DJIA 8108.84 +80.07 (+1.00%) S&P 500 1048.69 +3.94 (+0.38%) Nasdaq 1739.22 -4.37 (-0.25%) Value Line ndx 803.22 +1.74 (+0.22%) 30-Year Bond 105 13/30 -18/32 5.14% Yield
Galoob Toys <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GAL)") else Response.Write("(NYSE: GAL)") end if %> climbed $3 7/16 to $11 7/16 after Hasbro <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: HAS)") else Response.Write("(AMEX: HAS)") end if %> agreed to acquire the toymaker for $220 million in cash, or about $12 per share. Hasbro expects the deal will be "modestly dilutive" to its fiscal 1998 earnings, but accretive in fiscal 1999. The merger unites Hasbro's Playskool and Tonka brand toys with Galoob's lines of Micro Machines playthings and Spice Girl dolls. Moreover, the deal combines the two firm's separate licenses for toys based on the Star Wars franchise. Denmark's Lego A/S is the only other Star Wars licensee, but its license only refers to figures under two inches tall. Speaking of the Dark Side, Hasbro also warned that its fiscal Q3 earnings will come in $0.02 per share below last year's $0.57 per share due to a reduction in orders from toy retailer Toys R Us <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TOY)") else Response.Write("(NYSE: TOY)") end if %> -- echoing rival Mattel's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MAT)") else Response.Write("(NYSE: MAT)") end if %> Death Star warning last week. Hasbro dropped $1 to $30 today.
Starbucks <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SBUX)") else Response.Write("(Nasdaq: SBUX)") end if %> warmed up $5 3/16 to $41 after the coffee powerhouse announced it is teaming up with Kraft Foods to get Starbucks coffee into grocery stores across the U.S. Starbucks investors have been waiting to hear this announcement, but this is pretty much as good as it gets in terms of partnerships to put Starbucks on the shopping lists of American families. A unit of Philip Morris <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MO)") else Response.Write("(NYSE: MO)") end if %>, Kraft Foods is the largest packaged foods company in the country and is no stranger to the coffee scene, with its well-known Maxwell House and General Foods International Coffees brands. Coming into this quarter, Starbucks was modeling 30% revenue growth for fiscal 1999 and 35% EPS growth. But getting one of the world's premier food companies involved in its supermarket initiative and possibly other ventures only helps expectations. For more details, click here.
Clinical call center management and information services provider Access Health <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ACCS)") else Response.Write("(Nasdaq: ACCS)") end if %> jumped $3 13/16 to $35 1/16 after healthcare management software firm HBO & Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HBOC)") else Response.Write("(Nasdaq: HBOC)") end if %> offered to buy the company for up to $43.50 in HBO stock. The acquisition is at least the third for Atlanta-based HBO since a potential deal with drug wholesaler McKesson Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MCK)") else Response.Write("(NYSE: MCK)") end if %> fell apart in July following a leak by merger advisor Salomon Smith Barney. Access deals mostly with HMOs, insurers, and government agencies to provide data on the performance of individual doctors and the healthcare needs of patients. The importance of such information has not been lost on healthcare providers and insurers, who are increasingly looking to HBO for ways to cut their business costs without sacrificing the quality of care they offer.
QUICK TAKES: Credit card and financial services firm American Express <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AXP)") else Response.Write("(NYSE: AXP)") end if %> charged ahead $2 1/2 to $83 after announcing a 40 million share repurchase plan, which will supplement the company's ongoing 100 million share buyback plan started in 1994... Chemicals and life sciences company DuPont <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DD)") else Response.Write("(NYSE: DD)") end if %> rose $2 7/8 to $61 5/8 after confirming that it will complete the full divestiture of its Conoco energy unit in a $3.6 billion initial public offering and a subsequent split-off to shareholders within the next 12 months... Fast-food restaurant operator McDonald's Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MCD)") else Response.Write("(NYSE: MCD)") end if %> tacked on $2 5/8 to $59 7/8 after setting a plan to buy back up to $3.5 billion of its shares by the end of 2001. The company said it completed a $2 billion three-year repurchase plan ahead of schedule last month.
