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October 9, 2003
House Pension Funding Vote Leaves Long-Term Fix Unclear
The House voted 397-2 on Wednesday to temporarily change how companies
calculate contributions they must make to their retiree pension plans,
CongressDaily reported. The administration said it backs the
House bill, but indicated it wants to work with Congress to enact its
own plan for a permanent replacement. And on the Senate side, the future
of legislation replacing the pension rate remains unclear, as leaders
consider competing proposals.
Businesses have been lobbying for the change to the government-set
formula for calculating future pension liabilities before a temporary
fix expires at the end of the year. The proposed change would allow
companies to pay less into their pension plans by increasing the
interest rate that companies' pension plans will earn. Under the House
bill, companies would use a higher corporate bond index rate for two
years while Congress develops a permanent replacement rate along with
broader pension reforms.
The administration had argued that Congress should adopt its proposal
for changing the pension rate -- a plan that would put a corporate rate
in place for two years and then transition to a 'yield curve' formula
that it says will better reflect the interest funds will earn and the
payouts companies will make to retirees. But the House bill does not
include the yield curve formula, and directs Congress immediately to
begin looking at proposals to set a permanent replacement rate. In a
Statement of Administration Policy released before the Wednesday vote,
the White House said its method better mirrors companies' pension
liabilities, but praised the House bill for taking an important 'first
step,' reported the newswire.
Jobless Claims Fall to an 8-Month Low
The number of Americans lining up to file an initial claim for jobless
aid fell last week to its lowest level in eight months, the government
said on Thursday, Reuters reported. First-time filings for state
unemployment aid fell 23,000 to 382,000 in the week ending Oct. 4 from
an upwardly revised 405,000 in the previous week, the Labor Department
said. The drop brought initial claims to their lowest level since early
February and suggested a bit more of an improvement in the labor market
than expected by Wall Street economists, who had looked for a level of
393,000. Last week's drop in claims also brought a closely watched
four-week moving average of initial filings, which smoothes weekly
volatility to give a better reading of trends, to its lowest level since
early February.
While the report suggested layoffs were slowing, it also showed
unemployed workers were still having a tough time finding new jobs. For
the week ended Sept. 27, the number of Americans on the benefit rolls
after filing an initial claim fell by a slim 7,000 to a still-lofty 3.64
million, reported the newswire.
Big Retailers Are Upbeat on Prospects for Holidays
Retailers have begun to say that this year's holiday season is more
promising than those in the recent past, the New York Times
reported. Back-to-school shopping in August was better than expected and
store executives, citing a momentum perceived among consumers who have
not had to confront a major international crisis in recent months, think
that sales growth and profits will outshine those of the last three
years.
'Over all, consumers feel more upbeat, and we feel confident about
our merchandise,' said Rebecca Weill, a spokeswoman for Gap. 'We should
be in pretty good shape for the holidays.' Similar sentiments are
expressed by Wal-Mart Stores executives, who say that they expect sales
to rise during the second half of this year. In one closely watched sign
of that optimism, some stores are hiring more holiday workers than
usual. Others are holding steady on the employees, but deploying them
differently or increasing training hours, in hopes of winning customers,
reported the Times.
Chief Knowledge Officer Key to Survival
Companies such as Kmart Holdings Corp. could have avoided bankruptcy
during the 2001 recession if they had had a chief knowledge officer on
staff whose job was to monitor changing trends, a new book contends,
Reuters reported. Economist and author Lester Thurow argues in 'Fortune
Favors the Bold' that the recession was only a tipping point and the
reason some companies met their demise in 2001 and 2002 can be
attributed to the fact business models changed drastically. To weather
such change, all companies need an officer who helps a mature business
stay current by closely monitoring trends in technology and new
competitors, Thurow said. 'These companies did not go broke because
their managers had suddenly gotten stupid,' wrote Thurow, a former
Rhodes Scholar who teaches at the Massachusetts Institute of Technology.
'They went broke because a technical revolution had changed their world.
Suddenly their old business models did not work.'
In the case of Kmart, 'the retailing business became a logistics and
information game and we see that in the success of Wal-Mart,' the author
said in an interview on Tuesday, reported the newswire.
