T R O U B L E D C O M P A N Y R E P O R T E R Friday, October 28, 2005, Vol. 9, No. 256 Headlines AMF BOWLING: Completes Joint Venture Deal with Qubica SpA ANACONDA CAPITAL: Case Summary & 2 Largest Unsecured Creditors ANDERSON CLARK: List of Debtors' 20-Largest Unsecured Creditors ASARCO LLC: Court Extended Lease Decision Period to January 13 ASARCO LLC: Court Okays Rejection of Useless Equipment Leases ATA AIRLINES: Evelyn Spiller Allowed to Pursue Injury Lawsuit ATA AIRLINES: ExecuJet Wants to Walk Away from McGraw-Hill Pact ATHLETE'S FOOT: Plan Confirmation Hearing Set for December 8 B/E AEROSPACE: Earns $10 Million of Net Income in Third Quarter BANC OF AMERICA: Stable Performance Cues S&P to Lift Low-B Ratings BIOMETRICS 2000: Voluntary Chapter 11 Case Summary BOOKS-A-MILLION: Stock Resumes Trading at Nasdaq After Compliance BOWATER INC: Incurs $16 Million Net Loss in Third Quarter BOYDS COLLECTION: Gets Interim Order to Use Cash Collateral BRIAN MULLINS: Case Summary & 20 Largest Unsecured Creditors BRILLIANT DIGITAL: Extends Secured Debt Maturity Date to March 31 BROOKLYN HOSPITAL: Meeting of Creditors Rescheduled to Dec. 7 CENTURY ALUMINUM: Incurs $20.1 Million Net Loss in Third Quarter CHASE FUNDING: Moody's Downgrades Class IM-2 Cert.'s Rating to Ba3 CHASE MORTGAGE: Fitch Rates $2.6 Mil Certificate Classes at Low-B CLAIMNET.COM: Balance Sheet Upside-Down by $671,000 at Sept. 30 COMBUSTION ENGINEERING: Everest Ends Insurance Dispute for $17.9M COMMERCIAL MORTGAGE: S&P Upgrades Low-B Ratings on 2 Cert. Classes CONMED CORP: Earns $7.9 Million of Net Income in Third Quarter CORNING INC: Earns $203 Million of Net Income in Third Quarter COVAD COMMS: Sept. 30 Balance Sheet Upside-Down by $3.7 Million CROWN HOLDINGS: S&P Rates Proposed $1.1 Bil Sr. Unsec. Notes at B DATATEC SYSTEMS: Court Confirms 2nd Amended Liquidating Plan DATATEC SYSTEMS: TIS Challenges Ownership of Insurance Proceeds DAY INTERNATIONAL: Moody's Rates New $140 Million Term Loan at B2 DELPHI CORP: Gets Final Court Nod on $4.5 Billion DIP Financing DT INDUSTRIES: Panel Selects Greenwald as DT Creditor Trustee EASTGROUP PROPERTIES: Reports Operational Results for 3rd Quarter ENRON CORP: Bankruptcy Court Approves FERC Settlement Agreement FIBERMARK INC: Court Approves Revised Disclosure Statement FOAMEX INT'L: Gets Final Court Okay to Pay Critical Vendor Claims FOAMEX INT'L: Gets Final Order on Injunction vs. Utility Companies FOAMEX INT'L: Can Continue Hiring 37 Ordinary Course Professionals GENERAL MOTORS: SEC Probes Accounting Practices & Delphi Deals GRIFFETH BUILDERS: Voluntary Chapter 11 Case Summary GSI COMMERCE: Postpones Release of Fiscal 2005 3rd Quarter Results GUARDIAN TECHNOLOGIES: Talks About Financial Reporting Weaknesses HARTCOURT COMPANIES: Earns $31,534 of Net Income in 1st Quarter HELL'S BAY: Case Summary & 20 Largest Unsecured Creditors I2 TECHNOLOGIES: Sept. 30 Balance Sheet Upside-Down by $144 Mil. INTERMET CORP: Court Okays Rejection of Five Representative Pacts INTERNATIONAL PAPER: Earns $1.04 Bil. of Net Income in 3rd Quarter INTERSTATE BAKERIES: Delays Filing of Required Financial Reports JEROME-DUNCAN: Unsecured Creditors Will Recover 100% of Claims JEROME-DUNCAN: UST & Committee Want Chapter 11 Trustee Appointed JLG INDUSTRIES: Moody's Affirms B3 Rating on Senior Sub. Notes JOHN COOPER: Case Summary & 20 Largest Unsecured Creditors JOHN KIENOSKI: Case Summary & 20 Largest Unsecured Creditors JUSTIN ROBERTS: Case Summary & 11 Largest Unsecured Creditors KAISER ALUMINUM: Asks Court to Reduce Bonneville Power Claims KAISER ALUMINUM: Wants Scope of Ernst & Young's Services Expanded KENNETH MEAD: Section 341(a) Meeting Slated for November 29 KEY ENERGY: Asks Senior Lenders to Raise CapEx Limit Covenant KMART CORP: Philip Morris & HNB Slam Move on Multi-Million Claims KMART CORP: Withdraws Motion for Further Pleadings on GPS Claims KNOLL INC: Earns $8.2 Million of Net Income in Third Quarter LA QUINTA: Fitch Puts BB- Rating on Senior Unsecured Notes LEVITZ HOME: Wants Court Okay to Hire AlixPartners as Consultants LEVITZ HOME: Wants Court OK to Hire ADA as Disposition Advisors LEVITZ HOME: Gets Interim Okay to Hire Kurtzman as Claims Agent LIDO ISLAND: Case Summary & 14 Largest Unsecured Creditors LODGENET ENT: Sept. 30 Balance Sheet Upside-Down by $69 Million LONGYEAR HOLDINGS: S&P Puts Low-B Ratings on New $575M Lien Loans LUCENT TECHNOLOGIES: Fitch Lifts Ratings on $5.4-Bil Securities KELLY LINEHAN: Case Summary & 7 Largest Unsecured Creditors KENNETH MEAD: Can Employ Ronald Bergwerk as Bankruptcy Counsel KINETIC CONCEPTS: Incurs $1.2 Million Net Loss in Third Quarter NORTEL NETWORKS: Selling Brampton Site to Rogers for $100 Million NORTHWEST AIRLINES: Opts to Outsource Sr. Flight Attendant Jobs NORTHWEST AIRLINES: Files Prospectus on Resale of Notes Due 2023 NORTHWEST AIRLINES: Chromalloy Opposes Claims Resolution Process NVF COMPANY: Wants Exclusive Period Stretched to January 16 NVF COMPANY: Courts Extends Removal Period Until December 17 NVF CO: Forshee & Boardroom Approved as Accounting Consultants MERCURY INTERACTIVE: Noteholders Waive Default Until March 31 MMRENTALSPRO LLC: Wants Plan-Filing Period Stretched to Jan. 13 MMRENTALSPRO LLC: Lincoln Apartment Approved as Property Manager MOUNTAIN MAX: Case Summary & 15 Largest Unsecured Creditors MUZAK HOLDINGS: Strained Liquidity Cues S&P to Junk Credit Rating O'SULLIVAN IND: Gets Interim OK to Borrow $35-Mil. DIP Financing O'SULLIVAN IND: Taps FTI Consulting as Restructuring Advisor O'SULLIVAN INDUSTRIES: Hires Lazard Freres as Financial Advisor OPEN SOLUTIONS: S&P Rates $415-Mil. Sr. Secured Loans at Low-B PACIFIC COAST: Fitch Junks $29.52M Class Notes & $26M Pref. Shares PAN AMERICAN: Fitch Affirms BB- Int'l Foreign Currency Rating PATCH INTERNATIONAL: Posts $281,898 Net Loss in FY 2005 1st Qtr. PHILLIP COLLECTOR: Case Summary & 20 Largest Unsecured Creditors PLEJ'S LINEN: Case Summary & 20 Largest Unsecured Creditors PQ CORP: Moody's Affirms $275-Million Sr. Sub. Notes' B3 Rating PRESIDENT CASINOS: Earns $2MM of Net Income in FY 2005 2nd Quarter PRESIDENT CASINOS: Columbia Sussex Withdraws License Application QUALISTICS INC: Voluntary Chapter 11 Case Summary REFCO INC: Interest Grows in Sale of Regulated Subsidiaries RICHARD O'NEILL: Voluntary Chapter 11 Case Summary ROBERT WALSH: Case Summary & 20 Largest Unsecured Creditors ROGERS COMMS: Buying Nortel Network's Brampton Site for $100 Mil. ROUNDY'S SUPERMARKETS: Moody's Affirms $175 Mil. Notes' B3 Rating SAINT VINCENTS: Says There's No Reason to Terminate Policies SAINT VINCENTS: Asserts that Ventilators are Estate Property SAINT VINCENTS: Patsy Merola Seeks to Enforce $2.6 Mil. Judgment SAN JUAN CABLE: Moody's Pares Rating on Planned $125M Loan to B3 SEMGROUP L.P.: Fitch Assigns B+ Rating to $250MM Sr. Unsec. Notes SEPRACOR INC: Balance Sheet Upside-Down by $212.79M at Sept. 30 SIERRA HEALTH: Earns $28.4 Million of Net Income in 3rd Quarter SLOCUM LAKE: Chapter 9 Case Summary & 6 Largest Unsec. Creditors SS&C TECHNOLOGIES: S&P Junks Proposed $205 Mil Subordinated Notes STEPHEN GOETZ: Case Summary & 20 Largest Unsecured Creditors STEPHEN MCNERNEY: Voluntary Chapter 11 Case Summary STEWART ENTERPRISES: Delayed Reports May Trigger Nasdaq Delisting STRATUS SERVICES: Sells All Assets to Source One for $35,000 STRATUS SERVICES: Has Until November 4 to Comply with Credit Pact SUN CASTLE: Case Summary & 15 Largest Unsecured Creditors SYLVAN I-30 ENTERPRISES: Case Summary & 35 Known Creditors TOWER AUTOMOTIVE: Buys Herman Miller Facility for $10 Million TOWER AUTOMOTIVE: Wants Federal's Reconsideration Request Denied TOWER AUTOMOTIVE: Has Until June 30 to Remove Civil Actions UAL CORP: Battle Over Senior Notes with Wells Fargo Continues UAL CORP: Creditors Panel Clams $1.3 Billion Atlantic Coast Claim UAL CORP: Wants to Assume Modified PMCC Aircraft Financing Pact UAL CORPORATION: Files 19th Reorganization Status Report VARIG S.A.: GECAS & JP Morgan Respond to Court's Show Cause Order WCI STEEL: Bankruptcy Court Approves Two Disclosure Statements WINN-DIXIE: Court Okays Cash Payments to Settle Litigation Claims WINN-DIXIE: Court Okays Rejection of Four Leases & Four Subleases WORLDCOM INC: Court OKs $315MM Tax Settlement Pact with 16 States WORLDCOM INC: Has Until November 16 to Object to Tax Claims XYBERNAUT CORP: Court Okays $5 Million DIP Financing Facility YANGER INC: Case Summary & 2 Largest Unsecured Creditors * Robert de By Leads Dewey Ballantine's Int'l Arbitration Practice * BOOK REVIEW: OIL & HONOR: The Texaco Pennzoil Wars ********* AMF BOWLING: Completes Joint Venture Deal with Qubica SpA --------------------------------------------------------- AMF Bowling Worldwide, Inc., completed the formation of its joint venture with Italian-based Qubica, S.p.A. Both companies contributed the equity of their subsidiaries to the joint venture in exchange for 50% equity interest each in the partnership. In connection with its formation, the joint venture entered into a Credit Agreement with an unnamed lender which allows the company to access up to $30 million to fund its operations. If not repaid sooner, its obligations under the Credit Agreement will become fully due and payable on Oct. 7, 2010. Pursuant to the Credit Agreement, the joint venture granted the lender mortgages and security interests in a significant portion of the partnership's assets. John Walker, who was the President of AMF Bowling's Products Business, is the joint venture's chief executive officer. Headquartered in Richmond, Virginia, AMF Bowling Worldwide, Inc. is the largest operator of bowling centers in the world with roughly 370 centers. AMF Bowling Worldwide, Inc., filed for chapter 11 protection on July 3, 2001 (Bankr. E.D. Va. Case Nos. 01-61119 through 01-61143). Marc Abrams, Esq., at Willkie, Farr & Gallagher represented the operating subsidiaries. The corporate parent, AMF Bowling, Inc., filed for chapter 11 protection on July 31, 2001 (Bankr. E.D. Va. Case No. 01-61299). Lawrence H. Handelsman, Esq., at Stroock & Stroock & Lavan LLP, represented the parent company. The Debtors' Second Amended & Modified Chapter 11 Plan was confirmed on Feb. 1, 2002, and consummated on March 8, 2002. That plan deleveraged the company's balance sheet, and delivered a 92% equity stake in the reorganized subsidiaries to the company's secured lenders and a 7% equity stake in the operation to unsecured creditors. The old public parent company died. * * * As reported in the Troubled Company Reporter on July 19, 2005, Moody's Investors Service downgraded the ratings of AMF Bowling Worldwide, Inc., thus concluding the review of the ratings for possible downgrade initiated on March 10, 2005. These ratings were lowered: -- To Caa1 from B3, $150 million 10% senior subordinated notes, due 2010 -- To B2 from B1, approximately $120 million senior secured credit facility consisting of a $40 million revolver, maturing in 2009, and approximately $79 million term B loans, maturing in 2009 -- To B2 from B1, Corporate Family Rating (formerly known as the Senior Implied Rating) Moody's said the ratings outlook is stable. As reported in the Troubled Company Reporter on Feb. 9, 2004, Standard & Poor's Ratings Services assigned its 'B' rating to AMF Bowling Worldwide Inc.'s proposed $175 million senior secured credit facility due 2009. A recovery rating of '3' was also assigned to the proposed credit facility, indicating a meaningful recovery of principal (50%-80%) in the event of a default. In addition, a 'CCC+' rating was assigned to the $150 million senior subordinate notes due 2010. At the same time, Standard & Poor's affirmed its ratings on AMF Bowling, including its corporate credit rating of 'B', and removed them from CreditWatch. S&P said the outlook is stable. ANACONDA CAPITAL: Case Summary & 2 Largest Unsecured Creditors -------------------------------------------------------------- Debtor: Anaconda Capital, LP 730 Fifth Avenue New York, New York 10019 Bankruptcy Case No.: 05-60078 Type of Business: The Debtor is the general partner of Anaconda Opportunity Fund, LP, a private investment limited partnership, engaged in both public securities' markets and private equity investments. Chapter 11 Petition Date: October 26, 2005 Court: Southern District of New York (Manhattan) Debtor's Counsel: Joshua Joseph Angel, Esq. Angel & Frankel, P.C. 460 Park Avenue New York, New York 10022-1906 Tel: (212) 752-8000 Fax: (212) 752-8393 Financial Condition as of September 30, 2005: Total Assets: $5,938,418 Total Debts: $5,937,418 Debtor's 2 Largest Unsecured Creditors: Entity Nature of Claim Claim Amount ------ --------------- ------------ General Maritime Corp. Notes payable $250,000 299 Park Avenue New York, NY 10171-0002 Attn: Peter Georgiopoulos Tel: (212) 763-5620 Fax: (212) 763-5602 Bert Fingerhut Notes payable $130,000 1520 Silver King Drive Aspen, CO 81611-1049 Tel: (970) 920-1934 Fax: (970) 925-1820 ANDERSON CLARK: List of Debtors' 20-Largest Unsecured Creditors --------------------------------------------------------------- Anderson Clark, Inc., released a list of its twenty largest unsecured creditors: Entity Nature of Claim Claim Amount ------ --------------- ------------ Business Cards Tomorrow, Inc. Alleged past due $811,000 3000 N.E. 30th Place royalties Fort Lauderdale, FL 33306 Business Cards Tomorrow, Inc. Term notes $148,860 3000 N.E. 30th Place Fort Lauderdale, FL 33306 ComDoc, Inc. Equipment lease $143,471 P.O. Box 6434 AB Dick CXP3000 Carol Stream, IL 601976434 CXP - 46 payments left = $118,358.00 Copiers - 44 payments left = $25,113 Hahn Loeser & Parks Legal fees $64,619 Discovery Development, Ltd. Term notes $57,678 Jefferson Pilot Financial Loan against $52,709 insurance policy owned by Robert Apple James A. Tudas Note $45,860 James A. Tudas Consulting agreement $24,200 Jaguar Credit 2001 Jaguar S2001 $22,691 S-Type Value of security: $13,240 GE Capital Equipment lease $18,755 American Honda Finance 2004 Honda Civic $11,409 US DX Value of security: $9,115 BWC 2005 Premium - $3,339 first half Neopost Equipment lease - $2,550 postage meter GM Card Member Services Credit card $2,031 CIT Technology Lease on water cooler - $1,871 13 quarters left Impressive Labels, Inc. $1,127 IKON Office Solutions $9 Assist, Inc. Unknown BP Oil Unknown Braden Sutphin Ink Co. Unknown * * * Anderson Clark, Inc., aka BCT Ohio -- http://www.bctohio.com/-- is a wholesaler of thermographed and flat offset commercial stationery products. Anderson Clark also manufactures business cards, letterhead, envelopes, customer rubber