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big money, did you happen to discuss the reasons for the recent changes in CEOs? They've had two resign in the span of four months, and I'm a bit skeptical of the reasons cited. Any sense of why so much turmoil among management?
BTW - I agree that there must have been huge amounts of stock for sale from the consultants involved in the reverse merger. The amount of their gain is just obscene and way out of line with services actually provided. $6MM for this? Nice job if you can get it. I bet some of them can retire on just this one deal!
Do you know what the current float for CHID is? That might be the only way to track how much new stock has come into the market.
Networm, it looks like IGII booked a chunk of rev in Q4 related to a South Africa contract, roughly 3.2MM. They said they were allowed to book 75% of the contract up front:
"Our licenses for Industrial Development Corporation of South Africa Initiative were sold for $4.25 million dollars for the first year of license. The Company recognizes 75% of the license fee or $3,187,500 as revenue upon the activation of the license. The balance of 25% is amortized on a straight line basis over a one year period."
Deferred revenues actually dropped slightly during FY05, so they recognized this contract and don't appear to have much left in backlog/def rev.
Plus, they issue shares for services because they have such poor cash flow. They just recently issued nearly 9MM more shares for debt:
"NOTE 10 - SUBSEQUENT EVENTS:
On March 17, 2006, IBSG International, Inc. (the “Company”) executed an agreement And Plan Of Merger And Reorganization with A-Division IT, Ltd. a corporation incorporated under the laws of the United Kingdom, London (primarily an IT International Technology Consultant). A-Division IT, Ltd. is engaged in international business development and consultancy in the Technology sector and is a subcontractor for BAE System's offset credit projects around the world.
Effective March 18, 2006, Galaxy Five (PTY) Ltd, a South African entity which operates as a business consultant firm designed to improve vendor capabilities and produce vendor opportunities for the South African market with multi-national firms in specific vertical industries beginning with the mining industry of South Africa, acquired selected Company assets, specifically the Company’s right, title and interest in and to the asset known as the CAC contract in Nigeria and all associated assets (the “Asset”) as disclosed on the Asset Purchase Agreement between the parties.
On January 11, 2006 the Company issued 8,347,336 common stock for debt.
On January 6, 2006 the Company issued 110,000 common stock for cash.
On January 27, 2006 the Company issued 100,000 common stock for services
---------------------
Because this occurred after the quarter, these aren't in the FD totals. Weighted avg fd shares totalled 48.3MM for FY05. As of the end of FY05, there are 60.4MM fd shares which don't include the above share amounts.
The stock certainly looks undervalued based upon a quick perusal of the numbers. Bobwins and I remember this outfit from way back when they were doing a reverse merger into a shell company....with assets (IBSG) that were not what Rivers represented them as being in numerous PRs. They had a good quarter, but timing of contract recognition played a major role in that. If you back out this lump-sum, they appear to have lost money in the quarter. I think its fair to say that they will NOT be as profitable next quarter, but of course miracles could happen.
IGII.ob is cheap for good reasons. Rivers is one of the sleaziest CEO's I've come across in micro-cap land.
Q4 results look a bit fishy to me, what with pretax margins of 60% and GMs of 98%. All is not what it seems here...
It is almost inconceivable for a commodity to go parabolic.
Lentinman, if that is the case, how would you describe the late 70s spikes in the Gold and Silver charts?
http://www.mrci.com/pdf/metals.pdf
Every one of these charts shows parabolic spikes at various points in history. Copper appears to be in the midst of a parabolic run at present.
Sskillz, it looks like the current CEO of DFZ is getting a bonus AND beginning the process of stepping down.
From the 14a filed today:
" On February 24, 2005, the Company entered into an employment contract with Mr. Von Lehman (the “employment agreement”) for Mr. Von Lehman to continue to serve as President and Chief Executive Officer of the Company. The expiration date of the employment agreement was March 31, 2006. Under the employment agreement, Mr. Von Lehman received a monthly salary of $37,500 in addition to benefits provided to other senior executives of the Company. The agreement also provided for Mr. Von Lehman’s participation in the Company’s Annual Incentive Plan at a range of 20% to 80% of his annualized base salary, with a guaranteed cash bonus of $90,000 if Mr. Von Lehman remained employed by the Company on December 31, 2005. Mr. Von Lehman was paid a $200,000 bonus for the 2005 fiscal year in early 2006. Mr. Von Lehman also received under the employment agreement options covering a total of 100,000 common shares of the Company and the right to a transaction success fee in the event of the sale of the Company. The cash compensation, options and other benefits paid or provided to Mr. Von Lehman under the employment agreement were the result of negotiation between the Compensation Committee and Mr. Von Lehman. The Compensation Committee concluded that it was critically important to the Company’s future to retain Mr. Von Lehman so he could continue to implement the Company’s new business model that began in March 2004 when Mr. Von Lehman was first employed by the Company.
and
On March 30, 2006, the Company and Mr. Von Lehman entered into a new employment agreement. The term of the new agreement is April 1, 2006 through September 30, 2006 and this new agreement supersedes the 2005 employment contract in its entirety. During the term, Mr. Von Lehman will step down from his position as Chief Executive Officer of the Company when requested to do so by the Board, but will continue as an employee of the Company through September 30, 2006 to assist on special matters and to help transition the position of Chief Executive Officer to Mr. Tunney as discussed below. Mr. Von Lehman will also agree not to compete with the Company through March 31, 2008. The Company will continue to pay Mr. Von Lehman his monthly base salary of $37,500, and he will receive customary executive benefits through September 30, 2006. Additionally, Mr. Von Lehman will have the opportunity to earn a pro-rated bonus under the Company’s Annual Incentive Plan, and his right to specified compensation in the event of a “sale transaction” will remain unchanged. Mr. Von Lehman will remain a director of the Company and will be entitled to receive director fees and any other compensation paid to non-employee directors starting in October 2006.
