Molex (MOLX) 10-Q 2008 Q1 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended September 30, 2007

o 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. Yesþ Noo

     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 filerþ      Accelerated filero      Non-accelerated filero

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

     On October 29, 2007, the following numbers of shares of the Company’s common stock were outstanding:

Common Stock	98,882,308
Class A Common Stock	82,514,660
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, 2007 and June 30, 2007		3
Condensed Consolidated Statements of Income for the three months ended September 30, 2007 and 2006		4
Condensed Consolidated Statements of Cash Flows for the three months ended September 30, 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		11
Item 3. Quantitative and Qualitative Disclosures About Market Risk		20
Item 4. Controls and Procedures		21
PART II – OTHER INFORMATION
Item 1. Legal Proceedings		21
Item 1A. Risk Factors		22
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		22
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)

	Sept. 30,			June 30,
	2007			2007
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	395,381		$	378,361
Marketable securities		51,913			82,549
Accounts receivable, less allowances of $36,322 and $31,064, respectively		692,523			685,666
Inventories		396,093			392,680
Other current assets		57,479			51,571
Total current assets		1,593,389			1,590,827
Property, plant and equipment, net		1,135,333			1,121,369
Goodwill		365,286			334,791
Other assets		292,036			269,121
Total assets	$	3,386,044		$	3,316,108
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	277,197		$	279,847
Accrued expenses		202,759			187,890
Other current liabilities		87,150			63,214
Total current liabilities		567,106			530,951
Other non-current liabilities		24,993			25,612
Accrued pension and postretirement benefits		111,861			108,693
Long-term debt		135,581			127,821
Total liabilities		839,541			793,077
Commitments and contingencies
Stockholders’ equity:
Common stock		11,034			11,020
Paid-in capital		529,178			520,037
Retained earnings		2,682,928			2,650,470
Treasury stock		(862,026	)		(799,894	)
Accumulated other comprehensive income		185,389			141,398
Total stockholders’ equity		2,546,503			2,523,031
Total liabilities and stockholders’ equity	$	3,386,044		$	3,316,108

     See accompanying notes to condensed consolidated financial statements.

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Molex Incorporated

Condensed Consolidated Statements of Income

(Unaudited)

(in thousands, except per share data)

	Three Months Ended
	September 30,
	2007		2006
Net revenue	$	792,610	$	829,545
Cost of sales		556,460		560,136
Gross profit		236,150		269,409
Selling, general and administrative		160,635		166,301
Restructuring costs and asset impairments		2,629		—
Total operating expenses		163,264		166,301
Income from operations		72,886		103,108
Investment income		698		1,817
Interest income, net		2,564		2,080
Other income, net		3,262		3,897
Income before income taxes		76,148		107,005
Income taxes		22,844		30,504
Net income	$	53,304	$	76,501
Earnings per share:
Basic	$	0.29	$	0.42
Diluted	$	0.29	$	0.41
Dividends declared per share	$	0.1125	$	0.0750
Average common shares outstanding:
Basic		183,290		183,763
Diluted		184,276		185,992

     See accompanying notes to condensed consolidated financial statements.

