UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended September 30, 2011

March 31, 2012

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

For the transition period fromto

Commission File Number 0-7491

MOLEX INCORPORATED

(Exact name of registrant as specified in its charter)

Delaware 
Delaware36-2369491

(State or other jurisdiction of

incorporation or organization)

 

(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.    Yesþx    Noo¨

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).    Yesþx    Noo¨

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 filerþx  Accelerated filero  ¨
Non-accelerated filero¨  Smaller reporting companyo¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yeso¨    Noþx

On OctoberApril 19, 2011,2012, the following numbers of shares of the Company’s common stock were outstanding:

Common Stock

   95,560,076  

Class A Common Stock

   80,142,91580,704,172  

Class B Common Stock

   94,255  

 


Molex Incorporated

INDEX

PART I – FINANCIAL INFORMATION

   
   Page 

  
  
   3  
Condensed Consolidated Statements of Income for the three and nine months ended September 30,March 31, 2012 and 2011 and 2010   4  
Condensed Consolidated Statements of Cash Flows for the threenine months ended September 30,March 31, 2012 and 2011 and 2010   5  
Notes to Condensed Consolidated Financial Statements   6  

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations   1415  

Item 3.

Quantitative and Qualitative Disclosures About Market Risk   2427  

Item 4.

Controls and Procedures   2528  

PART II OTHER INFORMATION

Item 1.

Legal Proceedings   29  

Item 1. Legal Proceedings2.

  26
   2629  

Item 6.

Exhibits   2730  

SIGNATURES

   2831  

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

  

2


PART I
Item 1.Financial Statements

PART I

Item 1. Financial Statements

Molex Incorporated

Condensed Consolidated Balance Sheets

(in thousands)

         
  Sept. 30,  June 30, 
  2011  2011 
  (Unaudited)     
ASSETS
        
Current assets:        
Cash and cash equivalents $557,376  $532,599 
Marketable securities  11,150   13,947 
Accounts receivable, less allowances of $40,685 and $42,297 respectively  782,833   811,449 
Inventories  547,209   535,953 
Deferred income taxes  131,819   129,158 
Other current assets  40,917   32,239 
       
Total current assets  2,071,304   2,055,345 
Property, plant and equipment, net  1,144,023   1,168,448 
Goodwill  148,349   149,452 
Non-current deferred income taxes  39,404   38,178 
Other assets  177,498   186,429 
       
Total assets $3,580,578  $3,597,852 
       
LIABILITIES AND STOCKHOLDERS’ EQUITY
        
Current liabilities:        
Current portion of long-term debt and short-term borrowings $129,781  $119,764 
Accounts payable  349,657   359,812 
Accrued expenses:        
Accrual for unauthorized activities in Japan  191,873   182,460 
Income taxes payable  32,349   2,383 
Other  222,930   217,628 
       
Total current liabilities  926,590   882,047 
Other non-current liabilities  22,253   23,879 
Accrued pension and postretirement benefits  96,232   100,866 
Long-term debt  176,925   222,794 
       
Total liabilities  1,222,000   1,229,586 
       
Commitments and contingencies Stockholders’ equity:        
Common stock  11,302   11,285 
Additional paid-in capital  680,869   674,494 
Retained earnings  2,453,482   2,408,083 
Treasury stock  (1,107,670)  (1,106,039)
Accumulated other comprehensive income  320,595   380,443 
       
Total stockholders’ equity  2,358,578   2,368,266 
       
Total liabilities and stockholders’ equity $3,580,578  $3,597,852 
       

   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.

3


Molex Incorporated

Condensed Consolidated Statements of Income

(Unaudited)

(in thousands, except per share data)

         
  Three Months Ended 
  September 30, 
  2011  2010 
Net revenue $935,985  $897,672 
Cost of sales  643,257   622,596 
       
Gross profit  292,728   275,076 
       
 
Selling, general and administrative  169,225   157,056 
Unauthorized activities in Japan  2,922   5,542 
       
Total operating expenses  172,147   162,598 
       
 
Income from operations  120,581   112,478 
 
Interest expense, net  1,391   1,335 
Other (income) expense  (276)  351 
       
Total other expense, net  1,115   1,686 
       
 
Income before income taxes  119,466   110,792 
 
Income taxes  38,949   35,688 
       
 
Net income $80,517  $75,104 
       
 
Earnings per share:        
Basic $0.46  $0.43 
Diluted $0.46  $0.43 
 
Dividends declared per share $0.2000  $0.1525 
 
Average common shares outstanding:        
Basic  175,466   174,370 
Diluted  176,585   175,156 

   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.

