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Kit Menkin’s Leasing News www.leasingnews.org Tuesday, April 16, 2002 Accurate, fair and unbiased news for the equipment Leasing Industry Headlines---- Rates fall in Treasury bill auction
Stocks Fall as Citigroup, GE Weigh GE Capital plans to lay off 7,000 employees
Accounting, revenue worries assail GE Marlin Leasing Secures $75 Million CP Warehouse Facility Commercial Money Center---San Diego Tribune-Union on the Job Inter-Leasing Association Committee Meeting in Orlando, Florida NAELB Orlando, Florida Conference Reaction U.S. Economy: Higher Energy Costs Erode Spending Leasing News Recruiter Reaction Barry S. Marks, Esq. NAELB Orlando Address Microvision Initiates Customer Leasing Program Comdisco Begins Trading on the Over-the-Counter Streamlined Sales Tax Project Definition Report Wrap-Up GAO Says Amtrak should make better decisions Providian agrees to sell 1.7 million high- risk accounts Tales from the AMT battlefront ### Denotes Press Release By Associated Press WASHINGTON (AP) Interest rates on short-term Treasury securities fell in Monday's auction. The Treasury Department sold $10 billion in three-month bills at a discount rate of 1.680 percent, down from 1.710 percent last week. An additional $10 billion was sold in six-month bills at a rate of 1.905 percent, down from 1.975 percent. The three-month rate was the lowest since Jan. 22, when the bills sold for 1.670 percent. The six-month rate was the lowest since March 4, when the rate was 1.890 percent. The new discount rates understate the actual return to investors 1.712 percent for three-month bills with a $10,000 bill selling for $9,957.50, and 1.950 percent for a six- month bill selling for $9,903.70. In a separate report, the Federal Reserve said Monday that the average yield for one- year constant maturity Treasury bills, the most popular index for making changes in adjustable rate mortgages, fell to 2.53 percent last week from 2.64 percent the previous week. ________________________________________________________________________ Stocks
Fall as Citigroup, GE Weigh By Haitham
Haddadin NEW YORK
(Reuters) - Blue-chip stocks dropped on Monday after disappointing results
from financial behemoth Citigroup Inc. (C.N) renewed jitters about sagging
corporate earnings at the start of the first-quarter earnings season.
Conglomerate
General Electric Co. (GE.N), whose businesses include manufacturing,
finance and the NBC television network, also pulled down the market,
dogged by lingering investor concerns about slowing earnings. ``There's
some sector rotation going on,'' said Gary Wedbush, head of trading
at Wedbush Morgan in Los Angeles, referring to the market dichotomy.
``One thing that is having a negative impact on the Dow (blue chips)
is GE, which is very weak,'' Investors
are on tenterhooks and hoping for signals of a profit recovery in the
first-quarter results. A raft of firms will announce profits on Tuesday,
dubbed ``Super Tuesday'' on Wall Street. The coming trading session
is also a big day for economic data with up to eight reports expected,
including March retail inflation data. ``This
is the biggest earnings week for the quarter and it didn't start off
with a bang,'' said Matthew Ruane, director of listed trading at Gerard
Klauer Mattison & Co. GE ``wasn't that spectacular on the conference
call ... to me it didn't enlighten anyone for the certainty going forward.''
Citigroup
slumped $1.18, or 2.5 percent, to $45.92, weighing on the Dow. The company
posted quarterly profits that missed analysts' forecasts analysts as
its corporate and investment banking income slipped. Citigroup was the
New York Stock Exchange's third-most active stock. GE, the
most active name on the Big Board, fell $1.70, or 5 percent, to $31.85.
GE slumped last week after posting a rare drop in net income after charges
for accounting changes. Its revenues were weaker than many analysts
had expected. GE late in the day said its financial arm was slashing
7,000 jobs. ---------------------------------------------------------------------------------------------- GE Capital plans to lay off 7,000 employees
By John Christoffersen ASSOCIATED PRESS STAMFORD, Conn. – General Electric Co. said Monday it plans to eliminate 7,000 jobs this year at GE Capital to improve productivity at the financial services division. James Parke, chief financial officer of GE Capital, discussed the plan in a conference call with analysts and investors, said David Frail, a company spokesman. The cuts represent slightly more than 2 percent of GE's work force of 310,000. Frail said the cuts were not related to recent criticism of the company's finances or its first-quarter earnings report last week. "It is a regular part of the business," Frail said. GE earned $2.50 billion, or 25 cents per share, in the January-March period, down from profits of $2.57 billion, or 26 cents per share, in the same quarter of 2001. It was a rare drop in profits for the blue chip company. GE's profits matched the consensus forecast of analysts surveyed by Thomson Financial/First Call. But its flat revenue was below expectations and raised concerns about maintaining strong profits. GE Capital represents about 40 percent of the company's profits. Critics, including a leading bond trader, have questioned the source of GE's profits and its proportion of short-term debt. GE has stepped up its disclosures in response to the concerns and repeatedly reiterated its earnings forecasts. Other GE businesses include the NBC television network, aircraft engines, medical equipment and appliances. ------------------------------------------------------------------------------------------------------
Marlin Leasing Secures $75 Million CP Warehouse Facility Marlin Leasing announced it has completed a $75 million commercial paper conduit facility. The facility is funded by North Coast Funding, a CP conduit administered by National City Bank, utilizing a financial guarantee policy issued by MBIA Insurance. Daniel Dyer, CEO of Marlin, commented: "This facility provides access to investment grade commercial paper rates. In addition, this newest facility adds to our existing financing capacity and further strengthens Marlin's position as a leading source of small- ticket leasing to vendors and small businesses throughout the U.S." Seventy-five percent of their business is from direct sales/captive vendor relationships; twenty-five percent from equipment leasing brokers. ------------------------------------------------------------------------------------------------------------- Commercial Money Center---San Diego Tribune-Union on the Job Don Bauer of the San Diego Tribune-Union was e-mailed the Leasing News story by readers who live in the area. He is working on it. He has the time, the expertise, the ability, to dig deeper. Let’s see what he finds out. In the meantime, readers continue to send us more information: A few years back we were approached by Wayne Pirtle ( alleged de facto president of CMC) to lease $250,000-300,000 of PinnFund's new office furniture and computers, etc. for the opening of their Chicago office. The financials looked fine, but there was hesitancy on our part because they did sub-prime mortgages, and we were concerned if they'd be able to continue to sell off their sub-prime paper [this was just after the Mercury Finance (sub prime auto paper) thing unraveled (Mercury Finance was cooking the books) in the Chicago area]. The real kicker was the transaction was submitted with full financial disclosure and audited statements etc., and the all-in yield on the transaction was in excess of 20%. So we reasoned they were not very good business people if they were willing to pay 20% with the strength of their financials or someone was asleep at the switch (management had no financial controls if they were willing to pay those rates that the broker negotiated). So if it walks like a duck and quacks like a duck, then it's a duck, or if it's too good to be true, then it is. It just seemed like one of those credits where one says to himself, "This is a house of cards". It looks like we dodged a nice size bullet. Thanks for the updates. ( name withheld ) -- Just got to say Kit that I guess that I am lucky that you weren't doing your Leasing News in the fall of ***** through ****! What your first reader (name withheld) said really struck a cord with me. I guess he really won't know how much his career has been affected until years (and I mean years) go by, and he is still denied an interview based on the combination that CMC is on his resume and that he was in upper management...that seems to be where blame lays, and also where it is most difficult to take away blame from. After all wasn't it Shakespeare who said "he who protests the loudest..." Also thought I might throw it out, that if it has not yet started, there will definitely be a FBI investigation. Once that starts, anyone who knows anything of worth should expect that knock on the door in the dark and Mulder and Scully will be standing there with their ID's. Not a moment that I would want my family or me to ever relive again. Keep up the good work, but understand when good people can't really put their name on things, it could compromise their testimony later! You guessed it - Name withheld!!! --- I
thought that the writer of the e-mail who claimed their actions/behavior
was done
by management or had to be done to be approved or that was how you made
the credit lines work, are GUILTY. If someone tells you to do something, and
you know you should not, but you do it because you were told to do it,
then you are as guilty as they are. As
I told all my employees when it started coming down, we are not in slavery
here, you should only do what you feel is correct to do, we all have
to lay our heads down at the end of the day and know we did good work
that day, that if anyone asks you to do anything that does not sound
kosher, then you as an employee have a responsibility to ask questions
of others in the company, that is the only way to stop the guilty from
