/raid1/www/Hosts/bankrupt/TCR

/raid1/www/Hosts/bankrupt/TCR_Public/050225.mbx T R O U B L E D C O M P A N Y R E P O R T E R Friday, February 25, 2005, Vol. 9, No. 47 Headlines ACCREDO HEALTH: S&P Holds BB Rating Despite Medco Purchase Plans AFFI INTERNATIONAL: Voluntary Chapter 11 Case Summary AGILENT TECH: Earns $103 Million of Net Income in Fourth Quarter ALLEGHENY ENERGY: Investor Wants SEC to Protect Ratepayers AMERICAN BUSINESS: U.S. Trustee Names 9th Member to Creditor Panel AMPEX CORP: Applies SFAS No. 87 Acctg. to Restated Fin'l Reports ARMSTRONG WORLD: Sees Substantial Delay in Chapter 11 Emergence ARMSTRONG WORLD: Inks Settlement & Sale Pacts With Liberty ATA AIRLINES: Judge Lorch Extends Plan Filing Deadline to May 24 ATA AIRLINES: Wants to Employ KPMG LLP as Tax Advisor ATLANTIS PLASTICS: Moody's Junks $75 Million Term C Loan CABLEVISION SYSTEMS: Posts $305.8 Mil. Net Loss in 4th Quarter CALL-NET ENTERPRISES: Discloses 2004 Q4 Financial Results CHASE COMMERCIAL: Fitch Upgrades $33M Mortgage Securities to BBB- CHIQUITA BRANDS: S&P Reviewing Single-B Ratings & May Downgrade COMMERCIAL CLIENT: Case Summary & Largest Unsecured Creditor COMPUTER EXTENSION: Case Summary & 20 Largest Unsecured Creditors COVAD COMMS: Dec. 31 Balance Sheet Upside-Down by $8.6 Million DANA CORP: Posts $133 Million Net Loss in Fourth Quarter DANIELSON GROUP: Weak Performance Prompts S&P to Junk Ratings DUKE PETROLEUM: Voluntary Chapter 11 Case Summary ERIE-WESTERN: Fitch Downgrades $6.3 Mil. of Revenue Bonds to BB+ FALCON PRODUCTS: Court Gives Final OK on $45 Million DIP Facility FC CBO: S&P Junks 2nd-Priority Notes & Reviews Senior Notes Rating FEDERAL-MOGUL: Dec. 31 Balance Sheet Upside-Down by $1.925 Billion FLYi INC: S&P May Up Junk Rating After Reviewing Restructuring HILITE INT'L: Moody's Withdraws B3 Rating on $150MM Senior Notes HLD VENTURES LLC: Case Summary & 2 Largest Unsecured Creditors HUDSON'S BAY: Will Release Fourth Quarter Results on March 10 INSPEX INC: Court Confirms First Amended Plan of Reorganization INTERACTIVE BRAND: Taps Corporate Revitalization to Manage iBill INTERFACE INC: Posts $4.4 Million Net Loss in Fourth Quarter INTERSTATE BAKERIES: Five Officers Dispose of 16,000 Common Shares J.P. MORGAN: S&P Places Low-B Ratings on Six Certificate Classes KAISER ALUMINUM: James T. Hackett Resigns From Board of Directors LORAL SPACE: Inks Favorable Settlement with China Telecom LSP BATESVILLE: S&P Reviews B- Rating of Sr. Bonds & May Upgrade MARICOPA COUNTY: Moody's Holds B1 Rating on $6.13MM Revenue Bonds MCI INC: Qwest Submits New Merger Proposal to Compete with Verizon MCI INC: Compensation Committee Awards Incentives to Two Officers MEDCO HEALTH: Moody's Affirms Ba1 Senior Implied Rating MERITAGE HOMES: Buys Back $280 Million of 9-3/4% Senior Notes MIRANT CORP: Oregon DOJ Holds $250,000 Allowed Unsecured Claim MOONEY AEROSPACE: Issues 10 Million Shares to Creditors MORGUARD REIT: Earns $29.3 Million of Net Income in 2004 NATIONAL ENERGY: Wants LFW Leasing to Turn Over Termination Fee NAVISTAR INT'L: Launching $250 Million Private Debt Offering NAVISTAR INT'L: S&P Rates Proposed $250 Mil. Senior Notes at BB- NUTRI-GARDENS INC: Case Summary & 16 Largest Unsecured Creditors ONSOURCE CORP: Dec. 31 Balance Sheet Upside-Down by $1.6 Million ORDERPRO LOGISTICS: Inks Settlement with Major Shareholder Group PACIFIC LIFE: S&P Junks $38 Million Class A-3 Notes PARTNER COMMUNICATIONS: Board Okays Selling of Shares to Partner POCONO INCREDIBLE: Judge Thomas Dismisses Bankruptcy Case POPE & TALBOT: Forest Management Risk Talks Delay Sale Closing PPM HIGH: Fitch Junks High Yield Note Classes A-3 & B PREMCOR REFINING: Moody's Reviews Ratings on $1B Loan for Upgrade QWEST COMMS: Amends MCI Merger Proposal to Compete with Verizon QWEST COMMS: Opens 2 New Residential Solutions Centers in Arizona RELIANCE GROUP: Liquidator Wants to Sell Lot for $33.2 Million REMEDIATION FINANCIAL: Disclosure Statement Hearing Set for Apr. 5 SALOMON BROTHERS: Fitch Puts Low-B Ratings on 2 Cert. Classes SCIENTIFIC GAMES: Earns $4.4 Million of Net Income in 4th Quarter SEROLOGICALS CORP: Posts $3.5 Million of Net Income in 4th Quarter S K New York LLC: Voluntary Chapter 11 Case Summary SOLUTIA INC: Wants Until July 11 to Remove State Court Actions SOUTH BRUNSWICK: Administrator Names 3-Member Special Committee STATEN ISLAND: Moody's Reviewing Ba3 Ratings & May Upgrade SYRATECH CORPORATION: Wants Ordinary Course Profs. to Continue SUPERIOR WHOLESALE: S&P Puts BB Rating on $52.20M Class D Notes TOWER AUTOMOTIVE: First Meeting of Creditors Scheduled for Apr. 29 TOWER AUTOMOTIVE: Trustee Appoints 7-Member Creditors Committee TRIKING LLC: Case Summary & 17 Largest Unsecured Creditors TRITON CDO: S&P Junks $26.75 Million Class B Notes TRUSSWAY INDUSTRIES: Creditors Must File Proofs of Claim by Mar. 1 UAL CORP: Hires Jack B. Fishman & Associates as Local Counsel US AIRWAYS: Wants BofA Letter of Credit Procedures Clarified USA FLORAL: ACON Investments Sells Florimex to Bencis Capital USG CORP: Wants to Further Expand Scope of PwC's Service WASHINGTON MUTUAL: Fitch Puts Low-B Ratings on Six Mortgage Certs. WESTAR ENERGY: Moody's Lifts Senior Unsecured Debt Rating to Ba1 WII COMPONENTS: Earns $2 Million of Net Income in Fourth Quarter WINN-DIXIE: S&P Rating Tumbles to D After Bankruptcy Filing W.R. GRACE: Pacificorp & Vancott Plan Want to File Late Claim YUKOS OIL: Yukos & Group Menatep Seek U.S. Senate's Aid YUKOS OIL: Judge Clark Dismisses Bankruptcy Case * FTI Consulting to Acquire Ringtail Solutions for $35 Million * Igor Muszynski Joins Chadbourne & Parke's Warsaw Office * BOOK REVIEW: The White Labyrinth ********* ACCREDO HEALTH: S&P Holds BB Rating Despite Medco Purchase Plans ---------------------------------------------------------------- Standard & Poor's Ratings Services said that the ratings on Accredo Health Inc. (BB/Stable/--) are unaffected following the announcement by Medco Health Solutions, Inc., that it was acquiring Accredo for $2.2 billion. Standard & Poor's expects Medco Health, at the close of the acquisition, to refinance all of Accredo's outstanding rated debt. Standard & Poor's will subsequently withdraw all its ratings on Accredo. AFFI INTERNATIONAL: Voluntary Chapter 11 Case Summary ----------------------------------------------------- Debtor: AFFI International, Inc. dba Anna Truck Stop 1700 South Highway 75 Anna, Texas 75409 Bankruptcy Case No.: 05-40829 Type of Business: The Debtor operates a roadside service station that caters to truck drivers. Chapter 11 Petition Date: February 21, 2005 Court: Eastern District of Texas (Sherman) Judge: Brenda T. Rhoades Debtor's Counsel: Arthur I. Ungerman, Esq. 8140 Walnut Hill Lane, Suite 301 Dallas, TX 75231 Tel: 972-239-9055 Fax: 972-239-9886 Estimated Assets: $1 Million to $10 Million Estimated Debts: $1 Million to $10 Million The Debtor did not file a list of its 20-largest creditors. AGILENT TECH: Earns $103 Million of Net Income in Fourth Quarter ---------------------------------------------------------------- Agilent Technologies Inc. (NYSE:A) reported orders of $1.61 billion for the first fiscal quarter ended Jan. 31, 2005, 7 percent below one year ago. Revenues during the quarter were $1.66 billion, 1 percent ahead of last year. First quarter GAAP net earnings were $103 million, compared with $71 million in last year's first quarter. Excluding a net $3 million of restructuring charges and tax benefits, Agilent reported first quarter operating net income of $100 million. On a comparable basis, the company earned $103 million one year ago. "I am pleased with Agilent's first quarter performance," said Ned Barnholt, Agilent chairman, president and chief executive officer. "We executed well, with very good operating discipline and cash generation in a challenging market environment. This quarter we continued to build on our strong foundation of product innovation and operational excellence that I believe will benefit Agilent for years to come." The company reported first quarter revenues of $1.66 billion, consistent with its expectations of $1.60 billion to $1.70 billion. Operating earnings, were at the top of the guidance range of $0.14 to $0.21 per share. Gross margins were essentially flat compared with last year, despite much more difficult conditions in Agilent's semiconductor-related businesses, and operating expenses remained under very good control. The company generated another $100 million in free cash flow from operations during the quarter, bringing total cash on hand to $2.5 billion. Looking ahead, Agilent said it expects relatively flat second quarter fiscal 2005 revenues of $1.60 billion to $1.70 billion, reflecting the $70 million lower revenues associated with the divestiture of the company's camera module business. First quarter Test and Measurement orders of $652 million were 3 percent above one year ago and down 5 percent from the seasonally strong fourth quarter. Overall segment demand was characterized by continued softness in wireless handset manufacturing test, stabilizing wireline test markets, and generally flat general purpose test orders. Revenues of $700 million were 10 percent above last year and down 10 percent from three months earlier due to continued softness in wireless handset manufacturing test. First quarter operating profits of $63 million were improved by $58 million compared with one year ago on a $63 million increase in revenues. Compared with the fourth quarter, segment profits were down $54 million on an $82 million drop in revenues. During the quarter, Test and Measurement achieved a 12 percent Return On Invested Capital (ROIC), up from 2 percent last year but down from 19 percent in last year's fourth quarter. First quarter Automated Test orders of $160 million were down 20 percent from one year ago but up 17 percent sequentially. Compared with last year, all product lines were weaker except parametric test; sequentially, all product lines were up except manufacturing test. Utilization rates for SOC testers at semiconductor contract manufacturers (SCMs) improved for the second consecutive quarter, and averaged about 92 percent during the quarter. While the rebound is expected to be very slow because of excess overall industry capacity, last year's fourth quarter may prove to be the bottom for Automated Test orders. Revenues of $155 million were 29 percent below last year and down 21 percent sequentially. Automated Test's book-to-bill ratio rose to 1.03 in the quarter from 0.91 last year and 0.70 one quarter earlier. The segment had an operating loss of $34 million during the quarter compared with profits of $21 million one year ago on $64 million lower revenues. Sequentially, profits were down $28 million on a $41 million reduction in revenues. During the quarter, gross margins were depressed by lower volumes and intense competitive pressures. Operating expenses were relatively flat year-to-year. Acceptance of the company's new generation of flash memory and SOC test systems has been encouraging, with 90 percent of flash memory test and 16 percent of SOC orders now coming from new products. Semiconductor Products orders were $435 million during the first quarter, down 26 percent from one year ago but up 7 percent sequentially. Compared with last year, orders declined virtually across the board. Personal systems components orders were off 30 percent from last year, with particular weakness in optical mice; networking systems components were down 16 percent from last year. Sequentially, personal systems components were up 6 percent and networking systems components were up 7 percent. First quarter revenues of $450 million were 5 percent below last year and down 9 percent sequentially. The book-to-bill for Semiconductor Products improved to 0.97 in the first quarter compared with 0.83 three months ago but remained well below last year's 1.24. Segment profits of $27 million were $33 million below last year on a $24 million drop in revenues; margins suffered as the industry moved from shortage to surplus. Sequentially, profits were $19 million higher despite $42 million lower revenues as both camera modules and fiber optics showed significant improvements in quality, yield and cost compared with the second half of last year. Segment ROIC was 10 percent during the quarter compared with 23 percent one year ago and 6 percent during the fourth quarter. On Feb. 3, 2005, the company had completed the sale of its camera module business to Flextronics. Good momentum in Life Sciences and Chemical Analysis continued in this year's first quarter. Orders of $356 million were 16 percent above last year, with Life Sciences orders up 18 percent and Chemical Analysis up 15 percent. During the quarter, the segment saw particular strength from generic drug manufacturers, and strong demand from petrochemical and environmental industries. Revenues of $354 million were 13 percent above last year and up 1 percent sequentially. Segment profits of $51 million were $4 million above last year on a $41 million increase in revenues as the segment continued to ramp its investments in Life Sciences. Sustained profits and excellent capital management enabled the segment to achieve an ROIC(5) of 29 percent during the quarter compared with last year's ROIC of 23 percent and 24 percent in the fourth quarter. About the Company Agilent Technologies Inc. (NYSE: A) is a global technology leader in communications, electronics, life sciences and chemical analysis. The company's 28,000 employees serve customers in more than 110 countries. Agilent had net revenue of $7.2 billion in fiscal year 2004. Information about Agilent is available on the Web at http://www.agilent.com/ * * * As reported in the Troubled Company Reporter on Dec. 22, 2004, Moody's Investors Service affirmed the debt ratings of Agilent Technologies, Inc., and revised the rating outlook to stable from negative. Agilent has returned to operating profitability and positive cash flow generation, which Moody's believes will be sustainable through moderate cyclical swings. Financial flexibility has been restored through a demonstrably lower level of fixed costs, the start of a more targeted approach to its markets, and increased cash balances which have bolstered Agilent's liquidity cushion. The following ratings were affirmed: * Senior implied rating of Ba2; * $1.15 billion senior unsecured convertible notes rated Ba2; * Senior unsecured issuer rating of Ba2. Moody's also assigned a speculative grade liquidity rating of SGL-1. The ratings are supported by: (1) Agilent's strong market position in its core products; (2) elimination of near term liquidity concerns due to the return to positive cash flow and increase in cash balances; and (3) debt metrics which generally meet or exceed those of peers within their rating category. Previous concerns about Agilent's underfunded pension and benefit plans have been eased as the shortfall has been reduced by market performance and contributions, but Moody's anticipates it will still negatively impact cash and effective leverage for the near future. ALLEGHENY ENERGY: Investor Wants SEC to Protect Ratepayers ---------------------------------------------------------- A large investor in power companies has requested that the Securities and Exchange Commission take steps to protect ratepayers and investors in the Allegheny Energy, Inc. (NYSE: AYE) utilities from the worst consequences of a potential bankruptcy of AYE. Since 2002, AYE has not been in compliance with the SEC's minimum 30% equity requirement and, on numerous occasions, the reporting obligations required by the Public Utility Holding Company Act of 1935. During this time the SEC has granted AYE numerous waivers to provide AYE reasonable flexibility to repair its financial condition. However, AYE has used this flexibility to support its highly leveraged unregulated affiliate, Allegheny Energy Supply Company, LLC, without adequately protecting its utility companies. Harbert Distressed Investment Master Fund, Ltd., believes that given the experiences of Enron and Northwestern Corporation, two PUHCA companies whose bankruptcies wiped out billions in equity and debt securities, including retirement funds of utility employees, the SEC should undertake a pro-active program to protect AYE's utility stakeholders. Otherwise, AYE may continue to encumber its utilities in an effort to prop up Supply. The Fund requests that, in response to AYE's most recent request for broad financing authority through mid-2007, the SEC condition any further waivers on establishing protections for utility investors and ratepayers, or hold hearings to determine reasonable conditions that would reduce AYE's ability to continue to burden its utility operations. In its filing, the Fund expresses particular alarm at AYE's request for SEC approval through 2007 to temporarily dividend from its utilities 100% of the proceeds of certain regulated utility financings so that they may be passed through AYE's highly leveraged, sub-investment grade, unregulated Supply subsidiary which has negative $1.2 billion in retained earnings. This practice, referred to by AYE in a previous filing as "round tripping", appears to the Fund to be designed to comply with the letter, but not the spirit, of a complex financing arrangement put in place in 2003. AYE assures the SEC that "Any amounts paid to Allegheny by these Utility Applicants will be immediately contributed back to the applicable Utility Applicant so the dividends will have no effect on the Utility Applicant's paid-in capital account." The Fund believes that an important goal of the SEC's obligations under PUHCA is to ensure that utility investors and ratepayers are not abused by use of a complex, opaque holding company structure, and that the SEC should require more financial transparency by AYE and protection for its utilities before another PUHCA company and its utilities are forced into a complex bankruptcy with tangled affiliate transactions. In its filing, the Fund points out that during this extended period of failing to meet PUHCA standards, AYE has repeatedly failed to deliver reliable financial statements or projections, ceased filing quarterly and annual reports of Supply, transferred the equity value of the utilities to Supply, petitioned state regulators to encumber the utilities with rate increases and environmental control expenditures to support investors in Supply and improve its power plants, and committed to use proceeds of its utilities' financings to make investments in Supply. While AYE has avoided bankruptcy to date and reduced outstanding total debt over the past year by selling assets, these asset sales have produced even greater equity losses and increased financial leverage at a time when its cash flows, liquidity and equity levels continue to be extremely weak compared to other PUHCA regulated companies. AYE's request to the SEC points out that most other distressed PUHCA companies in the past had equity levels which dropped as low as 28%, yet AYE now operates with only about 20% equity capitalization, after plummeting to 17% as recently as September 2004. This collapse in equity has been accompanied by repeated claims by AYE in its SEC filings that it is making progress in returning to the minimum standard of 30% equity, without making material actual progress in that regard. The Fund requests that the SEC require that Supply be made "bankruptcy remote" from the other AYE businesses. This would require, among other prudent precautions, that contracts between Supply and the utilities be subject to competitive bidding, that the boards of directors of Supply and the utilities not be identical, and that financings at Supply would not be intertwined with those of the utilities. Harbert Distressed Investment Master Fund, Ltd., invests in securities of various companies in the electric power industry, including AYE and its utilities. The Fund's investment positions are subject to change in the ordinary course of its business. The Fund is focused on high-yield (special situation) and distressed securities on both the long and short sides, including debt and equity investments in turnarounds, restructurings, liquidations, event driven situations and inter-capital structure arbitrage. A copy of the Fund's filing can be viewed at the SEC's home page http://www.sec.gov/under SEC Divisions; Investment Mgmt; Office of Public Utility Regulation (OPUR); Pending Filings and Notices Under the 1935 Act; File No. "070-10251: Allegheny Energy Inc. Request For Hearing". Headquartered in Greensburg, Pennsylvania, Allegheny Energy -- http://www.alleghenyenergy.com/-- is an investor-owned utility consisting of two major businesses. Allegheny Energy Supply owns and operates electric generating facilities, and Allegheny Power delivers low-cost, reliable electric service to customers in Pennsylvania, West Virginia, Maryland, Virginia and Ohio. * * * As reported in the Troubled Company Reporter on Feb. 21, 2005, Standard & Poor's Ratings Services raised its rating on Allegheny Energy Supply Inc.'s secured bank loan (which had $1.044 billion of debt as of October 2004) and $380 million secured bonds to 'BB- ', from 'B+'. In addition, the recovery rating on these debt issues was raised to '1', from '2'. The upgrades reflect the declining balance of AE Supply's outstanding secured debt as proceeds from asset sales were used to pay down debt. The '1' recovery rating indicates that holders of the bank loan can expect strong likelihood of full recovery of principal in the event of default or bankruptcy. The 'BB' rating on the secured debt is currently one notch above AE Supply's 'B+' issuer credit rating. With the recent sales of its ownership interest in Ohio Valley Electric Corp. and the Lincoln facility, Standard & Poor's estimates that AE Supply has paid down about $280 million of its secured loan and bonds since October of 2004, leaving the company with a total of $1.14 billion of first-lien debt and $280 million of pollution control bonds outstanding. As a result, AE Supply's value to debt coverage is likely to have improved to 1.20x, from about 1x in October of 2004. The positive outlook reflects Standard & Poor's expectation that consolidated parent Allegheny Energy, Inc., will continue to execute its plan to pay down $1.5 billion or more of debt between December 2003 and the end of 2005. Continued progress in selling assets, paying down debt, and stabilizing cash flow, or positive outcomes from rate filings could lead to a ratings upgrade. AMERICAN BUSINESS: U.S. Trustee Names 9th Member to Creditor Panel ------------------------------------------------------------------ The United States Trustee for Region 3 added U.S. Bank National Association, as Indenture Trustee, to the Official Committee of Unsecured Creditors appointed in American Business Financial Services, Inc., and its debtor-affiliates' chapter 11 cases. The nine current committee members are: 1. Wachovia Bank, N.A. Attn: Helen F. Wessling Widener Building 1319 Chestnut Street, PA 4810 Philadelphia, PA 19107 Ph: (267) 321-6728 Fax: (267) 321-6903; 2. Z C Sterling Corporation Attn: James P. Novak 210 Interstate North Parkway, NW Suite 400 Atlanta, GA 30339 Ph: (800) 962-9654 ext. 2729 Fax: (770) 303-2799; 3. Christopher D'Ambrosio and Julia D'Ambrosio 9 Iddings Lane Newtown, Square, PA 19073 Ph: (610) 353-7075 Fax: (610) 353-7312; 4. Walter J. Woeger 1115 Rhawn Street Philadelphia, PA 19111 Ph: (215) 725-6087; 5. Bread & Butter, LP Attn: Diana Shoolman 1000 South Pointe Drive, #1904 Miami Beach, FL 33139 Ph: (305) 695-8788; 6. Robert Revitz 8338 N. Canta Redowdo Paradise Valley, AZ 85253 Ph: (480) 998-0050 Fax: (480) 998-0050; 7. David Kooy 198 Broadway #505 New York, NY 10038 Ph: (212) 566-0800 Fax: (212) 566-0803; 8. Bart Khatiwalla 6 Laurie Drive Voorhees, NJ 08043 Ph: (609) 839-0609; and 9. U.S. Bank National Association as Indenture Trustee Attn: Laura L. Moran, Vice-President One Federal Street Mail Code: EX-MA-FED Boston, MA 02110 Ph: 617-603-6429 Fax: 617-603-6649 Official creditors' committees have the right to employ legal and accounting professionals and financial advisors, at the Debtors' expense. They may investigate the Debtors' business and financial affairs. Importantly, official committees serve as fiduciaries to the general population of creditors they represent. Those committees will also attempt to negotiate the terms of a consensual chapter 11 plan -- almost always subject to the terms of strict confidentiality agreements with the Debtors and other core parties-in-interest. If negotiations break down, the Committee may ask the Bankruptcy Court to replace management with an independent trustee. If the Committee concludes reorganization of the Debtors is impossible, the Committee will urge the Bankruptcy Court to convert the chapter 11 cases to a liquidation proceeding. Headquartered in Philadelphia, Pennsylvania, American Business Financial Services, Inc., together with its subsidiaries, is a financial services organization operating mainly in the eastern and central portions of the United States and California. The Company originates, sells and services home mortgage loans through its principal direct and indirect subsidiaries. The Company, along with four of its subsidiaries, filed for chapter 11 protection on Jan. 21, 2005 (Bankr. D. Del. Case No. 05-10203). Bonnie Glantz Fatell, Esq., at Blank Rome LLP represents the Debtors in their restructuring efforts. When the Company filed for protection from its creditors, it listed $1,083,396,000 in total assets and $1,071,537,000 in total debts. (American Business Bankruptcy News, Issue No. 6; Bankruptcy Creditors' Service, Inc., 215/945-7000) AMPEX CORP: Applies SFAS No. 87 Acctg. to Restated Fin'l Reports ---------------------------------------------------------------- Ampex Corporation (OTCBB:AEXCA) said the Audit Committee of the Board of Directors has concluded that, after consultations with management, it will restate its financial statements included in its Form 10-K for 2003 and Form 10-Qs for March 2004, June 2004, and September 2004. The restatement relates to the Company's accounting for its obligations under a pension plan of its former magnetic tape manufacturing subsidiary, which it disposed of in 1995. The agreement for the sale of Media required the buyer, Quantegy Corporation, to pay directly or reimburse Ampex for required contributions to the Media pension plan. However, Ampex remained the Plan Sponsor of the Media pension plan and is obligated to make pension contributions to that Plan. Ampex had accounted for its obligations under the Media pension plan under SFAS No. 5, "Accounting for Contingencies" since the sale of Media in 1995. However, as a result of communications with the Office of the Chief Accountant of the Securities and Exchange Commission, the Company now believes that it should have accounted for these obligations under the provisions of SFAS No. 87, "Employers' Accounting for Pensions." Accordingly, the Audit Committee of the Board of Directors has concluded that the previously issued financial statements as of December 31, 2003, and 2002 and for each of the three years in the period ended December 31, 2003, as well as the financial statements included in the aforementioned Form 10-Qs, should not be relied upon because of the error in accounting for the Media pension plan discussed above. The Company will amend and reissue its Form 10-K for 2003 as well as its Form 10-Qs for periods ending March 31, 2004, June 30, 2004 and September 30, 2004 as soon as practicable. On a preliminary unaudited basis, the Company believes that the principal income statement effects of applying SFAS No. 87 instead of SFAS No. 5 would be to require the Company to amortize approximately $20 million of unrecognized pension losses relating to the Media plan over future periods beginning in 2004. The per annum amount of such future amortization charges has not yet been determined, but the Company expects that it will reduce previously reported pre-tax net income by approximately $0.3 million in each of the first three quarters of 2004. As a consequence of the restatement, the Company also expects to report an increase in cumulative reported net income for 2003 and prior years of approximately $8.5 million. The Company also believes that the principal balance sheet effect of the restatement, as of December 31, 2003, will be to reflect total unfunded accumulated benefit obligations with respect to the Media pension plan of $19.1 million, by increasing its long-term liabilities by $11.7 million with a corresponding net reduction in shareholders' equity. Quantegy Corporation, the buyer of Media, filed a petition for reorganization in bankruptcy in January 2005. Accordingly, in the fourth quarter of 2004, the Company may be required to recognize an additional pre-tax charge of $3.1 million under SFAS No. 87. The restatement of its financial statements referred to above is not expected to result in any change to the Company's cash requirements to fund future contributions to the Media pension plan. Ampex Corporation -- http://www.ampex.com/-- headquartered in Redwood City, California, is one of the world's leading innovators and licensors of technologies for the visual information age. At September 30, 2004, Ampex Corporation's balance sheet showed a $139,695,000 stockholders' deficit, compared to a $136,137,000 deficit at December 31, 2003. ARMSTRONG WORLD: Sees Substantial Delay in Chapter 11 Emergence --------------------------------------------------------------- Armstrong Holdings, Inc., and Armstrong World Industries, Inc., say their "emergence from bankruptcy will be substantially delayed," after Judge Robreno issued a ruling finding that the AWI Plan of Reorganization was not confirmable. As reported in yesterday's edition of the Troubled Company Reporter, the Honorable Eduardo C. Robreno of the U.S. District Court for the Eastern District of Pennsylvania denied confirmation of the Fourth Amended Plan of Reorganization filed by Armstrong World Industries, Inc. and two of its subsidiaries in an Opinion released Feb. 23. Judge Robreno finds that the distribution of New Warrants to the class of Equity Interest Holders over the objection of the class of Unsecured Creditors violates the "fair and equitable" requirement of 11 U.S.C. Section 1129(b)(2)(B)(ii), a codification of the absolute priority rule. AWI has estimated that the Unsecured Creditors in Class 6 have claims amounting to approximately $1.651 billion. Under the Plan, AWI proposed that the Unsecured Creditors would recover about 59.5% of their claims. The Asbestos PI Claimants in Class 7 have claims estimated at $3.146 billion and would recover approximately 20% of their claims under the Plan. The Equity Interest Holders in Class 12 would be issued New Warrants valued at approximately $35 million to $40 million. The Plan provides that, if the Unsecured Creditors reject the Plan, the Asbestos PI Claimants will receive the New Warrants, but then will automatically waive the distribution, causing the Equity Interest Holders to secure the New Warrants. Judge Robreno says the net result is a violation of the absolute priority rule, which prohibits recovery by shareholders if creditors aren't paid in full. A full-text copy of the District Court's opinion is available at no charge at http://bankrupt.com/misc/00-4471-7899.pdf "The company is studying Judge Robreno's opinion to understand the full extent of the judge's concerns. AWI's course of action will be determined after a careful review of Judge Robreno's opinion and the company has discussed the options with its advisors and the other constituencies in the case," Armstrong said in a statement released yesterday morning. Headquartered in Lancaster, Pennsylvania, Armstrong World Industries, Inc. -- http://www.armstrong.com/-- the major operating subsidiary of Armstrong Holdings, Inc., designs, manufactures and sells interior finishings, most notably floor coverings and ceiling systems, around the world. In 2003, Armstrong's net sales totaled more than $3 billion. Based in Lancaster, Pennsylvania, Armstrong has 44 plants in 12 countries and approximately 15,500 employees worldwide. The Company and its debtor-affiliates filed for chapter 11 protection on December 6, 2000 (Bankr. Del. Case No. 00-04469). Stephen Karotkin, Esq., at Weil, Gotshal & Manges LLP, and Russell C. Silberglied, Esq., at Richards, Layton & Finger, P.A., represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $4,032,200,000 in total assets and $3,296,900,000 in liabilities. (Armstrong Bankruptcy News, Issue No. 72; Bankruptcy Creditors' Service, Inc., 215/945-7000) ARMSTRONG WORLD: Inks Settlement & Sale Pacts With Liberty ---------------------------------------------------------- A dispute arose between Liberty Property Holdings, LP, and Armstrong World Industries with respect to certain amounts AWI billed to Liberty for electric usage by Liberty Place, an office building located in Lancaster, Pennsylvania. Liberty Place used to house AWI's corporate headquarters before AWI sold the building to Liberty in 1997. AWI's floor plant in Lancaster and Liberty Place presently share certain utility and other services pursuant to, and as set forth, in Part 2 of a Declaration of Covenants, Easements, Licenses, Conditions and Restrictions the parties entered into as part of the sale. AWI sought to reject Part 2 of the Declaration as an executory contract pursuant to its Plan of Reorganization. Liberty objected. At the Plan Confirmation Hearing in November 2003, counsel to AWI represented to the U.S. Bankruptcy Court for the District of Delaware that the parties had reach an agreement in principle resolving the rejection issue. Liberty's objection was subsequently withdrawn. Rebecca L. Booth, Esq., at Richards, Layton & Finger, P.A., in Wilmington, Delaware, relates that immediately following the Confirmation Hearing, AWI's counsel was advised that Liberty had not, in fact, conceded that AWI had the right to terminate its obligations to provide utilities. Although the parties had agreed to work toward the resolution of the logistics and costs involved in severing the utilities, Liberty intended to reserve its right to come before the Bankruptcy Court on the issue of whether AWI's obligations to provide the utilities could be rejected as an executory agreement. The Liberty Objection, therefore, is still pending. To resolve the disputes among them, the parties have agreed to the terms of a Settlement Agreement and a corresponding Sale Agreement, which provide: (1) Property to be Transferred AWI will sell and convey to Liberty the five buildings and approximately 1.66 acres of parking area located at the south and east portion of AWI's Lancaster Floor Plant parking area. (2) Purchase Price The purchase price for the Buildings and the Parking Area will be $100,001, to be paid in cash or other funds acceptable to AWI at closing. (3) Easements AWI and Liberty will grant each other, as needed, cross easements for the purpose of access to existing phone lines and electrical wiring, water and sewer easements, and other utilities as necessary with respect to the premises. AWI will grant Liberty access to the garage and loading docks located on the west side of Buildings 151 and 152 as needed for reconstruction purposes for a period of six to eight weeks from the closing date. (4) Conditions Precedent Consummation of the transactions contemplated under the Sale Agreement will be subject to: (i) an environmental phase review acceptable to LPH; (ii) satisfactory construction due diligence to be completed by Liberty within 60 days of the Bankruptcy Court approval of the Sale Agreement; and (iii) approval by the City of Lancaster of the subdivision of the premises on terms and conditions mutually acceptable to AWI and Liberty. (5) Costs AWl will pay for subdivision costs related to engineering and land surveying services. Liberty will be responsible for the coordination and administration of any zoning, sub-division and land development approval processes, including the payment of any legal fees or costs attendant thereto. (6) Electricity and Steam Heat Liberty will undertake Liberty Place's conversion, the Buildings, and lighting for the Parking Area to a source of electric utility services separate from that of AWI's. In addition, Liberty will undertake the installation of its own source of steam heat supply for Liberty Place and the Buildings separate from that of AWI's. Liberty will notify AWI in writing, and will commence utilizing its own source of electric utility services, immediately at the completion of that conversion or separation. Provided that Court approval is obtained on or before April 1, 2005, the conversion or separation will be completed on or before September 1, 2005. (7) Chilled Water Liberty will continue to provide chilled water to the Floor Plant, provided that AWl meters chilled water usage at the Floor Plant and pays Liberty an amount per month representative of the actual cost of the chilled water as metered. Liberty may waive the requirement of metered chilled water usage and charge AWI a fee -- to be determined by mutual agreement of the parties -- during those months of chilled water consumption by the Floor Plant. Liberty's obligation to provide chilled water to the Floor Plant may be terminated by either party at 90 days' written notice. (8) Municipal Water and Sewer Water and sewer service will continue to be provided to Liberty Place and the Buildings via the Floor Plant for so long as AWI continues to require the existing water feed to the Floor Plant. AWI will bill Liberty, and Liberty will pay for the actual cost of its municipal water and sewer usage on a monthly basis, without credit or offset of any kind. Should the Floor Plant no longer require municipal water and sewer service via the existing water feed, then Liberty will arrange for its own water or sewer service and separation of the common water line on 180 days' written notice from AWI. (9) Past Due Amounts If the Sale Agreement is not consummated for any reason -- other than a refusal or failure of AWI to perform its obligations -- Liberty will nonetheless be required to immediately pay the Past Due Amounts, as defined in the Sale Agreement, for prior electric usage to AWI upon written demand. (10) Amended Declaration At settlement, AWI will execute and deliver to Liberty, inter alia, appropriate amendments or modifications to the Declaration consistent with and required to carry out the intention of the Sale Agreement. The amended Declaration will be separately recorded in the Recorder of Deeds Office in and for Lancaster County, Pennsylvania, and will not be subject to rejection in AWI's Chapter 11 case or under the Plan. (11) Withdrawal Or Objection The objection filed by Liberty against AWI will be deemed withdrawn with prejudice. (12) Release of AWI and Liberty As of the Closing Date, the parties will exchange mutual releases. If the closing does not occur for any reason other than: * a failure to obtain Court approval of the settlement; * a failure to obtain any and all zoning and subdivision approvals of the failure of any other condition precedent required by the Sale Agreement in connection with the transfer of the premises; or * a refusal or failure of AWI to perform any of its obligations under the Settlement Agreement or the Sale Agreement, then Liberty's remaining obligations under the Settlement Agreement will remain binding. With respect to the Parking Area, Ms. Booth informs the Court that there is no possibility that the parties may subsequently agree to amend the Sale Agreement such that an alternative parking area of the same or similar acreage and value replaces the Parking Area presently designated in the Sale Agreement. Ms. Booth tells Judge Fitzgerald that even if AWI obtains a ruling in its favor on the issue of rejection, it is unclear how a practicable solution implementing rejection could be effectuated. That ruling alone would not remedy the logistical problems associated with separation of AWI's utility services from Liberty's. "As it stands right now, much of the infrastructure is interconnected, or at the very least, located at buildings presently owned by AWI," Ms. Booth notes. "The Settlement and Sale Agreements represent the most logical and cost-effective means by which the desired separation can be achieved." Moreover, even if AWI is permitted to reject Part 2 of the Declaration, Liberty is likely to pursue a rejection damage claim against AWI's estate in a substantial amount. In this regard, the proposed combined price for the Buildings and the Parking Area is extremely reasonable when one considers their present condition and status. Ms. Booth explains that the Buildings currently are not being utilized by AWI and serve no further purpose to the Floor Plant yet continue to require heat and power to sustain their existing state. The Buildings' condition continues to deteriorate as the result of deferred maintenance. Should AWI desire to occupy the Buildings again, the cost of the roof repairs and asbestos remediation alone are estimated at over $300,000. AWI asks the Court to approve the Settlement Agreement and the transactions contemplated by the Sale Agreement. AWI further seeks the Court's permission to substitute, in AWI's discretion and with Liberty's consent, a parking area of equivalent or comparable acreage and value in the vicinity of the Floor Plant -- and to amend the Sale Agreement accordingly -- prior to the closing without the necessity of additional Court approval. The Settlement and the Sale Agreements are without prejudice to: (i) Liberty's right to file a liquidated or unliquidated rejection damages claim with respect to Part 2 of the Declaration within the time provided for the Plan if the Confirmation Date occurs prior to the Closing Date; and (ii) AWI's right to object to or seek estimation of that claim, provided, however, that, if that claim is filed, it will be withdrawn immediately by Liberty when and if the closing under the Sale Agreement occurs. Headquartered in Lancaster, Pennsylvania, Armstrong World Industries, Inc. -- http://www.armstrong.com/-- the major operating subsidiary of Armstrong Holdings, Inc., designs, manufactures and sells interior finishings, most notably floor coverings and ceiling systems, around the world. The Company and its debtor-affiliates filed for chapter 11 protection on December 6, 2000 (Bankr. Del. Case No. 00-04469). Stephen Karotkin, Esq., at Weil, Gotshal & Manges LLP, and Russell C. Silberglied, Esq., at Richards, Layton & Finger, P.A., represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $4,032,200,000 in total assets and $3,296,900,000 in liabilities. (Armstrong Bankruptcy News, Issue No. 72; Bankruptcy Creditors' Service, Inc., 215/945-7000) ATA AIRLINES: Judge Lorch Extends Plan Filing Deadline to May 24 ---------------------------------------------------------------- NatTel, LLC, accuses the Non-Chicago Express Debtors of engaging in questionable financial and other dealings that have likely caused Chicago Express to suffer substantial harm to its business and financial affairs for the exclusive benefit of the Non- Chicago Express Debtors. NatTel asserts that the Debtors' exclusive right to propose a plan with respect to Chicago Express is premature and should not be considered by the Court unless and until the potential conflicts identified by NatTel in its request for appointment of an examiner are thoroughly investigated by the Examiner. NatTel also contends that the Debtors have failed to establish that "cause" exists to extend exclusivity for Chicago Express. The Debtors' bases to extend the exclusive periods have no applicability whatsoever to Chicago Express. Aaron L. Hammer, Esq., at Freeborn & Peters, LLP, in Chicago, Illinois, points out that Chicago Express is not one of the 10 largest airlines in the United States, is not a "leading" provider of low-cost airline service, conducts no charter or military operations, and was specifically excluded from obtaining benefits under the Southwest-ATA code share agreement. The code share alliance between ATA Airlines and Southwest fails to include any markets served by Chicago Express. Furthermore, under the control of ATA Holdings, Chicago Express has recently been forced to reduce its aircraft fleet by roughly 50%, furlough roughly 50% of its employees, eliminate the vast majority of its flights from Chicago-Midway Airport, and retrench to provide a limited amount of service out of an Indianapolis hub to a handful of destinations. NatTel pleads that the Non-Chicago Express Debtors should not be allowed to hold Chicago Express hostage to a restructuring process designed to extract value from Chicago Express for their exclusive benefit. Other parties-in-interest should be given an opportunity to propose a plan for Chicago Express which both preserves its business as a going concern and allows Chicago Express to investigate and pursue claims it may have against the Non-Chicago Express Debtors. * * * Judge Lorch grants the Debtors' request over NatTel's protest. Judge Lorch extends the Debtors' plan filing deadline until May 24, 2005. Headquartered in Indianapolis, Indiana, ATA Airlines, owned by ATA Holdings Corp. -- http://www.ata.com/-- is the nation's 10th largest passenger carrier (based on revenue passenger miles) and one of the nation's largest low-fare carriers. ATA has one of the youngest, most fuel-efficient fleets among the major carriers, featuring the new Boeing 737-800 and 757-300 aircraft. The airline operates significant scheduled service from Chicago-Midway, Hawaii, Indianapolis, New York and San Francisco to over 40 business and vacation destinations. Stock of parent company, ATA Holdings Corp., is traded on the Nasdaq Stock Exchange. The Company and its debtor-affiliates filed for chapter 11 protection on Oct. 26, 2004 (Bankr. S.D. Ind. Case No. 04- 19866, 04-19868 through 04-19874). Terry E. Hall, Esq., at Baker & Daniels, represents the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $745,159,000 in total assets and $940,521,000 in total debts. (ATA Airlines Bankruptcy News, Issue