Author: Michelle Leder

If you thought that Google (GOOG) was immune to the sluggish economy in 2009, think again. Buried deep in the 10-K that the company filed late Friday was an interesting disclosure: Google’s headcount actually shrunk in 2009 for the first time since the company has been public (and most likely for the first time ever, given Google’s growth spurt).

In the filing, the company disclosed that it had 19,835 employees at the end of 2009, compared with 20,222 at the end of 2008. That’s a modest drop of just under 2%, but a drop all the same. Digging into the numbers  a bit more, it looks like the bulk of the cuts were made in sales and marketing, which makes sense, given the current economy. Just to put this into more perspective, the number of research and development employees actually rose slightly in 2009 to 7,443 from 7,254 in 2008.

Of course, in 2009 Google had a number of high-profile executive departures, including Tim Armstrong, who left to become CEO of AOL (AOL) and Dick Costolo, the former Feedburner executive who left to join Twitter as Chief Operating Officer.

It’s hard to tell from the filing whether these losses were voluntary — people leaving for start-ups, for example — or part of some organized downsizing on Google’s part. But last spring, the WSJ reported that Google executives were so concerned about a brain drain that they had designed an algorithm to figure out which of its 20,000 employees were most likely to leave. In the WSJ article, Google Human Resources manager Laszlo Block told the paper that the algorithm can “get inside people’s heads even before they know they might leave.”

Image source: Paul Sakuma/Associated Press

The other day, when we announced our own M&A news with Morningstar (MORN), we poked at some of the crazy things we’ve seen over the years in other M&A deals. Well, we’ve just stumbled across a new one at tiny Home Diagnostics (HDIX), which announced its own deal last week to be acquired for $11.50 a share by the Japanese-based Nipro Corp.

Now normally we don’t spend a lot of time looking at companies this small. But we couldn’t help it when we stumbled across what appears to be a new M&A perk: the closing bonus. In both the 8-K that was filed last week and another filing from yesterday, the company disclosed that six of its top executives would receive hefty closing bonuses. In most cases, these closing bonuses exceed the annual salaries that the executives made. For example, President and CEO Joseph Capper’s closing bonus was set at $489K, just shy of his $500K salary. All told, the closing bonuses for the six executives add up to nearly $2 million.

The language the company used to describe these bonuses seemed particularly amusing to us. And the timing — just a day before the deal was announced — was interesting too. Here’s a snip:

On February 2, 2010, to compensate the below-named officers of the Company for the additional services provided by such officers in connection with the due diligence process relating to the Offer and Merger and to provide certain incentives to such officers of the Company to continue to facilitate the transactions contemplated by the Merger Agreement

That’s a fancy way of saying that they’re getting paid extra money to basically do their jobs.

Just to make sure we were right in our hunch that this was a new perk, we decided to search through all filings for the words “closing bonus” and largely came up empty-handed. There were a few examples at mostly smaller companies, including Friend Finder Networks, the online dating site, which scrubbed its IPO last week due to lack of interest. But it’s clearly not a typical part of most deals.

To be fair, Home Diagnostics stock jumped sharply on the news of the deal, nearly doubling. Still, that hasn’t stopped several law firms — we counted at least four — who have announced plans to investigate this deal on behalf of shareholders. Perhaps, they’re also wondering about this new M&A perk.

For the past 6 1/2 years, we’ve written frequently about various mergers and acquisitions. Today, we have some M&A news of our own: Morningstar (MORN) has acquired footnoted.org. You can download the official press release here, but I wanted to personally share with you why I’m so excited about this deal and why I think Morningstar, which is already well known for its independent research, is the perfect partner to help me continue growing footnoted.

Whether you’re a longtime reader or a recent convert to footnoted, chances are that you appreciate the inherent value in having someone dig through SEC filings. After all, it takes a lot of effort to find some of the pearls we’ve uncovered over the years — things like Freddie Mac’s lush employment agreement with its new CFO or Chesapeake Energy’s $12.1 million map collection — because many companies work hard to bury this sort of stuff deep in their filings in the hopes that few (if any) people will ever find it.

