Memories of WaMu…

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washington mutualBy now, the $2.7 billion in profits that JP Morgan reported last week are starting to fade into the ether. After all, during earnings season, it’s hard to keep track, even when it comes to the bigger names.

But we were far more interested in the second quarter slideshow that JPMorgan Chase filed with the SEC on Friday afternoon.

While most of the slides aren’t all that different from the earnings release, a few definitely stood out. We particularly liked slide #10, which showed a sharp (and scary) increase in 30-day delinquencies for so-called prime borrowers. At the end of June, that number was running around 9%, compared with around 5% at the end of 2008 — yet another indication that the rosy economic headlines lately may be a tad bit overstated.

We also liked slide #19, which had Chase’s card services losses approaching 10%. That sounds pretty awful until you look at the very next line which notes that WaMu’s card losses “to approach 24% by the end of 2009.” Let’s think about that for just a moment: does this really mean that nearly 1 out of every 4 people who had a WaMu card aren’t able to pay it back?

And then we started to remember some of the posts we’ve done on WaMu over the years, like this one on the hiring of Stephen Rotella or this one on WaMu’s $1,325 an hour consultant and we started to get all misty-eyed. It’s hard to believe that it’s only been 10 months since WaMu fell.

We’ll be taking the rest of this week off from posting before Q season starts in earnest. But we’ll still be keeping an eye on the filings!

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What happens in Vegas…

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venetianArticles like this might make it seem as if the recession has changed life as we know it in Vegas. But 8-Ks like this tell a decidedly different story.

Last week, Las Vegas Sands (LVS) put out this release announcing that longtime executive Robert Goldstein had signed a new contract and acquired a new title: executive vice president. Indeed, the release announcing Goldstein’s promotion even had Goldstein talking about the challenging times in Vegas:

“We have instituted aggressive efforts in Las Vegas that have helped us right size our business and our team here is very committed to running our properties as efficiently as possible, while still providing top-tier customer service. Las Vegas is a dynamic and resilient tourist destination and we are fortunate enough to operate two of the city’s premier properties. The Venetian and Palazzo are exceptional resorts by anyone’s definition and as this town inevitability navigates its way through a challenging economic environment, any increase in consumer spending combined with our operating efficiencies will certainly lead to higher profitability from our operations here.”

But things aren’t quite that tough, at least in terms of Goldstein’s salary, which according to the 8-K, will be $1.5 million and 500,000 options, half of which vest in just six months. A quick skim of the proxy filed at the end of April shows that Goldstein’s new salary doesn’t just represent a more than 50% pay hike. It also appears to make him the highest paid executive at the company, assuming that the other top executives don’t also get hefty raises.

Oddly enough, Goldstein’s contract wasn’t part of the 8-K. Instead, there was just a summary of the terms, which among other things include “at least two trips” to Asia for Mrs. Goldstein paid for by the company. All of this, plus the odd wording of the press release, which says that the company and Goldstein have “reached an agreement” to extend his employment for another 2 1/2 years kind of makes you wonder what was going on behind the scenes. One possiblity given the numbers is that Goldstein, who’s been at the company for nearly 15 years, had another job offer. How else to explain a 50% raise given the current climate?

Of course, we’re unlikely to find out about that because even in a recession, what happens in Vegas stays in Vegas!

How many pairs of sunglasses do you own?

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Every now and then, we come across a slide in some seemingly boring presentation to a group of analysts that actually catches our attention. That’s exactly what happened when we saw this 30-page presentation filed in an 8-K by eyewear manufacturer FGX International (FGXI). But it was this slide in particular:


We can understand the need to have multiple pairs of glasses, especially as you get older. But do 55% of all people really own at least two pairs of sunglasses? And what about the 21% that own at least three pairs? So we decided to do a totally unscientific study here at footnoted world headquarters to see how many pairs of sunglasses we could find laying around. It didn’t take too long for me to turn up three pairs, though to be fair, one pair of Kate Spades is broken and unwearable right now.


