WEEK IN REVIEW
Enron Chief Resigns Amid More Revelations
The continuing Enron Corp. scandal dominated the business headlines. Congressional hearings opened, with executives of Enron accounting firm Andersen pointing the finger at a fired partner for destroying potentially revealing Enron documents in an apparent attempt to keep them away from federal investigators.
Enron Chairman and Chief Kenneth L. Lay was ousted amid continuing allegations that he enriched himself while employees lost their life savings due to the collapse of the company he helped build.
The story also turned tragic as a former Enron vice chairman, J. Clifford Baxter, was found dead, the victim of an apparent suicide. Baxter had been a whistle-blower, raising concerns about questionable financial dealings at the company.
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Greenspan Says Economy Is Improving
Federal Reserve Chairman Alan Greenspan painted a somewhat brighter picture of the economy’s progress out of recession and said the fiscal stimulus package that Washington is about to debate might not be needed after all.
“There have been signs recently that some of the forces that have been restraining the economy over the past year are starting to diminish and that activity is beginning to firm,” he told the Senate Budget Committee.
Also adding to evidence of a recovery, a key forecasting gauge for the U.S. economy posted its largest gain in almost six years in December, suggesting the economy could emerge from recession within the next three months.
The Conference Board said its U.S. index of leading economic indicators rose 1.2% in December after a gain of 0.8% in November. The December rise was the largest since February 1996.
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Kmart Files for Bankruptcy Protection
Kmart Corp., under pressure from suppliers who had begun to cut off shipments of merchandise, became the largest retailer to seek protection in bankruptcy court.
The bankruptcy filing, which listed $16.3 billion in assets and $10.3 billion in liabilities, is expected to eventually result in the closure of hundreds of stores and layoffs for some of Kmart’s approximately 250,000 employees nationwide.
The Troy, Mich.-based retailer said it secured $2 billion in financing that will allow the company to operate while reorganizing under Chapter 11 of the U.S. Bankruptcy Code.
The widely anticipated filing was welcomed by analysts and some of Kmart’s vendors, whose support will be critical to the company’s turnaround efforts. Martha Stewart Living Omnimedia Inc., Kmart’s best-known brand, said it was sticking by the retailer.
Kmart said it planned to emerge from bankruptcy in 2003, and has begun determining which of its approximately 2,100 stores should close. Kmart has 164 outlets in California, about half of them in Southern California. All of Kmart’s stores continued operating, although some shoppers complained that shelves were not properly stocked.
The company blamed the bankruptcy filing on increased competition, poor holiday sales and the recession, a series of unsuccessful sales and marketing initiatives and, most recently, an erosion of support among its vendors. Kmart sought unsuccessfully to secure a bailout from lenders, and the company suffered a particularly stinging blow when Fleming Cos., its only grocery supplier, halted shipments after Kmart failed to make a regular weekly payment.
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Amazon.com Posts Its First Net Profit
The Internet revolution, which promised to transform the way consumers shop for everything from compact discs to cars, reached a milestone when pioneering online retailer Amazon.com Inc. reported the first profit in its seven-year history.
In the last three months of 2001, the world’s largest electronic commerce company cleared $5 million, or 1 cent a share, contrasted with a loss of $545 million, or $1.53 a share, in the same period a year earlier. The profit was fueled by robust holiday sales as the Seattle-based company sold $1.1 billion of books, videos, consumer electronics and other merchandise in the fourth quarter, a 15% increase from the year-earlier period.
Although analysts say Amazon may post a loss in the upcoming quarters, they add that the company’s efforts to streamline its operations and consumers’ increasing willingness to shop online appear to have put it on a trajectory toward sustained profit in the coming years.
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AOL Unit Files Suit Against Microsoft
An AOL Time Warner Inc. unit filed a civil antitrust suit against Microsoft Corp., claiming the Redmond, Wash.-based giant’s monopolistic behavior nearly pushed AOL’s Netscape Internet browser out of the market.
The lawsuit--filed by AOL subsidiary Netscape Communications Corp. in U.S. District Court for the District of Columbia--draws heavily from federal court findings that Microsoft’s business practices amid the browser wars of the 1990s violated federal antitrust laws.
A federal judge ruled in April 2000 that Microsoft used anti-competitive means to thwart browser Netscape. A panel of seven appellate judges upheld eight separate antitrust violations by Microsoft a year later.
Microsoft officials said the complaint is merely a sign that AOL is trying to compete with Microsoft in the courts rather than the marketplace.
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Founding Scientist Resigns From Celera
J. Craig Venter, the maverick scientist whose drive to crack the human genome ignited one of the fiercest rivalries in modern science, resigned from the company he helped launch, Celera Genomics.
Venter’s abrupt departure from the high-profile gene-mapping company prompted speculation that he left under pressure from Celera’s parent, Applera Corp. No successor to Venter was named.
Applera said Chairman and Chief Executive Tony White will assume Venter’s position as president until a replacement is found.
Venter, who led Celera in a race against the publicly funded Human Genome Project two years ago, leaves Celera as the company shifts its focus from genomics, his specialty, to drug development, in which Venter lacks expertise.
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Tyco to Split Into Four Units
Tyco International Ltd., bowing to shareholder demands for greater transparency in accounting, said it plans to split into four companies and shed $11 billion in debt.
The breakup reverses the strategy of Tyco Chief Executive Dennis Kozlowski, who oversaw $64 billion in acquisitions and whose methods were compared with General Electric Co. Kozlowski will head the electronics and security-systems company that remains after Tyco spins off its health-care, fire protection and flow control, and financial services units.
Tyco, which is based in Bermuda and run from Exeter, N.H., was the subject of criticism from some analysts and investors who said the company manipulated its accounting for acquisitions to mask slowing growth in its business.
Enron Corp.’s accounting lapses and failure may have forced Tyco to take the steps to boost its stock price after losing $25 billion in market value since December, investors said. Proceeds from transactions and the sale of Tyco’s plastics business will be used to repay some of the company’s $79 billion in debt.
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Mariah Carey Dropped by Record Label
EMI Group dropped pop star Mariah Carey less than a year after signing her to a blockbuster four-album contract worth more than $80 million.
The termination of the pact, which will cost EMI an estimated $30 million in exit fees, follows a difficult year for Carey, who suffered a nervous breakdown last summer before releasing her debut album for the British music giant. But Carey’s “Glitter” CD for EMI was panned by critics and sold only about 2 million copies worldwide. Her 1993 album, “Music Box,” sold about 20 million copies for Sony.
This marks the first time a major music corporation has decided to cut its losses on an unprofitable superstar pact after one album.
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Market Rallies to Post Weekly Advance
The stock market rallied, posting its first weekly advance since the first week of January for the three most widely followed indices.
For the week, the Dow Jones industrial average climbed 0.7%, the Standard & Poor’s 500 rose 0.5% and the Nasdaq composite gained 0.4%.
Last week’s gains follow a decline that began in early January as investors grew concerned that stocks had climbed too far on the expectation an economic recovery was coming.
Meanwhile, the dollar surged to a six-month high against the euro on growing confidence the U.S. economy will recover from recession in coming months.
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For a preview of this week’s business and economic news, please see Monday’s Business section.
