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  • 10-K (Aug 5, 2009)
  • 10-K (Aug 6, 2008)

 
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8-K

 
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Molex 10-K 2008
e10vk
Table of Contents

 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
 
Form 10-K
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2008
 
Commission File Number 0-7491
 
 
 
 
(Exact name of registrant as specified in its charter)
 
     
Delaware
  36-2369491
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)
 
2222 Wellington Court, Lisle, Illinois 60532
(Address of principal executive offices)
Registrant’s telephone number, including area code:
(630) 969-4550
 
 
 
 
 
     
Title of Each Class
 
Name of Each Exchange on Which Registered
 
Common Stock, par value $0.05
  The Nasdaq Stock Market, Inc.
Class A Common Stock, par value $0.05
  The Nasdaq Stock Market, Inc.
 
 
 
 
 
Indicate by check mark of the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes þ     No o
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o     No þ
 
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 o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  þ
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
             
Large accelerated filer þ
  Accelerated filer o   Non-accelerated filer o
(Do not check if a smaller reporting company)
  Smaller reporting company o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes o     No þ
 
On July 31, 2008, the following numbers of shares of the Company’s common stock were outstanding:
 
         
Common Stock
    98,451,858  
Class A Common Stock
    78,977,871  
Class B Common Stock
    94,255  
 
The aggregate market value of the voting and non-voting shares (based on the closing price of these shares on the NASDAQ Global Select Market on December 31, 2007) held by non-affiliates was approximately $3.7 billion.
 
 
Portions of the Proxy Statement for the Annual Meeting of Stockholders, to be held on October 31, 2008 are incorporated by reference into Part III of this annual report on Form 10-K.
 


 

 
 
                 
        Page
 
      Business     3  
      Risk Factors     12  
      Unresolved Staff Comments     18  
      Properties     18  
      Legal Proceedings     18  
      Submission of Matters to a Vote of Security Holders     18  
 
PART II
      Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities     18  
      Selected Financial Data     21  
      Management’s Discussion and Analysis of Financial Condition and Results of Operations     22  
      Quantitative and Qualitative Disclosures About Market Risk     37  
      Financial Statements and Supplementary Data     39  
      Changes in and Disagreements with Accountants on Accounting Financial Disclosure     71  
      Controls and Procedures     71  
      Other Information     72  
 
PART III
      Directors, Executive Officers and Corporate Governance     72  
      Executive Compensation     72  
      Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters     73  
      Certain Relationships and Related Transactions, and Director Independence     73  
      Principal Accountant Fees and Services     73  
 
PART IV
      Exhibits and Financial Statement Schedules     73  
        Schedule II — Valuation and Qualifying Accounts     74  
        Index to Exhibits     75  
        Signatures     76  
 2005 Molex Supplemental Executive Retirement Plan
 Molex Executive Deferred Compensation Plan
 Summary of Non-Employee Director Compensation
 Form of Stock Option Agreement
 Form of Restricted Stock Agreement
 Subsidiaries
 Consent of Ernst & Young, LLP
 Certification of CEO Pursuant to Section 302
 Certification of CFO Pursuant to Section 302
 Certification of CEO Pursuant to Section 906
 Certification of CFO Pursuant to Section 906
 
 
We make available through our web site at www.molex.com our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with the Securities and Exchange Commission (SEC).
 
Information relating to corporate governance at Molex, including our Code of Business Conduct and Ethics, information concerning executive officers, directors and Board committees (including committee charters), and transactions in Molex securities by directors and officers, is available on or through our web site at www.molex.com under the “Investors” caption.
 
We are not including the information on our web site as a part of, or incorporating it by reference into, this annual report on Form 10-K.


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Item 1.   Business
 
Molex Incorporated (together with its subsidiaries, except where the context otherwise requires, “we,” “us” and “our”) was incorporated in the state of Delaware in 1972 and originated from an enterprise established in 1938.
 
We are the world’s second-largest manufacturer of electronic connectors in terms of revenue. Net revenue was $3.3 billion for fiscal 2008. We operated 45 manufacturing locations located in 17 countries, and employed 32,160 people worldwide as of June 30, 2008.
 
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. We also provide manufacturing services to integrate specific components into a customer’s product.
 
 
The global connector industry is highly competitive and fragmented and is estimated to represent approximately $46 billion in revenue for fiscal 2008. The industry has grown at a compounded annual rate of 6.1% over the past 25 years and is expected to grow at a rate of 7.3% in calendar year 2008.
 
The connector industry is characterized by rapid advances in technology and new product development. These advances have been substantially driven by the increased functionality of applications in which our products are used. Although many of the products in the connector market are mature products, some with 25-30 year life spans, there is also a constant demand for new product solutions.
 
Industry trends that we deem particularly relevant include:
 
  •  Globalization.  Synergistic opportunities exist for the industry to design, manufacture and sell electronic products in different countries around the world in an efficient and seamless process. For example, electronic products may be designed in Japan, manufactured in China, and sold in the United States.
 
  •  Convergence of markets.  Traditionally separate markets such as consumer electronics, data products and telecommunications are converging, resulting in single devices offering broad-based functionality.
 
  •  Increasing electronics content.  Consumer demand for advanced product features, convenience and connectivity is driving connector growth at rates faster than the growth rates of the underlying electronics markets.
 
  •  Product size reduction.  High-density, micro-miniature technologies are expanding to markets such as data and mobile phones, leading to smaller devices and greater mobility.
 
  •  Consolidating supply base.  Generally, global OEMs are consolidating their supply chain by selecting global companies possessing broad product lines for the majority of their connector requirements.
 
  •  Price erosion.  As unit volumes grow, production experience is accumulated and costs decrease, and as a result, prices decline.


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The approximate percentage of our net revenue by market for fiscal 2008 is summarized below:
 
                 
      Percentage of Fiscal 2008
      Primary End Use Products
 Markets     Net Revenue       Supported by Molex
Telecommunications
      26 %     Mobile phones and devices, networking equipment, switches and transmission equipment
                 
Data Products
      22 %     Desktop and notebook computers, peripheral equipment, servers, storage, copiers, printers and scanners
                 
Automotive
      18 %     Engine control units, body electronics, safety electronics, sensors, panel instrumentation and other automotive electronics
                 
Consumer
      18 %     Digital electronics, CD and DVD players, cameras, plasma and LCD televisions, electronic games and major appliances
                 
Industrial
      13 %     Factory automation, robotics, automated test equipment, vision systems and diagnostic equipment
                 
Other
      3 %     Electronic and electrical devices for a variety of markets
                 
 
Telecommunications.  In the telecommunications market, we believe our key strengths include high speed optical signal product lines, backplane connector systems, power distribution product, micro-miniature connectors, global coordination and complementary products such as keyboards and antennas.
 
For mobile phones, we provide micro-miniature connectors, SIM card sockets, keypads, electromechanical subassemblies and internal antennas and subsystems. An area of particular innovation is high-speed backplanes and cables for infrastructure equipment. For example, our Plateau HS DockTM incorporates a new plated plastic technology to increase bandwidth, reduce crosstalk and control impedance in applications such as telecommunication routers.
 
Data Products.  In the data market, our key strengths include our high-speed signal product line, storage input/output (I/O) products; standards committee leadership, global coordination, low cost manufacturing and strong relationships with OEMs, contract manufacturers and original design manufacturers.
 
We manufacture power, optical and signal connectors and cables for fast end-to-end data transfer, linking disk drives, controllers, servers, switches and storage enclosures. Our ongoing involvement in industry committees contributes to the development of new standards for the connectors and cables that transport data. For example, our family of small form-factor pluggable products offers end-users both fiber optic and copper connectivity and more efficient storage area network management.
 
We hold a strong position with connectors used in servers, the segment of this market that accounts for the largest volume of connector purchases. We offer a large variety of products for power distribution, signal integrity, processor and memory applications. We are also a leading designer in the industry for storage devices.


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Our Serial ATA product enables higher-speed communication between a computer’s disk drive and processor. In addition, our product portfolio includes a wide range of interconnect devices for copiers, printers, scanners and projectors.
 
Automotive.  In the automotive market, we believe our strengths include new product development expertise, entertainment, safety and convenience product features, technical skills and integrated manufacturing capabilities.
 
Our interconnects are used in air bag, seatbelt and tire pressure monitoring systems and powertrain, window and temperature controls. Today’s cars are mobile communication centers, complete with navigation tools and multimedia entertainment. Our Media Oriented System Transport (MOST) connector system uses plastic optical fiber to transmit audio, video and data at high speeds in devices such as CD and DVD players.
 
Consumer.  In the consumer market, we believe our key strengths include optical and micro-miniature connector expertise, breadth of our high wattage (power) product line, cable and wire application equipment and low cost manufacturing.
 
We design and manufacture many of the world’s smallest connectors for home and portable audio, digital still and video cameras, DVD players and recorders, as well as devices that combine multiple functions. Our super micro-miniature products support customer needs for increased power, speed and functionality but with decreased weight and space requirements. We believe that they provide industry leadership with advanced interconnection products that help enhance the performance of video and still cameras, DVD players, portable music players, PDAs and hybrid devices that combine multiple capabilities into a single unit.
 
We are a leading connector source and preferred supplier to some of the world’s largest computer game makers and have been awarded contracts that demonstrate our skill in designing innovative connectors. In addition, we provide products for video poker and slot machines. Pachinko machines, which are popular in Japan, use our compact 2.00mm pitch MicroClaspTM connector, which features an inner lock that helps on-site installers easily insert new game boards.
 
Industrial.  In the industrial market, we believe our key strengths include optical and micro-miniature connector expertise, breadth of our power and signal product lines, distribution partnerships and global presence.
 
Our high-performance cables, backplanes, power connectors and integrated products are found in products ranging from electronic weighing stations to industrial microscopes and vision systems. Advances in semiconductor technology require comparable advances in equipment to verify quality, function and performance. For this reason, we developed our Very High-Density Metric (VHDM) connector system to help assure signal integrity and overall reliability in high-speed applications such as chip testers.
 
We increased our presence in the electrical and factory automation market in fiscal 2007 with the acquisition of Woodhead Industries. As a result, we have extended our industrial product line to include industrial networks and connectivity as well as industrial communications, both electronics and software. In addition, we expanded our line of compact robotic connectors and I/O connectors for servo motors, as well as identified factory uses for the time-tested products we have developed for other industries.
 
Other.  Medical electronics is a growing market for our connectors, switch and assembly products. We provide both connectors and custom integrated systems for diagnostic and therapeutic equipment used in hospitals including x-ray, magnetic resonance imaging (MRI) and dialysis machines. Military electronics is also one of our emerging markets. We have found a range of electronic applications for our products in the commercial-off-the-shelf (COTS) segment of this market. Products originally developed for the computer, telecommunications and automotive markets can be used in an increasing number of military applications.


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One of our primary business objectives is to develop or improve our leadership position in each of our core connector markets by increasing our overall position as a preferred supplier and improve our competitiveness on a global scale.
 
We believe that our success in achieving industry-leading revenue growth throughout our history is the result of the following key strengths:
 
  •  Broad and deep technological knowledge of microelectronic devices and techniques, power sources, coatings and materials;
 
  •  Strong intellectual property portfolio that underlies many key products;
 
  •  High product quality standards, backed with stringent systems designed to ensure consistent performance, that meet or surpass customers’ expectations;
 
  •  Strong technical collaboration with customers;
 
  •  Extensive experience with the product development process;
 
  •  Broad geographical presence in developed and developing markets;
 
  •  Continuous effort to develop an efficient, low-cost manufacturing footprint; and
 
  •  A broad range of products both for specific applications and for general consumption.
 
We intend to serve our customers and achieve our objectives by continuing to do the following:
 
  •  Concentrate on core markets.  We focus on markets where we have the expertise, qualifications and leadership position to sustain a competitive advantage. We have been an established supplier of interconnect solutions for almost 70 years. We are a principal supplier of connector components to the telecommunications, computer, consumer, automotive and industrial electronics markets.
 
  •  Grow through the development and release of new products.  We invest strategically in the tools and resources to develop and market new products and to expand existing product lines. New products are essential to enable our customers to advance their solutions and their market leadership positions. In fiscal 2008, we generated approximately 23% of our revenue from new products, which are defined as those products released in the last 36 months.
 
  •  Optimize manufacturing.  We analyze the design and manufacturing patterns of our customers along with our own supply chain economics to help ensure that our manufacturing operations are of sufficient scale and are located strategically to minimize production costs and maximize customer service.
 
  •  Leverage financial strength.  We use our expected cash flow from operations to invest aggressively in new product development, to pursue synergistic acquisitions, to align manufacturing capacity with customer requirements and to pursue productivity improvements. We invested approximately 12% of net revenue in capital expenditures and research and development activities in fiscal 2008.
 
On July 1, 2007 we implemented a new global organizational structure that consists of five product-focused divisions and one worldwide sales and marketing organization. The new structure enables us to work more effectively as a global team to meet customer needs as well as to better leverage our design expertise and our low-cost production centers around the world. The new worldwide sales and marketing organization structure enhances our ability to sell any product, to any customer, anywhere in the world.


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We compete with many companies in each of our product categories. These competitors include Amphenol Corporation, Framatome Connectors International, Hirose Electronic Co., Ltd, Hon Hai Precision Industry Co., Ltd., Japan Aviation Electronics Industry, Ltd., Japan Solderless Terminal Ltd. and Tyco Electronics Ltd. as well as a significant number of smaller competitors. The identity and significance of competitors may change over time. We believe that the 10 largest connector suppliers, as measured by revenue, represent approximately 54% of the worldwide market in terms of revenue. Many of these companies offer products in some, but not all, of the markets and regions we serve.
 
Our products compete to varying degrees on the basis of quality, price, availability, performance and brand recognition. We also compete on the basis of customer service. Our ability to compete also depends on continually providing innovative new product solutions and worldwide support for our customers.
 
 
We sell products directly to OEMs, contract manufacturers and distributors. Our customers include global companies such as Arrow, Cisco, Dell, Ford, General Motors, Hewlett Packard, IBM, Matsushita, Motorola and Nokia. No customer accounted for more than 10% of net revenues in fiscal 2008, 2007 or 2006.
 
Many of our customers operate in more than one geographic region of the world and we have developed a global footprint to service these customers. We are engaged in significant operations in foreign countries. Our net revenue originating outside the U.S. based on shipping point to the customer was approximately 73% in fiscal years 2008, 2007 and 2006.
 
In fiscal 2008, the share of net revenue from the different regions was approximately as follows:
 
  •  52% of net revenue originated in Asia-Pacific (China, Hong Kong, Indonesia, India, Malaysia, Philippines, Singapore, Taiwan and Korea, Japan and Thailand). Approximately 22% and 16% of net revenue in fiscal 2008 was derived from operations in China and Japan, respectively.
 
  •  28% of net revenue originated in the Americas.
 
  •  20% of net revenue originated in Europe.
 
Revenues from customers are generally attributed to countries based upon the location of our sales office. Most of our sales in international markets are made by foreign sales subsidiaries. In countries with low sales volumes, sales are made through various representatives and distributors.
 
We sell our products primarily through our own sales organization with a presence in most major connector markets worldwide. To complement our own sales force, we work with a network of distributors to serve a broader customer base and provide a wide variety of supply chain tools and capabilities. Sales through distributors represented approximately 25% of our net revenue in fiscal 2008.
 
