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Kit Menkin's Leasing News www.leasingnews.org Tuesday, July 16 2002 Accurate, fair and unbiased news for the equipment Leasing Industry ------------------------------------------------------------------------------------- Headlines---- Greenspan Tells Congress--On the Road to Recovery Stock Markets Tumble in Europe, Asia AGLF Loses 32% Membership Photoshop Owner: Open Complaint Advance Rentals---Accusations Confidence Falls With the Dollar Not My E-mail Still Making the Rounds e-ClassicSystems Leasing Program for ATM Manager Pro eLessors Networking Association Evolving Beyond Technology Take Me Out To The Ball Game . . .July 24th, Anaheim, CA First Niagara Financial Reports 2nd Quarter Earnings Willis Lease Finance Recruits Monica J. Burke as CFO Business Leasing News---July Edition by David G. Mayer Why stock options are an evil not addressed--NY Times Dennis Brown---Streamline Sales Tax Report Non-Leasing Business News In Brief ### Denotes Press Release Non-Leasing Business News In Brief ---------------------------------------------------------------------- Economy Is on Road to Recovery, Greenspan Tells Congress By THE ASSOCIATED PRESS WASHINGTON (AP)-- Federal Reserve Chairman Alan Greenspan told Congress Tuesday the economy is on the road to full recovery but will keep feeling the effects of last year's recession. Corporate executives should be held accountable to accurately state the financial condition of their companies, he said. ``The effects of the recent difficulties will linger for a bit longer but as they wear off, and absent significant further adverse shocks, the U.S. economy is poised to resume a pattern of sustainable growth,'' Greenspan told the Senate Banking Committee. The markets remained volatile, however, and investors seemed to take little comfort in promising second-quarter earnings reports or Greenspan's report. Stocks fell sharply in early trading, as the Dow Jones industrials plummeted by more than 170 points. Delivering his semiannual report on the economy, Greenspan struck a more upbeat and reassuring tone than he had earlier this year. He said he and his Fed colleagues now expect the economy this year to grow between 3.50 percent and 3.75 percent when measured from the fourth quarter of 2001. That's stronger than the 2.5 percent to 3 percent pace forecast in February. But he also sounded a warning. ``Financial markets have been notably skittish of late and business managers remain decidedly cautious,'' Greenspan said. To restore investor trust shaken by the accounting scandals, Greenspan said CEOs must be held accountable to accurately report on the financial condition of their companies and should be penalized for not doing so. Greenspan said checks and balances on corporate governance that worked well in the past might have been hurt by the go-go mentality of the 1990s that ``arguably engendered an outsized increase in opportunities for avarice.'' Greenspan's testimony comes as a startling wave of accounting scandals threatens to cause consumers and businesses to spend and invest less. It was deep cuts in capital spending that helped to push the economy into recession last year. ``Considerable uncertainties -- about the progress of the adjustment of capital spending and the rebound in profitability, about the potential for additional revelations of corporate malfeasance and about possible risks from global political events and terrorism still confront us,'' Greenspan said. Against that backdrop and given that inflation has remained low, Fed policy- makers have opted to hold short-term interest rates at 40-year lows at each of their four meetings this year. ``We have chosen to maintain that stance pending evidence that the forces inhibiting economic growth are dissipating enough to allow the strong fundamentals to show through more fully,'' Greenspan said. A growing number of economists believe the Fed will keep rates unchanged through the rest of the year. Low interest might motivate consumers to keep spending and businesses to invest, forces that would bolster economic growth. Consumers, whose spending accounts for two-thirds of all economic activity, have been holding up despite the spotty recovery and the sour stock market, Greenspan said. A growing number of economists believe the Fed will keep rates unchanged through the rest of the year, and they said that view was reinforced by Greenspan's remarks. Low interest might motivate consumers to keep spending and businesses to invest, forces that would bolster economic growth. ``The Fed will stand pat and will not be doing anything for awhile in terms of interest rates --either lowering them or raising them,'' said Wells Fargo's chief economist Sung Won Sohn. ``He implied that the crisis of confidence in the stock market could go on for awhile, and we shouldn't expect any significant improvement in confidence any time soon,'' the analyst said. Weak stocks have yet to crimp consumer spending because of offsetting boosts from low interest rates, solid appreciation in home values and extra cash from refinancing. In contrast, business spending has remained weak, he said. Companies whose profits took a hit during the slump are reluctant to make big commitments in hiring and in investment until they are sure the recovery is here to stay. Greenspan repeated his support for forcing companies to treat lucrative stock options for top executives as a business expense. Fed policy-makers' forecast is for the nation's unemployment rate -- now at 5.9 percent -- to peak at between 5.75 and 6 percent later this year, an improvement from the Fed's earlier forecast and significantly below the 7.8 percent jobless rate hit in the last recession of 1990-91. Inflation was forecast to be moderate this year, with consumer prices as measured by a price gauge tied to the gross domestic product to increase by about 1.5 percent to 1.75 percent, little changed from an earlier estimate. ( full testimony before Congress at bottom of news ) ---------------------------------------------------------------------------------------------- Stock Markets Tumble in Europe, Asia LONDON (AP) - Stock prices fell Tuesday in Europe and Asia in the wake of U.S. financial scandals and wild fluctuations on Wall Street. Analysts said investors' confidence in the U.S. economy and corporate reports had been shaken. ``It's a structural problem. People are saying, 'We don't believe the numbers,''' said Akber Khan, a London-based analyst with Deutsche Bank. London's Financial Times-Stock Exchange 100-share index was down 59.90 points, or 1.5 percent, at 3,934.60 Tuesday afternoon, reversing early gains, despite news that Britain's inflation rate had fallen to its lowest level in more 25 years. On Monday, the FTSE fell 5.4 percent to its lowest close since Dec. 17, 1996, and the biggest single-day fall since the Sept. 11 terrorist attacks. By midday Tuesday, Frankfurt's Xetra DAX fell 7.63 points, or 0.2 percent, to 3,904.88, and the Paris CAC-40 was down 43.15 points, or 1.3 percent, at 3,280.59. With the U.S. dollar weakening against the Japanese yen and the euro, investor confidence has been shaken by accounting scandals at major American companies, and fears of more to come. The Dow Jones industrial average briefly plunged more than 400 points Monday in New York, although it recovered to close 45 points lower for the day at 8,639.19. In early trading Tuesday, the Dow was down another 200 points. European investors continued to be wary amid fears of further falls to come. Major Asian stock markets had a difficult Tuesday, too. Tokyo's benchmark 225-issue Nikkei Stock Average shed 124.73 points, or 1.20 percent, to close at 10,250.42. The Nikkei regained some ground by midday, but worries crept back toward the end of the day. Singapore's Straits Times Index fell 23.91 points, or 1.5 percent, to 1,585.85, and benchmarks also fell more than 1 percent in Taiwan and South Korea. In Hong Kong, the benchmark Hang Seng Index dipped 160.17 points, or 1.51 percent, to 10,421.49. ``One must wait to see if the declines in the U.S. dollar and U.S. stocks are an omen of more volatility to come,'' the Chinese-language Hong Kong Economic Journal said in a front-page commentary. Deutsche Bank's Khan doubted there would be a quick end to the turmoil. ``We're nowhere near resolving the problems,'' he said. ``We're just going to continue to drift.'' ------------------------------------------------------------------------------------------------------- Association of Government Leasing and Finance Loses 32% Membership “Jorie Lagerwey ( former executive director ) no longer works here. Please make a note of the new address for AGL&F, since May 2001, located at the bottom of this email. This may be the cause of returned mail. “232 Members “Also, I will add you to our email newsletter so that you can be better informed of our activities. Cordially, -- Graham Hauck Executive Director Association for Governmental Leasing and Finance 1255 23rd Street, NW Washington, DC 20037 202.742.AGLF (2453) fax: 202.833.3636 email: gsh@aglf.org The association went from 250 members in June of last year to 343 at the end of last year. According to the new Executive Director, Graham Hauck, as of June, 2002 it stands at 232. AGLF was founded in 1981 to serve municipal leasing industry. Publishes Bi-monthly newsletter; sponsors 2 annual conferences; 50-state leasing survey; federal leasing survey; and conducts numerous industry projects. Two types of membership: regular member - private sector organizations active in leasing/finance; governmental member - any state, territory, US possession, District of Columbia, or political subdivision of above. Dues information: As many people as would like to from any one company may join. One person must be designated the Regular Member and pay $650/year dues. The other members are designated Additional Members and pay $150/year dues. Non-members are very welcome at our conferences. For registration materials, they can call 202.742.AGLF (2453) or email 202.742.AGLF (2453) ---------------------------------------------------------------------------------------------------- Photoshop Owner: Open Complaint Applied for a lease, was approved, allegedly, the digital printer was not delivered, original funder closed doors, several months go by, new funder (a bank) wanted more information, provided, credit, formal approval given, vendor did not trust original broker, would not deliver, deal fell apart, lessee wanted check back for $4,441.12 , broker/discounter/superbroker said, no, worked hard on this, plus you signed:
NOTICE
OF ACKNOWLGEMENT AND UNDERSTANDING “The attached documents represent a binding legal contract between you ( the Lessee) and ******* ( the Lessor). The obligation is not cancelable. There is no right to return the equipment or to a refund.” “Your next invoice and/or coupon book will be forwarded to you shortly. Payments are due monthly on the due date shown.” A third paragraph states: “ Please sign this notice as your understanding and acknowledgment of the notice and your further acknowledgment that these lease documents represent the only agreements between you( the Lessee) and *****. No other agreements regarding warranty, performance or profits to be generated by the equipment, whether written or implied are in existence with the Lessor.” It does not appear the lessee/broker/discounter/superbroker whom the complaint is addressed is not in the business of just keeping advance rentals, and appears through all the time and paperwork to have spent much time and effort working on the transaction. A check was submitted for $4,441.12 (“This represents the first and last payments plus tax, $165.00 inspection fee and a $175.00 documentation fee”) The broker/discounter submitted all the papers, including a commission sheet from the original transaction that showed a $1.00 purchase option, meaning it was a Capital Lease. The commission was 15%. This buy rate for 48 months was .02879 and sell rate .03310. The actual contract, used, with the second “funding source,” shows a “sell rate” of .03589. The interest may be calculated in several manners, but for simplicity, let’s say it is over 30% with first and last in advance. Broker/discounter/superbroker says will not return any money, “ I earned it, plus I
