GLG News by Utilities and Power Generation Industry: Financial Statement Analysts

George PughPresidentGeorge Pugh & Co

Is Dell going to Heck?

April 27, 2007

Analysis of:Dell's Internal Accounting Probe | online.wsj.com

 

Dell Inc. announced that its 10-K, due April 3, 2007 extended to April 18, would not be filed on time. Dell has also failed to meet NASDAQ requirements for continued listing as a result of its delinquent periodic report filings.

This delay was based on evidence of unspecified misconduct, and has involved prior quarters as well. In August 2006, the Dell announced that it was under informal investigation by the SEC on revenue recognition.

The resolution of these issues, have been long in coming, and still it is not clear how high in the organization the issues reach, though there have been firings, but also in what they entail.

Even with all the delays, there is really no clear picture of what has gone wrong.

George PughPresidentGeorge Pugh & Co

D&B? Wait and See!

April 25, 2007

Analysis of:D&B Acquires First Research in $22M Deal | www.webcpa.com

 

On March 20, D&B announced that it has acquired First Research for $22.5 million cash on hand. The agreement provides the seller with an earn-out potential of up to $4 million based on financial performance.

First Research provides Internet-based marketing research and industry trends, for use sales professionals. D&B said that it plans to enhance its Hoover’s Inc. database with deeper, industry-specific content through the acquisition.

First Researchrevenue of $6.5 million, a nearly 30 percent increase over the prior year. Because of GAAP rules on deferred revenue, the acquisition will have no material impact or change 2007 earnings guidance.

The acquisition is of greater moment, than would be gathered from its price.

George PughPresidentGeorge Pugh & Co

Levi Leaves KPMG

April 23, 2007

Analysis of:Levi Strauss Dumps KPMG as Accountant | accounting.smartpros.com

 

This article is very sparse, and the subject matter relatively old.

It discusses the decision by Levi Strauss to change auditors, leaving KPMG for PriceWaterhouseCoopers.

With KPMG in charge, the Levi Strauss had suffered a number of issues relating to restatements and KPMG’s assertions about a lack of internal control, though the specific troubles were not current.

Finally, Levi Strauss replaced them, after the release of the 2006 10-K.

George PughPresidentGeorge Pugh & Co

Option Abuse: What to Do?

March 30, 2007

Analysis of:The War at Home | www.auditintegrity.com

 

Mr. Kaplan, the head of Audit Integrity, is deeply disturbed by a Wall Street Journal article, “Companies Say Backdating Used in Days After 9/11” (March 7, 2007). Many companies rushed to grant options then claiming happenstance or rationalizing the action as a way to motivate executives in a difficult period.

With the statute of limitations approaching, SEC Chairman Cox has yet to decide who was damaged and what penalties might be placed on the companies involved. Further, is it fair that the costs come from the shareholders? Further he points out that the companies that were the worst offenders under-performed, despite of rich management compensation.

Mr. Kaplan believes that the individuals who did the backdating should pay and not the shareholders.

George PughPresidentGeorge Pugh & Co

Construction Fraud or Dissatisfaction?

March 29, 2007

Analysis of:Fraud rampant in construction industry | www.financialdirector.co.uk

 

KPMP found, in it 2007 survey of the global construction industry, that twenty percent of respondents were aware of fraud in recent projects.

Richard Whittington, head of the firm’s construction practice was taken aback by the scale and the potential risks to the global economy and to the companies defrauded.

George PughPresidentGeorge Pugh & Co

Is General Motors Dead or Only Sleeping?

March 28, 2007

Analysis of: GM Says Internal Controls at Root of Accounting Troubles | webcpa.com

This article is one of the best teasers I have seen and raises some supremely important issues relating to internal control weaknesses and if they have any import for investment decisions.

What the article is actually referencing is GM’s 10-K for 2006, filed March 15, 2007. GM disclosed, among other things that internal control weakness might preclude implementation of the company’s recovery plan. These disclosures are part of a longer history of accounting related issues culminating in a massive restatement in 2006.

Despite these very real issues, this article points out that analysts believe that demonstrated progress in reorganization, trump control weakness in determining shareholder value.

In summary, results trump form at least for the analysts.

George PughPresidentGeorge Pugh & Co

Predicting Option Abuse

March 26, 2007

Analysis of:Research firm hunts for clues in insider sales | news.moneycentral.msn.com

 

Stock options and insider trading are fascinating topics, and when you mix the two as this piece does, you have a very interesting article.

Carr Bettis of Gradient Analytics has completed a project that claims to pin-point when executives exercise their stock options “abnormally early.” Typically these early exercises come about six months before the market decline.

According to Bettis, "What we found was that not only do these early, deep-in-the-money exercises result in share price declines over the period that follows, but they also are associated with earnings misses and future misses,"

Even good theories don’t account for everything: In January 2006, Gradient noted abnormal exercise activity at Smith International Inc. Shares have seesawed since the report, but after a year were flat "We looked at it as a case that didn't work out as expected," Bettis said.

The question is: how much can it do, and where do we have to do more work?

George PughPresidentGeorge Pugh & Co

Moore Nukes for Greenpeace?

February 28, 2007

Analysis of:Fuel Fight | online.wsj.com

Dr. Patrick Moore, a Greenpeace founder, has changed from an opponent to a proponent of nuclear power.

He left the group in 1986 in the belief that the group had abandon the scientific method and was sailing into darker waters. The change was a radical one for him. In 1976 he wrote in a Greenpeace report that aside from nuclear warheads, nuclear power plants were "the most dangerous devices man has ever created".

Dr. Moore’s change in belief is not universally lauded by other environmentalists, however. Greenpeace is still actively against nuclear power, at least partially because there has been no long term policy of spent fuel. Other founders of Green peace have been very uncharitable toward Dr. Moore. Robert Hunter, a founding member of Greenpeace referred to Dr. Moore as an "eco-Judas”, Paul Watson called him and him an "eco-whore."

The question is will nuclear power gain enough support to prosper in the struggle against global warming?

George PughPresidentGeorge Pugh & Co

Electric Conservation: The Bottom Line

February 20, 2007

Analysis of:The Bottom Line | online.wsj.com

For a variety of reasons, from strategic to green, there is an emerging policy goal of stopping new power plant construction.

On the regulatory level, there is movement to disconnect utility financial health from selling more power. Part of the effort is called decoupling, which means that actual profit will be negotiated at year end.

Allowing a return on conservation expenditures (capitalization) while treating them as allowable expenses for rate making purposes raises its head, again, after a long hiatus.

The analysis is not new and should include other elements for a fuller picture of potential policies.

George PughPresidentGeorge Pugh & Co

Old Electrons in New Bottles

February 16, 2007

Analysis of:The New Math of Alternative Energy | online.wsj.com

The authoress has written very good articles on the energy industry, two others of which I have commented on Texas deregulation and transmission line construction:

http://news.glgroup.com/cm/Analysis/Logs.aspx?a=p&lid=7002&pid=5615

http://news.glgroup.com/cm/Analysis/Logs.aspx?a=p&lid=7002&pid=8269

The critical question is how to use these new fuels, for which the electric output is much more expensive than the fossil fuel alternatives. The situation is changing: there is more political interest and some of the technologies are cheaper than before. Further, as noted in a previous article, there is much new transmission line construction scheduled a good amount of which is to specifically service alternative fuel projects.

The question is really which horse (power source) to play, be it a straight bet or a trifecta. The answer is not clear, but a look at the individual alternatives, below, is informative both for specifics and techniques.

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