We also wanted to bring your attention to a new and interesting site that we recently discovered and which we’ve added to our blog roll: SEC Data Guy is providing some great trends on life in the land of EDGAR, which we think are worth reading. Ed’s posts on the growing number of companies that are expressing substantial doubts are particularly worthwhile. We get asked to add sites to our blogroll all the time and we rarely do. But we think footnoted readers will find SEC Data Guy to be well worthwhile.

The Senate takes on hedge funds…

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CongressYesterday afternoon, we listened in on the Senate Banking Committee’s hearing on additional regulation for hedge funds and other forms of private investment, like venture capital. Which seems like a fairly important topic, given some of the grand-standing we’ve seen in the not-too-distant past from various elected officials. Yet, when the live feed pulled away from the witness table, which included Kynikos’ Jim Chanos, it looked as if there were only two Senators in the hearing room. Perhaps between the healthcare debate and the Sotomayor confirmation hearings, regulating hedge funds just didn’t rank.

Still, there were a few interesting comments during the meeting. As we live tweeted yesterday, Chanos, who was speaking on behalf of the Coalition of Private Investment Funds, actually said that the Private Fund Transparency Act which Sen. Jack Reed (D-RI) introduced last month, doesn’t go far enough. Reuters has more details on this here and you can download Chanos’ 20 pages of prepared comments here. There was also testimony from Joseph Dear, the chief investment officer for Calpers and Trevor Loy, a managing partner at Flywheel Ventures.

One of the funnier moments at the hearing was near the beginning when Sen. Jim Bunning (R-KY) said he “wasn’t sure if the SEC could afford to hire the brains it needs to get to the problem. If I was a fund manager, I wouldn’t want to work for the SEC.” While the SEC has made several smart hires recently of career prosecutors and respected lawyers (see here and here, we’re still waiting for the announcement that someone at one of the Tiger Cubs, for example, has decided to pack it in to work for the SEC.

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Janus Departure Evokes Shakespeare

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janusIt appears to have been a busy weekend in Denver, judging by this exhibit to an 8-K that Janus Capital Group (JNS) filed with the SEC yesterday.

On Sunday,  Chief Executive Officer Gary Black’s employment with Janus was “terminated by mutual agreement.” And – based on the parting package that Black is getting – we would understand if he bade his former colleagues adieu with Juliet’s famous line from Act II, “Good night, good night! Parting is such sweet sorrow….”

Here’s what made Black’s departure seem pretty sweet to us:  First, he’ll get a lump sum cash payment of almost $6.8 million within 30 days after his right to revoke the agreement expires.  Next, if the directors and shareholders agree to reduce the strike price of the company’s outstanding stock options, then the price of Black’s options will fall, too.  Janus agreed to pay for Black’s COBRA premiums for a year and may pay for other insurance premiums, as well.  His restricted common stock options and mutual fund unit awards will vest immediately.  And – last but not least – the company will pay up to $50,000 for Black to relocate to New Jersey, and it will pay the attorney’s fees he spent to negotiate the agreement.

Wouldn’t it be nice if every exit had such a soft landing? According to this article, Black had fought “for more than three years to rebuild the mutual-fund company and cut the pay and influence of individual investment managers.” Indeed, it’s been quite awhile since we last footnoted the executive comings and goings at Janus — all the way back in footnoted’s early days of 2004.

At least he’s leaving amid some good news for the company, though.  As this article reports, 2nd quarter earnings were better than expected.  We’ll have to wait and see what happens to Black – and Janus – in the next act.

On mutual fund directors and multitasking…

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multitaskingWe don’t spend a lot of time looking at mutual fund filings here at footnoted, mostly because there’s really only so many hours in the day. But yesterday was a big day for mutual fund proxies and one of our regular searches — we have about 150 of them running now — turned up an interesting tidbit that raises some serious questions about just how many boards any one individual can sit on.

The answer, at least when it comes to Lee A. Ault, 73, the chairman of the CIA’s venture capital arm, In-Q-Tel, is 30. Actually, it’s more than 30. That was just yesterday’s filings. Ault’s name actually turns up in a whopping 371 filings — almost all of them mutual funds — just in the past year as an independent director.

