MOLEX Case
Financial Reporting Problems at Molex, Inc. (A)
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n mid-November 2004, Molex's Board of Directors met to decide the future of Joe King and Diane Bullock, the company's CEO and CFO respectively. Molex's external auditors, Deloitte &c Touche, had accused both of failing to disclose an $8 million pre-tax inventory valuation error in a recent letter of representation to the auditors. In response, King and Bullock argued that at the time of their letter they had determined that the financial impact of the error was immaterial. Despite an inquiry by the Audit Committee, which concluded that management had not deliberately withheld information from the auditors, Deloitte & Touche was not satisfied. The audit firm insisted that it could no longer rely on Bullock's and King's representations, and would be unable to complete its review of the first quarter results until representations were received from a new CFO and in all likelihood a new CEO.
MOLEX BACKGROUND AND MANAGEMENT
Founded in Lisle, Illinois in 1938 by Frederick Krehbiel, Molex Inc. designed, manufactured and distributed electronic connectors that were used by a wide range of industries.1 For example, in the computer industry its connectors were used to produce computers, servers and printers; in the telecommunications industry they were used to produce mobile phones and networking equipment; the consumer products industry used Molex connectors to manufacture CD and DVD players, cameras, plasma and LCD televisions; and the automotive industry used them for the production of engine control units and adaptive breaking systems. In 2003, Molex was the second largest firm in the connector industry, with a worldwide share of 6.9%, and production and distribution facilities located throughout the world.2
12-24
Professor Paul Healy prepared this case. This case was developed from published sources. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as
:
.
n mid-November 2004, Molex's Board of Directors met to decide the future of Joe King and Diane Bullock, the company's CEO and CFO respectively. Molex's external auditors, Deloitte &c Touche, had accused both of failing to disclose an $8 million pre-tax inventory valuation error in a recent letter of representation to the auditors. In response, King and Bullock argued that at the time of their letter they had determined that the financial impact of the error was immaterial. Despite an inquiry by the Audit Committee, which concluded that management had not deliberately withheld information from the auditors, Deloitte & Touche was not satisfied. The audit firm insisted that it could no longer rely on Bullock's and King's representations, and would be unable to complete its review of the first quarter results until representations were received from a new CFO and in all likelihood a new CEO.
MOLEX BACKGROUND AND MANAGEMENT
Founded in Lisle, Illinois in 1938 by Frederick Krehbiel, Molex Inc. designed, manufactured and distributed electronic connectors that were used by a wide range of industries.1 For example, in the computer industry its connectors were used to produce computers, servers and printers; in the telecommunications industry they were used to produce mobile phones and networking equipment; the consumer products industry used Molex connectors to manufacture CD and DVD players, cameras, plasma and LCD televisions; and the automotive industry used them for the production of engine control units and adaptive breaking systems. In 2003, Molex was the second largest firm in the connector industry, with a worldwide share of 6.9%, and production and distribution facilities located throughout the world.2
12-24
Professor Paul Healy prepared this case. This case was developed from published sources. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as