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Molex Incorporated

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

	Three Months Ended
	September 30,
	2007			2006
Operating activities:
Net income	$	53,304		$	76,501
Add non-cash items included in net income:
Depreciation and amortization		60,973			58,122
Share-based compensation		7,591			7,639
Other non-cash items		1,494			3,351
Changes in assets and liabilities:
Accounts receivable		12,671			(28,279	)
Inventories		7,702			(32,722	)
Accounts payable		(11,698	)		(9,382	)
Other current assets and liabilities		16,510			(37,232	)
Other assets and liabilities		(3,446	)		(1,230	)
Cash provided from operating activities		145,101			36,768
Investing activities:
Capital expenditures		(49,144	)		(75,566	)
Proceeds from sales of property, plant and equipment		2,097			1,559
Proceeds from sales or maturities of marketable securities		650,140			3,060,202
Purchases of marketable securities		(619,473	)		(2,925,068	)
Acquisitions		(42,100	)		(236,626	)
Other investing activities		(1,135	)		2,476
Cash used for investing activities		(59,615	)		(173,023	)
Financing activities:
Proceeds from revolving credit facility		—			44,000
Proceeds from issuance of long-term debt		—			131,045
Payments of long-term debt		(1,231	)		(26,146	)
Cash dividends paid		(13,804	)		(13,774	)
Exercise of stock options		871			7,362
Purchase of treasury stock		(60,546	)		(5,017	)
Other financing activities		(1,571	)		517
Cash provided by (used for) financing activities		(76,281	)		137,987
Effect of exchange rate changes on cash		7,815			(226	)
Net increase in cash and cash equivalents		17,020			1,506
Cash and cash equivalents, beginning of period		378,361			332,815
Cash and cash equivalents, end of period	$	395,381		$	334,321

     See accompanying notes to condensed consolidated financial statements.

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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 59 plants in 19 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, 2007 are not necessarily an indication of the results that may be expected for the year ending June 30, 2008. The Condensed Consolidated Balance Sheet as of June 30, 2007 was derived from our audited consolidated financial statements for the year ended June 30, 2007. 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, 2007.

     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, 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 fiscal 2007, we undertook a restructuring plan designed to reduce costs and to improve return on invested capital in connection with a new global organization that was effective July 1, 2007. A majority of the plan relates to facilities located in North America and Europe and in general, the movement of manufacturing activities at these plants to other facilities. Restructuring expense during the quarter ended September 30, 2007 was $2.6 million, resulting in cumulative expense since we announced the restructuring of $39.5 million. We expect to incur total restructuring and asset impairment costs related to these actions ranging from $100 — $125 million, of which we expect the remaining expense to occur primarily in the Connector and Transportation segments. Management and the Board of Directors approved several actions related to this plan. A portion of this plan involves cost savings or other actions that do not result in incremental expense, such as better utilization of assets, reduced spending and organizational efficiencies. We expect to complete the actions under this plan by June 30, 2009.

     The following table sets forth restructuring costs by segment (in thousands):

			Trans-		Custom &		Corporate
	Connector		portation		Electrical		and Other		Total
Cumulative costs at June 30, 2007	$	3,492	$	5,914	$	12,206	$	15,257	$	36,869
Net restructuring expense during the current quarter		500		528		426		1,175		2,629
Cumulative costs at Sept. 30, 2007	$	3,992	$	6,442	$	12,632	$	16,432	$	39,498

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     The cumulative change in the accrued severance balance related to the restructuring charges is summarized as follows (in thousands):

Balance at June 30, 2007	$	32,165
Cash payments		(8,059	)
Charges to expense		3,295
Non-cash related costs		(323	)
Balance at September 30, 2007	$	27,078

     The accrued severance balance includes $3.8 million related to eliminating redundant costs and improving efficiencies in operations in connection with the acquisition of Woodhead. Additionally, $3.8 million remains in the accrued severance balance related to a restructuring plan announced in fiscal 2005 that was substantially complete as of June 30, 2006.

3. Acquisition

     On July 19, 2007, we completed an acquisition of a U.S.-based company in an all cash transaction approximating $42.1 million. We recorded additional goodwill of $25.5 million in connection with this acquisition. The 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.

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,
	2007		2006
Basic average common shares outstanding		183,290		183,763
Effect of dilutive stock options		986		2,229
Diluted average common shares outstanding		184,276		185,992

5. Comprehensive Income

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

	Three Months Ended
	September 30,
	2007		2006
Net income	$	53,304	$	76,501
Translation adjustments		41,495		(5,228	)
Unrealized investment gain		2,496		4,143
Total comprehensive income	$	97,295	$	75,416

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6. Inventories

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

	Sept. 30,		June 30,
	2007		2007
Raw materials	$	85,053	$	85,320
Work in process		107,719		107,394
Finished goods		203,321		199,966
Total inventories	$	396,093	$	392,680

