MOLEX INC - FORM 10-Q - April 26, 2012

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EXCEL - IDEA: XBRL DOCUMENT - MOLEX INC	Financial_Report.xls
EX-31.1 - SECTION 302 CERTIFICATION BY CHIEF EXECUTIVE OFFICER - MOLEX INC	d323331dex311.htm
EX-32.1 - SECTION 906 CERTIFICATION BY CHIEF EXECUTIVE OFFICER - MOLEX INC	d323331dex321.htm
EX-31.2 - SECTION 302 CERTIFICATION BY CHIEF FINANCIAL OFFICER - MOLEX INC	d323331dex312.htm
EX-32.2 - SECTION 906 CERTIFICATION BY CHIEF FINANCIAL OFFICER - MOLEX INC	d323331dex322.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended March 31, 2012

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

For the transition period from to

Commission File Number 0-7491

MOLEX INCORPORATED

(Exact name of registrant as specified in its charter)

Delaware

36-2369491

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

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 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 x No ¨

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):

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

On April 19, 2012, the following numbers of shares of the Company’s common stock were outstanding:


Common Stock			95,560,076
Class A Common Stock			80,704,172
Class B Common Stock			94,255

Molex Incorporated

INDEX


PART I – FINANCIAL INFORMATION

		Page
Item 1. Financial Statements

	Condensed Consolidated Balance Sheets as of March 31, 2012 and June 30, 2011		3

	Condensed Consolidated Statements of Income for the three and nine months ended March 31, 2012 and 2011		4

	Condensed Consolidated Statements of Cash Flows for the nine months ended March 31, 2012 and 2011		5

	Notes to Condensed Consolidated Financial Statements		6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		15

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		27

Item 4.	Controls and Procedures		28

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings		29

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		29

Item 6.	Exhibits		30

SIGNATURES			31
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

Condensed Consolidated Balance Sheets

(in thousands)


	Mar. 31, 2012			June 30, 2011
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	608,809		$	532,599
Marketable securities		13,654			13,947
Accounts receivable, less allowances of $39,970 and $42,297, respectively		724,141			811,449
Inventories		546,909			535,953
Deferred income taxes		125,807			129,158
Other current assets		39,454			32,239

Total current assets		2,058,774			2,055,345
Property, plant and equipment, net		1,126,467			1,168,448
Goodwill		161,143			149,452
Non-current deferred income taxes		41,434			38,178
Other assets		175,795			186,429

Total assets	$	3,563,613		$	3,597,852

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt and short-term borrowings	$	100,976		$	119,764
Accounts payable		314,999			359,812
Accrued expenses:
Accrual for unauthorized activities in Japan		177,338			182,460
Income taxes payable		49,737			2,383
Other		210,115			217,628

Total current liabilities		853,165			882,047
Other non-current liabilities		20,870			23,879
Accrued pension and postretirement benefits		91,284			100,866
Long-term debt		155,128			222,794

Total liabilities		1,120,447			1,229,586

Commitments and contingencies
Stockholders’ equity:
Common stock		11,351			11,285
Additional paid-in capital		703,781			674,494
Retained earnings		2,511,045			2,408,083
Treasury stock		(1,112,567	)		(1,106,039	)
Accumulated other comprehensive income		329,556			380,443

Total stockholders’ equity		2,443,166			2,368,266

Total liabilities and stockholders’ equity	$	3,563,613		$	3,597,852

See accompanying notes to condensed consolidated financial statements.

Molex Incorporated

Condensed Consolidated Statements of Income

(Unaudited)

(in thousands, except per share data)


	Three Months Ended March 31,						Nine Months Ended March 31,
	2012			2011			2012			2011
Net revenue	$	837,080		$	874,531		$	2,630,663		$	2,673,668
Cost of sales		581,904			613,917			1,819,822			1,866,933

Gross profit		255,176			260,614			810,841			806,735

Selling, general and administrative		163,853			159,448			496,151			475,548
Unauthorized activities in Japan		2,521			2,855			8,166			11,110

Total operating expenses		166,374			162,303			504,317			486,658

Income from operations		88,802			98,311			306,524			320,077
Interest (expense) income, net		(1,212	)		(1,726	)		(4,697	)		(4,849	)
Other income		1,561			1,325			3,319			5,766

Total other income (expense), net		349			(401	)		(1,378	)		917

Income before income taxes		89,151			97,910			305,146			320,994
Income taxes		24,268			29,765			95,730			99,462

Net income	$	64,883		$	68,145		$	209,416		$	221,532

Earnings per share:
Basic	$	0.37		$	0.39		$	1.19		$	1.27
Diluted	$	0.36		$	0.39		$	1.18		$	1.26
Dividends declared per share	$	0.2000		$	0.1750		$	0.6000		$	0.5025
Average common shares outstanding:
Basic		176,164			174,957			175,830			174,666
Diluted		178,134			176,449			177,152			175,678

See accompanying notes to condensed consolidated financial statements.

Molex Incorporated

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)


	Nine Months Ended March 31,
	2012			2011
Operating activities:
Net income	$	209,416		$	221,532
Add non-cash items included in net income:
Depreciation and amortization		179,664			181,716
Share-based compensation		17,248			17,009
Other non-cash items		8,914			17,719
Changes in assets and liabilities:
Accounts receivable		71,833			(2,143	)
Inventories		(20,896	)		(43,112	)
Accounts payable		(38,382	)		(63,725	)
Other current assets and liabilities		(4,747	)		3,903
Other assets and liabilities		7,328			(5,968	)

Cash provided from operating activities		430,378			326,931
Investing activities:
Capital expenditures		(149,427	)		(196,915	)
Acquisitions		(24,000	)		(18,847	)
Proceeds from sales of property, plant and equipment		3,373			1,460
Proceeds from sales or maturities of marketable securities		8,348			5,568
Purchases of marketable securities		(8,881	)		(6,062	)
Other investing activities		11,000			(196	)

Cash used for investing activities		(159,587	)		(214,992	)
Financing activities:
Proceeds from revolving credit facility		75,000			85,000
Payments on revolving credit facility		(255,000	)		(20,000	)
Proceeds from short-term loans and current portion of long-term debt		—			28,856
Payments on short-term loans and current portion of long-term debt		(53,615	)		(31,843	)
Proceeds from issuance of long-term debt		150,000			—
Payments of long-term debt		(479	)		(47,908	)
Cash dividends paid		(105,375	)		(83,766	)
Exercise of stock options		6,867			5,935
Other financing activities		(3,199	)		(2,990	)

Cash used for financing activities		(185,801	)		(66,716	)
Effect of exchange rate changes on cash		(8,780	)		26,221

Net increase in cash and cash equivalents		76,210			71,444
Cash and cash equivalents, beginning of period		532,599			376,352

Cash and cash equivalents, end of period	$	608,809		$	447,796

See accompanying notes to condensed consolidated financial statements.

