In Business This Week
Edited by Monica Roman
HEADLINER
Donald Carty: Dangerous Spin
American Airlines (AMR
) CEO Donald Carty has been through a lot of airline cycles in his nearly 25 years at the company. But he has never faced anything this bad. The nation's biggest airline is on the verge of bankruptcy. Its stock has been kicked out of the Standard & Poor's 500-stock index because of its low price -- $1.41 a share on Mar. 12.
With war looming, fuel prices skyrocketing, and business travel limping, the only good news is that Carty is still talking with the airline's labor groups. About $1.8 billion in wage and work-rule concessions are on the table, part of a plan to cut $4 billion in annual costs. Union leaders concur that the airline needs big savings to stay alive, but they have yet to agree on the details.
American is trying to line up bankruptcy financing in case it has to follow in the footsteps of rivals United Airlines (UAL
) and US Airways. S&P analyst Philip Baggaley figures Chapter 11 could come by June without a labor deal. Carty vowed to improve labor relations when he took the CEO post in 1998, and that goal has never been more important.
By Wendy Zellner
Enron: More Probes in the Pipeline
On Mar. 12, federal prosecutors charged two more Enron execs in the long-running probe of the company's 2001 collapse. Kevin Howard and Michael Krautz, once part of Enron's broadband unit, were charged with securities fraud, wire fraud, conspiracy, and making false statements to the FBI. The criminal charges stem from a deal known as Braveheart, in which Enron booked $111 million in profits from a video-on-demand partnership with Blockbuster that later cratered. Prosecutors say the pair hid information from Arthur Andersen. According to press reports, Howard's lawyer says he'll fight the charges. Krautz's lawyer says he intends to plead not guilty. Separately, federal regulators have also charged Enron with manipulating natural gas prices. An Enron spokeswoman said the company is cooperating with this and all investigations.
The SEC Targets Schering-Plough
These days it seems as though Schering-Plough (SGP
) is employing as many lawyers as scientists. On Mar. 12, the drugmaker said it had been notified that the Securities & Exchange Commission's staff was recommending civil action against it and CEO Richard Kogan. The inquiry centers on whether Kogan last fall disclosed material information to some large shareholders in violation of Regulation FD. Schering said it is cooperating with the SEC. Kogan was not available for comment. The company also faces a Justice Dept. investigation into its sales, marketing, and clinical trials, and another probe by the U.S. Attorney in New Jersey into certain products made in Puerto Rico.
FASB: A Hard Line on Options
The Financial Accounting Standards Board, the group that sets U.S. accounting rules, voted unanimously on Mar. 12 to consider requiring public companies to expense employee stock options. For companies opposed to deducting the cost of options from earnings, however, it ain't over till it's over. Business is expected to lobby hard to thwart such a rule. A coalition led by high-tech companies argues that the most widely used method of valuing employee stock options will result in misleading earnings reports.
Coming Clean at Bristol
Bristol-Myers Squibb (BMY
) finally nailed down the extent of its accounting problems. On Mar. 10, the drugmaker said it would revise sales between 1999 and 2001 downward by $2.5 billion and reduce net earnings in that period by $900 million. Sales and earnings for 2002 were restated upward by $653 million and $200 million, respectively. Sales for 1999-2001 were overstated largely because of incentives offered by Bristol to wholesalers that induced them to build up bloated inventories of Bristol products. While Wall Street is relieved the restatement is finally behind Bristol, investors are still downbeat due to future patent expirations.
Sam Waksal Pays Up
In a partial settlement with the SEC, ImClone Systems (IMCL
) ex-CEO Samuel Waksal agreed to pay back $130,130 in profit on options bought through a Swiss account on Dec. 28, 2001. That was two days after he learned that the government was about to reject ImClone's drug-approval application. Waksal also agreed to pay $630,295, representing losses his daughter avoided when he told her to sell ImClone shares. Waksal settled both charges without admitting or denying guilt. He still faces charges that he tipped off his father, Jack, who sold shares. The SEC and the Justice Dept. continue to investigate whether Waksal alerted Martha Stewart, who sold ImClone stock at the same time.
Et Cetera...
-- AOL Time Warner (AOL
) shares fell 4% on Mar. 12 on fears a federal probe is expanding.
-- Harry Potter author J.K. Rowling has accused a Russian author of plagiarism.
-- Consumer Reports now ranks Korea's Hyundai among the most reliable cars.
CLOSING BELL
Stop-and-Go
War and economic worries slammed Ford Motor (F
), driving shares to an 11-year low of $6.60 on Mar. 11. Investors worry that Ford, still struggling to repair ailing operations, is especially vulnerable to falling auto sales. Still, it regained 7.3% the next day, after one Wall Street analyst argued the fears are overdone. upgraded the stock.
CLOSING BELL
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Copyright 2003, by The McGraw-Hill Companies Inc. All rights reserved.
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