10-Q 1 f07q3_10q1.htm FORM 10-Q MOLEX FORM 10-Q for the Quarterly Period Ended March 31, 2007


 


UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

____________


FORM 10-Q


[ X ]

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


For the Quarterly Period Ended March 31, 2007


[     ]

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

(State or other jurisdiction of

incorporation or organization)

36-2369491

(I.R.S.  Employer

Identification No.)


2222 Wellington Court, Lisle, Illinois  60532

(Address of principal executive offices)

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

____________

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

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

Large accelerated filer  þ      Accelerated filer ¨      Non-accelerated filer ¨

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

On April 27, 2007, the following numbers of shares of the Company’s common stock were outstanding:

                  

Common Stock

99,612,938

Class A Common Stock

84,753,345

Class B Common Stock

      94,255





-1-





Molex Incorporated

    

INDEX

    

PART I - FINANCIAL INFORMATION

 
    

Item 1.

 Financial Statements

Page

 

   
 

Condensed Consolidated Balance Sheets as of

 
  

March 31, 2007 and June 30, 2006

3

    
 

Condensed Consolidated Statements of Income for the

 
  

three and nine months ended March 31, 2007 and 2006

4

    
 

Condensed Consolidated Statements of Cash Flows for the

 
  

nine months ended March 31, 2007 and 2006

5

    
 

Notes to Condensed Consolidated Financial Statements

6

    

Item 2.

Management's Discussion and Analysis of Financial Condition and Results

 
  

of Operations

12

    

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

20

    

Item 4.

Controls and Procedures

21

    

PART II - OTHER INFORMATION

 

 

   

Item 1.

Legal Proceedings

22

    

Item 1A.

Risk Factors

23

    

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

23

    

Item 6.

Exhibits

23

    
    

SIGNATURES

 

24

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  

Molex Incorporated

Condensed Consolidated Balance Sheets

(in thousands)  


 

March 31,

 

June 30,

  

2007

 

2006

 

(Unaudited)

   

ASSETS

Current assets:

     

Cash and cash equivalents

 $

319,574 

 

 $

332,815 

Marketable securities

 

53,505 

  

152,728 

Accounts receivable, less allowances of $31,542 and $26,513, respectively

 

692,904 

  

660,665 

Inventories

 

415,334 

  

347,312 

Other current assets

 

68,116 

  

54,713 

 

Total current assets

 

1,549,433 

  

1,548,233 

Property, plant and equipment, net

 

1,131,537 

  

1,025,852 

Goodwill

 

322,237 

  

149,458 

Other assets

 

274,056 

  

250,877 

 

Total assets

 $

3,277,263 

 

 $

2,974,420 

       

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

     

Accounts payable

 $

283,446 

 

 $

305,876 

Accrued expenses

 

152,075 

  

189,390 

Other current liabilities

 

92,118 

  

99,546 

 

Total current liabilities

 

527,639 

  

594,812 

Other non-current liabilities

 

18,864 

  

14,709 

Accrued pension and postretirement benefits

 

79,833 

  

75,055 

Long-term debt

 

134,601 

  

7,093 

Minority interest in subsidiaries

 

1,103 

  

882 

 

Total liabilities

 

762,040 

  

692,551 

       

Commitments and contingencies

 

– 

  

– 

       

Stockholders’ equity:

     

Common stock

 

10,973 

  

10,900 

Paid-in capital

 

491,304 

  

442,586 

Retained earnings

 

2,631,656 

  

2,464,889 

Treasury stock

 

(778,104)

  

(743,219)

Accumulated other comprehensive income

 

159,394 

  

106,713 

Total stockholders’ equity

 

2,515,223 

  

2,281,869 

 

Total liabilities and stockholders’ equity

 $

3,277,263 

 

 $

2,974,420 

       

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

 

Nine Months Ended

  

March 31,

 

March 31,

  

2007

 

2006

 

2007

 

2006

             

Net revenue

$

807,014 

 

$

720,327 

 

$

2,474,026 

 

$

2,077,490 

Cost of sales

 

556,026 

  

477,929 

  

1,695,120 

  

1,393,477 

Gross profit

 

250,988 

  

242,398 

  

778,906 

  

684,013 

             

Selling, general and administrative

 

162,471 

  

157,178 

  

496,463 

  

452,888 

Restructuring costs

 

– 

  

4,287 

  

– 

  

15,674 

Total operating expenses

 

162,471 

  

161,465 

  

496,463 

  

468,562 

             

Income from operations

 

88,517 

  

80,933 

  

282,443 

  

215,451 

             

Equity income

 

1,763 

  

2,020 

  

5,515 

  

8,531 

Gain (loss) on investment

 

(4)

  

  

(38)

  

115 

Interest income, net

 

2,080 

  

2,653 

  

6,169 

  

7,625 

Other income, net

 

3,839 

  

4,674 

  

11,646 

  

16,271 

             

Income before income taxes and minority interest

 

92,356 

  

85,607 

  

294,089 

  

231,722 

             

Income taxes

 

26,978 

  

24,388 

  

85,874 

  

66,004 

Minority interest

  

60 

  

35 

  

169 

  

98 

             

Net income

$

65,318 

 

$

61,184 

 

$

208,046 

 

$

165,620 

             

Earnings per share:

           
 

Basic  

$

0.36 

 

$

0.33 

 

$

1.13 

 

$

0.89 

 

Diluted   

$

0.35 

 

$

0.33 

 

$

1.12 

 

$

0.88 

             

Dividends declared per share  

$

0.0750 

 

$

0.0500 

 

$

0.2250 

 

$

0.1500 

             

Average common shares outstanding:

           
 

Basic

 

183,985 

  

184,658 

  

183,922 

  

186,019 

 

Diluted

 

185,271 

  

186,303 

  

185,591 

  

187,846 

             

See accompanying notes to condensed consolidated financial statements.


