UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2004
Commission File Number 0-7491
____________
MOLEX INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 36-2369491
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2222 Wellington Court, Lisle, Illinois 60532
(Address of principal executive offices)
Registrant's telephone number, including area code: (630) 969-4550
____________
SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT
Common Stock, par value $0.05
Class A Common Stock, par value $0.05
____________
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 Act). Yes X No
On June 30, 2004, the following numbers of shares of the
Company's common stock were outstanding:
Common Stock 100,557,441
Class A Common Stock 88,418,015
Class B Common Stock 94,255
The aggregate market value of the voting shares (based on
the closing price of these shares on the National Association of
Securities Dealers Automated Quotation System on such date) held
by non-affiliates was approximately $1.84 billion.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting of
Stockholders, to be held on October 22, 2004 are incorporated by
reference into Part III of this report.
1
TABLE OF CONTENTS
Part I Page
Item 1. Business 3
Item 2. Properties 6
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 7
Part II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters 7
Item 6. Selected Financial Data 8
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk 18
Item 8. Financial Statements and Supplementary Data 19
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 43
Item 9A. Controls and Procedures 43
Part III
Item 10. Directors and Executive Officers of the Registrant 43
Item 11. Executive Compensation 45
Item 12. Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters 45
Item 13. Certain Relationships and Related Transactions 45
Item 14. Principal Accountant Fees and Services 45
Part IV
Item 15. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 45
Independent Auditors' Report on Schedule II 46
Schedule II - Valuation and Qualifying Accounts 47
Index to Exhibits 48
Signatures 49
Cautionary Statement
This Annual Report on Form 10-K contains certain statements
that are "forward-looking statements" as defined in the Private
Securities Litigation Reform Act of 1995. Forward-looking
statements, in general, predict, forecast, indicate or imply
future results, performance or achievements and are typically
identified by words or phases such as "believe", "expect",
"estimate" and similar expressions. Such forward-looking
statements are subject to various risks and uncertainties that
may cause actual results or performance to vary materially from
those projected. Certain of these risks and uncertainties are set
forth in this and other documents filed with the Securities and
Exchange Commission and include, but are not limited to, economic
conditions in various regions, product and price competition, raw
material prices, foreign currency exchange rates, interest rates,
changes in technology, patent issues, litigation results and
legal and regulatory developments. The Company undertakes no
obligation to update or revise these forward-looking statements,
whether as a result of new information, future events or
otherwise, except as required by law.
Available Information
Molex makes available through its Web site (www.molex.com)
its annual report on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and all amendments to those reports
as soon as reasonably practicable after such material is
electronically filed with the Securities and Exchange Commission.
2
PART I
Item 1. Business
Molex Incorporated originated from an enterprise established
in 1938. It was incorporated in 1972 in the state of Delaware. As
used herein the term "Molex" or "Company" includes Molex
Incorporated and its United States and international
subsidiaries. Revenue was $2.25 billion for the fiscal year ended
June 30, 2004. The Company operated 55 manufacturing plants,
located in 19 countries on 6 continents, and employed 21,225
people worldwide as of June 30, 2004.
Molex is the world's second-largest manufacturer of
electronic connectors. The global connector industry is a highly
competitive and fragmented market that is estimated at $28.3
billion in sales. Molex interconnect products enable companies to
design and develop electronic products that are smaller, faster,
more effective and more reliable, and to manufacture those
products more quickly and cost-effectively. Molex products are
used by some of the most respected original equipment
manufacturers (OEMs), in some of the most recognized consumer and
industrial products in the world.
Business and Products
The core business for Molex is the manufacture and sale of
electronic components. The Company designs, manufactures and
distributes more than 100,000 products including terminals,
connectors, planar cables, cable assemblies, interconnection
systems, fiber optic interconnection systems, backplanes,
mechanical and electronic switches and other products. Molex also
provides manufacturing services to integrate the use of specific
components into the customer's products.
Industry Markets and Customers
Net revenues contributed by different industry markets can
fluctuate based on new technologies within the industry,
composition of customers, and new products or model changes
introduced by Molex. The approximate percentage of net revenue
by industry market for fiscal 2004 is outlined below:
Percentage of Typical End Use
Industry Markets Fiscal 2004 Products
Net Revenue Supported by Molex
Computer 29 % Desktop and notebook
computers, peripheral
equipment, servers,
copiers, printers and
scanners
Telecommunications 20 % Mobile phones and
devices, networking
equipment, switches
and transmission
equipment
Consumer Products 21 % Digital electronics -
CD and DVD players,
cameras, plasma and
LCD televisions,
electronic games and
major appliances
Automotive 17 % Engine control units,
adaptive braking
systems, panel
instrumentation and
other automotive
electronics
Industrial 9 % Factory automation,
robotics, automated
test equipment, vision
systems and diagnostic
equipment
Other 4 % Electronic and
electrical devices for
a variety of markets
3
Molex sells products to OEMs directly, as well as to their
subcontractors and suppliers, and through distributors. The
Company's customers include multinational companies such as
Cisco, Sun, Delphi, Hewlett Packard, IBM, Matsushita, Motorola,
Nokia, Sony, Samsung, Ford, Siemens and Dell. In many cases,
Molex provides products to these customers on a global basis. No
one customer accounted for more than 10 percent of net revenues
in fiscal years 2004, 2003 or 2002.
Sales and Marketing
Molex sells its products primarily through its own sales
organizations in the United States, Canada, Brazil, Mexico,
Argentina, Japan, Republic of Korea, Hong Kong, Singapore,
Taiwan, Malaysia, Thailand, China, Philippines, India, Australia,
England, Italy, Ireland, France, Spain, Germany, the Netherlands,
Poland, Sweden, Turkey, Finland, Czech Republic, Slovenia,
Russia, Belgium, Luxembourg, Ukraine and Slovak Republic.
To complement its own sales force, Molex works with a
network of distributors to serve a broader customer base and
provide a wide variety of supply chain tools and capabilities.
Sales through distribution represent approximately 20% of Molex's
total revenue globally.
Molex engineers work collaboratively with customers, often
via an innovative online design system, to develop products for
specific applications. Molex provides customers the benefit of
state-of-the-art technology for engineering, design and
prototyping - supported from 27 development centers in 15
countries.
The Company promotes its products through the Internet,
leading trade magazines, direct mailings, catalogs and other
promotional literature. Molex is a frequent participant in trade
shows for target industry markets. The Company also conducts
educational seminars for customers and manufacturers'
representative organizations, geared toward industry trends, new
products and design opportunities in specific markets.
Competition
Molex is the world's second-largest manufacturer of
electronic connectors. The market in which the Company operates
is highly fragmented with a significant number of smaller
competitors. Many of these companies offer products in some, but
not all, of the markets and regions served by Molex. Pricing
within the industry remains highly competitive. The general trend
in the industry is for customers to consolidate their supply base
by selecting global companies possessing broad product lines for
the majority of their connector requirements. As a result of this
trend, the Company believes that it is gaining market share
through its global presence, financial strength, broad product
line, extensive customer support and emphasis on new product
development.
Backlog
The backlog of unfilled orders at June 30, 2004 was
approximately $332.6 million, a 79 percent increase compared with
a backlog of $185.6 million at June 30, 2003. Substantially all
of these orders are scheduled for delivery within 12 months. The
Company's experience is that orders are normally shipped within
30 days from acceptance.
Employees
As of June 30, 2004, Molex employed 21,225 people worldwide.
The Company believes its relations with its employees are
favorable.
4
Raw Materials
The principal raw materials that Molex purchases for the
manufacture of its products include resins for molding, metal
alloys (primarily copper) for stamping and gold and palladium
salts for use in the plating process. The Company also purchases
molded and stamped components and connector assemblies. Virtually
all materials and components used in the Company's products are
available from several sources. To achieve economies of scale
Molex does concentrate purchases from a limited number of
suppliers and thus, in the short term, is dependent upon these
suppliers to meet performance and quality specifications and
delivery schedules. Although the availability of such materials
has generally been adequate, no assurance can be given that
future cost increases or material shortages will not have a
materially adverse effect on the operations of the Company.
Research and Development
Molex incurred total research and development costs of $119
million in fiscal 2004, $117 million in fiscal 2003 and $112
million in fiscal 2002. The Company believes this investment,
typically at five percent or more of net revenue, is among the
highest in the industry and helps deliver a competitive
advantage. In recent years, approximately 25 percent of annual
revenue has come from sales of innovative new products introduced
in the prior three years. Molex engineers around the world play a
major role in setting international standards for the
interconnection systems of the future.
Patents
As of June 30, 2004, the Company owned 813 United States
patents and had 314 patent applications on file with the U.S.
Patent Office. The Company also had 2,321 corresponding patents
issued and 1,890 applied for in other countries. No assurance can
be given that any patents will be issued on pending or future
applications. As the Company develops products for new markets
and uses, it normally seeks available patent protection. The
Company believes that its patents are of importance but does not
consider itself materially dependent upon any single patent or
group of related patents.
Regulatory Compliance
The Company monitors the environmental laws and regulations
in the countries in which it operates and has implemented an
environmental program to reduce the generation of potentially
hazardous materials during its manufacturing process. The Company
believes it is in full compliance with federal, state and local
regulations pertaining to environmental protection. The Company
does not anticipate that the costs of compliance with such
regulations will have a material effect on its capital
expenditures, earnings or competitive position.
In addition, Molex is working to assist customers in their
compliance with environmental regulations. For example, in
October 2002, legislation was approved in Europe banning lead
from most electrical and electronic products, starting July 1,
2006. Lead-bearing solders have historically been used in the
electronics industry to attach components to printed circuit
boards. In support of its customers, Molex began a transition to
lead-free products in 2002 and is expected to complete the
process in 2005, in advance of the European requirement.
5
International Operations
Molex is engaged in material operations in foreign
countries. Net revenue derived from international operations for
the fiscal year ended June 30, 2004, was approximately 70 percent
of consolidated net revenue. Total assets reported by
international operations comprised 69 percent of consolidated
total assets. Information regarding the Company's operations by
geographical area appears in Note 15 of the Notes to Consolidated
Financial Statements. A discussion of market risk associated with
changes in foreign currency exchange rates can be found in
Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Item 2. Properties
Molex owns and leases manufacturing, warehousing and office
space in locations around the world. The leases are of varying
terms with expirations ranging from fiscal 2005 through fiscal
2017. The leases in aggregate are not considered material to the
financial position of the Company. The total square footage of
these facilities at June 30, 2004 is presented below:
Owned Leased Total
6,998,537 578,582 7,577,119
The Company's buildings, machinery and equipment have been
well maintained and are adequate for its current needs. A listing
of principal manufacturing facilities is presented below:
Australia Italy Singapore
Melton, Victoria PadovaJurong Town
Brazil Japan Slovakia
Manaus Kagoshima (3) Kechnec
Sao Paulo Okayama Liptovsky Hradok
Shizuoka
China (P.R.C.) Tochigi
Dongguan (2) Yamato Taiwan
Shanghai Taipei
Dalian (3) Malaysia
Perai, Penang Thailand
France Bangpakong
Villemur Mexico
Guadalajara United States
Germany Nogales Pinellas Park, Florida
Ettlingen St. Petersburg, Florida
Poland Downers Grove, Illinois (2)
Tczew Gilford, New Hampshire
India Sulecin Lincoln, Nebraska (3)
Bangalore (2) Naperville, Illinois (2)
Gandhinagar Portugal Mooresville, Indiana
Noida Santo Tirso Maumelle, Arkansas (2)
Auburn Hills, Michigan (2)
Ireland Republic of Korea
Millstreet Ansan City (2)
Shannon (2) Gwang-Ju
6
Item 3. Legal Proceedings
None deemed material to the Company's financial position or
results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
Molex is traded on the National Market System of the NASDAQ
in the United States and on the London Stock Exchange and trades
under the symbols MOLX for Common Stock and MOLXA for Class A
Common Stock. Common stock information is included in Note 13 of
the Notes to Consolidated Financial Statements.
The number of shareholders of record at June 30, 2004 was
2,851 for Common Stock and 8,142 for Class A Common Stock.
The following table presents quarterly dividends per common
share for the year ended June 30:
Class A
Common Stock Common Stock
------------------ ------------------
2004 2003 2004 2003
Quarter ended: ------- ------- ------- -------
September 30 $0.0250 $0.0250 $0.0250 $0.0250
December 31 0.0250 0.0250 0.0250 0.0250
March 31 0.0250 0.0250 0.0250 0.0250
June 30 0.0250 0.0250 0.0250 0.0250
------- ------- ------- -------
Total $0.1000 $0.1000 $0.1000 $0.1000
------- ------- ------- -------
Cash dividends on common stock have been paid every year
since 1977. On July 30, 2004, the Board of Directors of Molex
increased the regular quarterly cash dividend to $0.0375 per
share. This will be in effect unless or until the Board takes
further action regarding the cash dividend.
Descriptions of the Company's Common Stock appear under the
caption "Description of the Three Different Classes of Stock" in
the Company's 2004 Proxy Statement and in Note 13 of the Notes to
Consolidated Financial Statements.
