-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WIb7LzeZmkARwm1tgJYSg9bErZrAAUByNxg/F1KLz32hw0dOzqpSD45tB0xnmj+G Oe/9IyIjGt+FS4LmmdFcuA== 0000067472-04-000170.txt : 20041115 0000067472-04-000170.hdr.sgml : 20041115 20041115062443 ACCESSION NUMBER: 0000067472-04-000170 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20040930 FILED AS OF DATE: 20041115 DATE AS OF CHANGE: 20041115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MOLEX INC CENTRAL INDEX KEY: 0000067472 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC CONNECTORS [3678] IRS NUMBER: 362369491 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-07491 FILM NUMBER: 041141692 BUSINESS ADDRESS: STREET 1: 2222 WELLINGTON CT CITY: LISLE STATE: IL ZIP: 60532 BUSINESS PHONE: 6309694550 MAIL ADDRESS: STREET 1: 2222 WELLINGTON COURT CITY: LISLE STATE: IL ZIP: 60532 10-Q 1 a10q1fy05.txt FISCAL 2005 FIRST QUARTER 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ____________ FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended September 30, 2004 Commission File Number 0-7491 ____________ MOLEX INCORPORATED (Exact name of registrant as specified in its charter) Delaware 36-2369491 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2222 Wellington Court, Lisle, Illinois 60532 (Address of principal executive offices) Registrant's telephone number, including area code: (630) 969-4550 ____________ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No On September 30, 2004, the following numbers of shares of the Company's common stock were outstanding: Common Stock 100,553,124 Class A Common Stock 87,769,304 Class B Common Stock 94,255 The financial statements included in this Quarterly Report on Form 10-Q have not been reviewed by an independent public accountant as required by Rule 10-01(d) of Regulation S-X. See "Statement Regarding Review of Financial Statements" in Item 1 of Part I of this Report. Molex Incorporated INDEX PART I - FINANCIAL INFORMATION Item 1. Financial Statements Page Statement Regarding Review of Financial Statements 3 Condensed Consolidated Balance Sheets September 30, 2004 and June 30, 2004 4 Condensed Consolidated Statements of Income Three Months Ended September 30, 2004 and 2003 5 Condensed Consolidated Statements of Cash Flows Three Months Ended September 30, 2004 and 2003 6 Notes to Condensed Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 11 Item 3. Quantitative and Qualitative Disclosure About Market Risk 14 Item 4. Controls and Procedures 15 PART II - OTHER INFORMATION Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 15 Item 4. Submission of Matters to a Vote of Security Holders 15 Item 5. Other Information 16 Item 6. Exhibits 17 SIGNATURES 19 2 PART I Item 1. Financial Statements Statement Regarding Review of Financial Statements This Quarterly Report on Form 10-Q contains financial statements for the fiscal quarter ended September 30, 2004, which have not been reviewed by an independent public accountant as required by Rule 10-01(d) of Regulation S-X because Deloitte & Touche LLP, Molex's previous independent public accounting firm, resigned on November 13, 2004. For additional information regarding this matter, please refer to Item 5 of Part II below and our Current Report on Form 8-K being filed on the date hereof. Molex expects to engage a new independent registered public accounting firm shortly and that the review of its financial statements for the fiscal quarter ended September 30, 2004 will be completed as soon as practicable following Molex's engagement of a new accounting firm. Upon the completion of such review, Molex intends to file an amendment to this Quarterly Report on Form 10-Q. Molex believes that the following unaudited financial statements and notes thereto include all adjustments necessary for a fair presentation of the consolidated financial position and results from operations for the periods presented. 3 Molex Incorporated Condensed Consolidated Balance Sheets (In thousands, except per share data) Sept. 30, June 30, 2004 2004 ----------- ----------- ASSETS (Unaudited) Current assets: Cash and cash equivalents $ 238,292 $ 234,431 Marketable securities 93,153 104,223 Accounts receivable, net 544,736 529,630 Inventories 283,417 265,344 Other current assets 40,027 35,016 ----------- ----------- Total current assets 1,199,625 1,168,644 Property, plant and equipment, net 1,009,163 1,022,378 Goodwill 164,969 164,915 Other assets 194,930 216,409 ----------- ----------- Total assets $ 2,568,687 $ 2,572,346 ----------- ----------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 225,731 $ 234,823 Accrued expenses 132,625 143,160 Other current liabilities 47,508 50,481 ----------- ----------- Total current liabilities 405,864 428,464 Other non-current liabilities 9,361 10,487 Accrued pension and postretirement benefits 51,435 52,151 Long-term debt 10,075 10,243 Obligations under capital leases 3,143 3,796 Minority interest in subsidiaries 3,383 1,211 Shareholders' equity: Common Stock 10,747 10,734 Paid-in capital 376,518 369,660 Retained earnings 2,209,211 2,160,368 Treasury stock (532,216) (509,161) Deferred unearned compensation (32,722) (32,180) Accumulated other comprehensive income 53,888 66,573 ----------- ----------- Total shareholders' equity 2,085,426 2,065,994 ----------- ----------- Total liabilities and shareholders' equity $ 2,568,687 $ 2,572,346 ----------- ----------- The accompanying notes are an integral part of these condensed consolidated financial statements. 4 Molex Incorporated Condensed Consolidated Statements of Income (Unaudited - in thousands, except per share data) Three Months Ended September 30, ------------------------- 2004 2003 ----------- ----------- Net revenue $ 640,230 $ 496,763 Cost of sales 411,558 328,739 ----------- ----------- GROSS PROFIT 228,672 168,024 ----------- ----------- Selling, general and administrative expenses: Selling 54,020 44,416 General and administrative 102,192 83,048 ----------- ----------- Total selling, general and administrative expenses 156,212 127,464 ----------- ----------- INCOME FROM OPERATIONS 72,460 40,560 Other (income) expense: Equity income (2,029) (2,183) (Gain)/loss on investments (1,152) - Interest, net (925) (1,235) ----------- ----------- Total other (income) expense (4,106) (3,418) INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 76,566 43,978 Income taxes and minority interest 20,924 11,916 ----------- ----------- NET INCOME $ 55,642 $ 32,062 ----------- ----------- EARNINGS PER SHARE: Basic $ 0.29 $ 0.17 Diluted $ 0.29 $ 0.17 DIVIDENDS PER SHARE $ 0.0375 $ 0.0250 AVERAGE COMMON SHARES OUTSTANDING: Basic 188,763 190,679 Diluted 190,617 192,372 The accompanying notes are an integral part of these condensed consolidated financial statements. 