Given my background as a business journalist, one of my primary goals for footnoted has always been that by exposing some of this, um, buried treasure, publicly traded companies might actually start to change their behavior. It’s one of the reasons we highlight “gold star” candidates on a regular basis. For example, we’ve recently seen a number of companies get rid of one of the grossest perks out there: the tax gross up. I’d like to think footnoted played at least a small part in this by highlighting so many examples.

From our very first conversation last spring, it was clear to me that the Morningstar folks not only shared this goal of greater transparency, but also practiced it in their own public filings. The investor Q&As in Morningstar’s monthly 8Ks — you can see the latest one here — are enough to make an SEC filings geek like me swoon.

But perhaps even more important is that Morningstar’s global reach and the resources that they’ve committed to growing footnoted will mean that more people will be exposed to footnoted’s unique content. Soon, I plan to hire additional staff, which will enable me to continue growing both the free and subscription-based businesses.

For readers already familiar with the site, few things will change. I’ll continue to run things from footnoted world headquarters in Peekskill, N.Y., as an employee of Morningstar, and there will be more of the same great content regular readers have come to expect. One small change will be that in the near future, footnoted.org will become footnoted.com, though both domain names will get you to the same place. In addition, some of footnoted’s content will appear on Morningstar.com, exposing their loyal audience of avid investors to the footnoted brand.

One final note about today’s news: While I negotiated mightily for the keys to the Gulfstream, the corporate apartment in Paris, the company yacht, the lifetime consulting contract and, of course, a tax gross up — all crazy perks we’ve written about in various M&A deals — I came up empty handed. That’s because Morningstar doesn’t believe in those sorts of things. Nor do I. Instead, my reward will come if I’m able to grow the footnoted business the way that I envision, which is exactly as it should be and just another reason why I’m so excited to be joining Morningstar.

When Microsoft (MSFT) announced on Nov. 24 that CFO Chris Liddell would be leaving the company by the end of the year, the release said that Liddell was “looking at a number of opportunities that will expand his career beyond being a CFO”. About a month later, we learned that Liddell would in fact continue to be a CFO — albeit with the added title of Vice Chairman — at General Motors.

Now one might think that going from the relative stability of Microsoft to the relative instability, or at least far more challenging environment, of General Motors might be a risky career move. And in the 8-K that GM filed last month, it seemed to account for that by giving Liddell a huge increase in salary — $750K a year to be finance chief at GM, a 33% increase over his last reported salary at Microsoft — as well as a bunch of other longer term incentives.

But on top of the gifts bestowed upon Liddell by his new employer, the 10-Q that Microsoft filed on Friday afternoon included Liddell’s

As we monitored filings on Friday afternoon, we wondered why EDGAR seemed unusually sluggish. But it wasn’t until late Friday that we realized why: Blackrock (BLK) had done a massive document dump on Friday afternoon of 13G filings related to its acquisition of Barclay’s Global Investors.

We counted over 1,800 13Gs that Blackrock dumped on Friday, which explains why EDGAR might have been a tad bit pokey. The stream started at just after 2 p.m. est and didn’t let up until just after 4:30, when the last one, which reported a 6.5% stake in Vodafone came in. For those less familiar with the 13G, since we don’t often write about these filings, it’s a requirement when ownership exceeds 5% of the outstanding shares. With few rare exceptions, these filings represented new positions for Blackrock since we only counted 11 amended 13Gs, which in itself seems very surprising, given the long list of stocks.

