DJIA             9028.24    +90.88      (+1.02%) 
 S&P 500          1147.27     +6.47      (+0.57%) 
 Nasdaq           1933.26     +2.27      (+0.12%) 
 Value Line ndx    913.22     -5.35      (-0.58%) 
 30-Year Bond   105 27/32    -12/32  5.71% Yield 
 

HEROES

AT&T <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: T)") else Response.Write("(NYSE: T)") end if %> and British Telecom <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BTY)") else Response.Write("(NYSE: BTY)") end if %> announced yesterday that they will invest in a global joint venture expected to have revenues of $10 billion per year in its first year of operations, generate operating profit of 10% of revenues, grow at a rate of 15% to 20% per year, and that is "expected to contribute positively to the earnings of both parents from day one." The majority of the revenues and earnings aren't incremental, however, as much of these revenues and earnings will be generated from existing capital assets and will just be moved below the operating income line. The companies are taking advantage of size to create a competitive advantage in price, service, and the ability to handle the capital expenditures necessary to lay down transoceanic cables and build out fiber networks in lesser-developed or heretofore overregulated markets. The synergies that the two companies should realize probably won't be dinky, but it's not as if this deal looks like it's adding a ton of value to either of these companies, either. AT&T traded up $1/16 to $60, while British Telecom gained $8 3/8 to $146 1/8.

Drug wholesalers AmeriSource Health Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AAS)") else Response.Write("(NYSE: AAS)") end if %> and Bergen Brunswig Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BBC)") else Response.Write("(NYSE: BBC)") end if %> hit all-time highs today on optimism that a federal judge will approve proposed acquisitions of the companies by McKesson Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MCK)") else Response.Write("(NYSE: MCK)") end if %> and Cardinal Health <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CAH)") else Response.Write("(NYSE: CAH)") end if %>. After a seven-week antitrust hearing, U.S. District Judge Stanley Sporkin said he didn't share the Federal Trade Commission's concerns that the companies would raise prices and hinder competitors from entering the $94 billion drug distribution market. "To think these guys in the middle are going to throw the whole system out of whack is crazy," he said. McKesson's planned $3.2 billion purchase of AmeriSource and Cardinal's proposed $4.4 billion acquisition of Bergen Brunswig and would bring together the nation's four largest wholesale drug distributors and create two industry giants. Sporkin said he would make a ruling within about a week. AmeriSource surged $9 1/4 to $76 3/4, and Bergen Brunswig jumped $3 5/8 to $55 1/2. Meanwhile, Cardinal Health added $2 3/16 to $96 13/16, and McKesson slipped $5/16 to $79.

QUICK TAKES: Intel <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTC)") else Response.Write("(Nasdaq: INTC)") end if %> finished up $3 to $86 1/16 after announcing price cuts of up to 31% on its Pentium and Celeron processors for desktop computers in an effort to boost PC sales... Dell Computer <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DELL)") else Response.Write("(Nasdaq: DELL)") end if %> gained $5 3/8 to $110 1/4 on reports that the direct seller of computers tied Compaq Computer <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPQ)") else Response.Write("(NYSE: CPQ)") end if %> in terms of U.S. PC shipments in the second quarter and moved ahead of IBM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IBM)") else Response.Write("(NYSE: IBM)") end if %> in worldwide shipments to take the No. 2 spot... General Motors <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GM)") else Response.Write("(NYSE: GM)") end if %> chugged ahead $2 1/16 to $73 1/8 on optimism that marathon talks between the nation's largest automaker and union officials will soon end the two-month long strikes... Philip Morris <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MO)") else Response.Write("(NYSE: MO)") end if %> rose $7/8 to $42 5/16 after a judge dismissed a lawsuit seeking Medicaid reimbursement brought by the state of Indiana against the tobacco industry. Meanwhile, CS First Boston added the tobacco and food products company to its "focus list" and rated the stock a "buy."