stamps, labels, announcements, and invitations specialty products. The Debtor sought chapter 11 protection October 13, 2005 (Bankr. S.D. Ohio Case No. 05-73524). Susan L. Rhiel, Esq., at Rhiel & Associates Co., L.P.A., represents the Company. Anderson Clark reported $306,747 in assets and liabilities totaling $2,269,772 in its bankruptcy petition. ASARCO LLC: Court Extended Lease Decision Period to January 13 -------------------------------------------------------------- The Honorable Richard S. Schmidt of the U.S. Bankruptcy Court for the Southern District of Texas extended ASARCO LLC's time until Jan. 13, 2006, to decide whether to assume, assume and assign, or reject unexpired non-residential real property leases. As previously reported in the Troubled Company Reporter on Sept. 27, 2005, the Debtors assure the Court that they are current on all of their postpetition obligations under the Leases and will remain so until the Leases are assumed or rejected. Headquartered in Tucson, Arizona, ASARCO LLC -- http://www.asarco.com/-- is an integrated copper mining, smelting and refining company. Grupo Mexico S.A. de C.V. is ASARCO's ultimate parent. The Company filed for chapter 11 protection on Aug. 9, 2005 (Bankr. S.D. Tex. Case No. 05-21207). James R. Prince, Esq., Jack L. Kinzie, Esq., and Eric A. Soderlund, Esq., at Baker Botts L.L.P., and Nathaniel Peter Holzer, Esq., Shelby A. Jordan, Esq., and Harlin C. Womble, Esq., at Jordan, Hyden, Womble & Culbreth, P.C., represent the Debtor in its restructuring efforts. When the Debtor filed for protection from its creditors,it listed $600 million in total assets and $1 billion in total debts. The Debtor has five affiliates that filed for chapter 11 protection on April 11, 2005 (Bankr. S.D. Tex. Case Nos. 05-20521 through 05-20525). They are Lac d'Amiante Du Quebec Ltee, CAPCO Pipe Company, Inc., Cement Asbestos Products Company, Lake Asbestos of Quebec, Ltd., and LAQ Canada, Ltd. Details about their asbestos-driven chapter 11 filings have appeared in the Troubled Company Reporter since Apr. 18, 2005. Encycle/Texas, Inc. (Bankr. S.D. Tex. Case No. 05-21304), Encycle, Inc., and ASARCO Consulting, Inc. (Bankr. S.D. Tex. Case No. 05- 21346) also filed for chapter 11 protection, and ASARCO has asked that the three subsidiary cases be jointly administered with its chapter 11 case. (ASARCO Bankruptcy News, Issue No. 8; Bankruptcy Creditors' Service, Inc., 215/945-7000). ASARCO LLC: Court Okays Rejection of Useless Equipment Leases ------------------------------------------------------------- The Honorable Richard S. Schmidt of the U.S. Bankruptcy Court for the Southern District of Texas authorized ASARCO LLC to reject the unexpired equipment leases with Connecticut National Bank, effective as of Sept. 19, 2005. As previously reported in the Troubled Company Reporter on Sept. 27, 2005, the lease was for some mobile mining equipment and railroad rolling stock. ASARCO contends that the Contracts are of no material value to its estate. Moreover, it is unable to use the mobile mining equipment and railroad rolling stock, so incurring liability under the Contracts as an administrative expense is not in the best interest of the estate. Court Order Judge Schmidt gives the counterparties to the Contracts until March 6, 2006, to file a claim for any damages, including those arising from the rejection or use of the Railroad Rolling Stock. Failure to file a claim before the Rejection Claim Deadline will forever bar the counterparties from asserting a claim against ASARCO or its estate relating to the Contracts. Judge Schmidt further rules that the counterparties are entitled to possession of the Railroad Rolling Stock. ASARCO will cooperate with the counterparties to surrender the Railroad Rolling Stock, empty and otherwise as is, at locations in the United States mutually agreeable to the parties, and endeavor to cause all sublessees of the Railroad Rolling Stock to do the same, and that ASARCO will surrender any documentation in its possession related to the Railroad Rolling Stock immediately. Any subleases of the Railroad Rolling Stock to any of ASARCO's affiliates or third parties are terminated, except to the extent as may be required to accomplish the return of the units to the Government. Headquartered in Tucson, Arizona, ASARCO LLC -- http://www.asarco.com/-- is an integrated copper mining, smelting and refining company. Grupo Mexico S.A. de C.V. is ASARCO's ultimate parent. The Company filed for chapter 11 protection on Aug. 9, 2005 (Bankr. S.D. Tex. Case No. 05-21207). James R. Prince, Esq., Jack L. Kinzie, Esq., and Eric A. Soderlund, Esq., at Baker Botts L.L.P., and Nathaniel Peter Holzer, Esq., Shelby A. Jordan, Esq., and Harlin C. Womble, Esq., at Jordan, Hyden, Womble & Culbreth, P.C., represent the Debtor in its restructuring efforts. When the Debtor filed for protection from its creditors,it listed $600 million in total assets and $1 billion in total debts. The Debtor has five affiliates that filed for chapter 11 protection on April 11, 2005 (Bankr. S.D. Tex. Case Nos. 05-20521 through 05-20525). They are Lac d'Amiante Du Quebec Ltee, CAPCO Pipe Company, Inc., Cement Asbestos Products Company, Lake Asbestos of Quebec, Ltd., and LAQ Canada, Ltd. Details about their asbestos-driven chapter 11 filings have appeared in the Troubled Company Reporter since Apr. 18, 2005. Encycle/Texas, Inc. (Bankr. S.D. Tex. Case No. 05-21304), Encycle, Inc., and ASARCO Consulting, Inc. (Bankr. S.D. Tex. Case No. 05- 21346) also filed for chapter 11 protection, and ASARCO has asked that the three subsidiary cases be jointly administered with its chapter 11 case. (ASARCO Bankruptcy News, Issue No. 8; Bankruptcy Creditors' Service, Inc., 215/945-7000). ATA AIRLINES: Evelyn Spiller Allowed to Pursue Injury Lawsuit ------------------------------------------------------------- Evelyn Spiller filed a claim for personal injuries against ATA Holdings Corp., in the Circuit of Cook County, Illinois, County Department - Law Division. Ms. Spiller's claims for negligence are covered by the Debtors' insurance policy with AIG Aviation. Pursuant to a stipulation, ATA Holdings agrees to have the automatic stay under Section 362(d) of the Bankruptcy Code modified for the limited purpose of allowing Ms. Spiller to pursue the lawsuit. Ms. Spiller's recovery in the lawsuit will be limited to compensatory damages insured by AIG or any other insurers or reinsurers providing coverage for the recovery. Ms. Spiller agrees not to seek any punitive damages in the Lawsuit. She agrees not to pursue monetary claims against the Debtors or to collect any amounts from them. Headquartered in Indianapolis, Indiana, ATA Airlines, owned by ATA Holdings Corp. -- http://www.ata.com/-- is the nation's 10th largest passenger carrier (based on revenue passenger miles) and one of the nation's largest low-fare carriers. ATA has one of the youngest, most fuel-efficient fleets among the major carriers, featuring the new Boeing 737-800 and 757-300 aircraft. The airline operates significant scheduled service from Chicago- Midway, Hawaii, Indianapolis, New York and San Francisco to over 40 business and vacation destinations. Stock of parent company, ATA Holdings Corp., is traded on the Nasdaq Stock Exchange. The Company and its debtor-affiliates filed for chapter 11 protection on Oct. 26, 2004 (Bankr. S.D. Ind. Case Nos. 04-19866, 04-19868 through 04-19874). Terry E. Hall, Esq., at Baker & Daniels, represents the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $745,159,000 in total assets and $940,521,000 in total debts. (ATA Airlines Bankruptcy News, Issue No. 38; Bankruptcy Creditors' Service, Inc., 215/945-7000) ATA AIRLINES: ExecuJet Wants to Walk Away from McGraw-Hill Pact --------------------------------------------------------------- American Trans Air ExecuJet, Inc., asks the U.S. Bankruptcy Court for the Southern District of Indiana to authorize the rejection of its agreement with McGraw-Hill Broadcasting Company, Inc., relating to a Bell LongRanger 206L-3 helicopter, with manufacturer's serial number 51199 and bearing U.S. registration number N116AT. ATA Airlines, Inc., entered into a lease agreement with Betaco, Inc., for the Helicopter before its filed for bankruptcy protection. ATA Airlines, in turn, subleased the Helicopter to ExecuJet. In January 2003, ExecuJet entered into an "Agreement for Helicopter Services" with McGraw-Hill under which ExecuJet provided McGraw Hill, operator of WRTV Channel 6, with use of the Helicopter, a pilot, maintenance services, a hanger, fuel, and related services. The Agreement was amended on February 21, 2003. Mr. Graham asserts that the rejection of the Agreement is warranted under Section 365(a) of the Bankruptcy Code. Jeffrey J. Graham, Esq., at Baker & Daniels, LLP, in Indianapolis, Indiana, relates that the Debtors have issued termination notices of their stipulation under Section 1110(b) of the Bankruptcy Code with Betaco regarding, among other aircrafts, the Helicopter. The Debtors have also filed a notice of rejection of the Lease and the Sublease. Because the Debtors are rejecting the Lease and the Sublease, the McGraw-Hill Agreement no longer has any value to ExecuJet and will be burdensome, as ExecuJet no longer has the right to use the Helicopter, Mr. Graham says. Headquartered in Indianapolis, Indiana, ATA Airlines, owned by ATA Holdings Corp. -- http://www.ata.com/-- is the nation's 10th largest passenger carrier (based on revenue passenger miles) and one of the nation's largest low-fare carriers. ATA has one of the youngest, most fuel-efficient fleets among the major carriers, featuring the new Boeing 737-800 and 757-300 aircraft. The airline operates significant scheduled service from Chicago- Midway, Hawaii, Indianapolis, New York and San Francisco to over 40 business and vacation destinations. Stock of parent company, ATA Holdings Corp., is traded on the Nasdaq Stock Exchange. The Company and its debtor-affiliates filed for chapter 11 protection on Oct. 26, 2004 (Bankr. S.D. Ind. Case Nos. 04-19866, 04-19868 through 04-19874). Terry E. Hall, Esq., at Baker & Daniels, represents the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $745,159,000 in total assets and $940,521,000 in total debts. (ATA Airlines Bankruptcy News, Issue No. 38; Bankruptcy Creditors' Service, Inc., 215/945-7000) ATHLETE'S FOOT: Plan Confirmation Hearing Set for December 8 ------------------------------------------------------------ The U.S. Bankruptcy Court for the Southern District of New York approved the Second Amended Joint Disclosure Statement filed by The Athlete's Foot, LLC, and Delta Pace LLC, together with their Official Committee of Unsecured Creditors. The Court determined that the Disclosure Statement contained the right amount of the right kind of information to allow the creditors to make an informed decision about the chapter 11 plan filed along with the Disclosure Statement. The plan proponents are now authorized to solicit acceptances of the Plan. After selling substantially all of their assets and paying off their principal secured debt, the Debtors, in consultation with the Committee, focused on formulating a plan of liquidation that will enable them to make distributions to holders of Allowed Claims as soon as practicable and subsequently wind up and terminate the Debtors' business affairs. The Plan provides for the: i) creation of the Liquidation Trust, ii) compromise and settlement of claims; and iii) rejection of any remaining executory contracts and unexpired leases to which any Debtor is still a party. About the Plan The Debtors operations will be winded down after confirmation of their Plan. On the Plan's effective date, the Debtors' assets will be transferred to a Liquidation Trust. A Liquidation Trustee will make distributions to creditors, investigate and prosecute rights of action, and resolve claim disputes. Under the Plan, these claims are unimpaired: * priority non-tax claims, * secured claims, * allowed fee claims, * priority tax claims, and * administrative claims. General unsecured creditors owed approximately $30,284,629 will receive: i) beneficial interests in the Liquidation Trust entitling the holders to recover pro rata shares of any cash from a Distribution Fund; or ii) less favorable treatment that the Debtors or the Liquidation Trustee, the Committee and an unsecured claim holder will agree upon. General unsecured creditors are expected to recover 7% to 10% of their claims. Intercompany claims and equity interests will be cancelled. Creditors' Committee Survives The Official Committee of Unsecured Creditors will not be disbanded upon plan confirmation. The Committee will be given the power to prosecute all litigation causes of action and defenses. It will also continue the adversary proceeding commenced by the Debtors against GMAC Commercial Finance LLC seeking to recover $525,000. Plan Funding A summary of estimated proceeds that will be available for distribution to creditors: Source Estimated Proceeds ------ ------------------ Cash on Hand $2,300,000 to $2,700,000 Professional Fees Carve Out 525,000 525,000 ---------- ---------- Total Estimated Proceeds $2,825,000 $3,230,000 Application of Estimated Proceeds --------------------------------- Chapter 11 Professional Fees $750,000 to $600,000 Wind-down costs 100,000 75,000 -------- -------- Total Estimated Chapter 11 Costs $850,000 $675,000 Estimated Proceeds Available for Distribution $1,975,000 to $2,555,000 The Court will convene a hearing on December 8 to discuss the merits of the Plan. Objections to the Plan, if any, must be served by November 8 to: Counsel to the Debtors: John H. Drucker, Esq. Bonnie L. Pollack, Esq., Angel & Frankel, P.C. 460 Park Avenue New York, New York 10022-1906 Counsel to the Official Committee of Unsecured Creditors: Cathy Hershcopf, Esq. Gregory G. Plotko, Esq. Kronish Lieb Weiner & Hellman LLP 1114 Avenue of the Americas New York, NY 10036-7798 The United States Trustee: Office of the United States Trustee Southern District of New York Attn: Gregory M. Zipes, Esq., 33 Whitehall Street, 21st Floor New York, NY 10004 Headquartered in New York, New York, Athlete's Foot Stores, LLC -- http://www.theathletesfoot.com/-- operates approximately 125 athletic footwear specialty retail stores in 25 states. The Company and its debtor-affiliate filed for chapter 11 protection on December 9, 2004 (Bankr. S.D.N.Y. Case No. 04-17779). Bonnie Lynn Pollack, Esq., and John Howard Drucker, Esq., at Angel & Frankel, P.C. represents the Debtors in their