BNET Update: Monday, October 27, 2008

Even amidst declining energy prices and the uncertainty in the credit markets, Diamond Offshore Drilling (DO-$72.58) is signing deepwater rates in excess of $620,000 per day for its semi-submersible rigs.

In order to meet manufacturing targets for 2010 - 2013, Evergreen Solar (ESLR-$2.58) will need to improve operating efficiencies, expand capacity at the Devens facility, and build a planned new factory — which will require additional working capital.

Based on the current operating environment, Foundation Coal (FCL-$15.71) is cutting its full-year 2008 and 2009 EBITDA guidance to a range of $300 to $320 million and to $500 to $625 million, resulting from expected production constraints in its Eastern operations.

Despite the domestic and global economic downturn, Intuitive Surgical (ISRG-$158.68) increased top-line revenue forecast for 2008. The company now expects revenues to grow 49 percent to 50 percent over 2007 sales of $600.8 million, which is up from a previous estimate of 45 percent to 47 percent. However, management acknowledged sales could slow if customers have trouble securing capital.

The current economic environment could make for a challenging holiday shopping season for Mattel (MAT-$13.07). The world’s largest toy manufacturer expects borrowing difficulties are making it harder for the company’s retail distributors in Western Europe to acquire Christmas toy inventories.

Although Southwest Airlines’ (LUV-$10.97) fuel hedging program wiped-out operating income of $86 million in the third-quarter 2008, fuel derivative instruments have historically provided economic benefit to the company.

Against a backdrop of an 11 percent increase in rig count activity, Weatherford International (WFT-$12.98) reported third-quarter sales of $2.5 billion, up 29 percent from the same period last year. The company’s large North American onshore drilling presence, which comprised 46.4% of total sales, remains a potential liability in a deteriorating natural gas pricing environment. Nonetheless, going forward, pullback in drilling activity in both the US and Canada should be offset by a growing international footprint.

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.

The Este Lauder Companies: A Family That Plays Together, Gets Paid Together

If the name is Lauder is may spell job security—and that is not a bad thing as unemployment rises above six percent. The most recent Proxy Statement for The Estée Lauder Companies, Inc. (EL-$35.38), filed with the SEC at the beginning of October 2008, provides a long list of officers and employees who are members of the Lauder Family.

More importantly the proxy filing provides a run down on their compensation. As Chairman of the Board, Leonard Lauder was paid $1.4 million in salary and $1.8 million in bonus in fiscal year 2008. Five additional family members, including Leonard’s brother, wife and nieces, were paid $2.1 million in cash and about $116,000 in stock. William Lauder, who is Leonard’s son and Chief Executive Officer, draws the biggest paycheck, receiving a total of $9.2 million in fiscal year 2008, in the form of cash salary and bonus as well as equity awards.

If those figures make it seem like the Lauder Family is on the corporate dole, consider the compensation of the other four top-paid executives at Estee Lauder. The Chief Financial Officer, Richard Kunes, and three other group and regional heads, were paid a combined $19.0 million in fiscal year 2008.

Yes, your calculator is working right. The bill for executive and brand name-related compensation was $33.6 million in fiscal year 2008. Put into perspective, that was 4.0% of FY08 operating income before compensation expenses.

While compensation for marquee-named employees may be a minor portion of profits, corporate commitments to Leonard Lauder demonstrate the lengths to which the Board of Directors is prepared to go to keep the Lauder Family scion happy.

Furthermore, Leonard’s employment contract is perpetual—if he retires he will be provided an office, a full-time executive secretary "for as long as he would like." In addition, when he retires he is entitled to his salary and compensation for six months, but if he dies while still Chairman his beneficiary is entitled to the same compensation for an entire year. Does that latter discrepancy may provide some insight into why Leonard’s next of kin are also on the pay roll?

Original new stories can also be found at BNET Energy & BNET Insight: 10-Q Detective

Reporting by contributor Debra Fiakas, who does not hold a financial interest in any stocks mentioned in this article. The 10-Q Detective has a Full Disclosure Policy.