getting away with murder. Thank
goodness that all of my employees that worked in my department (over
55 total) before we closed down were not guilty of any wrong doing! (name with held -- ( Leasing News could find no information about the second corporation filed in the suite by one of the insurance bonding companies, but this reader fills us including why individuals are being sold: they personally guaranteed the transactions:) CSC would be named as that company was responsible for reporting the figures on the portfolios and was a separate corporation although it had no assets of its own. Once CSC effectively split the operation into 2 companies, one to service and another to sell, they took over all of the duties associated with the performance of invested funds and reported those figures to the investors and sureties. Because the information was manipulated, I can fully understand that CSC would be named. Nevertheless, they were acting on behalf of CMC, there was no real separation between the two. All of the parties signed Personal Guarantees at one point or other, so I'm not surprised that they would be named as individuals as well. That's when it's really going to get interesting, when this gets into personal assets. You will be shocked at how these people lived. Suffice it to say that there was no evidence that anyone named Fisher or Pirtle ever went hungry. --- The none-payment to the Kiosk vendor story must be part of the "Healthcare Kiosk Program", established by Dr. Fisher to give visitors to the Kiosk at shopping centers medical information and to promote chiropractor care. It was designed to steer visitors to chiropractors who signed up for the Kiosk information program. No fee, just a flat charge to be listed as a place to go ---- From: Archie Julian <JulianA@ExchangeBank.com> Kit: Thanks for doing such a good job. I thoroughly enjoyed reading about the CMC mess. Also, you mention entrepreneurs which in the Leasing Industry should be translated as "Living by ones wits." Inter-Leasing Association Committee Meeting in Orlando, Florida Eastern Association of Equipment Lessors Mid-America Equipment Lessors (affiliate of Equipment Leasing Association) National Association of Equipment Leasing Brokers United Association of Equipment Leasing Members of the Boards of UAEL, MAEL, EAEL and NAELB met in Orlando last week preceding the NAELB convention to discuss improved cooperation among associations. There was an open-minded sprit with all participants. We intend to have a second meeting of this group at the UAEL/EAEL Conference in Las Vegas in May. We will keep you posted on our progress. Mike Meacher meacher@bankgrouponline.com 800-403-0422 National Association of Equipment Leasing Broker Orlando, Florida Conference Over 200 attended the National Association of Equipment Leasing Broker Orlando, Florida Conference. Fifty of the attendees were funders. Yesterday we reported that
John Chase, Chase Lease, Jim Borland, US Energy Capital, and John
Winchester, ComCo Equipment Leasing Group, were elected as Directors
of 475 member National Association of Equipment Leasing Broker at the
Orlando, association. Michael Meacher, TecSource, was saluted for the
work he did as president. Bob Bell, Independent Leasing Associations,
was elected as President-Elect and Gerry Egan, TecSource was chosen
president. Reaction
to the conference has been excellent, such as: “It
was an awesome conference. Everyone was open and sharing with information
on how to increase sales and produce better business. We are
proud to be a member in this organization and hope those brokers who were
not able to participate in this years convention will be able to join
us in Chicago next year.” -- Tammy
Negelein, Transaction Manager lsmart@azstarnet.com Lease
$mart - Equipment Leasing & Financing for Business & Industry http://www.lease-smart.com Happiness
is . . .
A Positive Cash Flow (TM) 520/628-9929
or 800/947-2451 ----
cc:kitmenkin@leasingnews.org
I would like to say Thank You to Bob Bell and all the folks that had
anything to do with the conference for a job well done. I thought this
was just an overall EXCELLENT meeting.
The folks in Chicago now have big shoes to fill.
Scott Thomas sst@jamesrivergroup.com
James River Leasing PS
- Missed you in Orlando. (
Sorry, I am the past chairman of the Salvation Army Adult Rehabilitation Four
County Division and had made a prior commitment to the current chairman that
if he took the job, I would be there to help him out. I did miss many of
my friends, plus the news opportunities. editor ) --- cc:Kitmenkin@leasingnews.org We
should also congratulate the people who made the effort to attend.
It isn't always easy to take time out from your business and personal
life for these events. The folks that did go were a group of individuals
who are very committed to their companies, the association, and the
industry. The
numbers may have been down slightly, however that was more than offset
by the quality of the crowd that was present. Those fortunate enough
to attend got to meet with a dynamic group of experienced and successful
entrepreneurs*. There may have been a general feeling of concern
in the room about the past year, but there was also a sense of optimism
and confidence that was inspiring. A
few people at the conference commented that they were surprised at the
lower turnout. Each time I mentioned the positive aspects of networking
only with experienced people who were serious about this business, they
unanimously agreed that it was better. (Yes, even the funders If
Shari and the Chicago organizers can get this same group of wonderful
people to attend next year, they'll be guaranteed a success! (
name with held ) U.S. Economy: Higher Energy Costs Erode Spending Washington: U.S. retail sales rose less than expected in March as shoppers spent more on higher- priced gasoline and reduced purchases of furniture, clothing and automobiles, suggesting the recovery may be losing momentum. Excluding a 3.8 percent rise for gasoline, sales were unchanged, the Commerce Department said. The 0.2 percent gain for all retail sales matched a February increase that was less than previously reported. ``This is a reminder that consumers are not getting carried away,'' said Stuart Hoffman, chief economist at PNC Financial Services Group, Pennsylvania's largest banking company. ``It's going to be a below-average recovery.'' Consumer optimism slipped this month, the University of Michigan reported. The most likely reason was higher energy costs, which pushed up the producer price index by 1 percent in March, the largest increase since January 2001. Sustained higher oil costs may limit the amount of money consumers have for other purchases, causing growth to cool in the current quarter. ( courtesy EFJ.com ) Feds Put HP Merger Under Microscope By Michael Singer Internet.com News Two separate government offices have asked for additional information from Hewlett-Packard (NYSE:HWP) in reference to its $19billion proposed merger with Compaq Computer (NYSE:CPQ). The Palo Alto, Calif.-based computer and printer maker confirmed the request in its Form 8-K (special announcement) filing issued Monday. HP said it is cooperating fully with both inquiries. Officials with the San Francisco office of the Securities and Exchange Commission and the U.S. Attorney's Office for the Southern District of New York are reviewing the March 19 proxy vote cast by Deutsche Bank and Northern Trust and their respective affiliated parties. Their concern, mirroring a lawsuit filed on March 28 by HP board member Walter Hewlett who rallied against the merger, suggests that HP used its corporate muscle to sway shareholders at the last minute. The issue has taken on a life of its own with the recent release of a corporate voicemail between HP CEO Carly Fiorina and CFO Bob Wayman in which she suggested that HP might "have to do something extraordinary for those two (Deutsche Bank and Northern Trust ) to bring them over the line." While HP is acknowledging the conversation, it denies any wrongdoing. "We have long-standing relationships with Deutsche Bank as well as with many other institutional shareowners," HP released in a statement. "Some of them voted for the merger, others against, some split their votes, and others changed their minds -- in both directions. We never acted improperly. We remain optimistic that we can close the merger on our current schedule." In its 8-K filing, HP said it received a subpoena on April 10 to produce information from the New York Attorney's Office and then a separate request from the SEC. The company said the interaction with both offices was informal and "The SEC has advised us that this inquiry should not be construed as an indication by the SEC or its staff that any violations of law have occurred, nor should it be considered a reflection upon any person, entity, or security," HP said in its filing. Meantime, Hewlett's suit has been given the green light by Delaware Chancery Court judge William B. Chandler III despite HP's motion to dismiss the complaint. The no jury trial is set for April 23 and could result in a second shareholder vote or the dismissal of the votes in question. The result of the proxy election is still being tallied by IVS Associates in Delaware and is not dependent on the outcome of lawsuit. _______________________________________________________-- Leasing
News Recruiter Reaction ( perhaps we should have a “Recruiter’s
Page” ) Well
said, Teri!!!! Teri Gerson is a respected recruiter serving the financial
community and has far more experience at it than I. But without being
presumptuous, I believe there is additional value-added by using recruiters
than she had mentioned. When I first became a recruiter, I thought
I knew everything as a business manager that I needed to know about identifying,
screening, interviewing and extending an offer to a candidate. I'd
done it successfully so often over the years. Or so I thought. The fact
is, and I see it so often, many hiring managers are not getting the best
candidates because they either don't know what they're doing or they don't