5 Molex Incorporated Condensed Consolidated Statements of Cash Flows (Unaudited - In thousands) Three Months Ended September 30, ------------------------ 2004 2003 ----------- ----------- Restated (Note 2) Cash and cash equivalents, beginning of period $ 234,431 $ 178,976 OPERATING ACTIVITIES Net income 55,642 32,062 Add (deduct) non-cash items included in net income: Depreciation and amortization 57,193 55,475 Amortization of deferred unearned compensation 3,787 3,007 Changes in assets and liabilities, excluding effects of foreign currency adjustments: Accounts receivable (14,632) (36,008) Inventories (18,144) (13,767) Accounts payable (7,332) 7,121 Other current assets and liabilities (20,328) (10,953) Other assets and liabilities (1,770) 5,972 ----------- ----------- Cash provided from operating activities 54,416 42,909 INVESTING ACTIVITIES Capital expenditures (48,435) (45,324) Sales (purchases) of marketable securities 11,036 9,387 Other investing activities 13,275 (2,059) ----------- ----------- Cash used for investing activities (24,124) (37,996) FINANCING ACTIVITIES Net decrease in debt (65) (2,855) Principal payments on capital leases (827) (1,362) Cash dividends paid (4,730) (4,773) Purchase of treasury stock (21,905) (19,985) Reissuance of treasury stock 213 539 Exercise of stock options 1,360 2,177 ----------- ----------- Cash used for financing activities (25,954) (26,259) Effect of exchange rate changes on cash and cash equivalents (477) 1,164 ----------- ----------- Net increase (decrease) in cash and cash equivalents 3,861 (20,182) ----------- ----------- Cash and cash equivalents, end of period $ 238,292 $ 158,794 ----------- ----------- The accompanying notes are an integral part of these condensed consolidated financial statements. 6 Molex Incorporated Notes to Condensed Consolidated Financial Statements (Unaudited) 1. Basis of Presentation Molex Incorporated manufactures electronic components, including electrical and fiber optic interconnection products and systems, switches and integrated products in 55 plants in 19 countries throughout the world. The unaudited financial statements have been prepared from the Company's books and records and reflect all adjustments that, in the opinion of management, are necessary for a fair presentation of information for the interim periods presented. The condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and therefore, do not include all information and footnote disclosures included in the annual consolidated financial statements. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Molex Incorporated 2004 Annual Report on Form 10-K. The results of operations for the interim periods should not be considered indicative of results to be expected for the full year. Certain reclassifications have been made to the prior year's financial statements to conform to the fiscal year 2005 classifications. 2. Restatement of Cash Flow Activities During the fourth quarter of fiscal 2004, the Company implemented a new process to capture and analyze the various financial data used in the preparation of the consolidated statement of cash flows. The new financial reporting process was designed to improve management's ability to analyze and review all significant cash flow activity. During the testing of the new process, the Company determined that certain changes in other assets and liabilities that historically had been reported as investing activities should have been reported as operating activities. As reported in the Molex Incorporated 2004 Annual Report on Form 10-K, cash provided from operating activities and cash used for investing activities was restated in the consolidated statement of cash flows for the year ended June 30, 2003 as follows (in thousands): Previously Restated Reported --------- ---------- Cash provided from operating activities $ 304,872 $ 349,473 --------- ---------- Cash used for investing activities $(249,225) $(293,826) --------- ---------- The impact on reported cash flow activity related to this issue was not material for the Company's fiscal 2004 quarters ended March 31, December 31 and September 30. During the first quarter of fiscal 2005, the Company determined that it had made a clerical error, unrelated to the issue discussed above, in the condensed consolidated statement of cash flows for the three months ended September 30, 2003. 7 Cash provided from operating activities and the effect of exchange rate changes on cash and cash equivalents has been restated in the condensed consolidated statement of cash flows for the three months ended September 30, 2003 as follows (in thousands): Previously Restated Reported --------- ---------- Cash provided from operating activities $ 42,909 $ 31,909 --------- ---------- Effect of exchange rate changes on cash and cash equivalents $ 1,164 $ 12,164 --------- ---------- 3. Prior Year Adjustment Included in the results for the three months ended September 30, 2004 is a charge of $8.0 million ($5.8 million after-tax, or $0.03 per share), of which $3.0 million ($2.2 million after-tax) related to fiscal 2004. This adjustment related to the omission of certain intercompany inventory in the Company's calculation of profit-in-inventory elimination. The Company has concluded that the amounts related to fiscal 2004 and prior years are not material, both individually and in the aggregate, to the trends of the financial statements for those periods affected, and to a fair presentation of the Company's results of operations and financial statements. Accordingly, results for fiscal 2004 and prior years have not been restated. Also included in the results for the three months ended September 30, 2004 is a reversal of a prior year insurance accrual of $2.7 million ($2.0 million after-tax), which was no longer required and a reduction in inventory allowance of $1.5 million ($1.1 million after-tax). 