7
Item 6. Selected Financial Data
Molex Incorporated
Ten-Year Financial Highlights Summary
(in thousands, except per share data)
Operations 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Net revenue $2,246,715 $1,843,098 $1,711,497 $2,365,549 $2,217,096 $1,711,649 $1,622,975 $1,539,712 $1,382,673 $1,197,747
Gross profit 776,746 579,248 536,551 859,610 853,892 668,125 670,266 640,895 562,731 512,498
Income before
income taxes 239,892 110,042 93,221 291,416 323,694 230,214 274,823 262,369 228,953 214,492
Income taxes 63,571 24,762 16,684 87,424 100,810 52,363 92,490 95,581 83,300 90,273
Net income (1) 175,950 84,918 76,479 203,919 222,454 178,029 182,243 166,716 145,586 124,035
Earnings
per share: (2)
Basic 0.93 0.44 0.39 1.04 1.13 0.92 0.93 0.85 0.74 0.63
Diluted 0.92 0.44 0.39 1.03 1.12 0.91 0.92 0.84 0.74 0.63
Net income - percent
of net revenue 7.8% 4.6% 4.5% 8.6% 10.0% 10.4% 11.2% 10.8% 10.5% 10.4%
Financial Position
Current assets 1,168,644 962,113 915,343 891,865 1,023,009 881,338 867,791 873,614 734,589 773,036
Current liabilities 428,464 356,148 359,593 374,106 475,449 342,441 336,275 342,026 275,182 278,046
Working capital 740,180 605,965 555,750 517,759 547,560 538,897 531,516 531,588 459,407 494,990
Current ratio 2.7 2.7 2.5 2.4 2.2 2.6 2.6 2.6 2.7 2.8
Property, plant and
equipment, net 1,022,378 1,007,948 1,067,590 1,092,567 980,775 809,602 676,161 665,468 613,125 567,303
Total assets 2,572,346 2,329,870 2,253,920 2,213,627 2,247,106 1,902,012 1,639,634 1,636,931 1,460,999 1,441,020
Long-term debt 10,243 13,137 14,223 19,351 21,593 20,148 5,566 7,350 7,450 8,122
Capital leases 3,796 3,731 3,626 6,114 - - - - - -
Shareholders'
equity 2,065,994 1,896,568 1,827,652 1,765,640 1,705,804 1,500,537 1,261,570 1,235,912 1,131,271 1,107,268
Return on beginning
shareholders' equity 9.3% 4.6% 4.3% 12.0% 14.8% 14.1% 14.7% 14.7% 13.1% 14.1%
Dividends per
share (2) 0.10 0.10 0.10 0.10 0.09 0.05 0.05 0.04 0.03 0.02
Average common
shares: (2)
Basic 190,207 191,873 194,327 195,471 196,060 194,340 195,750 196,389 196,768 195,343
Diluted 192,186 193,229 195,986 197,633 198,208 195,631 197,971 198,349 198,819 197,414
(1) Fiscal 2003 results include a charge of $35.0 million ($24.8
million after-tax) for restructuring costs and $5.1 million ($3.8
million after-tax) for write-down of investments. Fiscal 2002
results included a restructuring charge of $24.2 million ($18.8
million after-tax) and a charge for investment impairment of
$10.0 million ($6.5 million after-tax). Fiscal 2001 results
included a restructuring charge of $30.8 million ($21.4 million
after-tax) and a charge for excess and slow moving inventory of
$12.7 million ($8.9 million after-tax). See Notes 5 and 6 of the
Notes to Consolidated Financial Statements for a discussion on
the Company's restructuring costs and other charges.
(2) Restated for the following stock dividends: 25%-January 2000;
25%-November 1997; 25%-February 1997; 25%-August 1995;
25%-November 1994.
8
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Financial Highlights and Outlook
Revenue for the current fiscal year of $2.25 billion
increased 21.9 percent over last year. The Company achieved a
record level of revenue of $632 million in the fourth quarter of
fiscal 2004. Net income for the year of $176.0 million increased
$91.1 million from $84.9 million reported in the prior year. Last
year's net income included a charge of $40.1 million ($28.6
million after-tax) for restructuring costs and write-off of
investments. Molex remains focused on striving for efficiencies
in costs and productivity while pushing for growth through
continued investment in new product development.
Outlook
The outlook in the majority of the Company's global markets
remains strong. While demand beyond the short term remains
difficult to predict, the Company is pleased with the level of
orders in the fourth quarter of fiscal 2004 and believes that the
higher order backlog will provide a tailwind heading into the new
fiscal year. During fiscal 2005, Molex will continue to focus on
delivering additional profit leverage and increasing market
share. The Company expects revenue growth of 16 percent to 19
percent during fiscal 2005 and net income is expected to grow
faster than revenues due to leverage from the higher volume.
Earnings per share are expected in the range of $1.24 to $1.34,
an increase of 35 percent to 45 percent.
To further expand the Company's global presence in low cost
locations and to offer innovative products at an accelerated
pace, Molex plans to invest $215 million to $225 million in
capital expenditures for the fiscal year ending June 30, 2005.
The Company continues to emphasize expansion in markets such as
automotive, industrial and medical, while working to further
strengthen its significant position as a leader in the computer
and digital consumer markets. Molex remains committed to
providing high quality products and a full range of services to
customers wherever they may be located in the world.
Investor Returns
Molex is committed to providing shareholders with a
competitive return on their investment. The Company's total
shareholder return (including reinvestment of dividends) over the
last five years has averaged an annual compounded return of 1.9
percent on Molex Common Stock and 2.0 percent on Molex Class A
Common Stock. Over the last ten years, the compounded annual
return has averaged 10.2 percent on Molex Common Stock and 8.8
percent on Molex Class A Common Stock.
A $100 investment in Molex Common Stock at June 30, 1999,
together with the reinvestment of dividends, would be worth $110
at June 30, 2004, and a similar investment in Molex Class A
Common Stock would be worth $110 at June 30, 2004.
[GRAPH]
9
Results of Operations
Year Ended June 30
------------------------------
Percentage of Net Revenue 2004 2003 2002
------ ------ ------
Net revenue 100.0% 100.0% 100.0%
Cost of sales 65.4 68.6 68.7
Gross profit 34.6 31.4 31.3
SG&A expenses 24.7 25.9 25.6
Income from operations 9.9 5.5 5.7
Other (income) expense (0.8) (0.5) 0.2
Income before income taxes 10.7 6.0 5.5
Income taxes 2.9 1.4 1.0
Net income 7.8% 4.6% 4.5%
U.S. Dollar Percentage Change 2004-2003 2003-2002
--------- ---------
Net revenue 21.9% 7.7%
Cost of sales 16.3 7.6
Gross profit 34.1 8.0
SG&A expenses 16.5 8.8
Income from operations 116.3 4.4
Other (income) expense 140.4 264.6
Income before income taxes 118.0 18.0
Income taxes 156.7 48.4
Net income 107.2% 11.0%
Fiscal 2004 Compared with Fiscal 2003
Revenue was $2.25 billion for the fiscal year ended June 30,
2004, an increase of 21.9 percent, compared with $1.84 billion
last year. The strengthening of certain foreign currencies,
principally the euro and yen, compared with the U.S. dollar
increased revenue by approximately $89 million in fiscal 2004.
Customer revenue in the Americas region was $686.1 million
in fiscal 2004, an increase of 7.0 percent compared with last
year's revenue of $641.2 million, with the growth occurring
during the second half of the fiscal year. The revenue growth in
this region was due to a broad improvement across all markets led
by a recovering economy and strong consumer confidence in the
U.S.
In the Far East North region, customer revenue grew 22.4
percent to $499.3 million in fiscal 2004 compared to revenue of
$407.8 million last year. Foreign currency translation
contributed approximately $33 million to this increase. Demand
for advanced digital home entertainment products such as digital
still cameras, camcorders and flat screen and plasma TV's, as
well as high-end mobile phones was especially strong. Revenue
also improved in the industrial market, especially for
semiconductor inspection equipment and industrial automation.
Customer revenue for fiscal 2004 was $623.6 million in the
Far East South region, an increase of $164.8 million, or 35.9
percent, compared with the prior year. The biggest drivers of
this growth were American, European and Japanese companies moving
production to China and strong demand in the consumer
electronics, cell phone and notebook and desktop computer
markets.
In Europe, customer revenue in fiscal 2004 was $385.1
million, an increase of 32.3 percent, as compared to $291.0
million in fiscal 2003. During the fourth fiscal quarter, the
Company purchased the assets and business of French-based
Connecteurs Cinch SA (Cinch) and its subsidiaries. Cinch added
revenues of $20.5 million during fiscal 2004. Foreign currency
translation, led by the strong euro, also increased customer
revenues by approximately $44.5 million.
10
As discussed below under the caption Fiscal 2003 Compared
with Fiscal 2002, the Company recorded pretax charges of $35.0
million ($24.8 million after-tax) for restructuring costs in the
fourth quarter of fiscal 2003. Charges of $28.5 million were
recorded in cost of sales and the remaining charge of $6.5
million was included in selling, general and administrative
expenses. During fiscal 2004, the Company realized savings of
approximately $16 million related to the fiscal 2003
restructuring actions of which approximately 75 percent is
reflected in fiscal 2004 cost of sales. For additional
information concerning the status of the Company's restructuring
programs see Note 5 to the Notes to Consolidated Financial
Statements.
Gross profit was $776.7 million for fiscal 2004, up $197.5
million, or 34.1 percent over the prior year. Gross profit
margin was 34.6 percent of net revenue in fiscal 2004, an
increase from 31.4 percent in fiscal 2003. Excluding
restructuring costs of $28.5 million from fiscal 2003, gross
profit margin was 33.0 percent. The increase in gross profit
margin was primarily due to leverage from the higher sales
volumes. The realized savings from last year's restructuring
program also contributed to the improvement. Offsetting these
improvements, the Company estimates that it paid approximately
$10 million more in fiscal 2004 for metal strip and gold
purchases.
Selling, general and administrative expenses of $555.6
million were up 16.5 percent, or $78.6 million, over the prior
year. Foreign currency translation increased selling, general and
administrative expenses by approximately $23 million. As a
percentage of net revenue, selling, general and administrative
expenses decreased from 25.9 percent in fiscal 2003 to 24.7
percent in fiscal 2004. Fiscal 2003 results included severance
costs of $6.5 million related to workforce reductions, as
previously noted.
Research and development expenditures were $119.0 million,
or 5.3 percent of net revenue, during fiscal 2004, compared with
$117.0 million, or 6.3 percent of net revenue, in the prior year.
During fiscal 2004, the Company adopted a more narrow definition
of research and development. This change had the effect of
reducing reported research and development spending in fiscal
2004 by approximately $18 million compared with the prior year.
Research and development expenditures in fiscal 2004
contributed to the release of 415 new products during the year.
In fiscal 2004, 25.1 percent of net revenue was derived from the
sale of products released by the Company within the last three
years. Molex continued its long-term commitment to reinvesting
its profits in new product design and tooling to maintain and
enhance the Company's competitive position. The Company was
granted 568 new patents during the year.
Other (income) expense for fiscal 2004 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 this affiliate. 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 $3.7 million
for fiscal 2004 compared with $8.2 million in the prior year
period. The prior year included an interest benefit of
approximately $3.0 million from the favorable closure of tax
audits in several U.S. jurisdictions.
The effective income tax rate was 26.5 percent for fiscal
2004 compared with 22.5 percent in fiscal 2003. The increase in
the effective tax rate from the prior year is primarily the
result of an increase in the Company's pretax earnings from
higher rate jurisdictions. The Company continues its ongoing
global effort to reduce its income tax expense through a
disciplined repatriation strategy and planning.
Net income rose to $176.0 million during fiscal 2004 from
$84.9 million reported in fiscal 2003. Favorable foreign
currency translation contributed $4.7 million to net income.
Fiscal 2003 net income included an after-tax charge of $28.6
million for restructuring costs and the write-down of certain
investments. Diluted earnings per share was $0.92 for fiscal
2004 compared with $0.44 for fiscal 2003.
11
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. The increase in comprehensive income for fiscal 2004
was primarily due to net income and favorable foreign currency
translation adjustments resulting from the weaker U.S. dollar
versus the yen and euro.
Fiscal 2003 Compared with Fiscal 2002
Fiscal 2003 net revenue was $1.84 billion, a 7.7 percent
increase from $1.71 billion reported in the prior year. Excluding
the favorable impact from foreign currency translation of $67.8
million, the increase was 3.7 percent, with the strongest growth
occurring during the first half of the year.
Customer revenue in the Americas region was $641.2 million,
a decline of 3.8 percent from fiscal 2002 revenue of $666.3
million. While the Americas experienced growth in the connector
products and industrial markets, lack of demand in the
telecommunications infrastructure and fiber optics markets
impeded overall revenue growth in this region.
In the Far East North, customer revenue rose 16.0 percent
during fiscal 2003 to $407.8 million compared with $351.5 million
in the prior year. Foreign currency translation increased revenue
by $20.9 million. Excluding the favorable currency impact, growth
in this region was driven by the successful design-in of new
products serving the consumer electronics market in products such
as digital still and video cameras, mobile phones and plasma TVs.
Customer revenue during fiscal 2003 in the Far East South
region increased to $458.8 million, an increase of $92.5 million,
or 25.2 percent. Strong demand in the personal computer market
led the growth as more motherboards, desktop and notebook PCs and
peripherals were produced in the region. Successful new product
developments in this area positioned Molex for continued growth.
This is particularly important as customers continue to transfer
business into the Far East South region and competition grows in
the computer market.
The European region experienced a 4.1 percent increase in
customer revenue to $291.0 million in fiscal 2003 from $279.5
million in fiscal 2002. Excluding the favorable impact of
currency translation of $40.8 million, revenues declined by 11
percent. Europe entered the global recession after the other
three regions and remains behind in the economic cycle. Although
the telecom market was severely impacted, this region did realize
growth in the automotive and industrial markets.
As a result of continuing weak demand in the
telecommunications infrastructure market, the Company implemented
several actions in the Americas and Europe to address the
competitive challenges in this market. During the fourth quarter
of fiscal 2003, the Company recorded pretax restructuring costs
totaling $35.0 million ($24.8 million after-tax) related to these
actions. These charges comprised $23.1 million relating to write-
down and impairment of manufacturing assets and $11.9 million for
severance and other benefits relating to workforce reductions of
537 people. The Company estimates annual pretax savings of
approximately $20 million related to these restructuring actions.
During the second quarter of fiscal 2002, the Company
implemented a plan to reduce fixed costs through workforce
reductions and closure of some smaller operations and recorded a
pretax charge of $24.2 million of which $12.6 million is included
in cost of sales and $11.6 million is included in selling,
general and administrative expenses. The Company estimates that
annualized savings related to this plan were approximately $16
million and approximately 55 percent of the savings were achieved
in fiscal 2002. For more information concerning the status of
the Company's restructuring programs see Note 5 to the Notes to
Consolidated Financial Statements.
12
Gross profit was $579.2 million for fiscal 2003, up $42.7
million, or 8.0 percent over the prior year. The resulting gross
profit margin was 31.4 percent of net revenue in fiscal 2003, an
increase from 31.3 percent reported in fiscal 2002, largely due
to a more favorable product mix, as well as lower prices for raw
materials and purchased components. Fiscal 2003 gross profit was
also impacted by $28.5 million of the aforementioned fourth
quarter charge for manufacturing-related employment reductions
and asset write-downs. Fiscal 2002 gross profit included
restructuring costs of $12.6 million. During the year, the
Company also focused on and was successful in reducing operating
costs and achieving operating efficiencies through consolidating
functions, streamlining processes, downsizing facilities and
controlling discretionary spending.
Selling, general and administrative expenses of $477.0
million were up 8.8 percent, or $38.4 million, over the prior
year, and as a percentage of net revenue increased from 25.6
percent in fiscal 2002 to 25.9 percent in fiscal 2003. The
Company implemented temporary salary reductions and reduced its
discretionary profit sharing contributions during fiscal 2002, in
response to the business downturn. Effective July 1, 2002, the
Company reinstated employee salaries and profit sharing
contributions back to the levels before the temporary reduction.
The Company estimates that these actions resulted in a savings of
approximately $15 million in fiscal 2002. Fiscal 2003 also
included $6.5 million of the fourth quarter restructuring charge
for employment reductions in selling and administrative areas and
fiscal 2002 included similar costs of $11.6 million.