We seek to provide customers one-to-one service tailored to their business. Our engineers work collaboratively with customers, often with an innovative online design system, to develop products for specific applications. We provide customers the benefit of state-of-the-art technology for engineering, design and prototyping, supported from 25 development centers in 15 countries. In addition, most customers have a single Molex customer service contact and a specific field salesperson to provide technical product and application expertise.
 
Our sales force around the world has access to our customer relationship management database, which integrates with our global information system to provide 24/7 visibility on orders, pricing, contracts, shipping, inventory and customer programs. We offer a self-service environment for our customers through our web site at www.molex.com, so that customers can access our entire product line, download drawings or 3D models, obtain price quotes, order samples and track delivery.


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Information regarding our operations by operating segment appears in Note 18 of the Notes to Consolidated Financial Statements. A discussion of market risk associated with changes in foreign currency exchange rates can be found in Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
 
We remain committed to investing in world-class technology development, particularly in the design and manufacture of connectors and interconnect systems. Our research and development activities are directed toward developing technology innovations, primarily high speed signal integrity, miniaturization, higher power delivery, optical signal delivery and sealed harsh environment connectors that we believe will deliver the next generation of products. We continue to invest in new manufacturing processes, as well as improve existing products and reduce costs. We believe that we are well positioned in the technology industry to help drive innovation and promote industry standards that will yield innovative and improved products for customers.
 
We incurred total research and development costs of $164 million in fiscal 2008, $159 million in fiscal 2007 and $141 million in fiscal 2006. We believe this investment, approximating 5% of net revenue, is among the highest level relative to the largest participants in the industry and helps us achieve a competitive advantage.
 
We strive to provide customers with the most advanced interconnection products through intellectual property development and participation in industry standards committees. Our engineers are active in approximately 70 such committees, helping give us a voice in shaping the technologies of the future. In fiscal 2008, we commercialized approximately 239 new products and received 539 patents.
 
We perform a majority of our design and development of connector products in the U.S. and Japan, but have additional product development capabilities in various locations, including China, Germany, India, Ireland, Korea and Singapore.
 
 
Our core manufacturing expertise includes molding, stamping, plating and assembly operations. We utilize state of the art plastic injection molding machines and metal stamping and forming presses. We have created new processes to meet the ongoing challenge of manufacturing smaller and smaller connectors. We have also developed proprietary plated plastic technology, which provides excellent shielding performance while eliminating secondary manufacturing processes in applications such as mobile phone antennas.
 
We also have expertise in printed circuit card, flexible circuit and harness assembly for our integrated products operations, which build devices that leverage our connector content. Because integrated products require labor-intensive assembly, we operate low-cost manufacturing centers in China, India, Malaysia, Mexico, Poland, Slovakia and Thailand.
 
We continually look for ways to reduce our manufacturing costs as we increase capacity, resulting in a trend of fewer but larger factories. We achieved economies of scale and higher capacity utilization while continuing to assure on-time delivery.
 
We incurred total capital expenditures of $234.6 million in 2008, $296.9 million in 2007 and $276.8 million in 2006, which was primarily related to increasing manufacturing capacity.
 
 
The principal raw materials that we purchase for the manufacture of our products include plastic resins for molding, metal alloys (primarily copper based) for stamping and gold and palladium salts for use in the plating process. We also purchase molded and stamped components and connector


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assemblies. Most materials and components used in our products are available from several sources. To achieve economies of scale, we concentrate purchases from a limited number of suppliers, and therefore in the short term may be dependent upon certain suppliers to meet performance and quality specifications and delivery schedules. We anticipate that our raw material expenditures as a percentage of sales may increase due to growth in our integrated products business and increases in certain commodity costs.
 
 
The backlog of unfilled orders at June 30, 2008 was approximately $436.5 million compared with backlog of $332.5 million at June 30, 2007. Substantially all of these orders are scheduled for delivery within 12 months. The majority of orders are shipped within 30 days of acceptance.
 
We do not believe that aggregate worldwide sales reflect any significant degree of seasonality.
 
 
As of June 30, 2008, we employed approximately 32,160 people worldwide. We believe we have been successful in attracting and retaining qualified personnel in highly competitive labor markets due to our competitive compensation and benefits as well as our rewarding work environment. We consider our relations with our employees to be strong.
 
We are committed to employee development and place a high priority on developing Molex leaders of the future through training at all levels. This includes on-the-job and online learning, as well as custom initiatives such as our two-year, in-house global management training program.
 
 
Our strategy to provide a broad range of connectors requires a wide variety of technologies, products and capabilities. The rapid pace of technological development in the connector industry and the specialized expertise required in different markets make it difficult for a single company to organically develop all of the required products. Though a significant majority of our growth has come from internally developed products, we will seek to make future acquisitions or investments where we believe we can stimulate the development of, or acquire, new technologies and products to further our strategic objectives and strengthen our existing businesses.
 
On July 19, 2007, we completed the acquisition of a U.S.-based company in an all cash transaction approximating $42.5 million. We recorded goodwill of $23.9 million in connection with this acquisition. The purchase price allocation for this acquisition is substantially complete.
 
On August 9, 2006, we completed the acquisition of Woodhead Industries, Inc. (Woodhead) in an all cash transaction valued at approximately $238.1 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 was a significant step in our strategy to expand our products and capabilities in the global industrial market.
 
 
Patents, trade secrets and trademarks and other proprietary rights are important to our business. We review third-party proprietary rights in an effort to develop an effective intellectual property strategy, avoid infringement of third-party proprietary rights, identify licensing opportunities, and monitor the intellectual property claims of others. We own an extensive portfolio of U.S. and foreign patents and trademarks and are a licensee of various patents and trademarks. Patents for individual products extend for varying periods according to the date of patent filing or grant and the legal term of patents in the various countries where patent protection is obtained. Trademark rights may extent for longer periods of time and are dependent upon national laws and use of the trademarks. We believe


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that our intellectual property is important but do not consider ourselves materially dependent upon any single patent or group of patents.
 
 
We are committed to achieving high standards of environmental quality and product safety, and strive to provide a safe and healthy workplace for our employees, contractors and the communities in which we do business. We have environmental, health and safety (EHS) policies and disciplines that are applied to our operations. We closely monitor the environmental laws and regulations in the countries in which we operate and believe we are in compliance in all material respects with federal, state and local regulations pertaining to environmental protection.
 
Many of our worldwide manufacturing sites are certified to the International Organization for Standardization (ISO) 14001 environmental management system standard, which requires that a broad range of environmental processes and policies be in place to minimize environmental impact, maintain compliance with environmental regulations, and communicate effectively with interested stakeholders. Our ISO 14001 environmental auditing program includes not only compliance components, but also modules on business risk, environmental excellence and management systems. We have internal processes that focus on minimizing and properly managing hazardous materials used in our facilities and products. We monitor regulatory and resource trends and set short and long-term targets to continually improve our environmental performance.
 
The manufacture, assembly and testing of our products are subject to a broad array of laws and regulations, including restrictions on the use of hazardous materials. We have a program for compliance with the European Union RoHS and WEEE Directives, the China RoHS laws and similar laws.
 
 
Our executive officers are set forth in the table below.
 
                     
    Positions Held with Registrant
        Year
 
Name
 
During the Last Five Years
  Age     Employed  
 
Frederick A. Krehbiel(a)
  Co-Chairman (1999-); Chief Executive Officer (2004-2005); Co-Chief Executive Officer (1999-2001).     67       1965 (b)
John H. Krehbiel, Jr.(a)
  Co-Chairman (1999-); Co-Chief Executive Officer (1999-2001).     71       1959 (b)
Martin P. Slark
  Vice-Chairman and Chief Executive Officer (2005-); President and Chief Operating Officer (2001-2005); Executive Vice President (1999-2001).     53       1976  
Liam McCarthy
  President and Chief Operating Officer (2005-); Regional Vice President of Operations, Europe (2000-2005); Interim General Manager of Molex Ireland Ltd. (2002-2004).     52       1976  
David D. Johnson
  Executive Vice President, Treasurer and Chief Financial Officer (2005-); Vice President, Treasurer and Chief Financial Officer, Sypris Solutions, Inc. (1998-2005).     52       2005  


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    Positions Held with Registrant
        Year
 
Name
 
During the Last Five Years
  Age     Employed  
 
Graham C. Brock
  Executive Vice President (2005-) and President, Global Sales & Marketing Division (2006) and Regional President, Europe (2005-); Regional Vice President — Sales & Marketing, Europe (2000-2005).     54       1976  
James E. Fleischhacker
  Executive Vice President (2001-) and President, Global Transportation Products Division (2007); Corporate Vice President (1994-2001); Regional President, Asia Pacific South (1998-2001, 2003-2004).     64       1984  
Katsumi Hirokawa
  Executive Vice President (2005-) and President, Global Micro Products Division (2007). Positions at Molex Japan Co., Ltd.: President (2002-); Executive Vice President- Sales (2002-2002); Senior Director-Sales (1996-2002).     61       1995  
David B. Root
  Executive Vice President and President, Global Commercial Products Division (2007); Vice President and Regional President, Americas (2005-); Vice President, Sales Americas (2004-2005); President, Connector Products Division (2002-2004); President, Data Comm Division (2001-2002).     54       1982  
J. Michael Nauman
  Senior Vice President and President, Global Integrated Products Division (2007-); President, Integrated Products Division, Americas Region (2005-2007); President, High Performance Products Division, Americas Region (2004-2005); President, Fiber Optics Division, Americas Region (2003-2004); General Manager, High Performance Cable Assembly and Adapter Business Units (1999-2003).     46       1994  
Hans A. van Delft
  Senior Vice President and President, Global Automation & Electrical Products Division (2007-); President, Woodhead Group (2006-2007); Division Manager, General Products Division, Europe (2003-2006); Division Manager, Telecom Division (2001-2003); General Manager, Molex Singapore (1999-2000).     53       1987  
 
 
(a) John H. Krehbiel, Jr. and Frederick A. Krehbiel (the Krehbiel Family) are brothers. The members of the Krehbiel Family may be considered to be “control persons” of the Registrant. The other executive officers listed above have no relationship, family or otherwise, to the Krehbiel Family, the Registrant or each other.
 
(b) Includes period employed by our predecessor company.

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We have adopted a Code of Business Conduct and Ethics applicable to all employees, officers and directors. The Code of Business Conduct incorporates our policies and guidelines designed to deter wrongdoing and to promote honest and ethical conduct and compliance with applicable laws and regulations. We have also adopted a Code of Ethics for Senior Financial Management applicable to our chief executive officer, chief financial officer, chief accounting officer and other senior financial managers. The Code of Ethics sets out our expectations that financial management produce full, fair, accurate, timely and understandable disclosure in our filings with the SEC and other public communications. Molex intends to post any amendments to or waivers from the Codes on its web site.
 
The full text of these Codes is published on the investor relations page of our web site at www.molex.com.
 
Item 1A.   Risk Factors
 
 
This Annual Report on Form 10-K and other documents we file with the Commission contain 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 below.
 
We have based our forward looking statements on our management’s beliefs and assumptions based on information available to them 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 filing of this report, whether as a result of new information, future events, changes in assumptions, or otherwise.
 
 
You should carefully consider the risks described below. 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 following risks occur, our business, financial condition or operating results could be materially adversely affected.
 
 
We are dependent on the continued growth, viability and financial stability of our customers. Our customers generally are OEM’s in the telecommunications, data product, automotive, consumer, and industrial industries. These industries are subject to rapid technological change, vigorous competition and short product life cycles. When our customers are adversely affected by these factors, we may be similarly affected.


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Over the past several years we have experienced, and we expect to continue to experience, pressure to lower our prices. In the last three years, we have experienced price erosion averaging from 2.9% to 3.9%. In order to maintain our margins, we must continue to reduce our costs by similar amounts. There can be no assurance that continuing pressures to reduce our prices will not have a material adverse effect on our financial condition, results of operations and cash flows.
 
 
The cost and availability of certain commodity materials used to manufacture our products, such as plastic resins, copper-based metal alloys, gold and palladium salts, molded and stamped components and connector assemblies, is critical to our success. Volatility in the prices and shortages of such materials may result in increased costs and lower operating margins if we are unable to pass such increased costs through to our customers. From time to time, we use financial instruments to hedge the volatility of commodity material costs. The success of our hedging program depends on accurate forecast of transaction activity in the various commodity materials. To the extent that these forecasts are over or understated during periods of volatility, we could experience unanticipated commodity materials or hedge gains or losses.
 
 
Our markets are highly competitive and we expect that both direct and indirect competition will increase in the future. Our overall competitive position depends on a number of factors including the price, quality and performance of our products, the level of customer service, the development of new technology and our ability to participate in emerging markets. Within each of our markets, we encounter direct competition from other electronic components manufacturers and suppliers and competition may intensify from various U.S. and non-U.S. competitors and new market entrants, some of which may be our current customers. The competition in the future may, in some cases, result in price reductions, reduced margins or loss of market share, any of which could materially and adversely affect our business, operating results and financial condition. In addition, market factors could cause a decline in spending for the technology products manufactured by our customers.
 
 
We expect that a significant portion of our future revenue will continue to be derived from sales of newly introduced products. Rapidly changing technology, evolving industry standards and changes in customer needs characterize the market for our products. If we fail to modify or improve our products in response to changes in technology, industry standards or customer needs, our products could rapidly become less competitive or obsolete. We must continue to make investments in research and development in order to continue to develop new products, enhance existing products and achieve market acceptance for such products. However, there can be no assurance that development stage products will be successfully completed or, if developed, will achieve significant customer acceptance.
 
We may need to license new technologies to respond to technological change and these licenses may not be available to us on terms that we can accept or may materially change the gross profits that we are able to obtain on our products. We may not succeed in adapting our products to new technologies as they emerge. Development and manufacturing schedules for technology products are difficult to predict, and there can be no assurance that we will achieve timely initial customer shipments of new products. The timely availability of these products in volume and their acceptance by customers are important to our future success.
 
 
The volume and timing of sales to our customers may vary due to: variation in demand for our customers’ products; our customers’ attempts to manage their inventory; design changes; changes in


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our customers’ manufacturing strategy; and acquisitions of or consolidations among customers. Due in part to these factors, many of our customers do not commit to long-term production schedules. Our inability to forecast the level of customer order with certainty makes it difficult to schedule production and maximize utilization of manufacturing capacity.
 
Our industry must provide increasingly rapid product turnaround for its customers. We generally do not obtain firm, long-term purchase commitments from our customers and we continue to experience reduced lead-times in customer orders. Customers may cancel their orders, change production quantities or delay production for a number of reasons and such actions could negatively impact our operating results. In addition, we make significant operating decisions based on our estimate of customer requirements. The short-term nature of our customers’ commitments and the possibility of rapid changes in demand for their products reduce our ability to accurately estimate the future requirements of those customers.
 
On occasion, customers may require rapid increases in production, which can stress our resources and reduce operating margins. In addition, because many of our costs and operating expenses are relatively fixed, a reduction in customer demand can harm our gross profit and operating results.
 

 
In the current economic climate, consolidation in industries that utilize electronics components may further increase as companies combine to achieve further economies of scale and other synergies. Consolidation in industries that utilize electronics components could result in an increase in excess manufacturing capacity as companies seek to divest manufacturing operations or eliminate duplicative product lines. Excess manufacturing capacity has increased, and may continue to increase, pricing and competitive pressures for our industry as a whole and for us in particular. Consolidation could also result in an increasing number of very large companies offering products in multiple industries. The significant purchasing power and market power of these large companies could increase pricing and competitive pressures for us.
 
