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Kit Menkin’s Leasing News www.leasingnews.org Monday, April 29, 2002 Accurate, fair and unbiased news for the equipment Leasing Industry Headlines---- CIT Gamper Talks to His People about the “Quiet Period” Tyco, CIT Split Seen As Better For Bondholders The Week Ahead April 29-May 3 E-Commerce Goes On a Roll Monday---Odds and Ends Comdisco Acquisition Closed Comdisco Files Reorganization Plan/ Disclosure Statement Not Silicon Valley' Is Not Such a Bad Thing After All Amtrak Is Put Under Special Safety Watch ### Denotes Press Release Exclusive CIT Gamper Talks to His People about the “Quiet Period” “After they bought us, they infused $1 billion into our net worth, did not take any dividends, let us clean up some businesses we did not want to be in, and our balance sheet was better than before.... We are in better shape they when they bought (us); we are making more money, got a better balance sheet, and I think we have a strong position in the marketplace, so everything is going fine. January Tyco decided, in their infinite wisdom, to break up the company. They felt that shareholders were not appreciating the inherent value in the company, and they thought their company was undervalued, and they thought the parts were worth more than the whole----and they were wrong.” CIT President/C.E.O. Al Gamper, as he was introduced, hosted a telephone conference along with Joe Leone, Exec. V.P./C.F.O, last Friday, April 25th, available to all employees. The recording was also made available to employees who could not join in ( and anyone who dials in ) until April 30th. ( see instructions at end of report). His last telephone call to employees was two months ago. He calls this period “the quiet period,” asking all employees not to talk to the press or “outsiders” until the IPO is completed. CIT was a public company until a year ago when purchased by Tyco International. A fifteen year veteran, Gamper brought it up often, including the many changes, mentioning the 1997 public offering and second offering in 1998. He explained the procedure to be a 100% publicly owned company to be listed on the New York Stock Exchange. His goal: to sell the stock to the public. The telephone conversation should be saved for the Hoover Business Institute at Stanford for its historic value. While not aimed for public consumption, after listening to it, you surely would want to purchase stock in this company, as he is perhaps the best salesman for CIT. . There was much humor from the president, from the employees, serious questions asked, much pride in the company and operation. He said he and Joe Leone would be on the road, as he was the company “mouthpiece”, and they both appreciated the hard work by employees the last two months, especially. Gamper told listeners that in this “quiet period,” they would be visited by lawyers, accountants, and others during this IPO procedure. “ Be open and candid,” he told them. There definitely is a “corporate identity,” high espirit des corp and company personality as evidenced by the almost forty minute telephone call. He started by asking for their assistance “...you are the ones who are backing me up, he are providing me with the ability and I am proud of what you do.” He commended everyone for doing their job, working longer hours, weekends in some cases, and noting except for the devaluation of the pesos in Argentina, he was very proud of everyone’s performance. He was looking forward to “being on our own again.” After his eight minute “introduction,” Exec. V.P./C.F.O. Joe Leone spoke for approximately five minutes on the current financial statement. He said he was most proud of the fact that measuring productivity and costs is only took thirty-three cents to generate a revenue of a dollar. The telephone call was then opened for questions and eight men and four women asked questions, ranging from employee benefits, stock options, some humorous, some serious. He told them the 7100 cutback that Tyco International announced did not affect CIT, but the 24 offices of Tyco. One employee invited him to visit their office as they have “fun all the time,” she said. “ We have a ball.” And then she realized what she said, but Gamper’s laughed too, as did everyone on the telephone line. She asked a tough question about why CIT was sold to Tyco in the first place. “Before the purchase, Tyco International had a better performance than GE and Citicorp. We saw opportunities for new customer, for business expansion...” (Leasing News suggests you listen to the conversation to get all of it, and most important, the intonations in Gamper and the employees voices.) Answering questions from employees on why Tyco was selling the company. Cash is better than just changing stock. he replied. “The bottom line is basically they cannot afford to own us...the linkage to the credit rating is bad for us.” Employees were concerned about the “bad press” and how they company was looking to the public. He continued the theme this was to be the “quiet period”, explaining the process of becoming a public company again, answering who was going to be on the board ( basically the same as last time.): He emphasized again for employees to “...continue good performance,” And to continue doing the following: 1. Focus on customers, as usual. 