February 1, 2006
SEC Seeks Disclosure of Shares Pledged as Collateral
The Securities and Exchange Commission (SEC), as part of its proposal to
revamp disclosure of executive compensation, wants to require companies to
disclose the number of shares pledged as collateral for any loans taken by a
corporation's directors and its five highest-paid officers, the Wall Street
Journal reported today. Buried in the 370-page proposal released Friday
evening is a move to add a new requirement for a footnote in proxy materials
to disclose the number of shares used as collateral. Such shares, the SEC
says, can be subject to "material risk or contingencies" and may influence
the management's performance and decisions. "As a result, we believe that
the existence of these securities pledges could be material to
shareholders," according to the document. In the late 1990s, executives
increasingly used company stock as collateral for personal loans or to
minimize paying taxes. While not all loans lead to trouble, some have, and
the SEC appears to be seeking to address this as a potential problem. Read more.
The Roman Catholic Diocese of Spokane,Wash., has offered $45.7 million to settle sex abuse claims that ultimately drove the church into bankruptcy 14 months ago, the Spokesman-Review reported today. A press conference will be called today, said James Stang, an attorney representing alleged victims. A settlement would be a major development in a case widely criticized for its slow pace and high fees. Attorneys and a small group of alleged victims involved in the bankruptcy are recommending approval of the deal following a meeting at the Davenport Hotel last night. Church officials including Bishop William Skylstad were unavailable for comment Tuesday. Diocese attorneys Shaun Cross and Michael Paukert declined to comment on the settlement. Secretive terms of the deal were confirmed by several people familiar with the settlement. About $2 million will be made available to victims in September, and about $8 million more will be ready for disbursement by the end of the year. The remainder will be paid within three years of the close of the bankruptcy case, sources said. Read more.
Enron Case: Lies and Speculation
Opening statements in the criminal trial of former Enron Chairman Kenneth Lay and CEO Jeffrey Skilling began with a federal prosecutor telling jurors, "This case is not about accounting, it is about lies and choices," the Texas Lawyer reported today. John Hueston, an Assistant U.S. Attorney on the Enron Task Force, repeatedly punched on that theme during his opening statements on Tuesday in United States v. Jeffrey K. Skilling, et al. The government, Hueston said, will prove Lay and Skilling violated their duties to investors and to employees of Enron by choosing to tell lies about its true financial condition. "Lies and choices -- it's a simple case," Hueston told the 12 jurors and four alternates chosen on Monday to hear the case in Houston. And while Lay and Skilling weren't being truthful in some public comments, Hueston said, they also chose to take care of themselves, for instance, by selling their own holdings of Enron stock. "Lay and Skilling sold tens of millions of dollars of their own stock. The victims -- the investing public, employees, those who did not have that information -- were not as fortunate as these two men," Hueston told the jury. He cited several instances when either Lay or Skilling made public statements about Enron businesses, such as Enron Broadband Services and Enron Energy Services, that didn't disclose information the public should have known.
General Motors Corp. chairman and CEO G. Richard Wagoner Jr. is expected to announce today that a transmission plant in White Marsh, Md., will build components for gas-saving hybrid vehicles, according to sources familiar with the plan, the Washington Post reported today. GM would say only it is planning a "production investment" in the plant but would not say if it involves hybrid technology, how much money would be spent or how many jobs could be added. The sources, who did not want to preempt the official company announcement, spoke on the condition they not be named. The plant employs about 440 workers, including 372 hourly employees represented by the United Auto Workers union. The plant builds Allison Series 1000 automatic transmissions for certain heavy-duty trucks, including the Chevrolet Silverado and GMC Sierra. The transmission plant, which opened in 2000, is the only remaining piece of GM's scaled-down operations in the state. In the hybrid vehicle race, GM is playing catch-up to Toyota Motor Corp., the market leader. Toyota started with the Prius, a big hit so far in the U.S. market. Toyota also has hybrid versions of the Camry and Highlander. Toyota's Lexus brand has said it will build a sedan with a V-8 gas-electric hybrid engine, which is expected to be an industry first. Honda Motor Co. has three gas-electric hybrid passenger cars. Read more.
