GM Statement re: GM stock price and volume
GM management has noticed the continuing high trading volume in GM’s common stock at prices in excess of $1. GM management continues to remind investors of its strong belief that there will be no value for the common stockholders in the bankruptcy liquidation process, even under the most optimistic of scenarios. Stockholders of a company in chapter 11 generally receive value only if all claims of the company’s secured and unsecured creditors are fully satisfied. In this case, GM management strongly believes all such claims will not be fully satisfied, leading to its conclusion that GM common stock will have no value.

GM’s stock, which had been trading over $1 earlier this week before GM made its plea, is now around 80 cents. But judging by some of the comments posted on this Barron’s blog, some investors still aren’t willing to give up.

As was also reported yesterday, GM declined to estimate how many vehicles it will produce in the third quarter.  GM’s sales analyst was quoted as saying that since there is an ongoing bankruptcy proceeding, it would be more “prudent” to provide that estimated number after the company sold off its Saturn, Hummer, and Saab brands.

In another publication, CEO Fritz Henderson said that the cost of winding down the company might exceed the original estimate of $950 million.  Henderson was quoted as saying that - because of environmental liabilities - the costs might actually reach $1.2 billion.

The one bit of good news for the auto maker was in this article, which reported that GM’s vehicle sales in China rose 38 percent in the first half of 2009. The report credits China’s tax incentives and subsidies for the increase, saying that China is trying to give a boost to its fledgling auto industry and provide a spark to its struggling economy.

Speaking of sparks and struggling economies, the SEC will be closed tomorrow in observance of Independence Day.  We wish you a happy and safe 4th of July, and we’ll be back Monday with anything juicy that gets filed late this afternoon.

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According to its just-released Fact Sheet, the Commission is “considering whether to propose a set of revisions to [its] rules that would improve the disclosure provided to shareholders of public companies regarding compensation and corporate governance matters when voting decisions are made.”

One group that will be at the hearing is the Center on Executive Compensation.  According to its web site, the group “strongly opposes the rationale for and the impact of an annual vote on pay.”

Since executive compensation issues have gotten so much attention lately and affect not only executives, but also investors, employees, and the general public (we pay the price for those goods and services, after all), this should be an interesting hearing.

UPDATE: Now that the meeting is over, here’s the WSJ’s take. Was actually surprised that there weren’t many people — there’s a small community of people on Twitter interested in this sort of thing — who were following today’s events. We’ll post statements from the various commissioners as soon as they show up on the SEC site. So far, only Comm. Paredes’ statement is available.

In this 74-page slideshow last Friday (there’s lots of pictures, so don’t be too scared), the company’s CFO noted that because it was raising prices on cigarettes in dozens of countries it was actually helping various governments. Here’s how Philip Morris describes it in one of the slides: “Higher cigarette retail prices are boosting government revenues.”

Need proof? Just look at slide #13, which showed the price of a pack of Marlboros in the Ukraine climbing a whopping 78% since January 2008. Slide #12 shows how taxes have also increased dramatically in the Ukraine, rising more than four-fold since Jan. 2008. Despite these sharp price hikes, slide #14 shows that a pack of Marlboros is still cheaper than many other things that consumers might buy in the Ukraine, including a movie ticket, a bottle of Budweiser, a Big Mac, and Colgate toothpaste. Milk, bread, Coke and beer are cheaper than a pack of Marlboros, the slide shows.

We also liked Slide #23, which showed that despite a sluggish economy, Mexican smokers are still willing to plunk down money for Marlboros (and other premium brands) — a whopping 65% opt for premium brand cigarettes there compared with just under 13% in Poland. Another slide shows that Marlboro’s market share in Mexico is just under 50%.

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Hicks is no stranger to the world of footwear. He served as the president of Payless Shoe Source, Inc. from 1999 until 2002. After he left Payless, he went to J. C. Penney, where he most recently served as the company’s president and Chief Merchandising Officer. He was paid very well at Penney’s; according to this proxy filed March 31, 2009, he earned a total compensation package worth more than $4.3 million, the base salary portion of which was $885,000.

Yet the Foot Locker gig promises to be even better. When Hicks starts his new job on August 17, 2009, he’ll earn $1.1 million in salary. He’ll get another $2 million as a signing bonus ($1 million within 30 days after starting the job, and another $500,000 on each of the next two anniversaries). He stands to earn nearly another $1.4 million under Foot Locker’s Annual Incentive Compensation Plan and just under another million under the Long-Term Incentive Compensation Plan. Sprinkle in some other goodies – stock options, restricted stock grants, a car service for work in New York and another $40K for a car, up to $15K for legal fees to negotiate this deal with Foot Locker, plus more, and – well, it’s not hard to see why Hicks is leaving Plano, Tx for Manhattan.