know what they are looking for. In
identifying and screening the scores, if not hundreds of resumes that come
in for any single position, many hiring managers focus on the title, duties
and responsibilities of a position. If someone's done it before, certainly,
they can do it again. Often they do not factor in what the person
has accomplished and how those accomplishments equate to their own performance
goals (if they even know what they are), nor what the potential of
a candidate might be, nor even of what the candidate's own goals are
for his
or her career path. When
interviewing candidates, it's not uncommon to un-sell the candidate while
trying to sell the position or to converse on two different levels, often
because of a degree or two in jargon, and worst of all, it's easy for the
interviewer, either intentionally or not, to convey an arrogant attitude,
after all, he or she is the one with the job. And
finally, when extending an offer to candidates, many companies fail
to recognize
that compensation is not the sole driver and determinant, nor even the
dominant one except for salespeople, and they lose the opportunity to bring
on highly qualified candidates because they did not sell the opportunity,
only the money; they did not sell the company, only a number. As
recruiters we deal with these issues daily. We work with our candidates to
help them identify their goals and the kind of people it will take to achieve
them. We match culture as well as need and skills. We provide feedback
to employers who are mismanaging their interviewing techniques, often
because of their own time restraints, and we let the candidates know that
these kinds of things are liable to happen in an interview and to be prepared
for them, not to be put off by an occasional interruption, that like
it or not, hiring someone is not always the interviewers first priority.
And when it comes to extending the offer, we are often the mediator
who can get both sides to recognize where an offer should be, why it
is a good or not a good offer, and the other benefits and growth opportunities
of working for your company. We
play a crucial role in the hiring process. A short term placement to
us is
tantamount to a bad lease. If you're in it for five years, you expect the
lessee and the equity and credit partners to be in it for the term.
If you
sold any number of leases that defaulted to a funder, how long would they
continue buying your paper? Well it's pretty much the same with us. We're
in it to see that you get the quality of person who fits your environment
and who can meet the expectations you mutually agree can and should
be able to be met. If you don't hire the person who meets all of those
qualifications, you're buying your own bad paper. Maybe it's time to outsource
that part of your business. Hal
Horowitz Account
Executive Search
West 340
North Westlake Blvd., Suite 200 Westlake
Village, CA 91336 Phone:
805-496-6811 ext. 231 Fax:
805-496-9431 Cell:
818-730-0645 hal.horowitz@searchwest.com http://horowitz.searchwest.com "It
is my mission to collaborate with my clients in order to further their success
by identifying professionals of uncommon ability to whom my clients might
not otherwise have access and who will make a valuable contribution
to my
clients' goals." To
find superior people You
must first define superior performance. ---------------------------------------------------------------------------------------------
Barry S. Marks, Esq. National Association of Equipment Leasing Brokers address at the Orlando NAELB
2002 SPEECH I
have been given a daunting task: to tell you, the brokers, funders and
other leasing professionals, “where we are, how we got here, and
where we go from here”. The
fact of the matter is, many of you can do this better than I. We all
approach these questions like the blind man trying to describe the elephant.
Those of us who put our hands on the side of the elephant think it is
a wall; on the trunk, that it is a snake. Actually,
I imagine most of you feel as though you have been assigned a position
directly beneath the elephant’s tail. You greet each day with
a sense of disgust as to where you are and a grim expectation as to
what’s coming. So
forgive me if I tell you that I know I will be telling you what most
of you consider to be what you already know. Hopefully, from my vantage
point as a lawyer who works with those on all sides of the leasing industry
I will be able to give you something like Alexander Pope’s definition
of wit: “what oft was thought but ne’er so well expressed.” Maybe
by stating the obvious, we can all see something new. So, hold your
noses, here we go. WHERE
WE ARE
Writing
in a recent issue of the Equipment Finance Journal, Jim Renner of
Wells Fargo and Rich Masulli of a CIT affiliate seem to agree with respect
to middle market and small ticket transactions. Our
economy is clearly in (or just coming out of) recession. This means
that credit has been tightened, we have less potential customers, our
customers’ credit is weaker and, in general, there are less deals
and less dollars to do them. Truly a “Double Whammy.” As
Renner and Masulli point out, the key to our industry is the availability
of capital. I would add to this the corresponding need for capital
on the part of our customers. Money
is always there for “good deals.” It is the b, c and d credit
deals and the ever-present “good guy with a story” that go
wanting. Recent
times have seen the all-too familiar consolidation of funders result
in what Mr. Renner describes as a new math of leasing: 1 + 1 = 1. Those
of you who are familiar with Kit Menkin,s Leasing News have seen the figures on our
funders. Dozens of old standby’s are no more. At
the same time, the securitization market is virtually dead, drying up
a source of capital that looked good for a while. The losses suffered
by many former equity investors means that their tax appetite will be
reduced. Banks, as some of you know all too well, are facing additional
regulatory pressures as a result of certain cross-border transactions
and, most recently, Enron. We
have seen the dot.com crash end an optimistic outlook as to an entire
new industry we thought to service. Recently,
the Equipment Leasing Association published a market report indicating
that, as compared to the fourth quarter of 2000, the end of 2001 saw
new business increased by 13% BUT also showed that charge-offs were
up and approvals down. No one doubts that the first quarter of 2002
was even more negative and the refrain I hear from most sources is “we
ain’t out of the woods yet.” Looking
at this information, the Equipment Leasing and Finance Foundation’s
Industry Futures Council reports that capital demands will most likely
continue to be “down” throughout the year and that focus needs
to be on productivity and efficiency. The Council notes that strategic
trends are not so much toward product innovation or operational excellence
as toward “Customer Intimacy” – relationship management
and high touch. The
internet has proven to be a disappointment, but not a disaster. For
all of its untapped potential, we have not yet experienced the hoped-for
improvements in efficiency on an industry wide basis. On the other
hand, fears that web-based leasing would eliminate the need for brokers
and increase fraud risks have not materialized. I guess what we have
to say is that the internet genie is still asleep in his bottle and
we have yet to determine whether he will awaken to prove an electronic
Osma bin Laden or Robin Williams in a turban. While
all this is going on, I can tell you from my personal experience, and
that of other lawyers, that fraud in the leasing industry is enjoying
a resurgence. Remembering that one of the primary reasons for the formation
of this Association was to combat leasing fraud, this is a serious issue. Something
new has been added to the mix in recent years: Funder Fraud. Much more
so than ever before, we are having problems with funders who (i) promise
to do deals they cannot possibly do, collect advance fees and security
deposits and refuse to return them to the lessees, (ii) cry foul where
it is not justified in an attempt to put pressure on the brokers to
forego their commissions or (iii) withhold or refuse altogether to pay
broker’s commissions. These
pressures are creating new animosities and exacerbating old ones. Funders
and brokers are at each others throats as never before. The level of
suspicion has risen and, more than ever, there is a cry from many brokers
that our Association should somehow restrain the funders. Likewise,
funders are viewing broker transactions with new suspicion and putting
pressure on NAELB, as well as the other leasing associations, to police
the broker ranks. Inter-association
rivalry has heated up in recent years, as consolidation and departure
from the business have caused many to view the “zero sum game”
of collecting membership as a game of “cutthroat”. In
sum, most of us are working harder to earn less money and in an environment
that threatens to grow downright unpleasant. The crooks who have long
circled our campfires like wolves are growing bolder and many of us
are blaming one another and fighting over scraps rather than working
together to protect ourselves and fatten our stores. Yet, some of us
are thriving. There are brokers in this room enjoying their best year
ever – why? HOW WE
GOT HERE
There
is not one person in this room who will fail to recognize both the words
and meaning of George Santayana’s famous observation: “Those
who do not learn from the past are condemned to repeat it.” Only
by understanding how we got into this hole can we hope to climb out. First,
let us not over-emphasize the events of September 11. Very few analysts
disagreed with the common wisdom that the stock market was inflated
and that the bubble would eventually burst. While the analogy is a
bit strained, it would be appropriate to say that we have not been brought
down by four teams of Arab terrorists but, in large part, by the manner
in which we have transacted business over the past ten years or so.
