Green Mountain Finance & Audit Committee Disaster

Green Mountain Coffee Roasters

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Green Mountain (GMCR) issued a press release indicating they need to restate their financials going back to 2007. Not very impressive but the company is doing the correct thing.

Where the Green Mountain spin team falls apart is the sequence of events. Green Mountain responded to an SEC investigation initially. Not sure yet how SEC found out or what made Green Mountain light up on the radar but the SEC did it’s job.

The press release spins the sequence differently. Read this snippet from the second paragraph

“As discussed below, these errors were discovered by management during the course of its preparation of the year-end financial statements and audit, as well as during the course of an internal investigation initiated by the audit committee of the Company’s board of directors in light of the previously disclosed inquiry by the staff of the Securities and Exchange Commission’s (“SEC”) Division of Enforcement”

I don’t appreciate the spin. Green Mountain and their auditors Pricewaterhousecooper LLC missed it until they were awakened by the regulators. Now they are covering themselves with desperation credibility.

Who are the directors responsible? Here is the Audit and Finance Committee:

  1. Michael Mardy
  2. Barbara Carlini
  3. William Davis
  4. Jules Del Vecchio

Only Michael Mardy has any financial background. So you have to wonder why the other three are on the committee? Then when you dig around Michael Mardy was previously the CFO of Green Mountain. Now he has director’s responsibility over the area he used to manage. This committee was poorly constructed. Not a surprise that they experienced regulatory problems.

Disclosure: George Gutowski writes from a caveat emptor perspective. I hold no positions in stocks mentioned in this post.

InterOil Soro’s vs Whitney Tilson

InterOil

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InterOil (IOC) is exploring for natural gas in Papua New Guinea. Morgan Stanley has just successfully raised $266 million of much-needed capital and eliminated short-term liquidity issues. George Soros has been a believer and recently disclosed he owns 12% of IOC. SEC documents indicated this is George Soro’s third biggest holding.

Whitney Tilson is a bear who manages a hedge fund called T2 partners (www.tapartnersllc.com) hates the play. He insists the reserve valuations are a fraction of what is being reported and therefore feels the stock is overvalued.

InterOil Chief Executive Officer Phil Mulacek in a very recent quarterly earnings release commented

 “Our delineation drilling results further demonstrate the value of our reservoir at Antelope 2.”

 The headline in the press release also included this tidbit.

“The Antelope 2 horizontal well confirmed a higher condensate-to-natural gas ratio of 24-27.7 barrels per million cubic feet of natural gas, approximately 60% higher than observed at the top of the reservoir.  The horizontal well also demonstrated higher porosity deeper in the reservoir than previously modelled”

DealBook reports that Whitney Tilson in a Nov 6 blast email to 2000 supposed clients said

This is a company that has NO RESERVES — not proven, probable or even possible; just a ‘contingent resource estimate’ from a firm that InterOil paid, after shopping among firms — and has NEVER delivered on its countless promises of huge natural resource finds in over 200 press releases over more than 10 years. Sure, there’s gas there — this isn’t Bre-X — but we think there’s only a tiny fraction of what IOC claims.”

The difference in opinion is fundamental. Whitney Tilson does not believe in the engineering reports. What information does he have to back up his claim? Other than just disputing management why not put your cards on the table? Whitney if you can bust open InterOil your reputation is secure forever.

Disclosure: George Gutowski writes from a caveat emptor perspective. I hold no positions in stocks mentioned in this post.

Apple Board Governance Risks

The Apple Logo

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Apple (AAPL) finally filled a vacant board position. Today they announce the appointment of former Northrop Grumman Corp. Chairman and Chief Executive Ronald Sugar to its board. The move grows the panel to seven and comes following March’s death of Jerome York.

Jerome York passed away eight months ago and it has taken this long for  Steve Jobs to get around to finding a replacement. The board is now seven individuals. I assume Jerome York’s stock options are all priced over $300 @ share. The board’s size is inadequately small. For a company this size seven directors is not enough to discharge the full spectrum of governance responsibilities.

This will eventually prove to be the Achilles heel of Apple. They do not have the bench strength to deal with problems and crisis.

Disclosure: George Gutowski writes from a caveat emptor perspective. I hold no positions in stocks mentioned in this post.

Home Depot Disclosure Issues

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Home Depot (HD) issued a Q3 earnings release followed by a conference call. Compare the two closely. The earnings release is Reg FD challenged. The conference call contains so much more information investors should wonder if the two documents refer to the same company. The board of directors needs to consider its investor relations and compliance practices because the playing field is not level.

Here are the specific points dealt with at length in the conference call which were not in the earnings release. the conference call transcript is available at Seeking Alpha http://seekingalpha.com/tag/transcripts?source=headtabs

 Have a read and see if you agree. The selected disclosure items are

  1. Regional comparisons
  2. Specific product comparisons
  3. Numeric Info on comparables per month
  4. Analysis of gross margin
  5. Complete assessment of balance sheet
  6. Complete assessment of share repurchase program   

Disclosure: George Gutowski writes from a caveat emptor perspective. I hold no positions in stocks mentioned in this post.

Home Depot Bad Construction Compliance

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Home Depot (HD) issued a bare bones Q3 earnings release which provides no substantive management discussion and analysis. The earnings release throws out some headline guidance. The expectation of sales increasing by 2.2% has been raised to the status of Holy Grail. Then investors are referred to the conference call for further information. The conference call has the information advantage.

The press release is headlined as announcing Q3 results. But for this Dow 30 component the level of transparent financial reporting will have to wait. Where is the SEC on this one? How can we call this adequate and full disclosure?

Managements that  do not want to talk usually have something to hide. This one gets failing grades for financial communication.

Disclosure: George Gutowski writes from a caveat emptor perspective. I hold no positions in stocks mentioned in this post.

Intel Dividend Signal

Image representing Intel as depicted in CrunchBase

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Intel (INTC) raised its dividend by 15%. It yields approximately 3% on a market cap of  120 Billion. The market comes out with confused comments about the stocks bell weather characteristics. Hey financial writers the dividend signal is key to the long-term which is the only metric that matters. This may be a case of the media wanting more and not knowing how to handle steadiness. The thirst for more creates volatility un-necessarily.

Disclosure: George Gutowski writes from a caveat emptor perspective. I hold no positions in stocks mentioned in this post.

Dynegy Proxy Shouting Match

Dynegy Logo

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Dynegy (DYN) is facing a crucial vote on Nov 17, 2010 just a few days from now.They can accept what Blackstone Group (BX) has on the table or refuse. The refusal seems to be certain death. No other competing offers are on the table. No one was interested during the 40 day go shop period after the Blackstone offer was made public.

What is thoroughly confusing is the shouting match being conducted by the three major proxy voting recommendation services. Institutional Shareholder Services (ISS) recommends taking the deal. They point out no other offers and death spiral options if Blackstone walks away.

Glass Lewis & Company and Proxy Governance argue in favour refusing the deal. They claim the analysis in favour of Blackstone is flawed. In this case it would seem that the proxy research recommendation firms have not added value to the process. The arguments pro and con have not been much altered. The investor seems to be on his own.  Where are the lawsuits against the board for poor governance that lead to this discouraging state of affairs.

Disclosure: George Gutowski writes from a caveat emptor perspective. I hold no positions in stocks mentioned in this post.