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HEROES

Federal Express parent FDX Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FDX)") else Response.Write("(NYSE: FDX)") end if %> delivered a $4 5/16 gain to $69 5/16 after reporting late yesterday third quarter earnings of $0.65 per share (before charges) versus pro forma EPS of $0.41 for the prior-year period. The First Call mean earnings estimate was $0.58, but the company had guided down estimates earlier this year. Strong U.S. business growth overcame a loss overseas that resulted from weakness in the Asian economies, competitive pricing, and increased costs due to added flights that increased capacity by 25% to 30%. During a conference call, FDX said it has scaled back previous expansion plans and is closely monitoring the Asian economic situation. In the third quarter, FedEx incurred a $6.8 million operating loss in its international operations on revenues of $859.2 million. The company said currency translation reduced international operating income by about $10 million. Although the company expects FedEx's international operations to be profitable in the seasonally strong fourth quarter, international results for fiscal 1998 will be below fiscal 1997 levels.

McDonald's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MCD)") else Response.Write("(NYSE: MCD)") end if %> rose $2 3/8 to $55 3/8 after the fast-food (quick-serve, in industry parlance) restaurant king announced initiatives to improve restaurant operations, enhance returns, and reduce expenses. The company expects to take a special charge in of about $170-$190 million in the second quarter that will help its restaurant owners convert to a new food-preparation system called "Made for You," which the company hopes will help boost slow U.S. sales and preserve eroding mindshare. The company says the new system will allow its restaurants to serve hotter and fresher food as well as cut food waste and save an average of about $15,000 per year per restaurant. The "Made for You" system is expected to fill an order within 25 seconds after the customer places it, a dramatic change from McDonald's current practice of serving pre-made food waiting in heating bins. At its Oak Brook, Illinois, headquarters, the company also plans to "streamline" operations, which will likely lead to job cuts.

QUICK TAKES: Pentium chip manufacturer Intel <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTC)") else Response.Write("(Nasdaq: INTC)") end if %> moved up $1 15/16 to $78 3/16 after announcing that it is increasing its stock repurchase program by 100 million additional shares. The company also reported that Andy Grove will step down as CEO but remain as chairman. Craig Barrett, current president and chief operating officer, will replace Grove as CEO... Mortgage merchant banking specialist Matrix Capital <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MTXC)") else Response.Write("(Nasdaq: MTXC)") end if %> surged $6 9/16 to $27 5/16 after announcing that it has agreed to merge with a newly formed subsidiary of title insurance and real estate services provider Fidelity National Financial <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FNF)") else Response.Write("(NYSE: FNF)") end if %>. Matrix shareholders will receive 0.80 shares of Fidelity National common stock together with cash in lieu of any fractional share. The exchange ratio has been collared between $35 and $28.75 per Fidelity share.

Regional airline Mesa Air Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MESA)") else Response.Write("(Nasdaq: MESA)") end if %> took off for $1 to $9 5/8 after announcing the appointment of Jonathan Ornstein, currently president and CEO of Brussels-based low-cost carrier Virgin Express, as its new CEO as of May 1... Sheldahl Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SHEL)") else Response.Write("(Nasdaq: SHEL)") end if %>, which makes high-density substrates, high-quality flexible printed circuitry, and flexible laminates, added $1 9/16 to $12 1/16 after announcing it has received multiple production orders from semiconductor supplier Texas Instruments <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TXN)") else Response.Write("(NYSE: TXN)") end if %> for a ViaThin high-density tape ball-grid array package designed for application-specific integrated circuits, which will be used in telecommunications applications... Information and communication provider Data Transmission Network <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DTLN)") else Response.Write("(Nasdaq: DTLN)") end if %> leapt $3 5/8 to $35 5/8 after announcing late yesterday that it has received an unsolicited buyout offer from a group of investors led by Jerrold Pressman. The offer is to buy up to all of the outstanding shares at a price range of $36 to $41 or more per share.

Drug maker Gliatech Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GLIA)") else Response.Write("(Nasdaq: GLIA)") end if %> jumped $1 1/8 to $11 1/4 after announcing that it has reached an agreement with the FDA on ADCON-L labeling. A few more steps remain to be completed before obtaining final FDA approval, which the company expects to happen in the middle of this year... Province Healthcare <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PRHC)") else Response.Write("(Nasdaq: PRHC)") end if %> gained $2 5/8 to $24 5/8 after the healthcare services provider reported late yesterday a fourth quarter loss of $0.09 versus a loss of $0.41 for the year-earlier period, "on target with our expectations"... Motor vehicle parts manufacturer Echlin Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ECH)") else Response.Write("(NYSE: ECH)") end if %> revved up $3 1/16 to $52 on reporting second quarter earnings of $0.42 a share, compared with $0.37 for the year-earlier quarter. This marks the company's first year-over-year increase in quarterly earnings since 1995.

