Business briefs for May 25, 2004

Tuesday, May 25, 2004 | 10:33 a.m.

Rehabilitation giant gets default notice

BIRMINGHAM, Ala. -- HealthSouth Corp., sued by U.S. regulators for accounting fraud, today said a group of bondholders sent it a default notice because the company hasn't filed financial reports with the Securities and Exchange Commission.

Holders of HealthSouth's 7 5/8 percent senior notes due in 2012 may seek early repayment if the reports aren't filed within 60 days, the company said in a statement.

HealthSouth, the largest U.S. operator of rehabilitation hospitals, said it remains current on all interest payments as it seeks to restructure $3.4 billion in borrowings. The company is trying to avoid bankruptcy.

Seventeen former HealthSouth executives have pleaded guilty to criminal charges since the government alleged in March 2003 that the company fabricated profit to meet earnings estimates and boost its share price. Former Chief Executive Officer Richard Scrushy has pleaded not guilty to charges that he masterminded the plot.

Some senior bondholders already had threatened to accelerate payments on about $2 billion in HealthSouth debt, sparking a legal battle with the company over bondholder rights and HealthSouth's ability to pay. A state court judge in Birmingham has set a June 30 hearing in the matter.

Doughnut maker reports loss

CHARLOTTE, N.C. -- Doughnut maker Krispy Kreme reported its first quarterly loss since going public in 2000 after warning earlier this month that low-carb diets were hurting its results.

The Winston-Salem-based chain said today it lost $24.4 million, or 38 cents a share, for its first fiscal quarter ended May 2, in contrast to a profit of $13.1 million, or 22 cents a share, a year ago.

The latest results reflected charges for its pending divestment of Montana Mills Bread Co. and for store closings.

Total sales rose 24 percent to $184.4 million from $148.7 million a year ago. Systemwide sales at stores open at least a year increased 4 percent.

Former CEO again charged

NEW YORK -- The government brought new charges Monday against former WorldCom CEO Bernard Ebbers, accusing him of falsifying six regulatory filings in the months before the company's spectacular collapse two years ago.

Ebbers was already facing fraud and conspiracy charges filed in March by federal prosecutors who say he presided over WorldCom's $11 billion accounting fraud, leading to the largest bankruptcy in U.S. history.

The new indictment, handed up by a Manhattan grand jury, claims Ebbers submitted six false forms to the Securities and Exchange Commission in 2001 and 2002. The SEC requires public companies to submit the forms to report on their financial condition.

Company buys Cingular units

BERLIN -- Deutsche Telekom AG, Europe's largest phone company, today said it plans to pay $2.5 billion in cash for Cingular Wireless LLC's networks in California and Nevada to tap markets that are growing faster than Europe.

The purchase will unwind an agreement from 2001 granting both companies joint use of networks, Rene Obermann, the head of the T-Mobile International unit, said at a presentation in Bonn. About 55 percent of people in the U.S. own handsets, compared with 80 percent in Europe, Deutsche Telekom said.