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/raid1/www/Hosts/bankrupt/TCR_Public/020131.mbx T R O U B L E D C O M P A N Y R E P O R T E R Thursday, January 31, 2002, Vol. 6, No. 22 Headlines AMC ENTERTAINMENT: Wants to Acquire Gulf States Theatres Assets ANC RENTAL: Panel Hires Berger & Epstein as Forensic Accountant ACTUANT: S&P Affirms Low-B Ratings Over Plans to Sell 3M Shares ADVANCED MICRO: S&P Rates New $500 Million Debt Issue at B AMES DEPT.: Court Okays Jaspan as Committee's Special Counsel ARMSTRONG HOLDINGS: Future Claimants Want to Hire Kaye Scholer ATLANTIC HARDWARE: Chapter 11 Case Summary BETHLEHEM STEEL: Court Okays Reimbursement of Union's Expenses BEYOND.COM: Chapter 11 Case Summary COVENTRY HEALTH: Fitch Assigns BB Rating to New $175MM Notes COVENTRY HEALTH: Commences Offering of $175MM 8.125% Sr. Notes CYPRESS BIOSCIENCE: Fails to Meet Nasdaq NTA Listing Requirement ELITE TECHNOLOGIES: Existing Working Capital Fund Running Dry ENRON CORP: Committee Seeks Court Approval to Trade Securities ENRON CORP: Severed Employees Ask Trustee to Appoint Committee FEDERAL-MOGUL: Court Okays W.Y. Campbell as Divestiture Advisor GENEVA STEEL: Seeks Court's Permission to Use Cash Collateral GLOBAL CROSSING: S&P Cuts Ratings to D After Bankruptcy Filing GLOBAL CROSSING: 5 Largest Secured Claims GLOBAL CROSSING: CIBC Discloses $130 Million in Credit Exposure HARTMARX: Full-Year Net Loss Stands at $13.9M on $601M Revenues HEXCEL CORP: Net Debt Slides-Down By $3.3 Million in Q4 2001 ICG COMMUNICATIONS: Court Further Extends Exclusive Periods IT GROUP: Seeks Okay to Pay $41M in Critical Trade Vendor Claims JFK IN'TL: Fitch Slashes Special Project Bonds Series 6 to BB+ KEY TECHNOLOGY: Completes Domestic Credit Facility Restructuring KMART CORP: Gets Okay to Continue Using Existing Bank Accounts KMART CORP: Joseph L. Harrosh Discloses 6.215% Equity Stake KMART CORP: Will Pay $60MM Pre-Petition Balance to Handleman KRAMONT REALTY: Fitch Affirms BB- Ratings with Negative Outlook LTV CORP: Gets OK to Access $15M Interim Loans for Tubular Div. LOUISIANA-PACIFIC: Q4 Net Loss Jumps to $71MM on Decreased Sales MCCRORY CORP: Buxbaum/Century to Auction Assets on February 12 MCWATTERS MINING: Court Ratifies CCAA Plan in Canada NATIONSRENT INC: Wins Nod to Hire Richards Layton as Co-Counsel NTELOS: S&P Lowers Ratings, Citing Financial Covenant Concerns PEN HOLDINGS: S&P Drops Ratings to D After Filing Chapter 11 PHILIPS INT'L: Kmart Bankruptcy Likely to Delay Asset Sales PHOENIX INT'L: Working Capital Insufficient to Fund Operations PILLOWTEX CORP: Gets Approval to Expand Scope of KPMG's Work PROBEX CORP: Bechtel Group, et. al. Disclose 6.9% Equity Stake REGAL CINEMAS: Court Confirms Prepackaged Plan of Reorganization SERVICE MERCHANDISE: Proposes De Minimis Asset Sale Procedures STATIA TERMINALS: Adjusted EBITDA Slides-Down 7% in Q4 2001 SYSTEMS XCELLENCE: Workout Talks with Bank & Debtholder Continue TCT LOGISTICS: Court Appoints KPMG as Interim Receiver in Canada U.S. STEEL CORP: Fourth Quarter Net Loss Doubles to $121 Million UNIVERSAL AUTOMOTIVE: Sells Interests in Hungarian Foundry VSOURCE INC: Commences Conversion of Preferred Stock into Shares W.R. GRACE: Posts Improved Results in 2001 Fourth Quarter WARNACO GROUP: Pushing for Second Extension of Exclusive Periods ZANY BRAINY: Delaware Court Approves Joint Disclosure Statement * DebtTraders Real-Time Bond Pricing ********* AMC ENTERTAINMENT: Wants to Acquire Gulf States Theatres Assets --------------------------------------------------------------- AMC Entertainment Inc., one of the world's leading theatrical exhibition companies, said that it has executed a letter of intent to acquire the operations of Gulf States Theatres. In a related transaction, AMC will execute lease agreements with Entertainment Properties Trust (NYSE:EPR) for the Gulf States theatre real estate. AMC expects to complete both transactions by March 1. Gulf States Theatres operates five stadium-style megaplex theatres with 68 screens in the New Orleans area, where it is the market share leader. All five of the Gulf States theatre complexes have been built since 1997. "The acquisition of Gulf States Theatres exemplifies our strategy of acquiring high-quality assets in major markets," said AMC chairman and chief executive officer Peter Brown. "It will be an excellent fit and a great addition to our industry- leading circuit." The Gulf States transaction is the second acquisition planned by AMC. In December 2001, AMC announced it had signed a letter of intent to acquire GC Companies, Inc., parent company of General Cinema Theatres, pursuant to a plan of reorganization filed in the GC Companies bankruptcy proceedings. The GC acquisition is subject to bankruptcy court approval and other conditions. AMC Entertainment Inc. is a leader in the theatrical exhibition industry. Through its circuit of AMC Theatres, the Company operates 177 theatres with 2,836 screens in the United States, Canada, France, Hong Kong, Japan, Portugal, Spain, Sweden and the United Kingdom. Its Common Stock trades on the American Stock Exchange under the symbol AEN. The Company, headquartered in Kansas City, Mo., has a web site at http://www.amctheatres.com * * * As reported in the January 15, 2002 edition of the Troubled Company Reporter, Standard & Poor's assigned its triple-'C' rating, with stable outlook, to AMC Entertainment Inc.'s proposed Rule 144A $150 million senior subordinated notes due 2012. The international rating agency cited that AMC's credit measures remain weak on a lease-adjusted basis as a result of the company's heavy reliance on off-balance sheet financing. According to the report, EBITDAR coverage of interest plus rent was 1.25 times for the 12 months ending September 2001 and lease adjusted debt to EBITDAR was more than 5.5x. AMC continues to generate negative discretionary cash flow, which is a rating concern, although it has moderated as a result of improved profitability and reduced capital expenditures. DebtTraders reports that AMC Entertainment Inc.'s 9.500% bonds due March 15, 2009 (AMC1) are trading slightly below par, between 96 and 98. For real-time bond pricing, see http://www.debttraders.com/price.cfm?dt_sec_ticker=AMC1 ANC RENTAL: Panel Hires Berger & Epstein as Forensic Accountant --------------------------------------------------------------- The Statutory Committee of Unsecured Creditors of ANC Rental Corporation and its debtor-affiliates asks permission from the Court to retain Berger & Epstein P.A., nunc pro tunc to December 4, 2001, as its forensic accountant to conduct investigations into certain clearly defined, affirmative claims and causes of action that the Debtors' bankruptcy estates may have against certain third parties. Duncan M. Robertson, Chairman of the Statutory Committee of Unsecured Creditors, relates that the Firm was chosen during the Committee's first official meeting and was selected because of the Firm's experience and knowledge on the financial issues arising out of reorganizations under Chapter 11 cases. Over the past 23 years, the Firm has provided various services, including forensic accounting services to parties-in-interest in bankruptcy and other restructuring proceedings. Mr. Roberston informs the Court that Berger & Epstein will conduct forensic investigations on certain delineated affirmative claims and causes of action the Debtors' estates may have against third parties arising from AutoNation Inc.'s spin- off of ANC on June 30, 2000 and other future tasks. Morris I. Berger, shareholder of the firm of Berger & Epstein P.A., informs the Court that the firm will charge the Debtors as compensation for its services in accordance with the regular hourly rates of its professionals plus reimbursement of actual necessary expenses incurred in connection with this engagement. The current hourly rates of the firm's professionals are: Partner $230-$250 Senior Manager $190-$210 Manager $180 Senior Accountant $160 Para-professional $175 Mr. Berger assures that court that his firm does not have any relationship with any of the parties-in-interest in these cases and is a "disinterested person" in these cases as defined in the Bankruptcy Code. (ANC Rental Bankruptcy News, Issue No. 7; Bankruptcy Creditors' Service, Inc., 609/392-0900) ACTUANT: S&P Affirms Low-B Ratings Over Plans to Sell 3M Shares --------------------------------------------------------------- Standard & Poor's affirmed its double-'B'-minus corporate credit and senior secured debt ratings on Actuant Corp. In addition, the single-'B' subordinated debt rating on the company was affirmed. The outlook is stable. Total debt as of November 30, 2001, was about $330 million. The rating affirmations follow Actuant's announcement that it plans to sell three million shares of its class A common stock. Proceeds from the sale, which would total about $90 million based on the closing share price on January 23, 2002, will be used to reduce debt, including up to $70 million of the company's 13% senior subordinated notes due 2009. Pro forma for the transaction, Actuant's financial profile will improve, with total debt to EBITDA declining to about 3.0 times from 4.0x and EBITDA interest coverage increasing to about 3x from 2x. Nevertheless, Standard & Poor's expects the company to pursue acquisition opportunities that could result in increased debt levels and higher financial risk. Over time, total debt to EBITDA is expected to average about 3.5x and EBITDA interest coverage is expected to average 2.5x. The ratings on Actuant reflect its below-average business risk profile, with leading niche positions in small, cyclical industrial markets, combined with a heavy debt burden and modest cash flow protection. Actuant is a diversified provider of industrial products and systems to a variety of end markets. The company's tools and supplies segment (60% of sales) is the world's leading provider of high-force hydraulic industrial tools to various end markets, and North America's largest supplier of electrical tools and consumables through the retail do-it-yourself channel. The engineered solutions segment (40%) is the world's leading supplier of hydraulic cab-tilt systems for heavy-duty trucks and electrohydraulic automotive convertible top actuation systems, and North America's largest supplier of recreational vehicle slide-outs and leveling systems. The company's business strengths include leading market shares, with 70% of sales generated by products holding number-one positions, and strong operating profitability, with EBITDA margins of about 18%-19%. Challenges come from competitive market conditions and cyclical demand in certain end markets, including heavy-duty truck, recreational vehicle, automotive, and construction, all of which account for about one-half of Actuant's revenues. Nevertheless, Actuant's good geographic, customer, product, and end-market diversity should limit earnings and cash flow volatility. High financial risk results from an aggressively leveraged capital structure and thin cash flow protection. Operating results during fiscal 2001 were affected by the sharp decline in production of recreational vehicles and the slowing U.S. economy. Challenging end-market conditions are expected to continue during fiscal 2002. Nevertheless, Actuant's solid operating margins, low working capital intensity, and modest capital expenditure requirements should allow the company to generate modest free cash flow in the next few years. Free cash flow, combined with potential additional borrowings, is expected to be used to support the company's strategic growth objectives. Financial flexibility is fair, provided by discrete, salable business units and ample availability under a revolving credit facility. Outlook: Stable High debt leverage, exposure to cyclical end markets, and potential future acquisitions restrict upside ratings potential. Downside risk is limited by Actuant's leading market positions, good profitability, and fair business diversity ADVANCED MICRO: S&P Rates New $500 Million Debt Issue at B ---------------------------------------------------------- Standard & Poor's assigned its single-'B' rating to Advanced Micro Devices Inc.'s new $500 million convertible senior unsecured note issue due 2022. At the same time, Standard & Poor's affirmed its ratings on the company. The ratings on AMD reflect the challenges the company faces in executing its business plan in a very competitive market. Sunnyvale, California-based AMD manufactures personal computer microprocessors and "flash" memory chips. The company's more recent microprocessors have established good, but second-tier, positions in the consumer and small business personal computer market. However, the company continues to lack presence in the enterprise customer market and has only a modest position in the high-performance server market. Dominant competitor, Intel Corp., continues to cut its prices very aggressively on mainstream products, pressuring AMD's margins, however, AMD's manufacturing performance remains good. Furthermore, some PC makers have consolidated their purchases on Intel-based platforms to reduce manufacturing costs and simplify branding. AMD's financial performance will fluctuate, depending on the timing of new product introductions and pricing practices by the two competitors, while AMD has far lesser product development resources than Intel. Still, marketplace forces are expected to support AMD's continued presence as a microprocessor supplier. Flash memories are non-volatile, rewritable chips used to provide long-term storage of information, such as frequently called numbers, in cell phones and networking equipment. Despite the company's solid position in the flash memory industry, near- term prospects are weak due to continued stress in the communications markets. Although AMD generated record revenues of $4.6 billion and EBITDA of $1.9 billion in 2000, conditions weakened materially in 2001, and the company reported net losses from operating sources in the second half of the year. Still, a newly introduced microprocessor chip has raised AMD's average unit prices and helped the company trim its losses in the fourth quarter of 2001. AMD expects to return to profitability in the second of quarter 2002. Cash balances at December 31, 2001, were $870 million, adequate for near to intermediate term needs. The new debenture offering has enhanced financial flexibility, however, industry conditions remain challenging. Outlook: Stable AMD is expected to continue to be a significant participant in the personal computer microprocessor industry, and to remain a major supplier of flash memory chips, however, its financial flexibility is expected to remain limited. Rating Assigned Advanced Micro Devices Inc. $500 million senior unsecured debt rating B Ratings Affirmed Advanced Micro Devices Inc. Corporate credit rating B Senior secured bank loan B+ AMES DEPT.: Court Okays Jaspan as Committee's Special Counsel ------------------------------------------------------------- The Official Committee of Unsecured Creditors of Ames Department Stores, Inc., and its debtor-affiliates sought and obtained approval from the Court to retain Jaspan Schlesinger Hoffman LLP as substitute special counsel to the Committee, effective as of November 1, 2001. According to Art Tuttle, Co-Chairperson of the Official Committee of Unsecured Creditors, Harold Jones, Esq., who was the attorney providing services as the Committee's special counsel, left the firm of Gersten Savage & Kaplowitz LLP, and is now a member of Jaspan Schlesinger Hoffman LLP. Mr. Tuttle submits that the Committee seeks to retention of Jaspan as substitute special counsel because of the firm's extensive experience in and knowledge of business reorganizations under Chapter 11 of the Bankruptcy Code and to continue the services that have been provided by Mr. Jones. The Committee believes that Jaspan is qualified to represent it in these Cases in a cost-effective, efficient and timely manner. Specifically, the Committee will look to Jaspan: A. to undertake any investigation, litigation, or any other action on the Committee's behalf concerning matters that will not be addressed by the Committee's Counsel, Otterbourg, Steindler, Houston & Rosen, P.C.; b. to appear, as appropriate, before this Court, the Appellate Courts, and the United States Trustee, and to protect the interests of the Committee before said Courts and the United States Trustee; and c. to perform all other necessary legal services in these Cases. Harold D. Jones, Esq., advises that Jaspan Schlesinger Hoffman LLP, will bill at its customary hourly rates: Partner $250-$410 Associate $170-$250 Paralegal/Legal Assistant $ 85 Mr. Jones asserts that the members and associates of JSH do not have any connection with the Debtors, their creditors or any other party in interest, or their respective attorneys. The Committee is also satisfied that Jaspan represents no adverse interest to the Committee which would preclude it from acting as counsel to the Committee in matters upon which it is to be engaged, and that its employment will be in the best interest of the estates. (AMES Bankruptcy News, Issue No. 12; Bankruptcy Creditors' Service, Inc., 609/392-0900) * * * DebtTraders reports that Ames Department Stores' 10.000% bonds due 2006 (an issue in default) (AMES1) are trading between 1 and 3. See http://www.debttraders.com/price.cfm?dt_sec_ticker=AMES1 for real-time bond pricing. ARMSTRONG HOLDINGS: Future Claimants Want to Hire Kaye Scholer -------------------------------------------------------------- Dean M. Trafelet, as legal representative for future claimants in the chapter 11 cases of Armstrong Holdings, Inc., and its debtor-affiliates, asks Judge Newsome to authorize and approve his employment of the law firm of Kaye Scholer LLP nunc pro tunc to December 20, 2001, as his lead counsel. Subject to the Court's Orders, Kaye Scholer will assist Mr. Trafelet by: (a) Providing legal advice with respect to the Future Representative's powers and duties as Future Representative for the Future Claimants; (b) Taking any and all action necessary to protect and maximize the value of the Debtors' estates for the purpose of making distributions to Future Claimants and to represent Future Claimants in connection with negotiating, formulating, drafting, confirming and implementing a plan of reorganization and performing such other functions as are set out in Code section 1103(c) or as are reasonably necessary to effectively represent the interests of Future Claimants; (c) Preparing, on behalf of the Future Representative, necessary applications, motions, objections, answers, orders, reports and other legal papers in connection with the administration of these estates in bankruptcy; and (d) Performing any other legal services and other support requested by the Future Representative in connection with these chapter 11 cases. The attorneys presently designated to represent the Future Representative and their current standard hourly rate are: Hourly Name Position Rate ---- -------- ------- Michael J. Crames Partner $690 Andrew A. Kress Partner $605 Benjamin Mintz Associate $415 Scott I. Davidson Associate $395 Nicholas J. Cremona Associate $335 Other Kaye Scholer attorneys and paraprofessionals will, from time to time, serve the Future Representative in connection with the services described in the Application. The hourly rate for Kaye Scholer attorneys and paraprofessionals are within the following ranges: Partners $425 to $690 Counsel $385 to $475 Associates $215 to $430 Paraprofessionals $100 to $175 Michael J. Crames, Esq., a partner with Kaye Scholer, avers that Kaye Scholer does not hold or represent an interest adverse to the Debtors' estates; is a disinterested person within the meaning of the Bankruptcy Code; and has no connection with the Debtors, their creditors or other parties in interest in these cases. However, Mr. Crames advises that Kaye Scholer has represented, represents, or may represent certain of the Debtors' creditors in other matters unrelated to the Debtors or these cases, or have had other dealings with creditors of the Debtors which are also wholly unrelated to these cases. Kaye Scholer has represented and may continue to represent defendants in the asbestos-liability litigation unrelated to the Debtors or these chapter 11 cases. Kaye Scholar has not represented such entities in matters involving the Debtors and will not do so during the term of Kaye Scholer's engagement. Specifically, from November 1999 to December 2001, Kaye Scholer represented PPG Industries, Inc., in certain New York City asbestos litigation in which PPG has been named as a party in approximately 6,000 personal injury asbestos lawsuits involving approximately 12,000 named plaintiffs. PPG's insurance carriers have transferred the cases to another law firm which has been substituted for Kaye Scholer. Kaye Scholer also represented one or more of the following welding industry group members in approximately 40 asbestos cases pending in the New York State Supreme Court: The Lincoln Electric Company, Hobart Brothers Company, BOC Group, and Eutectic Court. From time to time, Kaye Scholer has represented, may currently represent, and may in the future represent various entities