Southern Hospitality at CSX Corp

Why would a major railroad, principally involved in the transportation of freight and intermodal containers, spend $50 million to renovate and manage a luxury resort-hotel? CSX Corp. (CSX-$45.57), the owner of the venerable, Mobile four-star Greenbrier Resort, located in White Sulphur Springs, West Virginia, would say it is just part of its strategic plan to diversify its portfolio holdings to create value for shareholders. A review of the company's recent third-quarter 2008 10-Q filing reveals, however, income from real estate and resort-operations comprised just $6 million, or 0.1 percent, of net income of $382 million for the quarter ended September 26. Albeit the company did not breakout its specific numbers for its real estate and resort operations, it did admit to the following:

Results from resort operations were down in 2008 because of decreased group business resulting from the uncertainty of labor negotiations, and an inability to sufficiently reduce contractual labor costs accordingly.

Since 2007, certain dissident shareholders of CSX, including The Children's Investment Fund and 3G Capital Partners, have attempted to reform the Company's corporate governance practices. For example, in April 2008, the hedge funds alleged in an amended Proxy Filing:

...the improprieties in CSX's executive compensation practices went beyond the use of material non-public information in stock grants ["spring loaded" options]. Indeed, a former employee has recently filed suit and alleging that CSX's top executives have obtained substantial amounts in undisclosed non-cash compensation in the form of perquisites at the Greenbrier Hotel, a resort owned by CSX.

In March 2008, Paul Ratchford, former president of The Greenbrier, filed a $50 million lawsuit against CSX, claiming that CSX President Michael Ward fired Ratchford after he tried to stop company executives from enjoying free rooms and meals, discounted merchandise and even free medical exams at the resort. In addition, Ratchford's lawsuit claims that CSX executives were benefiting from the lavish comforts available at the four-star resort while, Ratchford claims, The Greenbrier was losing roughly $15 million a year.

Are the activist hedge funds and Ratchford focused on personal gain - or do they raise legitimate issues as to corporate governance practices at CSX?

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.

BNET Update: Monday, October 20, 2008

After reporting disappointing sales and a drop in third-quarter profit Tuesday, Domino’s Pizza (DPZ-$6.43) also said its ability to draw upon its variable funding notes had been reduced from $90 million to an estimated $21.7 million after Lehman Brothers, the primary provider of those funding notes, declared bankruptcy.

Labor unions in the United States and Canada on Tuesday expressed concern about the prospect of job losses from any merger between General Motors Corp (GM-$6.43) and Chrysler LLC, which is controlled by private equity group Cerberus Capital Management. But Chairman and CEO Rick Wagoner could be could be rewarded handsomely with severance benefits in the event of a change in control.

InterOil (IOC-$11.68) said the Antelope-1 rig site location is complete and drilling will commence in the next few days, targeting a limestone reef porosity zone intersecting in the Elk-4, a well that yielded a gas flow rate of 105 million standard cubic feet and approximately 2,000 barrels of condensate per day in a previous test, a record-high gas flow rate for Papua New Guinea. Discovery of a second well that confirms commercial gas reserves is critical to a proposed LNG project in Papua New Guinea with the government.

Moving forward with its strategy of monetizing non-core oil and gas assets, Linn Energy (LINE-$13.13) announced Monday that it had entered into a definitive agreement to sell its deep rights in non-producing Oklahoma acreage, which includes its Woodford Shale interval.

Despite the ongoing credit crisis and uncertainty about economic growth, Peabody Energy (BTU-$32.03) said it sold 66 million tons of coal in its third-quarter 2008 ended September 30, up six percent from year-ago levels. Thermal coal prices remain strong, too, driven by demand growth and tight global supplies.

Although Schlumberger Ltd (SLB-$49.99) has limited direct credit market exposure, as it enters the fourth quarter, the global banking crisis will likely have an have an effect on demand for its oilfield service activities, though Chairman and Chief Executive Andrew Gould anticipates this will be largely limited to North America and to some emerging offshore markets overseas.

Sears Holdings Corp (SHLD-$60.90) has reported that Chief Financial Officer J. Miles Reidy will step down later this year to "attend to a family issue." The resignation comes amid slumping sales at the struggling department-store retailer.

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.

