SECURITY FIRST NETWORK BANK (Nasdaq: SFNB) surged $2 1/4 to $11 1/4 after the software arm of the Internet banker licensed its Virtual Financial Manager to banking industry heavyweights CITICORP (NYSE: CCI) and BARNETT BANKS (NYSE: BBI) and specialty finance banking company SYNOVUS FINANCIAL (NYSE: SNV). Those companies, along with others, paid $14.2 million for the licenses, 500,000 shares in the company, and for future software developments. The Virtual Financial Manager is a turnkey solution for banks wanting to hang out the shingle on the Internet. With this software featuring an HTML front-end, online check imaging, middleware solutions, and the integration of services like credit cards and bill payments, the whole thesis of INTUIT (Nasdaq: INTU) being a great acquisition for any big bank might now be completely bankrupt.

Following yesterday's $150 million investment from MICROSOFT (Nasdaq: MSFT) and the installation of a virtually new board of directors, APPLE COMPUTER (Nasdaq: AAPL) gained another $2 7/8 to $29 3/16. Bear Stearns raised its rating on the company, dropping the "un" from its former "unattractive" rating, while J.P. Morgan rated it a "buy," citing a "benevolent [industry] conspiracy... to come to Apple's rescue." The rise again today can be chalked up to two main reasons: 1. Almost every newscast in the country over the last 24 hours has run this story, and 2. Some market players might finally understand that this is less about Microsoft wrapping up Apple than it is about Apple software. If this was about Microsoft sealing its monopoly, one would think the "efficient market" would have bid up Microsoft and bid down Apple.

Tom Gardner's MoneyHeavy Portfolio dark horse PIONEER HI-BRED INTERNATIONAL (NYSE: PHB) shot up $13 11/16 to $90 1/4 after forming an alliance with DUPONT (NYSE: DD). DuPont will invest $1.7 billion in Pioneer and form a joint venture intended to develop new genetically engineered grains. Not only does plant genetics company Pioneer hook up with one of the world's premier chemical and agricultural product companies, but the agreement calls for Pioneer to use the proceeds of the equity investment to buy back 16 million common shares in a Dutch auction. Total common shares outstanding will remain around 82 million. Pioneer said it expects sales from the joint venture to reach $3.5 million within ten years.

QUICK TAKES: Australia and New Zealand Internet service provider OZEMAIL LTD. (Nasdaq: OZEMY) jumped $5 1/2 to $12 1/2 after reporting a 236% increase in Q2 revenues and EPS of $0.61 due to the receipt of a licensing fee for its Internet phone and fax software... SUNGLASS HUT INTERNATIONAL (Nasdaq: RAYS) brightened up $1 3/4 to $10 3/16 after the specialty retailer reported a 7.8% increase in July same-store sales. OAKLEY INC. (NYSE: OO), a main vendor to the Hut, gained $1 5/16 to $13 1/4 on the news... Supercomputer maker TERA COMPUTER CO. (Nasdaq: TERA) rose $3 to $8 1/2 on a "buy" rating from Salomon Brothers... CORTECS INTERNATIONAL (Nasdaq: DLVRY) gained $2 5/8 to $15 1/2 after the pharmaceutical maker announced that it plans to submit its oral Macritonin drug for the treatment of bone degeneration for approval to European health authorities.

Industrial process equipment manufacturer MAXWELL TECHOLOGIES (Nasdaq: MXWL) added $3 1/2 to $29 3/4 after announcing a win on a government contract worth up to $25 million over five years... QWEST COMMUNICATIONS INTERNATIONAL (Nasdaq: QWST) rose $1 7/8 to $36 3/4 after the telecom fiber optic backbone provider yesterday reported Q2 revenues of $229 million and pro-forma EPS of $0.31, crushing estimates of $0.05... COMPAQ COMPUTER CORP. (NYSE: CPQ) rose $3 1/2 to $62 1/8 after Donaldson, Lufkin & Jenrette added the shares to its recommended list... Leading British bank BARCLAYS PLC (NYSE: BCS) added $5 3/4 to $91 after saying that it doesn't expect to make any further concessions to its union employees... Heavy equipment manufacturer TEREX CORP. (NYSE: TEX) rolled $1 5/16 higher to $22 13/16 on initiation of coverage by J.P. Morgan with a "buy" rating.