-4-




Molex Incorporated

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)


  

Nine Months Ended

  

March 31,

  

2007

 

2006

       

Operating activities:

     

Net income

$

208,046 

 

$

165,620 

Add non-cash items included in net income:

     
 

Depreciation and amortization

 

177,138 

  

160,411 

 

Share-based compensation

 

19,616 

  

21,782 

 

Other non-cash items

 

4,763 

  

8,832 

Changes in assets and liabilities:

     
 

Accounts receivable

 

24,488 

  

(84,772)

 

Inventories

 

(29,724)

  

(33,505)

 

Accounts payable

 

(56,396)

  

4,923 

 

Other current assets and liabilities

 

(64,444)

  

15,799 

 

Other assets and liabilities

 

(8,233)

  

6,073 

Cash provided from operating activities

 

275,254 

  

265,163 

       

Investing activities:

     

Capital expenditures

 

(219,435)

  

(193,844)

Proceeds from sales or maturities of marketable securities

 

4,449,264 

  

1,069,285 

Purchases of marketable securities

 

(4,349,497)

  

(994,744)

Acquisitions

 

(237,207)

  

– 

Other investing activities

 

7,466 

  

(18,919)

Cash used for investing activities

 

(349,409)

  

(138,222)

       

Financing activities:

     

Proceeds from revolving credit facility

 

44,000 

  

– 

Payments on revolving credit facility

 

(44,000)

  

– 

Proceeds from issuance of long-term debt

 

131,045 

  

– 

Payments of long-term debt

 

(26,570)

  

(2,127)

Cash dividends paid

 

(41,382)

  

(26,076)

Exercise of stock options

 

7,967 

  

11,905 

Purchase of treasury stock

 

(19,967)

  

(135,044)

Other financing activities

 

384 

  

(1,994)

Cash provided by (used for) financing activities

 

51,477 

  

(153,336)

       

Effect of exchange rate changes on cash

 

9,437 

  

5,147 

Net decrease in cash and cash equivalents

 

(13,241)

  

(21,248)

Cash and cash equivalents, beginning of period

 

332,815 

  

309,756 

Cash and cash equivalents, end of period

$

319,574 

 

$

288,508 

       

See accompanying notes to condensed consolidated financial statements.


-5-





Molex Incorporated

Notes to Condensed Consolidated Financial Statements

 (Unaudited)

(in thousands, except per share data)


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 65 plants in 20 countries on five continents.


The accompanying Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments consisting of normal recurring accruals considered necessary for a fair statement of results for the interim period have been included. Operating results for the three and nine months ended March 31, 2007 are not necessarily an indication of the results that may be expected for the year ending June 30, 2007. The Condensed Consolidated Balance Sheet as of June 30, 2006 was derived from our audited consolidated financial statements for the year ended June 30, 2006. 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/A for the year ended June 30, 2006.


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, share-based compensation, 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.


2.

Restructuring Charges


During the fourth quarter of fiscal 2005, we decided to close certain operations in the Americas and European regions in order to reduce operating costs and better align our manufacturing capacity with customer needs.  Production from the closed operations was transferred to existing plants within the respective regions.  Also included in the restructuring charge were costs to reduce our selling, general and administrative costs in the Americas, Europe and at the corporate office.  


The cumulative restructuring charges as of June 30, 2006 were $54.2 million, of which $27.0 million related to the Americas region, $19.2 million related to the European region and $8.0 million for corporate operations.  The restructuring activities were substantially complete as of June 30, 2006.  


The change in the accrued severance balance related to the restructuring charge is summarized as follows:

 

Balance at June 30, 2006

$

15,941 

 

Cash payments

 

(9,556)

 

Balance at March 31, 2007

$

6,385 

 


3.

Acquisition  

On August 9, 2006, we completed the acquisition of Woodhead Industries, Inc. (Woodhead) in an all cash transaction valued at approximately $237.2 million, including the assumption of debt and net of cash acquired.  Woodhead develops, manufactures and markets network and electrical infrastructure components engineered for performance in harsh, demanding, and hazardous industrial environments. The acquisition is a significant step in our strategy to expand our products and capabilities in the global industrial market.

-6-




 

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition.


Current assets

$

100,423 

 

Land and depreciable assets, net

 

48,019 

 

Goodwill

 

165,085 

 

Intangible assets

 

39,000 

 

Other assets

 

1,078 

 

Assets acquired

 

353,605 

 

Liabilities assumed

 

116,398 

 

Net assets acquired

$

237,207 

 


The above purchase price allocation for this acquisition is preliminary and subject to revision as more detailed analyses are completed and additional information about the fair value of assets and liabilities becomes available. We also plan to incur costs in connection with realigning portions of the business but it is impracticable to estimate a liability for such costs at this time. Any change in the fair value of the net assets of Woodhead and any realignment costs will change the amount of the purchase price allocable to goodwill.


The following table illustrates the effect on operating results for the nine months ended March 31, 2006, as if we had acquired Woodhead as of the beginning of that period.  The pro forma effect on the nine months ended March 31, 2007 was not material.              


Net revenue

$

2,242,966 

 

Income from operations

 

227,314 

 

Net income

 

173,549 

 

Net income per common share – basic

$

0.93 

 

Net income per common share – diluted

 

0.92 

 


The above unaudited pro forma financial information is presented for informational purposes only and does not purport to represent what our results of operations would have been had we acquired Woodhead on the dates assumed, nor is it necessarily indicative of the results that may be expected in future periods.  Pro forma adjustments exclude cost savings from any synergies resulting from the combination of Molex and Woodhead.


4.

Earnings Per Share

A reconciliation of the basic average common shares outstanding to diluted average common shares outstanding is as follows:


 

Three Months Ended

 

Nine Months Ended

 
 

March 31,

 

March 31,

 
 

2007

 

2006

 

2007

 

2006

 

Basic average common shares outstanding

183,985

 

184,658

 

183,922

 

186,019

 

Effect of dilutive stock options

1,286

 

1,645

 

1,669

 

1,827

 

Diluted average common shares outstanding

185,271

 

186,303

 

185,591

 

187,846

 
         


-7-





5.

Comprehensive Income

Total comprehensive income is summarized as follows:


 

Three Months Ended

  

Nine Months Ended

 
 

March 31,

  

March 31,

 
 

2007

 

2006

 

2007

 

2006

 

Net income

$

 65,318 

 

$

61,184 

 

$

208,046 

 

$

165,620 

 

Translation adjustments

 

 21,851 

  

17,086 

  

47,750 

  

753 

 

Unrealized investment (loss) gain

 

 (535)

  

1,657 

  

4,931 

  

2,175 

 

Total comprehensive income

$

86,634 

 

$

79,927 

 

$

260,727 

 

$

168,548 

 


6.

Inventories

Inventories are valued at the lower of first-in, first-out cost or market.  Inventories, net of allowances, consist of the following:


 

March 31,

 

June 30,

 
 

2007

 

2006

 

Raw materials

$

87,702

 

$

62,288

 

Work in process

 

119,041

  

107,533

 

Finished goods

 

208,591

  

177,491

 

Total inventories

$

415,334

 

$

347,312

 


7.