2. Continue due diligence 3. Continue to provide low cost operations After there were no more questions from employees on the telephone line, Gamper emphasized again “ I am proud of what you do and appreciate your support.” After the question and answer period, he emphasized that this was the “quiet period”, take care of the customers, and when the IPO is complete, he will be able to make many more statements of their plans, goals, and said, “ I hope to be here a long time. “ From the CIT website: Albert R. Gamper, Jr. President and Chief Executive Officer CIT Group Inc. Albert R. Gamper, Jr. is President and Chief Executive Officer of CIT. He joined Manufacturers Hanover, CIT's former parent, in 1962. He entered its management training program in 1966 and was elected an officer the following year. Mr. Gamper held a number of executive positions with Manufacturers Hanover, including: Assistant Vice President (1970); Vice President (1971); Senior Vice President, Corporate Planning (1980) Executive Vice President, Private Banking and Securities Division (1983); and Sector Executive Vice President, Asset- Based Financing Sector (1985). In 1987, he was elected Chairman and Chief Executive Officer of CIT, following its acquisition by Manufacturers Hanover. Mr. Gamper received his BA from Rutgers University and attended the Professional Management Development Program at Harvard University Business School in 1976. Mr. Gamper is Chairman of the Board of St. Barnabas Health Care Systems in Livingston, New Jersey. He is a Charter Member of the Rutgers University Board of Trustees, a member of the Board of Overseers of The Rutgers University Foundation, and a member of the Board of Governors of Rutgers University. He serves as director of the New Jersey Performing Arts Center and WNET/Channel 13. He also serves as a trustee of Business Executives for National Security, the National Conference and New Jersey Network. ---- Joseph M. Leone -- Official Announcement to CIT Employees: Tomorrow, Friday, April 26, 2002 at 11:30 a.m. EDT, Al Gamper and Joe Leone will host a CIT employee conference call. Your participation is encouraged so that you will remain well informed about CIT. You will also have the opportunity to ask questions. To participate on this call, we ask that you utilize your nearest conference room or group together in offices, as there are a limited number of outgoing 800 lines available. For the Livingston, New Jersey office, the Multipurpose Room has been designated as a conference room with seating available to employees. The lines will be open beginning at 11:00 a.m. EDT. So the conference call may start on time, we encourage all calls to be placed by 11:20 a.m. EDT. Instructions for the call are as follows: For United States callers: Dial 1-888-428-4480 For International callers: Dial 1-612-288-0318 The format of the call will be as follows: An operator will answer and ask you for your name and our company name, CIT. You will then be put on hold until the start of the conference call. Following Al Gamper’s and Joe Leone’s presentation, callers will be invited to ask questions. The operator will then explain how you can connect with the speaker(s). This call is intended for company personnel only. Replay information: If you are unable to listen to the live call, a replay will be available starting at 3:00 p.m. on Friday, April 26, 2002 until 11:59 p.m. EDT on Tuesday, April 30, 2002. Below are the replay telephone numbers: United States callers: Dial 1-800-475-6701 International callers: Dial 1-320-365-3844 Replay Access Code: 637547 (Leasing News was blocked by CIT for Friday’s edition, as much of the mail came back, as evidently by this one: “This is an automatically generated Delivery Status Notification. “Delivery to the following recipients failed. Tyco, CIT Split Seen As Better For Bondholders By Christine Richard, Dow Jones Newswires The sooner The CIT Group separates itself from Tyco International, the better off bondholders of both companies will be. Tyco announced that it was retracting a plan to spin off four business units and planning instead to conduct an initial public offering of CIT while keeping the rest of the company