1. Auditors Go Nuts Over DoughnutsWe're getting a mite worried about Krispy Kreme Doughnuts ( KKD). At the rate the company is going, its life expectancy as a going concern will be not much longer than the shelf life of its signature product. The latest holes in the doughnut company's books emerged Tuesday, when Krispy Kreme announced that the company's financial statements covering the three quarters ended Feb. 1, 2004, should be restated. As the company explained in a Securities and Exchange Commission filing, there are a bunch of things either probably or definitely wrong with those filings, related to matters such as franchise purchases and rent expenses. Furthermore, the company's continuing inability to file periodic financial statements could put it in default with its lenders as early as next week, and could get it delisted from the New York Stock Exchange. But our favorite portion of the announcement is Krispy Kreme's admission that it will be adjusting how it has accounted for the "disproportionate consideration" paid to a former owner of a Michigan franchise when KKD bought the franchise. That owner was the franchise's operating manager and subsequently worked for KKD for "a short period of time," says KKD. That "disproportionate consideration" for the Michigan seller amounted to between $3.4 million and $4.8 million, implies KKD, based on the subsequent employment and/or the price he received compared with that received by other sellers. Whoa. Disproportionate consideration: that's a fancy, bureaucratic-sounding way of saying "sweetheart deal." Once again, we learn that when you're trying to minimize the outcry over iffy accounting, never say in three syllables what you can say in 10.
2. Have You Ever Seen the Crane?We're getting to the point where we no longer believe that Martha Stewart went to prison, or even went to trial. In fact, we're not even sure that the supposed founder of Martha Stewart Living Omnimedia ( MSO) ever existed at all.
|Martha Mirage |
Does she really exist?
You see, the stories about La Martha are getting just too bizarre. We're beginning to think that she's nothing more than the creation of some crackpot performance artist -- a female Andy Kaufman run amok.
First it was her savage attack on a head of cabbage while
And the latest strangeness? That would be the news, reported by People, that America's most famous detainee of domesticity led a team in her prison's annual holiday decorating contest -- and lost. Team Stewart's display of origami cranes "wasn't all that great," People reported a fellow inmate of Stewart as saying. First place went to a "small and homey" display of "snow-covered hills and sleds and clouds on the wall." OK, guys. Enough already. That was a pretty funny joke you had going for the past few years about this Martha Stewart character, but can you stop now? This is getting too weird by half.
3. Azteca to the Limit One More TimeThe good ol' U.S. of A., of course, is the world's leading producer of executive hubris. But as Ricardo B. Salinas Pliego illustrated this week, Mexico, our friendly neighbor to the south, is mounting a challenge in the corporate chutzpah sweepstakes. On Tuesday, the Securities and Exchange Commission filed a civil complaint accusing Salinas -- the chairman and controlling shareholder of Mexican broadcaster TV Azteca ( TZA) -- of all sorts of fraudulent behavior surrounding Salinas' participation in a 2003 deal involving the TV Azteca subsidiary Unefon, a Mexican telco. In a nutshell, TV Azteca's Unefon owed telecom gearmaker Nortel ( NT) more than $300 million but found itself unwilling or unable to pay it. After a certain amount of legal skirmishing, Unefon agreed to settle the debt for $150 million in a deal that required Nortel to sell $325 million of face-value debt for $107 million to a brand-new company called Codisco. All parties involved were apparently satisfied by the transaction. But the party that ended up really satisfied was Codisco. That's because three months after Codisco bought the distressed Unefon debt for $107 million, Unefon suddenly found itself willing and able to pay off the debt in full. Yes, within just a few weeks, Codisco had made a $218 million profit on a $107 million investment. Now, here's the punchline: A half-owner of Codisco, according to the SEC, was none other than Ricardo B. Salinas Pliego. That's right: TV Azteca's chairman.