4. Earnings Per Share A reconciliation of the basic average common shares outstanding to dilutive average common shares outstanding is as follows (in thousands): Three Months Ended September 30, ------------------ 2004 2003 -------- -------- Basic average common shares outstanding 188,763 190,679 Effect of dilutive stock options 1,854 1,693 -------- -------- Diluted average common shares outstanding 190,617 192,372 -------- -------- 5. Comprehensive Income Total comprehensive income is summarized as follows (in thousands): Three Months Ended September 30, ------------------ 2004 2003 -------- -------- Net income $ 55,642 $ 32,062 Translation adjustments (12,672) 21,698 Unrealized investment gain (loss) (13) 242 -------- -------- Total comprehensive income $ 42,957 $ 54,002 -------- -------- 8 6. Inventories Inventories are valued at the lower of first-in, first-out cost or market. Inventories, net of allowances, consist of the following (in thousands): Sept. 30, June 30, 2004 2004 --------- --------- Raw materials $ 39,762 $ 39,743 Work in process 95,029 91,168 Finished goods 148,626 134,433 --------- --------- Total inventories $ 283,417 $ 265,344 --------- --------- 7. Pensions and Other Postretirement Benefits The components of pension and retiree health care benefit cost are as follows for the three months ended September 30, 2004 and 2003 (in thousands). Pension Retiree Health Care ---------------- ------------------- 2004 2003 2004 2003 ------- ------- -------- -------- Service cost $ 1,997 $ 1,754 $ 470 $ 485 Interest cost 952 1,225 471 499 Expected return on plan assets (1,047) (1,221) - - Amortization of prior service cost 51 60 (66) (68) Recognized actuarial losses 349 172 159 189 Amortization of transition obligation 15 17 - - ------- ------- ------- ------- Benefit cost $ 2,317 $ 2,007 $ 1,034 $ 1,105 ------- ------- ------- ------- 8. Stock Option Plans As permitted by Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation", the Company has elected to account for its stock-based compensation programs according to the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." Had the Company elected to apply the provisions of SFAS No. 123 regarding recognition of compensation expense to the extent of the calculated fair value of stock options granted, the effects on reported net income and earnings per share for the three months ended September 30 would have been as follows (in thousands, except per share data): Three Months Ended September 30, ------------------ 2004 2003 -------- -------- Net income as reported $ 55,642 $ 32,062 Add: Stock-based compensation included in reported net income, net of related tax effects 2,765 2,196 Deduct: Stock-based compensation determined under fair value method, net of related tax effects (5,881) (3,814) -------- -------- Pro forma net income $ 52,526 $ 30,444 -------- -------- Earnings per share: Basic $ 0.29 $ 0.17 Diluted $ 0.29 $ 0.17 Pro forma earnings per share: Basic $ 0.28 $ 0.16 Diluted $ 0.28 $ 0.16 9 For purposes of computing pro forma net income and earnings per share, the fair value of each option grant is estimated as of the date of grant using the Black-Scholes option pricing model. 9. Segments and Related Information The Company operates in one product segment: the manufacture and sale of electronic components. Management operates the business through four regions. Information by region is summarized as follows (in thousands): Inter- Customer Company Total Net Three months ended: Revenue Revenue Revenue Income September 30, 2004 -------- -------- -------- -------- Americas $176,623 $ 55,286 $231,909 $ 16,027 Far East South 190,339 36,344 226,683 25,108 Far East North 131,639 76,902 208,541 25,137 Europe 128,414 10,589 139,003 2,625 Corporate and other 13,215 27,199 40,414 (13,255) Eliminations - (206,320) (206,320) - -------- -------- -------- -------- Total $640,230 $ - $640,230 $ 55,642 -------- -------- -------- -------- September 30, 2003 Americas $151,491 $ 38,869 $190,360 $ 10,583 Far East South 142,872 17,528 160,400 17,482 Far East North 116,313 48,693 165,006 13,653 Europe 74,407 8,365 82,772 (1,603) Corporate and other 11,680 26,933 38,613 (8,053) Eliminations - (140,388) (140,388) - -------- -------- -------- -------- Total $496,763 $ - $496,763 $ 32,062 -------- -------- -------- -------- Revenue is recognized based on the location of the selling entity. 10. Subsequent Event On November 13, 2004, the Company was notified that its independent auditor, Deloitte & Touche LLP, was resigning as the Company's independent public accountant. The Company has not yet retained a new independent public accountant. Consequently, the unaudited financial statements included in this Form 10-Q have not been reviewed by an independent public accountant as required by Rule 10-01(d) of Regulation S-X. 10 Molex Incorporated Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition Results of Operations First Quarter Results Revenue was $640.2 million for the three months ended September 30, 2004, an increase of 29 percent over last year's first quarter of $496.8 million. Revenue for the first quarter included $18 million from the automotive acquisition in Europe that was completed on April 2, 2004. The strengthening of certain foreign currencies, principally the euro and the yen, compared with the U.S. dollar increased revenue by approximately $19 million over the prior year quarter. Customer revenue in the Americas region was $176.6 million, up 17 percent from last year's first quarter revenue of $151.5 million, due to stronger demand for high-speed, industrial and medical electronics products, which more than offset lower demand in automotive. In the Far East South region, customer revenue was $190.3 million, an increase of $47.5 million, or 33 percent, compared with the prior year first quarter. The revenue growth in this region was primarily driven by demand from the digital consumer, personal computer and mobile phone markets, serving both local and multinational customers. Customer revenue in the Far East North region, increased 13 percent to $131.6 million in the first quarter of fiscal 2005, compared with $116.3 million in the prior year quarter. Foreign currency translation contributed $8.8 million to the revenue increase. Demand for new products in the digital consumer and communication markets was also strong. In Europe, customer revenue was $128.4 million, up 73 percent from last year's first quarter revenue of $74.4 million. As noted above, the Company's automotive acquisition during the fourth quarter of fiscal 2004, added revenue of $18 million. Foreign currency translation, led by the strong euro, also favorably impacted customer revenue by approximately $8 million. Gross profit was $228.7 million for the three months ended September 30, 2004, up $60.7 million, or 36 percent over the prior year quarter. Gross profit margin was 35.7 percent of net revenue, up from 33.8 percent in last year's first quarter. The