Archive for March, 2006

• The Most Arrogant Guys in the Room
  Eddy Elfenbein, March 7th, 2006 at 2:03 pm

  In the Enron trial, the rats are turning against each other. Fastow is on the stand today. Personally, I think he was the real ringleader. Tomorrow is the “cross,” which could be high drama.
  It looks like the Enron board wasn’t as lax as I thought. My opinion is that Lay will get off light, but Skilling will go to jail.

• GM’s Pensions
  Eddy Elfenbein, March 7th, 2006 at 12:09 pm

  It goes from bad to worse.

  General Motors Corp., reeling from five straight quarterly losses, said it will replace the current defined-benefits pension for many of its 36,000 salaried workers with a less expensive defined-contribution plan starting next year.
  The change will save GM, the world’s largest automaker, about $420 million on a pretax basis next year, and reduce the Detroit-based automaker’s year-end 2006 pension liability by about $1.6 billion. GM will take a $120 million pretax charge related to the reduced pension liability. Employees will switch to the new plan based on their hiring dates.
  GM said Feb. 7 that it would make changes to the pension plan to reduce spending on salaried workers. GM Chief Executive Officer Rick Wagoner also said earlier this month that he will slash his own compensation in half and trim pay by 30 percent for his three top lieutenants. GM also agreed to cut its $2-a-share annual dividend in half and reduce health-care benefits.
  Employees hired before Jan. 1, 2001, will stop accruing benefits under a phased-in plan starting next year. Workers hired on or after that date will stop accruing credits under their plan and receive a contribution to their 401(k) from GM of 4 percent of annual base salary. GM said additional 401(k) contributions for those employees will boost costs by about $15 million a year.

• The 10-Year Yield Soars
  Eddy Elfenbein, March 7th, 2006 at 12:03 pm

  The yield on the 10-year Treasury bond is at the upper end of its range. The yield hasn’t touched 5% in nearly four years.
  
  William Poole, the head of the St. Louis Fed, said that the Fed may have to raise interest rates a few more times. The next item to watch is the unemployment rate which will come out on Friday.

• Dell CEO sees sales rising to $90-$100 bln
  Eddy Elfenbein, March 6th, 2006 at 1:01 pm

  This doesn’t sound like a company that’s in trouble to me:

  Dell, the world’s biggest maker of personal computers, sees its annual sales almost doubling to as much as $100 billion, its chief executive told Germany’s Sueddeutsche Zeitung newspaper.
  “We will reach our great goal, 80 billion dollars in sales — and more. I have absolutely no doubt that we can manage 90 or 100 billion dollars,” Kevin Rollins said in an interview released on Monday ahead of publication on Tuesday.
  Rollins has been trying to stem a slide in revenue growth at Dell after the company lowered prices on entry-level consumer computers last year and twice missed analysts’ sales forecasts.
  He told the newspaper that Dell’s future remained with sales to businesses, which accounted for about 85 percent of last year’s $55.9 billion in sales.

  Rollins added this:

  Rollins also predicted that Dell would be one of a handful of PC makers including Hewlett-Packard and Lenovo Group Ltd. who would survive a wave of consolidation in the industry amid stiff price competition.
  “The list of victims of the price war is already long: Compaq, IBM, Vobis, Escom, Gericom — to name just a few. But I expect that the end of consolidation is still a long way off,” Rollins told the newspaper.

• Buffett’s Letter to Shareholders
  Eddy Elfenbein, March 6th, 2006 at 9:38 am

  This weekend, Warren Buffett released his annual letter to shareholders. Buffett often uses the letter to opine on different business topics. Here he is on executive pay:

  Comp committees should adopt the attitude of Hank Greenberg, the Detroit slugger and a boyhood hero of mine. Hank’s son, Steve, at one time was a player’s agent. Representing an outfielder in negotiations with a major league club, Steve sounded out his dad about the size of the signing bonus he should ask for. Hank, a true pay-for-performance guy, got straight to the point, “What did he hit last year?” When Steve answered “.246,” Hank’s comeback was immediate: “Ask for a uniform.”

  Buffett also said that the board of Berkshire has chosen a successor, but won’t reveal his identity. However, in disussing business results, Buffett dropped a clue: “Credit GEICO — and its brilliant CEO, Tony Nicely — for our stellar insurance results in a disaster-ridden year,” Buffett wrote. “If you have a new son or grandson in 2006, name him Tony.”