On February 7, 2006, the Company entered into an executive employment agreement with Greg A. Tunney for Mr. Tunney to serve as the Company’s President and Chief Operating Officer. The agreement also provides that Mr. Tunney will be appointed the Chief Executive Officer of the Company no later than August 7, 2006. The initial term of the employment agreement will continue until Mr. Tunney is appointed to the position of Chief Executive Officer, and an additional three-year term will then begin upon conclusion of the initial term. The employment agreement will thereafter automatically renew for additional one-year periods unless either party gives 90 days’ prior written notice of such party’s intent not to renew.
Upon the execution of the employment agreement, Mr. Tunney received one-half of a $75,000 signing bonus, with the remaining one-half to be paid to him on the six-month anniversary of the date of the agreement. Mr. Tunney will receive compensation of $400,000 annually while he serves as President and Chief Operating Officer, with an increase to $450,000 annually upon his becoming Chief Executive Officer of the Company. Mr. Tunney will also be eligible for an annual performance bonus of 25% to 100% of his base salary and he will receive other various employee benefits, such as health and life insurance, vacation and sick leave and an automobile allowance. Pursuant to the terms of the employment agreement, on February 7, 2006, Mr. Tunney received a grant of 100,000 options. These options have an exercise price of $6.58 per share, have a seven-year term and will vest in three equal annual installments beginning February 7, 2007, unless certain events occur prior to that time.
-----------------
Perhaps some are unhappy with this move? Looks like Q1 net will take a hit too with the bonuses.
And it also allows for some leeway in profits. If the assumptions regarding the milestones are wrong, or there are cost over-runs, then net income has to be adjusted. I don't know when companies must do this "catch-up", but if they are good, then the smoothing happens early and isn't put off until the end of the year in a surprise adjustment.
Of course, the reverse could be true as well (i.e. underestimating profits), but my guess is that this is a much less frequent occurrence.
Understood. However, EZEN is a far different company than it was when it recorded all those losses a few years ago.
The videoconferencing segment that generated those losses is no longer a significant part of their sales (now <4% of sales). The collaborative software segment that is growing very nicely is showing no signs of slowing.
If I were the accountant in charge, I'd make them recognize a good chunk of the valuation allowance, but there may be substantial pressure from management not to do so. Stocks tend to follow their eps growth, and recognizing the asset (and increasing the tax rate on the income statement) might put further pressure on the stock. Of course, cash flow isn't impacted by this....but many of us here follow the god of PE multiples, and a slowing growth rate in earnings might be considered a setback.
Thanks Cliff. Weren't they pretty close on their estimate of how much backlog in real estate was going to be delivered and recognized in 2005 (back in Dec 2004?)
"As of February 28, 2005, the real estate operation's backlog (outstanding real estate contracts for sale excluding partial revenue already recognized on said contracts under the percentage of completion method, none of which was recognized at December 31, 2004) was approximately $10,227,000, compared to approximately $2,300,000 as of February 29, 2004. We expect to complete and deliver 100% of our backlog at February 28, 2005 to our buyers during fiscal year 2005. There can be no assurance that settlements of condominiums subject to contracts for sale will occur."
100% = 10.3MM in real estate sales. Actual RE sales: 10.6MM
So, the % of completion method must mean they can recognize revenue upon the completion of certain milestones.....even if the apartments won't be completed and delivered until 2007.
Michael, doesn't it strain credulity for EZEN and their accountants to claim that they won't recognize a decent chunk of this valuation allowance in the future?
This is a company that has been solidly profitable for the past two years, and given their restaint on R&D and marketing, should be profitable for the forseeable future.
They don't have to bring the full valuation allowance on to the BS, but what about 25%? 50%?
The delay in doing this is because there is serious doubt as to whether they will be profitable enough to recognize the full allowance as an asset. I don't know whether its more conservative to recognize the allowance as an asset or not. However, those who focus in the income statement are led to believe that net income is a lot higher than it might be.....
Cliff, did you happen to notice this backlog issue in the GV 10k?
"As of December 31, 2005, the real estate operation’s backlog (outstanding real estate contracts for sale excluding partial revenue already recognized on said contracts under the percentage of completion method) was approximately $17,460,000, compared to approximately $2,699,000 as of December 31, 2004. We expect to complete and deliver 8% of our backlog at December 31, 2005 to our buyers during the year ended December 31, 2006 and the balance during the year ended December 31, 2007. Our real estate development backlog at January 31, 2006 was approximately $16,910,000. There can be no assurance that settlements of condominiums subject to contracts for sale will occur.
--------
Only 8%? What's up with that?
Zen, my quick take on EZEN....
