From corporation-watch at countercorp.org Tue Apr 6 21:29:01 2010 From: corporation-watch at countercorp.org (Corporation Watch) Date: Tue, 6 Apr 2010 18:29:01 -0700 Subject: [Corp. Watch] How about a three (or even 300) strikes law for corporations? Message-ID: <3D0AA756-F928-4F76-BCBB-B7215485A83C@countercorp.org> W. Va. Mine Owner Accused of Putting Safety Second By Tim Huber (Associated Press, April 6) -- The coalmine rocked by an explosion that killed at least 25 workers in the nation's deadliest mining disaster since 1984 had been cited for 600 violations in less than a year and a half, some of them for not properly ventilating methane, the highly combustible gas suspected in the blast. The disaster at the Upper Big Branch mine has focused attention on the business and safety practices of the owner, Massey Energy, a powerful and politically connected company in Appalachia known for producing big profits -- as well as big piles of safety and environmental violations, and big damage awards for grieving widows. "There are mines in this country who have operated safely for 20 years," said J. Davitt McAteer, head of the federal Mine Safety and Health Administration (MSHA) in the Clinton administration. "There are mines who take precautions ahead of time. There are mines who spend the money and manpower to do it." "Those mines haven't blown up," McAteer said. Four other miners are missing and feared dead underground in Monday's blast, believed to have been caused by a build-up of methane, a naturally occurring gas that is odorless and colorless. Last year alone, MSHA cited Upper Big Branch for 495 violations and proposed $911,802 in fines. Production more than tripled during that period, according to federal records. So far this year, the agency has found 105 violations at the mine. Upper Big Branch is one of Massey's biggest underground mines, with more than 200 employees, and it is not uncommon for big coalmines to amass hundreds of violations a year ? and to contest many of them, as Massey does. But most big mines don't have as many serious infractions as Upper Big Branch, industry experts said. At least 50 citations charge the company with "unwarrantable failure" to comply with safety standards such as following an approved ventilation plan, controlling combustible materials, or designating escape routes. "I've never seen that many for one mine in a year," said Ellen Smith, editor of Mine Safety & Health News. "If you look at other mines that are the same size or bigger, they do not have the sheer number of 'unwarrantable' citations that this mine has." Massey has had problems elsewhere, too. In 2006, two miners were killed in a fire at Massey's Aracoma Alma No. 1 mine. Massey settled a wrongful death lawsuit for an undisclosed sum, and its subsidiary Aracoma Coal Company paid $4.2 million in civil and criminal penalties. Testimony showed Massey CEO Don Blankenship suggested firing two supervisors for raising concerns about conveyer belt problems just before the belt caught fire. "Massey has a history of emphasizing production," said Pittsburgh lawyer Bruce Stanley, who represented the miners' widows. "I'm concerned that they may not have learned the lessons of Aracoma." In an interview less than 24 hours after the disaster at Upper Big Branch, Blankenship insisted the mine is no more dangerous than others of comparable size, and he defended the company's track record in a perilous business. "It's natural that the enemies of coal would view Massey as the primary enemy," Blankenship said. He pointed to Massey's many innovations, such as installing steps in place of ladders and putting protective cages on underground vehicles, even though the government doesn't require them. "I think that I've proven that we run safer coal mines -- you know, most of the time -- and accidents sometimes happen. We've got to figure out what happened here," he said. Kevin Stricklin, an MSHA administrator, said that the number of citations at the mine appeared high, and that he was concerned about the more serious violations. "It means the operator was aware of some of these conditions," he said. Massey is contesting 36 percent of all violations at Upper Big Branch since 2007, the Associated Press found. Overall, U.S. mine operators contest 27 percent. Challenging violations can enable a mine owner to stave off the heavier punishment that the government can impose on companies that are deemed repeat offenders. Massey became a political and industrial powerhouse under the guidance of Blankenship, who rose from poverty to become one of corporate America's highest-paid and least apologetic executives, a guy who proudly displays in his office a TV set with a bullet hole from a striking union miner's rifle. He freely spent millions of dollars from his personal fortune to help install a West Virginia Supreme Court justice, a maneuver that led to an important conflict-of-interest ruling from the U.S. Supreme Court, and on a failed bid to elect a Republican majority in the state legislature. Under Blankenship, Massey