Travel and financial services company American Express <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AXP)") else Response.Write("(NYSE: AXP)") end if %> charged up $5 3/4 to $112 13/16 after reporting Q2 EPS of $1.24, a 14.8% increase from $1.08 in the year-earlier period and two cents ahead of the analysts' mean estimate. Revenues gained 7.7% to $4.76 billion... Diversified financial services company Travelers Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TRV)") else Response.Write("(NYSE: TRV)") end if %> added $1 1/8 to $67 5/8 after a judge approved a settlement of the sex bias case against subsidiary Salomon Smith Barney... Software company Oracle Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ORCL)") else Response.Write("(Nasdaq: ORCL)") end if %> jumped $2 1/16 to $26 11/16 after Silicon Graphics <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SGI)") else Response.Write("(NYSE: SGI)") end if %> announced a strategic business and marketing relationship to accelerate the adoption of Oracle products on the Silicon Graphics platform... Amazon.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMZN)") else Response.Write("(Nasdaq: AMZN)") end if %> picked up $1 5/16 to $125 9/16 after CS First Boston started coverage of the online book and music vendor with a "buy" rating.

Life and administrative reinsurance company Life Re Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LRE)") else Response.Write("(NYSE: LRE)") end if %> rose $2 5/16 to $91 5/16 after announcing it has agreed to be acquired by Swiss Reinsurance Co. for $95 per share, or about $1.8 billion in cash -- a 6.7% premium to its last closing price. The deal is expected to be accretive to earnings by 2000... Internet domain names registrar Network Solutions <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NSOL)") else Response.Write("(Nasdaq: NSOL)") end if %> moved up $4 5/8 to $39 1/2 after Hambrecht & Quist raised its rating on the company to "strong buy" from "buy" in anticipation of strong Q2 results and dismissing the threat of competition... Biotechnology firm NeoTherapeutics <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NEOT)") else Response.Write("(Nasdaq: NEOT)") end if %> leapt $2 5/16 to $13 1/2 after announcing that tests with its lead compound, Neotrofin, have shown in animals that the drug causes nerves to regenerate after they have been destroyed under conditions similar to those that occur in brain injury and stroke.

Avid Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AVID)") else Response.Write("(Nasdaq: AVID)") end if %> gained $3 3/8 to $36 after the digital editing equipment company reported Q2 EPS of $0.37 compared with $0.27 a year ago and analysts' expectations of $0.33... Biotechnology company Icos Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ICOS)") else Response.Write("(Nasdaq: ICOS)") end if %> jumped $1 7/16 to $23 9/16 in trading that was 6 1/2 times its 30-day average volume after The New York Times reported that the company is working on a compound that may compete with or even replace Pfizer's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PFE)") else Response.Write("(NYSE: PFE)") end if %> impotence drug Viagra... Pizza Hut and Taco Bell chain operator Tricon Global Restaurants <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: YUM)") else Response.Write("(NYSE: YUM)") end if %> added $1 11/16 to $36 11/16 after beating Q2 earnings estimates... Valley National Bancorp <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: VLY)") else Response.Write("(NYSE: VLY)") end if %> moved up $2 1/2 to $35 3/8 after Business Week's "Inside Wall Street" column reported that the bank is in discussions to be acquired.

Compuware <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CPWR)") else Response.Write("(Nasdaq: CPWR)") end if %> added $2 5/16 to $58 5/8 after SoundView Financial upgraded the software company to "buy" from "hold"... Semiconductor voice record and playback solutions provider Information Storage Devices <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ISDI)") else Response.Write("(Nasdaq: ISDI)") end if %> spiked up $1 15/16 to $7 1/8 after announcing late Friday that Winbond International Corp. has offered to acquire the company for $8.25 a share in cash -- a 59% premium over the company's last closing price... Music and software distributor Navarre Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NAVR)") else Response.Write("(Nasdaq: NAVR)") end if %> gained $19/32 to $7 3/8 after announcing that its subsidiary NetRadio Corp. plans to register to make an initial public offering of common stock. NetRadio is an Internet radio network featuring 150 channels of originally programmed audio content and sells CDs and computer software online.

The world's largest Pizza Hut franchisee NPC International <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NPCI)") else Response.Write("(Nasdaq: NPCI)") end if %> gained $1 3/16 to $10 3/4 after announcing plans to buy back an additional 1 million shares... Protective and specialty packaging materials manufacturer Sealed Air Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SEE)") else Response.Write("(NYSE: SEE)") end if %> jumped $3 1/16 to $39 15/16 after reporting Q2 EPS of $0.36 (before charges) compared with $0.34 a year ago and analysts' mean estimate of $0.30... Pollution reduction, fuel economy, and performance enhancing technology company Turbodyne Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TRBDF)") else Response.Write("(Nasdaq: TRBDF)") end if %> advanced $2 3/16 to $16 3/4 as the company announced it has completed the process of becoming based in the U.S. instead of Canada... Tallahassee, Fla.-based financial services company Capital City Bank Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CCBG)") else Response.Write("(Nasdaq: CCBG)") end if %> climbed $1 1/2 to $32 after reporting on Friday Q2 EPS of $0.39, a penny more than a year earlier.

