footnoted.org

Some post-Thanksgiving turkey…

MichelleLeder — Mon, 01 Dec 2008 16:47:20 GMT

As footnoted regulars know, companies love to file juicy stuff on days like this past Friday — a day when few people are likely to pay attention. And while there were quite a few worthwhile SEC filings, this report from the SEC’s Office of the Inspector General quickly rose to the top. Extra points were given because there was no press release and finding the report on the SEC’s site takes a bit of poking around. Nor was the OIG’s RSS feed (which I subscribe to) updated as of Sunday night, which meant you had to know to look for it.

At 94 pages, it’s about as long as a typical 10Q. But unlike most 10Qs that we come across, this one had an entire section devoted to company employees spending time surfing the web for Internet porn — while they were at work. Starting on pg. 53, the OIG’s office talks about several SEC employees or contractors “who had numerous attempts to access pornographic websites from their Commission computers that were blocked by the agency’s Internet filter, as well as instances where they successfully accessed pornography or inappropriate material.”

While the porn stuff is interesting, especially since some of that surfing was presumably happening as markets were free-falling, it wasn’t the only juicy thing in the report. As the Washington Post reported over the weekend, the OIG also looked into unusual insider trading patterns by two SEC employees. That section of the report begins on p.58 and reads in part:

OIG investigators have completed a comprehensive review and analysis of more than two years of these employees’ brokerage records, the employees’ required reports on those transactions, and their case assignments. The OIG has also reviewed the employees’ Commission e-mails for a substantial time period, and found and analyzed numerous e-mails discussing stocks and securities transactions sent from their SEC computers.

Mark Cuban, who was charged with insider trading by the SEC on Nov. 17, takes particular delight in this irony.

Originally posted at: http://www.footnoted.org/

Wal-Mart’s $1.1 million “associate”…

MichelleLeder — Mon, 24 Nov 2008 20:03:15 GMT

Friday’s announcement by Wal-Mart (WMT) that H. Lee Scott Jr. would be stepping down as president and CEO caught lots of people by surprise, according to the WSJ and others.

While we don’t profess to know Wal-Mart all that intimately, we were surprised by Scott’s agreement in the 8K that the company filed on Friday which will pay Scott $1.1 million a year for the next two years to serve as “a Wal-Mart associate” — what the company calls all of its employees. Friday’s press release said that Scott will serve as chairman of the executive committee of Wal-Mart’s board, a title that seems to go automatically to former Wal-Mart CEOs, including David D. Glass.

The $1.1 million represents a salary cut for Scott, who had been making $1.4 million as CEO. But the new agreement clearly spells out significantly fewer responsibilities, especially in year two when Scott will “reasonably reduce his hours, will be permitted to work remotely, and will begin a deliberate transition plan to reduce his participation on external boards as a representative of Wal-Mart, speaking engagements on behalf of Wal-Mart, and internal management committees.” The agreement also speeds up the vesting on Scott’s restricted shares — they are normally set to vest at age 65 — in exchange for Scott extending his non-compete clause through March 2016.

We’re not normally betting types, but we think it’s pretty safe to say that none of Wal-Mart’s other associates will get a similar deal.

Originally posted at: http://www.footnoted.org/

Fortress worries about Obama’s plans and other new rules…

MichelleLeder — Fri, 21 Nov 2008 16:24:10 GMT

Last Thursday, we had the spectacle of five top hedge fund managers testifying on Capitol Hill. Several Congressmen honed in on the current tax code which allows hedge fund partners (and other partnerships) to be taxed at a lower rate because of the rules on carried interest. At last week’s hearing, George Soros and Jim Simons agreed that the rules should be revised. John Paulson, Philip Falcone and Ken Griffin offered several conditions.

The folks at Fortress Investment Group (FIG) weren’t on that panel, but that same day they reported its first quarterly loss since going public in February 2007 and announced that redemptions were running around 25%. But it was some of the new disclosures in the 10Q they filed that piqued my interest.

