Friday, May 29, 2009

R.H. Donnelley Files for Chapter 11

RH Donnelley (OTC:RHD)finally rolled over and declared the obvious. I have been making negative noises about this one since Dec 07. What responsibilities will the board carry. The major problem was too much debt. Who made these guys borrow so much money? What wild pipe dreams were pursued? Who will pick over the assets and feast like a financial vampire.

Thursday, May 28, 2009

Grubb & Ellis Bifurcates

Grubb & Ellis (NYSE:GBE) issued a quarterly earnings release and announced that their credit arrangements have been modified. Grubb & Ellis is a real estate based venture. If you understand real estate you understand the role of credit. Cash is like blood. Unfortunately investors are not in a position to understand what is happening at Grubb & Ellis. If there was ever a caveat emptor moment for this company it has arrived right here right now.

The only information provided is this quote which does not inspire confidence.
“On May 26, the company announced that it had renegotiated its senior secured credit facility. The credit agreement amendment, which was effective May 18, 2009, modifies the amount, terms and length of the facility. Under the new structure, the $67.3 million maximum aggregate credit facility includes a $29.3 million revolving line of credit and a $38 million term loan.

"The amendment reflects the realities of today's credit markets. At the same time, it is an important step in ensuring our future success and demonstrates a continued commitment by the company's lenders in Grubb & Ellis, our growth strategy and our ability to navigate through the difficult environment," said Richard W. Pehlke, executive vice president and chief financial officer.”

The press release the day before describing the credit amendment is also useless in describing terms and conditions. Here is the functional quote

"We are pleased that we have been able to amend our credit facility, particularly in the current environment, which we believe is an endorsement of the company's strength, resilience and growth strategy," said Gary H. Hunt, the company's interim chief executive officer.

The amendment, entered into on May 20, 2009 and effective as of May 18, 2009, modifies the amount, terms, length and certain other provisions of the facility, and imposes various conditions on the company. These conditions, as well as other material provisions of the amended credit facility, are described in the company's Annual Report on Form 10K that will be filed later in the day with the Securities and Exchange Commission. Under the new structure, the $67.3 million maximum aggregate credit facility includes a $29.3 million revolving line of credit and a $38million term loan.

The facility will remain in effect until March 31, 2010, and may be extended until January 5, 2011 under certain conditions, subject to early termination in certain circumstances.”

So if you go to the 10k and start reading pages 6 and 7 you will see that the company is struggling with a variety of defaults and breaches. The lenders are not happy but seem to be trying to financially engineer their way around problems. Hence renegotiated terms and conditions.

Iceberg straight ahead

Wednesday, May 27, 2009

Uranium One Problems in Kazakhistan

Uranium One (TSE:UUU)is twisting in the wind. Arrests are being made naming Uranium One's 30% ownership position in corruption charges. But strangely enough the charges as yet do not name Uranium One. The President and CEO Jean Nortier insists they are the victim. To say the least this is not a jurisdiction that plays by sophisticated legal concepts. Everyone wears a black hat. This is the ultimate in geo-political risk. Muscle rules. Uranium one does not have any.

Zales Exits Bailey, Banks and Biddle Contingent Liability

Zales (NYSE:ZLC) snuck this one out in the earnings release. They are trying to efficiently exit the Bailey, Banks and Biddles contingent liability. Nothing on dollar value. No previous information in any recent press release.

Gloom Boom & Doom

Dr Marc Faber is predicting hyper-inflation Zimbabwe style for the US currency. Scary stuff from Dr Doom. He even indicated in an interview a currency printer in Switzerland was running flat out printing paper money. If it gets that bad the US economy will stop being relevant entirely. While there are fundamental shifts occurring its hard to accept the US become financially irrelevant.

Brown Shoe Inventory Issues

Brown Shoe (NYSE:BWS) reported red ink, promised red ink for the next quarter and then says they will be in the black for the entire year. Given the seasonality of the business perhaps they will pull it off. They do have a strategy of opening new stores while same store sales are declining. This causes inventory build up as you stock up stores and provide selection. Management is not speaking to this issue of growing inventory which is almost equal to one full quarter’s worth of revenues. Shoes have multiple lines. No discussion from a product line or merchandising perspective. Does management understand their business or is the model wrong?