4


Molex Incorporated

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

         
  Three Months Ended 
  September 30, 
  2011  2010 
Operating activities:        
Net income $80,517  $75,104 
Add non-cash items included in net income:        
Depreciation and amortization  61,239   59,108 
Share-based compensation  5,135   5,149 
Other non-cash items  5,991   8,634 
Changes in assets and liabilities:        
Accounts receivable  22,927   (29,343)
Inventories  (18,260)  (57,988)
Accounts payable  (10,702)  (24,876)
Other current assets and liabilities  28,890   27,886 
Other assets and liabilities  (25,188)  (1,079)
       
Cash provided from operating activities  150,549   62,595 
Investing activities:        
Capital expenditures  (42,804)  (71,192)
Proceeds from sales of property, plant and equipment  1,396   643 
Proceeds from sales or maturities of marketable securities  4,868   2,184 
Purchases of marketable securities  (2,777)  (1,257)
       
Cash used for investing activities  (39,317)  (69,622)
Financing activities:        
Proceeds from revolving credit facility  30,000   20,000 
Payments on revolving credit facility  (195,000)  (10,000)
Payments on short-term loans  (27,266)   
Proceeds from issuance of long-term debt  150,000   797 
Payments of long-term debt  (143)  (24,840)
Cash dividends paid  (35,068)  (26,565)
Exercise of stock options  620   358 
Other financing activities  (1,014)  (967)
       
Cash used for financing activities  (77,871)  (41,217)
Effect of exchange rate changes on cash  (8,584)  12,536 
       
Net increase (decrease) in cash and cash equivalents  24,777   (35,708)
Cash and cash equivalents, beginning of period  532,599   376,352 
       
Cash and cash equivalents, end of period $557,376  $340,644 
       

   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.

5


Molex Incorporated

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Basis of Presentation

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 3940 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 September 30, 2011March 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

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 an accrued liability for the effect of unauthorized activities pending the resolution of the legal proceedings reported in Note 14 of the Notes to the Condensed Consolidated Financial Statements.

14.

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, 2007.2010. The accrued liability for these potential net lossesunauthorized activities was $191.9$177.3 million as of September 30, 2011,March 31, 2012, including $26.1$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 outstanding unauthorized loans ($165.8 million), we would recognize a gain in that amount.gain. In addition, we have a contingent liability of $39.8$49.5 million for other loan-related expenses, interest expense and delay damages on the outstanding unauthorized loans.

3. Restructuring Costs

Unauthorized activities in Molex Japan for the three and Asset Impairments

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.

6


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 
    
4. Acquisitions

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

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 
  September 30, 
  2011  2010 
Net income $80,517  $75,104 
       
Basic weighted average common shares outstanding  175,466   174,370 
Effect of dilutive stock options  1,119   786 
       
Diluted weighted average common shares outstanding  176,585   175,156 
       
         
Earnings per share:        
Basic $0.46  $0.43 
Diluted $0.46  $0.43 

   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 5.62.4 million and 6.15.2 million for the three and nine months ended September 30, 2011March 31, 2012, respectively, compared with 3.3 million and 2010, respectively.

6. Comprehensive Income
6.6 million for the same prior year periods.

6.Comprehensive Income

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

         
  Three Months Ended 
  September 30, 
  2011  2010 
Net income $80,517  $75,104 
Translation adjustments  (58,724)  70,255 
Unrealized investment (loss) gain  (1,124)  49 
       
Total comprehensive income $20,669  $145,408 
       

7


   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

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):
         
  Sept. 30,  June 30, 
  2011  2011 
Raw materials $96,839  $91,362 
Work in process  151,132   143,888 
Finished goods  299,238   300,703 
       
Total inventories $547,209  $535,953 
       
8. Pensions and Other Postretirement Benefits

   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 
  September 30, 
  2011  2010 
Service cost $1,381  $2,197 
Interest cost  2,123   1,967 
Expected return on plan assets  (2,166)  (1,812)
Amortization of prior service cost  65   53 
Recognized actuarial losses  290   893 
Amortization of transition obligation  10   9 
       