restructuring efforts. When the Company filed for protection from its creditors, it listed total assets of $33,672,000 and total debts of $39,452,000. B/E AEROSPACE: Earns $10 Million of Net Income in Third Quarter --------------------------------------------------------------- B/E Aerospace, Inc. (Nasdaq: BEAV), reported its financial results for the three and nine-month periods ended September 30, 2005. Highlights: * reported third quarter revenues of $217.1 million, representing year-over- year organic growth of approximately 18%; * third quarter gross margin of 35.3 percent expanded by 250 basis points versus the same period in the prior year; * third quarter operating earnings of $25.4 million were 45% higher than the same period in the prior year. Third quarter operating margin of 11.7 percent expanded by 220 basis points versus the same period in the prior year. The 45 percent operating earnings growth rate was driven by continued revenue and earnings growth at each of B/E's commercial aircraft, business jet and distribution segments; * net earnings for the quarter were $10 million and represents increases of $12.7 million, versus the same period in the prior year; * record backlog at September 30, 2005, stood at over $1 billion, an increase of approximately 63 percent from backlog at September 30, 2004, and an increase of over $180 million or approximately 22 percent as compared to the immediately preceding quarter. Bookings for the three and nine month periods ended September 30, 2005, were in excess of $400 million and $900 million, respectively; and * management expects, for 2006, revenues of approximately $1 billion. Third Quarter Segment Sales & Operating Earnings For the third quarter, consolidated sales were $217.1 million, a $33.6 million or 18.3 percent increase over the third quarter of 2004. The commercial aircraft segment generated revenues of $140.6 million in the third quarter of 2005, up 11.6 percent versus the same period in the prior year, primarily due to a higher volume of commercial aircraft passenger cabin equipment and engineering, integration and certification services. The distribution segment delivered strong revenue growth of 17.5% in the third quarter of 2005, driven by a broad-based increase in aftermarket demand for aerospace fasteners and continued market share gains. In the business jet segment, revenues increased by 60.3 percent in the third quarter of 2005, reflecting the ongoing recovery of the business jet industry and initial shipments of super first class products. Operating earnings for the third quarter of 2005 of $25.4 million increased by 45 percent, as compared to the same period last year. The operating margin of 11.7 percent in the third quarter of 2005 was 220 basis points greater than the operating margin realized in the third quarter of 2004. The substantial increase in operating earnings was driven by continued revenue and earnings growth at each of B/E's commercial aircraft, distribution and business jet segments. Interest expense for the third quarter of 2005 of $14.8 million was $4.9 million lower than interest expense recorded in the same period in the prior year. Interest expense decreased in the third quarter of 2005 as a result of the early retirement of $200 million of senior subordinated notes during the fourth quarter of 2004. The interest coverage ratio, which is determined by dividing the sum of operating earnings plus depreciation and amortization by interest expense, was 2.2:1 for the third quarter of 2005, as compared to 1.3:1 in the third quarter of 2004. Net earnings for the third quarter were $10.0 million or $0.16 per diluted share, a $12.7 million or $0.23 per diluted share improvement as compared to the same period in the prior year. Liquidity, Balance Sheet and Cash Flows At the end of the quarter, the company's liquidity remained solid with cash balances totaling approximately $87 million, up $11 million from the December 31, 2004 balance. Net debt at the end of the third quarter stood at approximately $592 million, which represents total debt of approximately $680 million less cash and cash equivalents of approximately $87 million. The company has no debt maturities until 2008. Financial Guidance Financial guidance is now as follows: * for the full year 2005, notwithstanding any negative impacts from the Boeing strike and several hurricane related lost shipping days at the Company's distribution segment during the third quarter, management expects revenue in excess of $800 million; * for 2006, management expects revenue of approximately $1 billion and to report earnings of $1.10 per share for the full year. Orders and backlog are expected to continue to be strong in 2006 consistent with the new aircraft delivery cycle; and * 2007 earnings per share are expected to grow at a double digit rate (versus 2006) on a fully taxed (35% rate) basis, driven by strong revenue growth and additional margin expansion. Commenting on the company's outlook, Mr. Khoury stated, "The addressable aircraft cabin interior products market is expected to grow at a compounded annual growth rate of approximately 15% over the 2005 to 2010 period. The Company expects its CAS revenues to grow at a rate in excess of the expected compounded annual growth rate for the cabin interior products market." "The Company expects to generate revenues during 2006 of approximately $1 billion," Mr. Khoury continued. B/E Aerospace, Inc. -- http://www.beaerospace.com/-- manufactures aircraft cabin interior products, and distributes aerospace fasteners. B/E designs, develops and manufactures products for both commercial aircraft and business jets. B/E manufactured products include seating, lighting, oxygen, and food and beverage preparation and storage equipment. The company also provides cabin interior design, reconfiguration and passenger-to- freighter conversion services. Products for the existing aircraft fleet -- the aftermarket -- generate about 60 percent of sales. B/E sells its products through its own global direct sales organization. * * * As reported in the Troubled Company Reporter on March 4, 2005, Moody's Investors Service has upgraded the ratings of B/E Aerospace, Inc.'s senior subordinated notes, to Caa2 from Caa3. Also, the rating agency has confirmed B/E's Senior Implied and Speculative Grade Liquidity ratings of B3 and SGL-2, respectively, and has changed the rating outlook to positive. The ratings upgraded are: * $250 million senior subordinated notes due 2008, to Caa2 from Caa3 * $250 million senior subordinated notes due 2011, to Caa2 from Caa3 * Senior unsecured issuer rating to B3 from Caa2. The ratings confirmed are: * $175 million senior unsecured notes due 2010, rated B3 * Senior implied rating of B3 * Speculative Grade Liquidity Rating at SGL-2 BANC OF AMERICA: Stable Performance Cues S&P to Lift Low-B Ratings ------------------------------------------------------------------ Standard & Poor's Ratings Services raised its ratings on 11 classes of Banc of America Commercial Mortgage Inc.'s commercial mortgage pass-through certificates from series 2002-2. At the same time, ratings are affirmed on 12 other classes from the same series. The raised and affirmed ratings reflect credit enhancement levels that adequately support the ratings, as well as loan defeasance and the stable performance of the transaction. According to the remittance report dated Oct. 12, 2005, the trust collateral consisted of 151 loans with an aggregate outstanding principal balance of $1.675 billion, down from 152 loans with a balance of $1.746 billion at issuance. The master servicer, Bank of America N.A., provided partial-year or full-year 2004 net cash flow debt service coverage figures for 99% of the pool, which excludes all defeased loans. Based on this information, Standard & Poor's calculated a weighted average DSC of 1.44x, which is the same as at issuance. There are no delinquent or specially serviced loans in the pool. The top 10 loan exposures have an aggregate outstanding balance of $572.4 million. The top 10 loan exposures reported a weighted average DSC of 1.70x, down slightly from 1.74x at issuance. Standard & Poor's reviewed recent property inspections provided by Bank of America for assets underlying the top 10 loan exposures, and all were characterized as "excellent" or "good." However, the fifth-, sixth-, and ninth-largest loans are on the watchlist and are discussed below. At issuance, the three largest loans in the pool had credit characteristics consistent with investment-grade obligations in the context of their inclusion in the pool. The two largest loans have maintained credit characteristics consistent with 'AAA' rated obligations, while the third-largest loan now has credit characteristics consistent with an 'A' category obligation, up from 'BBB-' at issuance. The largest loan is the mortgage on Crabtree Valley Mall in Raleigh, North Carolina. The loan includes the senior component portion, which is pooled, as well as a subordinate component debt amount of $20 million, which is raked to the CM-A, CM-B, CM-C, CM- D, and CM-E certificate classes. The performance of the collateral property has been stable since issuance. The second-largest loan in the pool is secured by the Bank Of America Plaza Building in Atlanta, Georgia. The collateral property for this loan has also displayed stable performance metrics since issuance. The third-largest loan is a mortgage on The Centre at Preston Ridge, a retail property in Frisco, Texas. Since issuance, the performance of this asset has improved moderately, with occupancy of 97% as of June 8, 2005, and DSC of 1.87x for the year ended Dec. 31, 2004. Bank of America reported 22 loans with an aggregate outstanding balance of $305.3 million on its watchlist. The fifth-largest loan in the pool, Bell Towne Centre, is secured by a 417,646-sq.- ft. retail center in Phoenix, Arizona. The DSC for the loan had declined to 0.92x for year-end 2004, from 1.30x at issuance, because Food 4 Less vacated the property due to bankruptcy. The Food 4 Less space has been leased to Sunflower Market, which was scheduled to begin paying rent in April 2005. The sixth-largest exposure consists of two cross-collateralized and cross-defaulted loans secured by student housing properties. The first loan is secured by Santa Fe Pointe Apartments, a 168- unit property in Gainesville, Florida, near Santa Fe Community College. DSC levels for the property have been low because of low occupancy resulting from poor enrollment at the college. The second loan is secured by Reflection of Tampa Apartments, a 168-unit property in Tampa, Florida, near the University of South Florida. Occupancy for the property as of July 2005 was 98%. For both properties, the borrower has hired new management that specializes in student housing. The weighted average DSC for the properties for the year ended Dec. 31, 2004, was 0.67x. The ninth-largest loan, Holly Hall Apartments, is secured by a 569-unit multifamily property in Houston, Texas. The loan is on the watchlist due to a low DSC caused by lower asking rents. The DSC for the property was 0.95x for the nine months ended Sept. 30, 2004. Based on discussions with the servicer, Standard & Poor's stressed various loans in the mortgage pool as part of its analysis. The resultant credit enhancement levels adequately support the raised and affirmed ratings. Ratings Raised Banc of America Commercial Mortgage Inc. Commercial Mortgage Pass-Through Certificates Series 2002-2 Rating Class To From Credit Support (%) ----- -- ---- ------------------ B AAA AA 15.27 C AAA AA- 14.23 D AAA A+ 13.44 E AA+ A 12.40 F AA A- 11.10 G AA- BBB+ 9.79 H A BBB 8.62 J A- BBB- 7.32 K BBB BB+ 5.10 L BBB- BB 4.32 M BB BB- 3.54 Ratings Affirmed Banc of America Commercial Mortgage Inc. Commercial Mortgage Pass-Through Certificates Series 2002-2 Class Rating Credit Support (%) ----- ------ ------------------ A-1 AAA 19.18 A-2 AAA 19.18 A-3 AAA 19.18 N B+ 2.52 O B 2.10 XC AAA N/A XP AAA N/A Crabtree Valley Mall Loan Class Rating Credit Support (%) ----- ------ ------------------ CM-A AA+ N/A CM-B AA N/A CM-C AA- N/A CM-D A+ N/A CM-E A N/A N/A -- Not applicable. BIOMETRICS 2000: Voluntary Chapter 11 Case Summary -------------------------------------------------- Debtor: Biometrics 2000 Corporation 2275 Swallow Hill Road, Building 2500 Pittsburgh, Pennsylvania 15220 Bankruptcy Case No.: 05-40324 Type of Business: The Debtor is s developer and reseller of unique biometric products for physical and network security. See http://www.biometrics2000.com/ Chapter 11 Petition Date: October 15, 2005 Court: Western District of Pennsylvania (Pittsburgh) Judge: M. Bruce McCullough Debtor's Counsel: Steven T. Shreve, Esq. Shreve & Pail 303 Pitt Building 213 Smithfield Street Pittsburgh, Pennsylvania 15222 Tel: (412) 281-6555 Estimated Assets: $100,000 to $500,000 Estimated Debts: $1 Million to $10 Million The Debtor's List of 20 Largest Unsecured Creditors is not yet available as of press time. BOOKS-A-MILLION: Stock Resumes Trading at Nasdaq After Compliance ----------------------------------------------------------------- Books-A-Million, Inc. (Nasdaq/NM:BAMME) received notice from Nasdaq that the Nasdaq Listing Qualifications Panel has determined that the Company's common stock is eligible for continued listing on the The Nasdaq National Market(R). On October 27, 2005, the Company's common stock resumed trading under its original trading symbol "BAMM." As reported in the Troubled Company Reporter on Sept. 23, 2005, the Company received notice from the staff of The Nasdaq Stock Market that, due to the Company's failure to file on a timely basis its quarterly report on Form 10-Q for the 13 weeks ended July 30, 2005, as required by Nasdaq Marketplace Rule 4310(c)(14), the Company's common stock is subject to potential delisting from The Nasdaq Stock Market at the opening of business on Sept. 29, 2005. As reported in the Troubled Company Reporter on Oct. 24, 2005, the Company filed with the Securities and Exchange Commission the quarterly report on Form 10-Q for the 13-week period ended July 30, 2005. The Company believes that, with this filing, it is current in its periodic reports with the SEC. Representatives of the Company attended a hearing before a Nasdaq Listing Qualifications Panel on Oct. 20, 2005, during which it notified the Panel that it had filed with the SEC the Second Quarter Form 10-Q, the sole deficiency previously cited by Nasdaq and the sole basis for the hearing. Books-A-Million -- http://www.booksamillion.com/-- presently