The fine print writ large
January 4, 2010Jon Brooks 1 Comment »The web site footnoted.org received a lot of favorable press last year, including this report on Marketplace. The site delves into the arcane medium of company SEC filings, plucking out footnoted items that might serve as red flags to investors. Considering the grave business climate, the wholesale disappearance of jobs across the country, and the lack of transparency in investments that have contributed to massive losses by the public, this is a site worth following for not only those who put their money in anything riskier than a mattress, but also for anyone interested in the issue of soaring executive pay.
On New Year’s Eve, footnoted.org posted the results of its Worst Footnote of 2009 poll, as chosen by readers. Here are the winner and finalists.
The proxy statement disclosure :
“In December 2008, the Company purchased an extensive collection of historical maps of the American Southwest from Mr. McClendon for $12.1 million, which represented his cost. A dealer who had assisted Mr. McClendon in acquiring this collection over a period of six years advised the Company that the replacement value of the collection in December 2008 exceeded the purchase price by more than $8 million. The maps have been displayed at the Company’s Oklahoma City headquarters for a number of years, during which the Company has been insuring the maps in exchange for their display. Our corporate headquarters in Oklahoma City is comprised of numerous buildings in a campus-type setting. These maps have been displayed throughout the Company’s headquarters for a number of years, complementing the interior design features of our campus buildings and contributing to our workplace culture. Our employees and visitors appreciate the maps’ depiction of the early years of the nation’s energy industry and the discovery and expansion of Indian Territory (now, Oklahoma) and the surrounding territories of the early United States. In addition, the collection connects to our Company’s everyday use of mapping in our business of exploring for and developing natural gas and oil. The Company was interested in continuing to have use of the map collection and believed it was not appropriate to continue to rely on cost-free loans of artwork from Mr. McClendon. The Board of Directors authorized the purchase of Mr. McClendon’s collection following review and approval by the Audit Committee and required that the Company’s purchase price be applied as a credit to Mr. McClendon’s future FWPP costs. Future purchases, if any, of historical maps or artwork for the Company’s headquarters will be made directly by the Company.”
This particular disclosure got a lot of exposure this year after we wrote about it and even prompted Chesapeake to issue a amended proxy a few days later to provide additional details on the maps and other goodies the McClendon received.
Runner-ups
…the 8-K that Dell filed on Friday left us no choice (but to highlight it)… The filing noted that Ross Perot Jr. received $952.4 million as a result of the $3.9 billion merger that closed on Nov. 3. Granted, that money was spread amongst various entities, including a limited partnership, his spouse, and the Perot foundation and was a payment for stock owned, which Dell paid $30 a share for.
But then there was the cherry-on-top: a severance payment of $3.9 million, which included a gross-up of $1.1 million. Oh, and another $35 million “cash payment for his Perot Systems equity awards.” Come next September, when Forbes puts out its annual rankings of Richest Americans, that ought to help since in 2009, Perot’s ranking fell to #317 on Forbes’ annual list compared with #205 in 2008.
There’s a Yiddish word to describe this type of behavior: chaza.
Another $3 million for Martha Stewart
…we just couldn’t ignore Martha’s new employment contract in the 10-Q filed by the company yesterday, which includes a $3 million “retention payment” for the domestic goddess. That’s in addition to a $2 million salary, which according to the proxy the company filed last month, represents a $1.1 million raise. The contract also includes a wide range of other goodies, including “automobiles and drivers seven days a week,” reimbursement for all business, travel and entertainment expenses (which seems like a pretty broad definition), security expenses and even internet and telephone expenses at her various homes.
All of this makes us wonder: where exactly is the company’s board of directors? While the stock has bounced back off its lows, it’s dropped dramatically since 2005. There have also been several rounds of layoffs. Given that, does Martha Stewart really deserve a $3 million bonus just for signing her name not to mention a 122% raise?
Taxpayer funded signing bonus at Freddie Mac?
Last we checked, Freddie Mac (FRE) was still operating under a conservatorship, having received over $51 billion in taxpayer money. And, we seem to recall lots of chest-beating last year about sharply lower salaries and fewer perks for the new group of top executives charged with setting Freddie (and Fannie Mae) back on the path to prosperity.
So you can imagine our surprise when we came across this employment contract yesterday for Freddie’s newly named CFO, Ross J. Kari. Here’s a few key bullets:
* annual compensation of $3.5 million (this includes $675K in salary, $1.6 million in something called “additional annual salary” and $1.1 million in a target incentive
* a $1.95 million signing bonus
* immediate buyout of Kari’s house (or perhaps houses)
* reimbursement for travel between Washington D.C. and Kari’s residences in Ohio, Washington and OregonNeedless to say, none of this — and certainly not the ridiculous sounding additional annual salary — was included in the press release that Freddie put out earlier this week…
(Y)ou don’t have to be a tea-bagger to wonder why something like Freddie, which is being propped up by the government to the tune of billions of dollars, is able to hand out such a generous welcome package to a new executive.
Revisiting expenses at InfoGroup
While there aren’t a lot of hard and fast rules for mining SEC filings for interesting nuggets, it’s a pretty safe bet that if the words “company yacht” are mentioned in the filing, it’s worth at least a quick skim.
Late yesterday, InfoGroup…filed an amended 10-K.
The purpose? To restate some expenses that the company had previously disclosed in relation to (CEO Vinod) Gupta. The review was related to a two-year old SEC investigation which InfoGroup announced on Oct. 20 had been “settled in principle”. Here’s a key sentence from yesterday’s filing: “On completion of the analysis, the Company concluded based on new methodology…that there were more personal benefits to Mr. Gupta than had been previously concluded for fiscal years 2003 through 2008.”
How much more? A lot more. Take the company yacht, for example. In 2008, the company reported no personal benefit to Gupta for use of the company yacht. In the revised filing, the number was listed as $873,078! In 2007, that expense was listed as $5,836. The actual number per yesterday’s filing? $770,433. The yacht — remember this company is based in land-locked Omaha, so there’s also the question of getting to the yacht first since we don’t think it was sailing on the Missouri — isn’t the only oops. In 2006, the company reported Gupta’s personal jet usage to be $125,708. Yesterday, that number was revised to $460,950, or nearly three times as much. Expense reimbursements to Gupta were also vastly understated in the original filing: just $156,682 in 2007. Under the “new math” that number blossomed to $368,309.
What’s interesting here — at least to us — is how the numbers all boil down to what’s considered a business expense and what’s a personal benefit, or a perk. It’s a fine line that many companies walk and it’s one of the reasons why the numbers in almost all proxy statements need to be taken with a huge grain of salt…
Here’s a 2007 interview with footnoted.org editor Michelle Leder (was was called a “national treasure” by blogger/journalist Felix Salmon) on the video podcast Wallstrip Chat. Leder says she started delving into SEC reports after losing money in Qwest during the early-2000sk, the accounting scandal years. It was a loss she discovered could have been avoided by paying attention to the company’s public disclosures.
January 4th, 2010 at 7:02 pm
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