Benefit cost $1,703  $3,307 
       

   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 
  September 30, 
  2011  2010 
Service cost $274  $342 
Interest cost  586   617 
Amortization of prior service cost  (516)  (516)
Recognized actuarial losses  82   333 
       
Benefit cost $426  $776 
       

8


   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  
  

 

 

  

 

 

  

 

 

  

 

 

 

9.Debt

9. Debt
Total debt consisted of the following (in thousands):
                 
  Average           
  Interest      September 30,  June 30, 
  Rate  Maturity  2011  2011 
Long-term debt:                
Private Placement  2.91 — 4.28%  2016 — 2021  $150,000  $ 
U.S. Credit Facility  1.74%  2016   20,000   185,000 
Unsecured bonds and term loans  0.77 — 1.31%  2012 — 2013   66,531   89,342 
Other debt  5.92%  2012 — 2013   1,498   1,528 
               
Total long-term debt          238,029   275,870 
Less current portion of long-term debt:                
Unsecured bonds and term loans  0.77 — 1.31%      60,070   52,156 
Other debt Varies      1,034   920 
               
Long-term debt, less current portion          176,925   222,794 
                 
Short-term borrowings                
Overdraft loan  2.48%  2012   65,265   62,060 
Other short-term borrowings  5.92%      3,412   4,628 
               
Total short-term borrowings          68,677   66,688 
               
Total debt         $306,706  $342,558 
               

   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 September 30, 2011,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 credit facilityU.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 September 30, 2011.March 31, 2012. The U.S. Credit AgreementFacility contains customary covenants regarding liens, debt, substantial asset sales and mergers, dividends and investments. The U.S. Credit AgreementFacility also requires us to maintain financial covenants pertaining to, among other things, our consolidated leverage and fixed charge coverage. As of September 30, 2011,March 31, 2012, we were in compliance with these covenants and had outstanding borrowings of $20.0$5.0 million.

In September 2011,March 2012, Molex Japan renewed a ¥5.0 billion overdraft loan, with a six month term and an interest rate of approximately 2.48%1.98%. At September 30, 2011,March 31, 2012, the balance of the overdraft loan, which requires full repayment by the end of the term if not renewed, approximated $65.3$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 InterbankInterBank Offered Rate plus 75 basis points and scheduled principal payments of ¥0.5 billion every six months. At September 30, 2011,March 31, 2012, the balance of the syndicated term loan approximated $19.5$12.0 million, of which $13.1 million wasis 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 September 30, 2011,March 31, 2012, the outstanding balance of the unsecured bonds approximated $47.0$24.1 million, which is classified as current.

9


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):
     
2012 $61,104 
2013  6,925 
2014   
2015   
2016  70,000 
Thereafter $100,000 
    
Total long-term debt obligations $238,029 
    

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 $406.4$421.6 million at September 30, 2011,March 31, 2012, including a $350.0 million unsecured, five-year revolving credit facility with $330.0$345.0 million available as of September 30, 2011.on the U.S. Credit Facility. The lines of credit expire between 20112012 and 2021.

10. Income Taxes

10.Income Taxes

The effective tax rate was 32.6%27.2% for the three months ended September 30, 2011March 31, 2012 and 32.2%30.4% for the three months ended September 30, 2010.

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,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 through 2010and 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 September 30, 2011,March 31, 2012, there were no material interest or penalty amounts to accrue.

11. Fair Value Measurements

11.Fair Value Measurements

The following table summarizes our financial assets and liabilities as of September 30, 2011,March 31, 2012, 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 $23,142  $23,142  $  $ 
Derivative financial instruments, net  4,861      4,861    

   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

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-

10


functionalnon-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 $155.9$222.3 million and $175.6 million at September 30, 2011March 31, 2012 and June 30, 2011, respectively, with corresponding fair values of a $5.0$0.2 million liabilityasset at September 30, 2011March 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 $9.9$7.5 million and $7.8 million at September 30, 2011March 31, 2012 and June 30, 2011, respectively. These call options have maturities of 12 months or less.

For the three and nine months ended September 30,March 31, 2012 and 2011, and 2010, the impact to accumulated other comprehensive income and earnings from cash flow hedges follows (in thousands):

         
  Three Months Ended 
  September 30, 
  2011  2010 
Unrealized gain (loss) recognized in accumulated other comprehensive income $1,502  $(722)
Gain reclassified into earnings  1,845   2,136 
13. New Accounting Pronouncements

   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 March 31,September 30, 2012 and will amend our presentation of the components of comprehensive income.

