Up Front
Edited by Robert McNatt
Talk Show
"This wasn't exactly the response we intended." --William Fitzsimmons, Harvard's dean of admissions. Some e-mails telling applicants if they had been admitted never arrived because AOL interpreted them as junk mail
OVER THERE
The Euro: A Shopper's Best Friend
European consumers are getting something of a bang for their euro these days. On New Year's Day, 12 countries began using euro notes and coins. As had been hoped, there were long bank lines as customers waited to exchange currency. But the expectation that prices might rise as they change from francs, marks, pesetas, and all the rest was confounded. Many merchants are effectively lowering prices.
How? In translating prices from local currencies to the euro, retailers are rounding prices down rather than up, in an effort to reassure consumers. A 49.99 mark pair of slippers at a Frankfurt Woolworth's, for instance, should now cost 25.51 euros. But they'll sell for 24.99 euros. The savings grow for larger purchases. Aldi, a German discount chain, used the euro's arrival to cut prices an average of 3%. And with cross-border price comparisons now easy, stores feel more pressure to hold down prices. Says an Aldi spokesman: "We can source our products more cheaply, and we'll pass on the benefits to the consumer." Generally, consumers seem pleased. And why not, when the new currency buys more than the old?
By David Fairlamb
INVESTOR BEWARE
When Execs Protest Too Much
What can investors believe? Institutional research is often way off the mark or sullied by analysts' cozy ties to their investment-banking colleagues. And earnings reports are increasingly convoluted. So we've developed the "Trash Talk Indicator," or TTI. It's simple--when you hear execs publicly trash an analyst's research, sell. Usually it's a sign that the analysts are hitting close to home.
We know the Enron (ENE
) case, of course: Former CEO Jeffrey Skilling called an analyst questioning its accounting an ass---- in an April conference call. Enron later filed for bankruptcy. [Enron says Skilling was irritated because the analyst was a known short seller using the call to drive down the stock price.]
There are other cases, too. Qwest Communications (Q
) CEO Joseph Nacchio held a special conference call in June to blast two Morgan Stanley analysts who issued a negative report. He called them "unprofessional" and "irresponsible." However, Qwest's stock dropped more than 50% over the next five months. Nacchio has blamed that on a poor economy.
A year earlier, Amazon (AMZN
) CEO Jeff Bezos labeled a Lehman Brothers analyst's research "hogwash." Amazon's stock price halved in the next six months as that analysis about poor cash flows worried investors. [Amazon maintains the analyst was, and still is, wrong.] Nonetheless, there's a lesson here for staying ahead of a falling stock price: When the executives yell, rush to sell.
By Heather Timmons
NUMBERS GAMES
Funny Business 101 Gets a New Spin
Could it be a sign that accountants' numbers games are going out of fashion? Since last spring, a two-day $995 accounting course had offered tips on "slight[sic]-of-hand and revenue reporting" and "nine ways to say earnings," while warning that "accountants who lack this critical skill may be destined for a life of number-crunching instead of a corner office." Run by the National Center for Continuing Education in Tallahassee, the courses drew hundreds.
But Enron's fall has highlighted the risk of clouding such numbers, so the firm's pitch is changing. Executive Director Joseph Weil says a new brochure promises a case study of Enron and "Tricks-'n'-traps auditors should be aware of." There is still plenty to teach that can pass SEC muster, adds Weil. "At no time do we tell people to break the law. It is not [about] how to cook the books."
That's a relief: The National Association of State Boards of Accountancy says that the firm's courses count toward the continuing education requirements for a CPA.
By David Henry
THE LIST
Biggest Bankruptcies of 2001
Enron earned the dubious distinction of making the nation's largest-
ever bankruptcy filing. Here are some other whoppers:
ASSETS
COMPANY DATE BILLIONS
ENRON Dec. 3 $63.3
PACIFIC GAS & ELECTRIC Apr. 6 21.5
FINOVA GROUP Mar. 7 14.1
RELIANCE GROUP HOLDINGS Jun. 12 12.6
FEDERAL-MOGUL Oct. 1 10.2
COMDISCO July 16 8.8
ANC RENTAL Nov. 13 6.3
360NETWORKS (USA) Jun. 28 5.6
WINSTAR COMMUNICATIONS Apr. 18 5.0
PSINET May 31 4.5
Data: BankruptcyData.com
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Copyright 2002 , by The McGraw-Hill Companies Inc. All rights reserved.
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