.4 million.
Nine Months Results
Revenue was $1,614.9 million for the nine months ended March 31,
2004, an increase of 18.1 percent, compared with $1,367.0 million
last year. The strengthening of other currencies, principally the
euro and yen, compared with the U.S. dollar increased revenue by
$65.4 million in the first nine months of fiscal 2004.
Customer revenue in the Americas region of $500.6 million
increased 3 percent compared with the prior year revenue of $484.4
million. Year-to-date customer revenue in the Far East North
region increased 23 percent to $370.2 million, as compared with
$299.9 million last year. Demand for new products such as mobile
phones, digital still cameras, flat panel displays and DVDs, was
especially strong. In the Far East South region, revenue for the
nine months ended March 31, 2004 was $447.5 million, up 32 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 $259.2 million,
as compared with $212.2 million in the prior year period.
The Company estimated total fiscal 2004 pretax savings of
approximately $15 million related to the restructuring actions
implemented in the fourth quarter of fiscal 2003. For the nine
months ended March 31, 2004, the Company realized actual savings
of approximately $10 million, which is in line with expected
results.
Gross profit was $552.4 million for the nine months ended March
31, 2004, up $97.9 million from the prior year. The increase was
primarily due to leverage from higher revenues. Gross profit as a
percent of revenue was 34.2 percent for the nine months ended
March 31, 2004 compared with 33.2 percent last year.
Selling and administrative expenses were $397.2 million for the
nine-month period as compared with $351.0 million for the same
period in the prior year. As a percent of revenue, selling and
administrative expenses for the first nine months were 24.6
percent compared with 25.7 percent in the prior year.
Other income (expense) for the nine-month period included a pretax
gain of $10.4 million from the sale of stock of an affiliate and
an equity gain resulting from an IPO completed by the affiliate.
Molex retains a 20 percent ownership. In addition, the Company
recorded a pretax charge of $5.0 million to exit other investments
in start-up technologies. Interest income, net of interest
expense, was $3.3 million in the nine months ended March 31, 2004
compared with $6.6 million in the prior year period. The prior
year included an interest benefit of approximately $3.0 million
from the favorable closure of corporate tax audits in certain
jurisdictions.
The effective tax rate was 27 percent for nine months ended March
31, 2004 compared with 24 percent in the prior year period as a
result of increased pretax income in jurisdictions with higher tax
rates.
Net income was $118.7 million for the nine months ended March 31,
2004, compared with last year's net income of $83.0 million.
Basic and diluted earnings per share were $0.62 compared with
$0.43 reported for the prior fiscal year. For the nine-month
period, foreign currency translation increased net income by $2.1
million.
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 March 31, 2004 totaled $10.5 million.
Cash provided from operating activities of $193.3 million was down
from the prior year due primarily to an increase in working
capital. Higher revenues in the current year have resulted in
increased accounts receivable balances. The Company also increased
inventory balances to support expected future revenues. Working
capital at March 31, 2004 was $718.1 million compared with $606.0
million at June 30, 2003.
Cash used for investing activities was $58.6 million and $196.2
million for the nine months ended March 31, 2004 and 2003,
respectively. Capital expenditures were $134.2 million, an
increase of $6.6 million over the prior year's capital spending of
$127.6 million. Marketable securities decreased $80.8 million in
the nine months ended March 31, 2004, as compared with a $45.8
million increase in the same period of fiscal 2003. The reduction
in marketable securities was offset by an increase in cash and
cash equivalents.
Cash used for financing activities was $63.7 million compared with
$73.3 million in the prior period. During the nine months ended
March 31, 2004, the Company purchased an aggregate of 1,945,000
shares of treasury stock at an aggregate cost of $50.2 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.
The Company has a strong cash balance and cash flow and virtually
no debt. Management believes at this time that share repurchases
are a good investment as compared to 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
- -------
Management believes that a majority of the Company's global
markets continues to improve and that inventory in the majority of
the Company's worldwide sales channels remains at reasonable
levels. In addition, the level of new orders remains encouraging
and the Company's financial position remains strong. 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 fourth quarter ending June 30, 2004, management is
forecasting revenues in a range of $600 to $610 million. Based on
these revenues, the Company expects earnings per share in the
range of $0.27 to $0.29.
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 March 31, 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 officers. Typically,
the use of derivative instruments is limited to hedging activities
related to specific foreign currency cash flows.
The Company's $90.4 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 $90.4 million
of marketable securities owned by the Company and the Company's
$10.5 million of long-term debt. The Company does not actively
manage the risk of interest rate fluctuations. However, such risk
is mitigated by the relatively short-term nature of its
investments - less than twelve months - and the fixed-rate nature
of its long-term debt.
Molex does not have material exposure to off-balance-sheet
arrangements, including special purpose entities and activities
that include non-exchange traded contracts accounted for at fair
value. Due to the nature of its operations, Molex is not subject
to significant concentration risks relating to customers, products
or geographic locations.
The Company monitors the environmental laws and regulations in the
countries in which it operates. Molex has implemented an
environmental program to reduce the generation of potentially
hazardous materials during its manufacturing process and believes
it continues to meet or exceed local government regulations.
Item 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, the Company
conducted an evaluation, under the supervision and with the
participation of the principal executive officer and principal
financial officer, of the Company's disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934 (the 'Exchange Act')). Based on
this evaluation, the principal executive officer and principal
financial officer have concluded that the Company's disclosure
controls and procedures are effective to ensure that information
required to be disclosed by the Company in reports that it files
or submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in
Securities and Exchange Commission's rules and forms. There have
been no changes in the Company's internal control over financial
reporting during the Company's most recently completed fiscal
quarter that have materially affected, or are reasonably likely to
materially affect, the Company's internal control over financial
reporting.
PART II - OTHER INFORMATION
Item 1. Not Applicable
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(e) Share repurchases of Molex Class A Common Stock for the
quarter ended March 31, 2004 were as follows:
Period Total Number Average Total Number Dollar Value
of Shares Price Paid of Shares of Shares
Purchased per share Purchased as that May Yet
Part of Be Purchased
Publicly Under the
Announced Plan
Plan
-------- ------------ ---------- ------------ ------------
Jan 1-Jan 31 - - - $74,593,627
Feb 1-Feb 29 100,000 $28.83 100,000 $71,710,590
Mar 1-Mar 31 850,000 $25.80 850,000 $49,778,065
------------ ---------- ------------ ------------
Total 950,000 $26.12 950,000 $49,778,065
------------ ---------- ------------ ------------
Items 3-4. Not applicable
Item 5. OTHER INFORMATION
a. Cautionary Statement
This document contains various forward-looking statements.
Statements that are not historical are forward looking
statements and are subject to various risks and uncertainties
that could cause actual results to vary materially from those
stated. Such risks and uncertainties include: economic
conditions in various regions, product and price competition,
raw material prices, foreign currency exchange rates,
technology changes, patent issues, litigation results, legal
and regulatory developments, and other risks and
uncertainties described in documents filed with the
Securities and Exchange Commission.
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. A Report on Form 8-K was filed on:
January 15, 2004 containing:
1) A press release announcing its results of operations for the
second fiscal quarter ended December 31, 2003
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 May 14, 2004 /s/ DIANE S. BULLOCK
----------------- --------------------
Diane S. Bullock
Vice President, Treasurer
and Chief Financial Officer
Date May 14, 2004 /s/ LOUIS A. HECHT
----------------- --------------------
Louis A. Hecht
Corporate Secretary and
General Counsel