• AT&T To Pay $67 Billion for BellSouth
  Eddy Elfenbein, March 6th, 2006 at 9:02 am

  Twenty-two years after Judge Greene broke up AT&T, BellSouth was the only Baby Bell left as originally conceived. Now the new AT&T will buy BellSouth for $67 billion.
  This isn’t a huge surprise since the two companies already own most of Cingular. As always, it all comes down to wireless.

  The acquisition would also give AT&T sole control of Cingular Wireless, the nation’s biggest wireless operator with more than 54 million customers. Wireless is the fastest-growing part of the communications business and critical to the success of U.S. phone companies. AT&T owns 60%, with BellSouth controlling the rest.

  The new AT&T was formed last year when SBC bought the old AT&T and took its name. AT&T will once again be one of the largest companies in the world.

  The combined company would serve 70 million local-phone customers and 10 million high-speed DSL Internet users. It would also have about 315,000 employees — though that number would surely fall after the merger — and combined revenue of $121 billion, based on Wall Street’s estimate of annual 2006 sales.

• OPEC President Says World “Oversupplied” with Oil
  Eddy Elfenbein, March 3rd, 2006 at 2:29 pm

  From Reuters:

  OPEC President Edmund Daukoru said on Friday that the global oil market is “oversupplied” by about 2 million barrels per day.
  “The market is indeed well supplied with crude today,” Daukoru told an audience at the National Press Club in Washington, ahead of next week’s meeting of the Organization of Petroleum Exporting Countries.
  Daukoru’s view that the global market had plenty of crude oil differed with that of the United States, the world’s biggest oil consuming nation, which believes the market needs more oil.
  Daukoru, who is also Nigeria’s petroleum minister, said the cartel’s spare oil production capacity of 2 million barrels a day has not been able to counter oil price swings caused by market concerns about supply disruptions.
  “We don’t believe that that (spare capacity) is having an impact, if you judge by the prices,” he said.

• Axial Vector Engine
  Eddy Elfenbein, March 3rd, 2006 at 11:56 am

  As an investment, Axial Vector Engine (AXVC.OB) has some minor flaws. For example, they have no revenues and current liabilities are running eight times higher than assets.
  But they have a Web site! Chuck Jaffe at MarketWatch nails this shady outfit.

• They’re onto Us
  Eddy Elfenbein, March 3rd, 2006 at 10:48 am

  From the Enron trial:

  Enron Corp.’s top managers fretted over a damning 2001 analyst report, fearful that Wall Street had uncovered its accounting tricks, a former executive testified on Thursday at the trial of former CEOs Jeffrey Skilling and Ken Lay.
  The witness, Kevin Hannon, said the report published in May 2001 by the Off Wall Street Consulting Group valued Enron at only half its value at the time and was discussed at a meeting of Enron’s senior managers, including Lay and Skilling.
  One top executive told the meeting the report was mostly valid in its criticisms, Hannon said.
  “And what did Mr. Skilling say?” prosecutor Cliff Stricklin asked Hannon.
  “He said ‘They’re onto us‘,” Hannon answered, which he took to mean “the investment community was starting to understand how Enron made money.”

  Actually, if they thought Enron was only worth half its value, then they weren’t even close to being onto them.

• Restatements Soar Due to Sarbanes-Oxley
  Eddy Elfenbein, March 3rd, 2006 at 7:33 am

  
  The WSJ reports this morning:

  Restatements of financial results by public companies soared in 2005 as auditors drilled deeper into corporate accounts, in part because of a sharper focus on requirements laid out by the Sarbanes-Oxley corporate-governance act, according to research firm Glass Lewis & Co.
  The silver lining: The near-doubling in the number of restatements by U.S. companies last year — 1,195, compared with 613 in 2004 — could signal that financial-reporting changes made in the wake of the Enron and WorldCom scandals are working. Although restatements — which, after all, are acknowledgments of accounting errors — signal that management and auditors have missed problems and can lead to short-term swings in a company’s share price, they also give investors a truer picture of a company’s finances.
  “Over time, as companies continue to improve their internal controls, we expect the number of restatements eventually will decline, perhaps as soon as 2006,” San Francisco-based Glass Lewis said in a report to its clients, who include money managers and other large investors.

  Of course, the number of restatements could also decline if more companies decide it’s not worth the trouble of going public.
  Some folks love Sarbanes-Oxley. For one thing, it’s driving the boom in private-equity. It also might as well be called the Accountant Full Employment Act of 2002. Here’s the chart of Resources Connection (RECN), an accounting staffer, since the day Bush signed Sar-Box.