I don't think "clerical errors" should be equated with accounting decisions on EZEN's valuation allowance. I don't think this will amount to much, however...
The key point that EZEN and its auditors have to focus on in FY06 is what is the chance that some of the valuation allowance will never be recognized? The huge NOL will shield EZEN from paying state and fed taxes for quite a while, but this valuation allowance is an off-balance sheet asset that needs to be recognized at some point by the company. They'll need to agree on what is appropriate and bring at least SOME of that allowance on to the balance sheet (as an asset.)
Once that happens, you'll see a big tax benefit in the quarter it occurs, and an increase in deferred tax assets on the BS. The tax rate that is then used to reduce pretax income on the IS should be close to statutory rates, unless they have deductions unrelated to the valuation allowance/deferred tax asset to use .
I'm not an accountant, but that's my best guess.
Lentinman, I'm seeing 30 year Tbonds and Coffee charts....
Bunky, I would rely more on the "net income" change rather than the eps change for HBM.
If you notice, I believe that the sensitivity analysis uses a share count that is far below what it reported in Q4. Thus, assuming the net income figure is close to accurate, you can adjust for the additional dilution.
Curlews, you are absolutely right to point out that current shareholders are not diluted by this action. However, an increase of 20% of the share count will have some impact on future eps ratios and y/y eps comps if net income doesn't rise as fast. Potential new shareholders must weigh this and may decide not to buy as a result.....is that what you want as a current shareholder?
Once a stock starts posting flat results, it can often drift for months at a time. I'm not saying that will happen to LTFD, but management's actions today didn't make it easier to sustain their earnings momentum. VMC'ers tend to use PEs as the primary measure of value, so that's why I point this out.
Cash flows aren't impacted by this, and there are certainly many other methods to value stocks other than PE. I could be way off base with my concerns, and given the easy comps coming up for LTFD in Q1 they are really in a sweet spot of their earnings cycle right now.
Stock dividends are one of the worst uses of company stock, imho. Are you more apt to dump those shares once you get them? Not unless you get the right price....
Its my opinion that management should let the stock price take care of itself and then they will have plenty of supply available, if thats what they want. I'm sure some will see the 20% dividend as an easy and quick payoff, but once the stock trades ex-dividend, much of that gain is wiped out.
Another problem is that the company gets none of the capital from this sale of stock and thus the fd share count rises by 20% without much to show for it.
Zen, perhaps there was something about the nature of the tax benefits that required EZEN to take them last year. The Isreali tax settlement could have even been included as "other income" but they chose to declare it as a tax benefit. I'm sure that their valuation allowance cancelled out any tax that would have been shown on the income statement, and had nothing to do with the Isreal situation.
Just to refresh everyone's memory, the reason that no taxes are declared on the income statement is the use of something called "the valuation allowance." For EZEN, they had a tremendous amount of losses in their early years and thus built up a huge amount of NOLs:
"Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Management continues to monitor the likelihood of recovering of its deferred tax assets in light of its continued generation of profits. If the Company continues to generate profits during 2005, and there is continued confidence in the outlook for continuing future profitability, management may deem that it is more likely than not that certain of the deferred tax assets will be realized, resulting in a potentially material income tax benefit adjustment from the release of some or all of the Company’s approximately $33 million valuation allowance.
-EZEN's Q3 10Q
------
Every year that EZEN is solidly profitable increases the chance that some or all of the valuation allowance will be recognized as "income" and then placed on the balance sheet as a deferred tax asset. At that point, EZEN will start "paying" income taxes on its income statement although it will be paying no taxes on a cash basis. The tax asset will be reduced, and shareholder's equity increased to offset.
Given EZEN's recent run of profitability, a more conservative accounting team would have forced the company to recognize a good chunk of this valuation allowance by now. Is there any doubt that EZEN will again be profitable this year (and probably next)?
Because I have no way to know when the accountants will decide to "do the right thing", I always factor in some kind of tax rate depending upon statutory rates in whichever country the corporation is doing business. US corps I usually charge a 35% rate.
The news on TGB looks pretty positive to me. They'll be able to increase production, lower costs/lb, and not disrupt current activities.
"The ore processing capacity of the mill will increase by 25%, from the current 36,750 tons per day to 46,000 tons per day. As a result of the increased capacity and the improved recoveries related to the new flotation system, the annual copper production is expected to rise by 30% to approximately 100 million pounds per year. The new SAG mill will, however, be capable of processing up to 50,000 tons of ore per day, depending on ore characteristics and operating strategy. Additional engineering analyses of the tailings system and electrical infrastructure, as well as long-term mine plans, are being undertaken to determine whether that additional daily throughput can be achieved.
President and CEO Russell Hallbauer said: "This expansion is a major step towards the long-term viability of the Gibraltar mine. The expansion is being undertaken at less than one-half the cost of the typical new greenfield construction projects that are under consideration by other mid-tier mining companies, plus it will provide a major increase in copper production in a much shorter time frame compared to greenfield projects. As an added bonus, the project at Gibraltar can be completed with no interruption of current copper and molybdenum production."
Funding for the expansion will come from a combination of internally generated cash flows and commercial capital sources. The upgrade to the flotation system will begin immediately. Construction of the grinding circuit will begin in the summer of 2006, with completion planned for the latter part of 2007.