Research and development expenditures were $117.0 million,
or 6.3 percent of net revenue, during fiscal 2003, compared with
$111.8 million, or 6.5 percent of net revenue, in the prior year.
These expenditures contributed to the release of 339 new products
during the year. In fiscal 2003, 25.7 percent of net revenue was
derived from the sale of products released by the Company within
the prior three years. The Company was granted 529 new patents
during the year.
During the fourth quarter of fiscal 2003, the Company
discontinued the marketing and production of certain product
families dedicated to the telecom industry and wrote off the
related licenses. Molex also wrote down its investment in a joint
venture that was engaged in the development of similar
technology. Other (income) expense for fiscal 2003 included a
pretax charge of $5.1 million ($3.8 million after-tax) related to
these actions. During the second quarter of fiscal 2002, Molex
recorded a pretax charge of $10.0 million ($6.5 million after-
tax) to reflect the lower current value of its investment in an
affiliate.
Net interest income was $8.2 million in fiscal 2003, an
increase of $2.2 million over the prior year, primarily due to
an interest benefit from the favorable closure of corporate tax
audits in several U.S. jurisdictions, as well as additional
interest on the Company's higher cash balances.
The effective income tax rate was 22.5 percent for fiscal
2003 compared with 17.9 percent in fiscal 2002. The rate for
fiscal 2002 includes a one-time tax benefit of $5.0 million
related to closure of an operation in Europe. This benefit
reduced the effective tax rate in fiscal 2002 by five percentage
points.
Net income grew 11.0 percent during fiscal 2003 to $84.9
million. Excluding the effect of foreign currency translation,
which had a minimal impact, net income was up 10.5 percent.
Fiscal 2003 net income includes a charge of $28.6 million (net of
tax benefit of $11.5 million) to reflect costs associated with
employment reductions and write-offs of manufacturing assets and
certain investments. Fiscal 2002 net income includes a charge of
$25.3 million (net of tax benefit of $8.9 million) for employment
reductions and asset write-downs and impairment of an investment.
Earnings per share was $0.44 during fiscal 2003 compared with
$0.39 during fiscal 2002.
Comprehensive income includes all non-shareholder changes in
equity and consists of net income, foreign currency translation
adjustments, unrealized gains and losses on available-for-sale
securities and a required minimum pension liability adjustment in
fiscal 2003. The change in comprehensive income for the year was
primarily due to net income and foreign currency translation
adjustments. During fiscal 2003, the U.S. dollar was weaker
versus the euro when compared with the prior year, resulting in
an increase in comprehensive income.
13
Financial Condition and Liquidity
Molex's financial position remains strong and is
increasingly cited by customers as a source of significant
competitive advantage. The Company is consistently able to fund
capital projects and working capital needs principally out of
operating cash flows and cash reserves. Cash and marketable
securities at June 30, 2004 totaled $338.7 million and $350.2
million at June 30, 2003.
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 June 30, 2004 totaled $10.2 million. The
Company has available lines of credit totaling $141.5 million.
Cash Flows
Cash provided from operating activities and cash used for
investing activities has been restated in the Consolidated
Statement of Cash Flows for the year ended June 30, 2003. See
Note 3 to the Notes to Consolidated Financial Statements for
further discussion.
Cash provided from operations for fiscal 2004 was $292.0
million, down from $304.9 million in fiscal 2003. Despite an
increase in net income of $91.0 million, cash from operations
decreased by $12.9 million from fiscal 2003 due mainly to
increased working capital levels. As a result of higher customer
revenue during fiscal 2004, accounts receivable balances
increased. The Company also increased inventory levels in fiscal
2004 to support the higher volume, although this increase was
partially offset by higher accounts payable balances.
Cash used for investing activities was $158.4 million in
fiscal 2004 and $249.2 million in fiscal 2003. Capital
expenditures increased to $189.7 million in fiscal 2004 from
$171.2 million in the prior year. During fiscal 2004, Molex
added a new facility in China and closed or sold facilities in
Puerto Rico, U.S., United Kingdom and Slovakia. The Company
purchased the assets and business of Cinch for $37.9 million
during fiscal 2004. As part of the Cinch acquisition, Molex
acquired facilities in France, Portugal, India and China. The
Company also decreased its level of investment in marketable
securities during fiscal 2004.
Cash used for financing activities was $86.1 million in
fiscal 2004 down from $92.3 million in the prior year. Cash was
used primarily for the payment of dividends and the purchase of
treasury stock. The Company purchased 2,740,000 shares of Class A
Common Stock during fiscal 2004 and 3,352,500 shares during
fiscal 2003. Molex has a strong cash balance and cash flow and
very little debt. The Company believes at this time that share
repurchases are a good investment as compared to investing its
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. The Company's Board of
Directors has authorized the purchase of as much as $100 million
of Common and/or Class A Common Stock during fiscal 2005.
Contractual Obligations and Commercial Commitments
As of June 30, 2004, the Company is contractually obligated
to make future payments as follows (in thousands):
Contractual Obligations Due There-
by Fiscal Year: 2005 2006 2007 2008 after
------- ------ ------ ------ -------
Long-term debt $ 904 $2,958 $1,017 $ 908 $ 5,360
Capital lease obligations 3,232 2,265 1,179 268 454
Operating leases 8,171 4,592 3,019 1,828 8,535
------- ------ ------ ------ -------
Total contractual obligations $12,307 $9,815 $5,215 $3,004 $14,349
------- ------ ------ ------ -------
14
Critical Accounting Policies
The consolidated financial statements are prepared in
conformity with accounting principles generally accepted in the
United States. The preparation of these financial statements
requires the use of estimates and assumptions related to the
reporting of assets, liabilities, revenues, expenses and related
disclosures. In preparing these financial statements, management
has made its best estimates and judgments of certain amounts
included in the financial statements. The significant accounting
principles that management believes are the most important to aid
in fully understanding the Company's financial results are
included below. See Notes to Consolidated Financial Statements
for a more detailed description of these and other accounting
policies of the Company.
Revenue Recognition
The Company recognizes revenue upon shipment of product and
transfer of ownership to the customer. The impact of judgments
and estimates on revenue recognition is minimal. A reserve for
estimated returns is established at the time of sale based on
historical return experience to cover returns of defective
product and is recorded as a reduction of revenue. A reserve for
doubtful accounts is recorded generally based on a percentage of
aged receivables and management's evaluation of customer credit
risk. Management judgment is utilized in assessing customer
creditworthiness, changes in customer payment history, historical
bad debt experience and economic and market trends. Different
assumptions or changes in economic circumstances could result in
changes to these reserves.
Income Taxes
Deferred tax assets and liabilities are recognized based on
differences between the financial statement and tax bases of
assets and liabilities using presently enacted tax rates. The
Company has net deferred tax assets of $139.8 million at June 30,
2004.
In assessing the need for valuation allowances, the Company
considers future forecasted taxable income and tax planning
strategies. The Company has determined that it is unlikely that
it will realize a net deferred asset in the future relating to
certain non-U.S. net operating losses. A valuation allowance of
$7.3 million was recorded in fiscal 2004 to offset the recording
of a deferred tax asset of $7.3 million related to certain
European net operating losses. The cumulative valuation allowance
relating to net operating losses is approximately $26 million at
June 30, 2004.
The Company has operations in several countries around the
world that are subject to income and other similar taxes in these
countries. The estimation of the income tax amounts to be
recorded by the Company involves the interpretation of complex
tax laws and regulations, evaluation of tax audit findings and
assessment of how the foreign taxes may affect domestic taxes.
Although the Company's management believes its tax accruals are
adequate, differences may occur in the future depending on the
resolution of pending and new tax matters.
Allowance for Inventory
Inventories are valued at the lower of first-in, first-out
("FIFO") cost or market value. FIFO inventories recorded in the
Company's consolidated balance sheet are adjusted for an
allowance covering inventories determined to be slow-moving or
excess. The allowance for slow-moving and excess inventories is
maintained at an amount management considers appropriate based on
factors such as historical usage of the product, open sales
orders and future sales forecasts. Such factors require judgment,
and changes in any of these factors could result in changes to
this allowance.
15
Pension Plans
The Company's pension obligations are measured as of March
31 for the U.S. plan and as of June 30 for the international
plans. International plans are primarily in Japan, Ireland,
Taiwan and Korea. The weighted-average assumptions used in the
measurement of the projected benefit obligation (PBO) as of
June 30 and pension expense for the years ended June 30 are as
follows:
2004 2003 2002
---------------------- ---------------------- ----------------------
U.S. Plan Int'l Plans U.S. Plan Int'l Plans U.S. Plan Int'l Plans
PBO as of June 30:
Discount rate 5.75% 3.6% 6.25% 3.1% 7.25% 3.6%
Rate of compensation increase 3.5% 3.6% 3.5% 2.9% 4.0% 3.2%
Pension expense for the
years ended June 30:
Discount rate 6.25% 3.1% 7.25% 3.6% 7.25% 4.0%
Expected return on plan assets 8.5% 6.5% 9.0% 6.4% 9.0% 6.9%
Rate of compensation increase 3.5% 2.9% 4.0% 3.2% 4.5% 2.3%
The discount rate is determined based on high-quality fixed
income investments that match the duration of expected benefit
payments. The Company has typically used the corporate AA/Aa bond
rate for this assumption. The expected return on plan assets
noted above represents a forward projection of the average rate
of earnings expected on the pension assets. The Company has
estimated this rate based on historical returns of similarly
diversified portfolios. The rate of compensation increase
represents the long-term assumption for expected increases to
salaries for pay-related plans.
The effects of the indicated increase and decrease in
selected assumptions, assuming no changes in benefit levels and
no amortization of gains or losses, for the Company's pension
plans as of June 30, 2004, is shown below (in thousands):
Increase (Decrease) Increase (Decrease)
in PBO in Pension Expense
--------------------- ---------------------
U.S. Plan Int'l Plans U.S. Plan Int'l Plans
Discount rate change: --------- ----------- --------- -----------
Increase 0.5 point $(3,636) $(8,446) $(271) $(448)
Decrease 0.5 point 3,186 7,302 304 494
Expected rate of return change:
Increase 1.0 point N/A N/A (261) (250)
Decrease 1.0 point N/A N/A 261 250
The Company's overall investment strategy for the assets in
the pension funds is to achieve a balance between the goals of
growing plan assets and keeping risks at a reasonable level over
a long-term investment horizon. In order to reduce unnecessary
risk, the pension funds are diversified across several asset
classes with a focus on total return. The weighted-average asset
allocations for the Company's pension plans at June 30 are as
follows:
2004 2003
--------------------- ---------------------
U.S. Plan Int'l Plans U.S. Plan Int'l Plans
Asset allocation:
Equity 62% 67% 39% 59%
Bonds 38% 28% 61% 32%
Real estate and other N/A 5% N/A 9%
The expected benefit payments from the Company's pension
plans are as follows: $3.4 million in 2005; $3.1 million in 2006;
$3.4 million in 2007; $4.8 million in 2008; $4.2 million in 2009
and $16.1 million in 2010 to 2014. The Company expects to
contribute $3.7 million in fiscal 2005 to its pension plans.
16
Other Postretirement Benefits
The Company has retiree health care plans that cover the
majority of its U.S. employees. There are no significant
postretirement health care benefit plans outside of the U.S. The
Company measures its retiree health care benefit obligations as
of March 31. The weighted-average assumptions used to determine
the accumulated postretirement benefit obligation (APBO) as of
June 30 and benefit expense for the years ended June 30 are as
follows:
2004 2003 2002
APBO as of June 30: ----- ----- -----
Discount rate 5.75% 6.25% 7.25%
Health care cost trend rate 10.0% 10.0% 8.0%
Ultimate health care cost trend rate 5.0% 5.0% 5.0%
Years to ultimate rate 2009 2008 2007
Benefit expense for the years ended June 30:
Discount rate 6.25% 7.25% 7.25%
Health care cost trend rate 10.0% 8.0% 6.3%
Ultimate health care cost trend rate 5.0% 5.0% 5.0%
Years to ultimate rate 2008 2007 2006
The health care cost trend rate assumption has a significant
effect on the amount of the APBO and retiree health care benefit
expense. A one-percentage point change in the assumed health care
cost trend rates would have the following effects (in thousands):
2004 2003 2002
Effect on total service and interest cost: ------- ------- -------
Increase 1.0 point $ 714 $ 407 $ 445
Decrease 1.0 point $ (600) $ (317) $ (344)
Effect on APBO:
Increase 1.0 point $ 6,277 $ 5,942 $ 2,734
Decrease 1.0 point $(5,279) $(4,654) $(2,169)
Goodwill and Intangible Assets
The Company reviews at least annually the realizability of
goodwill and other intangible assets. The Company uses a
discounted cash flow model for the evaluation of impairment. The
expected future cash flows are based on management's estimates
and are determined by looking at numerous factors including, but
not limited to, projected economic conditions and customer
demand, manufacturing capacity, operating costs and new products
introduced. Although management believes its assumptions in
determining the projected cash flows are reasonable, changes in
those estimates could affect the evaluation.
New Accounting Pronouncements
In December 2003, the Financial Accounting Standards Board
(FASB) issued a revised Statement of Financial Accounting
Standards No. 132, "Employers' Disclosures about Pensions and
Other Postretirement Benefits" that was effective for the
Company's fiscal year ended June 30, 2004. This revised statement
impacts disclosure provisions only and requires additional
disclosures about plan assets, benefit obligations, cash flows
and net periodic benefit costs for pension plans and
postretirement benefit plans. See Notes 8 and 9 to the Notes to
Consolidated Financial Statements for the aforementioned
disclosures.
17
The Medicare Prescription Drug Improvement and Modernization
Act of 2003 (the Act) was enacted on December 8, 2003. The Act
introduced a prescription drug benefit under Medicare (Medicare
Part D), as well as a federal subsidy to sponsors of retiree
health care benefit plans that provide a prescription drug
benefit that is at least actuarially equivalent to Medicare Part
D. Accounting guidance has been provided by the FASB in FSP No.
106-2 "Accounting and Disclosure Requirements Related to the
Medicare Prescription Drug, Improvement and Modernization Act of
2003". Molex has determined that the benefits provided by its
plan are actuarially equivalent to Medicare Part D. The Company
has elected to use the retroactive approach to reflect the
federal subsidy that will be provided by the Medicare Act and
accordingly has remeasured plan liabilities and expense as of
December 31, 2003. See Note 9 to the Notes to Consolidated
Financial Statements for further discussion on the impact of this
election.
Item 7A - 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 establishing 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 June 30, 2004
and 2003.