"Marking to Make-Believe" Accounting at Goldman Sachs

Goldman Sachs Group (GS-$111.00) filed its August 2008 quarter report with the SEC last week. The venerable investment bank is among the first of the major institutions to report earnings since the U.S. credit market began to seize up at the end of August 2008. At the time the earnings were made public in a Goldman Sachs press release on September 16, 2008, the market was surprised by stronger than expected earnings. Yet Goldman shares sold off to a three-year low as investors anticipated yet another shoe to drop from the "credit market centipede."

Earnings impress few these days as risks lurking on corporate balance sheets have come to light. Some have blamed accounting practices, specifically Financial Accounting Standards Board Rule 157, which went into effect in November 2007. Rule 157 changed the way public companies increase or decrease asset values on their balance sheet to reflect the prices that would be received if the asset were sold right then and there. The process, called "mark to market," is repeated each quarter.

In Goldman's quarter filing total current financial assets valued at fair market prices were $400.1 billion. This includes collateralized agreements and other financial instruments owned by Goldman. This asset category peaked in value at $498.9 billion at the end of the February 2008 quarter and has declined in each of the two quarters since.

That is only half of the story. Goldman has liabilities such as financial instruments sold to other parties with agreements to repurchase them later. At the end of the August 2008 quarter, total current liabilities composed of financial instruments that had to be marked to market prices were $378.9 billion. Fortunately, for Goldman such financial assets are still valued higher than similar financial liabilities.

Goldman began explaining the so-called FASB Rule 157 in its first-quarter 2008 10-Q, even going so far as to describe the hierarchy of information sources prescribed by Rule 157 to determine "fair market value." Back then only a few financial experts could see the trouble looming with the newly adopted standard. What happens, for example, when there is no market for a certain financial instrument or the market all but goes away such as for collateralized debt obligations? It becomes necessary to abandon market prices altogether and search for "recent trades." When even scattered values are not available, Rule 157 prescribes the use of "unobservable inputs" -- a euphemism for accountants own assumptions -- a practice which many financial analysts have dubbed "'marking to make believe."

As impressive as Goldman's detailed explanation of Rule 157 might be, what is missing from the quarterly filing is whether Goldman was able to "mark to market" or had to "mark to make believe."

Original new stories can also be found at BNET Energy & BNET Insight: 10-Q Detective

Reporting by contributor Debra Fiakas, who does not hold a financial interest in any stocks mentioned in this article. The 10-Q Detective has a Full Disclosure Policy.

BNET Update: Monday, October 13, 2008

Operating results at Texas-based AmeriCredit Corp (ACF-$8.06), which has focused predominantly on servicing sub-prime borrowers (with credit scores of 630 or lower) underscores why — going forward — even more problematic for those folks looking to access car financing.

From September 2002 thorough April 2008, Aubrey K. McClendon, the billionaire chief executive of Chesapeake Energy Corp (CHK-$16.52) purchased more than 11 million shares of his company’s common stock at a total cost of approximately $319 million. Tragically, however, failing to remember that like all commodities — the price of natural gas is cyclical — McClendon recently went on a stock buying binge from April - June, purchasing an additional 2.45 million shares at an approximate cost of $108.4 million in open market transactions. Now comes word that McClendon has sold “substantially all” of his stock over the past three days in order to meet margin loan calls in the natural gas company he co-founded, the Company said late Friday.

Losing the Sand’s recommendation compounds an already bleak outlook at Circuit City (CC-$0.37). In the August-quarter of fiscal 2009, comparable store sales decreased 14.4 percent, driven by a double-digit decline in traffic as compared to last year. Specifically, strong sales growth in digital television converter boxes and video gaming products were not enough to offset tepid purchases of flat panel televisions and broad-based weakness in the sale of most other categories, including camcorders, projection and tube televisions, and personal computers. With $1.5 billion of inventory sitting on store shelves, markdowns could come quicker than the day after Christmas for gift seekers.

Ivanhoe Energy (IVAN-$1.14) announced Wednesday a definitive agreement with Ecuador state oil companies Petroecuador and Petroproduccion to explore and develop Ecuador’s Pungarayacu heavy-oil field, utilizing Ivanhoe’s HTL upgrading technology. Although Ivanhoe’s thermal cracking technology has the potential to substantially improve the economics and transportation of heavy oil, no commercial-scale HTL plant based on the proprietary technology has ever been constructed.