HEILIG MEYERS CO. (NYSE: HMY) slid $2 5/16 to $15 1/16 after the furniture retailer and stealth specialty finance company reported a 1.5% increase in July same-store sales. Added to last month's 1.2% decline in same-store sales, the company announced yesterday that it may be difficult to reach earnings estimates for the quarter. Going in the other direction, furniture manufacturer and retailer ETHAN ALLEN INTERIORS (NYSE: ETH) moved up $6 15/16 to $61 11/16 after reporting Q4 EPS of $1.02, which rose 100% from the comparable quarter last year and smashed estimates of $0.84.

HMO giant UNITED HEALTHCARE CORP. (NYSE: UNH) fell victim to this week's misery in the sector, dropping $7 5/16 to $50 3/4 and dragging down cohorts AETNA (NYSE: AET) $5 1/4 to $96 3/4 and OXFORD HEALTH PLANS (Nasdaq: OXHP) $5 1/4 to $74. United Health reported Q2 EPS of $0.55 (excluding a gain), missing estimates. Like Aetna, the company showed strong enrollment growth in the quarter, but the medical loss ratio (the percentage of earned premiums spent on enrollees' medical expenses) showed a minuscule improvement. If it weren't for underperforming markets in Maryland, Rhode Island, and the Gulf Coast states, though, the company's medical loss ratio would have improved 1.5 percentage points to 83.7%.

QUICK CUTS: COSTILLA ENERGY (Nasdaq: COSE) slumped $4 1/2 to $9 after the oil and gas exploration and production company reported a loss of $0.23 per share, falling short of EPS estimates of $0.04... Teleservices company SITEL CORP. (NYSE: SWW) was clouted for a $4 1/4 loss to $11 after reporting Q2 EPS of $0.10, in line with estimates and up 67% year-over-year. Both Alex. Brown and Dillon Read lowered their ratings on the company, with Dillon Read reducing its 1998 EPS estimate to $0.58 from $0.63... WET SEAL INC. (Nasdaq: WTSLA) was harpooned for a $7 11/16 loss to close at $19 after the young women's clothing retailer pre-announced Q2 EPS of $0.25, below estimates of $0.29, due to sluggish sales in July... FINE AIR SERVICES (Nasdaq: BIGF) fell $1 5/16 to $14 9/16 a day after going public after one of its DC-8 cargo planes crashed on takeoff from the Miami Airport... Connecticut-based BANK OF SOUTHINGTON (AMEX: BSO) lost $2 1/2 to $20 3/4 after issuing a terse statement saying it is reviewing takeover proposals it has received... Anglo-Dutch publisher ELSEVIER NV (NYSE: ENL) fell $2 1/8 to $33 5/8 after reporting a weak 1% increase in operating profits in the first half of the year and issuing an equally weak outlook for the remainder of the fiscal year... Ion beam systems manufacturer MICRION CORP. (Nasdaq: MICN) was burned $2 5/8 to $18 7/8 after reporting Q4 EPS of $0.13, in line with estimates... Youth apparel retailer HOT TOPIC (Nasdaq: HOTT) slid $2 to $16 1/8 after announcing a meager 0.7% increase in second quarter same-store sales... Healthcare equipment servicing outsourcer COHR INC. (Nasdaq: CHRI) lost $2 1/8 to $18 after reporting Q1 EPS of $0.24, in line with estimates. Gross margin dropped slightly year-over-year but operating margin expanded considerably... CIENA CORP. (Nasdaq: CIEN) fell $4 13/16 to $49 3/8 after the maker of photon electronics for telecom carriers pre-announced Q3 EPS of $0.31 to $0.33, above the mean estimate of $0.27....Telecom company MASTEC INC. (NYSE: MTZ) was scuttled for a $4 3/4 loss to $48 3/4 by investors who weren't happy with Q3 EPS of $0.41, which missed estimates of $0.44... CALENERGY COMPANY INC. (NYSE: CE) lost $2 1/8 to $37 3/8 as takeover target NEW YORK STATE ELECTRIC & GAS CORP. (NYSE: NGE) filed with New York regulatory authorities for a review of CalEnergy's takeover attempt... Connecticut bank BANK OF SOUTHINGTON (AMEX: BSO) lost $2 1/2 to $20 3/4 after issuing a terse statement saying it is reviewing takeover proposals received by the bank.