While the warning about the potential change in the tax code in terms of carried interest has been in previous filings, the last line was new:

If legislation were to be enacted by the U.S. Congress to treat carried interest as ordinary income rather than as capital gain for U.S. federal income tax purposes, such legislation would materially increase the amount of taxes that we and possibly our equityholders are required to pay, thereby reducing the value of our common units and adversely affecting our ability to recruit, retain and motivate our current and future professionals. Senator Barack Obama, the President-Elect, has publicly stated that he supports similar changes to the tax code.

Also new was a warning of the increased attention on hedge funds by members of Congress and the additional regulation that this could bring. Among the concerns singled out was the SEC’s rule on short-selling, which expired last month, though companies are still required to file the Form SH until next August: “Compliance with any new laws or regulations could make compliance more difficult and expensive and affect the manner in which we conduct business.”

Of course, given Fortress’ performance — the stock has declined a whopping 93% since February 2007 — new regulations seem like the least of their problems.

Originally posted at: http://www.footnoted.org/

Breaking: SEC charges Mark Cuban

MichelleLeder — Mon, 17 Nov 2008 23:00:50 GMT

Just received a press release from the SEC that it has charged internet entrepreneur Mark Cuban, 50, with insider trading. The release is here on the SEC’s site and the 9 page complaint (pdf) charges Cuban with insider trading — specifically selling 600,000 shares of Mamma.com Inc., which is now known as Copernic (CNIC) and trades at around 25 cents a share. But back in 2004, when the sale took place, shares were significiantly higher.

Cuban, who I interviewed for this story in Worth magazine two years ago, is clearly a controversial figure. In addition to owning the Dallas Mavericks (and blogging here) about basketball and other things, he also owns HD Net, which managed to attract former CBS anchor Dan Rather. Cuban also funds two other sites: Sharesleuth and the newer, Bailoutsleuth.com. So far, I haven’t seen any response to the SEC complaint on his sites, but I’m guessing that’s only a matter of time. Stay tuned….

UPDATE: I’ve just reread the complaint and the first question that comes to mind is why now, given that the events as outlined in the complaint took place 4 1/2 years ago. According to the complaint, Cuban acquired the 600,000 shares in March 2004 and sold them on June 28 and 29, 2004 after learning from a call with the CEO that Mamma.com planned to do a private placement. The complaint says that Cuban was pretty angry about that, saying to the CEO at the end of the call, “Well, now I’m screwed. I can’t sell.” But then he proceeded to sell the shares. The complaint notes that by getting out in front of the news, Cuban managed to avoid “losses in excess of $750K”.

By odd coincidence, Cuban gave an interview to NPR’s Planet Money last month, during which the reporter asked Cuban a question about how much was too much. Here’s what Cuban said: “You can’t get greedy. You can’t want more, more more…There’s just no reason to risk everything to get more.”

So here’s my questions: why would a billionaire take this kind of risk for $750K? And why would the SEC wait 4 1/2 years to go after him?

UPDATE 3:00: Cuban’s response to the SEC complaint is here.

Originally posted at: http://www.footnoted.org/

Some banks are just saying no to bailout money…

MichelleLeder — Fri, 14 Nov 2008 17:31:39 GMT

The deadline for banks to apply for the Treasury Department’s Capital Purchase Program is just hours away and as we’ve footnoted before, banks have been busily filing both their applications with Treasury and 8Ks with the SEC announcing their applications and approvals of Treasury funds. The WSJ has a handy list to show you who’s getting what. So far, they count 60 banks that are on the receiving end of $214 billion and many more are likely to come in today before the 5 pm deadline.