FERC Approves Xcel Plan to Transfer NRG to Creditors
The Federal Energy Regulatory Commission (FERC) on Wednesday approved
power and gas utility Xcel Energy Inc. plan to transfer its bankrupt NRG
Energy unit to its creditors, Reuters reported. NRG filed for chapter 11
bankruptcy protection last May after amassing $9.2 billion in debt from
a decade of aggressive expansion into unregulated power generation and
trading. NRG owns and operates several power generating plants.
Minneapolis-based Xcel and NRG's creditors agreed last year to a plan to
transfer total equity interest in NRG and up to $752 million to the
creditors. FERC's order brings NRG closer to its goal of emerging from
bankruptcy by year-end, an NRG spokeswoman said. A federal bankruptcy
judge in New York could rule on the plan on Nov. 21, she said. FERC's
order finds the proposed transfer 'consistent with the public interest'
and said it will not harm competition or rates because the firm's
existing wholesale power contracts will remain in place after the
transfer, reported the newswire.
Bankruptcy Court OKs Sunterra's Buy of Epic
A U.S. Bankruptcy Court in Delaware on Tuesday confirmed Las Vegas-based
time-share operator Sunterra Corp.'s purchase of Epic Resorts LLC
assets, which include Scottsdale Links Resort, the Arizona
Republic reported. The acquisition includes unsold weeks in five
Epic Resorts properties and management contracts on four of them, said
Bryan Coy, director of corporate accounting for Sunterra. The deal,
expected to close in about a month, gives Sunterra two Scottsdale time
shares. Its other is Scottsdale Villa Mirage. Aside from Scottsdale
Links Resort, Epic assets are in Hilton Head, S.C.; Daytona Beach, Fla.;
Palm Springs, Calif.; and Las Vegas, reported the newspaper.
Kmart Bankruptcy Bill Tops $138 Million
Kmart may spend more than $138 million on lawyers and consultants
involved in its chapter 11 bankruptcy case, according to a published
report, Home Channel News reported. Working with court documents,
the Detroit Free Press tallied up all fee requests filed over the past
15 months in connection to the retailer's bankruptcy protection case.
Although still subject to court approval, the bill comes to $126
million, plus $12 million for payments Kmart made to other firms prior
to its chapter 11 filing, reported Channel News.
Global Crossing to Emerge from Bankruptcy
Telecoms group Global Crossing Ltd. could emerge from bankruptcy as
early as next week after regulators cleared the $250 million sale of a
majority stake to Singapore Technologies Telemedia (STT), people
familiar with the deal said, Reuters reported. STT's bid to buy a 61.5
percent stake in Global Crossing must close by October 14, under an
earlier agreement. 'Both parties are working very hard to meet that
dateline. Once it is closed, Global Crossing will emerge from
bankruptcy,' said a source familiar with transaction.
The U.S. Federal Communications Commission (FCC) on Wednesday approved
the transfer of licenses allowing STT, which is owned by an arm of the
Singapore government, to buy Global Crossing after a protracted security
review. 'The continued operation of the Global Crossing subsidiaries
will benefit competition by preventing discontinuance of service and
providing customers choices among providers of telecommunications,' the
FCC said. Emerging from the bankruptcy court would allow the company to
start growing its business again as it was restricted in seeking new
contracts while in chapter 11, said STT chief financial officer Jean
Mandeville in an interview, Reuters reported.
Loral Rejects EchoStar Offer to Buy Assets for $1.85 Billion
Bankrupt satellite operator Loral Space & Communication Ltd. on
Wednesday said its board rejected an offer from EchoStar Communications
Corp. to buy all of its assets for $1.85 billion, Reuters reported.
'EchoStar's bid undervalues Loral's businesses, especially in light of
the significant increase in value that has been achieved since the
beginning of the company's reorganization case in July,' Bernard
Schwartz, chairman and chief executive of New York-based Loral, said.
Schwartz also said the company believes that the best course is to
proceed with the proposed sale of its North American satellites and
emerge from bankruptcy, Reuters reported.