intact. That news, along with disappointing first quarter earnings, sent quotes lower on debt issued by both Tyco International and The CIT Group, formerly called Tyco Capital. The combined companies have more than $65 billion in outstanding debt. CIT debt was trading at a spread over Treasurys of 210 basis points, about 15 basis points wider on the day. Tyco International debt, which is quoted on a dollar basis, fell by around $4 on the day to be quoted at around $84. "CIT has been tainted by its Tyco ownership," said Steve Altman, a credit analyst with UBS Warburg. "It can't finance itself in the markets with that relationship hanging over it." A separation of CIT from Tyco is expected to result in a better market perception of CIT and a better rating from Standard & Poor's. S&P has assigned CIT a single-A-minus long-term rating and a commercial paper rating of A2. Both ratings are on Credit Watch developing, indicating that they could be lowered or raised. The current ratings technically allow the company to access the commercial paper market but without an A1 commercial paper rating it's access is limited and far from ideal for a finance company. Meanwhile, Moody's ratings present no barriers to CIT's ability to access the commercial paper market. It's assigned CIT a long- term senior unsecured rating of A2 and a commercial paper rating of P1. But ratings aside, CIT needs to restore investors' confidence. It was shut out of the commercial paper market along with Tyco in February after Tyco was hit by numerous negative reports that raised issues about its accounting. "Although CIT has resolved its immediate funding issues by drawing down $8.5 billion in bank credit facilities, it is critical to restore access to the CP markets if the company is to have any hopes of restoring its ability to invest in new business going forward," Kathy Shanley, an analyst with independent research firm Gimme Credit, said in a report. Tyco's chief financial officer Mark Swartz told investors and analysts on a call that CIT will be on solid footing with the credit rating agencies after the initial public offering. He noted that the company was able recently to complete a $2.5 billion debt offering. Meanwhile, the cash generated from a CIT initial public offering, which is expected to be at least $6.5 billion, is crucial to bolstering liquidity and confidence at Tyco International. "Tyco needs to show that it can execute (the IPO) and restore credibility," UBS's Altman said. Until then, the company's bonds are likely to continue to trade in the secondary market at levels far below where credit ratings suggest they should trade, Altman said. Tyco International carries a Baa1 long-term rating and an A2 short-term rating from Moody's Investors Service. S&P has assigned a long-term rating of triple-B and a short-term rating of A3. Both ratings are on Credit Watch developing. In affirming Tyco's ratings, S&P analyst Cynthia Werneth said that if the IPO was successful, "Tyco should have sufficient liquidity during the next 18 months to meet scheduled and potential public and bank debt maturities." But if the IPO is unsuccessful, Tyco will be forced "to seek alternative financing arrangements to meet financial obligations during calendar 2003, heightening refinancing risk," she said. S&P also said that if industry and competitive conditions don't worsen, the quick sale of CIT could see Tyco's short and long-term ratings could be raised one notch. Conversely, "the inability to access capital markets during the next several months could result in a downgrade," she said. -------------------------------------------------------------------------------------------- The Week Ahead April 29-May 3
April 29Monday Trade union vigils to be held around the world honoring the estimated 5,000 people killed each day in workplace accidents. Trial begins in Phoenix over civil suit brought on behalf of creditors of bankrupt Baptist Foundation of America against its auditor, Arthur Andersen. Economic indicators: March personal income and consumer spending, April consumer confidence. April 30Tuesday Senate takes up legislation granting president "fast track" trade negotiating authority and expanding trade adjustment assistance. U.S. Chamber of Commerce conference on broadband policy. Speakers include FCC Chairman Michael Powell and Bruce Mellman, assistant commerce secretary. Treasury Secretary Paul H. O'Neill addresses Economics Club of Washington. Omnicom Group, Procter & Gamble, Qwest issue quarterly reports. May 1 Wednesday House votes on resolution to overturn President Bush's decision to impose steel tariffs. Economic indicators: Institute for Supply Management's April manufacturing index. Association of Government Finance and Leasing Conference, Baltimore starts. May 2Thursday U.S.