But here at footnoted, we’re much more fascinated in the steady trickle of filings from banks that have chosen not to participate in the program. That’s right — they’re turning down the money! In our routine trawl of the filings, we’ve come across a dozen banks that have issued 8Ks in the past few days that essentially say “Thanks, but no thanks” to that taxpayer money. According to Keefe, Bruyette & Woods research, 29 banks had announced as of yesterday that they won’t be participating in the program.

Among the ones we’ve noticed are Bancfirst Corp. (BANF), which filed this press release in an 8K yesterday. In the release, Bancfirst notes that it would like to buy additional banks and that accepting the money would make that harder to do because “Congress has expressed concern about financial institutions accepting funding from the U.S. Treasury to fund the acquisitions of banks.”

New Jersey-based Investors Bancorp (ISBC) is also turning the Treasury down, saying that it has the ability to raise its own capital. California-based TriCo Bancshares (TCBK) also cited potential merger opportunities in the 8K it filed yesterday, with CEO Richard Smith adding that “those funds can be made available for others.” And, in its’ press release Defiance,Oh-based Rurban Financial (RBNF) sounded pretty defiant: “Our view is that some of the restrictions within the announced provisions of the Capital Purchase Program appear to limit our options. In our view, there also remain too many unknowns within the program for us to prudently enter the program.”

So while there’s likely to be more banks scurrying to make today’s deadline, there’s also some who, in the words of Nancy Reagan, are just saying no.

Originally posted at: http://www.footnoted.org/

On Circuit City’s bankruptcy filing…

MichelleLeder — Mon, 10 Nov 2008 17:52:07 GMT

This morning’s news that Circuit City (CC) was filing for bankruptcy protection prompted us to go back to something we had footnoted in late August: the employment contract with newly hired Vice Chairman James Marcum. A month later, on Sept. 22, Philip J. Schoonover stepped down immediately and was replaced by Marcum.

While there were a few things that caught our attention back then, such as the generous handouts given the state of the company including a $250K signing bonus to cover travel and other expenses between Marcum’s home in New Hampshire and the company’s headquarters in Richmond, Va., it was the language in Marcum’s contract — specifically the language that spelled out a liquidation scenario — as one of the change in control provisions that really made us pay attention. I’ll leave it up to the lawyers to figure out whether the language in Marcum’s contract means he’ll collect due to today’s filing. But to me, it seems like the “consummation of a reorganization” seems to apply here.

There was one other thing that didn’t catch our attention at the time: this 8K that Circuit City filed when it announced Schoonover’s departure as well as better-than-expected results for the second quarter. Though the filing didn’t include a separation agreement, it did note that Schoonover would get a year’s salary and another $900K for his targeted bonus as well as two years of continued health benefits. No word on whether he gets to keep the equipment that we’ve footnoted about before.

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Companies assess (or at least guess) impact of new Obama Administration…

MichelleLeder — Fri, 07 Nov 2008 16:21:54 GMT

Even before Tuesday’s election results, companies began contemplating what the change in Administration would mean for them. But now that the results have come in (for the most part, anyway, since there’s still 9 House and Senate seats in limbo), companies are beginning to spell out their concerns as well as their hopes and dreams in the filings. Here’s a few that we’ve caught over the past few days:

From the Genoptix (GXDX) 10Q filed yesterday : “In addition, as a result of the focus on healthcare reform in connection with the 2008 Presidential election, there is risk that Congress may implement changes in laws and regulations governing healthcare service providers, including measures to control costs or reductions in reimbursement levels, which may have an adverse impact on our business. We also believe that healthcare professionals, including hem/oncs, will not use our services if third party payors do not provide adequate coverage and reimbursement for them.”

From URS Corp.’s (URS) 10Q filed yesterday: “With the recent outcome of the 2008 U.S. presidential election, we do not expect that the new Administration will make any immediate changes to overall DOD and DOE spending, however, there may be a longer-term shift in priorities within the defense budget. based on the outcome of the election. Additional information will be available when the new Administration submits its 2009 supplemental funding request and baseline budget for fiscal 2010.”

