Credit Manager?s Weekly Summary of Financially Challenged U.S. Companies

The 10 items below are taken from the Summary dated 1/28/2008. A full issue contains information on more than 200 companies. Please visit the insideARM bookstore for information on subscribing to the summary.

Ambac Financial Group Inc.’s shares were up as much as 14% on news that the bond insurer could be bought by billionaire Wilbur Ross. Although Mr. Ross’s company and Ambac were not answering requests for information, according to one source, a deal could happen within a matter of weeks. Ambac, which recently lost the AAA rating it needs to guaranty more than $550 billion in debt, had recently announced it would take a look at strategic alternatives. Mr. Ross, known for turning around companies in the steel and textile sectors, is reported to be considering deals with a number of bond insurers.

Cost Plus Inc., an Oakland, Ca.-based retailer, wants to close eighteen of its nearly 300 stores this year in an effort to cut costs by about $8 million. The firm also wants to trim its payroll of 2,700 employees by about 10%. The restructuring will result in extra costs of $3.8 million in the fourth quarter, with another $9 million in related charges to be taken in fiscal 2008. The firm hopes to make up for the extra costs with $7 million to be regained by selling off inventory.

Delphi Corp., the Troy, Mi. maker of auto parts, won approval from the U.S. Bankruptcy Court for its reorganization plan and is now set to emerge from Chapter 11 in the current quarter, as soon as it finalizes some $6.1 billion in exit financing. During reorganization, Delphi closed or sold twenty factories and slashed its workforce by tens of thousands of union jobs. The realignment, to rely more on cheaper manufacturing plants overseas, has reduced costs by billions of dollars.

E*Trade Financial Corp., the Manhattan, N.Y.-based online brokerage, reported a fourth quarter net loss of $1.7 billion, compared to net income in the year-earlier quarter of $177 million. Revenue for the period was a negative $2 billion after writedowns and provisions for loan losses, with results including a pretax $2.3 billion loss related to the sale of a real-estate portfolio. That compares with revenue of $629 million in the year-earlier fourth quarter. For the year, it lost $1.4 billion on revenue of negative $378 million. The quarter and year both included charges of $101 million related mostly to goodwill impairment and early extinguishment of debt. But the damage isn’t over, as E*Trade anticipates another $400 million to $600 million in losses in the coming year related to its mortgage portfolio.

Hershey Co.’s new CEO, David West, is vowing to increase the firm’s marketing efforts and develop new premium chocolate products to turn the company around and regain market share that has been lost to rival Mars Inc. But Mr. West disappointed investors by revealing few details about how he would accomplish that. Mr. West is part of a new management team that came on board after the company’s controlling Hershey Trust booted out his predecessor along with six members of the board of directors amid frustration about the candy company’s financial performance. Meanwhile, the Hershey, Pa. company issued bad earnings news, saying its net income tumbled 65% in the fourth quarter–to $54.3 million, on flat sales of $1.3 billion. For the year, net income sank 62%–to $214 million, on flat sales of $4.9 billion. The quarter and year included charges of more than $57.5 million and $277 million respectively.

Methode Electronics Inc., a Chicago, Ill. manufacturer of electronic components, will cut 700 jobs at its automotive operations in Golden, Carthage and Rolling Meadows, Ill. to reduce costs. The unit in Golden will be shuttered by the end of this year. The downsizing was prompted, said Methode, by competitive pressures from overseas manufacturers. Methode, with a total of 3,500 workers worldwide, didn’t specify the expense it will incur for restructuring costs.

Mothers Work Inc., a Philadelphia, Pa. maker and retailer of maternity wear, reported a first quarter net loss of $350,000. Sales fell 4%–to $143 million.

Open Magnetic Imaging, a Weston, Fl. imaging center operator, filed Chapter 11 and said it will shutter five of its seventeen locations in Florida. The firm listed combined debt of $12 million and assets of between $6.5 million and $7 million. Open Magnetic, filing in the U.S. Bankruptcy Court in Fort Lauderdale, hopes to restructure its debt and continue operating. Selling the company is also an option.

Restoration Hardware Inc. agreed to a lower price for its buyout by Catterton Partners. The revised price is $179 million, compared to an earlier buyout offer of $267 million. Restoration agreed to the lowered price because of “increased pressure” amid pressures on consumer spending. Catterton has also agreed to provide a loan of $25 million for “working capital”. Sears Holdings Corp. is also trying to acquire Restoration.

Sprint Nextel Corp. is doing some management housecleaning, announcing that its finance chief and its presidents of sales and distribution are leaving. The departures are evidently part of an attempt by new CEO Dan Hesse to make an impact on the firm. Only a week earlier, Sprint, Reston, Va., announced a restructuring that calls for 4,000 job cuts and the closure of 8% of its retail locations. The company is facing massive subscriber defections, losing a net 109,000 subscribers in the fourth quarter.