Thursday, April 30, 2009

Swine Flu: Bienvenidos a los Estados Unidos de América

In a nationally televised speech on Wednesday night, President Felipe Calderón urged his Mexican subjects to stay home. Why didn’t he just tell them instead to head Norte across the Rio Grande to the Estados Unidos? Afterall, “undocumented” workers have been sneaking across our southern border with near impunity for years.

Atencion, Mexico City, we’ve got free health care and Tamiflu medicine for all of you. Do not speak English? No problema. We fellow citizens of the world will subsidize the hiring of a language interpreter for you! No te pongas nerviososo. Come and dump your hopeless, diseased, and uneducated on our doorstep.

I’m waiting for “Countdown” Keith Olbermann and “Hardball” Chris Matthews to lecture me—again—on the
economic benefits that uneducated, low-skill immigrants contribute to U.S. society. Keith and Chris, if the two of you can take your heads out from Obama’s ass long enough, tell me how many illegals live in your neighborhoods. What’s that? They cannot afford to buy any of the houses on your streets. And I thought the two of you embraced the principle of “mi casa es su casa!”

As for me, I can’t wait for the demographics to change in this country. As a gringo—and an emerging minority—will I then qualify for equal opportunities through affirmative action programs? !Qué demasiado!

The opinions expressed herein represent only those of Editor David J Phillips. The 10Q Detective has a Full Disclosure Policy.

Wednesday, April 29, 2009

Traders Flock to Novavax: SELL!

Common sense will be remembered as one of the first victims of the recent swine flu outbreak in the United States. In another example of following the herd, investors have stampeded into flu vaccine maker Novavax (NVAX-$3.18), which is working on potential treatments against highly pathogenic bird and swine influenza strains. The share price is trading at more than twice Friday’s close—despite knowledge that the company's vaccine candidate is more than two years away from commercial development.

Last month, Novavax published preclinical data showing that its H1N1 virus-like particle (VLP) vaccine candidate (based on the 1918 Spanish influenza strain) protected against both the Spanish flu and an H5N1 avian influenza strain. Nonetheless, even in the midst of a pandemic threat, it is highly unlikely that the Food & Drug Administration would approve an anti-viral with limited testing in (healthy!) humans.

With a quarterly cash burn of $8 million, Novavax does not have enough monies ($34 million at December 31—actually, $27 million if you back out the portion invested in auction rates securities) to shepherd its pandemic and seasonal flu vaccine candidates through human clinical testing. In our opinion, the recent $11 million capital infusion by India’s Cadila Pharmaceutical only delays an eventual restructuring of the company (including the suspension of other
R&D vaccine programs). A read of the 2008 annual report shows that $22 million in 4.75% senior convertible notes comes due on July 15 (although $11.0 million of the debt can be satisfied with the issuance of common stock).

The biggest asset on the company’s balance sheet is something called “crisis.” Back in 2005, this former distributor of soy-based lotions to prevent hot flashes in perimenopausal women repackaged itself as a (self-proclaimed) leader in the development of bird flu vaccines. We are still waiting for that SARS (severe acute respiratory syndrome) antidote, too.

Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.

Monday, April 27, 2009

Is NY Times Ignoring Voice of the People?

Struggling to save its flagship paper, The New York Times Company (NYT-$5.25) threatens to shutter The Boston Globe unless The Boston Newspaper Guild, the Globe’s largest union, makes $20 million in concessions by May 1. Management would have NY Times shareholders believe that the Globe will lose $85 million in 2009 because of the recession and subscribers deserting to online news. However, many folks in New England will tell you that circulation is falling because the paper no longer speaks to (and for) the readers.

“The voice of the people has been said to be the voice of God; and, however generally this maxim has been quoted and believed, it is not true to fact. The people are turbulent and changing, they seldom judge or determine right.” ~ Alexander Hamilton

Looking to close a projected $3.5 billion budget shortfall, Massachusetts’ legislators are pushing for an increase in the state sales tax, from 5.0 percent to 6.25 percent. Rather than talk about fiscal responsibility or the need for spending cutbacks, the Globe voices its support for a tax hike, disingenuously opining that the “MA [existing] sales tax ranks lowest among the 45 states that have a sales tax, once adjusted for personal income [source: Michael Graham,
“The Natural Truth”].”

Although there are those who argue that I, too, am guilty of manipulating the facts—"it’s the Internet stupid!"—ignoring the voice of the people is not without consequence. The Globe’s daily circulation plunged 13.7 percent to 302,638 copies and Sunday readership dropped 11.3 percent to 466,665 at March 31, according to the Audit Bureau of Circulations figures.

The opinions expressed herein represent only those of Editor David J Phillips. The 10Q Detective has a Full Disclosure Policy.