Even so, Hicks’s deal is still less than Foot Locker’s current chairman, president, and CEO, Matthew Serra, makes.  In 2008, Serra’s base salary was $1.5 million.  According to this exhibit to Friday’s filing, Serra will continue as the Chairman of the Board after Hicks steps into the president/CEO role in August.  Since compensation is not one of the terms addressed in his Amended Employment Agreement, apparently Serra will continue to earn his current salary until he completely retires at the end of next January.

Indeed, the whole arrangement sounds eerily similar to PacSun (PSUN) CEO training program that we footnoted last week. Which makes us wonder why seemingly experienced executives need a highly paid babysitter to hang around?

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It was filed by CKE Restaurants, Inc. (CKR) - the company behind Hardee’s and Carl’s Jr. restaurants – you know, the fast-food joints where you get those late-night Western Bacon Thickburgers and Jumbo Chili Dogs when nothing else will do.

Here’s what we found, which comes shortly after CEO Andrew Puzder explained that while “It has never been my goal to get excited over reporting flat earnings or margins,” the fact that the company’s operating income and margins remained steady in spite of the poor economy and competitive industry practices was “a testament to our management team and the strength of our brands.” Then Puzder said:

We just launched a very innovative partnership with YouTube whereby we are utilizing some of their most popular video stars to produce short videos promoting our burgers. With a combined following of 3.2 million subscribers, these video bloggers (“vloggers”) are helping us target our customer demographic where they already are. In addition, the media cost is much lower than with traditional advertising. According to www.mashable.com, the world’s largest blog focused exclusively on Web 2.0 and Social Media news, our sponsored video content appears to have ‘turned out to be a big hit.’ In fact, just one of the Carl’s Jr. vloggers created a video that’s already received over 2.4 million views across the web. All of the Carl’s Jr. vloggers’ videos, combined, have been viewed more than 5.7 million times.

But it’s not just Carl’s Jr. We also noticed the annual report that Bob Evans Farms, Inc. (BOBE) filed earlier this week. In it, the company touts its use of “BE-Mail”, Facebook, Twitter, and a revamped web site.  Be sure to check out the unlikely pairing of its list of corporate Twitter users with the down-home images of rolling hills. Then again, a quick scan of some of Bob Evans tweeters shows that they’re not exactly regulars.

Of course, the real question is whether this embrace of social media technology by decidedly non-tech companies is worth the money and the effort. We’ve eaten at Bob Evans before and it’s hard to imagine much overlap between those folks and people who crashed Twitter yesterday looking for news and sharing memories about Michael Jackson.

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Yesterday, I offered a free trial of my partner, Research Edge’s research to qualified readers of footnoted.org. But because my coding skills aren’t quite as good as my SEC filings reading skills, the link that went out was broken. If you’re interested in the free trial, you can contact Research Edge here.

What’s interesting is that Citi isn’t the only one. As I wrote on Research Edge on Monday, Discover Financial (DFS), which has received about $1.2 billion from the Treasury Department, disclosed its own hefty salary increase program in this 8-K filed late Friday. According to the filing, three of Discover’s top executives will see their base salaries go up by 50%, while Chief Operating Officer Roger Hochschild will see his base pay go up by 33%. Chairman and CEO David Nelms’ salary will not increase.

What’s particularly interesting about Friday’s filing, however, as I wrote on Research Edge on Monday, is that Discover seemed to go out of its way to throw people off the scent of the hefty salary increases. In the filing, it states that “NEOs’ total compensation for fiscal 2009 is expected to be significantly lower than for fiscal 2008.” It’s only when you compare the new salaries to the proxy statement filed back in February, that you start to see the hefty increases.

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When you come from a frame of reference, as we do, where $0 spent on legal expense would be the most preferred alternative, having to predict anything beyond that, by its nature, would become inherently and incredibly biased towards our own wants, desires and expectations. To us, this is somewhat akin to being asked to predict how many minutes after being force fed a dead frog we would throw-up…and the operative word is “force,” as we’d never elect to do either on our own. In both cases (the legal fees or swallowing the dead frog) we’re certain we would eventually throw up. In neither case do we know exactly how much money or how much time would pass before we did. In both cases, however, our gut check, no pun intended, is not very much and not very long! It should go without saying that given our druthers, we’d rather not spend the legal fees or eat the dead frog in the first place. Sometimes you don’t get the luxury of deciding what you have to eat. When you do, and it’s unpalatable, it should be obvious that you would eat as little as possible. What we are certain of is that if we were talking about being force fed dead frogs and not incurring excessive legal fees, people would be content accepting at face value that it would be as little as possible.

We’re not sure who Expeditors outside counsel is, but it’s probably a pretty safe bet that they don’t like their billable hours being compared to the force-feeding of dead frogs. And while we’re pretty sure that the dead frog reference is figurative, instead of literal, hopefully PETA won’t find out about it or Expeditors could have another mess on their hands.