-European Union summit opens, with President Bush to meet European Commission President Romano Prodi and U.S. Trade Representative Robert Zoellick to meet with EU counterpart Pascal Lamy. Senate Health Committee continues hearings on generic drugs. Economic indicators: March factory orders. Joint Eastern Association of Equipment Lessors and United Association of Equipment Leasing Las Vegas, Nevada Conference Begins Association of Government Finance and Leasing Conference, Baltimore, MD 3 Friday Federal Reserve Chairman Alan Greenspan speaks on the debate over stock options at Financial Markets Conference in Sea Island, Ga. Economic indicators: April unemployment and payrolls, March ISM service-sector index. Joint Eastern Association of Equipment Lessors and United Association of Equipment Leasing Las Vegas, Nevada Association of Government Finance and Leasing Conference, Baltimore, MD ---------------------------------------------------------------------------------------------- E-Commerce Goes On a Roll By Beth Cox Internet.com Growth in e-commerce, spurred by travel sales and a general renewed confidence on the part of consumers, continues to be a bright spot in the Internet economy, despite a continued slump in IT spending by businesses. The Commerce Department said in its first-quarter report that the U.S. economy was running at the fastest pace in more than two years as consumers resumed spending and a year-long trend of sharp cutbacks in business inventories showed signs of tapering off. U.S. gross domestic product, measuring the amount of goods and services produced within U.S. borders, shot up at a 5.8 percent annual rate in the first three months of this year -- a full percentage point higher than the forecasts of private economists. And online purchasing by consumers clearly was a factor, as various other reports show e- commerce continues to accelerate. In fact, soaring consumer sales in the U.S. broke records left and right and topped $17 billion in the first quarter of this year, thanks in part to the travel sector, according to a report from comScore Networks. And BizRate.com said it sees e-commerce as an industry that is accelerating, not maturing or decelerating, according to its first-quarter numbers. The quarter showed year-over-year online retail sales gains of about 41 percent to $11.60 billion versus $8.22 billion in the same period a year earlier. BizRate's figures exclude travel spending. Online orders grew by 33.9 percent this past quarter from 68.29 million purchases in the first quarter of 2001 to 91.47 million in the first quarter of this year. The average online this year was $127 per purchase, up 5.3 percent from $120 a year earlier, BizRate said.. "There is a still a perception that online industries are faltering, but this is actually the reverse with online retail sales," said Chuck Davis, president and CEO of BizRate.com. "The trend shows that consumers love buying online and are shifting their purchases from off-line to online -- and at ever-increasing levels ...." For empirical evidence, one need look no further than some recent sales and earnings reports from companies like retail giant Amazon.com, and travel leader Expedia.com. The GDP report, meanwhile, said that consumer spending grew a healthy 3.5 percent, but below the 6.1 percent recorded in the fourth quarter of 2001. Monday---Odds and Ends Leasing Co-Op I have a question about the One World Leasing article below. How are 25 brokers each going to get 10% of the co-ops profits? I know creative math is not uncommon in our industry but this one takes the cake. Oh...I know how they'll do it...maybe they are planning on hiring Michael Fanghella to run the show. They could get Andersen to audit their books... Jeff Wetter jwetter@flexlease.com Actually Kit, that is not a quote from me nor David. We were both trying to figure out where that came from. Here is how it works: This is a patronage based co-op, the more you do business with the co-op, the more you get back in the form of a rebate. However, the neat thing about it is ONE COMPANY=ONE VOTE regardless of the size. Just to clarify, the members' return is based on the amount of business they do, so we do not think of it in terms of %. Regards, Richard Selby OneWorld Leasing 1553 W. Todd Dr., Suite 110 Tempe, Arizona 85283 tel. (480) 831-6118 ext. 40 E-mail: rselby@mainstreet.coop URL: www.mainstreet.coop ( It comes from the transcript of the fast moving session, but most likely was a typo, meaning 1%. To set the record straight, the plan has always been one vote and an equal share of the profits based on the volume discount during specific periods or the end of the year. This is not uncommon . Many funders have had this