The Five Dumbest Things on Wall Street This Week
George Mannes
06/07/02 - 07:01 AM EDT
It's no surprise that
Adelphia Communications got kicked off the Nasdaq, effective Monday. No, what's surprising to us folks at the Five Dumbest Things Research Lab is that the delisting didn't take place 10 years ago.
Seriously. We're completely puzzled by this one.
As far as we can tell from our reading of ancient Nasdaq standards for company listings, Adelphia should have been run off the ranch sometime in the early 1990s. But on the Nasdaq Adelphia stayed, until it slinked off to the pink sheets earlier this week amid a pile of unfiled financial statements, undisclosed related-party dealings and shareholder lawsuits. And we can't figure out why Adelphia lasted this long.
The mystery starts with Adelphia's longtime Nasdaq ticker symbol, ADLAC, which changed to ADLAE in April to reflect the cable operator's delinquency in reporting financials to the
Securities and Exchange Commission.
As students of Nasdaq arcana might know -- if indeed there are any students of Nasdaq arcana out there -- the "C" at the end of "ADLAC" has a particular meaning. Namely, it signifies that the company is getting a temporary waiver to Nasdaq listing standards. In fact, we unearthed a 1987 press release from Adelphia announcing that the NASD had granted a "temporary exception" from the group's "capital and surplus" standard" -- more on that later -- subject to Adelphia's meeting certain unspecified conditions.
So here's our first question: If indeed the ADLAC ticker represents a temporary exception, how can you have a temporary exception for 15 years? Research labs across the nation are dying to know.
Now to the "capital and surplus" standard. That expression, according to the Nasdaq, is roughly synonymous with "shareholder's equity." What it meant back in 1987 was that if a company wanted to get on the Nasdaq or stay on the Nasdaq, its assets had to exceed its liabilities by a certain amount -- anywhere from $375,000 to $8 million, depending on the particular circumstances.
All well and good, except for one thing. From 1990 (the earliest year for which we could find Adelphia's financials) through 1998 (the last year we checked before our editor told us to hurry along) Adelphia never had positive shareholder equity.
Figuring out how that deficiency applied to Adelphia's listing gets a little tricky. As early as April 1992, and maybe earlier, Adelphia was being quoted in the Nasdaq Small Cap Market; we haven't been able to pin down the requirements for that.
But starting in October 1992 through at least March 1994, Adelphia was trading on the Nasdaq National Market System. And according to the published Nasdaq/NMS rules in place at the time, a company had to have, at the very least, $2 million in "net tangible assets" -- total assets, excluding goodwill, minus total liabilities -- if it had net losses in a majority of recent fiscal years. Adelphia was a consistent money-loser at the time. And, as was the case with shareholder's equity, it had zero in the way of net tangible assets.
So what was Adelphia doing trading on the Nasdaq? How many years did it have to fix its "temporary" shortcomings?
Responding to the lab's query, a Nasdaq official speculates that in the early 1990s, Adelphia's listing was governed by an informal policy under which companies meeting certain financial criteria judged more stringent than the net tangible asset requirement -- say, related to cash flow or market capitalization -- could seek exception to the net tangible asset test. This informal exception-granting practice, says the official, was discontinued in 1997 when the Nasdaq codified alternative listing qualifications such as total assets and total revenue. Under these measures, Adelphia presumably needed no more exceptions.
So why did ADLAC retain the Scarlet C? It was the company's choice, says the official. You'd have to ask them.
And we would have, had they returned our call by deadline.
2. The Oracle of Adelphia
Speaking of Adelphia, this week's award for Incredibly Useful Research report comes from Rich Bilotti of Morgan Stanley. Yes -- in a move reminiscent of that biblical weatherman who helpfully forecast continued showers roughly two weeks after Noah's ark floated away -- Bilotti on Monday cut his rating on Adelphia from overweight to underweight.
Of course, by the time Bilotti advised to bail out, stockholders couldn't even sell their Adelphia shares in the usual way, because Adelphia was trading as a bulletin board stock by Monday. But, heck, compared to the Nasdaq's treatment of Adelphia, Bilotti's breaking the sound barrier.
3. Where's the Beef Tallow?
Closing a chapter in the corporate history of
McDonald's (MCD Quote - Cramer on MCD - Stock Picks) that's unlikely to have made Ronald smile, the fast-food chain this week issued a formal apology as part of a settlement of lawsuits filed by certain Hindus and vegetarians.
At issue were the burger joint's proud proclamations a decade ago -- you know, about when Adelphia's net tangible assets were rooting around in negative territory -- that its french fries were cooked in 100% vegetable oil.
Beef Shallow
Would you like a burger in your fries? |
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That was great news for beef-avoiding folks who were looking for something to munch on when their kids dragged them to Mickey D's. And it was 100% true. Unfortunately, as people learned subsequently, the potatoes cooked in that vegetable oil weren't 100% potato. In fact, the McSpuds included a tad of beef tallow for flavoring.
"We acknowledge that ... mistakes were made in communicating to the public and customers about the ingredients in our French fries and hash browns," says McDonald's. "Those mistakes included instances in which French fries and hash browns sold at U.S. restaurants were improperly identified as 'vegetarian.'"
Ah, yes. The Ronald Reagan-esque apology "mistakes were made." The Clintonian evasion "it depends what your definition of 'vegetarian' is." Watch out, George W. and Al Gore: Ronald McDonald is sounding awfully presidential these days.
4. To Ellison and Back
Like skeptical physicists who remain unconvinced that free quarks can be found in nature, we at the research lab have always doubted the existence of the Quiet Period.
Perhaps you've heard of it. Theoretically, it's a certain period of time preceding a company's announcement of quarterly financial results. In actuality, though, we pesky reporters suspect it's an all-purpose excuse that companies use to dodge discomforting questions.
The Quiet Man
Starring Larry Ellison |
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The latest sighting of the purported Quiet Period came Tuesday as
Oracle (ORCL Quote - Cramer on ORCL - Stock Picks) conducted a conference call on the subject of its much-maligned contract with the state of California, a deal that's turning out to be a career-killer for local politicos and a public relations disaster for Oracle.
On a Monday Oracle conference call related to the mess,
TheStreet.com's ace software reporter, Ronna Abramson, asked whether the toxic contract had affected any of Oracle's other government business. No answer was forthcoming. "We are in the Quiet Period," said a spokesman.
All well and good. Except that at an Oracle press conference two days later, Oracle CEO Larry Ellison was happy to talk about analysts' expectations for a 12-cent-per-share profit for the quarter ended May 31. "Had we not done at least 12 cents earnings in operating income, we would have had to preannounce," Ellison said, according to
Bloomberg. "We didn't warn."
Of course, he shut up after that, citing -- you guessed it -- the Quiet Period.
5. Whereas Enron When You Really Need One?
We thought that the lesson of the Enron debacle was obvious: What America needs is clarity in its financial statements.
Well, how quickly people forget. And at Enron, too, no less.
Yes, that's our conclusion after reading a Thursday afternoon press release from Enron trumpeting some recent actions of its board of directors.
Four of them resigned. A fifth was elected interim chairman. Support for three others was expressed.
So to do this, the board needed resolutions with 12 Whereases, 3 Furthers, and one "in partial furtherance."
Yawn. Where's a paper shredder when you really need one?