Long recognized as a well-run, innovative athletic footwear and apparel company, Nike (NKE-$54.54) has demonstrated its “swish” for making money in other investments, too.

Palm (PALM-$5.37) has bet heavily that new products and a new operating system platform can retake lost market share from Blackberry and iPhone. In the first quarter 2009, Palm paid $6.9 million, or 1.9% of sales, on its interest obligation. Looking ahead, the handset maker will be paying much more in borrowing costs.

Tighter credit and lower energy prices are forcing U.S natural gas drillers, such as Chesapeake Energy and Petrohawk Energy, to scale back capital expenditure budgets. Mark Smith, Chief Financial Officer of Ultra Petroleum (UPL-$38.00), told attendees at the 2008 Oil & Gas Investment Symposium in San Francisco, however, that Ultra’s liquidity continues to remain more than adequate to fund the 2008 capital budget of $945 million.

World Fuel Services (INT-$17.39) improved its liquidity profile by an additional $160 million after entering into a two year syndicated trade receivables purchase facility program with HSBC Bank. The monies will likely be used to purchase fuel products for re-sale to customers.

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.

BNET Update: Monday, October 6, 2008

On September 9, Ken Huseman, Chief Executive Officer of Basic Energy Services (BAS-$17.54), said selected operating data for August 2008 — utilization in well servicing and drilling segments — signaled that the company was successfully leveraging its wide footprint and range of services to take advantage of market conditions over the last year. Left unanswered, however, was whether the increased level of activity in each of the company’s three primary business segments (well servicing, fluid services, and completion/remedial services) would lead to pricing and margin improvements, too.

Carnival Corp. (CCL-$32.74), the largest cruise ship operator in the world, with a portfolio of cruise brands that includes Carnival Cruise Lines, Princess and Cunard Line, reported in its third-quarter 10-Q filed with the SEC on Friday that AIG is the payment intermediary for some of its estimated $1.06 billion in contingent obligations.

At the Cisco Systems (CSCO-$21.28) annual meeting to be held in November, shareholders will be asked to vote on a Human Rights resolution, again.

Effective January 2009, FedEx Corp (FDX-$79.36) is increasing its rates by an average 6.9 percent. While the rate increase may seem like a shot in the foot, it may turn out to be a smart move for FedEx’s bottom line.

JA Solar (JASO-$9.54) confirmed its production guidance in the range of 340-megawatts (MW) to 350MW for fiscal 2008, and remained cautiously optimistic about the potential for raising its 2009 projected output beyond 700 MW at its Ningjin plant. However, it was reported this week that Jiangsu Shunda, a major solar wafer supplier, suffered a silicon tetracholoride leak and was shutting down for repairs until October 10, calling into question JA Solar’s ability to meet output goals.

The North American gas drilling industry suffered an earthquake of uncertain magnitude last week when Chesapeake Energy (CHK-$29.00), third-largest overall producer of natural gas in the US, slashed its drilling capital expenditure budget by $3.2 billion, or 17 percent, for the second half of 2008 through 2010. Contract drillers, like Patterson-UTI Energy (PTEN-$16.76), which are highly dependent on onshore drilling activity, will likely witness an adverse tectonic shift in forward demand for drilling rigs and services.

Petrohawk Energy (HK-$16.20) said Wednesday it would reduce its 2009 capital budget by a third to $1.0 billion and intends to shift spending to those projects with the highest internal rates of return and greatest potential for reserve growth, namely, development in the Haynesville and Fayetteville formations.

Looking to divert attention away from their own incompetence, many investment bankers on Wall Street are calling for the elimination of mark-to-market accounting, a framework adopted by companies to make more transparent the current values of certain (often illiquid) financial instruments. In my opinion, a likely critic of fair value would be RenaissanceRe Holdings (RNR-$44.25), the Bermuda-based provider of reinsurance and individual and property risk insurance.

As the housing market continues to deteriorate, Washington Federal (WFSL-$19.14), which has thrift operations in eight western states, could feel more pain.