Tiny Ada-Es (ADES), which says it is a leader in clean-coal technology issued this press release yesterday which talked about business potential: “Additionally, the President-elect supports clean coal. We expect the new administration and Congress to act in 2009 to provide multi-pollutant federal regulations that include mercury emission control and a substantial increase in funding for carbon capture technology which would further enhance our market opportunities.”

And, just this morning Cadence Pharmaceuticals (CADX) said in this 10Q that “It is also possible that other legislative proposals will be adopted, particularly in view of the 2008 presidential and congressional elections and the potential agenda of any new administration.”

We’ll continue to keep a close eye on how different companies are viewing the results of the election.

Originally posted at: http://www.footnoted.org/

Dreamworks warns of economic doom…

MichelleLeder — Fri, 31 Oct 2008 15:00:55 GMT

By now we’re used to reading filings that fret about the state of the economy. Many acknowledge that a prolonged weakened economy may wreak havoc with the bottom line… even if you have Kung Fu Panda’s Tigress (Angelina Jolie) on speed dial.

In the 10-Q that Dreamworks Animation SKG, Inc. (DWA) filed yesterday, we noticed the following:

The global economy is currently experiencing a significant contraction, with an almost unprecedented lack of availability of business and consumer credit. This current decrease and any future decrease in economic activity in the United States or in other regions of the world in which we do business could significantly and adversely affect our results of operations and financial condition in a number of ways. Any decline in economic conditions may reduce the performance of our theatrical and home entertainment releases and purchases of our licensed consumer products, thereby reducing our revenues and earnings. We may also experience increased returns by the retailers that purchase our home entertainment releases. Further, bankruptcies or similar events by retailers may cause us to incur bad debt expense at levels higher than historically experienced.

In other words, if people are scrambling to cobble the mortgage payment together, don’t be surprised if the box office receipts (and subsequent DVD sales) for Madagascar: Escape 2 Africa fall a bit flat.

But after that gloomy start, it then felt incongruous to read about the amended and restated employment agreement with Chief Operating Officer Ann Daly.

Now, before the company’s IPO, Ms. Daly earned a base salary of $1.5 million annually. She took a pay cut when the company went public, and until last week “only” earned $1 million. But the compensation committee just extended her employment agreement for another five years and raised her base salary to $1,012,000 annually.

Ms. Daly can still afford full-price movie tickets, though. She may earn another $9 million award in performance-based RSUs, and – starting in 2011 – an “annual equity award” of $500K. There’s also an annual cash or equity incentive award that has a target value of $750K, and long-term equity incentive options (also starting in 2011) worth $2.5 million.

Originally posted at: http://www.footnoted.org/

McGraw-Hill forgets about the cows…

MichelleLeder — Wed, 29 Oct 2008 18:20:42 GMT

Last week, the House Committee on Oversight held two pretty dramatic hearings. As we footnoted here, the money quotes on Day 1 came from some instant messages between two employees of rating agency Standard & Poor’s — Shannon Mooney and Ralul Dilip Shah — that, to put it mildly weren’t very flattering.

Shah: We should not be rating it

Mooney: We rate every deal. It could be structured by cows and we would rate it.

The hearing also featured what can only be described as a grilling of the top executives of Moody’s (MCO), Fitch, and S&P, a subsidiary of McGraw-Hill (MHP). So you can imagine my surprise when I was reading McGraw-Hill’s 10Q yesterday and saw this one-sentence description of last Wednesday’s events:

“On October 22, 2008, the House Committee on Oversight and Government Reform held a hearing titled “Credit Rating Agencies and the Financial Crisis”. S&P participated in this hearing.”

So let’s get this straight: S&P President Deven Sharma spent the better part of five hours under the klieg lights answering a barrage of questions from angry members of Congress and McGraw-Hill decides to describe that as participating? It kind of makes you wonder what other things in the filing might be subject to a bit of revisionist history.