 
Our customers compete in markets that are characterized by rapidly changing technology, evolving industry standards and continuous improvements in products and services. These conditions frequently result in short product life cycles. Our success will depend largely on the success achieved by our customers in developing and marketing their products. If technologies or standards supported by our customers’ products become obsolete or fail to gain widespread commercial acceptance, our business could be materially adversely affected. In addition, if we are unable to offer technologically advanced, cost effective, quick response manufacturing services to customers, demand for our products may also decline.
 
 
In response to changes in product mix, competitive pricing pressures, increased sales discounts, introductions of new competitive products, product enhancements by our competitors, increases in manufacturing or labor costs or other operating expenses, we may experience declines in prices, gross margins and profitability. To maintain our gross margins we must maintain or increase current shipment volumes, develop and introduce new products and product enhancements and reduce the costs to produce our products. If we are unable to accomplish this, our revenue, gross profit and operating results may be below our expectations and those of investors and analysts.


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The value of our inventory may decline as a result of surplus inventory, price reductions or technological obsolescence. We must identify the right product mix and maintain sufficient inventory on hand to meet customer orders. Failure to do so could adversely affect our revenue and operating results. However, if circumstances change (for example, an unexpected shift in market demand, pricing or customer defaults) there could be a material impact on the net realizable value of our inventory. We maintain an inventory valuation reserve account against diminution in the value or salability of our inventory. However, there is no guaranty that these arrangements will be sufficient to avoid write-offs in excess of our reserves in all circumstances.
 
 
Currently, more than 70% of our revenues come from international sales. In addition, a significant portion of our operations consists of manufacturing and sales activities outside of the U.S. Our ability to sell our products and conduct our operations globally is subject to a number of risks. Local economic, political and labor conditions in each country could adversely affect demand for our products and services or disrupt our operations in these markets. We may also experience reduced intellectual property protection or longer and more challenging collection cycles as a result of different customary business practices in certain countries where we do business. Additionally, we face the following risks:
 
  •  International business conditions including the relationships between the U.S., Chinese and other governments;
 
  •  Unexpected changes in laws, regulations, trade, monetary or fiscal policy, including interest rates, foreign currency exchange rates and changes in the rate of inflation in the U.S., China or other foreign countries;
 
  •  Tariffs, quotas and other import or export restrictions and other trade barriers;
 
  •  Difficulties in staffing and management;
 
  •  Language and cultural barriers; and
 
  •  Potentially adverse tax consequences.
 
Many of our products that are manufactured outside of the United States are manufactured in Asia. In particular, we have sizeable operations in China. The legal system in China is still developing and is subject to change. Accordingly, our operations and orders for products in China could be adversely affected by changes to or interpretation of Chinese law.
 
 
Since a significant portion of our business is conducted outside the U.S., we face substantial exposure to movements in non-U.S. currency exchange rates. This may harm our results of operations, and any measures that we may implement to reduce the effect of volatile currencies and other risks of our global operations may not be effective. 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. To reduce our exposure to fluctuations in currency exchange rates when natural hedges are not effective, we may use financial instruments to hedge U.S. dollar and other currency commitments and cash flows arising from trade accounts receivable, trade accounts payable and fixed purchase obligations.


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If these hedging activities are not successful or we change or reduce these hedging activities in the future, we may experience significant unexpected expenses from fluctuations in exchange rates or financial instruments which become ineffective. The success of our hedging program depends on accurate forecasts of transaction activity in the various currencies. To the extent that these forecasts are over or understated during periods of currency volatility, we could experience unanticipated currency or hedge gains or losses.
 
 
If flaws in either the design or manufacture of our products were to occur, we could experience a rate of failure in our products that could result in significant delays in shipment and product re-work or replacement costs. While we engage in extensive product quality programs and processes, these may not be sufficient to avoid a product failure rate that results in substantial delays in shipment, significant repair or replacement costs, or potential damage to our reputation.
 
 
We expect to continue to make investments in companies, products and technologies through acquisitions. While we believe that such acquisitions are an integral part of our long-term strategy, there are risks and uncertainties related to acquiring companies. Such risks and uncertainties include:
 
  •  Successfully identifying and completing transactions;
 
  •  Difficulty in integrating acquired operations, technology and products or realizing cost savings or other anticipated benefits from integration;
 
  •  Retaining customers and existing contracts;
 
  •  Retaining the key employees of the acquired operation;
 
  •  Potential disruption of our or the acquired company’s ongoing business;
 
  •  Unanticipated expenses related to integration; and
 
  •  Potential unknown liabilities associated with the acquired company.
 
In addition, if we were to undertake a substantial acquisition for cash, the acquisition would likely need to be financed in part through additional financing from banks, through public offerings or private placements of debt or equity securities, or other arrangements. This acquisition financing might decrease our ratio of earnings to fixed charges and adversely affect other leverage measures. There can be no assurance that the necessary acquisition financing would be available to us on acceptable terms if and when required. If we undertake an acquisition by issuing equity securities or equity-linked securities, the issued securities may have a dilutive effect on the interests of the holders of our stock.
 
 
In 2007, we announced plans to realign part of our manufacturing capacity in order to reduce costs and better optimize plant utilization. The process of restructuring entails, among other activities, moving production between facilities, reducing staff levels, realigning our business processes and reorganizing our management. We continue to evaluate our operations and may need to undertake additional restructuring initiatives in the future. If we incur additional restructuring related charges, our financial condition and results of operations may suffer.
 
In addition, on July 1, 2007 we reorganized into a global organizational structure that consists of product-focused divisions that enable us to work more effectively as a global team to meet customer needs, as well as to better leverage design expertise and the low-cost production centers we have around the world. This reorganization entails risks, including: the need to implement financial and other systems and add management resources; in the short-term we may fail to maintain the quality of products and services we have historically provided; diversion of management’s attention to the


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reorganization; potential disruption of our ongoing business; and unanticipated expenses related to such reorganization.
 
 
Our future success depends partly on the continued contribution of our key employees, including executive, engineering, sales, marketing, manufacturing and administrative personnel. We currently do not have employment agreements with any of our key executive officers. We face intense competition for key personnel in several of our product and geographic markets. Our future success depends in large part on our continued ability to hire, assimilate and retain key employees, including qualified engineers and other highly skilled personnel needed to compete and develop successful new products. We may not be as successful as competitors at recruiting, assimilating and retaining highly skilled personnel.
 
 
We are subject to a wide and ever-changing variety of U.S. and foreign federal, state and local laws and regulations, compliance with which may require substantial expense. Of particular note are two recent European Union (EU) directives known as the Restriction on Certain Hazardous Substances Directive (RoHS) and the Waste Electrical and Electronic Equipment Directive. These directives restrict the distribution of products within the EU of certain substances and require a manufacturer or importer to recycle products containing those substances. Failure to comply with these directives could result in fines or suspension of sales. Additionally, RoHS may result in our having non-compliant inventory that may be less readily salable or have to be written off.
 
In addition, some environment laws impose liability, sometimes without fault, for investigating or cleaning up contamination on or emanating from our currently or formerly owned, leased or operated property, as well as for damages to property or natural resources and for personal injury arising out of such contamination.
 
 
We rely on a combination of patents, copyrights, trademarks and trade secrets and confidentiality provisions to establish and protect our proprietary rights. To this end, we hold rights to a number of patents and registered trademarks and regularly file applications to attempt to protect our rights in new technology and trademarks. Even if approved, our patents or trademarks may be successfully challenged by others or otherwise become invalidated for a variety of reasons. Also, to the extent a competitor is able to reproduce or otherwise capitalize on our technology, it may be difficult, expensive or impossible for us to obtain necessary legal protection.
 
Third parties may claim that we are infringing their intellectual property rights. Such claims could have an adverse affect on our business and financial condition. From time to time we receive letters alleging infringement of patents. Litigation concerning patents or other intellectual property is costly and time consuming. We may seek licenses from such parties, but they could refuse to grant us a license or demand commercially unreasonable terms. Such infringement claims could also cause us to incur substantial liabilities and to suspend or permanently cease the manufacture and sale of affected products.
 
 
Our operations and those of our suppliers may be vulnerable to interruption by natural disasters such as earthquakes, tsunamis, typhoons, or floods, or other disasters such as fires, explosions, acts of terrorism or war, or failures of our management information or other systems. If a business interruption occurs, our business could be materially and adversely affected.


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Item 1B.   Unresolved Staff Comments
 
None.
 
Item 2.   Properties
 
We own and lease manufacturing, design, warehousing, sales and administrative space in locations around the world. The leases are of varying terms with expirations ranging from fiscal 2009 through fiscal 2018. The leases in aggregate are not considered material to the financial position of Molex.
 
As of June 30, 2008, we owned or leased a total of approximately 8.8 million square feet of space worldwide. We own 88% of our manufacturing, design, warehouse and office space and lease the remaining 12%. Our manufacturing plants are equipped with machinery, most of which we own and which, in part, we developed to meet the special requirements of our manufacturing processes. We believe that our buildings, machinery and equipment are well maintained and adequate for our current needs.
 
Our principal executive offices are located at 2222 Wellington Court, Lisle, Illinois, United States of America. Molex owns 45 manufacturing locations, 16 of which are located in North America and 29 of which are located in other countries. A listing of the locations of our principal manufacturing facilities by region is presented below:
 
  •  Americas: United States, Nogales, Guadalajara and Juarez
 
  •  Asia Pacific: Japan, Korea, Vietnam, Thailand, China, India, Malaysia, Singapore and Taiwan
 
  •  Europe: France, Germany, Italy, Poland, Slovakia and Ireland
 
Item 3.   Legal Proceedings
 
We have no material legal proceedings.
 
Item 4.   Submission of Matters to a Vote of Security Holders
 
None.
 
 
Item 5.   Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
Molex is traded on the NASDAQ Global Select Market and on the London Stock Exchange and trades under the symbols MOLX for Common Stock and MOLXA for Class A Common Stock.
 
The number of stockholders of record at June 30, 2008 was 2,460 for Common Stock and 7,527 for Class A Common Stock.
 
The following table presents quarterly stock prices for the years ended June 30:
 
                                                         
          2008     2007     2006  
          Low — High     Low — High     Low — High  
 
Common Stock
    1st     $ 23.89     $ 30.66     $ 29.66     $ 39.27     $ 25.34     $ 29.20  
      2nd       26.77       29.12       30.91       39.49       24.07       28.02  
      3rd       21.82       26.85       28.15       31.70       25.89       33.39  
      4th       23.97       29.95       28.01       31.53       32.48       39.36  
 


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          2008     2007     2006  
          Low — High     Low — High     Low — High  
 
Class A Common Stock
    1st     $ 22.82     $ 27.54     $ 25.57     $ 33.12     $ 23.54     $ 26.50  
      2nd       25.25       27.68       27.22       33.27       22.82       27.15  
      3rd       21.08       25.89       24.72       27.78       24.33       29.87  
      4th       22.11       27.50       24.66       28.20       27.94       33.47  
 
Cash dividends on common stock have been paid every year since 1977. The following table presents quarterly dividends declared per common share for the years ended June 30:
 
                                 
          Class A
 
    Common Stock     Common Stock  
    2008     2007     2008     2007  
 
Quarter ended:
                               
September 30
  $ 0.1125     $ 0.0750     $ 0.1125     $ 0.0750  
December 31
    0.1125       0.0750       0.1125       0.0750  
March 31
    0.1125       0.0750       0.1125       0.0750  
June 30
    0.1125       0.0750       0.1125       0.0750  
                                 
Total
  $ 0.4500     $ 0.3000     $ 0.4500     $ 0.3000  
                                 
 
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. Share purchases of Molex Common and/or Class A Common Stock for the quarter ended June 30, 2008 were as follows (in thousands, except price per share data):
 
                         
                Total Number of
 
                Shares Purchased as
 
    Total Number of
    Average Price
    Part of Publicly
 
    Shares Purchased     Paid per Share     Announced Plan  
 
April 1 — April 30
                       
Common Stock
        $        
Class A Common Stock
    14     $ 21.89        
May 1 — May 31
                       
Common Stock
    175     $ 29.10       175  
Class A Common Stock
    894     $ 26.92       850  
June 1 — June 30
                       
Common Stock
        $        
Class A Common Stock
    212     $ 26.39       205  
                         
Total
    1,295     $ 27.07       1,230  
                         
 
As of June 30, 2008, substantially all funds authorized by the Board of Directors for the purchase of shares were used.
 
During the quarter ended June 30, 2008, 65,201 shares of Class A Common Stock were transferred to us from certain employees to pay either the purchase price and/or withholding taxes on the vesting of restricted stock or the exercise of stock options. The aggregate market value of the shares transferred totaled $1.7 million.
 
Descriptions of our Common Stock appear under the caption “Molex Stock” in our 2008 Proxy Statement and in Note 15 of the Notes to Consolidated Financial Statements.

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The performance graph set forth below shows the value of an investment of $100 on June 30, 2003 in each of Molex Common Stock, Molex Class A Common Stock, the S&P 500 Index, and a Peer Group Index. The Peer Group Index includes 50 companies (including Molex) classified in the Global Sub-industry Classifications “Electronic Equipment Manufacturers,” “Electronic Manufacturing Services,” and “Technology Distributors.” All values assume reinvestment of the pre-tax value of dividends paid by Molex and the companies included in these indices, and are calculated as of June 30 of each year. The historical stock price performance of Molex’s Common Stock and Class A Common Stock is not necessarily indicative of future stock price performance.
 
 
(Performance Graph)
 
                                                             
      06/30/03     06/30/04     06/30/05     06/30/06     06/30/07     06/30/08
Molex Incorporated
    $ 100.00       $ 119.16       $ 97.25       $ 126.33       $ 114.00       $ 94.36  
Molex Incorporated Class A
      100.00         119.01         103.06         127.17         118.79         104.42  
S&P 500
      100.00         119.11         126.64         137.57         165.90         144.13  
Peer Group
      100.00         137.60         126.97         148.41         177.61         159.37  
                                                             
 
The material in this performance graph is not soliciting material, is not deemed filed with the Commission, and is not incorporated by reference in any filing of the Company under the Securities Act or the Exchange Act, whether made on, before or after the date of this filing and irrespective of any general incorporation language in such filing.


