Despite a short slide from Tuesday to Thursday, the market managed to close up about 1% last week, keeping the party alive. Let's pop that tape into the cassette player, because we've got some great tunes queued up.
"If I Had a Hammer" by Peter, Paul, and Mary, featuring Home Depot
If I had a hammer, I'd most likely hammer in the morning. But if I had Home Depot
At this point that's fairly old news, though, and Home Depot CEO Bob Nardelli has dismissed the rumor as the P/E guys just "running the nummies" (a favorite pastime of P/E guys and investment bankers alike) on his company. But despite the quick dismissal of the buyout rumors, Home Depot couldn't stay out of the news this week.
The company announced Wednesday that it had concluded its options backdating investigation, finding $200 million worth of bad options. Between 1981, when the company went public under founders Bernie Marcus and Arthur Blank, and 2000, when Nardelli took over, options were "routinely" backdated -- though it appears that Marcus and Blank were not receiving options over that time period.
As one of the largest companies to thus far admit to options backdating, Home Depot is a great example of this insidious and widespread practice. Though the head honchos at Home Depot weren't receiving the options, it's eye-catching that the company has been backdating since the early 80's -- long before it was really in style. It appears that over the past couple decades, word got around Wall Street that it was pretty easy to pull off the backdating two-step, and executives not only saw it as a great way to pad their own pockets, but also to retain top employees without having to record those nasty income-statement expenses.
In concert with FASB's 123R guidelines regarding the accounting of option awards, the weeding out of backdating practices is another big step toward making public companies more transparent for investors. Like many of my fellow Fools, I'm all for management having an ownership stake in the companies it runs, but when that stake is gained by playing three-card Monte with options, it pretty much defeats the notion that management and shareholders are playing on the same team.
"Fire and Rain" by James Taylor, featuring Pfizer
It was all fire and rain for Pfizer
But it wasn't to be, and the hurting that Pfizer took was not pretty. Typically a pretty steady stock, Pfizer has only had one drop larger than Monday's in the last 19 years. The fallout has left the stock as one of the cheapest of the large drug providers, but it has also raised a lot of questions about what the future of the company and the industry alike. Pfizer has a number of drugs coming off patent, which means that the generic manufacturers are getting ready to pounce. The company has already said that revenue will be pretty flat through 2008. While cost-cutting and share buybacks using the company's nice cash hoard should keep EPS growing over the next couple years, Pfizer definitely has some soul-searching ahead.
"Show Me What You Got" by Jay-Z, with special guest BitTorrent
BitTorrent, the San Francisco-based provider of software for peer-to-peer file transfers, announced the acquisition of a smaller, more portable version of its software last week. The deal closely followed a new $20 million financing round led by AccelPartners. BitTorrent breaks large files (typically media such as music or movies) into smaller chunks and transmits them through a decentralized network of multiple computers. The network's large user base makes the distribution of these large files much less costly and more efficient. Its new acquisition does the same thing in a very tiny and efficient package, making it fit for use in TVs and other less computing-intensive electronics.
BitTorrent refers both to the company and its open-source file distribution protocol. The author of the protocol, Bram Cohen, runs BitTorrent the company, along with co-founder Ashwin Navin. In the past, the protocol operated under the same dark cloud that faced many other file-sharing networks. Many sites using the BitTorrent protocol have been shut down, and their operators put on trial. Late in 2005, though, BitTorrent the company signed a contract with the movie industry, which may have put the two groups on the same side of the playing field.
Now, with more cash in its coffers, a fresh user interface (UI) from its latest acquisition, and a host of deals signed with content providers such as Viacom
"Life Is a Highway" by Tom Cochran and Heelys
This week's mix tape would not be complete without a dedication to the IPO of the week, and one of the top IPOs of all of 2006, Heelys
Fad, you say? Time will tell, but for now, the company is absolutely bursting at the seams. Though it appears that the shoes stumbled in gaining acceptance between '03 and '04, revenue more than doubled in 2005. In the first nine months of this year, the company has already garnered more than twice the revenue it earned in all of last year. Profitability has been tearing it up, too, with net income climbing more than 500% year over year for the first nine months of 2006. EBIT margins have expanded to 23.5% from 15.5% in the year-ago period.
Another specialty shoemaker with some pretty impressive growth, Crocs
So keep on singing, and keep on Fooling as we head into what could be a very active week. Wall Street's trying to jam in everything it can before bonuses are doled out and people head home for the holidays. If you're looking for a great way to sing along with the mix tape, why not check out Motley Fool CAPS? We've already got a chorus more than 16,000 strong, and every single voice helps it sound all the sweeter.
Sing it loud and sing it proud:
Fool contributor Matt Koppenheffer agrees with The Beatles that all you need is love -- but a PlayStation 3 wouldn't hurt. He does not own shares of any of the companies mentioned. The Fool's disclosure policy is always in tune.