No. 15; Bankruptcy Creditors' Service, Inc., 215/945-7000) ATA AIRLINES: Wants to Employ KPMG LLP as Tax Advisor ----------------------------------------------------- ATA Airlines and its debtor-affiliates need a tax advisor to assist in collecting, analyzing and presenting certain information in relation to the Debtors' Chapter 11 cases. The Debtors selected KPMG, LLP for the position because of the firm's diverse experience and extensive knowledge in the fields of taxation and bankruptcy. KPMG will assist and advise the Debtors on these matters: (a) tax planning issues, including, but not limited to, assistance in estimating net operating loss carryforwards, cancellation of indebtedness income, attribute reduction, tax treatment of professional fees, federal taxes, and state and local taxes; (b) tax consequences of proposed plans of reorganization, including, but not limited to, assistance in the preparation of Internal Revenue Service ruling requests regarding the future tax consequences of alternative reorganization structures; (c) transaction taxes and state and local sales and use taxes; (d) tax matters related to the Debtors' employee retirement plans; (e) any existing or future IRS, state or local tax examinations; and (f) other tax related issues. KPMG will be paid in accordance with its customary hourly rates: Partner $405 - $455 Senior Manager $365 - $400 Manager $280 - $330 Senior $192 - $210 Loaned Staff $60 KPMG will also be reimbursed for necessary expenses incurred. Scott E. Moresco, a partner at KPMG, discloses that KPMG has, in the past or present, provided services for US Airways Group, Inc., UAL Corp., and Hawaiian Airlines, Inc., in matters unrelated to their claims or interests in the Debtors' Chapter 11 cases. Mr. Moresco, however, assures the United States Bankruptcy Court for the Southern District of Indiana that the firm does not represent any of the Debtors' creditors, other parties-in- interest, or their attorneys or accountants, in any matter that is adverse to the interests of any of the Debtors. The firm is a "disinterested person" as defined in Section 101(14) of the Bankruptcy Code. Headquartered in Indianapolis, Indiana, ATA Airlines, owned by ATA Holdings Corp. -- http://www.ata.com/-- is the nation's 10th largest passenger carrier (based on revenue passenger miles) and one of the nation's largest low-fare carriers. ATA has one of the youngest, most fuel-efficient fleets among the major carriers, featuring the new Boeing 737-800 and 757-300 aircraft. The airline operates significant scheduled service from Chicago-Midway, Hawaii, Indianapolis, New York and San Francisco to over 40 business and vacation destinations. Stock of parent company, ATA Holdings Corp., is traded on the Nasdaq Stock Exchange. The Company and its debtor-affiliates filed for chapter 11 protection on Oct. 26, 2004 (Bankr. S.D. Ind. Case No. 04- 19866, 04-19868 through 04-19874). Terry E. Hall, Esq., at Baker & Daniels, represents the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $745,159,000 in total assets and $940,521,000 in total debts. (ATA Airlines Bankruptcy News, Issue No. 15; Bankruptcy Creditors' Service, Inc., 215/945-7000) ATLANTIS PLASTICS: Moody's Junks $75 Million Term C Loan -------------------------------------------------------- Moody's Investors Service assigned ratings to the newly proposed $220 million secured credit facility of Atlantis Plastics, Inc., which represents the company's second proposed financing structure since January 2005 (refer to Moody's press release dated January 20, 2005 - ratings subsequently withdrawn due to cancellation of those offerings). Proceeds from the newly proposed facility are intended to pay a one-time dividend to existing shareholders of up to approximately $97 million; to purchase roughly 1 million shares of outstanding management options (approximately $9 million); to refinance approximately $86 million in existing indebtedness; and to pay related transaction fees. The ratings assigned are: * B2 to the proposed $145 million first lien credit facility consisting of a $25 million revolver, maturing in 6 years, and a $120 million term loan B, maturing in 6.5 years * Caa1 to the proposed $75 million second lien term C loan, maturing in 7 years * B2 senior implied rating * Caa2 senior unsecured issuer rating (non-guaranteed exposure) The ratings outlook is stable. The ratings are subject to the review of executed documentation. The ratings reflect the negative effects of the sizable decapitalization resulting from the proposed $97 million dividend (albeit reduced from originally proposed $118 million dividend) combined with the modest free cash flow relative to total pro- forma debt in the low to mid single digits expected throughout the intermediate term. The execution of the proposed transactions represents a significant leveraging event (pro-forma debt to EBIT is approximately 7 times and close to 5 times EBITDA) with moderate EBIT coverage of pro-forma interest expense at approximately 1.5 times. The ratings reflect minimal cushion under pro-forma credit statistics to absorb operating missteps. In addition to the company's weak balance sheet, notably the absence of tangible equity, the ratings incorporate Atlantis Plastics' small revenue size versus its rated peers, margin pressure from rising raw material and energy costs (over 50% of the total cost structure), significant customer concentration, and intense competition throughout its niche markets. More positively, the ratings incorporate adequate liquidity expected throughout the near term as the company should generate sufficient cash flow from operations to finance working capital and non-extraordinary capital expenditures. Access to the committed $25 million revolver (zero drawings expected at closing) should remain orderly throughout the period as covenants are to be set with satisfactory headroom. Mandatory term amortization should be low relative to expected cash flow. Financial covenants are expected to address maximum total leverage and minimum fixed charge coverage. The ratings also recognize the company's solid operating performance, particularly over the last two years, and its demonstrated success maintaining average selling spreads in stretch and custom films during such challenging business environments. The company's established relationships with numerous clients spread amongst various end-markets, as well as good product diversification across both flexible and hard plastic products, further support the ratings. The stable ratings outlook reflects tolerance for modest negative fluctuations in performance, however the outlook is highly sensitive to any decline in the ratio of free cash flow to total debt. Given the substantial amount of proposed senior leverage, any prolonged usage under the revolver or any incremental senior secured debt could put downward pressure on the ratings. Absent any positive exogenous event, it is likely that a full year of on- plan performance or better would be necessary before the ratings outlook could change to positive. The B2 rating assigned to the proposed first lien credit facility reflects its senior position in the pro-forma capital structure. The magnitude of first lien committed facilities at approximately 65% of total pro-forma committed debt precludes notching above the B2 senior implied rating. Outstandings are secured by a first priority perfected lien on all assets and equity of the borrowers, Atlantis Plastics and its subsidiaries, as well as of any holding company existing or to be formed to hold Borrower's equity securities ("Holdings"). Joint and several guarantees by all existing and future direct and indirect subsidiaries of the borrowers and by Holdings support the facility. The Caa1 rating assigned to the proposed term C loan reflects its junior position in the pro-forma capital structure as outstandings are secured by a second priority perfected interest in the same collateral packaging as the first lien debt. The two notches down from the senior implied rating reflect the contractual subordination to a sizable amount of first lien debt (a minimum of $120 million at closing) as well as the absence of collateral coverage under distress. In Moody's opinion, the severity of loss is much greater for the second lien debt (serving as the first loss absorber in the pro- forma capital structure) than the first lien debt and that further supports the notching. The junior secured facility is supported by the same guarantees as the first lien debt. There is no mandatory amortization scheduled for the term C loan. Headquartered in Atlanta, Georgia, Atlantis Plastics, Inc., is a U.S. manufacturer of polyethylene stretch and custom films and molded plastic products. For the twelve months ended September 30, 2004, net revenue was approximately $334 million. CABLEVISION SYSTEMS: Posts $305.8 Mil. Net Loss in 4th Quarter -------------------------------------------------------------- Cablevision Systems Corporation (NYSE:CVC) reported financial results for the fourth quarter and full year ended Dec. 31, 2004. Consolidated Results Consolidated fourth quarter net revenues increased 11% to $1.4 billion compared to the prior year period, based on continued strong customer growth in Telecommunications Services as well as advertising and affiliate revenue growth at Rainbow Media's Core Networks. Consolidated fourth quarter operating loss totaled $279.1 million compared to an operating loss of $46.0 million in the prior year period. The higher operating loss results from higher DBS operating losses, as well as $354.9 million in non-cash impairment charges at Rainbow DBS to reduce the carrying value of certain assets. Consolidated adjusted operating cash flow for the quarter increased 5% to $261.4 million compared to adjusted operating cash flow of $250.1 million in the prior year period. The AOCF growth is driven by higher revenue, offset in part by higher DBS operating losses and $108.9 million of non-cash impairment charges at Rainbow DBS. Adjusted operating cash flow, a non-GAAP financial measure, is defined as operating income (loss) before depreciation and amortization, excluding employee stock plan charges or credits and restructuring charges or credits. For the full year 2004, consolidated net revenue increased 18% to $4.9 billion, driven by the addition of 1.1 million revenue generating units during the year in Cable Television and revenue growth at Rainbow Media's Core Networks. Operating loss for 2004 totaled $59.4 million compared to operating income of $31.7 million in 2003, reflecting the Rainbow DBS impairment charges discussed above as well as higher Rainbow DBS operating losses. Full year AOCF rose 15% to $1.3 billion, reflecting the revenue growth, offset in part by higher Rainbow DBS operating losses and the $108.9 million Rainbow DBS impairment charge discussed above. Full year AOCF also includes $106.1 million of one-time payments and credits at Madison Square Garden recorded in the second quarter. Cablevision President and CEO James L. Dolan commented: "2004 was a remarkable year for Cablevision, highlighted by the extraordinary success we have had in executing our digital strategy. Cablevision is now at the forefront of our industry with leading penetration rates across all of our consumer services - video, digital video, high-speed data and voice. We have also continued to make significant progress in realizing key financial and operational goals, which has resulted in the company meeting or exceeding all of its key guidance objectives for 2004. Moving forward, Cablevision is well positioned to continue reaping the benefits of our operating successes and improved financial position." Telecommunications Services Cable Television and Lightpath For Telecommunications Services, which includes Cable Television and Lightpath Business Services, fourth quarter 2004 net revenues rose 14% to $820.5 million; operating income increased 74% to $113.6 million; and AOCF increased 19% to $325.0 million, all as compared to the year-earlier period. Full year 2004 Telecommunications Services net revenues rose 15% to $3.1 billion compared to 2003. Operating income for the full year increased 76% to $423.1 million and AOCF increased 17% to $1.2 billion, both as compared to the prior year. Cable Television Cable Television, comprised of analog and digital video, high- speed data (HSD), voice and R&D/Technology, recorded fourth quarter net revenues of $773.5 million, up 14% compared to the prior year period. Operating income increased 70% to $115.0 million and AOCF rose 20% to $304.0 million, each compared to the year-earlier period. The increases in revenue, operating income, and AOCF reflect the addition of 333,273 revenue generating units for the quarter, reflecting growth in basic and digital video, high-speed data, and voice customer relationships. Highlights include: -- Revenue Generating Units up 333,273 or 6% for the quarter and 1,133,622 or 23% for the year -- Basic video customers up 10,788 or 0.4% for the quarter and 18,307 or 0.6% for the year; third consecutive quarterly increase in basic subscribers -- iO: Interactive Optimum digital video customers up 145,933 or 11% for the quarter and 577,530 or 64% for the year -- Optimum Online HSD customers up 93,517 or 7% for the quarter and 295,519 or 28% for the year -- Optimum Voice customers up 83,497 or 44% for the quarter and 244,038 for the year -- Cable television RPS of $87.17, up $3.28 for the quarter and $10.48 for the year -- Advertising revenue up 25% for the quarter and 10% for the year -- Full year AOCF margin of 39.2% compared to 38.2% for 2003 Lightpath - Business Services For the fourth quarter, Lightpath reported $54.5 million in net revenues, a 20% increase compared to the prior year period. Operating loss decreased to $1.4 million in the fourth quarter of 2004 compared to an operating loss of $2.3 million in the prior year period. AOCF was $21.0 million, up 6% from the fourth quarter of 2003. The revenue and AOCF increases are primarily attributable to growth in data revenue from both Optimum Online for business and Lightpath.net and other data transport services over Lightpath's fiber infrastructure. Net revenue for Lightpath includes the impact of Optimum Voice call completion activity, which has no impact on AOCF. Rainbow Media's Core Networks Rainbow Media's Core Networks' (AMC, The Independent Film Channel, WE: Women's Entertainment and Consolidated Regional Sports) fourth quarter net revenues increased 28% to $214.0 million, operating income increased from $20.6 million to $74.1 million and AOCF increased 106% to $95.9 million, each compared to the year-earlier period. On a pro forma basis, which reflects the consolidation of Fox Sports Net Chicago and Fox Sports Net Bay Area in 2003, net revenues and AOCF for the quarter would have increased 6% and 90%, respectively. For the full year 2004, net revenues rose 49% to $909.7 million compared to full year 2003. Operating income for the full year increased 78% to $271.3 million, while AOCF increased 62% to $366.7 million, both compared to the prior year. Pro forma for the consolidation of Fox Sports Chicago and Bay Area, net revenues and AOCF would have increased 15% and 43%, respectively. AMC/IFC/WE Fourth quarter 2004 net revenues increased 13% to $137.0 million due to a 32% increase in advertising revenue as well as higher affiliate revenue driven by increases in viewing subscribers. Operating income increased from $12.4 million to $38.8 million and AOCF increased 63% to $55.5 million, each compared to the prior year period. The fourth quarter of 2003 included a $17.9 million write-down of certain film and programming contracts which, if excluded, would result in operating income growth of 28% and AOCF growth of 7% for the fourth quarter of 2004. The operating income and AOCF growth reflects these revenue increases, offset in part by higher marketing and programming costs during the period. Consolidated Regional Sports Consolidated Regional Sports is comprised of Fox Sports Net Florida, Fox Sports Net Ohio, Fox Sports Net Chicago and Fox Sports Net Bay Area (Chicago and Bay Area were consolidated effective December 12, 2003 and are 60% owned by Rainbow). Fourth quarter 2004 net revenues rose 67% to $77.0 million, operating income increased from $8.2 million to $35.2 million and AOCF increased from $12.4 million to $40.4 million, all as compared to the prior year period. Pro forma to reflect the consolidation of Fox Sports Net Chicago and Fox Sports Net Bay Area in 2003, net revenue decreased 6%, due primarily to lower advertising revenue. Operating income increased 188% and AOCF increased 145% on a pro forma basis, driven by lower rights expense and production costs. Developing Programming/Other Developing Programming/Other consists of Mag Rack, fuse, Rainbow Network Communications, News 12 Networks, MetroChannels, Rainbow Advertising Sales Corp., IFC Entertainment and other Rainbow developmental ventures. Fourth quarter net revenues increased 2% to $53.2 million and the operating loss for the quarter declined to $20.2 million compared to an operating loss of $35.9 million in the year earlier period. The AOCF deficit for the quarter totaled $9.0 million compared to an AOCF deficit of $24.6 million for the prior year period. The lower AOCF deficit is primarily attributable to higher affiliate and advertising revenue at fuse and lower expense levels at several of the programming services. Madison Square Garden Madison Square Garden's businesses include: MSG Networks, Fox Sports Net New York, the New York Knicks, the New York Rangers, the New York Liberty, the MSG Arena complex and Radio City Music Hall. Madison Square Garden's fourth quarter net revenue was $298.2 million, a decrease of 8% from the year earlier period, primarily due to the loss of NHL hockey games during the period, partially offset by higher revenues at MSG Networks and higher Knicks ticket revenues. For the fourth quarter, operating income totaled $41.3 million compared to $11.4 million in the year earlier period and AOCF was $54.8 million compared to $28.1 million in the year earlier period. The higher operating income and AOCF is due to several factors, including the MSG Networks and Knicks revenue impacts, lower Knicks player compensation, the elimination of certain severance costs incurred in 2003 and lower expenses at Radio City resulting from changes in the mix of shows. Rainbow DBS - VOOM On January 20, 2005, Cablevision Systems Corporation and CSC Holdings Inc. (collectively, the "Company") entered into a definitive agreement for Rainbow DBS Company LLC to sell its Rainbow 1 direct broadcast satellite and certain other related assets to a subsidiary of EchoStar Communications Corp. for $200 million in cash. On February 10, 2005, the Company announced that it had signed a letter of intent under which VOOM HD, LLC, a new private company formed by certain holders of Cablevision Class B Common Stock, including Charles F. Dolan and Tom Dolan, will acquire from the Company the business, assets and liabilities of the Company's Rainbow DBS satellite business not included in the above mentioned agreement with EchoStar. The parties' obligations under the letter of intent are subject to the execution of a definitive agreement by February 28, 2005, and the transaction is contingent on the Board's approval of the definitive agreement. There can be no assurance that a definitive agreement will be entered into or that the transaction will be consummated. Fourth quarter 2004 revenue, operating loss, and AOCF deficit for Rainbow DBS were $5.3 million, $449.8 million, and $190.0 million, respectively. Full year 2004 revenue, operating loss, and AOCF deficit for Rainbow DBS were $14.9 million, $661.4 million and $367.1 million, respectively. The fourth quarter and full year operating loss reflect an impairment charge of $246.0 million, reflecting management's estimates of the excess of the carrying value over the fair value of long lived assets, which has been recorded in depreciation and amortization. In addition, fourth quarter and full year operating loss and AOCF include $108.9 million of technical and operating expense that reflects the write-down to net realizable value of certain assets consisting primarily of equipment inventory and licensed film rights. Theatres For the fourth quarter, Clearview Cinemas' net revenue totaled $21.1 million, a 7% decrease compared to $22.7 million in the prior year period. The operating loss for the fourth quarter was $1.8 million compared to an operating loss of $0.7 million in the prior year period, and AOCF was $1.1 million compared to $1.5 million in the prior year period. For the full year 2004, Clearview Cinemas' net revenue totaled $80.5 million, a 5% decrease compared to $84.4 million in the prior year. The full year 2004 operating loss was $6.5 million compared to an operating loss of $2.0 million in the prior year, and AOCF was $2.6 million compared to $5.9 million in the 2003 period. About the Company Cablevision Systems Corporation -- http://www.cablevision.com/-- is one of the nation's leading entertainment and telecommunications companies. Its cable television operations serve more than 3 million households in the New York metropolitan area. The company's advanced telecommunications offerings include its iO: Interactive Optimum digital television offering, Optimum Online high-speed Internet service, Optimum Voice digital voice- over-cable service, and its Lightpath integrated business communications services. Cablevision's Rainbow Media Holdings LLC operates several successful programming businesses, including AMC, IFC, WE and other national and regional networks. In addition to its telecommunications and programming businesses, Cablevision is the controlling owner of Madison Square Garden and its sports teams, the New York Knicks, Rangers and Liberty. The company also operates New York's famed Radio City Music Hall, and owns and operates Clearview Cinemas. * * * As reported in the Troubled Company Reporter on Jan. 27, 2005, Standard & Poor's Ratings Services affirmed its ratings on Bethpage, New York-based cable operator Cablevision Systems, Inc., and holding company CSC Holdings, Inc., including the 'BB' corporate credit rating. The ratings were simultaneously removed from CreditWatch. The outlook is positive. In addition, Standard & Poor's raised its ratings on Cablevision's Rainbow Media Enterprises, Inc., and Rainbow National Services LLC units and removed them from CreditWatch. The corporate credit rating was raised to 'BB' from 'B'. "The rating actions follow Cablevision's announcement that it has a definitive agreement to sell its Rainbow 1 satellite to EchoStar Communications Corp., along with ground facilities and related assets, for $200 million," said Standard & Poor's credit analyst Catherine Cosentino. "Discontinuation of the VOOM satellite business removes a major uncertainty surrounding Cablevision's credit profile, given the high business risk and attendant financing requirements of VOOM. Moreover, discontinuation of the satellite business is expected to materially improve the company's financial profile in 2005, given the ongoing start-up losses associated with VOOM." CALL-NET ENTERPRISES: Discloses 2004 Q4 Financial Results --------------------------------------------------------- Call-Net Enterprises, Inc., disclosed its financial results for the fourth quarter and the year ended December 31, 2004. "During 2004, our consumer revenue grew by 10 per cent and our business service by six per cent, accelerated by a strategic acquisition," said Bill Linton, president and chief executive officer. "Continued growth and productivity gains resulted in improved profitability of the Company. In the fourth quarter, local service, data, and wireless revenues provided 52 per cent of our total revenue and exceeding the total of long distance." Q4 2004 Highlights Consolidated revenue for the fourth quarter of 2004 was $211 million, a three per cent increase from the same period last year. Revenue included the impact of slightly more than one month's revenue from the acquisition of a significant portion of 360networks business customers based in eastern Canada from Bell Canada in November 2004. Fourth quarter earnings before interest, taxes, depreciation and amortization (EBITDA) were $32 million, a $7 million increase from the fourth quarter of 2003. During the quarter the Company generated free cash flow (EBITDA less interest, cash taxes and capital expenditures) of $8 million. Consistent with previous quarters, year-over-year growth in the consumer and business services divisions was partially offset by declines in carrier services. The Company continued to make progress selling bundled services to households and small and medium sized businesses, selling IP Enabled Solutions and enhanced voice services to businesses, and winning several multi-national accounts in partnership with Sprint in the United States. During the fourth quarter, Call-Net added 99,600 net local equivalent lines of which 25,500 were consumer lines and 67,900 were attributed to the Bell/360 acquisition. Call-Net also finished the quarter with 30,600 wireless lines. Consumer services revenue improved compared with the same quarter in 2003 as increases in local and wireless service revenue more than offset declines in dial-up Internet and long distance services. Revenue from bundled products continued to grow relative to revenue from stand-alone products. At the same time churn on home phone service declined from 2.8 per cent in 2003 to 2.5 per cent in 2004. Business revenue improved in the fourth quarter relative to the same period in 2003, fueled by the acquisition of Bell/360 customers in Eastern Canada and growth in local and data sales. "During the quarter we finalized the acquisition of the business customer base and specific network facilities of 360networks in Ontario, Quebec and Atlantic Canada. Revenue from this new customer base accounted for approximately $8 million of our consolidated revenue for the fourth quarter and contributed approximately $1 million of EBITDA. We expect to finalize the assets to be acquired and related costs during the second quarter," added Mr. Linton. Carrier charges continued to be less than 50 per cent of revenue. Network optimization, favourable changes in the product mix, dispute wins, regulated price changes and aggressive contract negotiations led to an improvement in gross profit, which totaled $109 million in the fourth quarter, a $2 million increase from the same period in 2003. Operating costs for the quarter fell, reflecting productivity improvements brought about by an organizational realignment. Total operating costs for the fourth quarter were $77 million, a six per cent decrease over the same period last year. The most significant regulatory decision during the quarter was Telecom Decision CRTC 2004-72, which reduced primary inter-exchange carrier (PIC) processing charges by up to 90 per cent in some cases. PIC processing charges are rates we pay to the local exchange carrier to set up the automatic routing of long distance calls to our network. The decision had a retroactive component of $2 million, which was credited against fourth quarter carrier charges. Telecom Decision CRTC 2005-6 with respect to competitor digital network services (CDN services) was released on February 3, 2005. The impact of this decision has not been reflected in the quarterly results. 2004 Highlights For the year ended December 31, 2004, Call-Net reported total revenue of $819 million, a two per cent increase from the previous year. The consumer business grew by 10 per cent and business services by six per cent fueled by the sale of new products and services and the acquisition of Bell/360 customer base in Eastern Canada. This growth more than offsets continuing declines in carrier services. Call-Net made significant inroads in the local services market adding 104,800 net consumer lines and 98,500 net equivalent business lines ending 2004 with 470,900 net equivalent lines. Profitability continued to improve with EBITDA at $105 million compared to $96 million in 2003. "Our 2004 operating and financial results mark another turning point in the evolution of our business as we continued to grow both revenue and EBITDA," said Roy Graydon, executive vice president and chief financial officer. "The effects of our product diversification strategy have resulted in a stronger more viable company." 2005 Outlook In 2005, Call-Net expects to continue to grow its consumer and business divisions offset somewhat by continued decline in carrier services revenue. Top line revenue is expected to be $870 million to $885 million, up six to eight per cent from 2004. On a consolidated basis, the Company's total revenue mix is expected to be approximately 33 per cent local and other services, 24 per cent data and IP services and 43 per cent long distance. In the consumer market, Call-Net intends to launch a high-speed Internet access product using next generation digital subscriber line (DSL) technology during the third quarter. The focus will remain on attracting home phone service customers and home phone service revenue is expected to comprise more than 55 per cent of total consumer revenue. The business market will remain highly competitive, particularly in the large corporate and mid-sized market segments. Growth will come from the full integration of the Bell/360 business and the Company's local service, IP-enabled and enhanced voice solutions. This growth is expected to offset declining long distance revenue. Call-Net is committed to maintaining a profitable carrier service operation with anticipated revenue declines in per unit pricing throughout 2005, offset by declining costs. Carrier charges should remain at less than 50 per cent of revenue in 2005. On February 3, 2005, the Canadian Radio-television and Telecommunications Commission issued a decision regarding CDN services provided to competitive local exchange carriers. The decision is expected to result in annualized savings in carrier charges of at least $25 million. EBITDA is expected to be in the range of $125 to $135 million up 19 to 29 per cent over 2004. After deducting cash interest and taxes, and capital expenditures, the Company expects free cash flow of between $16 to $21 million in the year. Capital expenditures are expected to be in the range of seven to eight per cent of revenue for 2004, 60 per cent of which will be invested in growth including the deployment of residential high- speed access and 40 per cent on maintaining current operations and improving operational efficiency. Call-Net Enterprises, Inc., (TSX: FON, FON.NV.B) primarily through its wholly owned subsidiary Sprint Canada Inc., is a leading Canadian integrated communications solutions provider of home phone, wireless, long distance and IP services to households, and local, long distance, toll free, enhanced voice, data and IP services to businesses across Canada. Call-Net, headquartered in Toronto, owns and operates an extensive national fibre network, has over 151 co-locations in five major urban areas including 33 municipalities and maintains network facilities in the United States and the United Kingdom. For more information, visit http://www.callnet.ca/and http://www.sprint.ca/ * * * As reported in the Troubled Company Reporter on Dec. 3, 2004, Standard & Poor's Ratings Services lowered its ratings on Call-Net Enterprises, Inc., to 'B-' from 'B' on continued pricing pressures in long distance and expectations for increased competition in residential local services beginning in 2005. At the same time, Standard & Poor's lowered the ratings on Call-Net's 10.625% notes due Dec. 2008; US$223.1 million remains outstanding under the notes. The outlook remains negative. CHASE COMMERCIAL: Fitch Upgrades $33M Mortgage Securities to BBB- ----------------------------------------------------------------- Fitch Ratings upgrades the $33 million class F of Chase Commercial Mortgage Securities Corp, series 2001, 245 Park Avenue, to 'BBB-' from 'BB+'. The action restores the original rating to the class as the interest shortfalls have been substantially repaid, and the potential for the loss of principal stemming from litigation concerning the forced placement of terrorism insurance has been eliminated. In addition, Fitch affirms these classes: -- $49.3 million class A-1 at 'AAA', -- $240.1 million class A-2 at 'AAA', -- Interest only class X at 'AAA', -- $50 million class B at 'AA'; -- $60 million class C at 'A'; -- $11.8 million class D at 'A-'; -- $40.2 million class E at 'BBB'. The servicer, GMAC Commercial Mortgage, recently reported that it reached a settlement agreement with the borrower and that it will transmit the borrower's payments to the trustee for distribution. As of the Feb. 14, 2004 distribution date, class F had an interest shortfall of approximately $1.6 million outstanding. After application of the payments to the trust, a nonrecoverable interest shortfall of approximately $180,000 will remain. This interest shortfall is deemed by Fitch to be a de minimus amount. The collateral for the trust is a fixed-rate nonrecourse $484.4 million loan secured by a first mortgage lien on 245 Park Avenue, a 44-story, class A midtown Manhattan office building. The building is currently 97% leased according to a rent roll dated Sept. 30, 2004. Fitch reviewed the year-end Dec. 31, 2003, operating statement analysis report prepared by GMACCM. Based on adjustments for market vacancy and capital items, the Fitch adjusted debt service coverage ratio is 1.51 times, compared with 1.39x at issuance. Operating results through September 2004 on an annualized basis are stable compared with YE 2003. CHIQUITA BRANDS: S&P Reviewing Single-B Ratings & May Downgrade --------------------------------------------------------------- Standard & Poor's Ratings Services placed its 'B+' corporate credit and 'B' senior unsecured debt ratings on fresh fruit and vegetable producer and distributor Chiquita Brands International, Inc., on CreditWatch with negative implications. CreditWatch with negative implications means that the ratings could be affirmed or lowered following the completion of Standard & Poor's review. The Cincinnati, Ohio-based Chiquita had about $468.3 million in lease-adjusted total debt outstanding as of Dec. 31, 2004. "The CreditWatch placement follows Chiquita's announcement that it had entered into a definitive agreement to acquire the Fresh Express Unit of Performance Food Group for $855 million," said Standard & Poor's credit analyst Ronald Neysmith. Fresh Express is the number-one seller of packaged salads in the United States, with about a 40% retail market share and approximately $1 billion in sales. Chiquita intends to fund the acquisition with a combination of cash on hand, debt, and preferred stock. The transaction is expected to close in the second quarter of 2005. Mr. Neysmith added, "Although the acquisition will add geographical diversification to Chiquita's sales, thereby reducing its reliance on the European market, we believe the firm will be challenged in the short term to integrate such a large acquisition while operating in a highly competitive and volatile industry." Standard & Poor's also believes the additional debt will weaken Chiquita's credit measures. Chiquita is a leading producer, marketer, and distributor of bananas and other fresh and processed foods sold under the brand name Chiquita as well as other brand names. In addition to bananas, the company's fresh products include tropical fruit such as mangoes, pineapples, melons and kiwi fruits. To resolve the CreditWatch listing, Standard & Poor's will meet with Chiquita's management to discuss business and financial strategies. COMMERCIAL CLIENT: Case Summary & Largest Unsecured Creditor ------------------------------------------------------------ Debtor: Commercial Client Development PLLC 1058 Thomas Jefferson Street, N.W., Suite 100 Washington, DC 20007 Bankruptcy Case No.: 05-10616 Chapter 11 Petition Date: February 23, 2005 Court: Eastern District of Virginia (Alexandria) Debtor's Counsel: Donald F. King, Esq. Odin, Feldman & Pittleman 9302 Lee Highway, Suite 1100 Fairfax, VA 22031 Tel: 703-218-2100 Fax: 703-218-2160 Estimated Assets: $0 to $50,000 Estimated Debts: $1 Million to $10 Million Debtor's Largest Unsecured Creditor: Entity Claim Amount ------ ------------ Richard & Lorraine Fuisz $3,000,000 c/o Seth Berenzweiq 2200 Clarendon Blvd., Suite 201 Arlington, VA 22201 COMPUTER EXTENSION: Case Summary & 20 Largest Unsecured Creditors ----------------------------------------------------------------- Debtor: Computer Extension Professionals, Inc. P.O. Box 61114 Columbia South Carolina 29260 Bankruptcy Case No.: 05-02066 Type of Business: The Debtor provides post-implementation SAP software support in the United States. See http://www.cep-inc.com/ Chapter 11 Petition Date: February 23, 2005 Court: District of South Carolina (Columbia) Judge: Wm. Thurmond Bishop Debtor's Counsel: G. William McCarthy, Jr., Esq. Robinson, Barton, McCarthy, Calloway & Johnson, P.A. P.O. Box 12287 Columbia, SC 29211 Tel: 803-256-6400 Total Assets: $1,327,000 Total Debts: $2,495,754 Debtor's 20 Largest Unsecured Creditors: Entity Claim Amount ------ ------------ Advantage Payroll $125,541 c/o Sharon Pifer PO Box 999 Rock Hill, SC 29731 First Citizens Bank of SC $66,000 Bank Card Division 1230 Main Street Columbia, SC 29201 Norman Miller $30,000 1304 SW 160th Ave. Ste. 365 Sunrise, FL 33326 ERPWeb.net $28,180 United Healthcare $28,000 Capital Networks $13,826 Fortuna Technologies $8,866 Nelson Mullins Riley Scarborough $8,845 American Express $8,532 Standard Insurance Co. $4,166 Bell South $3,242 Cingular Wireless $2,111 Verizon Wireless $2,026 Guardian Insurance $2,000 Federal Express $1,254 Pitney Bowes $1,096 Shell Texaco $525 Data Com Marketing $399 Dell Computer $235 Document Systems $206 COVAD COMMS: Dec. 31 Balance Sheet Upside-Down by $8.6 Million -------------------------------------------------------------- Covad Communications Group, Inc. (OTCBB:COVD), a leading national provider of integrated voice and data communications, reported revenue for the fourth quarter of 2004 of $107.7 million, a three percent increase over the $105.0 million reported in the fourth quarter of 2003, and an increase of $2.0 million from the third quarter of 2004. The company reported a net loss for the fourth quarter of 2004 of $26.0 million, as compared to a net loss of $16.9 million in the fourth quarter of 2003, and a net loss of $13.8 million. Loss from operations for the fourth quarter of 2004 was $25.1 million, compared to $21.9 million in the fourth quarter of 2003 and $15.3 million for the third quarter of 2004. Cash, cash equivalent and short-term investment balances, including restricted cash and investments, decreased by $12.3 million to $153.5 million in the fourth quarter of 2004 compared to a balance of $165.8 million at the end of the third quarter of 2004. Covad ended the year with approximately 533,200 broadband lines in service, an increase of 8,300 lines from the third quarter of 2004. Covad ended the fourth quarter of 2004 with 567 Voice over IP (VoIP) business customers using approximately 20,500 stations. "In the fourth quarter we achieved our financial and operational guidance, and continued to build momentum for Covad VoIP and broadband services," said Charles Hoffman, president and chief executive officer of Covad. "We also completed our nationwide rollout of Covad VoIP adding new VoIP business customers in 29 states. "In 2005, we will continue our commitment to aggressively meet the demand for business-class VoIP services as we move forward in our first full year as an integrated voice and data provider," Hoffman continued. "We will focus on providing the highest-quality customer experience through product and service innovation in order to sustain our position as a leader in the hosted VoIP and broadband business markets." Earnings before interest, taxes, depreciation and amortization (EBITDA) for the fourth quarter of 2004 was a loss of $5.5 million as compared to a loss of $2.2 million in the fourth quarter of 2003 and a profit of $4.1 million in the third quarter of 2004. The company's wholesale subscribers contributed $77.0 million of revenue, or 71 percent, while direct subscribers contributed $30.7 million of revenue, or 29 percent. As of December 31, 2004, broadband lines in service were approximately 454,600 wholesale and 78,600 direct lines, as compared to 445,000 wholesale and 72,000 direct lines reported as of December 31, 2003 and 448,700 wholesale and 76,200 direct lines as of September 30, 2004. In the fourth quarter of 2004, Direct VoIP customers increased to 567, with an increase in VoIP stations of 2,600 over the same time period. For the fourth quarter of 2004, broadband and VoIP subscription revenue increased five percent to $90.8 million from $86.5 million reported in the fourth quarter of 2003, and up from the $88.8 million reported in the third quarter of 2004. Management uses broadband and VoIP subscription revenue to evaluate the performance of its business and believes these revenues are a useful measure for investors as they represent a key indicator of the performance of the company's core business. For the fourth quarter of 2004, gross margin was $38.5 million or 36 percent of revenue, as compared to $31.6 million or 30 percent of revenue for the fourth quarter of 2003, and $39.7 million or 38 percent of revenue for the third quarter of 2004. Selling, general and administrative expenses were $43.5 million for the fourth quarter of 2004, as compared to $33.8 million in the fourth quarter of 2003 and $35.5 million for the third quarter of 2004. "Our fourth quarter results reflect our commitment to building a world-class VoIP offering. We invested to create a strong organization to support our sales and operations efforts surrounding the Covad VoIP product," said Susan Crawford, interim Chief Financial Officer. Operating Statistics -- At the end of the fourth quarter of 2004, Covad had approximately 308,000 consumer and 225,200 business broadband lines in service, representing 58 percent and 42 percent of total broadband lines respectively. Covad had 567 VoIP business customers as of December 31, 2004. Business customers contributed $76.9 million, or 71 percent, of total revenue. -- Weighted Average Revenue per User (ARPU) for our broadband lines was approximately $56 per month during the fourth quarter of 2004, in line with the third quarter of 2004. Covad VoIP ARPU per customer (excluding resellers) was $1,934 per month during the fourth quarter of 2004. -- Net customer disconnections, or churn, for broadband lines averaged approximately 3.4 percent in the fourth quarter of 2004, an improvement from 3.6 percent for the third quarter of 2004. Net customer disconnects for Covad VoIP was 1.8 percent for the fourth quarter of 2004. Business Outlook Covad expects total revenue for the first quarter of 2005 to be in the range of $105-109 million. Broadband and VoIP subscription revenue is expected to be in the range of $89-93 million with broadband subscriber line growth to be in the range of 10,000- 15,000 lines. Covad expects its net loss to be in the range of $27-32 million, and EBITDA loss in the range of $8-11 million. Net change in cash, cash equivalents and short-term investments, including restricted cash and investments, in the first quarter of 2005 is expected to be in the range of negative $24-28 million. About the Company Covad Communications Group, Inc. -- http://www.covad.com/-- is a leading nationwide provider of broadband voice and data communications. The company offers DSL, Voice Over IP, T1, Web hosting, managed security, IP and dial-up, and bundled voice and data services directly through Covad's network and through Internet Service Providers, value-added resellers, telecommunications carriers and affinity groups to small and medium-sized businesses and home users. Covad broadband services are currently available across the nation in 44 states and 235 Metropolitan Statistical Areas (MSAs) and can be purchased by more than 57 million homes and businesses, which represent over 50 percent of all US homes and businesses. Corporate headquarters is located at 110 Rio Robles San Jose, CA 95134. Telephone: 1-888-GO- COVAD. At Dec. 31, 2004, Covad Communications' balance sheet showed a $8,635,000 stockholders' deficit, compared to a $5,553,000 deficit at Dec. 31, 2003. DANA CORP: Posts $133 Million Net Loss in Fourth Quarter -------------------------------------------------------- Dana Corporation (NYSE: DCN) reported its fourth-quarter and full- year 2004 results. During the fourth quarter, Dana took a series of actions aimed at strengthening its long-term competitiveness and repositioning the company to better serve its global original equipment customers. These actions, which together resulted in unusual charges of $195 million after tax, included: -- completing the divestiture of the automotive aftermarket businesses previously held for sale; -- announcing two facility closures and other manufacturing realignments; and -- repurchasing approximately $900 million of long-term debt. "The aftermarket divestiture, our realignment actions, and the debt repurchase significantly improved our balance sheet and financial flexibility. Our efforts were recognized by two leading credit agencies, which returned us to investment grade in December," said Dana Chairman and CEO Mike Burns. "In addition, year-over-year sales and net income, excluding unusual items, were both up significantly despite a challenging operating environment. "Certainly, we're not yet where we'd like to be. But the improvements to our balance sheet and operational performance were important steps in the continuing transformation of Dana, and I am proud of what our people accomplished in 2004." Fourth-Quarter Results Dana posted fourth-quarter sales of $2.3 billion in 2004, compared to $2.1 billion in the same period of 2003. This increase was primarily due to new business and strong sales to commercial vehicle customers, while favorable currency effects added $73 million. Including unusual charges for the aftermarket divestiture, manufacturing realignments, and debt repurchase, Dana recorded a net loss of $133 million, or 89 cents per share, in the quarter, compared to net income of $68 million in the same period of 2003. Excluding unusual charges, net income for the quarter was $62 million in 2004, compared to the same amount in the fourth quarter of 2003. Earnings in the fourth quarter were negatively impacted by the continuing effects of higher raw material prices. Net of customer recoveries, the increased cost of steel alone reduced earnings by $31 million after tax, compared to the same period in 2003. Favorably impacting the 2004 results were tax benefits that resulted primarily from the company's ability to reduce valuation allowances provided against deferred tax assets in prior periods. Dana Vice President and Chief Financial Officer Bob Richter explained, "While reported income was greater than expected, this was largely due to greater than anticipated tax benefits. More important for the long term were the actions taken to strengthen our financial position. We improved our net debt-to-capital ratio, excluding Dana Credit Corporation, from 47 percent at the start of the quarter -- and 61 percent less than three years ago - - to less than 35 percent. This improvement will be reflected in reduced interest expense going forward. We also made an extra contribution of approximately $200 million to our pension plans, which will reduce future expense and contribution requirements. And, we are no longer limited by high-yield covenants on our debt. All of this will enable us to better capitalize on future growth opportunities." Full-Year Results Sales increased to $9.1 billion in 2004 from $7.9 billion in 2003, primarily due to net new business of over $400 million, strong commercial and off-highway vehicle markets, and favorable currency effects of $300 million. Full-year net income was $82 million, or 54 cents per share, compared to $222 million in 2003. Unusual items of $180 million in 2004 included the $195 million of charges recorded in the fourth quarter plus $15 million of net gains reported earlier in the year. Net income in 2003 included $39 million of unusual gains on divestitures and debt repurchases. Excluding unusual items, net income in 2004 was $262 million, or $1.73 per share, compared to $183 million, or $1.23 per share, in 2003. The margin on higher sales and benefits from the company's cost-reduction initiatives, as well as tax benefits, more than offset the impact of increased raw material costs. "Despite very challenging industry conditions, we made good progress year over year," said Mr. Burns. "We had to contend with increased steel costs, which net of recoveries was $70 million after tax, mostly in the second half of year. We also saw a small decline in North American light vehicle production. Fortunately, we had the benefit of new business, strong commercial and off- highway vehicle markets, and the early returns from our cost- reduction initiatives. In particular, during 2004, we consolidated our light vehicle business units and centralized our purchasing organization for greater buying leverage." 