EXHIBIT 16.1
[Letterhead of Deloitte & Touche LLP]
November 30, 2004
Securities and Exchange Commission
Mail Stop 11-3
450 5th Street, N.W.
Washington, D.C. 20549
Dear Sirs/Madam:
We have read Item 4.01 of Form 8-K of Molex Incorporated (the
"Company") dated November 13, 2004 and have the following
comments:
FIRST PARAGRAPH
We agree with the statements made in this paragraph.
SECOND PARAGRAPH
We have no basis upon which to agree or disagree with the
statements made in this paragraph.
THIRD AND FOURTH PARAGRAPHS
We agree with the statements made in these paragraphs.
FIFTH PARAGRAPH
We have no basis upon which to agree or disagree with the
statements made in this paragraph, as we did not complete our
review of the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended September 30, 2004 prior to our resignation.
SIXTH PARAGRAPH
The statements made by the Company in the first four sentences of
this paragraph are describing events which occurred in July 2004
shortly after the Company's June 30, 2004 fiscal year end and
before the Company had issued a press release on July 27, 2004,
announcing its fiscal 2004 results and before the Company filed,
on September 10, 2004, its financial statements for fiscal 2004.
Deloitte and Touche LLP ("Deloitte" or "D&T") did not become
aware of such events until subsequent to October 14, 2004. Our
comments below are based solely on discussions with management
and the Audit Committee Chairman, and a written chronology (the
"Chronology") prepared by the then, Vice President, Treasurer and
Chief Financial Officer (the "CFO") which was provided to us by
the Audit Committee Chairman on November 2, 2004. Based upon the
foregoing, we have the following comments:
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* We agree with the statements made in the first sentence of
this paragraph. For purposes of clarity, the issue was that
intercompany profit included in "in-transit" inventory had not
been eliminated in consolidation (the "PII Error"). This error
resulted in an overstatement of inventory with a corresponding
overstatement of income for each historical period in which the
elimination was not made.
* We disagree with the statement made in the second sentence
of this paragraph because it is incomplete. The CFO's Chronology
also indicates that at the July 21, 2004 meeting: (1) the
President and Chief Operating Officer and one of the Co-Chairmen
of the Company's Board of Directors also attended; (2) in
addition to the PII Error, the possible reversal of a self-
insurance reserve was discussed; and (3) the CFO's Chronology
indicates that "the group also discussed whether this issue" (the
PII Error) "should be reported to D&T and the Audit Committee as
part of the year-end audit".
* We disagree with the statements made in the third sentence
of this paragraph because the Chronology indicates that the
amount of the PII Error was known at the time of the July 21,
2004 meeting and was subject only to a determination as to how
the PII Error had occurred.
* We have no basis upon which to agree or disagree with
management's stated conclusions in the fourth sentence of this
paragraph.
With respect to the fifth sentence of this paragraph, we agree
that the Company issued a press release on July 27, 2004. We
make no comment as to the accuracy or completeness of the
Company's press release.
We agree with the statements made in the sixth sentence of this
paragraph; however, such statements do not indicate that the
representation letter was also later signed by the Executive Vice
President/President Far East South, and that a second
representation letter, dated September 10, 2004, reaffirming the
representations made as of August 20, 2004, was provided to us
and was signed by the Vice Chairman and Chief Executive Officer
(the "CEO") and the CFO.
SEVENTH PARAGRAPH
We agree with the statements made in the first sentence of this
paragraph.
We disagree with the statements made in the second sentence of
this paragraph because it is incomplete and inaccurately suggests
that the amount of the PII Error was not known. The Company
initially recorded approximately $2 million of the PII Error in
the first quarter of fiscal 2005 and indicated an intention of
recording the remainder in the subsequent fiscal 2005 quarters.
Also, the Company indicated that the reversal of the self-
insurance reserve would be recorded to offset a portion of the
remaining adjustments resulting from the PII Error. The
Company's reference to a "full analysis of all inventory
allowances" has no impact on the PII Error.
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We agree with the statements made in the third sentence of this
paragraph. For purposes of clarity, we had not previously been
informed of the PII Error, nor were we informed in the
October 15, 2004 meeting that the PII Error and self-insurance
reserve matters had been identified by the Company prior to the
filing of the Company's 2004 annual report on Form 10-K.
We agree with the statements made in the fourth sentence of this
paragraph. For purposes of clarity, the Company had not recorded
a reduction to its inventory allowances or self-insurance reserve
at the time of the October 15, 2004 meeting. The Company's
written analysis, provided to us at this meeting, also indicated
that the reductions in the inventory component allowance of
$300,000 to $500,000 were appropriate, and that the Company's
accounts receivable reserve was potentially overstated by
approximately $3 million to $4 million.