Molex Incorporated

Notes to Condensed Consolidated Financial Statements

(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 40 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 nine months ended March 31, 2012 are not necessarily an indication of the results that may be expected for the year ending June 30, 2012. The Condensed Consolidated Balance Sheet as of June 30, 2011 was derived from our audited consolidated financial statements for the year ended June 30, 2011. 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, 2011.

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 previously reported in our Annual Report on Form 10-K for the year ended June 30, 2011, we investigated unauthorized activities at Molex Japan Ltd. Based on the results of the completed investigation, we recorded an accrued liability of $165.8 million for accounting purposes for the effect of unauthorized activities pending the resolution of the legal proceedings reported in Note 14.

We believe these unauthorized activities and related losses occurred from at least as early as 1988 through 2010. The accrued liability for these unauthorized activities was $177.3 million as of March 31, 2012, including $11.5 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 unauthorized loans ($165.8 million), we would recognize a gain. In addition, we have a contingent liability of $49.5 million for other loan-related expenses, interest expense and delay damages on the outstanding unauthorized loans.

Unauthorized activities in Molex Japan for the three and nine months ended March 31, 2012 and 2011 represent investigative and legal fees.

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 restructuring accrual balance are summarized as follows (in thousands):


Balance at June 30, 2011	$	14,049
Cash payments		(752	)
Non-cash related costs		(569	)

Balance at September 30, 2011	$	12,728
Cash payments		(806	)
Non-cash related costs		(353	)

Balance at December 31, 2011	$	11,569
Cash payments		(585	)
Non-cash related costs		95

Balance at March 31, 2012	$	11,079

4.	Acquisitions

During the second quarter of fiscal 2012, we completed an asset purchase of a specialty wire and cable company for $24.0 million and recorded goodwill of $12.3 million. The purchase price allocation for this acquisition is preliminary and subject to revision as more detailed analysis is completed and additional information about the fair value of assets and liabilities becomes available.

During the third quarter of fiscal 2011, we completed an asset acquisition of an active optical cable business for $24.6 million and recorded goodwill of $14.6 million. The purchase price includes contingent consideration up to $5.8 million payable through fiscal 2013 upon the seller meeting certain criteria. The purchase price allocation for this acquisition is complete.

5.	Earnings 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 March 31,				Nine Months Ended March 31,
	2012		2011		2012		2011
Net income	$	64,883	$	68,145	$	209,416	$	221,532

Basic average common shares outstanding		176,164		174,957		175,830		174,666
Effect of dilutive stock options		1,970		1,492		1,322		1,012

Diluted weighted average common shares outstanding		178,134		176,449		177,152		175,678

Earnings per share:
Basic	$	0.37	$	0.39	$	1.19	$	1.27
Diluted	$	0.36	$	0.39	$	1.18	$	1.26

Excluded from the computations above were anti-dilutive shares of 2.4 million and 5.2 million for the three and nine months ended March 31, 2012, respectively, compared with 3.3 million and 6.6 million for the same prior year periods.

6.	Comprehensive Income

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


	Three Months Ended March 31,					Nine Months Ended March 31,
	2012		2011			2012			2011
Net income	$	64,883	$	68,145		$	209,416		$	221,532
Translation adjustments		17,643		32,710			(48,632	)		118,721
Pension liability remeasurement		—		—			—			11,824
Unrealized investment gain (loss)		2,361		(3,058	)		(2,255	)		(2,268	)

Total comprehensive income	$	84,887	$	97,797		$	158,529		$	349,809

7.	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):


	Mar. 31, 2012		June 30, 2011
Raw materials	$	91,996	$	91,362
Work in process		149,216		143,888
Finished goods		305,697		300,703

Total inventories	$	546,909	$	535,953

8.	Pensions and Other Postretirement Benefits

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


	Three Months Ended March 31,						Nine Months Ended March 31,
	2012			2011			2012			2011
Service cost	$	1,381		$	451		$	4,143		$	3,099
Interest cost		2,123			487			6,369			2,941
Expected return on plan assets		(2,166	)		(472	)		(6,498	)		(2,756	)
Amortization of prior service cost		65			13			195			79
Recognized actuarial losses		290			893			870			2,679
Amortization of transition obligation		10			9			30			27

Benefit cost	$	1,703		$	1,381		$	5,109		$	6,069

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


	Three Months Ended March 31,						Nine Months Ended March 31,
	2012			2011			2012			2011
Service cost	$	274		$	342		$	822		$	1,026
Interest cost		586			617			1,758			1,851
Amortization of prior service cost		(516	)		(516	)		(1,548	)		(1,548	)
Recognized actuarial losses		82			333			246			999

Benefit cost	$	426		$	776		$	1,278		$	2,328

Debt

Total debt consisted of the following (in thousands):


	Average Interest Rate			Maturity		March 31, 2012		June 30, 2011
Long-term debt:
Private Placement		2.91 – 4.28	%		2016 – 2021	$	150,000	$	—
U.S. Credit Facility		1.74	%		2016		5,000		185,000
Unsecured bonds and term loans		1.31-1.65	%		2012 – 2013		36,144		89,342
Other debt		Varies			2012 – 2013		1,193		1,528

Total long-term debt							192,337		275,870
Less current portion of long-term debt:
Unsecured bonds and term loans		1.31-1.65	%				36,144		52,156
Other debt		Varies					1,065		920

Long-term debt, less current portion							155,128		222,794
Short-term borrowings
Overdraft loan		1.98	%		2012		60,320		62,060
Other short-term borrowings		Varies					3,447		4,628

Total short-term borrowings							63,767		66,688

Total debt						$	256,104	$	342,558

On August 18, 2011, we issued senior notes totaling $150.0 million through an unregistered, private placement of debt (the Private Placement). The Private Placement consists of three $50.0 million series notes: Series A with an interest rate of 2.91% matures on August 18, 2016; Series B with an interest rate of 3.59% matures on August 18, 2018; and Series C with an interest rate of 4.28% matures on August 18, 2021. The Note Purchase Agreement contains customary covenants regarding liens, debt, substantial asset sales and mergers. The Note Purchase Agreement also requires us to maintain financial covenants pertaining to, among other things, our consolidated leverage and interest rate coverage. As of March 31, 2012, we were in compliance with these covenants and the balance of the senior notes was $150.0 million.