GOATS

Wireless communications products maker Ericsson <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ERICY)") else Response.Write("(Nasdaq: ERICY)") end if %> was cut $6 1/8 to $27 9/16 after reporting a 21% increase in fiscal Q2 earnings from a year ago. However, sales of mobile phones rose only a scant 1%, while rival Nokia <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NOK.A)") else Response.Write("(NYSE: NOK.A)") end if %> last week reported a 50% gain in cell phone sales in the same quarter. SG Cowen downgraded Ericsson to "neutral" from "buy," while the investment bank's European parent Societe Generale maintained Nokia's "outperform" rating and also raised its fiscal 1998 earnings estimate. In China, Ericsson's number one market for wireless handsets, sales jumped 62% in the period. Take China out of the equation, though, and sales in Asia slid 27%. To make matters worse, Ericsson's margins are being hit by price erosion. "We are seeing 23% to 25% annual price pressure on mobile phones," CEO Sven-Christer Nilsson said at a press conference today.

The Wall Street Journal reported today that Bell Atlantic <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BEL)") else Response.Write("(NYSE: BEL)") end if %> is thinking of hooking up with GTE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GTE)") else Response.Write("(NYSE: GTE)") end if %>. The Journal says the rumored $55 billion deal would give Bell Atlantic a "springboard for entering coveted long-distance markets." Coveted? With companies such as Qwest Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QWST)") else Response.Write("(Nasdaq: QWST)") end if %>, IXC Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IIXC)") else Response.Write("(Nasdaq: IIXC)") end if %>, and Level Three Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LVLT)") else Response.Write("(Nasdaq: LVLT)") end if %> pouring billions of dollars into advanced communications backbones that will allow them to cut the dime lady's rates to half pennies, long-distance is about as coveted as the Edsel or General Pickett's position on July 3, 1863. Bell Atlantic covets long-distance in its current operating areas -- that's where it can build serious value. What GTE does offer are good commercial lines of business and a very good local exchange traffic business. GTE fell $2 3/16 to $55 3/4, and Bell Atlantic slipped $3/16 to $45.

Audio "streaming" technology company RealNetworks <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RNWK)") else Response.Write("(Nasdaq: RNWK)") end if %> sank another $5 to $28 1/4 on continued fallout from a dispute with software giant Microsoft <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSFT)") else Response.Write("(Nasdaq: MSFT)") end if %> The brouhaha started last Thursday when RealNetworks CEO Rob Glaser told the Senate Judiciary Committee that Microsoft's just-released Windows Media Player "breaks" RealNetworks' products. Microsoft shot back on Friday that the problem is on RealNetworks' end since a beta version of its RealPlayer was bug-infested. Even so, Microsoft claimed the player worked fine on its Explorer browser and only failed when used with rival Netscape's <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NSCP)") else Response.Write("(Nasdaq: NSCP)") end if %> Navigator browser. Both RealNetworks and Netscape denied that last claim. So, who's telling the truth here? The market appears to be backing Microsoft on this one, as RealNetworks has lost more than 25% of its value since Wednesday.

QUICK CUTS: Telecommunications services provider MCI Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MCIC)") else Response.Write("(Nasdaq: MCIC)") end if %> dropped $15/16 to $66 15/16 as British Telecom <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BTY)") else Response.Write("(NYSE: BTY)") end if %> announced an alliance with AT&T <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: T)") else Response.Write("(NYSE: T)") end if %> following the failure of a similar arrangement with MCI. In sympathy, MCI merger partner WorldCom <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WCOM)") else Response.Write("(Nasdaq: WCOM)") end if %> fell $13/16 to $55 1/16... Internet-related companies moved lower today, continuing Friday's sector downtrend that coincided with Infoseek's <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SEEK)") else Response.Write("(Nasdaq: SEEK)") end if %> Q2 earnings (or non-earnings) release. Infoseek fell $1 7/8 to $27 1/8, CMG Information Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CMGI)") else Response.Write("(Nasdaq: CMGI)") end if %> lost $3 1/2 to $76 1/8, Netscape <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NSCP)") else Response.Write("(Nasdaq: NSCP)") end if %> slipped $3/4 to $31 1/4, Lycos <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LCOS)") else Response.Write("(Nasdaq: LCOS)") end if %> sank $2 1/2 to $64 3/4, and Excite <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: XCIT)") else Response.Write("(Nasdaq: XCIT)") end if %> slumped $2 3/8 to $42 1/4.