Pensions and Other Postretirement Benefits

The components of pension benefit cost are as follows:


 

Three Months Ended

 

Nine Months Ended

 
 

March 31,

 

March 31,

 
 

2007

 

2006

 

2007

 

2006

 

Service cost

$

2,057 

 

$

2,011 

 

$

6,185 

 

$

6,590 

 

Interest cost

 

1,700 

  

1,286 

  

5,082 

  

3,950 

 

Expected return on plan assets

 

(1,723)

  

(1,307)

  

(5,137)

  

(3,911)

 

Amortization of prior service cost

 

55 

  

27 

  

169 

  

83 

 

Recognized actuarial losses

 

45 

  

340 

  

135 

  

1,061 

 

Amortization of transition obligation

 

10 

  

10 

  

30 

  

29 

 

Benefit cost

$

2,144 

 

$

2,367 

 

$

6,464 

 

$

7,802 

 


-8-




The components of retiree health care benefit cost are as follows:


 

Three Months Ended

 

Nine Months Ended

 
 

March 31,

 

March 31,

 
 

2007

 

2006

 

2007

 

2006

 

Service cost

$

587 

 

$

641 

 

$

1,740 

 

$

1,925 

 

Interest cost

 

662 

  

597 

  

1,963 

  

1,790 

 

Amortization of prior service cost

 

(170)

  

(18)

  

(504)

  

(53)

 

Recognized actuarial losses

 

278 

  

260 

  

823 

  

779 

 

Benefit cost

$

1,357 

 

$

1,480 

 

$

4,022 

 

$

4,441 

 


8.

Commitments and Contingencies  

Between March 2, 2005 and April 22, 2005 seven separate complaints were filed, each purporting to be on behalf of a class of Molex stockholders, against us, and certain of our officers and employees.  The shareholder actions were consolidated, and the consolidated amended complaint alleged, among other things, that during the period from July 27, 2004 to February 14, 2005 the named defendants made or caused to be made a series of materially false or misleading statements about our business, prospects, operations, and financial statements which constituted violations of securities laws and rules.  The parties reached a settlement in principle of this action in August 2006.  The settlement received final approval by the court on March 1, 2007 and was funded by insurance proceeds.


In addition, in the Fall of 2005, two stockholder derivative actions were filed against us and certain of our directors and officers. The derivative actions arose principally out of the same facts as the stockholder actions described above.  These two actions were consolidated and an amended and consolidated complaint was filed.  In November 2006, plaintiffs filed a further amended complaint that added allegations that stock options were priced and issued improperly.  The parties reached a settlement in principle of this action in February 2007.  The settlement received final approval by the court on April 20, 2007.  The settlement included an award of attorneys’ fees funded by insurance proceeds and the Board’s commitment to maintain certain corporate governance measures.


9.

Long-Term Debt  

During the nine months ended March 31, 2007, we entered into two unsecured borrowing agreements approximating 15 billion Japanese yen ($128.4 million).  Both agreements have three-year terms with weighted-average fixed interest rates approximating 1.3%. Interest on both loans is payable every six months with the principal due in September 2009.


10.

New Accounting Pronouncements

In July 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48), which, among other things, requires applying a “more likely than not” threshold to the recognition and derecognition of tax positions. The provisions of FIN 48 will be effective for us on July 1, 2007.  We are currently evaluating the impact of adopting FIN 48 on the financial statements, but we do not expect its adoption to have a significant effect.


In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158, Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB statements No. 87, 88, 106 and 132(R).  This statement requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in that funded status through comprehensive income in the year in which the changes occur.  This statement also requires an employer to measure the funded status of its plans as of the date of its year-end statement of financial position.  The requirement to initially recognize the funded status of plans will be effective for us on June 30, 2007.  Based on the June 30, 2006 funded status of our plans, we expect that the adoption of this pronouncement will result in increasing our pension and retiree health care benefit liability by approximately $25 million with a corresponding decrease in other comprehensive income.


-9-





In September 2006, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 108, effective immediately, to address the diversity in practice in quantifying financial statement misstatements and the potential under current practice for the build up of improper amounts on the balance sheet.  We are currently evaluating the impact of adopting SAB No. 108 on the financial statements, but we do not expect its adoption to have a significant effect.  


11.

Segments and Related Information

We operate in one product segment, the manufacture and sale of electronic components, and four geographic regions.  Revenue is recognized based on the location of the selling entity.  Effective July 1, 2006, we realigned our management structure in the Asia regions. As part of the realignment, the Far East North region was renamed the Asia Pacific North region and the Far East South region was renamed the Asia Pacific South region. Additionally, our entity in Korea is now managed by Asia Pacific South and was included in Asia Pacific North prior to July 1, 2006. Our entity in Thailand is now managed by Asia Pacific North beginning July 1, 2006, and was included in Asia Pacific South prior to July 1, 2006. Regional operating results for the three and nine month periods ended March 31, 2006, were changed to conform to the current year reporting structure. Woodhead has locations around the world but is included in the table below as corporate and other because it is aligned independently from the other regions and is immaterial for separate classification.   Information by region for the three and nine months ended March 31 is summarized as follows:


   

Inter-

     
 

Customer

 

Company

 

Net

 

Net

 

Three months ended:

Revenue

 

Revenue

 

Revenue

 

Income

 

March 31, 2007:

 

           

Americas

$

193,019 

 

$

62,456 

 

$

255,475 

 

$

6,967 

 

Asia Pacific North

 

127,669 

  

94,983 

  

222,652 

  

24,398 

 

Asia Pacific South

 

263,606 

  

37,466 

  

301,072 

  

21,816 

 

Europe

 

144,566 

  

13,738 

  

158,304 

  

3,736 

 

Corporate and other

 

78,154 

  

30,747 

  

108,901 

  

8,401 

 

Eliminations

 

– 

  

(239,390)

  

(239,390)

  

– 

 

Total

$

807,014 

 

$

– 

 

$

807,014 

 

$

65,318 

 
             

March 31, 2006:

            

Americas

$

197,821 

 

$

57,397 

 

$

255,218 

 

$

14,553 

 

Asia Pacific North

 

112,245 

  

100,897 

  

213,142 

  

31,474 

 

Asia Pacific South

 

261,757 

  

32,391 

  

294,148 

  

33,202 

 

Europe

 

131,909 

  

11,493 

  

143,402 

  

(2,804)

 

Corporate and other

 

