MOLEX INC - FORM 10-Q - October 25, 2012

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EXCEL - IDEA: XBRL DOCUMENT - MOLEX INC	Financial_Report.xls
EX-31.1 - SECTION 302 CEO CERTIFICATION - MOLEX INC	d413385dex311.htm
EX-32.1 - SECTION 906 CEO CERTIFICATION - MOLEX INC	d413385dex321.htm
EX-32.2 - SECTION 906 CFO CERTIFICATION - MOLEX INC	d413385dex322.htm
EX-31.2 - SECTION 302 CFO CERTIFICATION - MOLEX INC	d413385dex312.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended September 30, 2012

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

For the transition period from to

Commission File Number 0-7491

MOLEX INCORPORATED

(Exact name of registrant as specified in its charter)


Delaware		36-2369491
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

2222 Wellington Court, Lisle, Illinois 60532

(Address of principal executive offices)

Registrant’s telephone number, including area code: (630) 969-4550

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

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

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

On October 17, 2012, the following numbers of shares of the Company’s common stock were outstanding:


Common Stock			95,560,076
Class A Common Stock			81,477,394
Class B Common Stock			94,255

Molex Incorporated

INDEX


	Page
PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Condensed Consolidated Balance Sheets as of September 30, 2012 and June 30, 2012		3

Condensed Consolidated Statements of Income for the three months ended September 30, 2012 and 2011		4

Condensed Consolidated Statements of Comprehensive Income for the three months ended September 30, 2012 and 2011		5

Condensed Consolidated Statements of Cash Flows for the three months ended September 30, 2012 and 2011		6

Notes to Condensed Consolidated Financial Statements		7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		16

Item 3. Quantitative and Qualitative Disclosures About Market Risk		26

Item 4. Controls and Procedures		27

PART II – OTHER INFORMATION

Item 1. Legal Proceedings		29

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

Item 4. Mine Safety Disclosures – Not Applicable		29

Item 6. Exhibits		30

SIGNATURES		31

Section 302 Certification of Chief Executive Officer

Section 302 Certification of Chief Financial Officer

Section 906 Certification of Chief Executive Officer

Section 906 Certification of Chief Financial Officer

PART I

Item 1. Financial Statements

Molex Incorporated

Condensed Consolidated Balance Sheets

(in thousands)


	Sept. 30,			June 30,
	2012			2012
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	685,972		$	637,417
Marketable securities		16,111			14,830
Accounts receivable, less allowances of $37,401 and $37,876, respectively		770,976			751,279
Inventories		564,377			531,825
Deferred income taxes		109,101			110,789
Other current assets		38,341			33,098

Total current assets		2,184,878			2,079,238
Property, plant and equipment, net		1,178,875			1,150,549
Goodwill		161,163			160,986
Non-current deferred income taxes		52,653			50,038
Other assets		168,309			170,692

Total assets	$	3,745,878		$	3,611,503

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of short-term borrowings and long-term debt	$	75,074		$	104,933
Accounts payable		412,429			355,491
Accrued expenses:
Accrual for unauthorized activities in Japan		189,040			184,177
Income taxes payable		49,828			35,360
Other		228,098			212,035

Total current liabilities		954,469			891,996
Other non-current liabilities		19,321			18,174
Accrued pension and other postretirement benefits		113,847			115,176
Long-term debt		150,000			150,032

Total liabilities		1,237,637			1,175,378

Commitments and contingencies
Stockholders’ equity:
Common stock		11,377			11,361
Additional paid-in capital		719,195			711,394
Retained earnings		2,572,359			2,539,931
Treasury stock		(1,114,218	)		(1,112,956	)
Accumulated other comprehensive income		319,528			286,395

Total stockholders’ equity		2,508,241			2,436,125

Total liabilities and stockholders’ equity	$	3,745,878		$	3,611,503

See accompanying Notes to Condensed Consolidated Financial Statements.

Molex Incorporated

Condensed Consolidated Statements of Income

(Unaudited)

(in thousands, except per share data)


	Three Months Ended
	September 30,
	2012			2011
Net revenue	$	916,921		$	935,985
Cost of sales		648,504			643,257

Gross profit		268,417			292,728

Selling, general and administrative		163,121			169,225
Unauthorized activities in Japan		2,561			2,922

Total operating expenses		165,682			172,147

Income from operations		102,735			120,581

Interest (expense), net		(810	)		(1,391	)
Other income		1,196			276

Total other income (expense), net		386			(1,115	)

Income before income taxes		103,121			119,466

Income taxes		31,807			38,949

Net income	$	71,314		$	80,517

Earnings per share:
Basic	$	0.40		$	0.46
Diluted	$	0.40		$	0.46

Dividends declared per share	$	0.2200		$	0.2000

Average common shares outstanding:
Basic		176,621			175,466
Diluted		178,564			176,585

See accompanying Notes to Condensed Consolidated Financial Statements.

Molex Incorporated

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

(in thousands)


	Three Months Ended
	September 30,
	2012			2011
Net income	$	71,314		$	80,517
Foreign currency translation adjustments		30,562			(58,561	)
Unrealized gain on derivative instruments, net of tax		3,064			875
Unrealized investment (loss), net of tax		(493	)		(2,162	)

Other comprehensive income (loss)		33,133			(59,848	)

Total comprehensive income	$	104,447		$	20,669

See accompanying Notes to Condensed Consolidated Financial Statements.