ACE Ltd. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ACL)") else Response.Write("(NYSE: ACL)") end if %> added $3 11/16 to $40 15/16 after announcing that it will acquire CAT Ltd., a privately held, Bermuda-based property catastrophe reinsurer, for approximately $711 million in cash. The acquisition will create a company with assets totaling more than $7 billion. CAT will become part of ACE's existing property catastrophe subsidiary, Tempest Re... Sales and marketing services provider Snyder Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SNC)") else Response.Write("(NYSE: SNC)") end if %> added $2 3/4 to $46 5/8 after announcing that it has acquired Arnold Communications Inc. of Boston and Publimed Promotions SA in separate pooling-of-interests transactions that will be accretive to 1998 and 1999 earnings per share. Paris-based Publimed Promotions is a provider of outsourced pharmaceutical sales and marketing services, while Arnold is one of the largest independent integrated marketing communications firms in the U.S.

NCI Building Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BLDG)") else Response.Write("(Nasdaq: BLDG)") end if %>, which makes metal building systems, components, and roll-up doors for non-residential and steel-frame housing industries, rose $3 to $43 1/4 after announcing it will acquire BTR PLC's Metal Building Components Inc., which makes metal roof and wall systems... Apex Silver Mines <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SIL)") else Response.Write("(NYSE: SIL)") end if %> moved up $7/8 to $12 3/8 after The New York Times reported that international financier George Soros and his brother Paul control nearly 20% of the silver exploration and mining company. Louis Bacon, CEO of Moore Capital Management and another hedge fund operator, also holds about 6.9% of Apex. Other mining companies benefited from the news. Hecla Mining <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HL)") else Response.Write("(NYSE: HL)") end if %> shot up $15/16 to $6 1/2. Battle Mountain Gold <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BMG)") else Response.Write("(NYSE: BMG)") end if %> added $9/16 to $6 1/8. Homestake Mining Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HM)") else Response.Write("(NYSE: HM)") end if %> gained $5/8 to $10 1/2. Coeur d'Alene Mines <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CDE)") else Response.Write("(NYSE: CDE)") end if %> moved up $7/8 to $12 1/2. Newmont Mining <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NEM)") else Response.Write("(NYSE: NEM)") end if %> jumped $2 1/4 to $30 7/8, and Barrick Gold <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ABX)") else Response.Write("(NYSE: ABX)") end if %> rose $1 1/2 to $21 5/16.

Graphics and applications software publisher Adobe Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ADBE)") else Response.Write("(Nasdaq: ADBE)") end if %> gained $3 5/8 to $48 in advance of being halted late this afternoon. The company was expected to report Q1 EPS within a range of $0.38 to $0.54, but came in with EPS of $0.33 before a gain... Disk drive makers gained ground today, with Quantum <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QNTM)") else Response.Write("(Nasdaq: QNTM)") end if %>, Western Digital <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WDC)") else Response.Write("(NYSE: WDC)") end if %>, and Seagate <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SEG)") else Response.Write("(NYSE: SEG)") end if %> up 6.4%, 4.4%, and 3.6%, respectively, on word that Compaq <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPQ)") else Response.Write("(NYSE: CPQ)") end if %> is further reducing prices on consumer desktop models to clear out inventories... Personal computer products distributor Tech Data <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TECD)") else Response.Write("(Nasdaq: TECD)") end if %> gained $1 7/8 to $40 1/8 after reporting late yesterday fourth quarter earnings of $0.53 per share on sales of $2.11 billion, up from $0.40 on sales of $1.31 billion in the year-earlier period.

Colonel's International <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: COLO)") else Response.Write("(Nasdaq: COLO)") end if %> climbed $1 1/4 to $9 1/4 after the auto and light-truck parts manufacturer announced it is in merger talks with Durakon Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DRKN)") else Response.Write("(Nasdaq: DRKN)") end if %>... Los Angeles area land holder Tejon Ranch <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: TRC)") else Response.Write("(AMEX: TRC)") end if %> gained $1 7/8 to $30 after announcing that Geoffrey Stack, a managing director of Sares-Regis Group, has joined its board. Sares-Regis is one of the largest commercial and residential real estate companies in the western U.S... Transgene SA <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TRGNY)") else Response.Write("(Nasdaq: TRGNY)") end if %> jumped $4 1/4 to $18 3/4 from an initial public offering price of $14.50. Each American depositary receipt represents one third of one share in the French biotechnology company.