14. Contingencies

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.

11


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€24.0 million ($32.532.0 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 shall filefiled its necessary submissionbriefs in advancereply 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 hearings. The Toulouse Labor Court has scheduled two hearings, oneshould 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 March 5,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, forthe five employees who fall within the executivesexecutive section submitted a reply brief and another onrequested 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 allthe other employees. 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.

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 ($39.236.2 million), ¥5 billion ($65.360.3 million), ¥5 billion ($65.360.3 million) and ¥2 billion ($26.124.1 million), other loan-related expenses of approximately ¥106 million ($1.41.3 million) and interest and delay damages of approximately ¥2.9¥4.0 billion ($38.448.3 million) as of September 30, 2011.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 next court has scheduled two hearing is scheduleddates, May 9 and May 16, 2012, for November 16, 2011.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 of the Notes to the Condensed Consolidated Financial Statements 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.

12


15.Segments and Related Information

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):

                 
      Custom &  Corporate    
  Connector  Electrical  & Other  Total 
For the three months ended:                
September 30, 2011:                
Revenues from external customers $678,780  $256,794  $411  $935,985 
Income (loss) from operations  106,262   41,908   (27,589)  120,581 
Depreciation & amortization  50,075   7,127   4,037   61,239 
Capital expenditures  34,701   6,914   1,189   42,804 
                 
September 30, 2010:                
Revenues from external customers $661,136  $236,031  $505  $897,672 
Income (loss) from operations  98,647   42,566   (28,735)  112,478 
Depreciation & amortization  47,536   7,523   4,049   59,108 
Capital expenditures  58,757   7,254   5,181   71,192 

   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 division.

segment.

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

                 
      Custom &  Corporate    
  Connector  Electrical  & Other  Total 
September 30, 2011 $1,899,592  $479,216  $95,257  $2,474,065 
June 30, 2011  1,913,675   503,443   98,732   2,515,850 

   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):

         
  Sept. 30,  June 30, 
  2011  2011 
Segment assets $2,474,065  $2,515,850 
Other current assets  741,262   707,943 
Other non-current assets  365,251   374,059 
       
Consolidated total assets $3,580,578  $3,597,852 
       

13


   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 3940 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 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 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.

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 increaseddecreased during the three and nine months ended September 30, 2011March 31, 2012 compared with the prior year periodperiods primarily due to favorable foreign currency translation. Customerslower customer demand improvedcaused by uncertainties in the infotech and automotive markets withglobal economy, particularly in the release of newconsumer markets. Decreases in demand for certain mobile products but was offset by decreases in the telecommunications consumermarkets also contributed to the net revenue decrease. Despite the lower net revenue, gross margins improved during the three and industrial markets. Gross profit improvednine months ended March 31, 2012 compared to the prior year periods due to higher net revenue, particularly in Japan,a favorable mix of product sales and higher absorption from increased production.rigorous control over costs. We increased prices during the nine months ended March 31, 2012 to partially offset rising inputmaterial costs, which also contributed to the improved gross profitmargins compared with the prior year period. The improvedDespite the gross profitmargin improvements and specific cost control efforts, improved our operating income from operations decreased during the three and nine months ended September 30, 2011March 31, 2012 based on the lower net revenue compared with the prior year period.

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

14


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 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 an accrued liability for the effect of unauthorized activities pending the resolution of the legal proceedings reported in Note 14 of the Notes to the Condensed Consolidated Financial Statements.

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, 2007.2010. The accrued liability for these potential net lossesunauthorized activities was $191.9$177.3 million as of September 30, 2011,March 31, 2012, including $26.1$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 outstanding unauthorized loans ($165.8 million), we would recognize a gain in that amount.gain. In addition, we have a contingent liability of $39.8$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.