have this signed document.” Applicant’s reaction: Well. I really feel ripped off. “This guy strung me along. Making me feel everything was OK. That letter I signed made me feel like the deal was funded and I would be seeing my payment book any day. Figured no risk. Deal is done. Also, the word deposit wasn't used, but first and last lease payments. I felt no risk at all until the vendor called and said they couldn't ship because his Purchase Order had an expiration date on it previous to the 90 day agreement as stated in the lease agreeement. “I can't believe ********* and yourself find this acceptable to keep $4100 dollars for making a few phone calls and sending a couple faxes and pulling a 40.00 credit report worth taking a small business person for 4K! especially since he has the power to cancel the a non-cancelable agreement after he receives the money from the lessee. I am fortunate to have found a much more reliable leasing broker. “One that is very honest and fair. I’ve spoken to several other leasing brokers and they all say this guy scammed me! They all said he should return the first and last lease payments since they weren’t his to begin with and should have been forwarded to the leasing company/underwriter. “This guy is essentially a pimp for leasing companies. Why aren't leasing brokers regulated by some "higher" agency like real estate agents and banks are regulated? “What this guy has done to me is like me taking a customers roll of film, having them pre pay for the order. The film comes out blank and I don't make any prints but they don't get their money back. it cost me pennies, but man, would the customer be really pissed. All along, that customer would be given the idea that when they came back in they'd have what they ordered. But all they get back is blank film.” ---- Leasing News views this as a “civil dispute” due to the signed paper: “There is no right to return the equipment or to a refund.” Coda: Certain states consider “capital leases” a loan. Other states will consider it a “finance lease” due to a marginal purchase option; some, will even define an “operating lease.” When they are classified as a loan, the usury law of the state has a maximum interest. Most of these transactions exceed the interest rate and are subject to not only invalidating the transaction, but also charging damages against the parties involved in the “illegal act.” The Commercial Finance Association has a compendium of commercial law that includes details of commercial usury in each state that is updated at least twice a year by a network of law firms in each state. Irwin uses it extensively and we have not yet found an error. It also provides information on state licenses, guarantees, Tax liens etc. You buy it without being a member and can access it on their website or use a CD Rom. Their website is: www.cfa.com. The telephone number for the Commercial Finance Association is 212/594-3490. http://easycall.net/midi/hangonsloopy.mid Advance Rentals---Accusations (From time-to-time we publish our policy and for new readers, as well as long time readers, please read:
Leasing News does not want to print accusations. We confirm all information given to us before publishing. We verify all information given to us. We want to be "fair and accurate." Our role is industry news. We encourage your communication, but we have an adopted policy from the date of our inception: http://www.leasingnews.org/policy.htm
If you have a complaint or knowledge of inappropriate conduct, behavior, possible illegal activity, the proper venue for this is a written complaint to your leasing association's standards and ethic committee. If the company you are writing about is a member, they may be expelled or censured.
One of the many reasons to belong to an association, is to promote ethics and fairness. Leasing associations have committees composed of professionals in the industry who work for free and consider all written complaints or information about conduct submitted to them. It is your best "protection." Exchange business with the members of your association. If there is a difficulty or a problem, you have a "lifeline" to call. Join an association just for this protection ( there are other reasons, but this is an excellent one ).
We also invite all readers to utilize our "Customer Complaint" Bulletin Board. http://www.leasingnews.org/bulletin_board.htm We will post all verified complaints of fraud, unethical conduct, and this may serve as a warning not to do business with this specific company. The experienced professionals write in all the time, "know who you are dealing with." We hope you don't find out the hard way and our "Customer Complaint" Bulletin Board is one way to be alerted.
We do not want to discourage you from sending us "on" and "off the record," information, but we will not publish accusations. We will report the "inside" news and hope we are of sometimes entertaining, but always--- of educational benefit.
We often act as an “ombudsman,” facilitating a settlement or return of monies. These are not reported as the complaints are “settled.” Please utilize your association standard and ethic committee. Let your association enforce their professional code of ethics and help out their members with the information that you provide them.
editor. ---------------------------------------------------------------------------------------------- Confidence Falls With the Dollar By Paul Blustein Washington Post Staff Writer The dollar fell below the one-euro level yesterday, a fresh sign of the deepening pessimism in U.S. financial markets and the growing disillusionment among investors worldwide over the scandals besetting American companies. The one-to-one "parity" between the dollar and the currency of the 12- nation euro zone – which late yesterday was changing hands at about $1.0055 per euro – marks an important milestone in the sell-off that has sent the greenback tumbling from its once-mighty perch along with U.S. stock prices. The last time the euro was worth $1 was more than two years ago; as recently as March 1, it was worth about 86 cents. The decline in the dollar benefits the U.S. economy in significant ways, especially by making American products cheaper against competing goods made overseas. But although many economists agree that a smooth descent for the greenback is desirable, yesterday's drop, which came amid gut- wrenching turmoil on Wall Street, underscored the risk that foreigners might be panicked into dumping their massive holdings of U.S. stocks and bonds, inflicting serious economic damage in the process. "What happened today, and it's been happening for the last several weeks, is that foreign investors have lost confidence in corporate America, and because they've lost confidence they're buying fewer U.S. assets – stocks, bonds and the currency," said Rebecca Patterson, a currency strategist at J.P. Morgan Chase in New York. "As long as it happens in a controlled way, the weaker dollar will be simulative for the economy, because it helps exporters," Patterson added, but the worrisome scenario, she said, is that foreign investors, fearing a further sharp erosion in the greenback, might unload their U.S. investments on a much more rapid and disorderly scale to avoid suffering losses on their holdings – thereby precipitating a similar move among U.S. investors. "There's a risk you would get a snowball effect," she said. The dollar peaked in February after a long rise that drove its value up about 40 percent against most major currencies. Although it remains well above its 1995 lows, its decline has accelerated in recent weeks. Against the Japanese yen, it has fallen about 13.6 percent in the past 4½ months, trading yesterday at 116.31 yen, down from 116.79 on Friday. Dampening enthusiasm overseas for U.S. investments is easily verifiable from U.S. government figures, which show that foreign investors bought $131 billion of U.S. stocks and bonds in the first four months of the year, compared with $187 billion in the same period a year earlier. And in the weeks since, foreign purchases have slacked off even further, according to internal data generated by J.P. Morgan Chase and other currency market participants. That poses a problem for the U.S. economy because of the trade deficit, which widened to a record $112 billion in the first quarter of 2002 based on the broadest measure. Since Americans buy so much more from abroad than they sell, the economy depends on foreigners' willingness to continue pouring money into the United States – in effect, lending Americans the money to buy imports. The dollar's decline reflects foreigners' increasing reluctance to supply those funds, and it also stems from a growing preference among American investors to move money overseas, even though other big economies including Europe and Japan are expanding less rapidly than the United States. At Principal Capital Income Investors in Des Moines, for example, Gwen Swanger, managing director of international fixed income research, said that since early May a $1 billion fund the firm manages has "overweighed the euro, the yen and the Canadian dollar" – that is, invested in bonds from those areas in amounts out of proportion to the size of their overall markets. "The structural imbalance in the U.S. has been waiting for some time to correct itself," she said, referring to the trade deficit, "and we felt it was about time to start correcting." The prospect of such a correction in the trade deficit is welcome in most quarters of U.S. industry, which has long sought a lower dollar to improve its competitiveness. "It's just anecdotal information, but we're already beginning to see companies saying they're beginning to get order inquiries again from European customers," said Frank Vargo, vice president for international economic affairs at the National Association of Manufacturers. Partly for that reason, policymakers have been largely sanguine about recent developments in currency markets. "The movement that's taken place so far is no particular cause for alarm," said Kenneth Rogoff, the chief economist of the International Monetary Fund, although he acknowledged: "We're looking at it very closely." One of the only governments to show concern is Japan's, because the country is depending on exports to lift its economy out of its slump, and a stronger yen erodes the competitiveness of Japanese goods. Finance Minister Masajuro Shiokawa said over the weekend that a range of 125 yen to 130 yen per dollar would be "a favorable level." But private analysts in the United States warn that dangers loom for the U.S. economy as well. "To the degree that the dollar declines as part of a broader decline in financial markets driven by the desire to sell off everything that's American – stocks, bonds, the dollar – that's not to be applauded," said Alan Blinder, an economics professor at Princeton and a former Federal Reserve vice chairman. The greatest cause for anxiety is that a "snowballing" decline in the dollar hits U.S. markets so hard as to prompt consumers to curb the spending that is propping up the economy. "The worry is that this could spill over into consumption, because if the American consumer pulls in his and her horns, it's going to derail whatever prospects for growth we have," said David Gilmore, an economist at Foreign Exchange Analytics in