improvement in gross profit margin was primarily due to leverage from the higher sales volumes. Included in the results for the three months ended September 30, 2004 is a charge of $8.0 million ($5.8 million after-tax, or $0.03 per share) related to prior years. This adjustment related to the omission of certain intercompany inventory in the Company's calculation of profit-in-inventory elimination. See Note 3 to the Notes to Condensed Consolidated Financial Statements for further discussion. Also included in the results for the three months ended September 30, 2004 is a reversal of a prior year insurance accrual of $2.7 million ($2.0 million after-tax), which was no longer required, and a reduction in inventory allowance of $1.5 million ($1.1 million after-tax). Selling, general and administrative expenses were $156.2 million for the first three months of fiscal 2005, as compared with $127.5 million in the prior year quarter. As a percent of net revenue, selling, general and administrative expenses decreased from 25.7 percent in the prior year quarter to 24.4 percent in this year's first quarter. Total other income was $4.1 million in the first quarter ended September 30, 2004, compared with $3.4 million in the prior year quarter. The effective tax rate was 27.0 percent for the first quarter of fiscal 2005, the same rate as last year's first quarter. Net income for the three months ended September 30, 2004 was $55.6 million, up 74 percent from $32.1 million in last year's first quarter. Foreign currency translation increased net income by $2.0 million. Earnings per share was $0.29 in the first quarter of fiscal 2005 compared with $0.17 in the prior year quarter. 11 Financial Condition and Liquidity The Company's long-term financing strategy is to rely on internal sources of funds for investing in plant, equipment and acquisitions. Management remains confident that the Company's liquidity and financial flexibility are adequate to support both current, as well as future growth. Molex has historically used external borrowings only when a clear financial advantage exists. Long-term debt at September 30, 2004 totaled $10.1 million. Cash provided from operating activities and the effect of exchange rate changes on cash and cash equivalents has been restated in the Condensed Consolidated Statement of Cash Flows for the three months ended September 30, 2003. See Note 2 to the Notes to Condensed Consolidated Financial Statements for further discussion. Cash provided from operating activities for the three months ended September 30, 2004 was $54.4 million, up from $42.9 million in the prior year period. The increase in cash provided from operations was driven by higher net income in the current period. For the three months ended September 30, 2004, cash was used to support higher working capital levels. Working capital at September 30, 2004 was $793.8 million compared with $740.2 million at June 30, 2004. Cash used for investing activities was $24.1 million and $38.0 million for the three months ended September 30, 2004 and 2003, respectively. Capital expenditures were $48.4 million in the current period, an increase of $3.1 million over the prior year's capital spending of $45.3 million. During the first quarter of fiscal 2005, the Company sold its investment in an affiliate and generated cash from this transaction of $14.1 million. Cash used for financing activities was $26.0 million in the first quarter of fiscal 2005 compared with $26.3 million in the prior year period. Cash was used primarily for the purchase of treasury stock and the payment of dividends. The Company's Board of Directors authorized the purchase of up to $100 million of Common Stock and/or Class A Common Stock during fiscal 2005. During the three months ended September 30, 2004, the Company purchased 875,000 shares of Class A Common Stock at an aggregate cost of $21.9 million. Molex has a strong cash balance and cash flow and very little debt. The Company believes at this time that share repurchases are a good investment as compared with investing cash in short- term money instruments or marketable securities, particularly with the current low interest rates. The Company also uses shares repurchased to replenish stock used for exercises of employee stock options, employee stock awards and the employee stock purchase plan. Outlook Molex's operations in the Far East continue to drive the Company's results. Management expects this trend to continue, based on the magnitude of production transferred by global customers to the region and supported by Molex's technical capabilities and long-term history of working in the region. In the Americas region, many customers appear to be adjusting their finished goods inventory to more conservative levels. Management believes that the amount of actual connector inventory within these channels is reasonable, and therefore the outlook in the majority of the Company's markets remains encouraging. In addition, management expects to gain market share based on the Company's positions within key markets, such as digital consumer, mobile communication and mobile computing, that are growing faster than the overall connector market, as well as the focus on the emerging medical electronics market. For the second quarter ending December 30, 2004, management is forecasting revenues in a range of $635 million to $650 million. Based on these revenues, the Company expects earnings per share in the range of $0.29 to $0.31. 12 Due to the uncertainty of the foreign currency exchange markets, Molex cannot reasonably predict future trends related to foreign currency fluctuations. Foreign currency fluctuations have impacted the Company's results in the past and may impact results in the future. Critical Accounting Policies See the information concerning the Company's critical accounting policies included under Management's Discussion of Financial Condition and Results of Operations in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2004, which is incorporated in this Form 10-Q by reference. Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company is subject to market risk associated with changes in foreign currency exchange rates, interest rates and certain commodity prices. The Company mitigates its foreign currency exchange rate risk principally through the establishment of local production facilities in the markets it serves and invoicing of customers in the same currency as the source of the products. Molex also monitors its foreign currency exposure in each country and implements strategies to respond to changing economic and political environments. Examples of these strategies include the prompt payment of intercompany balances utilizing a global netting system, the establishment of contra-currency accounts in several international subsidiaries, development of natural hedges and occasional use of foreign exchange contracts to protect or preserve the value of intercompany cash flows. No material foreign exchange contracts were in use at September 30, 2004 and 2003. The Company has implemented a formalized treasury risk management policy that describes the procedures and controls over derivative financial and commodity instruments. Under the policy, the Company does not use derivative financial or commodity instruments for speculative purposes, and the use of such instruments is subject to strict approval levels by senior management. Typically, the use of derivative instruments is limited to hedging activities related to specific foreign currency cash flows. The Company's $93.2 million of marketable securities at September 30, 2004 are principally debt instruments that generate interest income for the Company on temporary excess cash balances. These instruments contain embedded derivative features that enhance the liquidity of the portfolio by enabling the Company to liquidate the instrument prior to the stated maturity date. The Company's exposure related to derivative instrument transactions is, in the aggregate, not material to the Company's financial position, results of operations or cash flows. Interest rate exposure is limited to marketable securities owned by the Company and long-term debt. The Company does not actively manage the risk of interest rate fluctuations. However, such risk is mitigated by the relatively short-term nature of its investments, less than twelve months, and the fixed-rate nature of its long-term debt. Molex does not have exposure to any off-balance-sheet arrangements with the exception of certain operating leases. Due to the nature of its operations, Molex is not subject to significant concentration risks relating to customers, products or geographic locations. The Company monitors the environmental laws and regulations in the countries in which it operates. Molex has implemented an environmental program to reduce the generation of potentially hazardous materials during its manufacturing process and believes it continues to meet or exceed local government regulations. Item 4. Controls and Procedures As of the end of the period covered by this report, Molex conducted an evaluation, under the supervision and with the participation of the principal executive officer and principal financial officer, of Molex's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities 13 Exchange Act of 1934 (the `Exchange Act')). Based on that evaluation, the principal executive officer and principal financial officer have concluded that, except as described below, Molex's disclosure controls and procedures are effective to ensure that information required to be disclosed by Molex in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission's rules and forms. During the fiscal quarter ended September 30, 2004, Molex's management identified the omission of certain intercompany inventory in its calculation of profit-in-inventory elimination for prior periods as described in Note 3 to the Notes to Condensed Consolidated Financial Statements. Molex concluded that the amounts related to fiscal 2004 and prior years are not material, both individually and in the aggregate, to the trends of the financial statements for those periods affected, and to a fair presentation of Molex's results of operations and financial statements. Molex's Audit Committee concurs with management's recommendations as to the accounting treatment for such omission. Molex's independent public accounting firm, Deloitte & Touche LLP ("Deloitte"), expressed to the Audit Committee that the omission described above should have been disclosed in the representation letter dated August 20, 2004 of Molex's Chief Executive Officer and Chief Financial Officer delivered to Deloitte on September 10, 2004 in connection with the audit of Molex's financial statements as of and for the year ended June 30, 2004 and the filing of Molex's Annual Report on Form 10-K on September 10, 2004. The signatories did not believe that the matter was required to be addressed in that letter. The Audit Committee, with the assistance of independent legal and accounting advisors, conducted an inquiry into the omission and related matters. No additional adjustments were identified as a result of this inquiry. The Audit Committee presented the findings of the inquiry to Deloitte. Deloitte requested additional information relating to this matter and the Audit Committee responded to those requests. As disclosed in Part II, Item 5 below, Deloitte ultimately advised Molex on November 13, 2004 that Deloitte was prepared to complete its review, under Statement of Auditing Standards No. 100 "Interim Financial Information" (SAS 100), of the unaudited financial statements included in this Form 10-Q in time to permit a filing of the Form 10-Q in substantially the form hereof by the November 15 extended deadline for such report, but only if Molex's Chief Executive Officer and Chief Financial Officer who had signed the representation letter dated August 20, 2004 no longer served as officers of Molex and certain disclosures relating to the matters in question were agreed upon. Molex's Audit Committee and Board of Directors each unanimously rejected this condition imposed by Deloitte. Following the communication of Molex's position, representatives of Deloitte advised Molex on November 13, 2004 that Deloitte was resigning as Molex's independent auditors effective immediately. Molex's management is not aware of any information which would result in any adjustments to the financial information included in this Form 10-Q. Molex's management has established a remediation plan to correct the deficiency in internal controls described above and has discussed the plan for remediation with Molex's Audit Committee. Molex intends to continue to evaluate the effectiveness of its disclosure controls and procedures and will take corrective action as appropriate. Except as described above, there have been no changes in the Company's disclosure controls and procedures in the fiscal quarter ended September 30, 2004 that have materially affected or are reasonably likely to materially affect the Company's disclosure controls and procedures. 