We don’t mean to take anything away from Ault, who was the former Chairman of Telecredit. Nor do we mean to imply that serving on a mutual fund board is as hands-on as serving on a public company board. Indeed, Ault also serves on the boards of Office Depot (ODX) and Anworth Mortgage Asset (ANH). Still, even in an age of massive multitasking where some people follow thousands of people on Twitter, it’s hard to imagine any one individual being talented enough to adequately keep track of the doings at 350-plus funds and two public companies.

Ault is hardly the only one serving on dozens (or more) mutual fund boards here. One time last year, we did a similar search for Michelle Obama and turned up a bunch of results. But it seems as if someone at the SEC, which announced a series of new rules on proxy disclosure, needs to pay a bit more attention to the number of boards that some of these folks sit on. Especially if investors are really supposed to believe that these board members are independent.

On the SEC and CIT…

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CIT GroupThough it’s been awhile since we last footnoted CIT Group (CIT), given the news over the past few days, it seemed like a good idea to take a closer look at their filings.

One of the things that immediately jumped out was the relatively long string of comment letters between the company and the SEC, some of which just appear to be made public relatively recently. First, a reminder on comment letters: corresp are the letters that the SEC send to companies; uploads are the companies’ responses and uploads are the letters that the SEC sends. (Ed note: I don’t know why I can’t keep this straight in my own head!Grrrrr!) For some reason, Edgar always handles corresps as PDF files and uploads as links. And while the letters become eligible for public release 45 days after the issue has been deemed resolved, it doesn’t always work that way, which makes finding comment letters a bit tricky since you really have to be looking for them.

Now, the letters, the most recent of which was dated March 26 which is focused on disclosures in CIT’s proxy statement. Three days earlier, there was this longer letter which raised questions about CIT’s participation in Treasury’s Capital Purchase Program. Be sure to have a cup of coffee in hand before sitting down with this one!

All told, there’s been 13 letters back and forth between the SEC and CIT over the past year, which, trust me on this one, is a fair amount of correspondence, given everything else the SEC has on its plate. Still, until the SEC improves the way it handles comment letters, these incredibly useful documents will remain largely a historical exercise to look at after things start to go wrong, instead of a helpful tool for spotting problems in the past.

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Groucho Marx in the filings…

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groucho marxIs summer giving all the folks who normally slave to make SEC filings as boring as possible an opportunity to loosen up? The evidence may be anecdotal, but it’s growing. Exhibit A was this dead frogs disclosure from two weeks ago. Now, via fund of funds Ascendant Capital Partners, which filed this offering statement yesterday comes Groucho Marx. Here’s a snip:

Exclusive. Secret. Proprietary. These are words that have often been used when describing hedge funds. Investors in funds using these adjectives are asked to forego normal transparency and be glad that they have been accepted into these selective clubs. Sadly, the recent Madoff scandal proves that marketing pitches like this work. Investors, some supposedly sophisticated, overlooked many basic, common sense due diligence requirements because they desperately wanted access to his supposedly “elite” firm…

As a marketing strategy, there is no doubt that exclusivity and secrecy sell. However, from an investment standpoint, there is little if any truth to this facade. I have been in the hedge fund business for over twenty years, twelve as a hedge fund manager and over eight as a fund of funds manager. I have looked at hundreds of hedge funds employing all sorts of different investment strategies. There is no one strategy or technique that always does well. If one does it is quickly mimicked and rapidly loses its effectiveness. The events of the last year have had a dramatic and lasting effect on the hedge fund business. Many strategies will go away and there is no doubt that there will be increased regulation and oversight. Like Groucho (Marx), investors need be more discerning.

The comments come from the pen of Gary Shugrue, Ascendant’s Chief Investment Officer. And this isn’t the first time that Shugrue has poked at Bernie Madoff for serving as his own prime broker. Shugrue has also recently weighed in on the SEC’s uptick rule. And while we don’t know much about Shugrue, anyone who makes SEC filings more entertaining to read has our vote.

