AS SHARES DROP, SIMON WORLDWIDE CONSIDERS OPTIONS

Beleagured Company Indicates 'Substantial Doubt' About Operating

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CHICAGO (AdAge.com) -- Troubled promotions company Simon Worldwide stock fell 36% to 18 cents Tuesday after the company said there was "substantial doubt" about its ability to continue as a going concern.

Simon, parent of Simon Marketing, the firm involved in the alleged McDonald's sweepstakes scam, said it would work to reduce its costs and explore options including selling, reorganizing or liquidating assets or filing for bankruptcy. Meanwhile, the scandalized promotion shop is laying off 215 employees in addition to 177 cut earlier, leaving the company with 90 employees worldwide.

The company

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posted a third quarter net loss of $67.5 million, or $4.05, per diluted share, compared to a net loss of $1.7 million, or 10 cents per diluted share in 2000. As a result, Simon took a third-quarter charge of $48.8 million related to a write-down of goodwill, severance packages, legal fees and amortization. The company posted only $2.2 million of purchase orders through Sept. 30, compared to $268.1 million during the same period in 2000.

Sweepstakes scandal
McDonald's and Philip Morris Cos. represented 88% of Simon's revenues before the companies fired the promo shop in August after Simon's director of security was arrested for allegedly running a crime ring that rigged McDonald's sweepstakes and games.

Since then, 33 individuals, including the Simon employee, Jerome P. Jacobson, have been indicted, and at least 24 lawsuits were filed against Simon or McDonald's.

Simon on Nov. 13 filed in Los Angeles County Superior Court a $4 million suit against Philip Morris for breach of contract and breach of the implied covenant of good faith and fair dealing.

"We're disappointed that [Simon has] chosen to file a lawsuit," said Brendan McCormick, manager of media affairs at Philip Morris USA. "Our preference is to work with them to reach some kind of agreement rather than devote our resources to litigation."

Since the tobacco company terminated all existing purchase orders with Simon in August, it has been working with it to finalize their relationship, he added.

Trading lawsuits
In October, McDonald's and Simon traded suits, with Simon demanding $1.9 billion in damages. All cases are still being processed, and Simon and McDonald's have since agreed to consolidate cases filed in state courts outside Illinois and California to an Illinois federal court. They also agreed to work toward coordinating all California and Illinois cases into a single court in each state.

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