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Item 6.   Selected Financial Data
 
Molex Incorporated
 
(In thousands, except per share data)
 
                                         
    2008     2007     2006     2005     2004  
 
Operations:
                                       
Net revenue
  $ 3,328,347     $ 3,265,874     $ 2,861,289     $ 2,554,458     $ 2,249,018  
Gross profit
    1,014,235       1,016,708       942,630       832,662       732,832  
Income from operations
    317,950       321,550       309,744       203,264       213,462  
Income before income taxes
    338,648       338,257       327,884       223,201       231,757  
Net income(1)
    215,437       240,768       236,091       150,116       168,096  
Earnings per share:
                                       
Basic
  $ 1.19     $ 1.31     $ 1.27     $ 0.80     $ 0.88  
Diluted
    1.19       1.30       1.26       0.79       0.87  
Net income percent of net revenue
    6.5 %     7.4 %     8.3 %     5.9 %     7.5 %
Capital expenditures
  $ 234,626     $ 296,861     $ 276,783     $ 230,895     $ 189,724  
Return on invested capital(2)
    7.4 %     9.0 %     10.3 %     6.7 %     8.1 %
Financial Position:
                                       
Current assets
  $ 1,782,960     $ 1,590,827     $ 1,548,233     $ 1,374,063     $ 1,165,508  
Current liabilities
    649,438       530,951       594,812       469,504       424,766  
Working capital(3)
    1,133,522       1,059,876       953,421       904,559       740,742  
Current ratio(4)
    2.7       3.0       2.6       2.9       2.7  
Property, plant and equipment, net
  $ 1,172,395     $ 1,121,369     $ 1,025,852     $ 984,237     $ 1,023,020  
Total assets
    3,599,537       3,316,108       2,974,420       2,730,162       2,575,286  
Long-term debt and capital leases
    151,085       130,779       8,815       9,975       14,039  
Stockholders’ equity
    2,676,846       2,523,031       2,281,869       2,170,754       2,070,422  
Dividends declared per share
  $ 0.45     $ 0.30     $ 0.225     $ 0.15     $ 0.10  
Average common shares outstanding:
                                       
Basic
    180,474       183,961       185,521       188,646       190,207  
Diluted
    181,395       185,565       187,416       190,572       192,186  
 
 
(1) Fiscal 2008 results include a charge for restructuring costs and asset impairments of $31.2 million ($21.0 million after-tax). Fiscal 2007 results include a charge for restructuring costs and asset impairments of $36.9 million ($30.3 million after-tax). Fiscal 2006 results include a restructuring charge of $26.4 million ($19.2 million after-tax). Fiscal 2005 results include a charge for restructuring costs and asset impairments of $30.2 million ($23.0 million after-tax) and a charge for goodwill impairment of $22.9 million ($22.9 million after-tax). See Notes 5 and 8 of the Notes to Consolidated Financial Statements for a discussion of our restructuring costs and goodwill impairment.
 
(2) Return on invested capital is defined as the current year net income divided by the sum of average total assets less average current liabilities for the year.
 
(3) Working capital is defined as current assets minus current liabilities.
 
(4) Current ratio is defined as current assets divided by current liabilities.


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Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
The following discussion includes the use of organic net revenue growth, a non-GAAP financial measure. Refer to Non-GAAP Financial Measures below for additional information on the use of this measure.
 
 
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. We also provide manufacturing services to integrate specific components into a customer’s product.
 
Our connectors, interconnecting devices and assemblies are used principally in the telecommunications, data, consumer products, automotive and industrial markets. Our products are used in a wide range of applications including desktop and notebook computers, computer peripheral equipment, mobile phones, digital electronics such as cameras and plasma televisions, automobile engine control units and adaptive braking systems, factory robotics and diagnostic equipment.
 
We believe that our sales mix is balanced, with growth prospects in a number of markets. Net revenues by market can fluctuate based on various factors including new technologies within the industry, composition of customers and changes in their revenue levels and new products or model changes that we or our customers introduce. The approximate percentage of net revenue by market for fiscal years 2008, 2007 and 2006 is outlined below.
 
                         
    Percentage of Net Revenue  
    2008     2007     2006  
 
Consumer
    18 %     18 %     19 %
Telecommunication
    26       26       30  
Automotive
    18       18       18  
Data
    22       21       22  
Industrial
    13       15       9  
Other
    3       2       2  
                         
Total
    100 %     100 %     100 %
                         
 
We sell our products directly to OEMs and to their contract manufacturers and suppliers and, to a lesser extent, through distributors throughout the world. Our engineers work collaboratively with customers to develop products that meet their specific needs. Our connector products are designed to help manufacturers assemble their own products more efficiently. Our electronic components help enable manufacturers to break down their production into sub-assemblies that can be built on different production lines, in different factories or by subcontractors. Our connectors allow these sub-assemblies to be readily plugged together before selling the end product to a customer. Our connectors also enable users to connect together related electronic items, such as mobile phones to battery chargers and computers to printers. Many of our customers are multi-national corporations that manufacture their products in multiple operations in several countries.
 
We service our customers through our global manufacturing footprint. As of June 30, 2008, we operated 45 manufacturing locations, located in 17 countries. Manufacturing in many sectors has continued to move from the United States and Western Europe to lower cost regions. In addition, reduced trade barriers, lower freight cost and improved supply chain logistics have reduced the need for duplicate regional manufacturing capabilities. For these reasons, our strategy has been to


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consolidate multiple plants of modest size in favor of operating fewer, larger and more integrated facilities in strategic locations around the world.
 
On July 1, 2007 we implemented a new global organizational structure that consists of five product-focused divisions and one worldwide sales and marketing organization. The new structure enables us to work more effectively as a global team to meet customer needs as well as to better leverage our design expertise and our low-cost production centers around the world. The new worldwide sales and marketing organization structure enhances our ability to sell any product, to any customer, anywhere in the world.
 
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 as a result of a new global organization that was effective July 1, 2007. We have revised our initial estimate and now expect to incur total restructuring and asset impairment costs related to this restructuring ranging from $125 to $140 million, of which the impact on each segment will be determined as the actions become more certain. Net restructuring cost during fiscal 2008 was $31.2 million, resulting in cumulative costs since we announced this restructuring plan of $68.1 million.
 
During fiscal 2008, we operated our business in the Americas, Europe and Asia-Pacific regions. In fiscal 2008, 52% of our revenue was derived from sales in the Asia-Pacific region. We expect greater economic growth in Asia, particularly in China, than in the Americas and Europe. We believe that the business is positioned to benefit from this trend. Approximately 48% of our manufacturing capacity is in lower cost areas such as China, Eastern Europe and Mexico.
 
The market in which we operate is highly fragmented with a limited number of large companies and a significant number of smaller companies making electronic connectors. We are the world’s second-largest manufacturer of electronic connectors. We believe that our global presence and our ability to design and manufacture our products throughout the world and to service our customers globally is a key advantage for us. Our growth has come primarily from new products that we develop, often in collaboration with our customers.
 
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 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.
 
 
Net revenue for fiscal 2008 of $3.3 billion increased 1.9% over fiscal 2007. Organic net revenue declined 3.3% for fiscal 2008 from fiscal 2007. Net income of $215.4 million for fiscal 2008 decreased $25.4 million from $240.8 million reported in the prior year. Fiscal 2008 results include a restructuring charge of $31.2 million ($21.0 million after tax) and tax charges related to changes in prior years’ foreign tax credits of $17.2 million. Restructuring charges of $36.9 million ($30.3 million after-tax) were recorded in fiscal 2007.
 
On August 9, 2006, we completed the acquisition of Woodhead Industries, Inc. (Woodhead) in an all cash transaction valued at approximately $238.1 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.


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The acquisition is a significant step in our strategy to expand our products and capabilities in the global industrial market.
 
Critical Accounting Estimates
 
Our accounting and financial reporting policies are in conformity with U.S. generally accepted accounting principles (GAAP). The preparation of financial statements in conformity with GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.
 
Significant accounting policies are summarized in Note 2 of the Notes to Consolidated Financial Statements. Noted here are a number of policies that require significant judgments or estimates.
 
 
Our revenue recognition policies are in accordance with Staff Accounting Bulletin (SAB) No. 101, “Revenue Recognition in Financial Statements,” and SAB No. 104, “Revenue Recognition,” as issued by the SEC and other applicable guidance.
 
We recognize revenue upon shipment of product and transfer of ownership to the customer. Contracts and customer purchase orders generally are used to determine the existence of an arrangement. Shipping documents, proof of delivery and customer acceptance (when applicable) are used to verify delivery. We assess whether an amount due from a customer is fixed and determinable based on the terms of the agreement with the customer, including, but not limited to, the payment terms associated with the transaction. The impact of judgments and estimates on revenue recognition is minimal. A reserve for estimated returns is established at the time of sale based on historical return experience to cover returns of defective product and is recorded as a reduction of revenue.
 
 
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 to be 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.
 
Prior to adoption of FIN 48, our policy was to establish accruals for taxes that may become payable in future years as a result of examinations by tax authorities. We established the accruals based upon management’s assessment of probable income tax contingencies.
 
Deferred tax assets and liabilities are recognized based on differences between the financial statement and tax bases of assets and liabilities using presently enacted tax rates. We have net deferred tax assets of $86.0 million at June 30, 2008.
 
We have operations in countries around the world that are subject to income and other similar taxes in these countries. The estimation of the income tax amounts that we record involves the interpretation of complex tax laws and regulations, evaluation of tax audit findings and assessment of


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how foreign taxes may affect domestic taxes. Although we believe our tax accruals are adequate, differences may occur in the future depending on the resolution of pending and new tax matters.
 
We periodically assess the carrying value of our deferred tax assets based upon our ability to generate sufficient future taxable income in certain tax jurisdictions. If we determine that we will not be able to realize all or part of our deferred tax assets in the future, a valuation allowance is established in the period such determination is made. We have determined that it is unlikely that we will realize a net deferred asset in the future relating to certain non-U.S. net operating losses. Entities with net operating losses were able to utilize $1.1 million of these losses during fiscal 2008. The cumulative valuation allowance relating to net operating losses is approximately $38.3 million at June 30, 2008.
 
 
Inventories are valued at the lower of first-in, first-out (FIFO) cost or market value. FIFO inventories recorded in our consolidated balance sheet are adjusted for an allowance covering inventories determined to be slow-moving or excess. The allowance for slow-moving and excess inventories is maintained at an amount management considers appropriate based on factors such as historical usage of the product, open sales orders and future sales forecasts. If our sales forecast for specific products is greater than actual demand and we fail to reduce manufacturing output accordingly, we could be required to write down additional inventory, which would have a negative impact on gross margin and operating results. Such factors require judgment, and changes in any of these factors could result in changes to this allowance.
 
 
The costs and obligations of our defined benefit pension plans are dependent on actuarial assumptions. Three critical assumptions used, which impact the net periodic pension expense (income) and two of which impact the pension benefit obligation (PBO), are the discount rate, expected return on plan assets and rate of compensation increase. The discount rate is determined based on high-quality fixed income investments that match the duration of expected benefit payments. The discount rate used to determine the present value of our future U.S. pension obligations is based on a yield curve constructed from a portfolio of high quality corporate debt securities with various maturities. Each year’s expected future benefit payments are discounted to their present value at the appropriate yield curve rate, thereby generating the overall discount rate for U.S. pension obligations. The discount rates for our foreign pension plans are selected by using a yield curve approach or by reference to high quality corporate bond rates in those countries that have developed corporate bond markets. In those countries where developed corporate bond markets do not exist, the discount rates are selected by reference to local government bond rates with a premium added to reflect the additional risk for corporate bonds. The expected return on plan assets represents a forward projection of the average rate of earnings expected on the pension assets. We have estimated this rate based on historical returns of similarly diversified portfolios. The rate of compensation increase represents the long-term assumption for expected increases to salaries for pay-related plans. These key assumptions are evaluated annually. Changes in these assumptions can result in different expense and liability amounts.


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The effects of the indicated increase and decrease in selected assumptions for our pension plans as of June 30, 2008, assuming no changes in benefit levels and no amortization of gains or losses, is shown below (in thousands):
 
                                 
    Increase (Decrease)
    Increase (Decrease)
 
    in PBO     in Pension Expense  
    U.S. Plan     Int’l Plans     U.S. Plan     Int’l Plans  
 
Discount rate change:
                               
Increase 50 basis points
  $ (3,795 )   $ (8,306 )   $ (325 )   $ (103 )
Decrease 50 basis points
    4,104       9,331       336       123  
Expected rate of return change:
                               
Increase 100 basis points
    N/A       N/A       (566 )     (689 )
Decrease 100 basis points
    N/A       N/A       566       689  
 
 
We have retiree health care plans that cover the majority of our U.S. employees. There are no significant postretirement health care benefit plans outside of the U.S. The health care cost trend rate assumption has a significant effect on the amount of the accumulated postretirement benefit obligation (APBO) and retiree health care benefit expense. A 100 basis-point change in the assumed health care cost trend rates would have the following effects (in thousands):
 
                         
    2008     2007     2006  
 
Increase (decrease) in total annual service and interest cost:
                       
Increase 100 basis points
  $ 1,219     $ 1,287     $ 1,476  
Decrease 100 basis points
    (968 )     (1,014 )     (1,211 )
Increase (decrease) in APBO:
                       
Increase 100 basis points
  $ 7,987     $ 9,057     $ 9,951  
Decrease 100 basis points
    (6,452 )     (7,270 )     (8,164 )
 
 
Goodwill is recorded when the purchase price paid for an acquisition exceeds the estimated fair value of the net identified tangible and intangible assets acquired.
 
We perform an annual goodwill impairment analysis as of May 31, or earlier if indicators of potential impairment exist. In assessing the recoverability of goodwill, we review both quantitative as well as qualitative factors to support our assumptions with regard to fair value. Our impairment review process compares the estimated fair value of the reporting unit in which goodwill resides to our carrying value. Reporting units may be operating segments as a whole or an operation one level below an operating segment, referred to as a component. Components are defined as operations for which discrete financial information is available and reviewed by segment management.
 
The fair value of a reporting unit is estimated using a discounted cash flow model for the evaluation of impairment. The expected future cash flows are generally based on management’s estimates and are determined by looking at numerous factors including projected economic conditions and customer demand, revenue and margins, changes in competition, operating costs and new products introduced. In determining fair value, we make certain judgments. If these estimates or their related assumptions change in the future as a result of changes in strategy or market conditions, we may be required to record an impairment charge.
 
Although management believes its assumptions in determining the projected cash flows are reasonable, changes in those estimates could affect the evaluation.


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We have recorded charges in connection with restructuring our business. We recognize a liability for restructuring costs at fair value when the liability is incurred. The main components of our restructuring plans are related to workforce reductions and the closure and consolidation of excess facilities. Workforce-related charges are expensed and accrued when it is determined that a liability is probable, which is generally after individuals have been notified of their termination dates and expected severance payments, but under certain circumstances may be recognized upon approval of a restructuring plan by management or in future accounting periods when terminated employees continue to provide service. Plans to consolidate excess facilities result in charges for lease termination fees, future commitments to pay lease charges, net of estimated future sublease income, and adjustments to the fair value of buildings and equipment to be sold. Charges for the consolidation of excess facilities are based on an estimate of the amounts and timing of future cash flows related to the expected future remaining use and ultimate sale or disposal of buildings and equipment.
 
The timing of the cash expenditures associated with these charges does not necessarily correspond to the period in which the accounting charge is taken. For additional information concerning the status of our restructuring programs see Note 5 of the Notes to Condensed Consolidated Financial Statements. See also “Forward-Looking Statements.”
 
 
In accordance with Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, we assess the impairment of long-lived assets, other than goodwill and trade names, including property and equipment, and identifiable intangible assets subject to amortization, whenever events or changes in circumstances indicate the carrying value may not be recoverable. Factors we consider important, which could trigger an impairment review, include significant changes in the manner of our use of the asset, changes in historical trends in operating performance, changes in projected operating performance, and significant negative economic trends.
 
 
In December 2007, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 141R, “Business Combinations” (SFAS 141R). SFAS 141R states that acquisition-related costs are to be recognized separately from the acquisition and expensed as incurred with restructuring costs being expensed in periods after the acquisition date. SFAS 141R also states that business combinations will result in all assets and liabilities of the acquired business being recorded at their fair values. We are required to adopt SFAS No. 141R effective July 1, 2009. The impact of the adoption of SFAS No. 141R will depend on the nature and extent of business combinations occurring on or after the effective date.
 
