Small Oversight at Oversight Board: No Chair

PCAOB to meet for first time; selection of boss still up in the air. Plus: AT&T takes $1.5 billion writeout, Waksal's sentencing delayed, and here come the debt offerings.


The recently formed Public Company Accounting Oversight Board (PCAOB) has scheduled its first formal meeting for Thursday at the Securities and Exchange Commission’s headquarters in Washington, D.C.

The meeting will be open to the public, many of whom will no doubt come to look at the empty seat where the PCAOB chairman should be sitting.

The oversight board still does not have a top boss after William Webster resigned back in November amid charges he oversaw the audit committee of a company that is being sued for fraud. That fiasco ultimately led to the resignation of then-SEC Chairman Harvey Pitt.

The board apparently plans to discuss a number of matters at the meeting, including its proposed bylaws and funding, the appointing of an interim chief administrative officer, and the setting up of a mechanism that will enable accounting firms and their associates to register with the PCAOB.

As the group gears up for its first meeting, three former SEC chief accountants — Lynn Turner, Michael Sutton, and Walter Schuetze — urged the board to resist pressure to dilute the accounting reforms mandated by the Sarbanes-Oxley Act passed by Congress in July.

In a letter obtained by Reuters on Monday, the former accounting chiefs warned PCAOB member Charles Niemeier of a “devastating” impact on investors if the board falls short.

“It is critical to the integrity of the U.S. capital markets that the public trust in independent auditors be restored,” the accountants reportedly wrote.

They called on the board to adopt the Sarbanes-Oxley limits on non-audit-service sales without alteration and to do its own audit firm inspections, rather than contracting auditing firms to do the work. “The PCAOB should establish auditing standards, rather than delegating that role to the auditing profession,” they added.

Ironically, the board’s new headquarters are the same offices once occupied by Arthur Andersen. The former Big Five accounting firm was effectively put out of business after it was convicted of obstruction of justice for shredding documents related to its audit of Enron Corp.

The PCAOB is still seeking a chairman, as well as a little operating capital. Although it’s not likely to hire a new chairman until March, the board is expected to propose a budget to the SEC at Thursday’s meeting, according to reports. The Treasury Department is then expected to approve it by the end of the month.

In December, the board brought on Korn/Ferry International to help it find a chief administrative officer and six top officers, including chief auditor, general counsel, and director of enforcement and investigation.

AT&T to Take $1.5 Billion Charge

AT&T is reaching out — and slashing the value of its assets.

Management at the once-acquisitive telecom giant on Monday said the company will take $1.5 billion in writeoffs, including $1.3 billion in impairment charges.

The company also said it will cut about 3,500 jobs, or about 5 percent of its work force. Slightly more than half of the employees to be let go are in management. The company attributed the staffing reductions to improved processes and automation in provisioning and maintenance of services for business customers. It will take about $200 million in charges related to the layoffs.

AT&T also said it extended its agreement with Covad Communications Group Inc. to offer high-speed Internet access to its consumer customers.

As a result, the company will incur an asset-impairment charge of approximately $200 million related to the value of its DSL network assets.

In addition, management at the telco said it will take an asset-impairment charge of about $1.1 billion in the fourth quarter associated with its past investment in AT&T Latin America.

AT&T recently sold its cable TV unit to Comcast Corp.

Big Day for Debt Offerings

As noted by (“Coming: Binge Borrowing), there’s likely to be a whole lot of corporate debt issues in 2003.

The issuing began in earnest on Monday, with at least three companies borrowing a total of $2.8 billion.

In addition, Tyco International Ltd. on Monday announced plans to raise $4.75 billion.

Tyco will issue $3.25 billion worth of convertible securities. It also secured a commitment from a group of banks for $1.5 billion.

The embattled conglomerate is hoping to use the proceeds to meet an expected $3.6 billion funding shortfall at the end of this year. But according to data supplied by CFO PeerMetrix, the conglomerate is currently carrying about $3.7 billion in cash on hand — a large amount compared to other companies in its sector (to see Tyco’s optimal cash ranking, click here).