policy, including the late Colonial Pacific Leasing. editor ) ---------------------- : Thank you Kit for the in depth information today on DVI. MJ Reynolds MJ Reynolds Ray W. Peters Retires Kit Please remove my e-mail from your mailing. I am leaving Frontier Leasing Corp. to enjoy retirement and a little free lance work. I have enjoyed your columns and have read each of them. Keep up the good work. I did a similar project with a manufacturing company as a communication device with the sales force. It was extremely effective. My column went out each Friday and was sorely missed if I did not publish on a given Friday. I have really enjoyed your insight and high level of professionalism, occasionally I felt you were the recipient of some unfounded criticism, but unfortunately that goes with the territory. Best wishes to you and your leasing news column. Regards Ray W. Peters (Always hate to lose a reader, especially a supporter. Best of luck on your retirement. editor ) ____________________________________ ### ####################################### Comdisco Files Reorganization Plan and Disclosure Statement; Substantial Distribution to Comdisco's Unsecured Creditors Anticipated ROSEMONT, Ill.--(
Contingent Payment Distribution Proposed for Shareholders and Holders
of Subordinated Claims
New Executive Management Organization Announced: Further Reduction in
Force To Be Commenced April 29, 2002
Comdisco, Inc. (OTCBB:CDSO) announced Friday that it has filed a proposed Joint Plan of Reorganization and Disclosure Statement with the United States Bankruptcy Court for the Northern District of Illinois. All of Comdisco's domestic U.S. subsidiaries that filed for Chapter 11 relief are included in the Plan with Comdisco along with 15 of its direct and indirect subsidiaries substantively consolidated into one estate and Prism Communications Services, Inc. along with 34 of its direct and indirect subsidiaries substantively consolidated into another estate.
The Plan contemplates a Reorganized Comdisco that will have three primary operating subsidiaries--Comdisco U.S. Leasing Company, Comdisco Europe Holding Company, and Comdisco Ventures Company. As more fully described in the Plan, Reorganized Comdisco will continue to operate in an orderly sale or run off of all its existing asset portfolios, which is expected to take up to three years to complete.
The Plan proposes that Comdisco's general unsecured creditors will receive their pro-rata share of an initial cash distribution, which will be funded by current cash on hand from asset sales and cash flow from operations, less amounts necessary to establish a cash reserve to pay secured, administrative, priority and other payments, including the establishment of an operating reserve to fund the Reorganized Comdisco's continuing operations. In addition, general unsecured claim holders will receive their pro-rata share of two separate note issuances: New Senior Notes in the face amount of $400 million with an interest rate of three month average LIBOR plus 3% and New Payment-in-Kind (PIK) Notes in the face amount of $500 million with an interest rate of 11%. General unsecured claimholders will also receive their pro rata share of 100% of the new common stock of the Reorganized Comdisco.
If the Plan is approved, Comdisco presently estimates that it will make an initial cash distribution of approximately $2 billion, and that the ultimate recovery to unsecured creditors will be approximately 87% of their claims, subject to the provisions, assumptions and limitations of the Plan.
The Plan provides that existing equity interests will be cancelled. However, if the Plan is accepted by Comdisco's creditors as well as its stockholders and holders of subordinated claims, the Plan proposes that stockholders and holders of subordinated claims receive warrants or other contingent payments in increasing amounts based upon creditor recoveries achieving specified thresholds. The Plan currently provides for contingent consideration to stockholders and holders of subordinated claims beginning at 2% of the net available cash distributions after creditors achieve an 85% net present value recovery as of the effective date of the Plan, scaling up in increasing increments to 32% of the net available cash distributions after creditors receive a 100% net present value recovery on their claims, exclusive of accrued post-petition interest. Comdisco is unable to accurately predict at this time the ultimate value, if any, that would be realized by current equity holders and holders of subordinated claims relative to the distribution under the Plan as proposed and discussions regarding any such distributions continue among Comdisco, and the separate Creditors' and Equity Committees appointed in these cases.