Originally posted at: http://www.footnoted.org/

The bill collector cometh at Xcel…

MichelleLeder — Mon, 27 Oct 2008 16:12:28 GMT

With the latest round of Qs coming out, we’re starting to see all sorts of new warnings about the current financial mess and the impact this is likely to have on various companies. Take this new one that Xcel (XEL) added in the 10Q it filed on Friday afternoon:

Credit risk includes the risk that our retail customers will not pay their bills, which may lead to a reduction in liquidity and an eventual increase in bad debt. Retail credit risk is comprised of numerous factors including the overall level of economic activity in our various service territories and price of products and services provided.

When the company reported 3rd quarter earnings on Thursday, Chairman and CEO Richard C. Kelly noted in the release that “we believe recently emerging macroeconomic issues are having an adverse impact on our sales growth, particularly, our residential sales.”

How much of a problem will this be for the company? Declining demand combined with a growing number of people not paying their bills makes for a tricky mix. It’s been a long time since I’ve covered utilities, but many states tend to have rules about cutting off service, even for people that aren’t able to pay.

Originally posted at: http://www.footnoted.org/

EBay on cash and the FDIC…

MichelleLeder — Fri, 24 Oct 2008 16:26:50 GMT

The beginning of Q season and the ongoing credit crisis has made for some very interesting disclosures lately. Take this one that EBay (EBAY) included in its 10Q filed late yesterday:

Our available cash and cash equivalents are held in bank deposits, money market funds and commercial paper. We actively monitor the third-party depository institutions that hold our cash and cash equivalents. Our emphasis is primarily on safety of principal while secondarily maximizing yield on those funds. We diversify our cash and cash equivalents among counterparties to minimize exposure to any one of these entities. To date, we have experienced no material loss or lack of access to our invested cash or cash equivalents; however, we can provide no assurances that access to our invested cash and cash equivalents will not be impacted by adverse conditions in the financial markets.

At any point in time we have funds in our operating accounts and customer accounts that are with third party financial institutions. These balances in the U.S. may exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance limits. While we monitor the cash balances in our operating accounts and adjusts the cash balances as appropriate, these cash balances could be impacted if the underlying financial institutions fail or could be subject to other adverse conditions in the financial markets.

While this may seem like stating the obvious — one would assume that most companies, even those much smaller than EBay would have cash that exceeds the now $250K limit — it is a new disclosure and the use of “no assurances” as opposed to something a bit more nebulous caught my attention.

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Good for our pockets, bad for Halliburton…

MichelleLeder — Wed, 22 Oct 2008 15:37:27 GMT

Anyone who drives a car regularly has noticed that gas prices have fallen pretty sharply over the past month — something that fellow Brandeis grad Thomas Friedman bemoans in his column today because lower prices are likely to have a negative impact on conservation and other habits, such as fewer SUVs on the road.

But Friedman’s not the only one. In the 10Q that it filed yesterday, Halliburton (HAL) was also pretty bummed about falling prices for oil and natural gas because of its negative impact on their business. Actually, they’re more than bummed. In the filing, Halliburton warns that the lower prices could have a material adverse impact on both revenue and profitability. Here’s a snippet:

Forecasted crude oil prices for the remainder of 2008 and for 2009 have dropped substantially in the last month…Any prolonged reduction in oil and natural gas prices will depress the immediate levels of exploration, development, and production activity. Perceptions of longer-term lower oil and natural gas prices by oil and gas companies can similarly reduce or defer major expenditures given the long-term nature of many large-scale development projects. Lower levels of activity result in a corresponding decline in the demand for our oil and natural gas well services and products, which could have a material adverse effect on our revenue and profitability.

Halliburton reported its earnings on Monday before the market opened. And while Chairman and CEO David Lesar was quoted in the press release about his concern over falling prices, it came across as being a much more serious concern in the Q.