Essex, Conn. ----------------------------------------------------------------------------------------------------- Please send to a colleague. We are trying to build our readership. We print “inside” news, the truth. No axe to grind. See our classified ads for employment, books to read about leasing, The List, Bulletin Board Complaints, and more.... _________________________________________________________________ Not My E-mail Still Making the Rounds Hey Kit! Looks like you have another virus? Or you were smoking something weird. I received this on Saturday. There did not appear to be any virus attachments. It was in HTML and the source code was very simple. Here are the headers:: Received: from cmsmail05.cms.usa.net [127.0.0.1] by cmsmail05.cms.usa.net via mtad (CM.0402.2.02C) with ESMTP id 917ggNckU0621M05; Sun, 14 Jul 2002 02:10:48 GMT Return-Path: <clb@wekz.net> Received: from ckhnet.com [208.142.106.52] by cmsmail05.cms.usa.net via smtad (ES.0801); Sun, 14 Jul 2002 02:10:46 GMT Received: from Ogpr [12.148.192.25] by ckhnet.com (SMTPD32-7.10) id AD89C9AC0146; Sat, 13 Jul 2002 21:10:17 -0500 From: kitmenkin <kitmenkin@leasingnews.org> To: DDelack@USA.NET Subject: A very nice game MIME-Version: 1.0 Message-Id: <200207132110618.SM00576@Ogpr> Date: Sat, 13 Jul 2002 21:10:46 -0500 Content-type: multipart/mixed; boundary="=_IS_MIME_Boundary" Good Luck!! Doug Delack -----Original Message----- From: kitmenkin [mailto:kitmenkin@leasingnews.org] Sent: Saturday, July 13, 2002 10:11 PM To: DDelack@USA.NET Subject: A very nice game This is a nice game This game is my first work. You're the first player. I expect you would like it. Doug—This is the new type of virus making the rounds, coming from someone else’s address book. They invade and choose a name at random from the address book, so the original recipient has no means to warn others. The HTML may have had a worm hidden in it. Go to www.antivirus.com and get a free virus check. If you run a server, run a check on it too, as one may be sleeping there. Number one: I never send out in html---only text. **** Number two: I don’t send out jokes in Leasing News or anything else but only daily news. Number three: I never send out attachments (unless responding to a specific request) ***I also read only in text, as html e-mail may contain a worm or virus. You were smart to include the header. In fact, you can always look that up before opening any e-mail with an attachment. If the header shows it does not come from the sender, delete it and run a virus check immediately. My header would be: Received: from virusscan [192.168.0.107] by americanleasing.com [192.168.0.5] with SMTP (MDaemon.v3.0.4.R) for <kitmenkin@americanleasing.com>; Mon, 15 Jul 2002 12:18:40 -0700 Received: from 192.168.0.1 by virusscan (InterScan E-Mail VirusWall NT); Mon, 15 Jul 2002 11:43:49 -0700 (Pacific Daylight Time) Received: from 65.209.205.30 (65.209.205.30) by mail15b.boca15-verio.com (RS ver 1.0.63s) with SMTP id 056824 for <kitmenkin@leasingnews.org>; Mon, 15 Jul 2002 14:54:38 -0400 (EDT) Received: from mail pickup service by wave2 with Microsoft SMTPSVC; (American Leasing donates the mail server service to Leasing News and you can see it goes through two anti-virus programs, one separate and one on the mail server, and my workstation has a third---you cannot run them all on the same machine. We also have a Unnix box, which runs on the NT operating system for the mail server, as we have had problems getting it to work properly on the Windows 2000 operating system. Our classified ads run on a separate dedicated server, with a separate and different anti-virus program, as we have been hacked and hit by too many viruses. (Are we paranoid? Yes. And yes, anyone can learn the route of our mail via the header, no secrets given away here. Editor ) ___________________________________________________________________ #### ########################################## #################### e-ClassicSystems Announces Leasing Program for ATM Manager Pro, the World's Leading ATM Business Management System NORWOOD, Mass., -- e-ClassicSystems, Inc. (www.eclassicsystems.com) today announced a leasing program for the world's leading ATM business management system, ATM Manager Pro(R). The program is targeted primarily at small and mid-size ATM deployers. "Every deployer, large and small, needs an integrated business management system to efficiently manage the daily operations and accounting of their network," said Tyson Nargassans, Director of Sales and Marketing of e- ClassicSystems. "With the current economy, we needed to balance the need for our system with our customer's desire to conserve capital for new placements. The leasing program accomplishes these objectives. This program allows even the smallest organization to acquire the system used by the leading ATM deployers." The program includes all future product releases and unlimited telephone and web support. Data conversion, on-site implementation, and training are also available. In addition, the lease can include the annual renewal fees if desired. The term can extend one to five years with the deployer having an option to acquire the rights to the software at the end of the lease term for a $1 buyout. The leasing program will also enable customers to communicate electronically with other companies in the industry such as cash providers, armored carriers, processors, and of course, other ATM Manager Pro users. "We examined a per transaction pricing model but selected the leasing program as our preferred method. We can prove the per transaction fee ultimately penalizes the deployer for future growth or superior locations," said Mr. Nargassans. "The leasing program creates a solid and efficient back- office environment for a fixed investment. This investment will lead to better customer service, improved profitability and most importantly, help every deployer expand their network without the need for additional staff, which is the number one expense for any small business. We are very excited about the program and look forward to working with every deployer." About e-ClassicSystems, Inc. e-ClassicSystems, Inc., based in Norwood, Massachusetts, is a premier provider of software solutions to organizations that deploy or manage ATMs. Its product, ATM Manager Pro(R), is world's leading ATM business management system. Introduced in May 2000, ATM Manager Pro databases are managing the operations of more than 63,000 ATMs worldwide at 59 customer sites. The product suite offers a number of integrated modules to centralize all ATM- related data including assets, configurations, transactions, profitability, cash, service, supplies and more. e-ClassicSystems' mission is to deliver best-of-breed software solutions to help financial institutions and ISOs manage the operations and accounting of their ATM networks. For more information, visit www.eclassicsystems.com or call Tyson Nargassans at 781.551.9123. Contact: Tyson Nargassans e-ClassicSystems, Inc. (781) 551-9123 tnargassans@eclassicsystems.com ############ ############################################# eLessors Networking Association Evolving Beyond Technology John O. Semon comments on the continuing evolution of the eLessors Networking Association (eLNA) Atlanta, GA - (The Lessors Network Newswire) - With the consistent sell out success of the eLessors Networking Association's (eLNA) annual conferences introducing technology for the equipment leasing industry, eLNA's identity has become synonymous with leasing technology; however, today eLNA is much more that a "technology" association. As explained by eLNA chairman, John O. Semon, "eLNA's identity is best defined by one word found in our name, the eLessors Networking Association." Today Semon confirmed several new strategies are being implemented to further strengthen networking benefits for eLNA members. eLNA recently announced it would begin providing complimentary attendee registrations to the CEOs and/or Presidents (or their designees) of the 100 largest leasing companies in the U.S. As Semon puts it, "This was an easy decision. When it comes to networking, we simply want to ensure these senior leasing executives are participating in our Annual Networking Conference." Additionally, eLNA will begin offering CEOs and/or Presidents of the 100 largest leasing companies in the U.S. free annual membership to expose their companies to eLNA's membership. Unlike other industry associations, eLNA has never relied on membership dues for revenue. All dues paying members attending the Annual Networking Conference receive full credit of their membership dues against attendee registration cost thereby making their membership complimentary. According to Semon, "We strongly feel the benefits of networking in today's economic climate has never been more critical to our member's business activities. eLNA has perfected the art of networking hospitality, refined to embrace a standard that today's business executives find particularly appealing." Semon also confirmed eLNA has entered into an promotional agreement with The Lessors Network (www.lessors.com), rated by Yahoo as one of the top ten most visited equipment leasing web sites. Details are currently being finalized that will provide each eLNA member increased exposure to the equipment leasing industry from The Lessors Network web site at no additional cost. About the eLessors Networking Association The eLessors Networking Association (eLNA) provides a forum for the exchange of information, products and services among members representing a national network of industry leaders and smaller pre-IPO companies from the equipment leasing and finance community. The primary benefit to eLNA membership is participation in exclusive, high profile networking events showcasing resources designed to enhance equipment lease origination, administration, funding and distribution networks. Additional information is available from - www.elessors.com. http://www.elessors.com/Events/f2-register.html This Event Limits Attendance To 150 Attendees. Registration Is On A First Come Basis. eLNA Member Attendee Registration - $250 Non-Member Attendee Registration - $750 Registration fees increase in reverse proportion to available space. Monitor 100 - CEO/President Registration - Complimentary Exhibitor Workshop Closed/Sold Out! Designed for the commercial promotion of your company, products and services to conference attendees. Executive Briefings Closed/Sold Out! Guest speakers invited by eLNA to deliver topical and informative presentations (without commercial promotion) to conference attendees. Exhibitor/Advertiser Closed/Sold Out! This showcases feature table top exhibits at two evening Networking Receptions and a conference program ad, providing intimate introduction of your company representative(s) to conference attendees and distribution of promotional materials. Networking Reception Table Top Exhibitor showcases feature table top exhibits at the evening Networking Receptions (two) provide intimate introduction of your company representative(s) to conference attendees and distribution of promotional materials. Conference Program Advertising Closed/Sold Out! Advertising in the conference program provides exposure for your company, products and services. All ads are full page color or black and white. Sponsorship showcases are outstanding promotional opportunities for your company. You benefit increased exposure and awareness about your company, products and services. ################# ############################################# Take Me Out To The Ball Game . . .July 24th, Anaheim, CA Join In On the Fun by Attending the First Annual UAEL Orange County Anaheim Angels Night! Anaheim Angels vs. Oakland A's When: Wednesday July 24, 2002
Where: Edison International Field, Anaheim, CA
Time: Let's meet at 5:30 PM under the "Big A" for a Potluck Tailgate Party before game time. Game Time at 7:05 PM.