for the purposes of providing advice and counsel in connection with asbestos-related liabilities in matters wholly unrelated to the Debtors. Kaye Scholer has represented, may currently represent, or may in the future represent certain parties in interest or their affiliates in matters wholly unrelated to the Debtors' cases. These parties are: JPMorgan Chase Bank; Deutsche Bank; Barclays Bank, PLC; Wells Fargo Bank Minnesota, N.A.; Mellon Bank, N.A.; Bankers Trust Company; Occidental Chemical Corporation; Fleet National Bank; Morgan Guaranty Trust Company of New York; Bank of America National Trust & Savings Association; Citibank, N.A.; First Union National Bank; HSBC Bank; Marine Midland Bank; Societe Generale Finance Limited; Fortis; Banque Nationale de Paris; PNC National Bank, N.A.; Westdeutsche Landesbank; The Bank of New York; and The Principal Mutual Life Insurance Company. Kaye Scholer also serves as co-counsel to the Southwest Recreational Industries, Inc., in connection with its claims against Nitram, and Armstrong as guarantor, relating to Southwest's purchase of Nitram's artificial surface; i.e., Astroturf, business under a contract from June 1999. Southwest's motion for entry of an order shortening Nitram's time to assume or reject that agreement has been pending since the spring of 2001, and an evidentiary hearing has not yet been held. Finally, Kaye Scholer also assisted in the preparation and filing of proofs of claim on behalf of Quigley Company, Inc., and Pfizer, Inc., but does not intend to represent these entities in connection with these chapter 11 cases. (Armstrong Bankruptcy News, Issue No. 16; Bankruptcy Creditors' Service, Inc., 609/392-0900) ATLANTIC HARDWARE: Chapter 11 Case Summary ------------------------------------------ Debtor: Atlantic Hardware & Supply Corporation 5-20 54th Avenue Long Island City, NY 11101 Bankruptcy Case No.: 02-11150 Chapter 11 Petition Date: January 28, 2002 Court: Eastern District of New York (Brooklyn) Judge: Carla E. Craig Debtor's Counsel: Sanford P Rosen & Associates 747 Third Ave 3rd Floor New York, NY 10017-9998 212-223-1100 BETHLEHEM STEEL: Court Okays Reimbursement of Union's Expenses -------------------------------------------------------------- After due deliberation, Judge Lifland authorizes Bethlehem Steel Corporation, and its debtor-affiliates to reimburse the United Steelworkers of America for its reasonable professional costs and expenses in an aggregate amount not to exceed $1,400,000 exclusive of any Success Fee, provided, however, that the United Steelworkers of Letter is deemed amended. The Court further authorizes the Debtors to pay to Keilin & Company, the investment banker employed by the United Steelworkers of America, a Success Fee of up to $5,000,000, but only upon the service and filing of an application for the payment of such Success Fee, and the occurrence of: (a) confirmation of a plan of reorganization for the Debtors or consummation of a sale of all or substantially all of the Debtors' assets which is, in any case, supported by the United Steelworkers of America; and (b) review and determination of the application by the Court pursuant to Section 330 of the Bankruptcy Code, after the confirmation or sale. Judge Lifland emphasizes that the indemnification provisions of the Keilin Letter, are subject to: (a) All requests of Keilin for indemnity, contribution or otherwise pursuant to the indemnification provisions of the Keilin Letter, shall be by means of an application and shall be subject to review by the Court to assure that such payment conforms to the terms of the Keilin Letter, and is reasonable based upon the circumstances of the litigation or settlement as to which indemnity is requested; provided, however, that in no event shall Keilin be indemnified or receive contribution if it is determined that Keilin acted in bad faith, engaged in self-dealing or breached its fiduciary duty, if any, or committed gross negligence or willful misconduct; and (b) In no event shall Keilin be indemnified or receive contribution or other payment under the indemnification provisions of the Keilin Letter, if the Debtors, their estates, or the Creditors' Committee, asserts a claim for, and the Court determines by final order that such claim arose out of, Keilin's own bad faith, self-dealing, breach of fiduciary duty, if any, gross negligence or willful misconduct; and (c) If Keilin seeks reimbursement for attorneys' fees from the Debtors pursuant to the Keilin Letter, the invoices and supporting time records for such attorneys shall be included in Keilin's Application for indemnification and such invoices and time records shall be subject to the United States Trustee's Guidelines for Compensation and Reimbursement and Expenses and the approval of the Bankruptcy Court under the standards of sections 330 and 331 of the Bankruptcy Code without regard to whether such attorneys have been retained under section 327 of the Bankruptcy Code; and (d) To the extent this order is inconsistent with the Keilin Letter, the terms of this order shall govern. (Bethlehem Bankruptcy News, Issue No. 9; Bankruptcy Creditors' Service, Inc., 609/392-0900) BEYOND.COM: Chapter 11 Case Summary ----------------------------------- Debtor: Beyond.com Corp. dba Software.net Corp. dba Software.net Corp. dba Cybersource Corp. 3200 Patrick Henry Dr. Santa Clara, CA 95054 Bankruptcy Case No.: 02-50441 Chapter 11 Petition Date: January 24, 2002 Court: Northern District of California (San Jose) Judge: Marilyn Morgan Debtor's Counsel: Amy E. Wallace, Esq. Gray, Cary, Ware and Freidenrich 1755 Embarcadero Rd. Palo Alto, CA 94303-3340 650-833-2000 Total Assets (as of Sept. 30, 2001): $43,500,000 Total Debts (as of Sept. 30, 2001): $49,695,000 COVENTRY HEALTH: Fitch Assigns BB Rating to New $175MM Notes ------------------------------------------------------------ Fitch, Inc. assigns a preliminary rating of 'BB' to Coventry Health Care Inc.'s proposed $175 million 10-year, senior unsecured notes. The Rating Outlook is Stable. Coventry has agreed to purchase the remaining 7.1 million shares of its common stock currently owned by Principal Financial Group for $141 million. Coventry also agreed to purchase a warrant owned by The Principal, currently exercisable for 3.1 million shares of common stock of Coventry, for $35 million. Coventry intends to finance the stock and warrant repurchase with the proceeds of the proposed note issuance and additional cash on hand. The rating is based on Coventry's high quality balance sheet, good operating performance, and established competitive position in the health insurance business. The rating also considers the company's aggressive acquisition strategy and the moderate level of risk-based capitalization of its operating subsidiaries. Coventry currently does not have any debt outstanding. On a pro forma basis as of September 30, 2001, Coventry's debt to capital is 26%, which Fitch considers to be moderate. Based on financial results through the first nine months of 2001, Fitch estimates pro forma EBIT/interest coverage to be in the 9x to 10x range. Coventry is a publicly traded managed healthcare company serving approximately 1.85 million members primarily in the Mid- Atlantic, Midwest and Southeast regions. Coventry reported total revenue of $2.3 million, and stockholders equity of $668.7 million at September 30, 2001. COVENTRY HEALTH: Commences Offering of $175MM 8.125% Sr. Notes -------------------------------------------------------------- Coventry Health Care, Inc. (NYSE:CVH) said that it has agreed to sell $175.0 million original principal amount of its 8.125% Senior Notes due 2012 in a private placement. In addition, Coventry announced that Principal Financial Group, Inc., has agreed to sell 7,000,000 shares of Coventry common stock in an underwritten public offering pursuant to the registration statement filed by Coventry on November 30, 2001. The offering was priced at $19.50 per share. The Principal has granted the underwriters a 30-day option to purchase up to an additional 1,050,000 shares of common stock to cover over-allotments. In the event the underwriters do not fully exercise their over-allotment option, Coventry has agreed to purchase from The Principal any shares the underwriters do not purchase at the public offering price. Coventry will not receive any proceeds from the offering of common stock. Coventry also announced that on February 1, 2002 it expects to complete its previously announced purchase from The Principal of the remaining approximately 7.1 million shares of Coventry common stock owned by The Principal and a warrant owned by The Principal, currently exercisable for approximately 3.1 million shares of Coventry common stock. The aggregate purchase price for the remaining shares of common stock and the warrant is approximately $176.1 million. Coventry intends to finance the stock and warrant repurchase with the proceeds of the sale of its senior notes and cash on hand. The completion of the offering of senior notes is conditioned upon the substantially concurrent closing of the secondary offering of Coventry common stock owned by The Principal. The completion of the secondary offering of Coventry common stock owned by The Principal is conditioned on the substantially concurrent closing of the senior notes offering and the stock and warrant repurchase by Coventry. The shares and warrant of Coventry owned by The Principal were acquired by The Principal in connection with the merger of Coventry and Principal Health Care in April 1998. Following the completion of the secondary share offering and the stock and warrant repurchase, The Principal will no longer own any shares or warrants of Coventry. Salomon Smith Barney Inc. is acting as sole bookrunning lead manager of the public offering of common stock, and Goldman, Sachs & Co., Lehman Brothers Inc. and CIBC World Markets Corp. are acting as co-managers of that offering. Copies of the prospectus relating to the secondary share offering may be obtained from Salomon Smith Barney Inc., Brooklyn Army Terminal, 140 58th Street, 8th Floor, New York, NY 11220. Coventry Health Care is a managed health care company based in Bethesda, Maryland operating health plans and insurance companies under the names Coventry Health Care, Coventry Health and Life, Carelink Health Plans, Group Health Plan, HealthAmerica, HealthAssurance, HealthCare USA, Southern Health and WellPath. The Company provides a full range of managed care products and services including HMO, PPO, POS, Medicare Risk and Medicaid to 1.9 million members in a broad cross section of employer and government-funded groups in 13 markets throughout the Midwest, Mid-Atlantic and Southeast United States. More information is available on the Internet at http://www.CoventryHealth.com CYPRESS BIOSCIENCE: Fails to Meet Nasdaq NTA Listing Requirement ---------------------------------------------------------------- Cypress Bioscience Inc. (Nasdaq:CYPB) announced that it received a Nasdaq Staff Determination notice indicating that the company is not in compliance with the minimum tests for net tangible assets or stockholders' equity for The Nasdaq SmallCap Market as set forth in Marketplace Rule 4310(c)(2)(8), Accordingly, the company's securities are subject to delisting from the Nasdaq SmallCap Market. Cypress has requested a hearing with the Nasdaq Listing Qualifications Panel to review the staff determination. There is no assurance the Panel will grant the company's request for continued listing, however, the company is exploring a number of possible avenues to preserve the listing of its securities on the Nasdaq SmallCap Market. The company's securities will continue to be listed on the Nasdaq SmallCap Market pending a final ruling. Cypress is committed to be the innovator and commercial leader in providing products that improve the diagnosis and treatment of patients with Fibromyalgia Syndrome or FMS. In January 2001, the company began a strategic initiative focusing on FMS. In August 2001, Cypress licensed its first product for clinical development, milnacipran, to treat the widespread pain associated with FMS. In January of 2002, the company's Investigational New Drug application (IND) was opened to commence a Phase II clinical trial to treat FMS with milnacipran in the United States. For more information about Cypress, please visit the company's Web site at http://www.cypressbio.com ELITE TECHNOLOGIES: Existing Working Capital Fund Running Dry ------------------------------------------------------------- Regarding their review of Elite Technologies, Inc., the Report on Review by Independent Accountants, dated January 17, 2002, from Atlanta, Georgia, states, . .........."Our report dated August 17, 2001 on the consolidated financial statements of Elite Technologies, Inc., and subsidiaries as of and for the year ended May 31, 2001 contains an explanatory paragraph that states that the Company's recurring losses from operations and net capital deficiency raise substantial doubt about the entity's ability to continue as a going concern." Then, in regard to their review of the financial information of the Company for the three months ended August 2001, and the six months ended November 2001 they state: "The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed further in the financial information, the Company has suffered recurring losses from operations that raise substantial doubt about its ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty." Revenues from operations for the first quarter ended August 31, 2001 increased by $378,368 from $3,630,818 for the same period August 31, 2000. This increase is primarily from increased market penetration. Net losses decreased by $1,176,637 from $2,118,344 for the same period ended August 31, 2000. Revenues from operations for the first six months ended November 30, 2001 decreased by $569,790 over the same period of the previous year. This decrease is substantially due to the reorganization of operations of International Electronic Technologies of Georgia, Inc. The revenues of Icon Computer Parts, Inc. remain strong and the company expects them to increase. Net loss increased by $150,463 for the above six- month period. Elite's operating results to date have been net losses and have required cash from investors and loans from third parties and from related parties. The Company's ability to raise capital to fund future operations is limited and cannot be relied upon if present working capital funds are depleted. Additional capital may not be available on terms favorable to the Company, or at all. If Elite is unable to raise additional capital when it is required, business could be harmed. In addition, any additional issuance of equity or equity-related securities to raise capital will be dilutive to stockholders. The Company has incurred significant losses since inception in 1996 and expects to incur losses in the future. It has not achieved profitability on a quarterly basis. The Company will need to generate significantly greater revenues while containing costs and operating expenses to achieve profitability. Its revenues may not continue to grow, and it may never generate sufficient revenues to achieve profitability. ENRON CORP: Committee Seeks Court Approval to Trade Securities -------------------------------------------------------------- Enron Corporation's Official Committee of Unsecured Creditors seeks an order determining that: "The Committee members, acting in any capacity, will not violate their duties as Committee members by trading in the Debtors' stock, notes, bonds, debentures, participations in, or any derivatives based upon or relating to any of the Debtors' debt obligations or other claims or equity interests during the pendency of the Debtors' cases, provided that any Committee member executing such trades must establish and effectively implement the policies and procedures set forth, such as a Fire Wall to prevent the misuse of non-public information obtained through its activities as a Committee member." A Committee member who is in the business of trading in securities or providing advisory services has a fiduciary duty to maximize returns for its clients through the buying and selling of securities. At the same time, such Committee members and their affiliates also owe a fiduciary duty to other creditors not to divulge any confidential or "inside" information regarding the Debtors. Dennis F. Dunne, Esq., at Milbank, Tweed, Hadley & McCloy LLP, in New York, New York, relates that many financial institutions have been faced with this dilemma in various chapter 11 cases. To get around this predicament without sacrificing either duty, Mr. Dunne explains, a "Fire Wall" is implemented to insulate its trading activities from its committee-related activities. Accordingly, the Committee proposes that: (1) such Committee member and its affiliates who makes trading decisions in the Debtors' Securities shall cause all Securities Trading Committee Member's designated personnel who shall sit or serve on the Committee to execute a letter acknowledging that they may receive non-public information and that they are aware of this order and the Fire Wall procedures, which are in effect with respect to the Securities; (2) Committee Personnel will not share non-public Committee information with any other employees of such Securities Trading Committee Member other than in compliance with the Fire Wall procedures, except: (a) senior management of such Securities Trading Committee Member, who due to its duties and responsibilities, has a legitimate need to know such information, provided that such individuals: (i) otherwise comply with the Fire Wall, and (ii) use such information only in connection with their senior managerial responsibilities, and (b) regulators, auditors, and designated legal personnel for the purpose of rendering legal advice to Committee Personnel and who will not share such non-public information generated from Committee activities with other employees and will keep such non-public information in files inaccessible to other employees; (3) Committee Personnel will keep non-public information generated from Committee activities in files inaccessible to other employees; (4) Committee Personnel will receive no information regarding the Securities Trading Committee Member's trades in Securities in advance of such trades, except that Committee Personnel may receive the usual and customary internal and public reports showing the Securities Trading Committee Member's purchases and sales and the amount and class of securities owned by such Securities Trading Committee Member, including the Securities; and (5) the Securities Trading Committee Member's compliance department personnel or internal counsel shall review from time to time the Fire Wall procedures employed by the Securities Trading Committee Member as necessary to ensure compliance with this Order and shall keep and maintain records of their review. Mr. Dunne argues that any current or future members of the Committee that are engaged in the business of trading securities should not be precluded from trading in the Debtors' Securities. "If the Court denies the relief requested, it will discourage the largest creditors with expertise and experience in reorganizations from joining other creditors' committees," Mr. Dunne says. According to Mr. Dunne, creditors that perform investment advisory and trading services should not be forced into the choice of serving on a committee and risking the loss of beneficial investment opportunities for their institutions and clients or foregoing service and possibly compromising those same responsibilities by taking a less active role in the reorganization. (Enron Bankruptcy News, Issue No. 10; Bankruptcy Creditors' Service, Inc., 609/392-0900) ENRON CORP: Severed Employees Ask Trustee to Appoint Committee -------------------------------------------------------------- Attorneys for the Severed Enron Employees Coalition (SEEC) are requesting that the U.S. Trustee responsible for administering the Enron (OTC: ENRNQ) bankruptcy appoint an Official Committee of Severed Enron Employees. The move is designed to give former Enron employees greater input into the ongoing bankruptcy process. "These Chapter 11 cases have the potential to tear the fabric of the nation's employee retirement system," says Scott Baena, an attorney for SEEC. "Undoubtedly, and by no choice of their own, the severed employees are at the forefront of a battle likely to rage in the courts and in Congress for a long time. The Severed Employees are entitled to full and complete representation in every forum where their fate is being decided." Currently, there is a single former employee on a 15-member Official Committee of Unsecured Creditors. The remainder of the committee is comprised of five banks, three indenture trustees, two investment management companies, three trade creditors and one insurance company. Michael Patrick Moran, the single former Enron employee representative, was an in-house attorney for Enron. SEEC believes that besides being outnumbered, principles of attorney- client privilege, coupled with the numerous investigations of Enron, may undermine Mr. Moran's ability to adequately represent the