Molex Incorporated

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)


	Three Months Ended
	September 30,
	2012			2011
Operating activities:
Net income	$	71,314		$	80,517
Add non-cash items included in net income:
Depreciation and amortization		57,742			61,239
Share-based compensation		6,160			5,135
Other non-cash items		3,767			5,991
Changes in assets and liabilities:
Accounts receivable		(7,903	)		22,927
Inventories		(28,902	)		(18,260	)
Accounts payable		49,569			(10,702	)
Other current assets and liabilities		4,326			28,890
Other assets and liabilities		11,331			(25,188	)

Cash provided from operating activities		167,404			150,549

Investing activities:
Capital expenditures		(69,413	)		(42,804	)
Proceeds from sales of property, plant and equipment		1,914			1,396
Proceeds from sales or maturities of marketable securities		3,168			4,868
Purchases of marketable securities		(4,099	)		(2,777	)
Insurance proceeds and other investing activities		9,722			—

Cash used for investing activities		(58,708	)		(39,317	)

Financing activities:
Proceeds from revolving credit facility		10,000			30,000
Payments on revolving credit facility		(10,000	)		(195,000	)
Payments on short-term loans and debt		(31,611	)		(27,409	)
Proceeds from issuance of long-term debt		—			150,000
Cash dividends paid		(38,827	)		(35,068	)
Exercise of stock options		1,715			620
Other financing activities		(1,026	)		(1,014	)

Cash used for financing activities		(69,749	)		(77,871	)

Effect of exchange rate changes on cash		9,608			(8,584	)

Net increase in cash and cash equivalents		48,555			24,777
Cash and cash equivalents, beginning of period		637,417			532,599

Cash and cash equivalents, end of period	$	685,972		$	557,376

See accompanying Notes to Condensed Consolidated Financial Statements.

Molex Incorporated

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Basis of Presentation

Molex Incorporated (together with its subsidiaries, except where the context otherwise requires, “we,” “us,” and “our”) manufactures electronic components, including electrical and fiber optic interconnection products and systems, switches and integrated products in 40 manufacturing locations in 16 countries.

The accompanying Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments consisting of normal recurring accruals considered necessary for a fair statement of results for the interim period have been included. Operating results for the three months ended September 30, 2012 are not necessarily an indication of the results that may be expected for the year ending June 30, 2013. The Condensed Consolidated Balance Sheet as of June 30, 2012 was derived from our audited consolidated financial statements for the year ended June 30, 2012. 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, 2012.

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.

Revision of Prior Period Financial Statements

During the preparation of the consolidated financial statements for the three months ended September 30, 2012, we identified and corrected a prior period error for a $5.1 million overstatement of an income tax asset and retained earnings, initially recorded as part of our fiscal 2010 restatement and pertaining to periods prior to 2008. We assessed the materiality of the error in accordance with the Securities and Exchange Commission (the SEC) Staff Accounting Bulletin Nos. 99 and 108 (SAB 99 and 108), and based on an analysis of quantitative and qualitative factors, determined that the error was immaterial to each of the prior reporting periods affected and, therefore, amendment of reports previously filed with the SEC was not required. However, we concluded correcting the error through an increase to income tax expense for the three months ended September 30, 2012 would materially understate results for that period. Accordingly, we revised fiscal 2012 income taxes payable and stockholders’ equity balances.

The revision to the financial statements did not impact our Condensed Consolidated Statements of Income, Condensed Consolidated Statements of Comprehensive Income, Condensed Consolidated Statements of Cash Flows or segment related reporting for the period ended September 30, 2011, or for the years ended June 30, 2012 and 2011. The effect of the correction on the Condensed Consolidated Balance Sheet as of June 30, 2012 follows (in thousands):


	As Reported		Correction			As Revised
Income taxes payable	$	30,221	$	5,139		$	35,360
Total current liabilities		886,857		5,139			891,996
Total liabilities		1,170,239		5,139			1,175,378

Retained earnings		2,545,070		(5,139	)		2,539,931
Total stockholders’ equity		2,441,264		(5,139	)		2,436,125

The reduction to retained earnings will be reflected as an adjustment to the beginning balance for the earliest year presented in the fiscal 2013 Annual Report on Form 10-K financial statements.

2. Unauthorized Activities in Japan

As previously reported in our Annual Report on Form 10-K for the year ended June 30, 2012, we investigated unauthorized activities at Molex Japan Ltd. Based on the results of the completed investigation, we recorded an accrued liability of $165.8 million for accounting purposes for the effect of unauthorized activities pending the resolution of the legal proceedings reported in Note 12.

We believe these unauthorized activities and related losses occurred from at least as early as 1988 through 2010. The accrued liability for these unauthorized activities was $189.0 million as of September 30, 2012, including $23.2 million in cumulative foreign currency translation, which was recorded as a component of other comprehensive income, net of tax. To the extent we prevail in not having to pay all or any portion of the unauthorized loans ($165.8 million), we would recognize a gain. In addition, we have a contingent liability of $66.4 million for other loan-related expenses, interest expense and delay damages on the outstanding unauthorized loans.

Unauthorized activities in Japan for the three months ended September 30, 2012 and 2011 represent investigative and legal fees.

3. 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 complete.

4. 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,
	2012		2011
Net income	$	71,314	$	80,517

Basic weighted average common shares outstanding		176,621		175,466
Effect of dilutive stock options		1,943		1,119

Diluted weighted average common shares outstanding		178,564		176,585

Earnings per share:
Basic	$	0.40	$	0.46
Diluted	$	0.40	$	0.46

Excluded from the computations above were anti-dilutive shares of 2.0 million and 5.6 million for the three months ended September 30, 2012 and 2011, respectively.