Cost: $7.00 per person if you reserve your ticket by July 15th $10.00 per person if you reserve your ticket after July 15th Please reserve your ticket today by downloading the flyerhttp://www.uael.org/events/regional/pacific_events/ballgame_flyer.doc or completing the bottom portion of the form and mailing it to Southern California Leasing at the address provided. http://www.uael.org/events/regional/pacific_events/ballgame_flyer.doc To download the flyer: Place your cursor on the flyer link below Right-click your mouse Choose "Save Target As..." from the list of options Choose a location to place your file Click the "Save" button UAEL Orange County Anaheim Angels Night Flyer Please contact Barbara Griffith at 714-573-9804 or Gina Iacono at 714-834-0127 with any questions. ############ #################################### ################ First Niagara Financial Group, Inc. Reports 2nd Quarter Earnings First Niagara Financial Group, Inc. (Nasdaq: FNFG), announced that net income for the quarter ended June 30, 2002 increased 40% to $7.0 million, or $0.28 per share from $5.0 million, or $0.20 per share for the same period of 2001. Effective January 1, 2002, the Company was required to adopt a new accounting standard which no longer permits goodwill amortization. Adjusting prior period results to exclude the effects of goodwill amortization, similar to the 2002 second quarter, net income for the current quarter increased $0.8 million or 13% from the second quarter of 2001. During the second quarter of 2002, the Company was required to record a $1.8 million tax charge related to the recapture of excess bad debt reserves for New York State tax purposes, triggered by the Company's recent decision to combine its three banking subsidiaries. Additionally, during the current quarter, the Company realized a $0.9 million gain from the curtailment of its defined benefit pension plan and severance costs of $0.4 million related to the consolidation of its three banking subsidiaries. "I am pleased that we were able to attain strong double digit growth in the current quarter despite the additional tax charge incurred," stated Chairman, President and CEO, William E. Swan. "We continue to demonstrate the benefits of being a diverse financial services company, as evidenced by our growth in noninterest income for the quarter. Additionally, we benefited from the low interest rate environment, our significant commercial loan growth and effective cost control. We anticipate these trends will continue as we take steps to leverage the First Niagara brand and gain operational efficiencies and flexibility through the consolidation of our three banks and conversion to an OTS charter." Net interest income increased 19% to $22.7 million for the second quarter of 2002 from $19.1 million for the same period in 2001. During the quarter, the Company continued to benefit from the lower interest rate environment, which reduced its cost of funds. Additionally, the Company's ongoing focus on higher yielding commercial loan originations resulted in commercial real-estate and business loans ("commercial loans") increasing $84.0 million, or 14% from the end of 2001 and is on pace to meet its 20% growth target for 2002. As a result, the net interest rate spread improved 34 basis points to 3.25% for the quarter ended June 30, 2002 compared to 2.91% for the second quarter of 2001. Total loans outstanding at June 30, 2002 increased to $1.93 billion as compared to $1.87 billion at December 31, 2001, as commercial loan growth was partially offset by the Company's strategic initiative to hold less fixed rate residential mortgages. Deposits increased 8% to $2.15 billion at June 30, 2002 from $1.99 billion at December 31, 2001. This increase resulted from the Company's focus on increasing its customer base, which included the opening of its 38th banking center and the introduction of a money market savings account in the first quarter of 2002, as well as, a general deposit inflow being experienced by most banks. For the quarter ended June 30, 2002, average noninterest-bearing deposits increased 28% to $111.7 million from $87.5 million for the same period in 2001, primarily due to an increase in commercial business. As a result of this and the increase in net interest rate spread discussed above, the net interest margin improved to 3.47% for the second quarter of 2002, from 3.17% for the same period in 2001. For the quarter ended June 30, 2002, the Company had $12.6 million in noninterest income, an increase of 23% over the $10.3 million for the same period in 2001. This increase primarily resulted from internal growth, which included the addition of new banking services in the fourth quarter of 2001, as well as the Company's continued emphasis on its mutual fund, annuity and insurance businesses. Additionally, during the second quarter of 2002, the Company's insurance agency subsidiary realized $0.4 million from the receipt of 2001 contingent profit sharing, as loss ratios were better than originally projected. These increases were partially offset by a decrease in covered call option premium income caused by the Company's decision to eliminate this program in 2002. Noninterest expense for the three months ended June 30, 2002 was $20.4 million as compared to $20.5 million for the comparable period of 2001. Adjusting the second quarter of 2001 amounts for the change in accounting for goodwill, noninterest expense for the current 2002 quarter increased $1.0 million, primarily due to a $0.9 million increase in salaries and benefits. This increase in salaries and benefits was a result of internal growth and $0.4 million of severance costs incurred in the second quarter of 2002, partially offset by the previously mentioned $0.9 million pension plan curtailment gain. The Company's efficiency ratio improved to 57.9% for the quarter ended June 30, 2002 from 65.4% for the same quarter in 2001, adjusted for the new accounting for goodwill. Excluding the severance costs and pension plan curtailment gain, this ratio was 59.3% as the Company's continued focus on efficiency through its Adding Value Always ("AVA") initiative has helped revenue to increase faster than noninterest expense. Outlook "Based upon the results of our first two quarters and the anticipated gain from the previously announced sale of our Lacona Banking Center, we are comfortable with the current analysts' consensus estimate of $1.21 per diluted common share for 2002," stated Mr. Swan. "We anticipate that our net interest rate spread and margin should remain at or near current levels and expect our commercial loan growth will continue for the remainder of 2002. We are currently implementing our (de novo) expansion strategy, which includes the opening of our 39th and 40th banking centers later this year. Accordingly, we are projecting noninterest expense will increase slightly for the next two quarters, as the Company continues to grow and as a result of the bank consolidation and "First Niagara" branding campaign." Based in the Buffalo, N.Y. suburb of Lockport, First Niagara Financial Group, Inc. is a $2.9 billion financial services company with a presence in the western and central regions of New York State through 38 banking centers, 68 ATMs, two lending centers and offers telephone and electronic banking. First Niagara's range of products includes personal and business checking, savings, business loan and mortgage products, cash management services, investment alternatives, lease financing and trust services. The Company offers an expanded product line, which includes commercial and personal insurance, third party employee benefits administration and investment advisory services. ############## ############################################## Willis Lease Finance Recruits Monica J. Burke as Chief Financial Officer Willis Lease Finance Corporation (Nasdaq:WLFC), a leading lessor of commercial jet engines to the aviation industry, today announced Monica J. Burke will join the company as its Chief Financial Officer and Executive Vice President, effective July 15, 2002. "Monica Burke brings a wealth of experience in accounting and finance, operations, and mergers and acquisitions with more than 20 years of management experience," said Charles F. Willis, President and CEO. "Her background in accounting and taxes, as well as her extensive experience as a CFO with public companies, provides important breadth to our management team." Most recently, Ms. Burke served as Chief Operating Officer at Rosewood Stone Group, a private investment and venture capital firm, and was responsible for mergers and acquisitions, completing and managing venture investments, financial, legal and administrative functions. Prior to joining Rosewood Stone, she served as Chief Financial Officer for Valley Forge Corporation, a public company that had revenues of more than $100 million in 1999 when it was acquired by Key Components Inc. Prior to that, Ms. Burke was Vice President of Finance for Western Micro Technology, a $45 million publicly traded distributor of semiconductor components and systems. She started her career in finance with Price Waterhouse, and later served as manager of tax accounting for five years at Coopers & Lybrand. An honors graduate of the University of Oregon, Ms. Burke is a Certified Public Accountant. She resides in Larkspur, California with her husband and son. About Willis Lease Finance Willis Lease Finance Corporation leases spare commercial aircraft engines, rotable parts and aircraft to commercial airlines, aircraft engine manufacturers and overhaul/repair facilities. These leasing activities are integrated with the purchase and resale of used and refurbished commercial aircraft engines. ############# ################################################# ----------------------------------------------------------------------------------------------- Business Leasing News---July Edition by David G. Mayer I am pleased to provide you with the July edition of Business Leasing News. This issue has more supporting authority and useful web sites than ever before. After seeing all the problems in corporate America, I wrote an article in this edition that suggests some important issues and solutions to help our corporations rise above the current drama. I also wrote on how companies can avoid bankruptcy by using quality turnaround management techniques. Other articles involve the move in Congress to shut down international tax havens, the rise the discount air carriers and the meaning of the "hell or high water" clause in leases.