2005 Outlook "This will be another tough year for the automotive industry as well as Dana," said Mr. Burns. "We believe North American light vehicle production will be flat at 15.8 million units. We expect to see continuing pressure on raw material prices and energy costs, particularly in the first half of the year. And, as a company, we will also face the near-term challenge of replacing the lost earnings from the automotive aftermarket businesses that were sold, as well as the reduced earnings contribution from Dana Credit Corporation as we continue to wind that business down. "On the other hand, we have renewed our focus on our global original equipment manufacturers. In fact, we already have an additional $410 million in net new business, which comes on in 2005. And we're very optimistic about the outlook for the commercial vehicle and off-highway markets. We're anticipating a 13 percent increase in North American Class 8 truck production to 293,000 units. The combination of these factors should allow us to increase our 2005 full-year sales to $9.6 billion. "The increased sales alone, however, will not be enough to offset the challenges we face. So we will be relentless in pursuing our cost-reduction objectives. We will continue to deploy lean manufacturing and value engineering throughout the organization and streamline our administrative processes. These efforts, along with better leverage from our consolidated purchasing function, are expected to gain more momentum and therefore provide greater benefit to our bottom line as the year progresses. "We expect Dana's earnings to be lower in the first half of the year compared to last year mainly due to higher raw material prices. Therefore, we're anticipating first-quarter earnings of 17 to 23 cents per share. Our ability to achieve higher earnings in the second half of the year is largely dependent on the successful execution of our cost-reduction programs. At this time, our full-year earnings guidance is $1.40 to $1.62 per share," added Mr. Burns. About the Company Dana Corporation -- http://www.dana.com/-- people design and manufacture products for every major vehicle producer in the world. Dana is focused on being an essential partner to automotive, commercial, and off-highway vehicle customers, which collectively produce more than 60 million vehicles every year. A leading supplier of axle, driveshaft, engine, frame, chassis, and transmission technologies, Dana employs 46,000 people in 28 countries. The company is based in Toledo, Ohio, and reported sales of $9.1 billion in 2004. * * * As reported in the Troubled Company Reporter on Dec. 9, 2004, Fitch Ratings has upgraded Dana Corporation's senior unsecured debt rating to 'BBB-' from 'BB+' and assigns a rating of 'BBB-' to new $450 million 10-year senior unsecured notes. The Positive Rating Watch put in place on Aug. 2, 2004 has now been resolved as the proceeds from a new issuance of senior unsecured notes and the sale of the Automotive Aftermarket Group - - AAG -- will be used to make a voluntary pension fund contribution and to retire outstanding indebtedness in a tender offer currently in progress. Including the completion of the tender offer, approximately $2 billion of Dana's debt is affected by this rating action. Fitch's rating action reflects Dana's enhanced liquidity, sharply improved credit metrics, and improved business profile, as well as Dana's improved operational performance. DANIELSON GROUP: Weak Performance Prompts S&P to Junk Ratings ------------------------------------------------------------- Standard & Poor's Ratings Services lowered its counterparty credit and financial strength ratings on National American Insurance Co. of CA, Danielson National Insurance Co., and Danielson Insurance Co. -- the Danielson Group -- to 'CCCpi' from 'BBpi'. "The ratings are based on the group's weak operating performance, very high geographic and product-line concentrations, and declining surplus position, offset by its strong capitalization," said Standard & Poor's credit analyst Puiki Lok. National American Insurance Co. of CA, Danielson National Insurance Co., and Danielson Insurance Co. operate in an intercompany pooling arrangement, with shares of 80%, 10%, and 10%, respectively. Based in Rancho Domiquez, California, the group writes private passenger automobile liability, commercial automobile liability, and automobile physical damage insurance in California, Arizona, Nevada, and Montana. In 2001, National American Insurance Co. of CA exited the workers' compensation business and private passenger lines outside of California. The three operating companies are owned by Danielson Holding Corp. (AMEX:DHC), a Delaware holding company. Ratings with a 'pi' subscript are based on an analysis of an insurer's published financial information and additional information in the public domain. They do not reflect in-depth meetings with an insurer's management and are therefore based on less comprehensive information than ratings without a 'pi' subscript. Ratings with a 'pi' subscript are reviewed annually based on a new year's financial statements, but may be reviewed on an interim basis if a major event that may affect the insurer's financial security occurs. Ratings with a 'pi' subscript are not subject to potential CreditWatch listings. DUKE PETROLEUM: Voluntary Chapter 11 Case Summary ------------------------------------------------- Debtor: Duke Petroleum Company, Inc. 8101 Boat Club Road, Suite 315 Fort Worth, Texas 76179 Bankruptcy Case No.: 05-41771 Type of Business: The Debtor is a distributor of petroleum-based products. Chapter 11 Petition Date: February 23, 2005 Court: Northern District of Texas (Ft. Worth) Judge: D. Michael Lynn Debtor's Counsel: J. Robert Forshey, Esq. Julie C. McGrath, Esq. Forshey & Prostok, LLP 777 Main Street, Suite 1290 Fort Worth, Texas 76102 Tel: (817) 877-8855 Estimated Assets: $1 Million to $10 Million Estimated Debts: $1 Million to $10 Million The Debtor did not file a list of its 20 Largest Unsecured Creditors. ERIE-WESTERN: Fitch Downgrades $6.3 Mil. of Revenue Bonds to BB+ ---------------------------------------------------------------- Fitch Ratings downgrades approximately $6.3 million Erie-Western Pennsylvania Port Authority revenue bonds to 'BB+' from 'BBB-'. The Rating Outlook is Negative. The bonds are secured by a pledge of port operating revenues together with income derived from the state of Pennsylvania, which is subject to annual appropriation by the state general assembly. The series 1996 and series 1997 bonds have a final maturity in 2016 and 2010, respectively, and were underwritten by PNC Capital Markets. The downgrade to 'BB+' reflects the recently announced departure of a port tenant that provides approximately 25% of total port operating revenue. Metro Machine of PA, Inc., a ship repair company with a nine- year history at the port, announced on Dec. 30, 2004 that it would not renew its lease past Aug. 31, 2005. Metro Machine's departure will only exacerbate several years of financial woes at the port during which new project construction led to escalating operating expenses without matching revenue growth. Operating revenue for 2004 equaled $2 million, while operating expenses equaled $2.5 million, creating an operating deficit for the sixth consecutive year. The $519,000 deficit was larger in 2004 relative to prior years because the port gave a one-time rental credit for $275,000 to a tenant for tenant-initiated capital improvements. The port derives 82% of its income from long-term operating leases and management's inability to regularly adjust these agreements has lead to revenue growth averaging just 1% per year since 1999. Operating expenses have increased at a 10% average annual rate since 1999 as the port completed construction and initiated operations on several new port projects. The largest of these was the Erie Intermodal Transportation Center, a 33,500-square-foot facility which centralizes the city of Erie's various transportation modes. Port management had expected that the Center's rental income would cover operating expenses, but the Center has run a combined $242,000 operating deficit in its first two years of operations. The port is currently creating a strategic plan to reduce operating expenses and to garner new tenants, but the impact of such plans is not yet known. Management has budgeted a net operating deficit of $13,000 for fiscal 2005, but the outlook for fiscal 2006, the first fiscal year following Metro Machine's departure, is highly uncertain. While management is currently looking for replacement tenants, it is unlikely that it will be able to replace the full value of the departing Metro Machine lease. The port in recent years has become increasingly dependent on its annual state grant. Prior to 1999 the grant was allocated to principal payments on the bonds and toward capital projects, but beginning with the port's operating losses that year, management has allocated more of the grant toward operating and debt service costs. The $1.7 million state grant received in fiscal 2004 funded $142,000 in operations, $393,000 in capital project construction, with the remaining $1.2 million paying debt service on a sum-sufficient basis. The level of state funding has historically been stable, with funding levels at $1.5 million since 1986 before increasing to $2 million in 1997, but slowed economic growth in Pennsylvania meant a reduction to $1.7 million for fiscal 2004. Both management and Fitch expect that the grant will return to its $2,000,000 level for fiscal 2005, but future annual legislative appropriation risk is inherent. The port does retain some flexibility to meet its financial obligations over the next several years. The state grant covers debt service, and unrestricted cash balances of $2.2 million, combined with a $1.1 million debt service reserve fund, offer the port the ability to manage operating deficits in the two to four years until replacement tenants are found. Improvement in the port's credit rating is dependent on management's ability to return to breakeven operations by curbing operating expenses and by securing additional tenants for both the Intermodal Center and the space vacated by Metro Machine. Furthermore, the anticipated operating deficit for fiscal 2006, if a new tenant is not found, may require state support in excess of $2 million. Fitch will continue to monitor developments at the port. FALCON PRODUCTS: Court Gives Final OK on $45 Million DIP Facility ----------------------------------------------------------------- Falcon Products, Inc. (Pink Sheets: FCPR), reported that the U.S. Bankruptcy Court for the Eastern District of Missouri, granted final approval of a $45 million debtor-in-possession credit facility. The facility provides Falcon with liquidity needed to sustain normal and uninterrupted operations while it completes its financial restructuring. The Court had granted interim approval of the credit facility on February 2. "We are very pleased to have the full DIP credit facility in place as it further enhances our ability to obtain goods and services from our vendors and service our customers," said Frank Jacobs, Falcon's chairman and chief executive officer. "We are making progress on all fronts with respect to our reorganization plan and look forward to a timely conclusion of this process which will reduce Falcon's debt by $145 million, and allow us to emerge as a cost competitive leader in the global commercial furniture industry." As previously announced, a group of bondholders including Falcon's largest bondholders, Oaktree Capital Management, LLC, and Whippoorwill Associates, Inc., have agreed in principle to a reorganization plan that will convert $100 million of Falcon's Senior Subordinated Notes into common stock and to backstop a $45 million rights offering to further reduce Falcon's debt. Although the Company is hopeful that the financial restructuring and the rights offering will be completed, there can be no assurances that such restructuring and rights offering will be completed on the terms outlined above or that any other restructuring satisfactory to the Company will be completed. Headquartered in Saint Louis, Missouri, Falcon Products, Inc. -- http://www.falconproducts.com/--design, manufacture, and market an extensive line of furniture for the food service, hospitality and lodging, office, healthcare and education segments of the commercial furniture market. The Debtor and its eight debtor- affiliates filed for chapter 11 protection on January 31, 2005 (Bankr. E.D. Mo. Case No. 05-41108). Andrew M. Parlen, Esq., Eve H. Karasik, Esq., Jeffrey C. Krause, Esq., Marina Fineman, Esq., Robert A. Greenfield, at Stutman, Treister & Glatt, PC, and Brian Wade Hockett, Esq., and Mark V. Bossi, at Thompson Coburn LLP, represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $264,042,000 in assets and $252,027,000 in debts. On Jan. 31, the Company entered into an agreement in principal with the holders of a majority in principal amount of its Senior Subordinated Notes to convert $100 million of Falcon's Senior Subordinated Notes into common stock and to create a $45 million rights offering for holders of the Senior Subordinated Notes to further reduce its debt. FC CBO: S&P Junks 2nd-Priority Notes & Reviews Senior Notes Rating ------------------------------------------------------------------ Standard & Poor's Ratings Services placed its rating on the senior notes issued by FC CBO Ltd./FC CBO Corp. on CreditWatch with positive implications. FC CBO Ltd./FC CBO Corp. is an arbitrage CBO transaction. The CreditWatch placement reflects factors that have positively affected the credit enhancement available to support the senior notes since the previous rating action in August 2003. The primary factor was an increase in the level of overcollateralization available to support the senior notes due to de-levering of the senior notes. According to the most recent trustee report, dated Feb. 10, 2005, the senior par value test was at 114.30%, up from a ratio of 104.1% at the time of the Aug. 12, 2003, rating action. FC CBO Ltd. carries defaulted securities at zero value in its par value tests. As part of its analysis, Standard & Poor's will be reviewing the results of the current cash flow runs generated for FC CBO Ltd./FC CBO Corp. to determine the level of future defaults the rated tranches can withstand under various stressed default timing and LIBOR scenarios, while still paying all of the rated interest and principal due on the notes. The results of these cash flow runs will be compared with the projected default performance of the performing assets in the collateral pool to determine whether the rating assigned to the notes remains consistent with the credit enhancement available. Rating Placed On CreditWatch Positive FC CBO Ltd. Rating Class To From ----- -- ---- Senior notes BB-/Pos BB- Outstanding Rating FC CBO Ltd. Class Rating ----- ------ Second-priority notes CC Transaction Information Issuer: FC CBO Ltd. Co-issuer: FC CBO Corp. Current manager: Prudential Investment Management Underwriter: Goldman Sachs Trustee: JPMorgan Chase Bank Transaction type: Arbitrage corporate high-yield CBO Tranche Initial Prior Current Information Report Action Action ----------- ------- ------ ------- Date (M/YYYY) 7/1997 8/2003 2/2005 Senior note rating AA BB- BB-/Watch Pos Senior note balance (mil. $) 802.50 526.44 260.81 Second-priority note trg. BBB CC CC Second-priority nt. bal. (mil. $) 92.50 109.10 123.496 FEDERAL-MOGUL: Dec. 31 Balance Sheet Upside-Down by $1.925 Billion ------------------------------------------------------------------ Federal-Mogul Corporation (OTCBB:FDMLQ) reported its financial results for the three and twelve month periods ended December 31, 2004. Federal-Mogul reported net sales of $1,548 million and $6,174 million for the three and twelve month periods ended December 31, 2004, representing an increase of 10% and 12%, respectively, over comparable periods of 2003. New business, increased OE and Aftermarket volumes, as well as favorable foreign currency drove these increases. Gross margin increased by $7 million, or 3%, and $90 million, or 8%, during the three and twelve-month periods ended December 31, 2004, respectively, as compared to the same periods in 2003. Gross margin as a percentage of sales decreased due to the adverse impact of raw material cost inflation, particularly ferrous metals and hydrocarbon-based materials. The Company reported a loss from continuing operations before income taxes of $209 million and $189 million for the three and twelve-month periods ended December 31, 2004. Losses in both of these periods were driven by asset impairment charges totaling $240 million and $276 million, respectively. During December 2004, the Company recorded a $194 million impairment charge against goodwill relating to the Company's global Sealing Systems business pursuant to the Company's annual valuation of goodwill performed in connection with the requirements of SFAS No. 142. Additionally, the Company recorded tangible asset impairments of $46 million, which are primarily related to the Company's European Powertrain operations. The goodwill and other asset impairments were recorded to adjust the related asset carrying values to their estimated fair values based on current projections of future asset recoverability. Including discontinued operations and excluding impairment charges, Chapter 11 and Administration expenses, restructuring costs, interest expense, depreciation and amortization, and asbestos charges, the Company recognized Operational EBITDA of $187 million and $633 million for the three and twelve-month periods ended December 31, 2004, representing an increase over the similar periods in 2003 of $41 million and $76 million, respectively. Included within the Operational EBITDA increase for both periods is a $46 million gain on an insurance settlement related to assets destroyed in a fire at the Company's Smithville, TN Aftermarket distribution center on March 5, 2004 that more than compensated for inefficiencies incurred earlier in the year from the fire. Management believes that Operational EBITDA provides useful information as it most closely approximates the cash flow associated with the operational earnings of the Company. Additionally, management uses Operational EBITDA to measure the profitability performance of its operations. A reconciliation of Operational EBITDA to the Company's loss from continuing operations before income taxes for the three and twelve month periods ended December 31, 2004 and 2003 has been provided. "We are pleased with our new business growth and increased sales volumes in both the OE and Aftermarket segments," said Chairman of the Board and Interim Chief Executive Officer Steve Miller. "Despite the success we have had in meeting our operational challenges, we continue to suffer from our industry's inability to adequately price for the extraordinary material cost increases incurred in 2004." Three Months Ended December 31, 2004 Federal-Mogul reported fourth quarter 2004 net sales of $1,548 million, an increase of $141 million or 10% when compared to net sales of $1,407 million for the same period in 2003. New business and increased volumes in OE and Aftermarket sectors accounted for $92 million of the year-over-year sales increase, while favorable foreign currency contributed $60 million. These favorable factors were partially offset by customer price reductions. Gross margin increased $7 million or 3% during the fourth quarter of 2004, as compared with the fourth quarter of 2003. New business and increased volumes contributed $26 million to this increase in gross margin. This was partially offset by the unfavorable impact of $14 million of raw material cost inflation and customer price reductions in excess of productivity improvements from the Company's ongoing cost reduction and restructuring activities. The Company reported a loss from continuing operations before income taxes of $209 million during the fourth quarter of 2004, compared with a loss from continuing operations before income taxes of $105 million for the same period in 2003. The fourth quarter 2004 loss is primarily attributable to $240 million of combined intangible and tangible asset impairment charges relating to the Company's global Sealing Systems operations and its European Powertrain operations, respectively. These impairment charges were partially offset by the $46 million gain on insurance settlement related to the Smithville, TN fire. Operational EBITDA increased $41 million, or 28%, to $187 million for the quarter ended December 31, 2004 as compared to $146 million for the same period of 2003. This increase includes the $46 million gain from the Smithville, TN fire. The Company's operational improvements during the quarter were more than offset by raw material cost inflation and customer price reductions. The Company recorded income tax expense of $66 million on a loss from continuing operations before income taxes of $209 million, compared to income tax expense of $2 million on a loss from continuing operations before income taxes of $105 million for the same period in 2003. Income tax expense resulted from taxable income generated by certain international subsidiaries, non- recognition of income tax benefits on United Kingdom operating losses and non-deductible items in certain foreign jurisdictions and in the United States, including goodwill impairment. Twelve Months Ended December 31, 2004 Net sales increased $651 million or 12% to $6,174 for the twelve months ended December 31, 2004 as compared to $5,523 million for the same period in 2003. The increase in net sales was driven by $487 million of new business and increased volumes across OE and Aftermarket sectors. Favorable foreign currency of $256 million was partially offset by customer price reductions and the adverse impact on Aftermarket sales for products serviced by the Company's Smithville, TN distribution center that was destroyed by fire in March 2004. Gross margin for the twelve-month period ended December 31, 2004 increased by $90 million or 8% as compared to the same period in 2003. Gross margin was favorably impacted by new business and increased volumes of $169 million and by favorable foreign currency of $41 million. These items were partially offset by $64 million of the net unfavorable impact of raw material cost inflation and customer price reductions in excess of productivity improvements from the Company's ongoing cost reduction and restructuring activities. The Company recognized a loss from continuing operations before income taxes of $189 million and $116 million for the twelve-month periods ended December 31, 2004 and 2003, respectively. The loss from continuing operations before income taxes for the twelve- month period ended December 31, 2004 is attributable to a $276 million asset impairment charge. This impairment charge includes $194 million of goodwill impairment relating to the Company's global Sealing Systems operations and $82 million of tangible asset impairments, primarily relating to the Company's global Powertrain operations. These impairment charges were partially offset by the $46 million gain on the Smithville, TN fire insurance settlement. Additionally, the Company reached a favorable settlement of an outstanding bankruptcy claim resulting in a $19 million gain that was recorded as a reduction of Chapter 11 and Administration related reorganization expenses for the twelve months ended December 31, 2004. Operational EBITDA increased $76 million, or 14%, to $633 million for the year ended December 31, 2004 as compared to $557 million for the same period of 2003. This increase includes the $46 million gain from the Smithville, TN fire, which more than offset inefficiencies incurred earlier in the year related to the fire. The remaining $30 million represents basic earnings improvements resulting from the Company's ongoing cost reduction efforts and efficiency improvements achieved through restructuring activities, as well as higher sales resulting from its ability to offer value adding high quality products. The Company recorded income tax expense of $136 million on a loss from continuing operations before income taxes of $189 million, compared to income tax expense of $53 million on a loss from continuing operations before income taxes of $116 million for the same period in 2003. Income tax expense resulted from taxable income generated by certain international subsidiaries, non- recognition of income tax benefits on United Kingdom operating losses and non-deductible items in certain foreign jurisdictions and in the United States, including goodwill impairment. Headquartered in Southfield, Michigan, Federal-Mogul Corporation -- http://www.federal-mogul.com/-- is one of the world's largest automotive parts companies with worldwide revenue of some $6 billion. The Company filed for chapter 11 protection on October 1, 2001 (Bankr. Del. Case No. 01-10582). Lawrence J. Nyhan, Esq., James F. Conlan, Esq., and Kevin T. Lantry, Esq., at Sidley Austin Brown & Wood, and Laura Davis Jones, Esq., at Pachulski, Stang, Ziehl, Young, Jones & Weintraub, represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $10.15 billion in assets and $8.86 billion in liabilities. At Dec. 31, 2004, Federal-Mogul's balance sheet showed a $1.925 billion stockholders' deficit. FLYi INC: S&P May Up Junk Rating After Reviewing Restructuring -------------------------------------------------------------- Standard & Poor's Ratings Services revised the implications of its CreditWatch review on FLYi, Inc., (CC/Watch Dev/--) to developing from negative, following conclusion of the company's restructuring and payment of deferred interest on rated convertible notes. Dulles, Virginia-based FLYi is the parent of Independence Air, a small airline based at Washington Dulles International Airport. "FLYi's financial restructuring provides near-term relief through deferral of aircraft lease and debt obligations, though the company's financial condition remains precarious," said Standard & Poor's credit analyst Betsy Snyder. The restructuring includes return of 24 regional jets and 21 regional turboprop planes to lessors and lenders, and deferral (but not reduction) of some payments on financings backed by another 52 regional jets. Contingent obligations on another 30 Dornier 328 regional jets, which would have required payments by the company if Delta Air Lines, Inc., were to default, were terminated in negotiations with lessors. Aircraft obligations securitized into the rated enhanced equipment trust certificates, series 1997-1, are not affected. FLYi had missed a Feb. 15, 2005, interest payment on its 6% convertible notes due 2034, but paid the amount due on Feb. 18, within the notes' 30-day grace period. Independence Air is in the process of seeking to convert itself from a regional airline to a low-cost carrier that uses 132-seat A319 jets, as well as its 50-seat regional jets. The airline has 22 A319 aircraft on order (and six currently in service). FLYi has incurred heavy losses in recent quarters and projects that its fourth-quarter 2004 loss will approach its $83 million third-quarter deficit. Prospects for achieving the transformation to a low-cost carrier, while helped by the financial restructuring, remain uncertain. Ratings will be reviewed in light of the recent developments and could be raised modestly to reflect the company's improved liquidity. Alternatively, the corporate credit rating could be lowered to 'SD' (selective default) if Standard & Poor's concludes that terms of the various financial restructurings represent the equivalent of a default. HILITE INT'L: Moody's Withdraws B3 Rating on $150MM Senior Notes ---------------------------------------------------------------- Moody's Investors Service withdrew the B3 rating for Hilite International, Inc.'s. proposed senior unsecured notes, which rating had only recently been assigned on January 31, 2005. The withdrawal action was taken in response to the company's decision to terminate this notes offering. Management cited adverse market conditions as the reason that the offering was canceled Moody's additionally placed all remaining ratings for Hilite International, Inc. and its indirect subsidiary Hilite Industries, Inc. ("Hilite") on review for possible downgrade. Moody's review will be likely concluded within the next two months, after providing Hilite with sufficient time to identify realistic options for alternative sources of incremental liquidity. Absent a full or partial refinancing transaction and/or a material amendment to its existing credit agreement, Hilite International faces stepped-up principal amortization requirements for its existing term loans, earlier average debt maturities, and pressure to meet the financial tests presently in effect. The company is simultaneously being challenged by weakening industry conditions. The specific rating withdrawn is: * B3 rating for Hilite International, Inc.'s proposed $150 million of guaranteed senior subordinated unsecured notes due 2012, to be initially issued under Rule 144A; The specific ratings for Hilite International, Inc., Hilite Industries, Inc., and Hilite Germany GmbH & Co. KG were placed under review for possible downgrade: * B1 ratings for Hilite Industries, Inc.'s and Hilite Germany GmbH & Co. KG's approximately $250 million-equivalent of guaranteed senior secured bank credit facilities, consisting of: * $50 million revolving credit facility due March 2008; * $125 million term loan A due March 2009; * Euro 60 million term loan due March 2009; * B1 senior implied rating (currently located at Hilite International, Inc.); * B2 senior unsecured issuer rating (currently located at Hilite International, Inc.) Proceeds from the canceled senior subordinated notes offering, together with an initial drawdown under a proposed new $85 million senior secured revolving credit facility, were to be used to refinance the existing senior secured facility outstandings. The net result would have extended debt maturities, alleviated principal amortization schedules, and relaxed financial covenant requirements. The execution of the new $85 million revolving credit facility had notably been conditioned upon a successful notes offering. Moody's review will focus on Hilite Industries' delineation of a feasible alternative strategy to partially recapitalize the company's balance sheet in order to enhance prospective liquidity. The outcome of Moody's review for possible downgrade will focus on Hilite's expected ability to satisfy near-to-intermediate term principal and interest debt service requirements while continuing to invest sufficiently in the operations of the business. In order to remain competitive, it is essential that Hilite continue to support critical R&D spending, new product development, initiatives to improve manufacturing efficiency, capital equipment spending, growth in working capital, and other business drivers. Failure to improve the company's liquidity position could result in an incremental downgrade of the existing ratings versus the January 31, 2005 rating actions. If there is a reasonable resolution to the current liquidity situation in the opinion of Moody's the existing ratings would likely be confirmed. The rating outlook in this case could be reset at either stable or negative, depending upon the exact terms of the proposed new debt structure. Please note that should Hilite Industries' ultimate resolution of efforts to enhance liquidity not result in the issuance of any debt at Hilite International, Inc. Moody's would likely reassign the corporate level senior implied and senior unsecured issuer ratings back at Hilite Industries, Inc., where the balance of the company's rated debt resides. Please refer to Moody's press release dated January 31, 2005 for a detailed discussion of the key operating drivers which could impact Hilite Industries' ratings prospectively. Hilite International, Inc., headquartered in Cleveland, Ohio, is a designer and manufacturer of highly-engineered, valve-based components, assemblies, and systems used principally in powertrain (engine and transmission) applications for the automotive market. Products offered include camphasers, diesel valves, cylinder deactivation valves, and emissions control units for engine applications; solenoid valves and proportioning valves for transmission applications; and brake proportioning valves, and wheel cylinders for brake applications. The majority of Hilite's equity is owned by a combination of private equity sponsors and several members of management. The company's annualized revenues approximate $400 million. HLD VENTURES LLC: Case Summary & 2 Largest Unsecured Creditors -------------------------------------------------------------- Debtor: HLD Ventures, L.L.C. 157 East 1700 South Salt Lake City, Utah 84115 Bankruptcy Case No.: 05-22294 Chapter 11 Petition Date: February 18, 2005 Court: District of Utah (Salt Lake City) Judge: William T. Thurman Debtor's Counsel: Howard P. Johnson, Esq. 352 East 900 South Salt Lake City, UT 84111 Tel: 801-359-7987 Total Assets: $1,754,110 Total Debts: $615,846 Debtor's 2 Largest Unsecured Creditors: Entity Claim Amount ------ ------------ Val Stokes $200,000 1090 North Valley View Drive Tremonton, UT 84337 LW Miller Transportation Holding, Inc. $150,000 1050 W. 200 N. Logan, UT 84321 HUDSON'S BAY: Will Release Fourth Quarter Results on March 10 ------------------------------------------------------------- Hudson's Bay Company is scheduled to release fiscal 2004 and fourth quarter results on March 10, 2005. The financial targets for 2006 through 2008 communicated to the market in September 2003 are currently under review. The Company reported expected earnings per share of between $0.90 and $0.93 for the year-ended January 31, 2005, as compared to $0.89 per share in the previous year. The reported earnings per share will reflect the impact of several non-recurring adjustments, including a $0.14 per share gain on the sale of the former Bay store in Victoria, British Columbia; an $0.04 income tax benefit arising from various issues; an $0.05 per share charge related to severance costs, (it is anticipated that an additional severance charge of approximately $0.06 per share will be taken in the first quarter of 2005; in total this will result in approximately $11 million in annualized savings) and a $0.04 charge from the application of the recently adopted EIC-144 Vendor Rebate accounting standard. After excluding these adjustments, the normalized earnings per share is expected to be between $0.80 and $0.83 per share. The change from previous guidance for 2004 results from a shortfall to sales and gross margin as compared to internal forecasts. Comparable stores sales for the fourth quarter (based on a 13 week period) declined 2.6 percent and the gross margin rate was approximately 125 basis points below expectations and last year. Inventories remain current and in line with last year's levels, a result of the additional markdowns incurred in the quarter. The shortfall in sales was experienced primarily in the Ontario market during the month of December. The Company remains committed to creating value through the execution of its strategic plan and continues to be encouraged by the results being realized through its new merchandising and operating structures. The Company is confident that the recent changes in leadership structure and a number of related business decisions will maximize those elements of the franchise that are delivering incremental growth, while accelerating and improving the speed of execution of the strategic plan. The figures included herewith are still subject to additional review by the Company, the year-end audit process and final approval by the Board of Directors. In addition, the Company is currently reviewing its existing practices with respect to lease accounting as a result of recently announced restatements by public companies arising from the recent clarification by the SEC of its interpretation on various lease accounting matters. The Company will announce any material impact as a result of the review should it be required. Any financial impact would be non-cash in nature. Hudson's Bay Company (S&P, BB+ Long-Term Corporate Credit and Senior Unsecured Debt Ratings, Negative Outlook), established in 1670, is Canada's largest department store retailer and oldest corporation. The Company provides Canadians with the widest selection of goods and services available through retail channels that include 550 stores led by the Bay, Zellers and Home Outfitters chains. Hudson's Bay Company is one of Canada's largest employers with 70,000 associates and has operations in every province in Canada. INSPEX INC: Court Confirms First Amended Plan of Reorganization --------------------------------------------------------------- The U.S. Bankruptcy Court for the District of Massachusetts confirmed the First Amended Plan of Reorganization of Inspex, Inc., on Jan. 4, 2005. The Debtor filed their Plan of Reorganization on Oct. 29, 2004, after completing the sale its software division and wafer inspection segment of the business. The sale of its WIS Division to KLA-Tencor, Inc., fetched $4.5 million and the transaction closed on Sept. 24, 2004. The Debtor received $2.1 million from the sale of its DMS Division to August Technology Corporation. The Debtor will also receive a percentage of the revenues from the DMSVision software until July 2005, as provided by the purchase agreement. The DMS Division sale closed on July 27, 2004. The Debtors filed their First Amended Plan on Dec. 7, 2004. Although solvent when it filed for chapter 11, the Debtor sought bankruptcy protection to wind down its WIS Division in a manner, which minimized disruption to the Debtor's remaining business. The WIS Division was burdened by escalating expenses, reduced revenues, price erosion and fierce competition. Boston Corporate Finance, as valuation consultant, assisted the Debtor in its effort to phase out the WIS Division and the DMS Division. Terms of the Plan These claims will be paid in full on the effective date: * administrative claims, * tax claims, and * priority claims The Debtor expects to pay around $250,000 for all those claims. Holders of general unsecured claims will be paid in full, in cash, with interest from the bankruptcy petition date, Nov. 21, 2003, to the date of payment at the legal rate as required by Section 726(a)(5) of the Bankruptcy Code. The Debtor expects to pay around $500,000 to satisfy General Unsecured Claims Claimholders asserting a right to prosecute causes of action against the Debtor will be allowed to proceed against the Debtor in an appropriate non-bankruptcy forum, but only to the extent and limit of coverage under one or more applicable insurance policies. Other than that, litigation claimholders receive no distribution from the Debtor's estates. Photonics Management Corporation has agreed to subordinate its $12,915,560 prepetition claim and its $551,213 postpetition claim. Photonics Management is also entitled to $7,756,622 of income tax refunds as a result of the Debtor's operating losses. Photonics Management will receive whatever is left in a $1 million Reorganization Reserve Fund (funded with the Debtor's cash) after all administrative, tax, priority, and unsecured claims are paid. Photonics Management, as the sole shareholder, will retain its equity interest in the company Photonics Management agreed to contribute $2 million in working capital to the reorganized company, if needed. The Plan provides for the release of all claims against the Debtor and its immediate and ultimate parent companies -- Photonics Management and Hamamatsu Photonics KK, of Hamamatsu, Japan. Reorganized Business The Reorganized Company will focus its efforts on: * selling software to support failure analysis for semiconductor manufacturing; * managing data from high-throughput function drug screening systems and related equipment; and * using its software for medical image data management, especially positron emission tomography -- PET, computerized tomography -- CT, and magnetic resonance imaging -- MRI. Inspex, Inc. -- http://www.inspex.com/-- is an innovative developer of data management and wafer inspection systems for the semiconductor industry. The company filed for Chapter 11 relief on November 21, 2003 (Bankr. Mass. Case No. 03-46714). Melvin S. Hoffman, Esq., at Looney & Grossman represents the Debtor in its restructuring efforts. When the debtor filed for protection against its creditors, it disclosed total assets of $14,441,579 and total debts of $11,419,438. INTERACTIVE BRAND: Taps Corporate Revitalization to Manage iBill ---------------------------------------------------------------- Interactive Brand Development (trading symbol:IBDI) said on Feb. 12, 2005, its board of directors approved the engagement of Corporate Revitalization Partners LLC, a national advisory firm to assist IBD in the management of its subsidiary, Internet Billing Company. Pursuant to the terms of engagement, CRP has staffed senior executives on site at IBD's corporate headquarters in Deerfield Beach, Florida. CRP will advise IBD on the day-to-day management of iBill. CRP will also advise IBD on general corporate matters. In October 2004, CRP was the recipient of the Turnaround of the Year Award as awarded by the Turnaround Management Association, an international trade organization. Access to more information about CRP is available at http://www.crpllc.net/ The engagement provides for certain performance based incentive payments based on predetermined financial goals. The term of the engagement commenced as of February 12, 2005 and will continue until termination by either party, although IBD may not terminate CRP prior to June 12, 2005. The length of the engagement is not determinable at this time. "CRP has recent demonstrable success that our board determined would be valuable to our company and our shareholders, including advising our company in stock exchange compliance, financial reporting, controls and procedures, as well as assisting us in management of our daily operations," said Steve Markley, CEO of IBD. "We believe that CRP, as a national advisory firm with expertise in managing the turn around of businesses, will provide a great benefit to our company," added Mr. Markley. About the Company Interactive Brand Development, Inc. is a media and marketing holding company that owns Internet Billing Company (iBill), a leading online payments company, and owns a significant interest in Penthouse Media Group (PMG), publisher of Penthouse Magazine, a brand-driven global entertainment business founded in 1965 by Robert C. Guccione. PMG's flagship PENTHOUSE(TM) brand is one of the most recognized consumer brands in the world and is widely identified with premium entertainment