14 PART II Item 1. Not applicable Item 2. Unregistered Sales of Equity Securities and Use of Proceeds On July 29, 2004, the Company issued options to purchase 88,000 shares of Class A Common Stock to employee directors of the Company with an aggregate exercise price of $2,186,437, pursuant to the terms of the 2000 Incentive Stock Option Plan. The issuance of these options to purchase shares of Class A Common Stock was exempt from registration under the Securities Act of 1933, as a transaction not involving a public offering under Section 4(2). Per the terms of the plan, the option price is the fair market value of the stock on the date of grant and the option term is five years from the date of grant. Share purchases of Molex Class A Common Stock for the quarter ended September 30, 2004 were as follows: Total Number Dollar Value of Shares of Shares Purchased as that May Yet Part of Be Purchased Total Number Average Publicly Under the of Shares Price Paid Announced Plan Period Purchased Per Share Plan - ---------------- ------------ ---------- ------------ ------------ July 1 - July 31 - - - $100,000,000 Aug. 1 - Aug. 31 635,000 $24.91 635,000 $84,179,324 Sept. 1 - Sept. 30 240,000 $25.35 240,000 $78,094,624 Total 875,000 $25.03 875,000 $78,094,624 Item 3. Not applicable Item 4. Submission of Matters to a Vote of Security Holders At the Annual Meeting of Stockholders held on October 22, 2004, the following directors were elected to hold office for their respective terms according to their class: Frederick A. Krehbiel, 76,919,923 votes in favor and 17,974,492 withheld; Masahisa Naitoh, 93,471,527 votes in favor and 1,422,888 withheld; Michael J. Birck, 86,868,952 votes in favor and 8,025,463 withheld; and Martin P. Slark, 76,983,471 votes in favor and 17,910,944 withheld. The second proposal before the stockholders, the amendment and restatement of the 2004 Molex Incorporated Employee Stock Purchase Plan, was approved. The number of Common Stock shares voted for the proposal was 82,503,248; against - 6,288,159; abstaining - 853,562; and broker non-votes - 5,155,340. Substantially all Class B Common Stock shares, 94,105, were voted for the proposal. The final proposal before the stockholders, the ratification of Deloitte & Touche LLP as the independent auditors, was approved. The number of Common Stock shares voted for the proposal was 86,404,079; against - 7,555,982; abstaining - 840,248; and broker non-votes - 0. Substantially all Class B Common Stock shares, 94,105, were voted for the proposal. Item 5. Other Information Change in Molex's Certifying Accountant. On November 13, 2004, Deloitte & Touche LLP notified Molex that Deloitte was resigning as Molex's independent public accounting firm. Molex expects to engage a new independent registered public accounting firm in the near future. A summary of the circumstances surrounding these developments is set forth below. During the fiscal quarter ended September 30, 2004, Molex's management identified the omission of certain intercompany inventory in its calculation of profit-in-inventory elimination for prior periods. Molex's management determined that Molex's financial statements for the fiscal quarter ended September 30, 2004 would include a charge of $8.0 million ($5.8 million after-tax or $0.03 per share) related to the omission in prior fiscal periods, of which approximately $3.0 million ($2.2 million after-tax) was related to fiscal 2004. This charge was reflected in the financial results included in Molex's October 20, 2004 earnings release and is reflected in the unaudited financial statements included in this 15 Form 10-Q. Molex concluded that the amounts related to fiscal 2004 and prior years are not material, both individually and in the aggregate, to the trends of the financial statements for those periods affected, and to a fair presentation of Molex's results of operations and financial statements. Molex's independent public accounting firm, Deloitte & Touche LLP, expressed to the Audit Committee that the omission described above should have been disclosed in the representation letter dated August 20, 2004 of Molex's Chief Executive Officer and Chief Financial Officer delivered to Deloitte on September 10, 2004 in connection with the audit of Molex's financial statements as of and for the year ended June 30, 2004 and the filing of Molex's Annual Report on Form 10-K on September 10, 2004. The signatories did not believe that the matter was required to be addressed in that letter. The Audit Committee, with the assistance of independent legal and accounting advisors, conducted an inquiry into the omission and related matters. The Audit Committee of Molex's Board of Directors concluded that it concurs with management's recommendations as to the accounting treatment for such omission. No additional adjustments were identified as a result of this inquiry. The Audit Committee presented the findings of the inquiry to Deloitte. Deloitte requested additional information relating to this matter and the Audit Committee provided the information responsive to those requests. The Molex Board of Directors on November 10 named Robert B. Mahoney, a current Executive Vice President and former Chief Financial Officer of Molex, as the Acting Chief Financial Officer, and reassigned the prior Chief Financial Officer to the position of Vice President and Treasurer. The Board's action was in response to Deloitte having advised Molex that, because of its view that this matter should have been disclosed in the August 20, 2004 representation letter, Deloitte would require representations and certifications from a new principal accounting and financial officer in connection with Molex's future filings with the Securities and Exchange Commission containing financial statements, including this Quarterly Report on Form 10-Q. Deloitte had concurrently advised Molex that it was considering whether it would require representations and certifications from a new principal executive officer in connection with Molex's future SEC filings. On Saturday, November 13, 2004, representatives of Deloitte advised Molex that Deloitte was prepared to complete its SAS 100 review in time to permit a filing of this Form 10-Q in substantially the form in which it is filed by the November 15 extended deadline for such report, but only if Molex's principal executive officer and former principal financial and accounting officer, who was recently reassigned as Vice President and Treasurer as described in