Tuesday, May 26, 2009

Canadian Solar Mixed Message On Expectations

Canadian Solar (CSIQ) reported results which they said met their expectations. As a matter of fact Dr. Shawn Qu, Chairman and CEO of Canadian Solar, commented: "Our results for the first quarter were in line with our expectations, Because large quantities of red ink were involved I decided to review the previous earnings release and see if these expectations had been communicated to the investor.

The pertinent quote from the March 17 ,2009 press release would be

“2009 Outlook and Developments
-- Full year 2009 net revenue guidance of $600 to $800 million on
shipments of 300 to 350 MW.
-- Approximately 262 MW of projected 2009 module sales (74 - 87% of
guidance) secured by contracts. Approximately 120 MW of the current
contracts are for e-Modules.”

There was no guidance about losses. There was no guidance about huge drops in sales and revenues. They could not cross the $50 million mark for Q1 sales but expect a minimum of $600 million for the year. They need to explain how that marketing feat will be performed.

Consumer Confidence Nonsense

Consumer confidence was reported as up making the S%P 500 (SPDR) as well as retail stocks and the EFT XTR rise in trading. The really confused guys are the senior officers of retail stores who were faced with huge declines in revenues. Can this consumer confidence index be trusted when the real behaviour such as cash coming out of a consumer's pocket is in serious decline.

Monday, May 25, 2009

Ivanhoe And The Mongolian Hordes

Ivanhoe (NYSE:IVN) may be facing another set back in Mongolia with the election of the opposition leader who wants more from mining companies. Everyone thinks it’s just another shake down where the mining company needs to just pay out more royalties. But what about the Chinese who are next door and do not have trouble raising cash? Why don’t they just write a check and make this Mongolian guy real happy right now. Geo-political risk is a bitch.

Air Canada Dodges Cash Bullet for now

Air Canada (TSE:AC) announced that they have a special deal with their credit card processing company to reduce the cash required to back up the transactions. Normally you would think this is a good thing but it just goes to show how badly broken the business model is. This business item should not be mission critical in the successful operation of an air line.

Campbell - Not Soup

Campbell Soup (NYSE:CPB) reported Q3 results showing softer sales and top line numbers. They made much about comparables and discontinued lines of business. They also let it be known that marketing costs where cut dramatically in North America soups but the margins improved quite nicely. The question that Campbell Soup is avoiding is “If in this recession people are cutting back on soup what does that really mean for your business model” This is not just product line fluctuation. Is management focused on the fundamentals or are they fixated on the financial engineering?

Sunday, May 24, 2009

Squeezed New Book

Squeezed:A new book by Alissa Hamilton is hitting the bookshelves May 26. The book chronicles the history of orange juice and deals with some of the sharp tactics used by Pepsi (NYSE:PEP) which owns Tropicana and Coca Cola (NYSE:KO) which owns Minute Maid. The glass of OJ that you like to enjoy is not as fresh as you may think.

According to the author when fresh squeezed OJ is processed its flavour is altered. In order to restore the finished product to something that tastes like fresh OJ, flavour packs are added to the juice. The flavour packs are individual chemicals sourced from OJ and then recombined. This explains why the corporate product tastes different from fresh squeezed home made.

Not a crime, but the Pepsi and Coke have been very quiet about the whole thing because they do not want you to know about this secret process. As consumers become more aware of food sources and processing Pepsi and Coke will have to account more and more for this sleight of hand. The financial ramifications for Pepsi and Coke are huge. The governance issues for Boards of Directors and senior officers are growing as they continue to promote an inaccuracy.

Watch for this one to eventually bite Pepsi and Coke. They will probably resist and not want to change their old short term profitable ways. Are they killing valuable brands with this Trojan Horse?

210 very readable pages. See where these two companies will have problems tomorrow. Squeezed Alissa Hamilton published by Yale Books I wonder how many food analysts on Wall Street even understood that the issue existed.