Capital Markets

Taser Stuns Investors with Filing Delay

Latest setback for the company, which last year restated earnings and was the subject of an SEC investigation.
Stephen TaubMay 12, 2006

Taser International disclosed in a regulatory filing that it will delay its March quarterly report after discovering errors in how it calculates manufacturing expenses applied to inventory, as well as a clerical error.

This is the latest setback for the maker of stun guns, whose share price plunged nearly 9 percent in Friday morning trading.

In January 2005, Taser disclosed an informal inquiry by the Securities and Exchange Commission on two matters: a recent order received from Davidson’s, a distributor for Taser since 1999, and company statements regarding the safety of its products, which according to published accounts have been linked to several deaths.

That spring, the company restated 2004 earnings. In September, Taser replaced its auditor, Deloitte & Touche, with Grant Thornton. At the time, Taser stated that it had erroneously treated certain stock-option grants as incentive stock options; the grants should have been classified as nonstatutory stock options because of the annual limitation on incentive stock options under applicable tax regulations, the company added.

Also last September, Taser disclosed that the SEC had upgraded its probe to a formal investigation into the possibility that individuals outside the company had acquired material nonpublic information in an effort to manipulate Taser’s share price. The SEC reportedly concluded its investigation without taking action against the company, but sales have continued to suffer.

Addressing the calculation errors on Friday, the company elaborated that historically, it had calculated the rate used to capitalize overhead into inventory using an incorrect number of direct-labor hours; as a result, Taser overstated both inventory and income. During this review, the company also identified a formulaic spreadsheet error in the calculations for the fourth quarter of 2005.

The changes will have no impact on revenue, stated the company, which will detail how it will restate prior results when it finally issues its March quarterly report. Taser did note, however, that since the errors were not identified when they occurred, a material weakness was deemed to exist as of March 31, 2006.

“Management has corrected the methodology for calculating indirect manufacturing expense applied to inventory,” stated the company, “and plans to implement additional procedures and controls surrounding the preparation and review of the overhead calculation, including verification of spreadsheet accuracy.”