5. 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,
	2012		2012
Raw materials	$	85,566	$	84,536
Work in process		168,040		145,610
Finished goods		310,771		301,679

Total inventories	$	564,377	$	531,825

6. Pensions and Other Postretirement Benefits

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


	Three Months Ended
	September 30,
	2012			2011
Service cost	$	1,627		$	1,381
Interest cost		2,060			2,123
Expected return on plan assets		(2,272	)		(2,166	)
Amortization of prior service cost		65			65
Recognized actuarial losses		681			290
Amortization of transition obligation		10			10
Other income		(59	)		—

Benefit cost	$	2,112		$	1,703

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


	Three Months Ended
	September 30,
	2012			2011
Service cost	$	179		$	274
Interest cost		341			586
Amortization of prior service cost		(516	)		(516	)
Recognized actuarial (gain) loss		(179	)		82

Benefit (credit) cost	$	(175	)	$	426

7. Debt

Total debt consisted of the following (in thousands):


	Average			Calendar
	Interest			Year		Sept 30,		June 30,
	Rate			Maturity		2012		2012
Long-term debt:
Private Placement		3.59	%		2016 –2021	$	150,000	$	150,000
Unsecured bonds and term loans		1.18	%		2013		6,380		37,556
Other debt		Varies			2012 –2013		988		1,091

Total long-term debt							157,368		188,647
Less current portion of long-term debt:
Unsecured bonds and term loans		1.18	%				6,380		37,556
Other debt		Varies					988		1,059

Long-term debt, less current portion							150,000		150,032

Short-term borrowings:
Overdraft loans		0.68	%		2013		64,300		62,645
Other short-term borrowings		Varies					3,406		3,673

Total short-term borrowings							67,706		66,318

Total debt						$	225,074	$	254,965

In September 2012, Molex Japan entered into three overdraft loans totaling ¥11.0 billion, with one-year terms and fluctuating interest rates based on interbank offered rates plus a spread ranging from 40 basis points to 70 basis points. At September 30, 2012, the balance of the overdraft loans, which require full repayment by the end of the term if not renewed, approximated $64.3 million.

In August 2011, we issued senior notes pursuant to a Note Purchase Agreement (the Agreement) 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 in August 2016; Series B with an interest rate of 3.59% matures in August 2018; and Series C with an interest rate of 4.28% matures in August 2021. The Agreement contains customary covenants regarding liens, debt, substantial asset sales and mergers. The Agreement also requires us to maintain financial covenants pertaining to, among other things, our consolidated leverage and interest rate coverage. As of September 30, 2012, we were in compliance with these covenants and the balance of the senior notes was $150.0 million.

In March 2010, Molex Japan entered into a ¥3.0 billion syndicated term loan for three years, with an interest rate equivalent to six month TIBOR plus 75 basis points and scheduled principal payments of ¥0.5 billion every six months. At September 30, 2012, the balance of the syndicated term loan approximated $6.4 million, which is classified as current.

In June 2009, we entered into a $195.0 million unsecured, three year revolving credit facility in the United States, amended in January 2010, September 2010 and March 2011, that was initially scheduled to mature in June 2012 (the U.S. Credit Facility). In connection with the September 2010 amendment, we increased the credit line on the U.S. Credit Facility to $270.0 million. In March 2011, we further amended the U.S. Credit Facility to increase the credit line to $350.0 million and extend the term to March 2016. Borrowings under the U.S. Credit Facility bear interest at a fluctuating interest rate (based on London Interbank Offered Rate) plus an applicable percentage based on our consolidated leverage. The applicable percentage was 150 basis points as of September 30, 2012. The instrument governing the U.S. Credit Facility contains customary covenants regarding liens, debt, substantial asset sales and mergers, dividends and investments. The U.S. Credit Facility also requires us to maintain financial covenants pertaining to, among other things, our consolidated leverage and fixed charge coverage. As of September 30, 2012, we were in compliance with these covenants and had no outstanding borrowings.

Principal payments on long-term debt obligations are due as follows as of September 30, 2012 (in thousands):


Year one	$	7,368
Year two		—
Year three		—
Year four		50,000
Year five		—
Thereafter		100,000

Total long-term debt obligations	$	157,368

We had available lines of credit totaling $435.5 million at September 30, 2012, including $350.0 million available on the U.S. Credit Facility. The lines of credit expire between 2013 and 2016.

8. Income Taxes

The effective tax rate was 30.8% for the three months ended September 30, 2012 and 32.6% for the three months ended September 30, 2011, reflecting the mix of earnings in tax jurisdictions with tax rates less than the U.S. federal tax rate of 35.0%.

We are subject to tax in U.S. federal, state and foreign tax jurisdictions. The examination of U.S. federal income tax returns for 2007, 2008 and 2009 were completed during fiscal 2012. The tax years 2010 through 2012 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, 2012, there were no material interest or penalty amounts to accrue.

9. Fair Value Measurements

The following table summarizes our financial assets and liabilities as of September 30, 2012, which are measured at fair value on a recurring basis (in thousands):


	Total Measured at Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available-for-sale and trading securities	$	30,881	$	30,881	$	—	$	—
Derivative financial instruments, net		8,831		—		8,831		—

We determine the fair value of our available-for-sale securities based on quoted market prices (Level 1). We generally use derivatives for hedging purposes pursuant to ASC 815-10, which are valued based on Level 2 inputs in the ASC 820 fair value hierarchy. The fair value of our derivative 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.

10. Derivative Instruments and Hedging Activities

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

Derivatives Not Designated as Hedging Instruments

We use one-month foreign currency forward contracts (forward contracts) to offset the impact of exchange rate volatility on certain assets and liabilities, including intercompany receivables and payables denominated in non-functional currencies. These forward contracts have not been designated as hedges, and the gains or losses on these forward contracts, along with the offsetting losses or gains due to the fluctuation of exchange rates on the underlying foreign currency denominated assets and liabilities, are recognized in other income (expense). The notional amounts of the forward contracts were $284.2 million and $223.3 million at September 30, 2012 and June 30, 2012, respectively, with corresponding fair values of a $1.2 million asset at September 30, 2012 and a $2.6 million asset at June 30, 2012.

Cash Flow Hedges

We use derivatives in the form of call options to hedge the variability of gold and copper costs. These derivative instruments are designated as cash flow hedges and hedge approximately 60% of our planned gold and copper purchases. Gains and losses of the effective hedges are recorded as a component of accumulated other comprehensive income (AOCI) and reclassified to cost of sales during the period the product containing the commodity is sold. The fair values of the call options were $7.6 million and $4.4 million at September 30, 2012 and June 30, 2012, respectively. These call options have maturities of 12 months or less.

