FASB Rule Changes, All Hail the Blue Dogs, SOHU/CYOU/GLW Earnings

RCM Comment: We must keep an eye on this major development. If FASB stands firm and makes the changes desired then possibly 3rd and certainly 4th quarter earnings announcements for financial companies should be entertaining. These changes would make it exceedingly more difficult for the financial group to hide and misrepresent the true conditions of the business.

Accountants Gain Courage to Stand Up to Bankers: Jonathan Weil July 23 (Bloomberg) -- Turns out America’s accounting poobahs have some fight in them after all. Call them crazy, or maybe just brave. The Financial Accounting Standards Board is girding for another brawl with the banking industry over mark-to-market accounting. And this time, it’s the FASB that has come out swinging.

It was only last April that the FASB caved to congressional pressure by passing emergency rule changes so that banks and insurance companies could keep long-term losses from crummy debt securities off their income statements.

Now the FASB says it may expand the use of fair-market values on corporate income statements and balance sheets in ways it never has before. Even loans would have to be carried on the balance sheet at fair value, under a preliminary decision reached July 15. The board might decide whether to issue a formal proposal on the matter as soon as next month....READ MORE


RCM Comment: Let's take a moment and give the Blue Dogs some credit. At least some group in Washington appears to be awake.

"Blue Dog" Democrats hold health-care overhaul at bay - WSJ
WSJ reports so-called Blue Dog Democrats continued to resist key aspects of their party's health-care overhaul Sunday, despite pressure from party leaders who fear they will endanger President Barack Obama's most ambitious legislative effort. A leader of the fiscally conservative group of representatives said he expects any vote on the House's health proposal would have to wait, likely until after Labor Day. "I think the American people want to take a closer look at this legislation. They want to feel more comfortable with it," Rep. Jim Cooper, a Blue Dog from Tennessee, said on CBS's "Face the Nation." House Speaker Nancy Pelosi disputed any suggestion that the Blue Dogs' protests threatened the bill's passage. "Absolutely, positively not," she said Sunday on CNN's "State of the Union." "When I take this bill to the floor, it will win...We will move forward. This will happen."

Earnings of Interest

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SOHU Sohu.com beats by $0.03, beats on revs; guides Q3 revs above consensus (63.63 )
Reports Q2 (Jun) earnings of $0.79 per share..., $0.03 better than the First Call consensus of $0.76; revenues rose 24.6% year/year to $127.1 mln vs the $123 mln consensus. Gross margin was 77 in 2Q09, compared to 76% in 1Q09, and 76% in 2Q08. Non-GAAP operating profit margin was 43% for 2Q09, compared to 45% in the previous quarter and 41% in 2Q08.


Co issues guidance for Q3, sees EPS of $0.92-0.97; sees Q3 revs of $133.5-137.5 mln vs. $132.18 mln consensus. Assuming no new grants of share-based awards, Sohu estimates share-based compensation expense for 3Q09 to be $4.0-5.0 mln, which includes Changyou's share-based compensation expense for 3Q09 estimated to be $3.5-4.0 mln. Considering Sohu's share in Changyou, the estimated impact of this expense is expected to reduce Sohu's fully diluted EPS for 3Q09 under US GAAP by $0.07-0.09.

CYOU Changyou.com beats by $0.04, beats on revs; guides Q3 revs in-line (41.65 )
Reports Q2 (Jun) earnings of $0.66 per share, $0.04 better than the First Call consensus of $0.62; revenues rose 39.0% year/year to $66.6 mln vs the $65 mln consensus. Revenues from game operations for 2Q09 increased 9% quarter-over-quarter and 42% year-over-year to $64.9 mln. The increases were mainly due to user base expansion and higher APA, which reflect the growing popularity of the co's online games.


Co issues guidance for Q3, sees EPS of $0.75-0.77; sees Q3 revs of $67.0-69.0 mln vs. $68.92 mln consensus. Assuming no new grants of share-based awards, Changyou estimates share-based compensation expense for 3Q09 to be between $3.5-4.0 mln, reducing fully diluted earnings per ADS by $0.07-0.08.

GLW Corning beats by $0.07, beats on revs; sees third-quarter glass shipments flat to up slightly (17.00 )
Reports Q2 (Jun) earnings of $0.39 per share, $0.07 better than the First Call consensus of $0.32; revenues fell 17.6% year/year to $1.4 bln vs the $1.36 bln consensus. Gross margin was 41%, an increase over first-quarter gross margin of 27%. Display Technologies combined glass volume, including Corning's wholly owned business and Samsung Corning Precision Glass Co., Ltd. (SCP), increased 66% sequentially. Volume in the co's wholly owned business improved by 101% sequentially, while SCP's volume increased by 50%.


Co says, "The resurgent demand for LCD glass is propelling us to restore much of our previously idled production capacity as quickly as possible to meet our customers' needs. Approximately 40% of our second-quarter shipments came from existing inventory. We need to- and have- restarted tanks to replace this inventory drawdown to meet third-quarter demand. We believe our third-quarter glass shipments will be flat to up slightly, compared to the very strong second-quarter level. year. We estimate that current inventory supplies are 16% less than the second quarter last year, compared to retail demand that has been running approximately 15% ahead of a year ago. Retail demand is forecasted to continue growing at double-digit rates in the back half of this year. This comparison gives us some comfort about the outlook for the remainder of the year. However, the pace of economic recovery remains uncertain and we are being cautious about the amount of capacity we are restarting for the fourth quarter and for early 2010. As we receive more clarity from our customers on their fourth-quarter outlook, we will make decisions on our fourth-quarter capacity levels. We have increased our forecast for LCD glass market volume in 2009 due to the vitality of LCD TV sales in the first half of the year. We now estimate that total yearly volume will be around 2.3 bln square feet, or about 15% growth over last year. Corning originally expected annual glass volume to be 2 bln square feet and early last quarter revised it upward to a range of 2.1-2.2 bln square feet.