------------
Doesn't sound like they need to issue any stock to fund this capex either......
Justforfun7, Duquette is the CEO of NCNC, and he has promised big things in the past:
"``Our return to profitability in the first half of 2005 and backlog of millions of dollars in new business for the third quarter alone, together with our recent announcement that we will be assembling Quilite(r) blocks, which alone should add an additional $0.05 per share in net earnings during 2005 for the company, provides us with a new platform from which to grow as we look ahead.
As previously announced, Quilite expects to generate a minimum of $10 million in revenue in 2006, with gross margins of about 30 percent. "
-from the Q2 05 PR dated Aug 23, 2005
-----------------------
As far as I can tell, there were no Quilite revenues even booked in FY05, let alone adding 0.05 per share.
I'm firmly in the camp of "prove it to me...." I agree with Sskillz assessment that pretax margins actually fell in Q4 vs Q3 and don't inspire much confidence that he can hit a 0.06 quarter.....yet. We still don't have all the info, and it is possible that a big Quilite order is out there. Of course, that would also jack up the valuation price and the additional dilution for the final piece of the Quilite acquisition.
I was also among the sellers today, although I kept about 25% of my original position.
There must have been some additional financing expenses in Q4 for NCNC. Looks like pretax margins decreased, although operating income was improved.
Regarding the estimates for FY06, remember who we're dealing with here.
It will be interesting to see how investors react tomorrow to EZEN's lower Q4 net eps of 0.07 v 0.08 y/y (due to a much lower tax benefit in 2005.)
As you all probably know by now, I usually look at pretax and then apply a standard tax rate (35%), so I think EZEN is pretty fairly valued by those conservative standards. I would put TTM eps at a fully taxed 0.16, so for me, EZEN is trading at 22.5x that standard.
Gilead, great call on LTFD! I should have taken at least a small position yesterday, but felt there might be some pullback today.....no dice.
G, in all honesty I think Minch is either uninformed or has gotten bad advice. Many listed stocks (NYSE, AMEX, Nasdaq) put out full income statements with their earnings releases LONG before their numbers get audited for the y/e 10k. Plus, what about Q1, Q2 and Q3?? No audits there, and yet many companies still put out full income statements and balance sheets....
He's also being a bit disingenuous with regard to his own PRs: they put everything in there but the kitchen sink:
EBITDA
Sales by division
Net income
Depreciation
Interest exp
Net eps
But they can't put the full income statement in?? Cmon.....
I don't need to see the ACTUAL income statement, only the company's good faith approximation of what it will be.
Honestly, how much more info is contained in the income statement that might be reversed by the accountants? And if he were so worried about using unaudited numbers, why is he showing such minute detail?
As you can see, this is a real pet peeve of mine LOL.
Gilead, I need to correct something I said earlier about LTFD:
"they were barely break-even for pretax through the first 9 mos last year, although they did have higher than usual legal fees."
I meant that to mean barely break-even after deducting the one-time gains from non-operating income.
The only issues I can see that confront LTFD are the huge non-operating gains they took in Q2 and Q3 last year (Q3: 1.06MM, and Q2: 668k). That will mean difficult comps if investors don't back them out of results. Also, they were barely break-even for pretax through the first 9 mos last year, although they did have higher than usual legal fees.
The reduction in legal fees is a huge factor in their operating improvements for 2006, but won't last beyond this year. I'll be interested to see what kind of rev growth they had in Q1 and what they might expect for FY06.
BTW - they have very detailed PRs, but why not just post the full income statement with earnings? Minor pet peeve....I wish there were standards of earnings PR details, and OTC:BB stocks are the worst offenders of this.
Bob, Are you surprised that Quilite orders still haven't amounted to much yet? DD was touting this new line almost a year ago and felt that Quilite alone would produce 0.05 in earnings in FY05 (never materialized) and expected 10MM in sales for FY06 (only 350k reported just today).
NCNC's traditional biz is very strong at present; I'm just frustrated that DD is going off on a bit of a wild goose chase with Quilite. That decision is holding the stock back, IMO....
Sskillz, here are some more candidates for inclusion, with question marks:
CHID
GASS
LSS - market cap?
MVK - market cap?
TTES
Yes, I do see what you mean. I looked at annual numbers (not quarterly) for ELSE and thus didn't come away too impressed. Q4 numbers do look much better. Sales growth up 19%.
I would point out that they are paying a tax rate of 36%, so the operating earnings you mention would translate to roughly 0.04 in net income from operations. So, annualizing that, you get 0.16. Take away those non-operating earnings (from the cap gains) and that's what you've got to work with....
They held down op exp in Q4 too in addition to some sales growth; if they can maintain those cost cuts then perhaps they will be more than marginally profitable in operations.....I guess I'm just not to wild about the prospects for sales growth here, and that tempers my outlook for the stock.
http://www.investor.reuters.com/CompanyFinancialHighlights.aspx?country=US&ticker=ELSE.O&con...
Book value (SE) is about $4.12 based upon the Dec 31 report. That should provide a good floor for the stock. Perhaps if you give a 10x multiple on net operating earnings (which might be generous) + book value = 5.72 (possible fair value?)
