Wednesday, February 22, 2006

Gluttony = Executive Pay

On June 8, 2005, CellStar Corp. (CLST.PK-$2.15), a distributor of wireless handsets and accessories and a value-added reseller of services, such as channel development, warranty claims management, and inventory management, received notification from The Nasdaq Stock Market that the Company's securities were to be delisted from the Nasdaq National Market because corporate had been unable to timely file its Annual Report on Form 10-K for the fiscal year ended November 30, 2004 and its Quarterly Report on Form 10-Q for the period ended February 28, 2005.

Overshadowing the just reported losses from continuing operations of $7.3 million, or $0.35 per share, was the fact that the Compensation Committee recommended the payments of 2005 bonuses to key executives of the Company. Pursuant to his employment agreement, Robert Kaiser, the Chairman and CEO, made his target bonus of $262,500. The Board of Director's approved Mr. Kaiser's bonus--based in part--on the achievement of the timely filing of the Company's 10-K for the fiscal year ended November 30, 2005, and Form 10-Q for the period ended February 28, 2005.

...And file this one under: Maybe no one else wanted the job?

On February 16, 2006, Exide Corp. (XIDE-$3.91), one of the world's largest producers and recyclers of lead-acid batteries, entered into an employment agreement with Francis M. Corby Jr., and appointed Mr. Corby as Executive Vice President and Chief Financial Officer. The 10Q Detective thought our readers might be interested in yet another corporate display of executive gluttony:

  • Mr. Corby will receive annual base compensation of $400,000 for the first year and $450,000 for the second year of the employment contract.
  • A target bonus of 50% of base salary for the first year, of which $92,000 will be guaranteed, and target bonus of 100% of base salary for the second year.
  • A bonus of $150,000 payable on his first day of employment with the Company and $150,000 at the conclusion of the second year.
  • Mr. Corby has been approved to receive options valued at $200,000 and shares of restricted stock valued at $150,000, both of which have a two-year vesting period. [ed. note. When I worked for a Fortune 500 company as a medical sales rep, I had a five-year vesting period for my--whopping--200 shares of stock.]
  • In accordance with the Company's relocation policy, reimbursement for all reasonable expenses incurred in relocating himself to Atlanta, Georgia and from Atlanta, Georgia to any U.S. city at the conclusion of the two-year term.
  • During the Employment Period, said Executive shall be entitled to at least four (4) weeks of paid vacation per year.
  • Executive is currently entitled to a $950 per month allowance under the Company's automobile policy. [ed. note. One would think that an executive making $400,000 per annum could afford TO BUY HIS OWN CAR!]
  • Oh--lest we forget--Exide Corp. will reimburse Mr Corby up to $25,000 for his reasonable legal fees and expenses relating to the preparation and negotiation of the aforementioned employmentagreementt.

The stock price of New Jersey-based Exide shares' have sagged approximately 73 percent of their value in the past 12-months, shedding approximately $245 million in market capitalization value. Exide Corp. has posted an aggregate net loss of $140.8 million, or share-net loss of $5.63, in the past four quarters. Corporate blamed pricing pressure(s) from lower-cost Asian competitors, shortages in obtaining spent batteries, and higher commodity prices (which the Company was unable to pass on to its customers) for the continued losses.

Lead is the primary material by weight used in the manufacture of batteries, representing approximately one-third of the Company's cost of goods sold. The market price of lead is subject to fluctuations. Generally, when lead prices increase, customers may resist price increases.

The price of lead on the London Metal Exchange (LME) averaged $976 per metric tonne during the third quarter of fiscal 2006 compared with an average of $901 during the third quarter of fiscal 2005. In 2006, lead prices have risen as high as $1,414 per metric tonne on the LME.

Conclusion--Mr. Corby enters a corporate dining room replete with talk of the the usual tactics to improve margins, including the selling of non-strategic assets and businesses, streamlining cash management processes, and implementing corporate restructuring initiatives.

The 10Q Detective would be thrilled to see Mr. Corby earn his pay package in LEAD--successfully implementing lead price escalators in some contracts, lead hedging, and long-term lead supply contracts. Afterall--as corporate has said, "lead represents one-third of total Cost of Goods Sold."

Good luck, Messrsrs. Kaiser and Corby.

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