For the three months ended September 30, 2012 and 2011, the impact to AOCI and earnings from cash flow hedges before taxes follows (in thousands):


	Three Months Ended September 30,
	2012			2011
Unrealized gain (loss) recognized in AOCI	$	7,147		$	(820	)
Realized (loss) gain reclassified into earnings		(2,496	)		2,166

At September 30, 2012, $2.0 million is expected to be reclassified from AOCI to cost of sales within the next 12 months.

11. New Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board (the FASB) issued Accounting Standards Update (ASU) No. 2011-05, Comprehensive Income (Topic 220). The 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. The 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. We adopted ASU 2011-05 in the current quarter and presented a separate statement of comprehensive income.

In July 2012, the FASB issued updated guidance on the periodic testing of intangible assets for impairment. The guidance will allow companies to assess qualitative factors to determine if it is more-likely-than-not that the indefinite-lived intangible asset might be impaired and whether it is necessary to perform the quantitative impairment test as required under current guidance. The new guidance is effective for us beginning July 1, 2013, with early adoption permitted. The new guidance is not expected to have a material impact on our consolidated financial statements.

12. Contingencies

We are currently a party to various legal proceedings, claims and investigations including those disclosed below. While management presently believes that the ultimate outcome of these proceedings, individually and in the aggregate, will not materially adversely affect our financial position, legal proceedings are subject to inherent uncertainties, and unfavorable rulings or other events could occur. If one or more unfavorable final outcome were to occur, then our business could be materially and adversely affected.

Employment and Benefits Litigation

In 2009, Molex Automotive SARL (MAS), decided to close a facility it operated in Villemur-sur-Tarn, France. MAS submitted a social plan to MAS’s labor representatives providing for payments to approximately 280 terminated employees. This social plan was adopted by MAS in 2009 and payments were made to those employees until September 2010. In September 2010, former employees of MAS who were covered under the social plan filed suit against MAS and AGS (a state fund for wage guarantee) in the Toulouse Labor Court, requesting additional compensation. The total amount sought by the former employees is approximately €24.0 million ($30.9 million). Molex International initiated liquidation of MAS, and pursuant to a court proceeding, a liquidator was appointed in November 2010. One of the liquidator’s responsibilities is to assess and respond to the lawsuits involving MAS. In June 2011, the former employees of MAS noticed Molex Incorporated (Molex) as a defendant to the Toulouse Labor Court proceedings. In their court submission, the former employees claim that Molex was a co-employer of the former employees and thus jointly liable for any additional compensation the court awards. The former employees also claim that there was no economic justification for their dismissal, that MAS decided to close the facility before it consulted with the employees and their representatives and that MAS did not adequately comply with its obligation to assist the terminated employees in obtaining alternative employment. The liquidator has filed a submission on behalf of MAS and argues that the dismissal was economically justified, that the former employees have not proven the damages they are seeking but nonetheless Molex was co-employer and thus liable for any additional payments that may be awarded to the former employees. AGS filed its submission, adopting essentially the same substantive position as the liquidator on the dismissal of the former employees but arguing that Molex was the employer.

Molex filed its briefs in reply on January 6, 2012 arguing the plaintiff’s claims be dismissed. In the reply briefs, Molex argued it was not the co-employer of the plaintiffs and the court should find that it lacks jurisdiction over Molex to hear the dispute. In the alternative, Molex argued there was no breach of the information consultation process with the employees and their representatives, the dismissals were valid and based on economic grounds, MAS complied with its redeployment obligations and the court dismiss the claims for damages. Molex also argued if the court were to award compensation, then any judgment against Molex be several but not jointly with MAS, and the amount awarded to plaintiffs not exceed six months’ salary, approximately €2.0 million ($2.6 million).

On February 24, 2012, the five employees who fall within the executive section submitted a reply brief and requested a postponement of the March 5, 2012 court date. The court granted the request and rescheduled separate court dates in 2012 for each plaintiff as follows: June 25, July 9, September 24, October 8 and December 17. On June 25, 2012, one plaintiff withdrew his claims against Molex and on July 9, 2012, the court adjourned to consider whether it has jurisdiction over Molex in each of these claims and is expected to issue a decision on November 5, 2012.

On June 28, 2012, the Toulouse Labor Court ruled it has jurisdiction over Molex with respect to the 190 employees who fall within the industry section and on July 12, 2012, Molex filed 190 appeals (one for each plaintiff) with the Toulouse Appellate Court contesting jurisdiction. The Toulouse Appellate Court set December 11, 2012 for hearing this appeal, at which it may hear the merits of the case in addition to the jurisdiction issue.

On March 29, 2012, Molex received notice that the liquidator filed an action against Molex in the Commercial Court of Paris claiming Molex is responsible for the liabilities of MAS that remain as a result of the liquidation. The liquidator alleged that Molex acted as de facto manager of MAS and mismanaged MAS. Although the liabilities are currently estimated at €1.9 million ($2.4 million), future liabilities of MAS may also include any amounts successfully awarded to plaintiffs in their lawsuits against MAS (described above). Molex filed a brief opposing the liquidator’s claims and the next court hearing is expected to occur in December 2012.