If you would like to see BLN on the web you can do click on: http://www.pblaw.com/newsletters/bln <http://www.pblaw.com/newsletters/bln> . To subscribe, you can simply e-mail businessleasingnews@pattonboggs.com <mailto:businessleasingnews@pattonboggs.com> and insert "Subscribe" in the "Subject" line. No further effort is required.
Keep up the good work on your newsletter. You have provided really good information recently that can help financing pros do their business well and find new opportunity.
All the best.
David David G. Mayer Patton Boggs LLP 2001 Ross Avenue Suite 3000 Dallas, Texas 75201 Tel: (214) 758-1545 Fax: (214) 758-1550 Author of: Business Leasing For Dummies Publisher of: Business Leasing News ------------------------------------------------------------------------------------------------------- Why stock options are an evil not addressed By Gretchen Morgenson New York Times George W. Bush wants to run corporate criminals out of town on a rail. But he is not trying to confiscate what is perhaps their most powerful weapon. In his 27-minute speech on corporate responsibility, Bush spent less than 30 seconds tackling the issue that many believe is central: the issuance of huge amounts of stock options to top executives. Until this problem is addressed, true change will be slow to come to boardrooms. Enron, Global Crossing, WorldCom. These major corporate collapses have a common thread. By misrepresenting the financial position of their companies, executives at all these companies watched their stock prices soar and became rich in the process. After the misrepresentations were disclosed, shareholders and employees were left with little or nothing. Stock options are key to both the misrepresentations and the enrichment that have caused a crisis of confidence in business and the financial markets. Options are doled out as free money to executives and are the force behind the increasingly excessive compensation packages at American companies. Because they are tied to the company's performance, they can be powerful incentives for executives to make their results look better than they actually are. Because of the way options are treated in companies' financial statements, they help executives "shade the truth," to use the president's words, by overstating a company's earnings and generating significant cash flow that has nothing to do with day-to-day operations. They also help companies reduce and even eliminate taxes, bolstering earnings. Since executive pay is often linked to earnings at companies, the overstatements that stock options produce can mean fatter paychecks for management. As options have grown in popularity, their salutary effect on company earnings has done so as well. Bernstein estimates that if the nation's 500 largest companies had deducted the cost of options from their revenues, their annual profit growth from 1995 to 2000 would have been 6 percent instead of the 9 percent reported. WorldCom was an enormous user of stock options, and its financial results looked much better because of them. Adam Quinton, a telecommunications stock analyst at Merrill Lynch, said that of the large companies in the sector, WorldCom's earnings were most greatly enhanced by its option grants last year. Had the company accounted for its options as an employee cost, its earnings would have been 57.4 percent lower. In 2000, WorldCom's earnings would have fallen almost 30 percent, and in 1999, results would have been 22 percent lower. When employees exercise their options, the tax they owe on the transaction becomes a deduction to the company issuing the shares. As a result, companies that are heavy users of options, including Microsoft, Cisco Systems and Dell Computer, have erased much if not all of what they owed to the federal government in taxes in recent years. Companies reap another benefit when their employees exercise options. An employee pays the company to buy the shares outright. That generates excess cash flow, which only attentive investors will see has nothing to do with day-to-day operations. At WorldCom, for example, half the company's free cash flow in 1999 -- $886 million -- came from workers exercising options. Proponents of options say that they help to align management's interests with those of shareholders. If an executive performs well, his or her company's stock price will rise and all stockholders will benefit. These people argue against deducting the costs of options from companies' income because it would discourage the use of options and ordinary workers would be denied a source of wealth. Besides, these people say, option costs show up in the footnotes of companies' financial statements, so shareholders can assess their effects on results. But the argument that rank-and-file workers will be hurt most if companies stop issuing them loses credibility after an examination of corporate filings. Top executives reap the lion's share of options granted at most major companies. At WorldCom, for example, options received by Bernard J. Ebbers the last four years totaled 7.9 percent of those granted across the company. The top three executives received 18.5 percent of the companywide option grants in the period. ________________________________________________________________________ Dennis Brown---Streamline Sales Tax Report The Streamlined Sales Tax Project (SSTP or Project) and Delegates to Implementing States met in Salt Lake City, Utah from July 9-12. The next joint meeting will be in September at a date and location yet to be announced. Delegates spent considerable time voting on administrative features such as supporting Direct Pay Permits. This report on the Salt Lake City meeting covers: * Potential For Double Taxation * Sourcing * State Level Administration * Standard of Compliance Potential For Double Taxation In a ploy that could be the forerunner of problems to face other industries, Alabama revealed that existing state and local rental tax would not be amended to conform to the Streamlined Sales and Use Tax Agreement (Agreement). This satisfies the desire by local governments to avoid state administration of rental tax while preserving the existing base and varying tax rates. It also creates a possibility of double taxation because Alabama will retain the current rental tax while enacting mandatory provisions of the Agreement establishing a second tax under the sales and use tax act. To preserve current status, both state and locals could eliminate sales or use tax by simultaneously adopting an exemption. However, this produces a conflict between adherence to the interstate Agreement promised by drafters of the document rather than existing tax methods and may be considered as out-of-compliance. Another solution would be some form of credit mechanism that could be used to offset the duplicative taxation, however this would leave a lessor with the burden to file local rental tax returns. Leasing industry representatives discussed the move with local government officials that speak along side Alabama state officials at SSTP and Implementing States. They point to the Project allowing each state to determine what existing taxes shall fall outside revisions to state law otherwise required before a state may enter the new sales tax system. Alabama is using this escape hatch to declare current state and local rental taxes are unaffected by the Agreement because they technically exist outside the sales and use tax code despite sharing the state sales tax rate. Enactment of the Streamline Agreement by Alabama will include definitions for "sale", "lease" and "sales price" with a resulting levy in sales or use tax on leases. Alabama officials confirmed that failure to simultaneously pass a sales tax exemption would result in two separate taxes being placed on lease and rental transactions. Promises by the Project to avoid creating undue burdens on business falls on deaf ears in Alabama. The disclosure relating to Alabama came in a survey of states distributed by the Project to learn what taxes will be excluded from requirements of the Agreement. In all cases, states will exclude excise taxes on cigarettes, tobacco, motor fuel and liquor. They will also exclude taxes on insurance premiums. Other taxes to be excluded by the 20 states responding to date were distributed with a stipulation that it is likely a partial listing by most of them. Levies specifically targeted at motor vehicles are cited by almost all of the 20 states responding thus far. Utilities, dry cleaning, lodging/hotel, telecommunications and gross receipts taxes were among other common exclusions reported. Revised and expanded survey results are expected at the meeting in September. Below I list the leasing and rental taxes being excluded as reported by the 20 states responding to the survey thus far. Alabama- Rental or leasing tax Arkansas- Motor vehicle rental taxes and fees Motor vehicle taxes outside of sales taxes Connecticut- Rental vehicle fee Motor vehicle rental surcharge Florida- [no leasing/rental tax listed] Georgia- [returned survey marked "none"] Illinois- Vehicle rental tax Indiana - Auto rental and boat excise tax Kansas- Motor vehicle rental excise tax Maryland- Motor vehicle and boat titling fee Michigan- Excise tax on leased motor vehicles Minnesota- [no leasing/rental tax listed] Nebraska- Automobile rental company tax Nevada- [no leasing/rental tax listed] New Jersey- [no leasing/rental tax listed] North Carolina-Lease or rental of motor vehicles use tax North Dakota- Motor vehicle excise tax Ohio- [no leasing/rental tax listed] Pennsylvania- Vehicle rental tax Rhode Island- Motor vehicle rental surcharge South Dakota- Motor vehicle excise taxes Sourcing The Project Leasing Subgroup Chairman has agreed to support a temporary exclusion for leasing from the sourcing rules contained in the Agreement. Industry representatives will explain this provision at the September meeting. This measure is needed because sourcing rules for leased equipment will not be completed prior to issuance of the model legislation. Industry representatives promised to submit proposed sourcing language within the next 2-3 weeks to be followed by a conference call with Project officials prior to the September meeting. The Equipment Leasing Association (ELA) will soon distribute sourcing proposals prior to scheduling an industry conference call to finalize the language. This will be your last opportunity to express an opinion before text is submitted to the Streamlined Sales Tax Project. If you wish to participate but have not already joined the distribution list for this sourcing information send a request including your name and company to dbrown@elamail.com The sourcing rules do not distinguish between short-term rentals and long-term leases. In present form, the rule looks to the state of initial delivery and is silent on when the property moves. Two broad categories of discussion in drafting the leasing provisions are moveable property (planes, trains and automobiles) and tangible personal property such as laptops. Questions arise within and between these two categories. For instance, titling may indicate where a motor vehicle is located but the Streamlined Sales Tax documents do not cover all rental taxes placed on vehicles. Computer software designed for the new structure will need to service two disconnected tax systems. Business representatives have generally favored basing tax on the location of equipment at the time tax is calculated while recognizing a situs rule must contend with the fact that the lessor does not always know the location of equipment. On the other hand, it does bring consistency in tax planning when considering the apportionment rules for income tax together with additional factors. Other issues include up-front states and