DJIA             8976.68   -77.97      (-0.86%) 
 S&P 500          1095.14    -9.78      (-0.89%) 
 Nasdaq           1835.14   -21.54      (-1.16%) 
 Value Line ndx    975.92    -6.43      (-0.65%) 
 30-Year Bond   102 14/32    -4/32  5.95% Yield 
 

HEROES

Ann Taylor Stores <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ANN)") else Response.Write("(NYSE: ANN)") end if %> strutted $3 3/8 higher to $20 after reporting a 4.7% rise in April same-store sales compared to the same month a year ago. Also, CFO Walter Parks told Reuters that the New York City-based retailer expects to report Q1 EPS between $0.17 and $0.20 on May 19, which would top even the most optimistic expectations of the analysts surveyed by First Call. Investors hoping that the firm's worst days are behind it have pushed Ann Taylor shares skyward by 22% since the start of the year. Other retailers rang in with upbeat April results, as well. Upscale retailer Saks Holdings <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SKS)") else Response.Write("(NYSE: SKS)") end if %> rose $1/2 to $22 3/4 on a 17.7% year-over-year increase in April same-store sales. Meanwhile, same-store sales at Talbots Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TLB)") else Response.Write("(NYSE: TLB)") end if %> rose 28.8% during the month, sending its shares up $3 15/16 to $23 3/8.

North American Vaccine <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: NVX)") else Response.Write("(AMEX: NVX)") end if %> shot up $2 3/8 to $18 1/8 after saying the Food and Drug Administration (FDA) is close to completing its review of its Certiva vaccine. The only major remaining hurdle before final approval of the vaccine is an inspection of the company's facilities later this month, the firm said. If approved, Certiva will be administered to children to help ward off diphtheria, tetanus, and pertussis (whooping cough). The company is hoping Certiva will become the main component of a future combination vaccine that would also immunize patients against ailments such as polio and meningitis. The possibility of a "single-shot" vaccine against multiple viruses would cut immunization costs and simplify children's vaccination schedules, the firm said. Investors are hoping Certiva will prop up the company's share price, which has tumbled 37.5% since the start of the year.

Biotechnology company EntreMed <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ENMD)") else Response.Write("(Nasdaq: ENMD)") end if %> gained another $1 15/16 to $33 1/16 after Nobel Laureate James Watson, who with Francis Crick discovered the double helix molecular structure of DNA, submitted a letter to the editor of The New York Times claiming that he was misquoted in the front page article that charged up EntreMed's stock Monday. Watson was quoted as saying, "Judah is going to cure cancer in two years" in reference to the discoverer of the two EntreMed drugs that have been shown to eradicate cancer in mice. Watson said he told the article's author that endostatin should be in clinical trials by the end of this year, and that "we would know about one year after that whether they were effective." For more info on EntreMed, check out our Stock Talk interview with CEO John Holaday.

In the largest ever industrial merger, valued at $92 billion, Chrysler <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: C)") else Response.Write("(NYSE: C)") end if %> and Daimler-Benz <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DAI)") else Response.Write("(NYSE: DAI)") end if %> will combine to form DaimlerChrysler in a "merger of equals." Chrysler popped up $4 11/16 to $53 1/2 on the news. Daimler shareholders will receive one share in the new company for each share of D-B, while Chrysler shareholders will receive 0.547 DaimlerChrysler shares for each Chrysler share. Daimler shareholders are expected to end up owning just under 60% of the company. The new company will be incorporated in Germany, and it will maintain operational headquarters in Stuttgart, Germany, and Auburn Hills, Michigan. The heads of Chrysler and Daimler will serve as co-chairmen and co-CEOs but only for the first three years -- Chrysler's Chairman Robert Eaton will leave the new board within three years. After all, it is DaimlerChrysler, not ChryslerDaimler. The merger isn't expected to draw ire from regulatory bodies or from American employees.