In June 2009, we entered into a $195.0 million unsecured, three-year revolving credit facility in the United States, amended in January 2010, September 2010 and March 2011, that was initially scheduled to mature in June 2012 (the U.S. Credit Facility). In connection with the September 2010 amendment, we increased the credit line on the U.S. Credit Facility to $270.0 million. In March 2011, we further amended the U.S. Credit Facility to increase the credit line to $350.0 million and extend the term to March 2016. 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 150 basis points as of March 31, 2012. 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 and fixed charge coverage. As of March 31, 2012, we were in compliance with these covenants and had outstanding borrowings of $5.0 million.

In March 2012, Molex Japan renewed a ¥5.0 billion overdraft loan, with a six month term and an interest rate of approximately 1.98%. At March 31, 2012, the balance of the overdraft loan, which requires full repayment by the end of the term if not renewed, approximated $60.3 million.

In March 2010, Molex Japan entered into a ¥3.0 billion syndicated term loan for three years, with interest rates equivalent to the six month Tokyo InterBank Offered Rate plus 75 basis points and scheduled principal payments of ¥0.5 billion every six months. At March 31, 2012, the balance of the syndicated term loan approximated $12.0 million, which is classified as 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 March 31, 2012, the outstanding balance of the unsecured bonds approximated $24.1 million, which is classified as current.

Certain assets, including equipment, secure a portion of our long-term debt. Principal payments on long-term debt obligations are due as follows as of March 31, 2012 (in thousands):


Year one	$	37,209
Year two		128
Year three		—
Year four		—
Year five		55,000
Thereafter		100,000

Total long-term debt obligations	$	192,337

We had available lines of credit totaling $421.6 million at March 31, 2012, including $345.0 million available on the U.S. Credit Facility. The lines of credit expire between 2012 and 2021.

10.

Income Taxes

The effective tax rate was 27.2% for the three months ended March 31, 2012 and 30.4% for the three months ended March 31, 2011. During the three months ended March 31, 2012, we recorded a one-time charge of $1.6 million for the cumulative effect of a reduction in future tax benefits from deferred tax assets in Shanghai due to a decrease in the Shanghai corporate tax rate. We also recorded a one-time benefit of $4.6 million from releasing valuation allowances no longer required on net operating losses recorded in certain foreign jurisdictions.

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 2007. The tax years 2008 and after 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 March 31, 2012, there were no material interest or penalty amounts to accrue.

11.

Fair Value Measurements

The following table summarizes our financial assets and liabilities as of March 31, 2012, which are measured at fair value on a recurring basis (in thousands):


	Total Measured at Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available for sale and trading securities	$	26,366	$	26,366	$	—	$	—
Derivative financial instruments, net		7,480		—		7,480		—

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.

12.

Derivative Instruments and Hedging Activities

We use derivative instruments to manage our foreign exchange and commodity cost exposures. All derivative instruments are recognized at fair value in other current assets or liabilities.

Derivatives Not Designated as Hedging Instruments

We use one-month foreign currency forward contracts (forward contracts) to offset the impact of exchange rate volatility on certain assets and liabilities, including intercompany receivables and payables denominated in non-functional currencies. These forward contracts have not been designated as hedges, and the gains or losses on these forward contracts, along with the offsetting losses or gains due to the fluctuation of exchange rates on the underlying foreign currency denominated assets and liabilities, are recognized in other income (expense). The notional amounts of the forward contracts were $222.3 million and $175.6 million at March 31, 2012 and June 30, 2011, respectively, with corresponding fair values of a $0.2 million asset at March 31, 2012 and a $2.7 million asset at June 30, 2011.

Cash Flow Hedges

We use derivatives in the form of call options to hedge the variability of gold and copper costs. These derivative instruments are designated as cash flow hedges and hedge approximately 60% of our planned gold and copper purchases. Gains and losses of the effective hedges are recorded as a component of accumulated other comprehensive income (AOCI) and reclassified to cost of sales during the period the product containing the commodity is sold. The fair values of the call options were $7.5 million and $7.8 million at March 31, 2012 and June 30, 2011, respectively. These call options have maturities of 12 months or less.

For the three and nine months ended March 31, 2012 and 2011, the impact to accumulated other comprehensive income and earnings from cash flow hedges follows (in thousands):


	Three Months Ended March 31,					Nine Months Ended March 31,
	2012		2011			2012			2011
Unrealized gain (loss) recognized in AOCI		$2,060		$ (2,105	)		$ (2,527	)		$ 1,968
Gain reclassified into earnings		699		2,233			6,108			4,237

At March 31, 2012, $2.6 million is expected to be reclassified from AOCI to cost of sales within the next 12 months.

13.

New Accounting Pronouncements

In September 2011, the Financial Accounting Standards Board (the FASB) issued updated guidance on the periodic testing of goodwill for impairment. This guidance will allow companies to assess qualitative factors to determine if it is more-likely-than-not that goodwill might be impaired and whether it is necessary to perform the two-step goodwill impairment test required under current accounting standards. This new guidance is effective for us beginning July 1, 2012, with early adoption permitted. This new guidance will not have a material impact on our consolidated financial statements.

In June 2011, the FASB issued Accounting Standards Update (ASU) No. 2011-05, Comprehensive Income (Topic 220). This new guidance requires the components of net income and other comprehensive income to be either presented in one continuous statement, referred to as the statement of comprehensive income, or in two separate, but consecutive statements. This new guidance eliminates the current option to report other comprehensive income and its components in the statement of stockholders’ equity. While the new guidance changes the presentation of comprehensive income, there are no changes to the components that are recognized in net income or other comprehensive income under current accounting guidance. This new guidance is effective for us for the quarter ended September 30, 2012 and will amend our presentation of the components of comprehensive income.