for adult audiences. PMG is operated by affiliates of Marc Bell Capital Partners, LLC. IBD also has investments in online auctions and classic animation libraries. * * * Auditors Express Doubt On Jan. 15, 2003, Care Concepts dismissed Angell & Deering as its principal accountants and auditors. A&D's report on the Company's financial statements expressed substantial doubt about the Company's ability to continue as a going concern. On Jan. 15, 2003, William J. Hadaway was hired to review the Company's 2002 financial statements. On Oct. 30, 2003, Care Concepts dismissed WJH. WJH shared A&D's doubts. Effective Oct. 30, 2003, the Company engaged the accounting firm of Jewett, Schwartz & Associates as its new independent accountants to audit the financial statements for the fiscal year ending Dec. 31, 2003. At Sept. 30, 2004, the Company's balance sheet shows $595,034 in current assets and $631,678 in current liabilities. The company balance sheet shows that it's solvent, with $6.4 million in shareholder equity. The company's posted recurring losses and reports negative cash flows from operations. INTERFACE INC: Posts $4.4 Million Net Loss in Fourth Quarter ------------------------------------------------------------ Interface, Inc. (Nasdaq: IFSIA), a worldwide floorcoverings and fabrics company, reported results for the fourth quarter and full year ended January 2, 2005. Fourth quarter 2004 results included a 14.6% increase in sales to $232.6 million, from $202.9 million in the year ago period. Operating income was $15.3 million in the fourth quarter 2004, a 29.3% increase over operating income of $11.8 million in the fourth quarter 2003. Income from continuing operations was $1.9 million in the fourth quarter 2004, compared with income from continuing operations of $0.5 million in the fourth quarter 2003. As previously announced, the Company is exiting the owned dealer business. Consequently, it is reporting the results of operations for its owned Re:Source dealer businesses (as well as a small Australian dealer business and a small residential fabrics business) as "discontinued operations," in accordance with accounting standards. Those operations yielded a fourth quarter 2004 after-tax operating loss of $2.7 million. The Company's 2004 fourth quarter results also included a loss of $3.5 million, after-tax, related to the disposal of certain dealer businesses. In comparison, in the fourth quarter of 2003, the Company recorded a charge of $1.6 million in connection with its previously- announced restructuring initiative designed to rationalize manufacturing operations in its fabrics division and further reduce worldwide workforce. Additionally, the fourth quarter 2003 results included a loss from discontinued operations of $4.6 million, composed of a $0.8 million operating loss related to the Company's U.S. raised/access flooring business and a $3.8 million operating loss primarily related to the dealer businesses. Net loss for the fourth quarter 2004 was $4.4 million, compared with a net loss in the fourth quarter 2003 of $4.1 million. "In 2004, we benefited from record sales in our U.S. modular business, improving trends in the corporate office market, an up- tick in our broadloom business, as well as our market segmentation strategy and cost reduction initiatives," said Daniel T. Hendrix, President and Chief Executive Officer. "Consequently, we were able to attain year-over-year growth in both sales and operating income in every quarter in 2004. Order activity remained robust throughout the year, with fourth quarter orders up almost 21% to $247.7 million, compared with the fourth quarter of last year. We expect this momentum to continue in 2005." Mr. Hendrix continued, "Our worldwide modular business continued to gain market share, as Interface leads and shapes the expansion of this growth market. Sales in our worldwide modular business grew 21% for the fourth quarter 2004 because of the improving corporate office market and the success of our penetration into the non-corporate office markets. The increasing diversity in our end-markets also enabled us to deliver broadloom sales growth of 2% in the fourth quarter 2004, while cost-cutting initiatives and improvements in manufacturing efficiencies further contributed to broadloom operating profitability. While sales in our fabrics business for the fourth quarter 2004 were up only slightly, the business experienced a $10 million turnaround in operating profitability over the course of the year. We expect this business to become profitable again in the first quarter of 2005, underscoring the streamlining we have worked so hard to achieve over the past several quarters." For the full year 2004, sales were $881.7 million, compared with $766.5 million for the same period a year ago, an increase of 15.0%. Operating income for the full year 2004 increased to $60.7 million, from $31.4 million in the comparable period last year (after pre-tax restructuring charges of $6.2 million, or $0.08 per share after-tax, in the 2003 period). Income from continuing operations during the full year 2004 was $6.4 million, versus a loss from continuing operations of $8.0 million, after the restructuring charge, in the full year 2003. The full year 2004 after-tax loss from discontinued operations was $58.8 million, which included write-downs for the impairment of assets and goodwill of $17.5 million and $29.0 million, respectively, primarily related to the Re:Source dealer businesses. The Company's 2004 results also included a loss of $3.0 million, after-tax, related to the disposal of certain dealer businesses. In comparison, the Company's 2003 after-tax loss from discontinued operations was $16.4 million, which included a $12.0 million write-down for the impairment of assets related to the U.S. raised/access flooring business. The Company also recorded an $8.8 million after-tax loss in 2003 on the disposal of that business. Including the results of all discontinued operations, the Company reported a net loss of $55.4 million for the full year 2004. This compares with net loss of $33.3 million for the full year 2003. Patrick C. Lynch, Vice President and Chief Financial Officer of Interface, commented, "Fiscal 2004 was an important year for Interface, as our results reflect the growth we have been experiencing and the operational strategies we have been executing. This was perhaps best evidenced by our growth in operating income, which nearly doubled as compared with 2003. During the fourth quarter of 2004, we felt the impact of higher raw material prices, and also incurred higher professional fees related to Sarbanes-Oxley compliance. Despite these factors, we still were able to improve our fourth quarter operating margin year-over-year. As previously announced, we are exiting our unprofitable dealer business, which will reduce our cost structure and working capital requirements and improve our cash flow. To date, we have sold or initiated closure of 10 of our 15 dealer locations, and we expect to complete our exit activities by the end of the second quarter of 2005." Mr. Hendrix concluded, "We enter 2005 with a positive outlook. Interface continues to lead the growing modular market, while our market segmentation efforts and ongoing cost management program have led to higher sales levels and significant improvements in profitability. Based on the present trends, we expect continued sales growth and margin expansion in 2005. While increasing raw material costs will remain a challenge, we believe that the cost reduction actions we have taken position us well for further progress. Our focus moving into 2005 will include process improvements and continued cost management, to enhance margins in our broadloom business and enable our fabrics business to sustain profitability. Overall, we remain confident in Interface's growth prospects, given the fundamentals and momentum in all of our markets and the leverage that now exists in our operating model." About the Company Interface, Inc., is a recognized leader in the worldwide interiors market, offering floorcoverings and fabrics. The Company is committed to the goal of sustainability and doing business in ways that minimize the impact on the environment while enhancing shareholder value. The Company is the world's largest manufacturer of modular carpet under the Interface, Heuga, Bentley and Prince Street brands, and, through its Bentley Mills and Prince Street brands, enjoys a leading position in the high quality, designer-oriented segment of the broadloom carpet market. The Company is a leading producer of interior fabrics and upholstery products, which it markets under the Guilford of Maine, Toltec, Intek, Chatham and Camborne brands. In addition, the Company provides specialized fabric services through its TekSolutions business and produces InterCell brand raised/access flooring systems. * * * As reported in the Troubled Company Reporter on Nov. 1, 2004, Standard & Poor's Ratings Services revised the outlook on Atlanta, Georgia-based carpet manufacturer Interface Inc. to stable from negative. At the same time, Standard & Poor's affirmed its ratings on Interface, including its 'B-' corporate credit rating. The company's total debt outstanding at July 4, 2004, was about $476 million. "The outlook revision follows the company's announcement that it will exit its owned Re:Source Americas dealer businesses, which should reduce the company's cost structure. In addition, the revision reflects more favorable industry trends in Interface's core floorcovering operations," said Standard & Poor's credit analyst Susan Ding. INTERSTATE BAKERIES: Five Officers Dispose of 16,000 Common Shares ------------------------------------------------------------------ In separate filings with the Securities and Exchange Commission, five officers of Interstate Bakeries Corp. disclose that they disposed of approximately 16,000 shares of the company's common stock: No. of Shares Securities Owned Officer Designation Disposed After Transaction ------- ----------- ------------- ----------------- Richard D. Executive 2,893 8,789 Willson Vice Pres. Robert P. EVP Sales & 3,411 15,232 Morgan Trade Mktg. Brian E. Senior Vice 6,652 21,141 Stevenson President Laura D. Vice Pres. 866 4,289 Robb Kent B. VP, General 2,897 9,118 Magill Counsel, Corp. Secretary Headquartered in Kansas City, Missouri, Interstate Bakeries Corporation is a wholesale baker and distributor of fresh baked bread and sweet goods, under various national brand names, including Wonder(R), Hostess(R), Dolly Madison(R), Baker's Inn(R), Merita(R) and Drake's(R). The Company employs approximately 32,000 in 54 bakeries, more than 1,000 distribution centers and 1,200 thrift stores throughout the U.S. The Company and seven of its debtor-affiliates filed for chapter 11 protection on September 22, 2004 (Bankr. W.D. Mo. Case No. 04-45814). J. Eric Ivester, Esq., and Samuel S. Ory, Esq., at Skadden, Arps, Slate, Meagher & Flom LLP, represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $1,626,425,000 in total assets and $1,321,713,000 (excluding the $100,000,000 issue of 6.0% senior subordinated convertible notes due August 15, 2014, on August 12, 2004) in total debts. (Interstate Bakeries Bankruptcy News, Issue No. 13; Bankruptcy Creditors' Service, Inc., 215/945-7000) J.P. MORGAN: S&P Places Low-B Ratings on Six Certificate Classes ---------------------------------------------------------------- Standard & Poor's Ratings Services assigned its preliminary ratings to J.P. Morgan Chase Commercial Mortgage Securities Corp.'s $2.9 billion commercial mortgage pass-through certificates series 2005-LDP1. The preliminary ratings are based on information as of Feb. 23, 2005. Subsequent information may result in the assignment of final ratings that differ from the preliminary ratings. The preliminary ratings reflect the credit support provided by the subordinate classes of certificates, the liquidity provided by the trustee, the economics of the underlying mortgage loans, and the geographic and property type diversity of the loans. Classes A-1, A-2, A-3, A-SB, A-4, A-J, A-JFL, B, C, D, and X-2 are currently being offered publicly. Preliminary Ratings Assigned J.P. Morgan Chase Commercial Mortgage Securities Corp. Class Rating Preliminary amount ($) A-1 AAA 86,367,000 A-2 AAA 913,485,000 A-3 AAA 236,632,000 A-SB AAA 101,747,000 A-4 AAA 623,234,000 A-J AAA 144,451,000 A-JFL AAA 50,000,000 A-1A AAA 343,133,000 B AA 68,417,000 C AA- 25,207,000 D A 54,014,000 E A- 28,807,000 F BBB+ 46,813,000 G BBB 28,807,000 H BBB- 32,408,000 J BB+ 10,803,000 K BB 14,404,000 L BB- 10,803,000 M B+ 7,202,000 N B 7,202,000 P B- 10,802,000 NR N.R. 36,010,164 X-1* AAA 2,880,748,164 X-2* AAA 2,812,108,000 * Interest-only class with a notional dollar amount N.R. - Not rated KAISER ALUMINUM: James T. Hackett Resigns From Board of Directors ----------------------------------------------------------------- On February 15, 2005, James T. Hackett, a director of Kaiser Aluminum Corporation and Kaiser Aluminum & Chemical Corporation, formally notified Kaiser's Board of Directors of his intention to resign his positions as a director of each company as of February 28, 2005. Daniel D. Maddox, Vice-President and Controller of Kaiser, clarifies in a regulatory filing with the Securities and Exchange Commission that Mr. Hackett's resignation from the Board is not because of a disagreement with the company on any matter relating to the company's operations, policies or practices. Headquartered in Houston, Texas, Kaiser Aluminum Corporation -- http://www.kaiseral.com/--operates in all principal aspects of the aluminum industry, including mining bauxite; refining bauxite into alumina; production of primary aluminum from alumina; and manufacturing fabricated and semi-fabricated aluminum products. The Company filed for chapter 11 protection on February 12, 2002 (Bankr. Del. Case No. 02-10429). Corinne Ball, Esq., at Jones Day, represents the Debtors in their restructuring efforts. On June 30, 2004, the Debtors listed $1.619 billion in assets and $3.396 billion in debts. (Kaiser Bankruptcy News, Issue No. 61; Bankruptcy Creditors' Service, Inc., 215/945-7000) LORAL SPACE: Inks Favorable Settlement with China Telecom --------------------------------------------------------- February 23, 2005 / PR Newswire Loral Space & Communications has reached a settlement with China Telecommunications Broadcast Satellite Corporation regarding the Space Systems/Loral- built ChinaSat 8 satellite and its launch. Beneficial to both parties, this settlement amicably resolves all outstanding differences between the company and ChinaSat. Under the terms of the settlement, which is subject to bankruptcy court approval, Space Systems/Loral (SS/L) will continue to seek the required State Department approvals to export the satellite and agrees to assume its contract with ChinaSat, as amended to reflect the terms of the settlement. Further, SS/L has no obligation to deliver the ChinaSat 8 satellite until all required export licenses are received. Also pursuant to the agreement, ChinaSat will withdraw all claims filed against SS/L and release it from any related liabilities. Furthermore, ChinaSat has the right under the settlement to assign its rights in the satellite contract to a third party under certain circumstances. "We are very pleased with the outcome of our settlement discussions with ChinaSat," stated Bernard L. Schwartz, Loral's chairman and CEO. "This accord resulted from a high degree of cooperation between the parties to arrive at a solution that is favorable to both of us." Based in Beijing, China, ChinaSat is the first satellite company that operates satellites and provides satellite telecommunications and broadcast services in China. About the Company Loral Space & Communications is a satellite communications company. It owns and operates a fleet of telecommunications satellites used to broadcast video entertainment programming, distribute broadband data, and provide access to Internet services and other value-added communications services. Loral also is a world-class leader in the design and manufacture of satellites and satellite systems for commercial and government applications including direct- to-home television, broadband communications, wireless telephony, weather monitoring and air traffic management. The Company and various affiliates filed for chapter 11 protection (Bankr. S.D.N.Y. Case No. 03-41710) on July 15, 2003. Stephen Karotkin, Esq., and Lori R. Fife, Esq., at Weil, Gotshal & Manges LLP, represent the Debtors in their restructuring efforts. When the company filed for bankruptcy, it listed total assets of $2,654,000,000 and total debts of $3,061,000,000. LSP BATESVILLE: S&P Reviews B- Rating of Sr. Bonds & May Upgrade ---------------------------------------------------------------- Standard & Poor's Ratings Services placed its 'B-' rating on LSP Batesville Funding Corp./LSP Energy L.P.'s $150 million senior secured bonds due 2014 and $176 million due 2025 on CreditWatch with positive implications. The CreditWatch listing is based on Aquila Inc.'s (B-/Negative/--) announcement that it plans to assign the LSP Energy purchased-power agreement to a third party, South Mississippi Electric Power Association (SMEPA; not rated) and Standard & Poor's preliminary evaluation of SMEPA's credit risk. LSP Energy owns an 837 MW, natural-gas-fired, combined-cycle plant in Batesville, Mississippi. The project, a special-purpose entity, is an indirect, wholly owned subsidiary of LSP Energy, the co-issuer of the bonds with LSP Funding. Standard & Poor's is finalizing the assessment of SMEPA's credit risk and its economic incentives regarding the PPA to determine the effect on the ratings on LSP Batesville's bonds. There is upgrade potential for LSP Batesville's bonds, as the rating has been restricted by Aquila's credit risk, the offtaker of the project's capacity and electricity from the plant's Unit 3 for one-third (279 MW nominally) of its total output pursuant to the PPA until 2015. Aquila has been the weakest link in LSP Batesville's contractual structure. The project also has a PPA with Virginia Electric & Power Co. (VEPCO; BBB+/Negative/A-2) for the remaining two-thirds (570 MW) of its capacity and energy until 2013. Those revenues alone, however, only cover about 75% of the fixed operating expenses and debt service obligations. The project relies on revenues from both PPAs to fully cover debt service. LSP Batesville projects debt service coverage ratios -- DSCRs -- to be around 1.1x until 2006. These coverage ratios are lower than the original pro forma projections, which Standard & Poor's had estimated to be around 1.4x. Reduced energy revenues based on lower capacity factors and higher-than-originally projected operations and maintenance expenses ultimately drive the lower DSCRs. Regardless of the counterparty credit risk, however, the project rating would not be higher than speculative grade based on low DSCRs. Standard & Poor's could raise the rating further if the DSCRs improve as the company has forecast and electricity markets recover to offset the merchant risk after 2015. MARICOPA COUNTY: Moody's Holds B1 Rating on $6.13MM Revenue Bonds ----------------------------------------------------------------- Moody's Investors Service has affirmed the B1 underlying rating on the Maricopa County Industrial Development Authority Multifamily Housing Revenue Bonds (Whispering Palms Apartment Project) Senior Series 1999A. The amount of debt affected by these downgrades is approximately $6.13 million. The rating outlook on the bonds remains negative. The 1999 Series A bonds continue to be insured by MBIA and therefore carry MBIA's financial strength rating of Aaa; the Subordinate bonds are not rated nor insured. The rating affirmation follows the restructuring of the Whispering Palms transaction. Following a series of negatively-impacting events, the property was sold to a new 501c3 who is providing $750,000 of funding for rehabilitaion purposes. Previously underfunded senior debt service reserve funds have been fully restored. Property managment has been replaced. Suntrust has assumed the role of trustee. Unaudited and annualized operating numbers as of December 2004 submitted by the new property manager still indicate poor debt service as occupancy has not yet stablized. Although rental revenues still hover below underwritten levels, expenses are decreasing, indicating a potential turnaround. As this transition and restructuring are fairly recent, Moodys expects a slow turnaround as Whispering Palms will need to reach stablized rental revenues and occupancy levels. New managment and ownership have demonstrated strong efforts in turning the Whispering Palms property around. The new owner is injecting $750,000 in rehab efforts for the property. Suntrust has confirmed the previously underfunded senior debt service reserve fund to be fully replenished at a balance of $464,130. Credit Strengths: * Senior Debt Service Reserve Fund has been fully restored * The newly appointed trustee is now receiving required revenue deposits * Property Management has been replaced by Bernard/Allison Inc. Bernard Allsion has extensive experience as a Receiver and as a manager of REO properties for lenders and other financial institutions * Ownership has been assumed by a new 501c3; Rainbow Phoenix LLC Credit Challenges: * The property needs to increase occupancy and reach stabilization * Maricopa County continues to suffer some of the largest vacancy levels in the nation * Low rates continue to convert prospective tenants into homeowners Recent Developments/Results: Following three months of delinquent revenue deposits to the trustee as well as necessary transfers from senior and subordinate debt service reserve funds, the Whispering Palms Apartments Project was sold to Rainbow Phoenix LLC. In connection with this restructuring Bernard Allison, Inc. was appointed as new property manager/receiver. Suntrust has assumed the role of trustee. The borrower is contributing $750,000 in renovations to the project to further attract tenants. Previously depleted senior debt service reserves have been fuly restored. New managment has implemented various concession packages in an effort to increase and stablize occupancy. Whispering Palms Apartments, built in 1985, is a 200 unit market rate complex currently serving a predominantly low to moderate income clientele and is located within the west-central Phoenix submarket, approximately four miles west of downtown Phoenix. The dominant land use in this relatively mature market area is single and multifamily residential development with a limited commercial and retail presence. Bernard/Allison has extensive experience as a Receiver and as a manager of REO properties for lenders and other financial institutions. Bernard/Allison has been appointed as Receiver on over 20 properties consisting of more than 5,000 apartment units. Accounting is one of the firm's strengths, with one CPA, one Chartered Accountant, and a full accounting department consisting of 14 staff members. Bernard/Allison has prepared and submitted a full array of reports to the courts for receiverships and bankruptcies. Their staff members exceed 700 employees in five states, currently managing over 22,000 apartment units. Bernard/Allison has improved occupancy, reduced operating expenses, and increased value for the benefit of all in each receivership we have managed. Outlook: The rating outlook on the senior bonds is negative. High vacancies, poor operating results do not offer much hope in terms of a near-turnaround. However, Moody's anticipates the current restructuring of the credit along with the efforts of the current owner, newly appointed property managers and trustees increase the liklihood of this slow turnaround. Moody's will continue to monitor Whispering Palm's financial situation and will gauge the level of progress made by the owner and receiver in turning the property around. What Could Change the Rating - UP Increase in occupancy would translate to an increase in revenues and net operating income (NOI). Stablization would need to be reached. What Could Change the Rating - DOWN Required withdrawrals from the senior debt service reserve fund as well as increasing vacancy levels would exert negative pressures on net operating income. Technical defaults resulting from the borrower non-payment of required deposits to the trustee would trigger a donwgrade as well. MCI INC: Qwest Submits New Merger Proposal to Compete with Verizon ------------------------------------------------------------------ Qwest Communications International, Inc., (NYSE: Q) submitted this letter to the board of directors of MCI, Inc. February 24, 2005 The Board of Directors MCI, Inc. Attention: Chairman, Board of Directors 22001 Loudoun County Parkway Ashburn, VA 20147 Dear Mr. Katzenbach: Despite being denied access to MCI legal, financial and operational information that has been provided to other interested parties, on February 11, 2005, Qwest proposed a stock and cash merger with a value of $24.60 per MCI share. Qwest reconfirmed this proposal to MCI on February 13, 2005. MCI has failed to provide meaningful guidance or direction in response to the Qwest proposal. Consequently, with only press reports and lawsuits as sources of information for how the MCI Board evaluated the components of our proposal, Qwest tenders this revised proposal, the terms of which are even more compelling for your stockholders. Before turning to a discussion of the particulars of Qwest's revised proposal, it is important to emphasize that a Qwest/MCI merger would create an exciting and important new telecommunications company, of which MCI would become a meaningful part. The merger of Qwest and MCI would create a company with a strong market position, demonstrated commitment to superior customer service and innovative products and services, and the potential for significant value creation through cost synergies. The combination would create the industry leader in IP, with the most advanced IP-based network and compelling suite of IP based services. We believe that it was these prospects that caused MCI to discuss a proposed combination with Qwest continuously over the last ten months. We remain excited about the future of our combined companies competing in the telecommunications marketplace and we are committed to our belief that a Qwest/MCI merger creates a superior value opportunity for the MCI stockholders as compared to a Verizon/MCI transaction. Qwest believes this revised proposal is superior to the Verizon transaction, because it delivers greater value in cash and stock per MCI share, synergy value of approximately $18 per MCI share in a combined Qwest/MCI enterprise and more favorable regulatory certainty and speed. In addition, Qwest has also submitted pro forma financial profiles to MCI that demonstrate that the merger of Qwest/MCI would, on the closing date, yield a balance sheet likely to result in a credit profile substantially similar to, if not better than, that enjoyed by the two companies today. The "business as usual" cash flows from the Qwest/MCI combination alone would drive immediate improvement in the credit ratios and the added cash flows from synergies would dramatically speed even greater improvement in those ratios. It should be noted that neither MCI nor Qwest has had any difficulty accessing the credit markets on a stand-alone basis, and Qwest is confident the combined company will also have no such difficulty. Qwest is confident that the significantly smaller footprint overlap (business, consumer and network) in a Qwest/MCI combination will lead to fewer and less extensive divestiture demands from regulatory agencies and will avoid the industry concentration and public policy issues the Verizon/MCI merger presents. Clearly, this simpler regulatory review process for a Qwest/MCI transaction will deliver value to stockholders faster and with fewer "friction costs". With respect to synergies, Qwest advisers and management believe -- and it would appear a substantial number of MCI stockholders agree -- that there are significant cost synergies available in a Qwest/MCI merger. The value of these synergies can only be realized by MCI stockholders in any meaningful way if those stockholders retain a substantial portion of the combined company as they will in a Qwest/MCI merger (where they will retain approximately 40%) as opposed to a Verizon/MCI combination where they will only retain 5% of the combined company. Estimates of these potential cost synergies come from many sources including: MCI public statements about their stand-alone efficiencies, discussions between Qwest and MCI and analyses of potential cost synergies carried out under our non- disclosure agreement that took place continuously over the last ten months and Qwest management experience with such matters. In addition to the balance sheet, regulatory and synergy benefits to MCI stockholders of a Qwest/MCI combination summarized above, Qwest would like to describe the modified economic terms of our proposal and highlight some enhancements to our previous proposal, which should be even more compelling to MCI stockholders. Qwest's revised proposal represents an aggregate value today of $24.60 per share to MCI stockholders consisting of $9.10 in cash and $15.50 in stock consideration to be delivered as follows: (i) $6.00 per share in cash to be paid by MCI in regularly scheduled quarterly dividends and in a special dividend upon MCI stockholder approval of the transaction, (ii) $3.10 in cash per share to be paid by Qwest at closing, and (iii) $15.50 per share to be paid in Qwest stock at closing. In addition we have provided protection to your stockholders from a potential decline in the Qwest share price during the period between signing and closing by means of a "collar". Further economic details of our proposal are provided in the term sheet attached hereto as Exhibit A. Additionally, to facilitate the MCI Board's deliberation, Qwest would enter into an agreement with representations, covenants, closing and termination provisions substantially comparable to those in the Verizon agreement, except for certain improvements for the benefit of the MCI stockholders, as summarized below and more fully described on Exhibit B hereto. A copy of the merger agreement marked to show Qwest's proposed changes from the Verizon agreement will subsequently be provided to your legal counsel. Any merger agreement would be subject to approval by Qwest's Board of Directors. In summary, the structural improvements in Qwest's proposal as compared to the Verizon merger agreement include: -- There is greater flexibility to creatively expedite the regulatory approval process without jeopardizing the transaction because Qwest will agree to take remedial actions required to solve regulatory problems other than those that would have material adverse effect on the combined company (Verizon's required remedial actions are measured by whether they would have a material adverse effect on either Verizon (considered as the size of MCI) or MCI); -- There is greater commitment to close a Qwest/MCI transaction quickly because Qwest will commit to avoid any action that would materially delay the closing beyond the date otherwise achievable (Verizon has retained the right to delay closing under certain circumstances); -- MCI's regularly scheduled quarterly dividends will be paid and a special dividend will be paid at the time of MCI stockholder approval in an aggregate amount equal to the total MCI "excess cash" as determined by MCI in accordance with its plan of reorganization (representing a near-term payout to MCI stockholders of approximately $1.50 per share more than under the Verizon proposal); and -- MCI stockholders will be protected from a potential decline in Qwest's share price prior to closing by means of a "collar" (Verizon provides no such downside protection against movement in its share price). To promptly finalize the terms of a merger agreement Qwest is prepared to execute, Qwest requests that MCI provide Qwest the following materials -- the schedules MCI delivered in connection with the Verizon/MCI agreement, including copies of the documents referenced therein, and certain MCI tax information which MCI previously indicated it would deliver to Qwest. To simplify the MCI Board's review of Qwest's revised proposal, Qwest has based this proposal on the Verizon/MCI merger agreement. However, it has been particularly difficult for Qwest to submit a revised proposal that highlights all of the advantages of a Qwest proposal because the disclosure schedules and other exhibits to the merger agreement remain secret and are unavailable to us. Finally, we would note that based upon today's closing prices for both Qwest and Verizon, the value of our offer to the MCI stockholders is approximately 20% higher than the Verizon offer, before taking into account the superior synergy value of $18 per MCI share and the enhanced regulatory benefits of the Qwest transaction. MCI's agreement with Verizon allows MCI to engage in negotiations with Qwest and provide Qwest information in light of the superior proposal summarized by this letter. The Verizon agreement also allows MCI to negotiate and provide Qwest information merely upon its determination that Qwest's revised proposal could reasonably be expected to lead to a superior proposal as compared to the Verizon acquisition. The facts demonstrate that it is in the best interests of MCI stockholders for MCI to engage with Qwest immediately in meaningful discussions regarding Qwest's improved revised proposal and Qwest urges you to do so. Sincerely yours, Richard C. Notebaert Chairman and Chief Executive Officer cc: Mr. Larry Grafstein Lazard Freres & Co. Mr. Phillip Mills Davis Polk & Wardwell Exhibit A Economic Terms Consideration: Qwest common stock and cash to MCI stockholders ---------------------------------------------------------------------- Value: Offer Value: $24.60 per share consideration to MCI stockholders Offer consists of: (i) $9.10 in cash; and (ii) $15.50 of Qwest common stock ("Stock Consideration") based on an exchange ratio of 3.735 Qwest shares per MCI share, subject to the Value Protection Mechanism described in "Value Protection Mechanism Regarding Qwest Stock Component" below. The value of the Stock Consideration is based on a Qwest stock price of $4.15 - we would note that the Qwest average trading price over the past 20 days is $4.18. In addition, please refer to "Example of Overall Potential Value to MCI Stockholders." Pro forma ownership split of approximately 40.0% MCI / 60.0% Qwest, subject to the Value Protection Mechanism. ---------------------------------------------------------------------- Value Protection -- In the event that the average trading price Mechanism Regarding for Qwest common stock during a period of 20 Qwest Stock trading days prior to the closing of the Component: transaction (the "Qwest Share Price") does not equal $4.15 per share, then the exchange ratio shall be adjusted as follows: -- If the Qwest Share Price is between and inclusive of $3.74 and $4.14, then the exchange ratio shall be adjusted upward to deliver value of $15.50 in Stock Consideration to MCI stockholders. However, Qwest may at its option deliver all or a portion of this value protection in cash in lieu of common stock. -- If the Qwest Share Price is between and inclusive of $4.16 and $4.57, then the exchange ratio shall be adjusted downward to deliver value of $15.50 in Stock Consideration, to MCI stockholders. -- If the Qwest Share Price is below $3.74, then the exchange ratio shall be 4.144. However, Qwest may at its option deliver all or a portion of this value protection in cash in lieu of Qwest common stock, provided that the exchange ratio will under no circumstances be less than 3.735. -- If the Qwest Share Price is above $4.57, then the exchange ratio shall be 3.392. As a result of this Value Protection Mechanism, the value of the Stock Consideration is protected against a decline of up to 10% in the stock price of Qwest. ---------------------------------------------------------------------- Cash Consideration: Approximately $6.00 of the $9.10 cash consideration will be paid as a special dividend to be declared and paid as soon as practicable following MCI stockholder approval of the transaction. The $6.00 special dividend will be reduced by the $0.40 per share cash dividend approved by the MCI Board of Directors on February 11, 2005 and by the amount of any dividends to be declared by MCI during the period from February 14, 2005 to the consummation of the merger (subject to any limitations imposed by MCI debt covenants). ---------------------------------------------------------------------- Specified Included The cash and stock consideration outlined herein Liabilities will be subject to adjustment with respect to the specified included liabilities on substantially the same terms as provided in the Verizon agreement. ---------------------------------------------------------------------- Example of Overall For clarity, given the above and assuming a Potential Value to December 31, 2005 closing, each MCI stockholder MCI Stockholders: would receive between signing and closing: -- Approximately $6.00 in cash in quarterly and special dividends; -- Approximately $3.10 in cash at closing; and -- 3.735 Qwest shares in Stock Consideration at closing subject to the Value Protection Mechanism. -- Assuming MCI stockholders own 40% or more of the combined company, they would also likely realize approximately $18 per share of value from cost synergies - yielding a total value to MCI stockholders in a merger with Qwest in excess of $40 per share. ---------------------------------------------------------------------- Exhibit B Legal Terms Qwest would enter into an agreement on substantially the same terms regarding representations, covenants, closing and termination provisions as MCI's merger agreement with Verizon, subject to the following modifications: -- In addition to agreeing to operate in the ordinary course between signing and closing, Qwest will further agree that it will not take actions that would materially delay the closing of the merger. As a result, the covenant included in last sentence of Section 5.3 of the Verizon agreement would not be needed. -- Qwest will agree to use reasonable best efforts to obtain all necessary regulatory approvals, which will include taking any remedial actions other than those that have a material adverse effect on the combined entity of MCI and its subsidiaries and Qwest and its subsidiaries, taken as a whole. -- MCI will agree to elect out of section 382(l)(5) of the Internal Revenue Code and will represent that it has not and will not be required to make any material reduction under Section 1017 of the Code in the tax basis of any asset that has been classified as a current asset in MCI's financial statements. -- Consummation of the transaction would of course require the approval of Qwest stockholders. Qwest does not anticipate that such approval would add an element of delay or risk to the consummation of the merger. In addition, please note these items with respect to the offer and the proposed merger agreement: -- The merger agreement will not have a financing condition. -- In response to previous comments of MCI's counsel, the merger agreement will have an outside termination date identical to the Verizon agreement, that is, 12 months unless regulatory approvals are not yet satisfied or issues remain unresolved regarding specified included liabilities that adjust the merger consideration, in which case the outside termination date can be extended up to a total of 16 months in the case of issues related to specified included liabilities or 18 months from the date of the execution of the agreement in the case of regulatory approvals. -- Closing will occur after all regulatory and stockholder approvals are obtained, which is anticipated to be approximately nine to twelve months after signing. About Qwest Qwest Communications International Inc. (NYSE:Q) -- http://www.qwest.com/-- is a leading provider of voice, video and data services. With more than 40,000 employees, Qwest is committed to the "Spirit of Service" and providing world-class services that exceed customers' expectations for quality, value and reliability. At Dec. 31, 2004, Qwest Communications' balance sheet showed a $2,612,000,000 stockholders' deficit, compared to a $1,016,000,000 deficit at Dec. 31, 2003. About MCI Inc. Headquartered in Clinton, Mississippi, WorldCom, Inc., now known as MCI -- http://www.worldcom.com/-- is a pre-eminent global communications provider, operating in more than 65 countries and maintaining one of the most expansive IP networks in the world. The Company filed for chapter 11 protection on July 21, 2002 (Bankr. S.D.N.Y. Case No. 02-13532). On March 31, 2002, the Debtors listed $103,803,000,000 in assets and $45,897,000,000 in debts. The Bankruptcy Court confirmed WorldCom's Plan on October 31, 2003, and on April 20, 2004, the company formally emerged from U.S. Chapter 11 protection as MCI, Inc. * * * As reported in the Troubled Company Reporter on Feb. 22, 2005, Moody's Investors Service has placed the long-term ratings of MCI, Inc., on review for possible upgrade based on Verizon's plan to acquire MCI for about $8.9 billion in cash, stock and assumed debt. These MCI ratings were placed on review for possible upgrade: * B2 Senior Implied * B2 Senior Unsecured Rating * B3 Issuer rating Moody's also affirmed MCI's speculative grade liquidity rating at SGL-1, as near term, MCI's liquidity profile is unchanged. As reported in the Troubled Company Reporter on Feb. 22, 2005, Standard & Poor's Ratings Services placed its ratings of Ashburn, Virginia-based MCI Corp., including the 'B+' corporate credit rating, on CreditWatch with positive implications. The action affects approximately $6 billion of MCI debt. As reported in the Troubled Company Reporter on Feb. 16, 2005, Fitch Ratings has placed the 'A+' rating on Verizon Global Funding's outstanding long-term debt securities on Rating Watch Negative, and the 'B' senior unsecured debt rating of MCI, Inc., on Rating Watch Positive following the announcement that Verizon Communications will acquire MCI for approximately $4.8 billion in common stock and $488 million in cash. MCI INC: Compensation Committee Awards Incentives to Two Officers ----------------------------------------------------------------- On February 10, 2005, the Compensation Committee of MCI, Inc.'s Board of Directors approved a special one-time incentive payment to two of the Company's named executive officers in recognition of their extraordinary accomplishments in 2004 that led to the restatements of the Company's financial statements for 2002 and 2003 and to the Company's successful re-emergence from Chapter 11 proceedings. A payment of $300,000 was approved for each of Robert T. Blakely, the Company's Executive Vice President and Chief Financial Officer and Anastasia D. Kelly, the Company's Executive Vice President and General Counsel. The Compensation Committee also adopted performance criteria for the payment of incentive awards under the Company's Corporate Variable Pay Plan in respect of the first half of 2005. The incentive awards for the Company's named executive officers and other members of the executive leadership team will be based on their performance against a "balanced scorecard" comprised of 60% EBITDA and 40% individual performance targets. Incentive awards for each functional group executive (for example, finance, legal, etc.) will be based on the Company's overall EBITDA and incentive awards for other executives will be based on the EBITDA of the executive's business unit. The Company intends to provide additional information regarding the compensation awarded to the Company's named executive officers in respect of and during the year ended December 31, 2004, in the proxy statement for the Company's 2005 annual meeting of stockholders, which is expected to be filed with the Securities and Exchange Commission in April 2005. Headquartered in Clinton, Mississippi, WorldCom, Inc., now known as MCI -- http://www.worldcom.com/-- is a pre-eminent global communications provider, operating in more than 65 countries and maintaining one of the most expansive IP networks in the world. The Company filed for chapter 11 protection on July 21, 2002 (Bankr. S.D.N.Y. Case No. 02-13532). On March 31, 2002, the Debtors listed $103,803,000,000 in assets and $45,897,000,000 in debts. The Bankruptcy Court confirmed WorldCom's Plan on October 31, 2003, and on April 20, 2004, the company formally emerged from U.S. Chapter 11 protection as MCI, Inc. (WorldCom Bankruptcy News, Issue No. 73; Bankruptcy Creditors' Service, Inc., 215/945-7000) MEDCO HEALTH: Moody's Affirms Ba1 Senior Implied Rating ------------------------------------------------------- Moody's Investors Service affirmed the ratings (Ba1 senior implied) of Medco Health Solutions, Inc., following the announcement that it intends to acquire Accredo Health Incorporated. The outlook on Medco Health's ratings remains stable. At the same time, Moody's placed the ratings of Accredo (Ba2 senior implied) under review for possible upgrade. Medco Health has proposed to acquire the outstanding shares of Accredo for $22.00 in cash and .49107 shares of Medco's common stock (subject to an adjustment based on the merger agreement) and in a transaction valued at approximately $2.5 billion. The cash portion of the transaction will be funded through a combination of existing cash, additional debt, and an accounts receivable facility. Medco will also assume approximately $375 million of Accredo's existing debt. The transaction is expected to close by the mid-2005. The affirmation of Medco Health's ratings reflects: 1) Moody's belief that the Accredo acquisition is a strategic fit for Medco Health based on Accredo's leading position in the $8 billion specialty pharmaceutical distribution market; 2) the recurring nature of the use of pharmaceutical products that Accredo distributes that