interests of former employees. According to attorney Baena, severed Enron employees represent one of the largest constituencies to be impacted by the bankruptcy. "This is not just a matter of preserving their rights," says Baena. "These victims of the Enron debacle offer valuable insights and a 'human face' to these proceedings. Their participation is critical to determining what is fair and just as the bankruptcy process evolves." The SEEC legal team is made up of the following attorneys and law firms: -- George Whittenburg, Whittenburg Whittenburg & Schachter, P.C. -- Randy McClanahan and Scott Clearman, McClanahan & Clearman, L.L.P. -- Martin Dies, III and Richard Hile, Dies & Hile, L.L.P. -- Broadus Spivey, Spivey & Ainsworth, P.C. -- Scott Baena, Bilzin Sumberg Dunn Baena Price & Axelrod LLP According to the SEEC statement of principles, filed along with today's motion, "SEEC will be non-partisan and will strive to represent the legitimate interests of all former Enron employees affected by Enron's bankruptcy." Last week, SEEC filed a class action in Houston federal court asking a jury to "make good" the staggering losses suffered by employees who contributed to Enron's 401(k) Corporate Savings Plan. Named defendants include past and present Enron executives, Northern Trust Company, the retirement plan's trustee, and Arthur Andersen, L.L.P., the accounting and consulting firm engaged by Enron as independent auditor to provide the outside audit report as well as Enron's required internal audit function. DebtTraders reports that Enron Corp.'s 7.375% bonds due 2019 (ENRON7) are trading between 16 and 18.5. See http://www.debttraders.com/price.cfm?dt_sec_ticker=ENRON7for real-time bond pricing. FEDERAL-MOGUL: Court Okays W.Y. Campbell as Divestiture Advisor --------------------------------------------------------------- Federal-Mogul Corporation and its debtor-affiliates obtained Court approval to employ and retain W.Y. Campbell & Company as investment banker and financial advisor to the Debtors in connection with the potential divestiture of the Camshaft Group Operations, nunc pro tunc to October 1, 2001. Specifically, W.Y. Campbell will provide such services as the Firm and the Debtors shall deem appropriate and feasible in order to advise the Debtors in the Transaction, including: A. advising the Debtors in developing their strategic objectives with regard to the value and terms of the Transaction; B. identifying and demonstrating the Camshaft Group Operations' proprietary attributes; C. assisting in analyzing the financial effects of the proposed Transaction; D. assisting in a valuation analysis of the Camshaft Group Operations; E. identifying and soliciting appropriate merger partners or potential buyers, as approved by the Debtors; F. assisting in the preparation and distribution of confidentiality agreements and appropriate descriptive selling materials regarding the Transaction; G. advising the Debtors in their preparation for due diligence and their management of a data room; H. initiating discussions and negotiations with merger partners or prospective buyers and advising the Debtors in negotiations regarding the Transaction; I. assisting the Debtors in coordinating management presentations and site visits, as appropriate; J. structuring any proposed Transaction; K. providing expert advice and testimony concerning any financial matters related to the Transaction; L. providing other services necessary to the completion of a successful transaction, as mutually agreed upon by W.Y. Campbell and the Debtors; and M. providing other financial or ancillary services in connection with the potential divestiture of the Camshaft Group Operations in the event that not all of the assets of the Debtors' estates or Transaction are sold. (Federal-Mogul Bankruptcy News, Issue No. 10; Bankruptcy Creditors' Service, Inc., 609/392-0900) GENEVA STEEL: Seeks Court's Permission to Use Cash Collateral ------------------------------------------------------------- Geneva Steel LLC asks the U.S. Bankruptcy Court for the District of Utah, to allow the Debtor to use cash collateral and grant adequate protection to the Debtor's prepetition lenders. The Debtor also requests the Court to schedule a final hearing on the Debtor's use of cash collateral. With the final hearing still pending, the Debtor asks the Court to allow them to use cash collateral on an interim basis to prevent immediate and irreparable harm to the estate. Although a substantial portion of the steel plant will be shut down for a time, the Debtor still needs to use cash collateral to fund its reduced operations and to help fund the corporation. The Debtor projects that anticipated funding from the use of cash collateral and collection of receivables will be approximately $14.77 million. The Debtor says that it will use certain of the funds to pay current interest to the ESLGA Lenders and pay schedules principal payments on the ESLGA Loan. As adequate protection, the Debtor proposes to Citicorp current interest on the ESLGA Loan. The Debtor also intends to make schedules amortization payments relating to the collateral, and will grant Citicorp replacement liens in any postpetition inventory and receivables generated in connection with the continued operation of the pipe mill. Without the use of cash collateral, the Debtor reminds the Court that it will be unable to implement the Business Plan and could be forced to face liquidation or turn the Geneva mill over to the ESLGA Lenders. The Debtor believes that the true value of the company is tied to its continuing operations than the liquidation value of the real and personal property. Geneva Steel owns and operates an integrated steel mill located near Provo, Utah. The Company filed for chapter 11 protection on January 25, 2002. Andrew A. Kress, Esq., Keith R. Murphy, Esq. and Stephen E. Garcia, Esq. at Kaye Scholer LLP represent the Debtor in its restructuring efforts. When the Company filed for protection from its creditors, it listed $264,440,000 in total assets and $192,875,000 in total debts. GLOBAL CROSSING: S&P Cuts Ratings to D After Bankruptcy Filing -------------------------------------------------------------- Standard & Poor's lowered its ratings on Global Crossing Ltd. and certain related entities to 'D'. At the same time, the ratings were removed from CreditWatch negative, where they had been placed Aug. 13, 2001. The rating action follows the company's filing of bankruptcy protection. In addition, the ratings on Asia Global Crossing Ltd. remain on CreditWatch with negative implications because the 58.8%-owned subsidiary was not part of the bankruptcy filing. Ratings Lowered, Removed from CreditWatch Global Crossing Ltd. TO FROM Corporate credit rating D CCC- Preferred stock D C Global Crossing Holdings Ltd. Corporate credit rating D CCC- Senior unsecured debt D C $800 million 9.625% senior unsecured notes (Guaranteed by Global Crossing Ltd.) D C Senior secured bank loan D CCC- Preferred stock D C Frontier Corp. Corporate credit rating D CCC- Senior unsecured debt D C Preferred stock D C Ratings Remain on CreditWatch Negative Asia Global Crossing Ltd. Corporate credit rating CCC+ Senior unsecured debt CCC- DebtTraders reports that Asia Global Crossing's 13.375% bonds due 2010 (AGX1) currently trade from 34.5 to 38.5. See http://www.debttraders.com/price.cfm?dt_sec_ticker=AGX1for real-time bond pricing. GLOBAL CROSSING: 5 Largest Secured Claims ----------------------------------------- Entity Type of Collateral Claim Amount ------ ------------------ ------------ JPMorgan Chase Secured by pledge of $2,250,000,000 Bank, as Agent Capital Stock of Barbara Daniels certain subsidiaries Edmond Deforest of Global Crossing 270 Park Avenue, Holdings Ltd. 36th Floor guaranteed by Global New York, NY 10017 Crossing Ltd. and Citibank, as Agent certain of its Mark Wilson subsidiaries One Sansome Street, 25th Floor San Francisco, CA 94104 JP MorganChase Secured ratably with $300,000,000 Bank, Trustee Senior Secured Debt Ken Fowlerd with respect to the Corporate Trust pledge of capital Services stock of certain 2001 Bryan Street, subsidiaries of Global 9th Floor Crossing North Dallas, TX 75201 America, Inc. 214-468-6105 JP MorganChase Secured ratably with $200,000,000 Bank, Trustee Senior Secured Debt Ken Fowlerd with respect to the Corporate Trust pledge of capital Services, 9th Floor, stock of certain 2001 Bryan Street, subsidiaries of Global Dallas, TX 75201 Crossing North 214-468-6105 America, Inc. MSGW New Jersey LLC Equipment $35,827,000 Gale and Wentworth LLC 200 Campus Drive Florham Park, NJ 07932 De Lage Landen Equipment $11,804,022 Financial Services Paul Zehner 111 Old Eagle School Road, Wayne, PA 19087 GLOBAL CROSSING: CIBC Discloses $130 Million in Credit Exposure --------------------------------------------------------------- Following the announcement on January 28th that Global Crossing Ltd., has filed for Chapter 11 bankruptcy protection in the United States, CIBC released the following information: - CIBC has US$130 million (CDN$207 million) in credit exposure to Global Crossing entities. - CIBC has US$112 million (CDN$179 million) in Global Crossing preferred shares. - CIBC will realize revenue of approximately CDN$320 million from the closing out of hedge contracts and related sale of 10 million Global Crossing shares in the first quarter ending January 31, 2002. On November 29, 2001, CIBC disclosed that it had credit exposure to Enron Corporation entities of approximately US$215 million (CDN$342 million). CIBC expects that its total loan loss provision for the first quarter will be approximately CDN$540 million, which will include significant provisions on the Enron and Global Crossing loans. Based on anticipated future trends, CIBC expects that its total loan loss provision for the 2002 fiscal year will fall in the range of CDN$1,250 to $1,350 million. CIBC is a leading North American financial institution with more than eight million personal banking and business customers. CIBC offers a full range of products and services through its comprehensive electronic banking network, branches and offices across Canada, the United States and around the world. You can find other news releases and information about CIBC in our Media Centre on the Internet at http://www.cibc.com HARTMARX: Full-Year Net Loss Stands at $13.9M on $601M Revenues --------------------------------------------------------------- Hartmarx Corporation (NYSE: HMX) reported full year operating results for its fourth quarter and full year ended November 30, 2001. Full year revenues were $601.6 million in 2001, compared to $680.6 million in 2000. The net loss for the current year, which was significantly impacted by previously announced restructuring actions, was $13.9 million compared to net income of $8.6 million in 2000, before a small extraordinary item in each year. Excluding the non-recurring items in 2001 related to the restructuring, proforma earnings before interest and taxes (EBIT) were $16.8 million in 2001, compared to EBIT of $29.9 million in 2000. The non-recurring items in 2001 aggregated approximately $25 million, and included charges for employee severance, facility closings and consolidating certain operating units, as well as operating losses of operations being eliminated as part of Hartmarx's restructuring. Hartmarx moved decisively in 2001 to restructure its operations, reducing its non-production headcount by more than 20 percent, and more evenly positioning the Company's products between sportswear and tailored apparel. Consistent with its ongoing actions to lower costs, Hartmarx also announced salary reductions for all of its mid-level to senior-level employees. This action, to be implemented immediately and affecting those earning more than $50,000 per annum, will range from 3% for the lowest-paid members of the group to 7% for the highest-paid members. These salary reductions will save Hartmarx a substantial amount immediately, and are expected to mitigate the need for additional workforce reductions in the near-term. Elbert O. Hand, Hartmarx chairman and chief executive officer, stated, "Hartmarx took a number of necessary, albeit difficult, steps in 2001, reflecting the realities of our business, the weak sales of apparel at retail and the economy in general. Having put a large number of challenges behind us during a very rough year, we expect to be profitable in 2002." Mr. Hand summarized several previously announced actions that Hartmarx had taken during the year: * Hartmarx closed several production facilities and administrative offices, thus eliminating more than 20% of its non-manufacturing positions during fiscal 2001. This reduced general and administrative expense base salaries by more than $12 million on an annualized basis. "Our cost structure is currently at a level that should translate into improved margins and profitability even without a revenue increase." * Despite the difficult retail environment, Hartmarx took several steps to build its presence in both the tailored and sportswear product categories. "The opening of the Company's Hickey-Freeman retail store in New York City has been well received, showcasing to both consumers and retailers the distinctive tailored clothing, dress furnishings and sportswear apparel marketed by Hickey-Freeman and Bobby Jones." The acquisition of the Consolidated Apparel Group has significantly increased the Company's sportswear offerings. On an annualized basis, men's sportswear, slacks and womenswear currently represent approximately 40% of aggregate revenues. * In December, Hartmarx took the next step in its succession plan, and announced that Homi Patel, currently president and chief operating officer, would become its chief executive officer at Hartmarx's annual meeting on April 11, 2002. * In January, 2002, the Company successfully concluded an exchange of its senior subordinated notes for newly issued senior unsecured notes, which provided Hartmarx additional liquidity with which to execute its business plan. A considerable debt reduction is anticipated to be achieved during 2002 from improved operating earnings and reduced working capital requirements. * The Company continues to work with its advisor, Bear Stearns, in the evaluation of business plans, financing and strategic alternatives. Hartmarx reported that revenues for the fourth quarter were $154.7 million in 2001, compared to $169.7 million in the fourth quarter of 2000. The net loss for 2001 was $2.2 million compared to net income of $3.2 million in 2000. Excluding the impact of non-recurring items discussed above, fourth quarter proforma EBIT was $9.0 million in 2001, compared to EBIT of $9.4 million in 2000. Hartmarx produces and markets business, casual and golf apparel under its own brands including Hart Schaffner & Marx, Hickey- Freeman, Palm Beach, Coppley, Cambridge, Keithmoor, Racquet Club, Naturalife, Pusser's of the West Indies, Royal, Brannoch, Riserva, Sansabelt, Barrie Pace and Hawksley & Wight. In addition, the Company has certain exclusive rights under licensing agreements to market selected products under a number of premier brands such as Austin Reed, Tommy Hilfiger, Kenneth Cole, Burberrys men's tailored clothing, Pringle of Scotland, Bobby Jones, Jack Nicklaus, Claiborne, Evan-Picone, Pierre Cardin, Perry Ellis, KM by Krizia, and Daniel Hechter. The Company's broad range of distribution channels includes fine specialty and leading department stores, value-oriented retailers and direct mail catalogs. * * * As previously reported in the Troubled Company Reporter, Standard & Poor's lowered its corporate credit rating on Hartmarx Corp., to 'SD' (selective default) from double-'C' and the senior subordinated debt rating to single-'D' from single- 'C'. According to the report, the ratings were removed from CreditWatch, where they were placed on October 4, 2001. Subsequently, S&P said, the single-'D' rating on Hartmarx' senior subordinated 10.875% notes due January 15, 2002 was withdrawn. S&P cited that the downgrade reflects the completion of an exchange offer on the 10.875% notes due January 15, 2002 with bonds maturing in 2003 plus an amount of cash and common stock. In December 2001, Hartmarx claimed in an 8-K filing that, if the company is unsuccessful in completing the exchange or obtaining additional financing, it would need to restructure its debt. Standard & Poor's considers the completion of the exchange to be tantamount to a default, given the coercive nature of the offer. HEXCEL CORP: Net Debt Slides-Down By $3.3 Million in Q4 2001 ------------------------------------------------------------ Hexcel Corporation (NYSE/PCX: HXL) reported results for the fourth quarter and full year 2001. Net loss for the 2001 fourth quarter was $413.8 million compared to net income of $1.0 million for the fourth quarter of 2000. Fourth quarter 2001 results include business consolidation and restructuring expenses of $51.1 million and impairments of goodwill, other purchased intangibles, an equity investment and U.S. deferred tax assets totaling $349.5 million. Excluding business consolidation and restructuring expenses and the impairment charges, the Company's pretax loss for the 2001 fourth quarter was $12.4 million. This compares to pretax income, excluding business consolidation expenses, of $5.4 million in the fourth quarter of 2000. For the year, the Company's net loss was $433.7 million compared to net income in 2000 of $54.2 million. Results for 2000 included a gain on the April 26, 2000 sale of the Bellingham aircraft interiors business of $68.3 million ($44.3 million on an after tax basis). Excluding business consolidation and restructuring expenses, impairments of goodwill and other purchased intangibles, and the gain on the sale of the Bellingham business, the Company's pretax loss in 2001 was $13.5 million, as compared to pretax income in 2000 of $17.6 million. Adjusted EBITDA for the fourth quarter of 2001 was $19.9 million as compared to $37.1 million for the fourth quarter of 2000. Adjusted EBITDA for the 2001 year was $119.2 million as compared to $144.0 million on a pro forma basis for 2000. Pro forma results give effect to the April 26, 2000 sale of the Bellingham aircraft interiors business as if the transaction had occurred on January 1, 2000. The Company reports Adjusted EBITDA as this is used as a measure in the financial covenants in its Senior Credit Agreement. Chief Executive Officer Comments Commenting on Hexcel's fourth quarter results, Mr. David E. Berges, Chairman, President and Chief Executive Officer, said, "In the fourth quarter, the Company began to dramatically reshape itself to adapt to the new business realities of the post September 11th world. We are well on our way to removing $60.0 million in cash fixed costs. Also during the quarter, we completed the closure of one of the two plants targeted for elimination, reduced inventories by 20%, reduced our capital spending to approximate 60% of depreciation and reassessed the value of all of our assets resulting in several impairments. While the personnel cuts are particularly painful, it is important to note that they are well targeted. Four of the top eleven executive positions have been eliminated (36%), over 30% of the corporate staff has been reduced and almost 20% of all other fixed and indirect positions are being eliminated. R&T, sales and customer service functions were the least affected by the fixed cost actions, and direct labor will only be impacted by customer demand and productivity initiatives. Critical customer programs, growth markets, and strategic research projects have been well funded and staffed." Mr. Berges continued, "I am particularly pleased with our ability to reduce inventory ahead of the decline in customer sales. Our vertical integration allowed us to take immediate action from composite structures, through prepregs and fabric operations, and all the way down to fiber manufacturing once we had visibility to aerospace customer build rate adjustments. While this quick action had a serious impact on absorption and the resultant gross margin, it minimizes the risk of experiencing the kind of multi-tiered inventory glut that the entire electronics industry supply chain suffered from in 2001. With the benefit of lower fixed costs and more normalized inventory to sales tracking, we anticipate recovering from the anomalous fourth quarter gross margins as 2002 progresses." Mr. Berges noted, "We are also pleased with the solid support the banks behind our Senior Credit Facility have continued to provide. I am convinced that in addition to our strong share position and the long-term growth prospects for our markets, our aggressive restructuring actions demonstrated that Hexcel does not intend to be a victim of the external challenges 2001 delivered. Mr. Berges concluded, "The impact of this radical reshaping obviously had a devastating impact on the final quarter of 2001. I trust that those who follow us will recognize that the tragedy of September gave us little choice. We cannot always control events, but we can control how we react to them." Senior Credit Facility Amendment Yesterday, the Company's bank syndicate approved an amendment to its Senior Credit Facility. The amendment provides for, among