Financial Mines

News and notes from the business reporters for the Connecticut Media Group.
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A European banking crisis and recession fear trip up market

Thursday, August 18, 2011 by:Rob Varnon
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Stocks got planted Thursday as panic took hold over investors worried the world edged closer to recession because of continued problems in the European banking system.

Carolyn Frzop, first vice president of Janney Montgomery Scott, said investors are concerned European’s are about to have their “Lehman Brothers moment,” as key banks struggle over debt issues related to government bonds.

Shares plunged at the opening and like the Cubs kept losing into the afternoon. The Dow was down finished down mroe than 415 points, the Nasdaq was off 130 and the S&P had shed 53. Gold surged to a record.

Paul Schatz, president of investment advisory Heritage Capital, said Thursday’s big drop was the global recession being priced into stocks.”
He added the market was spooked on news that Federal Reserve officials were meeting with the U.S. executives of European banks.
The Wall Street Journal reported this morning that the Fed is concerned European banks will use their U.S. divisions like piggy banks to refinance debt in Europe. The banks on the other side of the Atlantic are having trouble attracting new money as investors worry that some banks’ stakes in the most debt-ridden European countries are too high.

Meanwhile, Amit Khandwala, co-chief investment officer of Milford-based Wright Investors’ Service, said disappointing news from the Philly Fed and the CPI kept shares in the negative.

The Federal Reserve Bank of Philadelphia reported Thursday its factory index had fallen to negative 30, which indicates the sector is contracting. Meanwhile, the Bureau of Labor Statistics reported  Consumer Prices in the nation jumped 3.6 percent in July despite a weak employment market.

This adds more fear to the market given recent reports that consumer borrowing increased, which now might be taken as a sign for economic weakness. Increased consumer borrowing can indicate families are confident in the economy and are willing to take on more debt, but given the current job situation and rising costs, it might also mean families have had to turn to credit to pay bills.

John Gerlach, an associate professor of Economics and Finance at Sacred Heart University, said Thursday’s sell off felt different than last week, becuase “last weak it was fear, this was a panic.”

But Gerlach and others pointed out all the activity and fear on Thursday doesn’t mean the recession is here and Friday is a new day.

Categories: General

SEC turns to $nitches: New TV series surely coming

Friday, August 12, 2011 by:Rob Varnon
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Friday finally saw a door opened for a TV series on SEC investigators, as the Wall Street watchdog can now pay snitches, just like so many cops on prime-time dramas have done.

It was one of the missing ingredients for a show: a nervous or hipster snitch who walks that good/bad guy line.

I imagine it could be a Law & Order spinoff, or a show patterned after Starsky & Hutch, Kojak or even T.J. Hooker.

At least that’s what I imagine is one possible outcome of this announcement from the SEC as it looks for help in busting financial crime.

Here’s the release and information for people who actually want to stop fraud on the street:

SEC’s New Whistleblower Program Takes Effect Today

New Webpage Launched to Help People Report Violations, Apply for Awards

FOR IMMEDIATE RELEASE
2011-167

Washington, D.C., Aug. 12, 2011 — With its new whistleblower program officially becoming effective today, the Securities and Exchange Commission today launched a new webpage for people to report a violation of the federal securities laws and apply for a financial award.

The Dodd-Frank Wall Street Reform and Consumer Protection Act provided the SEC with the authority to pay financial rewards to whistleblowers who provide new and timely information about any securities law violation. Among other things, to be eligible, the whistleblower’s information must lead to a successful SEC enforcement action with more than $1 million in monetary sanctions.

The SEC’s new webpage at www.sec.gov/whistleblower includes information on eligibility requirements, directions on how to submit a tip or complaint, instructions on how to apply for an award, and answers to frequently asked questions.

“Early and quick law enforcement action is the key to preventing securities fraud and avoiding investor losses, and the whistleblower program gives us the tools to help achieve that goal,” said Robert Khuzami, Director of the SEC’s Division of Enforcement.