Online media streaming technologies developer RealNetworks <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RNWK)") else Response.Write("(Nasdaq: RNWK)") end if %> moved up $7 7/8 to $41 1/4 after saying Internet conglomerate America Online <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %> will distribute the company's RealPlayer audio streaming technology with its AOL 4.0 CD-ROMs, which will be available in the U.S. starting today... Animal feeds producer Agribrands International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AGX)") else Response.Write("(NYSE: AGX)") end if %> rose $2 1/2 to $24 3/16 after setting a 2 million share buyback plan... Catalog retailer Fingerhut Cos. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FHT)") else Response.Write("(NYSE: FHT)") end if %> picked up $2 3/16 to $10 11/16 as ING Barings Furman Selz upgraded the company to "strong buy" from "buy." On Friday, Fingerhut said it will stop paying its $0.04 a share quarterly dividend and use the money to buy back shares.
Semiconductor and flat panel display manufacturing robots maker Brooks Automation <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BRKS)") else Response.Write("(Nasdaq: BRKS)") end if %> picked up $13/16 to $10 5/16 after an analyst told Barron's that the company will benefit from a general business upturn in the chip industry. Women and children's shoe maker Maxwell Shoe Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MAXS)") else Response.Write("(Nasdaq: MAXS)") end if %>, which also was cast in a favorable light by the magazine, rose $1 3/8 to $13 1/2... Pharmaceutical developer Agouron Pharmaceuticals <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AGPH)") else Response.Write("(Nasdaq: AGPH)") end if %> was lifted $1 7/8 to $34 1/4 after scientists reported "favorable results" from a preclinical trial of the firm's AG7088 rhinovirus 3C protease enzyme inhibitor for treating the common cold... Security and utility software developer Symantec Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SYMC)") else Response.Write("(Nasdaq: SYMC)") end if %> unlocked a $1/4 gain to $13 3/4 after agreeing to buy the anti-virus business of Intel Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTC)") else Response.Write("(Nasdaq: INTC)") end if %> for an unspecified sum.
United Asset Management <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UAM)") else Response.Write("(NYSE: UAM)") end if %> advanced $15/16 to $23 1/8 after The Wall Street Journal reported that the Boston-based investment management holding company has tentatively agreed to sell its Pilgrim Baxter & Associates mutual fund affiliate to Nationwide Financial Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NFS)") else Response.Write("(NYSE: NFS)") end if %> for about $600 million in cash. Nationwide fell $3 1/4 to $44 3/4... Rally's Hamburgers franchisee Giant Group Ltd. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GPO)") else Response.Write("(NYSE: GPO)") end if %> gained $2 3/16 to $7 7/8 after agreeing to merge in a three-way transaction with Rally's <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RLLY)") else Response.Write("(Nasdaq: RLLY)") end if %> and Checkers Drive-In Restaurants <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CHKR)") else Response.Write("(Nasdaq: CHKR)") end if %>... Greenbrier Companies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GBX)") else Response.Write("(NYSE: GBX)") end if %> rolled $1 7/16 higher to $14 13/16 after the supplier of railroad transportation equipment said it will report fiscal Q4 EPS between $0.44 and $0.46, beating the $0.30 that the company said the Street had been expecting.