Airlines
United Finally Flying Out of Bankruptcy
United Airlines finally leaves bankruptcy as a leaner and more cost-efficient carrier after a restructuring that began in 2002 and lasted a record 1,150 days, the Associated Press reported today. The nation's No. 2 airline was expected to make its emergence from chapter 11 official with a morning announcement. "Now it's really time to fly, to move forward," Glenn Tilton, CEO of United and parent UAL Corp., said in an interview with The Associated Press yesterday. Passengers are unlikely to notice an immediate difference, since United never stopped flying even when multibillion-dollar losses forced it to seek protection from its creditors in federal bankruptcy court. But the Elk Grove Village, Ill.-based airline has made one change after another since early in its three-year overhaul. It now has about 30 percent fewer employees (58,000), 20 percent fewer airplanes (460) and 20 percent lower operating costs (7.5 cents per seat per mile), excluding fuel, than it did when the bankruptcy began on Dec. 9, 2002. Labor costs are down by more than $3 billion annually after two steep pay cuts and the elimination of defined-benefit pensions. Dozens of daily domestic flights have been eliminated. Some things are up, too, including the number of international routes, on-time arrivals, the percentage of seats filled and the cost of on-board meals, no longer free to all. United also has added or expanded products targeting both ends of the price spectrum. Read more.
In related news, the Pension Benefit Guaranty Corp. (PBGC) became an
unsecured creditor and largest single shareholder in UAL after the company
shifted $10.2 billion in unfunded pension liabilities to the agency during
its chapter 11 reorganization, the Wall Street Journal reported today.
Shares in the reorganized UAL are expected to begin trading on the Nasdaq
Stock Market tomorrow. The agency takes the position that the government
should not take an active role in corporate management or governance. With
the sale of some stock and the $1.5 billion worth of additional notes and
preferred shares it is receiving, the agency will recover more than the
seven cents on the dollar it normally realizes as an unsecured creditor in
bankruptcies. The PBGC will be on the hook for full pension payments to most
of UAL's 120,000 workers and retirees. But under agency rules, some
employees are taking a big cut in benefits because the PBGC caps its maximum
payouts. Read more.
NWA Safety Violations Increase During Strike
Suspected maintenance violations at Northwest Airlines increased 32 percent during the first 100 days of a strike by airline mechanics, the Star Tribune reported. While union officials say the increase in violations reported by the Federal Aviation Administration shows the airline is less safe, airline officials said the increase is just the result of more FAA inspectors watching the airline. Federal inspectors reported 83 suspected maintenance and avionics violations from the first day of the strike, Aug. 20, through Nov. 30. During the same period in 2004, FAA inspectors reported 63 such suspected violations. The number of the violations may appear small compared to Northwest’s more than 1,400 daily flights, but Jim Hall, former chairman of the National Transportation Safety Board, said they should be taken seriously.
Meanwhile, a U.S. bankruptcy court approved Northwest Airlines’ motion to freeze its pilots’ pension fund, BankruptcyData.com reported today. The fund freeze was supported by the company’s official committee of unsecured creditors as well as the Air Line Pilots Association, the union representing company pilots. In addition, the Court also approved Northwest Airlines’ motion to implement certain restructuring transactions and agreements with General Electric Company and Safran regarding term loan and aircraft N309US, N310NW, N331NW, N332NW, N333NW, N334NW, N367NB and N378NW and to file a redacted term sheet. Separately, the Court approved the company’s motion to implement certain transactions, including entry into amended leases, regarding certain Saab aircraft, and to file a redacted term.
Refco Wins Rulings on Cargill Payments, Shares Distribution
Refco Inc. won two favorable rulings in federal bankruptcy court, as lawyers
returned to divvying up remnants of the commodity-brokerage firm, the Wall
Street Journal reported today. As Judge Robert D. Drain interpreted
provisions of Refco's acquisition of Cargill Inc.'s regulated
commodity-brokerage business in August, Refco isn't automatically required
to pay between $67 million and $192 million based on the unit's growth
through next year. Those payments, along with commitments by Cargill to
continue directing trading business to Refco, were conditions of their
original deal. Cargill is likely to appeal the judge's ruling, said people
familiar with the matter. If the ruling stands, Cargill would have to seek
payment from Man Financial Inc., which acquired Refco's key trading units
after it filed for bankruptcy protection in mid-October. Cargill and Refco
have been haggling over whether the acquisition by Man affects their earlier
deal. Under Judge Drain's ruling, Cargill's trading commitments can be
transferred to Man, without Man also assuming responsibility for the growth
payments. Read more.
AG Asks Governor to Join Calpine Case
Attorney General Peg Lautenschlager asked the governor yesterday for permission to hire outside attorneys to represent the state in a Calpine Corporation's bankruptcy proceedings, the Associated Press reported today. Lautenschlager said in a statement she expects Calpine will seek to be relieved from its obligations to provide electricity at pre-negotiated rates, which could hurt consumers. The Wisconsin Department of Justice needs outside attorneys with enough expertise to maneuver through the bankruptcy proceedings, and hundreds of parties already have appeared in the case, filing more than 500 pleadings, she said. Read more.
