HEROES
The private group which owns 84% of WCI STEEL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WRN)") else Response.Write("(NYSE: WRN)") end if %> wants to take the integrated steel company private once again, only two years after taking it public. Today's announcement confirmed rumors a few weeks old. The shares rose to $9 5/8, up $1 1/8, but remained under the $10-per-share tender/merger offer that Renco Group made for the shares it does not own. Renco's offer contains provisions that at least 6% of the outstanding shares be tendered for the merger to take place. In addition, it wants to reschedule company debt to cover the costs of the merger and to pay itself a special dividend. To own the entire company once again, Renco would need to come up with a maximum of $60 million for WCI, which generated free cash flow of $13 million, gross cash flow of $33.9 million, and operating cash flow of $77.3 million through the first nine months of 1996.
IN FOCUS SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: INFS)") else Response.Write("(NASDAQ: INFS)") end if %> were projected upward $5 3/8 to close at $18 3/4 today after the company reported a return to profitability in its third quarter. The company has had a rough go of things over the last year as they lost control of margins while revenues kept on growing. In Focus manufactures LCD projection systems and display panels. The company is the world's leader in the market and one can point to considerable secular growth, considering that there are many classrooms without such projection systems. Thus, investors have been quite enthusiastic about In Focus's prospects. At high valuations, the stock is bound to stumble when it can't follow up with the numbers. When the management can get back to achieving strategic objectives and putting margins back on track without cannibalizing its value-added products or future products, as it showed today, investors can't be faulted for coming back to the stock.
Semiconductor design software firm AVANT! CORPORATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AVNT)") else Response.Write("(NASDAQ: AVNT)") end if %> rushed upward $4 1/2 to close at $33 3/4. Just before the market closed, word came across the newswire that the company would acquire privately-held FrontLine design software. The deal is valued as of the close today at $74 million. Avant and competitor CADENCE DESIGN <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CDN)") else Response.Write("(NYSE: CDN)") end if %> have been making a number of mergers in the race toward building complete software packages for designing deep-submicron semiconductors. That description just means that the widths on semiconductor circuits fall further below the one micron level (one micron = 1 millionth of a meter) and designing those semiconductors is becoming more complex, as the discipline deals with quantum physics. Cadence announced last week a merger proposal with private High Level Design, while Cadence just closed a deal with Anagram and has a merger agreement pending with META-SOFTWARE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MESW)") else Response.Write("(NASDAQ: MESW)") end if %>, which popped up $1 1/2 to $13 3/4.
TEKELEC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: TKLC)") else Response.Write("(NASDAQ: TKLC)") end if %>, a diagnostic equipment and network-switching system developer, soared $4 3/4 to $16 3/4 after the company told Dow Jones that it will achieve a profit in the third quarter. The company says the order rate for the company reached record levels in the third quarter. Congratulations, Tekelec. However, it would probably be more of a service to investors if you were to release such information to the general public rather than just telling one proprietary news service.
QUICK TAKES: Logic maker ALTERA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ALTR)") else Response.Write("(NASDAQ: ALTR)") end if %> moved up $6 1/8 to $60 after reporting third quarter earnings of $0.52 per share, beating estimates by a penny. The company achieved the earnings on higher R&D spending and a good outlook for the fourth quarter... BRODERBUND SOFTWARE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: BROD)") else Response.Write("(NASDAQ: BROD)") end if %> closed up $2 3/8 at $26 1/2 after reporting fourth quarter operating profits down 38% from last year's Q4. The company earned approximately $0.20 per share before a one-time charge and is looking forward to a fuller pipeline in 1997... Retailer GAP INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GPS)") else Response.Write("(NYSE: GPS)") end if %> moved up $1 1/2 to $28 1/4, though it reported flat same-store sales in September.
GOATS
MARINER HEALTH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MRNR)") else Response.Write("(NASDAQ: MRNR)") end if %> plummeted $5 15/16 to $7 3/8 after the company announced this morning that earnings in the coming quarter will be 20% below estimates for the third quarter and in subsequent quarters. The company is girding its loins for an uncertain future with respect to government entitlement programs, saying ""The Medicare program is drastically underfunded and in need of significant reform." In addition, the company believes that Medicare reimbursement policies are being changed through federal administrative fiat outside the purview of the legislative process. The healthcare provider is building reserves against possible reductions in Medicare payments and may also have to record charges in the future as it "insulates its earnings stream" against future legislative changes.
Broad-line chip maker ATMEL<% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ATML)") else Response.Write("(NASDAQ: ATML)") end if %> reported stronger revenues and above-estimate earnings, but fell $4 to $30 1/8. Investors are somewhat nervous about the company's book/bill falling below 1.0 at the end of the quarter, as competition in EPROM devices is heating up. Though investors focused on EPROM competition, the company also announced that it will counter that softness by getting into markets where other niche players like XILINX <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: XLNX)") else Response.Write("(NASDAQ: XLNX)") end if %> or ALTERA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ALTR)") else Response.Write("(NASDAQ: ALTR)") end if %> rule. In addition to logic, the company also wants to make inroads into the digital signal processing (DSP) markets.
QUICK CUTS: Internet catalog company YAHOO! <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: YHOO)") else Response.Write("(NASDAQ: YHOO)") end if %> slipped $2 to $20 1/2 after reporting revenues of $5.5 million and a loss of $1.1 million in its third quarter. Messing around with the numbers found in the company's press releases, the company actually might be earning per-person ad rates resembling those of a medium-market radio station and not one of the world's largest search engines. To be fair, though, not many radio stations are growing 60%+ sequentially... FRONTIER AIRLINES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: FRNT)") else Response.Write("(NASDAQ: FRNT)") end if %> lost altitude today, dropping $1 7/16 to $5 3/16 after reporting a second quarter loss and breaking a two-quarter streak of profitability.