Much
of what has happened has been the result of competition, speed and the
availability of easy roads to riches that have proven to be dead ends. During
the past several years, competition within our industry has increased
as more and more brokers and funders have entered the market. As this
happened, pressures built up to shortcut some of the measures we once
took to develop relationships based on mutual respect and understanding
and to defend ourselves against fraud. Instead, we were pressured to
focus on bottom line issues alone. I heard the same refrain as you:
“There’s money to be made, so sell, sell, sell.” Broker-lessee
relationships, broker-vendor relationships and broker-funder relationships
have been sacrificed to squeeze a few more bucks out of each deal and
increase volume. I
am reminded of the broker who, after being burned by a funder NAELB
expelled, explained that the reason he went back to do business with
the guy (who had previously bounced a check to one of the broker’s
best vendors) was “the rates were so good”. One thinks of
Woody Allen’s famous joke that the food at the restaurant is terrible
but at least the portions are large. In
a far less comical vein, what we have seen is that speed has become
the holy grail of leasing. Funders are induced to guarantee turnarounds
not merely in 48 or 24 hours but virtually as soon as the submission
is received. Brokers find themselves under pressure from vendors and
customers alike to approve credit on a handshake. These
issues affect every industry. I recall having walked into the library
of a law firm in Atlanta when I was just out of law school and hearing
a strange sound. “That’s our new telecopier machine,” a partner said
to me. “We can actually get a document down to the Eastern Airlines
office in Miami at six minutes per page!” Goll-ee! Now,
I am able to send a complete mark-up of seven hundred pages of cross-border
leasing documents to lawyers in New York and Germany in the time it
takes me to point my finger. In
the rush to get there “fastest with the mostest,” as General
Forrest said, attention to detail and the building of personal relationships
were often placed on the back burner and soon forgotten. Speed and
competition also set the table for the wolves of fraud and we have seen
many new hungry diners in recent days. At
the same time as our need for speed and the pressure of competition
caused us all to become a bit sloppy, money was far too easy to make
in recent years for far too many of us. Many
brokers and funders alike found niche markets in which they could become
instant geniuses. When those markets dried up, they found that they
did not have the skills necessary to move on to other types of work. Likewise,
many of us found ourselves able to write deals that we did not fully
understand on papers we had never actually read. When
the new-new economy required so many of us to become flexible, to think
outside the box, to explain to a shrinking number of customers how the
deal worked and what could be changed, we found ourselves playing a
new game, and losing. The opportunities that exist to do new types
of deals and expand our reach are available only to those who have the
education necessary to succeed. Once
again, reviewing an industry study, the ELA’s “Perfect Storms”
analysis, we find the bottom line being that many large leasing companies
looked at growth uber alles
and found this to be a formula for disaster. In
short, our leasing economy heated up for the past several years and
now we have found ourselves out in the cold. Again, some of us are not
shivering – why? WHERE
WE ARE GOING
The
consensus of everything I have read is clearly that the economy will
improve, but it will be a slow, shallow-graded improvement. It
is interesting that, when times are tough in the general economy, leasing
generally fares quite well. While this is true, we can make a few observations: 1. Our economy tends to send shock
waves that freeze movement, particularly capital investment. When things
get bad, lessees do not really go out of the market so much as they
simply pause and defer all decision making for a few months. That usually
means that, once they are sure that the sky has not actually fallen
and feel the worst is over, they are likely to want to acquire more
equipment. 2. The falling of interest rates means
that many smaller and community banks are looking to leasing as a means
to improve their bottom line. This is a two-edged sword. Some of these
banks will compete with those in this room. Most of them will need
education and will favor those lessors who can explain leasing transactions
to them. These
banks are under tight regulatory scrutiny and are very susceptible to
fraud due to their lack of understanding. Always remember what Einstein
observed: A cat who jumps on a hot stove will never do it again. Unfortunately,
the cat will never jump on a cold stove again either. In the leasing
business, these cats tend to talk to one another. With email, it’s
easy as pointing a finger. If you sell a bad deal to a community bank
it, and every other small bank in your neighborhood, is likely to get
out of leasing altogether. 3. Writing in the Monitor, Gerry Egan has made an important
point: Don’t look to market share as we have in the recent past
but to relationship-building. The fact is that, while the economy
as a whole may be going down, the popularity of leasing in difficult
times means that each of you individually may find a significant improvement. In
a down economy, people tend to look more and more to personal relationships
and to value service and integrity. The more cautious a vendor or customer
becomes, the more it will want to be reassured. Personal relationships,
remember? That’s precisely what brokers offer – or used to. 4. The rallying cry of “back to
basics” has been heard in recent months and will be heard in the
leasing industry in the time to come. This does not mean that we will
not be doing new deals on new structures; it means that now is the time
to learn how the old deals work so that we can be flexible to work on
new deals as the opportunities arise. So:
the answer to all your questions is to do what brokers and funders have
always done best – offer service, integrity, relationship building
and knowledge. Go back to what we did that made us too successful for
our own good. This
will involve new challenges: Now
more than ever, funders and brokers should work in partnership to fight
fraud and to reach full understanding of each duties. Now
more than ever, the associations should work together not only to minimize
wasteful overlap in services offered but to develop the clout that will
be needed in the future to protect the industry. I
have avoided mentioning one of the great fears of those of us in the
legal community: The specter of government regulation, particularly
in light of Enron and other recent disasters, looms large. It will
take a concerted effort by all of us to keep the government out of our
industry. Squabbles over advanced fees, fraud committed on lessees
as well as funders, these things invite Uncle Sam where he has no business
doing business, and interrupting business. SO…WHAT
WILL NAELB DO?
