In the court papers, Thatcher reportedly said he helped hide a so-called "software swap" with Peregrine Systems Inc. to make it seem as though Peregrine paid money to Critical Path. "To avoid the appearance that the transaction was a software swap, Critical Path and Peregrine prepared separate contracts for each purchase, each paid the full amounts owed, and made payments to each other on different days," he reportedly said in the plea agreement.
As you recall, earlier this month, Critical Path, Thatcher, and former vice president of sales Timothy Ganley, settled fraudulent accounting charges brought by the SEC. In January 2001, management at the one-time new economy darling pared 2000 revenues by $19.3 million.
Thatcher now faces up to five years in prison and a fine of up to $250,000.
More Fun With Accounting
Management at Take-Two Interactive Software Inc. restated its results for 2000 and nearly all of 2001. For 2000, the company reduced revenues by $23 million and reduced net income by about 75 percent. For the first nine months of 2001, Take-Two restated revenues upward by about $19 million.
- Hub Group Inc., a freight transport management company, on Tuesday reported it has discovered certain accounting irregularities at its 65 percent-owned subsidiary, Hub Group Distribution Services. Hub management said it estimates that, because of these irregularities, the company overstated its earnings on an after-tax, post-minority-interest basis by between $3 million and $4 million over a multi-year period. "The company currently believes that the irregularities recently discovered affected the company's reported financial results for 1999, 2000 and 2001," Hub management said in a statement. Once the investigation is completed, the company expects to restate its results for those periods.
- Management at Krispy Kreme Doughnuts Inc. said yesterday it has decided not to use a debt instrument known as a synthetic lease to finance a new manufacturing and distribution facility. The reason? Recent media reports and investor concerns about off-balance-sheet financings. The company said it will instead use conventional, on-balance sheet financing on the $35 million facility.
Scott Livengood, CEO at the doughnut maker, said the change was made because of the potential for misperceptions regarding these leases. He elaborated in a statement, "In the current economic climate, investors understandably are paying closer attention to the financial strength of their companies. There is no reason for us to do anything that could be misinterpreted, regardless of how legal and acceptable it may be. The perception and confidence of our investors and customers is more important than the propriety of accounting vehicles."
Livengood added: "Fortunately, Krispy Kreme's balance sheet and cash generation ability is very strong, and close scrutiny by investors works to our advantage." He noted that the company's banks have approved conventional financing for this facility without use of the company's cash or unused credit line, a further indication of the company's financial strength.
(For a look at the controversy surrounding the use of synthetic property leases, see Double Whammy.)
Today in Enron
No surprise here: on Tuesday, former Enron chairman Kenneth Lay invoked the Fifth Amendment and refused to testify before Congress. "I am deeply troubled about asserting these rights," Lay said. "It may be perceived by some that I have something to hide. I cannot disregard my counsel's instruction."
In a statement, Lay, whose wife Linda was not present at the hearings, expressed a "profound sadness" about what transpired at Enron.
Elsewhere: William Powers, the Enron director who led an internal company investigation, once again testified before lawmakers. On Tuesday, Powers told legislators that documents shredded at Enron's headquarters might have contained financial information that congressional investigators were seeking. "There may be information on those documents that were shredded that would have helped," Powers testified. The University of Texas Law School dean also said that Kenneth Lay "bears significant responsibility ...for Enron's failure to implement sufficiently rigorous procedural controls to prevent the abuses."
Meanwhile, the Labor Department reached an agreement with Enron to replace the trustees of its pension plans with an independent oversight group, according to published reports.
And finally, six members of Enron Corp.'s board of directors will resign. The resignations will be effective in 30 days. Leaving the board: Ronnie Chan, John Duncan, and Robert Jaedicke, three of the longest serving members on the board, and Charles LeMaistre, Paulo V. Ferraz Pereira, and John Wakeham. The company also announced that it plans to reduce the number of directors on its board to eight. Currently, Enron's board has 17 members. Parades have fewer people
Financing News
GE Capital Corp., General Electric's finance unit, issued $3.5 billion in a two-part global note offering, led by Lehman Brothers Inc. GE Cap had originally planned to borrow just $1.5 billion. The captive finance company raised $1.25 billion in the offering of five-year notes. The MTNs were priced at 83 basis points over comparable Treasurys and $2.25 billion in 10-year notes, priced at 103 points over Treasurys. The paper was rated Aaa by Moody's and AAA by S&P.
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