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

Credit Concerns Resurface at Smithfield Foods

Hog and pork producer Smithfield Foods Inc (SFD-$14.36) sought to reassure investors on Friday that it was in compliance with its debt covenants and had adequate liquidity after its shares fell sharply.

Before some Wall Street analyst with a well-oiled PR machine takes credit for having predicted potential credit problems at Smithfield, remember you heard it first at the 10Q Detective – back on July 29.

Original new stories can also be found at BNET Energy & BNET Insight: 10-Q Detective

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.

BNET ENERGY Updates: Monday, September 29, 2008

Capstone Turbine (CPST-$1.21) expects to raise $29.5 million through an offering of common stock (and warrants). In large part, the proceeds will be used for continued performance testing and commercial production of its C200 (200-kilowatt) microturbine product.

Despite posting strong second-quarter numbers, a concern remains that a new silicon supply agreement covers only 20 percent of China Sunergy’s (CSUN-$8.20) targeted 2009 production of 220-250 MW.

Management believes that two new contracts further affirms EMCORE’s (EMKR-$5.39) position as the leading supplier of concentrator photovoltaic arrays in the emerging CPV components and systems business.

Teck Cominco Limited (TCK-$32.43) said its share of capital costs for the first phase of the Fort Hills oil sands project, of which it owns a 20 percent working interest, is now pegged at $4.2 billion, up $1.84 billion from an initial June 2007 cost estimate.

Can Sarah Palin in the White House redirect TransCanada’s (TRP-$36.66) Alaskan pipeline to nowhere?

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.

How Imminent Turnaround in Real Estate Markets?

Homebuilder stocks, historically, tend to rebound six – 12 months before the real estate market itself. True to form, shares in DR Horton (DHI-$13.92), KB Home (KBH-$21.16), and Toll Brothers (TOL-$25.88) are up more than 40 percent, 46 percent, and 50 percent from their mid-July lows, as investors speculate that a rebound in housing activity is just around the corner.

Evidence continues to mount, however, that it still may be premature to bet now on a real estate rebound: sales of new U.S. single-family homes in August fell sequently 11.5% from July 460,000 new homes, its lowest point in more than 17 years, according to a government report released on Thursday.

In addition, new claims for jobless benefits jumped for the week ending September 20 by 32,000 to a seasonally adjusted 493,000, their highest level in seven years. Erosion in consumer purchasing power suggests that less folks have the ability and means to step up and purchase homes – irrespective of prevailing incentives and discounts currently being offered by the homebuilders.

The fishermen know that the sea is dangerous and the storm terrible, but they have never found these dangers sufficient reason for remaining ashore. ~ Dutch Post-Impressionist painter Vincent van Gogh (1853-1890)

In my opinion, aggressive discounting by home builders to convert window-shoppers into buyers and steeper drops in the value of unsold homes/lots could result in further margin compression and asset writedowns, respectively, delaying the expected fundamental turnaround beyond 3Q:09. Ergo, the realized gains in their stock prices since mid-summer could see reversal of fortunes. Then again, the fisherman knows he won’t catch a 500-lb blue fin remaining ashore.

Original new stories can also be found at BNET Energy & BNET Insight: 10-Q Detective.

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.

The Hole in Krispy Kreme’s Doughnut

By its own account, Krispy Kreme Doughnuts, Inc. (KKD-$3.46) is in an uncomplicated business: buy and mix together flour, sugar and a few other ingredients and recognize revenue when the sugary confections are sold to hungry customers. Investors seem to think of the company in such simple terms, having driven the stock price down more than 23 percent in the last few weeks after the company reported lower sales and rising costs.

Yet the company’s most recent SEC filing shows Krispy Kreme has anything but a simple balance sheet. Buried in footnotes are the details of its franchise relationships, which disclose an entirely different set of worries than just sagging demand for high-calorie snacks.

In the final quarter of Krispy Kreme’s fiscal year ending January 2008, the company added $3.2 million to its liabilities related to guarantees the company had made for franchisee debt and lease obligations. Apparently, the franchisee is in default and now Krispy Kreme is on the hook to pay back loan principal and interest.

