UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 0-7491

 

MOLEX INCORPORATED

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of		36-2369491 (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 þ No o

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes þ No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

     On January 20, 2011, the following numbers of shares of the Company’s common stock were outstanding:

Common Stock			95,560,076
Class A Common Stock			79,198,747
Class B Common Stock			94,255

 

 

Molex Incorporated

INDEX

		Page
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of December 31, 2010 and June 30, 2010			3
Condensed Consolidated Statements of Operations for the three and six months ended December 31, 2010 and 2009			4
Condensed Consolidated Statements of Cash Flows for the six months ended December 31, 2010 and 2009			5
Notes to Condensed Consolidated Financial Statements			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			14
Item 3. Quantitative and Qualitative Disclosures About Market Risk			26
Item 4. Controls and Procedures			26
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			27
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			28
Item 6. Exhibits			28
SIGNATURES			29
2005 Molex Supplemental Executive Retirement Plan, as Amended and Restated
Section 302 Certification of Chief Executive Officer
Section 302 Certification of Chief Financial Officer
Section 906 Certification of Chief Executive Officer
Section 906 Certification of Chief Financial Officer

PART I

Item 1.		Financial Statements

Molex Incorporated

(in thousands)

		Dec. 31,				June 30,
		2010				2010
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	392,390			$	376,352
Marketable securities			18,239				18,508
Accounts receivable, less allowances of $50,390 and $43,650 respectively			759,814				734,932
Inventories			559,637				469,369
Deferred income taxes			114,944				112,531
Other current assets			55,713				64,129
Total current assets			1,900,737				1,775,821
Property, plant and equipment, net			1,129,141				1,055,144
Goodwill			134,218				131,910
Non-current deferred income taxes			85,222				94,191
Other assets			180,731				179,512
Total assets		$	3,430,049			$	3,236,578
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt and short-term borrowings		$	107,668			$	110,070
Accounts payable			377,592				395,474
Accrued expenses:
Accrual for unauthorized activities in Japan			180,074				165,815
Income taxes payable			18,842				21,505
Other			207,267				219,832
Total current liabilities			891,443				912,696
Other non-current liabilities			19,103				19,869
Accrued pension and postretirement benefits			129,420				135,448
Long-term debt			198,639				183,434
Total liabilities			1,238,605				1,251,447
Commitments and contingencies
Stockholders’ equity:
Common stock			11,246				11,207
Paid-in capital			654,307				638,796
Retained earnings			2,328,374				2,232,445
Treasury stock			(1,101,878	)			(1,098,087	)
Accumulated other comprehensive income			299,395				200,770
Total stockholders’ equity			2,191,444				1,985,131
Total liabilities and stockholders’ equity		$	3,430,049			$	3,236,578

See accompanying notes to condensed consolidated financial statements.

Molex Incorporated

(Unaudited)

(in thousands, except per share data)

		Three Months Ended								Six Months Ended
		December 31,								December 31,
		2010				2009				2010				2009
Net revenue		$	901,465			$	729,576			$	1,799,137			$	1,403,609
Cost of sales			630,420				517,040				1,253,016				999,654
Gross profit			271,045				212,536				546,121				403,955
Selling, general and administrative			159,044				150,105				316,100				295,734
Restructuring costs and asset impairments			—				25,635				—				81,528
Unauthorized activities in Japan			2,713				8,543				8,255				14,097
Total operating expenses			161,757				184,283				324,355				391,359
Income from operations			109,288				28,253				221,766				12,596
Interest (expense) income, net			(1,788	)			(1,286	)			(3,123	)			(2,286	)
Other income (expense)			4,792				(701	)			4,441				2,783
Total other income (expense)			3,004				(1,987	)			1,318				497
Income before income taxes			112,292				26,266				223,084				13,093
Income taxes			34,009				12,426				69,697				14,389
Net income (loss)		$	78,283			$	13,840			$	153,387			$	(1,296	)
Earnings (loss) per share:
Basic		$	0.45			$	0.08			$	0.88			$	(0.01	)
Diluted		$	0.45			$	0.08			$	0.88			$	(0.01	)
Dividends declared per share		$	0.1750			$	0.1525			$	0.3275			$	0.3050
Average common shares outstanding:
Basic			174,664				173,743				174,510				173,605
Diluted			175,556				174,575				175,329				173,605

See accompanying notes to condensed consolidated financial statements.

Molex Incorporated

(Unaudited)

(in thousands)

		Six Months Ended
		December 31,
		2010				2009
Operating activities:
Net income (loss)		$	153,387			$	(1,296	)
Add non-cash items included in net income (loss):
Depreciation and amortization			120,804				121,263
Share-based compensation			11,460				15,127
Non-cash restructuring and other costs, net			—				19,922
Other non-cash items			7,275				27,428
Changes in assets and liabilities:
Accounts receivable			3,221				(58,715	)
Inventories			(67,631	)			(18,589	)
Accounts payable			(36,945	)			9,128
Other current assets and liabilities			(11,280	)			14,687
Other assets and liabilities			2,184				12,883
Cash provided from operating activities			182,475				141,838
Investing activities:
Capital expenditures			(132,728	)			(93,320	)
Proceeds from sales of property, plant and equipment			1,400				6,554
Proceeds from sales or maturities of marketable securities			5,203				35,319
Purchases of marketable securities			(3,612	)			(1,485	)
Acquisitions			—				(10,090	)
Other investing activities			—				222
Cash used for investing activities			(129,737	)			(62,800	)
Financing activities:
Proceeds from revolving credit facility and short-term loans			50,000				110,000
Payments on revolving credit facility			(15,000	)			(70,000	)
Payments of short-term and long-term debt			(36,051	)			(15,336	)
Cash dividends paid			(53,186	)			(52,919	)
Exercise of stock options			1,820				991
Other financing activities			(1,954	)			(1,183	)
Cash used for financing activities			(54,371	)			(28,447	)
Effect of exchange rate changes on cash			17,671				11,020
Net increase in cash and cash equivalents			16,038				61,611
Cash and cash equivalents, beginning of period			376,352				424,707
Cash and cash equivalents, end of period		$	392,390			$	486,318

See accompanying notes to condensed consolidated financial statements.

Molex Incorporated

(Unaudited)

1. Basis of Presentation

     Molex Incorporated (together with its subsidiaries, except where the context otherwise requires, “we,” “us,” and “our”) manufactures electronic components, including electrical and fiber optic interconnection products and systems, switches and integrated products in 39 manufacturing locations in 16 countries.

     The accompanying Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments consisting of normal recurring accruals considered necessary for a fair statement of results for the interim period have been included. Operating results for the three and six months ended December 31, 2010 are not necessarily an indication of the results that may be expected for the year ending June 30, 2011. The Condensed Consolidated Balance Sheet as of June 30, 2010 was derived from our audited consolidated financial statements for the year ended June 30, 2010. These financial statements and related notes should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended June 30, 2010.

     The preparation of the unaudited financial statements in conformity with GAAP requires the use of estimates and assumptions related to the reporting of assets, liabilities, revenues, expenses and related disclosures. Significant estimates and assumptions are used in the estimation of income taxes, pension and retiree health care benefit obligations, stock options, accrual for unauthorized activities in Japan, allowances for accounts receivable and inventory and impairment reviews for goodwill, intangible and other long-lived assets. Estimates are revised periodically. Actual results could differ from these estimates. Material subsequent events are evaluated and disclosed through the report issuance date.

