I haven’t checked in on beleaguered doughnut franchisor Krispy Kreme Doughnuts, Inc. in awhile, so I noticed the company’s regulatory filing a week or so ago in which the North Carolina-based company announced that it is “highly unlikely” that it would be able to deliver its financial statements to lenders by a December 15 deadline. Although a publicly-owned company, Krispy Kreme has not filed a financial statement since September 2004 and is facing a January, 2006 deadline for having its stock delisted by the New York Stock Exchange. As the company continues the process of restating earnings by over $20 million for its first four fiscal years, the company’s stock — which traded at around $50 per share in 2003 — is trading closer to $5.50 per share now.
So, can this trendy maker of delicious doughnuts stay out of tank? Probably not, but this Business Week Online article surveys the company’s landscape and sets forth CEO Stephen F. Cooper‘s turnaround strategy, which is essentially to operate smaller stores and expand into foreign markets while selling more high-margin coffee. I’ve got my doubts about whether that’s a winning strategy, at least without a formal reorganization under chapter 11, but who knows? Mr. Cooper agreed to a success fee based on 1.7 million warrants that are convertible into shares at $7.75, so he is clearly betting on the company’s success. And the company still makes a good doughnut. However, as one commentator in the article notes, “the lines are no longer out the door.”

Sony BMG‘s decision to implement a copyright-protection plan without telling anybody is shaping up to be one of the costliest decisions that the company has ever made.
Earlier this month, a computer-security researcher publicly revealed that some of Sony BMG’s CDs secretly install a program known as a “rootkit,” which is difficult to detect or remove from a computer and which can act as a back door for a malicious programmer to take remote control of a computer. Just to make matters worse, researchers shortly thereafter identified at least two viruses that were designed to take advantage of holes created by the code for the rootkit. Scrambling to respond to the developing disaster, Sony BMG last week announced that it was recalling and replacing the 4.7 million discs containing the program and that it stopped using the controversial software.

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Following up on posts here and here from last week, General Motors’ seemingly relentless descent into a formal reorganization under chapter 11 continued yesterday as its share price fell to its lowest closing since December, 1991. Previous posts on GM’s developing problems are here.
Probably the best indication of the risk of a GM bankruptcy is in the credit markets. Over the past week, the price of a GM bond maturing in 2033 has fallen about four points (i.e., about $40 per $1,000 face value) to yield 12.9%. On the other hand, the price of protection against a GM default in the market for credit derivatives is increasingly expensive. As of yesterday, the price of protection — essentially insurance against a default — on $10 million in GM bonds had risen to above $2 million up front plus $500,000 per year. That compares with a $1.6 million up front payment for such price protection just last week.
Interestingly, GM remains reasonably liquid, with around $19 billion in cash or other cash equivalents, and that liquidity is often touted by the company in media releases as proof that it is not contemplating a bankruptcy case. However, as folks who are familiar with reorganizations know, a company that needs to go through a chapter 11 case is far better advised to do so when it is flush with cash than to wait until its cash reserves have been depleted. A company in need of a reorganization never should wait until it can’t afford to go bankrupt.

The house on the left above is an example of what half a million bucks will buy you in the Village of Alden Bridge, a nice area of The Woodlands in suburban north Houston — a 3,600 square foot decorator’s home on a big, tree-filled lot, flagstone covered patio, 4 bedrooms, 4 bathrooms, gameroom, media, 2 staircases, dynamic kitchen, and a paneled study.
The house on the right is an example of what half a million bucks will buy you in Los Angeles — a 1,200 square foot, two-bedroom Craftsman-style house with a “sizable” frontyard in a neighborhood that is “on its way up.”
Read more about the crazy Southern California real estate market here. Hat tip to Craig Newmark for the link to the LA Times article.

Johnson & Johnson and Guidant Corp. announced a revised acquisition deal this morning that values Guidant at $21.5 billion, about $4 billion lower than the original price, and settles the companies’ lawsuit over J&J’s decision to walk away from the previous deal because of a material adverse effect on Guidant’s financial condition.
No word yet on how much of that $4 billion will make it into the “Spitzer for Governor” campaign war chest. ;^)

Snyder, Texas (between Abilene and Lubbock)-based Patterson-UTI Energy, Inc., one of the largest land-based drilling contractors in the U.S., raised a few eyebrows on Friday with the announcement that it is investigating the possible embezzlement of $70 million by a former undisclosed official who apparently arranged for payments to a shell company for assets that were never delivered over a five year period (Chronicle story is here). Although it is not known whether he is the Patterson employee under investigation, Patterson’s chief financial officer, Jonathan D. “Jody” Nelson, resigned on Nov. 3 for “personal reasons” and, a day later, he made a regulatory filing of his intent to unload about $13 million of Patterson stock.

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On the heels of yesterday’s post regarding General Motors’ Enronesque experience, the Washington Post business section leads with this article today that links General Motors and the “b word” in the same headline, and includes the following tidbit of information:

In a research note yesterday, Ronald A. Tadross, an auto analyst at Banc of America Securities LLC, called a bankruptcy filing “inevitable” and put the risk over the next two years at 40 percent, an increase from a previous estimate of 30 percent. Tadross said he thought GM management could be held responsible for the accounting errors and, if the management team is shaken up, the option of a bankruptcy reorganization would become more likely.

The London Daily Telegraph chimes in with the bankruptcy theme, too.

Undeterred by the Lord of Regulation’s entry into the dispute, troubled medical-device maker Guidant Corp. filed a lawsuit yesterday in New York City against disenchanted merger partner, Johnson & Johnson. Guidant is attempting to persuade the court to overrule J&J’s stance that Guidant’s recent troubles constitute a “material adverse effect” on Guidant’s business that allows J&J to walk away from its proposed $25.4 billion merger ($76 per share) with Guidant that the companies announced last December.

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Flyi Inc., which spun off a year ago into the low-fare independent airline called “Independence Air” after beginning as a contract carrier for United Airlines and Delta Air Lines Inc., filed a chapter 11 case early Monday morning, joining a good part of the American airline industry in keeping the bankruptcy bar fat and happy.
Meanwhile, just to remind you that markets often work in mysterious ways, airline stocks are rebounding.

I pass along the following tidbits of business information that caught my eye this morning:

The auto industry just recorded its worst October for U.S. sales in 13 years;

For most of October, the nearby price of a natural gas futures contract closed at a high of $14.34 per million British thermal units. That was more than twice what natural gas traded for at the beginning of the year. However, an Energy Information Agency inventory report last week revealed an unexpectedly large increase in natural-gas storage just as most of the U.S. was experiencing an unusually mild autumn. Accordingly, the price of a nearby natural gas contract closed yesterday at $11.60 per million BTUs, down almost 20% from last week’s highs; and
Clear Thinkers favorite James Hamilton notes that, despite record profits, oil and gas companies are reinvesting a surprisingly low percentage of their profits and he is not sure why.