And
now the inevitable commercial message. Your Association is gearing
up new initiatives to address the issues I have identified. As
you know, we have been one of the most aggressive of all of the associations
with regard to the use of the internet through our listserve and interactive
website. The website has been redesigned and the listserve has been
revamped. These
things are done in a concerted effort to allow you to save money by
minimizing travel and, more importantly, to give you access to new tools
and a sense of community. By sharing information, we can increase our
efficiency and productivity, fight fraud and root out the bad apples. NAELB
is committed to working with the other leasing associations to reduce
economic pressure on our funders and increase opportunities for all
members to avail themselves of the services of all organizations. We
have hosted a landmark inter-association meeting just yesterday. We
are optimistic for the future. More
than ever, we are focusing on training to acquaint you with the basics
of the business, your responsibilities as brokers to the funders (and
as funders to the brokers) and the responsibilities of everyone in this
room to our vendors and customers. Our efforts, such as the paper that
Robert Holland will deliver to you at this conference, are designed
to give you good bottom line real world instruction as to how to do
better deals, do more deals and in the simplest of terms make more money. And
now the hoped-for goal of at least one member of your board. Many of
you have heard me talk about this before and I hope that you will bear
with me if I try it again. Whether
through NAELB alone or a grouping of all of the leasing associations,
we want to see a day where each vendor and each potential lessee knows
to do business with someone who has the proper seal of approval –
membership in a responsible leasing organization. We
want to see the day where our members have enough clout to police their
industry, kick out the bad guys and avoid the necessity of government
interference. We
want to see the day that we can say to our funders: we are bringing
you brokers who are better educated and more aware of their responsibilities,
more able to spot bad deals, and more ethically responsible than you
will find elsewhere. We
want to say to our funders: we are bringing you brokers who will look
to you first and, if not prepared to say that they will do business
only with member-funders, at least our brokers are ready to look past
a few pennies of additional commission to those who are ethically responsible
and willing to invest in the betterment of our industry through their
support of our associations. In
return, we want to support our brokers by adding more funders to our
membership roster and negotiate better terms and more availability from
the good people who support NAELB by offering the best funding opportunities. I
am looking to a day when we can say to our brokers that we will protect
them against bad funders and enforce, through ethical rules that are
either applicable to all associations or at least to a larger more active
NAELB, that we will police our industry and punish those who do not
behave in an ethical fashion. In
short, I believe that NAELB has done more than any other association
to give its members value for their investment. There is much more
that we can do and we look to you to help us do it.
Mr. Marks,Esq. is also the co-author of “Power Tools for Successful
Leasing” www.leasingpress.com Power
Tools for Successful Leasing by
James M. Johnson, PH.d Barry
S. Marks Leasing
Power tools Press 43W690
Willow Creek Court Elburn,
Illinois 60119 Phone:
630.365.9004 Fax:
630-365.5602 E-mail:
phdleasing@hotmail.com or bsm@blik.com ------------------------------------------------------------------------------------------------------- ### ######################################## ################ Microvision Initiates Customer Leasing Program For The Nomad Personal Display System BOTHELL, Wash--Microvision, Inc. (Nasdaq:MVIS), the leader in personal display and imaging systems today announced a partnership with The ELEX Group, Inc. (www.elexgroup.com) of Medford, New Jersey, to provide lease-financing services for business customers of the Nomad Personal Display System.
The ELEX Group specializes in providing complete lease financing solutions through web-based technology.
With The ELEX Group, Inc., Microvision will provide customers throughout the United States with an alternative method to economically acquire the Nomad Personal Display System, and all related software and hardware components. Tom Sanko, Microvision vice president of marketing commented, "the program enhances our current product offering. With a leasing alternative, Microvision can now provide our customers with a simple and complete turnkey offering for the acquisition of the Nomad system. The ELEX website quote system makes it easy for our sales team and resellers to obtain lease quotes and credit approvals on the spot. Many business customers prefer a leasing option for this type of equipment, and we are pleased to be able to provide it through The ELEX Group." The leasing program is available for both Microvision's direct sales customers and customers purchasing from the company's growing network of Value Added Resellers.
About Nomad Personal Display System
Based on Microvision's patented light scanning technology, the recently introduced Nomad Personal Display System is a high-resolution head-worn display that presents images and information to the user on a see-through virtual 17-inch display. This unique personal display enables hands-free access to information such as diagrams, instrumentation, maintenance records, moving maps and interactive training manuals, superimposing the information on the user's view and creating "augmented vision." The Nomad System features full daylight-readability, allowing users to view high contrast images in even the most challenging ambient lighting conditions. High quality, Super VGA resolution makes the Nomad System immediately compatible with a broad range of existing applications and content.
From flight paths to factory floors, surgical suites, and more, the Nomad System can deliver major improvements in productivity, quality and safety for virtually any type of manual task. The company is targeting applications for workers in four vertical markets-- industrial, aerospace, medical, and military-- that enable customers to keep information in front of people engaged in manual tasks or on the move, allowing access to information at the point of task and information, anywhere.
About Microvision: www.mvis.com
Headquartered in Bothell, WA., Microvision Inc. is the developer of the patented retinal scanning display technology and a world leader in micro miniature optical scanning technology for display and imaging applications. The company's technology has applications in a broad range of military, medical, industrial, professional and consumer information products. Nomad is a trademark of Microvision, Inc.
About The ELEX Group: www.elexgroup.com
Since 1974, ELEX has provided capital equipment financing to companies in all industries across the continental United States. Leasing transactions range from $10,000 to $5,000,000. ELEX provides financial solutions that will enable customers to acquire the capital equipment needed to improve their business at an affordable price. The ELEX vendor alliance programs help vendors create a competitive advantage, increasing sales and reducing accounts receivable.
Forward Looking Statement
The information set forth in this release includes "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and is subject to the safe harbor created by those sections. Certain factors that realistically could cause results to differ materially from those projected in the company's forward-looking statements are set forth in the company's Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, as filed with the Securities and Exchange Commission.
CONTACT:
Microvision, Inc.
Matt Nichols (media), 425/415-6657
or
Brian Heagler (investors), 425/415-6794 ### ############################################# ######## Comdisco Begins Trading on the Over-the-Counter Market; Will File Plan of Reorganization by April 18, 2002 ROSEMONT, Ill--Comdisco, Inc. today announced that its common stock has begun trading on the over-the-counter market. Quotations are or will soon be available from the Pink Sheets (www.pinksheets.com) and the OTC Bulletin Board (www.otcbb.com) under the symbol CDSO. The New York Stock Exchange announced on April 11, 2002 that it would suspend trading and move to delist Comdisco common stock (CDO) prior to opening of the market today because the stock no longer meets its listing requirements.
Comdisco, Inc. and 50 domestic U.S. subsidiaries filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Northern District of Illinois on July 16, 2001. The filing allows the company to provide for an orderly sale of some of its businesses, while resolving short-term liquidity issues and enabling the company to reorganize on a sound financial basis to support its continuing businesses.
Comdisco's operations located outside of the United States were not included in the Chapter 11 reorganization cases. All of Comdisco's businesses, including those that filed for Chapter 11, are conducting normal operations.
On March 26, 2002, the U.S. Bankruptcy Court for the Northern District of Illinois approved the company's request for an extension of the exclusive periods during which only Comdisco may file a plan of reorganization and solicit acceptances for that plan. These periods were extended to April 18, 2002 and June 15, 2002, respectively. The company has targeted emergence from Chapter 11 during late summer of 2002.
