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The results of a lengthy audit VeriFone Holdings Inc. released yesterday show larger than anticipated inventory-accounting errors for its first three fiscal quarters of 2007, resulting in dramatic reductions in its restated reports. VeriFone's fiscal year ends Oct. 31. In December, the San Jose, Calif.-based point-of-sale terminal maker disclosed that an internal audit found accounting errors in its inventory value (CardLine, 12/3/07). Initially, VeriFone estimated the reduction in inventories would be $7.7 million less in the first quarter of 2007, $16.5 million less for the second quarter and $30.2 million less in the third quarter. The audit, conducted by approximately 70 investigators assembled by Simpson Thacher & Bartlett LLP, a New York-based law firm, and Navigant Consulting Inc., a Chicago-based consulting firm, involved a review of more than 5 million documents. It found the reductions in inventory for the three quarters much larger. First-quarter 2007 reduction in inventory was $13.3 million less than originally stated, the second-quarter's was $23.9 million less and the third-quarter's was $40.6 million less. The audit also found the company should reduce the income-before-income-tax line items for each quarter, resulting in $12.5 million less income for the first quarter of 2007, $9.9 million less income for the second quarter and $14.4 million less income for the third quarter. Consequently, VeriFone's financial performance fell dramatically for each of the three quarters. Originally, VeriFone reported a net loss of almost $1 million in the first quarter of 2007, but the audit found the loss actually was $5.7 million on revenue of $216.4 million. For the second quarter, VeriFone originally reported net income of $4.9 million, but the audit shows the company had a net loss of $4.8 million on revenue of $216.9 million. For the third quarter, VeriFone originally reported net income of $13.4 million, but the audit now shows VeriFone had a net loss of $42.4 million on revenue of $231.7 million. Total revenue numbers were adjusted slightly from original figures, but were not subject to the investigation. The audit also found no evidence for irregularities outside of the first three quarters of 2007, VeriFone said. VeriFone reported fourth-quarter 2007 net income of $18.9 million on revenues of $237.9 million. During a conference call with analysts yesterday, Douglas G. Bergeron, VeriFone CEO, said the four-month investigation confirmed that some accounting employees at a Sacramento, Calif., distribution center made incorrect accounting entries. The accounting manager there was fired.