Disk drive maker Western Digital Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WDC)") else Response.Write("(NYSE: WDC)") end if %> was spun for a $5/16 loss to $11 1/8 after reporting a fiscal Q4 loss of $1.84 per share, wider than the expected $1.30 per share loss. The company said the supply of disk drives in the distribution channel is still "too high." Rival Seagate Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SEG)") else Response.Write("(NYSE: SEG)") end if %> fell $1 1/4 to $22 and Quantum Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QNTM)") else Response.Write("(Nasdaq: QNTM)") end if %> slipped $13/16 to $18 1/4... Chemicals giant Union Carbide Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UK)") else Response.Write("(NYSE: UK)") end if %> slid $2 1/8 to $48 7/8 after reporting fiscal Q2 EPS of $0.85, a penny ahead of the Street's estimate but down 19% sequentially and 51% year-over-year... Sylvan Learning Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SLVN)") else Response.Write("(Nasdaq: SLVN)") end if %> dropped $1 3/4 to $32 1/4 after Bear Stearns downgraded the provider of higher education services to "neutral" from "attractive."

Call center management products developer Genesys Telecommunications Laboratories <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GCTI)") else Response.Write("(Nasdaq: GCTI)") end if %> fell $1 7/8 to $25 1/16 after president and CEO Gregory Shenkman resigned late Friday. Current COO Michael McCloskey will replace Shenkman as president... Online remote access systems designer Shiva Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SHVA)") else Response.Write("(Nasdaq: SHVA)") end if %> was clipped $5/8 to $7 3/8 after saying late Friday that its total fiscal 1998 restructuring-related charges will actually be about $2 million higher than the $10 million to $12 million reported in its Q2 earnings release last week... Cleveland-Cliffs <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CLF)") else Response.Write("(NYSE: CLF)") end if %> sank $2 1/16 to $51 7/16 after PaineWebber lowered its rating on the mine operator and iron ore marketer to "neutral" from "buy."

Information technology consultant AnswerThink Consulting Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ANSR)") else Response.Write("(Nasdaq: ANSR)") end if %> slumped $2 7/8 to $25 1/8 after Donaldson, Lufkin & Jenrette downgraded the company to "market perform" from "buy"... Auto parts retailer AutoZone <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AZO)") else Response.Write("(NYSE: AZO)") end if %> dropped $1 7/8 to $34 3/4 after saying it will close a Texas distribution center acquired through its purchase of Chief Auto Parts on June 29... Cruise line operator Royal Caribbean Cruises <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RCL)") else Response.Write("(Nasdaq: RCL)") end if %> sank $5 to $75 9/16 after reporting fiscal Q2 EPS (before charges) of $0.97, beating the Street's estimate of $0.90. However, the company told analysts it may sell its Viking Serenade liner, which accounts for 5% of its fleet's capacity.

Chuck E. Cheese's pizza restaurants operator CEC Entertainment <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CEC)") else Response.Write("(NYSE: CEC)") end if %> was sliced $7 9/16 to $29 7/8 after reporting fiscal Q2 EPS of $0.39, missing the First Call mean estimate by $0.02... Carbon fibers and replacement fabrics maker Hexcel Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HXL)") else Response.Write("(NYSE: HXL)") end if %> lost $1 3/16 to $16 7/8 after agreeing to buy certain assets of glass fabric producer Clark-Schwebel Inc. for $453 million in cash... Records and document management outsourcing firm Lason Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LSON)") else Response.Write("(Nasdaq: LSON)") end if %> was ripped $3 3/16 to $50 11/16 after acquiring privately held Consolidated Reprographics for an unspecified amount of cash and stock.