Knowledge, ELSE was barely break-even on an operations basis for FY05. Non-operating income was generated by sales of investments:
"The Company’s primary investments are 569,615 shares of August Technology Corporation and 551,759 shares of PPT Vision, Inc. The PPT Vision investment is accounted for under the equity method of accounting. These stocks are subject to fluctuations in price and could have a negative effect on the liquidity of the Company. Liquid securities are periodically sold as deemed appropriate by management.
August Technology Corporation (“August”) was acquired by Rudolph Technologies, Inc. (“Rudolph”) on February 15, 2006. As a result of Rudolph’s acquisition of August, the Company received 347,224 shares of Rudolph common stock and $1,015,891 in cash. The Company has not determined how it intends to utilize the cash proceeds at this time. "
Out of pretax income of 1189k, only 3k came from actual operations....the rest came from cap gains.
I don't think PE is the best multiple to use here, as the company has no real operating earnings and virtually no growth in its existing biz. Its bottom line "growth" is solely due to realized cap gains as it periodically sells off its holdings in two other companies, notably Rudolph Technologies......
So, I can see why it doesn't trade much higher than cash value.
Gilead, just curious about your take on KSWW....where are you getting the avg PE figures by industry?
Yahoo?
http://biz.yahoo.com/p/636conameu.html
Dick, DAAT continues to fly under the radar. While the sales growth rate y/y is slowing versus its torrid growth of the past two years, they are still showing very strong organic growth of 26%. I still think fair value here is somewhere north of 3.
New products appear to be a nice fit with their existing products, so they should have no trouble adding those lines into existing customers and they shouldn't cannibalize existing sales.
I like the expansion into foreign markets as well.
Was looking at some of the financial metrics here. ROA and ROE are fantastic:
Management Effectiveness
Return on Assets (ttm): 26.66%
Return on Equity (ttm): 42.29%
http://finance.yahoo.com/q/ks?s=DAAT.OB
Gilead, I would also back out the co-op litigation settlement income from GM because the company mistakenly (IMHO) included that in Q4 revenue:
"Revenues from the Company's projects increased $27,097,000, or 103.1%, to
$53,378,000 for the year ended December 31, 2005, as compared to $26,281,000 for
the year ended December 31, 2004. This increase in revenues was primarily a
result of the Company's increased number of contracts in progress at December
31, 2004, as well as projects the Company obtained during 2005. Revenues for the
fourth quarter of 2005 were $17,101,000, an increase of $10,224,000, as compared
to $6,877,000 for the fourth quarter of 2004. The revenues in the fourth quarter
of 2005 include approximately $963,000 related to the Company's settlement of
the Co-Op City litigation. At December 31, 2005, the Company had backlog of
approximately $82,200,000. Approximately $68,000,000 of the December 31, 2005
backlog is expected to be completed in the next fiscal year. The backlog at
December 31, 2005 does not include a $9,000,000 contract which commencement is
subject to the project's owner obtaining financing. The Company is actively
seeking new projects to add to its backlog.
I would remove the 963 from both revenue (and GM). If I do this, then adjusted GM are 10.7%...still up a bit sequentially, but not equal to 15%.
WSJ article on copper demand (in today's Journal)
A Red-Hot Desire for Copper
The World's Growing Appetite
Melds With Supply Concerns
To Keep Prices Above $2 a Pound
By PATRICK BARTA
March 16, 2006; Page C1
With demand for copper sending prices higher, there is a worry for everyone from mining companies to microwave-oven makers: the lack of new mother lodes to tap.
In the 1990s, Chile emerged as the Saudi Arabia of copper. An era of political stability there enabled foreign and domestic companies to extract epic deposits of minerals, flooding the globe with supply. Soon Chile was producing more than one-third of the world's copper, helping push prices down to less than 70 cents a pound.
Today, however, demand from China and elsewhere has kept copper-futures prices above $2 a pound, even after a recent pullback. Chile's production slipped about 2% last year, and meantime, new mines aren't being discovered or exploited quickly enough to make up the shortfall.
[Pretty Penny]
The mining industry is "living off the fruits and labors of… prospectors of 100 years ago," Steven Whisler, chief executive of Phoenix-based copper miner Phelps Dodge Corp., said at a Morgan Stanley mining conference last month.
As a result, the world has unusually low levels of the stuff, and that is tough news for the global economy. Copper is among the most important industrial metals, used in everything from electrical wiring to plumbing to the minting of money.
That could continue to squeeze profit margins of many companies, such as St. Louis-based Belden CDT Inc., one of the largest U.S. makers of high-speed electronic cables. It recently said its fourth-quarter net income fell 43% as it struggled with rising copper costs.
The lack of obvious new mining megaprojects is a key reason why many analysts believe copper prices will hover well above $1 a pound for at least several years. The shortage of new mine projects isn't confined to copper. Concerns extend to zinc, aluminum and other resources important to the world economy.
Commodity prices have soared during the past several years amid a surge in demand from China. Some analysts are comparing China's boom with the industrial revolution that transformed the U.S. into a global economic power in the late 1800s, yielding a multidecade rise in commodity prices.
In the case of copper, futures prices have retreated after soaring past $2.30 a pound on the New York Mercantile Exchange in February. Many analysts believe prices were pushed too high during the past year by speculators and a series of mine mishaps and worker strikes that since have been resolved. These included strife at Freeport-McMoRan Copper & Gold Inc.'s massive Grasberg mine in Indonesia, where illegal miners set up wood-and-stone barricades to protest the company's efforts to stop them from retrieving gold from waste rock.