16,595 

  

30,536 

  

47,131 

  

(15,241)

 

Eliminations

 

– 

  

(232,714)

  

(232,714)

  

– 

 

Total

$

720,327 

 

$

– 

 

$

720,327 

 

$

61,184 

 


-10-






   

Inter-

     
 

Customer

 

Company

 

Net

 

Net

 

Nine months ended:

Revenue

 

Revenue

 

Revenue

 

Income

 

March 31, 2007:

            

Americas

$

592,004 

 

$

192,285 

 

$

784,289 

 

$

34,433 

 

Asia Pacific North

 

386,633 

  

330,063 

  

716,696 

  

89,223 

 

Asia Pacific South

 

870,444 

  

117,423 

  

987,867 

  

86,839 

 

Europe

 

414,657 

  

47,603 

  

462,260 

  

9,452 

 

Corporate and other

 

210,288 

  

102,337 

  

312,625 

  

(11,901)

 

Eliminations

 

– 

  

(789,711)

  

(789,711)

  

– 

 

Total

$

2,474,026 

 

$

– 

 

$

2,474,026 

 

$

208,046 

 
             

March 31, 2006:

            

Americas

$

581,143 

 

$

148,982 

 

$

730,125 

 

$

29,453 

 

Asia Pacific North

 

324,906 

  

296,300 

  

621,206 

  

82,598 

 

Asia Pacific South

 

759,052 

  

104,538 

  

863,590 

  

97,692 

 

Europe

 

363,739 

  

33,064 

  

396,803 

  

(13,284)

 

Corporate and other

 

48,650 

  

90,380 

  

139,030 

  

(30,839)

 

Eliminations

 

– 

  

(673,264)

  

(673,264)

  

– 

 

Total

$

2,077,490 

 

$

– 

 

$

2,077,490 

 

$

165,620 

 


-11-





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/A for the fiscal year ended June 30, 2006.  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 products including terminals, connectors, planar cables, cable assemblies, interconnection systems, backplanes, integrated products and mechanical and electronic switches in 65 plants in 20 countries on five continents. We also provide manufacturing services to integrate specific components into a customer’s product.


On August 9, 2006, we completed the acquisition of Woodhead Industries, Inc. (Woodhead) in an all cash transaction valued at approximately $237.2 million, including the assumption of debt and net of cash acquired.  Woodhead develops, manufactures and markets network and electrical infrastructure products engineered for performance in harsh, demanding, and hazardous industrial environments and is a significant step in our strategy to expand our products and capabilities in the global industrial market. The acquisition of Woodhead contributed net revenue of $147.9 million and net income of $6.0 million for the nine months ended March 31, 2007.


In September 2006 we approved a plan to close our production facilities in Brazil. We expect to complete the closure of these facilities during the three months ended March 31, 2007, which we anticipate will reduce our quarterly revenue by approximately $10 million to $15 million after the facilities are closed.  We recognized impairment charges and severance costs approximating $5.2 million during the nine months ended March 31, 2007 in connection with our decision to shut-down the Brazil production facilities.


Our financial results are influenced by factors in the markets in which we operate and by our ability to successfully execute our business strategy.  Marketplace factors include 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, litigation results and legal and regulatory developments.  We expect that the marketplace environment will remain highly competitive.  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, develop, manufacture and successfully market new and enhanced products and product lines, control overhead, and attract, motivate and retain key personnel to manage our operational, financial and management information systems.

-12-



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.


See the information concerning our critical accounting policies included under Management’s Discussion of Financial Condition and Results of Operations in our Annual Report on Form 10-K/A for the fiscal year ended June 30, 2006 filed with the Securities and Exchange Commission, which is incorporated by reference in this Form 10-Q.


Results of Operations


The table below shows our results of operations and the absolute and percentage change in those results from period to period (in thousands).  


 

Three Months Ended

 

$ Change

 

% Change

 

Results as %

 
 

March 31,

 

Favorable

 

Favorable

 

of Net Revenue

 
 

2007

 

2006

 

(Unfavorable)

 

(Unfavorable)

 

2007

 

2006

 
                   

Net revenue

$

807,014 

 

$

720,327 

 

$

86,687 

 

12.0 

%

100.0 

%

100.0 

%

Cost of sales

 

556,026 

  

477,929 

  

(78,097)

 

(16.3)

  

68.9 

  

66.3 

  

Gross profit

 

250,988 

  

242,398 

  

8,590 

 

3.5 

  

31.1 

  

33.7 

  
                   

Selling, general & administrative

 

162,471 

  

157,178 

  

(5,293)

 

(3.4)

  

20.1 

  

21.8 

  

Restructuring costs

 

– 

  

4,287 

  

4,287 

 

100.0 

  

– 

  

0.6 

  

Income from operations

 

88,517 

  

80,933 

  

7,584 

 

9.4 

  

11.0 

  

11.3 

  
                   

Other income, net

 

3,839 

  

4,674 

  

(835)

 

(17.9)

  

0.5 

  

0.6 

  

Income before income taxes

 

92,356 

  

85,607 

  

6,749 

 

7.9 

  

11.5 

  

11.9 

  

Income taxes & minority interest

 

27,038 

  

24,423 

  

(2,615)

 

(10.7)

  

3.4 

  

3.4 

  

Net income

$

65,318 

 

$

61,184 

 

$

4,134 

 

6.8 

%

8.1 

%

8.5 

%

                   
 

Nine Months Ended

 

$ Change

 

% Change

 

Results as %

 
 

March 31,

 

Favorable

 

Favorable

 

of Net Revenue

 
 

2007

 

2006

 

(Unfavorable)

 

(Unfavorable)

 

2007

 

2006

 
                   

Net revenue

$

2,474,026 

 

$

2,077,490 

 

$

396,536 

 

19.1 

%

100.0 

%

100.0 

%

Cost of sales

 

1,695,120 

  

1,393,477 

  

(301,643)

 

(21.6)

  

68.5 

  

67.1 

  

Gross profit

 

778,906 

  

684,013 

  

94,893 

 

13.9 

  

31.5 

  

32.9 

  
                   

Selling, general & administrative

 

496,463 

  

452,888 

  

(43,575)

 

(9.6)

  

20.1 

  

21.8 

  

Restructuring costs

 

– 

  

15,674 

  

15,674 

 

100.0 

  

– 

  

0.7 

  

Income from operations

 

282,443 

  

215,451 

  

66,992 

 

31.1 

  

11.4 

  

10.4 

  
                   