clawed to the top of the Appalachian coal industry, shrewdly buying up coal deposits to amass more than 2 billion tons of reserves. It is a major economic force regionally, with more than 6,000 high-paid miners in some of the poorest counties in America. Operating non-union mines across southern West Virginia, eastern Kentucky, and southwestern Virginia, Massey more than doubled its profit to $104.4 million in 2009 from the year before, despite slumping demand for coal amid the recession. The company expects to be shipping 2 million tons of coal a year to India by next year. Massey has managed to push the United Mine Workers union out of all of its operations except for a single processing plant. Blankenship's hard-driving approach was illustrated in a 2005 memo in which he told mine workers that if their bosses ask them to build roof supports or perform similar tasks, "ignore them and run coal." "This memo is necessary only because we seem not to understand that the coal pays the bills," he wrote. Few workers are willing to openly criticize Massey, because of its powerful hold on people's livelihoods in Appalachia. But Terry Holstein, who worked at Upper Big Branch, said it took him 10 years to decide he didn't like the way Massey ran the mine. He left in 2006. "It was like they wanted production more than they wanted safety, ... you know what I mean?" he said. "They speak safety first, but production's really first for them." From corporation-watch at countercorp.org Wed Apr 7 06:12:04 2010 From: corporation-watch at countercorp.org (Corporation Watch) Date: Wed, 7 Apr 2010 03:12:04 -0700 Subject: [Corp. Watch] Fine on Toyota for risking lives, covering up defects just cost of doing business Message-ID: <1EE63153-C4E3-4C67-8ED3-A2CC1074029F@countercorp.org> Toyota's $16.4 Million Fine Is Just a Slap on the Wrist By David Schepp (Daily Finance, April 6) -- In assessing the largest fine ever levied against an automaker, the federal agency that oversees vehicle safety lashed out at Toyota Motor for failing to disclose what the company knew about defects that may cause unintended acceleration in its vehicles. The world's largest automaker failed to live up to its legal obligations, Transportation Secretary Ray LaHood said Monday. "Worse yet," said LaHood in announcing the $16.4 million fine, the maximum penalty possible under current law, "they knowingly hid a dangerous defect for months from U.S. officials, and did not take action to protect millions of drivers and their families." The civil penalty relates to the January recall of some 2.3 million vehicles in the U.S. to repair "sticky" gas pedals. Federal law requires that automakers notify the National Highway Traffic Safety Administration (NHTSA ) within five business days after a safety defect has been found. But NHTSA charges that Toyota documents prove that the company knew as early as late September that it was aware of the problem, and took no action. A Million Dollar Fine for a Billion Dollar Giant The $16.4 million penalty hardly sounds like a punishing sum for the likes of Toyota, which has $20 billion to $30 billion stashed away in its corporate coffers. The company has until April 19 to accept or contest the penalty. "It's not much of a fine at all but that's the most the government can charge them," says Art Wheaton, an auto industry expert at Cornell University. Still, Wheaton doubts Toyota will challenge the fine, especially since the combined recalls of some 8.5 million vehicles world-wide to fix sticky gas pedals, bulky floor mats, and other problems is likely to run well over $1 billion. By comparison, $16 million is pocket change for Toyota. For its part, Toyota said Monday that it hadn't yet received the letter announcing the penalty. In a one-paragraph statement, released shortly after the fine was announced, Toyota said it has "already taken a number of important steps to improve our communications with regulators and customers on safety-related matters." Among those steps, Toyota said, is the appointment of a new chief quality officer in North America. Toyota on the Rebound Whether LaHood's tough language toward Toyota will hurt future sales remains to be seen. But Toyota has already proved that it can ring up sales in the face of adversity. Despite myriad recall stories in the media and scathing criticism doled out in Congressional hearings in February, Toyota sales rose nearly 40% in March, driven by generous incentives such as zero-interest loans and cheap leases, and a brightening economy. In offering the largest incentives in its history, Toyota essentially bought sales, Wheaton says. Toyota also benefited from pent-up demand caused by the cessation of sales and manufacturing of eight models in early February to repair the sticky pedal problem. While March sales showed a marked rebound from the precipitous drops seen in January and February, analysts are keen on seeing what April and May have in store for Toyota, Wheaton says. "And If they do keep piling on the incentives, what's their profitability going