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

Molex Japan Co., Ltd

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

On August 31, 2010, Mizuho Bank (Mizuho), which holds the unauthorized loans, filed a complaint in Tokyo District Court requesting the court to find Molex Japan liable for the payment of the outstanding unauthorized loans and to enter a judgment for such payment. Mizuho is claiming payment of outstanding principal borrowings of ¥3 billion ($38.6 million), ¥5 billion ($64.3 million), ¥5 billion ($64.3 million) and ¥2 billion ($25.7 million), other loan-related expenses of approximately ¥106 million ($1.4 million) and interest and delay damages of approximately ¥5.2 billion ($66.4 million) as of September 30, 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, witness statements and witness testimony. At a court hearing on October 10, 2012, the presiding judge informed the parties that a judgment will be delivered on December 26, 2012. We intend to vigorously contest the enforceability of the outstanding unauthorized loans and any attempt by the lender to obtain payment. See Note 2 for accounting treatment of the accrual for unauthorized activities in Japan.

As we reported on April 29, 2011, the SEC informed us they issued a formal order of private investigation in connection with the unauthorized activities in Japan. We are fully cooperating with the SEC’s investigation.

13. Segments and Related Information

We have two global reportable segments: Connector and Custom & Electrical. The reportable segments represent an aggregation of three operating 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 across all industries that provide original, differentiated solutions to customer requirements. It also leverages expertise in the use of signal, power and interface technology in industrial automation and other harsh environment applications.

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


	Connector		Custom & Electrical		Corporate & Other			Total
For the three months ended:
September 30, 2012:
Revenues from external customers	$	656,574	$	259,784	$	563		$	916,921
Income (loss) from operations		95,256		40,860		(33,381	)		102,735
Depreciation & amortization		46,275		7,079		4,388			57,742
Capital expenditures		52,387		13,309		3,717			69,413

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

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 assets of certain plants that are not specific to a particular segment.

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


	Connector		Custom & Electrical		Corporate & Other		Total
September 30, 2012	$	1,922,212	$	494,055	$	97,961	$	2,514,228
June 30, 2012		1,846,636		479,318		107,699		2,433,653

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


	Sept. 30, 2012		June 30, 2012
Segment assets	$	2,514,228	$	2,433,653
Other current assets		849,525		796,134
Other non-current assets		382,125		381,716

Consolidated total assets	$	3,745,878	$	3,611,503

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,” “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, 2012. 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 electronic 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 different products including terminals, connectors, planar cables, cable assemblies, interconnection systems, backplanes, integrated products and mechanical and electronic switches in 40 manufacturing locations in 16 countries. We also provide manufacturing services to integrate specific components into a customer’s product.

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

•

Net revenue decreased during the three months ended September 30, 2012 compared with the prior year period primarily due to foreign currency translation. Net revenue in local currencies increased slightly compared with the prior year period due to an increase in customer demand in the telecommunications and infotech markets, offset by lower demand in the consumer and industrial markets. The increased customer demand resulted in sales to a consumer electronics company, directly and indirectly, that exceeded 10% of net revenue during the period. Gross margin decreased during the three months ended September 30, 2012 compared to the prior year period primarily due to changes in the mix of product sales and start-up costs related to new product introductions during the period. Selling, general and administrative expenses were lower during the three months ended September 30, 2012 primarily due to $9.9 million of property insurance proceeds for damages from the earthquake and tsunami in Japan that occurred during the third quarter of fiscal 2011. Income from operations decreased during the three months ended September 30, 2012 primarily due to the lower net revenue and lower gross margin compared with the prior year period.

Unauthorized Activities in Japan

Unauthorized activities in Japan for the three months ended September 30, 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 and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended June 30, 2012 filed with the Securities and Exchange Commission, which is incorporated by reference in this Form 10-Q.

Results of Operations

The following table sets forth consolidated statements of income data as a percentage of net revenue for the three months ended September 30 (in thousands):


			Percentage						Percentage
	2012		of Revenue			2011			of Revenue
Net revenue	$	916,921		100.0	%	$	935,985			100.0	%
Cost of sales		648,504		70.7	%		643,257			68.7	%

Gross profit		268,417		29.3	%		292,728			31.3	%

Selling, general & administrative		163,121		17.8	%		169,225			18.1	%
Unauthorized activities in Japan		2,561		0.3	%		2,922			0.3	%

Income from operations		102,735		11.2	%		120,581			12.9	%

Other income (expense), net		386		—	%		(1,115	)		0.1	%

Income before income taxes		103,121		11.2	%		119,466			12.8	%
Income taxes		31,807		3.4	%		38,949			4.2	%

Net income	$	71,314		7.8	%	$	80,517			8.6	%

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 televisions, gaming systems, automobile engine control units and adaptive braking systems, factory automation and diagnostic equipment.

During the first quarter of fiscal 2013 net revenue increased 6.8% compared to the fourth quarter of fiscal 2012 (sequential quarter) due primarily to increased demand from new product introductions in the telecommunications and infotech markets, but declined 2.0% from the record first quarter of fiscal 2012 (comparable quarter), primarily due to foreign currency translation and lower demand in the consumer and industrial markets. The increase (decrease) in net revenue from each market during the comparable quarter and the sequential quarter follows:


	Comparable			Sequential
	Quarter			Quarter
Telecommunications		1	%		19	%
Infotech		2			12
Consumer		(15	)		—
Industrial		(8	)		(4	)
Automotive		5			1

Telecommunications market net revenue increased against both the comparable and sequential quarters primarily due to higher demand related to new product introductions in the first quarter of fiscal 2013 for certain mobile products.

Infotech market net revenue increased against both the comparable and sequential quarters primarily due to higher demand related to new product introductions in the first quarter of fiscal 2013 for certain tablet devices.

Consumer market net revenue decreased against the comparable quarter due to lower demand in home entertainment and gaming systems. Consumer market net revenue was level with the sequential quarter as improved demand for gaming systems and pre-holiday production offset decreased demand in home entertainment products.

Industrial market net revenue decreased against both the comparable and sequential quarters 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.