should contribute to stable revenues and cash flow; 3) Accredo's industry relationships with leading pharmaceutical and biotechnology companies, 4) strong clinical and patient compliance expertise; and 5) opportunities to leverage Accredo's expertise to a wider range of specialty products in Medco Health's book of business. In addition, the financing of the Accredo transaction should allow Medco Health to adhere to financial targets previously incorporated into the rating, including debt/EBITDA below 1.5 times and Debt/Total Capitalization less than 25%. Moody's also anticipates that Medco Health's free cash flow to lease adjusted debt will exceed 25%. Moody's adjustments include adding the present value of operating leases and normalizing Medco's working capital cycle, which can be somewhat volatile. Moody's believes that the primary risks to the transaction include: 1) the initial rise in leverage; 2) integration risk, including the retention of key employees; 3) recent unevenness in Accredo's results related to reimbursement of hemophiliac services as well as the loss of the Aetna contract; and 4) increased competitive pressures from larger companies with captive specialty pharmacies. Following this rating action, Medco Health's rating outlook is stable. Although credit protection measures remain healthy and margins are improving due in part to increasing mail order penetration, Moody's continues to have some concerns regarding Medco's enrollment trends, its working capital volatility, unresolved litigation, and the sustainability of margins, particularly within mail order generics. In addition, it is not clear how much more risk and extra responsibilities that Medco will be assuming under the new Medicare Part D program as compared to its core business. Factors that could create upward rating pressure include greater resolution of these issues, as well as deleveraging after the Accredo transaction. Conversely, downward rating pressure could develop if debt/EBITDA rises above 1.75, or if free cash flow to adjusted debt falls below 20%. The review of Accredo's ratings will consider the extent to which Accredo's operations will be merged into the Medco Health organizational structure, the position of Accredo's debt in the new capital structure, and an evaluation of any support mechanisms related to Accredo's debt. The ratings affirmed are: -- Medco Health Solutions, Inc.: * Ba1 senior implied * Ba1 senior secured term loan A due 2009 * Ba1 senior secured revolving credit facility due 2008 * Ba1 senior notes due 2013 * Ba1 issuer rating The ratings placed under review for possible upgrade: -- Accredo Health, Incorporated: * Ba2 senior implied * Ba2 senior secured term loan due 2011 * Ba2 senior secured revolving credit facility due 2009 * Ba3 issuer rating Medco Health Solutions, Inc., is a leading pharmaceutical benefit manager -- PBM. Medco's clients include 150 of the Fortune 500 corporations, unions, health maintenance organizations, Blue Cross/Blue Shield plans, insurance carriers, and local, state and federal employee benefit programs. Accredo Health provides specialized pharmacy and related services pursuant to agreements with biotechnology drug manufacturers relating to the treatment of patients with certain costly, chronic diseases. The company's services include collection of timely drug utilization and patient compliance information, patient education and monitoring through the use of written materials and telephonic consultation, reimbursement expertise and overnight drug delivery. MERITAGE HOMES: Buys Back $280 Million of 9-3/4% Senior Notes ------------------------------------------------------------- Meritage Homes Corp. (NYSE: MTH) is commencing an offer to purchase for cash any and all of its $280 million in outstanding principal amount of 9-3/4% Senior Notes due 2011. Meritage also is soliciting consents from holders of the notes to approve certain amendments to the indenture under which the notes were issued. The tender offer is contingent on, among other things: -- the receipt of sufficient funds from one or more of the capital market transactions, -- the receipt of consents necessary to approve such amendments to the indenture, -- at least a majority of the notes being validly tendered and not withdrawn, and -- other general conditions described in the offer to purchase. The tender offer consideration to be paid for each $1,000 principal amount of notes tendered and accepted for payment will be $1,097.53. Meritage also will pay for each $1,000 in principal amount a consent fee of $20 for notes tendered, and not validly withdrawn, on or prior to March 8, 2005. For notes that are validly tendered (and not validly withdrawn), Meritage will pay the tender consideration and consent fee promptly following March 8, 2005. Holders who tender their notes after March 8, 2005, but on or prior to the expiration date will not receive the $20 consent fee but will receive the tender consideration promptly following the expiration date. The tender offer will expire at 9 a.m., New York City time, on March 23, 2005, unless extended or earlier terminated. The consents being solicited will eliminate substantially all of the restrictive covenants and certain events of default in the indenture governing the notes. Information regarding the pricing, tender and delivery procedures and conditions of the tender offer and consent solicitation is contained in the Offer to Purchase and Consent Solicitation Statement and Consent and Letter of Transmittal, each dated Feb. 23, 2005, and related documents. UBS Securities LLC and Citigroup Global Markets Inc. have been appointed as dealer managers and solicitation agents for the tender offer and consent solicitation. Please direct any questions related to the offering to UBS Liability Management Group at 888-722-9555, ext. 4210 or 203-719-4210 or Citigroup Liability Management Group at 800-558-3745 or 212-723-6106. Global Bondholder Services Corp. has been appointed the information agent and depositary for the tender offer and consent solicitation. The Offer to Purchase and Consent Solicitation Statement, the Consent and Letter of Transmittal, and any additional information concerning the terms and conditions of the tender offer and consent solicitation may be obtained by contacting: Global Bondholder Services Corp. 65 Broadway, Suite 704 New York, N.Y. 10006 Tel. No. 866-540-1500 This press release is not an offer to purchase, a solicitation of an offer to purchase, or a solicitation of consents with respect to Meritage's 9-3/4% Senior Notes. The tender offer and consent solicitation is being made solely by the Offer to Purchase and Consent Solicitation Statement dated Feb. 23, 2005. Also, Meritage proposes to offer for sale 900,000 shares of its common stock and concurrently therewith, Meritage's co-chief executive officers propose to offer for sale 600,000 shares of Meritage common stock, for which Meritage will receive no proceeds. Meritage proposes to grant the underwriters an option to purchase up to 135,000 shares to cover over-allotments, if any. UBS Securities LLC and Citigroup Global Markets Inc. will serve as joint book-running managers for the offering. Deutsche Bank Securities Inc., JMP Securities LLC and A.G. Edwards & Sons Inc. are the other representative underwriters. The common stock will be offered only pursuant to a prospectus supplement to effective registration statements. A copy of the preliminary prospectus supplement relating to the offering may be obtained by contacting: UBS Investment Bank Prospectus Department 299 Park Avenue New York, NY 10171 -- or -- Citigroup Global Markets Inc. Brooklyn Army Terminal 140 58th Street, 8th Floor Brooklyn, N.Y. 11220 Meritage also proposes to issue new senior notes due 2015 in an aggregate principal amount of at least $300 million. The new senior notes will be offered only to qualified institutional buyers in the United States under Rule 144A under the Securities Act of 1933, as amended, and certain investors under Regulation S of the Securities Act. The offering of the new senior notes has not been registered under the Securities Act or any state securities laws and the notes may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act and applicable state laws. Meritage intends to use the proceeds from these capital market transactions to repurchase its outstanding 9-3/4% Senior Notes 2011 and to repay its senior unsecured credit facility. * * * Meritage Homes' 9-3/4% senior notes due 2011 currently carry Moody's Ba3 rating, Standard & Poor's 'BB-' rating, and Fitch's 'BB' rating. MIRANT CORP: Oregon DOJ Holds $250,000 Allowed Unsecured Claim -------------------------------------------------------------- The Oregon Department of Justice filed three proofs of claim against Mirant Corporation and debtor-affiliates on December 16, 2003. The Claims seek injunctive and monetary relief in an "undetermined" amount for alleged improper conduct by Mirant with respect to wholesale electricity transactions. The Justice Department alleges that Mirant violated Oregon Antitrust Act, ORS 646.705 et seq.; ORICO, ORS 166.715 et seq., UTPA, ORS 646.605 et seq., federal antitrust, mail and wire fraud statutes, and committed fraud and conversion. The Debtors and the Oregon Justice Department have successfully reached a compromise, and they ask the U.S. Bankruptcy Court for the Northern District of Texas to approve their Settlement Agreement, which provides that: (a) In satisfaction of all of the Claims, the Oregon Department of Justice will receive an allowed, prepetition, general unsecured claim against MAEM for $250,000; and (b) The Justice Department agrees that the Allowed Claim is in full and final satisfaction of the Claims and that the Department will have no other claim, except for the Allowed Claim, against any Debtor. Headquartered in Atlanta, Georgia, Mirant Corporation -- http://www.mirant.com/-- together with its direct and indirect subsidiaries, generate, sell and deliver electricity in North America, the Philippines and the Caribbean. Mirant Corporation filed for chapter 11 protection on July 14, 2003 (Bankr. N.D. Tex. 03-46590). Thomas E. Lauria, Esq., at White & Case LLP, represents the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $20,574,000,000 in assets and $11,401,000,000 in debts. (Mirant Bankruptcy News, Issue No. 54; Bankruptcy Creditors' Service, Inc., 215/945-7000) MOONEY AEROSPACE: Issues 10 Million Shares to Creditors ------------------------------------------------------- Mooney Aerospace Group, Ltd. (OTCBB:MNYG.ob) has issued, through its stock transfer agent, almost all of the stock required to satisfy the requirements of the its Plan of Reorganization, which was confirmed by the U.S. Bankruptcy Court for the District of Delaware on Dec. 15, 2004. J. Nelson Happy, the company's president, commented: "We have ordered American Stock Transfer and Trust Co. to issue nearly 10 million shares of new common stock to our creditors as required by the Amended Plan of Reorganization. Of this, 200,000 shares were issued to the existing shareholders of record as of Dec. 15, 2004. An additional 200,000 shares were issued to the preferred stockholders of record as of December 15, 2004. 4,975,000 shares were issued to Allen Holding & Finance Company Ltd., and about 4.6 million shares were issued to the unsecured general creditors." "It is important to note that the Amended Plan of Reorganization also provides that the secured debenture holders, the airplane note holders and the factor note holders have the option to convert their holdings into 13.5 million shares of new common stock," Mr. Happy observed. According to Mr. Happy, "All of the stock is restricted, (except the shares issued to the existing common shareholders of record on Dec. 15, 2005), in that none of these shares can be sold into the market until March 15, 2005, and then only 10% of each shareholder's shares can be sold each month. We are pleased that the stock will be in the hands of our creditors well before the time any of it can be traded." As previously announced, as part of the Plan existing shareholders are entitled to be issued new shares of Mooney Aerospace Group, Ltd., Common stock based on a reverse split of 3,223 old MASG shares for one share of new common stock, (MNYG.ob). For exact details, review the terms of the Amended Plan of Reorganization which the Company filed with the SEC. According to Mr. Happy: "Our existing shareholders that have not already done so should submit their shares to our stock transfer agent, American Stock Transfer and Trust Co., 59 Maiden Lane, Plaza Level, New York, NY 10038 (phone 800-937-5449), by a traceable method such as certified mail or through their stock broker." Headquartered in Kerrville, Texas, Mooney Aerospace Group, Ltd. -- http://www.mooney.com/-- is a general aviation holding company that owns Mooney Airplane Co., located in Kerrville, Texas. The Company filed for chapter 11 protection on June 10, 2004 (Bankr. Del. Case No. 04-11733). Mark A. Frankel, Esq., at Backenroth Frankel & Krinsky LLP, represents the Debtor in its restructuring efforts. When the Company filed for protection from its creditors, it listed $16,757,000 in total assets and $69,802,000 in total debts. The Court confirmed Mooney's Plan of Reorganization on Dec. 15, 2004, allowing the Company to emerge on Dec. 16, 2004. MORGUARD REIT: Earns $29.3 Million of Net Income in 2004 -------------------------------------------------------- Morguard Real Estate Investment Trust (TSX: MRT.UN) disclosed its financial results for the year ended December 31, 2004. Net income attributable to unitholders for 2004 was $29.3 million compared to $19.1 million in 2003. Net income in 2004 benefited from strong gains in net operating income and included a $7 million gain on sale of real estate properties. Results for 2004 were also significantly impacted by accounting policy changes affecting amortization of income properties. The change to the straight-line method of amortization resulted in amortization expense being higher by $15.5 million in 2004 compared to what amortization expense would have been had the sinking fund method been used. The Trust recorded a $0.6 million provision for diminution in value of real estate properties in 2004 compared to a $16 million provision in 2003. Recurring distributable income for 2004 was $44.5 million compared to $43.9 million or $0.99 per unit in 2003. Funds from operations attributable to unitholders for 2004 were $52.2 million compared to $47.8 million in 2003. Morguard REIT -- http://www.morguardreit.com/-- is a closed-end real estate investment trust, which owns a diversified portfolio of 78 retail, office, and industrial properties in Canada with a book value of $1.2 billion and approximately 10.2 million square feet of leasable space. * * * As reported in the Troubled Company Reporter on Dec. 26, 2003, Standard & Poor's Ratings Services lowered its long-term corporate credit rating on Morguard REIT to 'BB' from 'BB+'. At the same time, Standard & Poor's lowered the senior secured debt ratings on Morguard's five series of first mortgage bonds to 'BBB' from 'BBB+' and lowered the debt rating on Morguard's second mortgage bond to 'BB+' from 'BBB-'. The outlook is stable. NATIONAL ENERGY: Wants LFW Leasing to Turn Over Termination Fee --------------------------------------------------------------- NEGT Energy Trading - Power, LP, regularly entered into forward contracts, swaps and derivative contracts for commodities including coal, electricity and environmental credits. In May 2001, ET Power entered into a Master Coal Purchase and Sale Agreement and a related Security Agreement with LWF Leasing, LLC. Pursuant to the Security Agreement, LWF Leasing granted ET Power a first priority security interest in certain inventory, accounts, goods, instruments, and equipment to secure its obligations under the Master Agreement. To further secure LWF Leasing's obligations under the Master Agreement, the parties entered into a Leasehold Option Agreement. Under the Option Agreement, LWF Leasing granted ET Power the option to assume all of LWF Leasing's rights and obligations under a lease agreement between LWF Leasing and The Elk Horn Coal Corporation. The Master Agreement provided that on an event of a default the non-defaulting party is authorized to terminate the contract and establish an early termination date for purposes of settlement valuations. ET Power's Chapter 11 petition represented an event of default. Consequently, by letter dated July 21, 2003, LWF Leasing notified ET Power of the termination of the Master Agreement, and established July 8, 2003 as the Early Termination Date. The Master Agreement provides that upon an early termination, the non-defaulting party must net its gains and losses under all transactions into a single amount and notify the defaulting party of that amount. Moreover, if the non-defaulting party's gains exceed its losses, it will pay to the defaulting party the difference between the gains and losses. According to Martin T. Fletcher, Esq., at Whiteford, Taylor & Preston, LLP, in Baltimore, Maryland, LWF Leasing never notified ET Power of its calculations of the Termination Payment. Mr. Fletcher relates that, as calculated on the Early Termination Date, the Master Agreement had a $7,332,194 forward value, which LWF Leasing has an obligation to pay -- plus interest -- to ET Power. In September 2004, ET Power notified LWF Leasing of its obligation to pay the Termination Payment. To date, LWF Leasing has not responded to the Demand Letter. In this regard, ET Power asks the U.S. Bankruptcy Court for the District of Maryland to compel LWF Leasing to turn over the Termination Payment in an amount to be determined at trial, but not less than $7,332,194 plus applicable interest. ET Power contends that the Termination Payment constitutes property of its estate under Section 541(a) of the Bankruptcy Code. ET Power also demands compensatory damages in an amount to be determined at trial, but not less than $7,332,194 plus applicable interest: (a) for LWF Leasing's breaches of the Master Agreement and other transactions; and (b) as a direct result of LWF Leasing's withholding of funds which represents an unjust benefit of LWF Leasing at ET Power's expense. Headquartered in Bethesda, Maryland, PG&E National Energy Group, Inc. -- http://www.pge.com/-- (n/k/a National Energy & Gas Transmission, Inc.) develops, builds, owns and operates electric generating and natural gas pipeline facilities and provides energy trading, marketing and risk-management services. The Company and its debtor-affiliates filed for Chapter 11 protection on July 8, 2003 (Bankr. D. Md. Case No. 03-30459). Matthew A. Feldman, Esq., Shelley C. Chapman, Esq., and Carollynn H.G. Callari, Esq., at Willkie Farr & Gallagher, and Paul M. Nussbaum, Esq., and Martin T. Fletcher, Esq., at Whiteford, Taylor & Preston, L.L.P., represent the Debtors in their restructuring efforts. When the Company filed for protection from its creditors, it listed $7,613,000,000 in assets and $9,062,000,000 in debts. NEGT received bankruptcy court approval of its reorganization plan in May 2004, and that plan took effect on Oct. 29, 2004. (PG&E National Bankruptcy News, Issue No. 36; Bankruptcy Creditors' Service, Inc., 215/945-7000) NAVISTAR INT'L: Launching $250 Million Private Debt Offering ------------------------------------------------------------ Navistar International Corporation (NYSE:NAV) plans to raise $250 million through a private offering of senior notes due 2012. The company intends to use the proceeds for general corporate purposes. The securities offered will not be or have not been registered under the Securities Act of 1933, as amended, or the securities laws of any other jurisdiction and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. This press release shall not constitute an offer to sell or the solicitation of an offer to buy such notes. The company plans to issue the notes only to qualified institutional buyers under Rule 144A and to persons outside the United States under Regulation S. About the Company Navistar International Corporation (NYSE: NAV) -- http://www.nav-international.com/-- is the parent company of International Truck and Engine Corporation. The company produces International(R) brand commercial trucks, mid-range diesel engines and IC brand school buses and is a private label designer and manufacturer of diesel engines for the pickup truck, van and SUV markets. With the broadest distribution network in North America, the company also provides financing for customers and dealers. Additionally, through a joint venture with Ford Motor Company, the company builds medium commercial trucks and sells truck and diesel engine service parts. * * * Moody's Investor Service and Standard & Poor's assigned their low-B ratings to Navistar International's 7-1/2% senior notes due 2011 last year. NAVISTAR INT'L: S&P Rates Proposed $250 Mil. Senior Notes at BB- ---------------------------------------------------------------- Standard & Poor's Ratings Services affirmed its 'BB-' corporate credit rating and its senior unsecured and subordinated debt ratings on Warrenville, Illinois-based Navistar International Corp. The outlook remains stable. At the same time, Standard & Poor's has assigned its 'BB-' rating to the company's proposed $250 million senior notes due 2012. "The affirmation follows announcements from Navistar of its intention to issue $250 million of senior notes, proceeds of which will be used for general corporate purposes, including repayment of existing debt and helping to fund potential strategic initiatives," said Standard & Poor's credit analyst Eric Ballantine. Navistar is the world's leading supplier of mid-range diesel engines. U.S. industry heavy-duty truck sales rose more than 40% during 2004 from 2003, and Standard & Poor's expects full-year 2005 results to be up at least 20%, reaching a robust 240,000 units. Sales growth is being boosted mainly by improving U.S. economic conditions and substantial replacement demand. It is anticipated that sometime in late 2006 or early 2007 a cyclical downturn will occur. "Improving market conditions during 2005 should result in improved earnings and cash flow for Navistar," Mr. Ballantine said. Navistar is expected to maintain a manufacturing cash balance of at least $500 million throughout the year, with the balance slipping below that level during the company's seasonal low (the company's fiscal first quarter). If cash balances were to be below this level for a significant time, it could result in ratings pressure. Debt reduction is expected to be minimal over the near term, as relatively high capital expenditures, strategic initiatives, and costs associated with retirement plans are expected to limit free cash flow. NUTRI-GARDENS INC: Case Summary & 16 Largest Unsecured Creditors ---------------------------------------------------------------- Debtor: Nutri-Gardens, Inc. 9630 South Oakridge Pahrump, Nevada 89041 Bankruptcy Case No.: 05-11265 Type of Business: The Debtor developed a crop system. It is highly effective hydroponic food production system (produce that is grown in water instead of soil) that can grow virtually any vegetable or plant. The Debtor also grows exotic medicinal herbs. See http://www.nutri-gardens.com/ Chapter 11 Petition Date: February 24, 2005 Court: District of Nevada (Las Vegas) Judge: Linda B. Riegle Debtor's Counsel: Paul Michaelson, Esq. Michaelson & Associates 1771 East Flamingo Road #212b Las Vegas, Nevada 89119 Tel: (702) 731-2333 Fax: (702) 731-2337 Estimated Assets: $0 to $50,000 Estimated Debts: $1 Million to $10 Million Debtor's 16 Largest Unsecured Creditors: Entity Claim Amount ------ ------------ Internal Revenue System $90,000 Mail Stop 627I-T PO Box 9950 Ogden, Utah 84409 Leroy Baingo and Marion Baingo $40,500 Ling Trust, dated May 30, 1997 c/o Nadine Levy, Successor Trustee 15862 Vincennes Street North Hills, California 91343-2921 Joe Argier $40,000 1529.5(sic) West Bonanza Las Vegas, Nevada 89106 Sun Agra $14,505 3527 Mount Diablo Boulevard #414 Lafayette, California 94549 Fred Erickson $13,000 5020 Alto Drive Las Vegas, Nevada 89107 MBNA $11,181 Floyd's Construction $8,000 Visa Card - NSB $8,000 Nye Company Property Taxes $6,500 Mariani $6,000 H&M Pipe $5,000 John Lambertson $3,8000 (sic) Greenhouse Systems USA $3,600 Neil Couch $3,400 Hortica $1,235 Union Penn Company $204 ONSOURCE CORP: Dec. 31 Balance Sheet Upside-Down by $1.6 Million ---------------------------------------------------------------- OnSource Corporation (OTCBB: OSCE) reported financial results for its fiscal second quarter ended Dec. 31, 2004. Revenues Total revenues were $595,926 for the three months ended December 31, 2004, a decrease of $108,372 or 15% compared to $704,298 for the same period in 2003. Sales of products increased from $541,649 in 2003 to $554,256 in 2004. For the six months ended December 31, 2004, total revenues decreased $169,471 or 13% from $1,291,090 in 2003 to $1,121,619 in 2004. Product sales for the six month period were $1,038,075 in 2004 compared to $970,381 in 2003, an increase of $67,694 or 7%. Service revenues declined because we sold our facility management contracts effective January 1, 2004. Product sales increased because of our expanded marketing efforts. Net Income Net loss for the three months ended December 31, 2004, was $(6,564) compared to net income of $5,273 for the quarter ended December 31, 2003. For the six months, net income increased 69% to $66,620 for the period ended December 31, 2004, compared to $39,378 for the 2003 period. The deterioration for the three month period was primarily a result of a decline in product gross margins caused by increasing competitive pressure. The improvement for the six month period was primarily the result of our cost control measures, which reduced operating expenses by $19,679. Osmotics Pharma As previously announced, OnSource signed a non-binding Letter of Intent to merge with Osmotics Pharma, an early stage pharmaceutical company located in Denver, Colorado. The merger is subject to certain conditions. About the Company OnSource Corporation is the parent company of Global Alaska Industries, Inc., which owns and operates Alaska Bingo Supply, Inc., located in Anchorage, Alaska. At Dec. 31, 2004, OnSource Corp.'s balance sheet showed a $1,590,719 stockholders' deficit, compared to a $1,664,839 deficit at June 30, 2004. ORDERPRO LOGISTICS: Inks Settlement with Major Shareholder Group ---------------------------------------------------------------- OrderPro Logistics Inc. (OTCBB: OPLO) disclosed that an agreement was reached with Richard Windorski, the company's former CEO, and a group of additional shareholders, for the return of in excess of 37 million shares of common stock of OrderPro Logistics Inc. Under the terms of the settlement agreement, all outstanding lawsuits between the parties and OrderPro have been settled. Also, all of the reacquired shares will be returned to the company's treasury and cancelled. Jeffrey Smuda, president and chief executive officer of OrderPro Logistics Inc., stated, "The management of OrderPro Logistics Inc. is extremely excited to be able to consummate this settlement transaction. This significant reduction of total shares outstanding and the simultaneous settlement of all legal action is a tremendous benefit to our existing shareholders, and the future of the company. We are excited about, and dedicated to, refocusing our efforts on rapidly building a profitable company for our loyal shareholders." About OrderPro Logistics Inc. OrderPro Logistics Inc. -- http://www.orderprologistics.com/-- was created to capture the potential of the Internet in the transportation and logistics industry by employing new and innovative processes. OrderPro Logistics Inc. can integrate every aspect of the customer shipping needs from order entry through successful delivery. Customer priorities, shipment integrity, best quality, and optimization of every load is the objective of supply chain management with OrderPro Logistics Inc. lowering costs while adding value in process and service. * * * Going Concern Doubt As reported in the Troubled Company Reporter on Feb. 3, 2005, OrderPro Logistics, Inc., reported a $10,655,008 net loss in the quarter ending Sept. 30, 2004, and a $1,569,623 negative cash flow from operations. At Sept. 30, the company's balance sheet showed a working capital deficiency of $2,113,957 and a $1,395,399 stockholders' deficit. These factors raise substantial doubt about the Company's ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company's ability to raise additional funds and become profitable. The condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. PACIFIC LIFE: S&P Junks $38 Million Class A-3 Notes --------------------------------------------------- Standard & Poor's Ratings Services raised its rating on the class A-1 notes and withdrew its ratings on the class A-2A, A-2B, and A-2C notes issued by Pacific Life CBO 1998-1 Ltd., an arbitrage high-yield CBO transaction. At the same time, Standard & Poor's affirmed its rating on the class A-3 notes. The upgrade on the class A-1 notes is based on the $4.281 million paydown of the notes on the Feb. 15, 2005, payment date. The class A-1 notes have a current outstanding balance of $12.478 million (23.11% of original balance). The rating withdrawals follow the complete paydown of the class A-2A, A-2B, and A-2C notes on the Feb. 15, 2005, payment date. Ratings Withdrawn Pacific Life CBO 1998-1 Ltd. Rating Balance (mil. $) Class To From Previous Current ----- -- ---- -------- ------- A-2A N.R. AAA 5.395 0.00 A-2B N.R. AAA 0.803 0.00 A-2C N.R. AAA 1.198 0.00 Rating Raised Pacific Life CBO 1998-1 Ltd. Rating Balance (mil. $) Class To From Previous Current ----- -- ---- -------- ------- A-1 AAA A- 16.759 12.478 Rating Affirmed Pacific Life CBO 1998-1 Ltd. Class Rating Balance (mil. $) ----- ------ ---------------- A-3 CCC- 38.000 PARTNER COMMUNICATIONS: Board Okays Selling of Shares to Partner ---------------------------------------------------------------- Partner Communications Company Ltd. (NASDAQ:PTNR) (TASE: PTNR) (LSE:PCCD) said that, upon the recommendation of its audit committee, its Board of Directors has approved the acceptance of the offer made by three of its founding Israeli shareholders: Elbit Limited, Eurocom Communications Limited and Polar Communications Limited, who offered to sell all of their 31.7 million Partner shares (17.2% of ordinary shares) to Partner. Pursuant to this offer, Matav Investments Limited, Partner's other founding Israeli shareholder, would have the right to also participate in the sale to the Company. In the event that Matav elects to sell shares, the number of shares sold would increase to 33.3 million Partner shares (18.1% of ordinary shares) and all of the founding Israeli shareholders would continue to hold further shares constituting in the aggregate 5% of Partner's fully diluted shares. The Sellers' offer price will be calculated as a 10% discount to Partner's 20 day volume-weighted average share price on the day before the shareholder meeting called to approve the transaction on the TASE and is subject to a minimum price of NIS 31.04 (US$ 7.10) and a maximum price of NIS 32.22 (US$ 7.37) per share. The offer is conditional upon various conditions precedent, including the release of the share pledges in favor of Partner's lending banks currently governing the shares. In approving the share buy back transaction, Partner's board of directors noted that acceptance of the offer by Partner will also be subject to it obtaining shareholders approval with the majority required for transactions with controlling shareholders and regulatory consents and approvals required by law or Partner's general license, including, among others: -- the consent of the Ministry of Communications to changes in Partner's license including the reduction of the minimum Israeli shareholding requirement in Partner; and -- securing the necessary financing and bank approvals There is no assurance that Partner's shareholders will approve the share buy back transaction, or that the other conditions for closing will be met. We understand that our founding shareholders have entered into an arrangement regarding the sale of Partner shares if the shareholders do not approve the transaction, or the closing conditions are not met. About the Company Partner Communications Company Ltd. -- http://www.investors.partner.co.il/-- is a leading Israeli mobile communications operator providing GSM/GPRS/UMTS services and wire free applications under the preferred orange(TM) brand. The Company commenced full commercial operations in January 1999 and, through its network, provides quality of service and a range of features to 2.34 million subscribers in Israel. Partner subscribers can use roaming services in 152 destinations using 333 GSM networks. The Company launched its 3G service in 2004. Partner's ADSs are quoted on NASDAQ under the symbol PTNR and on the London Stock Exchange (LSE) under the symbol PCCD. Its shares are quoted on the Tel Aviv Stock Exchange (TASE) under the symbol PTNR. * * * Partner Communications' 13% senior subordinated notes due 2010 carry Moody's Investor Service and Standard & Poor's single-B ratings. POCONO INCREDIBLE: Judge Thomas Dismisses Bankruptcy Case --------------------------------------------------------- The Honorable John J. Thomas of the U.S. Bankruptcy Court for the Middle District of Pennsylvania dismissed and formally terminated the bankruptcy case filed by Pocono Incredible Inn, Inc., on Jan. 25, 2005. Judge Thomas also barred the Debtor from refilling another bankruptcy case for 180 days after the Court's dismissal order. Judge Thomas based his decision to dismiss the case on the request filed by Valley National Bank, one of the Debtor's creditors, on Jan. 8, 2005. The Debtor owes Valley National $850,000 under a Note dated Sept. 2, 1999. Ernst Meier, the owner of Pocono Incredible, personally borrowed the money on behalf of his company. Valley National cited in its request that: a) Mr. Meier granted a mortgage to Valley National on his real property, a 120-room motel with restaurant and banquet facilities located in Wayne County, Pennsylvania, and this property is subject of a foreclosure action by Valley National; b) Mr. Meier, individually, was the subject of his own bankruptcy cases in Wayne County district, a chapter 7 case that commenced on Aug. 12, 2003, and a separate chapter 13 case that commenced on Nov. 19, 2003, with the final decree in the chapter 7 case issued on April 2, 2004, and the chapter 13 case voluntarily dismissed on January 7, 2004; c) the two previous bankruptcy filings by Mr. Meier, and a previous chapter 11 filing of his company, filed in the Southern District of New York, converted to a chapter 7 proceeding on Oct. 21, 2004, and transferred to the Middle District of Pennsylvania, was to delay the three foreclosure sales attempted by Valley National on the real property; and d) Valley National has not received a mortgage payment on its loan since August 2001 and is owed arrearages, including late fees, insurance, taxes and attorneys fees well in excess of $250,000, plus the outstanding principal balance of $836,000. Judge Thomas concluded that these facts demonstrate bad faith on the part of Mr. Meier and his company to delay the foreclosure actions of Valley National and deny its right to repayment of the loan. Headquartered in Fort Montgomery, New York, Pocono Incredible Inn, In., operates a resort on 60 acres of naturally wooded countryside beside Lake Tammany. The Company filed for chapter 11 protection on August 23, 2004 (Bankr. S.D.N.Y. Case No. 04-37012 transferred to Bankr. M.D. Pa. Case No. 04-55268). The Court converted the case to a chapter 7 proceeding on Oct. 21, 2004. The Court formally terminated the case on Jan. 25, 2005. John A. Poka, Esq., of Milford, Pennsylvania represented the Debtor. When the Debtor filed for chapter 11 protection, it listed more than $100 million in estimated assets and debts. POPE & TALBOT: Forest Management Risk Talks Delay Sale Closing -------------------------------------------------------------- Pope & Talbot, Inc., (NYSE:POP) said that the closing of the acquisition of the Fort St. James sawmill from Canfor Corporation, which was expected to happen on Tuesday, March 1, has been delayed to accommodate the Provincial government of British Columbia's desire to involve First Nations in a discussion regarding any forest management risk associated with the sale. This process is expected to take 60 days at which time, it is anticipated the close of this transaction will be announced. As reported in the Troubled Company Reporter on Dec. 28, 2004, Pope & Talbot entered into an agreement to acquire the Fort St. James sawmill, including timber tenures with 640,000 cubic meters of annual allowable cut, from Canfor Corporation for approximately CDN$39 million or approximately US$32 million, plus the value of certain inventory, which will be determined at closing. The Fort St. James sawmill, located in the Northern Interior of British Columbia, has an annual capacity of 250 million board feet of spruce, pine, fir lumber production. The Fort St. James sawmill was constructed in 1969 with its last major rebuild in 1999. Pope & Talbot -- http://www.poptal.com/-- is a pulp and wood products company. The Company is based in Portland, Oregon and traded on the New York and Pacific stock exchanges under the symbol POP. Pope & Talbot was founded in 1849 and produces market pulp and softwood lumber at mills in the U.S. and Canada. Markets for the Company's products include the U.S., Europe, Canada, South America, Japan, China, and the other Pacific Rim countries. * * * As reported in the Troubled Company Reporter on Sept. 30, 2004, Moody's Investors Service affirmed the Ba2 senior implied, Ba3 issuer and Ba3 senior unsecured ratings of Pope & Talbot, Inc. The rating outlook continues to be stable. Ratings Affirmed: * Ba3 for the US$75 million of 8.375% debentures and US$50.8 million of 8.375% senior notes, both due June 1, 2013, * Ba2 for Pope & Talbot's senior implied rating, and * Ba3 for its senior unsecured issuer rating. As reported in the Troubled Company Reporter on July 15, 2004, Standard & Poor's Ratings Services revised its outlook on pulp and lumber producer, Pope & Talbot, Inc., to stable from negative. The corporate credit and senior unsecured debt ratings are affirmed at 'BB'. PPM HIGH: Fitch Junks High Yield Note Classes A-3 & B ----------------------------------------------------- Fitch Ratings downgrades one class of notes issued by PPM High Yield CBO I Company Ltd. These rating actions are effective immediately: -- $147,164,920 class A-1 notes downgraded to 'BB' from 'BBB-'; -- $22,000,000 class A-2 accreting notes affirmed at 'AAA'; -- $55,700,000 class A-3 notes remain at 'CC'; -- $73,100,000 class B notes remain at 'C'. PPM High Yield CBO I is a collateralized bond obligation - CBO -- managed by PPM America. PPM High Yield CBO I closed on March 2, 1999. The notes are supported by a portfolio primarily consisting of high yield corporate bonds. Since the last rating action on Aug. 23, 2004, the collateral credit quality has shown signs of improvement with the weighted average rating improving to 'B' as of the January 2005 trustee report from 'B-' as of the July 2004 trustee report. This is due mainly to lower credit quality bonds being called, as well as the asset manger's decision to reduce the exposure in one credit risk security. However, since the last rating action, the overcollateralization -- OC -- ratio has declined to a level of 54.9% from 65.3% and the class A and class B interest coverage - IC -- ratios have deteriorated to 88.22% and 48.5% relative to 128.11% and 70.8%, respectively. All OC and IC test are failing the minimum required levels set by the indenture. The deterioration in interest coverage is due to a decline in the weighted average coupon and a significantly overhedged position in an interest rate swap. This has resulted in the continued diversion of principal proceeds to cover interest shortfalls. Since the last rating action, an additional $2.6 million of principal proceeds were used to pay interest shortfalls to the class B noteholders. This is an increase from the $1.2 million of principal diverted to pay class B noteholders on the June 2004 payment. The extent of additional principal diversions is dependent on the rate of calls and the movement of interest rates. There is a structural feature called the interest default test, which, if activated, would divert interest payments away from the class A-3 and B notes toward the redemption of the class A-1 notes. The test would require that either the cumulative default level reach 54% or the current default percentage reach 8%. As of the January 2005 trustee report, the cumulative default level was 25.6% and the current default percentage 0%. Given the current thresholds, it is unlikely that interest default test will be activated. The class A-2 accreting notes were defeased with a U.S. treasury instrument maturing on May 15, 2011. The 'AAA' rating on the class A-2 notes reflects the treasury strip rating collateralizing the notes. As a result of this analysis, Fitch has determined that the current ratings assigned to the class A-1 notes no longer reflect the current risk to noteholders. Fitch will continue to monitor and review this transaction for future rating adjustments. Additional deal information and historical data are available on the Fitch Ratings web site at http://www.fitchratings.com/ PREMCOR REFINING: Moody's Reviews Ratings on $1B Loan for Upgrade ----------------------------------------------------------------- Moody's Investors Service placed Premcor Refining Group's (PRG) ratings under review for upgrade. Premcor Refining is wholly owned by Premcor, Inc. Premcor's senior implied and senior unsecured note ratings are Ba3 and the rating outlook has been positive. The ratings affected are. 1) Premcor Refining's Ba2 Senior Secured rating of a $1 billion bank facility ($800 million and $200 million tranches). 2) Premcor's Ba3 Senior Implied and B1 non-guaranteed Senior Unsecured Issuer Ratings. 3) Premcor Refining's Ba3 rated senior unsecured notes. 4) Premcor Refining's B2 rated senior subordinated notes. 