DJIA 7632.53 -210.09 (-2.68%) S&P 500 986.39 -30.66 (-3.01%) Nasdaq 1612.33 -81.51 (-4.81%) Value Line ndx 761.88 -23.55 (-3.00%) 30-Year Bond 109 23/30 +1 21/32 4.88% Yield
Gold mining companies struck gold today while most other stocks headed downward as Nymex spot gold prices gained $3.20 to $299.60 per ounce. With stock prices generally falling in U.S. markets as well as in overseas markets, some investors are looking at precious metals as a safe haven to weather the downturn. Denver-based Newmont Mining <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NEM)") else Response.Write("(NYSE: NEM)") end if %>, whose Newmont Gold <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NGC)") else Response.Write("(NYSE: NGC)") end if %> subsidiary is the nation's largest gold producer, moved up $2 1/8 to $26 3/8. Newmont Gold rose $3 7/16 to $29. Toronto-based Barrick Gold <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ABX)") else Response.Write("(NYSE: ABX)") end if %>, the second largest gold producer in North America after Newmont Gold, picked up $1 1/8 to $21 1/8. Meanwhile, Vancouver-based Placer Dome <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PDG)") else Response.Write("(NYSE: PDG)") end if %>, which is second in Canada after Barrick Gold, inched up $3/4 to $14 9/16, and Anglogold Ltd. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AU)") else Response.Write("(NYSE: AU)") end if %> American depositary shares zoomed ahead $2 1/4 to $29 1/8.
The nation's third largest long-distance company, Sprint Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FON)") else Response.Write("(NYSE: FON)") end if %>, rang up $4 to $76 as Sprint PCS announced three wireless phone service plans that charge a fixed rate -- as low as $0.10 a minute -- for calls made on its nationwide network. The move is a counterattack against rivals AT&T <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: T)") else Response.Write("(NYSE: T)") end if %> and Bell Atlantic <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BEL)") else Response.Write("(NYSE: BEL)") end if %>, which already offer competing plans. The Sprint PCS packages cost $69.99 for 600 minutes, $99.99 for 1,000 minutes, and $149.99 for 1,500 minutes, doing away completely with long-distance and roaming fees. These compare with Bell Atlantic's prices of $39.99 to $159.99 and top AT&T's offer of 600 minutes for $89.99, 1,000 minutes for $119.99, and 1,400 minutes for $149.99. Unlike Ma Bell, Sprint doesn't require customers to buy a special phone, but while AT&T allows calls on other networks, Sprint charges customers who stray from their network a whopping $0.69 a minute plus long-distance fees. Sprint PCS is a joint venture Sprint has with Tele-Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TCOMA)") else Response.Write("(Nasdaq: TCOMA)") end if %>, Comcast <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CMCSA)") else Response.Write("(Nasdaq: CMCSA)") end if %>, and Cox Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: COX)") else Response.Write("(NYSE: COX)") end if %>.
QUICK TAKES: Qwest Communications International <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QWST)") else Response.Write("(Nasdaq: QWST)") end if %> gained $1 1/4 to $32 9/16 after announcing a $30 million multi-year contract with Exxon <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: XON)") else Response.Write("(NYSE: XON)") end if %> to provide specially branded TigerTalk Prepaid Phone Cards to Exxon's 500 company-operated retail stores and more than 8,000 independent distributor and dealer operated locations... Electronic components distributor Richey Electronics <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RCHY)") else Response.Write("(Nasdaq: RCHY)") end if %> surged $3, or 43.6%, to $9 7/8 after announcing it will be acquired by Arrow Electronics <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ARW)") else Response.Write("(NYSE: ARW)") end if %> for $10.50 a share, representing a 53% premium over Richey's closing price yesterday of $6 7/8.
Website developer go2net Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GNET)") else Response.Write("(Nasdaq: GNET)") end if %> picked up $3/4 to $15 3/4 as the company's shares began trading on the Nasdaq National Market today. The stock had been traded on Nasdaq's SmallCap Market since the company's initial public offering in April 1997... France Telecom SA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FTE)") else Response.Write("(NYSE: FTE)") end if %> American depositary receipts finished ahead $2 1/2 to $61 1/4 on speculation that the French phone company will postpone selling $6 billion in stock until market conditions improve... California State Bank parent First Security Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FSCO)") else Response.Write("(Nasdaq: FSCO)") end if %> rose $5/8 to $17 3/8 after announcing it has signed a binding letter of intent to acquire Irvine, Calif.-based Marine National Bank, a subsidiary of Shinhan Bank of Seoul, Korea, for an undisclosed sum of cash.