Other income, net

 

11,646 

  

16,271 

  

(4,625)

 

(28.4)

  

0.5 

  

0.8 

  

Income before income taxes

 

294,089 

  

231,722 

  

62,367 

 

26.9 

  

11.9 

  

11.2 

  

Income taxes & minority interest

 

86,043 

  

66,102 

  

(19,941)

 

(30.2)

  

3.5 

  

3.2 

  

Net income

$

208,046 

 

$

165,620 

 

$

42,426 

 

25.6 

%

8.4 

%

8.0 

%


-13-



Net Revenue


  We estimate that the impact of price erosion reduced revenue by approximately $31.6 million compared with the prior year quarter.  For the nine months ended March 31, 2007, we estimate that the impact of price erosion reduced revenue by approximately $101.4 million.  A significant portion of the price erosion occurred in our mobile phone products, which are part of our telecommunications market.  We sell our products in five primary markets.  The estimated change in revenue from each market during the third quarter of fiscal 2007 as compared with the same quarter last year (Comparable Quarter) and the second quarter of fiscal 2007 (Sequential Quarter) follows:  


 

Comparable

 

Sequential

 
 

Quarter

 

Quarter

 

Consumer

4.2 

%

 

(7.2)

%

 

Telecommunications

0.5 

  

(8.1)

  

Automotive

13.6 

  

10.3 

  

Data

1.8 

  

(6.8)

  

Industrial

99.2 

  

1.2 

  

Total

12.0 

  

(2.9)

  


The Woodhead acquisition added $58.3 million to revenues in the current quarter. Woodhead contributed 89% of the 99% growth in industrial sales as compared with the prior year quarter and was representative of the sequential industrial growth.  The remaining increase in revenue was derived primarily from unit volume increases with existing customers and existing products and sales of new products.  


We operate in one product segment, the manufacture and sale of electronic components, and four regions. Revenue is recognized based on the location of the selling entity. Effective July 1, 2006, we realigned our management structure in the Asia region. As part of the realignment, the Far East North region was renamed the Asia Pacific North region and the Far East South region was renamed the Asia Pacific South region. Additionally, our entity in Korea is now managed by Asia Pacific South and was included in the Asia Pacific North prior to July 1, 2006. Our entity in Thailand is now managed by Asia Pacific North beginning July 1, 2006 and was included in the Asia Pacific South prior to July 1, 2006. Regional operating results for the three and nine months ended March 31, 2006, were changed to conform to the current year reporting structure. Woodhead has locations around the world but is included in the revenue-related tables below as corporate and other because the division is aligned independently from the other regions and is immaterial for separate classification.   The following table sets forth information on customer revenue by geographic region for the periods indicated (in thousands):


 

Three Months Ended

 

$ Change

 

% Change

 

Results as %

 
 

March 31,

 

Favorable

 

Favorable

 

of Net Revenue

 
 

2007

 

2006

 

(Unfavorable)

 

(Unfavorable)

 

2007

 

2006

 

Americas

$

193,019 

 

$

197,821 

 

$

(4,802)

 

(2.4)

%

23.9 

%

27.5 

%

Asia Pacific North

 

127,669 

  

112,245 

  

15,424 

 

13.7 

  

15.8 

  

15.6 

  

Asia Pacific South

 

263,606 

  

261,757 

  

1,849 

 

0.7 

  

32.7 

  

36.3 

  

Europe

 

144,566 

  

131,909 

  

12,657 

 

9.6 

  

17.9 

  

18.3 

  

Corporate and other

 

78,154 

  

16,595 

  

61,559 

 

370.9 

  

9.7 

  

2.3 

  

Total

$

807,014 

 

$

720,327 

 

$

86,687 

 

12.0 

%

100.0 

%

 

100.0 

%

 
                   
 

Nine Months Ended

 

$ Change

 

% Change

 

Results as %

 
 

March 31,

 

Favorable

 

Favorable

 

of Net Revenue

 
 

2007

 

2006

 

(Unfavorable)

 

(Unfavorable)

 

2007

 

2006

 

Americas

$

592,004 

 

$

581,143 

 

$

10,861 

 

1.9 

%

23.9 

%

28.0 

%

Asia Pacific North

 

386,633 

  

324,906 

  

61,727 

 

19.0 

  

15.6 

  

15.6 

  

Asia Pacific South

 

870,444 

  

759,052 

  

111,392 

 

14.7 

  

35.2 

  

36.5 

  

Europe

 

414,657 

  

363,739 

  

50,918 

 

14.0 

  

16.8 

  

17.5 

  

Corporate and other

 

210,288 

  

48,650 

  

161,638 

 

332.2 

  

8.5 

  

2.4 

  

Total

$

2,474,026 

 

$

2,077,490 

 

$

396,536 

 

19.1 

%

100.0 

%

 

100.0 

%

 

-14-



The weakening of the U.S. dollar against certain foreign currencies, principally the euro, Singapore dollar and Korean won increased revenue by approximately $20.2 million and $49.4 million, respectively, for the three and nine months ended March 31, 2007 over the prior year periods. The following tables show the effect on the change in net revenue from foreign currency translations to the U.S. dollar:


 

Three Months Ended March 31, 2007

 

Nine Months Ended March 31, 2007

 
 

Local

 

Currency

 

Net

 

Local

 

Currency

 

Net

 
 

Currency

 

Translation

 

Change

 

Currency

 

Translation

 

Change

 

Americas

$

(4,957)

 

$

155 

 

$

(4,802)

 

$

10,026 

 

$

835 

 

$

10,861 

 

Asia Pacific North

 

17,451 

  

(2,027)

  

15,424 

  

68,323 

  

(6,596)

  

61,727 

 

Asia Pacific South

 

(4,628)

  

6,477 

  

1,849 

  

90,807 

  

20,585 

  

111,392 

 

Europe

 

(134)

  

12,791 

  

12,657 

  

22,731 

  

28,187 

  

50,918 

 

Corporate and other

 

58,764 

  

2,795 

  

61,559 

  

155,210 

  

6,428 

  

161,638 

 

Net change

$

66,496 

 

$

20,191 

 

$

86,687 

 

$

347,097 

 

$

49,439 

 

$

396,536 

 


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


 

Three Months

 

Nine Months

 
 

Ended

 

Ended

 
 

Mar. 31, 2007

 

Mar. 31, 2007

 

Americas

(2.5)

%

 

1.7 

%

 

Asia Pacific North

15.5 

  

21.0 

  