QUICK TAKES: PC maker Compaq Computer <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPQ)") else Response.Write("(NYSE: CPQ)") end if %> picked up $1 1/8 to $32 3/8 after SoundView Financial raised its short-term rating on the stock to "buy" from "hold"... Contract electronics manufacturer Jabil Circuit <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JBL)") else Response.Write("(NYSE: JBL)") end if %> gained $1 3/4 to $41 9/16 after BT Alex. Brown upgraded the company to "strong buy" from "buy"... Humidity controls and Internet website designer ICC Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ICGN)") else Response.Write("(Nasdaq: ICGN)") end if %> added $13/32 to $5 5/16 after its Rare Medium Internet solutions unit became a member of Microsoft's <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSFT)") else Response.Write("(Nasdaq: MSFT)") end if %> Certified Solution Provider program. The program will allow Rare Medium's programmers to become "certified experts" on all Microsoft products... Recoton Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RCOT)") else Response.Write("(Nasdaq: RCOT)") end if %>, maker of Jensen and MacAudio stereo speakers and components, gained $3 5/8 to $29 1/4 after reporting Q1 EPS of $0.30, beating the First Call mean estimate of $0.12.

Drug developer Duramed Pharmaceuticals <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DRMD)") else Response.Write("(Nasdaq: DRMD)") end if %> tacked on $1/4 to $6 5/16 after its Selegiline drug for the treatment of Parkinson's disease was approved by the FDA... World Acceptance Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WRLD)") else Response.Write("(Nasdaq: WRLD)") end if %> rose $1/4 to $6 7/16 after Stephens Inc. upgraded the consumer finance company to "buy" from "outperform"... Physician practice management firm MedPartners Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MDM)") else Response.Write("(NYSE: MDM)") end if %> climbed $5/8 to $10 5/8 after reporting a Q1 loss of $0.04 per share (before charges), which was in line with the First Call mean estimate. The company expects fiscal 1998 operating earnings to come in around $0.20 to $0.25 per share, while fiscal 1999 earnings are seen at $0.70 per share... Envirotest Systems Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ENR)") else Response.Write("(NYSE: ENR)") end if %> rose $2 to $12 3/4 after the provider of vehicle inspection services said it has hired CS First Boston to explore "strategic alternatives."

Computer technology education company Computer Learning Centers <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CLCX)") else Response.Write("(Nasdaq: CLCX)") end if %> advanced $2 13/16 to $16 1/4 after regulators in Illinois allowed the company to resume marketing and enrollment activities at its Schaumberg campus. Yesterday, the Department of Education said it would audit the company to determine its eligibility for federally funded student loans... Sunglasses retailer Sunglass Hut International <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RAYS)") else Response.Write("(Nasdaq: RAYS)") end if %> shined $1 5/16 to $11 1/2 after announcing an 11.4% increase in April same-store sales compared to a year ago. Gruntal & Co. upgraded the company to "strong buy" from "buy"... Document storage and management products maker Anacomp Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ANCO)") else Response.Write("(Nasdaq: ANCO)") end if %> was lifted $1 1/6 to $17 11/16 after reporting a Q2 loss of $1.14 per share versus a loss of $1.98 per share (including charges) a year ago. The company also said it will buy First Data Corp.'s <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FDC)") else Response.Write("(NYSE: FDC)") end if %> data storage unit for $150 million in cash.

Earnings Movers

InVision Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INVN)") else Response.Write("(Nasdaq: INVN)") end if %> up $1 to $9 3/4; Q1 EPS: $0.18 vs. $0.06 last year; Estimate: $0.16

Market Guide <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MARG)") else Response.Write("(Nasdaq: MARG)") end if %> up $2 11/16 to $12 11/16; Q4 EPS: $0.02 vs. $0.01 loss last year.

Nortek Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NTK)") else Response.Write("(NYSE: NTK)") end if %> up $1 5/8 to $32 5/8; Q1 pro forma EPS: $0.13 (continuing operations) vs. $0.06 loss last year; Estimate: $0.04 loss

Smallworldwide PLC <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SWLDY)") else Response.Write("(Nasdaq: SWLDY)") end if %> up $1 3/8 to $29 1/2; Q3 EPS: $0.24 vs. $0.09 last year; Estimate: $0.23

TMP Worldwide <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TMPW)") else Response.Write("(Nasdaq: TMPW)") end if %> up $1 5/8 to $30 1/4; Q1 EPS: $0.09 vs. $0.06 last year; Estimate: $0.07

GOATS

Microsoft <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSFT)") else Response.Write("(Nasdaq: MSFT)") end if %> fell $3 to $83 3/8 on concern that the software and operating systems giant won't be able to ward off a broad antitrust suit by the Justice Department. In its latest issue, Business Week reports that barring a last minute settlement, the department is ready to launch "expansive antitrust action" against the company "within days," perhaps by May 15, when the company is scheduled to start shipping Windows 98 to computer makers. It appears that instead of outright blocking the release of Windows 98, Justice wants Microsoft to offer a version of Windows 98 without its Internet Explorer browser that would cost significantly less than the version with the browser. Some are speculating that Justice may go so far as to require Microsoft to include Netscape Communications' <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NSCP)") else Response.Write("(Nasdaq: NSCP)") end if %> Navigator browser in an affirmative action program of sorts, to help Netscape regain some of the market share it has lost to Microsoft. Netscape once cornered 85% of the market and still controls 60%, while Microsoft has come from zip to command 40% of the market.