Smithfield’s Chairman re-ups as a $1 million consultant…

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smithfieldEver since he retired as CEO in August 2006, Joseph W. Luter III has been serving as non-executive Chairman and a consultant to Smithfield Foods (SFD). The original consulting agreement noted that Luter was being tapped to provide “cooperation with the Company in the transition of management of the Company following the Executive’s retirement” among other duties.

But three years later — CEO C. Larry Pope has been in the job since Luter left — Smithfield has decided to re-up the Chairman’s consulting agreement, according to the preliminary proxy the company filed yesterday. Under the agreement, which oddly enough never spells out how many hours Luter is required to dedicate to his consulting responsibilities, Luter is paid $1 million a year and another $32K for a company-paid car. Only Pope made more last year according to the filing. The one committee that Luter chaired last year — the Executive Committee — met zero times last year, according to the filing.

Oh — and there’s also the matter of Smithfield’s stock price during the time that Luter has been a highly paid consultant. Not exactly worth it’s weight, huh?

Denbury Resources’ CEO Extracts a Lucrative Exit…

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driOn June 30th, company founder Gareth Roberts stepped down as the president and CEO of Denbury Resources Inc. (DNR), an oil and natural gas company that operates in Mississippi, Louisiana, Alabama, and Texas.  And, based on the 8-K the company filed yesterday, we know that the concept of the Golden Parachute is alive and well.  (We also know that Roberts will continue to serve as the co-chairman of the board of directors and in the “non-officer role” as the “Chief Strategist of the Company”.)  Since the company had a succession plan in place, the move was not unexpected.

Roberts signed a “Founder’s Retirement Agreement” that provides for:

  • a payment (made June 30) in the sum of $3.65 million in cash;
  • the Company’s issuance to him of $6.35 million of the Company’s 93/4% Senior Subordinated Notes due 2016;
  • the sum of $250,000 per year for serving as Co-Chairman of the board through 2012;
  • payment for serving as “Chief Strategist” in the sum of another $250,000 per year, through 2012;
  • the right to participate in the Company’s insurance plans through 2012; and
  • assuming that he continues to work as the company’s Chief Strategist, Roberts “will be entitled to vest over time in his currently existing, unvested equity awards granted under the Company’s 2004 Omnibus Stock and Incentive Plan as per the existing terms and conditions of those awards”; and
  • Roberts also “entered into a 10b5-1 trading plan providing for the sale of up to 30,000 shares of the Company’s common stock at a specified minimum price between September 14, 2009 and December 31, 2009.”

The company’s press release (quoting board co-chair Wieland Wettstein) on the change credits Roberts for growing the company “from no more than an idea into its present stature into a leader in tertiary recovery with over 800 employees.”

However, the recent headlines about the company might lead one to conclude that the retirement agreement is extremely generous. For instance, this article from early May looks at the company’s 1Q 2009 loss of $18.3 million (compared to a net income gain of $73 million for the same period last year).  At the time, Roberts noted that commodity prices had fallen, but the company had made money “if you adjust for the non-cash fair value adjustments on our derivatives.”  He also noted that the company had increased its productions levels.

The production factor may have changed, though.  Yesterday this article reported that Denbury Resources lowered its production outlook for the rest of 2009.  The company sold a majority of its stake in the Barnett Shale natural gas assets to Talon Oil & Gas, LLC.  Now Denbury Resources says that it expects to reduce its production by 3,500 barrels of oil equivalent per day.

Fortunately for Roberts, the pipeline of cash flowing to him looks a lot more reliable.

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Ralph Lauren’s Proxy is a Pageturner!

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Ralph LaurenLast Thursday, Polo Ralph Lauren Corporation (RL) filed its proxy with the SEC, and – while it wasn’t exactly the same experience as relaxing on the beach with a thriller – it was a pretty dramatic read.

Our protagonist is a guy named Ralph.  At age 69, he’s at the top of his game.  The company he started in 1967 went public in 1997, and – 12 years later – Ralph is still the Chairman/CEO and a director.

There’s some nice dramatic tension on pages 20 and 21.  There’s this group called the Compensation Committee of the Board of Directors, see.  Well, they’re charged with working with this consulting firm, which was hired to “provide guidance in association with significant compensation decisions.”  So they’ve got to look out for the top guys, but – wait!  They’re also looking out for the shareholders, too.  Right?