Asia Pacific South

(1.8)

  

12.0 

  

Europe

(0.1)

  

6.2 

  

Total

9.2 

  

16.7 

  


We continued our long-term commitment to reinvesting our profits in new product design and tooling to maintain and enhance our competitive position.  Revenue derived from the sale of new products we released within the last 36 months as a percentage of net revenue is as follows:


 

Three Months

 

Nine Months

 
 

Ended

 

Ended

 
 

Mar. 31, 2007

 

Mar. 31, 2007

 

Americas

25.4

%

 

24.7 

%

 

Asia Pacific North

33.8

  

30.2 

  

Asia Pacific South

33.4

  

31.5 

  

Europe

23.4

  

24.8 

  

Total

27.2

  

26.7 

  


Americas Region  –  North and South America


Year-to-date revenue in the Americas region increased from the prior year comparable period primarily due to stronger demand and new product offerings during the first quarter of fiscal 2007, particularly in high performance applications such as servers and routers.  While growth during the first quarter of fiscal 2007 was across all channels for the connector products, revenue was relatively consistent during the second and third quarters of fiscal 2007, as compared with the respective prior year periods.  Stronger demand for automotive and network products during the second and third quarters of fiscal 2007 were offset by a weaker mobile communications market.


Brazil revenue for the nine months ended March 31, 2007 declined $28.4 million as compared with the prior year period as we continue with our plan to close our production facilities in Brazil.

-15-





The lower mobile communications demand experienced during the second quarter extended into the third quarter of fiscal 2007.  Additionally, while we believe that sales growth in the Americas region was negatively affected over the past two years by the movement offshore of original equipment manufacturers and contract manufacturers, we believe that this movement offshore by OEMs and contract manufacturers positively contributed to sales in other regions of our business, especially in the Asia Pacific South region.


Asia Pacific North Region – Japan and Thailand


Revenue in local currencies was higher during the three and nine months ended March 31, 2007 as compared with the same periods last year primarily due to stronger demand in the consumer and industrial markets. We believe that we are well positioned for growth in the satellite radio and games segment, where we have good connector content in Pachinko game machines and on the new Wii machine and the Sony PS3.


While demand for high-end mobile phones declined sequentially during the third quarter of fiscal 2007, the region continues to capitalize on its ability to design compact, higher performance products for the sophisticated end of the mobile phone business in the telecommunications market.  The region has developed connectors for third generation (3G) phones.  We believe that we are well positioned to grow our 3G technology business as global cell phone makers adopt this technology.


The Asia Pacific North region generally operates at a high capacity level with significant resources allocated to support higher demand in the Asia Pacific South region. Revenue between regions is generally recognized as intercompany revenue, which is excluded from the revenue by region table above.


Asia Pacific South Region – Singapore, Malaysia, China, Korea, Taiwan and India


The Asia Pacific South region is our largest and has generally been one of our fastest growing in terms of revenue. The revenue growth in this region for the nine months ended March 31, 2007 over the prior year period was driven by stronger demand across the mobile phone, computer and telecommunications infrastructure sectors, although beginning during the second quarter of fiscal 2007, we have experienced sequential declines in the mobile phone and computer businesses. These sequential declines were offset by higher sequential revenue in the telecommunications infrastructure sector.


Sales in China represent 61% and 63%, respectively, of total Asia Pacific South sales for the three and nine months ended March 31, 2007 increasing by 0.1% during the quarter and 20% year-to-date as compared with the prior year periods, due to customer demand supported by increased production capacity. The drivers of this growth included (i) overall higher demand in the mobile phone, consumer electronics and computer markets, (ii) the trend of American, European and Japanese companies moving their design and production to China and (iii) greater penetration of Taiwanese multinational accounts.  A significant portion of our integrated products that require a higher level of manual assembly are produced in China.


European Region


For the three and nine months ended March 31, 2007, revenue as compared with the prior year periods increased primarily due to higher revenue from consumer products in the industrial and automotive markets offset by the movement to Asia of original equipment manufacturers and contract manufacturers.  Revenue growth in the automotive market was primarily due to new project wins and higher electronic content in vehicles and industrial sector growth was primarily due to a large order for a cable assembly product.  We believe that the movement of original equipment manufacturers to Asia is a trend that contributed to sales growth in our Asia Pacific South region.  


The region is focused on the markets that we believe are most likely to remain in Europe.  These include connectors and integrated products for industrial, medical and automotive applications.


-16-





Gross Profit


Gross profit as a percentage of net revenue declined during the three and nine months ended March 31, 2007 primarily due to higher than normal price erosion, higher raw material costs, increases in inventory reserves and costs associated with the closure of the Brazil operations. We estimate that we paid approximately $13.7 million and $52.9 million more for metal alloys (primarily copper) and gold due to higher commodity prices in the three and nine month periods compared with the prior year periods. We expect the effect of price erosion that we realized in the mobile phone business during the second quarter of fiscal 2007 to impact the remainder of fiscal year. These cost increases, along with the impact of price erosion, were partially offset by selective price increases that were effective in February and September 2006, improvements in manufacturing efficiencies and favorable changes in currency exchange rates.  We recognized impairment charges and severance costs approximating $5.2 million during the nine months ended March 31, 2007 in connection with our decision to shut-down the Brazil production facilities. We recognized an expense for excess and obsolete inventory that was $6.0 million higher in the third quarter and $2.4 million higher in the second quarter as compared with prior year comparable periods, which was primarily as a result of reduced customer orders.


Certain products that we manufacture in Japan and Europe are sold in other regions of the world at selling prices primarily denominated in or closely linked to the U.S. dollar.  As a result, changes in currency exchange rates may affect our cost of sales reported in U.S. dollars without a corresponding effect on net revenue.  We estimate that the impact from currency transactions increased gross profit by approximately $5.0 million and $13.3 million for the three and nine months ended March 31, 2007 compared with the prior year periods.  These increases were primarily due to a weaker yen relative to other currencies during the respective periods ended March 31, 2007.


Selling, General and Administrative Expenses


Selling, general and administrative expenses for the three and nine months ended March 31, 2007 improved as a percent of net revenue over the prior year periods primarily due to leverage of fixed selling, general and administrative costs on higher revenue, lower cost structure resulting from our 2005 restructuring initiative, relatively lower compensation expense and other cost containment activities. Additionally, the prior year-to-date period included bad debt expense of approximately $3.0 million in connection with an account receivable from an automotive customer that filed for bankruptcy. The impact of currency translation increased selling, general and administrative expenses by approximately $3.9 million and $9.1 million, respectively, for the three and nine months ended March 31, 2007.