Electric utility Bangor Hydro-Electric Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BGR)") else Response.Write("(NYSE: BGR)") end if %> powered up $5/8 to $9 15/16 after a unit of PP&L Resources <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PPL)") else Response.Write("(NYSE: PPL)") end if %> agreed to buy all of the company's hydroelectric assets and its interest in an oil-fired generating plant for $89 million in debt and stock... Thrift holding company Enterprise Federal Bancorp <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EFBI)") else Response.Write("(Nasdaq: EFBI)") end if %> jumped $10 3/4, or 37.7%, to $39 1/4 after Cincinnati-based Fifth Third Bancorp <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FITB)") else Response.Write("(Nasdaq: FITB)") end if %> announced plans to acquire the company for about $96.4 million in stock. Fifth Third dropped $2 1/8 to $61 1/4... Harley-Davidson motorcycle aftermarket parts supplier Global Motorsports Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSTM)") else Response.Write("(Nasdaq: CSTM)") end if %> motored $1 3/4 higher to $15 1/4 after terminating an agreement to be acquired by privately held Freemont Partners L.P. due to financing concerns.
Concert venue operator SFX Entertainment <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SFXE)") else Response.Write("(Nasdaq: SFXE)") end if %> rocked $1 11/16 higher to $30 3/16 after Executive Chairman Robert Sillerman said he had recently purchased $6.6 million of SFX shares in a private transaction... Engineered metal components maker Doncasters PLC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DCS)") else Response.Write("(NYSE: DCS)") end if %> rebounded $11/16 to $11 3/16 after ING Barings Furman Selz raised its rating to "strong buy" from "buy." The company fell 25% on Friday after saying it would miss analysts' expectations for earnings in fiscal Q3.
American Bankers Insurance Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ABI)") else Response.Write("(NYSE: ABI)") end if %> dropped $3 15/16 to $41 3/4 on concern that the credit insurance company's proposed acquisition by Cendant <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CD)") else Response.Write("(NYSE: CD)") end if %>, a.k.a. Accounting Irregularities Galore, may not go through. Last Friday, American Bankers CEO Gerald Gaston reportedly said he'd be willing to call off the $67-a-share merger for $400 million in cash. American Bankers already has had to pay American International Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AIG)") else Response.Write("(NYSE: AIG)") end if %> $100 million for terminating their proposed merger agreement after Cendant came in with what appeared to be a sweeter deal. With the plunge in Cendant's stock price since disclosing accounting irregularities in April, Cendant would now have to issue more shares to cover the part of the purchase price that was supposed to be paid in stock. This afternoon American Bankers issued a statement saying it "fully intends to comply with its obligations under its merger agreement with Cendant" and expects Cendant to stand by its $67-a-share offer.
Telephone line testing systems maker Tollgrade Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TLGD)") else Response.Write("(Nasdaq: TLGD)") end if %> plummeted $9, or 41.1%, to $12 7/8 after warning that it expects Q3 EPS of $0.16 to $0.18, which would be roughly half of the analysts' mean estimate of $0.32, due to "some extraordinary circumstances and challenges." Labor strikes at Tollgrade customers Bell Atlantic <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BEL)") else Response.Write("(NYSE: BEL)") end if %>, US West <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: USW)") else Response.Write("(NYSE: USW)") end if %> and Southern New England Telephone disrupted the companies' maintenance programs and exacerbated seasonally lower sales. Tollgrade said that during extremely inclement weather and labor disputes ongoing maintenance activities are typically the first to be halted so phone companies can provide emergency services and install new phone lines. Higher-than-expected inventories at another Tollgrade customer, Ameritech <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AIT)") else Response.Write("(NYSE: AIT)") end if %>, also cut into the company's revenues.
Home equity lender FirstPlus Financial Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FP)") else Response.Write("(NYSE: FP)") end if %> tanked $7 13/16 to $15 1/16 in heavy trading on reports that GE Capital Corp., the finance unit of General Electric <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GE)") else Response.Write("(NYSE: GE)") end if %>, isn't interested in buying all of FirstPlus. The Dallas-based lender, which specializes in making loans up to 125% of the value of a house, announced about a month ago that it had begun discussions with potential acquirers in an effort to diversify and grow the business while reducing its dependence on securitization. GE Capital was among those sizing up the company and could still decide to make an equity investment, though it won't acquire FirstPlus outright. Merrill Lynch lowered its near-term rating on the company to "neutral" from "buy" but kept its long-term "buy" rating.