Sean McKessy, Chief of the SEC’s Office of the Whistleblower, added, “Securities fraud is not a victimless crime. That’s why why it is so important for people to step forward when they witness an ongoing securities fraud or learn about one that has taken place or is about to occur. Our new whistleblower award program makes it easier for people to take that step.”

The SEC’s new whistleblower program strengthens the SEC’s ability to protect investors in several ways:

  • Better Tips: Over the past several months, the SEC has seen an increase in the quality of tips that it has been receiving from individuals since Congress created the program.
  • Timely Tips: Potential whistleblowers are incentivized to come forward sooner rather than later with “timely” information not yet known to the SEC.
  • Maximizes Outside Resources: With fewer than 4,000 employees to regulate more than 35,000 entities, the SEC cannot be everywhere at all times. With a robust whistleblower program, the SEC is more likely to find and deter wrongdoing at firms it may not have otherwise uncovered
  • New Protections Against Retaliation: Employees who come forward are provided with new tools to protect themselves against employers who retaliate.
  • Bolsters Internal Compliance: The new rules provide significant incentives for employees to report any wrongdoing to their company’s internal compliance department before coming to the SEC. Therefore, companies that would prefer their employees report internally first are incentivized to a have credible, effective compliance program in place.

The SEC adopted final rules on May 25 to implement the Dodd-Frank whistleblower program. Individuals wishing to be considered for an award under the Whistleblower Program are required to submit an online questionnaire or the newly approved Form-TCR.

Prior to the enactment of the Dodd-Frank Act, the SEC only had authority to reward whistleblowers in insider trading cases.

Categories: General

Sikorsky delivers two Seahawks to Thailand

Monday, August 8, 2011 by:Rob Varnon
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Sikorsky Aircraft said in a press release Monday the U.S. Navy delivered two MH-60s helicopters to the Royal Thai Navy, marking the first time the nation’s most advanced naval military copter has been delivered to an international customer.

The U.S. Navy flew the aircraft from Owego, N.Y., to the Port of Baltimore, Md., ahead of their ocean voyage to Thailand. The aircraft were acquired via the U.S. Government’s Foreign Military Sales program.

“MH-60S ‘Sierra’ helicopters have proven to be highly reliable utility aircraft for the U.S. Navy fleet,” Michael Sears, the U.S. Navy’s international H-60 deputy program manager, said in a press release. “We are honored to provide Thailand with the same capability, along with pilot and maintainer training, spares and logistical support.”

The new Sierra aircraft are an integral part of the Royal Thai Navy’s fleet modernization program to augment the capabilities of six Sikorsky S-70B SEAHAWK and six marinized S-76B helicopters acquired through U.S. Foreign Military Sales in the late 1990s. The Navy has expressed interest in additional MH-60S purchases.

The MH-60S helicopters acquired by the Royal Thai Navy are designed for utility missions, such as logistics and troop transport. In addition, the standard searchlight and rescue hoist will enable aircrew to perform search and rescue missions.

MH-60S and MH-60R SEAHAWK multi-mission helicopters are designed and manufactured by Sikorsky Aircraft Corporation, a subsidiary of United Technologies Corp. (NYSE: UTX). Lockheed Martin (NYSE: LMT) provides the digital cockpit for both MH-60 helicopter types, and is the systems integrator for the MH-60R platform.

Categories: General

Kaman reports earnings nearly doubled in 2Q

Thursday, August 4, 2011 by:Rob Varnon
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A key Sikorsky Aircraft supplier as well as an important aerospace manufacturers in the state, Bloomfield-based Kaman announced strong second quarter earnings Thursday, though its stock on the Nasdaq Market dropped $1.46 to $33.11 on a day when the Nasdaq Composite was down 5 percent.

Here’s Kaman’s press release on the results:

BLOOMFIELD, Conn., Aug 04, 2011 (BUSINESS WIRE) –

Kaman Corp. (NASDAQ GS: KAMN) today reported financial results for the second quarter ended July 1, 2011.