The Company has implemented a formalized treasury risk
management policy that describes the procedures and controls over
derivative financial and commodity instruments. Under the policy,
the Company does not use derivative financial or commodity
instruments for speculative purposes, and the use of such
instruments is subject to strict approval levels by senior
management. Typically, the use of derivative instruments is
limited to hedging activities related to specific foreign
currency cash flows.
The Company's $104.2 million of marketable securities at
June 30, 2004 are principally debt instruments that generate
interest income for the Company on temporary excess cash
balances. These instruments contain embedded derivative features
that enhance the liquidity of the portfolio by enabling the
Company to liquidate the instrument prior to the stated maturity
date. The Company's exposure related to derivative instrument
transactions is, in the aggregate, not material to Molex's
financial position, results of operations or cash flows.
Interest rate exposure is limited to marketable securities
owned by the Company and long-term debt. The Company does not
actively manage the risk of interest rate fluctuations. However,
such risk is mitigated by the relatively short-term nature of its
investments, less than 12 months, and the fixed-rate nature of
its long-term debt.
Molex does not have exposure to any off-balance-sheet
arrangements with the exception of certain operating leases. See
Note 11 to the Notes to Consolidated Financial Statements for
further discussion on the Company's lease arrangements. 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.
18
Item 8. Financial Statements and Supplementary Data
Management's Statement of Responsibility for Financial Statements
The management of the Company is responsible for the
information contained in the consolidated financial statements
and in the other parts of this report. The accompanying
consolidated financial statements of Molex Incorporated and its
subsidiaries have been prepared in conformity with accounting
principles generally accepted in the United States of America and
as such, include amounts that are based on management's best
estimates and judgments.
The Company's system of internal control is designed to
provide reasonable assurance that assets are safeguarded against
loss from unauthorized use or disposition, that transactions are
executed in accordance with management's authorization and
properly recorded, and that the financial records can be relied
upon for the preparation of the consolidated financial
statements. Elements of the Company's control environment include
the careful selection and training of employees, the appropriate
division of responsibilities, the application of formal policies
and procedures and continuous programs of internal review.
The Company's independent auditors, Deloitte & Touche LLP,
are responsible for conducting an audit of the Company's
consolidated financial statements in accordance with the
standards of the Public Company Accounting Oversight Board
(United States) and for expressing their opinion as to whether
these consolidated financial statements present fairly, in all
material respects, the financial position, results of operations
and cash flows of Molex Incorporated and its subsidiaries in
conformity with accounting principles generally accepted in the
United States of America.
The Audit Committee of the Board of Directors reviews the
Company's financial statements and meets regularly with
management and the independent auditors to review accounting,
internal control, auditing and financial reporting matters.
Fred A. Krehbiel John H. Krehbiel, Jr. J. Joseph King Diane S. Bullock
Co-Chairman Co-Chairman Vice Chairman and Corporate Vice President,
of the Board of the Board Chief Executive Officer Treasurer and
Chief Financial Officer
19
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of Molex Incorporated
We have audited the accompanying consolidated balance sheets
of Molex Incorporated and its subsidiaries as of June 30, 2004
and 2003, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three years
in the period ended June 30, 2004. These financial statements are
the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements
present fairly, in all material respects, the financial position
of Molex Incorporated and its subsidiaries as of June 30, 2004
and 2003, and the results of their operations and their cash
flows for each of the three years in the period ended June 30,
2004, in conformity with accounting principles generally accepted
in the United States of America.
As discussed in Note 3, the accompanying consolidated
statement of cash flows for the year ended June 30, 2003 has been
restated.
/S/ DELOITTE & TOUCHE
Deloitte & Touche LLP
Chicago, Illinois
August 20, 2004
20
Molex Incorporated
Consolidated Balance Sheets
(in thousands, except per share data)
June 30
----------------------
ASSETS 2004 2003
Current assets: ---------- ----------
Cash and cash equivalents $ 234,431 $ 178,976
Marketable securities 104,223 171,235
Accounts receivable, less allowance of $22,901 in 2004
and $18,404 in 2003 for returns and doubtful accounts 529,630 396,780
Inventories 265,344 179,256
Deferred income taxes 20,258 19,632
Prepaid expenses 14,758 16,234
---------- ----------
Total current assets 1,168,644 962,113
Property, plant and equipment, net 1,022,378 1,007,948
Goodwill 164,915 160,732
Non-current deferred income taxes 119,532 108,313
Other assets 96,877 90,764
---------- ----------
Total assets $2,572,346 $2,329,870
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term loans and current portions of
long-term debt and capital leases $ 3,694 $ 6,088
Accounts payable 234,823 175,815
Accrued expenses:
Salaries, commissions and bonuses 66,327 45,318
Severance 2,679 12,714
Other 74,154 64,962
Income taxes payable 46,787 51,251
---------- ----------
Total current liabilities 428,464 356,148
Other non-current liabilities 10,487 1,103
Accrued pension and postretirement benefits 52,151 58,430
Long-term debt 10,243 13,137
Obligations under capital leases 3,796 3,731
Minority interest in subsidiaries 1,211 753
Shareholders' equity:
Common Stock, $0.05 par value; 200,000 shares
authorized; 110,415 shares issued at 2004 and
110,124 shares issued at 2003 5,521 5,506
Class A Common Stock, $0.05 par value; 200,000
shares authorized; 104,162 shares issued at 2004
and 103,390 shares issued at 2003 5,208 5,169
Class B Common Stock, $0.05 par value; 146 shares
authorized; 94 shares issued at 2004 and 2003 5 5
Paid-in capital 369,660 341,530
Retained earnings 2,160,368 2,003,440
Treasury stock (Common Stock, 9,857 shares at 2004
and 9,855 shares at 2003; Class A Common Stock,
15,744 shares at 2004 and 12,976 shares at 2003),
at cost (509,161) (437,234)
Deferred unearned compensation (32,180) (32,094)
Accumulated other comprehensive income 66,573 10,246
---------- ----------
Total shareholders' equity 2,065,994 1,896,568
---------- ----------
Total liabilities and shareholders' equity $2,572,346 $2,329,870
---------- ----------
The accompanying Notes to Consolidated Financial Statements are
an integral part of these consolidated financial statements.
21
Molex Incorporated
Consolidated Statements of Income
(in thousands, except per share data)
Year Ended June 30
----------------------------------
2004 2003 2002
---------- ---------- ----------
Net revenue $2,246,715 $1,843,098 $1,711,497
Cost of sales 1,469,969 1,263,850 1,174,946
---------- ---------- ----------
GROSS PROFIT 776,746 579,248 536,551
Selling, general and administrative expenses:
Selling 199,224 161,519 145,004
General and administrative 356,339 315,471 293,596
---------- ---------- ----------
Total selling, general and
administrative expenses 555,563 476,990 438,600
---------- ---------- ----------
INCOME FROM OPERATIONS 221,183 102,258 97,951
Other (income) expense:
Gain on sale of affiliate stock (10,393) - -
Impairment and write-down of investments 4,987 5,089 12,570
Equity income (9,555) (4,707) (1,854)
Interest income, net (3,748) (8,166) (5,986)
---------- ---------- ----------
Total other (income) expense (18,709) (7,784) 4,730
---------- ---------- ----------
INCOME BEFORE INCOME TAXES 239,892 110,042 93,221
Income taxes 63,571 24,762 16,684
Minority interest 371 362 58
---------- ---------- ----------
NET INCOME $ 175,950 $ 84,918 $ 76,479
---------- ---------- ----------
EARNING PER SHARE:
Basic $ 0.93 $ 0.44 $ 0.39
Diluted $ 0.92 $ 0.44 $ 0.39
DIVIDENDS PER SHARE $ 0.10 $ 0.10 $ 0.10
AVERAGE COMMON SHARES OUTSTANDING:
Basic 190,207 191,873 194,327
Diluted 192,186 193,229 195,986
The accompanying Notes to Consolidated Financial Statements are
an integral part of these consolidated financial statements.
22
Molex Incorporated
Consolidated Statements of Cash Flows
(in thousands)
Year Ended June 30
----------------------------------
2004 2003 2002
---------- ---------- ----------
Restated (Note 3)
Cash and cash equivalents,
beginning of year $ 178,976 $ 213,477 $ 138,438
OPERATING ACTIVITIES
Net income 175,950 84,918 76,479
Add (deduct) non-cash items included
in net income:
Depreciation and amortization 228,480 228,730 223,687
Asset write-downs included in
restructuring costs - 23,070 5,452
Impairment and write-down of investments 4,987 5,089 12,570
Deferred income taxes (7,698) (31,412) (19,785)
Loss on sale of property, plant and equipment 3,983 5,394 1,654
Amortization of deferred unearned
compensation 13,848 12,807 11,110
Changes in assets and liabilities, excluding
effects of foreign currency adjustments
and acquisition:
Accounts receivable (93,909) 836 46,841
Inventories (72,159) (6,734) 52,798
Accounts payable 40,555 (11,730) (408)
Other current assets and liabilities 9,319 (2,486) (15,296)
Other assets and liabilities (11,325) (3,610) 527
---------- ---------- ----------
Cash provided from operating activities 292,031 304,872 395,629
---------- ---------- ----------
INVESTING ACTIVITIES
Capital expenditures (189,724) (171,193) (172,497)
Proceeds from sale of property, plant
and equipment 7,087 3,851 4,751
Purchases of business assets, net of
cash acquired (37,920) - (4,702)
Sales (purchases) of marketable securities 67,012 (71,387) (30,454)
Other investing activities (4,813) (10,496) (20,725)
---------- ---------- ----------
Cash used for investing activities (158,358) (249,225) (223,627)
---------- ---------- ----------
FINANCING ACTIVITIES
Net decrease in short-term loans (656) (794) (853)
Net decrease in long-term debt (3,586) (916) (5,129)
Cash dividends paid (19,022) (19,214) (19,462)
Principal payments on capital leases (4,649) (7,075) (8,926)
Exercise of stock options 9,972 8,580 6,020
Purchase of treasury stock (70,215) (74,997) (80,165)
Reissuance of treasury stock 2,048 2,085 2,378
---------- ---------- ----------
Cash used for financing activities (86,108) (92,331) (106,137)
---------- ---------- ----------
Effect of exchange rate changes on cash 7,890 2,183 9,174
---------- ---------- ----------
Net increase (decrease) in cash and
cash equivalents 55,455 (34,501) 75,039
---------- ---------- ----------
Cash and cash equivalents, end of year $ 234,431 $ 178,976 $ 213,477
---------- ---------- ----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 842 $ 1,835 $ 2,225
Income taxes $ 82,508 $ 41,776 $ 45,406
The accompanying Notes to Consolidated Financial Statements are
an integral part of these consolidated financial statements.
23
Molex Incorporated
Consolidated Statements of Shareholders' Equity
(in thousands)
Year Ended June 30
----------------------------------
2004 2003 2002
---------- ---------- ----------
Common stock $ 10,734 $ 10,680 $ 10,628
---------- ---------- ----------
Paid-in capital
Beginning balance $ 341,530 $ 311,631 $ 289,683
Stock options granted 12,552 12,552 10,280
Stock options forfeited (2,022) (939) (3,059)
Exercise of stock options 12,057 9,173 7,322
Issuance of stock awards 3,951 6,564 3,463
Treasury stock 747 635 1,084
Other 845 1,914 2,858
---------- ---------- ----------
Ending balance $ 369,660 $ 341,530 $ 311,631
---------- ---------- ----------
Retained earnings
Beginning balance $2,003,440 $1,937,488 $1,880,450
Net income 175,950 84,918 76,479
Cash dividends (19,042) (19,202) (19,441)
Other 20 236 -
---------- ---------- ----------
Ending balance $2,160,368 $2,003,440 $1,937,488
---------- ---------- ----------
Treasury stock
Beginning balance $ (437,234) $ (362,479) $ (281,469)
Purchase of treasury stock (70,215) (74,997) (80,165)
Reissuance of treasury stock 1,301 1,450 1,294
Exercise of stock options (2,672) (645) (1,332)
Other (341) (563) (807)
---------- ---------- ----------
Ending balance $ (509,161) $ (437,234) $ (362,479)
Deferred unearned compensation
Beginning balance $ (32,094) $ (27,262) $ (28,407)
Stock options granted (12,552) (12,552) (10,280)
Stock options forfeited 2,034 942 2,925
Issuance of stock awards (3,416) (6,029) (2,610)
Compensation expense 13,848 12,807 11,110
---------- ---------- ----------
Ending balance $ (32,180) $ (32,094) $ (27,262)
---------- ---------- ----------
Accumulated other comprehensive income
Beginning balance $ 10,246 $ (42,354) $ (105,214)
Translation adjustments 51,544 56,982 61,512
Minimum pension liability 4,503 (4,503) -
Unrealized investment gain 280 121 1,348
---------- ---------- ----------
Ending balance $ 66,573 $ 10,246 $ (42,354)
---------- ---------- ----------
Total shareholders' equity $2,065,994 $1,896,568 $1,827,652
---------- ---------- ----------
Comprehensive income:
Net income $ 175,950 $ 84,918 $ 76,479
Translation adjustments 51,544 56,982 61,512
Minimum pension liability 4,503 (4,503) -
Unrealized investment gain 280 121 1,348
---------- ---------- ----------
Total comprehensive income $ 232,277 $ 137,518 $ 139,339
---------- ---------- ----------
The accompanying Notes to Consolidated Financial Statements are
an integral part of these consolidated financial statements.
24
Molex Incorporated
Notes to Consolidated Financial Statements
(in thousands, except per share data)
1. Nature of Operations
Molex Incorporated manufactures electronic components,
including electrical and fiber optic interconnection products and
systems, switches and integrated products in 55 plants in 19
countries throughout the world.
2. Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts
of Molex Incorporated and its majority-owned subsidiaries (the
Company or Molex). All material intercompany balances and
transactions are eliminated in consolidation. Investments in
affiliates in which the Company's ownership is 20 percent to 50
percent are reported using the equity method of accounting.
Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
(U.S.) requires the use of estimates and assumptions related to
the reporting of assets, liabilities, revenues, expenses and
related disclosures. Significant estimates and assumptions were
used in the estimation of income taxes (see Note 7), pension and
retiree health care benefit obligations (see Notes 8 and 9) and
stock options (see Note 14). Estimates are revised as additional
information becomes available. Actual results could differ from
these estimates.
Currency Translation
Assets and liabilities of international entities have been
translated at period-end exchange rates and income and expenses
have been translated using weighted-average exchange rates for
the period. Translation adjustments are included as a component
of accumulated other comprehensive income.
Cash and Cash Equivalents
The Company considers all highly liquid investments with
original maturities of three months or less to be cash
equivalents.
Marketable Securities
Marketable securities consist of government and municipal
debt securities and are carried at fair value. The Company
generally holds these instruments for three months to 12 months.
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.