But yesterday's closing Nymex price of $2.252 a pound is still sharply higher than 2001, when copper fell below 70 cents.
The supply problem arises in part from cuts in spending on mining exploration over the past decade. Like their brethren in the oil industry, mining companies cut back when prices were lower a few years ago. According to the Metals Economics Group, a research firm in Halifax, Nova Scotia, spending on exploration for base metals and some other commodities fell to less than $2 billion in 2002, after reaching more than $5 billion as recently as 1997. Although mine-exploration spending has risen over the past two years, many analysts believe it could be years before more large projects are developed.
Most of the large, known copper deposits that remain untapped are in regions that have unstable governments or are hard to reach, such as central Africa and Mongolia. Many of the best prospective sites were discovered decades ago, but weren't developed because they were deemed too risky.
Some new supply is coming on line: Mined copper production rose about 2% last year to about 15 million metric tons (16.5 million short tons), according to Bloomsbury Minerals Economics Ltd., a London metals consulting firm. But the firm sees consumption of refined copper growing 3.5% a year, driven by demand in China, other parts of Asia and Europe.
At the time of the last two big price jumps, in the late 1980s and mid-1990s, the copper industry had Chile to plug the supply gap. Mining companies had long known that the country had plenty of ore under the ground. A stabilizing political climate made it easy for them to ramp up capacity. Production has jumped to about 5.5 million metric tons a year from about 1.5 million metric tons in 1990. Chile now produces about 36% of the world's supply, up from 18% in 1990.
Chilean production slipped slightly last year, however. While Corporación Nacional del Cobre de Chile, or Codelco, the world's largest copper miner, plans to expand mines, many analysts believe the country is approaching its peak as old mines are depleted and mineral grades decline.
At the Morgan Stanley conference, Richard Adkerson, chief executive of New Orleans-based Freeport-McMoRan, said production at the Grasberg deposit in Papua, Indonesia, would drop roughly 10% this year to nearly 600,000 metric tons, and will remain close to that level for several years. The world's second-largest copper mine, it will continue to produce a large amount of copper for many years, and the company has added to reserves through continued exploration in the area. The company isn't planning to develop any other major mines.
There are at least two big untapped copper deposits on the horizon. One is a copper and gold deposit in Mongolia's remote Gobi region that is being developed by Ivanhoe Mines Ltd., a venture founded by billionaire mining entrepreneur Robert Friedland. The other is Tenke Fungurume, a long-delayed project in the Democratic Republic of Congo that is controlled by Phelps Dodge.
Ivanhoe aims to begin production in 2008, ramping up to a peak capacity that could make its operation one of the biggest in the world. Some experts believe that if the mine is fully developed, it would produce enough minerals to effectively double Mongolia's total gross domestic product.
Ivanhoe hasn't yet obtained final financing, and Mongolian officials haven't finalized mining and tax laws that would govern the project.
In the Congo, Phelps Dodge hopes to begin some mine construction this year or early next. It's not certain when full-scale production will begin in the country, which has long suffered from political instability.
In Chile, there is concern that prospects there are limited in part because of a shortage of water. The copper-mining process requires large amounts of water to help separate copper from the ore, and some of Chile's biggest mines are located in the forbidding Atacama Desert far north of Santiago.
Sskillz, here's an interesting comparison between AUTO and USOO.
AUTO just reported its FY05 results; pretax income was 0.063/fd share (untaxed) At current price of 0.80, that would give a PE of 12.7x.
USOO, if looking at TTM pretax income adjusted for the lawsuit expenses/income, has reported untaxed 0.26/fd share. That would yield a PE of 5x.
The PE valuation disparity is tremendously in favor of USOO. AUTO appears fairly valued to me based upon adjusted net earnings, but revenue growth is a bit stronger.
Full disclosure: Long USOO
PRZ restatement CC. I would highly recommend that all VMCers take the time to listen to this call. It has some good discussions surrounding some recent interpretations of GAAP accounting rules with regards to warrants issued in conjunction with PIPEs.
http://www.paincareholdings.com/paincare_archived_earnings.htm
Not sure if its been archived yet, but its a good overview of the changes that are rippling through the system.
Hweb, I think some of the reason behind the stock's decline is the potential selling pressure anticipated by the CEO's 10b5-1 plan:
Press Release Source: KSW, Inc.
KSW, Inc.'S CEO Adopts Personal Trading Plan
Tuesday March 14, 9:39 am ET
LONG ISLAND CITY, N.Y.--(BUSINESS WIRE)--March 14, 2006--KSW, Inc. (Over-the-Counter Bulletin Board: KSWW.OB) today announces that Floyd Warkol, its Chairman of the Board and Chief Executive Officer, has adopted a personal trading plan, in compliance with Securities Exchange Act Rule 10b5-1, to exercise stock options granted in 1995 under the Company's Employee Stock Option Plan, and to sell a limited number of shares over a period of two years. Under the terms of the plan, Mr. Warkol may exercise up to 200,000 options, and sell up to a total of 400,000 shares.