Table 1. Summary of Financial Results
In thousands except per share amounts – Unaudited For the Three Months Ended
July 1, 2011 July 2, 2010 $ Change
Net sales:
Industrial Distribution $ 239,307 $ 210,924 $ 28,383
Aerospace 145,779 106,163 39,616
Net sales $ 385,086 $ 317,087 $ 67,999
Operating income:
Industrial Distribution $ 12,253 $ 7,713 $ 4,540
Aerospace 21,881 12,114 9,767
Net gain (loss) on sale of assets (34 ) (56 ) 22
Corporate expense (10,998 ) (8,581 ) (2,417 )
Operating income $ 23,102 $ 11,190 $ 11,912
Diluted earnings per share $ 0.50 $ 0.23 $ 0.27

Neal J. Keating, Chairman, President and Chief Executive Officer, stated, “We are very pleased with our second quarter results, which reflect continuing sales growth and improved profitability, in each of our businesses. In Industrial Distribution, we again achieved record sales and as a result of the higher volume and our focus on profitability improvement delivered higher margin performance. In Aerospace, we saw strong top line performance across programs and generated solid profitability. Our backlog continues to be healthy ending the quarter at $536 million, up 16% from $461 million a year ago. Our strong second quarter performance gives us continued confidence in our outlook for the full year as well as in our long-term competitive and strategic position.”

Segment reports follow:

Industrial Distribution segment sales increased 13.5% in the 2011 second quarter to $239.3 million compared to $210.9 million a year ago. Acquisitions contributed $10.3 million in sales in the quarter (sales from acquisitions are classified as organic beginning with the thirteenth month following the acquisition). On a sales per sales day* basis, organic sales were up 8.6% over last year’s second quarter (see Table 2 for additional details regarding the Company’s sales per sales day performance). Segment operating income for the second quarter of 2011 was $12.3 million, a 58.9% increase from operating income of $7.7 million in the second quarter of 2010. The operating profit margin for the second quarter of 2011 was 5.1% and was the ninth consecutive quarter of sequential operating profit improvement. In comparison, the operating profit margin was 4.9% in the first quarter of 2011 and 3.7% in the second quarter of 2010.

Industrial Distribution segment sales for the second quarter of 2011 reflect strong markets conditions and growth from acquisitions made in 2010. Market strength was broad based across most geographies, customers and end markets . The operating margin was higher on both a year-over-year and sequential basis as a result of the higher sales volume, improved gross margin, contributions from acquisitions, and benefits from our productivity improvements including an organizational realignment and IT investments.

Aerospace segment sales were $145.8 million, an increase of 37.3% from sales of $106.2 million in the second quarter of 2010. Operating income for the second quarter of 2011 was $21.9 million, compared to operating income of $12.1 million in the 2010 second quarter. The operating margin in this year’s second quarter was 15.0% as compared to 11.4% in the comparable period in the prior year. Global Aerosystems, acquired late last year, contributed $7.7 million in sales during the second quarter of 2011. Organic sales in the quarter were up 30.0% over the prior year period. In addition to the contribution from the acquisition, Aerospace sales and profits were higher over the prior year due to increased shipments under the Company’s Joint Programmable Fuze program, higher revenue under the Company’s unmanned K-MAX(R) program, and increased sales from bearing product lines.

Outlook

The Company’s updated expectations for 2011 are as follows:

  • Aerospace segment sales of $550 million to $565 million
  • Aerospace operating margins of 15.2% to 15.5%
  • Industrial Distribution sales of $930 million to $960 million
  • Industrial Distribution segment operating margins of 4.7% to 4.9%
  • Interest expense of approximately $12.5 million
  • Corporate expenses of approximately $43.0 million to $44.0 million for the year

Aerospace expectations exclude the sale of SH-2G(I) aircraft. The outlook for corporate expenses excludes the non-recurring benefit of $2.4 million recognized in the first quarter of 2011 resulting from the death of a former executive.