QUICK CUTS: Walt Disney <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DIS)") else Response.Write("(NYSE: DIS)") end if %> lost $5 to $119 3/16 after Goldman Sachs lowered its 1998 and 1999 earnings estimates for the mega entertainment company. Analyst Richard Simon cut his 1998 EPS estimate to $3.10 from $3.20 and his 1999 estimate to $3.65 from $3.80... Mellon Bank <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MEL)") else Response.Write("(NYSE: MEL)") end if %>, which rose yesterday amid rumors that Chase Manhattan <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CMB)") else Response.Write("(NYSE: CMB)") end if %> may make a bid for the company, fell back $5 11/16 to $72 5/16 as the rumors appear to have been unfounded... AT&T <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: T)") else Response.Write("(NYSE: T)") end if %> was disconnected for $1 11/16 to $57 7/8 after announcing the first national one-rate wireless service price plan, eliminating roaming and long-distance charges. The company also announced the resignation of Mark Baker, chief of international operations.

3Com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: COMS)") else Response.Write("(Nasdaq: COMS)") end if %> fell $2 9/32 to $32 1/8 after Deutsche Morgan Grenfell lowered its Q4 EPS estimate for the company to $0.16 from $0.23 after a meeting with the company's CFO. It also cut its 1998 EPS estimate to $0.66 from $0.73, and its 1999 estimate to $1.59 from $1.94... Metals and industrial services company Philip Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PHV)") else Response.Write("(NYSE: PHV)") end if %> sank $1 1/2 to $6 after reporting breakeven Q1 results versus EPS of $0.09 last year and expectations of $0.15. The company also announced the resignations of its chairman, CFO, chief operating officer, and executive vice president as well as the demotion of co-founder and CEO Allen Fracassi to executive vice chairman.

Comsat Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CQ)") else Response.Write("(NYSE: CQ)") end if %> slid $2 1/16 to $38 1/2 after the House of Representatives passed legislation to end the company's 35-year monopoly as the only U.S. gateway to two international satellite systems... Italian footwear maker Fila Holdings <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FLH)") else Response.Write("(NYSE: FLH)") end if %> slipped another $7/8 to $19 5/8 after reporting late Tuesday a first quarter loss of $0.33 per share compared with a profit of $1.22 a year ago. Analysts had expected breakeven results... Information security solutions company MEMCO Software <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MEMCF)") else Response.Write("(Nasdaq: MEMCF)") end if %> tanked $5 5/8 to $23 after announcing it will acquire security software and systems maker AbirNet Ltd. and Network Information Technology Inc. for about $43.7 million in stock and $11.3 million in cash. MEMCO also reported Q1 EPS of $ 0.13, beating the analysts' mean estimate of $0.11.

First Alliance <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FACO)") else Response.Write("(Nasdaq: FACO)") end if %> slipped $3/4 to $13 15/16 after the American Association of Retired Persons (AARP) filed a motion charging the sub-par mortgage lender of deceptive and predatory lending practices targeted at older homeowners. The company issued a statement "vigorously" denying any wrongdoing... Computer software company Baan Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BAANF)") else Response.Write("(Nasdaq: BAANF)") end if %> dipped $1 11/16 to $41 13/16 on reports that it will issue a statement next week on the new accounting principles it will be adopting. Problems arose during the first quarter because the company was not allowed to include lease contracts as part of its sales. The company blamed lower-than-expected Q1 earnings on the deferral of about $43 million in revenues.