Research and development expenditures, which are classified as selling, general and administrative expenses were $121.8 million, or 4.9% of net revenue, for the nine months ended March 31, 2007, compared with 5.1% in the prior year period.


Restructuring Costs


We recorded a pre-tax restructuring charge of $15.7 million during the nine months ended March 31, 2006, that consisted primarily of severance and other employee-related costs.


During the fourth quarter of fiscal 2005, we decided to close certain operations in the Americas and European regions in order to reduce operating costs and better align our manufacturing capacity with customer needs.  Production from the operations closed has been transferred to existing plants within the respective regions.  Also included in the restructuring charge are costs to reduce our selling, general and administrative costs in the Americas, Europe and at the corporate office.  We reduced headcount by approximately 500 people after additions at the facilities where production was transferred.  We substantially completed the restructuring activities as of June 30, 2006.  (See Note 2 of the “Notes to the Condensed Consolidated Financial Statements.”)


-17-



Effective Tax Rate


The effective tax rate was 29.2% for the three and nine months ended March 31, 2007 and was 28.5% for the three and nine months ended March 31, 2006.  The effective tax rates represent estimates of the full year effective tax rate. The effective tax rate for the nine months ended March 31, 2007 is higher than the fiscal year 2006 effective tax rate of 28.5% due to our anticipation of greater earnings during fiscal 2007 in countries with tax rates that are higher relative to the fiscal 2006 earnings mix.


 Backlog


Our order backlog on March 31, 2007 was approximately $345.9 million, a decrease of $8.4 million compared with $354.3 million at March 31, 2006.  Orders for the three months ended March 31, 2007 were $782.8 million, an increase of 1.8% compared with $769.2 million for the prior year period.  Compared with the prior year periods, our backlog decreased due to improved delivery and orders increased due to the Woodhead acquisition. Woodhead contributed orders of $60.7 million to the current quarter, and had a backlog of $22.0 million on March 31, 2007. The incremental Woodhead orders were offset by lower orders from the mobile and consumer sectors.


Financial Condition and Liquidity  


Our financial position remains strong and we continue to be able to fund capital projects and working capital needs principally out of operating cash flows and cash reserves.  Cash, cash equivalents and marketable securities totaled $373.1­­­­­ million and $485.5 million at March 31, 2007 and June 30, 2006, respectively.  The primary source of our cash flow is cash generated by operations. Principal uses of cash are capital expenditures, share repurchases, dividend payments and business investments.  Our long-term financing strategy is principally to rely on internal sources of funds for investing in plant, equipment and acquisitions, although we may elect to leverage our balance sheet with debt financing.  We have historically used external borrowings only when a clear financial advantage exists. We believe that our liquidity and financial flexibility are adequate to support both current and future growth.  Long-term debt at March 31, 2007 totaled $134.6 million.  


Cash Flows


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


 

Nine Months

 

Nine Months

 
 

Mar. 31,

 

Mar. 31,

 
 

2007

 

2006

 

Cash provided from operating activities

$

275,254 

 

$

265,163 

 

Cash used for investing activities

 

(349,409)

  

(138,222)

 

Cash provided by (used for) financing activities

 

51,477 

  

(153,336)

 

Effect of exchange rate changes on cash

 

9,437 

  

5,147 

 

Net decrease in cash

$

(13,241)

 

$

(21,248)

 


Operating Activities


Cash provided from operating activities increased by $10.1 million from the prior year period due mainly to higher net income, offset by a greater use of funds to finance working capital needs compared with the prior year period.  This working capital increase was primarily due to the revenue growth for the nine months ended March 31, 2007 compared with the prior year period.  Working capital is defined as current assets minus current liabilities.


Investing Activities


On August 9, 2006, we completed the acquisition of Woodhead in an all cash transaction valued at approximately $237.2 million, including the assumption of debt and net of cash acquired.  Capital expenditures were $219.4 million for the nine months ended March 31, 2007 compared with $193.8 million in the prior year period.  Capital expenditures for the nine months ended March 31, 2007 were primarily related to increasing capacity in the Americas, Asia Pacific North and European regions.

-18-





Financing Activities


In order to fund the cash portion of our investment in Woodhead made during the first quarter, we entered into two term notes aggregating 15 billion Japanese yen ($128.4 million) and borrowed $44.0 million on our unsecured revolving credit line.  The term note agreements have three-year terms with weighted-average fixed interest rates approximating 1.3%. The $44.0 million that we borrowed on our unsecured revolving line of credit was repaid during the second quarter of fiscal 2007.


We purchased 702,500 shares of Class A Common Stock during the nine months ended March 31, 2007, at an aggregate cost of $20.0 million and 5,083,000 shares of Common Stock and Class A Common Stock during the nine months ended March 31, 2006, at an aggregate cost of $135.0 million. We use shares repurchased to replenish stock used for exercises of employee stock options, employee stock awards and our Employee Stock Purchase Plan.


Our Board of Directors previously authorized the repurchase of up to an aggregate $250.0 million of common stock though December 31, 2006.  On October 27, 2006, the Board of Directors extended this authorization through September 30, 2007.  Approximately $30.1 million was remaining under the authorization as of March 31, 2007.


We have sufficient cash balances and cash flow to support our planned growth. 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 and debt balances.


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/A filed with the Securities and Exchange Commission (the Commission) for the year ended June 30, 2006.  In addition, we have obligations under open purchase orders and the long-term liabilities reflected in our consolidated balance sheet, which principally consist of pension and retiree health care benefit obligations.  There have been no material changes in our contractual obligations and commercial commitments since June 30, 2006 arising outside of the ordinary course of business other than the $44.0 million revolving line of credit borrowed last quarter and repaid during the current quarter and $128.4 million long-term debt borrowings.


Cautionary Statement Regarding Forward-Looking Information


This Quarterly Report contains forward-looking statements that are based on current expectations, estimates, forecasts and projections about our future performance, our business, our beliefs, and our management’s assumptions.  Words such as “expect,” “anticipate,” “outlook,” “forecast,” “could,” “project,” “intend,” “plan,” “continue,” “believe,” “seek,” “estimate,” “should,” “may,” “assume,” variations of such words and similar expressions are intended to identify such forward-looking statements.  These statements are not guarantees of future performance and involve certain risks, uncertainties, and assumptions that are difficult to predict. We describe our respective risks, uncertainties, and assumptions that could affect the outcome or results of operations in Part 1, Item 1A of our Annual Report on Form 10-K/A for the year ended June 30, 2006 (Form 10-K/A).  You should carefully consider the risks described in our Form 10-K/A.  Such risks are not the only ones facing our Company.  Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also impair our business operations.  If any of the risks occur, our business, financial condition or operating results could be materially adversely affected.