Chief Financial Officer, William C. Denninger, commented, “As we look ahead, our solid first half performance provides us with confidence in our ability to achieve our previously stated full year outlook ranges for sales in both of our businesses. Our Industrial Distribution business is performing well, despite a tough competitive environment and rising costs. Based on this performance we have increased our outlook for profitability in the segment. Our revised expectations for operating margin as a percentage of sales are 4.7% to 4.9%. This is up significantly over the 3.6% and 2.0% we achieved for the full years 2010 and 2009, respectively. Similarly, our Aerospace business is delivering good results. We have experienced some shifting of revenues within the year, such as unmanned K-MAX, resulting in a stronger first half than expected, and while we have encountered some program pushouts, such as A-10, other programs have demonstrated stronger than expected demand, such as BLACK HAWK. All factors considered we are maintaining our full year sales and profit outlook for Aerospace. In addition to our expectations for the full year, we have made good progress against our strategic plan and believe that we are well positioned to drive long-term growth and value to our shareholders.”

Categories: General

Where’s Lloyd when we need him?

Thursday, August 4, 2011 by:Rob Varnon
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“I picked a bad time to stop sniffing glue,” actor Lloyd Bridges declared in the movie Airplane.

We might all be saying this after the end of this week, especially you small business owners here in Connecticut.

First, the debt deal comes through but only after a process that made a playground tussle over who gets to go first on the swing, look grown up.

Then the Dow and other markets not only have been getting beat up, but on Thursday they got dropped with the Dow losing 500 plus.

And now,  business owners in the state are going to start pay a special assessment to cover the $810 million Connecticut has borrowed from the Federal government to pay unemployment benefits since 2007.

The bills to employers just went out on Aug. 1. They are getting hit with a charge of $1.70 for every $1,000 of taxable payroll, up to $25.50 per employee. This is based on last year’s taxable wages.

As one businesswoman complained to the Post recently, she was breaking even before this, now what is she supposed to do.

In a nutshell, the state and federal government have made it more expensive to employ people in Connecticut, as the assessment is expected to continue on for three years.

While Lloyd might have stopped sniffing, with policies like this, it makes us suspicious that maybe someone in government hasn’t.

Categories: General

Diageo gets hammered by SEC

Thursday, July 28, 2011 by:Rob Varnon
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The SEC leveled allegations of bribery against Diageo on Wednesday and the company coughed up $16 million to make it all go away.

Washington, D.C., July 27, 2011 — The Securities and Exchange Commission today charged one of the world’s largest producers of premium alcoholic beverages with widespread violations of the Foreign Corrupt Practices Act (FCPA) stemming from more than six years of improper payments to government officials in India, Thailand, and South Korea.

The SEC found that London-based Diageo plc paid more than $2.7 million through its subsidiaries to obtain lucrative sales and tax benefits relating to its Johnnie Walker and Windsor Scotch whiskeys, among other brands. Diageo agreed to pay more than $16 million to settle the SEC’s charges. The company also agreed to cease and desist from further violations of the FCPA’s books and records and internal controls provisions.

“For years, Diageo’s subsidiaries made hundreds of illicit payments to foreign government officials,” said Scott W. Friestad, Associate Director of the SEC’s Division of Enforcement. “As a result of Diageo’s lax oversight and deficient controls, the subsidiaries routinely used third parties, inflated invoices, and other deceptive devices to disguise the true nature of the payments.”

According to the SEC’s order instituting settled administrative proceedings against Diageo, the company made more than $1.7 million in illicit payments to hundreds of government officials in India from 2003 to mid-2009. The officials were responsible for purchasing or authorizing the sale of its beverages in India, and increased sales from these payments yielded more than $11 million in profit for the company.

The SEC found that from 2004 to mid-2008, Diageo paid approximately $12,000 per month – totaling nearly $600,000 – to retain the consulting services of a Thai government and political party official. This official lobbied other high-ranking Thai government officials extensively on Diageo’s behalf in connection with pending multi-million dollar tax and customs disputes, contributing to Diageo’s receipt of certain favorable decisions by the Thai government.