ADVERTISEMENT
Mr. Warkol, who has been Chairman of the Board and Chief Executive Officer since 1995, has never personally sold any shares of the Company's stock. A Charitable Foundation that he controls has donated and sold a total of 20,000 shares for charitable purposes.
Mr. Warkol commented that "This program allows me to liquefy a modest portion of my KSW stock for diversification and estate planning purposes. I will continue to hold a substantial position in KSW as I believe strongly in our business and prospects for continued growth and profitability. I look forward to being part of the management that delivers those results."
This selling program, which will be managed by Morgan Stanley, is based on the Securities and Exchange Commission's Rule 10b5-1, which protects company executives from possible claims of insider trading by permitting executives to buy or sell a predetermined amount of their company's shares, as set forth in a planned acquisition or divestiture program which was adopted when the insider did not possess any material non-public information.
About KSW
KSW, Inc. through its totally-owned mechanical subsidiary KSW Mechanical Services, Inc. furnishes and installs heating, ventilating and air conditioning (HVAC) systems and process piping systems for institutional, industrial, commercial, high-rise residential and public works projects. KSW Mechanical Services, Inc. also acts as trade manager on larger construction projects, such as Weill Cornell Medical Center.
Safe Harbor Statement
Certain statements contained in this press release are not historical facts, and constitute "forward-looking statements" (as such term is defined in the Private Securities Litigation Reform Act of 1995). These forward looking statements generally can be identified as statements that include phrases such as "believe," "expect," "anticipate," "intend," "plan," "foresee," "likely," "should," "will" or other similar words or phrases. Such forward-looking statements concerning management's expectations and other similar matters involve known and unknown risks, uncertainties and other important factors that could cause the actual results to differ materially from any future results, performance or achievements discussed or implied by such forward-looking statements. Such risks, uncertainties, and other important factors that could cause actual results to differ materially from expectation of the Company include, among others, the outcome of the year end audit and further internal review of the Company's historical financial statements. All written and oral forward-looking statements of or attributable to the Company or persons acting on behalf of the Company are qualified in their entirety by such factors. The Company disclaims any obligation or undertaking to provide any updates or revisions to any forward-looking statement to reflect any change in the Company's expectations or any change in events, conditions or circumstances on which the forward-looking statement is based.
Contact:
KSW, Inc.
James Oliviero, 718-340-1409
joliviero@ksww.com
Source: KSW, Inc.
-------------------------
BTW - note the name at the bottom of the PR, James Oliviero. He sold all (20,000) of his shares during Mar 6-9....
Think he didn't know this was coming??
Things that make you go hmmmmmmmm.....
Death, all of those outcomes are possible. It just strikes me that when companies start putting specific language in a Q that discusses the burden of SOX compliance, they are looking to delist FIRST, and then maybe get taken private. Why else mention it?
JMIH stock is heavily controlled by Herndon:
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
Company's common stock beneficially owned on September 30, 2005 by: (1) each
shareholder known by the Company to be the beneficial owner of five (5%) percent
or more of the Company's outstanding common stock, (2) each of the Company's
executive officers and directors, and (3) all executive officers and directors
as a group. Unless otherwise disclosed, the address for the shareholders below
is 3391 S.W. 14th Avenue, Fort Lauderdale, Florida 33316. On September 30, 2005,
there were approximately 16,305,525 shares of common stock outstanding.
Number of Beneficially Percentage of Outstanding
Name and Address Owned Shares Shares Beneficially Owned
---------------- ------------ -------------------------
Carl Herndon 6,884,126(1) 42.0%
Lawrence Tierney 1,336,001(2) 8.3%
Carl Herndon, Jr. 883,750(3) 5.5%
Kerry Clemmons 275,000(4) 1.8%
Officers and Directors as a Group 9,378,877(1)(2)(3)(4) 53.4%
(4 persons)
----------------
(1) Includes (i) 600,000 shares of Common Stock issuable upon the exercise of
options at exercise prices between $.50 and $1.00 per share expiring July 27,
2006 and (ii) 250,000 shares of Common Stock issuable upon the exercise of
options at an exercise price of $.15 per share expiring May 6, 2009.
(2) Includes (i) 250,000 shares of Common Stock issuable upon the exercise of
options at exercise prices between $.50 and $1.00 per share expiring July 27,
2006 and (ii) 200,000 shares of Common Stock issuable upon the exercise of
options at an exercise price of $.14 per share expiring May 6, 2009.
(3) Includes (i) 250,000 shares of Common Stock issuable upon the exercise of
options at exercise prices between $.50 and $1.00 per share expiring July 27,
2006, (ii) 100,000 shares of Common Stock issuable upon the exercise of options
at an exercise price of $.14 per share expiring May 6, 2009, and 200,000 shares
of Common Stock issuable upon exercise of options at an exercise price of $.30
per share expiring January 13, 2010.
(4) Includes 150,000 shares of Common Stock issuable upon the exercise of
options at an exercise price of $.14 per share expiring May 6, 2009.
-----------------
These numbers don't include the recent share issuances. Plus, Herndon owns most of the production facilities that the company leases.
Why are they public at this time? They say they don't need to tap the equities market to raise the cash to operate their business..... JMIH already uses credit lines (guaranteed by Herndon) to finance their growth. If they were private, he'd be doing this anyway, so there seems to me to be no benefit to staying public for Herndon.