Los Angeles-based insurer Mercury General Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MCY)") else Response.Write("(NYSE: MCY)") end if %> was crushed $13 7/8 to $45 5/8 after reporting fiscal Q2 EPS of $0.86, which was a penny short of the Street's estimates. The company said its premium underwritings only increased 3% year-over-year... Race track operator Penske Motorsports <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SPWY)") else Response.Write("(Nasdaq: SPWY)") end if %> spun out $1 5/8 to $28 7/8 on a Wheat First Union downgrade to "outperform" from "buy" citing weak attendance at this weekend's U.S. 500 at Penske's Michigan Speedway... Transaction-based printer maker TransAct Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TACT)") else Response.Write("(Nasdaq: TACT)") end if %> was knocked down $1 to $6 1/2 after reporting fiscal Q2 EPS of $0.04, missing the Street's estimate of $0.14.

FOOL ON THE HILL
An Investment Opinion
by Alex Schay

Why Ally?

Why ally? Well, it's all about capital allocation. Yesterday's announcement that AT&T <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: T)") else Response.Write("(NYSE: T)") end if %> and British Telecom <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BTY)") else Response.Write("(NYSE: BTY)") end if %> will invest in a global joint venture expected to take in $10 billion in its first year had shares of BT soaring today, up $8 3/8 to $146 1/8. The reasons for the rise are not mysterious. It was expected that BT would have to make some significant capital outlays in order to crack the U.S. market, and as it turns out, BT will be able to grab a portion of some huge multi-national's business without paying any backbreaking control premiums. As well, British Telecom will get 50% of the equity in the new venture while contributing roughly 40% of the revenues, and will end up with about 20 billion pounds sterling with which to pursue further expansion in the Asia Pacific region or Europe.

Booz Allen & Hamilton estimates that roughly 32,000 worldwide alliances have been formed in the last three years, with about three-quarters of them operating across national borders. This growth in alliance activity has resulted in joint ventures accounting for 18% of the revenues of companies in the S&P 500. The use of the word "revenues" is potentially misleading though. The alliances that result in equity arrangements are accounted for in a different manner than more informal link-ups. As someone once said, a verbal agreement isn't worth the paper it's written on. Similarly, non-equity arrangements dissolve easily as competitive conditions change.

A joint venture is an entity that is owned, operated, and jointly controlled by a group of investors. A joint venture can be organized as a partnership or a corporation, or can even be unincorporated as each investor holds an undivided interest in the entity. In many situations of corporate joint venture though, the proportional stake of the interested parties makes "equity method" accounting feasible. This is a situation in which the various individual investors have an influential, but non-controlling investment in the joint entity -- generally characterized by a 20% to 50% stake in the alliance (though lower than 20% is seen on occasion).

Under the equity method of accounting, an investor corporation records its investment in the common stock of the investee corporation at cost. As earnings roll around, the investor gets to record its proportionate interest in the investee's earnings as an addition or reduction to the investment's book value while subsequently reporting investment results on the income statement. Any dividends received from the investee reduce the book value of the investment as a slug of cash is credited. Here is a quick, basic example:

Investment in New Powerhouse   $260,000 
    Cash                                 $260,000 
  
 Cash Div. ($40,000*30%)         $12,000 
    Investment in New Powerhouse          $12,000 
  
 Investment in New Powerhouse    $23,500 
    Income from investee                  $23,500 
   
 Income tax expense               $4,025 
    Deferred income taxes                  $4,025

Three Months Ended March 31,                       1998       1997 
 Net Operating Revenues                         $3,910.9   $3,578.5 
  
 Operating Expenses 
    Costs of services and products               1,884.3    1,794.9 
    Selling, general and administrative            891.1      768.0 
    Depreciation and amortization                  467.3      410.9 
  
    Total operating expenses                     3,242.7    2,973.8 
  
 Operating Income                                  668.2      604.7 
  
 Interest expense                                  (66.7)     (44.8) 
 Equity in loss of Global One                      (45.2)     (23.7) 
 Equity in loss of Sprint PCS and its affiliates  (209.7)     (85.9) 
 Other income, net                                  21.2       34.9 
 Income before income taxes and 
    extraordinary item                             367.8      485.2

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 Bob Bobala (TMF Bobala), a Fool's Fool Jennifer Silber (TMF Amused), Fool at last