The Plan further proposes that certain subrogation rights Comdisco may have against certain managers who participated in a Shared Investment Plan (SIP) will be placed in a trust for the benefit of stakeholders. Under the SIP program, 106 senior managers in 1998 took out full recourse, personal loans to purchase six million shares of the company's common stock and the company provided a guarantee in the event of default. The loans have an outstanding principal balance of approximately $104 million. To the extent that the company makes a payment under its guaranty on behalf of a SIP participant, the company is subrogated to the rights of the lender to collect such amounts from the participant, subject to any defenses or claims that the SIP participant may assert. In the Plan, the company proposes various discounts ranging from 20% to 80% with respect to repayment on account of subrogation claims at graduated levels based upon an employee's prepetition, post-petition and/or post-emergence service to the company and other consideration. The subrogation rights of SIP participants who do not fulfill their repayment obligations will be placed in the SIP Subrogation Trust for the benefit of stakeholders.
In regard to the Prism subsidiaries, Comdisco currently has intercompany secured claims against Prism that exceed the value of the assets of Prism. If the general unsecured creditors of Prism vote to accept the Plan, Comdisco will reduce its claims against the Prism entities to no more than one-third of the total distribution to Prism creditors, thereby allowing for a meaningful distribution to creditors. Prism estimates that the proposed plan will generate a distribution of 13% to general unsecured Prism claim holders (other than Comdisco), if the general unsecured creditors vote to accept the Plan. The assets of the Prism entities will continue to be liquidated.
The Plan and the Disclosure Statement will be filed with the Securities and Exchange Commission in connection with a form 8-K filing and will be mailed to all creditors and stockholders entitled to vote on the Plan after the Bankruptcy Court approves the Disclosure Statement and authorizes the company to commence solicitation of votes. A hearing on the Disclosure Statement is scheduled for May 31, 2002 and a Confirmation Hearing on the Plan is scheduled for July 30, 2002.
Norm Blake, Chairman and Chief Executive Officer, said: "We have reached this key milestone towards the conclusion of the Chapter 11 process for our company because of the tremendous hard work and focus of the Comdisco employees and management team. In just over nine months, we have sold assets related to Availability Solutions and our Electronics, Laboratory and Scientific, Healthcare and Australia/ New Zealand leasing portfolios. I am very proud of what the team has accomplished, often under challenging circumstances, to maximize the value of the estate for its stakeholders. We look forward to concluding Comdisco's Chapter 11 process within the next several months."
In connection with the orderly sale or run off of the remaining assets of the company, the company also announced that it will be filing a motion to approve a comprehensive compensation program that includes a stay bonus plan designed to retain essential support and professional staff and a performance-based management incentive plan designed to retain key employees at each of the business units and at the corporate headquarters. The Company will schedule this motion for hearing on May 31, 2002, the next scheduled bankruptcy court omnibus hearing date.
New Executive Management Structure Announced
Separately, Comdisco also announced a new executive management structure. Ronald C. Mishler, 41, who had been serving as chief financial officer, has been appointed president and chief operating officer of Comdisco, Inc, reporting to Norman P. Blake, chairman and chief executive officer. In his new position, Mishler will be responsible for all of Comdisco's operating units, and he will retain responsibility for the company's finance and accounting areas. Mishler joined Comdisco in July 2001.
New appointments reporting to Mishler include: Francis J. Cirone, 43, who joined Comdisco in 1984 and has served in various management positions in Leasing and Finance, has been named chief executive officer of Comdisco U.S. Leasing; Robert E.T. Lackey, 54, who has served as senior vice president and chief legal officer since he joined Comdisco in June 2001, has been named chief executive officer of Comdisco Ventures; Robert E. Koe, 57, was named chief executive officer of Comdisco Europe on March 25, 2002; and John R. McNally, 41, who joined Comdisco in 1988 and has served in various management positions in Finance and Leasing, has been named president of the company's Corporate Asset Management group.