So let's recap, shall we? A TV Azteca company refuses to pay a debt. Then that debt is acquired by TV Azteca's chairman. Then -- lo and behold! -- all of a sudden TV Azteca falls over itself paying this debt to TV Azteca's chairman. Even Dumber than this whole scenario is Salinas' reaction to the unfolding events. After first denying any connection to Codisco, he eventually admitted "indirect" ownership. And on Tuesday he defended the deals that he previously hid: "The transactions discussed in the SEC press release benefited Unefon, TV Azteca and their shareholders, and I stand behind them," a press release quoted him as saying. And if indeed patriotism is the last refuge of a scoundrel, Salinas got extremely patriotic Tuesday. "It's absurd for the SEC to use a Mexican company and Mexican citizens to try to impose U.S. regulations in an extraterritorial manner, unilaterally ignoring international laws and the Mexican legal framework," said Salinas, wrapping himself comfortably in the local flag. "It is these irresponsible and arbitrary SEC actions, not the Unefon debt transactions, which are adversely affecting both minority and majority shareholders." Hmmm. Insult the SEC if you will, but we were always under the impression that if you wanted to raise money in the U.S. markets, you had to play by U.S. rules. And we marvel at the utter nuttiness of the idea that it isn't Salinas' self-dealing, but the SEC's reaction to it, which has hurt minority shareholders. If Salinas believes that related-party deals with financial vehicles controlled by a senior executive is a great idea, we'd like to introduce him to a company named Enron.
4. Do You Feel Lucky, Punk?Delta Air Lines ( DAL) revealed a fascinating new business strategy this week: mutually assured destruction. The air carrier -- which, like most of the other carriers that haven't filed for bankruptcy yet, is perilously close to Chapter 11 -- announced a radical price-cutting strategy Wednesday. Delta is cutting its most expensive fares by up to 50%, and it's eliminating various restrictions on ticket purchases, such as the traditional Saturday night stay-over required to land a cheap fare.
With The Associated Press reporting that the ailing airline industry could lose up to $3 billion in revenue annually if these fare changes were widely adopted, we're reminded of one of the early scenes in the Clint Eastwood movie Dirty Harry. Specifically, we recall the scene in which Clint Eastwood's Harry Callahan, chatting with a man who's threatening to jump off a building, explains to the man the big problem, as Callahan sees it, with suicide jumpers: When they jump, they grab hold of whoever's nearby to bring them along. We wonder if that's Delta's strategy here, as far as the other nonbankrupt air carriers are concerned: If we're going down, we're taking you with us. Talk about flying United.
Steve Smith . Heading homeward after a long day of writing about Wall Street on Wall Street, Smith headed into a subway station carrying a plastic bag full of groceries: a little bit of salmon, a little bit of shrimp and a whole lot of bok choy. Seeing a train waiting with its doors open, Smith jumped aboard -- but neither quickly enough, nor far enough into the train car to pull his bag completely aboard. The train doors closed, leaving Smith and the bag's handle on one side, but the bok choy on the other.
Now, stuck bags are a common occurrence on New York City trains. The standard procedure is for people on either side of the doors to push them apart a little, or for the conductor to jog the doors, giving the bag-holder a chance to drag the bag inside. So what happened to Smith and his bag? Why, a friendly-looking fellow on the subway platform walked over to the closed doors and grabbed the groceries -- leaving Smith bagless and bok choyless on the inside of the train. Yes, we hoped that that holiday spirit on Wall Street would last forever. But just like the options that Smith writes about, it has an expiration date.
5. Bok Choy to the WorldOver the past month or so on Wall Street, the usual dog-eat-dog atmosphere was all Peace on Earth and Good Will Toward Men. Well, it was fun while it lasted. By our account, the Spirit of Human Kindness on Wall Street officially ended Monday evening, Jan. 3. And how did we pick that evening as the close of the holiday season? Well, it has something to do with what happened that night to TheStreet.com's ace options reporter
|Bok, Stock and Barrel |
Smitty's subway vegetable straddle