Marketable securities are classified as available-for-sale
securities and, accordingly, mark-to-market adjustments are
recorded in other comprehensive income.
25
Inventories
Inventories are valued at the lower of first-in, first-out
cost or market. Inventories less allowance of $41,327 at June 30,
2004 and $40,386 at June 30, 2003 consist of the following:
2004 2003
-------- --------
Raw materials $ 39,743 $ 26,155
Work in progress 91,168 63,807
Finished goods 134,433 89,294
-------- --------
Total inventories $265,344 $179,256
-------- --------
Property, Plant and Equipment
Property, plant and equipment are reported at cost less
accumulated depreciation. Depreciation is provided substantially
on a straight-line basis for financial statement purposes and on
accelerated and straight-line methods for tax purposes. At June
30, property, plant and equipment consist of the following:
2004 2003
---------- ----------
Land and improvements $ 82,051 $ 79,844
Buildings and leasehold improvements 548,717 519,611
Machinery and equipment 1,426,090 1,341,032
Molds and dies 659,571 590,794
Construction in progress 66,094 76,649
---------- ----------
Total $2,782,523 $2,607,930
Accumulated depreciation (1,760,145) (1,599,982)
---------- ----------
Net property, plant and equipment $1,022,378 $1,007,948
---------- ----------
The estimated useful lives are as follows:
Buildings 25-45 years
Machinery and equipment 3-10 years
Molds and dies 3-4 years
Depreciation expense for property, plant and equipment was
$225,196 in 2004; $223,867 in 2003; and $217,714 in 2002. Costs
of leasehold improvements are amortized over the terms of the
related leases using various methods. The Company performs
reviews for impairment of long-lived assets whenever adverse
events or circumstances indicate that the carrying value of an
asset may not be recoverable. An impairment loss would be
recognized when estimated future cash flows expected to result
from the use of the asset and the eventual disposition are less
than the carrying amount.
Goodwill and Intangible Assets
As of July 1, 2001, pursuant to Statement of Financial
Accounting Standards (SFAS) No. 142, "Goodwill and Other
Intangible Assets," the Company ceased amortization of all
goodwill and indefinite-life assets. Goodwill and intangible
assets with indefinite lives are now subject to an annual test
for impairment. An annual review was performed during the fourth
quarter of fiscal 2004 resulting in no impairment in the value of
the Company's goodwill and other intangible assets. The carrying
amount of goodwill increased due to goodwill recorded as a result
of the Company's acquisition during fiscal 2004 (see Note 4) and
foreign currency translation.
26
All of the Company's intangible assets are recorded in
"Other Assets" and are subject to amortization as follows:
License Fees Patents Total
------------ ------- -------
At June 30, 2004:
Gross carrying value $11,584 $2,512 $14,096
Accumulated amortization (6,544) (340) (6,884)
------- ------ -------
Net carrying value $ 5,040 $2,172 $ 7,212
------- ------ -------
At June 30, 2003:
Gross carrying value $12,765 $1,358 $14,123
Accumulated amortization (6,254) (399) (6,653)
------- ------ -------
Net carrying value $ 6,511 $ 959 $ 7,470
------- ------ -------
Total amortization expense for intangible assets was $3,284
in 2004; $4,013 in 2003; and $4,887 in 2002. Estimated aggregate
amortization expense for intangible assets is as follows: $2,704
in 2005; $1,601 in 2006; $1,141 in 2007; $624 in 2008; and $348
in 2009.
Revenue Recognition
The Company recognizes revenue upon shipment of product and
transfer of ownership to the customer. A reserve for estimated
returns is established at the time of sale based on historical
return experience to cover returns of defective product and is
recorded as a reduction of revenue. A reserve for doubtful
accounts is recorded generally based on a percentage of aged
receivables and management's evaluation of customer credit risk.
Research and Development and Patent Costs
Costs incurred in connection with the development of new
products and applications are charged to operations as incurred.
Research and development costs are included in selling, general
and administrative expenses and totaled $119,028 in 2004;
$116,986 in 2003; and $111,771 in 2002. Patent costs were $3,118
in 2004; $3,949 in 2003; and $4,564 in 2002.
Stock-Based Compensation
Stock-based employee compensation plans are accounted for
using the intrinsic method under the recognition and measurement
principles of Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees." As permitted by SFAS
No. 123, "Accounting for Stock-based Compensation" and amended by
SFAS No. 148, "Accounting for Stock-based Compensation -
Transition and Disclosure, an amendment of SFAS No. 123," the
effect on net income, basic earnings per share and diluted
earnings per share of accounting for stock-based compensation in
accordance with SFAS No. 123 is disclosed. See Note 14 for a
description of the stock-based compensation plans and the
aforementioned disclosures.
Income Taxes
Deferred tax assets and liabilities are recognized based on
differences between the financial statement and tax bases of
assets and liabilities using presently enacted tax rates. The
Company has operations in several countries around the world that
are subject to income and other similar taxes in these countries.
The estimation of the income tax amounts to be recorded by the
Company involves the interpretation of complex tax laws and
regulations, evaluation of tax audit findings and assessment of
how the foreign taxes may affect domestic taxes.
27
Earnings Per Share
Basic earnings per share (EPS) is computed by dividing net
income by the weighted-average number of common shares
outstanding during the year. Diluted EPS is computed by dividing
net income by the weighted-average number of common shares and
dilutive common shares outstanding, which includes stock options,
during the year. A reconciliation of the basic average common
shares outstanding to diluted average common shares outstanding
as of June 30 is as follows:
2004 2003 2002
------- ------- -------
Basic average common shares outstanding 190,207 191,873 194,327
Effect of dilutive stock options 1,979 1,356 1,659
------- ------- -------
Diluted average common shares outstanding 192,186 193,229 195,986
------- ------- -------
Excluded from the computations above were anti-dilutive
shares of 1,265 in 2004; 2,103 in 2003; and 971 in 2002.
Derivative Instruments and Hedging Activities
The use of derivative instruments is limited primarily to
hedging activities related to specific foreign currency cash
flows. The Company had no derivatives outstanding at June 30,
2004. The impact of gains and losses on such instruments was not
material to the results of operations for years ending June 30,
2004, 2003 and 2002.
Reclassifications
Certain reclassifications have been made to the prior years'
financial statements to conform to the 2004 classifications. The
Company had historically recorded gains or losses on sale of
property, plant and equipment and impairment and write-down of
fixed assets, as well as equity income, in selling, general and
administrative expenses. Effective June 30, 2004, the Company
records gains or losses on fixed assets in cost of sales and
equity income in other (income) expense.
New Accounting Pronouncements
In December 2003, the Financial Accounting Standards Board
(FASB) issued a revised SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits" that was
effective for the Company's fiscal year ended June 30, 2004. This
revised statement impacts disclosure provisions only and requires
additional disclosures about plan assets, benefit obligations,
cash flows and net periodic benefit costs for pension plans and
postretirement benefit plans. See Notes 8 and 9 for information
on the Company's pension and other postretirement benefits and
the required disclosures.
The Medicare Prescription Drug Improvement and Modernization
Act of 2003 (the Act) was enacted on December 8, 2003. The Act
introduced a prescription drug benefit under Medicare (Medicare
Part D), as well as a federal subsidy to sponsors of retiree
health care benefit plans that provide a prescription drug
benefit that is at least actuarially equivalent to Medicare Part
D. Accounting guidance was provided by the FASB in FSP No. 106-2
"Accounting and Disclosure Requirements Related to the Medicare
Prescription Drug, Improvement and Modernization Act of 2003".
Molex has determined that the benefits provided by its plan are
actuarially equivalent to Medicare Part D. The Company has
elected to use the retroactive approach to reflect the federal
subsidy that will be provided by the Medicare Act and accordingly
has remeasured plan liabilities and expense as of December 31,
2003. See Note 9 for further discussion on the impact of this
election.
28
3. Restatement of Cash Flow Activities
During the fourth quarter of fiscal 2004, the Company
implemented a new process to capture and analyze the various
financial data used in the preparation of the consolidated
statement of cash flows. The new financial reporting process was
designed to improve management's ability to analyze and review
all significant cash flow activity. During the testing of the new
process, the Company determined that certain changes in other
assets and liabilities that historically had been reported as
investing activities should have been reported as operating
activities.
Cash provided from operating activities and cash used for
investing activities has been restated in the consolidated
statement of cash flows for the year ended June 30, 2003 as
follows:
Previously
Restated Reported
--------- ----------
Cash provided from operating activities $ 304,872 $ 349,473
--------- ----------
Cash used for investing activities $(249,225) $(293,826)
--------- ----------
The impact on reported cash flow activity was not material
for the Company's fiscal 2004 quarters ended March 31, December
31 and September 30 and for the year ended June 30, 2002.
Accordingly, such periods have not been restated.
4. Acquisition
On April 2, 2004, the Company acquired 100 percent of the
assets and assumed certain liabilities of Connecteurs Cinch S.A.
(Cinch) and its subsidiaries in Portugal, India and China for
$37.9 million in cash. Cinch specializes in automotive connection
technology and with its strong European presence will strengthen
Molex's role as a supplier of innovative interconnection
solutions to the major global automotive manufacturers.
This acquisition was accounted for using the purchase method
of accounting and the results of operations from the date of
acquisition are included in the consolidated financial
statements. Incremental sales for fiscal 2004 were $20.5 million.
Cinch financial results are not material to the results of
operations of the Company and proforma financial data is not
presented. The purchase price of $37.9 million, net of acquired
cash, was allocated on a preliminary basis to the assets acquired
based on their estimated fair values as follows:
Current assets $ 26,578
Property, plant and equipment 22,842
Goodwill and intangible assets 3,790
Liabilities assumed (15,290)
--------
Total purchase price $ 37,920
--------
29
5. Restructuring Costs
Fiscal 2003
As a result of continuing weak demand in the
telecommunications infrastructure market, the Company implemented
several actions to address the competitive challenges in this
market. During the fourth quarter of fiscal 2003, the Company
recorded pretax charges totaling $35.0 million ($24.8 million
after-tax) related to these actions. These charges comprised
$23.1 million relating to write-down and impairment of
manufacturing assets and $11.9 million for severance and other
benefits relating to workforce reductions of 537 people. Pretax
charges of $6.5 million were recorded in selling, general and
administrative expenses and $28.5 million were recorded in cost
of sales, including the non-cash charge of $23.1 million for
asset write-down and impairment. The charges impacted the
Americas region by $27.7 million and the European region by $7.3
million where the Company had its highest concentration of
telecom business.
The Company consolidated manufacturing production that
supported the telecommunications infrastructure market in the
Americas and European regions, as well as discontinued the
marketing and production of certain product families.
Manufacturing assets were written down to expected disposal
value. Of the 537 people included in the workforce reduction, 376
were directly involved in manufacturing operations and 161 were
involved in manufacturing support and sales and administrative
positions. Some employment reductions occurred during fiscal
2003, and substantially all remaining employment reductions
occurred in the first half of fiscal 2004. Most of the remaining
severance payments related to the fiscal 2003 restructuring
charge will be paid during fiscal 2005.
Fiscal 2002
During fiscal 2002, customer demand continued to decline
significantly, especially in the telecommunications and computer
industries. As a result, the Company implemented a plan to
further reduce fixed costs through additional workforce
reductions and closure of some smaller operations. During the
second quarter of fiscal 2002, the Company recorded a pretax
charge related to this plan of $24.2 million ($18.8 million after-
tax). This charge comprised $18.7 million to reflect costs
associated with a reduction in the global workforce of
approximately 800 people and $5.5 million of asset write-down
costs. Pretax charges of $12.6 million were recorded in cost of
sales and $11.6 million in selling, general and administrative
expenses. The charges impacted the Americas region by $12.0
million and the European region by $8.6 million, with the
remainder impacting Corporate.
Of the approximately 800 people included in the workforce
reduction, approximately 400 were directly involved in
manufacturing operations and approximately 400 were involved in
sales and administrative positions. Employment reductions of
approximately 600 occurred during the second quarter of fiscal
2002 and the remaining employment reductions occurred during the
second half of fiscal 2002.
Fiscal 2001
As a result of the sudden downturn in the second half of
fiscal 2001, the Company implemented a plan to reduce fixed costs
in line with expected revenues. During the fourth quarter of
fiscal 2001, the Company recorded a pretax charge of $30.8
million ($21.4 million after-tax) to reflect costs of $27.7
million associated with a reduction in the global workforce of
approximately 950 people and asset write-offs related to
operations being closed of $3.1 million.
Of the approximately 950 people included in the workforce
reduction, approximately 400 were directly involved in
manufacturing operations and approximately 550 were involved in
sales and administrative positions. Employment reductions of
approximately 100 occurred during the fourth quarter of fiscal
2001 and the majority of the remaining employment reductions
occurred during the first quarter of fiscal 2002.
30
Changes in the accrued severance balance are summarized as
follows:
2003 2002 2001
Charge Charge Charge Total
------- ------- ------- -------
Balance at June 30, 2001 $ - $ - $23,468 $23,468
Charges to expense - 18,675 - 18,675
Cash payments - (9,242) (18,540) (27,782)
Non-cash related costs - (1,356) - (1,356)
------- ------- ------- -------
Balance at June 30, 2002 - 8,077 4,928 13,005
Charges to expense 11,960 - - 11,960
Cash payments (1,123) (6,246) (4,171) (11,540)
Non-cash related costs (711) - - (711)
------- ------- ------- -------
Balance at June 30, 2003 10,126 1,831 757 12,714
Cash payments (7,447) (1,831) (757) (10,035)
------- ------- ------- -------
Balance at June 30, 2004 $ 2,679 $ - $ - $ 2,679
------- ------- ------- -------
6. Other (Income) Expense
The Company recorded a pre-tax gain of $10.4 million ($7.5
million after-tax) for the sale of stock of an affiliate and an
equity gain resulting from an IPO completed by the affiliate
during the second quarter of fiscal 2004. Molex retains a 20
percent ownership in this affiliate. In addition, the Company
recorded a pretax charge of $5.0 million ($3.8 million after-tax)
to exit other investments in start-up technologies.
During the fourth quarter of fiscal 2003, the Company
discontinued the marketing and production of certain product
families dedicated to the telecom industry and wrote off the
related licenses. Molex also wrote down its investment in a joint
venture that was engaged in the development of similar
technology. The Company recorded a pretax charge of $5.1 million
($3.8 million after-tax) related to these actions.
During the second quarter of fiscal 2002, Molex recorded a
pretax charge of $10.0 million ($6.5 million after-tax) to
reflect the lower current value of its investment in an
affiliate.