QUICK CUTS: Interactive education software company CBT Group PLC <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CBTSY)") else Response.Write("(Nasdaq: CBTSY)") end if %> nose-dived $14 1/16 to $15 3/16 after announcing that Q3 revenues and earnings will be below analysts' expectations. This afternoon the company said that, contrary to expectations, it won't receive a significant order worth roughly $5 million to $6 million. To make matters worse, the company said orders have been slow this quarter, especially in Europe... Netscape Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NSCP)") else Response.Write("(Nasdaq: NSCP)") end if %> fell $1 3/16 to $24 as The New York Times reported that the company's Web browser software has a security flaw that could allow hackers to read information stored on a user's hard drive... Long-term care provider Sun Healthcare Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SHG)") else Response.Write("(NYSE: SHG)") end if %> tumbled $1 5/16 to $6 15/16 after announcing it expects Q3 EPS of $0.20 to $0.24, lower than analysts' expectations of $0.39.
NICE Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NICEY)") else Response.Write("(Nasdaq: NICEY)") end if %> lost another $2 7/8 to $15 3/4 after the Israeli developer of digital recording and quality measurement systems said it expects a 10% to 15% sequential decline in revenues and EPS below analysts' expectations of $0.44... Footwear maker Wolverine World Wide <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WWW)") else Response.Write("(NYSE: WWW)") end if %> was walloped for a loss of $3 1/8 to $10 3/8 after Warburg Dillon Read downgraded its rating on the company to "buy" from "strong buy," saying that footwear sales will be weak in October, retailers still have not corrected inventory gluts, and Wolverine may be hurt by the economic turmoil overseas... Multinational long-distance company IDT Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IDTC)") else Response.Write("(Nasdaq: IDTC)") end if %> slid $3 7/8 to $23 1/16 after reporting Q4 EPS of $0.20 (before one-time items), up from $0.04 a year ago and two cents ahead of the analysts' consensus estimate. Including unusual items, the company lost $0.46 a share.
Mission-critical middleware developer BEA Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BEAS)") else Response.Write("(Nasdaq: BEAS)") end if %> was cut $2 to $23 after announcing it will acquire privately held Java-based Web application server company WebLogic Inc... Generic drugmaker Schein Pharmaceutical <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SHP)") else Response.Write("(NYSE: SHP)") end if %> shed $3 1/2 to $8 11/16 after announcing it will cut 350 jobs at its Steris Laboratories facility in Phoenix, Arizona. The company is still negotiating with the FDA, which halted manufacturing and distribution of all Steris products in September, to restart operations. The products made in the Steris facility account for 40% of Schein's sales and 50% of gross profits... Electronic connectors manufacturer PCD Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PCDI)") else Response.Write("(Nasdaq: PCDI)") end if %> dropped $2 3/8 to $11 3/4 after announcing it anticipates Q3 EPS of $0.17 to $0.19, below analysts' expectations of $0.25.
Pharmaceutical company Novo Nordisk A/S <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NVO)") else Response.Write("(NYSE: NVO)") end if %> sank $9 13/16 to $60 9/16 after announcing this weekend that it will discontinue Phase 3 trials of levormeloxifene for the treatment and prevention of osteoporosis. Although the drug was effective on bone and lipids, the adverse side effects outweighed the benefits... Computer chip templates maker DuPont Photomasks <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DPMI)") else Response.Write("(Nasdaq: DPMI)") end if %> was down $2 1/8 to $23 7/8 after announcing it will reduce its workforce by 3%, or 40 jobs, and temporarily cut the salaries of 15% of its personnel due to the continuing slowdown in the semiconductor industry. The company expects to take about $500,000 in restructuring charges in its fiscal first quarter.