Though it’s hard to tell from the SEC’s EDGAR database the names of those 1,800-plus companies without clicking on each filing (and who has time to click on 1,800 of them?), it’s a bit easier in 10KWizard (now known as Morningstar Document Research). And, indeed, there’s a lot of household names on the list including some big names in tech like Apple (AAPL), AOL (AOL), Google (GOOG), Yahoo (YHOO) —  several of which Dow Jones picked up on on Friday afternoon. But there’s a lot more names on the list too, including United Technologies (UTX), Toll Brothers (TOL), and even footnoted frequent flyer Martha Stewart Omnimedia (MSO) where Blackrock disclosed a stake of just over 7%.

Actually, a far more interesting project might be trying to figure out who wasn’t on the list since with 1,800-plus filings, just about any company over even a relatively modest market cap — Martha Stewart’s is currently around $240 million — seems to have made the cut.

One of the more popular posts we’ve done here at footnoted — at least in terms of reader comments — was this one from two years ago on the lack of adequate products at a Rite Aid (RAD) store in Manhattan. Even after all this time, Rite Aid employees still write in to grouse about the company.

We thought about this post the other day after reading this press release that Rite Aid put out last week. In the release, the company noted that Chairman and CEO Mary Sammons, who was hired in December 1999 after the debacle that WSJ reporters Mark Maremont and Robert Berner brought to light eleven years ago, would be stepping down as CEO on June 24. As the release notes, Sammons is making room — succession planning in corporate speak — for former Rite Aid CFO (and current president and COO) John Standley, who returned to the company in September 2008.

What the release didn’t point out, but which was included in the 8-K that the company filed yesterday, were some of the financial details of the transition. Sammons, who will remain Chairman of Rite Aid through June 2012, will continue to collect the CEO salary of $1 million a year through next June plus any bonus/incentives. After that, her salary will drop to $350K, unless she winds up leaving before the end of the current fiscal year. In that case, she’ll collect three times her salary plus target bonus.

At the same time, Standley, who was hired at $900K a year, will see his salary go up to $1 million and he’ll be eligible for a 200% bonus. So basically, Rite Aid will be paying for two CEOs for the next year, even though starting in June, Standley will be the only one with the actual title. Meanwhile, Rite Aid’s long suffering investors (and apparently its long suffering employees judging by some of those comments in our earlier post) seem to be getting the short end of the stick on this one.

Image source: Hoboken 411

In 2008, AIG took a lot of heat for some of its free-spending practices at a time when the company was relying on the government for billions in bailout money. So this past September the company came out with a 5-page “luxury expenditure policy” that addressed some of the key areas of abuse like corporate jet usage, office decorating (or redecorating), and parties and other events.

Yesterday, in this 8-K, AIG made some changes to that policy. The biggest changes in the new luxury policy, which apparently took effect on Dec. 30, but wasn’t filed until yesterday for some odd reason, makes several changes to corporate jet usage. Under the old luxury policy, the guest policy was a bit fuzzier. The new policy also requires AIG’s Chief Administrative Officer to approve every use of the plane. Here’s a snip from the new policy:

Accompanying travel on corporate aircraft by family members or guests of the AIG Chief Executive Officer (CEO) and other executives is permitted if a documented business reason exists for the family member or guests to travel with the executive.
The Chairman of the Board or the Chairman of the Nominating and Corporate Governance Committee must approve in advance any accompanying travel on the corporate aircraft by family members or guests of the AIG CEO. The AIG CEO must approve in advance any accompanying travel by family members or guests of the AIG CAO. The AIG CAO must approve in advance any accompanying travel by family members or guests of any executive other than the AIG CEO. Personal use of the corporate aircraft by the AIG CEO is permitted if the personal use is incidental to a business trip and the incremental cost is paid by the AIG CEO. All other personal use of the corporate aircraft is strictly prohibited.

There’s also a new rule that prohibits any elected official or candidate from traveling on the AIG corporate jet. Now wouldn’t that be a picture worth a thousand words?