2. Unauthorized Activities in Japan

     As we previously reported, in April 2010, we launched an investigation into unauthorized activities in Japan. We learned that an individual working in Molex Japan’s finance group obtained unauthorized loans from third party lenders, that included in at least one instance the attempted unauthorized pledge of Molex Japan facilities as security, in Molex Japan’s name that were used to cover losses resulting from unauthorized trading, including margin trading, in Molex Japan’s name. We also learned that the individual misappropriated funds from Molex Japan’s accounts to cover losses from unauthorized trading. The individual admitted to forging documentation in arranging and concealing the transactions. We retained outside legal counsel, and they retained forensic accountants, to investigate the matter. The investigation has been completed.

     As previously reported in our Annual Report on Form 10-K for the year ended June 30, 2010, based on the results of the completed investigation, we recorded for accounting purposes an accrued liability for the effect of unauthorized activities pending the resolution of these matters including the legal proceedings reported in Note 12. We believe these unauthorized activities and related losses occurred from at least as early as 1988 through 2010, with approximately $167.4 million of losses occurring prior to June 30, 2007. The accrued liability for these potential net losses was $180.1 million as of December 31, 2010, including $14.3 million in cumulative foreign currency translation, which was recorded as a component of other comprehensive income. To the extent we prevail in not having to pay all or any portion of the outstanding unauthorized loans, we would recognize a gain in that amount. In addition, we have a contingent liability of $18.0 million for other loan-related expenses, interest expense and delay damages on the outstanding unauthorized loans.

     Cumulative investigative and legal costs through December 31, 2010 were $13.0 million, including $8.3 million in the first six months of fiscal 2011.

3. Restructuring Costs and Asset Impairments

     On June 30, 2010 we completed a multi-year restructuring plan designed to reduce costs and to improve return on invested capital in connection with a new global organization that was effective July 1, 2007. A majority of the plan related to facilities located in North America, Europe and Japan and, in general, the movement of manufacturing activities from these plants to lower-cost facilities.

     Changes in the accrued severance balance are summarized as follows (in thousands):

Balance at June 30, 2010		$	26,898
Cash payments			(9,390	)
Non-cash related costs			1,519
Balance at September 30, 2010		$	19,027
Cash payments			(2,585	)
Non-cash related costs			105
Balance at December 31, 2010		$	16,547

4. Earnings (Loss) Per Share

     A reconciliation of the basic average common shares outstanding to diluted average common shares outstanding is as follows (in thousands):

		Three Months Ended								Six Months Ended
		December 31,								December 31,
		2010				2009				2010				2009
Net income (loss)		$	78,283			$	13,840			$	153,387			$	(1,296	)
Basic average common shares outstanding			174,664				173,743				174,510				173,605
Effect of dilutive stock options			892				832				819				—
Diluted weighted average common shares outstanding			175,556				174,575				175,329				173,605
Earnings (loss) per share:
Basic		$	0.45			$	0.08			$	0.88			$	(0.01	)
Diluted		$	0.45			$	0.08			$	0.88			$	(0.01	)

     Excluded from the computations above were anti-dilutive shares of 7.4 million and 6.4 million for the three months and six months ended December 31, 2010, respectively, compared with 6.8 million and 8.4 million for the same prior year periods. During the six months ended December 31, 2009, we incurred a net loss. As common stock equivalents have an anti-dilutive effect on the net loss, the equivalents were not included in the computation of diluted loss per share for the six months ended December 31, 2009.

5. Comprehensive Income

     Total comprehensive income (loss) is summarized as follows (in thousands):

		Three Months Ended								Six Months Ended
		December 31,								December 31,
		2010				2009				2010				2009
Net income (loss)		$	78,283			$	13,840			$	153,387			$	(1,296	)
Translation adjustments			14,045				(2,306	)			86,011				40,530
Pension liability remeasurement			11,824				—				11,824				(5,831	)
Unrealized investment gain (loss)			2,452				2,584				790				(2,893	)
Total comprehensive income (loss)		$	106,604			$	14,118			$	252,012			$	30,510

     During the three months ended December 31, 2010, we amended a defined benefit pension plan in the U.S.

to close participation and freeze benefit accruals under the plan. We remeasured the pension liability, resulting in an $11.8 million reduction in the liability. During the six months ended December 31, 2009, we recognized a pension liability remeasurement of $5.2 million related to the merger of two pension plans and $0.6 million related to a pension curtailment.

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):

		Dec. 31,				June 30,
		2010				2010
Raw materials		$	104,867			$	86,338
Work in process			154,517				139,922
Finished goods			300,253				243,109
Total inventories		$	559,637			$	469,369

7. Pensions and Other Postretirement Benefits

     The components of pension benefit cost are as follows (in thousands):

		Three Months Ended								Six Months Ended
		December 31,								December 31,
		2010				2009				2010				2009
Service cost		$	451			$	1,990			$	2,648			$	3,980
Interest cost			487				2,041				2,454				4,082
Expected return on plan assets			(472	)			(1,696	)			(2,284	)			(3,392	)
Amortization of prior service cost			13				10				66				20
Recognized actuarial losses			893				57				1,786				114
Amortization of transition obligation			9				624				18				1,248
Curtailment adjustment			—				—				—				(3,849	)
Benefit cost		$	1,381			$	3,026			$	4,688			$	2,203

     During the six months ended December 31, 2009, we recognized a $3.8 million pension curtailment gain from the merger of two pension plans. As discussed in Note 5, we recorded a pension curtailment during the three months ended December 31, 2010, reducing fiscal 2011 pension expense $2.8 million, and a pension liability remeasurement during the six months ended December 31, 2009.

     The components of retiree health care benefit cost are as follows (in thousands):

		Three Months Ended								Six Months Ended
		December 31,								December 31,
		2010				2009				2010				2009
Service cost		$	342			$	271			$	684			$	542
Interest cost			617				621				1,234				1,242
Amortization of prior service cost			(516	)			(516	)			(1,032	)			(1,032	)
Recognized actuarial losses			333				175				666				350
Benefit cost		$	776			$	551			$	1,552			$	1,102

8. Debt

     Total debt consisted of the following (in thousands):

		Average
		Interest								December 31,				June 30,
		Rate				Maturity				2010				2010
Long-term debt:
U.S. Credit Facility			2.76	%			2012			$	135,000			$	100,000
Unsecured bonds and term loans			1.31 – 1.65	%			2012 – 2013				62,438				81,431
Other debt			5.92	%			2013				1,201				2,003
Total long-term debt											198,639				183,434
Current portion of long-term debt and short-term borrowings:
Unsecured bonds, term loans and short-term credit line			1.31 – 2.48	%							100,732				104,359
Other short-term borrowings, including capital leases			4.86%–5.92	%							6,936				5,711
Total current portion of long-term debt and short-term borrowings											107,668				110,070
Total debt										$	306,307			$	293,504

     In September 2010, Molex Japan renewed a ¥5.0 billion overdraft loan, with a six month term and an interest rate of approximately 2.48%. At December 31, 2010, the balance of the overdraft loan, which requires full repayment by the end of the term, approximated $49.0 million.