14.

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, Molex Automotive SARL (MAS), decided to close a facility it operated in Villemur-sur-Tarn, France. MAS submitted a social plan to MAS’s labor representatives providing for payments to approximately 280 terminated employees. This social plan was adopted by MAS in 2009 and payments were made to those employees until September 2010. In September 2010, former employees of MAS who were covered under the social plan filed suit against MAS and AGS (a state fund for wage guarantee) in the Toulouse Labor Court, requesting additional compensation. The total amount sought by the former employees is approximately €24.0 million ($32.0 million). Molex International initiated liquidation of MAS, 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 MAS. In June 2011, the former employees of MAS noticed Molex Incorporated (Molex) as a defendant to the Toulouse Labor Court proceedings. In their court submission, the former employees claim that Molex was a co-employer of the former employees and thus jointly liable for any additional compensation the court awards. The former employees also claim that there was no economic justification for their dismissal, that MAS decided to close the facility before it consulted with the employees and their representatives and that MAS did not adequately comply with its obligation to assist the terminated employees in obtaining alternative employment. The liquidator has filed a submission on behalf of MAS and argues that the dismissal was economically justified, that the former employees have not proven the damages they are seeking but nonetheless Molex was co-employer and thus liable for any additional payments that may be awarded to the former employees. AGS filed its submission, adopting essentially the same substantive position as the liquidator on the dismissal of the former employees but arguing that Molex was the employer.

Molex filed its briefs in reply on January 6, 2012 arguing the plaintiff’s claims be dismissed. In the reply briefs, Molex argued it was not the co-employer of the plaintiffs and the court should find that it lacks jurisdiction over Molex to hear the dispute. In the alternative, Molex argued there was no breach of the information consultation process with the employees and their representatives, the dismissals were valid and based on economic grounds, MAS complied with its redeployment obligations and the court dismiss the claims for damages. Molex also argued if the court were to award compensation, then any judgment against Molex be several but not jointly with MAS, and the amount awarded to plaintiffs not exceed six months’ salary, approximately €2.0 million ($2.7 million).

On February 24, 2012, the five employees who fall within the executive section submitted a reply brief and requested a postponement of the March 5, 2012 court date. The court granted the request and rescheduled separate court dates in 2012 for each plaintiff as follows: June 25, July 9, September 24, October 8 and December 17.

On April 5, 2012, the Toulouse Labor Court held a hearing for the other employees, who fall within the industry section, and the parties presented their arguments regarding whether the court has jurisdiction over Molex. The court adjourned the hearing to consider the question of jurisdiction over Molex and will issue the results of its consideration on June 28, 2012. In addition, the liquidator has filed an action against Molex claiming it is responsible for the liabilities of MAS that remain as a result of the liquidation.

We intend to vigorously contest the attempt by the former employees to seek additional compensation from Molex, and the liquidator’s attempt to hold Molex responsible for the liabilities of MAS.

Molex Japan Co., Ltd

As we previously reported in our fiscal 2010 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 (Mizuho), 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 ($36.2 million), ¥5 billion ($60.3 million), ¥5 billion ($60.3 million) and ¥2 billion ($24.1 million), other loan-related expenses of approximately ¥106 million ($1.3 million) and interest and delay damages of approximately ¥4.0 billion ($48.3 million) as of March 31, 2012. On October 13, 2010, Molex Japan filed a written answer requesting the court to dismiss the complaint and subsequently both parties have submitted additional briefs and witness statements to the court. The court has scheduled two hearing dates, May 9 and May 16, 2012, for witness examinations. 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.

As we reported on April 29, 2011, the Securities and Exchange Commission (the SEC) has informed us that the SEC has issued a formal order of private investigation in connection with the activities in Molex Japan. We are fully cooperating with the SEC’s investigation.

15.

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):


	Connector		Custom & Electrical		Corporate & Other			Total
For the three months ended:
March 31, 2012:
Revenues from external customers	$	583,364	$	253,629	$	87		$	837,080
Income (loss) from operations		76,268		39,741		(27,207	)		88,802
Depreciation & amortization		47,838		6,696		3,955			58,489
Capital expenditures		43,638		4,876		5,858			54,372

March 31, 2011:
Revenues from external customers	$	628,367	$	245,434	$	730		$	874,531
Income (loss) from operations		86,989		36,399		(25,077	)		98,311
Depreciation & amortization		49,967		6,927		4,017			60,911
Capital expenditures		56,208		4,613		3,367			64,188

For the nine months ended:
March 31, 2012:
Revenues from external customers	$	1,865,029	$	765,136	$	498		$	2,630,663
Income (loss) from operations		259,882		129,245		(82,603	)		306,524
Depreciation & amortization		147,247		20,575		11,842			179,664
Capital expenditures		122,013		16,025		11,389			149,427

March 31, 2011:
Revenues from external customers	$	1,954,733	$	717,511	$	1,424		$	2,673,668
Income (loss) from operations		291,551		110,969		(82,443	)		320,077
Depreciation & amortization		148,172		21,337		12,207			181,716
Capital expenditures		173,193		13,393		10,329			196,915

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 segment.

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


	Connector		Custom & Electrical		Corporate & Other		Total
March 31, 2012	$	1,797,481	$	483,656	$	116,380	$	2,397,517
June 30, 2011		1,913,675		503,443		98,732		2,515,850

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


	Mar. 31, 2012		June 30, 2011
Segment assets	$	2,397,517	$	2,515,850
Other current assets		787,724		707,943
Other non-current assets		378,372		374,059

Consolidated total assets	$	3,563,613	$	3,597,852

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, 2011. 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 40 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 applications.

•

The Custom & Electrical segment designs and manufactures integrated and customizable electronic components 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.