In the filing, AIG doesn’t give any reason for the changes so you have to wonder whether the policy that was already in place and which already outlawed personal use of the corporate jet, wasn’t quite strict enough. After all, these sorts of policies are written by attorneys who are paid to be risk-averse and it’s hard to imagine them tightening the reins without some sort of situation triggering the revision.

Last week, we wrote about the new book, Money for Nothing which takes a hard look at directors of publicly traded companies. On Friday, we came across Exhibit A for the authors when we caught this proxy filed by Bway Holding (BWY), an Atlanta-based company we’re guessing most people aren’t too familiar with, given its relatively small market cap.

There in the chart that details compensation for directors was this little pearl: former Chairman and CEO Jean-Pierre Ergas, who currently serves as non-executive Chairman, raked in nearly $1.5 million last year as a director, which we’re pretty sure is the highest director cash compensation we’ve seen in six-plus years of mining SEC filings. Part of the reason Ergas’ compensation is so high is that he received a $520K bonus last year, which the company provides few details on in the filing. That’s in addition to his $140K fee, another $483K in supplemental retirement and a $260K consulting fee, which also has very few details about exactly what services are being provided.

At least the proxy notes that Ergas doesn’t qualify as an independent director. Indeed, he’s one of four directors — or half of the board — who are not considered independent. Still, you have to wonder what it’s like at those board meetings — the company’s comp committee met five times last year and its Chairman is the former CEO of Bway, who just like Ergas was the former CEO of the company.

On Tuesday night, I ventured out of my SEC filings hidey-hole to attend a party to mark the publication of “Money for Nothing” a new book by John Gillespie and David Zweig. The book focuses on a problem we’ve written about all too often here at footnoted: boards of directors who seem to take up time and space and provide little value to shareholders, even as they collect hefty salaries for what can charitably be called a part-time job.

The two authors, both graduates of Harvard Business School, would be among the last you’d expect to take on the dysfunctional nature of boards of directors. Indeed, at the party, Zweig joked around that both he and Gillespie, a former investment banker at Lehman Brothers, Morgan Stanley and Bear Stearns, were considered traitors by many of their Harvard B-School classmates.

Footnoted regulars will be familiar with some of the examples mentioned in the book, including Chesapeake Energy’s (CHK) infamous map collection, which won the dubious honor of worst footnote of the year, Washington Mutual’s many missteps, and even smaller questionable items, like the decision by Crox to sponsor a NASCAR race car that happened to be driven by the son of one of its directors. There’s also a healthy dose of Countrywide in there too.

We’re still in the process of reading the book, so we can’t give a comprehensive review. And in the interest of full disclosure, we should note that the authors have nice things to say about footnoted. Over the weekend, the Times ran a more comprehensive review which ends with a funny story about a jailhouse interview that the authors had with former Tyco CEO Dennis Kozlowski this past summer and his relationship with Tyco’s board of directors when he was running the show.

The book’s website also has a funny game called “Pay that CEO” and a video that’s also worth watching. Hopefully, the pedigree of the two authors will force more people to pay attention to the problems of the ineffective board.

We may be among the handful of people in this country that has never watched American Idol, but we do know something about SEC filings and the 8-K that CKX Enterprises (CKXE) filed at 5:30 pm on Friday — timed perfectly to avoid being picked up over the long holiday weekend — certainly caught our attention.

As even non-American Idol fans probably know, Simon Fuller, the creator of the worldwide Idol juggernaut, announced last week that he would be stepping down from both CKX and 19 Entertainment and that CKX had reached a new agreement with Fuller. Of course, the press release didn’t have any of the juicy details. That was left to the 8-K, which included three separate contracts — a consulting agreement, an option agreement and a compromise agreement — with Fuller and/or various entities owned by him.

Under the consulting deal, Fuller will get a $400K signing bonus plus 10% of the net profits for three different programs: American Idol, So You Think You Can Dance, and If I Can Dream for the lifetime of the shows, assuming he remains involved. He’ll also get a $5 million advance (the contract oddly uses pounds and dollars interchangeably) for 2010. There’s also a $2.5 million fee for something called “general consulting services”. In exchange, Fuller is required to provide six months of services, which makes it one of the priciest consulting deals we’ve seen.