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

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


	Three Months Ended
	September 30,
	2012			2011
Americas		26	%		24	%
Asia Pacific		63			63
Europe		11			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, 2012
Net revenue for prior year period	$	935,985
Components of net revenue change:
Organic net revenue change		3,295
Foreign currency translation		(25,099	)
Acquisitions		2,740

Total change in net revenue from prior year period		(19,064	)

Net revenue for current year period	$	916,921

Organic net revenue change as a percentage of net revenue from prior year period		0.4	%

Organic net revenue increased during the three months ended September 30, 2012 compared with the prior year period as customer demand improved in the telecommunications and infotech markets due to increases in demand for certain mobile products and tablet devices. We completed an asset acquisition of a specialty wire and cable company during the second quarter of 2012.

Foreign currency translation decreased net revenue approximately $25.1 million for the three months ended September 30, 2012, primarily due to a weaker euro and Japanese yen, 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, 2012
	Local			Currency			Net
	Currency			Translation			Change
Americas	$	16,224		$	(190	)	$	16,034
Asia Pacific		(9,052	)		(8,241	)		(17,293	)
Europe		(2,978	)		(16,668	)		(19,646	)
Corporate & Other		1,841			—			1,841

Net change	$	6,035		$	(25,099	)	$	(19,064	)

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


	Three Months
	Ended
	Sept. 30, 2012
Americas		7.3	%
Asia Pacific		(1.5	)
Europe		(2.4	)

Total		0.6	%

Gross Profit

The following table provides a summary of gross profit and gross margin for the three months ended September 30 (in thousands):


	Three Months Ended
	September 30,
	2012			2011
Gross profit	$	268,417		$	292,728
Gross margin		29.3	%		31.3	%

The decrease in gross profit and gross margin for the three months ended September 30, 2012 compared with the prior year period was primarily due to lower net revenue from foreign currency translation, changes in the mix of product sales, start-up costs related to new product introductions during the period and price erosion.

A significant portion of our material cost is comprised of copper and gold. We purchased approximately 4.8 million pounds of copper and approximately 23,400 troy ounces of gold during the first quarter of fiscal 2013. The following table sets forth the average prices of copper and gold we purchased in the three months ended September 30:


	Three Months Ended September 30,
	2012		2011
Copper (price per pound)	$	3.52	$	4.07
Gold (price per troy ounce)		1,653.00		1,702.00

Generally, we are able to pass through to our customers only a small portion of changes in the cost of copper and gold. However, we mitigate the impact of any significant increases in copper and gold prices by hedging with call options a portion of our projected net global purchases of copper and gold. The hedges increased cost of sales by $2.5 million for the three months ended September 30, 2012 and reduced cost of sales by $1.8 million for the three months ended September 30, 2011.

The effect of certain significant impacts on gross profit compared with the prior year period was as follows for the three months ended September 30 (in thousands):


	Three Months Ended Sept. 30, 2012
Price erosion	$	(22,113	)
Currency translation		(5,668	)
Currency transaction		650

Price erosion measures the reduction in prices of our products year over year, which reduces our gross profit. The largest impact from price erosion is in our Connector segment. A significant portion of our price erosion occurred in mobile phone connector products, which are part of our mobile market. We minimize the impact of price erosion through the use of pricing software that provides enhanced visibility to recoverable costs and improved detail of profit margin by product.

The decrease in gross profit due to currency translation during the three months ended September 30, 2012 was primarily due to a weaker euro, compared with the prior year period.

Certain products 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 foreign currency exchange rates may affect our cost of sales reported in U.S. dollars without a corresponding effect on net revenue. The increase in gross profit due to currency transactions was nominal as the impact of fluctuations in foreign exchange rates principally offset each other during the three months ended September 30, 2012, compared with the prior year period.

Operating Expenses

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


	Three Months Ended September 30,
	2012			2011
Selling, general and administrative	$	163,121		$	169,225
Unauthorized activities in Japan		2,561			2,922

Selling, general and administrative as a percentage of net revenue		17.8	%		18.1	%

Selling, general and administrative expenses decreased $6.1 million for the three months ended September 30, 2012, compared with the prior year period, primarily due to $9.9 million of property insurance proceeds for damages from the earthquake and tsunami in Japan that occurred during the third quarter of fiscal 2011. The impact of foreign currency translation decreased selling, general and administrative expenses approximately $4.2 million for the three months ended September 30, 2012, compared with the prior year period.

Research and development expenditures, which are classified as selling, general and administrative expense, were approximately $46.3 million, or 5.0% of net revenue for the three months ended September 30, 2012, compared with $43.9 million, or 4.7% of net revenue for the comparable prior year period.

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

Other Income (Expense)

Other income (expense) consists primarily of net interest expense, investment income and currency exchange gains or losses. We recorded other income of $0.4 million for the three months ended September 30, 2012, compared with net expense of $1.1 million for the three months ended September 30, 2011. Fluctuations in other income (expense) are primarily due to changes in foreign currency gains and losses.

Effective Tax Rate

The effective tax rate was 30.8% for the three months ended September 30, 2012. During the three months ended September 30, 2012, we recorded income tax expense of $31.8 million.

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 32.6% for the three months ended September 30, 2011.

Backlog

Our order backlog on September 30, 2012 was approximately $445.3 million compared with order backlog of $416.4 million at June 30, 2012 and $387.2 million at September 30, 2011. Orders for the three months ended September 30, 2012 were $943.9 million compared with $901.0 million and $910.0 million for the three months ended June 30, 2012 and September 30, 2011, respectively. Orders increased $42.9 million over the sequential quarter and exceeded net revenue during the three months ended September 30, 2012. Orders improved compared with the prior year period due primarily to new product introductions in our telecommunications and infotech markets.