operates 207 stores in 19 states and the District of Columbia. The Company operates four distinct store formats, including large superstores operating under the names Books-A-Million and Books & Co., traditional bookstores operating under the names Books-A- Million and Bookland, and Joe Muggs Newsstands. The Company's wholesale operations include American Wholesale Book Company and Book$mart, both based in Florence, Alabama. * * * Material Weakness In September 2005, during the course of its effort to implement Section 404 of the Sarbanes Oxley Act, management identified certain control deficiencies. After meeting with the Audit Committee of the Board of Directors, management determined that certain of these control deficiencies constituted significant deficiencies, which in the aggregate constituted a material weakness. The material weakness identified consists of a combination of the three significant deficiencies relating to accounts payable: (i) inadequate controls over the data used to perform cost of goods sold calculations; (ii) inadequate segregation of duties for accounts payable management; and (iii) inadequate independent verification of expense invoice payment supporting documentation. BOWATER INC: Incurs $16 Million Net Loss in Third Quarter --------------------------------------------------------- Bowater Incorporated (NYSE: BOW) reported a $16 million net loss on sales of $872.9 million for the third quarter of 2005. These results compare with a net loss of $18.1 million on sales of $834.0 million in the third quarter of 2004. Before special items, the net loss for the third quarter of 2005 was $9.5 million compared with the 2004 third quarter net loss before special items of $1.8 million. Third quarter 2005 special items, net of tax, consisted of a $6.1 million gain related to asset sales and a $12.6 million loss resulting from currency changes primarily related to the appreciation of the Canadian dollar. In addition to those special items, the company had a $3.7 million charge related to a tax adjustment. Before the gain on asset sales, operating income was $35.1 million, which is within the range indicated in the company's announcement dated October 4. Operating income was $45 million, including the gain on asset sales. "Bowater's product pricing has improved throughout the year," said Arnold M. Nemirow, Chairman, President and Chief Executive Officer. "However, we have experienced significant cost pressures, especially third quarter energy, chemicals and distribution costs, which were partially related to Hurricane Katrina, and the strong Canadian dollar. We do expect market fundamentals to continue to support Bowater's improved fourth quarter pricing." The company has initiated an $80 million cost reduction program, which will be fully implemented by the end of 2006. In addition to this program, the company intends to sell certain assets that are expected to generate net proceeds in excess of $300 million over the same time period. The assets consist mostly of North American timberlands. Bowater's average transaction price for newsprint rose $13 per metric ton in the third quarter compared to the second quarter. Inventory increased by 13,400 metric tons, primarily as a result of disruptions in export shipments due to the recent hurricanes. The company curtailed 56,000 metric tons of newsprint production in the third quarter. Of the curtailment, approximately 20,000 tons was related to a 19-day outage at the Thunder Bay, Ontario newsprint mill as a result of high wood fiber and energy costs. In the fourth quarter, the company expects to curtail approximately 53,000 metric tons representing maintenance outages and the continued idling of a machine at Thunder Bay. The company informed its North American customers of a $35 per metric ton price increase effective October 1. Consumption of coated mechanical papers in North America continues to be strong. Bowater's average transaction price for coated and specialty papers increased $30 per short ton compared to the second quarter, while the company's average operating costs increased $19 per ton, primarily as a result of rising energy related costs and the strong Canadian dollar. Due to escalating energy costs, the company announced in the fourth quarter various freight and energy surcharges for its coated and specialty grades. Bowater's average transaction price for market pulp decreased $28 per metric ton compared to the second quarter of 2005, while operating costs increased $6 per ton. The company curtailed 19,000 metric tons of market pulp due to maintenance outages in the third quarter and expects a similar amount in the fourth quarter. The company informed its North American customers of a $20 per metric ton price increase on softwood grades effective October 1. The company's average transaction price for lumber decreased $24 per thousand board feet compared to the second quarter of 2005. During the quarter, the company paid countervailing and antidumping duties of approximately $7.8 million. Headquartered in Greenville, South Carolina, Bowater Incorporated produces newsprint and coated mechanical papers. In addition, the company makes uncoated mechanical papers, bleached kraft pulp and lumber products. The company has 12 pulp and paper mills in the United States, Canada and South Korea and 12 North American sawmills that produce softwood lumber. Bowater also operates two facilities that convert a mechanical base sheet to coated products. Bowater's operations are supported by approximately 1.4 million acres of timberlands owned or leased in the United States and Canada and 30 million acres of timber cutting rights in Canada. Bowater is one of the world's largest consumers of recycled newspapers and magazines. Bowater common stock is listed on the New York Stock Exchange, the Pacific Exchange and the London Stock Exchange. A special class of stock exchangeable into Bowater common stock is listed on the Toronto Stock Exchange (TSX: BWX). * * * As reported in the Troubled Company Reporter on Oct. 14, 2005, Standard & Poor's Ratings Services placed its ratings on pulp and paper producer Bowater Inc. and subsidiary Bowater Canadian Forest Products Inc., including the 'BB' corporate credit ratings, on CreditWatch with negative implications. The CreditWatch placement reflects heightened concerns regarding the negative effect of an appreciating Canadian dollar and other cost pressures on the company's cash flow generation and earnings. As reported in the Troubled Company Reporter on Apr. 22, 2005, Moody's Investors Service affirmed Bowater Incorporated's senior implied, senior unsecured and issuer ratings at Ba3, and concurrently, also affirmed the speculative grade liquidity rating as SGL-2 (indicating good liquidity). Moody's says the outlook remains negative. Ratings affirmed: -- Bowater Incorporated * Outlook: negative * Senior Implied: Ba3 * Senior Unsecured: Ba3 * Industrial and PC revenue bonds: Ba3 * Issuer: Ba3 * Speculative Grade Liquidity Rating: SGL-2 -- Bowater Canada Finance Corp. * Outlook: negative * Senior unsecured guaranteed notes: Ba3 As reported in the Troubled Company Reporter on Mar. 30, 2005, Fitch has rated Bowater's senior unsecured bonds and bank debt 'BB-'. Fitch says the Rating Outlook is Stable. Nearly $2.5 billion of debt is subject to the rating. BOYDS COLLECTION: Gets Interim Order to Use Cash Collateral ----------------------------------------------------------- The U.S. Bankruptcy Court for the District of Maryland gave The Boyds Collection, Ltd., and its debtor-affiliates permission on an interim basis to use cash collateral securing repayment of loans to Bank of America, N.A., and D.E. Shaw Laminar Portfolios, L.L.C. The Court also granted the lenders adequate protection for the Debtors' use of the cash collateral. Prepetition Debt & Use of Cash Collateral Under various Prepetition Loan Documents, the Debtors owe: Prepetition Lender Amount Owed ------------------- ----------- BofA N.A. & D.E. Shaw $56,500,000 (under a senior secured Credit Agreement dated Feb. 23, 2005 BofA N.A. & D.E. Shaw $1,019,524 (under various prepetition Letters of Credit) ----------- $57,519,524 The Debtors will use the cash collateral as working capital for the continued operation of the Debtors' businesses. The Court authorizes the Debtors to use the cash collateral pursuant to the terms and provisions of its interim order, the Postpetition Credit Agreement and other Loan Documents for the Postpetition Financing and a Budget covering the period from Oct. 13, to Jan. 8, 2005. A full-text copy of that 13-week Budget is available for free at: http://bankrupt.com/misc/BoydsCollectionBudget.pdf Adequate Protection As adequate protection for the Debtors' use of the Cash Collateral, the Prepetition Lenders are granted valid, binding, enforceable and perfected liens in all of the Debtors' assets to secure the prepetition indebtedness equal to the sum owed. The Court will convene a hearing at 10:00 a.m., on Oct. 31, 2005, to consider the Debtors' request to use the Cash Collateral on a permanent basis. Headquartered in McSherrystown, Pennsylvania, The Boyds Collection, Ltd. -- http://www.boydsstuff.com/-- designs and manufactures unique, whimsical and "Folksy with Attitude(SM)" gifts and collectibles, known for their high quality and affordable pricing. The Company and its debtor-affiliates filed for chapter 11 protection on Oct. 16, 2005 (Bankr. Md. Lead Case No. 05-43793). Matthew A. Cantor, Esq., at Kirkland & Ellis LLP represents the Debtors in their restructuring efforts. As of June 30, 2005, Boyds reported $66.9 million in total assets and $101.7 million in total debts. BRIAN MULLINS: Case Summary & 20 Largest Unsecured Creditors ------------------------------------------------------------ Debtor: Brian Mullins Excavating Contractors, Inc. 929 Swan Pond Road Harriman, Tennessee 37748 Bankruptcy Case No.: 05-37297 Type of Business: The Debtor is an excavation contractor. Chapter 11 Petition Date: October 14, 2005 Court: Eastern District of Tennessee (Knoxville) Judge: Richard Stair Jr. Debtor's Counsel: Robert M. Bailey, Esq. Bailey, Roberts & Bailey, PLLC 708 South Gay Street, Suite 200 P.O. Box 2189 Knoxville, Tennessee 37901-2189 Tel: (865) 546-3533 Estimated Assets: $1 Million to $10 Million Estimated Debts: $1 Million to $10 Million Debtor's 20 Largest Unsecured Creditors: Entity Claim Amount ------ ------------ Brian Mullins $147,000 933 Swan Pond Road Harriman, TN 37748 Brian Mullins $60,000 933 Swan Pond Road Harriman, TN 37748 Kramer Rayson Leake Rodgers & Morga $43,168 P.O. Box 629 Knoxville, TN 37901 Roane County Trustee $37,022 Knoxville Utilities Board $33,869 Rocky Top Markets $22,127 IRS - District Director $20,254 BB&T $18,527 Consolidated Pipe & Supply, Inc. $15,000 East Tennessee Precast $15,000 Smith and Cashion $14,014 Brown, Jake & McDaniel PC $9,281 Curtis Equipment Sales $7,500 GCR Cobra Knoxville Tire Center $6,294 Stowers Machinery $6,012 Sherman Dixie Concrete $5,828 Kelso Oil Company $5,276 Contech Construction Products $5,047 BellSouth Claims $4,322 Tim's Tires $3,183 BRILLIANT DIGITAL: Extends Secured Debt Maturity Date to March 31 ----------------------------------------------------------------- Brilliant Digital agreed to extend the maturity date of certain secured indebtedness it originally issued in May and December 2001 to: * Harris Toibb, Europlay 1, LLC, * Preston Ford Inc., and * Capel Capital Ltd. In consideration of the holders' agreement to extend the maturity date of the Secured Indebtedness to March 31, 2006, Brilliant Digital agreed to: (a) adjust the conversion price from $0.07 to $0.02 per share effective upon the amendment of the company's Certificate of Incorporation to provide for a one-for-ten reverse stock split of the company's outstanding common stock; (b) adjust the purchase price of all warrants issued o the secured debtholders from $0.07 to $0.02 per share; (c) issue to the holders warrants dated Sept. 26, 2005, and expiring on Oct. 5, 2009, with an exercise price of $0.02 per share, to purchase an aggregate of 111,000,000 shares of the company's common stock; and (d) issue additional September warrants to purchase an aggregate of 152,738,125 common shares, which will vest and become exercisable effective upon the reverse split. Brilliant Digital Entertainment, Inc., is a company which, through its Altnet, Inc., subsidiary, operates a peer-to-peer-based content distribution network that allows us to securely and efficiently distribute a content owner's music, video, software and other digital files to computer users via the Internet. As of June 30, 2005, Brilliant Digital's balance sheet reflected a $3,383,000 stockholders' deficit. BROOKLYN HOSPITAL: Meeting of Creditors Rescheduled to Dec. 7 ------------------------------------------------------------- The U.S. Trustee for Region 2 rescheduled the meeting of The Brooklyn Hospital Center and its debtor-affiliate's creditors to 10:00 p.m., on Dec. 7, 2005. The meeting will be held at 111 Livingston Street, Suite 1102, in Brooklyn, New York. This is the first meeting of creditors required under 11 U.S.C. Sec. 341(a) in all bankruptcy cases. All creditors are invited, but not required, to attend. This Meeting of Creditors offers the one opportunity in a bankruptcy proceeding for creditors to question a responsible office of the Debtor under oath about the company's financial affairs and operations that would be of interest to the general body of creditors. Headquartered in Brooklyn, New York, The Brooklyn Hospital Center -- http://www.tbh.org-- provides a variety of inpatient and outpatient services and education programs to improve the well being of its community. The Debtor, together with Caledonian Health Center, Inc., filed for chapter 11 protection on September 30, 2005 (Bankr. E.D.N.Y. Case No. 05-26990). Lawrence M. Handelsman, Esq., and Eric M. Kay, Esq., at Stroock & Stroock & Lavan LLP represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $233,000,000 in assets and $337,000,000 in debts. CENTURY ALUMINUM: Incurs $20.1 Million Net Loss in Third Quarter ---------------------------------------------------------------- Century Aluminum Company (NASDAQ:CENX) reported a $20.1 million net loss for the third-quarter of 2005. Reported third-quarter results were negatively impacted by an after-tax charge of $36.4 million for mark to market adjustments on forward contracts that do not qualify for cash flow hedge accounting. In the second-quarter of 2005, the company changed