Archive for the ‘Earnings’ Category

March 11th, 2010

Lehman’s Directors “Did Not Breach Fiduciary Duty”

Quick update from the bankruptcy courts vis-a-vis Lehman Brothers.


The report turned in by the examiner appointed by the court covers 3 broad areas-


1.Why did Lehman Fail?


2.Are there valid claims for preferences or voidable transfers?


3. Are there valid claims arising out of the Barclays transaction?


The most relevant aspect from a Governance standpoint was the section that tried to understand the role (or lack thereof) that Lehman directors played in the entire Lehman failure.


According to the report,


” The Examiner Does Not Find Colorable Claims That Lehman’s Directors Breached Their Fiduciary Duty by Failing to Monitor Lehman’s Risk‐Taking Activities ”


Lets take a step back, in fact, lets take several steps back to 2008 when Lehman filed its proxy statement.


Here is a list of Lehman directors who made up their Board Finance and Risk Committee and their corresponding ‘relevant’ experience.


1. JOHN F. AKERS- Retired chairman of IBM (retired in 1993), also formerly on the board of the Metropolitan Museum of Art.


2. ROGER S. BERLIND- Theatrical Producer


3. MARSHA JOHNSON EVANS-Former CEO American Red Cross and former executive director of Girls Scouts as well as a retired naval admiral.


4. ROLAND A. HERNANDEZ-Former CEO of Spanish Language Television Station


5. HENRY KAUFMAN- President of Henry Kaufman & Company, Inc., an investment management and
economic and financial consulting firm.


According to Lehman’s Finance and Risk committee charter, members were required to “review(s) and advise(s) the Board of Directors on the financial policies and practices of the Company, including risk
management. The Finance Committee also periodically reviews, among other things, budget, capital and funding plans and recommends a dividend policy and Common Stock repurchase plan to the Board of Directors.”


Which of these 5 directors you think would be able to provide oversight over Lehman Brothers’ Risk Management practices? The ‘girl scout’ perhaps or maybe even the ‘theatrical producer’?


I think even for the most basic and junior level job, most hiring managers will ensure that incumbents have relevant experience….and these were senior oversight positions with a company that were filled in by persons with great but irrelevant experience.


Now that we know that Lehman had such ‘illustrious’ and highly ‘accomplished’ directors on their Board Finance and Risk Committee, was Lehman’s failure just a matter of time?


The clean chit given by the Court appointed examiner to Lehman’s Directors is a slap in the face for corporate governance.


A copy of the examiner’s report (Vol 1 of 5) is attached below this post. Enjoy it.


Anyway, for those interested, InvesGuard regularly tracks this data for all companies. We have put a few reports out there that outline this and many other non financial metrics.


Lehman Brothers Examiner’s Report, Vol.1

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February 22nd, 2010

Investigating The Prognosis At Gen-Probe Inc.- Mostly Steady, Few Hiccups.


On February 18th Gen-Probe announced its Q4 earnings. As expected, everything was smooth sailing-Product Sales for full year 2009, up 13% and an increase in profits for Q4 that was announced very handsomely in most major publications. See here and here.


Sweeping aside most of these obvious goodies in the announced financial results, there were a few items that stood out when I looked….not too many but still a few that have gone unnoticed in most of the analyses put out by other publications.


1. Short Term Borrowings of $240,841,000 for year ended 12/31/2009 as against zero for the previous year.


2. This is also going to mean an increase in the corresponding interest expense for 2009 as compared to 2008 and also going into 2010 expect to see an increase.


3. ‘Other Long Lerm Liabilities’ have also jumped by $11,021,000. Looking forward to seeing their detailed 10k to understand this one better.


4. According to Gen-Probe’s consolidated statements of cash flow, ‘Cash paid for interest’ has soared from $3,000 in 2008 to $19,55,000 for 2009.


5. Free cash flow for full year 2009 has declined by about 19% to $112 million. Gen-Probe attributes this to some non-recurring items (successful patent infringement lawsuit and collaborative research revenue ) in 2008.


Now onto Gen-Probe’s governance behavior.


Under InvesGuard’s data model, Gen-probe presents few deficiencies in its corporate governance guidelines that results in a few over extended directors. ‘Board Independence’ also needs a little housekeeping.


Under its Internal Control Environment, Gen-Probe scores low on its Audit Committee effectiveness as well as its Audit Committee report quality. InvesGuard has also noted a couple of potential ‘Conflict of Interest’ issues.


More disclosures on its social and environmental front would be welcome particularly any steps it takes to make its products accessible to developing countries or not for profit charitable organizations. Other social environmental data is also not forthcoming and has lead to an overall low score.


More details on InvesGuard’s scores are available only to subscribers. If you would like to buy InvesGuard’s report for Gen-Probe please email with ‘Genprobe’ in the subject.


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