Earnings Movers

Credit Management Solutions <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CMSS)") else Response.Write("(Nasdaq: CMSS)") end if %> down $2 1/8 to $5 7/8; Q1 EPS: loss of $0.18 vs. loss of $0.03; Estimate: loss of $0.10

800-JR Cigar <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: JRJR)") else Response.Write("(Nasdaq: JRJR)") end if %> down $1 1/8 to $22 3/4; Q1 EPS: $0.27 vs. $0.21 last year; Estimate: $0.26

ESG Re Ltd. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ESREF)") else Response.Write("(Nasdaq: ESREF)") end if %> down $2 to $23 5/8; Q1 EPS: $0.23 vs. $2.50 last year; Estimate: $0.31

Foamex International <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FMXI)") else Response.Write("(Nasdaq: FMXI)") end if %> down $9/16 to $16 5/8; Q1 EPS: $0.24 (before charges) vs. $0.31 last year; Estimate: $0.31

Information Management Associates <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IMAA)") else Response.Write("(Nasdaq: IMAA)") end if %> down $2 9/16 to $11 1/4; Q1 EPS: $0.07 (before charges -- loss of $0.75 after charges) vs. loss of $0.09; Estimate: $0.05

1-800 CONTACTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CTAC)") else Response.Write("(Nasdaq: CTAC)") end if %> down $1 5/8 to $18 1/4; Q1 EPS: $0.08 (before charges) vs, $0.03; Estimate: $0.08

Manhattan Associates <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MANH)") else Response.Write("(Nasdaq: MANH)") end if %> down $2 3/8 to $19 5/8; Q1 EPS: $0.06 (before charges) vs. $0.07 last year

Playboy Enterprises <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PLA)") else Response.Write("(NYSE: PLA)") end if %> down $1 1/16 to $17 9/16; Q1 EPS: Breakeven vs. $0.12 last year; Estimate: $0.12

Signature Resorts <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OWN)") else Response.Write("(NYSE: OWN)") end if %> down $2 to $17; Q1 EPS: $0.20 vs. $0.14 (before charges) last year; Estimate: $0.19

West Marine <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WMAR)") else Response.Write("(Nasdaq: WMAR)") end if %> down $2 5/8 to $21; Q1 EPS: loss of $0.09 (before charges) vs. loss of $0.07; Estimate: loss of $0.11

FOOL ON THE HILL
An Investment Opinion
by Alex Schay

Sometimes Debt is Good

Oftentimes in this forum and elsewhere, debt is demonized. This in part stems from debt's tremendously negative effects on a business in the event of a downturn. For each dollar a company loses in earnings before interest and taxes (EBIT), the corresponding EPS loss is that much greater with bond financing than with equity financing. However, leverage works both ways. The reality of the debt decision is that in the proper circumstances and in the "right" proportions, debt can actually enhance firm value. And believe it or not, this columnist has yet to be struck by lightning.

As any Chief Financial Officer (CFO) will attest (when grappling with financing decisions), the amount of the increase in annual income to shareholders created by debt financing equals the corporate tax rate times the interest expense, or what is referred to as the "interest tax shield." In a fantasy world of no taxes or bankruptcy, the risk-adjusted (equalized) returns of businesses are exactly the same regardless of the company's capital structure. Firm value is independent of financing. In other words, any benefit of an increased return to shareholders that leverage helps create is exactly offset by the increased risk. Hence, in this no-tax utopia, market value is unaffected by leverage when examined through the lens of risk-adjusted returns.

Let's take a look at an example that illustrates why this is true -- which is virtually identical to one employed by Robert C. Higgins in his work Analysis for Financial Management -- although the numbers have been changed to protect the innocent. Remember, we have yet to head into the dystopic world of taxes and bankruptcy.

                        NO Taxes 
                    No Debt   80% Debt 
 (Corporate Income) 
 EBIT                 $300       $300 
 Interest expense       $0       $120   
 Earnings before tax  $300       $180 
 Corporate tax          $0         $0 
 Earnings after tax   $300       $180 
  
 (Personal Income) 
 Dividends received   $300       $180 
 Interest received      $0       $120 
 Total income         $300       $300

                 Corporate Taxes (38%) 
                    No Debt   80% Debt 
 (Corporate Income) 
 EBIT                 $300       $300 
 Interest expense       $0       $120   
 Earnings before tax  $300       $180 
 Corporate tax        $114        $68  
 Earnings after tax   $186       $112 
  
 (Personal Income) 
 Dividends received   $186       $112 
 Interest received      $0       $120 
 Total income         $186     $232

CONFERENCE CALLS

Please see the Motley Fool's Conference Calls page for call information and links to synopses.

WE DELIVER - Get The Evening News delivered
to your e-mailbox every evening!

ANOTHER FOOLISH THING

See something moving a stock that we didn't cover?
E-mail the Fool News Team
and we will start working on the story.
Unfortunately, we cannot answer every e-mail
or respond to individual questions.

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