About Comdisco
Comdisco (www.comdisco.com) provides technology services worldwide to help its customers maximize technology functionality and predictability, while freeing them from the complexity of managing their technology. The Rosemont (IL) company offers leasing to key vertical industries, including semiconductor manufacturing and electronic assembly, healthcare, telecommunications, pharmaceutical, and biotechnology. Through its Ventures division, Comdisco provides equipment leasing and other financing and services to venture capital backed companies.
CONTACT:
Comdisco
Mary Moster, 847/518-5147
mcmoster@comdisco.com
or
Kekst and Company
Fred Spar or Jeremy Fielding, 212/521-4800
SOURCE: Comdisco ### ############################### # ############################ Streamlined Sales Tax Project Definition Report Wrap-Up “It took 13 months from the first negotiating session until this vote completing the process on our definition.” Dennis Brown, Equipment Leasing Association This report covers the Streamlined Sales Tax Project (SSTP or Project) meeting on April 11-12 and Implementing States April 12-13, in Dearborn, Michigan. The next Implementing States meeting will be held at the Westin Hotel in Oklahoma City on Friday and Saturday, May 17-18. The next joint SSTP/Implementing States meeting will be June 13-15 in Tampa or Baltimore (to be announced shortly). Issues covered in this report are: * Lease Definition Approved * Sourcing Survey/Auto Leasing * Rail Car Exclusion Requested * Local Government Complaints * Strict Adoption of Definitions or Substantial Compliance? * Library of Definitions Proposed * Governor Engler Urges July Completion * Prewritten Software * Base * NCSL Rate Flexibility Proposal * Miscellaneous Issues * Lease Definition Lease Definition Approved The lease definition negotiated with SSTP received a unanimous vote of approval by Delegates to the Implementing States and now becomes part of model legislation targeted for distribution later this year for adoption during 2003. The four states already having adopted SSTP definitions will likely amend the lease definition into state statute... Minnesota, North Carolina, South Dakota and Wyoming. Leasing industry spokespersons sat together with Project Leasing Subgroup Chair Scott Peterson, South Dakota Department of Revenue as a panel to present supportive testimony and answer questions posed by Delegates prior to the vote. Attending the Implementing States meeting to lend industry support were Valerie Guerrieri, CIT Group and Chair of the ELA State Government Relations Committee, Jeffrey Hyde, GE Capital and Larry Makowski, Wheels, Inc. representing the American Automotive Leasing Association. Lyndon Williams of Citigroup participated in Project discussions preceding the Implementing States session. The definition to appear in the model legislation is provided at the end of this email report. Sourcing Survey/Auto Leasing: Results of the sourcing survey covering moveable tangible personal property and autos were not yet tabulated for discussion in Dearborn, Michigan. Initial results are expected within one month. The SSTP meeting scheduled for June will be the first opportunity for industry to discuss survey findings with Project officials. This promises to be an extended undertaking for the leasing industry. Divergent viewpoints expressed in Dearborn during a review of survey issues may foretell many long meetings to come. Initial responses by state revenue departments were described as "all over the place." Not unexpectedly, no systematic trend seemed apparent in sourcing when moving to another state or granting credits. A range of industry segments offered divergent opinions, which added to hesitancy by state revenue officials to seek simplicity and uniformity in sourcing. SSTP officials are uncertain where the survey will lead them as the interstate Agreement evolves. Is the goal is to draft a uniform sourcing rule for model legislation? At this point, answers posed to such queries were nothing more than speculative opinions. Industry asserted SSTP couldn't embark on simplification of sourcing moveable equipment without addressing the issue of credits. Project leaders observed that would raise the question of taxing up-front versus the lease payments. Alabama and Texas objected that uniformity of sourcing might infringe on existing nexus standards. Industry countered that fair apportionment and entitlement to credits should follow the property regardless of the state imposing tax. Agreeing with state revenue officials on sourcing issues will be a challenging venture that I hope will gain the participation of more ELA members in Streamlined Sales Tax Project meetings. Rail Car Exclusion Requested Private rail car lines of non-railroad owned companies have requested an exclusion from the sourcing rule. Industry representatives explained the exclusion would also apply to intermodal. An Issue Paper will be drafted for the next meeting. Local Government Complaints Birmingham, Alabama is leading a coalition of local governments from Alaska, Alabama, Arizona, Colorado and Louisiana that has formed the Local Collection States organization. They seek redress of concerns that enactment of Streamline by states will reduce their revenue, erode local administration and diminish revenue sources. While many in business characterize these local tax administrators as an obstacle to conducting business, this advocacy group postures local governments as business friendly authorities. Louisiana parishes led off the session reciting a litany of programs instituted to enhance businesses with nexus in their jurisdictions that would be lost if Streamline swept parishes into state administration. The Alabama representative reported a number of their jurisdictions were under state-administration but became self-administering. After switching to local administration, with tax rates and tax bases being equal, they all experienced significant increases in their sales and use tax revenue. Alabama complained about the Streamline initiative mandating that all audits of those registered under the interstate Agreement shall be conducted by the State and that local jurisdictions shall not conduct independent sales or use tax audits. Auditing is seen by the Local Collection States as a valuable and essential compliance and revenue-generating tool that local governments can ill afford to lose when SSTP is adopted. These sincere local officials do not grasp the debilitating effect on business operations when an army of ill-informed Lilliputians clueless about lease transactions continually descends upon industry members. Sometimes there is a chasm between two realities viewed by different participants in the same meeting. Strict Adoption of Definitions or Substantial Compliance? Implementing States is grappling with determining if a state must adopt the precise text of all definitions or allow substantial compliance with the intent of specific definitions deemed problematic by individual states. What is substantial compliance? Within the political world it is the closest proximity to the intent that can obtain the votes necessary to enact the Streamline system in a particular state legislature. Library of Definitions Proposed The interstate Agreement contains administrative and tax base definitions. As outlined in a Council On State Taxation (COST) discussion paper, many are concerned that including tax definitions in an Agreement placed before each state legislature unnecessarily increases the likelihood that a state not currently taxing a defined product would tax that category as part of its effort to "simplify" its sales tax system. The fact that the Implementing States has adopted a uniform, "national" definition, makes it easier for policymakers to simply "check-the-box" expanding the tax base to items not previously taxed. To reduce this temptation, and provide some reassurance that the Project's intention is not to expand the tax base, the substantive tax base definitions could be placed in a separate document, outside the Agreement. Each definition does not need to be included in the Agreement adopted by every state but would be in a document outside the Agreement itself. Definitions contained in this Library of Definitions may not need to be adopted verbatim by a state already having the category in its current tax base. A state could certify taxability of items falling within the definitions. Skeptical comment by state revenue officials greeted the proposal as you might expect from protective parents of the interstate Agreement. Industry proponents emphasize not every state needs to adopt every definition drafted to date. This will also be true with future leasing definitions tackled by the Project. Supporters stress placing the definition for a currently exempt item in front of state legislators in search of revenue may invite them to enact new taxation. Instead, proponents argue out of sight is out of mind when dealing with cash strapped states. The Project assigned a committee to examine the Library of Definitions concept. Michigan Governor Engler Urges July Completion Michigan Governor John Engler addressed Delegates to Implementing States offering a strong personal endorsement. Speaking as Chairman of the National Governors' Association (NGA), he urged