IMHO, I can see them deciding to delist and go on the pink sheets within the next year. I would seriously consider it if I were Herndon and the majority shareholder......
JMIH.ob. Just some things to be aware of that I found buried in the 10Q:
Two separate instances of huge stock payouts given to the CEO and CFO:
On December 6, 2005, the Board of Directors approved the issuance of
1,405,547 shares of the Company's common stock, in lieu of cash, to its chief
executive officer and chief financial officer and six other management employees
as payment of bonuses earned during fiscal year ended July 30, 2005 at $.11 per
share, which includes a 33% discount to market reflecting the three year
restriction placed on the common stock on December 6, 2005. Such bonuses had
been accrued at July 30, 2005. The bonus payable to the company's chief
executive officer was $41,350 and the bonus payable to the company's chief
financial officer was $20,675. The transaction was exempt from registration
under Section 4(2) of the Securities Act. The shares were issued with legends
restricting their transferability absent registration or applicable exemption.
The employees received information regarding the Company or had knowledge of the
Company's operations and business. Furthermore, the employees had the
opportunity to ask questions about the Company.
---------------------
New shares continued to be issued:
In March 2006 the Company negotiated an increase of its line of credit
with a financial institution, from $500,000 to $750,000, and extended the due
date of the line of credit to February 28, 2007. On March 14, 2006 the Company
issued its chief executive officer 562,219 shares of its common stock in
consideration for providing personal guarantees for the Company, which were
required to secure the line of credit. On March 14, 2006 the Company also issued
an aggregate of 360,049 shares of its common stock to its chief executive
officer and chief financial officer in consideration for extending the due date
on their note payable to February 28, 2008. The shares issued for the guarantees
and extension were issued with legends restricting their transferability absent
registration or applicable exemption.
These shares may be locked up, but they will still impact fds count.
Two, I found this statement which always makes me nervous about companies who are thinking about going private:
"As disclosed above, the effects of higher fuel prices, higher interest
rates, increases in cost of other raw material and lower consumer confidence may
contribute to a slow down of the economy which may temper our sales growth.
While we have had limited success in controlling our operational expenses and we
continue to examine ways to reduce costs on a going-forward basis, as a public
company we are constantly faced with increasing costs and expenses to comply
with SEC reporting obligations. We will be required in fiscal 2007 to comply
with the new annual internal control certification pursuant to Section 404 of
the Sarbanes-Oxley Act of 2002 and the related SEC rules. We expect that these
and other compliance costs of a public company will increase significantly. In
addition, our stock has historically been, and continues to be, relatively
thinly traded, providing little liquidity for our shareholders. As a result of
the foregoing, we have, from time-to-time considered, and expect from
time-to-time to continue to consider strategic alternatives to maximize
shareholder value.
----------------
Sounds like a substantial risk of going private.
R59, LPG is a class of gasses comprised of Propane, Butane, and Ethane. LPG is a byproduct of NG production (60%) and Crude Oil production (40%). 10% of NG is refined into LPG.
To the extent that LNG competes with LPG, I guess that pricing may become an issue. However, I would point out that LPG is a much easier gas to ship and requires minimal land infrastructure (i.e. no large liquefaction or regasification plants). That's one of the reasons that NG is primarily transported via pipeline and not by tanker. Contrast that with crude oil, which is shipped everywhere in addition to being piped in. The end result is that LNG is just not a reasonable substitute for many countries that use LPG. Without the infrastructure in place, LNG can't begin to compete.
LPG uses:
LPG products have a variety of both industrial and other uses, including transportation, fertilizer production, the manufacture of plastics, space heating, cooking, water heating and process heating. We serve industrial companies, as well as national and independent energy companies and energy traders.
-from GASS website
http://www.stealthgas.com/corporate-details/company-profile.html
To answer your question about European NG prices, gas prices have recently surged in the UK:
http://news.bbc.co.uk/1/hi/business/4804504.stm
Not sure about the rest of Europe.
R59, if you're interested in other shippers that have more stable charter rates and end markets than the drybulk market, check out the LPG group. I own both MCX and GASS, and each has different strengths from a VMC perspective.
GASS did an IPO in the last 6 mos, and they are continuing to build their fleet while paying a nice dividend around 5.75%. FD eps are expected to grow nicely this year, and the bulk of that is already committed in 1 yr timecharters. If rates can continue to rise on the strength of demand from Europe, Japan, and the Far East GASS should continue to show growth in eps in FY07 as well. Trades at 6.8x my guess for earnings in FY06.
MCX pays out a lower dividend, around 2%, but they should have stronger growth in eps over the next year as they are turning over 5-6 tankers that are coming off long-term charters that had substantially lower rates. Management has said that these recent re-charters were done at a 45% increase in rates:
http://biz.yahoo.com/bw/060227/20060227005471.html?.v=1
MCX has also been adding to its fleet as well, buying two ships in the past month. MCX trades at around 6.4x my estimate for FY06.
GASS offers more transparency as they have excellent data on their charter rates on their website. MCX is a bit more close-mouthed about their deals.
I think both stocks could be worth 16+ in the coming 12 mos, assuming the global economy (esp Japan, Europe, and China) doesn't go into the tank.
Knowledge, did you specify AON (All or None) on those buy orders? If yes, those sometimes don't show up.....