FOOL ON THE HILL
An Investment Opinion by MF Templar
PLS -- An IPO Nightmare
PARACELSUS HEALTHCARE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PLS)") else Response.Write("(NYSE: PLS)") end if %> stunned shareholders today after it announced it would have to restate past earnings results, recalibrate its balance sheet, and close a number of facilities in order to stay in business. Although the New York Stock Exchange-listed company appears to be sitting at $10 1/8 currently, this is illusory as the stock never opened for trading today. As specialists scrambled to find buyers for the shares, investors stared at the press release trying desperately to determine whether or not there was any value in the hospital operating company. This is a far cry from the optimism that surrounded the company when it came public in mid-August at a little more than $7 a share. "Lucky" initial public offering (IPO) buyers might have found themselves in a pickle now, however.
Yesterday Paracelsus told the Street to expect a larger-than-anticipated loss for the fiscal third quarter, based on a number of negative factors impacting the hospital group. At first glance, the reasons seemed pretty normal -- the company's psychiatric hospitals were not doing too well and certain Los Angeles hospitals were also sucking wind. But then the company listed certain "reimbursement accounting issues" and mentioned the need to "revise [its] allowances for certain accounts receivable." As a result of the change in its balance sheet, the company will be forced to review whether or not it is in compliance with its bank convenants, an event that could plunge the owner and operator of 31 hospitals and four skilled nursing care units into bankruptcy.
The news was bad enough that the board immediately hired the law firm of Wilmer, Cutler & Pickering to supervise an outside inquiry into the financial accounting of Paracelsus, including financial reporting practices and procedures and "certain" corporate reserve practices for all quarters prior to September 30, 1996. Based on a preliminary review by outside accountants, Paracelsus will have to restate and amend its fourth quarter report for fiscal 1995 as well as the first and second quarters of this year. The company is being forced by the accountants to adjust the use of reserves and recognition of certain bad debt expenses, collection expenses, and facilities closure costs.
On top of the report restatement, which always spooks the heck out of investors, things are not all that rosy. Paracelsus will divest itself of certain Los Angeles metropolitan area hospitals that are not expected to improve anytime soon. In anticipation of this, the company is going to treat results from these companies as discontinued operations -- a fairly sizable assumption, since it has not yet found a buyer for the properties.
Unfortunately, not all of the bad news was out. The company asked the New York Stock Exchange to halt trading in the stock at approximately one o'clock today for news pending, as if this morning's release had not been bad enough. This was a request that the exchange probably found ridiculously easy to comply with, as the shares were already being held due to an order imbalance.
Unlike the Nasdaq National Market, on the listed exchanges like the New York and the American, one firm is designated as a specialist for a particular security. The specialist's role is to match buyers with sellers in order to make and maintain a liquid market in the stock. When big news happens to relatively thinly-traded stocks, it can take hours for the normally unoccupied specialist to plow through all of the orders in order to match them. In this particular situation, the specialist's difficulty might have been exacerbated by the fact that there were virtually no buyers, given the surprising character of the news and the uncertain implications for future profits.
With $509.7 million in revenues for fiscal 1995 and 9,300 employees, Paracelsus is no small operation. Although unclear at this point in time, the company's recent merger with Champion Healthcare could possibly be the root cause of the accounting discrepancies. Privately-held Paracelsus saw about one-third of its cash flow come from its Utah operations alone before it bought up Champion's ten hospitals and became publicly-traded in August as a result of the transaction. The confusion of the merger, the public offering, and the broken trust between the company and its large institutional shareholders pretty much spell doom for the company, whose current market capitalization is $540 million -- a little more than one times sales.
Investors who think this might be a speculative addition to their portfolios might want to consider some other great frauds of the past and how they turned out. When WOOLWORTH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: Z)") else Response.Write("(NYSE: Z)") end if %> announced in fiscal 1994 that it had been cooking the books for years, the retailer fell from $35 to $14 before recovering to the $20 range. Investors who bought after the initial bad news are still waiting to break even. WELLCARE MANAGEMENT GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: WELL)") else Response.Write("(NASDAQ: WELL)") end if %> is still trading near its 52-week low after it was revealed that the company was falsely reporting checks it never mailed out as costs to match imaginary revenues. BABY SUPERSTORE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: BSST)") else Response.Write("(NASDAQ: BSST)") end if %> fell from around $50 to its current buy-out price of $20-something after it had been revealed that more than $21 million in inventory had to be written off or had simply disappeared. Certainly, these situations are sometimes very interesting. However, investors should always remain very cautious and never feel in a hurry to get in first without reviewing all of the facts.
FOOLISH FEATURES
Today we've got a News Outlook so bright, you've got to wear shades, er... sunglasses, courtesy of the Sunglass Hut. Sunglass Hut is featured in the Fool Plate Special in Today's Lunchtime News
We'll also have a special section on retail same-store sales, as well as a reprise of the Proposition 211 collection we did on Tuesday. We're bringing that back because another company, Novellus, has announced that they will no longer make forward-looking statements due to the possible passage of Prop 211. Obviously, the more reluctant a company is to talk about their future prospects, the more difficult it becomes for investors to make informed decisions..
CONFERENCE CALLS
None
Dale Wettlaufer (MF Raleigh),
a Fool
A Fool Named Horse
Selena Maranjian (MF Selena),
a Fool
Heroes & Goats & Editing