5) PAF's Ba3 rated Senior Secured notes. In spite of Premcor Refining's ongoing heavy capital spending, acquisition and releveraging risk, and lost first quarter earnings power due to scheduled maintenance at the Port Arthur refinery, Moody's decision to move to a review for upgrade now rests on several factors. This includes enhanced internal funding strength due to: 1) an unseasonably strong fourth quarter 2004 on historically wide crude oil quality price differentials, 2) inherently greater visibility now on an expected seasonally sound second and third quarter crack spread environment, 3) the strong margin benefit of continuing very wide crude oil price differentials, and 4) if an acquisition is announced, funding would occur later this year after further earnings accumulation. The review for upgrade will be completed within thirty to sixty days of an assumed first quarter completion, without material incident, of Premcor Refining's scheduled turnaround work at its key Port Arthur refinery. While Premcor Refining has accumulated large cash balances, and while Moody's expects supportive gasoline and distillate margins and very supportive price differentials between heavy/sour and light/sweet crude oil this year, the review will consider an updated margin outlook at the time, heavy 2005 and 2006 capital spending needs, considerable acquisition and releveraging risk, and whether Delaware City's operating costs can move to the stated goals. During the review, it will also be helpful to the degree a firm project completion date comes into view for the important Port Arthur refinery expansion. When completed, that project should add considerably to Premcor Refining's earnings power at normal historic averages for heavy/sour and light/sweet crude oil price differentials and add very substantially to earnings power at current historically wide differentials. Moody's perceives Premcor Refining as having the necessary expertise, transaction skills, and market credibility to put together a very major acquisition. If upgraded, we would not wish to see leverage inordinately stretched after an acquisition. Given the volatility of margins, we would not want leverage to rise above 50% to 55% and would want to see an ability to return to the 40% to 45% range within six months to nine months. Assuming ample internal or equity funding, the addition of one or more quality refineries would be credit accretive to the degree it significantly reduces Premcor Refining's portfolio risk exposure to unscheduled refinery downtime, to a narrowing of regional or U.S. margins, and to secular threats to any individual refinery. The degree to which Premcor states it would spread acquisition risk (particularly in the current very high acquisition price environment) over an appropriate blend of balance sheet cash, new equity, and debt will weigh on the ratings decision. In spite of record 2005 capital spending requirements due to heavy Tier II low sulfur capital spending and the attractive Port Arthur expansion, Premcor Refining generated a very substantial cash cushion during 2004 and benefited too during the traditionally weaker fourth quarter by historically wide price discounts between heavy Mexican Maya crude oil and the U.S. West Texas Intermediate (WTI) crude oil. Higher light sweet crude oil prices tend to drive refined light product prices. Accordingly, refineries such as Port Arthur, that have already incurred the heavy capital investment needed to process cheaper heavy sour crude oils earn their widest margins when light product crack spreads are healthy and heavy/light crude oil price differentials are at their widest. At year-end 2004, Gross Debt/Total Capital was 46% (32% on net debt). Principally on expected 2005 earnings accretion, such leverage could approach 41% gross or 29% net. After $1.1 billion of 2004 EBITDA, Moody's anticipates 1Q05 EBITDA in the range of $165 million to $175 million, 2005 EBITDA in the $850 million to $1 billion range depending on sector margins and differentials, 2005 gross interest expense in the range of $160 million, and 2005 capital spending (excluding acquisitions) in the range of $770 million including $45 million of capitalized interest. We project roughly $500 million of 2006 capital spending. Moody's capital spending estimates (1) exclude any future projects to improve the Lima refinery's sour crude oil and high value clean products capacity and (2) are based on present capital cost estimates for the Port Arthur expansion, Tier 2 and low sulfur diesel capex, Delaware City wet gas scrubber capital spending, and normal heavy maintenance and turnaround capital spending. Premcor, Inc., is headquartered in Old Greenwich, Connecticut. QWEST COMMS: Amends MCI Merger Proposal to Compete with Verizon --------------------------------------------------------------- Qwest Communications International, Inc., (NYSE: Q) submitted this letter to the board of directors of MCI, Inc. February 24, 2005 The Board of Directors MCI, Inc. Attention: Chairman, Board of Directors 22001 Loudoun County Parkway Ashburn, VA 20147 Dear Mr. Katzenbach: Despite being denied access to MCI legal, financial and operational information that has been provided to other interested parties, on February 11, 2005, Qwest proposed a stock and cash merger with a value of $24.60 per MCI share. Qwest reconfirmed this proposal to MCI on February 13, 2005. MCI has failed to provide meaningful guidance or direction in response to the Qwest proposal. Consequently, with only press reports and lawsuits as sources of information for how the MCI Board evaluated the components of our proposal, Qwest tenders this revised proposal, the terms of which are even more compelling for your stockholders. Before turning to a discussion of the particulars of Qwest's revised proposal, it is important to emphasize that a Qwest/MCI merger would create an exciting and important new telecommunications company, of which MCI would become a meaningful part. The merger of Qwest and MCI would create a company with a strong market position, demonstrated commitment to superior customer service and innovative products and services, and the potential for significant value creation through cost synergies. The combination would create the industry leader in IP, with the most advanced IP-based network and compelling suite of IP based services. We believe that it was these prospects that caused MCI to discuss a proposed combination with Qwest continuously over the last ten months. We remain excited about the future of our combined companies competing in the telecommunications marketplace and we are committed to our belief that a Qwest/MCI merger creates a superior value opportunity for the MCI stockholders as compared to a Verizon/MCI transaction. Qwest believes this revised proposal is superior to the Verizon transaction, because it delivers greater value in cash and stock per MCI share, synergy value of approximately $18 per MCI share in a combined Qwest/MCI enterprise and more favorable regulatory certainty and speed. In addition, Qwest has also submitted pro forma financial profiles to MCI that demonstrate that the merger of Qwest/MCI would, on the closing date, yield a balance sheet likely to result in a credit profile substantially similar to, if not better than, that enjoyed by the two companies today. The "business as usual" cash flows from the Qwest/MCI combination alone would drive immediate improvement in the credit ratios and the added cash flows from synergies would dramatically speed even greater improvement in those ratios. It should be noted that neither MCI nor Qwest has had any difficulty accessing the credit markets on a stand-alone basis, and Qwest is confident the combined company will also have no such difficulty. Qwest is confident that the significantly smaller footprint overlap (business, consumer and network) in a Qwest/MCI combination will lead to fewer and less extensive divestiture demands from regulatory agencies and will avoid the industry concentration and public policy issues the Verizon/MCI merger presents. Clearly, this simpler regulatory review process for a Qwest/MCI transaction will deliver value to stockholders faster and with fewer "friction costs". With respect to synergies, Qwest advisers and management believe -- and it would appear a substantial number of MCI stockholders agree -- that there are significant cost synergies available in a Qwest/MCI merger. The value of these synergies can only be realized by MCI stockholders in any meaningful way if those stockholders retain a substantial portion of the combined company as they will in a Qwest/MCI merger (where they will retain approximately 40%) as opposed to a Verizon/MCI combination where they will only retain 5% of the combined company. Estimates of these potential cost synergies come from many sources including: MCI public statements about their stand-alone efficiencies, discussions between Qwest and MCI and analyses of potential cost synergies carried out under our non- disclosure agreement that took place continuously over the last ten months and Qwest management experience with such matters. In addition to the balance sheet, regulatory and synergy benefits to MCI stockholders of a Qwest/MCI combination summarized above, Qwest would like to describe the modified economic terms of our proposal and highlight some enhancements to our previous proposal, which should be even more compelling to MCI stockholders. Qwest's revised proposal represents an aggregate value today of $24.60 per share to MCI stockholders consisting of $9.10 in cash and $15.50 in stock consideration to be delivered as follows: (i) $6.00 per share in cash to be paid by MCI in regularly scheduled quarterly dividends and in a special dividend upon MCI stockholder approval of the transaction, (ii) $3.10 in cash per share to be paid by Qwest at closing, and (iii) $15.50 per share to be paid in Qwest stock at closing. In addition we have provided protection to your stockholders from a potential decline in the Qwest share price during the period between signing and closing by means of a "collar". Further economic details of our proposal are provided in the term sheet attached hereto as Exhibit A. Additionally, to facilitate the MCI Board's deliberation, Qwest would enter into an agreement with representations, covenants, closing and termination provisions substantially comparable to those in the Verizon agreement, except for certain improvements for the benefit of the MCI stockholders, as summarized below and more fully described on Exhibit B hereto. A copy of the merger agreement marked to show Qwest's proposed changes from the Verizon agreement will subsequently be provided to your legal counsel. Any merger agreement would be subject to approval by Qwest's Board of Directors. In summary, the structural improvements in Qwest's proposal as compared to the Verizon merger agreement include: -- There is greater flexibility to creatively expedite the regulatory approval process without jeopardizing the transaction because Qwest will agree to take remedial actions required to solve regulatory problems other than those that would have material adverse effect on the combined company (Verizon's required remedial actions are measured by whether they would have a material adverse effect on either Verizon (considered as the size of MCI) or MCI); -- There is greater commitment to close a Qwest/MCI transaction quickly because Qwest will commit to avoid any action that would materially delay the closing beyond the date otherwise achievable (Verizon has retained the right to delay closing under certain circumstances); -- MCI's regularly scheduled quarterly dividends will be paid and a special dividend will be paid at the time of MCI stockholder approval in an aggregate amount equal to the total MCI "excess cash" as determined by MCI in accordance with its plan of reorganization (representing a near-term payout to MCI stockholders of approximately $1.50 per share more than under the Verizon proposal); and -- MCI stockholders will be protected from a potential decline in Qwest's share price prior to closing by means of a "collar" (Verizon provides no such downside protection against movement in its share price). To promptly finalize the terms of a merger agreement Qwest is prepared to execute, Qwest requests that MCI provide Qwest the following materials -- the schedules MCI delivered in connection with the Verizon/MCI agreement, including copies of the documents referenced therein, and certain MCI tax information which MCI previously indicated it would deliver to Qwest. To simplify the MCI Board's review of Qwest's revised proposal, Qwest has based this proposal on the Verizon/MCI merger agreement. However, it has been particularly difficult for Qwest to submit a revised proposal that highlights all of the advantages of a Qwest proposal because the disclosure schedules and other exhibits to the merger agreement remain secret and are unavailable to us. Finally, we would note that based upon today's closing prices for both Qwest and Verizon, the value of our offer to the MCI stockholders is approximately 20% higher than the Verizon offer, before taking into account the superior synergy value of $18 per MCI share and the enhanced regulatory benefits of the Qwest transaction. MCI's agreement with Verizon allows MCI to engage in negotiations with Qwest and provide Qwest information in light of the superior proposal summarized by this letter. The Verizon agreement also allows MCI to negotiate and provide Qwest information merely upon its determination that Qwest's revised proposal could reasonably be expected to lead to a superior proposal as compared to the Verizon acquisition. The facts demonstrate that it is in the best interests of MCI stockholders for MCI to engage with Qwest immediately in meaningful discussions regarding Qwest's improved revised proposal and Qwest urges you to do so. Sincerely yours, Richard C. Notebaert Chairman and Chief Executive Officer cc: Mr. Larry Grafstein Lazard Freres & Co. Mr. Phillip Mills Davis Polk & Wardwell Exhibit A Economic Terms Consideration: Qwest common stock and cash to MCI stockholders ---------------------------------------------------------------------- Value: Offer Value: $24.60 per share consideration to MCI stockholders Offer consists of: (i) $9.10 in cash; and (ii) $15.50 of Qwest common stock ("Stock Consideration") based on an exchange ratio of 3.735 Qwest shares per MCI share, subject to the Value Protection Mechanism described in "Value Protection Mechanism Regarding Qwest Stock Component" below. The value of the Stock Consideration is based on a Qwest stock price of $4.15 - we would note that the Qwest average trading price over the past 20 days is $4.18. In addition, please refer to "Example of Overall Potential Value to MCI Stockholders." Pro forma ownership split of approximately 40.0% MCI / 60.0% Qwest, subject to the Value Protection Mechanism. ---------------------------------------------------------------------- Value Protection -- In the event that the average trading price Mechanism Regarding for Qwest common stock during a period of 20 Qwest Stock trading days prior to the closing of the Component: transaction (the "Qwest Share Price") does not equal $4.15 per share, then the exchange ratio shall be adjusted as follows: -- If the Qwest Share Price is between and inclusive of $3.74 and $4.14, then the exchange ratio shall be adjusted upward to deliver value of $15.50 in Stock Consideration to MCI stockholders. However, Qwest may at its option deliver all or a portion of this value protection in cash in lieu of common stock. -- If the Qwest Share Price is between and inclusive of $4.16 and $4.57, then the exchange ratio shall be adjusted downward to deliver value of $15.50 in Stock Consideration, to MCI stockholders. -- If the Qwest Share Price is below $3.74, then the exchange ratio shall be 4.144. However, Qwest may at its option deliver all or a portion of this value protection in cash in lieu of Qwest common stock, provided that the exchange ratio will under no circumstances be less than 3.735. -- If the Qwest Share Price is above $4.57, then the exchange ratio shall be 3.392. As a result of this Value Protection Mechanism, the value of the Stock Consideration is protected against a decline of up to 10% in the stock price of Qwest. ---------------------------------------------------------------------- Cash Consideration: Approximately $6.00 of the $9.10 cash consideration will be paid as a special dividend to be declared and paid as soon as practicable following MCI stockholder approval of the transaction. The $6.00 special dividend will be reduced by the $0.40 per share cash dividend approved by the MCI Board of Directors on February 11, 2005 and by the amount of any dividends to be declared by MCI during the period from February 14, 2005 to the consummation of the merger (subject to any limitations imposed by MCI debt covenants). ---------------------------------------------------------------------- Specified Included The cash and stock consideration outlined herein Liabilities will be subject to adjustment with respect to the specified included liabilities on substantially the same terms as provided in the Verizon agreement. ---------------------------------------------------------------------- Example of Overall For clarity, given the above and assuming a Potential Value to December 31, 2005 closing, each MCI stockholder MCI Stockholders: would receive between signing and closing: -- Approximately $6.00 in cash in quarterly and special dividends; -- Approximately $3.10 in cash at closing; and -- 3.735 Qwest shares in Stock Consideration at closing subject to the Value Protection Mechanism. -- Assuming MCI stockholders own 40% or more of the combined company, they would also likely realize approximately $18 per share of value from cost synergies - yielding a total value to MCI stockholders in a merger with Qwest in excess of $40 per share. ---------------------------------------------------------------------- Exhibit B Legal Terms Qwest would enter into an agreement on substantially the same terms regarding representations, covenants, closing and termination provisions as MCI's merger agreement with Verizon, subject to the following modifications: -- In addition to agreeing to operate in the ordinary course between signing and closing, Qwest will further agree that it will not take actions that would materially delay the closing of the merger. As a result, the covenant included in last sentence of Section 5.3 of the Verizon agreement would not be needed. -- Qwest will agree to use reasonable best efforts to obtain all necessary regulatory approvals, which will include taking any remedial actions other than those that have a material adverse effect on the combined entity of MCI and its subsidiaries and Qwest and its subsidiaries, taken as a whole. -- MCI will agree to elect out of section 382(l)(5) of the Internal Revenue Code and will represent that it has not and will not be required to make any material reduction under Section 1017 of the Code in the tax basis of any asset that has been classified as a current asset in MCI's financial statements. -- Consummation of the transaction would of course require the approval of Qwest stockholders. Qwest does not anticipate that such approval would add an element of delay or risk to the consummation of the merger. In addition, please note these items with respect to the offer and the proposed merger agreement: -- The merger agreement will not have a financing condition. -- In response to previous comments of MCI's counsel, the merger agreement will have an outside termination date identical to the Verizon agreement, that is, 12 months unless regulatory approvals are not yet satisfied or issues remain unresolved regarding specified included liabilities that adjust the merger consideration, in which case the outside termination date can be extended up to a total of 16 months in the case of issues related to specified included liabilities or 18 months from the date of the execution of the agreement in the case of regulatory approvals. -- Closing will occur after all regulatory and stockholder approvals are obtained, which is anticipated to be approximately nine to twelve months after signing. About MCI Inc. Headquartered in Clinton, Mississippi, WorldCom, Inc., now known as MCI -- http://www.worldcom.com/-- is a pre-eminent global communications provider, operating in more than 65 countries and maintaining one of the most expansive IP networks in the world. The Company filed for chapter 11 protection on July 21, 2002 (Bankr. S.D.N.Y. Case No. 02-13532). On March 31, 2002, the Debtors listed $103,803,000,000 in assets and $45,897,000,000 in debts. The Bankruptcy Court confirmed WorldCom's Plan on October 31, 2003, and on April 20, 2004, the company formally emerged from U.S. Chapter 11 protection as MCI, Inc. About Qwest Qwest Communications International Inc. (NYSE:Q) -- http://www.qwest.com/-- is a leading provider of voice, video and data services. With more than 40,000 employees, Qwest is committed to the "Spirit of Service" and providing world-class services that exceed customers' expectations for quality, value and reliability. At Dec. 31, 2004, Qwest Communications' balance sheet showed a $2,612,000,000 stockholders' deficit, compared to a $1,016,000,000 deficit at Dec. 31, 2003. QWEST COMMS: Opens 2 New Residential Solutions Centers in Arizona ----------------------------------------------------------------- Qwest Communications International Inc. (NYSE: Q) discloses the opening of new company retail stores in Flagstaff and Prescott. The company has opened nine new Qwest locations in the state during the last year as part of a region-wide retail expansion. Qwest now has 75 retail stores in 12 states. Qwest is the only communications provider to offer a full-service retail environment with personal, face-to-face assistance for a complete spectrum of communications choices. Customers can get expert advice and purchase wireless, high-speed Internet service, home-phone packages, long-distance service and DirecTV. Additionally, each Qwest store has a convenient bill drop, and all Qwest retail associates can make feature changes and assist with billing inquiries and technical support. "The Solution Center setting allows Qwest to provide customers with the high level of personal assistance and service that they are looking for," said Pat Quinn, Qwest state president for Arizona. "Bringing additional locations to Arizona allows Qwest to serve more customers in this face-to-face setting." Qwest's new locations are at Flagstaff Mall in Flagstaff and Prescott Gateway Mall in Prescott. Existing locations are: Desert Sky Mall, Arizona Mills, Qwest Service Center and Metrocenter in Phoenix; Superstition Springs Center in Mesa; and Park Place and Tucson Mall in Tucson. About the Company Qwest Communications International Inc. (NYSE:Q) -- http://www.qwest.com/-- is a leading provider of voice, video and data services. With more than 40,000 employees, Qwest is committed to the "Spirit of Service" and providing world-class services that exceed customers' expectations for quality, value and reliability. At Dec. 31, 2004, Qwest Communications' balance sheet showed a $2,612,000,000 stockholders' deficit, compared to a $1,016,000,000 deficit at Dec. 31, 2003. RELIANCE GROUP: Liquidator Wants to Sell Lot for $33.2 Million -------------------------------------------------------------- M. Diane Koken, Insurance Commissioner of the Commonwealth of Pennsylvania and Liquidator of Reliance Insurance Company, asks Judge James Collins of the United States Bankruptcy Court for the Southern District of New York for permission to sell 182.91 acres of real property to Greenway Associates, LLC, for $33,211,964. The parcel of real property is located in Loudoun County, Virginia. Jerome B. Richter, Esq., at Blank, Rome, in Philadelphia, relates that the Property was purchased in 1987 when RIC acquired 409 acres of land for $26,634,439, or $1.49 per square foot. Of the 409 acres, 112.5 acres were zoned residential and 296.5 were zoned commercial. At $1.49 per square foot, the 112.5 acres of residential land had a pro rata cost of $7,301,745, while the 296.5 acres of commercial land had a pro rata cost of $19,332,694. During the governmental approval process, 41.5 residential acres were designated and dedicated as flood plain, community recreational space, or roadway improvements. The remaining 71 net acres of residential land were sold in five transactions between 1999 and 2002 for $22,970,800. Of the 296.5 acres of commercial land, 84.7 acres were set aside and dedicated as flood plain, right-of-way or toll road use during the development approval process. The Property is part of the remaining commercially zoned land. While originally calculated to encompass 211.81 acres, a recent survey revealed that the parcel actually totals 210.53 acres. The Liquidator had an Agreement to sell this acreage to Toll Brothers Realty Trust for $16,511,000. However, the transaction was terminated after TB Realty Trust demanded unacceptable price concessions during the due diligence period. TB Realty Trust was the winner of a bidding process. After the termination of the TB Realty Trust contract, RIC's brokers re- established contact with other competing bidders, but none were willing to re-open negotiations. RIC determined that the Loudoun Parkway Center was not saleable on an as-is basis at the appraisal value. RIC investigated the possibility of rezoning selected portions of the remaining commercial land and discovered that there was a greater demand for retail commercial use than office commercial use. A mixed-use site, with significant retail footage, would present a better marketing platform for the remaining office land, as office users would demand immediate access to a variety of retail services. As a result, RIC began pursuing a strategy to rezone certain parts of the commercial land so portions could be used for retail commercial, office commercial and residential. Approximately 27.62 of the 210.53 remaining acres of commercially zoned property was sold to TC Midlantic Development, Inc., for $7,599,247 early in January 2004. The TC Midlantic Agreement, which was contingent on TC Midlantic having the 27.62 acres rezoned, has not been consummated. Loudoun County informed RIC and TC Midlantic that the rezoning call for was not likely to occur. Due to that fact and the potential sale of the larger parcel to Greenway, TC Midlantic asked RIC to sell the 27.62 acres without a rezoning condition at a reduced price-reflecting the diminished value under the existing "commercial office only" development restrictions. RIC is currently completing negotiations with TC Midlantic and expects to execute a new contract shortly. The new TC Midlantic contract will then be presented to the Commonwealth Court for approval. In early 2004, Loudoun County informed RIC that rezoning the remaining tract would be looked upon favorably if the property were sold to a developer unrelated to RIC with a significant national or local real estate development presence. RIC asked its brokers, Cassidy and Pinkard, to contact the former bidders to gauge interest in purchasing the Property conditioned on rezoning. Six large developers, three of which had a national presence, and all with a presence in Loudoun County, were asked to submit bids. Three complied and Greenway submitted the winning bid. The Agreement provides Greenway with the right to pursue rezoning at the Property at its sole cost and expense. Greenway will accept the Property in as-is condition. If the TC Midlantic Agreement is not consummated, Greenway is obligated to purchase the 27.62 acres, with the base purchase price will be increased to $37,300,000. If any contingencies increase the Purchase Price, Greenway will provide an irrevocable letter of credit amounting to $5,000,000 to secure its obligations to pay those additional amounts in the event the triggering approvals are obtained. Greenway has paid a $4,000,000 non-refundable deposit into escrow. RIC is obligated to spend up to $100,000 to cure any local code or other violations between the effective date of the Agreement and closing, if necessary. RIC will pay Cassidy and Pinkard a broker's fee of 3.5% of the Purchase Price, or $1,162,418. RIC has $2,508,800 in surety bonds securing certain bonded improvements and cash escrows of $574,244 securing certain escrowed improvements, posted with Loudoun County and the Loudoun County Sanitation Authority. Greenway will assume all of RIC's obligations to complete the improvements. Within 90 days of closing, Greenway will execute new Bond and Escrow Agreements with the Loudoun County Entities, assuming all liability and replacing RIC as obligor. To secure these obligations, at closing, Greenway will provide RIC with a $2,508,800 irrevocable letter of credit to secure the Bonds and will make a $574,244 cash payment to reimburse RIC for the cash escrow. Greenway is financially able to consummate the transition. Greenway is owned by Trident Investments, LLC, of Michigan. Trident indicated that as of October 31, 2004, it had total assets of $55,041,665. One of Trident's members is Anthony Soave. As of December 31, 2004, Mr. Soave and his wife had a total net worth of $452,942,000. The Liquidator obtained the advice of Robert G. Johnson, MAI of JMSP, Inc., located in Herndon, Virginia. Mr. Johnson prepared an appraisal report dated January 11, 2005, that calculated the fair market value for the Property as $19,300,000, in contrast to the Purchase Price of $33,211,964. Headquartered in New York, New York, Reliance Group Holdings, Inc. -- http://www.rgh.com/-- is a holding company that owns 100% of Reliance Financial Services Corporation. Reliance Financial, in turn, owns 100% of Reliance Insurance Company. The holding and intermediate finance companies filed for chapter 11 protection on June 12, 2001 (Bankr. S.D.N.Y. Case No. 01-13403) listing $12,598,054,000 in assets and $12,877,472,000 in debts. The insurance unit is being liquidated by the Insurance Commissioner of the Commonwealth of Pennsylvania. (Reliance Bankruptcy News, Issue No. 69; Bankruptcy Creditors' Service, Inc., 215/945-7000) REMEDIATION FINANCIAL: Disclosure Statement Hearing Set for Apr. 5 ------------------------------------------------------------------ The Honorable Charles G. Case II of the U.S. Bankruptcy Court for the District of Arizona will convene a hearing at 1:30 p.m., on April 5, 2005, to consider the adequacy of the Disclosure Statement filed by Remediation Financial, Inc., and its debtor- affiliates to explain their Joint Plan of Reorganization. The Debtors filed their Disclosure Statement and Joint Plan on Jan. 28, 2005. The Plan implements two major agreements entered by the Debtors in their bankruptcy proceedings: a) the Debtors' Settlement Agreement with Zurich American Insurance Company and certain of its affiliates, dated Dec. 22, 2004, and b) the Debtors' Purchase and Sale Agreement with Lewis-Soledad Canyon, L.L.C., dated Dec. 1, 2004. The consummation of the Plan is conditioned on the approval and completion of those two agreements and the funding provisions of the Plan rely upon them. The Zurich Settlement Agreement provides for the Debtors' settlement of their disputes with the Zurich Companies. The Court will convene a hearing to approve the Zurich Settlement Agreement on Mar. 10, 2005. The Purchase and Sale Agreement provides for the sale of substantially of the Debtors' real estate and related assets to Lewis-Soledad Canyon, LLC, or any other bidder approved by the Court. The Court will convene a hearing to approve the Sale Agreement on May 4, 2005. The Plan groups claims against and interests in Remediation Financial into four classes. Unimpaired claims consist of Other Priority Claims, totaling $4,800, which will be paid in full on the Effective Date. Impaired Remediation Financial Claims consist of: a) Non-Insider Unsecured Claims, to receive a Pro Rata portion of the proceeds of the sale of the unencumbered assets of Bermite Recovery LLC, after the payment in full of all Priority Claims; b) Insider Unsecured Claims, to receive their Pro Rata distribution of all remaining proceeds of the Remediation Financial Unencumbered Property only upon the full payment of Class 1 and Class 2 claims; and c) Equity Interests, which Myla Bobrow will retain following Plan's confirmation subject to the terms of a Voting Trust under the Plan. Debtor-affiliates RFI Realty, Inc., Santa Clarita, L.L.C., and Bermite Recovery L.L.C., have their own groups of claims and interests under the Plan and their respective treatments are specified under the Plan. Full-text copies of the Disclosure Statement and Joint Plan are available for a fee at: http://www.researcharchives.com/bin/download?id=050224022447 - and - http://www.researcharchives.com/bin/download?id=050224024357 Objections to the Disclosure Statement, if any, must be filed and served by March 29, 2005. Headquartered in Phoenix, Arizona, Remediation Financial Inc. is a real estate developer. The Company and its debtor-affiliate filed for chapter 11 protection on July 7, 2004 (Bankr. Ariz. Case No. 04-10486). Alisa C. Lacey, Esq., at Stinson Morrison Hecker LLP, represents the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed estimated assets of more than $100 million and estimated debts of $10 million to $50 million. SALOMON BROTHERS: Fitch Puts Low-B Ratings on 2 Cert. Classes ------------------------------------------------------------- Salomon Brothers Mortgage Securities VII, Inc.'s commercial mortgage pass-through certificates, series 2000-NL1, are upgraded by Fitch Ratings: -- $10.9 million class G certificates to 'AAA' from 'AA'; -- $5.9 million class H certificates to 'AA-' from 'A'; -- $4.2 million class J certificates to 'BBB+' from 'BBB'. In addition, Fitch affirms these classes: -- Interest-only class X at 'AAA'; -- $12.6 million class C at 'AAA'; -- $6.7 million class D at 'AAA'; -- 15.9 million class E at 'AAA'; -- $5 million class F at 'AAA'; -- $8.4 million class K at 'BB'; -- $3.3 million class L at 'B-'. Fitch does not rate the $4.8 million class M certificates. Classes A-1, A-2, and B have paid off in full. The upgrades reflect improved credit enhancement levels resulting from loan payoffs and amortization. Since Fitch's last rating action, five loans have paid off, reducing the outstanding certificate balance by 36%. As of the February 2005 distribution date, the pool's aggregate certificate balance has decreased 73.1% to $77.6 million from $334.2 million at issuance. None of the loans have lockout provisions. There is one loan (6.3%) in special servicing. The loan is secured by a 60,849 square feet - sf -- office property is Waltham, Massachusetts. The loan transferred to the special servicer in May 2004 due to imminent default. Since then, the loan has become 60 days delinquent due to a high vacancy and reduced market rents. The special servicer is in negotiations with the borrower for a possible work out and is considering a deed-in-lieu of foreclosure. SCIENTIFIC GAMES: Earns $4.4 Million of Net Income in 4th Quarter ----------------------------------------------------------------- Scientific Games Corporation (Nasdaq: SGMS) reported financial results for the fourth quarter and year ended Dec. 31, 2004. Revenues in the fourth quarter of 2004 were $182.6 million compared to $176.8 million in the fourth quarter of 2003. Net income was $4.4 million in the fourth quarter of 2004 compared to net income before non-cash preferred stock dividend of $15.0 million in the fourth quarter of 2003. In the fourth quarter of 2003, the non-cash preferred stock dividend was $2.0 million. EBITDA for the fourth quarter of 2004 was $51.2 million compared to $47.2 million in the comparable period of 2003. During 2004, revenues increased to $725.5 million from $560.9 million in 2003, an increase of 29%. Net income before preferred stock dividend was $65.7 million in 2004, compared to net income before non-cash preferred stock dividend of $52.1 million or $0.59 per diluted share in 2003. The preferred stock dividend was $7.7 million in 2003 and $4.7 million for 2004. The preferred stock dividend was eliminated when the holders converted the preferred stock into common stock in August 2004. EBITDA was $209.0 million in 2004, an increase of 33% from $157.0 million in 2003. The Company benefited from strong instant lottery ticket sales, the acquisition of IGT OnLine Entertainment (OES) and the launching of the new online lottery in North Dakota and the new instant ticket lottery in Tennessee throughout 2004 as well the fourth quarter of 2004. These results were partially offset by: -- a $16.9 million charge in connection with its December 2004 debt refinancing and the repayment of most of its previously outstanding subordinated debt; -- a $6.1 million charge for its share of startup costs for the Italian joint venture that began selling instant tickets in June 2004; and -- approximately $3.1 million of non-recurring charges in the pari-mutuel segment largely as a result of adjustments identified during completion of its Sarbanes-Oxley review. Net income for the fourth quarter of 2004 before these unusual items would have been $22.5 million for the fourth quarter of 2004, and $83.8 million. Lorne Weil, Chairman and CEO, commented, "In many respects, the fourth quarter was a very exciting one for our company. We concluded a debt refinancing that enabled us to virtually eliminate our 12-1/2% senior subordinated notes; converted most of our floating rate debt into fixed rate instruments; and increased our credit facilities by $300 million. The result of this balance sheet restructuring is approximately $10 million less in interest expense for 2005 and the addition of substantial resources to grow the company far into the future." "Instant ticket revenues continued to be extraordinarily strong in the quarter, especially among our cooperative services customers," Mr. Weil continued. "We won a new instant lottery contract for the Louisiana Lottery, the extension of our Iowa online lottery contract, as well as a new video lottery monitoring and control agreement for Maine -- together representing at least $22.3 million in revenues over the next few years." "In fact, the whole of 2004 was a very successful year for us as we won the $67 million Loteria Electronica online lottery award in Puerto Rico; extended all five of the US online lottery contracts that were eligible for extension; added three new instant lottery ticket customers, bringing us to 26 US customers for whom we are the primary supplier; extended our cooperative services contract with the Pennsylvania Lottery; and won the two new video lottery monitoring contracts in New Mexico and Maine. In Germany we closed on the acquisition of the instant ticket provider, Printpool Honsel, launched our third Internet-based wagering game, and just signed an agreement to provide Oddset wagering services for Sports Toto in Korea." "Although pari-mutuel and venue management revenues have declined from last year, management is in the process of improving the operations of those divisions by negotiating new agreements and pursuing new venues. During 2004, we added four new tote services customers for total of $3.8 million in revenues over the terms of their respective contracts. Scientific Games Racing also won several contract extensions securing over $9 million in revenues over the extension periods. Our simulcasting division has signed six new customers and extended several contracts, representing $8.5 million in revenues. New management at Autotote Enterprises has signed two new racebook agreements, one with Isle of Capri for its Our Lucaya casino in the Bahamas and the other with TRAXCO, Inc. for the racetrack and off-track betting locations on St. Croix. In addition, to attract more account wagering in Connecticut, our cable television horseracing show is currently broadcast into a total of 700,000 cable subscribers' homes." Outlook "In 2005 all indications are that instant lottery ticket sales will continue to be robust both at home and abroad," Mr. Weil continued. "Higher price point games, licensed brand tickets and new instant ticket play styles all drive sales and we believe these products will continue to be popular. Our new, networked vending solutions are also encouraging customers to expand their distribution of lottery products." "Our focus on expanding our international presence has yielded tangible results. In Italy instant ticket sales have already reached the $1.4 billion annualized retail sales level. The acquisition of Printpool Honsel, completed in December, should enable us to help German lotteries realize substantial increases in their sales over the next few years. We also just launched our third Internet-based gaming system in Germany bringing to eight the number of Germany lotteries for which we provide maintenance and support. These gaming systems offer lottery games, sports wagering and instant games through the Internet." "In recent years, online lottery sales growth has been tied to the large jackpots typical of the multi-state games like Powerball(R) and MegaMillions(R). In 2004 Scientific Games introduced a new online game in Pennsylvania called Match 6(TM) which was extremely successful. Now Delaware is about to launch its own version. Match 6(TM) is the first in a full line of new online lottery games the company plans to roll out over the next several years." Mr. Weil said, "As many of you know, we announced an important strategic alliance with International Game Technology (IGT) in mid-January. As we submit bids to provide our AEGIS(R)-Video central monitoring and control systems for government-sponsored gaming networks, we will now be including features offered by IGT's Advantage(R) System such as loyalty management programs, accounting and E-Z Pay systems. We believe this will be a unique and successful combination of features." Sarbanes-Oxley In connection with the preparation of the Company's consolidated financial statements for the year ended December 31, 2004, the Company determined that it had an internal control deficiency that constitutes a "material weakness" as defined by the Public Company Accounting Oversight Board's Accounting Standard No. 2. The Company has concluded that it had insufficient personnel resources and technical accounting expertise within the accounting function to resolve non-routine or complex accounting matters. As a result, management will be unable to conclude that the Company's internal controls over financial reporting are effective as of Dec. 31, 2004. Therefore Deloitte & Touche LLP will issue an adverse opinion with respect to the Company's internal controls over financial reporting. The Company is in the process of remediating this material weakness. Over the past year, Scientific Games has devoted significant resources to assess and strengthen its internal controls in the context of the Sarbanes-Oxley Section 404 review. The indicated weakness concerns unusual accounting transactions and does not affect the Company's financial strength or business prospects. About Scientific Games Scientific Games Corporation -- http://www.scientificgames.com/-- is the leading integrated supplier of instant tickets, systems and services to lotteries, and the leading supplier of wagering systems and services to pari-mutuel operators. It is also a licensed pari-mutuel gaming operator in Connecticut and the Netherlands and is a leading supplier of prepaid phone cards to telephone companies. Scientific Games' customers are in the United States and more than 60 other countries. * * * As reported in the Troubled Company Reporter on Dec. 9, 2004, Moody's Investors Service raised its ratings on Scientific Games Corporation. The company's senior implied rating is now at Ba2. Moody's also assigned a B1 rating to the company's new $200 million senior subordinated notes due 2012 and a Ba2 rating to its new senior secured bank facility. The new senior secured bank facility is comprised of a $200 million 5-year revolver and a $100 million 5-year term loan. The rating outlook is stable. SEROLOGICALS CORP: Posts $3.5 Million of Net Income in 4th Quarter ------------------------------------------------------------------ Serologicals Corporation (NASDAQ:SERO) reported financial results for the fourth quarter and twelve months ended Jan. 2, 2005. Fourth quarter revenues increased 49.2%, to $69.2 million, compared to $46.4 million in the same period last year. Revenues for the year ended January 2, 2005 increased 33.4% to $195.9 million, compared to $146.9 million in the year ended December 28, 2003. As the result of its numerous acquisitions over the past three years, the Company has decided to provide pro forma results that exclude acquisition amortization and other similar acquisition related costs. The Company is providing pro forma information as an addition to, and not as a substitute for, financial measures presented in accordance with GAAP. Fourth quarter pro forma net income was $9.2 million, or $0.26 per share, compared with $7.4 million in the fourth quarter of 2003. Pro forma net income and pro forma earnings per share increased 23.2% and 8.3%, respectively. Pro forma net income from continuing operations for the year ended January 2, 2005 was $24.7 million, compared with $18.8 million for 2003. This represents an increase of 31.1% and 11.3% in pro forma net income and pro forma earnings per share, respectively. President & CEO Perspectives "We are very pleased with our strong finish for 2004 both in terms of revenue growth and increased profitability in all our business units," said David A. Dodd, President and CEO. "In 2004 we saw a remarkable transformation of Serologicals into becoming a truly global life sciences company focused on all aspects of the biomedical pipeline from drug discovery through bio-manufacturing. While achieving this significant transformation, we are pleased that we were able to exceed the annual guidance for revenue and earnings provided in January 2004 and also to achieve record revenue and pro forma earnings for the quarter and the year." "I am also particularly pleased with the pace of integration activities with respect to the acquisition of the Upstate Group. We have made significant progress in a number of critical functional areas including sales and marketing, manufacturing, accounting and finance, human resources, information systems and research and development. The Upstate business unit finished 2004 on a strong note with increased sales and delivery of drug screening services. As a result, for the quarter, Upstate delivered $15.4 million of revenue with increased gross margins and was accretive to our earnings in 2004 by more than $1.1 million in net income or $0.03 per share on a pro forma basis." Further commenting on the Company's performance, Mr. Dodd noted: -- "The Company said it purchased the assets of Specialty Media, a division of Cell & Molecular Technologies. Specialty Media develops and supplies a variety of specialty stem cell culture media formulations and supplements as well as cells and research reagent tools to the life science industry. This acquisition will further strengthen our leadership position in supporting stem cell research. -- "We completed the acquisition of the Upstate Group on October 14, 2004 which represented another significant step in positioning Serologicals as a major partner to our customers providing products and services to support drug research, discovery and development. At the same time, we announced the appointment of Aaron J. Shatkin, Ph.D, to the Company's Board of Directors. -- "On November 15, 2004, we announced the formation of Celliance which will focus on expanding the Company's customer base and revenue growth in the bioprocessing marketplace. The Celliance business unit is responsible for the research, development, manufacturing and commercialization of the Company's cell culture supplement and diagnostic products and contract research services through Celliance BioServices. We recently announced the entire senior management team of Celliance which is led by its business unit president, Dave Bellitt. -- "We continue to see positive results in our EX-CYTE(R) evaluation program. Approximately 500 new evaluations of EX- CYTE(R) were initiated during 2004 and approximately 115 evaluations were completed by year-end. Most promising, 32 of those companies have stated that they expect to use EX- CYTE(R) in their initial production processes. A number of those companies have already purchased EX-CYTE(R), albeit in limited quantities at this time. We continue to believe that this program will result in increased demand for EX-CYTE(R) in future years. -- "Our Celliance business unit recently announced the introduction of Hybri-CYTE(TM), a serum-free cell culture supplement designed for use in hybridoma cell lines. Hybri- CYTE(TM) is the first in a new line of supplements that are designed specifically to eliminate the use of fetal bovine serum while incorporating a number of Celliance's proprietary cell culture products including EX-CYTE(R), Probumin(TM) BSA and Incelligent(TM) animal free insulin. A patent has been filed for Hybri-CYTE(TM). -- "The engineering and customer validation of our new EX- CYTE(R) facility in Lawrence, KS continues on schedule and below budget. We have produced initial lots of EX-CYTE(R) at Lawrence and have demonstrated that the final product meets both our internal, as well as our customer specifications. Formal customer product testing and facility audits are currently commencing. We are also working with our customers to understand customer product demand requirements for 2005 and beyond in order to optimize the performance of our two EX-CYTE(R) manufacturing facilities. -- "Our