Other new appointments reporting to Norman P. Blake, chief executive officer, include: Nazneen Razi, 49, who has served as senior vice president, Human Resources since October 2000, has been promoted to executive vice president and chief administrative officer; Gregory D. Sabatello, 41, who has served as senior vice president and chief information officer since June 1994, has been promoted to executive vice president and CIO; and Robert E.T. Lackey, who has been promoted to executive vice president and will continue in his role as chief legal officer. All of the executive changes are supported by Comdisco's Official Committee of Unsecured Creditors.
The company also announced that as part of its restructuring efforts, it will reduce its U.S. workforce over the next 30 to 60 days by approximately 180 positions, or approximately 20% of its total workforce. About 80% of the reductions will be at the company's Rosemont, IL corporate headquarters.
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. The company continues to target emergence from Chapter 11 in late summer of 2002.
About Comdisco
Comdisco (www.comdisco.com) provides technology services to help its customers maximize technology functionality and predictability, while freeing them from the complexity of managing their technology. The Rosemont (IL) company offers information technology and telecommunications equipment leasing to a broad range of customers. Through its Ventures division, Comdisco provides equipment leasing and other financing and services to venture capital backed companies.
CONTACT:
Comdisco, Inc.
Mary Moster, 847/518-5147
mcmoster@comdisco.com
or
Kekst and Company
Fred Spar or Jeremy Fielding, 212/521-4800
SOURCE: Comdisco #### ################################## #################### -------------------------------------------------------------------------------------------------- Not Silicon Valley' Is Not Such a Bad Thing After All Federal Government Stabilizes Economy By Neil Irwin Washington Post Staff Writer To many local boosters, the federal government has long been both an asset and a liability. On one hand, the government keeps the Washington area economy chugging even when the nation is in recession. On the other, the conservative strain of many government contractors that dominate the region means it is unlikely to attain the kind of stunning growth of, say, late 1990s Silicon Valley. Nevertheless, for all the emphasis that marketers of the region have placed on Washington's emerging private sector in the past half-decade, a year of recession and war mean that "Not Silicon Valley" may not be such a bad thing after all. Consider this: In February, which now appears to have been the tail end of a national recession, the Washington area's unemployment rate was 3.8 percent. In Silicon Valley, that paragon of tech industry growth, that rate was 7.3 percent. And in Dallas, a Sun Belt center of non-tech growth, joblessness checked in at 6.6 percent. Last year proved, lest there be any doubt, that the federal government provides remarkable ballast for the region, making it reasonably stable even on choppy economic waters. "The conventional thinking was that technology had replaced the federal government as the leading engine of growth in the Washington metro area," said Anirban Basu, chief economist of Towson University's Regional Economic Studies Institute. "But to the extent that technology has managed to sustain itself over the past two years, it has largely been a function of federal dollars. It is the federal government that is the leading driver in the Washington metro area and there is no possible peer." "What's amazed me is the sheer strength of the Washington economy," said Philip Dearborn, co-director of the Greater Washington Research Program at the Brookings Institution. "It just seems to keep going." To understand why, consider the breakdown of employment in the region. Service businesses, which includes jobs as varied as lawyers and copier repair people, account for 41 percent of jobs in the region, according to the Labor Department, and despite the recession, the region added 7,400 such jobs in the year ended in March. Government work accounts directly for another 22 percent of employment, and the region gained 3,500 such jobs. Moreover, consumers remained stalwart spenders despite thousands of layoffs and other bad economic news, as incomes were relatively stable. Individual income tax withheld by employers rose 2.4 percent in Virginia in the nine months ended in March, suggesting a steady rise in payrolls, while that figure dropped 3.4 percent in Maryland. The District does not publish such month-to-month data. Good news notwithstanding, 2001 was undoubtedly a tough year for the region's economy. It just was not as bad as most places in the country. For example, that 3.8 percent unemployment rate is up from 