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 operationsincome data as a percentage of net revenue for the three months ended September 30March 31 (in thousands):

                 
      Percentage      Percentage 
  2011  of Revenue  2010  of Revenue 
Net revenue $935,985   100.0% $897,672   100.0%
Cost of sales  643,257   68.7%  622,596   69.4%
             
Gross profit  292,728   31.3%  275,076   30.6%
                 
Selling, general & administrative  169,225   18.1%  157,056   17.5%
Unauthorized activities in Japan  2,922   0.3%  5,542   0.6%
             
Income from operations  120,581   12.9%  112,478   12.5%
                 
Other expense, net  1,115   0.1%  1,686   0.2%
             
Income before income taxes  119,466   12.8%  110,792   12.3%
Income taxes  38,949   4.2%  35,688   3.9%
             
Net income $80,517   8.6% $75,104   8.4%
             

15


   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 increased in the infotech and automotive markets during the firstthird quarter of fiscal 2012 compared with the first quarter of fiscal 2011 (comparable quarter)declined as customerglobal economic uncertainty affected end demand, improved over the prior year, but declinedparticularly in the telecommunications,our consumer market, and industrial markets. Net revenue increased in the infotech and consumer markets during the first quarter of fiscal 2012 compared with the fourth quarter of fiscal 2011 (sequential quarter), but declined in the telecommunications and industrial markets.our customers managed inventory lower. The increase (decrease) in net revenue from each market during the firstthird quarter of fiscal 2012 compared with the comparablethird quarter of fiscal 2011 (comparable quarter) and the sequentialsecond quarter of fiscal 2012 (sequential quarter) follows:

         
  Comparable  Sequential 
  Quarter  Quarter 
Telecommunications  (5)%  (2)%
Infotech  20   6 
Consumer  (2)  14 
Industrial  (4)  (6)
Automotive  17    

   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 infrastructure spending on networking.demand for networking products. Telecommunications market net revenue decreased against the sequential quarter primarily due to decreased infrastructure spending partially offset by improvedweaker demand for mobile products including higher demand for smartphones and our customers’ introduction of smartphone models.

infrastructure spending.

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

devices, partially offset by slower demand for servers.

Consumer market net revenue decreased against the comparable quarter due to economic uncertainty and lower demand for our components in flat panel display televisions, partially offset by increased demand in gaming equipment. Net revenue increased against the sequential quarter primarily due to delayed pre-holiday production volumes in home entertainment and gaming equipment fromequipment. Consumer market net revenue decreased against the prior quarter.

sequential quarter due to lower sales in home entertainment products and seasonal lower demand.

Industrial market net revenue decreased against the comparable and sequential quartersquarter 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 quarterand sequential quarters due to increasedhigher global automobile production, particularly in North America and our customers’Japan, and increasing electronic content in automobiles, such as navigational and entertainment systems, mobile communication and products to promoteimprove fuel efficiency.

The automotive market remained unchanged againstfollowing table shows the sequential quarter.

16

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 shows the percentage of our net revenue by geographic region:
         
  Three Months Ended 
  September 30, 
  2011  2010 
Americas  24%  24%
Asia Pacific  63   63 
Europe  13   13 
       
Total  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 
  Sept. 30, 2011 
Net revenue for prior year period $897,672 
Components of net revenue change:    
Organic net revenue decline  (18,595)
Currency translation  52,875 
Acquisitions  4,033 
    
Total change in net revenue from prior year period  38,313 
    
Net revenue for current year period $935,985 
    
Organic net revenue decline as a percentage of net revenue from prior year period  (2.1)%

   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 September 30, 2011March 31, 2012 compared with the prior year periodperiods as customer demand decreasedslowed in the consumer markets due to uncertainties about end customer demand. Decreases in demand for certain primary markets.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 $52.9$4.2 million for the three months ended September 30, 2011 principallyMarch 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.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 September 30, 2011 
  Local  Currency  Net 
  Currency  Translation  Change 
Americas $3,835  $384  $4,219 
Asia Pacific  (8,186)  36,888   28,702 
Europe  (9,010)  15,603   6,593 
Corporate & Other  (1,201)     (1,201)
          
Net change $(14,562) $52,875  $38,313 
          

   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
Sept. 30, 2011
Americas1.8%
Asia Pacific(1.5)
Europe(7.6)
Total(1.6)%

17


   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 September 30March 31 (in thousands):

         
  Three Months Ended 
  September 30, 
  2011  2010 
Gross profit $292,728  $275,076 
Gross margin  31.3%  30.6%

   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 increasedecrease 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 threenine months ended September 30, 2011 was primarilyMarch 31, 2012 also improved due to higher net revenue and higher absorption from increased production. We also increased pricesprice increases to partially offset rising input costs, which improved gross profit and gross margin.material costs. The improvementsincreases 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 6.015.0 million pounds of copper and approximately 29,00077,100 troy ounces of gold during the first quarterthree quarters of fiscal 2012. The following table shows the change in average prices related to our purchases of copper and gold for the three and nine months ended September 30March 31 (in thousands):

         
  Three Months Ended 
  September 30, 
  2011  2010 
Copper (price per pound) $4.07  $3.30 
Gold (price per troy ounce)  1,702.00   1,228.00 

   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 goldcopper and coppergold prices by hedging with call options a portion of our projected net global purchases of goldcopper and copper.gold. The hedges reduced cost of sales by $1.8$0.7 million and $6.1 million for the three and nine months ended September 30, 2011March 31, 2012, respectively, and reduced cost of sales by $2.2 million and $4.2 million for the three and nine months ended September 30, 2010.