     In March 2010, Molex Japan entered into a ¥3.0 billion syndicated term loan for three years, with interest rates equivalent to six month Tokyo Interbank Offered Rate (TIBOR) plus 75 basis points and scheduled principal payments of ¥0.5 billion every six months. At December 31, 2010, the balance of the syndicated term loan approximated $30.9 million, of which $12.3 million was current.

     In September 2009, Molex Japan issued unsecured bonds totaling ¥10.0 billion with a term of three years, an interest rate of approximately 1.65% and scheduled principal payments of ¥1.6 billion every six months. At December 31, 2010, the outstanding balance of the unsecured bonds approximated $83.3 million, of which $39.4 million was current.

     In June 2009, we entered into a $195.0 million unsecured, three-year revolving credit facility in the United States, amended in January 2010, that matures in June 2012 (the “U.S. Credit Facility”). Borrowings under the U.S. Credit Facility bear interest at a fluctuating interest rate (based on London InterBank Offered Rate) plus an applicable percentage based on our consolidated leverage. The applicable percentage was 276 basis points as of December 31, 2010. In September 2010, we increased the credit line to $270.0 million and added three lenders. The instrument governing the U.S. Credit Facility contains customary covenants regarding liens, debt, substantial asset sales and mergers, dividends and investments. The U.S. Credit Facility also requires us to maintain financial covenants pertaining to, among other things, our consolidated leverage, fixed charge coverage and liquidity. As of

December 31, 2010, we were in compliance with these covenants and had outstanding borrowings of $135.0 million. We obtained waiver letters from the participating banks for any default of the U.S. Credit Facility arising from the unauthorized activities in Japan.

     Certain assets, including land, buildings and equipment, secure a portion of our long-term debt. Principal payments on long-term debt obligations are due as follows: fiscal 2012, $187.0 million; fiscal 2013, $37.3 million; fiscal 2014, $5.0 million.

     We had available lines of credit totaling $234.4 million at December 31, 2010 expiring between 2010 and 2013.

9. Income Taxes

     The effective tax rate was 30.3% for the three months ended December 31, 2010 and 47.3% for the three months ended December 31, 2009. Net changes in the amount of unrecognized tax benefits in the three months ended December 31, 2010 were approximately a $2.8 million benefit. The effective tax rate for the six months ended December 31, 2010 was 31.2%.

     We are subject to tax in U.S. Federal, State and foreign tax jurisdictions. We have substantially completed all U.S. federal income tax matters for tax years through 2006. The tax years 2007 through 2009 remain open to examination by all major taxing jurisdictions to which we are subject.

     It is our practice to recognize interest and penalties related to income tax matters in tax expense. As of December 31, 2010, there were no material interest or penalty amounts to accrue.

10. Fair Value Measurements

     The following table summarizes our financial assets and liabilities as of December 31, 2010, which are measured at fair value on a recurring basis (in thousands):

Quoted Prices

in Active

Significant

Total

Markets for

Other

Significant

Measured

Identical

Observable

Unobservable

at Fair

Assets

Inputs

Inputs

Value

(Level 1)

(Level 2)

(Level 3)

Available for sale and trading securities

$

30,198

$

30,198

$

—

$

—

Derivative financial instruments, net

9,395

—

9,395

—

     We determine the fair value of our marketable and available for sale securities based on quoted market prices (Level 1). We generally use derivatives for hedging purposes, which are valued based on Level 2 inputs in the fair value hierarchy. The fair value of our financial instruments is determined by a mark-to-market valuation based on forward curves using observable market prices.

     The carrying value of our long-term debt approximates fair value.

11. New Accounting Pronouncements

     In January 2010, the Financial Accounting Standards Board (the FASB) issued new guidance to enhance disclosure requirements related to fair value measurements by requiring certain new disclosures and clarifying certain existing disclosures. The new guidance requires additional information related to activities in the reconciliation of Level 3 fair value measurements. The new guidance also expands the disclosures related to the disaggregation of assets and liabilities and information about inputs and valuation techniques. The new guidance related to Level 3 fair value measurements will be effective for us on January 1, 2011. We are currently evaluating the requirements of this new guidance, but do not expect it to have a material impact on our financial statements.

12. Contingencies

     We are currently a party to various legal proceedings, claims and investigations including those disclosed in this note. While management presently believes that the ultimate outcome of these proceedings, individually and in the aggregate, will not materially adversely impact our financial position or overall trends in operations, legal proceedings are subject to inherent uncertainties, and unfavorable rulings or other events could occur. If unfavorable final outcomes were to occur, then there exists the possibility of a material adverse impact.

Employment and Benefits Litigation

     In 2009, a French subsidiary of Molex, Molex Automotive SARL, decided to close a facility it operated in Villemur-sur-Tarn, France. Molex Automotive SARL submitted a social plan to Molex Automotive SARL’s labor representatives providing for payments to approximately 280 terminated employees. This social plan was adopted by Molex Automotive SARL in 2009, which made payments to those employees until September 2010. In September 2010, 188 former employees of Molex Automotive SARL who were covered under the social plan filed suit against Molex Automotive SARL in the Toulouse Labor Court, requesting additional compensation on the basis that their dismissal was not economically justified. The total amount sought by the 188 employees from Molex Automotive SARL is approximately €25 million ($34.9 million). Molex initiated liquidation of Molex Automotive SARL, and pursuant to a court proceeding, a liquidator was appointed in November 2010. One of the liquidator’s responsibilities is to assess and respond to the lawsuits involving Molex Automotive SARL.

Molex Japan Co., Ltd

     As we previously reported in our Annual Report on Form 10-K, we launched an investigation into unauthorized activities at Molex Japan Co., Ltd. in April 2010. We learned that an individual working in Molex Japan’s finance group obtained unauthorized loans from third party lenders, that included in at least one instance the attempted unauthorized pledge of Molex Japan facilities as security, in Molex Japan’s name that were used to cover losses resulting from unauthorized trading, including margin trading, in Molex Japan’s name. We also learned that the individual misappropriated funds from Molex Japan’s accounts to cover losses from unauthorized trading. The individual admitted to forging documentation in arranging and concealing the transactions. We retained outside legal counsel, and they retained forensic accountants, to investigate the matter. The investigation has been completed.

     On August 31, 2010, Mizuho Bank, which holds the unauthorized loans, filed a complaint in Tokyo District Court requesting the court to find Molex Japan liable for the payment of the outstanding unauthorized loans and to enter a judgment for such payment. Mizuho is claiming payment of outstanding principal borrowings of ¥3 billion ($36.8 million), ¥5 billion ($61.3 million), ¥5 billion ($61.3 million) and ¥2 billion ($24.5 million), other loan-related expenses of approximately ¥106 million ($1.3 million) and interest and delay damages of approximately ¥1.4 billion ($16.7 million) as of December 31, 2010. On October 13, 2010, Molex Japan filed a written answer requesting the court to dismiss the complaint and Mizuho filed its response, brief no. 1, on December 15, 2010. We intend to vigorously contest the enforceability of the outstanding unauthorized loans and any attempt by the lender to obtain payment. See Note 2 for accounting treatment of the accrual for unauthorized activities in Japan.

13. Segments and Related Information

     Our reportable segments consist of the Connector and Custom & Electrical segments:

	•		The Connector segment designs and manufactures products for high-speed, high-density, high signal-integrity applications as well as fine-pitch, low-profile connectors for the consumer and commercial markets. It also designs and manufactures products that withstand environments such as heat, cold, dust, dirt, liquid and vibration for automotive and other transportation applications.
	•		The Custom & Electrical segment designs and manufactures integrated and customizable electronic components, including connectors, across all industries that provide original,

differentiated solutions to customer requirements. It also leverages expertise in the use of signal, power and interface technology in industrial automation and other harsh environment applications.