to be with those sales?" Toyota said Tuesday it would continue to offer most of its heavy sales incentives in April. But with other manufacturers likely to follow in lockstep, the Japanese automaker faces yet another challenge in landing new buyers. With its 40% bump in sales last month, Toyota managed to edge out Ford Motor as the second-largest supplier of cars to the U.S. market. But Ford, which saw its sales perk up 43% last month, won't likely succumb to third place once again without a fight. From corporation-watch at countercorp.org Sat Apr 10 16:14:17 2010 From: corporation-watch at countercorp.org (Corporation Watch) Date: Sat, 10 Apr 2010 13:14:17 -0700 Subject: [Corp. Watch] Corporations play income/asset shell game to avoid taxes Message-ID: What the Top U.S. Companies Pay in Taxes by Christopher Helman (Forbes, April 1) -- As you work on your taxes this month, here's something to raise your hackles: Some of the world's biggest, most profitable corporations enjoy a far lower tax rate than you do -- that is, if they pay taxes at all. The most egregious example is General Electric (GE). Last year the conglomerate generated $10.3 billion in pre-tax income, but ended up owing nothing to Uncle Sam. In fact, it recorded a tax benefit of $1.1 billion. (Avoiding taxes is nothing new for GE: In 2008 its effective tax rate was 5.3%; in 2007 it was 15%. The marginal U.S. corporate rate is 35%.) How did this happen? It's complicated. GE's tax return is the largest the IRS deals with each year -- some 24,000 pages if printed out. Its annual report filed with the Securities and Exchange Commission (SEC) weighs in at more than 700 pages. Inside you'll find that GE in effect consists of two divisions: General Electric Capital, and everything else. The everything else -- aircraft engines, power plants, TV shows and the like -- would have paid a 22% tax rate if it was a stand-alone company. It's GE Capital that keeps the overall tax bill so low. Over the last two years, GE Capital has displayed an uncanny ability to lose lots of money in the U.S. -- where it posted a $6.5 billion loss in 2009 -- and make lots of money (a $4.3 billion gain) overseas. Not only do the U.S. losses balance out the overseas gains, but GE can defer taxes on that overseas income indefinitely. The timing of big deductions for depreciation in GE Capital's equipment leasing business also provides a tax benefit, as will loan losses left over from the credit crunch. But it's the tax benefit of overseas operations that is the biggest reason why multinationals end up with lower tax rates than the rest of us. It only makes sense that multinationals "put costs in high-tax countries, and profits in low-tax countries," says Scott Hodge, president of the Tax Foundation. Those low-tax countries include almost anywhere but the United States. "When you add in state taxes, the U.S. has the highest tax burden among industrialized countries," says Hodge. In contrast, China's rate is just 25%; Ireland's is 12.5%. Corporations are getting smarter, not just about doing more business in low-tax countries, but in moving their more valuable assets there as well. That means setting up overseas subsidiaries, then transferring ownership to them of long-lived, often intangible but highly profitable assets, like patents and software. As a result, tax economist Martin Sullivan estimates, companies are keeping some $28 billion a year out of the clutches of the U.S. Treasury by engaging in so-called transfer pricing arrangements. These are transactions in which, say, Microsoft's overseas subsidiaries license its software back to the U.S. parent company, in return for handsome royalties (that get taxed at those lower overseas rates). "Corporations are paying lower amounts of their profits in taxes now than in the past," says Douglas Shackelford, who teaches tax law at the University of North Carolina at Chapel Hill. "Other countries have been lowering their rates, but not the U.S." Mind you, not all global mega-corps enjoy such low tax rates. Try to muster some pity for Big Oil. In its 2009 annual report to the SEC, ExxonMobil recorded a larger income tax expense than any other U.S. company last year -- some $15 billion, or 47% of pretax earnings. Exxon's peers Chevron and ConocoPhillips likewise recorded similarly high effective tax rates. The oil companies are oddities among the multinationals because many of the oil-rich countries where they do business levy even higher taxes than the U.S. Exxon tries to limit the tax pain with the help of 20 wholly owned subsidiaries domiciled in the Bahamas, Bermuda, and the Cayman Islands that (legally) shelter the cash flow from operations in the likes of Angola, Azerbaijan and Abu Dhabi. Exxon has tens of billions in earnings permanently re-invested overseas. Likewise, GE has $84 billion in overseas income parked indefinitely outside the U.S. Though Exxon's financial statement's don't show any net income tax liability owed to Uncle Sam, a company spokesman insists that once its final tax bill is figured, Exxon