According to the SEC’s order, Diageo paid 100 million in Korean currency (more than $86,000 in U.S. dollars) to a customs official in South Korea as a reward for his role in the government’s decision to grant Diageo significant tax rebates. Diageo also improperly paid travel and entertainment expenses for South Korean customs and other government officials involved in these tax negotiations. Separately, Diageo routinely made hundreds of gift payments to South Korean military officials in order to obtain and retain liquor business.

The SEC’s order found that Diageo and its subsidiaries failed properly to account for these illicit payments in their books and records. Instead, they concealed the payments to government officials by recording them as legitimate expenses for third-party vendors or private customers, or categorizing them in false or overly vague terms or, in some instances, failing to record them at all. Diageo lacked sufficient internal controls to detect and prevent the wrongful payments and improper accounting.

The SEC’s order found that Diageo violated Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934. Without admitting or denying the findings, Diageo agreed to cease and desist from further violations and pay $11,306,081 in disgorgement, prejudgment interest of $2,067,739, and a financial penalty of $3 million. Diageo cooperated with the SEC’s investigation and implemented certain remedial measures, including the termination of employees involved in the misconduct and significant enhancements to its FCPA compliance program.

The SEC’s investigation was conducted by Marilyn Ampolsk and Scott Weisman.

Categories: General

Energizer shares hit high boosted by Schick razor maker

Wednesday, July 27, 2011 by:Rob Varnon
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Shares in Energizer Holdings, the parent of Milford-based Schick Wilkinson-Sword, shot up as much as 9 percent in Wednesday trading after the company announced results for the third fiscal quarter.

Energizer reported net income for the quarter ended June 30 of $65.9 million, or 94 cents per diluted share, compared to $104 million, or $1.47 per diluted share for the same period a year ago.

Analysts surveyed by FactSet were expecting net income of $1.25 a share and the company noted that one-time costs related to $19.9 million in debt retirement and $21 million in restructuring trimmed EPS by 42 cents.

During Wednesday trading, Shares in Energizer hit a new 52-week high of $84.94,up 9 percent from yesterday’s close of $77.92. But the shares backed off the high closing up 4.79 percent to $81.65.

Energizer also said it spent more advertising the launch of new products, including the Schick Hydro.

“Our year of investment remains on track,” Ward Klein, Energizer CEO said in a press release. “We are pleased with the substantial growth within our Personal Care segment, including our wet shave and Skin Care businesses. We continue to be excited about the Schick Hydro global new product launch and are seeing significant trial and consumer satisfaction with the Hydro world class shave experience. This major new product introduction, combined with our recent acquisition of American Safety Razor, contributed to the substantial growth of our wet shave business.”

Schick was a revenue driver during the quarter, with its wet shave products and American Safety Razor sales increasing 29 percent. In all, the Personal Care division had sales of $725 million in the quarter.

Energizer’s battery division is undergoing restructuring as the company adjusts to a market place where the rechargeable battery is becoming more popular.

Categories: General

W.R. Berkley shares surge after earnings

Tuesday, July 26, 2011 by:Rob Varnon
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Shares in Greenwich-based insurer W.R. Berkley jumped more than 3 percent in morning trading after the company held a meeting with analysts to discuss its second quarter earnings.

On Monday, WRB, reported earnings of 56 cents a share, beating the mean estimate of 42 cents, according to a survey of analysts by Factset.

Shares in the company were up $1.25 to $33.20 on Tuesday morning, almost 4 percent higher than Monday’s close. 

While the earnings report beat estimates, WRB didn’t post as high a profit as it did for the same quarter a year ago.

The company reported net income for the second quarter of 2011 of $83 million, or 56 cents per share, compared with $110 million, or 70 cents per share, for the same period a year ago.

Insurers have had to pay out on some big natural disasters in the last year, but William R. Berkley, chairman and CEO, gave investors reason to expect better days remain ahead for WRB.

Berkley said in a prepared statement, “at the moment, while rate increases are definitively positive, loss costs are also increasing. We anticipate accelerating rate increases as the year progresses.”

Categories: General
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