The Rosie Trial | Day Seven

GRUNER & JAHR CHARGED WITH COOKING 'ROSIE'S BOOKS

Memo Cites Potential to 'Somewhat Control the Financials'

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NEW YORK (AdAge.com) -- The financial fine print took center stage on the seventh day of Gruner & Jahr USA Publishing vs. Rosie O'Donnell as the court proceeding
'With bad news coming on the newsstand, we are inching closer to the threshold,' wrote G&J executive Glenn Spoto. 'There is the potential to somewhat control the financials.'

Previous Courtroom Stories:
'ROSIE' PUBLISHER CHARGED WITH FALSE ABC REPORTS
Gruner & Jahr Trial Opens Can of Circulation Worms
ROSIE O'DONNELL'S FINAL DAY OF COURT TESTIMONY
Wisecracks, Anger and Publishing Naivete
G&J EXEC REBUTS ROSIE O'DONNELL CLAIMS
Says There Was No Apology for Breast Cancer Insult
THE STAR TAKES THE STAGE AT THE ROSIE TRIAL
Ms. O'Donnell Begins Testimony About a Magazine Deal Gone Sour
ROSIE'S CHIEF ADVERSARY TAKES THE STAND
CEO Dan Brewster Fiercely Defends Gruner & Jahr Actions
GRUNER & JAHR EXEC BREAKS DOWN ON WITNESS STAND
CMO Describes Breast Cancer Insult by Rosie O'Donnell
ROSIE'S COURTROOM DAY 3: LEGAL LUMPS AND HIGH ABSURDITY
Gruner & Jahr Appears to Strengthen Case on Editorial Control Issue
ROSIE O'DONNELL'S BATTLES WITH EDITORS DETAILED
Testimony Describes Screaming Matches, Struggle Over Magazine Focus
ROSIE O'DONNELL AND GRUNER & JAHR TRIAL OPENS
Opponents Flail Each Other Over Who Did What at 'Rosie' Magazine

focused on the arcana of magazine financial accounting.

Ms. O'Donnell's attorneys accused the publisher of doctoring financials of Rosie magazine's operations in order to prevent Ms. O'Donnell from exercising a get-out clause if yearly losses mount beyond a certain level.

Internal e-mails
The agreement between G&J and Ms. O'Donnell contained a provision allowing either party to terminate the joint-venture should Rosie magazine lose more than $4.2 million in Ebitda (earnings before interest, taxes, depreciation, and amortization) in the fiscal year ending June 30, 2002. Ms. O'Donnell's attorneys yesterday quoted lavishly from internal G&J e-mails that cited the danger of not clearing that hurdle -- and what might be done to avoid that problem.

"With bad news coming on the newsstand, we are inching closer to the threshold," said one, from G&J executive Glenn Spoto. "There is the potential to somewhat control the financials."

At one point, Ms. O'Donnell's attorney Matthew Fishbein seized upon a phrase -- "manage the financials" -- from an e-mail sent by G&J's chief financial officer, Larry Diamond, to ask him if a decision to "manage the financials" had been reached during one key G&J meeting.

"Was it not, sir?" Mr. Fishbein demanded.

Actual losses
"Yes, sir," Mr. Diamond replied. He insisted, though, that the get-out provision was only triggered by actual losses, which would not be calculated until later in the year.

The actual figures Mr. Diamond spoke of, as reported by G&J, managed to avoid the $4.2 million loss threshold by a comfortable margin. Mr. Diamond said the loss was in the $3.7 million to $3.8 million range. But Mr. Diamond nonetheless had to answer questions about several e-mails he wrote in early May 2002, including one to G&J's international head, Axel Ganz, which contained the line: "You have agreed with our recommendation to manage to an EBITA [sic] that will keep us on the 'safe' side of the target threshold."

Denial
In his cross-examination, Mr. Diamond denied shifting around expenses or dabbling in inappropriate accounting maneuvers in order to keep the magazine's losses below the $4.2 million threshold.

David Williams of accounting firm Deloittle & Touche, an expert witness brought in by Ms. O'Donnell's attorneys, later cast doubt on G&J's reported losses at Rosie, and walked the court through calculations that he said led him to conclude that the magazine's losses exceeded the threshold by around $9,000.

G&J cross-exam
G&J's attorneys did not conclude their cross-examination of Mr. Williams by the end of the day, and they only need to show a few minor holes in Mr. Williams' analysis for the venture to be safely below the $4.2 million level.

Although Judge Ira Gammerman had earlier made clear he wanted the trial to end Nov. 10, it did not and will go into an eighth day. The courts are closed today for Veteran's Day, and the trial is likely to end Wednesday.

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