Delegates to complete the model bill in time for NGA and National Conference of State Legislatures endorsement during their respective annual meetings scheduled in July. This deadline will be difficult if not impossible to achieve as Implementing States had previously delayed the completion date from Memorial Day to Labor Day. Implementing States is moving with great speed but this may be an impractical goal. Prewritten Software Prewritten software was included as a provision of the Tangible Personal Property definition approved by the Project. Base Implementing States determined local governments must follow the state base and apply tax to everything taxed by the state. Local jurisdictions may not add products or services nor subtract them from their base. NCSL Rate Flexibility Proposal * 7,500 jurisdictions levy sales tax * 12 states have a single sales and use tax rate * 6 states have a single use tax rate and multiple sales tax rates * 29 remaining states have multiple tax rates by jurisdiction Illinois State Senator Steven Rauschenberger addressed Implementing States as Co-Chair of the National Conference of State Legislatures (NCSL) Task Force to present an NCSL state rate flexibility proposal. He explained the proposal as allowing states to adopt two rates while keeping local jurisdictions to a single rate. The NCSL proposal was adopted on a vote of 15-10 with 2 states not voting. However, Implementing States will revisit the issue for further modification, probably to limit product categories to which the second rate may be applicable. Delegates assume the second rate will be lower to accommodate states with a reduced sales tax rate on food and medicine. It is speculation what constraints will be chosen for the second state rate. Also, Delegates are mindful that final adoption of the Agreement must garner a 60% majority and the rate issue could see more changes to preserve a 3/5 consensus. The NCSL proposal adopted by Delegates is: "A member state may not have more than one state tax rate on items of personal property or services after December 31, 2005, except that a state may impose a single additional rate, which may be zero, on product categories specifically defined in the Agreement." At this point in time, local governments have been successful in gaining Project support for varying rates between local jurisdictions. Implementing States has yet to tamper with the SSTP proposal but it is too early to close the book. Having given these qualifiers, below I offer the most recent draft of these provisions: * SSTP wants sufficient notice of rate changes * Local jurisdictions will not be permitted more than one sales tax rate and one use tax rate * Each state must develop a zip+4 database of all local rates for businesses and Certified Service Providers to access and hold them harmless for any mistakes in the database. * No special local rates or multiple local rates would be allowed Miscellaneous Issues * Remote Sales (Flowers): The risks of not attending SSTP meetings was brought home when the Sourcing Subgroup announced an industry-government compact of 40 years establishing the sourcing of tax on remote sales of flowers commonly associated with FTD purchases would be eliminated unless industry approached them. It is a lesson to leasing and others that unexpected things can happen to those not attending SSTP meetings. * Printers/Mass Mailings: The print industry seems to be making progress in voicing industry concerns relating to sourcing of multi-state mailings when the printer does not know addresses, unlike bulk shipment when addresses are disclosed. An Issue Paper will be for the next meeting. * Sales Tax Holidays: Holidays were adopted by Implementing States with certain limitations * Caps and Thresholds: The SSTP presentation was accepted by Implementing States. * Rounding: SSTP Alternative 2 with specified revision was adopted by Implementing States. DEFINITION OF LEASE OR RENTAL To be inserted in Agreement, Section 312. Definitions. LEASE or RENTAL Lease or rental means any transfer of possession or control of tangible personal property for a fixed or indeterminate term for consideration. A lease or rental may include future options to purchase or extend. 1) Lease or rental does not include: a.) A transfer of possession or control of property under a security agreement or deferred payment plan that requires the transfer of title upon completion of the required payments; b.) A transfer of possession or control of property under an agreement that requires the transfer of title upon completion of the required payments and payment of an option price that does not exceed the greater of $100 or 1% of the total required payments; or c.) The providing of tangible personal property along with an operator for a fixed or indeterminate period of time. A condition of this exclusion is that the operator is necessary for the equipment to perform as designed. For the purposes of this subsection, an operator must do more than maintain, inspect, or set-up the tangible personal property. 2) Lease or rental does include: Agreements covering motor vehicles and trailers where the amount of consideration may be increased or decreased by reference to the amount realized upon sale or disposition of the property as defined in 26 USC 7701(h)(1). 3) Characterization of Transaction for Other Purposes: The definition provided in this section shall be used for the purposes of this chapter regardless if a transaction is characterized as a lease or rental under generally accepted accounting principles, the Internal Revenue Code, the [state commercial code], or other provisions of federal, state or local law. Transition Rule: This definition will be applied only prospectively from the date of adoption and will have no retroactive impact on existing leases or rentals. The definition of lease in this section shall neither impact any existing sale-leaseback exemption or exclusion that a state may have, nor preclude a state from adopting a sale-leaseback exemption or exclusion after the effective date of this agreement."
Dennis Brown DBROWN@ELAMAIL.COM GAO Says Amtrak should make better decisions on routes and service By Laurence Arnold, Associated Press WASHINGTON (AP) Amtrak's unsuccessful attempt to raise much-needed money through expansion raises questions about how the railroad makes decisions on routes and services, according to a new government report. Amtrak announced plans in February 2000 to expand service on 15 routes, but has done so on only two, the General Accounting Office reported Monday. Nine others never were implemented, three have been delayed and one failed, said GAO, the investigative arm of Congress. Amtrak overestimated revenues from new mail and express service and misjudged its ability to reach agreement with freight railroads over paying for upgrades to tracks, GAO said. It recommended that, with any future route or service changes, Amtrak's president disclose to the railroad's governing board ''any significant risks.'' Amtrak spokesman Bill Schulz said that while the growth plan fell short of its initial goals, ''aggressively pursuing business opportunities at every juncture continues to be a key strategy to improve Amtrak's financial performance.'' Congress is to vote this year on Amtrak's future. Lawmakers have proposed a range of ideas, from dramatically increasing Amtrak's federal aid to breaking up Amtrak and letting money-losing routes die. The GAO report was requested and released by Sen. Ron Wyden, D-Ore., who has been critical of Amtrak since it canceled the thrice-weekly Chicago-Portland-Seattle ''Pioneer'' route in 1997. ''The Pioneer debate struck me as a textbook case of how a route isn't decided on the merits,'' Wyden said. He said the GAO report shows Amtrak's decisions are ''driven by missing or misleading information.'' Wyden is a member of the Senate Commerce Committee, which has jurisdiction over Amtrak. He said he hopes to force the railroad to use objective criteria when making decisions, believing that would have saved the Pioneer route. Amtrak's outgoing president, George Warrington, acknowledged in February that Amtrak feels political pressure to maintain its money-losing long-distance routes. ''We are a creature of the political process,'' he said. ''Congress has made very clear there is an expectation we will run a national system.'' But Amtrak told the GAO that route and service decisions are based primarily on an economic question: whether added revenue will exceed new costs. In a letter included in the report, Amtrak said the marketing studies that led to the growth plan represented a step forward from the days when ''the addition of new routes typically resulted from congressional directives.'' The growth plan Amtrak unveiled two years ago envisioned the addition of new passenger routes and expansion of its package delivery business. The changes did not require approval by Congress, but Amtrak had to strike deals with various freight railroads. One change, the addition of train service between Chicago and Janesville, Wis., was a high-profile failure. Hardly anyone rode the train, expected freight opportunities did not pan out, and Amtrak eliminated the service. On the Net: Amtrak: http://www.amtrak.com Sen. Ron Wyden: http://wyden.senate.gov Providian agrees to sell 1.7 