7. Pensions and Other Postretirement Benefits

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

	Three Months Ended
	September 30,
	2007			2006
Service cost	$	2,246		$	1,971
Interest cost		1,928			1,558
Expected return on plan assets		(2,172	)		(1,606	)
Amortization of prior service cost		53			57
Recognized actuarial losses		85			45
Amortization of transition obligation		10			10
Benefit cost	$	2,150		$	2,035

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

	Three Months Ended
	September 30,
	2007			2006
Service cost	$	759		$	572
Interest cost		807			645
Amortization of prior service cost		(173	)		(166	)
Recognized actuarial losses		327			270
Benefit cost	$	1,720		$	1,321

8. Long-Term Debt

     Long-term debt of $135.6 million as of September 30, 2007 consists principally of two unsecured borrowing agreements approximating 15 billion Japanese yen ($129.8 million). The agreements have three-year terms with weighted-average fixed interest rates approximating 1.3%. Interest on the loans is payable semi-annually with the principal due in September 2009.

9. Income Taxes

     We adopted the provisions of Financial Accounting Standards Board (FASB) Interpretation No. 48, “Accounting for the Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109”, (FIN 48) effective July 1, 2007. The adoption of FIN 48 did not have a material impact on our statement of financial position or on results of operations.

     As of June 30, 2007, unrecognized tax benefits were $12.6 million, of which, $10.5 million represents the amount of unrecognized tax benefits that, if recognized, would affect the effective income tax rate. Due to the various jurisdictions in which we file income tax returns, it is reasonably possible that there will be changes in the amount of unrecognized tax benefits over the next twelve months but the amounts of these changes cannot be estimated.

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     We are subject to tax in U.S. Federal, State and foreign tax jurisdictions. We have substantially completed all U.S. federal income tax matters for tax years through 2001. The examination of federal income tax returns for 2002 and 2003 has been completed and we expect to receive the final report from the Internal Revenue Service during fiscal 2008. The tax years 2004 through 2007 remain open to examination by all other major taxing jurisdictions to which we are subject.

     It is our practice to recognize interest and/or penalties related to income tax matters in tax expense. As of September 30, 2007, there were no material interest or penalty amounts to accrue.

10. New Accounting Pronouncements

     In September 2006, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 157, “Fair Value Measurements.” The purpose of SFAS No. 157 is to define fair value, establish a framework for measuring fair value, and enhance disclosures about fair value measurements. The provisions of SFAS No. 157 are effective for us on July 1, 2008. We are currently evaluating the financial statement impact of adopting SFAS No. 157, but we do not expect its adoption to have a significant transition effect.

11. Segments and Related Information

     On July 1, 2007, we reorganized our operations, which changed the configuration of our segments into the Connector, Transportation and Custom & Electrical segments. A summary of the segments follows:

• The Connector segment designs, manufactures and sells products for high-speed, high-density, high signal-integrity applications as well as fine-pitch, low-profile connectors for the consumer and commercial markets.

• The Transportation segment designs, manufactures and sells products that withstand environments such as heat, cold, dust, dirt, liquid and vibration for automotive and other transportation applications.

• The Custom & Electrical segment designs, manufactures and sells 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):

			Trans-		Custom &		Corporate
	Connector		portation		Electrical		& Other			Total
For the three months ended September 30, 2007:
Revenues from external customers	$	452,254	$	120,053	$	218,203	$	2,100		$	792,610
Income (loss) from operations		75,344		4,403		17,058		(23,919	)		72,886
Depreciation & amortization		38,192		9,941		8,943		3,897			60,973
Capital expenditures		29,076		9,517		3,187		7,364			49,144
For the three months ended September 30, 2006:
Revenues from external customers	$	496,012	$	105,269	$	222,113	$	6,151		$	829,545
Income (loss) from operations		109,358		123		19,747		(26,120	)		103,108
Depreciation & amortization		34,484		9,856		9,611		4,171			58,122
Capital expenditures		43,317		15,889		11,517		4,843			75,566

     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.