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (SFAS 160) — an amendment of ARB No. 51. SFAS 160 requires identification and presentation of ownership interests in subsidiaries held by parties other than us in the consolidated financial statements within the equity section but separate from the equity. It also requires that (1) the amount of consolidated net income attributable to the parent and to the noncontrolling interest be clearly identified and presented on the face of the consolidated statement of income, (2) changes in ownership interest be accounted for similarly, as equity transactions, and (3) when a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary and the gain or loss on the deconsolidation of the subsidiary be measured at fair value. This statement is effective for us on July 1, 2009. We are currently evaluating the requirements of SFAS 160, but do not expect it to have a material impact on our financial statements.
 
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (SFAS 161) — an amendment of FASB Statement No. 133. SFAS 161 requires


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enhanced disclosures about an entity’s derivative and hedging activities and thus improves the transparency of financial reporting. This statement is effective for us on July 1, 2009. We are currently evaluating the requirements of SFAS 161, but do not expect it to have a material impact on our financial statements.
 
Results of Operations
 
Net revenue for fiscal 2008 of $3.3 billion increased 1.9% over fiscal 2007. Organic net revenue declined 3.3% for fiscal 2008 over fiscal 2007. Net income of $215.4 million for fiscal 2008 decreased $25.4 million from $240.8 million reported in the prior year. Fiscal 2008 results include a restructuring charge of $31.2 million ($21.0 million after tax) and tax charges related to changes in prior years’ foreign tax credits of $17.2 million. Restructuring charges of $36.9 million ($30.3 million after-tax) were recorded in fiscal 2007. The Woodhead acquisition added $202.5 million of net revenue and $12.2 million of income from operations to the consolidated operating results in fiscal 2007.
 
The following table sets forth certain consolidated statements of income data as a percentage of net revenue for the periods indicated (in thousands):
 
                                                 
          Percentage of
          Percentage of
          Percentage of
 
    2008     Revenue     2007     Revenue     2006     Revenue  
 
Net revenue
  $ 3,328,347       100.0 %   $ 3,265,874       100.0 %   $ 2,861,289       100.0 %
Cost of sales
    2,314,112       69.5 %     2,249,166       68.9 %     1,918,659       67.1 %
                                                 
Gross profit
    1,014,235       30.5 %     1,016,708       31.1 %     942,630       32.9 %
Selling, general & administrative
    665,038       20.0 %     658,289       20.1 %     606,532       21.1 %
Restructuring costs and asset impairments
    31,247       0.9 %     36,869       1.1 %     26,354       0.9 %
Income from operations
    317,950       9.6 %     321,550       9.9 %     309,744       10.8 %
Other income, net
    20,698       0.6 %     16,707       0.5 %     18,140       0.7 %
                                                 
Income before income taxes
    338,648       10.2 %     338,257       10.4 %     327,884       11.5 %
Income taxes
    123,211       3.7 %     97,489       3.0 %     91,793       3.2 %
                                                 
Net income
  $ 215,437       6.5 %   $ 240,768       7.4 %   $ 236,091       8.3 %
                                                 
 
 
We sell our products in five primary markets. A summary follows of the estimated change in revenue from each market during the fiscal years ended June 30:
 
                 
    2008     2007  
 
Consumer
    3 %     9 %
Telecommunications
    3       3  
Automotive
    7       11  
Data
    4       6  
Industrial
    (11 )     100  
 
Following are highlights of revenue changes by these primary markets:
 
  •  Consumer market revenue increased in fiscal 2008 due to higher demand for our connectors used in home entertainment products. However, revenue growth this year has moderated in part due to our customers’ concerns regarding global economies.


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  •  Telecommunications market revenue was higher in fiscal 2008 due to higher demand for our networking products. While we experienced strong revenue growth in the telecommunications market in late fiscal 2006 and early 2007, we experienced a sharp decline in revenue from mobile phone customers during the second half of fiscal 2007. This negative trend began to stabilize during the second half of fiscal 2008.
 
  •  Revenue in the automotive sector was higher in fiscal 2008 and 2007 primarily due to higher revenue in Europe and Asia, a portion of which is attributed to the currency translation impact of a weaker U.S. dollar in fiscal 2008. Revenue in the U.S. automotive market was lower in fiscal 2008 compared with fiscal 2007. The automotive market has benefited from new products reflecting higher electronic content in automobiles and an increase in revenue of our standard products to traditional customers. We believe that the number of automobiles manufactured by our customers was lower in fiscal 2008; however, our customers have trended toward reducing their vendor list, which when coupled with the higher electronic content used in new automobiles, has resulted in an increase in our revenue.
 
  •  Data market revenue increased in fiscal 2008 due to our customers’ releases of new high end products and their expansion in new optical and high speed technologies, for which we offer a strong product line. Revenue growth in the data market has moderated during this year due in part to our customers’ concerns regarding global economies.
 
  •  The industrial market declined due largely to a cable assembly product that had high revenue levels in fiscal 2007 but little revenue in fiscal 2008 because our customer was enhancing their product line. Woodhead contributed 84% of the 100% growth in industrial sales in fiscal 2007 compared with fiscal 2006.
 
The following table shows the percentage of net revenue by geographic region:
 
                         
    2008     2007     2006  
 
Americas
    27.6 %     28.7 %     28.6 %
Asia Pacific
    52.0       51.1       52.6  
Europe
    20.4       20.2       18.8  
                         
Total
    100.0 %     100.0 %     100.0 %
                         
 
The following table provides an analysis of the change in net revenue compared with the prior fiscal years (in thousands):
 
                 
    2008     2007  
 
Net revenue for prior year
  $ 3,265,874     $ 2,861,289  
Components of net revenue (decrease) increase:
               
Organic net revenue growth (decline)
    (106,863 )     141,887  
Currency translation
    169,336       60,219  
Woodhead acquisition
          202,479  
                 
Total change in net revenue from prior year
    62,473       404,585  
                 
Net revenue for current year
  $ 3,328,347     $ 3,265,874  
                 
Organic net revenue growth (decline) as a percentage of net revenue for prior year
    (3.3 )%     5.0 %
 
Organic net revenue declined $106.9 million in fiscal 2008 due to lower revenue in local currencies for the consumer, telecommunications and data markets in our connector segment. We estimate that the impact of price erosion reduced revenue by approximately $132.8 million in fiscal 2008 compared with the prior year. A significant portion of the price erosion occurred in our mobile phone connector products, which are part of our telecommunications market.


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The increase in net revenue attributed to currency translation in fiscal 2008 compared with fiscal 2007 was principally due to the general weakening of the U.S. dollar against other currencies. The increase in net revenue attributed to currency translation in fiscal 2007 compared with 2006 was principally due to the strengthening of the euro, Singapore dollar and Korean won against the U.S. dollar. The following tables show the effect on the change in geographic net revenue from foreign currency translations to the U.S. dollar (in thousands):
 
                                                 
    June 30, 2008     June 30, 2007  
    Local
    Currency
    Net
    Local
    Currency
    Net
 
    Currency     Translation     Change     Currency     Translation     Change  
 
Americas
  $ (23,304 )   $ 3,637     $ (19,667 )   $ 116,022     $ 1,640     $ 117,662  
Asia Pacific
    (26,974 )     89,405       62,431       145,537       17,158       162,695  
Europe
    (54,735 )     76,294       21,559       74,165       47,148       121,313  
Corporate & Other
    (1,850 )           (1,850 )     2,915             2,915  
                                                 
Net change
  $ (106,863 )   $ 169,336     $ 62,473     $ 338,639     $ 65,946     $ 404,585  
                                                 
 
The change in revenue on a local currency basis as of June 30 was as follows:
 
                 
    2008     2007  
 
Americas
    (2.5 )%     14.2 %
Asia Pacific
    (1.6 )     9.7  
Europe
    (8.3 )     13.8  
                 
Total
    (3.3 )%     11.8 %
                 
 
The following table sets forth information on revenue by segment as of June 30 (in thousands):
 
                         
    2008     2007     2006  
 
Connector
  $ 1,879,443     $ 1,885,431     $ 1,721,459  
Transportation
    498,141       472,257       424,740  
Custom & Electrical
    941,365       892,756       650,332  
Corporate & Other
    9,398       15,430       64,758  
                         
Total
  $ 3,328,347     $ 3,265,874     $ 2,861,289  
                         
 
 
The following table provides summary of gross profit and gross margin compared with the prior fiscal year (in thousands):
 
                         
    2008     2007     2006  
 
Gross profit
  $ 1,014,235     $ 1,016,708     $ 942,630  
Gross margin
    30.5 %     31.1 %     32.9 %
 
The reduction in gross margin was primarily due to higher commodity cost and price erosion partially offset by general cost reductions, a portion of which is related to restructuring activities.
 
A significant portion of our material cost is comprised of copper and gold costs. We purchased approximately 25 million pounds of copper and approximately 135,000 troy ounces of gold in fiscal 2008. The following table shows the increase in average prices related to our purchases of copper and gold:
 
                         
    2008     2007     2006  
 
Copper (price per pound)
  $ 3.49     $ 3.20     $ 2.28  
Gold (price per troy ounce)
    825.00       636.00       525.00  


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Generally, we are able to pass through to our customers only a small a portion of the increased cost of copper and gold. However, we mitigated the impact of the increase in gold prices by hedging approximately 40% of our gold purchases in fiscal 2008.
 
In addition to commodity costs, the increase (decrease) of certain other significant impacts on gross profit compared with the prior years was as follows as of June 30 (in thousands):
 
                 
    2008     2007  
 
Price erosion
  $ (132,758 )   $ (131,435 )
Currency translation
    48,842       12,595  
Currency transaction
    (18,393 )     18,166  
 
The increase in gross profit due to currency translation gains was primarily due to a general weakening of the U.S. dollar against other currencies. Currency translation decreased gross margin by 10 basis points as revenue increased by $169.3 million, also due to the weaker dollar.
 
Certain products that we manufacture in Japan and Europe are sold in other regions of the world at selling prices primarily denominated in or closely linked to the U.S. dollar. As a result, changes in currency exchange rates may affect our cost of sales reported in U.S. dollars without a corresponding effect on net revenue. The decrease in gross profit due to currency transaction losses in fiscal 2008 was primarily due to a general weakening of the U.S. dollar against other currencies.
 
 
Operating expenses for the three years ended June 30, 2008 were as follows (in thousands):
 
                         
    2008     2007     2006  
 
Selling, general & administrative
  $ 665,038     $ 658,289     $ 606,532  
Selling, general & administrative as a percentage of revenue
    20.0 %     20.1 %     21.1 %
Restructuring costs and asset impairments
    31,247       36,869       26,354  
 
Selling, general and administrative expense as a percentage of revenue was relatively consistent in fiscal 2008 compared with fiscal 2007 while organic net revenue declined. The impact of currency translation increased selling, general and administrative expenses by approximately $35.4 million for fiscal 2008 compared with fiscal 2007 and increased selling, general and administrative expenses by approximately $12.4 million for fiscal 2007 compared with fiscal 2006.
 
The decrease in selling, general and administrative expense as a percent of net revenue in fiscal 2008 compared with fiscal 2007 and in fiscal 2007 compared with fiscal 2006 was primarily due to a lower cost structure resulting from our restructuring initiative which began in fiscal 2007, lower incentive compensation expense in 2008 and 2007 and specific cost containment activities.
 
Research and development expenditures, which are classified as selling, general and administrative expense, were 4.9% of net revenue for fiscal years 2008, 2007 and 2006.
 
 
During fiscal 2007, we undertook a restructuring plan designed to reduce costs and to improve return on invested capital as a result of 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. Net restructuring cost during the year ended June 30, 2008 was $31.2 million, resulting in cumulative costs since we announced the restructuring plan of $68.1 million. We have revised our initial estimate and now expect to incur total restructuring and asset impairment costs related to these actions ranging from $125 to $140 million, of which the impact on each segment will be determined as the actions become more certain. Management and the Board of Directors approved several actions related to this plan. A


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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 employee reduction targets throughout the company, and we expect to achieve these targets through ongoing employee attrition and terminations. We expect to substantially complete the actions under this plan by June 30, 2010.
 
During fiscal 2008, we recognized net restructuring costs related to employee severance and benefit arrangements for approximately 900 employees, resulting in a charge of $17.6 million. A large part of these employee terminations occurred in our corporate headquarters and U.S. and Mexican manufacturing operations. In accordance with our planned restructuring actions, we have recorded additional asset impairment charges of $13.6 million to write-down assets to fair value less the cost to sell.
 
During fiscal 2007, we recognized additional restructuring costs related to employee severance and benefit arrangements for approximately 335 employees. A substantial majority of these employee terminations occurred within our Ireland manufacturing operations and various administrative functions in the Americas and European regions. In addition, we have vacated or plan to vacate several buildings and are holding these buildings and related assets for sale. This plan resulted in an impairment charge of $8.7 million to write-down these assets to fair value less the cost to sell these assets. The fair value of the asset groupings was determined using various valuation techniques.
 
During 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. In the Americas region, we closed an industrial manufacturing facility in New England and have ceased manufacturing in our Detroit area automotive facility. In Europe, we closed certain manufacturing facilities in Ireland and Portugal and reduced the size of a development center in Germany. We also closed a manufacturing facility in Slovakia. Production from these manufacturing facilities was transferred to existing plants within the region. We also took actions that reduced our selling, general and administrative costs in the Americas and European regions and at the corporate office. We reduced headcount by approximately 500 people after additions at the facilities where production was transferred. These actions were substantially complete as of June 30, 2006.
 
The timing of the cash expenditures associated with these charges does not necessarily correspond to the period in which the accounting charge is taken. For additional information concerning the status of our restructuring programs see Note 5 of the Notes to Condensed Consolidated Financial Statements. See also “Forward-Looking Statements.”
 
 
The effective tax rate for the three years ended June 30, 2008 was as follows:
 
                         
    2008     2007     2006  
 
Effective tax rate
    36.4 %     28.8 %     28.0 %
 
The effective tax rate for fiscal 2008 increased due to adjustments to foreign tax credits, including (1) a change in estimate of $6.3 million in the third quarter of fiscal 2008, resulting from a difference between foreign tax credits estimated in our fiscal 2007 financial statements and subsequently reflected in our fiscal 2007 tax return, and (2) a fourth quarter charge of $10.9 million to correct errors in the prior years’ tax pools used to calculate foreign tax credit carryforwards. The effective tax rate in fiscal 2007 was substantially unchanged from fiscal 2006.
 
 
Backlog as of the three years ended June 30 was as follows (in thousands):
 
                         
    2008     2007     2006  
 
Backlog
  $ 436,487     $ 332,479     $ 369,966  


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Backlog at June 30, 2008 increased due to orders received in the telecommunications and data markets and foreign currency translation. Foreign currency translation increased the backlog by $25.7 million compared with June 30, 2007. Excluding the foreign currency translation impact, backlog increased 23.6% from fiscal 2007 to fiscal 2008. Orders for fiscal 2008 were $3.4 billion compared with $3.2 billion for the prior year. Orders increased due to an increase in the telecommunications market and foreign currency translation. Foreign currency translation increased orders by $139.4 million.
 
Backlog decreased as of June 30, 2007 compared with June 30, 2006, primarily due to a decrease in demand at the end of fiscal 2007, particularly in the mobile communications market, and an increase in vendor managed inventory programs to customers. Under the vendor managed inventory program, the order and shipment occur simultaneously and without impacting reported backlog. The decrease in backlog as of June 30, 2007 compared with 2006 was offset by the acquisition of Woodhead, which had backlog of $24.3 million on June 30, 2007.
 
