In Business This Week
Edited by Monica Roman
HEADLINER
Albert Dunlap: The Chainsaw Al Massacre
There's one thing that the Securities & Exchange Commission and lawyers for Albert Dunlap can agree on: The SEC sees "Chainsaw Al" as the poster boy for financial fraud.
On May 15, the SEC sued Dunlap, former CEO of now bankrupt Sunbeam, and four other former company executives, charging that they falsely pumped up Sunbeam's 1996-98 earnings to boost the value of their Sunbeam holdings.
Dunlap--who earned his nickname by ordering huge layoffs when he was restructuring Scott Paper--calls the SEC accusations "totally false." His attorneys charge that the SEC is using Dunlap as "a high profile and easy target" in its crackdown on bad accounting.
But Dunlap isn't likely to be alone in the dock for long. The SEC is investigating dozens of audit failures, with more cases likely within weeks. Accounting firm Andersen wasn't charged for its audits of Sunbeam, but it could be cited for overlooking inflated profits at Waste Management. Andersen won't comment on SEC matters.
By Mike McNamee and Christopher H. Schmitt
The Tide Turns for Big Tobacco
Big tobacco may have had to swallow a $368 billion settlement with the states and may still be facing a federal suit. But cases brought by individual smokers continue to be snuffed out. The latest defeat: a ruling by a New Jersey jury that Philip Morris and R.J. Reynolds Tobacco aren't responsible for the death of a woman who quit smoking 20 years before she died in 1997. The verdict shows how hostile juries have become to arguments that tobacco companies purposefully mislead smokers. In this case, the jury accepted the reasoning that the woman made an informed decision to smoke--even though she took up the practice in 1951, years before the hazards of smoking were fully documented. Tobacco companies have now won 16 of the last 17 such cases.
Playstation 2 Gets Wired
It may lack the goriness of the computer game Soldier of Fortune, but Sony is clearly gunning for Microsoft's soon-to-be-introduced Xbox video game player. Sony signed deals with AOL Time Warner and RealNetworks to further plans to link its popular PlayStation 2 video player to the Internet. Sony can now market its player to AOL's 29 million subscribers and will offer such AOL services as instant messaging and e-mail. Sony's PlayStation 2 will also include RealNetworks' popular RealPlayer software, letting users download videos for games and other uses. The Sony moves come as Microsoft prepares a $500 million marketing blitz to introduce its Xbox player on Nov. 8.
Black Ink All over Hewlett-Packard
For years, Hewlett-Packard execs have fumed when rivals dismissed HP as "that printer company." But judging from its May 16 earnings report, HP may well be "the printer ink company." While profits from the printer supplies business aren't disclosed, analyst Toni Sacconaghi of Sanford C. Bernstein estimates the unit delivered $500 million in operating profit on sales of $2.4 billion in the quarter. The rest of HP's businesses--printers, PCs, and other tech gear--actually lost $100 million on revenues of $9.2 billion, he says. But there's a silver lining: With little competition, 50%-plus margins, and 200 million customers buying cartridges every few months, HP's ink business may be the most lucrative in all of tech.
SunTrust Takes a Run at Wachovia
Hostile takeovers have long been considered taboo in banking circles--and particularly so within the clubby world of Southern banks. But the rules of engagement have changed: On May 14, Atlanta-based SunTrust Banks launched a rare $13.6 billion hostile bid for Wachovia, a Winston-Salem (N.C.) institution that had agreed in April to be acquired by First Union for $12.7 billion. First Union and Wachovia executives maintain that SunTrust's hostile bid won't alter their existing pact. But analysts believe that First Union will have to sweeten its offer.
Chicago's Boards Team Up, for Once
After losing the lead on futures on individual stocks to the London International Financial Futures & Options Exchange, Chicago's markets are determined to catch up. The Chicago Mercantile Exchange, the Chicago Board Options Exchange, and the Chicago Board of Trade (CBOT) on May 14 agreed to set up an electronic exchange to market the futures when they become legal in the U.S. The CBOT is a junior partner in the venture, with just a 10% stake, while the other two exchanges each own 45%. Institutions will be able to trade the products Aug. 21 and individuals on Dec. 21.
Et Cetera...
-- Drugstore chain Rite Aid expects to obtain $3 billion in refinancing and credit by August.
-- Delta Air Lines' regional Comair laid off 2,400 workers because of its pilots' strike.
-- Fidelity Investments canceled merit raises for employees earning over $75,000.
CLOSING BELL
Sugar High
Looking for shelter from the tech storm? Think doughnuts. Krispy Kreme Doughnut shares surged 14.2%, to $56.40, on May 16 after the Winston-Salem (N.C.) company reported a sweet 89% jump in first-quarter profits, to $5.7 million. Revenues rose 24%, to $87.9 million. And while other companies are lowering earnings expectations, Krispy Kreme confidently boosted its estimates through 2002.
CLOSING BELL
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Copyright 2001 , by The McGraw-Hill Companies Inc. All rights reserved.
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