Net revenue decreased during the three and nine months ended March 31, 2012 compared with the prior year periods primarily due to slower customer demand caused by uncertainties in the global economy, particularly in the consumer markets. Decreases in demand for certain mobile products in the telecommunications markets also contributed to the net revenue decrease. Despite the lower net revenue, gross margins improved during the three and nine months ended March 31, 2012 compared to the prior year periods due to a favorable mix of product sales and rigorous control over costs. We increased prices during the nine months ended March 31, 2012 to partially offset rising material costs, which also contributed to the improved gross margins compared with the prior year period. Despite the gross margin improvements and specific cost control efforts, income from operations decreased during the three and nine months ended March 31, 2012 based on the lower net revenue compared with the prior year periods.

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; natural disasters; litigation results; investigations and legal proceedings 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

Unauthorized activities in Molex Japan for the three and nine months ended March 31, 2012 and 2011 represent investigative and legal fees.

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, 2011 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 income data as a percentage of net revenue for the three months ended March 31 (in thousands):


	2012		Percentage of Revenue			2011			Percentage of Revenue
Net revenue	$	837,080		100.0	%	$	874,531			100.0	%
Cost of sales		581,904		69.5	%		613,917			70.2	%

Gross profit		255,176		30.5	%		260,614			29.8	%
Selling, general & administrative		163,853		19.6	%		159,448			18.2	%
Unauthorized activities in Japan		2,521		0.3	%		2,855			0.4	%

Income from operations		88,802		10.6	%		98,311			11.2	%
Other income (expense), net		349		0.1	%		(401	)		—	%

Income before income taxes		89,151		10.7	%		97,910			11.2	%
Income taxes		24,268		2.9	%		29,765			3.4	%

Net income	$	64,883		7.8	%	$	68,145			7.8	%

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


	2012			Percentage of Revenue			2011		Percentage of Revenue
Net revenue	$	2,630,663			100.0	%	$	2,673,668		100.0	%
Cost of sales		1,819,822			69.2	%		1,866,933		69.8	%

Gross profit		810,841			30.8	%		806,735		30.2	%
Selling, general & administrative		496,151			18.9	%		475,548		17.8	%
Unauthorized activities in Japan		8,166			0.2	%		11,110		0.4	%

Income from operations		306,524			11.7	%		320,077		12.0	%
Other (expense) income, net		(1,378	)		(0.1	%)		917		—	%

Income before income taxes		305,146			11.6	%		320,994		12.0	%
Income taxes		95,730			3.6	%		99,462		3.7	%

Net income	$	209,416			8.0	%	$	221,532		8.3	%

Net Revenue

We sell our products in five primary markets. Our connectors, interconnecting devices and assemblies are used principally in the telecommunications, infotech, 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.

Net revenue during the third quarter of fiscal 2012 declined as global economic uncertainty affected end demand, particularly in our consumer market, and our customers managed inventory lower. The increase (decrease) in net revenue from each market during the third quarter of fiscal 2012 compared with the third quarter of fiscal 2011 (comparable quarter) and the second quarter of fiscal 2012 (sequential quarter) follows:


	Comparable Quarter			Sequential Quarter
Telecommunications		(13	)%		(17	)%
Infotech		4			3
Consumer		(10	)		(8	)
Industrial		(7	)		7
Automotive		5			12

Telecommunications market net revenue decreased against the comparable quarter due to decreases in demand for certain mobile products, partially offset by increased demand for networking products. Telecommunications market net revenue decreased against the sequential quarter due to weaker demand for mobile products and infrastructure spending.

Infotech market net revenue increased against the comparable quarter primarily due to increased content and demand for tablet devices and servers, partially offset by slower demand for notebook computers. Infotech market net revenue increased against the sequential quarter primarily due to increased content and demand for tablet devices, partially offset by slower demand for servers.

Consumer market net revenue decreased against the comparable quarter due to economic uncertainty and lower demand in home entertainment and gaming equipment. Consumer market net revenue decreased against the sequential quarter due to lower sales in home entertainment products and seasonal lower demand.

Industrial market net revenue decreased against the comparable quarter due to softening demand for semiconductor and production equipment from our customers’ decreased production, companies’ reluctance to invest in automation projects or deferral of projects in the current economic environment and relatively high levels of inventory in the distribution channel. Industrial market net revenue increased against the sequential quarter as demand increased for industrial distribution and transportation production equipment.

Automotive market net revenue increased against both the comparable and sequential quarters due to higher global automobile production, particularly in North America and Japan, and increasing electronic content in automobiles, such as navigational and entertainment systems, mobile communication and products to improve fuel efficiency.

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


	Three Months Ended March 31,						Nine Months Ended March 31,
	2012			2011			2012			2011
Americas		28	%		25	%		25	%		24	%
Asia Pacific		57			60			61			62
Europe		15			15			14			14

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 Ended Mar. 31, 2012			Nine Months Ended Mar. 31, 2012
Net revenue for prior year period	$	874,531		$	2,673,668
Components of net revenue change:
Organic net revenue change		(44,555	)		(125,099	)
Currency translation		4,231			72,358
Acquisitions		2,873			9,736

Total change in net revenue from prior year period		(37,451	)		(43,005	)

Net revenue for current year period	$	837,080		$	2,630,663

Organic net revenue change as a percentage of net revenue for prior year period		(5.1	)%		(4.7	)%

Organic net revenue decreased during the three and nine months ended March 31, 2012 compared with the prior year periods as customer demand slowed in the consumer markets due to uncertainties about end customer demand. Decreases in demand for certain mobile products in the telecommunications markets also contributed to

the organic net revenue decrease. We completed an asset acquisition of a specialty wire and cable company during the second quarter of 2012 and completed an asset acquisition of an active optical cable business during the third quarter of fiscal 2011.