FOOL
ON THE HILL
An Investment Opinion
by
Alex Schay
Balance Sheet Checklist, Part 2
In last Thursday's column, we began our financial checklist by looking at revenue recognition considerations. Today we begin to review specific balance sheet items to keep an eye on.
Last In First Out (LIFO) Layer Reductions -- Since roughly 70% of the companies out there use First In First Out investory accounting method (although the scale is more than 100% because some firms use multiple inventory costing methods for different classes of inventory), the possibility of lower-costed layers of inventory boosting earnings without any concomitant gain in cash simply doesn't occur. However, investors should be aware that some LIFO "inventory reduction programs" can result in lower "cost of goods sold" figures slipping into the income statement -- numbers that don't adequately reflect current replacement costs. Management can intend to reduce the inventory layers (so there is no "last in" cost that in the current period becomes the "first out") to produce the desired result. However, a quick check of the inventory footnotes can make all of this clear.
Depreciation & Amortization -- Although it is difficult (if not impossible) for individual investors to track the depreciation schedules of various assets, it's important to know that they are a significant part of the earnings equation for some firms. Waste Management <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WMX)") else Response.Write("(NYSE: WMX)") end if %> shareholders weren't having much fun in February of this year (until it was bought out by USA Waste) after the company announced a $1.5 billion fourth-quarter charge. This sum was added to the $2.9 billion in earnings that the company had to erase from its books in an earnings restatement back to 1992, thanks to faulty depreciation accounting for such things as garbage trucks and landfills. In this case, the lives were stretched in order to boost near-term numbers (by lowering the depreciation expense installments). The question to ask is, do the life spans make sense when compared to competitors within the same industry?
Tax Asset Valuation Accounts -- The rapid adoption of SFAS No. 109, Accounting for Income Taxes, in 1992 and 1993 has led to more and more firms recording deferred tax assets for the value of net operating losses. Tax assets must be stated at the value at which management intends to realize them. This presents a situation where management must assess when the firm will generate enough money to use up the asset. The ability to show better than "normal" earnings when the allowance is reduced (which increases the asset) and the subsequent income tax expense is lowered walks the fine line between quality of earnings and "earnings power." When a firm is 100% reserved for awhile, and then gets an earnings boost due to a sudden "optimism" about its future prospects -- which takes longer than stated to materialize -- take heed. One great reality check is the "Management's Discussion" section. If the outlook is glowing but a fully reserved tax asset exists, it's time to sort out what's really going on.
Warranty Reserves -- Many companies provide a warranty for the goods or services that they market. Since these warranties help a firm hawk its wares, warranty-related costs need to be matched with sales revenue in each accounting period. Companies usually base the estimated warranty expense that they record each accounting period on their past experience. However, sometimes companies conveniently overlook current circumstances that render historical circumstances somewhat ineffectual in determining outlays. In some cases additions to the reserves are reduced in order to make earnings targets. Can these reductions be justified by superior products, or is it just a crass attempt to hit the numbers?
Pension Income -- A defined benefit plan is one that provides for a determinable pension benefit paid at "retirement," or as a result of any other events that force the same outcome. The primary objective surrounding financial disclosures of defined benefit plans is to assess the present and future ability of the company to cough up the cash at the appointed time. Therefore, financial statements disclose information related to the resources of the pension plan, the accumulated plan benefits of participants, the transactions affecting the plan's resources and benefits, and finally, any other additional information that sheds light on the process.
So, the big question is how does the "expected return" outlined in the disclosure jibe with the return that has actually been earned on the plan assets. Expectations of a higher return will increase earnings immediately without any increase in cash for the coffers. Checking the pension plan footnote disclosures can help an investor discover whether or not an overfunded pension plan is producing pension income rather than expenses.
On Thursday we'll continue with this balance sheet checklist.
Related links:
-- Balance Sheet Checklist, Part 1
-- Balance Sheet Basics
Please see the Motley Fool's Conference Calls page for call information and links to synopses.
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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
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