Four Cone Mills Directors to Oppose Ross Deal
Four independent directors of Cone Mills Corp. are expected Thursday to
vote against selling its assets to W.L. Ross & Co, according to a
source familiar with the situation, Reuters reported. Cone Mills last
month filed for chapter 11 bankruptcy protection and had accepted a
buyout offer from W.L. Ross. But a day later, shareholders representing
more than 50 percent of the company's ownership appointed four
independent directors.
In a letter written on Wednesday to the rest of the board, the four
directors said they would propose an alternative plan to restructure the
firm rather than commit to a sale to Ross. 'The company seems intent on
pressing ahead with a deal with W.L. Ross when we have offered a
restructuring proposal that offers greater recoveries for the company's
creditors and possibly its stockholders,' the letter said, reported the
newswire.
Delta to Meet With Pilots in Hopes of Restarting Salary Talks
The top executives of Delta Air Lines will meet with leaders of the
union that represents its pilots on Oct. 17 to talk about the airline's
financial condition and possibly work out a way to restart negotiations
over wage cuts, the New York Times reported. Delta executive Frederick
W. Reid said in an interview in Manhattan that he and other officials,
including Leo F. Mullin, the chief executive, would meet with half a
dozen leaders of the Air Line Pilots Association. The union broke off
talks on pay cuts late in July, saying that it was not willing to allow
the levels of wage cuts that Delta was seeking and that it wanted its
current contract extended. The contract was signed in 2001 and is valid
until May 2005.
Mr. Reid, referring to the airline's desire for wage cuts, said, 'We
will reiterate our request for midcontract negotiations as a crucial
part of turning around Delta Air Lines.' Delta's pilots have the highest
wages in the industry and those must come down, he said, if the airline
is to remain competitive. In the last year, American Airlines and United
Airlines have both won pay concessions from their labor groups, reported
the Times.
U.S. Airlines Could See Quarterly Operating Profit
The U.S. airline industry is expected to post its first quarterly
operating profit in nearly three years, but analysts say the industry
still faces challenges, Reuters reported. One analyst expects the
largest U.S. carriers to post third-quarter operating profits totaling
$300 million, compared to a $1.5 billion operating loss a year earlier.
Cost cutting and capacity reductions, combined with improved demand now
that the SARS virus and Iraq war have ended, helped boost results. The
industry is still forecast to post a pretax loss of $460 million
compared with a pretax loss of $2.2 billion the year before, according
to Merrill Lynch analyst Michael Linenberg.
Yet even as carriers begin to trim operating losses, there are still
challenges, analysts said. Major network airlines face rapid expansion
by their low-cost rivals, which account for more than 20 percent of
domestic traffic. Many carriers are strapped with huge costs and large
debt loads. And while demand increased slightly during the summer, it
still remains at low levels. 'The largest cost challenges clearly lie
with the network airlines as they need major cost reductions for their
very survival, but the low-fare carriers have to continue delivering a
low cost product as well,' Lehman Brothers analyst Gary Chase wrote in a
research note, reported the newswire.
'Airline stocks have extended their gains in 2003 because liquidity
concerns instilled greater caution with regard to supply, and stronger
business and consumer demand has lifted revenues above pre-Iraq/SARS
levels,' Goldman Sachs analyst Glenn Engel wrote in a note, Reuters
reported. But some analysts worry that the early signs of recovery could
prompt carriers to attempt to grow too fast, which could hinder their
recovery.
PG&E Utility Says Creditors OK Reorganization Plan
Utility Pacific Gas & Electric Co. on Wednesday said preliminary
results showed that 97 percent of voting creditors approved its plan to
get out of bankruptcy in the first quarter next year, Reuters reported.
The plan is based on the terms of a proposed settlement agreement
between the PG&E Corp.-owned PCG.N utility and the staff of the
California Public Utilities Commission (CPUC). The preliminary results
were given to the U.S. Bankruptcy Court on Wednesday and final figures
will go to the court next week, PG&E said. The settlement agreement
merged rival plans by PG&E and the CPUC to pull the utility out of
bankruptcy.
PG&E said the proposed settlement deal 'will allow the utility to
resolve creditor claims, reduce customer rates beginning in 2004, and
emerge from chapter 11 as a financially healthy, investment grade
company,' Reuters reported.
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