 
The following table provides an analysis of the change in net revenue compared with the prior fiscal year (in thousands):
 
                 
    2008     2007  
 
Net revenue for prior year
  $ 1,885,431     $ 1,721,459  
Components of net revenue increase (decrease):
               
Organic net revenue (decline) growth
    (101,466 )     130,530  
Currency translation
    95,478       33,442  
                 
Total change in net revenue from prior year
    (5,988 )     163,972  
                 
Net revenue for current year
  $ 1,879,443     $ 1,885,431  
                 
Organic net revenue (decline) growth as a percentage of net revenue for prior year
    (5.4 )%     7.6 %
 
The Connector segment’s core markets are telecommunication, data products and consumer, which are discussed above. Segment revenue decreased during fiscal 2008 with currency translation offsetting an organic revenue decline. Connector organic revenue decreased in fiscal 2008 primarily due to general weakness in these markets, particularly the mobile phone sector. Additionally, price erosion, which is generally higher in the Connector segment compared with our other segments, was 5.7% in fiscal 2008.
 
Organic net revenue growth in fiscal 2007 was a result of stronger demand in the consumer market with growth in both the satellite radio and games markets where we had significant connector content.
 
The following table provides information on income from operations and operating margins for the periods indicated (in thousands):
 
                         
    2008     2007     2006  
 
Income from operations
  $ 302,240     $ 354,358     $ 411,329  
Operating margin
    16.1 %     18.8 %     23.9 %
 
Connector segment income from operations decreased compared with the prior year periods due to lower organic revenue in fiscal 2008 and price erosion and higher raw material cost in fiscal 2008 and 2007. We passed on to customers only a small amount of the commodity cost increase.


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The following table provides an analysis of the change in net revenue compared with the prior fiscal year (in thousands):
 
                 
    2008     2007  
 
Net revenue for prior year
  $ 472,257     $ 424,740  
Components of net revenue increase (decrease):
               
Organic net revenue (decline) growth
    (3,171 )     39,565  
Currency translation
    29,055       7,952  
                 
Total change in net revenue from prior year
    25,884       47,517  
                 
Net revenue for current year
  $ 498,141     $ 472,257  
                 
Organic net revenue (decline) growth as a percentage of net revenue for prior year
    (0.7 )%     9.3 %
 
Transportation segment organic net revenue declined in fiscal 2008 but was offset entirely by foreign currency translation. Revenue was negatively impacted during the second half of fiscal 2008 due to a strike at a key supplier of one of our customers. The organic net revenue growth in fiscal 2007 was primarily due to new U.S. program wins and higher electronic content in vehicles.
 
The following table provides information on income from operations and operating margins for the periods indicated (in thousands):
 
                         
    2008     2007     2006  
 
Income from operations
  $ 15,356     $ 7,476     $ (4,472 )
Operating margin
    3.1 %     1.6 %     (1.1 )%
 
Segment operating income improved during the last three years due to higher gross margins resulting from cost reductions and more efficient use of capacity 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 half of fiscal 2007.
 
 
The following table provides an analysis of the change in net revenue compared with the prior fiscal year (in thousands):
 
                 
    2008     2007  
 
Net revenue for prior year
  $ 892,756     $ 650,332  
Components of net revenue increase:
               
Organic net revenue growth
    4,455       16,292  
Currency translation
    44,154       23,653  
Acquisitions
          202,479  
                 
Total change in net revenue from prior year
    48,609       242,424  
                 
Net revenue for current year
  $ 941,365     $ 892,756  
                 
Organic net revenue growth as a percentage of net revenue for prior year
    0.5 %     2.5 %
 
The Custom and Electrical segment’s core markets are industrial, telecommunications and data, which are discussed above. Higher revenue from telecommunications infrastructure products was offset by lower revenue in the industrial market. Organic net revenue growth in fiscal 2007 was realized in both the industrial and telecommunications markets.


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The following table provides information on income from operations and operating margins for the periods indicated (in thousands):
 
                         
    2008     2007     2006  
 
Income from operations
  $ 94,076     $ 52,898     $ 29,047  
Operating margin
    10.0 %     5.9 %     4.5 %
 
Segment operating income increased in fiscal 2008 compared with fiscal 2007 due to efficiencies achieved with the Woodhead integration and an increase in revenue in the telecommunications market. Operating income increased in fiscal 2007 compared with fiscal 2006 due to higher revenue attributed to the Woodhead acquisition.
 
 
Organic net revenue growth, which is included in the discussion above, is a non-GAAP financial measure. The tables presented in Results of Operations above provide reconciliations of U.S. GAAP reported net revenue growth (the most directly comparable GAAP financial measure) to organic net revenue growth.
 
We believe organic net revenue growth provides useful information to investors because it reflects the underlying growth from the ongoing activities of our business and provides investors with a view of our operations from management’s perspective. We use organic net revenue growth to monitor and evaluate performance, as it is an important measure of the underlying results of our operations. It excludes items that are not completely under management’s control, such as the impact of changes in foreign currency exchange rates, and items that do not reflect the underlying growth of the company, such as acquisition activity. Management uses organic net revenue growth together with GAAP measures such as net revenue growth and operating income in its decision making processes related to the operations of our reporting segments and our overall company.
 
 
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 $509.8 million and $460.9 million at June 30, 2008 and 2007, respectively, of which approximately $480.0 was in non-U.S. accounts as of June 30, 2008. Transferring cash, cash equivalent or marketable securities to U.S. accounts from non-U.S. accounts could subject us to additional U.S. repatriation income tax.
 
Our long-term financing strategy is to primarily rely on internal sources of funds for investing in plant, equipment and acquisitions. Management believes that our liquidity and financial flexibility are adequate to support both current and future growth. We have historically used external borrowings only when a clear financial advantage exists. Long-term debt and obligations under capital leases at June 30, 2008 totaled $151.8 million. We have available lines of credit totaling $207.9 million at June 30, 2008.
 
 
Below is a table setting forth the key lines of our Consolidated Statements of Cash Flows (in thousands):
 
                         
    2008     2007     2006  
 
Cash provided from operating activities
  $ 479,134     $ 451,434     $ 443,856  
Cash used for investing activities
    (218,156 )     (446,129 )     (240,779 )
Cash provided by (used for) financing activities
    (197,306 )     28,529       (189,814 )
Effect of exchange rate changes on cash
    33,474       11,712       9,796  
                         
Net increase in cash and cash equivalents
  $ 97,146     $ 45,546     $ 23,059  
                         


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Cash provided from operating activities in fiscal 2008 increased by $27.7 million for fiscal 2008 from the prior year due mainly to lower use of funds to finance working capital needs in the current year period compared with the prior year, partially offset by lower net income. Working capital is defined as current assets minus current liabilities.
 
Cash provided from operating activities increased by $7.6 million for fiscal 2007 from fiscal 2006 primarily due to higher net income as adjusted for non-cash items in fiscal 2006 offset by an increase in working capital. The working capital increase was primarily due to the revenue growth for fiscal 2007 compared with the prior year.
 
 
On July 19, 2007, we completed an acquisition of a U.S.-based company in an all cash transaction approximating $42.5 million. On August 9, 2006, we completed the acquisition of Woodhead in an all cash transaction for approximately $238.1 million, including the assumption of debt and net of cash acquired.
 
Capital expenditures declined $62.2 million during fiscal 2008 compared with fiscal 2007 reflecting our efforts to increase asset efficiency by lowering the incremental investment required to drive future growth. Capital expenditures increased $20.1 million for fiscal 2007 compared with fiscal 2006 in order to provide increased capability in the Americas, Asia-Pacific and European regions.
 
Cash flow from investing activities also includes proceeds from marketable securities in the net amount of $46.8 million in fiscal 2008, $71.2 million in fiscal 2007 and $37.3 million in fiscal 2006. Our marketable securities generally have a term of less than one year. Our investments in marketable securities are primarily based on our uses of cash in operating, other investing and financing activities.
 
 
In order to fund the cash portion of our investment in Woodhead made during fiscal 2007, we entered into two term notes aggregating 15 billion Japanese yen ($141.3 million) and borrowed $44.0 million on our unsecured revolving credit line that was repaid the same year. The term notes are due in September 2009, with weighted-average fixed interest rates approximating 1.3%. In order to fund stock repurchases during fiscal 2008, we borrowed $125.0 million on our unsecured revolving line of credit, $75.0 million of which was repaid during fiscal 2008.
 
We purchased shares of Common Stock and Class A Common Stock totaling 8.0 million shares, 1.2 million shares and 6.0 million shares during fiscal years 2008, 2007 and 2006, respectively. The aggregate cost of these purchases was $199.6 million, $34.9 million and $165.3 million in fiscal years 2008, 2007 and 2006, respectively.
 
Our Board of Directors authorized the repurchase of up to an aggregate $200.0 million of common stock through June 30, 2008. Substantially all funds were used under the authorization as of June 30, 2008. On August 1, 2008, our Board of Directors authorized a repurchase of up to an aggregate $200.0 million of common stock through June 30, 2009.
 
We have sufficient cash balances and cash flow to support our planned growth. As part of our growth strategy, we may, in the future, 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.


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The following table summarizes our significant contractual obligations at June 30, 2008, and the effect such obligations are expected to have on liquidity and cash flows in future periods (in thousands):
 
                                         
          Less Than
    1-3
    3-5
    More Than
 
    Total     1 Year     Years     Years     5 Years  
 
Operating lease obligations
  $ 39,831     $ 13,774     $ 11,797     $ 8,757     $ 5,503  
Capital lease obligations
    5,118       2,858       2,212       47       1  
Other long-term liabilities
    17,798       4,673       3,930       626       8,569  
Debt obligations
    147,626       1,398       145,668       488       72  
                                         
Total(1)
  $ 210,373     $ 22,703     $ 163,607     $ 9,918     $ 14,145  
                                         
 
 
(1) Total does not include contractual obligations recorded on the balance sheet as current liabilities or certain purchase obligations, as discussed below. Debt and capital lease obligations include interest payments.
 
Contractual obligations for purchases of goods or services are defined as agreements that are enforceable and legally binding on us and that specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Our purchase orders are based on current manufacturing needs and are fulfilled by vendors within short time horizons. In addition, some purchase orders represent authorizations to purchase rather than binding agreements. We do not generally have significant agreements for the purchase of raw materials or other goods specifying minimum quantities and set prices that exceed expected requirements for three months. Agreements for outsourced services generally contain clauses allowing for cancellation without significant penalty, and are therefore not included in the table above.
 
The expected timing of payments of the obligations above is estimated based on current information. Timing of payments and actual amounts paid may be different, depending on the time of receipt of goods or services, or changes to agreed-upon amounts for some obligations.
 
 
An off-balance sheet arrangement is any contractual arrangement involving an unconsolidated entity under which a company has (i) made guarantees, (ii) a retained or a contingent interest in transferred assets, (iii) any obligation under certain derivative instruments or (iv) any obligation under a material variable interest in an unconsolidated entity that provides financing, liquidity, market risk, or credit risk support to a company, or engages in leasing, hedging, or research and development services within a company.
 
We do not have material exposure to any off-balance sheet arrangements. We do not have any unconsolidated special purpose entities.
 
Item 7A.   Quantitative and Qualitative Disclosures About Market Risk
 
We are subject to market risk associated with changes in foreign currency exchange rates and interest rates.
 
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.


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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 June 30, 2008 and 2007.
 
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-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 $169.3 million and increased income from operations of $12.5 million for 2008, compared with the estimated results for 2007 using the average rates for 2007.
 
Our $34.3 million of marketable securities at June 30, 2008 are principally invested in time deposits.
 
Interest rate exposure is limited to our 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, products or geographic locations.
 
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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Molex Incorporated
 
(In thousands, except per share data)
 
                 
    June 30,  
    2008     2007  
 
ASSETS
Current assets:
               
Cash and cash equivalents
  $ 475,507     $ 378,361  
Marketable securities
    34,298       82,549  
Accounts receivable, less allowances of $40,243 in 2008 and $31,064 in 2007
    740,827       685,666  
Inventories
    458,295       392,680  
Deferred income taxes
    23,444       16,171  
Prepaid expenses
    50,589       35,400  
                 
Total current assets
    1,782,960       1,590,827  
Property, plant and equipment, net
    1,172,395       1,121,369  
Goodwill
    373,623       334,791  
Non-current deferred income taxes
    62,521       103,626  
Other assets
    208,038       165,495  
                 
Total assets
  $ 3,599,537     $ 3,316,108  
                 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
               
Short-term loans
  $ 66,687     $ 1,537  
Accounts payable
    350,413       279,847  
Accrued expenses:
               
Salaries, commissions and bonuses
    74,689       66,532  
Other
    84,525       121,358  
Income taxes payable
    73,124       61,677  
                 
Total current liabilities
    649,438       530,951  
Other non-current liabilities
    21,346       25,612  
Accrued pension and other postretirement benefits
    105,574       108,693  
Long-term debt
    146,333       127,821  
                 
Total liabilities
    922,691       793,077  
Commitments and contingencies
               
Stockholders’ equity:
               
Common Stock, $0.05 par value; 200,000 shares authorized; 112,195 shares issued at 2008 and 111,730 shares issued at 2007
    5,610       5,587  
Class A Common Stock, $0.05 par value; 200,000 shares authorized; 109,841 shares issued at 2008 and 108,562 shares issued at 2007
    5,492       5,428  
Class B Common Stock, $0.05 par value; 146 shares authorized; 94 shares issued at 2008 and 2007
    5       5  
Paid-in capital
    569,046       520,037  
Retained earnings
    2,785,099       2,650,470  
Treasury stock (Common Stock, 13,744 shares at 2008 and 12,297 shares at 2007; Class A Common Stock, 30,948 shares at 2008 and 24,040 shares at 2007), at cost
    (1,009,021 )     (799,894 )
Accumulated other comprehensive income
    320,615       141,398  
                 
Total stockholders’ equity
    2,676,846       2,523,031  
                 
Total liabilities and stockholders’ equity
  $ 3,599,537     $ 3,316,108  
                 
 
See accompanying notes to consolidated financial statements.


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Molex Incorporated
 
(In thousands, except per share data)
 
                         
    Years Ended June 30,  
    2008     2007     2006  
 
Net revenue
  $ 3,328,347     $ 3,265,874     $ 2,861,289  
Cost of sales
    2,314,112       2,249,166       1,918,659  
                         
Gross profit
    1,014,235       1,016,708       942,630  
Selling, general and administrative
    665,038       658,289       606,532  
Restructuring costs and asset impairments
    31,247       36,869       26,354  
                         
Total operating expenses
    696,285       695,158       632,886  
                         
Income from operations
    317,950       321,550       309,744  
Gain (loss) on investments
    (119 )     1,159       (1,245 )
Equity income
    11,625       6,966       9,456  
Interest income, net
    9,192       8,582       9,929  
                         
Total other income, net
    20,698       16,707       18,140  
                         
Income before income taxes
    338,648       338,257       327,884  
Income taxes
    123,211       97,489       91,793  
                         
Net income
  $ 215,437     $ 240,768     $ 236,091  
                         
Earnings per share:
                       
Basic
  $ 1.19     $ 1.31     $ 1.27  
Diluted
  $ 1.19     $ 1.30     $ 1.26  
Average common shares outstanding:
                       
Basic
    180,474       183,961       185,521  
Diluted
    181,395       185,565       187,416  
 
See accompanying notes to consolidated financial statements.