As of August 2008, Krispy Kreme still had another $8.5 million in such guarantees for its franchisees. The company does not consider any portion of that amount in doubt and therefore has not included any of it in the company’s liabilities. To put those guarantees in perspective, Krispy Kreme’s current liabilities would be increased by 19.2% if those franchisees also went into default. Yet franchisees account for only about 6% to 7% of Krispy Kreme’s total sales.

There is no way to avoid disclosing in those footnotes the $13.3 million in additional loan and lease guarantees that Krispy Kreme has made for franchisees in which the company has an ownership interest. The level is down from the beginning of the 2008 after one franchise operation was dissolved and Krispy Kreme divested its interests in two others. Yet even this reduced level represents 20.8% of equity on the balance sheet in August 2008.

Columnist Debra Fiakas do not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.

10-Q INSIGHT Updates: Monday, September 22, 2008

One insurance company that does not need assistance from the Federal Reserve is ACE Limited (ACE-$66.00), which has managed to sidestep the financial meltdown befallen competitor AIG.

In the last year, CKE Restaurants (CKE-$11.99) has sold 224 restaurants to franchisees and secured commitments for 105 new franchise restaurants under development agreements for those markets. The 10-Q regulatory filing for the second-quarter ended August 11, however, suggests the formula used to finance these Carl’s Jr. and Hardee restaurants could be a recipe for disaster – think Boston Market or Krispy Kreme Doughnuts.

To its credit, Toll Brothers (TOL-$26.84) had its lowest contract cancellation rate (195 homes) in more than two years. If the current crisis on Wall Street spreads to Main Street, however, potential sales could evaporate along with consumer confidence and success in finding affordable mortgage loans.

According to its 10-Q filed with the SEC on September 12, in the second quarter ended August 3, specialty retailer Williams-Sonoma (WSM-$19.05) took advantage of a bustling corporate aircraft market and sold its Bombardier Global Express airplane for approximately $47 million in cash.

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.

BNET ENERGY Updates: Monday, September 22, 2008

Stockholders of Bronco Drilling (BRNC-$12.24) who voted down a merger proposal from oil service provider Allis-Chalmers are probably wishing they had not heeded the advice of Wexford Capital LLC, an investment fund that beneficially owns 12.8% of the company.

Constellation Energy (CEG-$25.76) confirmed that it retained Morgan Stanley and UBS to advise on available strategic alternatives, such as a sale of the company. France’s EDF SA, which owns a 9.5 percent stake in the company and is a joint partner with respect to nuclear projects, could be a likely suitor.

Despite assurances by Michael El-Hillow, Chief Financial Officer of Evergreen Solar (ESLR-$6.20), the Chapter 11 filing by Lehman Brothers could expose the solar panels maker to a potential shareholder dilution of more than 20 percent if shares lent to an affiliate of the insolvent brokerage are not returned.

Like most refineries, profitability at Holly Corp (HOC-$35.26) depends on the spread between market prices for petroleum products (such as gasoline and diesel fuel) and crude oil prices. In the wake of Hurricane Ike, about 20 percent of U.S. refinery capacity has been idled — creating the perfect storm for refiners, such as Holly, located outside the Houston beltway.

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.

McDonald's Talking Up Double Cheeseburger w/o the Cheese

McDonald's Chief Operating Officer Ralph Avarez told analysts on the second-quarter conference call in July that backing for the Dollar Menu remained strong throughout the U.S. system, in spite of continued increases in beef, wheat, and other commodity costs. This runs contrary to what I am hearing directly from franchisees and affiliates, who operate 78 percent of all restaurants and contribute about 66 percent to operating profits (through rent and/or royalty payments), according to the recent 10-Q.

However, with wheat prices trebling in two years, and chicken and beef costs expected to rise about six percent and about 9 percent in 2008, local operators can no longer sit idle. Working on thin margins -- pennies for the four-piece chicken nugget item on the Dollar Menu -- franchisees are also feeling the hurt from rising fuel, rent, and utility costs. One franchisee privately told me that his margins actually rose in June, when the company stopped serving serving tomatoes on burger and chicken sandwiches during the recent salmonella outbreak.