In the convertible offering, Tyco plans to offer 15-year bonds to hedge funds and 20-year bonds to investors who are bullish on the conglomerate’s prospects and figure to hold the securities for a longer period of time.

Hedge funds that specialize in convertible arbitrage strategies typically buy the convertible security and simultaneously short the underlying common stock as a hedge.

“The market has seen a dearth of deals so I expect the demand to be good,” Ravi Arcot, managing director at KYNEX, an independent convertible research group, told Reuters. “There is idle capital sitting at the hedge funds. If terms of the deal are attractive, there will be demand.”

Tyco’s 15-year bonds will carry a 3 percent to 3.5 percent coupon and will be convertible into common stock at a 28 percent to 32 percent premium, according to a person familiar with the sale. The 20-year bonds will reportedly carry a 3.125 percent to 3.625 percent coupon and a 22 percent to 26 percent conversion premium.

On Monday, Goldman Sachs Group issued $1.5 billion in five-year global notes, up from an originally planned $1 billion. They were priced to yield 4.131 percent, 110 basis points over comparable Treasuries. The notes were rated Aa3 by Moody’s and A-plus by Standard & Poor’s.

Clear Channel Communications raised $800 million in a two-part debt offering, led by Credit Suisse First Boston and J.P. Morgan. This offering was also upsized, from $500 million.

The largest U.S. radio broadcaster issued $300 million in five-year notes, priced to yield 4.693 percent, or 165 basis points over Treasuries, and $500 million in 10-year notes, priced at 180 points over Treasuries. Both issues were rated Baa3 by Moody’s and BBB-minus by S&P.

Teachers Insurance and Annuity Association Global Markets Inc., a wholly-owned subsidiary of Teachers Insurance and Annuity Association of America, issued $500 million of three-year, two-part senior unsecured notes in the private-placement market.

Banc of America Securities LLC and Lehman Brothers Inc. were the joint lead managers for the three-year floating-rate tranche, while UBS Warburg LLC and Lehman Brothers were the joint lead managers for the three-year fixed-rate tranche, according to published reports.

In addition, General Motors Corp.’s General Motors Acceptance Corp. unit Monday said it plans later this week to issue more than $3 billion of asset-backed securities supported by car loans, according to Reuters. The deal will be led by Credit Suisse First Boston, J.P. Morgan, and Morgan Stanley.

GM had a big month in December, with financing promotions and other incentives pushing sales of new cars up 36 percent over the previous year. It was the best performance for GM since 1979.

Short Takes

  • Sam Waksal’s sentencing for insider trading charges was delayed by two months after the judge lambasted defense lawyers for failing to provide financial data about the former chief executive of ImClone Systems Inc. Waksal pleaded guilty in October to six of 13 counts. U.S. District Judge William Pauley warned Waksal’s lawyers that he would try Waksal on the seven open counts if Waksal’s financial information was not turned over to the probation department, according to published accounts.

Waksal’s sentencing was postponed from Jan. 24 until March 17.

Reportedly, Pauley also criticized prosecutors for their delay in providing the government’s opinion on Waksal’s sentencing range to the probation department, which recommends sentencing guidelines to the judge.

  • Alaska Air Group Inc. on Monday said it would take charges totaling up to $151.4 million. It will take an $80 million to $100 million writeoff to account for estimated rising pension liabilities and a $51.4 million charge for impaired assets under FAS 142, the new accounting rule for treating goodwill.
  • In a mid-sized outsourcing merger, Automatic Data Processing, a provider of corporate payroll processing services, agreed to buy rival ProBusiness Services for $500 million in cash, a 66 percent premium to ProBusiness’ closing share price on Friday.

The ProBusiness deal will be ADP’s ninth acquisition in about two years. With plenty of money to be made in the business process outsourcing (BPO), ADP has been trying to ward off competition from new rivals, particularly International Business Machines and Electronic Data Systems. (To read why some companies are outsourcing their business processes, read “Everything Must Go.”).

  • Qualcomm Corp. Chief Executive and Chairman Irwin Mark Jacobs realized $61.4 million from exercising stock options in fiscal 2002, according to an SEC filing.

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