other matters, revised financial covenants that accommodate the Company's anticipated financial performance through the year 2002 in return for the grant of additional collateral and a 100 basis point increase in the interest spread payable over LIBOR for advances under the facility. With the reduced capital requirements that results from the commercial aerospace slowdown, the Company has also agreed to a moderate reduction in the size of the revolving credit facility provided under the agreement. The Company is appreciative of the continuing support it is receiving from its Senior Credit Facility syndicate banks. This amendment will permit the Company to focus on best serving its customers during 2002 and executing its cost reduction and performance improvement plans. Revenue Trends Consolidated revenue for the fourth quarter of 2001 of $239.1 million was 6.9% lower than 2000 fourth quarter revenue of $256.9 million. Year on year revenue for Hexcel's space and defense and industrial markets grew in aggregate by $15.0 million in the quarter. Commercial aerospace revenues were marginally higher by $1.7 million compared with last year's fourth quarter results. However, the growth of these three markets could not offset the $34.5 million decline in revenues from the electronics market for the same period. Had the same U.S. dollar, British pound and Euro exchange rates applied in the fourth quarter of 2001 as in the fourth quarter of 2000, revenue for the 2001 quarter would have been $237.1 million. -- Commercial Aerospace. Sales of composite materials and reinforcement products to Airbus, Boeing and regional aircraft producers began to decline as the quarter progressed due to the anticipated supply chain inventory correction associated with the scheduled 2002 decline in commercial aircraft build rates. Revenues for the 2001 fourth quarter were $124.2 million, 3.9% lower than 2001 third quarter revenue of $129.2 million. For the full year, Hexcel experienced 8.0% revenue growth in this market from higher aircraft build rates in 2001. -- Space & Defense. Revenues for the 2001 fourth quarter of $39.7 million were 12.5% higher than the prior quarter and 19.9% higher than the fourth quarter of 2000. Revenues for 2001 were $143.3 million, up 11.1% from 2000. -- Electronics. Sales for the 2001 fourth quarter were $11.6 million, down 74.8% from the fourth quarter of 2000. The 2001 fourth quarter revenues remained depressed reflecting the continued impact of the severe industry downturn and inventory correction working through the global electronics market, as well as intense competition for the remaining low levels of customer demand. -- Industrial Markets. Sales were $63.6 million in the 2001 fourth quarter compared to $55.2 million in the fourth quarter of 2000. The 15.2% increase in revenues year over year is evident in both the Company's reinforcement products and composite materials segments and reflects, among other things, continued strength in soft body armor, wind energy and new automotive applications. Revenues from recreational applications declined in line with the softening of the global economy. For the year, the Company's consolidated revenues were $1,009.4 million, compared with consolidated revenues on a pro forma basis of $1,036.8 million for 2000. Revenues declined 2.6% year over year reflecting the severe industry downturn and inventory correction in the electronics market, with sales to that market down $104.2 million or 57.5% year on year. Commercial aerospace revenues were up $40.1 million or 8.0% year on year. Revenues in the space & defense and industrial markets were up 11.1% and 9.8%, respectively, and reflect continuing strengths in these markets. Pro forma revenues give effect to the sale of the Bellingham business as if the transaction had occurred on January 1, 2000. Gross Margin and Adjusted Operating Income Gross margin for the fourth quarter of 2001 was $35.2 million, or 14.7% of sales, compared with $57.0 million, or 22.2% of sales, for the fourth quarter of 2000. Adjusted operating income for the 2001 fourth quarter was $2.8 million, or 1.2% of sales, compared to $22.5 million, or 8.8% of sales, for the 2000 fourth quarter. Gross margins were impacted by the company-wide focus on dramatically reducing inventories ahead of 2002's anticipated fall-off in commercial aerospace revenues and by the continued depressed demand in the electronics market. Inventories declined by $32.3 million during the quarter to $131.7 million. This repositioning impacted both production efficiencies and the absorption of manufacturing costs across the Company. As in the prior quarter, the significant underutilization of capacity led to an EBITDA loss on electronics sales in the quarter. Hexcel's previously announced fixed cost reduction initiative started during the quarter, but was not yet sufficiently advanced to offset the impact of the inventory reduction. For the year, gross margin was $190.8 million, or 18.9% of sales, compared with $231.4 million, or 21.9% of sales for 2000. Performance for the year of 2001 was significantly impacted by the lower fourth quarter gross margin. Adjusted operating income for the 2001 year was $56.0 million, or 5.5% of sales, compared to $86.3 million, or 8.2% of sales, for 2000. Gross margin and adjusted operating income for 2000 included $4.5 million and $0.3 million, respectively, related to the operations of the Bellingham aircraft interiors business from January 1 to April 26, the date of its sale. Restructuring Plan To respond to the forecasted reductions in commercial aircraft production and the continued weakness in electronics, Hexcel announced a major restructuring plan on November 7, 2001. The plan targets a 20% reduction in cash fixed overhead costs, or $60.0 million, as compared to then current spending rates and results should be visible in the Company's second quarter 2002 performance. The plan also provides for the reduction of direct manufacturing employment as customer orders decline. The cash fixed cost reductions are primarily being achieved through company wide reductions of managerial, professional, indirect manufacturing and administrative employees along with organizational rationalization. The majority of the actions necessary to effect this cost reduction had been taken by the end of the quarter and the Company will complete virtually all of these actions in the first quarter of 2002. As a result, at the end of 2001, Hexcel employed 5,376 people, down almost 15% from September, and we expect to reduce that number to approximately 4,500 by the end of 2002. The fourth quarter 2001 restructuring plan has resulted in a $47.9 million charge to earnings for the Company with cash costs expected to approximate $35.0 million. Cash costs of approximately $3.0 million were incurred in the fourth quarter. The balance will be incurred over the next four quarters. The Company also incurred business consolidation expenses of $3.2 million during the quarter primarily relating to its previously announced actions to close its Gilbert (AZ) and Lancaster (OH) pre-preg manufacturing plants. The closure of the Gilbert plant was completed during the quarter ahead of schedule and it is anticipated that the Lancaster plant closure will be completed in the second quarter of 2002. Impairment of Goodwill and Intangible Assets During the fourth quarter of 2001, Hexcel reviewed the carrying values of its long-lived assets, particularly goodwill and other intangible assets acquired in recent years. The review was undertaken in response to changes in market conditions and the Company's outlook as a result of the announced reductions in commercial airline production following the tragic events of September 11th, the unprecedented decline in demand for the Company's woven glass fabrics, and the overall weakness in the U.S. economy. These adverse changes in business conditions in recent months have led to the lowering of revenue forecasts associated with certain business segments. As a result of the review, the Company determined that the goodwill and other purchased intangibles acquired from Clark Schwebel in 1998, and acquired from Fiberite in 1997 were not fully recoverable. Based upon this review, the Company recorded non-cash charges of $292.1 million and $17.0 million to impair substantial portions of the goodwill and other intangible assets acquired in these transactions, respectively. The Company has determined fair value of the impaired assets using discounted future cash flow models, market valuations and third party appraisals, where appropriate. There were no tax benefits recognized on the impairments. Taxes As previously disclosed at the time of our second quarter earnings release, in light of its business outlook at that time, Hexcel determined to increase its tax provision rate through the establishment of a non-cash valuation allowance attributable to currently generated U.S. net operating losses until operations have returned to consistent profitability. The significant events that have occurred since that time including the delay in the anticipated recovery in the electronics market, anticipated reductions in future commercial aircraft production, and a general weakening of the economy have reduced expectations of future operating performance of the Company, and along with the recognition of the non-recurring charges in the fourth quarter, have lowered estimates of U.S. taxable income during the carry- forward period. Based upon these estimates, the Company has included in its tax provision a charge of $32.6 million, which represents all of its previously reported U.S. deferred tax assets. Equity In Losses of Affiliated Companies and Write-Down of an Investment During the fourth quarter, the Company wrote down the carrying value of its equity investment in Interglas Technologies AG. Interglas Technologies has also been impacted by the unprecedented decline in the electronics industry and its share price has declined significantly. The Company has recorded a non-cash write-down of $7.8 million. There was no tax benefit recognized on the write-down. Excluding this write-down, the equity in losses of affiliated companies was $2.3 million for the fourth quarter 2001, reflecting the on-going impact of the electronics market decline on the Company's Asian reinforcement products joint venture and start-up losses associated with the engineered products ventures in China and Malaysia. The Company anticipates reporting comparable equity in losses in the first quarter of 2002. These losses by our affiliates did not affect the Company's cash flows. Debt and Cash Flow The Company's total debt, net of cash, decreased by $3.3 million to $674.3 million at December 31, 2001 as compared to September 30, 2001. The decrease in net debt in the quarter reflects the benefits of a $13.1 million reduction in net working capital during the quarter. Hexcel Corporation is the world's leading advanced structural materials company. It develops, manufactures and markets lightweight, high-performance reinforcement products, composite materials and engineered products for use in commercial aerospace, space and defense, electronics, and industrial applications. ICG COMMUNICATIONS: Court Further Extends Exclusive Periods ----------------------------------------------------------- U.S. Bankruptcy Court Judge Walsh granted ICG Communications, Inc., and its subsidiaries and affiliate Debtors' motion further extending the exclusive periods during which the Debtors may file a reorganization plan and solicit acceptances of such plan. The Plan Proposal Period was further extended for approximately three months through and including March 8, 2002 and the Solicitation Period stretched further through and including May 7, 2002. The entry of the order was made without prejudice to the Debtors' right to seek further extensions of the Exclusive Periods. (ICG Communications Bankruptcy News, Issue No. 16; Bankruptcy Creditors' Service, Inc., 609/392-0900) IT GROUP: Seeks Okay to Pay $41M in Critical Trade Vendor Claims ---------------------------------------------------------------- The IT Group, Inc., and its debtor-affiliates move for an order authorizing the Debtors to pay the prepetition claims of service providers, suppliers and vendors, and all others providing goods, services and support that the Debtors determine, in their discretion, to be necessary or critical to the Debtors' ongoing operations, estimated to be no more than $41,000,000. In return for receiving payment of their prepetition claims, the Critical Trade Creditors shall be deemed to have agreed to continue to extend current trade credit terms to the Debtors through the earlier of the consummation of a sale transaction or of a plan of reorganization. Harry J. Soose, the Debtors' Senior Vice President, Chief Financial Officer and Principal Financial Officer, relates that in the ordinary course of business, the Debtors rely on hundreds of different vendors to supply the various goods, supplies, and equipment utilized in the course of the Debtors' businesses. In addition, the Debtors rely upon numerous service providers and others to support the operating activities of the Debtors. Mr. Soose informs the Court that the Debtors do business with the vast majority of their Critical Trade Creditors without benefit of contracts and, therefore, the Critical Trade Creditors generally are not obliged to do business with the Debtors or to honor particular trade terms for future orders. As such, failure to pay the Prepetition Claims would likely result in a disruption or cancellation of deliveries of goods and services and, thus, undermine the Debtors ongoing projects. Even if the Debtors were able to locate suitable replacement suppliers or service providers, or renegotiate with existing Critical Trade Creditors, Mr. Soose points out that the disruption in the flow of goods and services to or at the Debtors' job sites and projects would seriously prejudice the Debtors' efforts to receive revenue and, thus, reduce the value of the Debtors' businesses. Even if the Debtors were able to convince Critical Trade Creditors to continue to supply goods and services to the Debtors absent payment of the Prepetition Claims, the Critical Trade Creditors will likely agree to do so only on trade terms much less favorable than customary. Mr. Soose believes that payment of the Prepetition Claims is necessary to preserve the value of their business, the underlying projects and their ongoing business, and to ease the administrative burden on the Debtors' estates. In return for payment of the Critical Trade Creditors' claims in the ordinary course of business during this case, Mr. Soose submits that the Debtors will require that the Critical Trade Creditors provide the Debtors' estates with the concomitant economic benefit of agreeing to provide goods and services on normal or customary trade terms or such other terms that the Debtors deem beneficial to their estates, until the Debtors consummate a sale transaction or a reorganization plan, whichever is earlier. To this end, the Debtors request that the Court deem any payments made pursuant to this Motion postpetition payments subject to disgorgement, if a Critical Trade Creditor does not continue to extend Trade Credit. (IT Group Bankruptcy News, Issue No. 2; Bankruptcy Creditors' Service, Inc., 609/392-0900) JFK IN'TL: Fitch Slashes Special Project Bonds Series 6 to BB+ -------------------------------------------------------------- Fitch downgrades $934,100,000 Port Authority of New York and New Jersey, JFK International Air Terminal L.L.C. Project, special project bonds, series 6, to 'BB+' from 'A'. On Oct. 2, 2001, Fitch placed the 'A' rating on Rating Watch Negative and under review for a possible downgrade reflecting, among other things, the uncertainty surrounding international air travel after the events of Sept. 11. The Rating Outlook is now Evolving, since lease negotiations with New York City and discussions with the Port Authority continue and the outcome of each will materially impact the credit rating of the outstanding debt. The bonds received credit enhancement from, MBIA, a bond insurer whose insurer financial strength is rated 'AAA' by Fitch. The rating downgrade reflects lower than expected enplanement figures pre-Sept. 11 and a significant decline since that date -- approximately 22%. Increased competition from the newly opened Terminal One (rated 'A-') at JFK and from existing terminals with large national carriers have effected demand. JFK IAT utilizes compensatory lease agreements, fixing the rates charged to lessees at a specific amount per passenger thereby restricting the ability to cover costs in periods of significantly decreased passenger traffic. Therefore, resulting financial margins are significantly below both the original estimates and the updated projections prepared by JFK IAT's independent feasibility consultant during 2000. Cost overruns necessitated the need for additional financing, which the Port Authority provided on a subordinate basis. However, this loan further restricts JFK IAT's financial flexibility. Lastly, various carriers operating at IAT are restructuring in bankruptcy, thus creating additional credit uncertainty. However, it is important to note that JFK International Airport is the top international passenger gateway in the U.S. and IAT serves approximately 20% of the airport's total international passengers. In addition, JFK IAT is a consortium of three companies formed specifically for this project. Included in the consortium is Schiphol USA Inc., a subsidiary of Schiphol International, whose parent, Schiphol Group N.V. operates Amsterdam Schiphol Airport in the Netherlands. Schiphol's level of expertise and worldwide reputation for managing international airports and developing retail is critical to the success of this terminal. Currently, there are 44 airline tenants utilizing the newly opened and most modern international terminal at JFK. IAT management is aware of the difficulties it faces with regard to narrowing financial margins, which are exacerbated by the short tenor of the lease with the Port Authority and the resulting high annual debt service costs. Discussions with New York City are underway and management expects to reach a resolution in the short-term, either a memorandum of understanding (MOU) or a lease extension through 2025. Currently, the lease expires in 2015, which mandated that the bonds contain special mandatory redemption provisions starting in 2001. Between these additional debt service costs and the loan from the Port Authority, current projected cash flows are not adequate to support operations and debt service without violating the rate covenant and dipping into the debt service reserve account through fiscal year 2005. However, if the lease is extended, negating the need for rapid amortization, then the financial viability of the project will improve. KEY TECHNOLOGY: Completes Domestic Credit Facility Restructuring ---------------------------------------------------------------- Key Technology, Inc. (Nasdaq:KTEC) announced sales and operating results for the first fiscal quarter of 2002 ended December 31, 2001. Sales for the three-month period ended December 31, 2001 totaled $13.9 million, compared with $18.8 million in the same quarter last year. The Company reported a net loss from continuing operations of $323,000 for the most recent quarter compared to a net loss from continuing operations of $391,000 in the corresponding quarter last year. The net loss reported from all operations for the quarter ended December 31, 2001 was $284,000, compared to a net loss of $290,000, for the same quarter last year. Except where noted, sales, expenses and operating results for both periods exclude the activities of a discontinued operation, Ventek, Inc., the divestiture of which was completed in the quarter ended December 2001. Commenting on the quarterly results, Thomas C. Madsen, Chairman and CEO said, "As previously announced, we expected to report a loss for the first quarter of fiscal 2002. Although we incurred a loss, we were pleased with the improvements in both margins and cost management." The Company's backlog at the close of the December 31, 2001 quarter totaled $15.3 million compared to $12.2 million at the close of the same period last year, a year-over-year increase of 25%. New orders received during the first quarter totaled $16.7 million compared to $16.8 million for the same quarter last year. Orders from customers in the United States for the quarter ended December 31, 2001 increased by 29% compared to the same quarter last year. Madsen commented, "While the domestic fruit and vegetable markets continue to experience difficult economic conditions, we are hopeful that reductions in inventory positions and increased prices for our customers' products in certain key sectors will lead to increased capital equipment spending. We also anticipate continued strong orders for tobacco inspection systems in the China and Asia-Pacific markets." Gross profit for the first quarter of fiscal 2002 was $5.4 million compared to $7.2 million in the corresponding period last year. As a percentage of sales, gross profit improved to 39% compared to 38.1% in