Foreign currency translation increased net revenue approximately $4.2 million for the three months ended March 31, 2012, primarily due to a stronger Japanese yen against the U.S. dollar, partially offset by a weaker euro against the U.S. dollar, compared to the prior year period. Foreign currency translation increased net revenue approximately $72.4 million for the nine months ended March 31, 2012, due to a stronger Japanese yen against the U.S. dollar compared with the prior year period. 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 March 31, 2012									Nine Months Ended March 31, 2012
	Local Currency			Currency Translation			Net Change			Local Currency			Currency Translation		Net Change
Americas	$	14,079		$	(84	)	$	13,995		$	28,200		$	333	$	28,533
Asia Pacific		(50,141	)		8,472			(41,669	)		(115,010	)		59,891		(55,119	)
Europe		(7,089	)		(4,157	)		(11,246	)		(29,237	)		12,134		(17,103	)
Corporate & other		1,469			—			1,469			684			—		684

Net change	$	(41,682	)	$	4,231		$	(37,451	)	$	(115,363	)	$	72,358	$	(43,005	)

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


	Three Months Ended Mar. 31, 2012			Nine Months Ended Mar. 31, 2012
Americas		6.4	%		4.4	%
Asia Pacific		(9.6	)		(7.0	)
Europe		(5.3	)		(7.7	)
Total		(4.8	)%		(4.3	)%

Gross Profit

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


	Three Months Ended March 31,						Nine Months Ended March 31,
	2012			2011			2012			2011
Gross profit	$	255,176		$	260,614		$	810,841		$	806,735
Gross margin		30.5	%		29.8	%		30.8	%		30.2	%

The decrease in gross profit for the three months ended March 31, 2012 was primarily due to lower net revenue. Despite the lower net revenue, gross margin improved during the three and nine months ended March 31, 2012 due to a favorable mix of product sales and rigorous control over costs. Gross profit and gross margin for the nine months ended March 31, 2012 also improved due to price increases to partially offset rising material costs. The increases in 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 15.0 million pounds of copper and approximately 77,100 troy ounces of gold during the first three quarters of fiscal 2012. The following table shows the average prices related to our purchases of copper and gold for the three and nine months ended March 31 (in thousands):


	Three Months Ended March 31,				Nine Months Ended March 31,
	2012		2011		2012		2011
Copper (price per pound)	$	3.79	$	4.38	$	3.78	$	3.77
Gold (price per troy ounce)		1,691.00		1,388.00		1,693.00		1,321.00

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 copper and gold prices by hedging with call options a portion of our projected net global purchases of copper and gold. The hedges reduced cost of sales by $0.7 million and $6.1 million for the three and nine months ended March 31, 2012, respectively, and reduced cost of sales by $2.2 million and $4.2 million for the three and nine months ended March 31, 2011, respectively.

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


	Three Months Ended Mar. 31, 2012			Nine Months Ended Mar. 31, 2012
Price erosion	$	(25,254	)	$	(77,731	)
Currency translation		2,497			25,037
Currency transaction		(6,742	)		(33,012	)

Price erosion is measured as the reduction in prices of our products year over year. The largest impact from price erosion is in our Connector segment. A significant portion of our price erosion occurred in mobile phone connector products, which are part of our telecommunications market. The impact of price erosion is generally offset through cost reduction, price management, and increases in demand for new products.

The increase in gross profit due to currency translation during the three months ended March 31, 2012 was primarily due to a stronger Japanese yen against the U.S. dollar, partially offset by a weaker euro against the U.S. dollar, compared with the prior year period. The increase in gross profit due to currency translation during the nine months ended March 31, 2012 was primarily due to a stronger Japanese yen against the U.S. dollar compared with the prior year period.

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 and a generally weaker U.S. dollar during the three and nine months ended March 31, 2012, compared with the prior year periods.

Operating Expenses

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


	Three Months Ended March 31,						Nine Months Ended March 31,
	2012			2011			2012			2011
Selling, general and administrative	$	163,853		$	159,448		$	496,151		$	475,548
Unauthorized activities in Japan		2,521			2,855			8,166			11,110
Selling, general and administrative as a percentage of revenue		19.6	%		18.2	%		18.9	%		17.8	%

Selling, general and administrative expenses increased $4.4 million and $20.6 million for the three and nine months ended March 31, 2012, compared with the prior year periods. The increase in selling, general and administrative expenses for the three months ended March 31, 2012 compared to the prior year period is primarily due to investments in research and development to penetrate new markets, acquire new customers and drive future growth. The increase in selling, general and administrative expenses for the nine months ended March 31, 2012 is primarily due to foreign currency translation. The impact of foreign currency translation increased selling, general and administrative expenses approximately $11.6 million for the nine months ended March 31, 2012, versus the prior year period. Excluding the impact of foreign currency translation, selling, general and administrative expenses increased $9.0 million for the nine months ended March 31, 2012 compared with the prior year period primarily due to investments in research and development to penetrate new markets, acquire new customers and drive future growth.

Research and development expenditures, which are classified as selling, general and administrative expense, were approximately $45.7 million, or 5.5% of net revenue and $134.4 million, or 5.1% of net revenue for the three and nine months ended March 31, 2012, respectively, compared with $43.6 million, or 5.0% of net revenue and $126.3 million, or 4.7% of net revenue, for the comparable prior year periods.

Unauthorized activities in Molex Japan for the three and nine months ended March 31, 2012 represent investigative and legal fees. See Note 2 of the Notes to the Condensed Consolidated Financial Statements.

Other Income (Expense)

Other income (expense) consists primarily of net interest expense, investment income and currency exchange gains or losses. We recorded other income of $0.3 million and other expense of $1.4 million for the three and nine months ended March 31, 2012, respectively, compared with other expense of $0.4 million and other income of $0.9 million for the three and nine months ended March 31, 2011, respectively. Fluctuations in other income (expense) are primarily due to changes in foreign currency gains and losses.

Effective Tax Rate

The effective tax rate was 27.2% for the three months ended March 31, 2012. During the three months ended March 31, 2012, we recorded income tax expense of $24.3 million. During the three months ended March 31, 2012, we recorded a one-time charge of $1.6 million for the cumulative effect of a reduction in future tax benefits from deferred tax assets in Shanghai due to a decrease in the Shanghai corporate tax rate. We also recorded a one-time benefit of $4.6 million from releasing valuation allowances no longer required on net operating losses recorded in certain foreign jurisdictions.

Our effective tax rate reflects tax benefits derived from significant operations outside the United States, which, other than Japan, are generally taxed at rates lower than the U.S. statutory rate of 35.0%. A change in the mix of income before income taxes from these various jurisdictions can have a significant impact on our periodic effective rate.

The effective tax rate was 30.4% for the three months ended March 31, 2011.