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

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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, as 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 establishing of contra-currency accounts in several international subsidiaries, development of natural hedges and use of foreign exchange contracts to protect or preserve the value of cash flows.  No material foreign exchange contracts were in use at March 31, 2007 or 2006.


We have implemented a formalized treasury risk management policy that describes the 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 and net receivable and payable balances.


The translation of the financial statements of the non-U.S. operations is impacted by fluctuations in foreign currency exchange rates.  The increase in 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 $49.4 million and increased income from operations of $0.6 million for the nine months ended March 31, 2007, compared with the estimated results for the comparable period in the prior year.


Our $53.5 million of marketable securities at March 31, 2007 are principally debt instruments that generate interest income for us on temporary excess cash balances.  These instruments contain embedded derivative features that enhance the liquidity of the portfolio by enabling us to liquidate the instrument prior to the stated maturity date.  Our exposure related to derivative instrument transactions is, in the aggregate, not material to our financial position, results of operations or cash flows.


Interest rate exposure is generally limited to our marketable securities and long-term debt.  Long-term debt increased during the nine months ended March 31, 2007, as a result of two borrowings aggregating approximating 15 billion Japanese yen ($128.4 million) by an entity that we own in Japan. The 3-year unsecured debt financing has a weighted average fixed interest rate approximating 1.3%. Total long-term debt was $134.6 million at March 31, 2007.  We do not actively manage the risk of interest rate fluctuations.  However, such risk is mitigated by the relatively short duration of our investments (less than 12 months) and the fixed-rate nature of our long-term debt.


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


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


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Item 4.  Controls and Procedures


Evaluation of Disclosure Controls and Procedures

 

We have established disclosure controls and procedures to ensure that material information relating to Molex is timely communicated to the officers who certify our financial reports and to other members of our management and Board of Directors.

 

Based upon their evaluation as of March 31, 2007, our Chief Executive Officer and Chief Financial Officer have concluded that 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)) are effective in providing reasonable assurance that information required to be disclosed by us in our Exchange Act filings is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms.

 

Internal Control Over Financial Reporting


During the three months ended March 31, 2007, 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.  As permitted by the rules and regulations of the SEC, we excluded Woodhead from our assessment of our internal control over financial reporting for the quarter ended March 31, 2007 and also expect to exclude Woodhead from our annual assessment for the year ended June 30, 2007.  We are in the process of integrating the internal control procedures of Woodhead into our internal control structure.



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PART II


Item 1.  Legal Proceedings


Between March 2, 2005 and April 22, 2005 seven separate complaints were filed, each purporting to be on behalf of a class of Molex stockholders, against us, and certain of our officers and employees.  The shareholder actions were consolidated, and the consolidated amended complaint alleged, among other things, that during the period from July 27, 2004 to February 14, 2005 the named defendants made or caused to be made a series of materially false or misleading statements about our business, prospects, operations, and financial statements which constituted violations of securities laws and rules.  The parties reached a settlement in principle of this action in August 2006.  The settlement received final approval by the court on March 1, 2007 and was funded by insurance proceeds.


In addition, in the Fall of 2005, two stockholder derivative actions were filed against us and certain of our directors and officers. The derivative actions arose principally out of the same facts as the stockholder actions described above.  These two actions were consolidated and an amended and consolidated complaint was filed.  In November 2006, plaintiffs filed a further amended complaint that added allegations that stock options were priced and issued improperly.  The parties reached a settlement in principle of this action in February 2007.  The settlement received final approval by the court on April 20, 2007.  The settlement included an award of attorneys’ fees funded by insurance proceeds and the Board’s commitment to maintain certain corporate governance measures.


The Commission has commenced an informal inquiry into our stock option granting practices, and the Office of the U.S. Attorney for the Northern District of Illinois has also requested information on this subject.  As previously disclosed, a Special Committee of our Board of Directors completed a review of our past option granting practices.  Although we cannot predict the outcome of this matter, we do not expect that such matter will have a material adverse effect on our consolidated financial position or results of operations.

On January 25, 2007, we filed a suit in the United States District Court in Nevada against FCI Americas Technology, Inc. (FCI) seeking a declaratory judgment that our I-Trac™ connectors are not covered by FCI’s shieldless connector patents, and further seeking an injunction against FCI’s continued assertions that such connectors infringe any of FCI’s patents.  Following the filing of our suit, on January 26, 2007 FCI and FCI USA, Inc. filed a patent infringement suit against us in the United States District Court in Delaware that alleges that we are infringing certain of their patents relating to shieldless connectors. We believe that our  I-Trac™ connectors do not infringe FCI’s patents and intend to vigorously pursue our position. Although we cannot predict the outcome of this matter, we do not expect that it will have a material adverse effect on our consolidated financial position or results of operations.


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Item 1A.  Risk Factors


There have been no material changes from the risk factors disclosed in Part 1, Item 1A, of our Form 10-K/A.


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


On April 25, 2005, our Board of Directors authorized the purchase of up to $250.0 million of Common Stock and/or Class A Common Stock during the period ending December 31, 2006.  On October 27, 2006, the Board of Directors extended this authorization through September 30, 2007.  Share purchases of Molex Common and/or Class A Common Stock for the quarter ended March 31, 2007 were as follows (in thousands, except price per share data):



      

Total Number

 

Dollar Value

 
      

of Shares

 

of Shares

 
 

Total Number

    

Purchased as

 

That May Yet

 
 

of Shares

 

Average Price

 

Part of Publicly

 

Be Purchased

 

Class A Common Stock:

Purchased

 

Paid per Share

 

Announced Plan

 

Under the Plan

 

January 1 -  January 31

8

 

$

27.75

 

-

 

$

37,537

 

February 1 -  February 28

334

  

26.52

 

280

  

30,109

 

March 1 -  March 31

5

  

26.26

 

-

  

30,109

 

Total

347

 

$

26.55

 

280

 

$

30,109

 




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




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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 30, 2007

/S/ DAVID D. JOHNSON

              

______________________

                                         

David D. Johnson

                                         

Vice President, Treasurer and

Chief Financial Officer

(Principal Financial Officer)








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