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 September 30March 31 (in thousands):

     
  Three Months 
  Ended 
  Sept. 30, 2011 
Price erosion $(24,018)
Currency translation  16,975 
Currency transaction  (18,606)

   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, which reduces our gross profit, particularlyyear. The largest impact from price erosion is in our Connector segment, where we have the largest impacts of price erosion.segment. A significant portion of our price erosion occurred in mobile phone connector products, as our customers introduced new versions of mobile products. Mobile phones and smartphoneswhich 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 other currencies and a general weakening of the U.S. dollar, partially offset by a weaker euro against other currencies,the U.S. dollar, compared with the prior year period. The increase in gross profit due to currency translation during the threenine months ended September 30, 2011.

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

18


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 general weakening of the U.S dollar against most currencies, partially offset by agenerally weaker euro against the U.S. dollar during the three and nine months ended September 30, 2011.
March 31, 2012, compared with the prior year periods.

Operating Expenses

Operating expenses were as follows as of September 30March 31 (in thousands):

         
  Three Months Ended 
  September 30, 
  2011  2010 
Selling, general and administrative $169,225  $157,056 
Unauthorized activities in Japan  2,922   5,542 
 
Selling, general and administrative as a percentage of net revenue  18.1%  17.5%

   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 $12.2$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.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 $8.1 million and $2.6$11.6 million for the threenine months ended September 30, 2011March 31, 2012, versus the prior year period. Excluding the impact of foreign currency translation, selling, general and 2010, respectively.

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 $43.9$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 three months ended September 30, 2011, compared with $40.5 million, or 4.5% of net revenue for the comparable prior year period.

periods.

Unauthorized activities in Molex Japan for the three and nine months ended September 30, 2011March 31, 2012 represent investigative and legal fees. See Note 2 of the Notes to the Condensed Consolidated Financial Statements.

Other Expense (Income)Income (Expense)

Other expense (income)income (expense) consists primarily of net interest income,expense, investment income and currency exchange gains or losses. Net expensesWe recorded other income of $1.1$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 September 30, 2011 compared with net expenses of $1.7 million for the three months ended September 30, 2010 as investment income partially offset interest expense and foreign currency losses in both periods.

Effective Tax Rate
     The effective tax rate was 32.6% for the three months ended September 30, 2011.March 31, 2012. During the three months ended September 30, 2011,March 31, 2012, we recorded income tax expense of $3.1$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 reversalShanghai corporate tax rate. We also recorded a one-time benefit of estimated tax benefits resulting$4.6 million from expirations of employee stock options and vesting of restricted stock at amounts less thanreleasing valuation allowances no longer required on net operating losses recorded book value.
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 32.2%30.4% for the three months ended September 30, 2010.

19

March 31, 2011.


Backlog

Our order backlog on September 30, 2011March 31, 2012 was approximately $387.2$376.9 million compared with order backlog of $445.5$346.3 million at September 30, 2010.December 31, 2011 and $425.4 million at March 31, 2011. Orders for the three months ended September 30, 2011March 31, 2012 were $910.0$872.6 million compared with $868.4$815.3 million and $880.3 million for the prior year period, representingthree 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 customer demand during fiscal 2012. Orders improved in all of our primary markets compared withindicates stabilizing business conditions as orders for the three months ended March 31, 2012 were comparable to the prior year period, except for the industrial and telecom markets which decreased 5.4% and 8.4% respectively over the prior year period.