2.4 percent a year earlier. Business profits were down dramatically. In Virginia, for example, corporate tax receipts were down 24 percent in the nine months ended in March, and such receipts were down 32.8 percent in Maryland, busting the budgets of both state governments. Employment growth came back to earth. In the past 40 years, the Washington area has added an average of 51,000 jobs a year -- the motivator behind the long boom in real estate, retail, and most everything else. But in the 12 months ended in March, according to the Labor Department, employment in the region increased by a statistically insignificant 300 jobs. That, economists said, is because employers are generally slow to resume hiring even after a recession is ending. And while the real estate market is in only a mild slump in downtown Washington and close-in suburbs, outer suburbs, particularly in once tech-heavy areas of Fairfax and Loudoun counties, report office vacancy rates pushing 20 percent. The pain has been most keenly felt in what were some of the region's fastest- growing businesses. Internet companies continued their collapse in 2001, and the technology recession -- some would call it a tech depression -- started hitting even stable, established software and tech consulting companies. Because of massive overbuilding of fiber-optic bandwidth, reminiscent of the commercial real estate overbuilding of the late 1980s, area telecommunications companies entered bankruptcy by the dozens and laid off employees by the thousands. In September, just as the worst of that economic slump seemed to be over, terrorists flew hijacked airplanes into the Pentagon and the World Trade Center. Consumers holed up in their houses for a week watching CNN instead of spending money; hotels emptied, and Reagan National Airport was closed for weeks. It seemed to be as dire an economic dilemma as a region could face. Yet early signs are that the worst impact of the terrorist attack has already abated. Hotels report near-normal levels of occupancy, if at lower room rates. And National Airport just last week returned to normal take-off and landing procedures. Government contractors, many of them based locally, are just starting to receive a new inflow of federal dollars to bolster security in the post-Sept. 11 world. Consider this: In the all-time peak year of 1999, the Washington region received cash from venture funds, stock offerings, bond issues and private equity deals totaling $22 billion. It sounds like a lot of money, until one considers that in 2001, a year of recession, war and uncertainty, the federal government spent $79.2 billion in the area, a number analysts expect to rise this year. The federal government, it turns out, isn't just the 800-pound gorilla of the Washington area economy. It's King Kong. ________________________________________ Amtrak Is Put Under Special Safety Watch By Don Phillips Washington Post Staff Writer The Federal Railroad Administration has instituted a special safety watch on the financially ailing Amtrak, and Amtrak operating officials have begun a series of "safety blitzes" to caution all train crews, maintenance forces and shop workers to remain alert on the job. No recent major accidents or passenger injuries have been attributed to Amtrak employees distracted by the company's financial problems or their own job prospects. The number of serious rule violations, however, has spiked upward this month, and the 20 violations so far in April tie the worst month in recent years. All the violations have been in stations and yards rather than out on main lines. One violation involved an engineer who apparently fell asleep at dawn while entering Washington Union Station from the south, running past the platform through a red signal and destroying a track switch before reacting to a radio call from a surprised tower operator. In another case, a northbound train began leaving Philadelphia Penn Station with a forklift and its operator still inside a mail car. An Amtrak police officer saw the problem and radioed the crew to stop, but not before the steel plate used by the forklift to enter the car bounced along the station platform and severely damaged the door of the mail car. Safety watches are rare and, FRA spokesman Robert L. Gould said, "are seldom done on this grand a scale." Gould said he did not mean to suggest that Amtrak was being declared unsafe, but that Amtrak's financial and operational situation warrants a major effort. Amtrak has done several safety blitzes in the past, usually when operating officials see a pattern of rules violations or accidents. The safety concerns grow out of Amtrak's deteriorating financial and physical condition, complicated by a confused political situation. Amtrak is facing a severe cash crunch and the Transportation Department inspector general, Kenneth M. Mead, has testifie |