Troubled Ex-lawmaker Turns to Bankruptcy for Relief
Former Oregon lawmaker Kelley Wirth, faced with legal, health and personal challenges, is seeking to have her debts canceled by filing for bankruptcy, the Oregon Statesman Journal reported today. Wirth filed for chapter 7 bankruptcy Oct. 14. It will take at least a few more months for Wirth to get her debts lifted because creditors have until March 20 to file claims verifying that Wirth owes them money. Wirth, a Corvallis Democrat, resigned from her House seat Nov. 15. That came after she was struck by a Ford Thunderbird on Sept. 6 while standing outside the Capitol parking lot. The driver said she was angry at Wirth for being romantically involved with the driver's boyfriend, then a custodian at the Capitol. Wirth lost her main income source when she resigned from the House. She claimed debts of $92,027 but itemized only $44,327 of it, mostly to banks and credit-card companies. Wirth claimed only $5,395 worth of personal belongings. Read more.
Pennsylvania Hospital Not Likely to Emerge from Bankruptcy
While the owners of Tara Hospital in Brownsville, Pa., have filed
chapter 11 bankruptcy, their attorney says his clients have no intention
of reopening the facility, the Uniontown Herald Standard reported today. "We picked the chapter 11 route because you act as a debtor-in-possession and can take actions to collect funds and close the facility
properly," the hospital's attorney Lawrence Bolla said. Bolla said there
are about $2 million in accounts receivable, and that he will be
amending the hospital's bankruptcy filing to reflect that under assets,
which were erroneously listed as $50,000 on the original filing. He said
the $2 million might not be enough to provide full payment to all of the
hospital's creditors. Judge Bruce McCullough asked if the hospital
intended to continue to have a payroll of $43,000 a month while in
reorganization, and Bolla said it did not. Read more.
WorldCom Judges Question Actions of Prosecutors
In other news, judges hearing the appeal of Worldcom Inc. Chairmain Bernard Ebbers questioned whether prosecutors threatened potential defense witnesses with criminal charges to keep them from testifying, NewsDay reported yesterday. Defense lawyer Reid Weingarten told the Second U.S. Circuit Court of Appeals that the government should have been forced to grant immunity to three ex-WorldCom executives, allowing them to testify for Ebbers without risking prosecution. The executives, including former chief operating officer Ronald Beaumont, were under investigation and would have testified only with immunity. Two of three judges on the Manhattan-based appeals panel queried Assistant U.S. Attorney William Johnson about whether prosecutors had a "manipulative purpose" in threatening Beaumont, Ronald Lomenzo and Stephanie Scott with criminal charges. They were never charged, though Johnson said they remain under investigation. "There was certainly no manipulative purpose here to keep these witnesses from testifying," Johnson said. Read more.
International
Cities, Union Fight Ontario Pension Bill
Municipal leaders in Ontario are mounting a last-minute push to derail
provincial legislation changing the pension system for public workers --
changes the cities warn could push up property taxes, the Toronto Globe
and Mail reported yesterday. The leaders have been testifying at the
Ontario Legislature in opposition that proposed changes to the Ontario
Municipal Employees Retirement System (OMERS), the $37-billion pension
plan that covers more than 300,000 public-sector workers. Bill 206,
slated for final approval soon after the legislature resumes sitting on
Feb. 13, makes two main changes to OMERS: It devolves control to
employees and employers, and it provides for the creation of
supplemental pension plans for firefighters, police and emergency
workers. "The reforms would cost not only employers and employees, but
also taxpayers substantially, up to over a 3 percent increase for
property taxpayers," Roger Anderson, president of the Association of
Municipalities of Ontario. The municipal
opposition to the law has found an unusual ally: The union that sits
across the table from employers for about 45 per cent of OMERS-covered
employees. Read more.
Japanese Asbestos Relief Bills Clear Lower House
A package of bills aimed at providing financial support to people suffering from asbestos-linked diseases cleared the House of Representatives yesterday, the Japan Times reported. Approved at a Lower House plenary session, the bills include support for people who have lost family members to asbestos-related illness. The bills are expected to clear the Diet with approval from the Upper House later this month. They include strengthened measures to prevent similar problems in the future. The Japanese government plans to start accepting applications for financial assistance in March. Under the package, the government will cover out-of-pocket medical expenses and rehabilitation costs for people suffering from asbestos-linked diseases, including mesothelioma -- a form of cancer -- and will provide funeral allowances for those who die from such diseases.