The option agreement gives CKX the ability to purchase part of Fuller’s new company, called XIX Entertainment Limited (as opposed to 19 Entertainment Ltd., the old company). That option, which expires next month, enables CKX to buy between 10 and 33% of the new company. In exchange, they paid Fuller $815K for that option.

The last part of the deal is the so-called compromise agreement, which pays Fuller another $1.6 million for Fuller’s “ongoing confidentiality”. That agreement also provides for the accelerated vesting of 260,000 shares of CKX. Here’s a snip from that part of the filing:

In connection with this transaction, management will be conducting a thorough review to determine the profitability or applicability of each of the businesses currently conducted by 19 Entertainment. If management determines that it would be in CKX’s and 19 Entertainment’s best interests to discontinue any of 19 Entertainment’s business activities, management may determine to sell or transfer such business to XIX. If XIX elects to pursue any such business, CKX will not profit on any future development of such business, except to the extent that it may benefit as a shareholder in XIX if CKX elects to exercise the Option. Both the exercise of the Option and the transfer by 19 Entertainment of any of its rights with respect to any business activities that may be assumed by XIX will require approval of the majority of CKX’s independent directors pursuant to CKX’s policies on affiliate transactions.

Perhaps the most surprising thing about this multi-faceted and extremely lucrative deal to retain Fuller is that despite the success of the Idol franchise and the various other shows (which we also don’t watch), CKX’s stock hasn’t exactly been a great investment. Indeed, the last time we footnoted CKX, the stock was trading at around $11 a share — close to the price following the reverse-merger that essentially created the company in March 2005.

When Hewlett-Packard (HPQ) filed its preliminary proxy on Tuesday, we were immediately surprised by one of the numbers in the footnotes to the summary compensation table: the $96 spent by CFO Catherine Lesjak on personal use of the corporate jet.

Now being all entrepreneurial and all, we don’t spend any time flying around in corporate jets here at footnoted. But we do spend a fair amount of time flying ordinary commercial carriers and we know that $96 doesn’t buy you a lot of time in the air, unless you happen to catch some sort of sale or score some cheapo last-minute flight due to excess availability. A quick scan of Travelocity for example shows that $95 will buy you a one-way ticket between San Jose and Los Angeles. While costs vary, corporate jets tend to cost significantly more — as high as $6,000 an hour for a Gulfstream V according to industry estimates. Here’s HP’s disclosure on personal jet usage:

For purposes of reporting the value of such personal usage in this table, HP uses data provided by an outside firm to calculate the hourly cost of operating each type of aircraft. These costs include the cost of fuel, maintenance, landing and parking fees, crew, catering and supplies. For trips by NEOs that involve mixed personal and business usage, HP includes the incremental cost of such personal usage (i.e., the excess of the cost of the actual trip over the cost of a hypothetical trip without the personal usage).

So we decided to send a note to the folks at HP asking them to explain the number since last year (as footnoted regulars may remember) a number in HP’s preliminary proxy for CEO Mark Hurd’s tax gross up on his meals was corrected after we pointed it out.

A spokesman said that the $96 was in fact accurate and while he couldn’t provide exact details, he said it was likely due to splitting the cost of the flight with other executives. Of course, given that Lesjak only spent $13 on personal jet usage in 2008, the $96 represents a seven-fold increase!

UPDATE 1/26: A spokesman for HP contacted me yesterday to further clarify the details in HP’s proxy statement. As it turns out the $96 was not for Lesjak’s flight usage, but instead was for her husband, who accompanied her to an HP event that Lesjak was attending. Given that this is the second year in a row that HP had to clarify something in its proxy statement related to the “all other compensation table” it seems as if they need to be a bit more careful with their disclosures in this table.

