Another former finance exec has snared the top spot at a major corporation.
Kmart Corp., slated to emerge from bankruptcy around April 30, surprisingly tapped president Julian Day as its new CEO. Day succeeds James Adamson, who will continue to serve as chairman through the final stages of the company’s reorganization.
Day, who joined Kmart as president and chief operating officer in March 2002, reportedly played a key role in developing Kmart’s five-year business plan. That plan was approved by the company’s board last week.
Prior to that, Day moved up the ladder through the retailing industry, mostly as a finance executive.
He spent four years with Sears, beginning in March 1999 as executive vice president and CFO before being promoted to chief operating officer.
Before joining Sears, Day served as CFO at Safeway Inc., the second-largest food and drug retailer in North America.
Adamson was initially appointed as a nonexecutive chairman in early 2002 after the company disclosed its dire financial situation. He became CEO in March 2002.
He then recruited Day as president and COO.
Kmart indicated that the timing of Day’s appointment was designed to provide him with enough time to choose his management team—including a permanent finance team. Since March 2002, turnaround specialist AlixPartners has been overseeing the finance function at Kmart.
Kmart’s promotion of Day appears to be part of a hiring trend. As CFO.com recently reported, boards of directors are increasingly turning to finance veterans to head up their companies in this accounting-conscious world ( see “Now Playing: CFO as CEO”).
Earlier this month, StorageNetworks Inc., a storage-management software and services vendor, named chief financial officer Paul Flanagan as the company’s new chief executive officer and president. The day before, Argosy Gaming Co. had tapped president Richard Glasier—a onetime CFO for Royal Caribbean Cruises Ltd.—as its new CEO.
And BHP Billiton, the world’s largest diversified resources company, announced that its former CFO Chip Goodyear would take over as chief executive officer.
Two Former Enron Directors Testify
A Houston grand jury is apparently putting the squeeze on former Enron Corp. chairman Ken Lay.
Two directors who left Enron’s board last February were recently called to testify about Lay, according to the Houston Chronicle.
The attendees: Charles LeMaistre, the retired head of University of Texas M.D. Anderson Cancer Center, who ran the board’s compensation committee; and John Duncan, a former executive with Gulf & Western Industries, who also served on Enron’s compensation committee.
The two men were called as information witnesses and are not targets themselves, said the paper, citing sources.
The grand jury has apparently been probing stock trades made by Lay, as well as loans extended to the former chairman by Enron.
The jury is also investigating Enron’s broadband division to determine whether its financial and technological performance was misrepresented by company officers, including former CEO Jeff Skilling, the Chronicle added.
“The directors are cooperating with the Department of Justice as they have cooperated with other investigating bodies,” was the only comment about the matter from Neil Eggleston, a Washington, D.C.-based lawyer representing the two board members, according to the published report.
When former Enron board members testified last May before a Senate subcommittee investigating Enron, they claimed they had no idea that Lay was withdrawing millions in loans and repaying the money with stock options, said the report.
In July the Senate Governmental Affairs Committee’s Permanent Subcommittee on Investigations criticized the board for allowing Lay to frequently draw down a line of credit and then repay the loan with stock. Between October 2000 and October 2001, Lay used the credit line to obtain $77 million from the company, repaying with Enron stock, according to the paper.
TheChronicle also speculated that the grand jury is probably trying to determine whether Lay engaged in insider trading. Reportedly Lay sold Enron stock last year when its share price started to plunge.
He began selling stock for more than $90 per share in August 2000, and continued to unload shares through a preprogrammed trading schedule with his broker.
Investigators are reportedly looking at sales outside the programmed trades. The Chronicle reports that those trades netted Lay as much as $70 million.
More Trouble for Andersen
Arthur Andersen is being sued again.
Two Houston trucking companies are suing the dismembered auditor for putting together a tax deal that wound up being ruled illegal, also according to the Houston Chronicle.
Younger Bros. and National Family Corp. allege that in 1996, Andersen recommended tax-shelter plans that would help them reduce their tax payments after Younger Bros. sold part of its trucking business, said the paper.
The company paid Andersen $48.6 million and the Stamford Capital Group $1.18 million for arranging the transaction, according to the account.
In 2000, however, the Internal Revenue Service told the trucking companies the tax plan, known as “lease stripping,” was not legal, and required the companies to shell out more than $7 million in back taxes and interest, said the report.
The companies reportedly allege that Andersen subsequently admitted it did not do an economic analysis it claimed it had done and should have known the lease stripping plan was considered improper.
(Editor’s note: Surprisingly, former Andersen employees have had little trouble lining up work since the beleaguered audit firm closed shop last August. Read “Life After Andersen.”)
GE Brings More Debt to Market
It appears that General Electric is planning to tap the debt market in a big way in 2003.
According to the Wall Street Journal, the conglomerate is looking to raise as much as $60 billion in long-term debt this year.
While a big number, this would actually represent a 30 percent decrease in issuance for the company.
Not surprisingly, most of this borrowing will be done by the company’s captive finance unit, GE Capital.
Despite microscopic interest rates, last year was a difficult time for corporations looking to borrow money. At the same time, many investors preferred higher quality Treasury notes.
So far in January, however, there’s been a miniboom in debt issuance, with at least $17 billion raised in the corporate bond market.
GE’s got plenty of cash to begin with. On Friday the conglomerate reported a record $15.1 billion in earnings in 2002, a 7 percent increase from 2001. Excluding progress collections, the company generated $15.2 billion in cash from operating activities—that’s up 10 percent.
But fourth-quarter earnings for GE fell 21 percent (to $3.1 billion) from Q4 income the previous year.
Standard & Poor’s indicated that its triple-A rating on General Electric would be unaffected by GE’s fourth-quarter 2002 earnings report.
Large companies expect a 0.5 percent decline in IT budget spend this year. But small businesses will actually increase spending by 5 percent in 2003, according to the survey.
General Motors has already said it would pay about $940, on average, to its 130,000 hourly workers.