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Molex Incorporated
 
(In thousands)
 
                         
    Years Ended June 30,  
    2008     2007     2006  
 
Operating activities:
                       
Net income
  $ 215,437     $ 240,768     $ 236,091  
Add (deduct) non-cash items included in net income:
                       
Depreciation and amortization
    252,344       237,912       214,657  
Asset write-downs included in restructuring costs
    13,599       8,667       2,870  
(Gain) loss on investments
    111       (1,154 )     1,245  
Deferred income taxes
    31,096       20,998       (8,501 )
Loss (gain) on sale of property, plant and equipment
    296       1,800       (701 )
Share-based compensation
    24,249       27,524       30,548  
Other non-cash items
    (6,778 )     23,373       3,859  
Changes in assets and liabilities, excluding effects of foreign currency adjustments and acquisitions:
                       
Accounts receivable
    478       27,913       (112,873 )
Inventories
    (26,240 )     (16,514 )     (45,987 )
Accounts payable
    34,197       (57,479 )     43,875  
Other current assets and liabilities
    (45,798 )     (60,421 )     58,857  
Other assets and liabilities
    (13,857 )     (1,953 )     19,916  
                         
Cash provided from operating activities
    479,134       451,434       443,856  
                         
Investing activities:
                       
Capital expenditures
    (234,626 )     (296,861 )     (276,783 )
Proceeds from sales of property, plant and equipment
    14,978       9,946       24,436  
Proceeds from sales or maturities of marketable securities
    811,724       4,856,301       1,351,165  
Purchases of marketable securities
    (764,966 )     (4,785,080 )     (1,313,829 )
Acquisitions, net of cash acquired
    (42,503 )     (238,072 )     (24,565 )
Other investing activities
    (2,763 )     7,637       (1,203 )
                         
Cash used for investing activities
    (218,156 )     (446,129 )     (240,779 )
                         
Financing activities:
                       
Proceeds from revolving credit facility and short-term loans
    139,590       44,000        
Payments on revolving credit facility
    (75,000 )     (44,000 )      
Proceeds from issuance of long-term debt
          131,045        
Payments of long-term debt
    (1,948 )     (26,937 )     (3,693 )
Cash dividends paid
    (74,598 )     (55,176 )     (34,843 )
Exercise of stock options
    16,732       15,416       15,783  
Excess tax benefits from share-based compensation
    1,677       1,714       369  
Purchase of treasury stock
    (199,583 )     (34,889 )     (165,323 )
Other financing activities
    (4,176 )     (2,644 )     (2,107 )
                         
Cash provided from (used for) financing activities
    (197,306 )     28,529       (189,814 )
Effect of exchange rate changes on cash
    33,474       11,712       9,796  
                         
Net increase in cash and cash equivalents
    97,146       45,546       23,059  
Cash and cash equivalents, beginning of year
    378,361       332,815       309,756  
                         
Cash and cash equivalents, end of year
  $ 475,507     $ 378,361     $ 332,815  
                         
Supplemental cash flow information:
                       
Interest paid
  $ 3,599     $ 2,857     $ 928  
Income taxes paid
  $ 64,641     $ 96,531     $ 70,092  
 
See accompanying notes to consolidated financial statements.


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Molex Incorporated
 
(In thousands)
 
                         
    Years Ended June 30,  
    2008     2007     2006  
 
Common stock
  $ 11,107     $ 11,020     $ 10,900  
                         
Paid-in capital:
                       
Beginning balance
  $ 520,037     $ 442,586     $ 425,259  
Reclassification from deferred unearned compensation
                (38,357 )
Stock-based compensation
    24,249       27,524       30,548  
Exercise of stock options
    22,738       37,101       23,958  
Issuance of stock awards
    1,743       2,059        
Reclass of directors’ deferred compensation plan
          6,059        
Other
    279       4,708       1,178  
                         
Ending balance
  $ 569,046     $ 520,037     $ 442,586  
                         
Retained earnings:
                       
Beginning balance
  $ 2,650,470     $ 2,464,889     $ 2,270,677  
Net income
    215,437       240,768       236,091  
Dividends
    (80,756 )     (55,205 )     (41,613 )
Other
    (52 )     18       (266 )
                         
Ending balance
  $ 2,785,099     $ 2,650,470     $ 2,464,889  
                         
Treasury stock:
                       
Beginning balance
  $ (799,894 )   $ (743,219 )   $ (568,917 )
Purchase of treasury stock
    (199,583 )     (34,889 )     (165,323 )
Exercise of stock options
    (9,544 )     (21,801 )     (8,736 )
Other
          15       (243 )
                         
Ending balance
  $ (1,009,021 )   $ (799,894 )   $ (743,219 )
                         
Deferred unearned compensation:
                       
Beginning balance
  $     $     $ (38,357 )
Reclassification to paid-in capital
                38,357  
                         
Ending balance
  $     $     $  
                         
Accumulated other comprehensive income, net of tax:
                       
Beginning balance
  $ 141,398     $ 106,713     $ 71,296  
Translation adjustments
    165,706       51,009       34,934  
Pension adjustments, net of tax
    3,309       (3,135 )      
Adjustment for initially applying SFAS No. 158, net of tax
          (17,965 )      
Unrealized investment gain, net of tax
    10,202       4,776       483  
                         
Ending balance
  $ 320,615     $ 141,398     $ 106,713  
                         
Total stockholders’ equity
  $ 2,676,846     $ 2,523,031     $ 2,281,869  
                         
Comprehensive income, net of tax:
                       
Net income
  $ 215,437     $ 240,768     $ 236,091  
Translation adjustments
    165,706       51,009       34,934  
Pension adjustments, net of tax
    3,309       (3,135 )      
Unrealized investment gain, net of tax
    10,202       4,776       483  
                         
Total comprehensive income, net of tax
  $ 394,654     $ 293,418     $ 271,508  
                         
 
See accompanying notes to consolidated financial statements.


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Table of Contents

Molex Incorporated
 
 
1.   Organization and 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 45 manufacturing locations in 17 countries.
 
2.   Summary of Significant Accounting Policies
 
 
The consolidated financial statements include the accounts of Molex Incorporated and our majority-owned subsidiaries. All material intercompany balances and transactions are eliminated in consolidation. Equity investments in which we exercise significant influence but do not control and are not the primary beneficiary are accounted for using the equity method. Investments in which we are not able to exercise significant influence over the investee are accounted for under the cost method.
 
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the use of estimates and assumptions related to the reporting of assets, liabilities, revenues, expenses and related disclosures. Actual results could differ from these estimates.
 
 
Assets and liabilities of international entities are translated at period-end exchange rates and income and expenses are translated using weighted-average exchange rates for the period. Translation adjustments are included as a component of accumulated other comprehensive income.
 
 
We consider all liquid investments with original maturities of three months or less to be cash equivalents.
 
 
Marketable securities consist primarily of time deposits held at non-U.S. local banks. We generally hold these instruments for a period of greater than three months, but no longer than 12 months. Marketable securities are classified as available-for-sale securities.
 
No mark-to-market adjustments were required during fiscal years 2008, 2007 or 2006 because the carrying value of the securities approximated the market value. Proceeds from sales of available-for-sales securities, excluding maturities, during fiscal years 2008, 2007 and 2006 were $194.3 million, $273.1 million and $532.1 million, respectively. There were no associated gains or losses on these sales.
 
 
In the normal course of business, we extend credit to customers that satisfy pre-defined credit criteria. We believe that we have little concentration of credit risk due to the diversity of our customer base. Accounts receivable, as shown on the Consolidated Balance Sheets, were net of allowances and anticipated discounts. An allowance for doubtful accounts is determined through analysis of the aging of accounts receivable at the date of the financial statements, assessments of collectability


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Molex Incorporated
 
Notes to Consolidated Financial Statements — (Continued)
 
based on historical trends and an evaluation of the impact of current and projected economic conditions. We monitor the collectability of our accounts receivable on an ongoing basis by analyzing the aging of our accounts receivable, assessing the credit worthiness of our customers and evaluating the impact of reasonably likely changes in economic conditions that may impact credit risks. Our accounts receivable are not collateralized.
 
 
Inventories are valued at the lower of first-in, first-out cost or market value.
 
 
Property, plant and equipment are reported at cost less accumulated depreciation. Depreciation is primarily recorded on a straight-line basis for financial statement reporting purposes and using a combination of accelerated and straight-line methods for tax purposes.
 
The estimated useful lives are as follows:
 
         
Buildings
    25 — 40 years  
Machinery and equipment
    3 — 10 years  
Molds and dies
    2 — 4 years  
 
We perform reviews for impairment of long-lived assets whenever adverse events or circumstances indicate that the carrying value of an asset may not be recoverable. When indicators of impairment are present, we evaluate the carrying value of the long-lived assets in relation to the operating performance and future undiscounted cash flows of the underlying assets. We adjust the net book value of the underlying assets to fair value if the sum of the expected undiscounted future cash flows is less than book value.
 
 
Goodwill is recorded when the purchase price paid for an acquisition exceeds the estimated fair value of the net identified tangible and intangible assets acquired. We perform an annual review in the fourth quarter of each year, or more frequently if indicators of potential impairment exist, to determine if the carrying value of the recorded goodwill is impaired. The impairment review process compares the fair value of the reporting unit in which goodwill resides to its carrying value. Reporting units may be operating segments as a whole or an operation one level below an operating segment, referred to as a component.
 
 
Pension and other postretirement plan benefits are expensed as employees earn such benefits. The recognition of expense is significantly impacted by estimates made by management such as discount rates used to value certain liabilities, expected return on assets and future healthcare costs. We use third-party specialists to assist management in appropriately measuring the expense associated with pension and other postretirement plan benefits.
 
 
We recognize revenue when in the normal course of our business the following conditions are met: (i) a purchase order has been received from the customer with a corresponding order acknowledgement sent to the customer confirming delivery, price and payment terms, (ii) product has been shipped (FOB origin) or delivered (FOB destination) and title has clearly transferred to the customer or customer


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Molex Incorporated
 
Notes to Consolidated Financial Statements — (Continued)
 
carrier, (iii) the price to the buyer is fixed and determinable for sales with an estimate of allowances made based on historical experience and (iv) there is reasonable assurance of collectability.
 
We record revenue on a consignment sale when a customer has taken title of product which is stored in either the customer’s warehouse or that of a third party.
 
From time to time, we will discontinue or obsolete products that we have formerly sold. When this is done, an accrual for estimated returns is established at the time of the announcement of product discontinuation or obsolescence.
 
We typically warrant that our products will conform to Molex specifications and that our products will be free from material defects in materials and manufacturing, and limit our liability to the replacement of defective parts or the cash value of replacement parts. We will not accept returned goods unless the customer makes a claim in writing and management authorizes the return. Returns result primarily from defective products or shipping discrepancies. A reserve for estimated returns is established at the time of sale based on historical return experience and is recorded as a reduction of revenue.
 
We provide certain distributors with an inventory allowance for returns or scrap equal to a percentage of qualified purchases. At the time of sale, we record as a reduction of revenue a reserve for estimated inventory allowances based on a fixed percentage of sales that we authorized to distributors.
 
From time to time we in our sole discretion will grant price allowances to customers. At the time of sale, we record as a reduction of revenue a reserve for estimated price allowances based on historical allowances authorized and approved solely at our discretion.
 
Other allowances include customer quantity and price discrepancies. At the time of sale, we record as a reduction of revenue a reserve for other allowances based on historical experience. We believe we can reasonably and reliably estimate the amounts of future allowances.
 
 
Costs incurred in connection with the development of new products and applications are charged to operations as incurred. Research and development costs are included in selling, general and administrative expenses and totaled $163.7 million, $159.1 million and $140.9 million in fiscal 2008, 2007 and 2006, respectively.
 
 
Deferred tax assets and liabilities are recognized based on differences between the financial statement and tax bases of assets and liabilities using presently enacted tax rates. We have operations that are subject to income and other similar taxes in foreign countries. The estimation of the income tax amounts that we record involves the interpretation of complex tax laws and regulations, evaluation of tax audit findings and assessment of the impact foreign taxes may have on domestic taxes. A valuation allowance is provided to offset deferred tax assets if, based on available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
 
 
We use derivative instruments primarily to hedge activities related to specific foreign currency cash flows. We had no material derivatives outstanding at June 30, 2008 or 2007. The net impact of gains and losses on such instruments was not material to the results of operations for fiscal 2008, 2007 and 2006.


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Molex Incorporated
 
Notes to Consolidated Financial Statements — (Continued)
 
 
We have granted nonqualified and incentive stock options and restricted stock to our directors, officers and employees under our stock plans pursuant to the terms of such plans.
 
Accounting Changes
 
 
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. Among other things, FIN 48 requires application of a “more likely than not” threshold to the recognition and derecognition of tax positions. The adoption of FIN 48 did not have a material impact on our statement of financial position or on results of operations.
 
 
Effective for fiscal 2007, we adopted the provisions of SFAS No. 158 “Employers’ accounting for defined benefit pension and other postretirement plans.” SFAS No. 158 requires that the funded status of defined-benefit postretirement plans be recognized on the consolidated balance sheet, and changes in the funded status be reflected in comprehensive income. SFAS No. 158 also requires the measurement date of the plan’s funded status to be the same as our fiscal year-end in fiscal 2009.
 
New Accounting Pronouncements
 
 
In December 2007, the FASB issued SFAS No. 141R, Business Combinations. SFAS 141R states that acquisition-related costs are to be recognized separately from the acquisition and expensed as incurred with restructuring costs being expensed in periods after the acquisition date. SFAS 141R also states that business combinations will result in all assets and liabilities of the acquired business being recorded at their fair values. We are required to adopt SFAS No. 141R effective July 1, 2009. The impact of the adoption of SFAS No. 141R will depend on the nature and extent of business combinations occurring on or after the effective date.
 
 
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51. SFAS No. 160 requires identification and presentation of ownership interests in subsidiaries held by parties other than us in the consolidated financial statements within the equity section but separate from the equity. It also requires that (1) the amount of consolidated net income attributable to the parent and to the noncontrolling interest be clearly identified and presented on the face of the consolidated statement of income, (2) changes in ownership interest be accounted for similarly, as equity transactions, and (3) when a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary and the gain or loss on the deconsolidation of the subsidiary be measured at fair value. This statement is effective for us on July 1, 2009. We are currently evaluating the requirements of SFAS No. 160 but do not expect it to have a material impact on our financial statements.
 
 
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities— an amendment of FASB Statement No. 133. SFAS No. 161 requires enhanced disclosures about an entity’s derivative and hedging activities and thus improves the transparency of


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Molex Incorporated
 
Notes to Consolidated Financial Statements — (Continued)
 
financial reporting. This statement is effective for us on July 1, 2009. We are currently evaluating the requirements of SFAS No. 161 but do not expect it to have a material impact on our financial statements.
 
3.   Earnings Per Share
 
Basic earnings per share (EPS) is computed by dividing net income by the weighted-average number of common shares outstanding during the year. Diluted EPS is computed by dividing net income by the weighted-average number of common shares and dilutive common shares outstanding, which includes stock options, during the year. A reconciliation of the basic average common shares outstanding to diluted average common shares outstanding as of June 30 is as follows (in thousands, except per share data):
 
                         
    2008     2007     2006  
 
Net income
  $ 215,437     $ 240,768     $ 236,091  
                         
Basic average common shares outstanding
    180,474       183,961       185,521  
Effect of dilutive stock options
    921       1,604       1,895  
                         
Diluted average common shares outstanding
    181,395       185,565       187,416  
                         
Earnings per share:
                       
Basic
  $ 1.19     $ 1.31     $ 1.27  
Diluted
  $ 1.19     $ 1.30     $ 1.26  
 
Excluded from the computations above were anti-dilutive shares of 5.2 million, 1.9 million and 4.0 million in fiscal 2008, 2007 and 2006, respectively.
 
