Stamford International Inc

ssues

Financial reporting in the recent years through the SEC mandates has become one of the most important aspects to corporate management. Stamford International's problem is inherent in the discrepancy in reporting system and accounting irregularities from the various aspects of the business. Not only has this but Stamford, due to rapid growth not been able to accommodate for the expansionary activities like acquisitions of units and international transactions. The result has been the experience of loss in earnings-per-share. In the following analysis, the researcher thus will outline some of the problems that Stamford should address and resolve accordingly to be able to post a positive quarterly report and remain compliant with the SEC regulations and become ready for signing of the Sarbanes-Oxley certification.

Analysis

Earnings-per-share ratio is an estimate to measure the overall profit generated for each share for a particular period. Reportage of earnings-per-share is used to disclose to the shareholders, who in turn estimate the kind of dividends they expect at the year end. Issues relating to earnings-per-share should be analyzed as it reflects on the marketability of the shares to investors and shareholders. From David Morris (CEO) and Bill Lawrence's (CFO) discussion one understands that Stamford needs to re-evaluate its financial status to be able to meet the standards set by the SEC.

In this context the first step should be to estimate the earnings-per-share. Although there is no doubt that earnings-per-share cannot be manipulated it can be estimated by using proper accounting practices and according to the generally accepted accounting principles (GAAP). In my opinion the company's first quarter earnings-per-share results should be reflected in the following manner (see table below).

Table: Revised Earnings-per-share based on meeting discussion

Stamford International Inc.3

Discrepancy EPS (C/share) Last quarter EPS (C/share) 1st Quarter

Preliminary figure 52 47

Extra charge for maintenance -2 +2

Cost of relocating Southern Paper Sioux Springs Office - 3 +3

Dividend from Brazilian investment -4

Write off of obsolete inventories of Grazzini -6

Advertising expense +2

Unrealized gain from currency hedge +4

Restructuring reserve equivalent +2

Projected figure 47 50

In order to secure a higher earnings-per-share for last year's fourth quarter, the company has estimated 57 cents per share which included projected income and unused expenses. For example the extra charge for maintenance accumulated from last year and for this year should be equally divided and not charged to the first quarter only. Similarly, cost of relocating the Southern Paper Sioux Springs office that has been charged to the first quarter, had been the expenditure incurred last year. It should not have been included in the first quarter. No doubt these are good accounting practices but nevertheless reverting the charges to their respective results would not compromise GAAP practice. Unrealized income would be better off transferred to the next or the last quarter as the income received would not materialize until at the end of the year. Including the dividend from the company's Brazilian unit would not help increase profitability at the end of the year unless the company is assured of its profitability. As of now it needs to balance its accounts before it can estimate correct profit level at the end of the year. With regard to the obsolete inventories, there is no alternative course of action but to write-off from this quarter's operating income which accounts for six cents because its recovery is

Stamford International Inc.4

unlikely. Similarly advertising charged to the first quarter whereby its benefits are being materialized in April, May and June should be added as unused expense rather than an expense (and reported nevertheless). Furthermore, the relative dollar hedge gain realized during this month should be included as unrealized exchange gain and not transferred to the second quarters. Lastly, considering the need of the hour for high earnings, the company should also include its restructuring reserve equivalent two cents per share into the first quarter results. This should be done because the company needs to project a positive earnings-per-share and secondly because restructuring have been underway since last year and during this year too which have resulted in the shortfall in earnings. Given these discrepancies in my opinion as CEO of the company, the ideal earnings-per-share figure should be 50 cents and revise its previous quarter