Napco Execs Explain Restatement, Address Stock Price Plunge
Last week, Napco's stock price plunged amid fears of fraud. Now, Napco's executives have addressed the restatement that triggered this. Were these fears and stock decline overdone?
In this note, we examine Napco's explanation of what happened and the outlook for the company.
Net ****** ******** **** *******
*** ****** *** ******** ****** **% *** ******** ** ****, from *** ********** ******** $**.* ******* to *** ***-****** $*.* *******. ***** first ********* **** *** ***** ***, saying:
********** ** *** ******* ********** ******************** ** *** *******'* *********** ** cost ** ***** **** ("****") *** inventory *** **** ** *** ***** three ******** ** ****** ****. ************, although ********** ******* ********************************* ****** ****** ****, *** *******'* costing ********** *** *** ************* ******* for **** ************. ** * ******,inventories **** ********** *** **** *** ***********, resulting in overstated gross profit, operating income and net income for each period. [emphasis added]
CEO ********
***** ***** **** ******** ******* **** month, **** **** ***** ** *** general ***** ** ***** **** ****** ago**** *** *** *********:
******** **bought * *** ** ********** ** **** **** ***** and we had to do that had to keep the recurring revenue going. Now we have solutions to get away from now. We don't have to buy parts from brokers. But we **** ** **** ******* **** *********. That inventory is still high. We cut our inventory level by $3.4 million this quarter, but we have a lot more work to do in further cutting of inventory. And as we cut that inventory, we're going to work through those higher cost components and that will lead to more normalized, lower costs [emphasis added]
**** **** ***** ***** **** ** substantially, *** **** ****** ** ********* those ***** ** *** ****.
LIFO **. **** **********
***** ***** ** **** ***** ***** was **** **** ********* *** ***********:
*** ******* *** ***** *** ******* toenhance *** ******** ******* procedures for determining inventory cost in accordance **** **** and COGS at the end of each fiscal quarter and will continue to refine these procedures and controls. [emphasis added]
** **** **** ** ********** **** were ***** ****, *.*., **** **, first *** ******* *** ***** ********* instead ** ***** **, ***** *** (FIFO).
**** ** ********* ******* ***** *****-****** the **** ** ***** ********, ******** they **** ****** ***** **** ********* components *** ***** **** ***********, ***** is * ********** **********. *** **** would ***** ** ****** **** * premium *** ***** ********** ** **** were *** ***** **** ***********?
CFO ********
** **** ****'* ******** ****, *****'* *** ******** * ******** elaborating ** *** **** ****** *********:
*** ********* *** ****** ***** ****** from *** */**/** ******* *******. **** that ***** ** **** ** ** example, ** * ********* *** ****** at $** ** **** **, ****.
**** **** $** *** **** ** value *** ********* *** *** ***** quarter, *** ***’* ***, *** ****** quarter *** ***’* ***, *** ***** quarter. *** **** ** **** ********* was ****** ****, ** ****** $**, $5 ***** **** *** *******. *** value *** ********* ** $**, ***’** overstating **** ********* **** *** *** a ********* ** **** ******* *****. If ***’** *********** **** ********* *** your ******* *****, **** ***** *** other **** ** *** ******** ** you’re ************ **** **** ** ***** sold. ** *** ******* ** ** with ****.
** **** **** **** ** ***** by **** ******* ********* **** *** year ***** ****** **** ******* ** they **** *** **** ****** *** year:
***can’t *** *** ***** ****’* ******** ********* ********* going forward. normal conditions, it could use it, but in fluctuating pricing times and who knows what the times are going to be going forward times seem to be better now, the fluctuations seem to be gone. But we’re ***** ** **** * ****** ***** ** ******* ***** *********** ****** *** ******** *** ** ******* **** *** ***** if there is a new price to value the inventory in each quarter.
**’** ** ** ** *** ********* the ***** *** ***** *** ******* end, ** ** ******* *, ***’* say, *** *** ******** *** ** the *******, **’** ******* ***** *********** that ****** ** ** **** *** we’ll **** **** **** *** ********* valuation *** *** ******* ******** *** correct *****.
** ***** **** *****'* ******** **** this *** ** ****** ** **** as *** **** *** ******* ***** when **** ****** *** **** ********* inventory:
**** ** *** **** ******* **** is **********. **** **** ********** **** from ***, **** ** **** ** affected. **** ** ******** ********** **** inventory – ** ***** *** *********** your **** ** ***** ****. ** you ***********, **** **** ** ***** sold, **** ***** *** ********** **** net ******. *** ****’* **** ** is ***. **’** ***** ** *** this, *** **’** ***** *** ******* of ****** **.
*** ****’* *** **** *** * could ******* **, ****. **’* ******* to ** **** **** *** ***** that **** ********** ** ******, **’* – ***’** *** ** ****** **** inventory, ***** **** *********, ***’** *** to ***** **** **** ** ***** sold, *** **** ******* *******. ****’* what ** ***.
** *** ***** ****, *** *********** the **** ****** ********** ***** ****, when **** **** ****, ****** ********* into ******** *** *****-**** ******* **** much ******.
Plunge, ****** ********
***** ******** **% ** *** *********** news, *****'* ***** *** ********* ******** but ** ***** **** ~**% ***** this *****:
** *** ***** ****, **** ******* this ****, *** ***** *** ***** more **** ******* ** *** **** five *****:
*** ***** ****** ************** ** ***** nearly ***** ****** * ******* (~$*** million ** *** ******), ***** ****** relative ** *** ~$*** ******* ****** sales.
* ***** **** *** * *** of ******** ** **** *** ***** price ******** **.
* ***** **** **** ******** *** investment ***** ** *** **** **** who **** ******* ** ***** ** a *** ** ********* **** *** security ****** ** **** ** ***** tech ********. ** ******** ******* *** that * ****'* **** ********* ** their ******* *** ** ****** *** good ** ** **** ** ***********, but * ****'* *** **** *** financials ****** ** ***** ** ******** specific.
***'* *** * *** ********* ** see ****.