Segments

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


			Percentage					Percentage
	2012		of Revenue			2011		of Revenue
Connector	$	656,574		71.6	%	$	678,780		72.5	%
Custom & Electrical		259,784		28.3			256,794		27.4
Corporate & Other		563		0.1			411		0.1

Total	$	916,921		100.0	%	$	935,985		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, 2012
Net revenue for prior year period	$	678,780

Components of net revenue change:
Organic net revenue change		(7,159	)
Currency translation		(15,047	)

Total change in net revenue from prior year period		(22,206	)

Net revenue for current year period	$	656,574

Organic net revenue change as a percentage of net revenue for prior year period		(1.1	)%

The Connector segment sells primarily to the telecommunication, infotech, consumer and automotive markets. Organic net revenue and segment net revenue decreased during the three months ended September 30, 2012 compared with the prior year period. The decrease was primarily due to slower customer demand, particularly in the consumer market, partially offset by higher demand in our telecommunications and infotech markets. Price erosion, which is generally higher in the Connector segment compared with our other segment, also negatively impacted organic net revenue and segment net revenue. Foreign currency translation decreased net revenue by $15.0 million for the three months ended September 30, 2012.

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,
	2012			2011
Income from operations	$	95,256		$	106,262
Operating margin		14.5	%		15.7	%

Connector segment income from operations declined for the three months ended September 30, 2012 compared with the prior year period primarily due to lower net revenue, changes in the mix of product sales and start-up costs related to new product introductions during the period. Lower production levels due to decreasing customer demand in the consumer market also led to lower absorption of our fixed costs. Selling, general and administrative expenses for the three months ended September 30, 2012 decreased primarily due to $9.9 million of property insurance proceeds for damages from the earthquake and tsunami in Japan that occurred during the third quarter of fiscal 2011.

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, 2012
Net revenue for prior year period	$	256,794

Components of net revenue increase:
Organic net revenue change		10,313
Foreign currency translation		(10,063	)
Acquisitions		2,740

Total change in net revenue from prior year period		2,990

Net revenue for current year period	$	259,784

Organic net revenue change as a percentage of net revenue for prior year period		4.0	%

The Custom & Electrical segment sells primarily to the industrial, telecommunications and infotech markets. Custom & Electrical segment net revenue increased in the three months ended September 30, 2012 compared with the prior year period due to increased customer demand in the telecommunications and infotech markets. Foreign currency translation decreased net revenue $10.1 million for the three months ended September 30, 2012, primarily due to a weaker euro against the U.S. dollar compared with the prior year period. We completed an asset acquisition of a specialty wire and cable company during the second quarter of fiscal 2012.

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,
	2012			2011
Income from operations	$	40,860		$	41,908
Operating margin		15.7	%		16.3	%

Custom & Electrical income from operations for the three months ended September 30, 2012 was comparable with the prior year period. Favorable mix of product sales was offset by higher research and development costs to penetrate new markets, acquire customers and drive future growth.

Non-GAAP Financial Measures

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

We believe organic net revenue growth provides useful information to investors because it reflects the underlying growth from the ongoing activities of our business and provides investors with a view of our operations from management’s perspective. We use organic net revenue growth to monitor and evaluate performance, since 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 and operating income in its decision making processes related to the operations of our reporting segments and our overall company. Because organic net revenue growth calculations may vary among other companies, organic net revenue growth amounts presented may not be comparable with similar measures of other companies.

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 $702.1 million and $652.2 million at September 30, 2012 and June 30, 2012, respectively. Cash, cash equivalents and marketable securities as of September 30, 2012 included $653.7 million held in non-U.S. accounts, including $213.8 million in countries where we may experience administrative delays in withdrawing and transferring cash to U.S. accounts. Transferring cash, cash equivalents or marketable securities to U.S. accounts from non-U.S. accounts could subject us to additional U.S. repatriation income tax. The primary source of our cash flow is cash generated by operations. Principal uses of cash are capital expenditures, dividend payments and business investments. Our long-term financing strategy is to primarily rely on internal sources of funds for investing in property, plant, equipment and acquisitions.

In August 2011, we issued senior notes pursuant to a Note Purchase Agreement (the Agreement) 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 in August 2016; Series B with an interest rate of 3.59% matures in August 2018; and Series C with an interest rate of 4.28% matures in August 2021. The Agreement requires us to maintain financial covenants pertaining to, among other things, our consolidated leverage and interest rate coverage. As of September 30, 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 U.S. Credit Facility to increase the credit line to $350.0 million and extend the term to March 2016. The U.S. Credit Facility requires us to maintain financial covenants pertaining to, among other things, our consolidated leverage and fixed charge coverage. As of September 30, 2012, we were in compliance with these covenants.

Total debt, including obligations under capital leases, totaled $225.1 million and $255.0 million at September 30, 2012 and June 30, 2012, respectively. We had available lines of credit totaling $435.5 million at September 30, 2012, including $350.0 million available on the U.S. Credit Facility. See Note 7 of the Notes to the Condensed Consolidated Financial Statements.

Cash Flows

Cash and cash equivalents increased $48.6 million during the three months ended September 30, 2012. Our primary source of cash was operating cash flows of $167.4 million, the majority of which is generated outside the United States. We used cash during the period to fund capital expenditures of $69.4 million and pay dividends of $38.8 million. The translation of our cash to U.S. dollars increased our cash and cash equivalents by $9.6 million compared with the balance as of June 30, 2012.

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


	Three Months Ended
	September 30,
	2012			2011
Cash provided from operating activities	$	167,404		$	150,549
Cash used for investing activities		(58,708	)		(39,317	)
Cash used for financing activities		(69,749	)		(77,871	)
Effect of exchange rate changes on cash		9,608			(8,584	)

Net increase in cash and cash equivalents	$	48,555		$	24,777

Operating Activities

Cash provided from operating activities increased by $16.9 million from the prior year period. Working capital needs increased $5.8 million in the current year period compared with the prior year as increased accounts payable balances were offset by higher inventory and accounts receivable balances. Working capital is defined as current assets minus current liabilities.