Backlog

Our order backlog on March 31, 2012 was approximately $376.9 million compared with order backlog of $346.3 million at December 31, 2011 and $425.4 million at March 31, 2011. Orders for the three months ended March 31, 2012 were $872.6 million compared with $815.3 million and $880.3 million for the three months ended December 31, 2011 and March 31, 2011, respectively. Orders increased $57.3 million over the sequential quarter and exceeded net revenue during the three months ended March 31, 2012. The increase in demand indicates stabilizing business conditions as orders for the three months ended March 31, 2012 were comparable to the prior year period.

Segments

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


	2012		Percentage of Revenue			2011		Percentage of Revenue
Connector	$	583,364		69.7	%	$	628,367		71.9	%
Custom & Electrical		253,629		30.3			245,434		28.0
Corporate & Other		87		—			730		0.1

Total	$	837,080		100.0	%	$	874,531		100.0	%

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


	2012		Percentage of Revenue			2011		Percentage of Revenue
Connector	$	1,865,029		70.9	%	$	1,954,733		73.1	%
Custom & Electrical		765,136		29.1			717,511		26.8
Corporate & Other		498		—			1,424		0.1

Total	$	2,630,663		100.0	%	$	2,673,668		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 Ended Mar. 31, 2012			Nine Months Ended Mar. 31, 2012
Net revenue for prior year period	$	628,367		$	1,954,733
Components of net revenue change:
Organic net revenue change		(50,688	)		(151,324	)
Currency translation		5,685			61,620

Total change in net revenue from prior year period		(45,003	)		(89,704	)

Net revenue for current year period	$	583,364		$	1,865,029

Organic net revenue change as a percentage of net revenue for prior year period		(8.1	)%		(7.7	)%

The Connector segment sells primarily to the telecommunication, infotech, consumer and automotive markets. Organic net revenue and segment net revenue decreased during the three and nine months ended March 31, 2012 compared with the prior year periods. The decrease was primarily due to slower customer demand, particularly in the telecommunications and consumer markets. Price erosion, which is generally higher in the Connector segment compared with our other segment, also negatively impacted organic net revenue and segment net revenue. The decrease was partially offset by foreign currency translation, which favorably impacted net revenue by $5.7 million and $61.6 million for the three and nine months ended March 31, 2012, 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 March 31,						Nine Months Ended March 31,
	2012			2011			2012			2011
Income from operations	$	76,268		$	86,989		$	259,882		$	291,551
Operating margin		13.1	%		13.8	%		13.9	%		14.9	%

Connector segment income from operations declined for the three and nine months ended March 31, 2012 compared with the prior year periods primarily due to lower net revenue, increased selling, general and administrative expenses and higher gold and resin costs. We increased prices to partially offset rising material costs and minimize the decline in gross profit and gross margin. Lower production levels due to decreasing customer demand also led to lower absorption of our fixed costs. Selling, general and administrative expenses for the three and nine months ended March 31, 2012 increased primarily due to investments in research and development to penetrate new markets, acquire customers and drive future growth and foreign currency translation. Foreign currency translation increased selling, general and administrative expenses primarily due to a stronger Japanese yen against other currencies during the three and nine months ended March 31, 2012, compared with the prior year periods.

Custom & Electrical

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


	Three Months Ended Mar. 31, 2012			Nine Months Ended Mar. 31, 2012
Net revenue for prior year period	$	245,434		$	717,511
Components of net revenue change:
Organic net revenue change		6,788			27,144
Currency translation		(1,466	)		10,745
Acquisitions		2,873			9,736

Total change in net revenue from prior year period		8,195			47,625

Net revenue for current year period	$	253,629		$	765,136

Organic net revenue change as a percentage of net revenue for prior year period		2.8	%		3.8	%

The Custom & Electrical segment sells primarily to the industrial, telecommunications and infotech markets. Custom & Electrical segment net revenue increased in the three and nine months ended March 31, 2012 compared with the prior year periods due to increased customer demand in the infotech market. Foreign currency translation decreased net revenue $1.5 million for the three months ended March 31, 2012, primarily due to a weaker euro against the U.S. dollar compared to the prior year period. Foreign currency translation increased net revenue $10.7 million for the nine months ended March 31, 2012, primarily due to a generally weaker U.S. dollar compared to the prior year period. We completed an asset acquisition of a specialty wire and cable company during the second quarter of fiscal 2012 and completed an asset acquisition of an active optical cable business during the third quarter of fiscal 2011.

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 March 31,						Nine Months Ended March 31,
	2012			2011			2012			2011
Income from operations	$	39,741		$	36,399		$	129,245		$	110,969
Operating margin		15.7	%		14.8	%		16.9	%		15.5	%

Custom & Electrical income from operations increased for the three and nine months ended March 31, 2012 compared with the prior year periods due to increased net revenue and efforts to control costs. Gross margin increased primarily due to favorable mix of product sales and higher absorption. Selling, general and administrative expenses as a percent of net revenue for the three and nine months ended March 31, 2012 improved over the same prior year periods, due primarily to increased net revenue 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 $622.5 million and $546.5 million at March 31, 2012 and June 30, 2011, respectively. Cash, cash equivalents and marketable securities as of March 31, 2012 included $593.0 million held in non-U.S. accounts, including $199.0 million in countries where we may experience administrative delays in withdrawing and transferring cash to U.S. accounts. Transferring cash, cash equivalents or marketable securities to U.S. accounts from non-U.S. accounts could subject us to additional U.S. repatriation income tax. 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.

On August 18, 2011, we issued senior notes totaling $150.0 million through a private placement of debt (the Private Placement). The Private Placement consists of three $50.0 million series notes: Series A with an interest rate of 2.91% matures on August 18, 2016; Series B with an interest rate of 3.59% matures on August 18, 2018; and Series C with an interest rate of 4.28% matures on August 18, 2021. The Note Purchase Agreement requires us to maintain financial covenants pertaining to, among other things, our consolidated leverage and interest rate coverage. As of March 31, 2012, we were in compliance with these covenants.

Total debt including obligations under capital leases totaled $256.1 million and $342.6 million at March 31, 2012 and June 30, 2011, respectively. We had available lines of credit totaling $421.6 million at March 31, 2012, including $345.0 million available on the U.S. Credit Facility. The U.S. Credit Facility requires us to maintain financial covenants pertaining to, among other things, our consolidated leverage and fixed charge coverage. As of March 31, 2012, we were in compliance with these covenants. Additionally, we have three unsecured borrowing agreements in Japan with an outstanding balance of ¥8.0 billion ($96.4 million) as of March 31, 2012, and weighted average fixed interest rates of 1.81%. See Note 9 of the Notes to the Condensed Consolidated Financial Statements.

