Friday, October 13, 2006

Costco Liquidity Worsens

Costco (COST) working capital has decreased by $1,000,000,000 over the past year. (Read supplemental information issued by the company) Management danced around the question by pointing to stock repurchases and a large chunk of long-term debt, which is now short term. The drop is from $1.477 billion last year to $407 million right now. This will seriously constrain management’s hands for future stock repurchases and expansion; unless they issue more capital somehow somewhere and at what cost?

Thursday, October 12, 2006

Adobe Clears Itself ?

Adobe ADBE finally found irregularities in their stock option granting process. The first internal review found no problems. The last review conducted by the board with independent counsel and accountants found problems. No comment has been made as to why the in house guys declared their own laundry clean. But the board decided to conduct their own investigation. A very disconcerting finding following the second investigation was that in some cases paperwork was not 'sufficiently definitive' to determine who received grants, how many they got and when the grant was final. All this from a document management company.

Wednesday, October 11, 2006

Allstate Fights Mississippi

Allstate ALL has run into legal bad weather over it’s handling of Katrina claims. In particular the Mississippi southern federal district has become a hotbed of investigations and grand juries. Plaintiffs maintain that Allstate is following a pattern of fraudulent claim settlement established in Texas and Oklahoma. The core issue revolves around whether damage was caused by wind damage, which is insurable, or whether damage was caused by storm surge and high water, which is not covered. The engineering report commissioned by Allstate is a one size fits all and looks suspiciously favorable to Allstate. So far Allstate has avoided any class action certifications, fighting each legal skirmish separately. Homeowners who have lost their home generally do not have sufficient financial resources to mount a vigorous legal battle.

Richard T. "Flip" Phillips of Smith, Phillips, Mitchell, Scott & Nowak of Batesville, Miss., represents a mass tort on behalf of Mississippi homeowners who lost their homes, alleges that State Farm's tactics reveal "a calculated strategy of wrongful claims denial." He is seriously concerned that if Allstate gets away with this tactic the insurance industry will have learned that in mass catastrophe situations, a calculated course of across-the-board, wrongful claims denial and trying one case at a time is financially efficient. This legal time bomb is ticking loudly for Allstate. Many who have lost everything have been force to abandon their homes. Mortgage lenders may end up holding the bag if Allstate prevails. What is surprising is the absence of the mortgage lenders. In the meantime Allstate has its finger in the legal dyke because the numbers will be ugly when it swings the other way.

Tuesday, October 10, 2006

Weekend Follies Oct 7

The following companies release information at oddball hours over the weekend when investors are typically not looking at their screens. Basically they are sneaking news out and hoping to call it disclosure. The culprits are:

Alphatec Holdings ATEC; Amkor AMKR; Merix MERX