Acknowledging the concerns of franchisees, McDonald's is testing the Double Cheeseburger at different price points in a limited number of restaurants, according to McDonald's USA spokesman Bill Whitman.

However, restauranteers in expensive locales like Manhattan are not waiting for corporate's lead, they have already removed the popular Double Cheeseburger from the Dollar Menu. Other chain operators have taken to selling the double-burger less one slice of cheese (and/or without pickles).

So far, the company has announced no specific changes to the Dollar Menu, but more information on the fate of its Double Cheeseburger should come on or about October 22, when McDonald's tentatively plans to release third-quarter operating results.

Original new stories can also be found at BNET Energy & BNET Insight: 10-Q Detective

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

Coldwater Creek Suffers Cold with its Spa Concept

Women's clothing retailer Coldwater Creek (CWTR-$7.17), which caters to females ages 35-60, with average household income in excess of $75,000, opened the first of its nine day spa locations in Spring 2006. Management believed that the spa concept would increase retail traffic and offer cross-merchandising synergy, especially from its line of assorted Sports apparel.

In the second-quarter 2008 ended August 2, the company admitted that certain assets (equipment, furniture, and fixtures) at some spa locations would never be recovered, and took a $1.5 million writedown related to the Coldwater Creek Spa concept, according to the 10-Q filed with the SEC on September 11. To date, the spa business has had a negative impact on earnings.

Retail trends remain sluggish, as seen in new co-branded credit activations, which fell about 60 percent year-over-year to 10,700 in the second-quarter. Nonetheless, management refuses to admit the day spa concept was a mistake:

• "We have not formed a conclusion as to the long-term prospects of this concept, although we have no plan to build additional day spas. "

Such wording suggests behavior to the contrary. In addition, how can management determine that the day spa concept has been long enough to perform a detailed impairment evaluation -- as the concept continues to incur operating and cash flow losses -- but not long enough to reflect long-term prospects?

"Health is the greatest possession," said Chinese taoist philosopher Lao Tzu (600 BC - 531 BC). Coldwater should not lose sight of the reality, however, that clothes can bring the greatest joy to women shoppers. [Ed. note. Forgive me for that sexist comment!]

In the filing, management did admit to a failure to differentiate its merchandise from its competitors, for comparable same-store sales declined 13.7% year-on-year. The company is hoping its fall wardrobe-prints, prints, and more print fashions -- will resonate with its customers.

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

Bankrupt Lehman Brothers Eclipses Evergreen Solar

Michael El-Hillow, Chief Financial Officer of Evergreen Solar (ESLR-$4.39) told Reuters last Wednesday that the company was in talks to license its new solar thin-film technology to other solar panel makers. Agreements could be announced—next year!

Reading that press release wasted fifteen seconds of my life I cannot recover. As if El-Hillow's credibility was not already strained with that insipid release, now comes word that Evergreen is vulnerable to potential shareholder dilution of more than 20 percent if shares lent to an affiliate of the insolvent Lehman Brothers are not returned.

El-Hillow insists, however, that the company is availing itself "of all legal remedies to protect the Company and its shareholders in this very fluid situation."

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

BNET Update: Monday, September 15, 2008

Canadian Natural Resources (CNQ-$78.54) is encountering testing and commission delays with the upgrading plant at its Horizon Oil Sands Project, located in Alberta. Open mining of the first oil sands is ready, but the scheduled September ramp-up in producing the first barrels of Synthetic Crude Oil (SCO) has hit a snag.

In this sluggish economic environment, CarMax (KMX-$15.66) is getting aggressive in attempts to move pre-owned vehicles off its lots. In the last month, the nation’s largest retailer of used cars has upgraded its search tools to avoid the showroom floor.

In a recent letter to shareholders, Ener1 (HEV-$6.37) Chief Executive Charles Gassenheimer shared his view that each dollar of capital expended at its automotive battery subsidiary EnerDel would return between $4.00 and $6.00 in annual revenues. A significant claim- - as Ener1 has generated minimal revenue to date, for its battery technology is still in development.