Segments

The following table sets forth information on net revenue by segment as of the three months ended September 30March 31 (in thousands):

                 
      Percentage      Percentage 
  2011  of Revenue  2010  of Revenue 
Connector $678,780   72.5% $661,136   73.6%
Custom & Electrical  256,794   27.4   236,031   26.3 
Corporate & Other  411   0.1   505   0.1 
             
Total $935,985   100.0% $897,672   100.0%
             

   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 
  Sept. 30, 2011 
Net revenue for prior year period $661,136 
Components of net revenue change:    
Organic net revenue decrease  (23,914)
Currency translation  41,558 
    
Total change in net revenue from prior year period  17,644 
    
Net revenue for current year period $678,780 
    
Organic net revenue decline as a percentage of net revenue for prior year period  (3.6)%

   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 September 30, 2011March 31, 2012 compared with the prior year period asperiods. The decrease was primarily due to slower customer demand, decreasedparticularly in the telecommunications and consumer markets. Segment net revenue increased in the three months ended September 30, 2011 compared with the prior year period primarily due to foreign currency translation, partially offset by pricePrice erosion, which is generally higher in the Connector segment compared with our other segment. Currencysegment, 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 $41.6$5.7 million and $61.6 million for the three and nine months ended September 30, 2011.

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 
  September 30, 
  2011  2010 
Income from operations $106,262  $98,647 
Operating margin  15.7%  14.9%

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   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 improved overdeclined for the three and nine months ended March 31, 2012 compared with the prior year periodperiods primarily due to higherlower net revenue, and improved gross margins, partially offset by increased selling, general and administrative expenses and higher gold and resin costs. The increase in gross margins was primarily due to higher absorption from increased production. We also increased prices to partially offset rising inputmaterial costs which improvedand minimize the decline in gross profit and gross margin. UnfavorableLower 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 and a general weakening of the U.S. dollar against other currencies, during the three and nine months ended September 30, 2011.
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 
  Sept. 30, 2011 
Net revenue for prior year period $236,031 
Components of net revenue increase:    
Organic net revenue increase  5,395 
Currency translation  11,335 
Acquisitions  4,033 
    
Total change in net revenue from prior year period  20,763 
    
Net revenue for current year period $256,794 
    
Organic net revenue increase as a percentage of net revenue for prior year period  2.3%

   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 September 30, 2011March 31, 2012 compared with the prior year periodperiods 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 foreign currency translation. We alsocable 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 
  September 30, 
  2011  2010 
Income from operations $41,908  $42,566 
Operating margin  16.3%  18.0%

   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 decreased slightlyincreased for the three and nine months ended March 31, 2012 compared towith the prior year periodperiods due to lower gross margin.increased net revenue and efforts to control costs. Gross margin was lowerincreased primarily due to changes in customerfavorable mix of product sales and foreign currency transaction. The decrease in gross margin was partially offset by price changes to offset rising input costs.higher absorption. Selling, general and administrative expenses as a percent of net revenue for the three and nine months ended September 30, 2011March 31, 2012 improved over the same prior year period,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

21


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 $568.5$622.5 million and $546.5 million at September 30, 2011March 31, 2012 and June 30, 2011, respectively,respectively. Cash, cash equivalents and marketable securities as of which $553.0March 31, 2012 included $593.0 million washeld in non-U.S. accounts, including $189.0$199.0 million in China, as of September 30, 2011.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 also requires us to maintain financial covenants pertaining to, among other things, our consolidated leverage and interest rate coverage. As of September 30, 2011,March 31, 2012, we were in compliance with these covenants.

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 credit facilityU.S. Credit Facility to increase the credit line to $350.0 million and extend the term to March 2016.

Total debt including obligations under capital leases totaled $306.7$256.1 million and $342.6 million at September 30, 2011March 31, 2012 and June 30, 2011, respectively. We had available lines of credit totaling $406.4$421.6 million at September 30, 2011,March 31, 2012, including a $350.0 million unsecured, five-year revolving credit facility with $330.0$345.0 million available as of September 30, 2011.on the U.S. Credit Facility. The credit facility alsoU.S. Credit Facility requires us to maintain financial covenants pertaining to, among other things, our consolidated leverage and fixed charge coverage. As of September 30, 2011,March 31, 2012, we were in compliance with these covenants. Additionally, we have three unsecured borrowing agreements in Japan totaling ¥10.1with an outstanding balance of ¥8.0 billion ($131.896.4 million) as of September 30, 2011, withMarch 31, 2012, and weighted average fixed interest rates of 1.56%1.81%. See Note 9 of the Notes to the Condensed Consolidated Financial Statements.