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

			Trans-		Custom &		Corporate
	Connector		portation		Electrical		& Other		Total
September 30, 2007	$	1,223,292	$	382,102	$	495,141	$	123,414	$	2,223,949
June 30, 2007		1,167,163		407,034		454,730		170,788		2,199,715

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

	Sept. 30,		June 30,
	2007		2007
Segment net assets	$	2,223,949	$	2,199,715
Other current assets		504,773		512,481
Non current assets		657,322		603,912
Consolidated total assets	$	3,386,044	$	3,316,108

     Amounts for the three months ended September 30, 2006 and as of June 30, 2007, were recast to conform to the new organization structure. The recast data required the use of judgment in determining certain allocations of expense related to manufacturing facilities and administrative services that are shared between segments.

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Molex Incorporated

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

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

     The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and accompanying notes contained herein and our consolidated financial statements and accompanying notes and management’s discussion and analysis of results of operations and financial condition contained in our Annual Report on Form 10-K for the fiscal year ended June 30, 2007. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those described below under the heading “Cautionary Statement Regarding Forward-Looking Information.”

Overview

     Our core business is the manufacture and sale of electromechanical components. Our products are used by a large number of leading original equipment manufacturers (OEMs) throughout the world. We design, manufacture and sell more than 100,000 products including terminals, connectors, planar cables, cable assemblies, interconnection systems, backplanes, integrated products and mechanical and electronic switches in 59 plants in 19 countries. We also provide manufacturing services to integrate specific components into a customer’s product.

     On July 1, 2007, we reorganized our operations, which changed the configuration of our segments into the Connector, Transportation and Custom & Electrical segments. A summary of the segments follows:

• The Connector segment manufactures and sells products for high-speed, high-density, high signal-integrity applications as well as fine-pitch, low-profile connectors for the consumer and commercial markets.

• The Transportation segment manufactures and sells products that withstand environments such as heat, cold, dust, dirt, liquid and vibration for automotive and other transportation applications.

• The Custom & Electrical segment manufactures and sells 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.

     In connection with our reorganization, we undertook a multi-year restructuring plan in fiscal 2007 designed to reduce costs and to improve return on invested capital. A majority of the plan relates to the movement of manufacturing activities within facilities located in North America and Europe and activities from North America and Europe to Asia. A portion of this plan involves cost savings or other actions that do not result in incremental expense, such as better utilization of assets, reduced spending and organizational efficiencies. This plan includes headcount reduction targets throughout the company, and we expect to achieve these targets through ongoing employee attrition and terminations.

     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, manage rising raw material costs, develop, manufacture and

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successfully market new and enhanced products and product lines, control operating costs, and attract, motivate and retain key personnel to manage our operational, financial and management information systems.

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.

     Except for the July 1, 2007 accounting change described below, the information concerning our critical accounting policies can be found under Management’s Discussion of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended June 30, 2007 filed with the Securities and Exchange Commission, which is incorporated by reference in this Form 10-Q.

Income Taxes

     As a result of the implementation of Financial Accounting Standards Board (FASB) interpretation No. 48, “Accounting for the Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” (FIN 48), effective July 1, 2007, we recognize liabilities for uncertain tax positions based on the two-step process prescribed within the interpretation. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step requires us to estimate and measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts, as this requires us to determine the probability of various possible outcomes. We re-evaluate these uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit and new audit activity. Such a change in recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision in the period.