Molex's November 11 press release attached as Exhibit 99.1 hereto, no longer served as officers of Molex and certain disclosures relating to the matters in question were agreed upon. Molex's Audit Committee and Board of Directors each unanimously rejected this condition imposed by Deloitte. Following the communication of Molex's position, representatives of Deloitte advised Molex that Deloitte was resigning as Molex's independent auditors effective immediately. Deloitte did not advise the Company that its resignation was due to any disagreements with Molex on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures which, if not resolved to the satisfaction of Deloitte, would have caused Deloitte to make reference thereto in its audit report. Due to the timing of Deloitte's resignation, Molex could not retain a new independent public accounting firm prior to the filing of this Quarterly Report on Form 10-Q. Consequently, the financial statements included in this Form 10-Q have not been reviewed by an independent public accounting firm as required by Rule 10-01(d) of Regulation S-X. As a result, Molex's Chief Executive Officer and Molex's Acting Chief Financial Officer cannot certify that this Form 10-Q "fully complies" with the requirement of Section 13(a) or 15(d) of the Exchange Act as required by Section 906 of the Sarbanes-Oxley Act of 2002. Molex expects to engage a new independent registered public accounting firm in the near future. Molex also expects that the review of its financial statements for the fiscal quarter ended September 30, 2004 will be completed as soon as practicable following Molex's engagement of a new independent public accounting firm. Upon the completion of such review, Molex plans to file an amendment to this Form 10-Q, which amendment would include the certifications required by Section 906 of the Sarbanes- Oxley Act of 2002. Until such planned amendment to this Form 10-Q is filed, Molex is not deemed by the SEC to be current or timely 16 in its Exchange Act filings. After the planned amendment to this Form 10-Q is filed, Molex will be current in its SEC reporting obligations. Compliance with Nasdaq Continued Listing Requirements. Nasdaq Marketplace Rule 4310(c)(14) requires Molex to file with the Nasdaq Stock Market, Inc. ("Nasdaq") copies of all reports filed or required to be filed with the SEC. On November 15, 2004, Molex will have notified Nasdaq that Deloitte had resigned and that as a result the unaudited financial statements included in this Form 10-Q filing have not been reviewed by an independent registered public accounting firm. Because the SEC does not deem this Form 10-Q to be current and timely, Molex will not be in compliance with Nasdaq's continued listing standards and Molex expects that Nasdaq will issue a letter to Molex regarding such non-compliance and potential delisting. Molex would in such circumstance appeal to the Nasdaq Hearing Panel and request an extension sufficient to allow Molex's independent registered public accounting firm to complete its SAS 100 review and for Molex to remedy such noncompliance by filing the planned amendment to this Form 10-Q. Departure and Appointment of Principal Officers. On November 10, 2004, Molex's Board of Directors appointed Robert B. Mahoney, a current Executive Vice President and former Chief Financial Officer of Molex, as the Acting Chief Financial Officer and reassigned the prior Chief Financial Officer, Diane S. Bullock, to the position of Vice President and Treasurer. Robert B. Mahoney, age 51, has been employed by Molex since 1995. In addition to his appointment as Acting Chief Financial Officer, Mr. Mahoney will continue to serve as an Executive Vice President of Molex (since 2002) and as President, Far East South (beginning in 2004). Previously, he served as Molex's Treasurer and Chief Financial Officer from 1996 to 2004 and as a Corporate Vice President of Molex from 1996 to 2002. There is no family relationship between Mr. Mahoney and any director, executive officer, or person nominated or chosen by Molex to become a director or executive officer. There is no written employment agreement between Mr. Mahoney and Molex. Additional Information. You should refer to Molex's Current Report on Form 8-K dated November 15, 2004, including Molex's press release dated November 15, 2004 for additional information regarding the foregoing matters. You should also refer to Molex's November 11, 2004 press release attached hereto as Exhibit 99.1. Cautionary Statement This Quarterly Report on Form 10-Q contains certain statements that are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements, in general, predict, forecast, indicate or imply future results, performance or achievements and are typically identified by words or phases such as "believe", "expect", "estimate" and similar expressions. Such forward-looking statements are subject to various risks and uncertainties that may cause actual results or performance to vary materially from those projected. Certain of these risks and uncertainties are set forth in this and other documents filed with the Securities and Exchange Commission and include, but are not limited to, Molex's ability to timely hire a new independent registered public accounting firm, Molex's ability to timely comply with SEC and Nasdaq reporting obligations, economic conditions in various regions, product and price competition, raw material prices, foreign currency exchange rates, interest rates, changes in technology, patent issues, litigation results and legal and regulatory developments. Molex undertakes no obligation to update or revise these forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Item 6. Exhibits Number Description ------ ----------- 31 Rule 13a-14(a)/15d-14(a) Certifications 17 31.1 Section 302 certification by Chief Executive Officer 31.2 Section 302 certification by Acting Chief Financial Officer 99 Additional Exhibits 99.1 Press release dated November 11, 2004 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MOLEX INCORPORATED _______________________ (Registrant) Date: November 15, 2004 /s/ ROBERT B. MAHONEY ______________________ Robert B. Mahoney Acting Chief Financial Officer Executive Vice President, and President, Far East South Date: November 15, 2004 /s/ LOUIS A. HECHT ___________________ Louis A. Hecht Corporate Secretary and General Counsel 19 EX-31 2 ex31q1fy05.txt EXHIBIT 31 EXHIBIT 31.1 CERTIFICATION I, J. Joseph King, Vice Chairman and Chief Executive Officer of Molex