Cash Flows

Our cash and cash equivalents balance increased $76.2 million during the nine months ended March 31, 2012. Our primary source of cash was operating cash flows of $430.4 million, the majority of which is generated outside the United States. We used cash during the period to fund capital expenditures of $149.4 million and pay dividends of $105.4 million. The translation of our cash to U.S. dollars decreased our cash balance by $8.8 million compared with the balance as of June 30, 2011.

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


	Nine Months Ended March 31,
	2012			2011
Cash provided from operating activities	$	430,378		$	326,931
Cash used for investing activities		(159,587	)		(214,992	)
Cash used for financing activities		(185,801	)		(66,716	)
Effect of exchange rate changes on cash		(8,780	)		26,221

Net increase in cash and cash equivalents	$	76,210		$	71,444

Operating Activities

Cash provided from operating activities increased by $103.4 million from the prior year period due mainly to a $112.9 million decrease in working capital needs in the current year period compared with the prior year. Working capital needs decreased during the nine months ended March 31, 2012 compared with the prior year period as we collected outstanding receivable balances and maintained inventory levels after increasing inventory in the prior year due to customer demand and the conversion from air shipment to sea shipment. Working capital is defined as current assets minus current liabilities.

Investing Activities

Cash used for investing activities decreased by $55.4 million from the prior year period due mainly to a $47.5 million decrease in capital expenditures and $11.0 million of proceeds from the sale of an investment during the three months ended March 31, 2012. Capital expenditures were $149.4 million for the nine months ended March 31, 2012, compared with $196.9 million in the prior year period.

Financing Activities

Cash used for financing activities increased $119.1 million during the nine months ended March 31, 2012, compared with the prior year period primarily due to the increased quarterly cash dividend and net payments on debt.

Our quarterly cash dividend was $0.20 per share in fiscal 2012, an increase of 14.3% from the previous cash dividend of $0.175 per share in the prior fiscal year.

We issued senior notes totaling $150.0 million on August 18, 2011. Proceeds were used to pay down a portion of the U.S. Credit Facility. Net payments on the revolving U.S. Credit Facility were $180.0 million for the nine months ended March 31, 2012, compared with net borrowings of $65.0 million in the prior year period. In addition, net payments on short-term loans were $53.6 million for the nine months ended March 31, 2012, compared with net payments of $3.0 million in the prior year period.

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 Japan our cash requirements may also be impacted.

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, 2011. 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. Since June 30, 2011, there have been no material changes in our contractual obligations and commercial commitments arising outside of the ordinary course of business other than the Private Placement. The Private Placement consists of three $50.0 million series notes: Series A that matures on August 18, 2016; Series B that matures on August 18, 2018; and Series C that matures on August 18, 2021. See Note 9 of the Notes to the Condensed Consolidated Financial Statements.

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, business, beliefs, and 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,” “potential,” 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, 2011 (Form 10-K). You should carefully consider the risks described in our Form 10-K. Such risks are not the only ones we are facing; 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 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, global economic conditions, success of customers, cost of raw materials, value of inventory, availability of credit, currency exchange rates, labor costs, protection of intellectual property, cost reduction initiatives, unauthorized activities in Japan, acquisition synergies, manufacturing strategies, product development introduction and sales, regulatory changes, competitive strengths, natural disasters, investigations 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 quarterly 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. See Note 12 of the Notes to the Condensed Consolidated Financial Statements for discussion of foreign exchange contracts in use at March 31, 2012 and June 30, 2011.

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. See Note 12 of the Notes to the Condensed Consolidated Financial Statements for discussion of derivative instruments in use at March 31, 2012 and June 30, 2011.

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 $72.4 million and increased income from operations of $13.5 million for the nine months ended March 31, 2012, compared with the estimated results for the comparable period in the prior year.

Our $13.7 million of marketable securities at March 31, 2012 are principally invested in time deposits.

Interest rate exposure is generally limited to our marketable securities, five-year unsecured U.S. Credit Facility and syndicated term loan. We do not actively manage the risk of interest rate fluctuations. Our marketable securities mature in less than 12 months. We had $5.0 million outstanding on our $350.0 million U.S. Credit Facility with an interest rate of approximately 1.74% at March 31, 2012.

Due to the nature of our operations, net revenue from specific customers or products fluctuates over time, but our broad base of customers in several markets mitigates the concentration risk relating to any one customer or product.

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 (CEO) and chief financial officer (CFO), 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 CEO and CFO 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 CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

Internal Control Over Financial Reporting

During the three months ended March 31, 2012, 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 14 of the Notes to the 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 March 31, 2012 were as follows (in thousands, except price per share data):


	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plan
January 1 – January 31
Common Stock		—	$	—		—
Class A Common Stock		1	$	20.91		—
February 1 – February 29
Common Stock		—	$	—		—
Class A Common Stock		104	$	22.30		—
March 1 – March 31
Common Stock		—	$	—		—
Class A Common Stock		4	$	22.85		—

Total		109	$	22.31		—

The shares purchased represent exercises of employee stock options.

Item 6. Exhibits


Number		Description

10.1		Retirement and Waiver and Release Agreement between James E. Fleischhacker and Molex Incorporated dated February 22, 2012. Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on February 27, 2012. (File No. 000-07491)

10.2		Consulting Agreement between James E. Fleischhacker and Molex Incorporated dated February 22, 2012. Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on February 27, 2012. (File No. 000-07491)

31		Rule 13a-14(a)/15d-14(a) Certifications

		31.1 Section 302 certification by Chief Executive Officer
		31.2 Section 302 certification by Chief Financial Officer

32		Section 1350 Certifications

		32.1 Section 906 certification by Chief Executive Officer
		32.2 Section 906 certification by Chief Financial Officer

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

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: April 26, 2012		/S/ DAVID D. JOHNSON
		David D. Johnson
		Executive Vice President, Treasurer and
		Chief Financial Officer
		(Principal Financial Officer)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company