On p. 22, we find out more about Ralph.  He’s been forced to get by (no raise) on the same paycheck he’d earned since November, 1997: a mere $1 million per year.  Happily, though, he got a new employment agreement in June, 2007 that boosted his salary to $1,250,000 as of March 30, 2008.  (The company just amended his agreement again on June 29, 2009, to provide that the 75,000 shares of stock he’s going to get each year will be performance-based restricted stock units rather than time-based restricted stock units.)

But there’s more!  It turns out the company has this bonus program….  We learn that “[a]t the time that the targets were set, the company believed that the specific targets for fiscal 2009 incorporated an appropriate level of difficulty and required significant ongoing performance improvements on the part of the Company in order to be achieved.  The five named executive officers of the Company were eligible for a bonus in fiscal year 2009 when the Company reached 80% of the net income before taxes target established by the Compensation Committee.”

Oh, no!  More Tension!

Well, [spoiler alert] it all turns out okay for Ralph; this employment agreement of his seems to be a good one.  Here are a couple of juiciest sections from page 24:

The bonus payment for Mr. Lauren pursuant to his employment agreement is based solely on the performance measure of net income before taxes and is not adjusted for the strategic goal of Company selling, general and administrative expenses as a percentage of net revenues. The bonus payments for the other four named executive officers are subject to adjustment for this strategic goal….


Mr. Lauren’s employment agreement provides for an annual bonus in fiscal 2009 with a target of $13,000,000 and a maximum of 150% of target, or $19,500,000. Based on the Company’s achievement of performance goals relative to the net income before taxes target established by the Compensation Committee, for fiscal 2009 Mr. Lauren received an incentive bonus of $13,886,364, representing 107% of his bonus opportunity.

We don’t learn much more about the minor characters – the shareholders – but the outlook for them is a bit bleaker. According to this article published at the end of May, net income for the 4th quarter of FY 2009 was $45 million, compared to $104 million for the same period last year.  But maybe they’ll do better in the sequel?

July Fourth by the Numbers…

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fireworksThe markets (and the SEC) may have been closed for the Fourth of July on Friday, but there was no shortage of numbers. Macy’s (M) set off 45,000 pounds of fireworks over the Hudson River from six barges. That same day Nathan’s (NATH) held its annual hot-dog contest where the winner ate 68 hot dogs in 10 minutes.

Not to be outdone, we here at footnoted decided to do a little number-crunching of our own. Though we’ve long thought that companies tend to take advantage of long holiday weekends to file all sorts of stuff with the SEC and have certainly seen enough anecdotal evidence over the past few years, we’ve never actually done the math. But this weekend we did and we were shocked — shocked — by the results.

Between 4 pm (after the market closed) and 5:30 pm eastern on Thursday (when the SEC stops accepting most filings), companies filed a whopping 324 8-Ks. That’s 3.6 filings per minute. We compared that to the previous Thursday (6/25) when 248 8-Ks were filed during those 90 minutes (and when the market was open the next day). That’s a 30% increase! While many of the filings were from little-known companies, there were also some interesting filings from several footnoted frequent flyers including Crocs (CROX), UTStarcom (UTSI) and First Marblehead (FMD). We’ll be talking about some of those filings in greater detail on FootnotedPro where a separate report will be available for purchase.

In addition to the 8-Ks, which felt like a better measure than 10-Ks or 10-Qs since those are a bit less flexible in terms of deadlines, we also took a look at Form 4s, which we don’t normally spend much time looking at. Unlike other filings, the SEC actually accepts Form 4s until 9:30, so the window is a bit larger. But the results were even more shocking: after the market closed on Thursday, we counted over 1,700 Form 4s filed between 4 pm and 9:30 pm. Compare that to just 324 that were filed all day on June 25. That’s a more than four-fold increase.

Now maybe this is all just due to chance and we (or even better — someone else) probably needs to look at other holidays over several years. But it certainly seems more than just a strange coincidence.