An Investment Opinion by Randy Befumo

Unraveling the Results Reported by America Online

AMERICA ONLINE (NYSE: AOL) reported fairly confusing fourth quarter results this afternoon that will probably have number crunchers busy for months. The company reported operating results of $0.09 EPS, two cents ahead of the consensus estimate from First Call. However, due to ongoing discussions with the "staff" of the Securities and Exchange Commission (SEC), the company was forced to move a $24.5 million charge taken in the second quarter to the fourth quarter as well as reclassifying $7 million of revenues booked last quarter as "deferred" revenues, causing the company to take charges to adjust results for both periods in this quarter. Although it is the operating results that are most remarkable, a lot of attention will probably be spent over the next few days digging through the charges.

On the operational side, America Online increased gross margin to 38.1% from 35.8% last quarter, a 2.3 percentage point improvement that probably reflects the fact that the bulk of the company's modem spending is over. Marketing expenses as a percentage of revenues have stabilized around the 20% mark, coming in at 20.4% this quarter. This is well below the 35% to 40% range the company had been recording before it converted to flat-fee access, demonstrating clearly that the flat-fee move results in significant market acquisition savings. "Product Development" and "General & Administrative" expenses were unremarkable.

Operating momentum for the first full quarter for the Pittman team will probably be overlooked tomorrow because of a focus on the charges, though. Always controversial, America Online results have become increasingly complicated since the company changed its accounting standards last October. As the company that has produced more individual one-time charges than any other company in the S&P MidCap 400, it is probably not going to shed its reputation for questionable accounting anytime soon, in spite of adopting the "gold-standard" accounting for subscriber acquisition costs nine months ago. For those who have been in a coma for the last two years, America Online previously amortized the recognition of subscriber acquisition costs over the estimated life of the subscriber. Although this was in line with Federal Accounting Standards Board (FASB) SOP 93-7 regarding the capitalization of advertising costs related to direct-response marketing, it has always been a sore spot for investors, and the company was wise to dump it given the disproportionate attention it garnered from the media.

However, replacing SOP 93-7 with a bevy of one-time charges was probably not the wisest move America Online accountants could have made. Rather than economizing the violence inherent in changing accounting, it has accidentally prolonged the perception that there is something rotten in the state of America Online's books. While one charge taken is apparently just the movement of a $25.7 million charge originally taken in the second quarter for the termination of non-performing "partners" whose sites were not generating enough activity to justify their existence, the restatement of revenues is a little more disconcerting. In a move that will probably incite short-sellers into fits of glee, the company is restating $7 million in revenue recognized from the Tel-Save deal last quarter and amortizing it over the life of the deal.

While the revenue restatement is hardly the end of the world given that it is for cash that America Online already has in the bank, there was originally a lot of noise after the Tel-Save deal about the accounting and this will probably revive it. This restatement means that America Online actually lost $0.05 per share last quarter rather than making a $0.02 per share profit as originally reported. For many investors, the profit at America Online was taken as a sign that the business model was a viable one. To restate that profit to a loss and have the charge taken to do so dampens earnings for the fourth quarter and will probably generate a lot of confusion as well as a lot of less-than-informed yammerings about accounting from the business media.

Investors should focus on the fact that regardless of when the revenues are recognized, the cash is already in the bank -- which is the completely opposite situation from the amortization of subscriber acquisition costs where the money had already been spent, but had not been recognized. Sadly, unlike most media companies where the investors are used to complicated accounting, America Online has attracted a number of pundits who are relatively unsophisticated when required to move beyond the standard manufacturing profit and loss statement. Investors should pay careful attention to operating cash flow when the company releases its 10-Q sometime in the next few weeks.


(402) 222-9939 -- replay

(800) 475-6701 (#348218) -- replay

(800) 642-1687 (ask for Papa John's Int'l conference call) -- replay

(800) 642-1687 (code: 523215) -- replay
(706) 645-9291 (code: 523215) -- replay for international callers

Re: introduction of NetShow server 2.0
(800) 677-0672 -- replay through 8/7
(402) 998-0101 -- replay for international callers

(800) 964-3941 -- replay through 8/7
(402) 344-6640 -- replay for international callers

AMRION INC (Nasdaq: AMRI) and
(800) 633-8284 (code: 2979188) -- replay through 8/7

MICROSOFT (Nasdaq: MSFT) and
Regarding product and technology development agreement
(800) 456-5304 (code: 8797) -- replay through 8/8 @ 5:00 pm EDT
(402) 344-6835 -- replay number for international callers

(800) 475-6701 (access code: 350455) -- replay through 8/8

(Nasdaq: STAT)
(800) 475-6701 (ID# 345839) -- replay through 8/8

(402) 220-3124 -- replay through 8/14

(800) 633-8284 (code: 2875731) -- replay through 8/15



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