7. Income Taxes
Income before income taxes for the years ended June 30, is
summarized as follows:
2004 2003 2002
-------- -------- --------
United States $ 83,455 $ 11,472 $ (5,686)
International 156,437 98,570 98,907
-------- -------- --------
Income before income taxes $239,892 $110,042 $ 93,221
-------- -------- --------
The components of income tax expense (benefit) for the year
ended June 30, were as follows:
2004 2003 2002
Currently payable: -------- -------- --------
U.S. Federal $ 2,187 $ 3,675 $ (2,829)
State 3,063 (2,250) (525)
International 66,019 54,749 39,823
-------- -------- --------
Total currently payable $ 71,269 $ 56,174 $ 36,469
-------- -------- --------
Deferred:
U.S. Federal $ (2,035) $(26,525) $(22,185)
International (5,663) (4,887) 2,400
-------- -------- --------
Total deferred (7,698) (31,412) (19,785)
-------- -------- --------
Total income tax expense $ 63,571 $ 24,762 $ 16,684
-------- -------- --------
31
The Company's effective tax rate differs from the U.S.
Federal income tax rate for the years ended June 30, as follows:
2004 2003 2002
-------- -------- --------
U.S. Federal income tax rate 35.0% 35.0% 35.0%
Permanent tax exemptions (4.3) (8.5) (8.4)
Repatriation of foreign earnings (4.5) (8.7) (5.4)
Tax examinations and settlements (2.6) - -
Investments - - (5.0)
Valuation allowance 3.0 9.1 8.7
State income taxes, net of
Federal tax benefit 1.3 (2.0) (0.6)
Foreign tax rates less than
U.S. Federal rate (net) (1.5) (2.5) (6.0)
Other 0.1 0.1 (0.4)
-------- -------- --------
Effective tax rate 26.5% 22.5% 17.9%
-------- -------- --------
At June 30, 2004, the Company had approximately $62,000 of
non-U.S. net operating loss carryforwards and $13,000 of U.S.
capital loss carryforwards. The capital loss carryforwards can be
carried forward to offset future U.S. capital gains through the
year ended June 30, 2007. The non-U.S. net operating losses can
be carried forward indefinitely. A valuation allowance is
provided for when it is more likely than not that some portion of
the deferred tax asset will not be realized. As of June 30, 2004
and 2003, the Company has recorded valuation allowances of
$25,839 and $18,557, respectively, against the non-U.S. net
operating loss carryforwards.
The components of net deferred tax assets and liabilities as
of June 30 are as follows:
2004 2003
-------- --------
Deferred income tax assets (liabilities):
Pension and other postretirement liabilities $ 20,717 $ 21,350
Stock option and other benefits 15,008 14,544
Capitalized research and development 29,829 -
Foreign tax credits 29,048 47,617
Net operating losses 25,839 18,557
Depreciation and amortization 15,520 16,782
Inventory 13,096 14,523
Minimum tax credit 10,950 4,736
Allowance for doubtful accounts 4,755 5,283
Other, net 10,730 7,976
Valuation allowance (25,839) (18,557)
Investments (9,863) (4,866)
-------- --------
Total deferred income tax assets $139,790 $127,945
-------- --------
The deferred tax amounts reported in the consolidated
balance sheet as of June 30 are as follows:
2004 2003
Deferred income taxes: -------- --------
Current asset $ 20,258 $ 19,632
Non-current asset 119,532 108,313
-------- --------
Total $139,790 $127,945
-------- --------
The Company has not provided for U.S. deferred income taxes
or foreign withholding taxes on $480,000 of undistributed
earnings of certain of its non-U.S. subsidiaries as of June 30,
2004. These earnings are intended to be permanently reinvested.
32
8. Pension Plans
Plan Overview and Assumptions
The Company sponsors and/or contributes to pension plans,
including defined benefit plans, covering substantially all U.S.
plant hourly employees and certain employees in international
subsidiaries. The benefits are primarily based on years of
service and the employees' compensation for certain periods
during their last years of employment.
The Company also provides discretionary savings and other
defined contribution plans covering substantially all of its U.S.
employees and certain employees in international subsidiaries.
Employer contributions to these plans of $14,665; $15,438; and
$10,801 were charged to operations during 2004, 2003 and 2002,
respectively.
The Company's pension obligations are measured as of March
31 for the U.S. plan and as of June 30 for the international
plans. International plans are primarily in Japan, Ireland,
Taiwan and Korea. The weighted-average assumptions used in the
measurement of the projected benefit obligation (PBO) as of
June 30 and pension expense for the years ended June 30 are as
follows:
2004 2003 2002
---------------------- ---------------------- ----------------------
U.S. Plan Int'l Plans U.S. Plan Int'l Plans U.S. Plan Int'l Plans
PBO as of June 30: --------- ----------- --------- ----------- --------- -----------
Discount rate 5.75% 3.6% 6.25% 3.1% 7.25% 3.6%
Rate of compensation increase 3.5% 3.6% 3.5% 2.9% 4.0% 3.2%
Pension expense for the
years ended June 30:
Discount rate 6.25% 3.1% 7.25% 3.6% 7.25% 4.0%
Expected return on plan assets 8.5% 6.5% 9.0% 6.4% 9.0% 6.9%
Rate of compensation increase 3.5% 2.9% 4.0% 3.2% 4.5% 2.3%
The discount rate is determined based on high-quality fixed
income investments that match the duration of expected benefit
payments. The Company has typically used the corporate AA/Aa bond
rate for this assumption. The expected return on plan assets
noted above represents a forward projection of the average rate
of earnings expected on the pension assets. The Company has
estimated this rate based on historical returns of similarly
diversified portfolios. The rate of compensation increase
represents the long-term assumption for expected increases to
salaries for pay-related plans.
Pension Expense
The components of pension expense for the Company's plans
consist of the following for the years ended June 30:
2004 2003 2002
---------------------- ---------------------- ----------------------
U.S. Plan Int'l Plans U.S. Plan Int'l Plans U.S. Plan Int'l Plans
--------- ----------- --------- ----------- --------- -----------
Service cost $ 2,325 $ 5,007 $ 1,962 $ 4,107 $ 2,376 $ 3,372
Interest cost 1,828 2,085 1,613 1,960 1,572 1,729
Expected return on plan assets (2,225) (1,727) (1,661) (1,377) (1,611) (1,463)
Amortization of prior
service cost 204 - 202 - 231 -
Amortization of unrecognized
transition obligation - 59 - 57 - 56
Recognized actuarial
(gains) losses 375 1,170 - 286 - (722)
Other items - 1,422 - - (640) 1,110
--------- ----------- --------- ----------- --------- -----------
Pension expense $ 2,507 $ 8,016 $ 2,116 $ 5,033 $ 1,928 $ 4,082
--------- ----------- --------- ----------- --------- -----------
33
Benefit Obligations and Plan Assets
The following provides a reconciliation of the PBO, plan
assets and funded status of the Company's pension plans as of
June 30:
2004 2003
---------------------- ----------------------
U.S. Plan Int'l Plans U.S. Plan Int'l Plans
--------- ----------- --------- -----------
Change in PBO:
PBO at beginning of year $ 29,560 $ 66,494 $ 22,511 $ 54,095
Service cost 2,325 5,007 1,962 4,107
Interest cost 1,828 2,085 1,613 1,960
Participant contributions - 198 - 173
Effect of settlement - 1,422 - -
Benefits paid (748) (5,347) (716) (2,859)
Liability (gains) losses 3,576 (744) 4,190 5,700
Changes in foreign currency - 5,178 - 3,318
--------- ----------- --------- -----------
PBO at end of year $ 36,541 $ 74,293 $ 29,560 $ 66,494
--------- ----------- --------- -----------
Change in plan assets:
Fair value of plan assets
at beginning of year $ 29,065 $ 24,538 $ 18,441 $ 19,522
Actual return on plan assets 4,582 3,337 (1,260) (1,212)
Employer contributions 1,500 4,209 12,600 5,774
Participant contributions - 198 - 173
Effect of settlement - 1,422 - -
Benefits paid (748) (5,066) (716) (2,619)
Changes in foreign currency - 1,469 - 2,900
Fair value of plan assets at --------- ----------- --------- -----------
end of year $ 34,399 $ 30,107 $ 29,065 $ 24,538
--------- ----------- --------- -----------
Unfunded status $ (2,142) $ (44,186) $ (495) $ (41,956)
Unrecognized net transition liability - 671 - 705
Unrecognized net actuarial loss 7,924 18,701 7,081 16,986
Unrecognized prior service cost 347 - 551 -
--------- ----------- --------- -----------
Net amount recognized $ 6,129 $ (24,814) $ 7,137 $ (24,265)
--------- ----------- --------- -----------
Amounts recognized in the consolidated
balance sheet consist of:
Prepaid benefit cost $ 6,129 $ 6,544 $ 12,000 $ 4,341
Accrued benefit liability - (31,358) (8,487) (32,455)
Intangible asset - - 551 -
Accumulated other comprehensive income - - 3,073 3,849
--------- ----------- --------- -----------
Net amount recognized $ 6,129 $ (24,814) $ 7,137 $ (24,265)
--------- ----------- --------- -----------
At June 30, 2003, the minimum pension liability adjustment
included in accumulated other comprehensive income is recorded
net of deferred income taxes of $2,419. The accumulated benefit
obligation for the Company U.S. plan was $31,058 and $25,552 at
June 30, 2004 and 2003, respectively, and $55,817 and $54,154
for the international plans at June 30, 2004 and 2003,
respectively.
The Company's overall investment strategy for the assets in
the pension funds is to achieve a balance between the goals of
growing plan assets and keeping risks at a reasonable level over
a long-term investment horizon. In order to reduce unnecessary
risk, the pension funds are diversified across several asset
classes with a focus on total return. The weighted-average asset
allocations for the Company's pension plans at June 30 are as
follows:
2004 2003
---------------------- ----------------------
U.S. Plan Int'l Plans U.S. Plan Int'l Plans
Asset allocation:
Equity 62% 67% 39% 59%
Bonds 38% 28% 61% 32%
Real estate and other N/A 5% N/A 9%
The expected benefit payments from the Company's pension
plans are as follows: $3,388 in 2005; $3,059 in 2006; $3,407 in
2007; $4,782 in 2008; $4,168 in 2009 and $16,053 in 2010 to 2014.
The Company expects to contribute $3,662 in fiscal 2005 to its
pension plans.
34
9. Other Postretirement Benefits
Benefits Overview and Assumptions
The Company has retiree health care plans that cover the
majority of its U.S. employees. Employees hired before January 1,
1994 may become eligible for these benefits if they reach age 55,
with age plus years of service equal to 70. Employees hired after
January 1, 1994 may become eligible for these benefits if they
reach age 60, with age plus years of service equal to 80. The
cost of retiree health care is accrued over the period in which
the employees become eligible for such benefits. The Company
continues to fund benefit costs primarily as claims are paid.
There are no significant postretirement health care benefit plans
outside of the U.S.
The Company measures its retiree health care benefit
obligations as of March 31. The weighted- average assumptions
used to determine the accumulated postretirement benefit
obligation (APBO) as of June 30 and benefit expense for the years
ended June 30 are as follows:
2004 2003 2002
APBO as of June 30: ------ ------ ------
Discount rate 5.75% 6.25% 7.25%
Health care cost trend rate 10.0% 10.0% 8.0%
Ultimate health care cost trend rate 5.0% 5.0% 5.0%
Years to ultimate rate 2009 2008 2007
Benefit expense for the years ended June 30:
Discount rate 6.25% 7.25% 7.25%
Health care cost trend rate 10.0% 8.0% 6.3%
Ultimate health care cost trend rate 5.0% 5.0% 5.0%
Years to ultimate rate 2008 2007 2006
The health care cost trend rate assumption has a significant
effect on the amount of the APBO and retiree health care benefit
expense. A one-percentage point change in the assumed health care
cost trend rates would have the following effects:
2004 2003 2002
------- ------- -------
Effect on total service and interest cost:
Increase 1.0 point $ 714 $ 407 $ 445
Decrease 1.0 point $ (600) $ (317) $ (344)
Effect on APBO:
Increase 1.0 point $ 6,277 $ 5,942 $ 2,734
Decrease 1.0 point $(5,279) $(4,654) $(2,169)
Benefit Obligation and Expense
The components of retiree health care benefit expense for
the Company's plans consist of the following for the years ended
June 30:
2004 2003 2002
-------- ------- -------
Service cost $ 1,868 $ 889 $ 1,019
Interest cost 1,920 1,071 1,000
Amortization of prior service cost (262) (262) (292)
Recognized actuarial (gains) losses 727 (32) (11)
Other items - 766 (113)
-------- ------- -------
Retiree health care benefit expense $ 4,253 $ 2,432 $ 1,603
-------- ------- -------
35
The following provides a reconciliation of the APBO and the
amounts included in the consolidated balance sheet as of June 30,
for the Company's postretirement benefit plans:
2004 2003
------- -------
Change in APBO:
APBO at beginning of year $31,493 $15,117
Service cost 1,868 889
Interest cost 1,920 1,071
Participant contributions 276 266
Special termination benefits - 766
Benefits paid (1,222) (714)
Actuarial (gains) losses (1,123) 14,098
------- -------
APBO at end of year $33,212 $31,493
Items not yet recognized in the
consolidated balance sheet:
Unrecognized net actuarial loss 12,909 14,757
Unrecognized prior service cost (490) (752)
------- -------
Accrued benefit liability $20,793 $17,488
------- -------
The expected benefit payments for the Company's
postretirement benefit plans are as follows: $999 in 2005; $1,159
in 2006; $1,278 in 2007; $1,356 in 2008; $1,437 in 2009 and
$8,698 in 2010 to 2014. The Company expects to contribute $999
in fiscal 2005 to its postretirement benefit plans.
The Medicare Prescription Drug Improvement and Modernization
Act of 2003 (the Act) was enacted on December 8, 2003. The Act
introduced a prescription drug benefit under Medicare (Medicare
Part D), as well as a federal subsidy to sponsors of retiree
health care benefit plans that provide a prescription drug
benefit that is at least actuarially equivalent to Medicare Part
D. Molex has determined that the benefits provided by its plan
are actuarially equivalent to Medicare Part D. The Company has
elected to use the retroactive approach to reflect the federal
subsidy that will be provided by the Medicare Act and accordingly
has remeasured plan liabilities and expense as of December 31,
2003. The impact of the remeasurement due to the subsidy was a
reduction in the benefit obligation of $3,769 as of June 30, 2004
and a reduction in retiree health care benefit expense for the
year ended June 30, 2004 of $175.