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Results of Operations

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

			Percentage					Percentage
	2007		of Revenue			2006		of Revenue
Net revenue	$	792,610		100.0	%	$	829,545		100.0	%
Cost of sales		556,460		70.2	%		560,136		67.5	%
Gross profit		236,150		29.8	%		269,409		32.5	%
Selling, general & administrative		160,635		20.3	%		166,301		20.1	%
Restructuring costs and asset impairments		2,629		0.3	%		—		—
Income from operations		72,886		9.2	%		103,108		12.4	%
Other income, net		3,262		0.4	%		3,897		0.5	%
Income before income taxes		76,148		9.6	%		107,005		12.9	%
Income taxes		22,844		2.9	%		30,504		3.7	%
Net income	$	53,304		6.7	%	$	76,501		9.2	%

Net Revenue

     We sell our products in five primary markets. The estimated change in revenue from each market during the first fiscal quarter of 2008 compared with the same quarter last year (Comparable Quarter) and the fourth quarter of 2007 (Sequential Quarter) follows:

	Comparable			Sequential
	Quarter			Quarter
Consumer		(6.5	)%		7.7	%
Telecommunications		(15.7	)		3.5
Automotive		9.9			(4.8	)
Data		(7.9	)		5.7
Industrial		3.2			(10.3	)

     The decline in revenue from the prior year in telecommunications was due to a strong prior year quarter combined with a sharp decline in the mobile phone market during the second half of fiscal 2007. In fact, the decline in the mobile phone market was the primary reason for the decline in consolidated net revenue for the first fiscal quarter of 2008 compared with the same quarter last year. Sequentially, net revenue improved in the mobile phone market. We also experienced declines in the consumer and data markets during the second half of fiscal 2007 that improved sequentially, particularly in the disk drive and storage networking areas. The comparable quarter increase in revenue from the industrial market was primarily due to the full quarter effect of the acquisition of Woodhead Industries, Inc. (Woodhead) on August 9, 2006.

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

	Three Months Ended
	September 30,
	2007			2006
Americas		29	%		28	%
Northern Asia		14			15
Southeast Asia and Australia		38			39
Europe		19			18
Total		100	%		100	%

     The general weakening of the U.S. dollar increased revenue by approximately $15.9 million for the three months ended September 30, 2007 over 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, 2007
	Local			Currency			Net
	Currency			Translation			Change
Americas	$	1,011		$	477		$	1,488
Northern Asia		(7,377	)		(3,549	)		(10,926	)
Southeast Asia and Australia		(34,164	)		8,863			(25,301	)
Europe		(9,110	)		10,062			952
Corporate & other		(3,148	)		—			(3,148	)
Net change	$	(52,788	)	$	15,853		$	(36,935	)

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

	Three Months
	Ended
	Sept. 30, 2007
Americas		0.4	%
Northern Asia		(6.1	)
Southern Asia and Australia		(10.5	)
Europe		(5.9	)
Total		(6.4	)

     The following table sets forth information on revenue by segment as of September 30 (in thousands):

			Percentage					Percentage
	2007		of Revenue			2006		of Revenue
Connector	$	452,254		57.1	%	$	496,012		59.8	%
Transportation		120,053		15.1			105,269		12.7	%
Custom & Electrical		218,203		27.5			222,113		26.8	%
Corporate & other		2,100		0.3			6,151		0.7	%
Total	$	792,610		100.0	%	$	829,545		100.0	%

Gross Profit

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

	2007			2006
Gross profit	$	236,150		$	269,409
Gross margin		29.8	%		32.5	%

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     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):

	2007
Price erosion	$	(37,205	)
Currency translation		4,859
Currency transaction		7,007

     The reduction in gross margin was primarily due to lower revenue resulting in a higher fixed manufacturing cost ratio. Price erosion also had a significant negative impact on gross margin, occurring primarily in the Connector segment. In addition, the shift in mix from higher margin telecommunications business to lower margin automotive business, and increased material costs for purchases of copper, plastics and gold, impacted gross margin.

     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 $7.0 million for the three months ended September 30, 2007 compared with the prior year period. These increases were primarily due to a general weakening of the U.S. dollar and Japanese yen against other currencies during the three months ended September 30, 2007.

Operating Expenses

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

	2007			2006
Selling, general and administrative	$	160,635		$	166,301
Selling, general and administrative as a percentage of revenue		20.3	%		20.1	%
Restructuring costs and asset impairments	$	2,629		$	—

     Selling, general and administrative expenses for the three months ended September 30, 2007 increased slightly as a percent of net revenue over the prior year quarter primarily due to the impact of fixed selling, general and administrative costs on lower revenue in the current quarter. The impact of currency translation increased selling, general and administrative expenses by approximately $3.1 million for the three months ended September 30, 2007.