     Information by segment is summarized as follows (in thousands):

						Custom &				Corporate
		Connector				Electrical				& Other				Total
For the three months ended:
December 31, 2010:
Revenues from external customers		$	665,230			$	236,046			$	189			$	901,465
Income (loss) from operations			105,915				32,005				(28,632	)			109,288
Depreciation & amortization			50,669				6,886				4,141				61,696
Capital expenditures			58,229				1,526				1,781				61,536
December 31, 2009:
Revenues from external customers		$	534,997			$	194,137			$	442			$	729,576
Income (loss) from operations			45,388				19,728				(36,863	)			28,253
Depreciation & amortization			48,709				8,315				3,650				60,674
Capital expenditures			38,487				4,909				4,290				47,686
For the six months ended:
December 31, 2010:
Revenues from external customers		$	1,326,366			$	472,077			$	694			$	1,799,137
Income (loss) from operations			204,562				74,571				(57,367	)			221,766
Depreciation & amortization			98,205				14,409				8,190				120,804
Capital expenditures			116,985				8,780				6,963				132,728
December 31, 2009:
Revenues from external customers		$	1,024,138			$	378,908			$	563			$	1,403,609
Income (loss) from operations			50,063				30,879				(68,346	)			12,596
Depreciation & amortization			97,222				16,698				7,343				121,263
Capital expenditures			79,078				7,508				6,734				93,320

     Corporate & Other includes expenses primarily related to corporate operations that are not allocated to segments such as executive management, human resources, legal, finance and information technology. We also include in Corporate & Other the investigative and legal costs related to the unauthorized activities in Japan and the assets of certain plants that are not specific to a particular division.

     Segment assets, which are comprised of accounts receivable, inventory and fixed assets, are summarized as follows (in thousands):

						Custom &				Corporate
		Connector				Electrical				& Other				Total
December 31, 2010		$	1,896,521			$	456,062			$	96,009			$	2,448,592
June 30, 2010			1,720,866				437,614				100,965				2,259,445

     The reconciliation of segment assets to consolidated total assets is as follows (in thousands):

		Dec. 31,				June 30,
		2010				2010
Segment net assets		$	2,448,592			$	2,259,445
Other current assets			581,286				571,520
Other non-current assets			400,171				405,613
Consolidated total assets		$	3,430,049			$	3,236,578

Molex Incorporated

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     Unless otherwise indicated or the content otherwise requires, the terms “we,” “us” and “our” and other similar terms in this Quarterly Report on Form 10-Q refer to Molex Incorporated and its subsidiaries.

     The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and accompanying notes contained herein and our consolidated financial statements and accompanying notes and management’s discussion and analysis of results of operations and financial condition contained in our Annual Report on Form 10-K for the fiscal year ended June 30, 2010. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those described below under the heading “Cautionary Statement Regarding Forward-Looking Information.”

Overview

     Our core business is the manufacture and sale of electromechanical components. Our products are used by a large number of leading original equipment manufacturers (OEMs) throughout the world. We design, manufacture and sell more than 100,000 products including terminals, connectors, planar cables, cable assemblies, interconnection systems, backplanes, integrated products and mechanical and electronic switches in 39 manufacturing locations in 16 countries. We also provide manufacturing services to integrate specific components into a customer’s product.

     We have two global product segments: Connector and Custom & Electrical.

	•		The Connector segment manufactures and sells products for high-speed, high-density, high signal-integrity applications as well as fine-pitch, low-profile connectors for the consumer and commercial markets. It also designs and manufactures products that withstand environments such as heat, cold, dust, dirt, liquid and vibration for automotive and other transportation applicants.
	•		The Custom & Electrical segment designs and manufactures integrated and customizable electronic components, including connectors, across all industries that provide original, differentiated solutions to customer requirements. It also leverages expertise in the use of signal, power and interface technology in industrial automation and other harsh environment applications.

     Customer demand and revenue has improved significantly in fiscal 2010 and 2011 from the instability in the global economy in fiscal 2009, particularly in Asia. The stronger end market demand and release of new products increased our net revenue and gross margins during the three and six months ended December 31, 2010 compared with the prior year periods. Selling, general and administrative expenses as a percent of revenue also decreased during the three and six months ended December 31, 2010 compared with the prior year periods due to higher net revenue and our lower cost structure resulting from our restructuring program and specific cost containment activities.

     On June 30, 2010 we completed a multi-year restructuring plan designed to reduce costs and to improve return on invested capital in connection with a new global organization that was effective July 1, 2007. A majority of the plan related to facilities located in North America, Europe and Japan and, in general, the movement of manufacturing activities from these plants to lower-cost facilities. Restructuring costs during fiscal 2010 were $116.9 million, consisting of $79.6 million of severance costs and $37.3 million for asset impairments.

     The markets in which we compete are highly competitive. Our financial results may be influenced by the following factors: our ability to successfully execute our business strategy; competition for customers; raw material prices; product and price competition; economic conditions in various geographic regions; foreign currency exchange rates; interest rates; changes in technology; fluctuations in customer demand; patent and intellectual property issues; availability of credit and general market liquidity; litigation results; and legal and regulatory developments. Our ability to execute our business strategy successfully will require that we meet a number of

challenges, including our ability to accurately forecast sales demand and calibrate manufacturing to such demand, manage volatile raw material costs, develop, manufacture and successfully market new and enhanced products and product lines, control operating costs, and attract, motivate and retain key personnel to manage our operational, financial and management information systems. Our sales are also dependent on end markets impacted by consumer, industrial and infrastructure spending, and our operating results can be adversely affected by reduced demand in those end markets.

Unauthorized Activities in Japan

     As we previously reported, in April 2010, we launched an investigation into unauthorized activities in Japan. We learned that an individual working in Molex Japan’s finance group obtained unauthorized loans from third party lenders, that included in at least one instance the attempted unauthorized pledge of Molex Japan facilities as security, in Molex Japan’s name that were used to cover losses resulting from unauthorized trading, including margin trading, in Molex Japan’s name. We also learned that the individual misappropriated funds from Molex Japan’s accounts to cover losses from unauthorized trading. The individual admitted to forging documentation in arranging and concealing the transactions. We retained outside legal counsel, and they retained forensic accountants, to investigate the matter. The investigation has been completed.

     As previously reported in our Annual Report on form 10-K for the year ended June 30, 2010, based on the results of the completed investigation, we recorded for accounting purposes an accrued liability for the effect of unauthorized activities pending the resolution of these matters including the legal proceedings reported in Note 12. We believe these unauthorized activities and related losses occurred from at least as early as 1988 through 2010, with approximately $167.4 million of losses occurring prior to June 30, 2007. The accrued liability for these potential net losses was $180.1 million as of December 31, 2010, including $14.3 million in cumulative foreign currency translation, which was recorded as a component of other comprehensive income. To the extent we prevail in not having to pay all or any portion of the outstanding unauthorized loans, we would recognize a gain in that amount. In addition, we have a contingent liability of $18.0 million for other loan-related expenses, interest expense and delay damages on the outstanding unauthorized loans.