from the last-in first-out (LIFO) inventory valuation method to the first-in first-out (FIFO) method. Financial statements for periods prior to second-quarter 2005 have been restated to reflect this change. Third-quarter 2005 results benefited from the change by $3 million after-tax, or $0.09 a share. In the third-quarter of 2004, the company reported a net loss of $16 million. Before restatement, the company reported a net loss of $16 million, or $0.51 a share, fully diluted, which included an after-tax charge of $30.6 million, or $0.96 a share, for a loss on early extinguishment of debt. Sales in the third-quarter of 2005 were $270.8 million, compared with $274.3 million in the third-quarter of 2004. Shipments of primary aluminum for the quarter totaled 337.3 million pounds compared with 344.2 million pounds in the year-ago quarter. Net income for the first nine-months of 2005 was $32.4 million. This compares with net income of $8.8 million, in the year-ago period ($7.0 million). Sales in the first nine-months of 2005 were $839.5 million compared with $770.1 million in the same period of 2004. Shipments of primary aluminum for the 2005 period were 1.014 billion pounds compared with 971.4 million pounds in the year-ago period. Financial results and shipment data for 2004 include Nordural from April 27, 2004, the date of acquisition. "Lower operating results in the third-quarter of 2005 compared to the second-quarter of 2005 are attributable to lower price realizations, hurricane-related costs, power surcharges at Mt. Holly and the reduced pot count at Hawesville," said Craig Davis, chairman and chief executive officer. "While we are encouraged by the recent strengthening in aluminum prices, we remain concerned with the current energy environment in the United States and its impact on the company in the near term." Century Aluminum Co. owns 615,000 metric tons per year (mtpy) of primary aluminum capacity. The company owns and operates a 244,000-mtpy plant at Hawesville, Kentucky, a 170,000-mtpy plant at Ravenswood, West Virginia, and a 90,000-mtpy plant at Grundartangi, Iceland. Century also owns a 49.67-percent interest in a 222,000-mtpy reduction plant at Mt. Holly, South Carolina. Alcoa Inc. owns the remainder and is the operating partner. Century's corporate offices are located in Monterey, California. * * * As reported in the Troubled Company Reporter on Dec. 7, 2004, Moody's Investors Service assigned a B1 rating to Century Aluminum Company's $175 million senior unsecured convertible notes due 2024. These ratings were affirmed: * The Ba3 rating for Century's $100 million senior secured revolving credit facility, * The B1 rating for Century's $250 million 7.5% senior notes due 2014 * Century's B1 senior implied rating, and * Century's B3 senior unsecured issuer rating. As reported in the Troubled Company Reporter on Nov. 9, 2004, Standard & Poor's Ratings Services raised its rating on Century Aluminum Company's $150 million 1.75% convertible notes due 2024 to 'BB-' from 'B' and removed it from CreditWatch. At the same time, Standard & Poor's affirmed its 'BB-' corporate credit rating on the Monterey, California-based company. CHASE FUNDING: Moody's Downgrades Class IM-2 Cert.'s Rating to Ba3 ------------------------------------------------------------------ Moody's Investors Service downgraded the ratings of two certificates previously issued by Chase Funding Loan Acquisition Trust, Series 2001-C1. The securitization is backed by fixed-rate and adjustable-rate subprime mortgage loans that have multiple originators. The two subordinate and mezzanine certificates from the fixed-rate pool have been downgraded because existing credit enhancement levels may be low given the current projected losses on the underlying pools. The collateral has experienced cumulative losses of about 2.5% causing gradual erosion of the overcollateralization. As of September 25, 2005 there was only $223,332 of overcollateralization compared to a required floor of about $455,000. Chase Manhattan Mortgage Corporation and Wells Fargo Home Mortgage, Inc. are servicing the transaction. Moody's complete rating actions are: Issuer: Chase Funding Loan Acquisition Trust, Series 2001-C1 Downgrades: * Series 2001-C1; Class IM-1, downgraded to A3 from Aa2 * Series 2001-C1; Class IM-2, downgraded to Ba3 from A2 CHASE MORTGAGE: Fitch Rates $2.6 Mil Certificate Classes at Low-B ----------------------------------------------------------------- Chase Mortgage Finance Trust mortgage pass-through certificates, series 2005-S3, are rated by Fitch Ratings: -- $738.9 million classes A-1 through A-15, A-P, A-X and A-R senior certificates 'AAA'; -- $13.8 million class M certificates 'AA'; -- $5.0 million class B-1 certificates 'A'; -- $2.7 million class B-2 certificates 'BBB'; -- $1.5 million privately offered class B-3 certificates 'BB'; -- $1.1 million privately offered class B-4 certificates 'B'; -- $1.5 million privately offered class B-5 certificates are not rated by Fitch. The 'AAA' rating on the senior certificates reflects the 3.35% subordination provided by the 1.80% class M, the 0.65% class B-1, the 0.35% class B-2, the 0.20% privately offered class B-3, the 0.15% privately offered class B-4 and the 0.20% privately offered class B-5 certificate. Fitch believes the above credit enhancement will be adequate to support mortgagor defaults as well as bankruptcy, fraud and special hazard losses in limited amounts. In addition, the ratings also reflect the quality of the underlying mortgage collateral, strength of the legal and financial structures and the primary servicing capabilities of JPMorgan Chase Bank, N.A. The trust consists of 1,454 first-lien residential mortgage loans with stated maturity of not more than 30 years with an aggregate principal balance of $764,521,120, as of the cut-off date, Oct. 1, 2005. The mortgage pool has a weighted average original loan to value ratio of 68.10% with a weighted average mortgage rate of 5.943%. The weighted-average FICO score of the loans is 736. The average loan balance is $525,805 and the loans are primarily concentrated in California, New York and Florida. For additional information on Fitch's rating criteria regarding predatory lending legislation, see 'Fitch Revises Rating Criteria in Wake of Predatory Lending Legislation', available on the Fitch Ratings web site at http://www.fitchratings.com/ Wachovia Bank, N.A. will serve as trustee. Chase Mortgage Finance Corporation, a special purpose corporation, deposited the loans in the trust which issued the certificates. For federal income tax purposes, an election will be made to treat the trust fund as multiple real estate mortgage investment conduits. CLAIMNET.COM: Balance Sheet Upside-Down by $671,000 at Sept. 30 --------------------------------------------------------------- Claimsnet.com Inc. delivered its quarterly report on Form 10-QSB for the quarter ending September 30, 2005, to the Securities and Exchange Commission on October 25, 2005. As of September 30, 2005, the Company had a $369,000 working capital deficit and $671,000 stockholders' deficit. The Company reported a $48,000 net loss on $329,000 of net revenues for the quarter ending September 30, 2005. At June 30, 2005, the Company's balance sheet shows $354,000 in total assets and a $1,025,000 in total debts. The Company generated revenues of $943,000 for the nine months ended September 30, 2005, and $731,000 for the nine months ended September 30, 2004. The Company have incurred net losses since inception and had an accumulated deficit of $43,851,000 at September 30, 2005. The Company expects to continue to operate at a loss for the near future. A full-text copy of the regulatory filing is available at no charge at http://ResearchArchives.com/t/s?292 Headquartered in Dallas, Claimsnet.com Inc. provides Internet- based, business-to-business software for the healthcare industry, including distinctive, advanced ASP technology for online healthcare transaction processing. COMBUSTION ENGINEERING: Everest Ends Insurance Dispute for $17.9M ----------------------------------------------------------------- Combustion Engineering, Inc., asks the U.S. Bankruptcy Court for the District of Delaware for authority to enter into a settlement agreement and complete policy release with Everest Reinsurance Company, fka Prudential Reinsurance Company. The Debtor is a defendant in a large number of asbestos-related personal injury lawsuits pending in various parts of the United States. Approximately 409,000 asbestos-related claims have been filed against Combustion. Everest Reinsurance issued eleven excess general liability insurance policies to the Debtor. Combustion believes that the insurer has substantial obligations to pay liability incurred in connection with the asbestos claims subject to the aggregate limits of the policies. Also, the Debtor believes Everest has potential obligations to the extent there are Asbestos Claims against it not subject to the aggregate policy limits. To resolve coverage disputes, the Debtor commenced a lawsuit against various insurers in the Delaware Bankruptcy Court [Combustion Engineering, Inc., et al v. Allianz Ins. Co., et al., Adv. Proc. No. 03-57275]. The case is pending in the Bankruptcy Court. Settlement Agreement To avoid a costly and lengthy litigation, Everest and Combustion entered into a settlement agreement. Under the agreement, Everest will pay $17,900,000 to Combustion. Also, the Debtor has designated Everest as a Settling Asbestos Insurance Company. The Settlement Agreement will be nullified if any of these will occur, the entry of a final order: 1) confirming the Debtor's Plan of Reorganization; 2) declaring that Everest is not a Settling Asbestos Insurance Company or omitting Everest from the list of Settling Insurance Companies; or 3) prior to Plan Effective Date, finding that the Settlement Agreement is not sufficiently comprehensive to warrant treatment under Section 524(g) of the Bankruptcy Code; 4) denying the Settlement Agreement; 5) converting the chapter 11 reorganization into a chapter 7 liquidation proceeding; or 6) dismissing the chapter 11 case before a confirmation order is entered. Headquartered in Norwalk, Connecticut, Combustion Engineering, Inc., is the U.S. subsidiary of the ABB Group. ABB is a leader in power and automation technologies that enable utility and industry customers to improve performance while lowering environmental impact. The ABB Group of companies operates in more than 100 countries and employs about 103,000 people. Combustion Engineering filed for chapter 11 protection on Feb. 17, 2003 (Bankr. D. Del. Case No. 03-10495). Curtis A. Hehn, Esq., at Pachulski Stang Ziehl Young & Jones and Jennifer Mo, Esq., at Kirkpatrick & Lockhart Nicholson Graham represents the Debtor in its restructuring efforts. When the Debtor filed for protection from its creditors, it estimated more than $100 million in assets and debts. COMMERCIAL MORTGAGE: S&P Upgrades Low-B Ratings on 2 Cert. Classes ------------------------------------------------------------------ Standard & Poor's Ratings Services raised its ratings on four classes from Commercial Mortgage Acceptance Corp.'s commercial mortgage pass-through certificates from series 1998-C2. Concurrently, the ratings on five other classes from the same transaction are affirmed. The rating actions reflect increased credit enhancement levels that support the raised and affirmed ratings through various stress scenarios, as well as the seasoning of the loan pool. As of Oct. 17, 2005, the trust collateral consisted of 389 loans with an aggregate outstanding principal balance of $2.1 billion, down from 512 loans amounting to $2.9 billion at issuance. The master servicer, Midland Loan Services Inc., provided mostly year-end 2004 financial data for 98.2% of the pool. Based on this information, Standard & Poor's calculated a weighted average net cash flow debt service coverage of 1.47x, up from 1.40x at issuance. The DSC figures exclude 12 defeased loans and nine credit tenant lease loans. To date, the trust has incurred 17 losses amounting to $37.7 million. The top 10 exposures in the pool, excluding defeased loans, have an aggregate outstanding balance of $577 million and a weighted average DSC of 1.58x, up from 1.39x at issuance. The third-largest exposure consists of two loans that are cross-collateralized and cross-defaulted, one of which is on the master servicer's watchlist. Similarly, the sixth-largest exposure consists of two cross-collateralized loans, one of which is one the watchlist. The seventh-largest exposure is also on the watchlist, and the ninth-largest exposure is in special servicing. As part of its surveillance review, Standard & Poor's reviewed recent property inspections provided by Midland for the properties securing the top 10 exposures, and all were characterized as "excellent" or "good." Seven delinquent assets with an aggregate balance of $44.2 million are currently with the special servicer, also Midland. The ninth-largest exposure has a $24.6 million outstanding loan balance, as well as servicer advances of $1.1 million. This loan is secured by a 423,000-sq.-ft. multi-use property in Hatboro, Pennsylvania, which is more than 90 days delinquent. In addition, this loan has been with the special servicer since May 2001 because a tenant that occupied 48.0% of the space filed for bankruptcy and vacated the property. This property is expected to become REO in the near future, as negotiations with a prospective tenant for much of the space ended unsuccessfully. Standard & Poor's anticipates a significant loss upon the eventual liquidation of this asset. Another specially serviced loan is 60-plus days delinquent and is secured by a 277-unit multifamily property in Dallas, Texas, with a $7.7 million outstanding balance. This property was recently appraised for an amount in excess of the loan balance, and the loan is expected to be paid off in full in the near future. None of the other five delinquent assets have balances in excess of $3 million. While a significant loss is expected upon the liquidation of a lodging property in Branson, Missouri, minimal losses, if any, are expected upon the eventual resolution of another multifamily property in Dallas, Texas, and an office property in Park City, Utah. A retail property in Greenwood, South Carolina, anchored by a Winn-Dixie store was transferred to the special servicer this month because Winn-Dixie Inc. rejected its lease and the loan is now 30-plus days delinquent. A multifamily property in Terrytown, La., is also 30-plus days delinquent and was damaged by Hurricane Katrina. Due to their recent transfer to special servicing, limited information is available on these two loans. There is one other loan with the special servicer that is current in its debt service payments. This loan has a $7.8 million outstanding balance and is secured by a 200,000-sq.