will owe a "substantial 2009 tax liability." How substantial? "That's not something we're required to disclose, nor do we." Naturally the Obama administration wants to put an end to this. It has proposed doing away with tax deferrals on overseas income. If the plan passes, a U.S. company that pays a 25% tax on profits in China would have to pay an additional 10% income tax to Uncle Sam to bring it up to the 35% corporate rate. "Eliminating deferrals would put U.S. companies on an unlevel playing field," says the Tax Foundation's Hodge, "especially if competing with the likes of Germany, which only taxes companies on domestic operations." Hewlett-Packard and others among the top 25 state in their annual reports that, if Obama's tax measures pass, it would mean a tax hike amounting to billions of dollars. Would ending the current tax holiday for GE really end up helping Mr. and Mrs. Taxpayer? Doubtful. "The average Joe should be in favor of lower corporate taxes," says Hodge, "because ultimately they are paying the corporate income tax. Either as workers getting lower wages and fewer jobs, or as consumers paying higher prices [for goods and services], or as retirees getting lower dividends and earnings on their investments." In the same vein, JPMorgan Chase Chief Executive Jamie Dimon has spoken out against an Obama proposal to levy a special tax on banks to recoup bail-out costs. "Using tax policy to punish people is a bad idea," said Dimon. "All businesses tend to pass costs on to customers." From corporation-watch at countercorp.org Sun Apr 11 16:42:14 2010 From: corporation-watch at countercorp.org (Corporation Watch) Date: Sun, 11 Apr 2010 13:42:14 -0700 Subject: [Corp. Watch] Big Lie, Inc: Corporate balance sheets are fiction Message-ID: <8BB5DFDC-F209-4706-ABAC-C76C962F08DA@countercorp.org> Can Public Companies' Financial Statements Be Trusted? By Peter Cohan (Daily Finance, April 10) -- A New York Federal Reserve Bank study found that big banks understate their debt -- by an average of 42% -- four times a year: at the end of each quarter when banks report to shareholders on their financial condition. The other 361 days of the year, big banks hold more debt than what they report to the public. This throws a wrench in the idea that U.S. financial markets are transparent -- and that murkiness should strike fear in investors' hearts. Before getting into the reasons for the fear, let's look at the details of the big bank debt fake-out. The Federal Reserve Bank of New York analyzed 18 banks and concluded that they understated how much they borrowed to buy securities by 42% over each of the last five quarters. Once that reporting date has passed, those banks go right ahead and resume their previous debt level until the end of the next quarter. Among the 18 banks analyzed are the biggest names in the business: Goldman Sachs, Morgan Stanley, JPMorgan Chase, Bank of America, and Citigroup. Brings to Mind Repo 105 Temporarily manipulating financial statements has a long history. But we need only look back less than a month to a 2,200 page report on Lehman Brothers' collapse that fingered an accounting trick known as "Repo 105". Without getting into too much detail, Repo 105 exploited the difference between British and U.S. legal systems to enable Lehman Brothers to hide $50 billion worth of debt. The big-name banks that are still around think they have finessed any legal issues with their disclosure by claiming that their financial statements make it clear that balance-sheet items can fluctuate during the quarter. It's a nice-sounding phrase that offers false assurances. For example, according to a Wall Street insider, during the months prior to the financial crisis, banks would report debt-to-equity ratios of 30:1. But after the reporting period was over, they would raise them as high as 50:1. This means that an asset-value drop of as little as 3.3% could have wiped out the bank at the end of the quarter -- but only a 2% slip in asset value was needed during the in-between period. When banks are so highly leveraged, such minor fluctuations can mean the difference between solvency and bankruptcy. One of Many Tactics This is one reason why this New York Fed report should scare investors. But Repo 105 is likely just one of many accounting techniques that banks and other public companies may use to dress up their financial statements when the Securities and Exchange Commission comes calling at the end of each quarter. I've said it before and I'll say it again: If we want to restore credibility to our capital markets, we need to stop letting CEOs of public companies write their own report cards. Producing financial statements should not be the core competency of any company. Instead, it ought to be the job of a government agency that taxpayers fund to protect shareholders' interests. If we continue to let CEOs massage financial reports, they will push the envelope in accounting policies and use their company's huge auditing and consulting payments to bend their auditors to their selfish wills.