credits, preservation of interstate commerce exemptions, resolving imposition questions, and treatment provided "like-taxes" such as excise levies functioning as a sales tax. The list of issues goes on and on. State Level Administration Local governments battling against state administration of local taxes have reached a compromise with the Project. The Agreement will be amended to read, "the state level administration may be performed by a member state's Tax Commission, Department of Revenue, or any single entity designated by state law." This language gives local governments an opportunity to negotiate a role in the centralized administration of state and local sales taxes when the Agreement is considered in their state legislature. Standard of Compliance Delegates to Implementing States spent mind-numbing hours debating what they expect states to do before compliance with the Agreement is achieved and entrance to the new sales tax system is granted by member states. Many in the public sector are skittish about going beyond requiring an undefined level of "substantial compliance" despite pleas by Delegate Steve Kranz of the Council On State Taxation (COST) and other business representatives for language granting a level of assurance regarding uniformity. Among the arguments raised for flexibility was a contention by Washington that the current state definition of tangible personal property is comparable to language in the Agreement making adoption of it unnecessary to declare the state in compliance. Even a motion by Kranz to insert language that all elements and provisions of the Agreement must have been fulfilled prior to certification as a member state was debated endlessly without a vote. The anesthetizing discussion concluded with a request for the drafting committee to prepare compromise language for deliberations at the September meeting. Dennis Brown DBROWN@ELAMAIL.COM -------------------------------------------------------------------------------------- Non-Leasing Business News In Brief Greenspan: Economy Resilient But the Federal Reserve chairman said in prepared testimony that wounds may take time to heal, suggesting rates would stay on hold until that happens. Senate passes business fraud bill; Bush praises `tough' bill, asks Congress to expedite bill WASHINGTON (AP) Without dissent, the Senate approved on Monday the most sweeping changes in corporate accountability since the Depression, creating stiff penalties and jail terms for company fraud and tightening oversight of the accounting industry. Teamsters, United Parcel Service reach agreement on new contract WASHINGTON (AP) The Teamsters reached an agreement on a new contract with United Parcel Service Inc. on Monday, 16 days before their current contract was set to expire. Seeking to restore investor confidence, Bush offers upbeat economic assessment and promises crackdown on corporate fraud BIRMINGHAM, Ala. (AP) President Bush, speaking as the stock market plunged Monday, said, ``We're suffering a hangover'' from economic binges on Wall Street. White House advisers worried about the political fallout from Main Street. Many critics say " It is deja vu all over again," likening to his father's saying the economy was good when it was not. WASHINGTON: 45 points. Bush has been dogged in recent weeks by a decade-old insider-trading investigation by the Securities and Exchange Commission into his $848,000 sale of stock in his former oil company, Harken Energy Corp., where he was a director. Vice President calls for corporate responsibility HARTFORD, Conn. (AP) Vice President Dick Cheney on Monday called for greater accountability in the corporate world, but did not mention his own activities as a chief executive at Halliburton Co., a company being investigated by the Securities and Exchange Commission. Charges continue to pile up for FleetBoston BOSTON (AP) Another quarter, another pile of huge charges for FleetBoston Financial. Bank of America earnings rise Bank of America, one of the largest banks in the country, reported higher earnings in the second quarter on Monday, but it also increased its credit loss prevision due to the economic slowdown. WASHINGTON (AP) U.S. companies, keeping a watchful eye on the unfolding economic recovery, added to their stocks of unsold goods for the first time in 16 months. inventories rise after 15 months of decline; views differ whether it's a plus or minus Law firms to get $1.2 billion tobacco suit fee LOS ANGELES (AP) About 60 law firms that worked to get California $25.4 billion as part of a nationwide tobacco settlement will split $1.25 billion in fees, a national arbitration panel said Monday. Key features of a Senate bill to create new penalties for corporate fraud and tighten oversight of the accounting industry. SENATE BILL: Creates new penalties for corporate fraud and document shredding, including 10-year prison terms for securities fraud. Chief executive officers and chief financial officers who certify false company financial reports would be slapped with prison terms of five to 10 years and fines of $500,000 to $1 million. Also doubles sentences for mail and wire fraud, blocks payments to company officials suspected of wrongdoing, extends the period of time in which defrauded investors can bring lawsuits against companies and gives federal protection to company whistle-blowers. Bans personal loans from companies to their top officials and directors, and requires company insiders to notify the Securities and Exchange Commission more promptly when they buy or sell company stock. Creates five-member, private-sector oversight board: Two would have to be accountants, the other three must not have worked in the accounting industry. Board would be overseen by the Securities and Exchange Commission, which also would appoint members in consultation with the Treasury Department and the Federal Reserve Board. It would have subpoena authority and disciplinary powers and be funded by fees from public companies. Restricts a wide range of consulting and other non-auditing services that accounting firms may provide to their audit clients, including bookkeeping, financial systems design and human resources and legal services. Accountants would be allowed to provide tax services if the company's audit committee gave its approval. Company directors would be held directly responsible for the accountants preparing financial reports, and companies' audit committees would be responsible for the appointment, compensation and oversight of the auditors. SEC would be required to impose new rules on financial analysts to prevent conflicts of interest. Calls for an additional $300 million or so for the SEC to hire some 200 auditors and investigators. (Note: This would only apply to actions after the law is both passed and signed by the President. editor ) ----- 49ers cut deal with rookie kicker By Dennis Georgatos San Jose Mercury News Kicker Jeff Chandler became the first of the 49ers' 10-member draft class to come to terms Monday when he agreed to a three-year contract worth $1.23 million. The deal for the fourth-round pick includes a $330,000 signing bonus and a series of performance incentives. ``We felt it was important to get Jeff into camp,'' said his agent, Paul Healy. `He has an excellent chance of starting this season. It's a good situation. He's very excited, and obviously the 49ers have a lot of faith in him.'' 49ers director of football operations John McVay, who negotiated the deal, did not return a phone call seeking comment. Chandler was the first kicker taken in the NFL draft after starring at Florida. The 49ers are seeking to upgrade their kicking game after an erratic campaign by Jose Cortez, who missed seven of his last 15 field-goal tries after making 11 in a row to start the season. Five of the misses came on blocks. Cortez concedes his problems with a low trajectory might have been in part because of leg fatigue. He joined the 49ers immediately after playing for the Los Angeles Xtreme during the XFL's only season. During spring mini-camps, Chandler, Cortez and free agent Jamie Rheem all kicked well. Rheem was released last month, leaving Cortez and Chandler to compete during training camp, which opens Sunday at the University of the Pacific in Stockton. Testimony of Chairman Alan Greenspan Federal Reserve Board's semiannual monetary policy report to the Congress Before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate July 16, 2002 I appreciate this opportunity to present the Federal Reserve's Monetary Policy Report to the Congress. Over the four and one-half months since I last testified before this Committee on monetary policy, the economy has continued to expand, largely along the broad contours we had anticipated at that time. Although the uncertainties of earlier this year are as yet not fully resolved, the U.S. economy appears to have withstood a set of blows--major declines in equity markets, a sharp retrenchment in investment spending, and the tragic terrorist attacks of last September--that in previous business cycles almost surely would have induced a severe contraction. The mildness and brevity of the downturn, as I indicated earlier this year, are a testament to the notable improvement in the resilience and flexibility of the U.S. economy. But while the economy has held up remarkably well, not surprisingly the depressing effects of recent events linger. Spending will continue to adjust for some time to the declines that have occurred in equity prices. In recent weeks, those prices have fallen further on net, in part under the influence of growing concerns about corporate governance and business transparency problems that evidently accumulated during the earlier rapid runup in these markets. Considerable uncertainties--about the progress of the adjustment of capital spending and the rebound in profitability, about the potential for additional revelations of corporate malfeasance, and about possible risks from global political events and terrorism--still confront us. Nevertheless, the fundamentals are in place for a return to sustained healthy growth: Imbalances in inventories and capital goods appear largely to have been worked off; inflation is quite low and is expected to remain so; and productivity growth has been remarkably strong, implying considerable underlying support to household and business spending as well as potential relief from cost and price pressures. In considering policy actions this year, the Federal Open Market Committee has recognized that the accommodative stance of policy adopted last year in response to the substantial forces restraining the economy likely will not prove compatible over time with maximum sustainable growth and price stability. But, with inflation currently contained and with few signs that upward pressures are likely to develop any time soon, we have chosen to maintain that stance pending evidence that the forces inhibiting economic growth are dissipating enough to allow the strong fundamentals to show through more fully. As has often been the case in the past, the behavior of inventories provided substantial impetus for the initial strengthening of the economy. Manufacturers, wholesalers, and retailers took vigorous steps throughout 2001 to eliminate an unwanted buildup of stocks that emerged when final demand slowed late in 2000. By early this year, with inventory levels having apparently come into better alignment with expected sales, the pace of inventory reduction began to ebb, and efforts to limit further drawdowns provided a considerable boost to production. The available evidence suggests that, in some sectors, liquidation may be giving way to a rebuilding of inventories. However, as inventories start to grow more in line with sales in coming quarters, the