-ft. retail property in Durham, North Carolina. This loan was transferred to special servicing in July 2005 and is expected to be paid off in the near future with no loss to the trust. Eighty-five loans with an outstanding balance of $353.5 million are on Midland's watchlist, including three of the top 10 exposures. The third-largest exposure consists of two multifamily loans that are cross-collateralized and cross-defaulted and which generated a DSC of 0.85x in 2004. One of these loans is secured by a 266-unit multifamily property in Sammamish, Washington, that has an outstanding balance of $17.2 million. This loan is on the watchlist because it reported a 2004 DSC of 0.36x, down from 1.26x at issuance. The sixth-largest exposure consists of two retail loans that are cross-collateralized and cross-defaulted and which generated a DSC of 1.26x in 2004. One of these loans is secured by a 245,000-sq.-ft. property in Lafayette, Indiana, that has an outstanding balance of $14.1 million. This loan is on the watchlist because it reported a 2004 DSC of 1.07x, down from 1.21x at issuance. The seventh-largest exposure consists of a $27.6 million loan secured by a 257,000-sq.-ft. office building in Edison, New Jersey. This loan is on the watchlist due to occupancy issues; the property was 76.0% occupied in 2004, down from 98.0% at issuance. However, the loan reported a 1.24x DSC in 2004, and the borrower is in the process of upgrading the vacant space. Most of the remaining loans on the watchlist have occupancy or DSC issues. Standard & Poor's stressed the loans with the special servicer, loans on the watchlist, and other loans with credit issues as part of its analysis. The resultant credit enhancement levels support the raised and affirmed ratings. Ratings Raised Commercial Mortgage Acceptance Corp. Commercial Mortgage Pass-Through Certs Series 1998-C2 Rating Class To From Credit Enhancement (%) ----- -- ---- ---------------------- D AAA A+ 16.3 E AAA A- 14.2 F A- BB+ 8.3 G BBB+ BB 7.2 Ratings Affirmed Commercial Mortgage Acceptance Corp. Commercial Mortgage Pass-Through Certs Series 1998-C2 Class Rating Credit Enhancement (%) ----- ------ ---------------------- A-2 AAA 39.9 A-3 AAA 39.9 B AAA 33.0 C AAA 24.6 X AAA N/A N/A - Not applicable. CONMED CORP: Earns $7.9 Million of Net Income in Third Quarter -------------------------------------------------------------- CONMED Corporation (Nasdaq: CNMD) reported financial results for the third quarter and nine months ended September 30, 2005. Sales for the 2005 third quarter increased 13.4% to $150 million compared to $132.3 million in the third quarter of 2004. The Endoscopic Technologies product line acquired from C.R. Bard in September 2004 contributed $15.2 million to the $150 million in total sales for the quarter. Net income was $7.9 million in the quarter an increase from the $1.7 million recorded in the third quarter last year. Mr. Joseph J. Corasanti, President and Chief Operating Officer, noted, "We are pleased to see that the Endoscopic Technologies product line, acquired last year, continues to contribute to our top line and to gross margin improvements. Also, our international sales growth has met our expectations for the third quarter as well as for the nine months of 2005. However, our domestic sales growth in the third quarter was less than we had anticipated and less than the preceding seven quarters." He added, "Typically we see a seasonally reduced amount of business in the third quarter because patients and surgeons tend to postpone surgeries from the summer vacation time to other times of the year. This year the trend was even more pronounced. We believe that economic conditions in the United States, hurricanes in the southeast region of the United States, and reduced consumer confidence in general have caused a slowing in elective surgery procedures. Further, hospitals and surgery centers seem to be taking longer to reach buying decisions on capital equipment. We believe that the factors behind the slowdown in elective surgeries and longer equipment buying cycles will be short-lived and that we will return to normal domestic sales growth rates in 2006." On a pro forma basis, excluding transition charges related to an acquisition and other unusual charges, non-GAAP net income for the 2005 third quarter was $9.6 million compared to $11.5 million or $0.38 per diluted share in the comparable third quarter of 2004. For the nine months ended September 30, 2005, sales increased 16.8% to $464.1 million with net income of $29.2 million and diluted earnings per share of $0.98. This compares to the nine months ended September 30, 2004 with sales of $397.2 million, net income of $26.0 million and diluted earnings per share of $0.86. On a pro forma basis, excluding transition and other unusual charges, 2005 nine-month non-GAAP net income and diluted earnings per share were $36.5 million and $1.22, respectively. These compare to 2004 nine-month non-GAAP net income and diluted earnings per share of $35.8 million and $1.18, respectively. As previously disclosed, while year-to-date sales are generally meeting the Company's objectives, third quarter 2005 sales were below original expectations of $153 to $156 million, primarily due to lower-than-anticipated elective surgeries in the United States. Anecdotal information suggests that elective surgeries in many regions of the United States may have been particularly low in the summer of 2005. In the third quarter, sales of capital equipment appear to have also slowed as hospital customers appear to be taking longer to conclude the buying process. Outside the United States, the Company's rate of sales growth compared favorably to expectations, up 11%, year over year for the third quarter. This excludes the effects of the Endoscopic Technologies acquisition, which was acquired on Sept. 30, 2004. The effects of foreign exchange translation changes in the third quarter of 2005 were a benefit to sales in the amount of $0.9 million. CONMED's gross margin, excluding Endoscopic Technologies acquisition transition charges associated with moving manufacturing from C.R. Bard facilities to our own plants, has improved during 2005 to 52.7% and 51.9%, respectively, for the nine months and three months ended September 30, 2005. In 2004 the comparable gross margin percentages were 52.0% for the nine month and 51.0% for the three-month periods. The improving gross margin is a result of the inclusion in the Company's sales base of the Endoscopic Technologies product line, with gross margins that are higher than the Company's overall average. The positive impact of the gross margin was partly offset by the rising cost of petroleum-based plastic raw materials and transportation costs. The Company's selling and administrative costs have increased during the first nine months of 2005 as a result of the inclusion of the Endoscopic Technologies product line acquisition. Additionally, administrative costs for year-to-date and the third quarter 2005 were affected by increased litigation expenses associated with antitrust litigation initiated against a competitor. The Company expects these litigation expenses will increase in the fourth quarter of 2005 when we respond to the motion for summary judgment filed, as expected, on Oct. 21, 2005. Outlook The Company anticipates that slower-growing surgical procedure trends and the longer closing process for capital equipment purchases experienced in the third quarter of 2005 will continue throughout the remainder of the year. Therefore, management projects limited fourth quarter domestic sales growth, supplemented by solid international sales improvement of approximately 11%. This growth mix, as well as higher petroleum-based plastic raw materials and litigation costs, are expected to result in estimated sales of $163 to $166 million. In 2006, CONMED believes that a number of factors will have a positive effect on the Company's sales growth rate, including the anticipated new product pipeline, improved salesforce performance and return to normal elective procedure rates. With these underlying factors, the Company expects to achieve top-line organic growth of approximately 6% for 2006 over 2005, an improvement from the expected 4% organic growth in 2005. It is the Company's intention to provide net income and earnings per share guidance for 2006 when the results for the fourth quarter of 2005 are announced. Conmed Corp. -- http://www.conmed.com/-- is a medical technology company with an emphasis on surgical devices and equipment for minimally invasive procedures and monitoring. The Company's products serve the clinical areas of arthroscopy, powered surgical instruments, electrosurgery, cardiac monitoring disposables, endosurgery and endoscopic technologies. They are used by surgeons and physicians in a variety of specialties including orthopedics, general surgery, gynecology, neurosurgery, and gastroenterology. Headquartered in Utica, New York, the Company's 2,800 employees distribute its products worldwide from eleven manufacturing locations. * * * As reported in the Troubled Company Reporter on Nov. 19, 2004, Moody's Investors Service assigned a rating of B2 for ConMed Corporation's $150 million senior subordinated convertible notes, due 2024. Moody's also affirmed ConMed's existing ratings. The ratings outlook remains stable. Moody's took these rating actions: (i) assign a B2 rating on ConMed's $150 million senior subordinated convertible notes, due 2024 (ii) affirm the Ba3 rating on ConMed's $240 million guaranteed senior secured credit facility consisting of a $100 million revolving credit facility, due 2007, and a $140 million Term Loan B, due in 2009; (iii) affirm ConMed's Senior Implied Rating of Ba3; (iv) affirm ConMed's Senior Unsecured (non-guaranteed exposure) Issuer Rating of B1; and (v) affirm a stable ratings outlook. CORNING INC: Earns $203 Million of Net Income in Third Quarter -------------------------------------------------------------- Corning Incorporated (NYSE: GLW) reported third-quarter sales of $1.188 billion and net income of $203 million. Net income includes special charges of $202 million. Wendell P. Weeks, president and chief executive officer, said, "We are very pleased with Corning's overall performance in the third quarter. We experienced excellent sales growth, improved gross margins and strong equity earnings." Corning's third-quarter net income was reduced by $202 million, as a result of these charges: * net restructuring charges of $28 million (pretax and after-tax) related to previously announced cost-reduction plans in the Telecommunications segment; * a $68 million pretax and after-tax charge to reflect the increase in market value of Corning common stock to be contributed to settle the asbestos litigation related to Pittsburgh Corning Corporation; * a previously announced reduction in equity earnings of $106 million reflecting Corning's share of impairment and other charges taken by Samsung Corning Co., Ltd., a Korean manufacturer of glass panels and funnels for cathode ray tube (CRT) television and computer monitors. Third-Quarter Operating Results Corning's third-quarter sales of $1.188 billion increased 18% over last year's third-quarter sales of $1.006 billion and 4% over the previous quarter's sales of $1.141 billion. Third-quarter gross margins for the company improved to 46 percent versus 42 percent for the previous quarter. Equity earnings for the third quarter were $74 million and include the $106 million charge at Samsung Corning. Without this charge, Corning's third-quarter equity earnings improved sequentially, reflecting strong performance by Samsung Corning Precision Glass Co., Ltd. (SCP), offset by slightly lower results at Dow Corning Corporation. Corning's third-quarter net income benefited from a $14 million tax adjustment resulting from the conclusion of the IRS audit of the company's 2001 and 2002 tax returns and from an overall lower effective tax rate. James B. Flaws, vice chairman and chief financial officer, said, "Lower taxes added $0.02 to our EPS in the quarter. However, even without this benefit, our results exceeded the top of our guidance range by $0.02 per share." Third-quarter sales for Corning's Display Technologies segment were $489 million, an 18-percent increase over the previous quarter's sales of $415 million and a 66-percent increase from sales of $295 million in the third quarter of 2004. Liquid crystal display (LCD) glass volume increased 22 percent over second-quarter 2005 volume and 73 percent over third-quarter 2004 volume. Pricing for the quarter was flat sequentially, while exchange rates in the quarter had a 4-percent negative impact on sales versus the second quarter. Samsung Corning Precision, a 50-percent owned equity venture in Korea which manufactures LCD glass substrates, increased its volume by 22% sequentially. Equity earnings from SCP were up about 35% in the third quarter to $114 million versus $85 million in the second quarter. Second-quarter equity earnings at SCP had been negatively impacted by a number of nonrecurring items. Net income for the Display Technologies segment, which includes results of Corning's wholly owned business and equity earnings from SCP, grew 49 percent from $243 million in the second quarter to $363 million in the third quarter. These results reflect strong operating performance and the lower tax rate in the quarter. Telecommunications segment sales declined 4 percent sequentially to $398 million versus $415 in the second quarter of this year. The sales decline was due primarily to lower fiber-to-the-premises (FTTP) hardware and equipment sales. The segment experienced higher-than-anticipated optical fiber volume for the quarter, but this was more than offset by lower hardware and equipment sales. The Telecommunications segment recorded a net loss of $30 million compared to a net loss of $13 million in the second quarter. The increased loss in the third quarter was primarily the result of the $28 million restructuring charge. In the third quarter, Environmental Technologies segment sales were $144 million compared to $146 million in the second quarter. The Life Sciences