10. Debt
The Company had available lines of credit totaling $141,500
at June 30, 2004. Long-term debt consists of the following as of
June 30:
2004 2003
------- -------
Mortgages $ 6,048 $ 6,672
Bank loans 515 3,407
Industrial development bonds 4,331 4,350
Other 253 282
Total debt 11,147 14,711
Less current portion 904 1,574
------- -------
Total long-term debt $10,243 $13,137
------- -------
Mortgages consist of two loans that are secured by certain
buildings, carry an annual interest rate of 7.79 percent and
require periodic principal payments through 2012. The Company has
two bank loans with annual interest rates of 4.5 percent and 4.75
percent, respectively, payable in periodic installments through
March 2007. Industrial development bonds, secured by certain
land, buildings, and equipment, have annual interest rates
ranging from 1.5 percent to 2.7 percent, with periodic principal
payments through March 2011. The long-term debt as of June 30,
2004 matures as follows: $904 in 2005; $2,958 in 2006; $1,017 in
2007; $908 in 2008; $945 in 2009 and $4,415 thereafter.
36
11. Leases
The Company rents certain facilities and equipment under
lease arrangements classified as both capital and operating
leases. Some of the leases have renewal options. Assets under
capital leases consist primarily of data processing equipment.
Future minimum lease payments are presented below:
Capital Operating
Year ending June 30: Leases Leases
------- ---------
2005 $3,232 $8,171
2006 2,265 4,592
2007 1,179 3,019
2008 268 1,828
2009 149 1,325
2010 and thereafter 305 7,210
------- ---------
Total lease payments $7,398 $26,145
---------
Less amount representing interest,
at 2% to 8% 812
-------
Present value of minimum lease payments $6,586
Current portion $2,790
Long-term portion 3,796
Total present value of minimum -------
lease payments $6,586
-------
Rental expense was $8,444 in 2004; $8,720 in 2003; and
$9,949 in 2002.
12. Commitments and Contingencies
In the normal course of business, the Company is a party to
various matters involving disputes and litigation. While it is
not possible at this time to determine the ultimate outcome of
these matters, management believes that the ultimate liability,
if any, will not be material to the consolidated results of
operations or financial condition of the Company.
13. Capital Stock
The shares of Common Stock, Class A Common Stock and Class B
Common Stock are identical except as to voting rights. Class A
Common Stock has no voting rights except in limited
circumstances. So long as more than 50 percent of the authorized
number of shares of Class B Common Stock continues to be
outstanding, all matters, other than the election of directors,
submitted to a vote of the shareholders must be approved by a
majority of the Class B Common Stock, voting as a class, and by a
majority of the Common Stock, voting as a class. During such
period, holders of a majority of the Class B Common Stock could
veto corporate action, other than the election of directors,
which requires shareholder approval. There are 25 million shares
of preferred stock authorized, none of which were issued or
outstanding during the three years ended June 30, 2004.
The Class B Common Stock can be converted into Common Stock
on a share-for-share basis at any time at the option of the
holder. The authorized Class A Common Stock would automatically
convert into Common Stock on a share-for-share basis at the
discretion of the Board of Directors upon the occurrence of
certain events. Upon such conversion, the voting interests of the
holders of Common Stock and Class B Common Stock would be
diluted. The Company's Class B Common Stock outstanding has
remained at 94.3 shares during the three years ended June 30,
2004.
The holders of the Common Stock, Class A Common Stock and
Class B Common Stock participate equally, share-for-share, in any
dividends that may be paid thereon, if, as and when declared by
the Board of Directors or in any assets available upon
liquidation or dissolution of the Company.
37
Changes in common stock for the years ended June 30 are as
follows:
Class A
Common Stock Common Stock Treasury Stock
--------------- --------------- -----------------
Shares Amount Shares Amount Shares Amount
------- ------- ------- ------- ------- --------
Outstanding at June 30, 2001 109,097 $ 5,455 102,752 $ 5,137 16,632 $281,469
Exercise of stock options 330 17 256 13 42 1,332
Purchase of treasury stock - - - - 2,902 80,165
Issuance of stock awards 24 1 - - (76) (1,294)
Other - - - - 17 807
------- ------- ------- ------- ------ --------
Outstanding at June 30, 2002 109,451 $ 5,473 103,008 $ 5,150 19,517 $362,479
Exercise of stock options 662 33 377 19 8 645
Purchase of treasury stock - - - - 3,353 74,997
Issuance of stock awards 11 - - - (82) (1,450)
Other - - 5 - 35 563
------- ------- ------- ------- ------ ---------
Outstanding at June 30, 2003 110,124 $ 5,506 103,390 $ 5,169 22,831 $ 437,234
Exercise of stock options 280 14 772 39 93 2,672
Purchase of treasury stock - - - - 2,740 70,215
Issuance of stock awards 11 1 - - (73) (1,301)
Other - - - - 10 341
------- ------- ------- ------- ------ ---------
Outstanding at June 30, 2004 110,415 $ 5,521 104,162 $ 5,208 25,601 $ 509,161
------- ------- ------- ------- ------ ---------
14. Stock Incentive Plans
The Company has five stock incentive plans currently in
effect, three of which may issue future grants: the 1990 Stock
Option Plan ("1990 Plan"), the 1991 Incentive Stock Option Plan
("1991 Plan"), the 1998 Stock Option Plan ("1998 Plan"), the 2000
Incentive Stock Option Plan ("ISO Plan") and the 2000 Long-Term
Stock Plan ("LT Plan").
1990 Plan: This plan expired as of June 30, 1999. The most
significant terms of this plan provided that (1) options were
authorized to be granted for 6.875 million shares of Common Stock
and (2) the option price was 50 percent of the fair market value
of the stock on the date of grant. The option term was five years
to nine years from the date of grant.
1991 Plan: This plan expired as of June 30, 2000. The most
significant terms of this plan provided that (1) options were
authorized to be granted for 3.8 million shares of Common Stock
and (2) the option price was the fair market value of the stock
on the date of grant. The option term was five years to 11 years
from the date of grant.
Stock option transactions relating to the 1990 and 1991
Plans are summarized as follows (exercise price represents a
weighted-average):
1990 Plan 1991 Plan
---------------- ----------------
Exercise Exercise
Shares Price Shares Price
------ -------- ------ --------
Outstanding at June 30, 2001 1,729 $ 9.39 1,853 $ 20.38
Exercised (230) 10.68 (100) 21.63
Forfeited (127) 9.48 - -
------ ------
Outstanding at June 30, 2002 1,372 $ 9.16 1,753 $ 20.30
Exercised (650) 7.89 (11) 23.96
Forfeited (2) 12.36 (18) 28.13
------ ------
Outstanding at June 30, 2003 720 $ 10.31 1,724 $ 20.20
Exercised (114) 7.07 (166) 19.93
Forfeited (18) 11.79 - -
------ ------
Outstanding at June 30, 2004 588 $ 10.91 1,558 $ 20.23
------ ------
Options exercisable at June 30, 2004 10 $ 10.61 536 $ 16.74
38
1998 Plan: The most significant terms of this plan provide
that (1) options may be granted for 12.5 million shares of Class
A Common Stock and (2) the option price shall be not less than 10
percent nor more than 100 percent of the fair market value of the
stock on the date of grant. The option term is five years to nine
years from the date of grant. For options granted under this
plan, the option price has been at 50 percent of the fair market
value of the stock.
ISO Plan: The most significant terms of this plan, available
to executives and directors, provide that (1) options may be
granted for 500,000 shares of Class A Common Stock and (2) the
option price shall be the fair market value of the stock on the
date of grant. The option term is four years to nine years from
the date of grant. Under the ISO Plan, the options granted can be
either incentive or nonqualified. Unless specifically stated
otherwise, all options granted shall be incentive.
LT Plan: The most significant terms of this plan, available
to executives and management, provide that (1) options may be
granted for 3.0 million shares of Class A Common Stock and (2)
the option price shall be the fair market value of the stock on
the date of grant. The options vest over a four-year term with an
expiration period of seven to ten years from the date of grant.
Stock option transactions relating to the 1998, ISO and LT
Plans are summarized as follows (exercise price represents a
weighted-average):
1998 Plan ISO Plan LT Plan
---------------- ---------------- ----------------
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ -------- ------ -------- ------ --------
Outstanding at June 30, 2001 2,338 $ 12.27 65 $ 34.22 556 $ 33.00
Granted 829 11.73 61 26.99 524 27.10
Exercised (236) 12.15 - - - -
Forfeited (152) 12.27 - - - -
Outstanding at June 30, 2002 2,779 $ 12.12 126 $ 30.71 1,080 $ 30.14
Granted 1,298 9.67 58 21.57 1,204 21.12
Exercised (327) 11.67 - - - -
Forfeited (83) 11.68 - - - -
Outstanding at June 30, 2003 3,667 $ 11.30 184 $ 27.84 2,284 $ 25.38
Granted 993 12.66 59 26.47 1,032 25.99
Exercised (612) 11.73 - - (41) 25.92
Forfeited (168) 11.79 - - (38) 19.90
Outstanding at June 30, 2004 3,880 $ 11.56 243 $ 27.50 3,237 $ 25.71
Options exercisable at
June 30, 2004 869 $ 12.74 94 $ 29.91 939 $ 28.12
The option price per share for certain options in the 1990
and 1998 plans was less than the fair market value at the date of
grant, thus creating deferred unearned compensation. Deferred
unearned compensation is expensed over the vesting period of the
stock option and was $10,306 in 2004; $10,503 in 2003; and $9,663
in 2002.
The LT Plan also allows for the grant of stock awards to
executives and management. The awards vest over a period of four
years and are valued at fair market value at date of grant. Stock
awards grants are summarized as follows:
Grant Number of Total Vesting
Grant Date: Price Shares Date Vested Compensation Period
------- --------- ----------- ------------ -------
October 2003 $ 25.99 131 Oct. 2007 $ 3,416 4 years
June 2003 23.62 118 June 2007 2,775 4 years
July 2002 19.90 164 July 2006 3,254 4 years
July 2001 27.10 96 July 2005 2,610 4 years
August 2000 33.00 102 Aug. 2004 3,352 4 years
The total compensation expense is recorded as deferred
unearned compensation and is expensed over the vesting period of
the stock award and was $3,542 in 2004; $2,304 in 2003; and
$1,447 in 2002.
39
The following table provides additional information about
options outstanding at June 30, 2004 (exercise price represents a
weighted-average):
Outstanding Exercisable
----------------------------- ----------------
Remaining Exercise Exercise
Range of Exercise Price Shares Years Price Shares Price
------ --------- -------- ------ --------
Common:
$2.56 to $10.81 538 1.2 $ 10.30 263 $ 10.78
$11.22 to $18.94 671 2.7 15.68 2 11.80
$20.80 to $20.80 529 4.2 20.80 226 20.80
$23.60 to $27.95 401 5.0 26.58 48 27.34
$30.03 to $30.03 7 0.1 30.03 7 30.03
Class A Common:
$9.01 to $9.28 1,347 4.6 $ 9.25 101 $ 9.27
$9.33 to $12.60 1,816 3.9 12.12 373 11.74
$12.63 to $23.62 1,882 4.1 18.63 665 17.28
$23.92 to $27.10 1,683 7.2 26.35 296 27.03
$28.59 to $38.19 632 2.9 33.05 467 33.12
----- -----
9,506 2,448
As permitted by 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 APB
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." 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 share for the years ended June 30 would have been as
follows:
2004 2003 2002
-------- -------- --------
Net income as reported $175,950 $ 84,918 $ 76,479
Add: Stock-based compensation included in reported
net income, net of related tax effects 10,179 9,925 9,122
Deduct: Stock-based compensation determined under
fair value method, net of related tax effects (21,020) (17,433) (14,842)
-------- -------- --------
Pro forma net income $165,109 $ 77,410 $ 70,759
-------- -------- --------
Earnings per share:
Basic $ 0.93 $ 0.44 $ 0.39
Diluted $ 0.92 $ 0.44 $ 0.39
Pro forma earnings per share:
Basic $ 0.87 $ 0.40 $ 0.36
Diluted $ 0.86 $ 0.40 $ 0.36
Weighted-average fair value of options granted:
At fair value $ 10.31 $ 7.79 $ 14.69
At less than fair value $ 12.95 $ 11.89 $ 16.04
For purposes of computing pro forma net income and earnings
per share, the fair value of each option grant is estimated as of
the date of grant using the Black-Scholes option pricing model
with the following assumptions:
2004 2003 2002
-------- -------- --------
Dividend yield 0.4% 0.4% 0.2%
Expected volatility 44.48% 46.18% 52.02%
Risk-free interest rate 3.17% 4.48% 5.56%
Expected life of option (years) 4.52 3.65 4.65
40
15. Segment and Related Information
The Company operates in one product segment: the manufacture
and sale of electronic components. Revenue is recognized based on
the location of the selling entity. Management operates the
business through four regions. The Americas region consists
primarily of operations in the U.S., Mexico and Brazil. The Far
East North includes Japan and Korea and a manufacturing operation
in northern China. The Far East South region includes the rest of
China, Singapore and the remaining countries in Asia. European
operations are located in both eastern and western Europe.
Information by region for the years ended June 30 is summarized
in the following table:
Far East Far East Corporate
Americas North South Europe and Other Elims. Total
---------- -------- -------- -------- --------- --------- ----------
2004
Customer revenue $ 686,129 $499,348 $623,619 $385,051 $ 52,568 $ - $2,246,715
Intercompany revenue 178,692 237,843 100,620 39,684 96,624 (653,463) -
---------- -------- -------- -------- -------- --------- ----------
Total revenue $ 864,821 $737,191 $724,239 $424,735 $149,192 $(653,463) $2,246,715
---------- -------- -------- -------- -------- --------- ----------
Depreciation and amortization 69,011 80,607 26,151 36,170 16,541 - 228,480
Income tax expense 29,761 34,771 5,221 1,680 (7,862) - 63,571
Net income 55,754 80,875 75,353 (7,980) (28,052) - 175,950
Assets 848,035 633,258 524,515 516,404 323,754 (273,620) 2,572,346
Capital expenditures 30,880 80,105 33,304 33,049 12,386 - 189,724
2003
Customer revenue $ 641,197 $407,821 $458,819 $291,043 $ 44,218 $ - $1,843,098
Intercompany revenue 109,970 153,845 47,918 26,366 95,332 (433,431) -
---------- -------- -------- -------- -------- --------- ----------
Total revenue $ 751,167 $561,666 $506,737 $317,409 $139,550 $<433,431) $1,843,098
---------- -------- -------- -------- -------- --------- ----------
Depreciation and amortization 78,154 75,282 22,467 29,563 23,264 - 228,730
Income tax expense 6,719 15,438 13,192 (1,192) (9,395) - 24,762
Net income 20,500 40,080 62,192 (7,090) (30,764) - 84,918
Assets 894,446 489,509 456,620 445,440 221,313 (177,438) 2,329,890
Capital expenditures 37,937 62,538 27,902 24,359 18,457 - 171,193
2002
Customer revenue $ 666,273 $351,542 $366,352 $279,477 $ 47,853 $ - $1,711,497
Intercompany revenue 125,414 124,976 45,625 25,230 82,438 (403,683) -
---------- -------- -------- -------- -------- --------- ----------
Total revenue $ 791,687 $476,518 $411,977 $304,707 $130,291 $<403,683) $1,711,497
---------- -------- -------- -------- -------- --------- ----------
Depreciation and amortization 81,505 74,996 20,387 27,661 19,138 - 223,687
Income tax expense 7,122 13,496 10,164 3,375 (17,473) - 16,684
Net income 20,824 34,843 55,660 4,025 (38,873) - 76,479
Assets 1,031,656 513,282 397,839 410,121 190,627 (289,605) 2,253,920
Capital expenditures 44,700 44,823 27,508 26,200 29,266 - 172,497
Corporate assets include goodwill, intangible assets and investments.