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Mr. Fetting’s leadership of the company during one of the worst financial crises of the last 100 years, which particularly affected financial services companies

Just to make sure, we did a quick check for the word crisis (or crises) at other financial services companies and didn’t come up with anything that even came close. While the word was used in several other proxies, it wasn’t used in a way to justify a bonus and there were no pronouncements about this being the “worst financial crises”.

Equally interesting is that while the board set Fetting’s bonus at 21% of the bonus pool in June 2008, Legg Mason’s loss of $1.9 billion last year meant that there was no bonus pool. But that didn’t stop the bonus because as the comp committee writes in the proxy the net loss was due to just two items and without those two items, the company “would have had net income, and the plan would have produced a total bonus pool large enough to accommodate the annual incentive awards made. Although the terms of the plan do not explicitly provide for the exclusion of those items, the Committee considered the items to be extraordinary expense.”

Just remember: where there’s a will, there’s a way.

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Image source: Associated Press/Chris Gardner

Please note Mr. Armstrong’s emphasis is on accountability, accountability, and accountability. Accountability is where Mr. Armstrong believes the Board has already failed. The members of the Board are apparently so entrenched that they disregarded sound and ethical business practices and allowed the Chairman to place his stock ownership in a margin account where he was forced to sell 90% of his shares when the market price of Chesapeake stock collapsed.

The Board members then rewarded him with a well cost incentive award, stock awards worth $20 million, and continued use of the corporate aircraft for personal purposes, creating total compensation of $100 million, making him the highest paid executive in our country. The Directors are also among the highest paid in the country, as well. Some were compensated more than three quarters of a million dollars in 2008.

This compensation is excessive, and has been brought about by the lack of independence and accountability of the Board; something that can be rectified by Mr. (Gerald) Armstrong’s proposal.

Maybe we haven’t looked hard enough, but we can’t recall a lot of filings that include transcripts of annual meetings in them. Of course, as we’ve footnoted in the past (see here and here) , Chesapeake’s annual meeting wasn’t likely to be a rote affair. One individual investor, Jan Fersing of Ft. Worth, Tx, was particularly harsh during the Q&A part of the meeting, when he told CEO Aubrey McClendon:

“So, your $2 billion fortune was not enough; you wanted more. But this time your hand got stuck in the cookie jar, and you couldn’t let go until your own cookies were taken in the process. And after your embarrassing losses, but with a carefully picked and extremely well compensated Board of Directors, Chesapeake shareholder funds were partially used to cover your losses.”

When McClendon answered, he had this to say:

I’m sorry you have such a dim view of my capabilities and my talents and my contributions. I’m quite confident, sir, that there’s not another CEO in the industry or in the country who has ever spent $185 million buying stock directly from his company, so the company could use that money to go out and explore for and find natural gas. In addition, I spent another $315 million in the open market buying stock, again, an amount that I don’t believe any other CEO has spent buying stock in their own company.
Why did I do that? Well, you tell me it’s because of my greed and my ego. I differ. I did it because I believe in what I do for a living; I create value. I started this company with a $50,000 investment, with my friend Tom Ward,20 years ago. We had 10 employees. We had about 3,000 square feet of space. Today, we employ 8,000 people directly. We employ another 50,000 people indirectly. We have 400,000 shareholders. A certain number of them are not happy today, but it’s a relatively small number, as you can see from the large percentages of people who re-elected our Directors. I’ve worked 100 hours a week, at least, since 1989 building this company. I’ve sacrificed a lot to do that. I sacrificed $500 million that I lost last Fall as a result, not because of bad decisions, but because of things beyond my control in this country’s economy and with regards specifically to natural gas prices.

So, I’m sorry that you find me as egocentric and greedy. But, I’ll tell you there’s not a harder working guy out there who thinks every day about how to create shareholder value. And, I’m dedicated to that. I’ve been dedicated to it for 20 years. And as long as this Board is willing to employ me, that’s what I’ll be dedicated to for the next 20 years. And I’m sorry that you’re going to sell your shares of stock. I’m sorry that there was nothing that we could say here that would change your opinion. I’m sure you’ll do well with whatever else that you invest your money in. But I want you to know that you do not properly characterize my past, my present, or my future by your prepared statements today.”

See? More entertaining than most anything else you’ll read this summer.

Today’s entry is from Cardinal Health (CAH), which has been something of a frequent flyer on footnoted. In this filing from earlier today, they talk about giving employees the right to exchange options that are priced higher than $56.45 a share. The filing includes a wide range of additional material from FAQs to screenshots of the back end, now doubt to help people like this truck driver understand the benefits of trading in their boatloads of options for new, lower priced ones.

A quick scan of Edgar shows that the pace of companies offering stock option exchange programs seems to be accelerating. We counted over 80 filings that mentioned stock option exchange programs in June 2009, compared to just 11 filings in 2008. Granted, many of those are multiple filings for the same company. Still, it’s hard to ignore the fact that option exchange programs seem to have really taken off lately.

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