We agree with the statements made in the fifth sentence of this
paragraph. For purposes of clarity, the potential over accrual
of the accounts receivable reserve of $3 million to $4 million
was also discussed at the October 19, 2004 Audit Committee
Meeting.
We disagree with the statements made in the sixth sentence of
this paragraph because as of October 19, 2004 we had performed no
procedures regarding the amount of the PII Error and were not in
a position to have been in agreement with such amount. We agree
that we disagreed with the Company's proposed accounting
treatment for the PII Error.
We agree with the statement made in the seventh sentence as to
the timing of recording of such adjustment, however, we disagree
with the statement suggesting that the PII Error was an estimate.
The amount of the PII Error was determinable and known to
management.
We agree with the statements made in the eighth sentence of this
paragraph. For purposes of clarity, after the October 19, 2004
Audit Committee Meeting, the CFO informed us that if the Company
were required to record the entire PII Error in the first
quarter, she would offset the entry by recording adjustments to
inventory allowances so that income for the quarter would not
change from the preliminary income amount available at the time
of the October 15, 2004 meeting. The reported income amount
shown in the Company's October 20, 2004 press release and in its
Form 10-Q filing for the quarter ended September 30, 2004 do not
differ from the preliminary income amount available on
October 15, 2004.
With respect to the ninth sentence of this paragraph, we agree
that the Company issued a press release on July 27, 2004. We
make no comment as to the accuracy or completeness of the
Company's press release.
We agree with the statements made in the tenth sentence of this
paragraph. For purposes of clarity, on October 21, 2004, we had
not completed our procedures relating to the adjustment recorded
by the Company for the reduction in inventory allowance since the
support had not been provided to us by the Company.
We have no basis upon which to agree or disagree with the
statements made in the eleventh sentence of this paragraph.
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EIGHTH PARAGRAPH
We agree that the CFO made the statements as indicated in the
first sentence of this paragraph; however, the CFO's
characterization of the PII Error as "potential" was not correct
because the amount of the PII Error was known in July 2004.
We disagree with the statement made in the second sentence of
this paragraph because it is incomplete and inaccurate. On
October 28, 2004, we informed the Co-Chairmen of the Board that
the CFO had knowledge of the errors prior to filing the June 30,
2004 Form 10-K and failed to disclose such errors to us. Later
that day, we informed the Audit Committee Chairman. At that time
we requested that the Audit Committee, with assistance of
experienced counsel, conduct an investigation into the matter to
determine the facts and circumstances surrounding the CFO's
knowledge of the errors at the time she signed the representation
letters; whether anyone else at the Company had knowledge of the
errors; whether the CFO had instructed anyone to withhold such
information from us; whether there were any other events which
had transpired that had not been properly communicated; whether
there were any other significant reserve adjustments, accounting
matters or errors that had not been disclosed by management to
us; and whether any illegal acts had occurred. We advised the
Audit Committee Chairman that we would be unable to complete our
review of the first quarter until the investigation was completed
to our satisfaction and any remedial action was taken. We
further informed the Audit Committee Chairman that it was highly
unlikely that we would be willing to continue to rely on the
CFO's representations in connection with our reviews or audits.
We have no basis upon which to agree or disagree with the
statements made in the third sentence of this paragraph as to the
CEO's and CFO's actual beliefs; however, the stated beliefs are
inconsistent with the written representations included in the
representation letters to us dated August 20, 2004 and
September 10, 2004 and signed by the CEO and CFO on September 10,
2004, which state, among other things, that there are no
transactions (such as the PII Error and the self-insurance
reserve over-accrual) that had not been properly recorded in the
accounting records, and that no matters had come to management's
attention subsequent to June 30, 2004 that required consideration
as adjustments to or disclosures in the financial statements.
We disagree with the statements made in the fourth sentence of
this paragraph. As discussed above, on October 28, 2004 we
requested that the Audit Committee conduct an investigation and
informed them we would be unable to complete our review of the
Company's financial statements for the quarter ended
September 30, 2004 until such investigation had been completed to
our satisfaction and any appropriate remedial action had been
taken.
NINTH PARAGRAPH
We disagree with the statements made in the first sentence of
this paragraph because they are incomplete. On November 1, 2004,
we met with the CEO, and he informed us that he set the tone for
communications and that he probably did discuss with the CFO not
informing Deloitte of the PII Error; and that he had not read the
representation letter prior to signing it.