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AMR plays the guessing game…

MichelleLeder — Mon, 20 Oct 2008 18:57:12 GMT

Last week, we learned that Merrill (MER) was being coy by refusing to answer questions about its exposure to Lehman’s (LEHMQ) bankruptcy filing.

As it turns out, they’re not the only ones. In the 10Q it filed last week, AMR (AMR), the parent company of American Airlines did an even bigger dance around what is presumably its exposure to Lehman. Here’s a snippet from the Q:

In September 2008, a counterparty to certain of the Company’s fuel hedging derivative contracts filed for protection under Chapter 11 of the Federal Bankruptcy Code. Per the contract, the Company was able to terminate its hedge positions with this counterparty as a result of the counterparty’s default. Due to the decline in fuel prices subsequent to the Chapter 11 filing, the Company was in a liability position to this counterparty at the time the hedge position was terminated. The Company incurred a charge of $26 million associated with these contracts during the period subsequent to the Chapter 11 filing and prior to termination, when the derivative contracts no longer qualified for hedge accounting under SFAS 133. The charge was recorded to Miscellaneous-net in the accompanying condensed consolidated statement of operations. Had the Company retained these hedge positions, this charge would have been incurred as fuel expense over the next two years assuming a static fuel price from the termination date.

Anyone want to take a guess as to who that counterparty might be? A quick skim of AMR’s previous filings shows that the last time Lehman was mentioned was all the way back in 2004. Still, given the disclosure in the Q, it’s hard to imagine who else that counterparty might be.

So why not just come out and disclose it? After all, playing coy works (maybe) when you’re a teenager. But when it comes to a company’s finances, it gets old pretty quickly.

Originally posted at: http://www.footnoted.org/

Costco’s gold star worthy contract…

MichelleLeder — Fri, 17 Oct 2008 15:56:54 GMT

It’s been awhile since we’ve handed out any gold stars here at footnoted. And what with the market mayhem, margin calls, Paulson playing hardball with the nation’s top bankers, and AIG executives showing just how stupid they can be, there hasn’t been a lot to celebrate.

But then I came across Costco’s (COST) 10K, which it filed late yesterday. At a time when companies are being super-secretive about their risk exposure to some of the toxic sludge that’s brought down other companies — Merrill’s (MER) reluctance to discuss its exposure to Lehman is just one example — Costco lays it out there. Here’s a snippet:

Subsequent to the end of 2008, Lehman Brothers Holdings Inc. (Lehman) filed a petition under Chapter 11 of the U.S. Bankruptcy Code. At August 31, 2008, we held $2.3 million of Lehman securities, within the Columbia portfolio, purchased by the fund manager prior to receipt of our pro-rata allocation of the fund’s investments in December 2007. As of October 14, 2008, we do not have an estimate of the recovery value of the Lehman securities.

Costco also discusses some risks related to Sigma Finance, a $27 billion SIV which is a giant mess, as well as BlackRock (BLK) and Merrill.

There was one other thing that stood out in Costco’s filing: it’s new employment agreement with CEO Jim Sinegal. At under 1 page — as opposed to some of the 30-page agreements lately, it’s the type of employment agreement that even the brain behind footnoted can understand.

Originally posted at: http://www.footnoted.org/

Ag committee on credit default swaps?

MichelleLeder — Wed, 15 Oct 2008 16:19:26 GMT

I’m listening in on a hearing going on right now by the House Agriculture Committee that is focusing on the role of credit default swaps and the SEC’s Erik Sirri (see his opening statement here) is taking some tough questions from a few House members.

Here’s a snippet from Jim Marshall of Georgia: “To suggest that the SEC is innocent in all of this in a stretch.” And just before that statement, Bob Etheridge just tried to get Sirri to answer a question about what role CDS played in the downfall of Bear Stearns, but Sirri said he would have to get back to him.

But here’s my question: why is the Ag Committee, which normally focuses on farm-related issues diving into the CDS market?