     Cumulative investigative and legal costs through December 31, 2010 were $13.0 million, including $8.3 million in the first six months of fiscal 2011.

Critical Accounting Policies and Estimates

     This discussion and analysis of financial condition and results of operations is based on our condensed consolidated financial statements, which have been 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, we have made our best estimates and judgments of certain amounts included in the financial statements. Estimates are revised periodically. Actual results could differ from these estimates.

     The information concerning our critical accounting policies can be found under Management’s Discussion of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended June 30, 2010 filed with the Securities and Exchange Commission, which is incorporated by reference in this Form 10-Q.

Results of Operations

     The following table sets forth consolidated statements of operations data as a percentage of net revenue for the three months ended December 31 (in thousands):

						Percentage								Percentage
		2010				of Revenue				2009				of Revenue
Net revenue		$	901,465				100.0	%		$	729,576				100.0	%
Cost of sales			630,420				69.9	%			517,040				70.9	%
Gross profit			271,045				30.1	%			212,536				29.1	%
Selling, general & administrative			159,044				17.6	%			150,105				20.6	%
Restructuring costs and asset impairments			—				0.0	%			25,635				3.5	%
Unauthorized activities in Japan			2,713				0.4	%			8,543				1.1	%
Income from operations			109,288				12.1	%			28,253				3.9	%
Other income (expense), net			3,004				0.4	%			(1,987	)			(0.3	)%
Income before income taxes			112,292				12.5	%			26,266				3.6	%
Income taxes			34,009				3.8	%			12,426				1.7	%
Net income		$	78,283				8.7	%		$	13,840				1.9	%

     The following table sets forth consolidated statements of operations data as a percentage of net revenue for the six months ended December 31 (in thousands):

						Percentage								Percentage
		2010				of Revenue				2009				of Revenue
Net revenue		$	1,799,137				100.0	%		$	1,403,609				100.0	%
Cost of sales			1,253,016				69.6	%			999,654				71.2	%
Gross profit			546,121				30.4	%			403,955				28.8	%
Selling, general & administrative			316,100				17.6	%			295,734				21.1	%
Restructuring costs and asset impairments			—				0.0	%			81,528				5.8	%
Unauthorized activities in Japan			8,255				0.5	%			14,097				1.0	%
Income from operations			221,766				12.3	%			12,596				0.9	%
Other income, net			1,318				0.1	%			497				0.0	%
Income before income taxes			223,084				12.4	%			13,093				0.9	%
Income taxes			69,697				3.9	%			14,389				1.0	%
Net income (loss)		$	153,387				8.5	%		$	(1,296	)			(0.1	)%

Net Revenue

     We sell our products in five primary markets. Our connectors, interconnecting devices and assemblies are used principally in the telecommunications, infotech (formerly referred to as data), consumer, industrial and automotive markets. Our products are used in a wide range of applications including notebook computers, computer peripheral equipment, mobile products such as smartphones and tablets, digital electronics such as cameras and flat panel display televisions, automobile engine control units and adaptive braking systems, factory robotics and diagnostic equipment.

     Revenue increased significantly across all markets during the second quarter of fiscal 2011 compared with the second quarter of fiscal 2010 (comparable quarter) as customer demand improved over the prior year. Revenue increased in the telecommunications, infotech and automotive markets during the second quarter of fiscal 2011 compared with the first quarter of fiscal 2011 (sequential quarter), but declined in the consumer and industrial markets. The increase (decrease) in revenue from each market during the second quarter of fiscal 2011 compared with the comparable quarter and the sequential quarter follows:

		Comparable				Sequential
		Quarter				Quarter
Telecommunications			28.1	%			2.4	%
Infotech			21.3				0.8
Consumer			18.1				(5.1	)
Industrial			36.4				(3.3	)
Automotive			15.9				9.6

     Telecommunications market net revenue increased against both the comparable quarter and sequential quarter due to increased demand for mobile products, including higher demand for smartphones and our customers’ introduction of smartphone models.

     Infotech market net revenue increased against the comparable quarter primarily because of relatively low enterprise spending in the prior year and increased demand for networking and storage products in the current period. Infotech market net revenue increased modestly against the sequential quarter reflecting backlog reduction.

     Consumer market net revenue increased against the comparable quarter due to customers replenishing inventory levels and increased demand for our components in flat panel display televisions and digital cameras. Consumer market net revenue decreased against the sequential quarter as the first quarter benefitted from pre-holiday production volumes based on our customers’ anticipation of consumer spending during the holiday season.

     Industrial market net revenue increased substantially against the comparable quarter as global economic conditions improved over the prior year period. Demand for industrial instruments and production equipment improved as our customers’ increased production to meet demand after delaying many industrial automation projects in the prior year period due to uncertainties about the economic conditions. Sequentially, industrial market net revenue decreased as the backlog of demand caused by delayed projects has been reduced.

     Automotive market net revenue increased against the comparable and sequential quarters as global car sales have increased, particularly in North America and China, as improving global economic conditions led to our customers increasing vehicle builds to replenish inventory levels and meet rising demand. The automotive market also benefitted from our customers increasing electronic content in automobiles, such as rear view cameras, navigational systems and mobile communication and entertainment systems.

     The following table shows the percentage of our net revenue by geographic region:

		Three Months Ended								Six Months Ended
		December 31,								December 31,
		2010				2009				2010				2009
Americas			23	%			23	%			24	%			23	%
Asia Pacific			63				61				63				61
Europe			14				16				13				16
Total			100	%			100	%			100	%			100	%

     The following table provides an analysis of the change in net revenue compared with the prior fiscal year period (in thousands):

		Three Months				Six Months
		Ended				Ended
		Dec. 31, 2010				Dec. 31, 2010
Net revenue for prior year period		$	729,576			$	1,403,609
Components of net revenue change:
Organic net revenue change			162,312				376,930
Currency translation			8,985				16,018
Acquisitions			592				2,580
Total change in net revenue from prior year period			171,889				395,528
Net revenue for current year period		$	901,465			$	1,799,137
Organic net revenue change as a percentage of net revenue from prior year period			22.2	%			26.9	%

     Organic net revenue increased significantly during the three and six months ended December 31, 2010 compared with the comparable year periods as customer demand improved in all of our primary markets. We also completed an asset purchase of a company in China during the second quarter of fiscal 2010.

     Foreign currency translation increased net revenue approximately $9.0 million and $16.0 million for the three and six months ended December 31, 2010, respectively, principally due to a stronger Japanese yen, partially offset by a weaker euro against the U.S. dollar. The following tables show the effect on the change in geographic net revenue from foreign currency translations to the U.S. dollar (in thousands):

		Three Months Ended December 31, 2010												Six Months Ended December 31, 2010
		Local				Currency				Net				Local				Currency				Net
		Currency				Translation				Change				Currency				Translation				Change
Americas		$	35,817			$	208			$	36,025			$	97,140			$	474			$	97,614
Asia Pacific			99,745				20,231				119,976				233,404				40,801				274,205
Europe			21,913				(11,454	)			10,459				44,834				(25,257	)			19,577
Corporate & other			5,429				—				5,429				4,132				—				4,132
Net change		$	162,904			$	8,985			$	171,889			$	379,510			$	16,018			$	395,528

     The change in revenue on a local currency basis was as follows:

		Three Months				Six Months
		Ended				Ended
		Dec. 31, 2010				Dec. 31, 2010
Americas			20.9	%			29.7	%
Asia Pacific			22.4				27.4
Europe			19.0				20.0
Total			22.3	%			27.0	%

Gross Profit

     The following table provides a summary of gross profit and gross margin for the three and six months ended December 31 (in thousands):

		Three Months Ended								Six Months Ended
		December 31,								December 31,
		2010				2009				2010				2009
Gross profit		$	271,045			$	212,536			$	546,121			$	403,955
Gross margin			30.1	%			29.1	%			30.4	%			28.8	%

     The increase in gross profit for the three and six month periods ended December 31, 2010 was primarily due to higher revenue. The increase in gross margin was primarily due to higher absorption from increased production and lower costs resulting from our restructuring program, which has improved margins over time. The improvements in gross profit and gross margin were partially offset by the impact of price erosion and material price increases.