Insurance company Cincinnati Financial Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CINF)") else Response.Write("(Nasdaq: CINF)") end if %> bounced back $3 1/8 to $33 7/8 as it said it has asked the National Association of Securities Dealers to look into the 18% drop in its share price yesterday... Drug developer ICOS Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ICOS)") else Response.Write("(Nasdaq: ICOS)") end if %> leapt $1 5/8 to $19 3/8 after announcing a 50-50 joint venture with pharmaceutical company Eli Lilly & Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LLY)") else Response.Write("(NYSE: LLY)") end if %> to develop and globally market phosphodiesterase type 5 inhibitors (PDE5) as a treatment of male and female sexual dysfunction.
Non-powered lawn and garden tools manufacturer Acorn Products <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ACRN)") else Response.Write("(Nasdaq: ACRN)") end if %> popped up $2 to $8 1/8 after reporting fiscal Q4 EPS from continuing operations of $0.08 versus a loss of $0.23 in the same year-earlier period. The two analyst predictions compiled by IBES were earnings per share of $0.04 and $0.13... Computer programming consulting services company TSR Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TSRI)") else Response.Write("(Nasdaq: TSRI)") end if %> moved up $1 to $7 7/8 after reporting fiscal first quarter earnings of $0.18 per share compared with $0.08 last year.
Harbinger Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HRBC)") else Response.Write("(Nasdaq: HRBC)") end if %> dropped $3 to $4 1/4 after living up to its name last night by warning that operating EPS in fiscal Q3 will come in between $0.04 and $0.08 (before charges and a doubtful account provision), missing the Street's mean estimate of $0.11. The supplier of electronic commerce software said it will refocus its business on electronic connectivity through a restructuring, which will include a 10% reduction in its workforce, a realignment of its management team, and the elimination of duplicate departments. Elsewhere in the e-commerce field, Sterling Commerce <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SE)") else Response.Write("(NYSE: SE)") end if %> lost $8 3/4 to $25 7/8 as BancBoston Robertson Stephens cut its rating to "attractive" from "buy," and Open Market <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: OMKT)") else Response.Write("(Nasdaq: OMKT)") end if %> fell $1 1/16 to $10 3/16.
Networking products and switch designer FORE Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FORE)") else Response.Write("(Nasdaq: FORE)") end if %> was floored $5 5/8 to $11 after pre-announcing fiscal Q2 EPS between $0.09 and $0.10 (excluding acquisition-related charges), missing the Street's mean estimate of $0.14. Revenues in Q2 are expected to be flat to slightly lower than the $143.7 million posted in Q1, with the company estimating a range of $141 million to $143 million. FORE said it has had a tough time dealing with stronger-than-anticipated demand and customer delivery schedules as it transitioned to new products during the quarter. In a conference call, the company reportedly said that sales of its new ASX-4000 switch cannibalized expected sales of its older ASX-1000 model, prompting some analysts to question management's ability to execute new product launches. Unimpressed, Merrill Lynch cut its near-term rating to "neutral" from "accumulate."
QUICK CUTS: Investors checked out of hotel and senior living communities operator Marriott International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MAR)") else Response.Write("(NYSE: MAR)") end if %> this morning, which fell $2 to $21 7/8 after reporting fiscal Q3 EPS of $0.32. The results beat last year's EPS of $0.27 but missed the Street's mean estimate by a penny... Discount apparel retailer TJX Cos. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TJX)") else Response.Write("(NYSE: TJX)") end if %> lost $2 1/16 to $15 3/4 after Morgan Stanley Dean Witter cut its rating to "neutral" from "outperform." An identical ratings change sent shares of Gap <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GPS)") else Response.Write("(NYSE: GPS)") end if %> $4 9/16 lower to $48 3/16. Other retailers got the knife from the brokerage as well. Sears <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: S)") else Response.Write("(NYSE: S)") end if %> fell $2 7/8 to $41 5/16, Barnes & Noble <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BKS)") else Response.Write("(NYSE: BKS)") end if %> was ripped $2 11/16 to $24 5/16, and General Nutrition <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GNCI)") else Response.Write("(Nasdaq: GNCI)") end if %> sank $3/4 to $10 1/16.