     Research and development expenditures, which are classified as selling, general and administrative expense, were approximately 5.0% of net revenue for the first quarter of fiscal 2008 and 2007.

     During fiscal 2007, we undertook a restructuring plan designed to reduce costs and to improve return on invested capital in connection with a new global organization that was effective July 1, 2007. A majority of the plan relates to facilities located in the Americas and European regions, and, in general, the movement of manufacturing activities at these plants to other facilities. We expect to incur restructuring and asset impairment costs related to these actions ranging from $100 - - $125 million, of which the impact on each region will be determined as the actions become more certain. Management and the Board of Directors approved several actions related to this plan. A portion of this plan involves cost savings or other actions that do not result in incremental expense, such as better utilization of assets, reduced spending and organizational efficiencies. See Note 2 of the “Notes to the Condensed Consolidated Financial Statements” for further discussion.

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Effective Tax Rate

     The effective tax rate was 30.0% and 28.5%, respectively, for the three months ended September 30, 2007 and 2006. The effective tax rates represent estimates of the full year effective tax rate.The effective tax rate for the first quarter of fiscal 2008 is higher than the prior year period due to our anticipation of greater earnings during fiscal year 2008 in countries with tax rates that are higher relative to the fiscal year 2007 earnings mix.

Backlog

     Our order backlog on September 30, 2007 was approximately $353.3 million compared with $425.3 million at September 30, 2006. Orders for the three months ended September 30, 2007 were $811.5 million compared with $864.6 million for the prior year period.

Segments

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, 2007
Change in net revenue due to:
Total net revenue growth (decline)	$	(43,759	)
Currency translation		(6,713	)
Organic net revenue growth (decline)	$	(50,472	)
Organic net revenue growth (decline) percentage		(10.2	)%

     The Connector segment sells primarily to the telecommunication, data products and consumer markets. Segment revenue decreased in the first quarter of fiscal 2008 as compared with the prior year quarter primarily due to a sharp decline in revenue from mobile phone customers. Revenue from mobile phone customers was strong in early fiscal 2007 but then declined during the second half of the year. Sequentially, net revenue for the first quarter of fiscal 2008 improved in the mobile phone market. While the majority of issues in the mobile phone sector were customer specific, the overall sector is currently being driven by growth in entry level phones that have lower functionality and connector content, resulting in lower demand for our products. We believe this is the result of initial demand in developing economies, and that these large markets will eventually transition to more sophisticated higher connector content devices.

     The Connector segment was also negatively impacted by price erosion, particularly in the mobile phone business. Significant price erosion impacted our mobile phone business beginning in the second quarter of fiscal 2007, which negatively impacts revenue in the first quarter of fiscal 2008 when compared with the first quarter of fiscal 2007.

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

	Three Months Ended
	September 30,
	2007			2006
Income from operations	$	75,344		$	109,358
Operating margin		16.5	%		21.8	%

     Connector segment operating income was lower in the first quarter of fiscal 2008 as compared with the prior year period due to lower revenue and higher depreciation expense, offset by lower selling, general and administrative expense. Selling, general and administrative expense was lower in the current quarter due to restructuring activities that began in June 2007 and specific cost containment activities.

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Transportation

     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, 2007
Change in net revenue due to:
Total net revenue growth	$	14,784
Currency translation		(2,997	)
Organic net revenue growth	$	11,787
Organic net revenue growth percentage		11.2	%

     Transportation segment revenue increased in the first quarter of fiscal 2008 due to an increase in revenue of our standard products to traditional customers. We believe that the volume of automobiles manufactured by our customers during the first quarter of fiscal 2008 is lower than the volume in the same period last year; however, our customers have trended toward reducing their vendor list, resulting in an increase in our market share.