Wednesday, April 22, 2009

Junk Income at Citigroup

In a challenging lending environment, Citigroup (C-$3.25) posted revenues of nearly $25 billion and net income of $1.6 billion for the first quarter of 2009. "The clear message from this quarter is that our clients remain engaged,” trumpeted chief executive officer Vikram Pandit. “Despite the challenges we have faced this past year, they [our customers] remain closely engaged with us.” Might the financial service provider’s performance gains have more to do with fuzzy math? Read More….

Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.

Friday, April 17, 2009

Holding General Growth Properties CEO Metz Accountable

What role did chief executive Adam Metz play in the boom-to-bust saga at mall owner General Growth Properties (GGP-$0.75)? Metz first showed up on the scene as a director on the board in November 2005, due to his prior real estate holdings/financial interest in The Rouse Company…. Read More….

Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.

Tuesday, April 14, 2009

Where is Payday in Advance America's Business Model?

After suffering recent legislative setbacks in Oregon and New Hampshire that imposed annual rate caps on payday loans, Advance America (AEA-$3.82) could come out ahead on a ‘Payday Reform Bill’ working its way through the House of Representatives in Washington D.C., according to its critics. Consumer lending advocacy groups decry that the federal legislation being penned by Illinois Representative Luis Gutierrez will ostensibly legitimize existing fee structures of the payday loan industry.

It remains the stated position of Advance America that “any legislative or regulatory action that severely restricts or prohibits cash advance and similar services, like the Gutierrez bill, if enacted, could have a material adverse impact on the company’s prospects and forward results of operations.” To that end, the company entered into a one-year consulting arrangement with Tony S. Colletti, a member of the Board of Directors, whereby Colletti will be paid monthly consulting fees in the amount of $5,000 and $10,000 for his lobbying efforts on Advance America’s behalf in Illinois and Washington, D.C., respectively, according to the
2009 proxy regulatory filing.

Unlike pawn companies, Advance America only give loans to people that are employed. Still, as a percentage of total revenues, provision for doubtful accounts eats up about twenty cents of each dollar in gross profit, on average, at each of its 2,797 centers. However, the bulk of operating costs remain rooted in payroll and occupancy costs. Management’s claim that the company cannot survive as a going concern with a legislated ARP ceiling cap of 36 percent on cash advances, in our opinion, speaks more to an internal inability to control operating costs at the center level than to payday advances costs, such as default risk.

Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.

Thursday, April 09, 2009

Wexner's Dangerous Job as CEO of Limited Brands

Could someone inform the Board of Directors at Limited Brands (LTD-$10.25) that the “global war on terror” is over? Since 2005, shareholders at the specialty retailer, which operates Victoria's Secret and Bath & Body Works stores, have paid for security services provided to Chief Executive Leslie Wexner and his family. Although the 10Q Detective acknowledges the instrumental role that Wexner has played in the growth of the company he founded back in 1963, spending $1.0 million annually on protective services is absurd. In regulatory filings, the Board has said: “We require these security measures for our benefit and believe these security costs are appropriate given the risks associated with Mr. Wexner’s role and position.” [Ed. note. By comparison, DJ O'Reilly, CEO of oil giant Chevron, charged to the company $978 for home security costs in 2008.]

Leadership is an opportunity to serve. It is not a trumpet call to self-importance. ~ Spiritual leader Swami Kriyananda (born J. Donald Walters, 1926)

Enough! Is the company afraid that some of the women alleging that Victoria's Secret
bras gave them rashes and other skin problems might fling sexy underwear at Wexner?

Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.

Wednesday, April 08, 2009

The Ballad of Insider Interests and NASCAR Racing at Aaron Rents

Aaron Rents (RNT-$27.77), a leader in the sale and lease ownership of residential furniture, consumer electronics and home appliances, believes sponsorship of sporting events, such as arena football 2, NBA basketball, and various college sports, is an attractive medium by which to boost brand awareness with its low-income customers. The company's premier partnership, however, is sponsorship of professional driver Michael Waltrip's team in NASCAR racing. While the 10Q Detective concedes that the rent-to-own retailer boasts a strong record of beating earnings expectations, we wonder whether the company's patronage of motorsports has more to do with insider interests than the purported customer loyalty garnered from NASCAR-related initiatives.

To help promote its
Dream Products program [think “dream” consumer durables like large-screen televisions and home-theater systems] the company established a relationship with NASCAR in 1999. The initial deal was the title sponsorship of the NASCAR Busch Grand National Car Race at the Atlanta Motor Speedway- the nationally televised "Aaron's 312,” named for Aaron's three ways to obtain merchandise and its unique 12-month plan. The following year, in 2000, the company began a limited sponsorship of driver Michael Waltrip's #99 Aaron's Dream Machine in the Busch Grand National Series.

In 2005, as a part of its NASCAR marketing program, Aaron Rents expanded its relationship with Waltrip by financially backing a driver development program implemented by Waltrip’s company. The two drivers participating in the driver development program that year—
Ken Butler and Brett Butler—the sons of William Butler, the current Chief Operating Officer of Aaron Rents. He has also served as a Director of the company since 2000.