     A significant portion of our material cost is comprised of copper and gold. We purchased approximately 11.8 million pounds of copper and approximately 79,600 troy ounces of gold during the first two quarters of fiscal 2011. The following table shows the change in average prices related to our purchases of copper and gold for the three and six months ended December 31 (in thousands):

		Three Months Ended								Six Months Ended
		December 31,								December 31,
		2010				2009				2010				2009
Copper (price per pound)		$	3.93			$	3.01			$	3.57			$	2.83
Gold (price per troy ounce)			1,370.00				1,099.00				1,298.00				1,030.00

     Generally, we are able to pass through to our customers only a small portion of changes in the cost of copper and gold. However, we mitigate the impact of any significant increases in gold and copper prices by hedging with call options a portion of our projected net global purchases of gold and copper. The hedges reduced cost of sales by $2.0 million for the six months ended December 31, 2010. The hedges did not materially affect operating results for the three months ended December 31, 2010 or the three and six months ended December 31, 2009.

     The effect of certain significant impacts on gross profit compared with the prior year periods was as follows for the three and six months ended December 31 (in thousands):

		Three Months				Six Months
		Ended				Ended
		Dec. 31, 2010				Dec. 31, 2010
Price erosion		$	(31,945	)		$	(59,640	)
Currency translation			7,588				15,484
Currency transaction			(12,586	)			(25,721	)

     Price erosion is measured as the reduction in prices of our products year over year, which reduces our gross profit, particularly in our Connector segment, where we have the largest impacts of price erosion. A significant portion of our price erosion occurred in our mobile phone connector products, which are part of our telecommunications and consumer markets.

     The increase in gross profit due to currency translation was primarily due to a stronger Japanese yen against other currencies and a general weakening of the U.S. dollar against other currencies, during the three and six months ended December 31, 2010.

     Certain products that we manufacture in Japan and Europe are sold in other regions of the world at selling prices primarily denominated in or closely linked to the U.S. dollar. As a result, changes in currency exchange rates may affect our cost of sales reported in U.S. dollars without a corresponding effect on net revenue. The decrease in

gross profit due to currency transactions was primarily due to a stronger Japanese yen, partially offset by a weaker euro against the U.S. dollar during the three and six months ended December 31, 2010.

Operating Expenses

     Operating expenses were as follows as of December 31 (in thousands):

		Three Months Ended								Six Months Ended
		December 31,								December 31,
		2010				2009				2010				2009
Selling, general and administrative		$	159,044			$	150,105			$	316,100			$	295,734
Restructuring costs and asset impairments		$	—			$	25,635			$	—			$	81,528
Unauthorized activities in Japan			2,713				8,543				8,255				14,097
Selling, general and administrative as a percentage of revenue			17.6	%			20.6	%			17.6	%			21.1	%

     Selling, general and administrative expenses decreased as a percent of net revenue for the three and six months ended December 31, 2010 from the comparable prior year periods due to the increased revenue and our lower cost structure resulting from our restructuring efforts and specific cost containment activities. The impact of currency translation decreased selling, general, and administrative expenses by approximately $2.8 million and $5.4 million for the three and six months ended December 31, 2010, respectively, versus the comparable period.

     Research and development expenditures, which are classified as selling, general and administrative expense, were approximately $42.2 million, or 4.7% of net revenue and $82.7 million, or 4.6% of net revenue, for the three and six months ended December 31, 2010, respectively, compared with $36.7 million, or 5.0% of net revenue and $73.2 million, or 5.2% of net revenue, for the comparable prior year periods.

     Net restructuring costs decreased $25.6 million and $81.5 million during the three and six months ended December 31, 2010, compared with the comparable prior year periods, as we concluded our restructuring program. Net restructuring costs during the three months ended December 31, 2009 were $25.6 million, consisting of $6.8 million in asset impairments and $18.8 million for employee termination benefits. Net restructuring costs during the six months ended December 31, 2009 were $81.5 million, consisting of $20.0 million in asset impairments and $61.5 million for employee termination benefits. The cumulative expense of our restructuring program was $314.8 million with estimated annual savings of approximately $205.0 million.

     Unauthorized activities in Japan for the three and six months ended December 31, 2010 represent investigative and legal fees. See Note 2 of the “Notes to Consolidated Financial Statements.”

Other Income (Expense)

     Other income (expense) consists primarily of net interest income, investment income and currency exchange gains or losses. We recorded other income of $3.0 million and $1.3 million for the three and six months ended December 31, 2010, respectively, compared with a net loss of $2.0 million for the three months ended December 31, 2009 and a net gain of $0.5 million for the six months ended December 31, 2009. Other income for the six months ended December 31, 2010 was primarily due to investment income, partially offset by foreign currency exchange losses from a general weakening of the U.S. dollar against other currencies. The net loss during the three months ended December 31, 2009 was primarily related to foreign currency exchange losses resulting from strengthening of the U.S. dollar against most currencies.

Effective Tax Rate

     The effective tax rate was 30.3% for the three months ended December 31, 2010. During the three months ended December 31, 2010, we recorded income tax expense of $34.0 million. A negative tax impact of $2.1 million was recognized due to the reversal of estimated tax benefits resulting from expirations and exercises below original market value of employee stock options and restricted stock.

     The effective tax rate was 47.3% for the three months ended December 31, 2009, reflecting the tax cost of repatriating dividends during fiscal 2010 from certain non-U.S. subsidiaries having earnings that had previously been indefinitely reinvested.

Backlog

     Our order backlog on December 31, 2010 was approximately $413.7 million, an increase of 21.5% compared with order backlog of $340.6 million at December 31, 2009 and a decrease of 7.1% at September 30, 2010 as new capacity enabled our ability to fulfill customer backlog. Orders for the second quarter of fiscal 2011 were $871.7 million compared with $777.9 million for the prior year period, representing the significant increase in customer demand during fiscal 2011. Orders during the second quarter fiscal 2011 improved in all of our primary markets compared with the prior year period and were consistent with the first quarter of fiscal 2011.