RATINGS CHANGES: Let's Talk Cellular & Wireless <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LTCW)") else Response.Write("(Nasdaq: LTCW)") end if %> soared $2 3/4 to $16 5/8 after Merrill Lynch reiterated its "buy" rating on the cellular and wireless company... Digital Microwave <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DMIC)") else Response.Write("(Nasdaq: DMIC)") end if %> leapt $1 11/16 to $15 after Salomon Smith Barney initiated coverage of the wireless equipment company with a "buy" rating... Cypress Semiconductor <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CY)") else Response.Write("(NYSE: CY)") end if %> jumped $1 to $10 1/16 as Cowen & Co. raised its rating on the integrated circuits manufacturer to "buy" from "hold."

GOATS

Sumitomo Bank of California <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SUMI)") else Response.Write("(Nasdaq: SUMI)") end if %> tumbled $12 1/4 to $38 1/4 after agreeing to merge with Salt Lake City-based Zions Bancorp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ZION)") else Response.Write("(Nasdaq: ZION)") end if %> in a deal valued at $546 million. Zions will pay $38.25 per share in cash to non-majority shareholders. Japanese keiretsu Sumitomo Ltd., which owns 85% of Sumitomo Bank's stock, will receive $32.36 in cash for its shares. Zions definitely wanted to advertise the fact that it snagged the company at 1.27 times tangible book value and around 10.7% of assets, suggesting a high level of accretion to its financials. Analyst Erick Reim of Piper Jaffray says Zions will sell off $1.18 billion in mortgages and syndicated loans the bank holds, resulting in a net increase to Zions' assets of around 40%. The challenge will be to balance with increased service and product offerings the possible attrition from the sizable Japanese retail customer base that may prefer to do business with other Japanese-owned banks. Should Zions be able to hold assets steady following the $1.18 billion sale of assets and generate a return on assets similar to what it achieves throughout its system, the deal could add $0.80 to 1999's estimated EPS of $2.57, spelling EPS accretion of 31% in the first full year of the combination.

Network connectivity products maker Emulex Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EMLX)") else Response.Write("(Nasdaq: EMLX)") end if %> slid $1 7/8 to $9 7/8 after saying it will take a $13 million charge to fiscal Q3 earnings to close its manufacturing facility in Puerto Rico and put 130 workers, or 48% of its workforce, out on the street. The company plans to outsource the production of its product lines to contract electronics manufacturer K-TEC Electronics, a unit of Kent Electronics <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KNT)") else Response.Write("(NYSE: KNT)") end if %>. The company's products include fibre channel, print server, and network access products, placing it in head-to-head competition with the likes of Hewlett-Packard <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HWP)") else Response.Write("(NYSE: HWP)") end if %>, Adaptec <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ADPT)") else Response.Write("(Nasdaq: ADPT)") end if %>, and QLogic Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QLGC)") else Response.Write("(Nasdaq: QLGC)") end if %>. Apparently Emulex is having some trouble keeping up. According to its latest 10-Q financial report, operating expenses as a percentage of revenues jumped to 38.1% in fiscal Q2 from 33.1% the year before. Using the cost savings generated from outsourcing production is a quick way to eliminate this problem and reflects why original equipment manufacturers in general have ceded more and more of their actual manufacturing to contract electronics manufacturers like Kent.

QUICK CUTS: Automated fingerprint identification systems developer Printrak International <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AFIS)") else Response.Write("(Nasdaq: AFIS)") end if %> was booked for a $1 3/8 loss to $8 1/4 after announcing that its Q4 operating results will be "significantly below" earlier expectations due to a restructuring plan that includes the integration of its TFP Inc. mugshot management subsidiary... Electromagnetic radiation absorption films maker Southwall Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SWTX)") else Response.Write("(Nasdaq: SWTX)") end if %> was nuked $1 to $7 after saying it will report a fiscal Q1 loss on lower-than-expected revenue because of lower product yields caused by mechanical and process problems... Electronic communication network equipment supplier C-COR Electronics <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CCBL)") else Response.Write("(Nasdaq: CCBL)") end if %> was jolted $1 11/16 to $13 5/16 after its president and CEO resigned to take another position in the communications industry.