Incorporated, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Molex Incorporated; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 15, 2004 /s/ J.JOSEPH KING __________________ J. Joseph King Vice Chairman and Chief Executive Officer EXHIBIT 31.2 CERTIFICATION I, Robert B. Mahoney, Acting Chief Financial Officer, Executive Vice President, and President, Far East South of Molex Incorporated, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Molex Incorporated; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 15, 2004 /s/ ROBERT B. MAHONEY ________________________ Robert B. Mahoney Acting Chief Financial Officer, Executive Vice President, and President, Far East South EX-99 3 exhibit99.txt EXHIBIT 99 EXHIBIT 99.1 Contact: Neil Lefort Vice President, Investor Relations (630) 527-4344 MOLEX DELAYS FILING OF QUARTERLY REPORT Appoints Acting Chief Financial Officer Lisle, IL, USA - November 11, 2004 -- Molex Incorporated (NASDAQ: MOLX and MOLXA), a global electronic components company, announced today that it filed a notification of late filing with the Securities and Exchange Commission yesterday afternoon that provides the company with an extension of the filing deadline for the Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2004 until Monday, November 15, 2004. Molex also announced that its Board of Directors has appointed Robert Mahoney, a current Executive Vice President and former Chief Financial Officer of Molex, as the Acting Chief Financial Officer of Molex in response to the circumstances described below. During the fiscal quarter ended September 30, 2004, Molex's management identified the omission of certain intercompany inventory in its calculation of profit-in-inventory elimination for prior periods. Molex's management determined that Molex's financial statements for the three months ended September 30, 2004 would include a charge of $8.0 million ($5.8 million after- tax or $0.03 per share) related to the omission in prior fiscal periods, of which approximately $3.0 million ($2.2 million after- tax) was related to fiscal 2004. This charge was reflected in the financial results included in Molex's October 20, 2004 earnings release. Molex concluded that the amounts related to fiscal 2004 and prior years are not material, both individually and in the aggregate, to the trends of the financial statements for those periods affected, and to a fair presentation of Molex's results of operations and financial statements. Molex's audit committee concurs with management's recommendations as to the accounting treatment for such omission. Molex's management is not aware of any information which would result in additional adjustments for the prior fiscal periods or financial results contained in the October 20, 2004 earnings release. Deloitte & Touche LLP, Molex's independent auditors, expressed to Molex's audit committee that the omission described above should have been disclosed in the August 20, 2004 representation letter of Molex's Chief Executive Officer and Chief Financial Officer delivered to Deloitte & Touche in connection with the audit of Molex's financial statements as of and for the year ended June 30, 2004. The signatories did not believe that the matter was required to be addressed in that letter. Molex's audit committee, with the assistance of independent legal and accounting advisors, conducted an inquiry into these circumstances. No additional adjustments have been identified as a result of this inquiry. The audit committee presented the findings of the inquiry to Deloitte & Touche, and Deloitte & Touche has requested additional information relating to this matter, and the Audit Committee is responding to that request. The Molex Board of Directors on November 10 named Robert Mahoney, a current Executive Vice President and former Chief Financial Officer of Molex, as the Acting Chief Financial Officer, and reassigned the prior Chief Financial Officer to the position of Vice President and Treasurer. The Board's action was in response to Deloitte & Touche having advised Molex that, because of its view that this matter should have been disclosed in the August 20, 2004 representation letter, Deloitte & Touche would require representations and certifications from a new principal accounting and financial officer in connection with Molex's future filings with the Securities and Exchange Commission containing financial statements, including the Form 10- Q for the fiscal quarter ended September 30, 2004. Deloitte & Touche advised Molex that it is considering whether it would require representations and certifications from a new principal executive officer in connection with Molex's future SEC filings, and Molex is reviewing potential alternatives pending receipt of Deloitte & Touche's definitive position. Deloitte & Touche further advised Molex that, in light of its requests for additional information related to these matters, Deloitte & Touche is currently unable to complete its review under Statement of Auditing Standards No. 100 "Interim Financial Information" of the Company's unaudited financial statements for the fiscal quarter ended September 30, 2004. The Company intends to file the Form 10-Q for the fiscal quarter ended September 30, 2004 when such review has been completed. Statements in this release that are not historical are forward-looking and are subject to various risks and uncertainties that could cause actual results to vary materially from those stated. Certain of these risks and uncertainties are set forth in Molex's 10-K and other documents filed with the Securities and Exchange Commission and include economic conditions in various regions, product and price competition and foreign currency exchange rate changes. Molex does not undertake to revise these forward-looking statements or to provide any updates regarding information contained in this release resulting from new information, future events or otherwise. The Company's Annual Report, as well as news releases and other supplementary financial data is available by accessing the Company's website at www.molex.com. Molex Incorporated is a 66-year-old manufacturer of electronic components, including electrical and fiber optic interconnection products and systems, switches and integrated products in 55 plants in 19 countries throughout the world. Editor's note: Molex is traded on the NASDAQ National Market System in the United States and on the London Stock Exchange. The companies voting stock (MOLX) is included in the S&P 500 Index and the NASDAQ 100. -----END PRIVACY-ENHANCED MESSAGE-----