research business units, Chemicon and Upstate, introduced 254 new products during the fourth quarter. Chemicon introduced 99 products, including new assays and reagents focused in the areas of neuroscience and stem cell research. In addition, Upstate introduced 155 products, including a range of new kinases, multiplex Beadlyte(R) assays and the new KinEase(TM) assays for Fluorescence Polarization (FP) based high throughput screening kinase inhibitors. Upstate is the industry leader in providing kinases used in kinase profiling with a current offering of almost 200 kinases and an aggressive plan to substantially increase its kinase panel by the end of 2005. -- "During the fourth quarter, Upstate completed the expansion of its drug screening facility in Dundee, Scotland. This expansion increased the available square footage from 11,000 square feet to over 25,000 square feet, significantly expanding its drug screening capacity. The expanded facility has been operational since December 2004. In addition, Upstate also recently announced that it has entered into separate agreements to provide drug screening services for four leading companies utilizing Upstate's KinaseProfiler(TM) service for determining selectivity and specificity of potential therapeutic proprietary compounds. -- "In December 2004, we completed the closing of a public offering of 4,830,000 shares of our Common Stock at a price of $22.80 per share. We received net proceeds of $105.2 million. We used approximately $80.0 million of the proceeds to repay our term indebtedness and the balance will provide additional resources to continue to pursue our strategic growth initiatives." Fourth Quarter Results Summary Revenues for the fourth quarter of 2004 totaled $69.2 million, compared to $46.4 million in the fourth quarter of 2003, an increase of 49.2%. The increase in revenues in the fourth quarter of 2004 over the same period in the prior year was due primarily to the sales increase in the Research segment. The primary reason for the increase in sales in the Research segment is the inclusion of Upstate results for the fourth quarter. Upstate sales for the fourth quarter were $15.4 million. Cell culture sales increased as the result of higher sales of recombinant human insulin during the quarter. Operating income for the fourth quarter of 2004 was $8.8 million, or 12.7% of revenue, compared to $10.9 million, or 23.6% of revenue, in the fourth quarter of 2003. Pro forma operating income before acquisition related amortization and other similar acquisition related costs was $15.3 million, or 22.1% of revenue in 2004 compared to $11.6 million or 24.9% of revenue in 2003. Cash flows from operating activities were $16.9 million in the fourth quarter of 2004 and $37.9 million for all of 2004. This compares to cash flows from operating activities of $14.8 million in the fourth quarter of 2003 and $18.1 million for the full year 2003. Performance Highlights Research Products and Services Research revenue in the fourth quarter of 2004 increased approximately $18.1 million, or 123.6%, over the prior year quarter. In addition to the increased revenue recorded as the result of the Upstate acquisition, Chemicon achieved revenue growth of 21% which was driven by significant contributions in the areas of neuroscience, molecular biology, bulk reagents and custom services. Upstate revenue, while not included in the 2003 operating results for the Company, grew 29% compared to the fourth quarter of 2003. Upstate growth was driven primarily by a 94% increase in revenue from Kinase Profiling services. Geographically, Research revenues increased 85% in Asia, 119% in Europe and 135% in North America. Cell Culture Products and Services Cell Culture revenue increased 18.2% to $28.5 million over the fourth quarter of 2003. EX-CYTE(R) sales in the quarter were $8.7 million, compared to $9.7 million in the fourth quarter of 2003. Sales of the Company's proprietary bovine serum albumin (Probumin(TM) BSA) in the fourth quarter of 2004 were $4.7 million, compared to $4.8 million in the fourth quarter of 2003. Sales of recombinant human insulin (Incelligent)(TM) were $11.2 million for the quarter compared with $6.7 million in the fourth quarter of 2003. Geographically, the quarterly revenue growth in Cell Culture products came from North America where revenue was up 24% over 2003 and up 26% in European sales over 2003. Sales to the rest of the world were down about $0.4 million for the fourth quarter compared to the fourth quarter of 2003. Diagnostic Products Diagnostic revenues were $7.9 million in the fourth quarter of 2004, compared with $7.6 million in the fourth quarter of 2003. Sales of diagnostic monoclonal antibodies and related products were $6.9 million in the fourth quarter of 2004, compared with $6.1 million in the prior year quarter. Sales of disease state antibodies, detection products and other diagnostic products decreased from the prior year, primarily because the prior year included sales of diagnostic products that were sourced from our donor center network, which was sold as part of the therapeutic plasma divestiture. Other Q4 2004 Financial Information -- Available cash and short-term investments at the end of the quarter were $62.1 million, compared with $48.6 million at the end of 2003. Accounts receivable totaled approximately $46.9 million at the end of 2004, compared with $34.1 million at the end of 2003. -- Capital expenditures for the fourth quarter of 2004 were $5.0 million and $19.8 million for the full year 2004. About Serologicals Serologicals Corporation (NASDAQ: SERO), headquartered in Atlanta, GA., develops and commercializes consumable biological products, enabling technologies and services in support of biological research, drug discovery, and the bioprocessing of life-enhancing products. Our customers include researchers at major life science companies and leading research institutions involved in key disciplines, such as neurology, oncology, hematology, immunology, cardiology, proteomics, infectious diseases, cell signaling and stem cell research. In addition, Serologicals is the world's leading provider of monoclonal antibodies for the blood typing industry. Serologicals employs a total of more than 1,000 people worldwide in three Serologicals' companies: Chemicon International, headquartered in Temecula, California, Upstate Group, LLC, headquartered in Charlottesville, Virginia and Celliance Corporation, headquartered in Atlanta Georgia. * * * As reported in the Troubled Company Reporter on Dec. 21, 2004, Standard & Poor's Ratings Services revised the outlook on life science company Serologicals Corporation to positive from stable in light of the company's use of equity financing to repay acquisition-related debt. The 'B+' corporate credit, 'BB-' bank loan, and 'B-' subordinated debt ratings on Atlanta, Georgia-based Serologicals are affirmed. The recovery rating of '1' is also affirmed. "The outlook revision reflects the company's improved capital structure and demonstrated commitment to the careful use of borrowings to support its growth initiatives," said Standard & Poor's credit analyst David Lugg. "The latter is evidenced by the recently completed equity offering." S K New York LLC: Voluntary Chapter 11 Case Summary --------------------------------------------------- Debtor: S K New York LLC 150-24 Northern Boulevard Flushing, New York 11354-0000 Bankruptcy Case No.: 05-12422 Chapter 11 Petition Date: February 24, 2005 Court: Eastern District of New York (Brooklyn) Debtor's Counsel: Gary M. Kushner, Esq. Forchelli, Curto, Schwartz, Mineo, et al. 330 Old Country Road PO Box 31 Mineola, New York 11501 Tel: (516) 248-1700 Fax: (516) 248-1729 Estimated Assets: $10 Million to $50 Million Estimated Debts: Unstated The Debtor did not file a list of its 20 Largest Unsecured Creditors. SOLUTIA INC: Wants Until July 11 to Remove State Court Actions -------------------------------------------------------------- Solutia, Inc., and its debtor-affiliates ask the U.S. Bankruptcy Court for the Southern District of New York to further extend the deadline to remove actions through and including July 11, 2005. The Debtors are parties to numerous civil actions and are represented by many different law firms in each of them. During the first year of their Chapter 11 cases, the Debtors and their professional restructuring advisors have been focused primarily on stabilizing and maintaining day-to-day operations, developing and implementing an overall business plan to serve as the basis for a plan of reorganization, analyzing complex contracts and relationships in connection with the implementation of the business plan, preparing and amending the Debtors' schedules of assets and liabilities and statements of financial affairs, establishing a bar date and beginning to analyze claims filed in relation to the bar date, and addressing certain litigation matters that are critical to the reorganization. The Debtors' decision concerning whether to seek removal of any particular Civil Action will depend on a number of factors, including: (a) the importance of the proceeding to the expeditious resolution of the Debtors' Chapter 11 cases; (b) the time it would take to complete the proceeding in its current venue; (c) the presence of federal questions in the proceeding that increase the likelihood that one or more aspects thereof will be heard by a federal court; (d) the relationship between the proceeding and matters to be considered in connection with the plan, the claims allowance process and the assumption or rejection of executory contracts; and (e) the progress made to date in the proceeding. The Debtors believe that the extension will afford them additional time to make fully informed decisions concerning the removal of the Civil Actions and assure that their valuable rights pursuant to Section 1452 of the Bankruptcy Code can be exercised in the appropriate manner. Headquartered in St. Louis, Missouri, Solutia, Inc. -- http://www.solutia.com/-- with its subsidiaries, make and sell a variety of high-performance chemical-based materials used in a broad range of consumer and industrial applications. The Company filed for chapter 11 protection on December 17, 2003 (Bankr. S.D.N.Y. Case No. 03-17949). When the Debtors filed for protection from their creditors, they listed $2,854,000,000 in assets and $3,223,000,000 in debts. (Solutia Bankruptcy News, Issue No. 32; Bankruptcy Creditors' Service, Inc., 215/945-7000) SOUTH BRUNSWICK: Administrator Names 3-Member Special Committee --------------------------------------------------------------- The Bankruptcy Administrator for the District of North Carolina names three individuals to serve on a Special Committee of Unsecured Creditors in South Brunswick and Sewer Authority's chapter 9 case pursuant to 11 U.S.C. 901, 1102(a) and 1102(b): 1. Gere Dale 46 Calabash Drive Carolina Shores, North Carolina 28467 2. Kenneth Grissett 231 Longwood Road Ocean Isle Beach, North Carolina 28469 3. Malcolm Grissett 361 Longwood Road, NW Ocean Isle Beach, North Carolina 28469 The Special Committee is composed of land owners and taxpayers in South Brunswick against whom taxes have been assessed. South Brunswick Water and Sewer Authority filed for chapter 9 protection on November 19, 2004 (Bankr. E.D. N.C. Case No. 04-09053-8). Trawick H. Stubbs, Jr., Esq., and Laurie B. Biggs, Esq., at Stubbs & Perdue, represent the Debtor in its restructuring efforts. When the Debtor filed for protection from its creditors, it estimated assets between $1 million and $10 million and debts from $10 million to $50 million. STATEN ISLAND: Moody's Reviewing Ba3 Ratings & May Upgrade ---------------------------------------------------------- Moody's Investors Service has placed the Ba3 ratings for Staten Island University Hospital on Watchlist for possible downgrade, affecting approximately $111 million of outstanding debt. Simultaneously, we are also placing the A3 rating of Staten Island's parent, North Shore-Long Island Jewish Health System (NS-LIJ), on Watchlist for possible downgrade, affecting approximately $480 million of outstanding debt (excluding the Staten Island debt, which is not included in NS-LIJ's Obligated Group). The Watchlist action is due to: - A pending settlement between Staten Island Hospital, the New York State Attorney General (AG), the US Attorney's Office and the U.S. Office of the Inspector General (OIG) that is expected to result in a payment by Staten Island that is considerably larger than the amount contemplated in May 2004 when we last took rating action - As part of the settlement, Staten Island could be required to make an upfront cash payment that could materially reduce its liquidity from approximately 32 days cash on hand as of December 31, 2004 - Uncertainty as to NS-LIJ's ongoing support for Staten Island - Preliminary Fiscal Year 2004 operating cash flow at SIUH that iIs 18% below budget We expect to make a rating decision within 90 days, following discussions with both Staten Island Hospital and NS-LIJ management, receipt of both organizations' FY 2004 audits and assessment of any credit impact that could result from final settlement terms with the AG, US Attorney's office and OIG. SYRATECH CORPORATION: Wants Ordinary Course Profs. to Continue -------------------------------------------------------------- Syratech Corporation and its debtor-affiliates ask the U.S. Bankruptcy Court for the District of Massachusetts, Eastern Division, for permission to continue employing professionals it turns to in the ordinary course of business without bringing formal employment applications to the Court every time. In the day-to-day performance of their duties, the Debtors regularly call upon various professionals, including attorneys, accountants, actuaries and other consultants to carry out their assigned responsibilities. Because of the nature of the Debtors' businesses, it would be costly, time-consuming and administratively cumbersome to require each Ordinary Course Professional to file and prosecute separate employment and compensation applications. The Debtors submit that the uninterrupted service of the Ordinary Course Professionals is vital to its ability to reorganize. The Debtors assure the Court that no payment to an ordinary course professional will exceed $35,000 per month. Although some of these Ordinary Course Professionals may hold minor amounts of unsecured claims, the Debtors do not believe that any of them have an interest materially adverse to the Debtors, their creditors or other parties in interest. Headquartered in Boston, Massachusetts, Syratech Corporation -- http://www.syratech.com/-- manufactures, markets, imports and sells tabletop giftware and home decor products. The Debtor along with its affiliates filed for chapter 11 protection on Feb. 16, 2005 (Bankr. D. Mass. Case No. 05-11062). When the Company filed for protection from its creditors, it listed $86,845,512 in total assets and $251,387,015 in total debts. SUPERIOR WHOLESALE: S&P Puts BB Rating on $52.20M Class D Notes --------------------------------------------------------------- Standard & Poor's Ratings Services assigned its preliminary ratings to Superior Wholesale Inventory Financing Trust XI's $2,229,671,000 floating-rate asset-backed term notes series 2005-A. The preliminary ratings are based on information as of Feb. 23, 2005. Subsequent information may result in the assignment of final ratings that differ from the preliminary ratings. The preliminary ratings reflect: -- credit enhancement sufficient to withstand losses at the assigned rating levels; -- a structure that includes certain amortization events, interest and principal allocation waterfalls, and several portfolio concentration thresholds limiting investor exposure to losses; and -- the underwriting and servicing capabilities of General Motors Acceptance Corp. Preliminary Ratings Assigned Superior Wholesale Inventory Financing Trust XI Class Rating Amount (mil. $) ----- ------ --------------- A AAA 2,000.00 B A 125.275 C BBB+ 52.198 D BB 52.198 TOWER AUTOMOTIVE: First Meeting of Creditors Scheduled for Apr. 29 ------------------------------------------------------------------ The U.S. Trustee for Region 2 will convene a meeting of Tower Automotive, Inc., and its debtor-affiliates' creditors on April 29, 2005, at 2:30 p.m., in the Office of the U.S. Trustee located at 80 Broad Street, 2nd Floor, in New York. This is the first meeting of creditors required under U.S.C. Sec. 341(a) in all bankruptcy cases. All creditors are invited, but are not required, to attend. This Meeting of Creditors offers the one opportunity in a bankruptcy proceeding for creditors to question a responsible office of the Debtor under oath about the company's financial affairs and operations that would be of interest to the general body of creditors. Headquartered in Grand Rapids, Michigan, Tower Automotive, Inc. -- http://www.towerautomotive.com/--is a global designer and producer of vehicle structural components and assemblies used by every major automotive original equipment manufacturer, including BMW, DaimlerChrysler, Fiat, Ford, GM, Honda, Hyundai/Kia, Nissan, Toyota, Volkswagen and Volvo. Products include body structures and assemblies, lower vehicle frames and structures, chassis modules and systems, and suspension components. The Company and 25 of its debtor-affiliates filed voluntary chapter 11 petitions on Feb. 2, 2005 (Bankr. S.D.N.Y. Case No. 05-10576 through 05-10601). James H.M. Sprayregen, Esq., Ryan B. Bennett, Esq., Anup Sathy, Esq., Jason D. Horwitz, Esq., and Ross M. Kwasteniet, Esq., at Kirkland & Ellis, LLP, represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $787,948,000 in total assets and $1,306,949,000 in total debts. (Tower Automotive Bankruptcy News, Issue No. 5; Bankruptcy Creditors' Service, Inc., 215/945-7000) TOWER AUTOMOTIVE: Trustee Appoints 7-Member Creditors Committee --------------------------------------------------------------- Deirdre A. Martini, the United States Trustee for Region 2, appoints seven unsecured claimants to the Official Committee of Unsecured Creditors in Tower Automotive, Inc., and its debtor- affiliates' Chapter 11 cases: (1) MST Steel Corporation of Kentucky 24417 Groesbeck Highway Warren, MI 48089 Attn: Richard Thompson Tel. No. (586) 773-5460 (2) The Bank of New York, as Indenture Trustee 101 Barclay Street New York, NY 10286 Attn: Martin Feig, Vice President Tel. No. (212) 815-5383 (3) HSBC Bank USA, National Association, as Indenture Trustee 10 East 40* Street New York, NY 10016 Attn: Sandra E. Honvitz, Vice President Tel. No. (212) 525-1358 (4) Quantum Partners c/o Soros Fund Management LLC 888 Seventh Avenue New York, NY 10106 Attn: Richard D. Holahan, Jr. Tel. No. (212) 397-5516 (5) The Worthington Steel Company 200 Old Wilson Bridge Road Columbus, OH 43085 Attn: Dave Burt, Credit Manager Tel. No. (614) 840-4047 (6) Wells Fargo Bank, National Association, as Indenture Trustee MAC N9303-120 Sixth and Marguette Minneapolis, Minnesota 55479 Attn: Julie J. Becker, Vice President Tel. No. (612) 316-4772 (7) Pension Benefit Guaranty Corporation 1200 K Street, N.W. Washington, D.C. 20005 Attn: Joel W. Ruderman, Esq., Staff Attorney Tel. No. (202) 326-4020 Official creditors' committees have the right to employ legal and accounting professionals and financial advisors, at the Debtors' expense. They may investigate the Debtors' business and financial affairs. Importantly, official committees serve as fiduciaries to the general population of creditors they represent. Those committees will also attempt to negotiate the terms of a consensual chapter 11 plan -- almost always subject to the terms of strict confidentiality agreements with the Debtors and other core parties-in-interest. If negotiations break down, the Committee may ask the Bankruptcy Court to replace management with an independent trustee. If the Committee concludes reorganization of the Debtors is impossible, the Committee will urge the Bankruptcy Court to convert the chapter 11 cases to a liquidation proceeding. Headquartered in Grand Rapids, Michigan, Tower Automotive, Inc. -- http://www.towerautomotive.com/--is a global designer and producer of vehicle structural components and assemblies used by every major automotive original equipment manufacturer, including BMW, DaimlerChrysler, Fiat, Ford, GM, Honda, Hyundai/Kia, Nissan, Toyota, Volkswagen and Volvo. Products include body structures and assemblies, lower vehicle frames and structures, chassis modules and systems, and suspension components. The Company and 25 of its debtor-affiliates filed voluntary chapter 11 petitions on Feb. 2, 2005 (Bankr. S.D.N.Y. Case No. 05-10576 through 05-10601). James H.M. Sprayregen, Esq., Ryan B. Bennett, Esq., Anup Sathy, Esq., Jason D. Horwitz, Esq., and Ross M. Kwasteniet, Esq., at Kirkland & Ellis, LLP, represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $787,948,000 in total assets and $1,306,949,000 in total debts. (Tower Automotive Bankruptcy News, Issue No. 5; Bankruptcy Creditors' Service, Inc., 215/945-7000) TRIKING LLC: Case Summary & 17 Largest Unsecured Creditors ---------------------------------------------------------- Debtor: Triking, LLC 6806 Bee Cave Road, Suite 1A Austin, Texas 78746 Bankruptcy Case No.: 05-10865 Type of Business: The Debtor operates a Burger King restaurant in Ferguson, Missouri. Chapter 11 Petition Date: February 18, 2005 Court: Western District of Texas (Austin) Judge: Frank R. Monroe Debtor's Counsel: Stephen W. Sather, Esq. Barron & Newburger, P.C. 1212 Guadalupe, Suite 104 Austin, TX 78701 Tel: 512-476-9103 Ext. 220 Fax: 512-476-9253 Estimated Assets: $100,000 to $500,000 Estimated Debts: $1 Million to $10 Million Debtor's 17 Largest Unsecured Creditors: Entity Nature Of Claim Claim Amount ------ --------------- ------------ Long Lane Master Trust IV Debt $4,800,000 85 Broad Street Value of Collateral: New York, NY 10004 $400,000 Missouri Dept. of Revenue Taxes $81,323 P.O. Box 840 Jefferson City, MO 65102 Burger King Corporation Franchise Fees $65,517 Attn: Jill Granat 5505 Blue Lagoon Drive Miami, FL 33126 Food Service Supply, Inc. Services $62,122 PFD Supply Services $7,764 Jani-King of St. Louis, Inc. Services $1,244 Aire-Master Services $457 PSI Armored, Inc. Services $399 Bluegrass Lawncare of St. Services $340 Louis, LLC MO-American Water Services $272 Commercial Pumping Services $207 King Uniform Services $185 Muzak Drive Thru Operations Services $173 Cintas Corporation Services $165 Angevine Bio Systems Services $89 Coca-Cola Enterprises Services $48 Oil Distribution Services $16 TRITON CDO: S&P Junks $26.75 Million Class B Notes -------------------------------------------------- Standard & Poor's Ratings Services placed its rating on the class A notes issued by Triton CDO IV Ltd. on CreditWatch with positive implications and, at the same time, affirmed its rating on the class B notes. Triton CDO IV is a high-yield arbitrage CBO transaction managed by Triton Partners LLC. The CreditWatch placement reflects factors that have positively affected the credit enhancement available to support the class A notes since the previous rating action in September 2004. The primary factors include an increase in the level of overcollateralization available to support the notes due to the transaction's de-levering and a slight improvement in the overall credit quality of the assets in the collateral pool. Following the Dec. 23, 2004, payment date, $24.704 million was paid down to the class A notes, resulting in outstanding principal (as a percentage of the original $169.000 million aggregate amount) of the class A notes of 11.63%. Standard & Poor's will be reviewing the results of current cash flow runs generated for Triton CDO IV Ltd. to determine the level of future defaults the rated tranches can withstand under various stressed default timing and interest rate scenarios, while still paying all of the rated interest and principal due on the notes. The results of these cash flow runs will be compared with the projected default performance of the performing assets in the collateral pool to determine whether the rating assigned to the notes remains consistent with the amount of credit enhancement available. Rating Placed on CreditWatch Positive Triton CDO IV Ltd. Rating Current bal. Original bal. Class To From (mil. $) (mil. $) ----- -- ---- ----------- ------------ A AA-/Watch Pos AA- 19.654 169.000 Rating Affirmed Triton CDO IV Ltd. Current bal. Original bal. Class Rating (mil.$) (mil. $) ----- ------ ------------ ------------- B CCC- 26.750 26.750 Transaction Information Issuer: Triton CDO IV Ltd. Co-issuer: Triton CDO IV Funding Corp. Current manager: Triton Partners LLC Underwriter: Prudential Securities Inc. Trustee: JPMorgan Chase Bank Transaction type: Cash flow arbitrage high-yield CBO TRUSSWAY INDUSTRIES: Creditors Must File Proofs of Claim by Mar. 1 ------------------------------------------------------------------ Creditors of Trussway Industries, Inc., and its debtor-affiliates have until Tuesday, March 1, 2005, to file their proofs of claim evidencing their right to payment on account of claims arising: * before December 7, 2004, if the claim is against Trussway; * before December 9, 2004, if claim is against one of the other Debtors. Proof of Claim forms must be received on or before 5:00 p.m. on March 1 by: Kurtzman Carson Consultants LLC c/o Trussway Industries, Inc. 12910 Culver Blvd., Suite I Los Angeles, California 90066-6709 or else the creditor is forever barred from asserting its claim. Headquartered in Houston, Texas, Trussway Industries, Inc., manufactures structural building products for simple to complex projects that include commercial buildings, large multi-family residential facilities, and single-family homes. Their creditors filed an involuntary chapter 11 protection on Dec. 7, 2004. (Bankr. S.D. Tex. Case No. 04-21670). Trey A. Monsour, Esq., at Haynes & Boone LLP, represents the petitioners in their involuntary chapter 11 petition against the Debtors. The Debtors owed approximately $34,815,257.73 to the petitioners. UAL CORP: Hires Jack B. Fishman & Associates as Local Counsel ------------------------------------------------------------- UAL Corporation and its debtor-affiliates seek the U.S. Bankruptcy Court for the Northern District of Illinois' permission to employ Jack B. Fishman & Associates of Crystal Lake, Illinois, as local counsel, nunc pro tunc as of Dec. 1, 2004. James H.M. Sprayregen, Esq., at Kirkland & Ellis, reminds the Court that it approved the retention of Pachulski, Stang, Ziehl, Young, Jones & Weintraub, for the limited purpose of pursuing avoidance actions. Pachulski does not have a local office in Chicago and requires the assistance of local counsel to appear before the Court and coordinate local filings. Therefore, Fishman will provide local counsel services to Pachulski. Fishman currently serves as Trustee for potentially pursuing over 10,000 potential preference actions aggregating $400,000,000 in potential preference payments for the GenTek Preference Claims Litigation Trust. Mr. Fishman is also Managing Director for Bankruptcy Administration for the Beloit Corporation. Fishman will not seek fees for its services. Instead, Fishman will only seek reimbursement from the Debtors' estates for actual costs incurred in connection with retention as local counsel. The costs to date do not exceed $1,500. Fishman will prepare, coordinate, document and pursue various adversary complaints as local counsel for Pachulski. Fishman is qualified and able to represent the Debtors in a cost- effective, efficient and timely manner. Fishman has experience in handling avoidance actions and adversary complaints. Fishman does not hold or represent an interest adverse to the Debtors' estates and Fishman is a "disinterested person" as that term is defined in Section 101(14) of the Bankruptcy Code. Headquartered in Chicago, Illinois, UAL Corporation -- http://www.united.com/-- through United Air Lines, Inc., is the holding company for United Airlines -- the world's second largest air carrier. The Company filed for chapter 11 protection on December 9, 2002 (Bankr. N.D. Ill. Case No. 02-48191). James H.M. Sprayregen, Esq., Marc Kieselstein, Esq., David R. Seligman, Esq., and Steven R. Kotarba, Esq., at Kirkland & Ellis, represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $24,190,000,000 in assets and $22,787,000,000 in debts. (United Airlines Bankruptcy News, Issue No. 76; Bankruptcy Creditors' Service, Inc., 215/945-7000) US AIRWAYS: Wants BofA Letter of Credit Procedures Clarified ------------------------------------------------------------ US Airways, Inc., and its debtor-affiliates ask the U.S. Bankruptcy Court for the Eastern District of Virginia to clarify the procedures that govern the letters of credit issued by Bank of America and its affiliates, Bank of America Mexico, S.A., Institucion de Banca Multiple and Grupo Financiero Bank of America. Prior to the bankruptcy petition date, the Bank of America Entities issued 20 commercial letters of credit for the Debtors to various beneficiaries. The Debtors' reimbursement obligations were secured by the Cash Collateral. At the beginning of the proceedings, Bank of America asked the Court to establish procedures for the letters of credit. The Court obliged on September 14, 2004. Now, the parties agree that the rights and obligations of Bank of America under the letter of credit order should apply to each of the Bank of America Entities that issued letters of credit for the Debtors. The parties agree that: (a) Upon any drawing under any of the Letters of Credit: (i) the applicable Bank of America Entity will be permitted, without further Court order, to set off and apply an amount of the L/C Cash Collateral equal to the amount of drawing, together with any related customary fees and charges associates with the payment thereof, and the automatic stay should be lifted for the limited purpose of enabling the set-off; and (ii) the Bank of America Entities will provide the Debtors with prompt written notification of the amount of drawing and identifying the particular Letter of Credit under which the drawing has been made; (b) The Bank of America Entities will retain the L/C Cash Collateral in an interest bearing account; (c) The Bank of America Entities will be permitted to pay from the L/C Cash Collateral its customary letter of credit fees, account charges, breakage costs, and related expenses associated with the Letters of Credit and the maintenance of the L/C Cash Collateral account; (d) The Bank of America Entities may renew any of the Letters of Credit or extend the maturity dates of any of the Letters of Credit or modify or amend any of the terms of any of the Letters of Credit, all as provided by and in accordance with the applicable documentation. The Bank of America Entities are permitted to provide the beneficiaries under any of the Letters of Credit with notices of the non-renewal of the respective expiry dates in accordance with the terms of each of the Letters of Credit; and (e) Upon the termination, cancellation, or expiration of all of the Letters of the Credit, the Bank of America Entities will return to the Debtors all remaining L/C Cash Collateral, after the payment of all reasonable and customary letter of credit fees, account charges, breakage costs, and related expenses. Headquartered in Arlington, Virginia, US Airways' primary business activity is the ownership of the common stock of: * US Airways, Inc., * Allegheny Airlines, Inc., * Piedmont Airlines, Inc., * PSA Airlines, Inc., * MidAtlantic Airways, Inc., * US Airways Leasing and Sales, Inc., * Material Services Company, Inc., and * Airways Assurance Limited, LLC. Under a chapter 11 plan declared effective on March 31, 2003, USAir emerged from bankruptcy with the Retirement Systems of Alabama taking a 40% equity stake in the deleveraged carrier in exchange for $240 million infusion of new capital. US Airways and its subsidiaries filed another chapter 11 petition on September 12, 2004 (Bankr. E.D. Va. Case No. 04-13820). Brian P. Leitch, Esq., Daniel M. Lewis, Esq., and Michael J. Canning, Esq., at Arnold & Porter LLP, and Lawrence E. Rifken, Esq., and Douglas M. Foley, Esq., at McGuireWoods LLP, represent the Debtors in their restructuring efforts. In the Company's second bankruptcy filing, it lists $8,805,972,000 in total assets and $8,702,437,000 in total debts. (US Airways Bankruptcy News, Issue No. 82; Bankruptcy Creditors' Service, Inc., 215/945-7000) USA FLORAL: ACON Investments Sells Florimex to Bencis Capital ------------------------------------------------------------- ACON Investments, a Washington, D.C.-based global private equity firm, has completed the sale of its controlling stake in Florimex International, B.V., to Bencis Capital Partners, a Dutch private equity investment group. Terms of the sale were not disclosed. Based In Aalsmeer, the Netherlands, Florimex is one of the leading marketers and distributors of fresh cut flowers, potted plants and decorative foliage worldwide. ACON acquired Florimex in November 2001, when it received Bankruptcy Court approval to purchase the International Division of U.S.A. Floral Products, Inc. The International Division included all of USAFP's operations outside the United States, which operated largely independent of USAFP's other operations. Under ACON's ownership and direction, Florimex underwent a significant transformation. Initiatives undertaken included relocating headquarters from Germany to the Netherlands, centralizing the Company's administrative offices, refinancing the capital structure assumed in ACON's original acquisition, turning around several underperforming divisions and reorganizing the management team. As a result of these initiatives and the exceptional leadership provided by Florimex's management team, ACON was able to more than triple its equity investment in Florimex in a period of 40 months. ACON Investments is a Washington, D.C.-based private equity investment firm which has managed approximately $725 million of capital. Founded in 1996, ACON manages private equity funds and special purpose partnerships with investments in the United States, Europe and Latin America. Among its activities, ACON is affiliated with Texas Pacific Group, one of the leading private equity organizations in the world. ACON pursues a theme-based investment strategy by focusing on industries or businesses at key inflection points in their development and pursues these opportunities in close partnership with established management teams. ACON has offices in Washington, D.C. and Madrid, Spain. Headquartered in Miami, Florida, USA Floral Products, Inc., together with its subsidiaries, filed for chapter 11 protection on April 2, 2001 (Bankr. D. Del. Case Nos. 01-01230 through 01-01246). William P. Bowden, Esq., at Ashby & Geddes, represents the Debtor in its restructuring efforts. When the Debtors filed for protection from their creditors, they listed $253,285,000 in total assets and $263,993,000 in total debts. The Court confirmed its chapter 11 plan on Dec. 12, 2001. USG CORP: Wants to Further Expand Scope of PwC's Service -------------------------------------------------------- USG Corporation and its debtor-affiliates seek the authority of the U.S. Bankruptcy Court for the District of Delaware to further expand the scope of PricewaterhouseCoopers, LLP's professional services in their chapter 11 cases. The Debtors want PwC to provide certain tax consulting services, on the terms subject to a supplemental engagement letter. Specifically, the Debtors expect PwC to: -- assist them with federal, state, local and foreign tax compliance and planning for the Debtors and their non- debtor affiliates; and -- provide other similar services as requested. The Debtors believe that the Tax Services are necessary to enable them to maximize the value of their estates and to reorganize successfully. The Debtors tell Judge Fitzgerald that PwC has a vast domestic and international accounting and tax consulting practice and has extensive experience in those fields. Moreover, PwC has provided professional services to the Debtors in the past and thus is familiar with the Debtors' structure and operations. The Debtors will pay PwC for its services on an hourly basis: Staff Level Hourly Billing Rate ----------- ------------------- Partner $520 Senior Manager $400 Manager $300 Senior Associate $200 Associate $150 Administrative Staff $75 PwC will also be reimbursed for necessary out-of-pocket expenses incurred. Dina M. Norris, a partner at PwC, assures the Court that the firm has no connection with the Debtors, their creditors and any other party with an actual or potential interest in their Chapter 11 cases. Headquartered in Chicago, Illinois, USG Corporation -- http://www.usg.com/-- through its subsidiaries, is a leading manufacturer and distributor of building materials producing a wide range of products for use in new residential, new nonresidential and repair and remodel construction, as well as products used in certain industrial processes. The Company filed for chapter 11 protection on June 25, 2001 (Bankr. Del. Case No. 01-02094). David G. Heiman, Esq., and Paul E. Harner, Esq., at Jones Day represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $3,252,000,000 in assets and $2,739,000,000 in debts. (USG Bankruptcy News, Issue No. 81; Bankruptcy Creditors' Service, Inc., 215/945-7000) WASHINGTON MUTUAL: Fitch Puts Low-B Ratings on Six Mortgage Certs. ------------------------------------------------------------------ Washington Mutual Asset Securities Corp. commercial mortgage pass- through certificates, series 2005-C1, are rated by Fitch: -- $310,994,758 class A-1 'AAA'; -- $228,000,000 class A-2 'AAA'; -- $49,583,000 class A-J 'AAA'; -- $8,942,000 class B 'AA'; -- $13,005,000 class C 'A'; -- $4,064,000 class D 'A-'; -- $5,690,000 class E 'BBB+'; -- $4,877,000 class F 'BBB'; -- $5,690,000 class G 'BBB-'; -- $8,128,000 class H 'BB+'; -- $3,252,000 class J 'BB'; -- $2,438,000 class K 'BB-'; -- $2,439,000 class L 'B+'; -- $812,000 class M 'B'; -- $1,626,564 class N 'B-'; -- $649,541,322 class X* 'AAA'. * Notional amount and interest only. All classes are offered publicly. The certificates represent beneficial ownership interest in the trust, primary assets of which are 215 fixed-rate, seasoned loans having an aggregate principal balance of approximately $649,541,322 as of the cutoff date. For a detailed description of Fitch's rating analysis, please see the presale report titled 'Washington Mutual Asset Securities Corp. Commercial Mortgage Pass-Through Certificates, Series 2005- C1' dated Feb. 1, 2005, available on the Fitch Rating's web site at http://www.fitchratings.com/ WESTAR ENERGY: Moody's Lifts Senior Unsecured Debt Rating to Ba1 ---------------------------------------------------------------- Moody's Investors Service upgraded the debt ratings of Westar Energy and its subsidiary Kansas Gas & Electric. The ratings upgraded include Westar's Issuer Rating to Ba1 from Ba2, senior secured bonds to Baa3 from Ba1, senior unsecured debt to Ba1 from Ba2, and preferred stock to Ba3 from B1. Moody's also affirmed Westar's SGL-2 liquidity rating. The ratings upgraded for Kansas Gas & Electric include its first mortgage bonds to Baa3 from Ba1, and senior secured lease obligation bonds to Baa3 from Ba2. This rating action concludes the review for possible upgrade that was initiated on January 20, 2005. The outlook is positive for both issuers. The upgrade reflects the factors of: 1) The company's successful divestiture of higher risk non- regulated businesses and its return to a pure-play regulated utility platform. 2) Balance sheet improvement due to significant debt reduction that has been achieved with proceeds from asset sales and equity issuance. 3) The expectation that cash flow metrics will continue to improve from historic levels. 4) Improvements in relations with the Kansas Corporation Commission (KCC), buoyed by the company's success in meeting the restructuring schedule that had been agreed upon with the KCC to be achieved by year end 2004. 