the first quarter of fiscal 2001, due to decreased overhead resulting from the move of manufacturing operations of SRC Vision products to Walla Walla in the second quarter of fiscal 2001 and the streamlining of the service organization. In addition, the parts and service business experienced significant improvements in margins over the same quarter last year to a level which the Company expects to continue throughout this fiscal year. Operating expenses for the quarter ended December 31, 2001 decreased 25% to $5.7 million compared to $7.6 million in the same quarter last year. During the second half of fiscal 2001 and the first quarter of fiscal 2002, Company management implemented a number of business adjustments to respond to a changing economic climate. The reductions in programs and workforce resulted in significant savings in all areas of the Company's operating expenses. This reduced level of spending is expected to continue in future quarters. Additionally, amortization expenses decreased as a result of the Company's early adoption of SFAS No. 142, Goodwill and Other Intangible Assets, which allows for the discontinuance of amortization on goodwill and certain other intangible assets. Key Technology also announced that it has completed the refinancing and restructuring of its domestic credit facility with its principal lender. The credit accommodation includes a term loan and a revolving credit facility that allows for borrowing up to $16.5 million. Additionally, the Company has retained a financial advisor to evaluate long-term financing and alternative strategies related to the Series B Convertible Preferred Stock issued in connection with the AMVC merger, which becomes redeemable by holders in July 2002. "In order to achieve our financial targets for fiscal 2002, we are focused on excellence in serving our customers, controlling expenses and managing our assets. We feel that we have made the necessary adjustments over the past year to align our business with the opportunities available in the current business environment," said Madsen. Key Technology, Inc., headquartered in Walla Walla, Washington, is a worldwide leader in the design and manufacture of process automation systems for the food processing and industrial markets. The Company's products integrate electro-optical inspection and sorting, specialized conveying and product preparation equipment, which allow processors to improve quality, increase yield and reduce cost. Key has manufacturing facilities in Washington, Oregon and the Netherlands, and worldwide sales and service coverage. KMART CORP: Gets Okay to Continue Using Existing Bank Accounts -------------------------------------------------------------- J. Eric Ivester at Skadden, Arps, Slate, Meagher & Flom, representing Kmart Corporation, and its debtor-affiliates, reminds the Court that the Office of the United States Trustee has established certain operating guidelines for debtors-in- possession in order to supervise the administration of chapter 11 cases. These guidelines require chapter 11 debtors to, among other things: (a) close all existing bank accounts and open new debtor-in- possession bank accounts; (b) establish one debtor-in-possession account for all estate monies required for the payment of taxes, including payroll taxes; and (c) maintain a separate debtor-in-possession account for cash collateral. Kmart CEO Charles C. Conaway tells the Court that the U.S. Trustee's guidelines won't work in these chapter 11 cases. Kmart maintains approximately 300 deposit accounts located throughout the United States, a concentration account at one bank and disbursement accounts at four other banks The Debtors routinely deposit, withdraw and otherwise transfer funds to, from and between such accounts by various methods including check, wire transfer, automated clearing house transfer and electronic funds transfer. In addition, the Debtors generate thousands of accounts payable and payroll checks per month from the Bank Accounts, along with various wire transfers. The Debtors seek a waiver of the United States Trustee's requirement that the Bank Accounts be closed and that new postpetition bank accounts be opened. If the Guidelines were enforced in these cases, these requirements would cause enormous and unnecessary disruption in the Debtors' businesses and would significantly impair their efforts to reorganize. Mr. Conaway explains that the Debtors' Bank Accounts are part of a carefully constructed and highly automated Cash Management System that ensures the Debtors' ability to efficiently monitor and control all of their cash receipts and disbursements. Consequently, closing the existing Bank Accounts and opening new accounts inevitably would result in delays in payments to administrative creditors and employees, severely impeding the Debtors' ability to ensure as smooth a transition into chapter 11 as possible and, in turn, jeopardizing the Debtors' efforts to successfully confirm a plan in a timely and efficient manner. Additionally, as a result of the Debtors' diminished staff which is responsible for the cash management system, requiring the Debtors to replace their Bank Accounts would impose a daunting administrative burden. Finally, because the Debtors' disbursement systems are integrated with their banks to allow for automatic bank reconciliations, replacing the Bank Accounts would require systemic changes which would be difficult to implement. Accordingly, the Debtors request that their pre-petition Bank Accounts be deemed to be debtor-in-possession accounts, and that the Company be permitted to maintain and continue use, in the same manner and with the same account numbers, styles and document forms as those employed prepetition, be authorized, subject to a prohibition against honoring prepetition checks without specific authorization from this Court. Recognizing the need for relief from the U.S. Trustee's Guidelines in a billion-dollar chapter 11 case, and noting that in other cases of this size, courts have routinely recognized that the strict enforcement of bank account closing requirements does not serve the rehabilitative purposes of chapter 11, Judge Sonderby granted the Debtors' Motion in all respects. (Kmart Bankruptcy News, Issue No. 2; Bankruptcy Creditors' Service, Inc., 609/392-0900) KMART CORP: Joseph L. Harrosh Discloses 6.215% Equity Stake ----------------------------------------------------------- Joseph L. Harrosh of Fremont, California has reported the beneficial ownership of 1,106,400 shares of the common stock of Kmart Corporation, which represent 6.2157% of the outstanding common stock of the Corporation. Mr. Harrosh has sole voting and dispositive power over the shares. Kmart Corporation is the nation's second largest discount retailer and the third largest merchandise retailer. Kmart Corporation currently operates approximately 2,114 stores, primarily under the Big Kmart or Kmart Supercenter format, in all 50 United States, Puerto Rico, the U.S. Virgin Islands and Guam. Kmart Corporation's general merchandise retail operations are located in approximately 321 of the 31 Metropolitan Statistical Areas in the United States. The company filed for Chapter 11 Reorganization under U.S. Bankruptcy Code on January 22, 2002, in the U.S. Bankruptcy Court for the Northern District of Illinois (Eastern Division). It is being represented in its Chapter 11 cases by John Wm. "Jack" Butler, Jr., Esq., of Skadden, Arps, Slate, Meagher & Flom, LLP 333 West Wacker Drive Chicago, IL 60606 (312) 407-0700. KMART CORP: Will Pay $60MM Pre-Petition Balance to Handleman ------------------------------------------------------------ Handleman Company (NYSE: HDL) -- http://www.handleman.com-- said it has resumed shipping music product to all of Kmart's more than 2,100 stores. Having been designated a "critical vendor" to Kmart, Handleman Company expects its pre-petition accounts receivable balance, of approximately $60 million, will be paid in accordance with previously agreed upon payment terms. Handleman Company will receive its first payment from Kmart against its pre-petition balance this week. Anchor Bay Entertainment, a subsidiary of Handleman Company, has an accounts receivable from Kmart of approximately $3.5 million and will submit a claim as an unsecured creditor. Both Handleman Company and Anchor Bay Entertainment are shipping to Kmart under terms and conditions that were in place prior to Kmart's Chapter 11 filing. Stephen Strome, Chairman and Chief Executive Officer of Handleman Company said, "We are pleased with the progress that has been made by Kmart and the Bankruptcy Court this past week. We are working closely with Kmart to continue promoting music product, which has been increasing steadily over the past several years, in all of their stores. Handleman Company supports Kmart's efforts to return to profitability and will work with the Kmart team to help them accomplish its objectives." Handleman Company is comprised of two operating divisions: Handleman Entertainment Resources and North Coast Entertainment. H.E.R. is a category manager and distributor of prerecorded music to mass merchants in the United States, United Kingdom, Canada, Mexico and Brazil. As a category manager, H.E.R. manages a broad assortment of titles required to optimize sales in retail stores and provides direct-to-store shipments, marketing of the selections and in-store merchandising. In addition to its core category management business, the Company also provides both traditional and online retailers with an array of e-commerce related products and services through its Handleman Online business unit. NCE has three companies in its portfolio. Anchor Bay Entertainment is a leading North American independent home video label, which markets a vast collection of popular titles that range from children's classics to exercise to suspense/horror. Madacy Entertainment, a major independent record label, markets an exciting range of music and video products with a catalog spanning all genres. The itsy bitsy Entertainment Company is a provider of preschool entertainment, both on and off the screen, for the youngest of children and their caregivers. KRAMONT REALTY: Fitch Affirms BB- Ratings with Negative Outlook --------------------------------------------------------------- Fitch has affirmed its 'BB-' rating for Kramont Realty Trust's outstanding $41.3 million 9.5% series D perpetual preferred stock, $11.2 million increasing rate series A-1 cumulative convertible preferred stock and $29.6 million 9.75% series B-1 cumulative convertible preferred stock. The Rating Outlook has been revised to Negative from Stable. The revision of Kramont's Rating Outlook to Negative reflects the diminishing credit quality of the company's underlying tenant base as indicated by a rising number of dark anchor stores and increased exposure to bankrupt retailers, including K-mart (3% of base rental revenues), Ames (1%) and Cub Foods (1%). While the Kramont portfolio is currently 89% leased, which is down from 91% as of year-end 2000, dark tenants reduce physical occupancy to approximately 80%. Although substantially all of the existing dark anchor tenants continue to meet their full leasehold obligations, Fitch believes that their presence within a center is ultimately detrimental to sales, rents, and leasing prospects for in-line tenants, thereby increasing the probability of additional store closings and tenant defaults in the near future. Of additional concern to Fitch is Kramont's ability to fund capital expenditures required to reposition or re-lease any dark-anchored centers, which remains constrained by limited bank line availability and a nearly fully encumbered asset base. Kramont's ability to self-fund these capital expenditures through retained cash flow is limited by dividend payout and principal amortization requirements. The company currently reports $12 million available in cash or escrow with another $7 million available under two separately secured credit facilities. Management estimates 2002 capital expenditure requirements at $9 million, excluding reserves for eventual re-tenanting of dark-anchored centers which could be considerable. Additional near-term sources of liquidity may include $8 million from land sales and an $18.5 million revolving credit line backed by Kramont's equity interest in the REMIC discussed below, which is expected to close in February 2002. Prepayment and substitution restrictions under a majority of the company's mortgages further weaken Kramont's ability to create liquidity through early refinancing and asset recycling activities. Fitch notes that improved liquidity could result from either renegotiation or replacement of the company's outstanding $66 million non-revolving acquisition sub-facility or refinancing of the $182 million REMIC, both of which mature in mid-2003. However, the company's aforementioned liquidity constraints are not expected to impair payment of preferred dividends, which are supported by a 1.5 times fixed-charge coverage ratio and common equity representing 31% of total market capitalization. Fitch's rating reflects favorably on Kramont's seasoned senior management team and the local expertise of its regional managers, which are well suited to successful repositioning of underperforming properties. Also, minimal ground-up development exposure and low usage of unconsolidated joint venture partnerships result in a relatively transparent earnings stream. Kramont Realty Trust (NYSE: KRT) is a $853 million (market) self-advised real estate investment trust (REIT) that owns and operates community and neighborhood shopping centers in the Mid- Atlantic and Southeastern regions. Its portfolio of fully owned properties, totaling 10.7 million square feet of gross leaseable area (GLA), consists of 81 shopping centers and two low-rise office properties located across 16 states. Based on contribution to property-generated net operating income (NOI), Kramont's largest market concentrations are in Philadelphia (26%), Allentown (9%), New York (9%) and Atlanta (7%). LTV CORP: Gets OK to Access $15M Interim Loans for Tubular Div. --------------------------------------------------------------- Judge Bodoh enters a final Order finding that The LTV Corporation has an immediate need to obtain financing to fund operations of the Tubular Business, and is unable to obtain adequate unsecured credit allowed as an administrative expense. The Ability of the Debtors to obtain sufficient working apital and liquidity through the incurrence of new indebtedness for borrowed money and other financial accommodations is vital to the Debtors. The preservation and maintenance of the going- concern values of the Debtors' Tubular Business is said by Judge Bodoh to be integral to maximizing the value for the Debtors' estates. Judge Bodoh finds that the terms of the proposed financing are fair and reasonable, reflect the Debtors' exercise of prudent business judgment consistent with their fiduciary duties, and are supported by reasonably equivalent value and fair consideration. Having made these findings, he grants the Motion by final Order on the terms and with the security stated in the Motion. (LTV Bankruptcy News, Issue No. 23; Bankruptcy Creditors' Service, Inc., 609/392-00900) LOUISIANA-PACIFIC: Q4 Net Loss Jumps to $71MM on Decreased Sales ---------------------------------------------------------------- Louisiana-Pacific Corporation (LP) (NYSE:LPX) reported a fourth quarter net loss of $71 million on sales of $516 million. In the fourth quarter of 2000, the net loss was $52 million on sales of $569 million. For the full year of 2001, LP reported a net loss of $172 million on sales of $2.4 billion compared to a net loss of $14 million on sales of $2.9 billion in 2000. For the fourth quarter of 2001, results were a loss of $25 million excluding other operating credits and charges of $54 million ($33 million after tax) and the non-cash charge associated with the write down on the investment in assets and liabilities transferred under contractual arrangement of $21 million ($13 million after tax). Also included in fourth quarter results is a year-to-date tax benefit adjustment of $13 million. In the fourth quarter of 2000, LP's loss, excluding other operating credits and charges of $33 million ($20 million after tax) and LP's share of a restructuring charge of an equity investment of $5 million ($3 million after tax), was $28 million. For the full year of 2001, results were a loss of $105 million excluding other operating credits and charges of $67 million ($41 million after tax) and the non-cash charge associated with the write down on the investment in assets and liabilities transferred under contractual arrangement of $43 million ($26 million). Sales declined in 2001 to $2.4 billion from $2.9 billion from the prior year due almost entirely to lower commodity pricing and LP's exit from the pulp business. For 2000, excluding other operating credits and charges of $71 million ($43 million after tax) and LP's share of a restructuring charge of an equity investment of $5 million ($3 million), LP's income was $32 million. "Weak commodity pricing reduced our operating earnings by about $200 million in 2001 compared to the prior year," said Mark A. Suwyn, LP's chairman and CEO. "Fortunately, in our largest product line, oriented strand board, the low prices have accelerated substitution and there are early signs that supply and demand may come into better balance this year. Predicting exactly when those improved prices will become sustainable is difficult, but we do not see any significant new capacity coming on stream this year." "In addition, our exit from the pulp business has been very costly with reported losses of over $100 million this year. We are no longer running any pulp mills and remaining exit costs, other than ongoing carrying costs, have been reserved," said Mr. Suwyn. During the fourth quarter, LP responded to market conditions by curtailing production at a number of mills across all its businesses and indefinitely closing its Chetwynd pulp mill. Also, LP announced a corporate restructuring program targeted at significantly reducing selling and administrative expenses. These actions resulted in the elimination of more than 260 mid- to-upper level management positions that will reduce payroll costs by $18 million annually. While noting that on-going industry consolidation and signs of an improving economy are positive for the industry, Suwyn cautioned that low pricing could continue for the next several months. "Cost reduction and maximizing cash flow continue to be the primary focus of LP management," said Suwyn. "In 2001, despite the challenging environment, net cash flow for the year was approximately $25 million. The organization has demonstrated that it can weather down cycles and we expect to come out of the cycle stronger than ever." LP is a premier supplier of building materials, delivering innovative, high-quality commodity and specialty products to its rapidly growing retail, wholesale, homebuilding and industrial customers. Visit LP's Web site at http://www.lpcorp.comfor additional information on the company. * * * As reported on December 28, 2001, in the Troubled Company Reporter, Standard & Poor's lowered its low-B ratings on Louisiana-Pacific Corp., by one notch and removed them from CreditWatch where they were placed with negative implications October 17, 2001. S&P says that the current outlook is negative. S&P, as cited in the report, says that the downgrade reflects expectations that oversupply and seasonal softness in Louisiana- Pacific's primary markets are likely to keep cash flow protection measures very weak for the next year or so. During the next several months, debt levels could rise somewhat in order to fund seasonal operating needs. On the positive side, the company has initiated considerable operating cost reductions, lowered capital expenditures substantially, and eliminated all dividend payments. In addition, Louisiana-Pacific and others have taken significant production downtime to manage inventories (although this does raise unit costs). The company has also completed a debt refinancing that should provide the necessary flexibility during this cyclical trough and pushed all major debt maturities beyond 2003. MCCRORY CORP: Buxbaum/Century to Auction Assets on February 12 -------------------------------------------------------------- The Buxbaum/Century affiliate of Buxbaum Group will hold an auction of McCrory Corporation's distribution center and office equipment, rolling stock and other assets in York on February 12. The auction is scheduled to begin at 10:00 a.m. at McCrory's distribution center, located at 2955 East Market Street. Bidders can preview the items being offered on February 11, from 8:00 a.m. to 8:00 p.m. Assets being offered include highway tractors, dry van trailers, warehouse and materials handling equipment, shop tools and equipment, reach-in coolers, office furniture, computers, truck parts, shopping carts and other items. Buyers can pay by Visa, Mastercard, certified check, bank draft or cash, with all payments due by noon on February 13. For a detailed list of items being offered and other information, visit http://www.centuryservices.com