I’ll be listening in on the rest of this.

Originally posted at: http://www.footnoted.org/

On Rite Aid and Halloween…

MichelleLeder — Mon, 13 Oct 2008 15:10:13 GMT

Halloween’s just three weeks away (and I’m sure after four weeks of market mayhem, we can all use some sickly sweet treats). But just in case you forgot, Rite Aid (RAD) issued this press release on Wednesday to remind people that Halloween was a good time to cut loose:

“Since Halloween falls on a Friday, we are expecting customers will party this year,” said Steve Moss, Rite Aid seasonal category manager. With the financial stress of recent weeks, Moss said he believes many Americans will be dying to dress up, spend a night in someone else’s skin and have some fun.

By shear coincidence, that same day, Rite Aid put out its 10-Q, which had some truly scary stuff in it. One of the big problems is that the stock is trading below a buck — 53 cents this morning — which puts it in danger of being delisted and prompted a wide range of new warnings in the filing, including:

In addition, delisting of our common stock on the NYSE would constitute a “fundamental change” under the indenture governing our 8.5% convertible notes due 2016 (the “Convertible Notes”). If such a fundamental change occurs, holders of the Convertible Notes will be entitled to require us to repurchase their Convertible Notes, or any portion of the principal amount thereof at a price equal to 100% of the principal amount of the Convertible Notes to be repurchased, together with accrued interest…We can give no assurance that we would be able to obtain such financing, on favorable terms, or at all, or that we will be permitted to repurchase the Convertible Notes under our other debt instruments.

There were also new sharp warnings about the company’s highly leveraged position. While the company has been warning about this for awhile, the details that it provides in the filing are much more extensive, and, let’s call it what it is here: scary. We last footnoted Rite Aid at the start of the year, when Contributing Editor Wendy Fried noted the lack of toilet paper on store shelves in her Manhattan neighborhood.

Oh — and speaking of drug store chains, we couldn’t let pass yesterday’s announcement that the SEC had charged two former Duane Reade executives of fraud. Though I haven’t read the whole complaint, the press release outlines a series of fraudulent transactions designed to pump up revenues and earnings to meet Wall Street estimates and reduce expenses — classic tools in the fraud toolbox. DuaneReade was an early visitor to the site when we footnoted Cuti’s extreme compensation and unusually generous stock options.

Originally posted at: http://www.footnoted.org/

On divvying up Lehman’s art collection…

MichelleLeder — Wed, 08 Oct 2008 17:21:38 GMT

On Monday, during the House Oversight Committee grilling of former Lehman Chairman and CEO Richard Fuld, Chairman Henry Waxman made note of Fuld’s impressive personal art collection. But it was the extensive collection owned by the company that popped up in this amended sales agreement filed in an 8K yesterday.

In the agreement between Barclays and Lehman from Sept. 22, Barclays was given the right to keep the art at Lehman’s headquarters at 745 Seventh Ave. in place for a year. During that time, Barclays will have the opportunity to purchase the art for the appraised value. If they don’t want it, it returns back to Lehman, where presumably it would be put up for auction as part of the bankruptcy.

In yesterday’s agreement, Bain Capital, which agreed to buy Neuberger Berman for $2.15 billion, got a similar deal: they get to keep the artwork located at 605 Third Ave. for a year (but not the art at 399 Park Ave.). In both agreements, what’s interesting (particularly to art aficionados) is that the collection can be broken up, so that both Barclays and Bain can pick and choose the pieces they want.

According to this Bloomberg story, the collection has over 3,500 pieces by a wide variety of well-known artists. The Neuberger Berman collection has another 900 pieces.

Originally posted at: http://www.footnoted.org/

Lots of security expenses at Abraxis…

MichelleLeder — Mon, 06 Oct 2008 14:49:46 GMT

On Friday, Abraxis Bioscience (ABII) filed its proxy and one of the things that jumped out at me was the hefty increase in security expenses for Chairman and CEO Patrick Soon-Shiong: $1.06 million, compared with $727K last year.