contribution of inventory investment to real GDP growth should lessen. As a result, the strength of final demand will play its usual central role in determining the vigor of the expansion. While final demand has been increasing, the pace of forward momentum remains uncertain. Household spending held up quite well during the downturn and through recent months, and thus served as an important stabilizing force for the overall economy. Real consumer outlays and spending on residential construction each rose about 3 percent over the course of 2001, even as the growth of real GDP fell off to only ½ percent. Household spending was boosted by ongoing increases in incomes, which in turn were spurred by strong advances in productivity as well as by legislated tax reductions and, in recent months, by extended unemployment insurance benefits. Monetary policy also played a role by cutting short-term interest rates, which helped lower household borrowing costs. Particularly important in buoying spending were the very low levels of mortgage interest rates, which encouraged households to purchase homes, refinance debt and lower debt service burdens, and extract equity from homes to finance expenditures. Fixed mortgage rates remain at historically low levels and thus should continue to fuel reasonably strong housing demand and, through equity extraction, to support consumer spending as well. Indeed, recent sizable increases in home prices, which reflect the effects on demand of low mortgage rates, immigration, and shortages of buildable land in some areas, have significantly increased the equity in houses that homeowners can readily tap through home equity loans and mortgage refinancing. But those sources of strength probably will be tempered by other influences. As we noted in February, because consumer and residential expenditures did not decline during the overall downturn, there is little pent-up demand to be satisfied. Consequently, a surge in household spending early in this recovery is unlikely. Moreover, the declines in household wealth that have occurred over the past couple of years should continue to restrain spending in the period ahead. Still, despite concerns about economic prospects, equity valuations, terrorism, and geopolitical conflicts, consumers do not appear to have retrenched in retail markets. Indeed, consumers responded strongly to the new interest rate incentives of motor vehicle manufacturers this month. Early reports indicate a significant improvement in sales over June. By contrast, business spending has been depressed. The recent economic downturn was driven, in large measure, by the sharp falloff in the demand for capital goods that occurred when firms suddenly realized that stocks of such goods--both those already in place as well as those in inventory--were excessive. The resulting declines in the production of capital goods were particularly sizable in the high-tech sector. Monthly shipments of computers and peripherals, for example, fell by about 40 percent from their peak in 1999 through their trough in 2001. Sales by communications equipment producers slumped just as sharply. Outside the high-tech sector, production also declined. Assemblies of commercial aircraft slowed abruptly. In addition, the construction of office and industrial buildings fell off noticeably. The collapse of many Internet firms and the difficulties of the high-tech sector more generally led to a significant drop in the demand for office space that was exacerbated as the economic slowdown widened beyond the tech sector. Overall, the level of real business fixed investment plunged about 11 percent between its quarterly peak in the final months of 2000 and the first quarter of this year. With the adjustment of the capital stock to desired levels now evidently well advanced, business fixed investment may be set to improve. A recovery in this category of spending is likely to be gradual by historical standards and uneven across sectors. For example, an upturn in production of semiconductors and computers has been under way now for nearly a year, but with significant overcapacity still prevailing in some segments of the telecom industry, investment in communications equipment is likely to remain subdued for some time to come. Overall capital expenditures should strengthen with time. In particular, firms should respond increasingly to the expected improvement in the outlook for sales and profits, low debt financing costs, the heightened incentives resulting from the partial expensing tax provisions legislated earlier this year, and especially the productivity enhancements offered by continuing advances in technology. Indeed, despite the recent depressed level of investment expenditures, the productivity of the U.S. economy has continued to rise at a remarkably strong pace. In the nonfarm business sector, output per hour is currently estimated to have soared at an average annual rate of about 7 percent over the fourth quarter of 2001 and first quarter of 2002, and the available evidence points to continued gains last quarter--though not at the frenetic pace of the preceding half year. In part, these increases in productivity reflect the very cautious attitudes of managers toward hiring. But the magnitude of the recent gains would not have been possible without ongoing benefits from the rapid pace of technological advance and from the heavy investment over the latter half of the 1990s in capital equipment incorporating such advances. Despite these encouraging developments regarding the longer-term prospects for the economy, financial markets have been notably skittish of late, and business managers remain decidedly cautious. In part, these attitudes reflect the lingering effects of the shocks that our economy endured in 2000 and 2001. Particularly given the dimensions of those shocks, some persistent uncertainty and concern are not surprising. Also contributing to the dispirited attitudes among many corporate executives is the intensely competitive business environment facing their firms. Increased competition, while producing manifold benefits for consumers and for the economy as a whole, clearly makes individual firms' operations more difficult. Past deregulation and, more recently, the enhanced speed and efficiency of information flows resulting from technological advances are strengthening competition domestically. In addition, globalization is intensifying competition in a broad range of markets and damping pricing power across developed and developing nations alike. Those businesses where heightened competition has engendered a loss of pricing power have sought ways to raise profit margins by employing technology to lower costs and improve efficiency. In the United States, as a consequence of the interaction of monetary policy, globalization, and cost-reducing productivity advances, price inflation has fallen in recent years to its lowest level in four decades, as has the recent growth rate of nominal GDP and consolidated corporate revenues. In part because nominal corporate revenues, although no longer declining, are growing only tepidly, managers seem to remain skeptical of the evidence of an emerging upturn. Profit margins do appear to be coming off their lows registered late last year, but, unsurprisingly, the recovery in economic activity from a shallow decline appears less vigorous than in the past. The lowest sustained rates of inflation in forty years imply that nominal growth in sales and profits looks particularly anemic. In contrast, in the 1950s and early 1960s, the last period of stable prices, populations and employment were growing considerably faster than the recent pace so that growth in nominal GDP, consolidated corporate sales, and profits was seen as still quite respectable. Reflecting concerns about the strength of the recovery, managers continue to limit capital spending to only the most pressing needs. Given the key role of perceptions of subdued profitability in the current period, it is ironic that the practice of not expensing stock-option grants, which contributed to the surge in earnings reported to shareholders from 1997 to 2000, has imparted a deceptive weakness to the growth of earnings reported to shareholders in recent quarters. As stock market gains turned to losses a couple of years ago, the willingness of employees to accept stock options in lieu of cash or other forms of compensation apparently diminished. According to estimates by Federal Reserve staff, the value of stock option grants for the S&P 500 corporations fell about 15 percent from 2000 to 2001, and grant values have likely declined still further this year. Moreover, options grants are presumably being replaced over time by cash or other forms of compensation, which are expensed, contributing further to less robust growth in earnings reported to shareholders from its trough last year. In contrast, the measure of profits calculated by the Department of Commerce for the National Income and Product Accounts is designed to gauge the economic profitability of current operations. It excludes a number of one-time charges that appear in shareholder reports, and, importantly, records options as an expense, albeit at the time of exercise. Although this treatment of the cost of options is not ideal, it is arguably superior to their treatment in shareholder reports, where options are generally not expensed at all. NIPA profits closely approximate those obtained from reports submitted for tax purposes, and, for obvious reasons, corporations tend not to inflate taxable earnings. Consequently, NIPA profits have been far less subject to the spin evident in reports to shareholders in recent years. NIPA profits have increased sharply since the third quarter of last year, partly reflecting the dramatic jump in productivity and decline in unit labor costs. The difficulties of judging earnings trends have been intensified by revelations of misleading accounting practices at some prominent businesses. The resulting investor skepticism about earnings reports has not only depressed the valuation of equity shares, but it also has been reportedly a factor in the rising risk spreads on corporate debt issued by the lower rung of investment-grade and below-investment grade firms, further elevating the cost of capital for these borrowers. Businesses concerned about the impact of possible adverse publicity regarding their accounting practices on their access to finance could revert to a much heavier emphasis on cash generation and accumulation. Such an emphasis could slow new capital investment initiatives. The recent impressive advances in productivity suggest that to date any impairment of efficiency of U. S. corporations overall has been small. Efficiency is of course a key measure of corporate governance. Nonetheless, the danger that breakdowns in governance could at some point significantly erode business efficiency remains worrisome. Well-functioning markets require accurate information to allocate capital and other resources, and market participants must have confidence that our predominately voluntary system of exchange is transparent and fair. Although business transactions are governed by laws and contracts, if even a modest fraction of those transactions had to be adjudicated, our courts would be swamped into immobility. Thus, our market system depends critically on trust--trust in the word of our colleagues and trust in the word of those with whom we do business. Falsification and fraud are highly destructive to free-market capitalism and, more broadly, to the underpinnings of our society. In recent years, shareholders and potential investors would have been protected from widespread misinformation if any one of the many bulwarks safeguarding appropriate corporate