Segments

     The following table sets forth information on net revenue by segment as of the three months ended December 31 (in thousands):

						Percentage								Percentage
		2010				of Revenue				2009				of Revenue
Connector		$	665,230				73.8	%		$	534,997				73.3	%
Custom & Electrical			236,046				26.2				194,137				26.6
Corporate & Other			189				—				442				0.1
Total		$	901,465				100.0	%		$	729,576				100.0	%

     

     The following table sets forth information on net revenue by segment as of the six months ended December 31 (in thousands):

						Percentage								Percentage
		2010				of Revenue				2009				of Revenue
Connector		$	1,326,366				73.7	%		$	1,024,138				72.9	%
Custom & Electrical			472,077				26.2				378,908				27.0
Corporate & Other			694				0.1				563				0.1
Total		$	1,799,137				100.0	%		$	1,403,609				100.0	%

Connector

     The following table provides an analysis of the change in net revenue compared with the prior fiscal year (in thousands):

		Three Months				Six Months
		Ended				Ended
		Dec. 31, 2010				Dec. 31, 2010
Net revenue for prior year period		$	534,997			$	1,024,138
Components of net revenue change:
Organic net revenue change			120,619				283,286
Currency translation			9,614				18,942
Total change in net revenue from prior year period			130,233				302,228
Net revenue for current year period		$	665,230			$	1,326,366
Organic net revenue change as a percentage of net revenue for prior year period			22.5	%			27.7	%

     The Connector segment sells primarily to the telecommunication, infotech, consumer and automotive markets. Segment net revenue increased in the three and six months ended December 31, 2010 compared with the prior year periods due to increased demand in all of the Connector segment’s primary markets, partially offset by price erosion, which is generally higher in the Connector segment compared with our other segment. Currency translation favorably impacted net revenue by $9.6 million and $18.9 million for the three and six months ended December 31, 2010, respectively.

     The following table provides information on income from operations and operating margins for the Connector segment for the periods indicated (in thousands):

		Three Months Ended								Six Months Ended
		December 31,								December 31,
		2010				2009				2010				2009
Income from operations		$	105,915			$	45,388			$	204,562			$	50,063
Operating margin			15.9	%			8.5	%			15.4	%			4.9	%

     Connector segment income from operations increased compared with the prior year periods primarily due to increased revenue and the completion of our restructuring program on June 30, 2010. Restructuring charges for the three and six months ended December 31, 2009 were $69.0 million and $18.3 million, respectively. Gross margins were positively affected by higher absorption from increased production and lower costs from our restructuring program, which has improved margins over time. Connector segment income from operations also improved due to lower selling, general and administrative costs in fiscal 2010 due to savings from restructuring and specific cost containment actions. Selling, general and administrative expenses as a percent of net revenue were 14.0% and 13.9% for the three and six months ended December 31, 2010, compared with 15.9% and 16.6% for the same prior year periods, due primarily to increased revenue, savings from restructuring and specific cost containment actions.

Custom & Electrical

     The following table provides an analysis of the change in net revenue compared with the prior fiscal year (in thousands):

		Three Months				Six Months
		Ended				Ended
		Dec. 31, 2010				Dec. 31, 2010
Net revenue for prior year period		$	194,137			$	378,908
Components of net revenue change:
Organic net revenue change			41,945				93,516
Currency translation			(628	)			(2,927	)
Acquisitions			592				2,580
Total change in net revenue from prior year period			41,909				93,169
Net revenue for current year period		$	236,046			$	472,077
Organic net revenue change as a percentage of net revenue for prior year period			21.6	%			24.7	%

     The Custom & Electrical segment sells primarily to the industrial, telecommunications and infotech markets. Custom & Electrical segment revenue increased in the three and six months ended December 31, 2010 compared with the prior year periods due to increased demand in all of the segment’s primary markets. We also completed an asset purchase of a company in China during the second quarter of fiscal 2010.

     The following table provides information on income from operations and operating margins for the Custom & Electrical segment for the periods indicated (in thousands):

		Three Months Ended								Six Months Ended
		December 31,								December 31,
		2010				2009				2010				2009
Income from operations		$	32,005			$	19,728			$	74,571			$	30,879
Operating margin			13.6	%			10.2	%			15.8	%			8.1	%

     Custom & Electrical segment income from operations increased compared with the prior year periods primarily due to increased revenue and the completion of our restructuring program on June 30, 2010. Restructuring charges for the three and six months ended December 31, 2009 were $3.6 million and $8.3 million, respectively. Gross margins were positively affected by higher absorption and lower costs from our restructuring program, which has improved margins over time. Selling, general and administrative expenses as a percent of net revenue were 17.9% and 17.7% for the three and six months ended December 31, 2010, respectively, compared with 20.6% and 21.6% for the same prior year periods, due primarily to increased revenue, savings from restructuring and specific cost containment actions.

Non-GAAP Financial Measures

     Organic net revenue growth, which is included in the discussion above, is a non-GAAP financial measure. The tables presented in Results of Operations above provide reconciliations of U.S. GAAP reported net revenue growth (the most directly comparable GAAP financial measure) to organic net revenue growth.

     We believe organic net revenue growth provides useful information to investors because it reflects the underlying growth from the ongoing activities of our business and provides investors with a view of our operations from management’s perspective. We use organic net revenue growth to monitor and evaluate performance, as it is an important measure of the underlying results of our operations. It excludes items that are not completely under management’s control, such as the impact of changes in foreign currency exchange rates, and items that do not reflect the underlying growth of the company, such as acquisition activity. Management uses organic net revenue growth together with GAAP measures such as net revenue growth and operating income in its decision making processes related to the operations of our reporting segments and our overall company.

Financial Condition and Liquidity

     We fund capital projects and working capital needs principally out of operating cash flows and cash reserves. Cash, cash equivalents and marketable securities totaled $410.6 million and $394.9 million at December 31, 2010 and June 30, 2010, respectively, of which $372.3 million was in non-U.S. accounts as of December 31, 2010. The primary source of our cash flow is cash generated by operations. Principal uses of cash are capital expenditures, dividend payments and business investments.

     Our long-term financing strategy is to primarily rely on internal sources of funds for investing in plant, equipment and acquisitions. Total debt including obligations under capital leases totaled $306.3 million and $293.5 million at December 31, 2010 and June 30, 2010, respectively. We had available lines of credit totaling $234.4 million at December 31, 2010, including a $270.0 million unsecured, three-year revolving credit facility with $135.0 million available as of December 31, 2010. The credit facility also requires us to maintain financial covenants pertaining to, among other things, our consolidated leverage, fixed charge coverage and liquidity. As of December 31, 2010, we were in compliance with these covenants. Additionally, we have three unsecured borrowing agreements totaling ¥18.0 billion ($214.4 million) with weighted average fixed rates of 1.5%. As of December 31, 2010, we had a remaining balance on these agreements of ¥13.3 billion ($163.2 million). See Note 8 of the “Notes to the Condensed Consolidated Financial Statements.”

Cash Flows

     Our cash balance increased $16.0 million during the six months ended December 31, 2010. Our primary sources of cash were operating cash flows of $182.5 million and $35.0 million in net borrowings against the credit facility. We used capital during the period to fund capital expenditures of $132.7 million and pay dividends of $53.2 million. The translation of our cash to U.S. dollars increased our cash balance by $17.7 million as compared with the balance as of June 30, 2010.