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

	Three Months Ended
	September 30,
	2007			2006
Income from operations	$	4,403		$	123
Operating margin		3.6	%		0.1	%

     Segment operating income increased in the first quarter of fiscal 2008 as compared with the same period last year due to the increase in revenue, a more efficient use of capacity in fiscal 2008 and cost reductions in connection with the restructuring activities that began in June 2007. Capacity utilization improved due to completion of the transition of manufacturing operations that was ongoing during the first quarter of fiscal 2007.

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, 2007
Change in net revenue due to:
Total net revenue growth (decline)	$	(3,910	)
Currency translation		(6,419	)
Organic net revenue growth (decline)	$	(10,329	)
Organic net revenue growth (decline) percentage		(4.7	)%

     Custom and Electrical segment revenue declined in the first quarter of fiscal 2008 due to a non-recurring large order for a cable assembly product that we shipped in the first quarter of fiscal 2007. Demand for that cable assembly product was lower during the first quarter of fiscal 2008 due to product enhancements being made by our customer. The revenue decrease was partially offset by the full-quarter effect from the acquisition of Woodhead, which we have integrated into our existing operations. The acquisition of Woodhead on August 9, 2006, had a partial quarter effect on operating results for the first quarter of fiscal 2007, contributing net revenue of $33.5 million and operating income of $1.0 million.

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

	Three Months Ended
	September 30,
	2007			2006
Income from operations	$	17,058		$	19,747
Operating margin		7.8	%		8.8	%

     Segment operating income decreased due to the decrease in revenue and costs incurred to integrate the Woodhead operations and systems with Molex.

Non-GAAP Financial Measures

     Organic net revenue growth, which is included in the discussion above, is a non-GAAP financial measure. The difference between reported net revenue growth (the most directly comparable GAAP financial measure) and organic net revenue growth (the non-GAAP measure) consists of the impact from acquisitions and foreign currency exchange rates. Organic net revenue growth is a useful measure which we use to measure the underlying results and trends in our business. 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.

     We believe organic net revenue growth provides useful information to investors because it reflects the underlying growth from the ongoing activities of our business. Furthermore, it provides investors with a view of our operations from management’s perspective. We use organic net revenue growth to monitor and evaluate performance, as it is an important measure of the underlying results of our operations. Management uses organic net revenue growth together with GAAP measures such as net revenue growth and operating income in its decision making processes related to the operations of our reporting segments and our overall company. We believe that investors benefit from having access to the same financial measures that management uses in evaluating operations. The discussion and analysis of organic net revenue growth in Results of Operations above utilizes organic net revenue growth as management does internally. Because organic net revenue growth calculations may vary among other companies, organic net revenue growth amounts presented above may not be comparable with similarly titled measures of other companies. Organic net revenue growth is a non-GAAP financial measure that is not meant to be considered in isolation or as a substitute for GAAP measures. The limitation of this measure is that it excludes items that have an impact on our net sales. This limitation is best addressed by using net revenue growth in combination with our U.S. GAAP net revenue. The tables presented in Results of Operations above provide reconciliations of U.S. GAAP reported net revenue growth to organic net revenue growth.

Financial Condition and Liquidity

     Our financial position remains relatively strong and we continue to fund capital projects and working capital needs principally out of operating cash flows and cash reserves. Cash, cash equivalents and marketable securities totaled $447.3 million and $460.9 million at September 30, 2007 and June 30, 2007, 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 strong balance sheet with debt financing. We believe that our liquidity and financial flexibility are adequate to support both current and future growth. Long-term debt at September 30, 2007 totaled $135.6 million.

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Cash Flows

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

	Three Months Ended
	September 30,
	2007			2006
Cash provided from operating activities	$	145,101		$	36,768
Cash used for investing activities		(59,615	)		(173,023	)
Cash (used for) provided by financing activities		(76,281	)		137,987
Effect of exchange rate changes on cash		7,815			(226	)
Net increase in cash	$	17,020		$	1,506

Operating Activities

     Cash provided from operating activities increased by $108.3 million from the prior year period due mainly to lower use of funds to finance working capital needs in the current year period compared with the prior year. This working capital decrease was primarily due to the revenue decline for the three months ended September 30, 2007 compared with the prior year period. Working capital is defined as current assets minus current liabilities.