million high- risk accounts By Michael Liedtke, Associated Press SAN FRANCISCO (AP) Providian Financial Corp. on Monday disclosed an agreement to sell 1.7 million of the risky credit card accounts that hobbled the once high-striding company. The accounts, holding about $2.6 billion in unsecured loans, will be turned over to two limited liability companies formed by Goldman Sachs & Co., Salomon Smith Barney, CardWorks Inc. and CompuCredit Corp., an Atlanta-based company that specializes in the high-risk credit card market. San Francisco-based Providian will retain a $155 million interest in the loan portfolio and has the option to buy a stake of up to 15 percent in the limited liability companies. If the deal is completed as expected in May, Providian foresees a $240 million loss on the sale, a setback that reflects the high percentage of bad loans included in the portfolio. Providian said it opened most of the accounts during an aggressive marketing program that offered credit cards to consumers with shoddy borrowing records or low incomes a segment eschewed by most lenders. Providian generated hefty profits from this perilous niche by charging high fees and interest rates, but the strategy backfired when more borrowers began skipping payments during last year's recession. The company's loan loss rate had climbed to 17.64 percent of its portfolio through March, up from 9.34 percent at the same time last year. As part of its recovery efforts, Providian brought in a new management team that has been overhauling the company through asset sales and layoffs. After its latest sale is completed, Providian's loan portfolio will total roughly $21 billion about two thirds of its peak size of $32.65 billion at the end of 2001. Once the fifth-largest credit card issuer in the nation, Providian expects to remain among the industry's 10 largest lenders after its reorganization is complete. In previous deals, Providian sold 3.3 million of its best accounts to J.P. Morgan Chase for a $300 million profit and sold more than 500,000 accounts in the United Kingdom and Argentina for undisclosed sums. The overhaul has lifted the threat of a regulatory takeover, helping to boost Providian's stock. The shares fell 19 cents to close at $7.50 Monday on the New York Stock Exchange. When Providian hired credit card industry veteran Joseph Saunders as its CEO in late November, the shares stood at $3.29. As Providian prunes its loan portfolio, management also expects to lay off more workers. Since November, Providian has fired 1,350 workers from a payroll that once approached 13,000 employees. Management told analysts during a meeting last month that even more cuts are likely after the company stops servicing some of its divested accounts. Providian will continue to provide customer service on the high-risk accounts affected by Monday's announcement for up to 12 months. On The Net: http://www.providian.com _______________________________________________________________ Tales from the AMT battlefront By Mark Schwanhausser San Jose Mercury News Here are three stories that illustrate the effect the Alternative Minimum Tax and its repercussions have had on Silicon Valley families. TAX BILL STEALS DREAM HOME Once upon a time, everything was falling into place for Kathy and Karl Swartz. A month after Karl proposed in February 2000, the couple borrowed against their zooming stock options to buy a house in Los Altos and hired contractors to tailor it into a dream home. Then came their wedding and, shortly afterward, the news that Kathy was pregnant at age 42. But the couple's idyllic future crumbled along with the stock market. At year's end, the newlyweds made a pivotal decision to hold onto their stock into 2001. In tangible terms, the cost was $2.1 million in Alternative Minimum Tax. But the real cost is best judged by the emotional scar tissue. The sale of their dream home. Heated arguments. Marriage counseling. Thoughts of suicide. ``It was very, very, very stressful,'' Kathy said. ``Things were really tense.'' As the Nasdaq plummeted from its March 2000 peak, Karl and Kathy sought out attorneys. They ruled out bankruptcy quickly, but in time it came down to an agonizing decision to sell their dream house. The Mountain View couple had taken out margin loans against Karl's Network Appliance stock and had renovated virtually every room of the fixer-upper. They had patterned the tile in the master bathroom after their honeymoon suite in Hawaii. Karl set up a garden for his many orchids. They installed a drain in the laundry room to make it easier to clean up after their pets. And they expanded the family room so Karl, 41, could work on a computer, Kathy could quilt, and kids could work on homework together. They sold the house for a $1.7 million loss. Paying the bill didn't lift Karl's burden. By his measure, he had failed his family. In January, he was rocked again when he attended a memorial for Fred Abramson, a San Mateo man who had also faced a crushing AMT bill and had committed suicide. Karl says he knows what Abramson must have felt. ``The problem seemed insurmountable,'' Karl said. ``It certainly occurred to me at one time, `Wouldn't I just be better off not being here anymore?' . . . But for slightly different circumstances, I might have been there myself.'' LISTENING TO BROKER'S ADVICE LEADS TO CHAOS When Kathleen Shannon realized how valuable her incentive stock options were, she chose what she thought was a wise course. She signed up a financial planner. She's now suing him for advice that left her owing $450,000 in federal and state bills for Alternative Minimum Tax on paper profits that later vanished. Coping with those bills has set off a cascade of financial and personal dominoes. The Internal Revenue Service has placed a lien against her townhouse. She's negotiating with the IRS over assets worth a fraction of the full bill. In March, 3/20 she was fired from her $80,000 job, leaving her with no income to pay her mortgage and car loan. ``Had I not had stock options, had my financial planner not given me bad advice, I'd have money in the bank, and I would not be living a lifestyle I can't afford,'' said Shannon, 34. ``It's like, `Can I just wind the clock backward? Can you just make it all go away?' '' Shannon says she relied on her financial planner for many life-altering financial decisions. She bought a $599,000 three-bedroom townhouse in Redwood Shores, quit her marketing job at Network Appliance to pursue a career in cooking, and paid for it all with margin loans against her stock, which once was worth $2 million. His advice was based on a long-accepted tax strategy that pays off handsomely during a bull market. By holding onto stock acquired through incentive stock options for at least a year, it's possible to cut the tax bill in half. But that strategy backfired as the Nasdaq plunged in 2000. By holding her stock into 2001, Shannon triggered $450,000 in AMT based on her paper profits on the day she bought the stock. And as her stock crashed, her broker forced her to sell her stock to pay her margin loans. Shannon's life now is in chaos. She worries that she must rent out her house, move back in with her parents, and pray for leniency from the IRS and creditors. ``What more could go wrong?'' she said. ``I'm waiting for a miracle to happen.'' AMT REARRANGED FAMILY'S LIFESTYLE, DREAMS Jay Cena is one of the lucky ones. He unloaded his stock when it was still worth enough to cover his $2.1 million Alternative Minimum Tax bill. But this past year has been a financial struggle filled with political outrage at the baffling AMT system. As Cena sees it, his troubles would be solved if only the government would refund the $1.3 million it owes him under the convoluted AMT system. ``The thing that annoys me the most is I did what was right: I paid my taxes,'' Cena said, alluding to other optionees who didn't report the transactions properly. ``The tax is paid, the government has my money, I'm out of work, I need the money.'' The 43-year-old customer service manager was laid off from his $90,000-plus job at Network Appliance in August. Since his unemployment checks ran out in mid-February, Cena's family has been scraping by on his wife's nursing salary. While his wife, Dawn, once hoped to cut back at work to spend more time with their 5-year-old boy, Justin, now she's volunteering for overtime shifts. Gone, too, are their dreams of adopting another child and renovating their half-century-old, 1,200-square-foot Cupertino home. Meanwhile, Cena is stewing over the AMT money he can't touch. If the government owed him $1.3 million under under the regular tax system, it would refund it in a lump sum. That's not the case under the AMT system, however. Paying the AMT creates a credit that optionees can use to reduce future tax bills. But now that Cena's out of stock, he might recoup his credit only in dribs and drabs in future years. It's possible he will never break even in his lifetime. Cena's outrage has driven him to try to change the AMT rules. Last spring, he joined Cisco optionee Jeff Chou in co-founding a grass-roots lobbying group called Reform AMT. ``We're trying to tell the government to get rid of its cash cow,'' Cena said. ``It's a cancer they let grow.'' www.leasingnews.org |
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