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Molex Incorporated (MOLX)

F4Q10 (Qtr End 06/30/10) Earnings Call

August 3, 2010 5:00 PM EST

Executives

Steve Martens – VP, IR

Martin Slark – CEO

Dave Johnson – CFO

Analysts

Craig Hettenbach – Goldman Sachs

Jim Suva – Citi

Anil Doradla – William Blair

Steven Fox – CLFA

Amitabh Passi – UBS

Matt Sheerin – Stifel Nicolaus

William Stein – Credit Suisse

Ryan Jones – RBC

Steve O'Brien – JPMorgan

Shawn Harrison – Longbow Research

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the fourth quarter 2010 Molex Inc. earnings conference call. My name is Jasmine 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

Thank you, Jasmine. Good afternoon, everyone, and thank you for joining us today.

I’m joined on the call by Martin Slark, our Chief Executive Officer; Dave Johnson, our Chief Financial Officer; Liam McCarthy, our Chief Operating Officer; and Lisa Baittie, our Director of Investor Relations.

Please note that this call is being recorded and will be available for replay by accessing the Investor Relations section of our website. Presentation materials are also available on the website.

As usual, we’d like to limit this call to one hour. When we get to Q&A, we ask for one question per participant and one follow-up question. Thanks.

Before we turn our attention to the quarterly results, let's review our Safe Harbor statements.

During the course of this presentation, we’ll be providing forward-looking information and referring to non-GAAP measures. Please read carefully the Forward-Looking Statements 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

Thank you, Steve, and good afternoon, everyone. Before I talk about our Q4 results, I’d like give all of you a brief update on our Japanese fraud issue.

As previously reported, in April 2010, we launched an investigation when we learned that individual working in Molex Japan’s Finance Group had obtained unauthorized loans from third-party lenders that we used to cover losses from unauthorized trading.

That investigation is substantially complete, and is confirmed that this individual forged documentation in arranging and concealing the transactions, and the total amount of the potential loss has not changed significantly from the prior quarter.

Based on the results of the investigation to date, we have decided for accounting purposes to treat this amount as a loss in the historic financial statements to the company and record a liability for the outstanding unauthorized loans in the amount of $166 million as of June 30th.

We have recorded this liability by restating our financial statements with very little profit and loss impact in the prior three years, and most of the impact being and adjustment to beginning retained earnings.

Dave Johnson will speak more about this accounting treatment during this section of the call.

The accounting treatment that we have adopted does not in anyway change our view of this matter and we intend to vigorously contest any attempt by the holder of the unauthorized loans to seek payment.

Due to the sensitive nature of this ongoing legal issue, we will not be able to answer questions relating to the fraud on this call.

So now let me take you on to talking about our operating results for the quarter. And, if you’d like to turn to page three, and look at the slide that shows our order trend, I’ll talk about that trend.

Bookings for the quarter were an all-time record of $910 million, which is 9% higher than the March 2010 quarter and 58% above the June 2009 quarter. While we generally see an improvement in order rates in the June quarter, a 9% sequential increase is significantly above our normal average and indicates that our key markets continue to improve.

The order rate accelerated throughout the quarter and is continued to be strong in July. This we believe gives us the solid momentum going into the September quarter.

For the full year, our bookings were $3.23 billion, up 34% year-over-year. It’s worth noting that in APS, Asia Pacific South, our bookings were up 50%, and we now have bookings in that region almost equal to the combined bookings that we see in the Americas and Europe.

Our book-to-bill ratio was 1.07-to-1. This is still quite strong. However, we expect that this will moderate in the coming quarters, a sequential order increases assume more normal seasonal patterns as additional capacity comes on line.

Now, turn to page four, and I’ll talk a little bit about the order trend by industry. Automotive bookings decreased 1% sequentially, but increased 43% year-over-year. As automotive production tends to decrease in the September quarter with summer shutdowns and model changes, a slight sequential decline in bookings is not surprising.

Bookings in Europe decreased the most sequentially as incentive programs in these regions are winding down. June car sales in Europe were down 6% year-over-year. The US market has been recovering and is stabilizing in the range of 11 million to 12 million units per year. Dealer inventories remain low and it appears as domestic brands are taking some share back after a very poor period.

As a result, we saw a sequential increase in US bookings, which was offset by decreases in Europe. It’s interesting to note that China will most likely extend its lead over the US, selling an estimated 15.6 million vehicles versus a projected 11.8 million vehicles in North America. So the importance of the China market and the increasing electronic content in vehicles in those markets becomes even more important.

Bookings in the data market increased 12% sequentially and 54% year-over-year. We continued to see evidence of increased enterprise spending in networking, service and storage. Demand for our socket products continues to increase and new product introductions have generally been well received in this market.

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