Item 4.02 Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or
Completed Interim Review.
On December 6, 2007, based upon managements recommendation, the Audit Committee of
the Board of Directors of Merix Corporation (the Company) concluded that the Companys previously issued financial statements as of and for the first fiscal quarter ended September 1, 2007 (the Financial Statements)
should no longer be relied upon. The Company will file a Form 10-Q/A to restate the Financial Statements.
The Company
recently discovered several accounting errors made in the first fiscal quarter ended September 1, 2007. The errors were discovered by the Company in the normal course of its business processes. The most significant error was the result of the
Company authorizing a customer of the Oregon segment to return product for rework. The product was reworked and reshipped prior to quarter end, but the original invoice was not reversed. Instead, the product was reinvoiced upon reshipment to the
customer, which resulted in an overstatement of revenue, margins, net income, accounts receivable and shareholders equity. The net impact of this adjustment is a reduction of revenue and pre-tax income of $672,000 for the fourteen weeks ended
September 1, 2007. The Company also discovered similar errors in transactions relating to returned product at its San Jose facility that resulted in an adjustment to revenue and pre-tax income of $47,000 for the fourteen weeks ended
September 1, 2007.
Additionally, the Company discovered errors related to an overcapitalization of expenses related
to the installation of the Companys ERP system that overstated pre-tax income by $255,000 and errors in the valuation of inventory at the Companys San Jose facility that overstated pre-tax income by $219,000. The income tax impact of all
the adjustments was not significant. Management does not believe that any of these errors impacted periods prior to the first fiscal quarter ended September 1, 2007.
The following is a tabular summary of the impact of the restatement on the Companys unaudited consolidated statement of operations for the fourteen weeks ended September 1, 2007 (in
thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Statement Line Item
|
|
As Originally
Reported
|
|
|
Total Adjustment
|
|
|
As Restated
|
|
Net sales
|
|
$
|
100,149
|
|
|
$
|
(719
|
)
|
|
$
|
99,430
|
|
Cost of sales
|
|
|
86,106
|
|
|
|
372
|
|
|
|
86,478
|
|
Total operating expenses
|
|
|
14,703
|
|
|
|
102
|
|
|
|
14,805
|
|
Income tax expense
|
|
|
413
|
|
|
|
(3
|
)
|
|
|
410
|
|
Net income (loss)
|
|
|
(2,459
|
)
|
|
|
(1,190
|
)
|
|
|
(3,649
|
)
|
Diluted net income (loss) per share
|
|
|
(0.12
|
)
|
|
|
(0.05
|
)
|
|
|
(0.17
|
)
|
The impact on individual balance sheet line items was not material. Although none
of the adjustments had an impact on cash and equivalents, net cash provided by operations in the statement of cash flows decreased by $255,000 and cash provided by investing activities increased by the same amount.
The Audit Committee and management have discussed the matters described above with Grant Thornton LLP, its independent registered public
accounting firm.
The Company is evaluating the impact of these errors on its internal control over financial reporting and
disclosure controls and procedures. In the Form 10-Q/A, the Company expects that it will report one or more material weaknesses in its internal control over financial reporting and anticipates concluding that its disclosure controls and procedures
were not effective for the first quarter of fiscal 2008.
The currently anticipated effects of the restatement described
above are preliminary and may be subject to change as the Company completes its analysis of the impact of the accounting errors.
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