Investing Activities

     Acquisitions completed during the quarter totaled $42.1 million compared with the prior year acquisition of Woodhead for $236.6 million. Capital expenditures were $49.1 million for the three months ended September 30, 2007 compared with $75.6 million in the prior year period. Capital expenditures for the three months ended September 30, 2007 were primarily related to construction of a new plant in China and increasing capacity in other Asian entities.

Financing Activities

     On August 10, 2007 our Board of Directors authorized the repurchase of up to an aggregate $200.0 million of common stock though June 30, 2008. Approximately $139.5 million was remaining under the authorization as of September 30, 2007. We purchased 2,440,000 shares of Common Stock and Class A Common Stock during the three months ended September 30, 2007, at an aggregate cost of $60.5 million and 162,500 shares of Common Stock and Class A Common Stock during the three months ended September 30, 2006, at an aggregate cost of $5.0 million. We use shares repurchased to replenish stock used for exercises of employee stock options, employee stock awards and our Employee Stock Purchase Plan.

     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.

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, 2007. 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, 2007 arising outside of the ordinary course of business.

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Cautionary Statement Regarding Forward-Looking Information

     This Quarterly Report contains forward-looking statements that are based on current expectations, estimates, forecasts and projections about our future performance, our business, our beliefs, and our management’s assumptions. In addition, we, or others on our behalf, may make forward-looking statements in press releases or written statements, or in our communications and discussions with investors and analysts in the normal course of business through meetings, web casts, phone calls, and conference calls. Words such as “expect,” “anticipate,” “outlook,” “forecast,” “could,” “project,” “intend,” “plan,” “continue,” “believe,” “seek,” “estimate,” “should,” “may,” “assume,” variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties, and assumptions that are difficult to predict. We describe our respective risks, uncertainties, and assumptions that could affect the outcome or results of operations in Part 1, Item 1A of our Annual Report on Form 10-K for the year ended June 30, 2007 (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 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.

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 establishment of contra-currency accounts in several international subsidiaries, and the development of natural hedges and use of foreign exchange contracts to protect or preserve the value of cash flows. No material foreign exchange contracts were in use at September 30, 2007 or 2006.

     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 and net receivable and payable balances.

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     The translation of the financial statements of the non-North American 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 $15.9 million and increased income from operations of $1.7 million for the three months ended September 30, 2007, compared with the estimated results for the comparable period in the prior year.

     Our $51.9 million of marketable securities at September 30, 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. We do not actively manage the risk of interest rate fluctuations. However, such risk is mitigated by the relatively short-term nature 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 are not subject to significant concentration risks relating to customers or products.

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

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures  

     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 September 30, 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 September 30, 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.

PART II

Item 1. Legal Proceedings

     The Commission 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.

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     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.

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.

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

     On August 13, 2007, our Board of Directors authorized the purchase of up to $200.0 million of Common Stock and/or Class A Common Stock during the period ending June 30, 2008. This authorization replaces the Company’s prior authorization which was to expire September 30, 2007 and had a remaining balance of $15.2 million. Share purchases of Molex Common and/or Class A Common Stock for the quarter ended September 30, 2007 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		23	$	27.02		—
August 1 – August 31
Common Stock		300	$	25.77		300
Class A Common Stock		812	$	23.81		775
September 1 – September 30
Common Stock		200	$	26.28		200
Class A Common Stock		1,167	$	25.00		1,165
Total		2,502	$	24.83		2,440

     As of September 30, 2007, the dollar value of shares that may yet be purchased under the plan was $139.5 million.

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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: November 2, 2007	/s/ DAVID D. JOHNSON
	David D. Johnson
	Executive Vice President, Treasurer and
	Chief Financial Officer
	(Principal Financial Officer)

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