evaluation had held. In too many cases, none did. Lawyers, internal and external auditors, corporate boards, Wall Street security analysts, rating agencies, and large institutional holders of stock all failed for one reason or another to detect and blow the whistle on those who breached the level of trust essential to well-functioning markets. Why did corporate governance checks and balances that served us reasonably well in the past break down? At root was the rapid enlargement of stock market capitalizations in the latter part of the 1990s that arguably engendered an outsized increase in opportunities for avarice. An infectious greed seemed to grip much of our business community. Our historical guardians of financial information were overwhelmed. Too many corporate executives sought ways to "harvest" some of those stock market gains. As a result, the highly desirable spread of shareholding and options among business managers perversely created incentives to artificially inflate reported earnings in order to keep stock prices high and rising. This outcome suggests that the options were poorly structured, and, consequently, they failed to properly align the long-term interests of shareholders and managers, the paradigm so essential for effective corporate governance. The incentives they created overcame the good judgment of too many corporate managers. It is not that humans have become any more greedy than in generations past. It is that the avenues to express greed had grown so enormously. Perhaps the recent breakdown of protective barriers resulted from a once-in-a-generation frenzy of speculation that is now over. With profitable opportunities for malfeasance markedly diminished, far fewer questionable practices are likely to be initiated in the immediate future. To be sure, previously undiscovered misdeeds will no doubt continue to surface in the weeks ahead as chastened CEOs restate earnings. But even if the worst is over, history cautions us that memories fade. Thus, it is incumbent upon us to apply the lessons of this recent period to inhibit any recurrence in the future. A major focus of reform of corporate governance, of course, should be an improved functioning of our economy. A related, but separate, issue is that shareholders must perceive that corporate governance is properly structured so that financial gains are fairly negotiated between existing shareholders and corporate officeholders. Shareholding is now predominately for investment, not corporate control. Our vast and highly liquid financial markets enable large institutional shareholders to sell their shares when they perceive inadequacies of corporate governance, rather than fix them. This has placed de facto control in the hands of the chief executive officer. Shareholders routinely authorize slates of directors recommended by the CEO. Generally, problems need to become quite large before CEOs are dislodged by dissenting shareholders or hostile takeovers. Manifestations of lax corporate governance, in my judgment, are largely a symptom of a failed CEO. Having independent directors, whose votes are not controlled by the CEO, is essential, of course, for any effective board of directors. However, we need to be careful that in the process, we do not create a competing set of directors and conflicting sources of power that are likely to impair a corporation's effectiveness. The functioning of any business requires a central point of authority. In the end, a CEO must be afforded full authority to implement corporate strategies, but also must bear the responsibility to accurately report the resulting condition of the corporation to shareholders and potential investors. Unless such responsibilities are enforced with very stiff penalties for non-compliance, as many now recommend, our accounting systems and other elements of corporate governance will function in a less than optimum manner. Already existing statutes, of course, prohibit corporate fraud and misrepresentation. But even a small increase in the likelihood of large, possibly criminal penalties for egregious behavior of CEOs can have profoundly important effects on all aspects of corporate governance because the fulcrum of governance is the chief executive officer. If a CEO countenances managing reported earnings, that attitude will drive the entire accounting regime of the firm. If he or she instead insists on an objective representation of a company's business dealings, that standard will govern recordkeeping and due diligence. It has been my experience on numerous corporate boards that CEOs who insist that their auditors render objective accounts get them. And CEOs who discourage corner-cutting by subordinates are rarely exposed to it. I recognize that I am saying that the state of corporate governance to a very large extent reflects the character of the CEO, and that this is a very difficult issue to address. Although we may not be able to change the character of corporate officers, we can change behavior through incentives and penalties. That, in my judgment, could dramatically improve the state of corporate governance. Our most recent experiences clearly indicate, however, that adjustments to the existing structure of regulation of corporate governance and accounting beyond addressing the role of the CEO are needed. In designing changes to our regulatory framework, we should keep in mind that regulation and supervision of our financial markets need to be flexible enough to adapt to an ever-changing and evolving financial structure. Regulation cannot be static or it will soon distort the efficient flow of capital from savers to those who invest in plant and equipment. There will be certain areas where Congress will choose to provide a specific statutory direction that will be as applicable thirty years from now as today. In other cases, agency rule-making flexibility under new or existing statutes is more appropriate. Finally, there are some areas where private supervision would be most effective, such as that of the New York Stock Exchange, which requires certain standards of governance for listing. Above all, we must bear in mind that the critical issue should be how to strengthen the legal base of free market capitalism: the property rights of shareholders and other owners of capital. Fraud and deception are thefts of property. In my judgment, more generally, unless the laws governing how markets and corporations function are perceived as fair, our economic system cannot achieve its full potential. * * * A considerable volume of market commentary in recent weeks has suggested that concerns about earnings prospects and the proliferating revelations of serious governance and accounting issues have contributed not only to lower equity prices but also to a decline in the foreign exchange value of the dollar. And some of that commentary has extrapolated the trend of dollar weakness. As you know, the Secretary of the Treasury speaks for our government on exchange rate policy. But, given the recent intense interest in the future course of the dollar, I would like to raise a technical issue and a flag of caution regarding those forecasts--or, for that matter, any forecast of exchange rates. There may be more forecasting of exchange rates, with less success, than almost any other economic variable. The reason that it is so difficult is that an exchange rate is a very complex price that balances, on the one hand, the demand for, for example, dollars stemming from the demand for dollar investments and for U.S. exports against, on the other hand, the demand for foreign currencies by U.S. investors desiring to acquire foreign assets and by U.S. importers of foreign goods and services. Hence, exchange-rate movements depend on shifting perceptions of the relative returns from investing in different countries and on the myriad influences on relative tendencies to import and export. The net effect of these factors over any future time period is extraordinarily difficult to assess in advance. Although measures such as real interest rate differentials, differential rates of productivity gains, and chronic external deficits are often employed to explain exchange rate behavior, none has been found to be consistently useful in forecasting exchange rates even over substantial periods of one or two years. Our ability to attract foreign capital in coming years will help facilitate the increases in investment that will promote continued gains in productivity and standards of living. But policymakers should also recognize the important role that prudent fiscal policy can play in promoting national saving and maintaining conditions conducive to investment and continued strong growth of productivity. Beginning in the late 1980s, impressive progress was made in reining in federal expenditures and restoring a better balance between spending and revenues. The lower federal deficits and, for a time, the realization of surpluses contributed significantly to improved national saving and thereby put downward pressure on real interest rates. This, in turn, enhanced the incentives of businesses to invest in productive plant and equipment. Recently, however, some of those gains have been given up. To a degree, the return to budget deficits has been a result of temporary factors, especially the falloff in revenues and the increase in outlays associated with the economic downturn. Those influences should tend to reverse over the next year or two, other things equal, although the decline in revenues reflecting the drop in capital gains realizations, including those on options, is unlikely to be fully reversed. And the necessary rise in expenditures related to the war on terrorism and enhanced homeland security has also played a role, as have the tax reductions legislated last year. Unfortunately, there are also signs that the underlying disciplinary mechanisms that formed the framework for federal budget decisions over most of the past fifteen years have eroded. The Administration and the Congress can make a valuable contribution to the prospects for the growth of the economy by taking measures to restore this discipline and return the federal budget over time to a posture that is supportive of long-term economic growth. To sum up, the U.S. economy has confronted very significant challenges over the past year or so. Those problems, however, led to only a relatively brief and mild downturn in economic activity, reflecting the underlying strength and increased resiliency that the economy has achieved in recent years. The effects of the recent difficulties will linger for a bit longer but, as they wear off, and absent significant further adverse shocks, the U.S. economy is poised to resume a pattern of sustainable growth. Indeed, the central tendency of Federal Reserve policymakers' forecasts is for expansion of real GDP over the four quarters of 2002 of 3-1/2 to 3-3/4 percent, somewhat above the rates anticipated in our February report. Economic growth is projected to be solid again next year, with real output rising 3-1/2 to 4 percent. Monetary policymakers anticipate that these gains should be sufficient to bring the unemployment rate down to 5-1/4 to 5-1/2 percent by the end of next year. Inflation is expected to be subdued throughout, with prices for personal consumption expenditures increasing at only a 1-1/2 to 1-3/4 percent rate. Our prospects for extending this performance over time can be enhanced through implementation of sound monetary, financial, fiscal, and trade policies. ---------------------------------------------------------------------------------------------------------------- Policy Statement Policy Statement---Nothing is sent out that is not "fair." Always unbiased reporting. 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