5) The upgrade of Kansas Gas & Electric's senior secured lease obligation bonds to Baa3 from Ba2 reflects Moody's view of the value of the collateral associated with the base load Lacygne facility in comparison to the declining balance of the lease bonds. Westar Energy filed a debt reduction and restructuring plan with the Kansas Corporation Commission (KCC) in early 2003 that incorporated a strategy to divest its non-core businesses, reduce debt and increase the equity portion of its capital structure. Consistent with this strategy, management has successfully divested its investments in its Protection One security monitoring business and sold ONEOK, a gas distribution business. With the divestiture of its non-core businesses, the company has substantially reduced its business risk and leverage, and has increased the stability of its cash flows. The upgrade reflects the lower business risk profile associated with the company's remaining core utility business. The ratings upgrade also incorporates the improvement in the company's overall financial flexibility due to reduction of leverage from asset sale proceeds, equity issuances, and from lower financing costs resulting from the refinancing of high cost debt. The company has derived net proceeds of almost $950 million from non-core asset sales. Over the past two years, these asset sale proceeds, along with proceeds from the issuance of approximately $241 million of equity, facilitated approximately $1.9 billion of debt reduction including the deconsolidation of debt from divested assets. The positive outlook incorporates the expectation that the company's credit metrics will continue to improve more gradually over the next several years. Moody's considers it to be likely that the ratio of FFO to debt on an adjusted basis will improve to the 15-17% range, and that adjusted FFO to interest coverage will improve to the 2.9x to 3.4x range over the next two years. A further upgrade could be considered if the company demonstrates an ability to achieve these measures on a sustainable basis while maintaining a relatively low business risk profile. We expect the company to generate a sufficient level of internal cash flow to be able to meet its ongoing capital expenses, dividend payment obligations and be able to modestly reduce leverage in the near term. Near term uncertainties that could constrain the rating include a 2005 rate case filing, ongoing arbitration proceedings with former top executives, and shareholder lawsuits. Along with other predominantly coal-fired electric utilities, Westar Energy also faces the prospect of higher environmental spending to meet increased government regulations. Westar Energy is an integrated electric utility headquartered in Topeka, Kansas. The company, along with its principal subsidiary, Kansas Gas & Electric, serves approximately 644,000 customers in the state. WII COMPONENTS: Earns $2 Million of Net Income in Fourth Quarter ---------------------------------------------------------------- WII Components, Inc., reported results for the fourth quarter and fiscal year ended Dec. 31, 2004. Fourth Quarter 2004 Net sales for the fourth quarter 2004 increased approximately $8.4 million to $51.9 million, or 19.3% compared to the fourth quarter of 2003. This increase primarily relates to increases in volume due in part to overall industry growth and in part to market share gain, and upward price adjustments due to increases in raw material costs. Gross profit in the fourth quarter increased by approximately $2.5 million or 35.7% to $9.5 million up from last year's fourth quarter gross profit of $7.0 million. As a percentage of net sales, the gross profit increased 220 basis points. This increase results from improved operating efficiencies, lower medical and worker's compensation costs, and by leveraging our fixed costs over a larger sales base. This increase is partially offset by increases in raw material cost. Net income for the fourth quarter was $2.0 million, which is up approximately $0.7 million from a net income of $1.3 million for the fourth quarter last year. This increase was mainly due to the increased gross profit, and partially offset with higher interest costs. The fourth quarter 2004 includes approximately $0.7 million, net of tax, for higher interest cost related to the increase in indebtedness and higher interest rate in connection with the issuance of $120.0 million senior notes in February 2004. EBITDA for the fourth quarter was $8.4 million, up $2.9 million compared to $5.5 million for the same quarter last year. EBITDA after certain adjustments was $8.8 million, up approximately $3.1 million from an adjusted EBITDA of $5.7 million in the fourth quarter last year. Fiscal Year 2004 Net sales for the year ended December 31, 2004 increased approximately $29.5 million to $203.1 million, or 17.0% compared to 2003. Net income for the year ended December 31, 2004 was $4.3 million, a decrease of approximately $4.8 million from net income of $9.1 million for same period in 2003. Net income for the year ended December 31, 2004 includes approximately $3.5 million, net of tax, for higher interest cost related to the increase in debt and higher interest rate in connection with the issuance of $120.0 million senior notes in February 2004. It also includes approximately $2.1 million, net of tax, for a write-off of financing fees related to the senior credit facility from April 2003, which was subsequently paid off in February 2004. EBITDA for the year ended December 31, 2004 was $25.8 million, down $1.0 million compared to $26.8 million for the same period last year. EBITDA after certain adjustments was $32.0 million, up approximately $2.0 million from an adjusted EBITDA of $30.0 million in the same period last year. Total indebtedness as of December 31, 2004, includes the company's 10% Senior Notes Due 2012, is $123.1 million. This is a decrease of $4.2 million from September 30, 2004 due to a reduction on the senior secured revolving credit facility and payments on capital leases. The company's senior secured revolving credit facility, which has borrowing capacity up to $25.0 million, had a zero balance as of December 31, 2004. The leverage ratio was 3.9 times as of December 31, 2004, which is down from 4.4 times as of September 30, 2004. Working capital was $10.6 million as of December 31, 2004, which is down $1.9 million from the September 30, 2004 balance of $12.5 million. Capital expenditures were $5.7 million or approximately 2.8% of sales for the fiscal year of 2004. EBITDA and Adjusted EBITDA Management supplements the company's financial statements with EBITDA, defined as earnings before interest, taxes, depreciation and amortization, which is a non-GAAP financial measure and also makes certain adjustments to EBITDA. EBITDA is used because management believes it is a useful measure in the company's operating performance compared to that of other companies in the company's industry and also of the company's ability to service debt. Management believes this for several reasons. First, these measures eliminate the effect of long-term financing, income taxes and the accounting effects of capital expenditures, all of which may vary for different companies for reasons unrelated to overall operating performance. Next, EBITDA eliminates certain historical charges that management believes aren't relevant to the evaluation of the company's ongoing operations. However, neither EBITDA nor adjusted EBITDA is a measure of performance or liquidity under GAAP and neither should be considered as an alternative to net income or net cash flows provided by operating activities as determined in accordance with GAAP. The company's calculation of EBITDA and adjusted EBITDA may not be comparable to the calculation of similarly titled measures reported by other companies. About the Company WII Components, Inc. is one of the leading manufacturers of hardwood cabinet doors, hardwood components and engineered wood products in the United States. The company is headquartered in St. Cloud, Minnesota, and, together with its subsidiaries, has manufacturing plants in St. Cloud, Minnesota, Foreston, Minnesota, Bowling Green, Kentucky, Wahpeton, North Dakota, Orwell, Ohio and Molalla, Oregon. * * * Moody's Investor Services and Standard & Poor's assigned their single-B ratings to WII Components' 10% senior notes due 2012 last year. WINN-DIXIE: S&P Rating Tumbles to D After Bankruptcy Filing ----------------------------------------------------------- Standard & Poor's Ratings Services lowered its debt ratings on Winn-Dixie Stores Inc., to 'D', following the company's announcement that it and 23 of its U.S. subsidiaries filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Jacksonville, Florida-based Winn-Dixie had about $450 million of funded debt as of Jan. 12, 2005. At the same time, Standard & Poor's affirmed the recovery rating of '1' on Winn-Dixie's $600 million senior secured bank facility. The '1' recovery rating indicates a high expectation for full recovery of principal. "The affirmation is based on our assessment that the controls inherent in the bank facility are functioning properly to protect the interests of the lenders," explained Standard & Poor's credit analyst Mary Lou Burde. "As such, we believe the asset quality, borrowing base advance rates, and adequate reserves will allow for full recovery." The facility is secured by first-priority perfected liens on substantially all present and future assets of the borrower and its subsidiaries, subject to certain exceptions, including certain owned real estate and leasehold interests. To fund continuing operations during the restructuring, Winn-Dixie has obtained an $800 million debtor-in-possession (DIP) financing facility from Wachovia Bank N.A. The facility, which is subject to court approval, replaces the company's previous $600 million facility. Once the DIP loan is effective, the recovery rating on the existing facility will be withdrawn. Winn-Dixie's operating performance deteriorated significantly in recent years as better-positioned competitors gained market share. The company reported increased operating losses, negative cash flow, and reduced liquidity in its second quarter (ended Jan. 12, 2005), followed by a tightening of vendor credit. Winn-Dixie had previously announced a restructuring to include selected closings of stores, distribution centers, and manufacturing plants. As part of its Chapter 11 restructuring, the company will explore further asset rationalization, including the potential sale of all manufacturing operations. Still, Winn-Dixie will be challenged to stem the severe decline in sales and profitability in light of intensified competition. Complete ratings information is available to subscribers of RatingsDirect, Standard & Poor's Web-based credit analysis system, at http://www.ratingsdirect.com/ Headquartered in Jacksonville, Florida, Winn-Dixie Stores, Inc. -- http://www.winn-dixie.com/ -- is one of the nation's largest food retailers. The Company operates stores across the Southeastern United States and in the Bahamas and employs approximately 90,000 people. The Company, along with 23 of its U.S. subsidiaries, filed for chapter 11 protection on Feb. 21, 2005 (Bankr. S.D.N.Y. Case No. 05-11063). David J. Baker, Esq., at Skadden Arps Slate Meagher & Flom, LLP, and Sarah Robinson Borders, Esq., and Brian C. Walsh, Esq., at King & Spalding LLP represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $2,235,557,000 in total assets and $1,870,785,000 in total debts. (Winn-Dixie Bankruptcy News, Issue No. 1; Bankruptcy Creditors' Service, Inc., 215/945-7000) W.R. GRACE: Pacificorp & Vancott Plan Want to File Late Claim ------------------------------------------------------------- Pacificorp and the VanCott Bagley Cornwall & McCarthy 401(k) Profit Sharing Plan ask U.S. Bankruptcy Court for the District of Delaware for permission to file a late proof of claim against W.R. Grace & Co., arguing excusable neglect justifies the tardy filing. Pacificorp and the Vancott Plan assert claims for environmental cleanup costs incurred and to be incurred to clean up the Vermiculite Intermountain Site and its adjoining property, as to which the Environmental Protection Agency previously filed a timely proof of claim. Pacificorp owns a portion of the Subject Property and the VanCott Plan formerly owns the Subject Property. The Subject Property was contaminated with amphibole asbestos from a vermiculite exfoliating plant, which processed vermiculite from the Libby, Montana vermiculite mine. Grace and various related entities operated or arranged for the operation of the Vermiculite International Facility. The processed vermiculite was marketed under various Grace brand names, including Zonolite. In its Statements and Schedules, Grace listed a contingent, disputed, unliquidated environmental claim for Intermountain Insulation Co., located at 333 W. First Street, in Salt Lake City, Utah. Grace listed Intermountain's claim as "unknown." The Vermiculite Intermountain Site, which is included in the Subject Property, is located at that same address. On April 22, 2002, the Court entered an order setting March 31, 2003, as the last date for filing proofs of claim for all prepetition claims relating to asbestos property damage, non-asbestos claims, and medical monitoring claims. Richard S. Cobb, Esq., at Landis Rath & Cobb, LLP, in Wilmington, Delaware, relates that the Bar Date may not apply to Pacificorp's and the Vancott Plan's claims. The Instructions printed on the Proof of Claim Form state that it only applies to claimants who are "alleging property damage with respect to asbestos in real property owned by a party . . . from a Grace asbestos-containing product or as a result of one of Grace's vermiculite mining, milling, or processing facilities." It is unclear to what degree Pacificorp's and the Vancott Plan's claims result from Grace's asbestos-related activities. To the extent these claims are subject to the Bar Date, however, cause exists to grant Pacificorp and the Vancott Plan leave to file a late proof of claim. Mr. Cobb notes that Grace's Chapter 11 Plan has not made any distributions to creditors holding prepetition general unsecured claims. Moreover, a bar date has not been set for asbestos personal injury claims and certain claims related to Zonolite Attic Insulation. EPA's Proof of Claim and Pacificorp's Related Claim On March 28, 2003, the EPA filed a proof of claim asserting liabilities for environmental contamination at 32 specific sites, including the Subject Property. The EPA Claim asserts that Grace is liable to the United States pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 in connection with the cleanup of environmental contamination at the Vermiculite Intermountain Site in Salt Lake City. From 1940 through at least the late 1980s, a vermiculite expansion plant was located at the site. The EPA states that there have been releases or threatened releases of a hazardous substance at the site, as soils are contaminated with asbestos. Grace is liable to the United States because it was an operator of a facility at the site at the time hazardous substances were disposed of at that facility. Grace is, therefore, liable for unreimbursed response costs of at least $5,000, relating to the site, as of Jan. 31, 2003. Grace is also liable for future cleanup obligations at the site, which the United States estimates will cost at least $300,000 to complete. On July 29, 2004, PacifiCorp entered into an Administrative Order on Consent with the EPA in which PacifiCorp agreed to perform a removal action on its portion of the Subject Property, presumably the "future cleanup" of the site as described in the EPA Claim. The AOC states that the Subject Property includes the location of the Vermiculite Intermountain Facility and areas contaminated by asbestos emissions. The plant operated between the 1940's and possibly as late as 1984 and performed various production operations with vermiculite concentrate from the Libby Vermiculite Mine. The EPA's records show that the plant received at least 25,000 tons of vermiculite concentrate from the Libby Mine. The AOC also states that PacifiCorp owned the property on which the plant operated from 1944 until 1954, leasing the property to the operator of the exfoliation plant, and that PacifiCorp sold the property in 1954 and reacquired it in 1984. PacifiCorp estimates that the cost of its excavation of the contaminated soil will exceed $4 million. The VanCott Plan's Claim The VanCott Plan purchased a portion of the Subject Property in 1979. In 1984, the VanCott Plan sold a portion of the Subject Property to PacifiCorp and later sold the balance of its portion of the Subject Property in 1998. The VanCott Plan has not, to date, incurred cleanup costs or entered into an agreement or order with the EPA or any other party with respect to the Subject Property. The VanCott Plan has, however, been notified of potential environmental issues with respect to the Subject Property. By letter dated June 18, 2004, the EPA requested information from the VanCott Plan with respect to the Subject Property. PacifiCorp advised the VanCott Plan of potential liability by letter dated September 20, 2004. Although the VanCott Plan's liability with respect to the Subject Property has not yet been determined or quantified, the VanCott Plan deems it necessary to file a Proof of Claim against Grace. Claimants Were Unaware of the Bar Date According to Mr. Cobb, PacifiCorp's environmental personnel who dealt with issues leading to the AOC were unaware of the Bar Date. An inquiry was made to Rust Consulting, Inc., Grace's Claims Processing Agent, as to whether PacifiCorp was ever served with the Bar Date Notice package. However, Rust has not provided any evidence to PacifiCorp indicating that a Notice Package had been served. PacifiCorp has diligently searched, but can find no record of ever having received the Notice Package prior to the Bar Date's expiration. Utah Power & Light, a name under which PacifiCorp does business, received notice of Grace's filing for Chapter 11 protection on May 2, 2001, and filed a routine proof of claim for $1,375 covering electric services provided to a location outside Salt Lake City, which claim is unrelated to the Subject Property. PacifiCorp's Customer Service Division had no knowledge of the Bar Date, the contamination on the Subject Property, or Grace's connection to the vermiculite operations on the Subject Property. Mr. Cobb further informs the Court that the VanCott Plan did not receive notice of Grace's pending bankruptcy or of the Bar Date. Prior to receipt of the June 18, 2004 Letter, the VanCott Plan was not even aware of any potential liability with respect to the Subject Property. Grace has known of its potential and unquantified liability relating to the Vermiculite Intermountain Facility Site when it filed its Schedules and Statements, Mr. Cobb contends. Moreover, Grace was again apprised of its potential and unquantified liability relating to the Vermiculite Intermountain Facility Site on March 28, 2003, when the EPA filed its proof of claim. Mr. Cobb assures the Court that there is no danger of prejudice to Grace or its creditors since PacifiCorp's and the VanCott Plan's claims will not affect distributions. PacifiCorp's and the VanCott Plan's claims will not have a material impact on Grace's financial condition since they are insubstantial in comparison to the amount of Grace's total liabilities and the amount intended to be distributed to Asbestos Property Damage claimants. Although the final amount has not yet been determined, PacifiCorp's and the VanCott Plan's claims should be substantially less than $10 million. Given that the central task for Grace's Chapter 11 proceedings and the circumstances surrounding PacifiCorp's and the VanCott Plan's claims, as a matter of equity, the Court should allow PacifiCorp's and the VanCott Plan to each file a late claim. To avoid an inequitable result, the Court should not allow Grace to escape the environmental costs of nearly 30 years of vermiculite processing and at the same time retain the benefits of 30 years of profits. To avoid an inequitable result, the Court should not excuse Grace from the consequences of its action giving rise to the contamination of the Subject Property. Headquartered in Columbia, Maryland, W.R. Grace & Co., -- http://www.grace.com/-- supplies catalysts and silica products, especially construction chemicals and building materials, and container products globally. The Company and its debtor- affiliates filed for chapter 11 protection on April 2, 2001 (Bankr. Del. Case No. 01-01139). James H.M. Sprayregen, Esq., at Kirkland & Ellis, and Laura Davis Jones, Esq., at Pachulski, Stang, Ziehl, Young, Jones & Weintraub, represent the Debtors in their restructuring efforts. (W.R. Grace Bankruptcy News, Issue No. 80; Bankruptcy Creditors' Service, Inc., 215/945-7000) YUKOS OIL: Yukos & Group Menatep Seek U.S. Senate's Aid ------------------------------------------------------- The U.S. Senate Committee on Foreign Relations held a hearing February 17, 2005, entitled "Democracy In Retreat In Russia". The Committee seeks to examine the threats to democracy and the rule of law in Russia. One of Russia's actions that concerns the Committee involves its "campaign against Yukos [Oil Company] and Mikhael Khordokovsky". Steven Theede, Yukos' Chief Executive Officer, and Tim Osborne, managing director of Group Menatep, submitted written testimonies to Committee. Group Menatep is the majority owner of Yukos Oil Company, holding approximately 51% of Yukos equity capital through wholly owned subsidiaries. Mr. Theede stepped the Committee through the rise and fall of Yukos. According to Mr. Theede, the Kremlin's deliberate campaign against Yukos has serious implications for the United States. "Americans should be concerned about a Russian government still willing to unleash its agents in a ruthless campaign against companies or individuals. Likewise, we should be wary of a retreat from democratic values in Russia and a seeming level of instability, especially given Russia's strategic location and nuclear capability." Mr. Theede warns that as long as Russia's current system continues, "Yukos will not be the last company to find its rights violated and its assets seized by the Kremlin." A full text copy of Steven Theede's testimony is available at: http://foreign.senate.gov/testimony/2005/TheedeTestimony050217.pdf In his testimony, Mr. Osborne recounted his version the events or, rather, the "attacks" against Group Menatep. Mr. Osborne asked the U.S. Senate to recognize Group Menatep founders Mikhail Khodorkovsky, Platon Lebedev and Aleksey Pichugin as political prisoners. Mr. Osborne also alleged that Russia violated several international laws. "Given the current ominous trends in Russia, I note that many experts have called into question Russia's accession to the WTO, its participation in the Group of Eight, and in particular its hosting of the G8 meeting in 2006. As rules based organizations and a grouping of the world's leading democracies respectively, my personal experience has provided a stark example as to why the Russian Federation is not currently a suitable candidate for either," Mr. Osborne says. A full text copy of Tim Osborne's testimony is available at: http://foreign.senate.gov/testimony/2005/OsborneTestimony050217.pdf Headquartered in Houston, Texas, Yukos Oil Company -- http://www.yukos.com/-- is an open joint stock company existing under the laws of the Russian Federation. Yukos is involved in the energy industry substantially through its ownership of its various subsidiaries, which own or are otherwise entitled to enjoy certain rights to oil and gas production, refining and marketing assets. The Company filed for chapter 11 protection on Dec. 14, 2004 (Bankr. S.D. Tex. Case No. 04-47742). Zack A. Clement, Esq., C. Mark Baker, Esq., Evelyn H. Biery, Esq., John A. Barrett, Esq., Johnathan C. Bolton, Esq., R. Andrew Black, Esq., Fulbright & Jaworski, LLP, represent the Debtor in its restructuring efforts. When the Debtor filed for protection from its creditors, it listed $12,276,000,000 in total assets and $30,790,000,000 in total debts. (Yukos Bankruptcy News, Issue No. 10; Bankruptcy Creditors' Service, Inc., 215/945-7000) YUKOS OIL: Judge Clark Dismisses Bankruptcy Case ------------------------------------------------ On February 24, 2005, the Honorable Letitia Z. Clark of the U.S. Bankruptcy Court for the Southern District of Texas dismissed the Chapter 11 case of Yukos Oil Company. The Bankruptcy Court finds that Yukos is not a United States company, but a Russian company. The vast majority of the business and financial activities of Yukos continue to occur in Russia. Those activities require the continued participation of the Russian government, in its role as the regulator of production of petroleum products from Russian lands, as well as its role as the central taxing authority of the Russian Federation. "While there is precedent for maintenance of a bankruptcy case in the United States by corporations domiciled outside the United States, none of those precedents cover a corporation which is a central part of the economy of a nation in which the corporation was created," Judge Clark states. The Court also notes that Yukos' assets are massive relative to the Russian economy, and, since they are primarily oil and gas in the ground, are literally a part of the Russian land. "The sheer size of Yukos, and correspondingly, its impact on the entirety of the Russian economy, weighs heavily in favor of allowing resolution in a forum in which participation of the Russian government is assured," according to Judge Clark. The Court further doubts Yukos' ability to effectuate a reorganization. Since most of Yukos' assets are oil and gas within Russia, the company's ability to effectuate a reorganization without the cooperation of the Russian government is extremely limited. Judge Clark also finds that Yukos is seeking to substitute United States law in place of Russian law, European Convention law and international law, and to use the judicial structure within the United States to alter the creditor priorities that would be applicable in the law of other jurisdictions. Yukos appears to hope to subordinate its tax debt and transfer causes of action it believes it holds, into a trust for continued litigation. Judge Clark cites Yukos' move to transfer funds to banks in the United States less than one week before the Petition Date. According to Judge Clark, the primary purpose of the transfer was to attempt to create jurisdiction in the U.S. Bankruptcy Court. Under the Russian bankruptcy system, the Russian tax claims would have first priority of payment. Had Yukos sought bankruptcy in Russia, the Russian government, being its largest creditor, would have taken control of the proceeding. The Court retains jurisdiction for the purposes of considering fee applications, and determining the disposition of funds paid into the Court's registry. A full-text copy of Judge Clark's Memorandum Opinion is available at no charge at: http://www.researcharchives.com/bin/download?id=050224222744 Headquartered in Houston, Texas, Yukos Oil Company -- http://www.yukos.com/--is an open joint stock company existing under the laws of the Russian Federation. Yukos is involved in the energy industry substantially through its ownership of its various subsidiaries, which own or are otherwise entitled to enjoy certain rights to oil and gas production, refining and marketing assets. The Company filed for chapter 11 protection on Dec. 14, 2004 (Bankr. S.D. Tex. Case No. 04-47742). Zack A. Clement, Esq., C. Mark Baker, Esq., Evelyn H. Biery, Esq., John A. Barrett, Esq., Johnathan C. Bolton, Esq., R. Andrew Black, Esq., Fulbright & Jaworski, LLP, represent the Debtor in its restructuring efforts. When the Debtor filed for protection from its creditors, it listed $12,276,000,000 in total assets and $30,790,000,000 in total debts. * FTI Consulting to Acquire Ringtail Solutions for $35 Million -------------------------------------------------------------- FTI Consulting, Inc. (NYSE: FCN), the premier provider of corporate finance/restructuring, forensic and litigation consulting and technology, and economic consulting, has entered into a definitive agreement to acquire the assets of privately held Ringtail Solutions Group (Ringtail), including its operations in Australia, the United Kingdom and the United States. The transaction, which is valued at approximately $35.0 million, is subject to customary closing conditions and is expected to be completed by the end of February 2005. Established in 1997, Ringtail is a leading global developer of litigation support and knowledge management technologies for law firms, Fortune 500 corporate legal departments, government agencies and courts. Ringtail has developed a suite of integrated software modules to manage the information and workflow in complex legal cases. Specifically, Ringtail's technologies are designed to ensure quality, reduce risk, increase productivity and improve cost effectiveness in the review, preparation and production of litigation data. In addition, Ringtail's software has also been used in a transactional capacity to support "deal rooms" and merger and acquisition activity. Commenting on the acquisition, Jack Dunn, FTI's president and chief executive officer, said, "Technology services represent a critical growth engine for FTI generally and for our forensic and litigation consulting business specifically. Increasingly, the linchpin of major legal matters is rapid, thorough and secure document organization and control. Our clients face these challenges daily as they shape their responses to litigation, investigation, claims management and regulatory matters, such as Hart-Scott- Rodino filings. Having delivered Ringtail's applications to our clients as an Application Service Provider, or ASP, we stand perfectly positioned to lead this conversion as the company who best understands the technology and content sides of the equation. Through the further integration of Ringtail's technologies into our engagements, we can serve clients better, strengthen our relationships with them and enhance our overall service offerings. In addition, Ringtail's licensing model provides us with annuity-based revenue streams, further diversifying our business portfolio. "On behalf of FTI, I am pleased to welcome the talented Ringtail professionals to our company," added Mr. Dunn. "I know from our work together they will make a valuable contribution to our future growth and success." From a base of approximately $13.0 million, representing less than 6 percent of overall revenue in 2002, FTI's embedded technology and related services today comprise more than 10 percent, or $46.0 million, of the firm's business. The company believes that within two to three years the technology and related services offerings should generate revenues of approximately $100.0 million. Ringtail's software was designed specifically for the Internet, with particular emphasis on security and high volume. As a scalable, web-based application, it provides users with a flexible search and delivery framework and allows them to tailor their research to meet their individual information needs. Currently, Ringtail offers its products either through ASPs or as direct client installations. The ASP model allows clients to outsource information technology and case management needs. The direct install model allows clients to insource Ringtail's benefits within their existing infrastructure and accommodate particular data management or legacy requirements. With FTI's financial and human capital resources behind Ringtail's application technologies, FTI believes it can pursue content development in other areas already served by FTI, such as corporate finance/restructuring and economic consulting. As Ringtail's preferred North American ASP partner over the past three years, FTI has integrated Ringtail's applications into its complement of technology offerings. Consultants and technologists from both companies have worked closely across every aspect of the business including joint sales and marketing efforts, the identification and resolution of client-specific requirements and the development of product enhancements. Eddie O'Brien, president and chief executive officer of Ringtail, said, "[The] announcement is a natural extension of our already strong and proven working relationship. Joining FTI is a great strategic fit for Ringtail and our clients. As technologists, everyone on the Ringtail team wants to continue extending the reach and profile of our innovation; with FTI's reputation in forensic and litigation consulting, Ringtail's products and our significant presence in the international legal community, we are excited about the increased market opportunities this partnership will create. We also know from first-hand experience FTI's dedication to our people, products and clients. FTI shares our commitment to continue creating and supporting high- quality applications." The purchase price comprises $20.0 million of cash plus $15.0 million in shares of FTI common stock, approximately 5.5 times estimated pro forma earnings before interest, taxes, depreciation and amortization for Ringtail's fiscal year ending June 30, 2005, plus an earn-out over the next three years based on future performance. The cash portion of the purchase price will be financed by FTI from cash on hand and existing credit facilities. Assuming completion by the end of February 2005, the acquisition is expected to be neutral to FTI's earnings per share in 2005 due to rapid amortization of intangible assets, and is expected to be accretive to earnings by $0.03 to $0.06 per share in 2006. Ringtail will be integrated into FTI's Forensic and Litigation Consulting practice. About Ringtail Solutions Ringtail Solutions is a leading developer of Intranet-based legal and justice application technology for use with a web browser. Ringtail is a global corporation, formed in 1997, with established offices in Williamsburg, Virginia; Melbourne, Australia and London, UK. Ringtail's flagship product, Ringtail(TM) CaseBook provides knowledge management and case preparation through an Intranet repository for litigation document and information management and collaboration for legal cases. Additional information is available at: http://www.ringtailsolutions.com/ About FTI Consulting FTI Consulting is the premier provider of corporate finance/restructuring, forensic and litigation consulting and technology, and economic consulting. Located in 24 of the major US cities and London, FTI's total workforce of approximately 1,000 employees includes numerous PhDs, MBA's, CPAs, CIRAs, CFEs, and technologists who are committed to delivering the highest level of service to clients. These clients include the world's largest corporations, financial institutions and law firms in matters involving financial and operational improvement and major litigation. * Igor Muszynski Joins Chadbourne & Parke's Warsaw Office ---------------------------------------------------------- The international law firm of Chadbourne & Parke LLP disclosed that Igor Muszynski, previously the head of White & Case's energy practice in Warsaw, will be joining the Firm as an international partner in its Polish partnership. Three associates are also joining Chadbourne with Mr. Muszynski. The group joins Chadbourne's internationally prominent project finance practice, which ranks among the handful of leading project practices in the world. The Firm has worked for more than 20 years on regulatory matters, transactions, litigation, restructurings, and construction financings and refinancings. Clients include major power and industrial companies, financing sources, and government entities in the development and financing of energy and other infrastructure projects, the sale or acquisition (including privatizations) of energy-related assets or industrial companies, and the financial engineering that improves the value of these assets in the U.S. and abroad. "The addition of this team to our project finance group will allow us to focus on the further growth of our practice especially in view of Poland's accession to the European Union and future developments in the Polish economy," said Gabriel Wujek, managing partner of Chadbourne's Warsaw office. "The group brings a dedicated projects capability and extensive practical knowledge and experience in the energy sector. This will further enhance what we offer to clients not only in Poland, but throughout Central Europe, and will add to the already high caliber of our Warsaw practice." Mr. Muszynski, 37, previously was head of White & Case's energy practice in Warsaw. He is an international expert in legal regulations of infrastructure energy projects. Mr. Muszynski has advised Polish and foreign energy companies, local governments and customers of electrical energy and fuels. He specializes in regulatory issues and in providing advice in connection with project finance and privatization. Mr. Muszynski also has handled work for the Ministry of Industry and Trade advising on the restructuring and liberalization of the Polish energy sector, creation of Energy Law, and was involved in the process of conforming the Polish energy law to EU standards. Chambers Global 2004-2005 - The World's Leading Lawyers guide reports that Mr. Muszynski is a "brilliant regulatory expert with an impressive privatization track record." Mr. Muszynski received his LL.M. from Warsaw University. The three associates are Tomasz Chmal, Karol Lasocki, and Joanna Nowak. Mr. Chmal, 31, offers expertise in providing legal advice to clients in the energy sector. He has advised the largest energy distribution companies in Poland in connection with litigation and administrative disputes with electricity customers. Mr. Chmal participated in the privatization of one of the biggest lignite- fueled power plants in Europe and a lignite mine, as well as major combined heat and power stations; and has advised several Polish heat and power producers and electricity distribution companies in regulatory matters involving tariff application licensing and client relation affairs. He has assisted a number of energy companies in proceedings between Polish energy regulatory authority and antimonopoly matters. Mr. Chmal graduated from the Faculty of Law at the Adam Mickiewicz University. Mr. Lasocki, 26, handles matters dealing with EU law, civil law, commercial and administrative law, with particular emphasis on energy law. He advises Polish and foreign power generation and distribution companies, as well as electricity customers. Mr. Lasocki also acts as counsel in connection with project finance. He received his master of law degree, with honors, from Faculty of Law and Administration of the Warsaw University. Ms. Nowak, 28, specializes in energy law advising on such issues as: electricity trading, gas and heat supply agreements, tariffs; transmission services agreements; regulatory disputes before the President of the Energy Regulatory Authority and renewable energy- related issues. She received her master of law degree from Faculty of Law and Administration of the Gdansk University. "Our project finance practice throughout Europe continues on a strong growth trend and underscores Chadbourne's long-term commitment to the energy sector in Poland," said Charles K. O'Neill, Chadbourne's managing partner. "This group will add to our already impressive team, and will significantly enhance our capabilities in developing and structuring sophisticated financings for our clients throughout Central Europe." The Warsaw attorneys counsel clients on a wide range of matters, including mergers and acquisitions, banking and finance, securities, capital markets, venture capital, energy, telecommunications, privatizations, joint ventures, foreign investment, tax, corporate restructuring, litigation, intellectual property and technology, labor and employment, insurance, real estate development, environmental, trade (import/export), customs and duties, and governmental matters. Their clients include multinational corporations and other western investors, Polish state-owned and private companies, and Polish government departments such as the Ministries of Economy (previously of Industry and Trade), Privatization, Foreign Economic Relations and Finance. About Chadbourne & Parke LLP Chadbourne & Parke LLP, an international law firm headquartered in New York City, provides a full range of legal services, including mergers and acquisitions, securities, project finance, corporate finance, energy, telecommunications, commercial and products liability litigation, securities litigation and regulatory enforcement, white collar defense, intellectual property, antitrust, domestic and international tax, reinsurance and insurance, environmental, real estate, bankruptcy and financial restructuring, employment law and ERISA, trusts and estates and government contract matters. The Firm has offices in New York, Washington, D.C., Los Angeles, Houston, Moscow, Kyiv, Warsaw (through a Polish partnership), Beijing and a multinational partnership, Chadbourne & Parke, in London. For additional information, visit http://www.chadbourne.com/ * BOOK REVIEW: The White Labyrinth ---------------------------------- Authors: David B. Smith and Arnold D. Kaluzny Publisher: Beard Books Softcover: 276 pages List Price: $30 Order your personal copy at http://www.amazon.com/exec/obidos/ASIN/091070113X/internetbankrupt The co-authors, both professors in the health-care field, start their lucid critique of the health-care system with their belief that one has to have a clear understanding of the present system in order to "escape" from it to a better system offering health care to all segments of the public for affordable costs. A choice quote from the top business consultant and author Peter Drucker concisely gives the reason why knowledge of the present dysfunctional health system is crucial to dealing effectively with it: "Young people today will have to learn organization the way their forefathers learned farming." Another way of saying this in keeping with the authors' perspective toward today's health-care system might be, "Know your enemy." And after reading their critique, no one would argue that the present system is not more of an adversary with respect to the health needs and concerns of the majority of the public than it is a benefactor. Not only has the current system demonstrated a chronic inability to control costs and address basic health needs of a large proportion of the public, but it shows every indication of becoming ever more irrelevant to the supposed fundamental purposes of any health system. Without a thorough and accurate comprehension of the nature and workings of the current system, there is the likelihood that elements of it responsible for the general dysfunction will be included in any new system, leading to the same unwanted results. Over 80 years old (when the book was first published in 1986), the U.S. health-care system has become "a maze of budget overruns, professionals' self-interest, and regulations [in which] seasoned professionals sometimes lose their way." In this system, policymakers, whom one would suppose have both a normal humane desire for effective health care, instead inexplicably "are preoccupied with strategies for erecting more effective barriers to the utilization of services rather than tearing them down." Doctors, who should be at the center of the system, are instead but one group within the vast, complex system; and a group whose position and activities are all-too-often controlled by other groups such as administrators or HMO executives. About 1900, doctors accounted for 90 percent of all health-care workers. In today's system, doctors make up only seven percent, with only about 10 percent of this percentage identifying themselves as general practitioners rather than specialists. Some attention is given to the history of the U.S. health-care system formed in the early 1900s. The passage of Medicare legislation in 1965 from a combination of economic trends in the health-care field, realities which had already set into it, and public pressures on politicians is cited as a crucial turning point leading to today's brobdingnagian, bureaucratized system. In this watershed moment, "[t]he definition of health care as an economic good rather than a social relationship or professional service gained ascendancy." At the time of the debates and legislation on Medicare, individuals in the fields of investment and finance recognized the changes being brought to the health- care field, making health care the "hottest investment area in the stock market." But all the problems of the health system cannot be traced to the passage of Medicare in the 1960s. Medicare was intended to solve major problems which had developed in the health-care system in the decades leading up to the 1960s. But unfortunately for much of the population, Medicare brought its own basket of problems. These were made all the more worrisome and difficult to deal with because of the strong support for the new system among politicians and the host of lobbyists and government bureaucracies which had quickly sprung up in connection with it. In their analysis and critique, Smith and Kaluzny also point to basic American cultural factors which work against a beneficial health-care system. As they note, the origins of American culture are found in the early settlers' desire to "get away from community pressures such as religion, military service, and taxation." Whereas a system such as Sweden's works because local medical-care boards in touch with their communities are the primary organizations, American health care suffers from the weak bonds of community resulting from the high value placed on individuality, social mobility, and similar cultural factors. After going through the origins and structure of the health-care system in general, the authors turn to organizations within the system and individuals in these organizations. They see the sprawling health-care system in general as the environment to which the organizations within it and the individuals working in these have to adapt to survive. It is this adaptation that makes for the layers of bureaucratic mindset leaving the system so resistant to change for the better. In the final section, "Escaping the Labyrinth," out of their clear-eyed critique, the authors specify a number of recommendations for making the health-care system more responsive and relevant. But more important than their recommendations, as pertinent and beneficial as these are, is the authors' formulation of four principles to guide any new practices or decisions in overhauling the system. These four guiding principles are decentralization, miniaturization, desegregation, and reappropriation. Desegregation for the health system means that services should be provided in the "least restrictive and least specialized settings consistent with good medical practices." This would limit the disproportionate place of specialists and routine use of costly technologies in health care. Reappropriation means that health services should be owned by those who use them, not corporate owners who operate them as profit centers fitting into a corporate structure. "The White Labyrinth" is different from any other critique of the U.S. health-care system. After reading it, one realizes that the criticism of the system one constantly hears in the media, often accompanied by a particular heart-wrenching vignettte of some unfortunate person neglected or harmed by it, is a dialogue about symptoms of the system, not ways to replace it or even improve it. Such criticisms are like punching a punching bag hanging from a beam--one can punch as hard as one wants as long as one wants, but the next day the bag will still be hanging there ready to absorb another round of punches with nary any effect on it. What Smith and Kaluzny accomplish in their "The White Labyrinth" is the inestimably valuable task of making the invisible visible. With this book, policymakers, officials, health-care workers, citizens, etc., can at least see the daunting task ahead of them in instituting a respectable health-care system in this country. As the authors say when uncovering the cultural factors making for a deeply-flawed health system, "They are invisible. We are only aware of them when we bump into them..."; when it is too late to do anything about them, like holes in the earth one falls into. Knowing the political, bureaucratic, and economic forces lined up against devising a better health-care system, one is not optimistic even with Smith and Kaluzny's outstanding analysis and counsel. But one is thankful that the book has been done as one voice sounding clearly for commonsense, reason, and humaneness. David B. Smith is a Professor of Healthcare Management at Temple University. Arnold D. Kaluzny is a Professor of Health Policy and Administration at the University of North Carolina-Chapel Hill. Both have written other books on health care. ********* Monday's edition of the TCR delivers a list of indicative prices for bond issues that reportedly trade well below par. Prices are obtained by TCR editors from a variety of outside sources during the prior week we think are reliable. Those sources may not, however, be complete or accurate. The Monday Bond Pricing table is compiled on the Friday prior to publication. Prices reported are not intended to reflect actual trades. Prices for actual trades are probably different. Our objective is to share information, not make markets in publicly traded securities. Nothing in the TCR constitutes an offer or solicitation to buy or sell any security of any kind. It is likely that some entity affiliated with a TCR editor holds some position in the issuers' public debt and equity securities about which we report. Each Tuesday edition of the TCR contains a list of companies with insolvent balance sheets whose shares trade higher than $3 per share in public markets. At first glance, this list may look like the definitive compilation of stocks that are ideal to sell short. Don't be fooled. Assets, for example, reported at historical cost net of depreciation may understate the true value of a firm's assets. A company may establish reserves on its balance sheet for liabilities that may never materialize. The prices at which equity securities trade in public market are determined by more than a balance sheet solvency test. A list of Meetings, Conferences and Seminars appears in each Wednesday's edition of the TCR. Submissions about insolvency- related conferences are encouraged. Send announcements to conferences@bankrupt.com. Each Friday's edition of the TCR includes a review about a book of interest to troubled company professionals. All titles are available at your local bookstore or through Amazon.com. Go to http://www.bankrupt.com/books/to order any title today. Monthly Operating Reports are summarized in every Saturday edition of the TCR. For copies of court documents filed in the District of Delaware, please contact Vito at Parcels, Inc., at 302-658-9911. For bankruptcy documents filed in cases pending outside the District of Delaware, contact Ken Troubh at Nationwide Research & Consulting at 207/791-2852. ********* S U B S C R I P T I O N I N F O R M A T I O N Troubled Company Reporter is a daily newsletter co-published by Bankruptcy Creditors' Service, Inc., Fairless Hills, Pennsylvania, USA, and Beard Group, Inc., Frederick, Maryland USA. Yvonne L. Metzler, Emi Rose S.R. Parcon, Rizande B. Delos Santos, Jazel P. Laureno, Cherry Soriano-Baaclo, Marjorie Sabijon, Terence Patrick F. Casquejo and Peter A. Chapman, Editors. Copyright 2005. All rights reserved. ISSN: 1520-9474. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The TCR subscription rate is $675 for 6 months delivered via e- mail. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are $25 each. For subscription information, contact Christopher Beard at 240/629-3300. *** End of Transmission ***