Investing Activities

Cash used for investing activities increased by $19.4 million from the prior year period due to a $26.6 million increase in capital expenditures during the three months ended September 30, 2012, partially offset by $9.9 million of property insurance proceeds for damages from the earthquake and tsunami in Japan that occurred during the third quarter of fiscal 2011. Capital expenditures were $69.4 million for the three months ended September 30, 2012, compared with $42.8 million in the prior year period. Capital expenditures increased primarily due to investments related to new product introductions.

Financing Activities

Cash used for financing activities decreased $8.1 million during the three months ended September 30, 2012, compared with the prior year period primarily due to a reduction in net payments on debt.

Our quarterly cash dividend was $0.22 per share for the three months ended September 30, 2012, an increase of 10.0% from the previous cash dividend of $0.20 per share in the prior year period.

We issued senior notes totaling $150.0 million on August 2011. Proceeds were used to pay down a portion of the U.S. Credit Facility. As of September 30, 2012, we had no outstanding borrowings on the revolving U.S. Credit Facility, compared with net payments of $165.0 million in the prior year period. In addition, net payments on short-term loans were $31.6 million for the three months ended September 30, 2012, compared with net payments of $27.3 million in the prior year period.

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

Contractual Obligations and Commercial Commitments

We have contractual obligations and commercial commitments as described in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Contractual Obligations and Commercial Commitments” of our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the Commission) for the year ended June 30, 2012. 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, 2012, there have been no material changes in our contractual obligations and commercial commitments arising outside of the ordinary course of business. See Note 7 of the Notes to the Condensed Consolidated Financial Statements.

Cautionary Statement Regarding Forward-Looking Information

This Quarterly Report contains forward-looking statements that are based on current expectations, estimates, forecasts and projections about our future performance, business, beliefs, and management’s assumptions. In addition, we, or others on our behalf, may make forward-looking statements in press releases or written statements, or in our communications and discussions with investors and analysts in the normal course of business through meetings, web casts, phone calls, and conference calls. Words such as “expect,” “anticipate,” “outlook,” “forecast,” “could,” “project,” “intend,” “plan,” “continue,” “believe,” “seek,” “estimate,” “should,” “may,” “assume,” “potential,” variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties, and assumptions that are difficult to predict. We describe our respective risks, uncertainties, and assumptions that could affect the outcome or results of operations in Part 1, Item 1A of our Annual Report on Form 10-K for the year ended June 30, 2012 (Form 10-K). You should carefully consider the risks described in our Form 10-K. Such risks are not the only ones facing our company; additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also impair our business operations. If any of the risks occur, our business, financial condition or operating results could be materially adversely affected.

We have based our forward-looking statements on our management’s beliefs and assumptions based on information available to management at the time the statements are made. We caution you that actual outcomes and results may differ materially from what is expressed, implied, or forecast by our forward-looking statements. Reference is made in particular to forward-looking statements regarding growth strategies, industry trends, global economic conditions, success of customers, cost of raw materials, value of inventory, availability of credit, foreign currency exchange rates, labor costs, protection of intellectual property, cost reduction initiatives, acquisition synergies, manufacturing strategies, product development introduction and sales, regulatory changes, income tax fluctuations, competitive strengths, natural disasters, unauthorized access to data, government investigations and outcomes of legal proceedings. Except as required under the federal securities laws, we do not have any intention or obligation to update publicly any forward-looking statements after the distribution of this quarterly report, whether as a result of new information, future events, changes in assumptions, or otherwise.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

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

We also monitor our foreign currency exposure in each country and implement strategies to respond to changing economic and political environments. Examples of these strategies include the prompt payment of intercompany balances utilizing a global netting system, the establishment of contra-currency accounts in several international subsidiaries, and the development of natural hedges and use of foreign exchange contracts to protect or preserve the value of cash flows. See Note 10 of the Notes to the Condensed Consolidated Financial Statements for discussion of foreign exchange contracts in use at September 30, 2012 and June 30, 2012.

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 10 of the Notes to the Condensed Consolidated Financial Statements for discussion of derivative instruments in use at September 30, 2012 and June 30, 2012.

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 decreased net revenue of $25.1 million and decreased income from operations of $1.5 million for the three months ended September 30, 2012, compared with the prior year period.

Our $16.1 million of marketable securities at September 30, 2012 are principally invested in time deposits.

Interest rate exposure is generally limited to our marketable securities, overdraft loans, five-year unsecured U.S. Credit Facility and syndicated term loan. We do not actively manage the risk of interest rate fluctuations. Our marketable securities mature in less than 12 months. We had no outstanding borrowings on our $350.0 million U.S. Credit Facility at September 30, 2012.

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

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

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management has evaluated, under the supervision and with the participation of our chief executive officer (CEO) and chief financial officer (CFO), the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the period covered by this report. Based on that evaluation, our CEO and CFO have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective in ensuring that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported within the time periods specified in SEC’s rules and forms, and (2) accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

Internal Control Over Financial Reporting

During the three months ended September 30, 2012, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) or in other factors that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Our management, including the CEO and CFO, do not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will

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

PART II

Item 1. Legal Proceedings

Currently, we are involved in a number of legal proceedings. For a discussion of contingencies related to legal proceedings, see Note 12 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, 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		3	$	20.09		—
August 1 – August 31
Common Stock		—	$	—		—
Class A Common Stock		72	$	21.81		—
September 1 – September 30
Common Stock		—	$	—		—
Class A Common Stock		5	$	22.12		—

Total		80	$	21.77		—

The shares purchased represent exercises of employee stock options.

Item 4. Mine Safety Disclosures – Not Applicable

Item 6. Exhibits


Number		Description

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

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

32		Section 1350 Certifications

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

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


						MOLEX INCORPORATED
						(Registrant)

Date: October 25, 2012						/S/ DAVID D. JOHNSON
						David D. Johnson
						Executive Vice President, Treasurer and
						Chief Financial Officer
						(Principal Financial Officer)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company