Customer revenue and long-lived assets by significant
foreign country within the Company's regions are summarized as
follows:
2004 2003 2002
Customer revenue: -------- -------- --------
United States $664,954 $635,332 $668,047
Japan 422,524 338,221 291,143
China 396,529 274,236 222,747
Long-lived assets:
United States 811,856 851,512 973,847
Japan 548,933 420,234 452,500
China 311,487 259,129 234,106
During fiscal 2004, 2003 and 2002, no customer accounted for
more than 10 percent of consolidated net revenue.
41
16. Quarterly Financial Information (Unaudited)
The following is a condensed summary of the Company's
unaudited quarterly results of operations and quarterly stock
price data for fiscal 2004, 2003 and 2002:
Quarter 2004 2003 2002
------- -------- -------- --------
Net revenue 1st $496,763 $469,246 $430,453
2nd 548,982 454,609 416,460
3rd 569,153 443,177 408,307
4th 631,817 476,066 456,277
Gross profit 1st 168,024 159,039 137,338
2nd 179,297 146,143 119,668
3rd 202,267 144,940 132,224
4th 227,158 129,126 147,321
Income (loss) before income taxes 1st 43,978 39,515 35,129
2nd 56,693 37,150 (3,757)
3rd 62,366 32,737 25,879
4th 76,855 640 35,970
Income taxes 1st 11,874 9,483 9,840
2nd 15,314 8,916 (8,005)
3rd 16,832 7,857 6,211
4th 19,551 (1,494) 8,638
Net income 1st 32,062 29,962 25,196
2nd 41,216 28,188 4,264
3rd 45,471 24,804 19,683
4th 57,201 1,964 27,336
Basic earnings per share 1st 0.17 0.16 0.13
2nd 0.22 0.15 0.02
3rd 0.24 0.13 0.10
4th 0.30 0.01 0.14
Diluted earnings per share 1st 0.17 0.15 0.13
2nd 0.21 0.15 0.02
3rd 0.24 0.13 0.10
4th 0.30 0.01 0.14
Stock Prices Low - High Low - High Low - High
------------- ------------- -------------
Common Stock 1st $26.14 $31.10 $22.85 $33.75 $25.76 $36.59
2nd 28.70 35.12 19.43 29.62 26.46 32.97
3rd 28.48 36.10 19.98 25.50 27.94 36.65
4th 27.72 33.24 21.15 29.36 30.45 39.61
Class A Common Stock 1st 21.72 26.69 19.79 28.94 22.40 29.55
2nd 24.36 29.67 17.95 26.12 22.80 28.35
3rd 24.44 30.36 17.02 22.12 24.47 32.29
4th 23.72 28.55 18.01 25.73 25.05 33.80
During the fourth quarter of fiscal 2003, gross profit was
impacted by a pretax charge of $28.5 million relating to
employment reductions and write-off of manufacturing assets.
Selling, general and administrative expenses included a pretax
charge of $6.5 million related to employment reductions. These
combined charges and a pretax investment write-down of $5.1
million reduced net income by $28.6 million (net of tax benefit
of $11.5 million).
During the second quarter of fiscal 2002, gross profit and
selling, general and administrative expenses was impacted by
pretax charges of $12.6 million and $11.6 million, respectively,
relating to restructuring costs for employment reductions and
asset write-offs. Other expenses included a pretax charge of
$10.0 million for write-down of an investment. These combined
charges reduced net income by $25.3 million (net of tax benefit
of $8.9 million).
42
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
Item 9A. 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 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 rules and forms. Except as
described below and in Note 3 to the Notes to Consolidated
Financial Statements, there was no change 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.
During the fourth quarter of fiscal 2004, the Company
implemented a new process to capture and analyze the various
financial data used in the preparation of the consolidated
statement of cash flows. The new financial reporting process was
designed to improve management's ability to analyze and review
all cash flow activity. During the testing of the new process,
the Company determined that certain changes in other assets and
liabilities that historically had been reported as investing
activities should have been reported as operating activities. As
a result, cash provided from operating activities and cash used
for investing activities has been restated in the consolidated
statement of cash flows for the year ended June 30, 2003. The
impact on reported cash flow activity was not material for the
Company's fiscal 2004 quarters ended March 31, December 31 and
September 30 and for the year ended June 30, 2002.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information under the caption "Election of Directors" in
the Company's Proxy Statement for the Annual Meeting of
Stockholders to be held on October 22, 2004 (the "Company's 2004
Proxy Statement") is incorporated herein by reference. The
information called for by Item 401 of Regulation S-K relating to
the Executive Officers is furnished below.
Executive Officers of the Registrant
The following information relates to the executive officers
of the Registrant who serve at the discretion of the Board of
Directors and are customarily elected for one-year terms at the
Regular Meeting of the Board of Directors held immediately
following the Annual Stockholders' Meeting. All of the executive
officers named hold positions as officers and/or directors of one
or more subsidiaries of the Registrant. For purposes of this
disclosure, only the principal positions are set forth.
43
Positions Held with Registrant Year
Name During the Last Five Years (a) Age Employed
- ------------------------ -------------------------------- ----- --------
Frederick A. Krehbiel(b) Co-Chairman(1999-); Co-Chief Executive 63 1965(c)
Officer (1999-2001).
John H. Krehbiel, Jr.(b) Co-Chairman(1999-); Co-Chief Executive 67 1959(c)
Officer (1999-2001).
J. Joseph King Vice Chairman and Chief Executive Officer 60 1975
(2001-);President and Chief Operating Officer
(1999-2001).
Martin P. Slark President and Chief Operating Officer (2001-); 49 1976
Executive Vice President (1999-2001).
Robert B. Mahoney Executive Vice President(2002-); Regional 51 1995
President, Far East South (2004-); Treasurer
and Chief Financial Officer (1996-2004);
Corporate Vice President (1996-2002).
Ronald L. Schubel Executive Vice President (2001-); Corporate 60 1981
Vice President (1982-2001); Regional President,
Americas (1998-).
James E. Fleischhacker Executive Vice President (2001-); Corporate 60 1984
Vice President (1994-2001); Regional President,
Far East South (1998-2001), (2003-2004).
Diane S. Bullock Corporate Vice President, Treasurer and Chief 47 2003
Financial Officer (2004-); Positions held at
ArvinMeritor, Inc.: Vice President and Controller
(2001-2003); Vice President, Corporate Development
(2000). Positions held at Meritor Automotive, Inc.:
Vice President and Controller (1998-2000).
Werner W. Fichtner Corporate Vice President (1987-) and Regional 61 1981
President, Europe (1981-).
Goro Tokuyama Corporate Vice President (1990-); Regional 70 1985
President, Far East North (1988-), and President
of Molex Japan Co., Ltd. (1985-2003).
Kathi M. Regas Corporate Vice President (1994-). 48 1985
Louis A. Hecht Corporate Secretary (1977-) and 60 1974
General Counsel (1975-).
(a) All positions are with Registrant unless otherwise stated.
(b) John H. Krehbiel, Jr. and Frederick A. Krehbiel (the
"Krehbiel Family") are brothers. The members of the Krehbiel
Family may be considered to be "control persons" of the
Registrant. The other executive officers listed above have no
relationship, family or otherwise, to the Krehbiel Family,
Registrant or each other.
(c) Includes period employed by Registrant's predecessor.
In accordance with Item 406 of Regulation S-K, the Company
has adopted a code of ethics that applies to all employees and
officers, including the chief executive officer and chief
financial officer, and has posted the code of ethics on its
website at www.molex.com.
44
Item 11. Executive Compensation
The information under the caption "Information About
Executive Officer Compensation and Transactions" in the Company's
2004 Proxy Statement is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
The information under the captions "Security Ownership of
Directors, Management and Certain Beneficial Owners" and "Equity
Compensation Plan Information" in the Company's 2004 Proxy
Statement is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information under the captions "Election of Directors",
"Information About Executive Officer Compensation and
Transactions" and "Security Ownership of Directors, Management
and Certain Beneficial Owners" in the Company's 2004 Proxy
Statement is herein incorporated by reference.
Item 14. Principal Accountant Fees and Services
The information under the caption "Independent Auditor Fees"
in the Company's 2004 Proxy Statement is herein incorporated by
reference.
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statement Schedules
Independent Auditors' Report on Schedule II
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are
inapplicable, not required under the instructions, or the
information is included in the consolidated financial statements
or notes thereto.
Separate financial statements for the Company's
unconsolidated affiliated companies, accounted for by the equity
method, have been omitted because they do not constitute
significant subsidiaries.
(a) 2. Exhibits
The exhibits listed on the accompanying Index to Exhibits
are filed or incorporated herein as part of this Report.
(b) Reports on Form 8-K
On April 15, 2004, the Company filed a Current Report on
Form 8-K reporting under Item 12, "Results of Operations and
Financial Condition," that on April 15, 2004, Molex had issued a
press release announcing its financial results for the third
fiscal quarter and nine months ended March 31, 2004.
45
Report of Independent Registered Public Accounting Firm
To the Board of Directors and
Shareholders of Molex Incorporated
We have audited the consolidated financial statements of
Molex Incorporated and its subsidiaries as of June 30, 2004 and
2003, and for each of the three years in the period ended June
30, 2004, and have issued our report thereon dated August 20,
2004; such consolidated financial statements and report are
included in this Annual Report on Form 10-K of Molex Incorporated
and its subsidiaries for the year ended June 30, 2004. Our
audits also included the financial statement schedule of Molex
Incorporated and its subsidiaries, listed in Item 15. This
financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents
fairly in all material respects the information set forth
therein.
/S/ DELOITTE & TOUCHE LLP
Chicago, Illinois
August 20, 2004
46
Molex Incorporated
Schedule II - Valuation and Qualifying Accounts
For the Years Ended June 30, 2004, 2003, and 2002
(in thousands)
Balance at Balance
Allowance for Losses Beginning Charged Accounts Translation at End
and Adjustments: of Period to Income Written Off Adjustments of Period
---------- --------- ----------- ----------- ---------
2004
Receivables $18,404 $ 4,248 $ (617) $ 866 $22,901
Inventories 40,386 11,366 (12,149) 1,724 41,327
2003
Receivables 18,692 176 (978) 514 18,404
Inventories 46,917 10,321 (18,597) 1,745 40,386
2002
Receivables 19,741 237 (1,593) 307 18,692
Inventories 67,445 19,418 (44,292) 4,346 46,917
47
Molex Incorporated
Index of Exhibits
Exhibit
Number Description
- -------- -----------
3 3.1 Certificate of Incorporation (as amended and restated)
(incorporated by reference to 2000 Form 10-K, Exhibit 3.1)
3.2 By-laws (as amended and restated)(incorporated by reference to
2000 Form 10-K, Exhibit 3.2)
4 Instruments defining rights of security holders including indentures.
See Exhibit 3.1
10 Material Contracts
10.1 The Molex Deferred Compensation Plan (incorporated by
reference to 1984 Form 10-K, Exhibit 10.6)
10.2 The 1990 Molex Incorporated Executive Stock Bonus Plan (as
amended) (incorporated by reference to 1998 Form 10-K,
Exhibit 10.2)
10.3 The 1990 Molex Incorporated Stock Option Plan (as amended)
(incorporated by reference to 1998 Form 10-K,
Exhibit 10.3)
10.4 The 1991 Molex Incorporated Incentive Stock Option Plan (as
amended) (incorporated by reference to 1999 Form 10-K,
Exhibit 10.4)
10.5 The 1998 Molex Incorporated Stock Option Plan (incorporated by
reference to 1999 Form 10-K, Exhibit 10.5)
10.6 The 2000 Molex Incorporated Incentive Stock Option Plan
(incorporated by reference to 2001 Form 10-K,
Exhibit 10.6)
10.7 The 2000 Molex Incorporated Executive Stock Bonus Plan (as
amended) (incorporated by reference to 2001 Form 10-K,
Exhibit 10.7)
10.8 The 2000 Molex Incorporated Long-Term Stock Plan
(incorporated by reference to 2001 Form 10-K,
Exhibit 10.8)
21 Subsidiaries of registrant
23 Independent Auditors' Consent
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
(All other exhibits are either inapplicable or not required)
48
Signatures
Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, the Company has duly caused this
annual Report to be signed on its behalf by the undersigned,
there unto duly authorized.
MOLEX INCORPORATED
(Company)
September 10, 2004 Corporate Vice President, By: /S/ DIANE S. BULLOCK
Treasurer and ----------------------
Chief Financial Officer Diane S. Bullock
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
September 10, 2004 Co-Chairman of the Board /S/ FREDERICK A. KREHBIEL
Frederick A. Krehbiel
September 10, 2004 Co-Chairman of the Board /S/ JOHN H. KREHBIEL, JR.
John H. Krehbiel, Jr.
September 10, 2004 Vice Chairman and Chief /S/ J. JOSEPH KING
Executive Officer J. Joseph King
Director
September 10, 2004 President and Chief /S/ MARTIN P. SLARK
Operating Officer Martin P. Slark
Director
September 10, 2004 Corporate Vice President, /S/ DIANE S. BULLOCK
Treasurer and Diane S. Bullock
Chief Financial Officer
September 10, 2004 Director /S/ FRED L. KREHBIEL
Fred L. Krehbiel
September 10, 2004 Director /S/ MICHAEL J. BIRCK
Michael J. Birck
September 10, 2004 Director /S/ DOUGLAS K. CARNAHAN
Douglas K. Carnahan
September 10, 2004 Director /S/ MICHELLE L. COLLINS
Michelle L. Collins
September 10, 2004 Director /S/ EDGAR D. JANNOTTA
Edgar D. Jannotta
September 10, 2004 Director /S/ JOE W. LAYMON
Joe W. Laymon
September 10, 2004 Director /S/ DONALD G. LUBIN
Donald G. Lubin
September 10, 2004 Director /S/ MASAHISA NAITOH
Masahisa Naitoh
September 10, 2004 Director /S/ ROBERT J. POTTER
Robert J. Potter
49