On November 2, 2004, the Chairman of the Audit Committee provided
us with the Chronology prepared by the CFO stating that the
matters in question had been discussed at the July 21, 2004
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management meeting. As a result of receiving this information,
we informed the Chairman of the Audit Committee that our
willingness to rely on representations of the CEO was now also in
question. On November 3, 2004, we informed the Chairman of the
Audit Committee of the following: (1) we had concluded that we
were no longer willing to rely on the representations of either
the CEO or the CFO; (2) the Audit Committee should conduct an
investigation and engage outside independent counsel to directly
assist the Audit Committee; and (3) we would be unable to
complete our review of the first quarter until the investigation
was completed to our satisfaction and any appropriate remedial
actions were taken.
We have no basis upon which to agree or disagree with the
statements made in the second and third sentences of this
paragraph. Such statements are consistent with the written
report that was ultimately provided to us.
We agree with the statements made in the fourth sentence of this
paragraph.
We disagree with the statements made in the fifth sentence of
this paragraph because they are incomplete. On November 9, 2004,
after receiving a verbal report on the results of the
investigation, we informed the Audit Committee Chairman and
independent counsel that the investigation was not complete and
that additional work should be performed to; (1) resolve the
discrepancies between the facts as presented to us by the
investigators and the information contained in the Chronology,
the comments made to us by the CEO discussed above and other
information provided to us by the Audit Committee Chairman;
(2) perform a search of personal files and emails to determine
whether other individuals had knowledge of the matters and
whether there were other accounting matters or errors that had
not been disclosed to us; and (3) determine whether any illegal
acts had occurred.
We agree with the statements made in the sixth sentence of this
paragraph. For purposes of clarity, the written report was
provided to us on November 11, 2004 and a written supplement was
provided to us on November 13, 2004.
TENTH PARAGRAPH
We agree with the statements made in the first sentence of this
paragraph. For purposes of clarity, we were provided with a
draft of the Form 12b-25 less than two hours before the filing
deadline. We were in the process of providing our comments on
the draft of the Form 12b-25 to the Company's outside counsel,
when we were informed by them that there was insufficient time to
consider our comments prior to the filing deadline. We make no
comment as to the accuracy or completeness of the Company's
Form 12b-25 filed on November 10, 2004.
We agree with the statements made in the second sentence of this
paragraph.
We have no basis upon which to agree or disagree with the
statements made in the third sentence of this paragraph; however,
as previously stated, we had informed the Audit Committee
Chairman that we were no longer willing to rely on the
representations of either the CEO or the CFO.
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We disagree with the statements made in the fourth sentence of
this paragraph. Various members of Senior Management and the
Board informed us that they believed the investigation could show
that the CEO did not knowingly misrepresent matters to us. We
informed the Company that we could reconsider our willingness to
rely on the CEO's representations if the results of the
investigation so warranted; however, as the investigation was not
complete, we did not withdraw our previous communication
regarding our unwillingness to rely on the CEO's representations.
ELEVENTH PARAGRAPH
We agree with the statements made in the first and fifth
sentences of this paragraph.
We disagree with the statements made in the second and third
sentences of this paragraph as to the imposition of new
conditions. We had previously communicated to the Audit
Committee Chairman and the Co-Chairmen of the Board that we were
unwilling to rely on the representations of the CEO and CFO and
that their having roles in the Company in which they would have
significant authority or responsibilities with respect to the
Company's accounting books and records, financial reporting, or
system of internal control would not be acceptable. After
considering the Company's November 10, 2004 announcement that the
Vice President, Treasurer and Chief Financial Officer would be
reassigned to the position of Vice President and Treasurer, we
concluded that under the circumstances, the parameters of such
previous communications would preclude both the CEO and former
CFO from being officers of the Company. We informed the Company
of such conclusion on November 13, 2004.
We have no basis upon which to agree or disagree with the
statements made in the fourth sentence of this paragraph.
TWELFTH PARAGRAPH
We agree with the statements made in the first and third
sentences of this paragraph.
We agree with the statements made in the second sentence as to
the timing of recording of such adjustment, however, we disagree
with the statements suggesting that the PII Error was an estimate
as opposed to an error whose amount was determinable and known to
management.
We agree with the statements made in the fourth sentence of this
paragraph. For purposes of clarity, we did not complete our
review of the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended September 30, 2004 prior to our resignation.
In addition, we make no comment as to the accuracy or
completeness of the Company's press release.
THIRTEENTH PARAGRAPH
We agree with the statements made in this paragraph.
FOURTEENTH PARAGRAPH
We agree with the statements made in the first sentence of this
paragraph.
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We have no basis upon which to agree or disagree with the
statements made in the second sentence of this paragraph.
Yours Truly,
/s/ Deloitte & Touche LLP
Cc: Louis A. Hecht, Corporate Secretary and General Counsel,
Molex Incorporated
Cc: Robert B. Mahoney, Executive Vice President, President Far
East South and Acting Chief Financial Officer, Molex
Incorporated
Cc: Douglas K. Carnahan, Chairman of Audit Committee, Molex
Incorporated
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