Cash Flows

Our cash and cash equivalents balance increased $24.8$76.2 million during the threenine months ended September 30, 2011.March 31, 2012. Our primary source of cash was operating cash flows of $150.5$430.4 million, the majority of which is generated outside the United States. We used cash during the period to fund capital expenditures of $42.8$149.4 million and pay dividends of $35.1$105.4 million. The translation of our cash to U.S. dollars decreased our cash balance by $8.6$8.8 million as compared with the balance as of June 30, 2011.

22


Below is a table setting forth the key lines of our Consolidated Statements of Cash Flows (in thousands):
         
  Three Months Ended 
  September 30, 
  2011  2010 
Cash provided from operating activities $150,549  $62,595 
Cash used for investing activities  (39,317)  (69,622)
Cash used for financing activities  (77,871)  (41,217)
Effect of exchange rate changes on cash  (8,584)  12,536 
       
Net increase (decrease) cash $24,777  $(35,708)
       

   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 $88.0$103.4 million from the prior year period due mainly to a $107.2$112.9 million decrease in working capital needs in the current year period compared with the prior year. Working capital needs decreased during the threenine months ended September 30, 2011March 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 $30.3$55.4 million from the prior year period due mainly to a $28.4$47.5 million decrease in capital expenditures. Capital expenditures were $42.8and $11.0 million forof proceeds from the sale of an investment during the three months ended September 30, 2011March 31, 2012. Capital expenditures were $149.4 million for the nine months ended March 31, 2012, compared with $71.2$196.9 million in the prior year period.

Financing Activities

Cash used for financing activities increased $36.7$119.1 million during the threenine months ended September 30, 2011, asMarch 31, 2012, compared with the prior year period primarily due to the increase in ourincreased quarterly cash dividend and net payments on debt.

     We increased our

Our quarterly cash dividend to $0.2000was $0.20 per share in fiscal 2012, an increase of 14.3% from the previous cash dividend of $0.1750$0.175 per share. The increase was effective to shareholders of record on June 30, 2011.

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 credit facilityU.S. Credit Facility were $165.0$180.0 million for the threenine months ended September 30, 2011March 31, 2012, compared towith net borrowings of $10.0$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 Molex Japan our cash requirements may also be impacted.

23


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,

“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 lookingforward-looking statements regarding growth strategies, industry trends, financial results,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 Molex Japan, acquisition synergies, manufacturing strategies, product development introduction and sales, regulatory approvals,changes, competitive strengths, natural disasters, and 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

24


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 September 30, 2011March 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 September 30, 2011March 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 $52.9$72.4 million and increased income from operations of $6.0$13.5 million for the threenine months ended September 30, 2011,March 31, 2012, compared with the estimated results for the comparable period in the prior year.

Our $11.2$13.7 million of marketable securities at September 30, 2011March 31, 2012 are principally invested in time deposits.

Interest rate exposure is generally limited to our marketable securities, five-year unsecured credit facilityU.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 $20.0$5.0 million outstanding on our $350.0 million credit facilityU.S. Credit Facility with an interest rate of approximately 1.74% at September 30, 2011.

March 31, 2012.

Due to the nature of our operations, we are not subject to significantnet revenue from specific customers or products fluctuates over time, but our broad base of customers in several markets mitigates the concentration risksrisk relating to customersany one customer or products.

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 chief executive officerCEO and chief financial officerCFO 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 officerCEO and chief financial officer,CFO, as appropriate to allow timely decisions regarding required disclosure.

Internal Control Over Financial Reporting

During the three months ended September 30, 2011,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

25


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 September 30, 2011March 31, 2012 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 
July 1 — July 31            
Common Stock    $    
Class A Common Stock  2  $21.74    
August 1 — August 31            
Common Stock    $    
Class A Common Stock  92  $16.79    
September 1 — September 30            
Common Stock    $    
Class A Common Stock  1  $16.98    
          
Total  95  $16.92    
          

   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.

26


Item 6. Exhibits

Number

  

Description

Number
  10.1  Description
4.1Note PurchaseRetirement and Waiver and Release Agreement dated August 18, 2011 amongbetween James E. Fleischhacker and Molex Incorporated and the Purchasers named therein.dated February 22, 2012. Incorporated by reference to Exhibit 4.110.1 to our Current Report on Form 8-K filed on August 24, 2011February 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

27


SIGNATURES

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

 
Date: October 27, 2011 

/S/ DAVID D. JOHNSON

 David D. Johnson
 Executive Vice President, Treasurer and
Chief Financial Officer
(Principal Financial Officer)

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31