Database management software developer Red Brick Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: REDB)") else Response.Write("(Nasdaq: REDB)") end if %> slipped $1/4 to $6 after a group of investors sued the company, alleging misrepresentations of revenues and deferred expenses in its financial report for the fourth quarter of 1996... DRAM testing systems maker Aehr Test Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AEHR)") else Response.Write("(Nasdaq: AEHR)") end if %> was spun for a $15/32 loss to $6 7/32 after reporting fiscal Q3 EPS of $0.12, in line with the First Call mean estimate. The company said it expects shipments to decline in Q4 due to the Asian financial crisis and that the outlook for many key clients remains "uncertain"... Managed care health insurance holding company Provident American Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PAMC)") else Response.Write("(Nasdaq: PAMC)") end if %> lost $1 1/2 to $5 1/4 after saying it expects a Q4 loss after charges of $12 to $15 million compared to net income of $1 million a year ago.

Komag Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: KMAG)") else Response.Write("(Nasdaq: KMAG)") end if %>, which makes thin film media disks for computer disk drives, sank $9/16 to $15 1/16 after saying that it expects a fiscal Q1 loss that will "significantly exceed" the Street estimate of a $0.53 per share loss due to continuing adverse market conditions and intense pricing pressures... Interactive entertainment software developer Broderbund Software <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BROD)") else Response.Write("(Nasdaq: BROD)") end if %> slumped $2 13/16 to $21 1/16 on reporting fiscal Q2 EPS of $0.18, which was in line with the First Call mean estimate. The company said it is considering a cost-cutting program, which will result in a $2 million charge to Q3 earnings.

Heilig-Myers Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HMY)") else Response.Write("(NYSE: HMY)") end if %>, which operates its namesake furniture stores, Mattress Discounters, and Rhodes home furnishings stores, was bounced for a $7/8 loss to $14 7/16 after reporting a Q4 loss of $0.50 per share. The results missed the First Call mean earnings estimate of $0.10 per share and included a $48.9 million charge, nearly a quarter of which was for stepping up credit loss reserves... Ackerley Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AK)") else Response.Write("(NYSE: AK)") end if %>, which owns TV and radio stations along with the Seattle Supersonics professional basketball team, was dunked for $1 3/8 to $21 15/16 today. The firm announced yesterday that it would sell up to 1.5 million shares in a public offering, including 500,000 beneficially owned by its CEO... Medical practice management firm Complete Management <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CMI)") else Response.Write("(NYSE: CMI)") end if %> dropped $1 5/16 to $9 1/16 after reporting Q4 EPS of $0.15 versus $0.16 a year ago, missing the First Call mean estimate of $0.23.

Seismic data equipment provider Mitcham Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MIND)") else Response.Write("(Nasdaq: MIND)") end if %> fell $3 3/4 to $13 after saying its Q4 earnings will not meet the Street's estimate of $0.33 per share. The company blamed unexercised purchase options on leased equipment and an increase in its allowance for doubtful accounts related to certain international customers for the shortfall... Vitamins and nutritional supplements maker Rexall Sundown <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RXSD)") else Response.Write("(Nasdaq: RXSD)") end if %> slipped $4 7/16 to $31 7/8 after an analyst told the Wall Street Journal that he feels the company's shares are overvalued and it may be a short possibility. Twinlab Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TWLB)") else Response.Write("(Nasdaq: TWLB)") end if %>, which was also cited in the article, fell $1 15/16 to $36 1/4.

FOOL ON THE HILL
An Investment Opinion
by Alex Schay

Toys R Us Not Kidding

Children's paradise Toys R Us <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TOY)") else Response.Write("(NYSE: TOY)") end if %> rose $1 9/16 to $29 13/16 today on the heels of its clandestine meeting with analysts this morning, in which newly appointed CEO Robert Nakasone outlined the company's plans, "to go beyond seeing ourselves as the pre-eminent retailer for children's toys." Apparently, the benefits associated with attaining paramount rank and importance have diminished somewhat. Listening to Nakasone's comments would lead one to the conclusion that being outstanding just isn't good enough anymore. If that were only the case with Toys R Us.

The company has seen it's share of the toy market erode in the face of stiff competition from discount retailers like Wal-Mart <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WMT)") else Response.Write("(NYSE: WMT)") end if %> and Kmart <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KM)") else Response.Write("(NYSE: KM)") end if %>. These discounters can afford to operate with lower gross margins (read: lower prices) in the neighborhood of 20-22% versus 25-30% for toy retailers, as well as use discounted toys as a promotional tool to bring in customers who might end up buying other goods (toys as a loss leader of sorts). Presently Wal-Mart's 15.2% share of the retail toy market is brushing up against the "dominant" 19.1% stake of Toys R Us, and this has the folks at the nation's biggest toy retailer a little concerned. As the retail environment gets more and more challenging across all industry segments, firms are increasingly thinking in terms of becoming a "destination," and selling an experience rather than simply selling their wares.