What potential threats warranted the 45% increase? The proxy provides few details, other than this footnote: “For security-related reasons, we provide Dr. Soon-Shiong with the use of cars, security drivers, security systems for his residences, and personal and family security services.” The company also cites security — and management efficiency — as the reason that Dr. Soon-Shiong needed to use the company’s corporate jets for personal travel too. That expense increased even more dramatically to $205K from a measly $34K last year. We’re guessing that probably has more to do with the way the company calculates the expense since $34K seems unusually small.

I’ll be at the Value Investing Congress today and tomorrow, and hope to see some of you there. I’ll be live-blogging parts of the event later today.

Originally posted at: http://www.footnoted.org/

Just add water (and hot air)…

MichelleLeder — Fri, 03 Oct 2008 15:58:17 GMT

Only in Washington can something grow so quickly. Just 10 days ago, Treasury Secretary Hank Paulson released this $700 billion 3 page plan for saving the economy. A few days later, it had morphed into a 110-page plan. And by Wednesday, it had grown to a 451-page plan, which was passed by the Senate earlier tonight by a vote of 74 to 25. The Associated Press has a good summary of the many add-ons — Christmas ornaments — here.

Of course, you have to wonder how many of those 74 Senators actually read those 451 pages before voting. My guess is very few. Keep in mind that last week, John McCain couldn’t even take the time to read the 3-page plan. Both McCain and Barack Obama voted in favor of the rescue plan.

After a quick skim — even I’m not that much a glutton for punishment — the executive compensation language seems to be pretty similar. Mark Borges, of Compensation Standards picked up a subtle language change having to do with giving incentives for unnecessary risk from “executive officers” in the old version to “senior executive officers.”

On accounting issues, the legislation delves into mark-to-market accounting, an issue we’re quite sure that every member of Congress — in the House and the Senate — are intimately familiar with. And, yes, we’re only being slightly snarky here.

Originally posted at: http://www.footnoted.org/

Why Main Street hates the bailout…

MichelleLeder — Wed, 01 Oct 2008 17:59:10 GMT

Yesterday, Sovereign Bancorp (SOV), a 750-branch bank focused on the Northeast corridor that’s had its share of troubles, announced a series of management changes, including the departure of its CEO, Joseph P. Campanelli by the end of the day. The release, as these sorts of things always do, noted that Campanelli was leaving to “pursue other family and business interests”. Also yesterday, Moody’s downgraded Sovereign’s credit ratings because according to the WSJ, the bank is exposed to “a number of problematic asset portfolios” including exposure to Fannie and Freddie.

The announcement of Campanelli’s departure was so swift that Sovereign forgot to yank the executive’s profile from the bank’s website. But somehow they still found enough time to draw up Campanelli’s separation agreement which was filed in this 8K shortly after the market closed yesterday. Though Campanelli had been at Sovereign since 1997, when it acquired Fleet Financial’s indirect auto lending business, he had only been CEO since late 2006, which coincides with a time of diminishing returns to Sovereign investors.

But according to yesterday’s agreement, Campanelli will still come out OK: a $3.2 million severance payment, a bonus equivalent to 133% of his target, a $4.3 million retirement payment, and a bevy of options that vest immediately. But the real piece de resistance is Campanelli’s consulting contract that will pay him $25K a month plus provide him with office space for the next year.

Granted, this isn’t the same type of deal people like Charles Prince and Stan O’Neal wound up with when they left their respective posts hastily. But a lot has changed in the past 10 months and the idea that a company as troubled as Sovereign is — it’s still unclear whether they’ll be able to pull through — chose to do this sort of deal speaks volumes about why Main Street doesn’t trust the $700 billion bailout plan.

Originally posted at: http://www.footnoted.org/