Jack-
I am not sure how are "wide" those discrepancies really are.
the CEO says
"It is important to understand that about half of this loss is a paper loss caused by an unusually strong UK pound as of Dec. 31, 1996. US accounting rules require us to revalue all receivables as of the end of each accounting period. Our UK subsidiary had a large amount of US$ denominated receivables outstanding as of Dec. 31, and based on the strength of the UK pound against the US dollar, the company recorded a significant paper loss on these receivables.
The strengthening of the US dollar against the UK pound in 1997 has meant that this paper loss has not been realized. The remainder of the loss stems from a combination of events, primarily lower than planned margins on work produced in Asia, due to technology implementation problems and other inefficiencies related to our rapid expansion in this region in the last part of the year." They do attribute much of the disappointing results to simply a "paper loss from an unusually strong UK pound" -end quote
That said, it is clear to me that their 12/10 comments which predicted a profitable 4th quarter were highly injudicious. There was no need for the CEO to go so far to suggest the 4th quarter would be profitable, especially when you consider there obviously was some chance of it not happening. (it is not like people were expecting .05 or .10/share for 4q)
It would probably have sufficed to say "Due to a deluge of inquiries by investors as a result of our declining stock price, I do want to state nothing tangibly has changed with our business. Sales and growth prospects continue to be strong."
Instead, CEO Seal, went too far, gave out too much info, made predictions, and now we see why he should have showed some restraint. The resulting disappointment caused the stock to plummet from the 1 11/16 trading area to 1 1/16, a whopping 37% decline in price causing investors thousands of dollars in losses.
So, while I do think the credibility of management has been diminished somewhat, revenues are growing rapidly (the numbers don't lie -I hope). It does seem the company will become profitable this year and are a very good long-term investment.
I should qualify my remarks by saying they are based upon the company's performance and PR over the last 6 months.
Do you know of prior misleading statements that would suggest this may be a "trend"?
Thanks!
jason |