Below is a table setting forth the key lines of our Consolidated Statements of Cash Flows (in thousands):

		Six Months Ended
		December 31,
		2010				2009
Cash provided from operating activities		$	182,475			$	141,838
Cash used for investing activities			(129,737	)			(62,800	)
Cash used for financing activities			(54,371	)			(28,447	)
Effect of exchange rate changes on cash			17,671				11,020
Net increase in cash		$	16,038			$	61,611

Operating Activities

     Cash provided from operating activities increased by $40.6 million from the prior year period due mainly to an increase in net income in the current period partially offset by a $59.1 million increase in working capital needs in the current year period compared with the prior year, and by a net loss in the prior year period. Working capital increased in the six months ended December 31, 2010 as inventory production increased due to customer demand. Working capital is defined as current assets minus current liabilities. Our restructuring accrual as of December 31, 2010 was $16.5 million, which we expect to reduce through cash outlays during fiscal 2011.

Investing Activities

     Cash used for investing activities increased by $66.9 million from the prior year period due mainly to an increase in capital expenditures of $39.4 million. Capital expenditures were $132.7 million for the six months ended December 31, 2010 compared with $93.3 million in the prior year period. Net proceeds of marketable securities were $5.2 million compared with $35.3 million in the prior year period.

Financing Activities

     Cash used for financing activities increased $25.9 million during the six months ended December 31, 2010, as compared with the prior year period primarily due to a $36.1 million reduction of outstanding loans for Molex Japan.

     We borrowed $50.0 million against our $270.0 million unsecured, three-year revolving credit facility. Total borrowings against the credit facility were $135.0 million as of December 31, 2010.

     As part of our growth strategy, in the future we may acquire other companies in the same or complementary lines of business and pursue other business ventures. The timing and size of any new business ventures or acquisitions we complete may impact our cash requirements. To the extent we are required to pay all or any portion of the unauthorized loans in Molex Japan our cash requirements may also be impacted.

     We increased our quarterly cash dividend to $0.175 per share, an increase of 14.8% from the previous cash dividend of $0.1525 per share. The increase was effective to shareholders of record on December 31, 2010 and will be paid in January 2011.

Contractual Obligations and Commercial Commitments

     We have contractual obligations and commercial commitments as described in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Contractual Obligations and Commercial Commitments” of our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the Commission) for the year ended June 30, 2010. In addition, we have obligations under open purchase orders and the long-term liabilities reflected in our consolidated balance sheet, which principally consist of pension and retiree health care benefit obligations. There have been no material changes in our contractual obligations and commercial commitments since June 30, 2010 arising outside of the ordinary course of business.

Cautionary Statement Regarding Forward-Looking Information

     This Quarterly Report contains forward-looking statements that are based on current expectations, estimates, forecasts and projections about our future performance, our business, our beliefs, and our management’s assumptions. In addition, we, or others on our behalf, may make forward-looking statements in press releases or written statements, or in our communications and discussions with investors and analysts in the normal course of business through meetings, web casts, phone calls, and conference calls. Words such as “expect,” “anticipate,” “outlook,” “forecast,” “could,” “project,” “intend,” “plan,” “continue,” “believe,” “seek,” “estimate,” “should,” “may,” “assume,” variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties, and assumptions that are difficult to predict. We describe our respective risks, uncertainties, and assumptions that could affect the outcome or results of operations in Part 1, Item 1A of our Annual Report on Form 10-K for the year ended June 30, 2010 (Form 10-K). You should carefully consider the risks described in our Form 10-K and Form 10-Q. Such risks are not the only ones facing our Company. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also impair our business operations. If any of the risks occur, our business, financial condition or operating results could be materially adversely affected.

     We have based our forward-looking statements on our management’s beliefs and assumptions based on information available to our management at the time the statements are made. We caution you that actual outcomes and results may differ materially from what is expressed, implied, or forecast by our forward-looking statements. Reference is made in particular to forward looking statements regarding growth strategies, industry trends, financial results, cost reduction initiatives, the ability to realize cost savings from restructuring activities, unauthorized activities in Japan, acquisition synergies, manufacturing strategies, product development and sales, regulatory approvals, competitive strengths, and legal proceedings. Except as required under the federal securities laws, we do not have any intention or obligation to update publicly any forward-looking statements after the distribution of this report, whether as a result of new information, future events, changes in assumptions, or otherwise.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     We are subject to market risk associated with changes in foreign currency exchange rates, interest rates and certain commodity prices.

     We mitigate our foreign currency exchange rate risk principally through the establishment of local production facilities in the markets we serve. This creates a “natural hedge” since purchases and sales within a specific country are both denominated in the same currency and therefore no exposure exists to hedge with a foreign exchange forward or option contract (collectively, “foreign exchange contracts”). Natural hedges exist in most countries in which we operate, although the percentage of natural offsets, compared with offsets that need to be hedged by foreign exchange contracts, will vary from country to country.

     We also monitor our foreign currency exposure in each country and implement 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, and the development of natural hedges and use of foreign exchange contracts to protect or preserve the value of cash flows. No material foreign exchange contracts were in use at December 31, 2010 or June 30, 2010.

     We have implemented a formalized treasury risk management policy that describes procedures and controls over derivative financial and commodity instruments. Under the policy, we do not use derivative financial or commodity instruments for speculative or trading 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, net receivable and payable balances and call options on certain commodities. No material derivative instruments were in use at December 31, 2010 or June 30, 2010.

     The translation of the financial statements of the non-North American operations is impacted by fluctuations in foreign currency exchange rates. Consolidated net revenue and income from operations was impacted by the translation of our international financial statements into U.S. dollars resulting in increased net revenue of $16.0 million and increased income from operations of $10.5 million for the six months ended December 31, 2010, compared with the estimated results for the comparable period in the prior year.

     Our $18.2 million of marketable securities at December 31, 2010 are principally invested in time deposits.

     Interest rate exposure is generally limited to our marketable securities and three-year unsecured credit facility. We do not actively manage the risk of interest rate fluctuations. Our marketable securities mature in less than 12 months. We had $135.0 million outstanding on our $270.0 million credit facility with an interest rate of approximately 2.8% at December 31, 2010.

     Due to the nature of our operations, we are not subject to significant concentration risks relating to customers or products.

     We monitor the environmental laws and regulations in the countries in which we operate. We have implemented an environmental program to reduce the generation of potentially hazardous materials during our manufacturing process and believe we continue to meet or exceed local government regulations.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

     Our management has evaluated, under the supervision and with the participation of our chief executive officer and chief financial officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on that evaluation, our chief executive officer and chief financial officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are

effective in ensuring that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported within the time periods specified in SEC’s rules and forms, and (2) accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

Internal Control Over Financial Reporting

     During the three months ended December 31, 2010, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) or in other factors that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

     Our management, including the CEO and CFO, do not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, will be detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by intentionally falsified documentation, by collusion of two or more individuals within Molex or third parties, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

PART II

Item 1. Legal Proceedings

     Currently, we are involved in a number of legal proceedings. For a discussion of contingencies related to legal proceedings, see Note 12 to our Condensed Consolidated Financial Statements, which is hereby incorporated by reference.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     Share purchases of Molex Common and/or Class A Common Stock for the quarter ended December 31, 2010 were as follows (in thousands, except price per share data):

										Total Number
										of Shares
		Total Number								Purchased as
		of Shares				Average Price				Part of Publicly
		Purchased				Paid per Share				Announced Plan
October 1 — October 31
Common Stock			—			$	—				—
Class A Common Stock			72			$	17.75				—
November 1 — November 30
Common Stock			—			$	—				—
Class A Common Stock			11			$	17.36				—
December 1 — December 31
Common Stock			—			$	—				—
Class A Common Stock			—			$	—				—
Total			83			$	17.70				—