McCrory continues to market and sell its real estate and leases, as well as other remaining assets. As previously announced, Encino, CA-based Buxbaum Group was retained by McCrory Corp. to assist in the bankruptcy sale of the company's merchandise inventories, store fixtures and equipment, and the assets being offered in the February auction. The privately held discount store operator filed for protection under Chapter 11 of the Federal Bankruptcy Code on September 11, 2001, in the U.S. Bankruptcy Court in Wilmington. The bankruptcy filing covered the York-based corporation and nine subsidiaries. Going-out-of-business sales began at McCrory's 200 remaining stores in early December. More than 190 of the stores operate under the Dollar Zone name, with all items priced at $1 or less. Other locations operate under the McCrory, McCrory Dollar, TG&Y, TG&Y Dollar, GC Murphy and JJ Newberry banners. The latter group includes units that had been converted to the 'dollar store' format, as well as several larger locations that also included higher-priced merchandise. McCrory traces its roots to a company founded by John Graham McCrorey, who opened his first store in Pennsylvania's Westmoreland County around 1880. That single store grew into a national chain that, at its peak, exceeded 1,300 units. Buxbaum Group provides inventory appraisals, turnaround and crisis management and other consulting services for banks and other financial institutions with retail, wholesale/distribution and consumer-product manufacturing clients. The firm also provides liquidation services on consumer-product inventories, machinery and equipment, and buys and sells consumer-product inventories. MCWATTERS MINING: Court Ratifies CCAA Plan in Canada ---------------------------------------------------- McWatters Mining Inc. (TSE: MCW) said that its Plan of Compromise and Arrangement and Reorganization of Indebtedness and Liabilities and of Share Capital pursuant to the Companies' Creditors Arrangement Act and the Companies Act (Quebec) was ratified by the Quebec Superior Court at a hearing held Monday. Subject to receiving satisfactory discretionary relief from the relevant securities authorities and the satisfaction of waiver of all other conditions precedent to the implementation of the Plan including the entering into of several contracts, the Company expects that implementation of the plan will occur on or about February 28, 2002. This Plan had previously received overwhelming approval from secured and unsecured creditors as well as shareholders of McWatters at meetings held on January 23, 2002. McWatters is an important Canadian gold producer, with reserves of 1.7 million ounces of gold and total resources of 6.8 million ounces of gold. McWatters is also involved in developing an extensive portfolio of exploration properties. For additional information, visit the Company Web site at http://www.mcwatters.com NATIONSRENT INC: Wins Nod to Hire Richards Layton as Co-Counsel --------------------------------------------------------------- NationsRent Inc., and its debtor-affiliates obtained Court approval authorizing them to retain Richards, Layton & Finger, P.A. as bankruptcy co-counsel, nunc pro tunc to the Petition Date, to perform the extensive legal services that will be necessary during the Debtors' chapter 11 cases. Specifically, NationsRent will look to Richards Layton: A. to advise the Debtors of their rights, powers and duties as debtors and debtors in possession; B. to take all necessary action to protect and preserve the Debtors' estates, including the prosecution of actions on the Debtors' behalf, the defense of any actions commenced against the Debtors, the negotiation of disputes in which the Debtors are involved, and the preparation of objections to claims filed against the Debtors' estates; C. to prepare on behalf of the Debtors all necessary motions, applications, answers, orders, reports, and papers in connection with the administration of the Debtors' estates; D. to negotiate and prepare on behalf of the Debtors a plan of reorganization and all related documents; and E. to perform all other necessary legal services in connection with the Debtors' chapter 11 cases. (NationsRent Bankruptcy News, Issue No. 4; Bankruptcy Creditors' Service, Inc., 609/392-0900) NTELOS: S&P Lowers Ratings, Citing Financial Covenant Concerns -------------------------------------------------------------- Standard & Poor's lowered its ratings on diversified telecommunications provider NTELOS Inc. The ratings remain on CreditWatch with negative implications because of concerns about the company's ability to meet certain financial covenants under its senior secured bank facility. The downgrade is based on the expectation that, with termination of the company's acquisition of incumbent local exchange carrier (ILEC) Conestoga Enterprises, NTELOS's financial profile will be significantly weaker in 2002 than if it had closed on Conestoga. Standard & Poor's expects EBITDA interest coverage to be less than 1 time through 2002 and only about 1x in 2003. The company experienced operating cash flow losses in its wireless business through the third quarter of 2001, in part due to the aggressive conversion of its prepaid wireless customers in its Virginia East market (former PrimeCo. property) to postpaid services, coupled with heightened competition from the larger national carriers in all of its wireless markets. This has resulted in high cost per gross customer addition, which was $373.15 for the third quarter of 2001. Accompanying operating cash losses for the wireless business totaled about $15 million for the nine months ended September 30, 2001, though these losses declined on a quarterly basis over this nine-month period. NTELOS grew its postpaid wireless subscriber base considerably in 2001, and in the latter half of the year introduced an advanced billing product in order to grow the subscriber base with limited credit risk. The company has also added several retail stores in its region and plans to open additional stores in 2002. However, NTELOS's business plan is predicated on its ability to substantially improve operating cash flow performance of the wireless business in 2002. To accomplish this, it must continue to significantly grow the customer base while containing overall operating expense levels. The company benefits from a wholesale agreement with Horizon Wireless PCS, which provides for minimum revenues of $27.4 million in 2002 and $38.6 million in 2003 in exchange for NTELOS's upgrade to 1XRTT of the portion of its CDMA-based network serving Horizon. 1XRTT is a 2.5-generation wireless technology that supports advanced wireless services. NTELOS derives some limited flexibility from its holdings of excess personal communications services (PCS) spectrum. The company has already sold some selected licenses, and Standard & Poor's expects it will sell additional spectrum in the 2002 to 2003 time frame to fund potential operating and capital requirements. NTELOS also derives some flexibility from its bank facility, under which it had $100 million available as of December 31, 2001. However, problematic to the company's near- term liquidity is the minimum operating cash flows required under the bank facility covenants in 2002. Absent a demonstrated ability to meet this covenant over the next few quarters, ratings could be lowered further. The senior secured bank loan rating is one notch higher than the corporate credit rating. This reflects the fact that the value ascribed to the company's incumbent local exchange operations, which consist of about 52,000 access lines, coupled with the value ascribed to the company's PCS licenses in a distressed scenario provide adequate coverage of the fully drawn $325 million in secured bank facilities. Ratings Lowered and Remaining on CreditWatch Negative NTELOS Inc. TO FROM Corporate credit rating B B+ Senior secured bank loan B+ BB- Senior unsecured debt CCC+ B- Subordinated debt CCC+ B- PEN HOLDINGS: S&P Drops Ratings to D After Filing Chapter 11 ------------------------------------------------------------ Standard & Poor's lowered its corporate credit and senior unsecured ratings on Pen Holdings Inc. to 'D' from double-'C' and removed them from CreditWatch where they were placed on December 20, 2001. The downgrade follows the company's announcement that it has filed for voluntary Chapter 11 bankruptcy protection to restructure its businesses along with its subsidiaries. PHILIPS INT'L: Kmart Bankruptcy Likely to Delay Asset Sales ----------------------------------------------------------- Philips International Realty Corp. (NYSE-PHR), a real estate investment trust, said that Kmart's Chapter 11 bankruptcy filing is likely to delay the sales of the Company's five remaining properties pursuant to the Company's plan of liquidation, and may result in a reduction of the remaining projected liquidating distributions of $3.00 per common share. Kmart leases a significant portion of the space in each of the Company's five remaining shopping center properties, of which four stores are currently operating and one Kmart store in Reedley, California is closed. While operating in bankruptcy, Kmart has announced that it will seek immediate cancellation of all leases at closed locations. In addition, Kmart stated that additional store closings will be announced by the end of the first quarter of 2002, and it will seek cancellation of the related leases. Therefore, in addition to the likely termination of the Reedley lease, one or more additional Kmart leases may be voided in the bankruptcy proceedings. At the Reedley property, Kmart subleased approximately one-third of its leased space to Factory 2-U Stores, Inc. on terms and conditions similar to the master lease on a pro rata basis. Although the sublease will be voided if the master lease is cancelled in bankruptcy, the subtenant has expressed interest in leasing the space directly from the Company. As a result of the uncertainty pertaining to the ultimate status of the Kmart leases, the Company expects a delay in the completion of its plan of liquidation. Also, the potential impact on the proceeds from sales of the remaining five properties cannot currently be evaluated. On October 10, 2000, the Company's stockholders approved the plan of liquidation, which at that time was estimated to generate approximately $18.25 in the aggregate in cash for each share of common stock in two or more liquidating distributions. To date, a total of $15.25 per share has been distributed, which resulted partly from the August and October 2001 sales of two shopping centers in which Kmart was a major tenant, including one property with a closed Kmart store. The Company's five remaining assets are currently being offered for sale. PHOENIX INT'L: Working Capital Insufficient to Fund Operations -------------------------------------------------------------- In the Auditors Report dated January 17, 2002, external auditors for Phoenix International Industries stated: "..... the Company has accumulated losses of approximately $21 million as of November 30, 2001, has insufficient working capital and will continue to incur selling, general and administrative expenses. Realization of certain assets is dependent upon the Company's ability to meet its future financing requirements, the success of future operations and the continued funding of the parent Company's operations by its chief executive officer and sale of common stock. The conditions raise substantial doubt about the Company's ability to continue as a going concern." The Company reported revenues of $1,750,264 for the three-month period ended November 30, 2001 compared to revenues of $698,736 for the comparable three-month period of the preceding year. These revenues resulted from telecommunication service sales generated by Phoenix's affiliates, EPICUS, Inc. and Moye & Associates, Inc. (dba "The Best.Net"). During the Company's three month period ended November 30, 2001, the Company incurred net losses of $4,036,109 compared to net losses of $1,460,250 for the comparable three month period for the preceding year. The Company's net losses for the three month period ended November 30, 2001, continue to be the result of expenses involved with supporting the day to day operation of EPICUS, the expenses of expanding its affiliates sales operations, including the posting of additional deposits to long distance carriers on behalf of EPICUS. Also contributing to the Company loss during the period are the continued expenses associated with continuing to operate and maintain its offices, professional fees and expenses associated with being a reporting public company, which include: legal, accounting and EDGAR/printing preparation. The Company also incurred non-cash expenses associated with the issuance of 2,000,000 shares of stock to the former owners of Moye & Associates as a payment on the balance of the note issued for the purchase of that company. In order for the Company to pay its operating expenses, including office rents, communication expenses, accounting and bookkeeping fees, printing and EDGAR preparation costs, publication costs, and other general and administrative expenses, the Company continues to be dependent upon the funds provided by non-interest bearing loans and agreements to defer payments due, from the Company's executive officers, directors and shareholders, and the sale of stock under the terms of Regulation "S" of the Securities Act of 1933. During this reporting period as it has previously, the Company has raised a portion of its operating capital through the sale of restricted stock, however in future there can be no assurance of any additional sale of restricted stock. Further, there can be no assurance, based upon present market price of the shares, that it will be able to raise additional private placement funding, at terms and conditions satisfactory to the Company. PILLOWTEX CORP: Gets Approval to Expand Scope of KPMG's Work ------------------------------------------------------------ Judge Robinson finds the application of Pillowtex Corporation, and its debtor-affiliates to expand the scope of KPMG as tax advisors in the best interests of the Debtors and their estates. Thus, the Court authorizes the Debtors to retain and employ KPMG nunc pro tunc as of September 17, 2001. Pursuant to the Supplemental Engagement Letter, KPMG, as tax advisors to the Debtors, will be: (a) assisting in the formulation of employment tax planning opportunities; (b) tailoring any employment tax planning opportunities to meet the Debtors' post-bankruptcy needs; (c) evaluating income, franchise, real estate, personal property and sales/use tax issues related to the implementation of the Fieldcrest Employee Restructuring; (d) evaluating and providing advice on non-tax issues related to any employment tax planning opportunities, including accounting, operational, technology or regulatory issues related to the implementation of the Fieldcrest Employee Restructuring; (e) preparing an economic cost study regarding sustainable intercompany pricing levels in connection with the implementation of the Fieldcrest Employee Restructuring; (f) performing a post-implementation review of the employment tax planning actions taken to evaluate whether those actions are achieving the intended benefits and to determine additional recommendations to strengthen the tax planning strategy; (g) communicating with taxing jurisdictions affected by the implementation of the employment tax planning strategy; and (h) assisting in any defense of the employment tax planning opportunities in the unlikely event of an audit. (Pillowtex Bankruptcy News, Issue No. 21; Bankruptcy Creditors' Service, Inc., 609/392-0900) PROBEX CORP: Bechtel Group, et. al. Disclose 6.9% Equity Stake -------------------------------------------------------------- Bechtel Group, Inc. and United Infrastructure Company, LLC share voting and dispositive powers over 2,119,716 shares of the common stock of Probex Corporation, representing 6.9% of the total outstanding common stock of that Company. Bechtel Group, Inc. disclaims any beneficial ownership of any of the shares of common stock of Probex issued to United Iintrastructure Company, LLC, Bechtel's indirect wholly-owned subsidiary. Probex is probing the prospects for ProTerra, the company's proprietary technology for purifying, recycling, and upgrading used lubricating oils collected from auto oil-change centers. With construction group Bechtel, the company is developing a plant on a 22-acre site in Ohio where it plans to use the technology to upgrade the waste oil into three products: ProLube, a base lube oil; ProPower, a distillate for off-road use; and ProBind, an asphalt thickener. The company expects to get 80% of its sales from upgraded lube oil, which is designed to comply with new standards for oils used in cars. Probex owns three waste oil collection companies in the southeastern US, which supply its recycling plants. At June 30, 2001, the company had a working capital deficiency of close to $13 million. REGAL CINEMAS: Court Confirms Prepackaged Plan of Reorganization ---------------------------------------------------------------- Regal Cinemas, Inc., the nation's largest film exhibitor, said that it has emerged from its voluntary prepackaged Chapter 11 proceeding. Regal Cinemas' plan of reorganization, which was accepted by holders of more than 95 percent of the Company's creditors that voted on the plan, was confirmed by the U.S. Bankruptcy Court for the Middle District of Tennessee in Nashville on December 7, 2001, clearing the way for emergence. To complete its restructuring initiatives, Regal filed voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code along with a prepackaged plan of reorganization on October 12, 2001, following a solicitation of votes of its subordinated debt holders and other general unsecured creditors on a restructuring of the Company's debt. "The consensual plan of reorganization that became effective [Wednes]day creates a significantly deleveraged Regal Cinemas with sufficient cash to fund its operations and a sound financial structure," said Regal Chairman and Chief Executive Officer Michael L. Campbell. "The successful completion of the Company's reorganization provides the maximum recovery to our creditors, and at the same time will enable Regal to maintain its position as the largest theatre circuit in the nation." Mr. Campbell noted the important role its employees, vendors and the studios played in the completion of Regal's restructuring initiatives. "The hard work of our employees and the support of the studios, along with that of our vendors, made it possible for our theatres to continue to operate without interruption during the brief course of the case." Under the terms of the plan, certain senior bank debt holders will receive payment of accrued and unpaid interest and 100 percent of reorganized Regal's common stock, subject to dilution by a new management incentive plan. Certain of these investors will also receive payment of certain costs and expenses incurred as a result of the restructuring of Regal. Other holders of allowed claims arising under Regal's senior credit facility will be paid in full with interest. All holders of the Company's Subordinated Notes will receive their pro rata share of cash in the aggregate amount of $181,031,250. General unsecured creditors will receive payments of cash equal to 100 percent of their allowed claim. Founded in November 1989, Regal Cinemas, Inc. is the largest film exhibitor in the United States and has maintained the largest box office and market share for U.S. theatres during the past two years. The Company primarily shows first run movies and currently has 3,655 screens in operation at 302 theatres. SERVICE MERCHANDISE: Proposes De Minimis Asset Sale Procedures -------------------------------------------------------------- Service Merchandise Company, Inc., and its debtor-affiliates seek Court approval for procedures to sell certain assets in connection with the wind-down of their business operations. Paul G. Jennings, Esq., at Bass, Berry & Sims, in Nashville, Tennessee, relates that the Debtors are referring to procedures for assets that have a value of less than $250,000 per item or the "De Minimis Assets". The Debtors believe it is in the best interests of the estates, creditors and other stakeholders to immediately commence the winding down of their businesses and dispose of their assets in an orderly fashion so as to maximize recoveries for their creditors. "The Debtors have determined that the sale of the De Minimis Assets will maximize the realizable value for such assets," Mr. Jennings adds. Mr. Jennings explains that aside from the potential loss of value to the Debtors' estates if these procedures are not approved, obtaining court approval of each sale of the De Minimis Assets would result in undue administrative expenses. The Debtors propose that for the sale of De Minimis Assets outside the ordinary course of business, these procedures should be approved in lieu of a hearing for each sale: (i) the Debtors will give notice of each proposed sale to: (a) the United States Trustee; (b) counsel to the Committee; (c) counsel for the post-petition