4.   Acquisitions
 
On July 19, 2007, we completed the acquisition of a U.S.-based company in an all cash transaction approximating $42.5 million. We recorded goodwill of $23.9 million in connection with this acquisition. The purchase price allocation for this acquisition is substantially complete.
 
On August 9, 2006, we completed the acquisition of Woodhead Industries, Inc. (Woodhead) in an all cash transaction valued at approximately $238.1 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.
 
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed for Woodhead at the date of acquisition (in thousands). Goodwill is non-deductible for tax purposes.
 
         
Current assets
  $ 95,724  
Land and depreciable assets
    47,946  
Goodwill
    177,093  
Intangible assets
    39,000  
         
Assets acquired
    359,763  
Liabilities assumed
    100,109  
Restructuring (See Note 5)
    3,999  
Non-current deferred tax liabilities, net
    17,583  
         
Total purchase price
  $ 238,072  
         


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Molex Incorporated
 
Notes to Consolidated Financial Statements — (Continued)
 
The following table illustrates the pro forma effect on operating results for the year ended June 30, 2006, as if we had acquired Woodhead as of the beginning of the year (the pro forma effect on the year ended June 30, 2007 was not material) (in thousands, except per share data):
 
         
Net revenue
  $ 3,084,000  
Income from operations
    325,000  
Net income
    246,000  
Net income per common share — basic
    1.33  
Net income per common share — diluted
    1.31  
 
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.
 
5.   Restructuring and Asset Impairments
 
Molex Restructuring Plans
 
During fiscal 2007, we undertook a restructuring plan designed to reduce costs and to improve return on invested capital as a result of a new global organization that was effective July 1, 2007. A majority of the plan relates to certain facilities located in North America and Europe and in general, the movement of manufacturing activities at these plants to other facilities. Net restructuring cost during the year ended June 30, 2008 was $31.2 million, resulting in cumulative costs since we announced the restructuring of $68.1 million. We have revised our initial estimate and now expect to incur total restructuring and asset impairment costs related to these actions ranging from $125 to $140 million, of which the impact on each segment 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. This plan includes employee reduction targets throughout the company, and we expect to achieve these targets through ongoing employee attrition and terminations. We expect to substantially complete the actions under this plan by June 30, 2010.
 
During fiscal 2008, we recognized net restructuring costs related to employee severance and benefit arrangements for approximately 900 employees, resulting in a charge of $17.6 million. A large part of these employee terminations occurred in our corporate headquarters and U.S. and Mexican manufacturing operations. In accordance with our planned restructuring actions, we have recorded additional asset impairment charges of $13.6 million to write-down these assets to fair value less the cost to sell.
 
During fiscal 2007, we recognized restructuring costs of $26.7 million related to employee severance and benefit arrangements for approximately 335 employees. A substantial majority of these employee terminations occurred within our Ireland manufacturing operations and various administrative functions in the Americas and European regions. In addition, we have vacated or plan to vacate several buildings and are holding these buildings and related assets for sale. This plan resulted in an impairment charge of $8.7 million to write-down these assets to fair value less the cost to sell these assets. The fair value of the asset groupings was determined using various valuation techniques.
 
During 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.


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Molex Incorporated
 
Notes to Consolidated Financial Statements — (Continued)
 
In the Americas region, we closed an industrial manufacturing facility in New England and have ceased manufacturing in our Detroit area automotive facility. In Europe, we closed certain manufacturing facilities in Ireland and Portugal and reduced the size of a development center in Germany. We also closed a manufacturing facility in Slovakia. Production from these manufacturing facilities was transferred to existing plants within the region. We also took actions that reduced our selling, general and administrative costs in the Americas and European regions and at the corporate office. We reduced headcount by approximately 500 people after additions at the facilities where production was transferred. These actions were substantially complete as of June 30, 2006.
 
A summary of the restructuring charges and related impairments for the fiscal years ended June 30 is summarized as follows (in thousands):
 
                         
    2008     2007     2006  
 
Connector:
                       
Severance costs
  $ 2,492     $ 3,492     $ 1,519  
Asset impairments
    9,482              
                         
Total
  $ 11,974     $ 3,492     $ 1,519  
                         
Transportation:
                       
Severance costs
  $ 662     $ 3,182     $ 7,789  
Asset impairments
    1,898       2,732       1,373  
                         
Total
  $ 2,560     $ 5,914     $ 9,162  
                         
Custom & Electrical:
                       
Severance costs
  $ 3,144     $ 8,721     $ 6,863  
Asset impairments
    193       3,485       426  
                         
Total
  $ 3,337     $ 12,206     $ 7,289  
                         
Corporate and Other:
                       
Severance costs
  $ 11,350     $ 11,307     $ 7,313  
Asset impairments
    2,026       2,450       1,071  
Other
          1,500        
                         
Total
  $ 13,376     $ 15,257     $ 8,384  
                         
Total:
                       
Severance costs
  $ 17,648     $ 26,702     $ 23,484  
Asset impairments
    13,599       8,667       2,870  
Other
          1,500        
                         
Total
  $ 31,247     $ 36,869     $ 26,354  
                         
 
Cumulative restructuring costs by segment since the announcement of the fiscal 2007 restructuring plan are $15.4 million for Connector, $8.5 million for Transportation, $15.6 million for Custom & Electrical and $28.6 million for Corporate and Other.
 
Woodhead Restructuring Plan
 
During fiscal 2007, management finalized plans to restructure certain operations of Woodhead to eliminate redundant costs resulting from the acquisition of Woodhead and improve efficiencies in


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Molex Incorporated
 
Notes to Consolidated Financial Statements — (Continued)
 
operations. The restructuring charges recorded are based on restructuring plans that have been committed to by management.
 
The total estimated restructuring costs associated with Woodhead were $4.0 million, consisting primarily of severance costs. These costs were recognized as a liability assumed in the purchase business combination and included in the allocation of the cost to acquire Woodhead and, accordingly, resulted in an increase to goodwill (see Note 4). Our restructuring expenses may change as management executes the approved plan. Future decreases to the estimates of executing the Woodhead restructuring plan will be recorded as an adjustment to goodwill indefinitely, whereas future increases to the estimates will be recorded as operating expenses.
 
Changes in the accrued severance balance are summarized as follows (in thousands):
 
                         
    Restructuring Plans  
    Molex     Woodhead     Total  
 
Balance at June 30, 2005
  $ 10,285     $     $ 10,285  
Charges to expense
    23,484             23,484  
Cash payments
    (17,828 )           (17,828 )
                         
Balance at June 30, 2006
  $ 15,941     $     $ 15,941  
Charges to expense
    26,702             26,702  
Purchase accounting allocation
          3,999       3,999  
Cash payments
    (11,788 )     (30 )     (11,818 )
Non-cash related costs
    (2,659 )           (2,659 )
                         
Balance at June 30, 2007
  $ 28,196     $ 3,969     $ 32,165  
Charges to expense
    20,711       655       21,366  
Cash payments
    (31,481 )     (3,498 )     (34,979 )
Non-cash related costs
    1,368       (78 )     1,290  
                         
Balance at June 30, 2008
  $ 18,794     $ 1,048     $ 19,842  
                         
 
6.   Inventories
 
Inventories, less allowances of $42.8 million at June 30, 2008 and $42.7 million at June 30, 2007, consisted of the following (in thousands):
 
                 
    2008     2007  
 
Raw materials
  $ 81,407     $ 85,320  
Work in progress
    144,683       107,394  
Finished goods
    232,205       199,966  
                 
Total inventories
  $ 458,295     $ 392,680  
                 


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Molex Incorporated
 
Notes to Consolidated Financial Statements — (Continued)
 
 
At June 30, property, plant and equipment consisted of the following (in thousands):
 
                 
    2008     2007  
 
Land and improvements
  $ 69,104     $ 67,943  
Buildings and leasehold improvements
    663,524       614,466  
Machinery and equipment
    1,641,110       1,502,406  
Molds and dies
    754,589       668,452  
Construction in progress
    115,763       92,157  
                 
Total
    3,244,090       2,945,424  
Accumulated depreciation
    (2,071,695 )     (1,824,055 )
                 
Net property, plant and equipment
  $ 1,172,395     $ 1,121,369  
                 
 
Depreciation expense for property, plant and equipment was $246.9 million, $232.8 million and $212.1 million in fiscal 2008, 2007 and 2006, respectively.
 
8.   Goodwill
 
At June 30, changes to goodwill were as follows (in thousands):
 
                 
    2008     2007  
 
Beginning balance
  $ 334,791     $ 149,458  
Additions
    29,147       183,677  
Foreign currency translation
    9,685       1,656  
                 
Ending balance
  $ 373,623     $ 334,791  
                 
 
On July 19, 2007, we completed the acquisition of a U.S.-based company in an all cash transaction approximating $42.5 million. We recorded goodwill of $23.9 million in connection with this acquisition. The purchase price allocation for this acquisition is substantially complete.
 
On August 9, 2006, we completed the acquisition of Woodhead in an all cash transaction valued at approximately $238.1 million, including the assumption of debt and net of cash acquired.
 
9.   Other Intangible Assets
 
All of the Company’s intangible assets other than goodwill are included in Other Assets. Assets with indefinite lives represent the use of acquired trade names. The value of these indefinite-lived intangible assets was $20.6 million and $18.7 million at June 30, 2008 and June 30, 2007, respectively. Intangible property assets with finite lives primarily represent customer relationships and rights acquired under technology licenses and are amortized over the periods of benefit.


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Molex Incorporated
 
Notes to Consolidated Financial Statements — (Continued)
 
The components of finite-lived intangible assets were as follows (in thousands):
 
                                                 
    June 30, 2008     June 30, 2007  
    Gross
          Net
    Gross
          Net
 
    Carrying
    Accumulated
    Carrying
    Carrying
    Accumulated
    Carrying
 
    Amount     Amortization     Amount     Amount     Amortization     Amount  
 
Customer-related
  $ 24,546     $ (3,120 )   $ 21,426     $ 18,591     $ (1,425 )   $ 17,166  
Technology-based
    19,192       (5,431 )     13,761       13,306       (2,859 )     10,447  
License fees
    9,561       (5,144 )     4,417       6,120       (4,799 )     1,321  
                                                 
Total
  $ 53,299     $ (13,695 )   $ 39,604     $ 38,017     $ (9,083 )   $ 28,934  
                                                 
 
During fiscal year 2008 and 2007, we recorded additions to intangible assets of $18.0 million and $41.7 million, respectively. We estimate that we have no significant residual value related to our intangible assets. The components of intangible assets acquired during fiscal years 2008 and 2007 were as follows (in thousands):
 
                                 
    Year Ended June 30,  
    2008     2007  
          Weighted
          Weighted
 
    Carrying
    Average
    Carrying
    Average
 
    Amount     Life     Amount     Life  
 
Customer-related
  $ 5,900       20 years     $ 16,696       22 years  
Technology-based
    5,800       10 years       6,200       5 years  
License fees
    4,390       5 years       50       1 year  
Trade names
    1,900       Indefinite       18,700       Indefinite  
                                 
Total
  $ 17,990             $ 41,646          
                                 
 
Acquired intangibles are generally amortized on a straight-line basis over weighted average lives. Intangible assets amortization expense was $5.5 million for fiscal year 2008, $5.1 million for fiscal year 2007, and $2.0 million for fiscal year 2006. The estimated future amortization expense related to intangible assets as of June 30, 2008 is as follows (in thousands):
 
         
    Amount  
 
2009
  $ 5,578  
2010
    5,168  
2011
    4,099  
2012
    4,019  
2013 and thereafter
    20,740  
         
Total
  $ 39,604  
         
 
10.   Investments
 
At June 30, 2008, we owned approximately 20% of a publicly traded affiliate accounted for under the equity method. At June 30, 2008, our portion of the market value of the investment was $72.7 million.


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Molex Incorporated
 
Notes to Consolidated Financial Statements — (Continued)
 
11.   Income Taxes
 
Income before income taxes and minority interest for the years ended June 30, is summarized as follows (in thousands):
 
                         
    2008     2007     2006  
 
United States
  $ 133,969     $ 86,229     $ 57,177  
International
    204,679       252,028       270,707  
                         
Income before income taxes
  $ 338,648     $ 338,257     $ 327,884  
                         
 
The components of income tax expense (benefit) for the years ended June 30, were as follows (in thousands):
 
                         
    2008     2007     2006  
 
Current:
                       
U.S. Federal
  $ 26,211     $ 5,406     $ 8,204  
State
    2,803       318       1,649  
International
    63,101       70,767       90,441  
                         
Total currently payable
  $ 92,115     $ 76,491     $ 100,294  
                         
Deferred:
                       
U.S. Federal
  $ 42,183     $ 12,579     $ 296  
State
    (89 )     370       (289 )
International
    (10,998 )     8,049       (8,508 )
                         
Total deferred
    31,096       20,998       (8,501 )
                         
Total income tax expense
  $ 123,211     $ 97,489     $ 91,793  
                         
 
Our effective tax rate differs from the U.S. federal income tax rate for the years ended June 30, as follows:
 
                         
    2008     2007     2006  
 
U.S. Federal income tax rate
    35.0 %     35.0 %     35.0 %
Permanent tax exemptions
    (1.3 )     (1.6 )     (2.6 )
Repatriation of foreign earnings
    (0.5 )     (4.5 )     (4.3 )
Tax examinations and settlements
    (0.2 )     (1.4 )     (0.9 )
Provision for tax contingencies
    1.0              
Valuation allowance
    (0.3 )     0.4       1.6  
Investments
                (0.8 )
State income taxes, net of Federal tax benefit
    0.8       0.4       0.4  
Foreign tax rates less than U.S. Federal rate (net)
    (4.4 )     (0.8 )     (0.8 )
Adjustments to foreign tax credits
    5.1              
Other
    1.2       1.3       0.4  
                         
Effective tax rate
    36.4 %     28.8 %     28.0 %
                         
 
The effective tax rate for fiscal 2008 increased due to adjustments to foreign tax credits, including (1) a change in estimate of $6.3 million in the third quarter of fiscal 2008, resulting from a difference between foreign tax credits estimated in our fiscal 2007 financial statements and subsequently


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Molex Incorporated
 
Notes to Consolidated Financial Statements — (Continued)
 
reflected in our fiscal 2007 tax return, and (2) a fourth quarter charge of $10.9 million to correct errors in the prior years’ tax pools used to calculate foreign tax credit carryforwards. The effective tax rate in fiscal 2007 was substantially unchanged from fiscal 2006.
 
At June 30, 2008, we had approximately $106.0 million of non-U.S. net operating loss carryforwards. Substantially all of the non-U.S. net operating losses can be carried forward indefinitely.
 
A valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized. As of June 30, 2008 and 2007, we have recorded valuation allowances of $38.3 million and $39.4 million, respectively, against the non-U.S. net operating loss carryforwards.
 
The components of net deferred tax assets and liabilities as of June 30 are as follows (in thousands):
 
                 
    2008     2007  
 
Deferred tax assets: