Loose Ends Short Circuit Financials

Merix Corp.'s quarterly numbers dip because of errors in accounting for repaired product, technology installation, and inventory valuation.
Stephen TaubDecember 12, 2007

Merix Corp., a small maker of printed circuit boards, said in a regulatory filing that it will restate it financials for the first fiscal quarter ended September 1, 2007 after discovering an assortment of accounting errors.

The most significant mistake was the result of the company authorizing a customer to return a product for rework. When the fixed product was reshipped, the original invoice was not reversed and the product was reinvoiced, which caused overstatements of revenue, margins, net income, accounts receivable, and shareholders’ equity, Merix explained.

As a result of the adjustment, the company will reduce revenue and pre-tax income by $672,000 for the quarter. A second, similar error caused an additional $47,000 hit.

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In addition, the company discovered errors related to an overcapitalization of expenses for installing an ERP system that caused pre-tax income to be overstated by $255,000, and errors in inventory valuation that led to a $219,000 overstatement of pre-tax income.

The restatement will widen Merix’s first-quarter net loss to 17 cents per share from a previously reported 12 cents per share, Reuters reported.

“Management does not believe that any of these errors impacted periods prior to the first fiscal quarter ended September 1, 2007,” the company stated in its filing.

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