lenders; and, (d) any known holder of a lien, claim or encumbrance against the specific property to be sold. The sale notice shall be served by facsimile, so as to be received by 4:00 p.m. on the date of service. The sale notice shall specify: (a) the assets to be sold; (b) the identity of the proposed purchaser, including a statement of any connection between the proposed purchaser and the Debtors; and, (c) the proposed sale price. (ii) the notice parties shall have 5 business days after the notice is sent to object to, or request additional time to evaluate the proposed transaction. If counsel to the Debtors receive no written objection or written request for additional time prior to the expiration of such five-day period, the Debtors shall be authorized to consummate the proposed sale transaction and to take such actions as are necessary to close the transaction and obtain the sale proceeds. (iii) if a notice party timely objects to the proposed transaction within 5 business days after the notice is sent, the Debtors and such objecting notice party shall use good faith efforts to consensually resolved the objection. If the Debtors and the objecting notice party are unable to achieve a consensual resolution, the Debtors will not take any further steps to consummate the proposed transaction without first obtaining Bankruptcy Court approval of the proposed transaction upon notice and a hearing; (iv) any valid and enforceable liens shall attach to the net proceeds of the sale, subject to any claims and defenses the Debtors may possess with respect thereto, and any amounts in excess of such liens shall be utilized by the Debtors in accordance with the terms of the Debtors' post-petition financing agreement; and, (v) nothing in these procedures shall prevent the Debtors, in their sole discretion, from seeking Bankruptcy Court approval at any time of any proposed transaction upon notice and a hearing. Mr. Jennings asserts that the proposed procedures provide an efficient process for disposing of assets of lesser value and at the same time affording parties with a particular interest in such assets or the proceeds with an opportunity to object. The expedited procedure permits the Debtors to be responsive to the needs of interested purchasers thus preventing lost sales due to delay. "Without an expedited process for closing these sales, these estates will be deprived of significant recovery," Mr. Jennings adds. (Service Merchandise Bankruptcy News, Issue No. 25; Bankruptcy Creditors' Service, Inc., 609/392-0900) STATIA TERMINALS: Adjusted EBITDA Slides-Down 7% in Q4 2001 ----------------------------------------------------------- Statia Terminals Group N.V. (NASDAQ: STNV) reported earnings before interest expense, income taxes, depreciation, and amortization adjusted for certain non-recurring items, a measure of operating cash flow, of $9.0 million for the fourth quarter ended December 31, 2001. Adjusted EBITDA includes a $0.7 million non-cash impairment charge incurred during the fourth quarter. As previously announced on January 22, 2002, after considering the Company's fourth quarter results, available cash, and future cash requirements, the Board of Directors has declared a distribution of $0.45 per class A common share payable on February 14, 2002, to shareholders of record on January 31, 2002. On Thursday, January 24, 2002, the Company began mailing definitive proxy material (to shareholders of record at the close of business on Tuesday, January 22, 2002) related to a special general meeting of shareholders to be held on Friday, February 22, 2002, in Curacao, Netherlands Antilles. At the special general meeting, shareholders will be asked to approve (i) the sale of substantially all of the assets of the Company consisting of the capital stock of its three subsidiaries (Statia Terminals International N.V., Statia Technology, Inc., and Statia Marine, Inc.) to Kaneb Pipe Line Operating Partnership, L.P., a limited partnership affiliated with Kaneb Pipe Line Partners, L.P. (NYSE: KPP), (ii) an amendment to the Company's Articles of Incorporation implementing a distribution mechanism for the proceeds of the sale, and (iii) the subsequent liquidation of the Company. The sale transaction was approved by the Board of Directors of Statia, which also recommends that the holders of the Company's class A and class B shares vote to amend the Articles of Incorporation, approve the proposed distribution of the sale proceeds and approve the liquidation of the Company. Shareholders are encouraged to promptly mail their voting instruction card and proxy so that their shares may be voted in accordance with their wishes. Assuming shareholders approve these matters, it is anticipated that distributions will be paid shortly after closing to shareholders of record on the date of the closing of the sale. Shareholders seeking additional information on these matters may contact the Company's proxy solicitation agent, Morrow & Co., Inc., located at 445 Park Avenue, New York, NY 10022; Telephone: (212) 754-8000; Call Toll-Free: (800) 654-2468. The fourth quarter results represent a decrease of 7% from the Adjusted EBITDA of $9.7 million for the fourth quarter of 2000. Adjusted EBITDA for the year ended December 31, 2001, was $38.8 million, an increase of $7.1 million or 22% compared to the 2000 annual results of $31.7 million. Adjusted EBITDA for the fourth quarter of 2001 and the full year 2001 includes an impairment charge of $0.7 million related to an investment in a technology company. Excluding the impairment charge, Adjusted EBITDA for the three and twelve months ended December 31, 2001, would have been $9.7 million and $39.5 million, respectively. The higher Adjusted EBITDA for the fourth quarter of 2001 (excluding the impairment charge) as compared to the same period of 2000, is primarily due to increased throughput of crude oil and clean products. In conjunction with increased throughput, Statia had more vessels working cargo at its terminals than during the same quarter last year. The improved Adjusted EBITDA for the year ended December 31, 2001, as compared to the prior year, is mainly attributable to increases in storage, throughput, and ancillary services revenues in the Company's terminaling services segment. As a result of favorable market conditions and Statia's strategic initiative to attract long-term customers, the Company saw improved leasing of its available capacity, additional barrels of throughput, and increased vessel calls working cargo than during the prior year. Terminaling services revenues were $18.7 million and $73.7 million for the three and twelve months ended December 31, 2001, respectively, compared to $16.9 million and $61.5 million for the same periods of 2000. A reconciliation of EBITDA to operating income and Adjusted EBITDA to net income is attached. Total revenues for the fourth quarter of 2001 were $47.0 million, down $9.4 million from total revenues of $56.4 million for the fourth quarter of 2000. Total revenues for the year ended December 31, 2001, were $202.2 million, down $8.3 million from total revenues of $210.5 million for the 2000 year. The decreases in total revenues for these periods are primarily due to lower average selling prices in the product sales segment, partially offset by increases in terminaling services revenues. Gross profit from the product sales segment for the year ended December 31, 2001 was $8.1 million, up 5% from the 2000 year. This increase in gross profit from product sales is primarily due to greater quantities of bunker fuels delivered and higher margins realized primarily as a result of improved purchasing of products sold. Operating income for the three and twelve months ended December 31, 2001, was $4.5 million and $24.3 million, respectively, as compared to $7.1 million and $19.4 million for the same periods of 2000. Operating income for the three and twelve months ended December 31, 2001, includes costs related to the proposed sale of the Company's operating subsidiaries to Kaneb of $1.2 million and $1.5 million, respectively, and the impairment charge of $0.7 million. Had the Company not incurred these costs and the charge, operating income for the three and twelve months ended December 31, 2001, would have been $6.4 million and $26.5 million, respectively. Operating income for the three and twelve months ended December 31, 2000, includes one-time increases of $0.95 million. Had the Company not realized these items, operating income for the three and twelve months ended December 31, 2000 would have been $6.1 million and $18.5 million, respectively. For the quarter ended December 31, 2001, net income was $1.2 million, compared to $3.8 million for the fourth quarter of 2000. For the year ended December 31, 2001, net income was $10.9 million compared to $6.1 million for the 2000 year. Had the Company not incurred the costs related to the sale of its subsidiaries and the impairment charge, net income for the three and twelve months ended December 31, 2001, would have been $3.0 million and $13.1 million, respectively. Had the Company not realized certain one-time increases in operating income of $0.95 million during the three and twelve months ended December 31, 2000, net income for these periods would have been $2.8 million and $5.1 million, respectively, corresponding to $0.27 and $0.48 diluted earnings per common share, respectively. The Company has scheduled a conference call to discuss its operations and financial results for 10:00 a.m. EST on Thursday, January 31, 2002. All interested parties may listen to the conference call live by calling toll-free 888-428-4474. Statia provides storage, blending, processing, and other marine terminaling services for crude oil, refined products, and other bulk liquids to crude oil producers, integrated oil companies, traders, refiners, petrochemical companies, and others at its facilities located on the island of St. Eustatius, Netherlands Antilles, and at Point Tupper, Nova Scotia, Canada. The Company's facilities, with their deep-water ports, can accommodate substantially all of the world's largest oil tankers. In connection with its terminaling activities, Statia also provides value-added services, including delivery of bunker fuels to vessels, other petroleum product sales, emergency and spill response services, and ship services. The Company is headquartered in Curacao, Netherlands Antilles, and maintains an administrative office in Deerfield Beach, Florida. SYSTEMS XCELLENCE: Workout Talks with Bank & Debtholder Continue ---------------------------------------------------------------- Systems Xcellence Inc. (TSE: SXC), a leading provider of healthcare information technology solutions throughout the pharmaceutical supply chain, announced financial results for its third-quarter of fiscal 2002, ended November 30, 2001. Highlights of the quarter include: - Revenue increase of 59% over the third-quarter of fiscal 2001; - EBITDA increase of 239% over the third-quarter of fiscal 2001; - Income before goodwill amortization of $403,618, or $0.01 per share; - Near break-even cash flow, with positive cash flow from operations of $1.5 million; - New licensed software contracts and ASP renewals totalling US$2.75 million; and - Revenue backlog of $58 million at the end of the third-quarter of fiscal 2002. "SXC continues to deliver on our promises, realizing positive results from ongoing efforts to successfully integrate ComCoTec and improve our financial position," said Gordon S. Glenn, President & CEO of SXC. "SXC is nearing its cash flow positive milestone, is profitable on an EBITDA basis, and is benefiting from substantially higher recurring revenues, which for the second consecutive quarter remain in excess of 50%. As per our strategy, a large recurring revenue stream can provide stability and visibility going forward. SXC appears ready to meet our year-end revenue goal as we prepare for solid growth initiatives in fiscal 2003." SXC is a key player in the U.S. pharmaceutical benefit IT market, which is valued at approximately US$2.1 billion annually. Factors driving growth in this industry include: a rising percentage of Americans who take prescription drugs on a daily basis; the rise in direct-to-consumer advertising; the Bush Administration's pledge to provide drug benefits to senior citizens; and the fact that U.S. healthcare providers and payers must generally be HIPAA- compliant by October 2002. These forces combined are fuelling demand from healthcare payers in particular, as they look to control the escalating costs of delivering healthcare benefits. Financial Results Revenue for the three-month period ended November 30, 2001 increased 59.0% to $10.6 million from $6.7 million as of November 30, 2000. This growth is largely the result of increased ASP/switching and maintenance revenue. During the third-quarter recurring revenue accounted for 52.5% of consolidated revenue versus 16.4% for the corresponding period in fiscal 2001. This percentage increase is primarily the result of the acquisition of ComCoTec, Inc. in the first-quarter of fiscal 2002. Revenue for the nine-month period ended November 30, 2001 rose by 39.8% to $27.7 million from $19.8 million as of November 30, 2000, also driven by substantially higher ASP/switching and maintenance revenue. Recurring revenue accounted for 55.0% of consolidated revenue for the first nine-months of fiscal 2002, compared to 15.2% for the corresponding period in fiscal 2001. General economic uncertainty, and a preference amongst mid-size payers of healthcare benefits for outsourced ASP solutions, resulted in offsetting declines in licensed software revenue during the current quarter and the year- to-date period. The Company recorded earnings before interest, taxes, depreciation and amortization (EBITDA) of $1.8 million during the third quarter, an increase of 239% over $544,764 for the same period of fiscal 2001. This also represents a 174% increase in EBITDA compared to the second quarter of fiscal 2002, marking the second consecutive quarter of positive EBITDA as SXC continues its drive toward improved financial stability. For the nine-month period ended November 30, 2001, the Company reported negative EBITDA of $1.2 million -- less than half the EBITDA loss reported for the six months ended August 31, 2001. For the third-quarter of fiscal 2002, the Company reported a net loss of $2.4 million compared to a net profit of $95,721 for the corresponding period in fiscal 2001. On a sequential quarter- over-quarter basis, in the third quarter of fiscal 2002, the Company earned $403,618, before goodwill amortization, compared with a loss of $952,277, before goodwill amortization in the second quarter of fiscal 2002. For the first nine-months of fiscal 2002, the Company reported a net loss of $14.2 million compared to a net profit of $737,176 for the corresponding period in fiscal 2001. This change is largely attributable to a decline in licensed software revenue and goodwill amortization charges in connection with the ComCoTec acquisition. The Company is continuing discussions with its bank and primary debt-holder to obtain more favorable financing terms for its existing debt. During the quarter, the Company and its bank entered into a forbearance agreement with respect to the breach of certain financial covenants that occurred prior to and during the quarter. One of the conditions of this forbearance was the repayment of the Company's revolving line of credit. Management expects bank scrutiny to continue for the near future, however, with the Company's improved operating results, management believes that it will be able to secure an alternative banking relationship to enhance its borrowing capacity. Subsequent to the quarter-end, the Company also entered into a temporary forbearance agreement with its primary debt-holder in connection with certain missed financial covenants that occurred prior to and during the quarter. The purpose of this agreement is to facilitate discussions for a more extensive agreement that addresses the Company's long-term financial objectives. Discussions relating to the more extensive agreement have been ongoing and management expects a mutually satisfactory outcome. At the end of the third quarter of fiscal 2002, the Company's contract order backlog remained steady at $58 million. Management anticipates that this contracted order backlog will be realized over a three-year period. Systems Xcellence (SXC) is headquartered in Milton, Ontario with offices and processing centres in Lombard, Illinois, Scottsdale, Arizona and Victoria, British Columbia. SXC is a leading provider of healthcare information technology solutions and services to the healthcare benefits management industry. The company's product offerings and solutions combine a wide range of software applications, application service provider (ASP) processing services and professional services, designed for many of the largest organizations in the pharmaceutical supply chain, such as pharmacy benefit managers, managed care organizations, retail pharmacy chains and other healthcare intermediaries. The company's products offer its customers comprehensive pharmacy benefits management, claims switching and processing, drug dispensing, data warehousing and analysis, and rebate contract management systems. SXC delivers these solutions to its customers as software products bundled with systems implementation and consulting services, or on an ASP basis from its data centres in Scottsdale, Arizona and Lombard, Illinois. The Company's shares are traded on the Toronto Stock Exchange under the symbol SXC. SXC can be found on the Internet at http://www.sxc.com TCT LOGISTICS: Court Appoints KPMG as Interim Receiver in Canada ---------------------------------------------------------------- TCT Logistics Inc. (TSE-TLI) announced that KPMG Inc., has been appointed interim receiver of the company and its affiliates by order of the Ontario Superior Court of Justice, under the Bankruptcy and Insolvency Act. Effective with this appointment, the board of directors of the company has resigned. U.S. STEEL CORP: Fourth Quarter Net Loss Doubles to $121 Million ---------------------------------------------------------------- United States Steel Corporation (NYSE: X) reported an adjusted fourth quarter 2001 net loss of $121 million compared with an adjusted net loss of $57 million in fourth quarter 2000. For full-year 2001, the adjusted net loss was $257 million compared with adjusted net income of $77 million in the prior year. U. S. Steel recorded a fourth quarter 2001 net loss of $174 million, including the net effect of special items, which in total reduced net income by $53 million. In fourth quarter 2000, the net loss of $139 million included special items having a net unfavorable after-tax effect of $82 million. For the year 2001, U. S. Steel had a net loss of $218 million, which included special items with a net favorable after-tax effect of $39 million. A full-year 2000 net loss of $21 million, included special items having a net unfavorable after- tax effect of $98 million. "While our results are disappointing, they largely reflect the devastating impact that global excess steel capacity and several years of surging imports have had on domestic steel prices, which are at the lowest levels in decades, and on shipments and utilization rates, which are the lowest since the early 1990's," said Thomas J. Usher, chairman, CEO and president. In fourth quarter 2001, U. S. Steel recorded a loss from reportable segments of $175 million, or $57 per ton, on steel shipments of 3.1 million tons. U. S. Steel's Domestic Steel segment recorded a loss from operations of $177 million for the fourth quarter 2001, or $80 per ton. Domestic Steel shipments in fourth quarter 2001 were 2.2 million net tons, down 5 percent from fourth quarter 2000 and the lowest quarterly level since the third quarter of 1992. The average realized domestic steel price was $419 per ton in fourth quarter 2001 compared with $459 per ton in the fourth quarter 2000 and $420 per ton in the third quarter 2001. Domestic raw steel capability utilization in fourth quarter 2001 dropped to 67 percent, down from 75 percent in fourth quarter 2000 and 83 percent in third quarter 2001. As a result, fourth quarter production costs rose due to lower, less efficient operating rates at steel and raw material facilities. Tubular markets, which had been strong earlier in the year, also weakened markedly. U. S. Steel Kosice, s.r.o. (USSK) reported fourth quarter 2001 segment income from operations of $2 million, or $2 per ton. USSK's segment income in 2000 was $2 million, or $6 per ton, for the period following acquisition. For full-year 2001, USSK had segment income of $123 million, or $33 per ton. USSK shipments in fourth quarter 2001 were 0.9 million net tons, and raw steel capability utilization was 66 percent. Full-year 2001 shipments totaled 3.7 million net tons, with a utilization rate of 81 percent. Commenting on USSK's segment results, Usher said, "A difficult European economic environment contributed to lower fourth quarter shipments, but average realized prices remained about flat with the third quarter. USSK completed several planned outages during the quarter, which increased