Although it no longer services or originates mortgages, H&R Block (HRB-$24.07) is required to indemnify WL Ross for any potential losses made due to deception or warranty breaches by its former mortgage subsidiary. In the first-quarter 2009 ended July 31, anticipating future recourse for bad loans the nation’s largest tax service provider added about $203 million to its reserves, according to the company’s 10-Q filing.

Mariner Energy (ME-$25.52) is a case profile in the risk and rewards to be had by drilling in the Gulf of Mexico. Approximately 280 million cubic feet of natural gas equivalent per day (MMcfe/d), or 75 percent of daily production, comes from its offshore production. Although the company experienced no significant damage from Hurricane Gustav, the Houston-based driller might not be so lucky with Hurricane Ike.

Synopsis (SNPS-$20.62), a developer of chip set design software, provided details on its recent dust-up with the IRS in its third-quarter 2008 filing on Tuesday.

Yingli Green Energy (YGE-$13.67) forecasts shipment of between 270 megawatts to 280 megawatts of PV modules in 2008, representing an increase of 89 percent to 96 percent compared to 2007. Management’s outlook could prove too optimistic should the government of Spain sharply reduce existing energy subsidies, set to expire on September 29.

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

Drop in Raser Tech Vindicates 10Q Detective

"Raser Technologies (RZ-$6.18) reaffirmed its business strategy and expressed continued confidence in its near and long-term business outlook." The comments were in response to the unusually heavy trading volume and 12 percent drop in the share price.

Against a backdrop of 'boos' from the bullish corridor, I have warned investors to stay clear of RZ for almost three years running.

“Truth is generally the best vindication against slander.” ~ Abraham Lincoln

Original new stories can also be found at BNET Energy & BNET Insight: 10-Q Detective

The 10Q Detective is closing its active research on Raser Technologies effective today.

Editor David J. Phillips does not hold a financial interest in RZ. The 10Q Detective has a Full Disclosure Policy.

BNET Update: Monday, September 8, 2008

Energy Conversion Devices (ENER-$66.27), which builds solar cells right into its roofing materials (UNI-SOLAR), is capitalizing on opportunities provided by feed-in-tariffs in the European Union for building integrated photovoltaic applications.

General Mills (GIS-$67.84) has no intention of embracing the "say on pay" movement anytime soon.

Despite concerns in energy corners that slowing global economic growth could diminish demand — and pricing — for commodities, Patriot Coal (PCX-$44.98) remains optimistic on the market for thermal coal for 2009 and beyond.

Range Resources (RRC-$44.31) said shut-in wells at the Marcellus Shale development in Appalachia are now expected to commence production early in fourth quarter of 2008, ahead of the previously scheduled second-quarter 2009. Falling natural gas prices, however, could turn good cheer at the company to bad tidings.

Demand for offshore drilling units continues to be strong, particularly for floaters. In the second-quarter ended June 30, Transocean (RIG-$122.35) reported that average rates for its fleet of deepwater floaters increased 32 percent from last year, on average, to $360,500 per day.

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

Microsoft Says "Ciao!" to Greenfield Online

Microsoft (MSFT-$27.29) said Friday that it had reached a deal to acquire Greenfield Online (SRVY-$17.35), operator of the Ciao! shopping and price comparison sites, for $486 million, or $17.50 a share.

Two factors in Microsoft's decision to acquire Greenfield were management's belief that Ciao online platforms offered a flexible springboard from which to gain some market share in the U.S. search engine market against Google and to launch its proprietary Live Search footprint in Europe, according to a regulatory filing made with the SEC on August 29.

The software giant continues to struggle in the search engine business, with its U.S. search market share declining 340 basis points year-on-year to 8.9 percent, compared with an increase of 620 basis points year-on-year to 61.9% at Google, according to comScore data.

Ciao offers one of Europe's leading online price comparison, shopping, and consumer review solutions. The company operates portals in seven European countries and the U.S, with a combined 26.5 million unique visitors per month, according to comScore.

Greenfield derives revenue from its Ciao comparison-shopping portals (from Internet traffic generated via e-commerce, merchant referrals, click-throughs, and advertising sales) and its Internet Survey Solutions segment (selling respondent data to marketing research clients).

Microsoft has agreed to sell the Internet survey business of Greenfield to an unidentified financial buyer.

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.