Metal working and mining tools maker Kennametal <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KMT)") else Response.Write("(NYSE: KMT)") end if %> was shafted $5 to $21 15/16 after saying its fiscal Q1 revenues will come in between $480 million and $485 million and its earnings will be in the $0.20 to $0.25 per share range, missing the Street's mean estimate of $0.55 per share... Banking and brokerage firm Bankers Trust <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BT)") else Response.Write("(NYSE: BT)") end if %> slid another $3 15/16 to $55 1/16. In a federal filing today, BT said it is owed $875 million from hedge funds under existing contracts, although only $25 million of that figure is not collateralized by U.S. Treasury securities or cash. Fellow banks Chase Manhattan <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CMB)") else Response.Write("(NYSE: CMB)") end if %> fell $2 13/32 to $40 23/32, BankBoston <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BKB)") else Response.Write("(NYSE: BKB)") end if %> slid $1 3/8 to $31 4/8, and Citicorp <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CCI)") else Response.Write("(NYSE: CCI)") end if %> slipped $4 3/4 to $88 1/4.
Golf course and turf care products supplier Lesco Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LSCO)") else Response.Write("(Nasdaq: LSCO)") end if %> hit a triple bogey and fell $3 1/2 to $10 1/4 after warning that its earnings for fiscal Q3 and for the full year will be less than analysts expectations... Airbags and safety seating technologies firm Simula Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SMU)") else Response.Write("(NYSE: SMU)") end if %> deflated $1 13/16 to $6 7/16 after saying it is expecting breakeven fiscal Q3 results on $22 million in revenues, below the Street's mean earnings estimate of $0.14 per share... Broadband digital data transmission chip maker Broadcom Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BRCM)") else Response.Write("(Nasdaq: BRCM)") end if %> slipped $5 1/4 to $65 3/4 despite pre-announcing fiscal Q3 EPS of $0.16 to $0.17, ahead of the First Call mean estimate of $0.14. However, the company also announced a secondary offering of 3 million shares, including 2,607,500 shares to be sold by certain shareholders.
Computer consulting company Cambridge Technology Partners <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CATP)") else Response.Write("(Nasdaq: CATP)") end if %> was beaned with a $1 5/16 loss to $21 after Merrill Lynch cut its near-term rating to "neutral" from "accumulate"... Titanium and specialty metal mill products manufacturer RMI Titanium Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RTI)") else Response.Write("(NYSE: RTI)") end if %> slumped $2 3/4 to $17 3/8 after its Niles, Ohio, plant was struck by 504 production and clerical employees belonging to the United Steelworkers of America... Geriatric pharmaceutical company Omnicare Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OCR)") else Response.Write("(NYSE: OCR)") end if %> slipped $5 3/4 to $29 1/2 after BancBoston Robertson Stephens cut its long-term rating to "attractive" from "buy" based on the company's exposure to a policy change in Medicare reimbursements to nursing homes... Dutch financial services firm ING Groep NV <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ING)") else Response.Write("(NYSE: ING)") end if %> slipped $6 11/16 to $37 3/16 after reducing its fiscal 1998 EPS growth estimate to 15% from the 30% to 35% previously forecasted. The company said it will also cut 1,200 jobs at its ING Barings investment banking unit.
Interactive entertainment software firm CBT Group PLC <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CBTSY)") else Response.Write("(Nasdaq: CBTSY)") end if %> tumbled $3 7/8 to $9 5/8 after saying its chairman and CEO and its CFO both resigned. For more details on the firm, click here... Lighting products designer and manufacturer Advanced Lighting Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ADLT)") else Response.Write("(Nasdaq: ADLT)") end if %> was torched $1 to $7 1/2 following a Prudential Securities downgrade to "hold" from "strong buy"... Enterprise and healthcare software developer Keane Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: KEA)") else Response.Write("(AMEX: KEA)") end if %> was cut $2 to $34 after Merrill Lynch reduced its long-term rating to "accumulate" from "buy"... Orthopedic and surgical products maker Osteotech <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: OSTE)") else Response.Write("(Nasdaq: OSTE)") end if %> slid $6 11/16 to $19 13/16 after BancBoston Robertson Stephens downgraded the firm to "buy" from "strong buy" and reduced its fiscal Q3 revenues estimate to $14.4 million from $15.5 million.
Electronics, computer, and industrial products distributor Bell Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BI)") else Response.Write("(NYSE: BI)") end if %> cracked $2 1/16 to $9 7/8 after saying its continuing operations in fiscal Q3 will be "marginally profitable," excluding special charges. The Street had been expecting earnings of $0.21 per share in the quarter... Fiber optic communications network operator Global Crossing Ltd. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GBLX)") else Response.Write("(Nasdaq: GBLX)") end if %> fell back to earth, dropping $2 3/8 to $18 1/2 after saying it will spend $700 million to build a fiber optic network connecting 18 European cities with the U.S., Latin America, and Asia, which will start operating by the end of 1999... Payroll accounting and human resources outsourcer Paychex Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PAYX)") else Response.Write("(Nasdaq: PAYX)") end if %> fell $8 1/4 to $43 5/16 following a Salomon Smith Barney downgrade to "outperform" from "buy."
FOOL
ON THE HILL
An Investment Opinion
by
Alex Schay
Balance Sheet Checklist, Part 3
Today we conclude our look at the checklist of trouble spots to look out for when evaluating a company's balance sheet.
Capitalization Policies -- Remember when America Online's amortization of its subscriber acquisition costs caused such a frenzy -- mostly in the popular business press? This capitalized expense policy didn't pass the smell test for a lot of people, and was subsequently dropped by the company. Again, the big question is, how can a company justify expensing something over time when the competition doesn't? How does a firm account for its start-up costs, and what is the calculus involved in determining the amortization period? Management's rationale for any significant capitalization policy can be found in the accompanying "Accounting Policies" footnotes.
Restructuring Charges & Asset Write-Downs -- Despite what management might say, restructuring charges and asset write-downs are invariably an admission that the company has misallocated capital. Some of the common justifications for the move to restructure or write down assets is overcapacity in the industry (making certain existing facilities unprofitable) or the emergence of a low cost competitor that is eating a company's lunch. While the sale or liquidation of an unprofitable activity is not in itself grounds for going on hyper-alert, the prospect of a "big bath" and the fact that the activity might actually be continued (despite announcements to the contrary) -- with the inventory and PP&E written down resulting in lower expenses -- should be cause for concern. As Ben Graham offers in Security Analysis, "Once it is decided to take a major write-down, there is little additional embarrassment in charging off every possible doubtful asset, thereby preparing the way for accounting prosperity."
Allowance for Doubtful Accounts -- In a similar fashion to warranty reserves, the question that must be asked pertains to additions to the allowance. Are additions lower than they've been in the past? If this is the case, it can only be justified if the collections process is going gangbusters or if the allowance has proven "way" too conservative. Again, lowering the additions to the reserve is one method for boosting earnings in difficult periods.
Related Party Transactions -- A "related party" is one that can exercise control or significant influence over the management or operating policies of another party to the extent that one of the parties ends up being hindered in its pursuit of life, liberty and economic interest. Related parties can include management and their immediate families, owners and their immediate families, "equity method" investments, and beneficial employee trusts run by management. A problem can arise, for instance, if dealings take place with non-public companies that are controlled by management. In some cases these non-public firms actually get dumped on quite considerably in order for the public entity to shine -- in which case the analyst needs to take a closer look at these invisible supports that might be propping up the firm.
In-Process R&D Write-Offs -- All research and development costs covered by GAAP are expensed when incurred. Costs that are acquired in a business combination by the purchase method are assigned their fair values. The acquirer of these R&D assets accounts for the deal by determining whether or not there are "alternative future uses" for the assets -- in which case these assets are capitalized. All others are expensed at the date of the consummation of the deal. So you can see where this is headed.
A company ends up paying an exorbitant sum for a high-tech firm in order to acquire a technology. Since GAAP dictates that even acquired research and development needs to be expensed, the acquirer can deem very little worthy of future use and expense as much as possible. This serves the purpose of allowing the acquirer to, in essence, avoid the attendant amortization that goes along with the goodwill taken on during the "purchase" by allocating as much of the purchase price as possible to R&D (that it can reasonably justify). That amount is immediately expensed in one huge charge -- which will largely be ignored. What percentage of the firm that is being acquired is being categorized as "acquired," and what benefits will a company get down the road from the technology that it has deemed unworthy of alternative future uses? These are a some of the questions that careful investors should ask.
Related links:
-- Balance Sheet Basics
-- Balance Sheet Checklist, Part 1
-- Balance Sheet Checklist, Part 2
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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