repair and maintenance expenses, and temporarily idled most operations for about two weeks at year-end due to low order levels and seasonal curtailments by customers. "We are extremely pleased with the performance of USSK in the first full year of operation as a U. S. Steel facility. USSK results should be enhanced by the completion of the tin mill expansion and vacuum degasser projects." Commenting on U. S. Steel's domestic outlook, Usher said, "We are encouraged that spot sheet prices are climbing from the extremely depressed levels of late 2001 and our order book has been improving. In the first quarter 2002, domestic shipments are expected to improve and average realized prices are expected to be slightly lower, largely due to product mix, when compared to fourth quarter 2001. For full-year 2002, domestic shipments are expected to be approximately 11 million net tons." USSK first quarter shipments and average realized prices are expected to be lower than fourth quarter 2001. USSK shipments are expected to be approximately 3.8 million net tons in 2002. United States Steel Corporation (United States Steel), through its Domestic Steel segment, is engaged in the production, sale and transportation of steel mill products, coke, taconite pellets and coal; the management of mineral resources; real estate development; and engineering and consulting services and, through the U. S. Steel Kosice (USSK) segment, in the production and sale of steel mill products and coke primarily for the central European market. Prior to December 31, 2001, United States Steel was a wholly owned subsidiary of USX Corporation, now named Marathon Oil Corporation (Marathon). Marathon had two outstanding classes of common stock: USX-Marathon Group common stock, which was intended to reflect the performance of Marathon's energy business, and USX-U. S. Steel Group common stock (Steel Stock), which was intended to reflect the performance of Marathon's steel business. On December 31, 2001, Marathon distributed the common stock of United States Steel to holders of Steel Stock in exchange for all outstanding shares of Steel Stock on a one-for-one basis. UNIVERSAL AUTOMOTIVE: Sells Interests in Hungarian Foundry ---------------------------------------------------------- Universal Automotive Industries, Inc. (Nasdaq: UVSL), is pleased to announce that it has sold its interest in its Csepel, Hungary foundry, to Euro-Industrial Limited L.L.C., whose principal shareholder, Tad M. Ballantyne, also holds interests in several other U.S. foundries, effective as of December 31, 2001. The aggregate consideration of $828,000 for the sale is evidenced by two promissory notes, the first of which, in the amount of $100,000 is interest free and is payable in four quarterly installments beginning in April 2002. The second promissory note, in the amount of $728,000, relates to the repayment of advances made by Universal to its Hungarian subsidiary. This note bears interest at the rate of 6.5% and is payable in 36 monthly installments beginning in November 2003. Universal had previously elected to treat the foundry as a discontinued operation, subject to a plan of liquidation to be completed by December 31, 2000, and has been carrying the asset on its books at a value of $800,000, as of September 30, 2001, including $972,800 of reserves for cost of liquidation. The Company continued to operate the foundry as a going concern through the date of sale in order to enhance its ultimate disposition price and avoid the costs of shut down and carrying of a shuttered facility. This resulted in additional operating losses of approximately $925,000 being incurred by the foundry in calendar year 2001, which were accounted for as part of Universal's consolidated operations and reduced Universal's profitability accordingly (under AICPA standards, if a discontinued operation continues beyond the scheduled liquidation date, subsequent losses must be taken into ordinary operations of the company). According to Universal's Chief Financial Officer, Robert W. Zimmer, "The sale of the foundry removes a large burden from Universal's core business activities. The continued losses at the foundry distracted from management's ability to fully concentrate its resources and attention on its core brake parts business. We believe that the sale of the foundry, coupled with the recent capital investment of $2,800,000 by Wanxiang America Corporation and the restructuring of the FINOVA Mezzanine Capital, Inc. subordinated debt, provides a significant enhancement to Universal's balance sheet and debt to equity position." The Company incurred substantial operating losses as a result of the foundry operations. The following chart reflects the operating losses incurred by the foundry since 1998: Year Amount 1998 $ 642,000 1999 $ 1,254,000 2000 $ 640,000 2001 $ 925,000 (estimated amount) In addition, the Company incurred a charge to earnings in 1999 of $3,083,000 which included a write-down of the foundry's property and equipment of $1,583,000, to an estimated Net Realizable Value of $800,000, and a provision for estimated cost of disposition of $1,500,000. Over the five-year holding period of the foundry, Universal incurred operating losses totaling an estimated $3,772,000 in addition to the $1,583,000 write-down of fixed assets but prior to the gain to be recognized from the sale of the asset or amounts charged against the estimated cost of disposition reserve. However on a net cash basis since 1998, Universal limited its out-of-pocket cash exposure to a $250,000 loan and payments of the annual salary, benefits and expenses of the Hungarian based managing director of approximately $175,000 per year (such amounts are included in the operating results noted above). Universal Automotive Industries, Inc. is a manufacturer and distributor of brake rotors, drums, disc brake pads, relined brake shoes, wheel cylinders and brake hoses for the automotive aftermarket. VSOURCE INC: Commences Conversion of Preferred Stock into Shares ---------------------------------------------------------------- On January 16, 2002, Vsource, Inc., filed an amendment to its certificate of incorporation to increase its number of authorized shares of common stock from 100,000,000 shares to 500,000,000 shares with the Secretary of State of the State of Delaware. The Amendment was adopted by the Company's Board of Directors on January 14, 2002, and had been approved by stockholders of the Company at the Annual Meeting of Stockholders held on November 20, 2001. As a result of the adoption of the Amendment, the conditions permitting conversion of shares of the Company's Series 3-A Convertible Preferred Stock into shares of the Company's common stock, and exercise of the warrants issued under the Exchangeable Note and Warrant Purchase Agreement dated July 12, 2001 between Vsource and the Purchasers, have been satisfied. In addition, under the terms of the Company's Certificate of Incorporation, the conversion price of its Series 1-A Convertible Preferred Stock has been reduced to $0.65 per share, and under the terms of its Certificate of Designation relating to the Company's Series 2-A Convertible Preferred Stock, the conversion price of the Series 2-A Convertible Preferred Stock has been reduced to $1.54 per share. Vsource is struggling to keep its head above water, and it's looking for a lifeboat. Plagued by losses and trouble finding customers, the company is restructuring. Vsource has stopped marketing its Virtual Source Network (VSN) product line, an Internet-based application suite for managing procurement. Instead, the company is focusing on business process outsourcing services, a business it entered through its 2001 acquisition of Asia-based NetCel360, and its LiquidMarketplace e-commerce transaction and procurement tools, which it also acquired in 2001 when it bought Online Transaction Technologies. Vsource has laid off about 80% of its workforce. W.R. GRACE: Posts Improved Results in 2001 Fourth Quarter --------------------------------------------------------- W. R. Grace & Co. (NYSE: GRA) reported that 2001 fourth quarter pre-tax income from core operations was $47.2 million compared with $35.6 million in the fourth quarter of 2000, a 32.6% improvement. Sales totaled $429.1 million compared with $391.9 million in the prior year quarter, a 9.5% increase. The fourth quarter was favorably impacted by strong demand for catalysts and building materials, augmented by revenue and earnings from bolt-on acquisitions in silica products and construction chemicals. Currency translation had minimal overall impact in the fourth quarter. Fourth quarter net income was $21.2 million, compared to a loss of $182.6 million in the fourth quarter of 2000. The prior year fourth quarter included a net charge of $283.0 million for asbestos-related litigation and a pending tax matter. The 2001 fourth quarter included net income effects of $3.7 million for Chapter 11 expenses. "All business lines contributed to sales and profit improvement in the fourth quarter, with accretive acquisitions and strong sales in catalysts and construction products leading the way," said Grace Chairman, President and Chief Executive Officer Paul J. Norris. "Core results were significantly better than last year's fourth quarter when we were battling a surprise downturn in the economy and high energy costs. We concluded a difficult year, marked by a decision to seek Chapter 11 protection from escalating asbestos- related lawsuits, with core operating profit about even with last year and our businesses in a stronger competitive position." For full year 2001, Grace reported sales of $1,723.2 million, a 7.9% increase versus 2000. Excluding currency translation impacts, sales were up 10.4%. Pre-tax income from core operations for 2001 was $187.5 million, about even with 2000. The full year pre-tax operating margin was 10.9%, down 0.8 percentage points from the prior year due primarily to higher costs of natural gas in the first half of 2001 and the negative effects of foreign currency translation. Net income was $78.6 million in 2001 compared to a loss of $89.7 million for the full year 2000. Core Operations Davison Chemicals (Catalysts and Silica Products) Fourth quarter sales for the Davison Chemicals segment were $218.1 million, up 10.7% from the prior year. Excluding currency translation impacts, sales were up 9.6%. Operating income of $33.9 million was 22.8% higher than the 2000 fourth quarter; operating margin of 15.5% was a 1.5 percentage point improvement. Operating income and margins were favorably impacted by lower energy costs in the fourth quarter of 2001 compared to the fourth quarter of 2000. For the full year 2001, sales were $874.1 million, up 11.5% from 2000 (excluding currency translation impacts, sales were up 13.6%), with operating income of $128.7 million versus $131.6 million for the prior year. Sales of catalyst products, which include refining catalysts and additives, polyolefin catalysts and other chemical catalysts, were up 10.3% (9.3% excluding currency translation impacts) compared to the 2000 fourth quarter. Higher demand for refining catalysts and additives to meet increased gasoline demand and more stringent environmental regulations were the primary drivers. Sales of chemical catalysts increased from the fourth quarter of 2000 despite soft demand for polyolefin catalysts. Sales of silica products were up 11.7% compared to the fourth quarter 2000 (10.3% before currency translation impacts), primarily from two acquisitions completed in the past year which expanded the silicas product line into precipitated silicas, chromatography columns and separations media. Performance Chemicals (Construction Chemicals, Building Materials, and Sealants & Coatings) Fourth quarter sales for the Performance Chemicals segment were $211.0 million, up 8.3% from the prior year, despite a softening of construction activity in the U.S. and certain other countries. Excluding currency translation impacts, sales were up 9.2%. Operating income was $22.2 million, 51% higher than the prior year quarter. Operating margin was 10.5%, approximately 3.0 percentage points higher than the 2000 fourth quarter. Full year 2001 sales were $849.1 million, up 4.4% from 2000 (7.1% before currency translation impacts), while operating income was $101.1 million versus $95.5 million for full year 2000, a 5.9% increase. Sales of specialty construction chemicals, which include concrete admixtures, cement additives and masonry products, were up 13.1% versus the year-ago quarter (13.9% excluding currency translation impacts). Volume increases were experienced in every region, with the Pieri S.A. acquisition, completed in July, favorably impacting European sales. Sales of specialty building materials, which include waterproofing and fire protection products, were up 9.6% for the quarter (9.8% excluding currency translation impacts), reflecting strong waterproofing sales in North America and Europe. Sales of specialty sealants and coatings, which include container sealants, coatings and polymers, were about even with the fourth quarter of 2000 (up 1.7% before the effect of currency translation). These results reflect a continued decline in demand for metal food packages in favor of plastic and paper substitutes. Chapter 11 Proceedings On April 2, 2001, Grace and 61 of its United States subsidiaries and affiliates, including its primary U.S. operating subsidiary W. R. Grace & Co. - Conn., filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware (the "Filing"). Grace's non-U.S. subsidiaries and certain of its U.S. subsidiaries were not a part of the Filing. In November 2001, Grace's Chapter 11 case, as well as the Chapter 11 cases of four other companies with asbestos-related claims, was reassigned. Judge Alfred M. Wolin, a senior federal judge who sits in Newark, New Jersey will preside over the asbestos-related matters affecting all five companies. Judge Judith Fitzgerald, a U.S. Bankruptcy judge from the Western District of Pennsylvania, sitting in Wilmington, Delaware, will preside over Grace's other bankruptcy matters. Since the Filing, all motions necessary to conduct normal business activities have been approved by the Bankruptcy Court. Other Matters The decline in value of the U.S. and global equity markets coupled with a decline in interest rates, all in the second half of 2001, has created a shortfall between the accounting measurement of Grace's U.S. qualified pension obligations and the market value of dedicated pension assets. This condition requires a balance sheet adjustment in shareholders' equity at December 31, 2001 and will increase Grace's pension expense by approximately $20 million in 2002. No funding is required in 2002 and no additional pension charge was required in 2001. Grace projects that 2002 will be another challenging year with the first half continuing to be affected by the weak global economy, improving somewhat in the second half. Grace has taken steps to improve productivity and manage costs and, at this time, projects 2002 cash flow from core operations comparable to 2001. Grace's balance under its $250 million debtor-in- possession credit facility was zero at year end compared to a high of $75 million in the second quarter. Grace is a leading global supplier of catalysts and silica products, specialty construction chemicals, building materials and sealants & coatings. With annual sales of approximately $1.7 billion, Grace has over 6,000 employees and operations in nearly 40 countries. For more information, visit Grace's Web site at http://www.grace.com At the end of the fourth quarter, the company's total shareholders' equity deficit doubles to $141.1 million. WARNACO GROUP: Pushing for Second Extension of Exclusive Periods ---------------------------------------------------------------- For the second time, The Warnaco Group, Inc., and its debtor- affiliates ask Judge Bohanon to extend their exclusive period during which to file a plan and solicit acceptances of that plan. Specifically, the Debtors ask that their exclusive period during which to propose and file a plan of reorganization be extended until May 8, 2002 and that the exclusive period within which to solicit acceptances of that plan until July 8, 2002. J. Ronald Trost, Esq., at Sidley Austin Brown & Wood LLP, in New York, gives 3 reasons in support of the Debtors' request: (a) the 38 chapter 11 cases are extremely complex with thousands of creditors and debts exceeding $2,000,000,000; (b) the Debtors have made significant progress in their business planning process that will facilitate the expeditious filing of a plan or plans of reorganization; and (c) to date, the Debtors have worked cooperatively and constructively with their key constituencies with the goal of achieving a consensual resolution of these cases. Mr. Trost adds that the Debtors have already taken several steps to resolve these chapter 11 cases successfully and consensually, including: (a) obtaining adequate liquidity to fund their operations going forward; (b) implementing significant management changes, including the hiring of a new President and Chief Executive Officer with recognized experience in turnaround situations; (c) implementing extensive cost-cutting measures; (d) completing the business plan reviews and developing a business plan, the implementation of which will lead to the formulation of the Debtors' overall restructuring plan; and (e) starting to implement the Debtors' business plan by commencing the sale process with respect to some of the Debtors' business units, or the Company as a whole. This progress, the Debtors contend, warrants a a second extension of the Exclusive Periods. (Warnaco Bankruptcy News, Issue No. 18; Bankruptcy Creditors' Service, Inc., 609/392-0900) ZANY BRAINY: Delaware Court Approves Joint Disclosure Statement --------------------------------------------------------------- On January 15, 2002, the United States District Court for the District of Delaware approved the Joint Disclosure Statement Pursuant to Section 1125 of the Bankruptcy Code Relating to the Joint Consolidated Liquidating Plan of Reorganization of Zany Brainy, Inc., Children's Products, Inc., Children's Development, Inc., Noodle Kidoodle, Inc., Children's Distribution, LLC and Zany Brainy Direct LLC and an order was signed and entered by the Court on January 18, 2002. The Court has scheduled a hearing on confirmation of the Debtors' proposed Plan for March 6, 2002 at 5:00 p.m. Eastern Standard Time. Pursuant to the terms of the Proposed Plan, shareholders will not receive any cash or shares of common stock of the Right Start, Inc., in connection with the liquidation. Zany Brainy, Inc., retailer of toys, games, books and multimedia products for kids, filed for chapter 11 protection on May 15, 2001. Mark D. Collins, Esq. and Daniel J. DeFranceschi, Esq. at Richards Layton & Finger, P.A. represent the Debtors in their restructuring efforts. When the Company filed for protection from its creditors, it listed $200,862,000 in assets and $131,283,000 in debts. * DebtTraders Real-Time Bond Pricing ------------------------------------ Issuer Coupon Maturity Bid - Ask Weekly change ------ ------ -------- --------- ------------- Crown Cork & Seal 7.125% due 2002 81 - 83 +6 Federal-Mogul 7.5% due 2004 16.5 - 18.5 +1.5 Finova Group 7.5% due 2009 37.75 - 38.75 +0.25 Freeport-McMoran 7.5% due 2006 75 - 78 +0 Global Crossing Hldgs 9.5% due 2009 5.75 - 6.75 -4.25 Globalstar 11.375% due 2004 8 - 10 0 Levi Strauss & Co 11.625% due 2008 98 - 100 +2 Lucent Technologies 6.45% due 2029 67.5 - 69.5 -0.5 Polaroid Corporation 6.75% due 2002 7 - 9 -2 Terra Industries 10.5% due 2005 85 - 88 +5 Westpoint Stevens 7.875% due 2005 29 - 32 +2 Xerox Corporation 8.0% due 2027 59 - 61 +3 Bond pricing, appearing in each Thursday's edition of the TCR, is provided by DebtTraders in New York. DebtTraders is a specialist in global high yield securities, providing clients unparalleled services in the identification, assessment, and sourcing of attractive high yield debt investments. For more information on institutional services, contact Scott Johnson at 1-212-247-5300. To view our research and find out about private client accounts, contact Peter Fitzpatrick at 1-212-247-3800. Real-time pricing available at http://www.debttraders.com ********* Bond pricing, appearing in each Monday's edition of the TCR, is provided by DLS Capital Partners in Dallas, Texas. 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. Bond pricing, appearing in each Thursday's edition of the TCR, is provided by DebtTraders in New York. DebtTraders is a specialist in global high yield securities, providing clients unparalleled services in the identification, assessment, and sourcing of attractive high yield debt investments. For more information on institutional services, contact Scott Johnson at 1-212-247-5300. To view our research and find out about private client accounts, contact Peter Fitzpatrick at 1-212-247-3800. Real-time pricing available at http://www.debttraders.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. For copies of court documents filed in the District of Delaware, please contact Vito at Parcels, Inc., at 302-658-9911. 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