Yesterday, Hillenbrand (HI) announced that it was buying K-Tron (KTII) for around $435 million or $150 a share. Given that K-Tron closed at $113 a share on Friday, one would think there would be lots of celebrating, given the 32% appreciation in the stock.

But that’s not exactly the case. Indeed, by the end of the day, at least three law firms had already put out press releases announcing that they were investigating a breech of fiduciary duty by K-Tron’s board (here’s a link to one release). Several other law firms quickly threw up web pages (see here and here) — fueled by strategically placed Google ads (just do a search for K-Tron) — encouraging K-Tron investors to get in touch with the various firms.

Granted, K-Tron stock peaked at just over $160 a share in August 2008. But things have changed dramatically since then. And while we don’t have a particularly strong opinion one way or the other on whether this deal makes sense, unlike some of the other deals we’ve seen recently (think Xerox and ACS, for example), it seems hard to argue — at least on the surface — that ordinary investors are getting the shaft here.

While the rest of the country went back to work last week, Congress is just getting around to that task today and by most accounts healthcare is at the top of the agenda. But one company seems to have gotten an early start: Invacare (IVC) filed this 8K on Friday, which certainly caught our attention. Here’s a snip:

The U.S. Senate and the U.S. House of Representatives each recently passed health care reform legislation that includes a new tax on medical device manufacturers, such as Invacare Corporation (the “Company”). The Senate version of health care reform would impose a yearly sales-based tax on medical device manufacturers intended to raise $2 billion in tax revenue annually beginning in 2011, and $3 billion in annual tax revenue beginning in 2017…Based on the Company’s interpretation of the Senate proposal, the Company estimates that the new tax could result in an impact to the Company of approximately $12 million to $14 million annually. The Company continues to actively lobby members of Congress in an effort to make the proposed legislation less onerous on medical device manufacturers, and, until the legislation is finalized, there can be no assurance that the tax may not be eliminated, modified or delayed.

A quick scan of recent stories about Invacare certainly shows that the company has been beating the drum — and hard — about this issue and much more so than other companies. For example, the 8K also noted that the company may need to take more “cost-reduction actions such as shifting more production overseas (and) reducing employee benefits” which can’t sit well with Invacare’s employees — 1,300 of whom are in Ohio. The filing also noted that it has stopped 401-K matching and has suspended merit pay. Them’s fighting words, which, of course, make politicians pay attention.

Indeed, as this story in the Plain-Dealer notes, Sen. George Voinovich has already taken up the cause. And as this story in the Elyria newspaper points out, Invacare CEO A. Malachi Mixon III hopes to be able to talk to President Obama when he visits Ohio on Jan. 22.

Of course, nothing speaks louder in Washington than cold hard cash and Invacare has certainly been spreading lots of that around, according to Open Secrets which lists 73 separate donations to numerous politicians in 2009. And those records are only through the end of September, so we’re guessing there was plenty more spent during the fourth quarter.

Image source: Invacare

The news that David Maisel would be leaving Marvel (old ticker: MVL) once the deal with Disney (DIS) closed had been floating around since early December. Footnoted readers may remember that it was Maisel who met with Disney Chairman Bob Iger back in February and that a few weeks later buckets of options were granted to Marvel CEO Isaac Perlmutter.

Disney announced last week that the deal had closed. But Marvel waited until Jan. 6 to file this 8-K which had some details about Maisel’s reward, which worked out to just over $9 million, not including millions more in stock.

That’s not too bad of a reward for being a matchmaker.

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Footnoted intern Kristen Scholer is heading off for her junior year abroad soon, so we’re looking for a new intern. If you’re a student who has a strong interest in digging through SEC filings and an ability to work independently, please drop me a note and be sure to include a copy of your resume. Since I believe in paying my interns (as opposed to expecting free labor) there’s a small stipend in addition to having lots of fun.

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