1. Globalling the Numbers

Emerging from bankruptcy may wipe away much of the debt from a company's balance sheet. Unfortunately, it can't clean up the rest of the books.

Yes, that's the sad lesson we learned this week from Global Crossing ( GLBC), the New Economy telecom giant that collapsed into a very Old Economy bankruptcy back in January 2002. The company exited Chapter 11 about four and a half months ago, all bright and shiny and ready to conquer the telecom market all over again.

It seems, however, that Global Crossing -- which back in the days of the telecom bubble goosed its revenue with capacity swaps of questionable value -- has found a new way to get into trouble. The company said Tuesday that it likely underreported access costs by $50 million to $80 million in 2003. In other words, the annual report it filed with the Securities and Exchange Commission only one month earlier is wrong.

Global Crossing said Tuesday its understatement stems primarily from incorrect estimates of access costs and its failure to reconcile the expenses to actual vendor invoices. "The company is assessing the internal control issues presented and ... currently believes that these issues constitute a material weakness in its internal controls," the company stated with masterful clarity. It backed off its financial statements for the past two years, as well as its guidance for 2004.

Predictable stuff has happened since then. The company's stock lost more than 40% of its value since the announcement. Global Crossing's onetime auditor, Grant Thornton, has withdrawn its related audits.

You can take the company out of bankruptcy, but you can't take the bankruptcy out of the company.

2. Tall Tales from Long Island

Speaking of truthful statements, Computer Associates ( CA), after years of insisting its accounting was completely aboveboard, this week formally admitted -- guess what? -- that its accounting was anything but.



In the company's frenzy to make quarterly numbers, a total of $2.2 billion in revenue was booked prematurely in fiscal 2000 and 2001, CA says, thanks to the booking of revenue in quarters that had already closed.

Chairman and CEO Sanjay Kumar, who has been staunchly defending CA against accusations of accounting hanky-panky for years, stepped down from his post last week, so he won't be able to staunchly defend CA against accusation of accounting hanky-panky anymore.

Speaking of departing CEOs and accounting accusations, telecom-gear maker Nortel ( NT) canned President and CEO Frank Dunn on Wednesday amid serial restatements of various company financial statements.

We still don't know what role, if any, these CEOs played in these latest accounting issues. And we still don't know how these recent developments relate to what we had thought were the red flags flying at these companies.

For years, the rap against CA had to do with revenue recognition policies, not this whole Clintonesque charade of, "It depends upon what the meaning of the word 'quarter' means." And the biggest eyebrow-raiser for us at Nortel has been the bizarre story of 2003 performance bonuses -- something that may have nothing to do with the current mess at Nortel.

In other words, the things that we at the research lab thought were a concern at these companies may not have been the real problems. Which goes to show you: Where there's smoke, there's likely some CEO blowing it.

3. I Am a Fugitive From a Chain Store

Martha Stewart Living Omnimedia ( MSO) and Kmart ( KMRT) kissed and made up this week.

We doubt that they had much choice.

Yes, on Monday, the companies said they had extended until 2009 their partnership, under which Kmart is the exclusive retailer for most of the Martha Stewart Everyday product line. Plus, Kmart said it was dropping a lawsuit it had filed against Martha Stewart's company.

The way we see it, this event was preordained. As Kmart fights its way out of bankruptcy, the Martha Stewart name is one of the few reasons we can think of for driving past a Wal-Mart ( WMT) to head over to a Kmart. Meanwhile, Kmart is one of the few remaining bright spots for Martha Stewart.

Yes, they're so closely allied with one another, you might call them sell-mates.

4. How Do You Like Them Apples to Oranges?

You know, every now and then, it's a good idea to ask questions first, then shoot.

This week's example: Monday night's aftermarket run-up of search-engine marketer FindWhat.com ( FWHT).

Perhaps stoked by Google fever, shares in the stock zoomed as FindWhat.com not only beat estimates, but raised guidance wildly. The prior 2004 revenue number of $95 million went to $174 million, and the earnings per share number went from 60 cents to an "adjusted pre-tax income" per share number of $1.08.

FindWhat.com explained that the new EPS guidance wasn't an apples-to-apples comparison because the new number, due to uncertainty, didn't include tax liability.

So investors had to wait a little while until an analyst such as Chad Bartley of Pacific Crest Securities, looking at the per-share numbers on an apples-to-apples basis, actually lowered his 2004 earnings forecast from 61 cents to 60 cents per share.

As this information soaked in on Tuesday, FindWhat.com's stock sank, rose and sank again, pretty much evaporating all the aftermarket gains. Shares that had closed at $22.58 in normal trading Monday, then gained $4.88 in after-hours trading Monday night, were changing hands at $21.57 Thursday afternoon.

Which proves that some investors never FindWhat.com they're looking for.

5. But Sirius-ly, Folks

We like a joke as much as the next guy. But only if we get it.

Which is why we want Sirius Satellite Radio ( SIRI) CEO Joe Clayton not to quit his day job, metaphorically speaking. (Literally, he can do whatever the heck he wants.)

It all started late last week, when the subscription satellite radio operator, on its quarterly call with analysts, announced it was working with chip manufacturer STMicroelectronics ( STM) to develop new chipsets for Sirius' satellite radios.

That news prompted a question from an analyst, who pointed out that STMicroelectronics is also a supplier to Sirius competitor XM Satellite Radio ( XMSR), and asked about the possible synergies.

"You know, I didn't know that, Tom, so thank you for that information on STMicroelectronics," was Clayton's slow reply. "I do think there could be some potential synergies for interoperability down the road," Clayton went on to say.

Huh? As one correspondent wrote to us, "How could a CEO ... not know that his new main supplier (who will be a major factor in controlling subscriber acquisition costs, the only thing that can ever create a real business model for the company) is also the supplier to its only competitor?"

Was Clayton serious when he said he didn't know? Was he lying? Was he kidding? He must have known, we thought. But when we listened to the call ourselves, we couldn't tell anything from his tone of voice.

So we called up Sirius to ask. It was a joke, said a Sirius spokesman. If you could have seen Clayton's facial expression when he made that comment -- if you could have seen his body language -- it would have been obvious, the spokesman said.

Which of course, we couldn't -- Clayton having made this statement on a phone call and all.

The spokesman acknowledges that at least one person inside Sirius, following the call, speculated that Clayton had sown confusion instead of yuks.

"We were aware of the fact that it might not have come across the way it was intended," the spokesman said. How right he was.
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