segment had third-quarter sales of $70 million compared to second-quarter sales of $75 million. Cash Flow/Liquidity Update Corning finished the quarter with $2.4 billion in cash and short-term investments, a $300 million improvement over the second-quarter balance of $2.1 billion. The increase was the result of strong operating cash flow, which included the receipt of $144 million in net customer deposits in the Display Technologies segment. Fourth-Quarter Outlook Corning expects fourth-quarter sales to be in the range of $1.18 billion to $1.24 billion. Gross margin for the fourth quarter is expected to be in the range of 43% to 45%. Corning expects that the fourth-quarter tax rate will be in the 20 percent to 25 percent range. Headquartered in Corning, New York, Corning Inc. is a global, technology-based corporation that operates in four reportable business segments: Display Technologies, Telecommunications, Environmental Technologies, and Life Sciences. * * * As reported in the Troubled Company Reporter on Sept. 26, 2005, Moody's Investors Service has upgraded the long-term debt rating of Corning Incorporated. The rating action reflects the company's improving profitability, meaningful debt reduction efforts, and strong liquidity position. The rating outlook is stable. Ratings upgraded with a stable outlook: Corning Incorporated * senior unsecured notes, debentures, and IRBs to Baa3 from Ba2; * senior unsecured securities to (P)Baa3 from (P)Ba2; and * preferred stock to (P)Ba2 from (P)B1 issued pursuant to its 415 universal shelf registration. Corning Finance B.V. * senior, unsecured securities issued pursuant to its 415 universal shelf registration to (P)Baa3 from (P)Ba2, guaranteed by Corning. Ratings withdrawn: Corning Incorporated * Ba2 for the corporate family rating; Not Prime short-term debt rating, and SGL-1 for the Speculative Grade Liquidity Rating. COVAD COMMS: Sept. 30 Balance Sheet Upside-Down by $3.7 Million --------------------------------------------------------------- Covad Communications Group, Inc. (AMEX:DVW) reported revenue for the third quarter of 2005 of $112.1 million, an increase of 2% from the $109.7 million reported for the second quarter of 2005 and an increase of 6% from the $105.7 million reported in the third quarter of 2004. Covad ended the third quarter of 2005 with approximately 578,400 broadband lines in service, an increase of 24,000 lines from the second quarter of 2005. Covad ended the third quarter of 2005 with 1,035 VoIP business customers using approximately 36,100 stations, representing a 21% increase in VoIP station count from June 30, 2005. Covad reported a net loss of $15.8 million, for the third quarter of 2005 as compared to a net loss of $16.4 million for the second quarter of 2005 and a net loss of $13.8 million in the third quarter of 2004. Loss from operations for the third quarter of 2005 was $28.0 million compared to $25.6 million for the second quarter of 2005 and $15.3 million in the third quarter of 2004. Cash, cash equivalents and short-term investment balances, including restricted cash and investments, decreased by $14.9 million to $116.1 million in the third quarter of 2005 compared to a balance of $131.0 million at the end of the second quarter of 2005. Covad's total cash balance as of Sept. 30, 2005, includes proceeds from the sale of the remainder of the Company's ownership in ACCA Networks Co. Ltd., a Japanese broadband provider, offset by the usage of funds received from Earthlink to support it's Line-Powered Voice Access trial, expenditures to provision new customers from the AOL broadband trial, and a semi- annual interest payment on our convertible debentures. "The third quarter marks the first time that Covad has generated more than $100 million in total subscription revenue, and is proof of the momentum Covad is building toward our goals of being EBITDA positive by mid-year 2006 and cash-flow positive by year-end 2006," said Charles Hoffman, Covad president and chief executive officer. "We are taking more control of our destiny by increasing Covad VoIP stations by 21 percent in the quarter, selling more margin-rich business services, and through our planned acquisition of wireless broadband provider NextWeb, which will jump start our entry into the wireless broadband market." "Our third quarter EBITDA was slightly better than our guidance for the quarter and cash and revenues were well within guidance," said John Trewin, Covad senior vice president and chief financial officer. Business Outlook Covad expects total net revenues for the fourth quarter of 2005 to be in the range of $112 to $116 million. Total subscription revenue is expected to be in the range of $100.5 to $104 million. Broadband and VoIP subscription revenue is expected to be in the range of $96.5 to $99.5 million. Covad expects its net loss to be in the range of $23 to $26 million, and EBITDA loss in the range of $9 to $11 million. Included in our EBITDA guidance is approximately $2.3 million of severance costs. Net change in cash, cash equivalents and short-term investments, including restricted cash and investments, in the fourth quarter of 2005 is expected to be in the range of negative $16 to $20 million, which includes the payment of approximately $2.5 million of severance costs and related accrued vacation pay. The guidance does not reflect the Company's pending acquisition of NextWeb, which the Company expects to be consummated later this quarter. Covad Communications Group, Inc. -- http://www.covad.com/-- provider of broadband voice and data communications. The company offers DSL, Voice over IP, T1, Web hosting, managed security, IP and dial-up, and bundled voice and data services directly through Covad's network and through Internet Service Providers, value- added resellers, telecommunications carriers and affinity groups to small and medium-sized businesses and home users. Covad broadband services are currently available across the nation in 44 states and 235 Metropolitan Statistical Areas and can be purchased by more than 57 million homes and businesses, which represent over 50 percent of all US homes and businesses. At Sept. 30, 2005, Covad Communications Group, Inc.'s balance sheet showed a stockholders' deficit of $3,746,000 compared to a positive equity of $25,713,000 at June 30, 2005. CROWN HOLDINGS: S&P Rates Proposed $1.1 Bil Sr. Unsec. Notes at B ----------------------------------------------------------------- Standard & Poor's Ratings Services affirmed its 'BB-' corporate credit rating on Crown Holdings Inc. The outlook is stable. At the same time, Standard & Poor's lowered its senior secured debt rating on EUR460 million of first-priority senior secured notes due 2011 issued by wholly owned subsidiary Crown European Holdings S.A. to 'BB-' from 'BB'. The recovery rating on these notes was lowered to '2' from '1', now indicating expectations for substantial, not full, recovery in the event of a payment default. The downgrade and the change in the recovery rating reflect the significant increase in senior secured debt that results from the group's proposed bank credit facilities. Failure to complete the refinancing as currently contemplated could lead to a reassessment of the recovery prospects for senior secured creditors. Standard & Poor's assigned its 'B' rating to the proposed $500 million of senior unsecured notes due 2013 and $600 million of senior unsecured notes due 2015 to be issued by Crown Americas LLC and Crown Americas Capital Corp., wholly owned subsidiaries of Crown Holdings. In addition, based on preliminary terms and conditions, Standard & Poor's assigned its 'BB-' rating and a recovery rating of '2' to Crown's proposed $1.3 billion senior secured credit facilities. These ratings indicate Standard & Poor's assessment that bank lenders and senior secured noteholders will receive substantial recovery in a payment default. If the company exercises its option to increase the credit facility by $500 million, ratings and recovery prospects will be reevaluated. Proceeds from the new notes and the new credit facility, together with proceeds from the recent sale of the company's plastic closures business, will be used to refinance existing bank debt and high-coupon junior debt, make additional pension contributions, and pay tender premiums and other transaction-related expenses. Ratings on the debt that is being refinanced will be withdrawn upon completion of the refinancing. "If completed as currently contemplated, the refinancing will result in significantly lower interest expense, reduced pension obligations, and a smoother debt maturity schedule," said Standard & Poor's credit analyst Cynthia Werneth. "In addition, the financial profile should continue to strengthen through good operating performance, cash generation, and debt reduction." The ratings continue to reflect Crown's satisfactory business risk profile, characterized by market leadership, global operations, and relative earnings stability. Nevertheless, the financial profile remains aggressive, and the company continues to face risks associated with asbestos litigation. With annual sales of more than $7 billion, Philadelphia, Pennsylvania-based Crown is primarily a metal container manufacturer. The company benefits from a broad geographic presence, a well-diversified customer base, and leading market positions in food, beverage, and aerosol cans. DATATEC SYSTEMS: Court Confirms 2nd Amended Liquidating Plan ------------------------------------------------------------ The Hon. Peter J. Walsh of the U.S Bankruptcy Court for the District of Delaware confirmed Datatec Systems, Inc., and its debtor-affiliates' Second Amended Joint Plan of Liquidation on October 21, 2005. Judge Walsh determined that the Plan satisfies the 13 standards for confirmation required under Section 1129(a) of the Bankruptcy Code. The confirmed Plan provides for the establishment of the Datatec Trust into which the Debtor's remaining assets will be transferred on the plan's effective date. The Recovery Group, Inc., will implement the provisions of the Datatec Trust and the Plan as Trustee. In addition, the Official Committee of Unsecured Creditors will be reconstituted as the Post-Confirmation Committee on the effective date. The new committee will be composed of: -- Ace Electric, Inc; -- Nextgen Fibre Optics; -- American Express; -- Sunrise Square, LLC; and -- Anixter Inc. The Post-Confirmation Committee will have the power to monitor and direct the actions of the Datatec Trustee as well as the Debtors' liquidation process. The Debtors' chapter 11 cases have been substantively consolidated and all claims will be satisfied from the assets of a single consolidated entity. Plan Funding Payments due under the Plan will be funded from the Debtors' cash, from proceeds of the liquidation of their assets and from the proceeds of the settlement with Eagle Acquisition Partners, Inc. As reported in the Troubled Company Reporter on Aug. 24, 2005, the settlement resolves the objections raised by the Committee against the sale of substantially all of the Debtors' assets to Eagle. Eagle assigned the Debtors' assets to its subsidiary, Technology Infrastructure Solutions, Inc., on March 1, 2005. The Datatec Trust will receive four annual fixed payments from Technology Infrastructure on: Payment Date Amount ------------ ------ December 31, 2005 $500,000 December 31, 2006 300,000 December 31, 2007 400,000 December 31, 2008 450,000 Other sums due to the Datatec Trust under the settlement agreement include: a) annual contingent payments, commencing on March 31, 2006, and ending on March 31, 2009, equal to 20% of Technology's excess cash flow; and b) a 20% share on the cash recoveries, less legal costs, from a lawsuit filed by the Debtors against Home Depot. The Debtors assigned their contingent claims on the lawsuit pursuant to the asset sale. Total payments made under the settlement agreement should not exceed the agreed $3.5 million payment cap. Distributions to Unsecured Claim Holders The class of unsecured claims, totaling approximately $7.3 million, is the only impaired class allowed to vote on the Plan. The unsecured claim holders will not be paid in full, and will instead receive a pro-rata share of the Estate cash after all administrative and priority claims are paid. Holders of unsecured claims are also eligible to receive a pro-rated share of the Eagle settlement, after distributions are made to allowed priority claimants, if they elect to sign an optional release provided under the Eagle settlement. The Bankruptcy Court approved the optional release provision of the Plan enjoining consenting unsecured claim holders from pursuing any causes of action against Eagle. Headquartered in Alpharetta, Georgia, Datatec Systems, Inc. -- http://www.datatec.com/-- specializes in the rapid, large-scale market absorption of networking technologies. The Company and its debtor-affiliate filed for chapter 11 protection on Dec. 14, 2004 (Bankr. D. Del. Case No. 04-13536). John Henry Knight, Esq., at Richards, Layton & Finger, P.A. and Bruce Buechler, Esq., at Lowenstein Sandler PC represent the Debtors' restructuring. When the Company filed for protection from its creditors, it listed total assets of $26,400,000 and total debts of $47,700,000. DATATEC SYSTEMS: TIS Challenges Ownership of Insurance Proceeds --------------------------------------------------------------- Technology Infrastructure Solutions, Inc., asks the U.S. Bankruptcy Court for the District of Delaware to compel Datatec Systems, Inc., and its debtor-affiliates to turn over all proceeds the Debtors received from the cancellation of their insurance policies. The disputed insurance refunds, totaling approximately $248,430, come from the cancellation, on March 9, 2005, of these insurance policies: a) package insurance from St. Paul; b) automobile insurance from Crum & Forster; c) crime insurance from Hartford Fire Insurance Co.; and d) workers compensation insurance form AIG. After canceling the insurance policies, the Debtors instructed their insurance agent, Marsh USA Inc., to issue the refunds to Datatec Systems, Inc. Technology Infrastructure, a subsidiary of Eagle Acquisition Partners, Inc., and assignee of all assets purchased by Eagle from the Debtors, contends that it owns all rights over refunds of unearned insurance premiums corresponding to the Debtors' insurance. According to Technology Infrastructure, the asset purchase agreement with the Debtors specifically includes all of the Debtors' goodwill and other intangible