This retail ethos is a firm legacy of the department store but with grander design --witness the proliferation of "mega-malls" and "super-stores" -- and much more technology-induced hype. So, like the java sippin' music listening hordes at a Borders Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BGP)") else Response.Write("(NYSE: BGP)") end if %> book store, or even the patrons of an "eater-tainment" restaurant that need a lot of stimulation in addition to a hot meal, Toys R Us now plans to attract adults and kids alike through such proposed activities as ice skating and chess classes. It all boils down to how consumers are willing to spend their precious time. Despite all these new possibilities, the stock rise today is largely a result of concrete, quantitative guidance the company provided on its morning call.

In conjunction with its plan to move toward an inventory management scheme characterized by the much-abused phrase "just in time," the company will eliminate $250 million in inventory this year. In addition, Toys R Us hopes to complete half of its $1 billion stock repurchase program (roughly 5% of its outstanding shares) and only open 5 stores, rather than the previously announced plan to open 10-15 new locations in the coming fiscal year. Keeping with the upstream-downstream focus previously talked about in this column, the fallout from this move, aside from making an already seasonal business more reliant on the fourth quarter, has already affected the two biggest toy retailers. Hasbro <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: HAS)") else Response.Write("(AMEX: HAS)") end if %> and Mattel <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MAT)") else Response.Write("(NYSE: MAT)") end if %> both announced yesterday that the toy retailer's plans would hurt them in the coming quarters. As well, Golden Books Family Entertainment <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GBFE)") else Response.Write("(Nasdaq: GBFE)") end if %> reported today that its Q1 loss will widen as a result of diminished sales of its picture books and interactive games to Toys R Us.

Customer inventory reductions have hurt manufacturers of everything from bikes (Cannondale Corp.) to blenders (Sunbeam) in recent months. It has been said that all mistakes eventually end up in inventory, and in the past, operational mishaps built up and sharp investors could tell that companies were masking eventual losses by not writing down inventory. While retailers have always attempted to limit their markdown exposure, recently this imperative has manifested itself more directly in stock price volatility. When a company anticipates a potential write-down, it sets up a loss account, or "reserve," taking a one-time charge on the income statement and deducting the actual losses from this reserve when they occur. By comparison, a write-off is the transfer of the entire balance of an asset account into an expense or loss account. In this case, the company is indicating that that the asset is worthless. Of course, retailers really don't like to do either.

With retailers and distributors carrying less inventory, the ultimate result will be a purer, streamlined market in which true consumer demand will reign. In plain English, that means companies like Toys R Us will let its customers do the buying, and be stuck with a smaller tab for the leftovers. In theory this will relegate inventory that doesn't transform itself into cost of goods sold (remaining in a dormant state of potential cash) a thing of the past. However, this theory assumes relentless and precise execution at the store level, which is tough when operating in the realm of human affairs. In the toy example, this move will force manufacturers and retailers to more closely match buying patterns. Anyway, since we have looked at a number of possible losers from the Toys R Us action, let's take a brief look at one company that was vociferous today in asserting that it will be unaffected by the big bully on the playground.

Toymax International <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TMAX)") else Response.Write("(Nasdaq: TMAX)") end if %> announced today that it sees "no material impact" from the change at Toys R Us. Toymax is a relatively new kid on the block, completing its initial public offering on October 21, 1997. Formed in 1990, Toymax went public to repay bank lenders and to make acquisitions. Some of Toymax's products include Creepy Crawlers, Metal Molders, Precious Metals, Talking Tina, and action toys like Laser Challenge. Toymax recently reported solid Q3 earnings of $0.46 per share (versus $0.05 in the prior year) and Q2 earnings of $0.81 per share, crushing its prior-year EPS of $0.26. The company attribute the results to an almost ten-fold expansion of revenues and an increase in gross margins from 39.8% to 45.4%. The company has many seasoned veterans in key management positions and is not a license-driven company -- internally developed toys accounted for 82.7% of the company's sales.

It is worthy of note to interested investors that chairman David Ki Kwan Chu owns 43% of Toymax and also owns the OEM toy manufacturing company Jauntiway (which manufactured 85% of Toymax's products in 1997).

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Yi-Hsin Chang (TMF Puck), a Fool
Brian Graney (TMF Panic), Fool Two
Alex Schay (TMF Nexus6), Fool, too
Dale Wettlaufer (TMF Ralegh), Final Fool
Contributing Writers

Brian Bauer (TMF Hoops), another Fool
Jennifer Silber (TMF Amused), Fool at last
Editing