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Molex Inc. (MOLX)

F3Q10 (Qtr End 03/31/10) Earnings Call

April 27, 2010 05:00 PM ET

Executives

Steve Martens - VP, IR

Martin Slark - CEO

Dave Johnson - CFO

Analysts

Craig Hettenbach - Goldman Sachs

Joe Wittine - Longbow Research

Brian White - Ticonderoga

Anil Doradla - William Blair & Company

Samuel Mann [ph] – Citi

Ryan [ph] - RBC Capital Markets

Amit Daryanani - RBC Capital Markets

Operator

Good day ladies and gentlemen and welcome to the third quarter 2010 Molex Incorporated earning conference call. My name is Janeta and I will be your operator for today. At this time, all participants are in a listen-only mode. (Operator Instructions)

As a reminder this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Steve Martens, Vice President of Investor Relations, please proceed.

Steve Martens

Hello everyone and thanks for taking some time to join us today for our quarterly call. I am joined on the call by Martin Slark our CEO, Dave Johnson, our CFO and Liam McCarthy our COO. Please note that this call is being recorded and will be available for replay by accessing the Investor Relations section of our website. Presentation material are also available on the website. As usual we’d like to limit this call to one hour, when we get to the Q&A we ask for one question per participant and one follow-up question.

Before we turn our attention to the quarterly results, let's review our Safe Harbor statements which are on slides 1 and 2 of the presentation materials. During the course of this presentation we will be providing forward-looking information and referring to non-GAAP measures. Please read carefully the forward-looking statement section of our press release and Form 10-K for an understanding of the risks and uncertainties associated with forward-looking information and the reconciliation of non-GAAP measures to GAAP.

And now I will turn the call over to Martin.

Martin Slark

Good afternoon everyone and thank you again for joining our call and thank you Steve. Before we start the main call, I just wanted to give all of you a quick update on our situation in Japan. As you know we announced publicly on April 9th that we recently learned that Molex have been a victim of a fraud on the part of an individual in our Japanese subsidiary. We have engaged legal counsel, Jones Day and they have in turn engaged forensic accountants, Alex partners, to investigate this matter. Based on the investigated input and written oral statements from the individual involved, we believe that he forged documentation that enabled him to borrow money from Japanese banks in Molex Japan’s name on an unauthorized basis and then concealed those transactions. We believe he used the unauthorized borrowings primarily to fund losses on unauthorized security trades also made in Molex’s name.

At this point we believe that the total amount involved in this fraud scheme is approximately $193.2 million of which we have recognized a loss in the quarter of $31 million and disclosed a contingent liability of $162.2 million. The contingent liability represents the current balance of unauthorized borrowings at Molex Japan. Since this matter is the subject of an ongoing investigation we hope that you will understand that we will not be able to answer any questions on this call relating to this fraud, but we will certainly update you as soon as we have appropriate information to release.

Now let’s turn our attention on to the quarter’s results. If you could turn to page three I will start by talking about our order trends. Overall bookings for the quarter were $838 million, up 8% sequentially and 77% year-over-year. Given that this comparison is to the low point of last year’s downturn we expected strong result. But these results are much stronger than our most optimistic projections.

Excluding last year’s downturn, our average sequential increase in bookings in Q3 versus Q2 is about 3% to 4% versus the 8% we saw this quarter. The ongoing recovery was clearly far more important than any seasonal factors this quarter. The year-over-year numbers were the strongest that I have ever seen in my career at Molex and as you will hear shortly, our booking strength was very broad based. It is worth noting that our March monthly bookings were a new record for the company and our April run rate is above the level that we have reported for Q3.

Today we have not seen any evidence of double ordering, but we have some distributors trying to rebuild inventory, strong orders for new product launches of some customers and some building of inventory in preparation for a predicted stronger second half for this calendar year. And I will give you a few more data points on your concerns perhaps in that area later in my presentation.

Overall our book-to-bill ratio for the quarter was a very strong 1.11. If you turn now to page 4 I will talk about the changes in our orders by industry segment for the March quarter. Our booking strength as you can see from the chart was very broad based. The percent of our bookings now coming from focused accounts is over 26% of the total. This is further evidence of the success of our focused account program which is helping both our growth and our margins. Automotive bookings were up 8% sequentially and 80% year-over-year. We continue to benefit from incentive schemes in Japan and from some countries in Europe. Although as I’m sure you know the incentive schemes have now stopped in Germany.

Read the rest of this transcript for free on seekingalpha.com