Although the company is reticent about detailing the annual advertising costs associated with its NASCAR purchasing rights and other initiatives, a review of past regulatory filings shows that stockholders footed bills totaling $890,000 in 2005 and $983,000 in 2006--so Butler’s two kids could learn to drive stock cars.

“It's because it's what you love, Ricky. It is who you were born to be. And here you sit, thinking. Well, Ricky Bobby is not a thinker. Ricky Bobby is a driver. He is a doer. And that's what you need to do. You don't need to think. You need to drive. You need speed. You need to go out there, and you need to rev your engine. You need to fire it up.” ~ Talladega Nights: The Ballad of Ricky Bobby (actress Amy Adams, “Susan”)

In 2009, the company will sponsor Ken Butler as a member of the
Robert Richardson Racing team in the NASCAR Nationwide Series at an estimated cost of $1.6 million, according to the 2009 proxy filing. The 10-Q Detective did not bother to query management if they would be willing to sponsor our sports fantasy of being Ricky Bobby, handling 33 degrees of banking in the turns at the Talladega Superspeedway.

Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.

Tuesday, April 07, 2009

Callaway Golf CEO Takes Mulligan With Exexcutive Perks

Despite stewarding a mixed financial performance at Callaway Golf Company (ELY-$7.90), Chief Executive George Fellows received compensation valued at $4.0 million in 2008, only slightly less than his 2007 take home pay, according to an analysis of the the 2009 regulatory proxy statement filed with the SEC.

also received from the company—in each year—a payment of $66,500 to assist him with travel expenses "not otherwise reimbursable under the Company’s policies." Obscuring the true nature of the payments calls into question the Board's Governance Policy. Read More….

Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.

Saturday, April 04, 2009

Profits at GeoEye in Decaying Orbit?

GeoEye Inc (GEOY-$24.57) said in February that its earth-imaging satellite GeoEye-1 received full operational capability certification from National Geospatial-Intelligence Agency. Launched on September 6, GeoEye-1, currently the most advanced imagery collection satellite that is commercially available, can now begin delivering images to the agency, with the company collecting a monthly revenue stream of $12.5 million. The timing of the certification was welcome news, as two of the three low-Earth orbit imaging satellites owned and operated by GeoEye are running on fumes, having outlived their designed operational lives of seven years, according to the 2008 annual report just filed with the SEC:

The IKONOS satellite was launched in September 1999. A study that was completed in August of 2008 by the IKONOS manufacturer resulted in a revised life expectancy for IKONOS to the 2010+ timeframe. Based on that study, we currently expect to continue commercial operations with IKONOS through that timeframe. However, we can offer no assurance that IKONOS will maintain its prescribed orbit or remain commercially operational..

The OrbView-2 satellite was launched in August 1997. Despite the fact that OrbView-2’s operational life has expired, we currently expect to continue commercial operations with OrbView-2 in 2009. We cannot, cannot guarantee the use of OrbView-2 throughout 2009, or beyond.
The expected operational lives of satellites are affected by a number of factors, including the quality of construction, the supply of fuel, the expected gradual environmental degradation of solar panels, the durability of various satellite components and the orbits in which the satellites are placed.

GeoEye does not presently have plans to construct and launch a replacement satellite for IKONOS or OrbView-2 if either fails prematurely. The company is developing the GeoEye-2 satellite program, but has yet to select a satellite builder. Timeline to launch is at least three to four years from commencement of actual construction.

Financing the construction of GeoEye-2, whose total costs could exceed $500 million, will strain an already levered balance sheet. Long-term debt of $246.7 million is 1.3 times shareholder equity, and comes due in 2012. The times interest earned ratio—an indicator of GeoEye’s ability to meet the interest payments on its debt—0.9 times EBIT at December 31—suggests that unless earnings expand rapidly, GeoEye could find the capital markets less than receptive to their request for additional financing. [Ed. Note. GeoEye’s ability to cover its annual interest payments would be even more suspect, but the company used a legal loophole, known as
“capitalized interest” that permitted the company to defer payment of certain costs involved in the construction of GeoEye-1].

If IKRONOS and OrbView-2 lose satellite imagery capabilities before 2012, sales and profitability could end up in decaying orbits, dooming GeoEye’s plans for its GeoEye-2 satellite.

Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.

Wednesday, April 01, 2009

Please Don't Shrink My Box of Cheerios!

Ken Powell, Chairman and Chief Executive Officer of General Mills (GIS-$50.80), said although commodity prices have climbed about 25 percent over the past five years, the company has only needed to raise its product prices just eight to 10 percent, reflecting the success of its “holistic margin management” (HMM) initiatives, which include cost-savings initiatives, marketing spending efficiencies, and profitable sales mix strategies. Why then do the cereal boxes keep shrinking in size? Read More….

Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.