(Adds VeriFone's response to suit and settlement)
DOW JONES NEWSWIRES
VeriFone Holdings Inc. (PAY) swung to fiscal third-quarter
profit as restructuring costs pushed the company into the red last
year, but the company suffered a blow Tuesday when the Securities
and Exchange Commission accused it of overstating earnings by more
than $37 million in 2007.
The company settled the suit, which also named former
supply-chain controller Paul Periolat, without admitting or denying
the allegations. VeriFone consented to a permanent injunction
against violating securities laws, while Periolat will pay a
$25,000 civil penalty and agreed to a similar injunction.
In after-hours trading, VeriFone's shares were up 6.4% at $11.84
as the company signaled its outlook is brightening as the latest
results topped expectations. The stock has lost half its value
since October, but has more than doubled since March.
The SEC alleged a worker falsified books, at the insistence of
senior management, to compensate for an unexpected decline in gross
margins. When the misrepresentations came to light in 2007, the
company's stock price fell almost half, wiping out $1.8 billion of
its market capitalization in one day.
"Through poor oversight and controls, VeriFone senior management
allowed an employee to make millions of dollars of unsubstantiated
accounting adjustments that enabled the company to meet its
guidance to Wall Street," said Marc J. Fagel, director of the SEC's
San Francisco regional office.
For its part, VeriFone said it was pleased to get the matter
behind it. "We will continue to focus on serving our customers,
growing our businesses, and creating a more secure electronic
payment environment," said Douglas G. Bergeron, VeriFone's chief
executive. "Over the past 18 months, the company has substantially
improved its governance and internal controls in order to prevent a
recurrence of this type of event."
The company also pointed out that the SEC's complaint doesn't
accuse the company of intending to misstate its financial results
or to mislead anyone.
As for Verifone's current operations, "We believe that our
business has begun to recover and we are seeing mildly improving
market conditions in both our domestic and international markets,"
Bergeron said, citing a 53% rise in adjusted earnings from the
prior quarter.
For the year, VeriFone now expects adjusted earnings of 83 cents
to 85 cents a share on revenue of $835 million to $842 million. The
company had been tamping down on expectations for the period, in
June projecting earnings of 65 cents to 70 cents a share on revenue
of $810 million to $830 million.
Verifone also forecast fourth-quarter earnings of 23 cents to 25
cents on revenue of $208 million to $215 million. Analysts surveyed
by Thomson Reuters, on average, projected 19 cents and $203
million, respectively.
Faced with a weak economy and rising competition, the maker of
credit-card processing machines has been cutting costs, especially
in North America.
For the quarter ended July 31, VeriFone reported a profit of
$21.9 million, or 26 cents a share, compared with a year-earlier
loss of $7.2 million, or 9 cents a share. The prior year included a
net 41 cents of charges.
Revenue dropped 18% to $211.2 million, falling 9% in the more
profitable North American region and 17% in Europe. The smaller
Latin America region posted the biggest decline, at 49%, while Asia
bucked the trend with a 24% increase.
In June, VeriFone expected adjusted earnings of 15 cents to 18
cents a share on revenue of $202 million.
Gross margin narrowed to 34.1% from 34.2%.
-By Jay Miller, Dow Jones Newswires; 212-416-2355;
jay.miller@dowjones.com