assets associated with their businesses. Technology Infrastructure explains that the insurance refunds are classified as "other intangible assets." Thus, Technology Infrastructure says that the Debtors' refusal to instruct Marsh USA Inc. to pay the full amount of the refund to them is a breach of the asset purchase agreement. Debtors Respond The Debtors refutes Technology Infrastructure's claim saying that the refund is not an operating asset subject to the asset purchase agreement. Bonnie G. Fatell, Esq., at Blank Rome LLP, tells the Bankruptcy Court that only these categories of asset were included in the sale: a) a general category of assets owned and used in the conduct of business; and b) a set of specifically included assets. Mr. Fatell says that the insurance refunds can neither be classified under these classes. Mr. Fatell adds that goodwill and other intangible assets, from a general business standpoint, would commonly be limited to items such as trademarks, trade names and little else. The Debtors claim that Technology Infrastructure is seeking an unjust windfall. They maintain that the insurance refund is property of the estate and should rightly go to the payment of its creditors. Headquartered in Alpharetta, Georgia, Datatec Systems, Inc. -- http://www.datatec.com/-- specializes in the rapid, large-scale market absorption of networking technologies. The Company and its debtor-affiliate filed for chapter 11 protection on Dec. 14, 2004 (Bankr. D. Del. Case No. 04-13536). John Henry Knight, Esq., at Richards, Layton & Finger, P.A. and Bruce Buechler, Esq., at Lowenstein Sandler PC represent the Debtors' restructuring. When the Company filed for protection from its creditors, it listed total assets of $26,400,000 and total debts of $47,700,000. DAY INTERNATIONAL: Moody's Rates New $140 Million Term Loan at B2 ----------------------------------------------------------------- Moody's Investors Service assigned ratings to the proposed senior secured credit facilities of Day International Group, Inc. and raised the rating of its existing senior exchangeable preferred stock. Concurrently, Moody's affirmed other ratings and revised the ratings outlook to stable from negative. These actions acknowledge: * Day International's continued leadership position in its principal market segments; * consistent performance; * the successful integration of the NDI acquisition; and * its continued ability to pass on cost increases relating to raw materials to its customers. Moody's took these rating actions: -- Assigned B1 rating to the proposed $275 million first lien credit facilities consisting of a $25 million revolver due 2011, and a $250 million term B loan due 2012; -- assigned B2 rating to the proposed $140 million second lien term loan due 2013; -- affirmed Caa1 rating on the $114.9 million issue of 9.5% guaranteed senior subordinated notes, Series B, due 2005; -- raised to Caa1 from Caa3 the existing $62.6 million 12.25% senior exchangeable preference stock due 2010; -- affirmed the B1 Corporate Family Rating; and -- changed the ratings outlook to stable from negative. The ratings are contingent upon the receipt of executed documentation in form and substance acceptable to Moody's. Proceeds from the proposed first and second lien term facility are intended to recapitalize the company and to pay related fees and expenses. The Caa1 rating for the existing senior subordinated notes will be withdrawn upon tender of the notes. The ratings of the existing bank facility have been prospectively withdrawn. The ratings are constrained by the company's high financial leverage (inclusive of preferred stock, as adjusted) at 141% of book capitalization, a high multiple of debt plus preferred to revenues of 1.2 times and intangibles at about 47% of total assets, all on a pro forma basis as of June 30, 2005. The ratings also reflect the high percentage of sales and tangible assets in non-guarantor subsidiaries. Other constraints include heavy reliance for continued cash generation on a mature industry along with the potential for disruption to the company's cash flow generating capability if ongoing growth in digital technologies begins to offer effective competition to offset printing in the high-speed, long-run segment of the industry. There are also potential execution and other risks relating to investment in certain faster growing segments of the printing industry as well as exposure to the consolidating textile industry. The affirmation of the Corporate Family Rating and change in outlook from negative to stable reflect: * the company's continued leadership position and global market share in consumable image transfer and textile products; * improved free cash-flow generation; and * the successful integration of the NDI sales and distribution system. The company has historically been able to pass on increases in the price of raw materials, consisting primarily of rubber polymers, fabrics and petroleum distillates, and, given the relatively small portion of total printing costs represented by consumables, timely pass throughs are expected to continue. In addition, Moody's believes that the proposed refinancing will lead to a more sustainable capital structure and help improve both interest coverage metrics and profitability. Going forward, Moody's anticipates that the company will be able to sustain or improve its free cash flow (defined as cash from operations less capital expenditures) to adjusted debt ratios and move toward debt reduction. Meaningful steps in this area could result in further improvements in the rating outlook. Declining cash flow metrics, significant acquisitions or lack of progress toward improved total leverage metrics could put negative pressure on the ratings. The B1 ratings on the proposed $25 million revolver due 2011 and $250 million senior secured Term Loan B due 2012 reflect the benefits and limitations of the guarantee and security package. The borrower is the holding company, Day International Group, Inc., and the facility is guaranteed by the US operating subsidiaries. The security consists of a first priority lien on all existing and future domestic assets as well as by the pledge of 65% of the stock of the foreign subsidiaries. The limited amount of domestic tangible assets and the significant proportion of foreign assets and sales limit the amount of collateral available to the lenders of the holding company in a distressed scenario. The B2 rating on the proposed $140 million senior secured second lien term loan, due 2013, reflects the subordination to the prior claim on assets from the first lien debt of the borrower and the senior debt of the foreign subsidiaries. The rating also incorporates the limited asset coverage from the guarantor assets in a distressed scenario. The loan will be guaranteed by all U.S. operating subsidiaries and secured by the assets of the company and the guarantors as well as 65% of the capital stock of each foreign subsidiary. Financial covenants will be set at levels where they are unlikely to trigger a cross-default scenario with respect to the first lien Term Loan B. Day International Group, Inc., with 2004 revenues of $363 million, is based in Dayton, Ohio and produces precision-engineered products, specializing in the design and customization of consumable image-transfer products for the printing industry and consumable fiber handling products for the yarn segment of the textile industry. The company is privately held by affiliates of: * GSC Partners (74%), * SG Capital Partners (13.8%), and * management (12.2%). DELPHI CORP: Gets Final Court Nod on $4.5 Billion DIP Financing --------------------------------------------------------------- The U.S. Bankruptcy Court for the Southern District of New York approved, on a final basis, Delphi Corp.'s (OTC: DPHIQ) $2 billion debtor-in-possession financing. The senior secured DIP facility is provided by JPMorgan Chase and Citigroup Global Markets Inc. The Court also approved an adequate protection package for the Company's $2.5 billion prepetition secured revolver and term loan facilities. The final financing package includes provisions that the Court determined also adequately protect customers and suppliers with allowable set-off and recoupment claims and permits them to continue ordinary course business relationships with Delphi. On Oct. 11, 2005, the Court granted interim approval of $950 million of the DIP financing and an interim adequate protection package for the $2.5 billion prepetition facilities pending a final hearing which was held today. "We are pleased with the Court's final approval of our financing package, which is a significant milestone in our restructuring," said Robert S. "Steve" Miller, Chairman and Chief Executive Officer of Delphi. "The proceeds of the DIP financing together with cash generated from daily operations and cash on hand will be used to fund postpetition operating expenses and other payments authorized by the Bankruptcy Court, including supplier obligations and employee wages, salaries and benefits." Mr. Miller added, "We are gratified by the support we have received from our lenders and the confidence they have displayed in Delphi by providing this DIP financing and consenting to the adequate protection packages for our prepetition lenders, customers and suppliers to be put in place. We are also grateful to our customers and suppliers for their loyalty during our restructuring. Since the chapter 11 filing, our business has continued to operate well -- without a single disruption in supply to our global customers. These achievements are due, in large part, to the support we have received from our suppliers, customers and plant workers." Headquartered in Troy, Michigan, Delphi Corporation -- http://www.delphi.com/-- is the single largest global supplier of vehicle electronics, transportation components, integrated systems and modules, and other electronic technology. The Company's technology and products are present in more than 75 million vehicles on the road worldwide. The Company filed for chapter 11 protection on Oct. 8, 2005 (Bankr. S.D.N.Y. Lead Case No. 05-44481). John Wm. Butler Jr., Esq., John K. Lyons, Esq., and Ron E. Meisler, Esq., at Skadden, Arps, Slate, Meagher & Flom LLP, represents the Debtors in their restructuring efforts. As of Aug. 31, 2005, the Debtors' balance sheet showed $17,098,734,530 in total assets and $22,166,280,476 in total debts. (Delphi Bankruptcy News, Issue No. 4; Bankruptcy Creditors' Service, Inc., 215/945-7000) DT INDUSTRIES: Panel Selects Greenwald as DT Creditor Trustee ------------------------------------------------------------- The Official Committee of Unsecured Creditors appointed in DT Industries, Inc., and its debtor-affiliates' chapter 11 cases has selected Robert M. Greenwald of SS&G Financial Services, Inc., to serve as the DT Creditor Trustee under the First Amended Joint Plan of Liquidation. As previously reported in the Troubled Company Reporter on Sept. 1, 2005, a Creditor Trust will be established to prosecute and recover preferences and fraudulent conveyances. Sean D. Malloy, Esq., at McDonald Hopkins Co., LPA, in Cleveland, Ohio, says that as the appointed Creditor Trustee, his duties will consist of those rights granted to him under the Plan. Headquartered in Dayton, Ohio, DT Industries, Inc. -- http://www.dtindustries.com/-- is an engineering-driven designer, manufacturer and integrator of automated systems and related equipment used to manufacture, assemble, test or package industrial and consumer products. The Company and its debtor-affiliates filed for chapter 11 protection on May 12, 2004 (Bankr. S.D. Ohio Case No. 04-34091). Ronald S. Pretekin, Esq., and Julia W. Brand, Esq., at Coolidge Wall Womsley & Lombard, represents the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $150,593,000 in assets and $142,913,000 in liabilities. EASTGROUP PROPERTIES: Reports Operational Results for 3rd Quarter ----------------------------------------------------------------- EastGroup Properties, Inc. (NYSE-EGP), reported the results of its operations for the three and nine months ended Sept. 30, 2005. For the quarter ended September 30, 2005, funds from operations (FFO) available to common stockholders was $.67 per share compared with $.64 per share for the same period of 2004, an increase of 4.7%. The increase in FFO for the third quarter was primarily due to higher property net operating income (PNOI) of $1,910,000 (a 9.2% increase). This increase in PNOI resulted from $1,117,000 attributable to 2004 and 2005 acquisitions, 4596,000 from newly developed properties and $197,000 from same property growth. For the nine months ended September 30, 2005, FFO was $1.96 per share compared with $1.84 per share for the same period last year, an increase of 6.5%. The increase in FFO for 2005 was primarily due to higher PNOI of $6,319,000 (a 10.4% increase). The increase in PNOI resulted from $3,486,000 attributable to 2004 and 2005 acquisitions, $1,533,000 from newly developed properties and $1,300,000 from same property growth. PNOI from same properties increased 1% for the quarter, and, before straight-line rent adjustments, the increase was 4.0%. Rental rate increases on new and renewal leases averaged 1.5% for the quarter. Before straight-line rent adjustments, rental rate decreases on new and renewal leases averaged 5.9%. For the nine months ended September 30, 2005, PNOI from same properties increased 2.2%. Before straight-line rent adjustments, the increase was 5.2%. Rental rate increases on new and renewal leases averaged 2.2% for the nine months. Before straight-line rent adjustments, rental rate decreases on new and renewal leases averaged 4.1%. David H. Hoster II, President and CEO, stated, "We are pleased with our continuing growth in FFO per share with the third quarter representing our fifth consecutive quarter of increased FFO as compared to the previous year's quarter. It was the ninth consecutive quarter of positive same property operations for results both with and without the straight-lining of rents. "In addition, we finished the quarter with an occupancy of 93.6%-an increase of 1.8% over our June 30 occupancy of 91.8%. This was the highest occupancy we have achieved in over four years." Dividends EastGroup paid dividends of $.485 per share of common stock in the third quarter of 2005, which was the 103rd consecutive quarterly distribution to EastGroup's common stockholders. The annualized dividend rate of $1.94 per share yields 4.7% on the closing stock price of $41.42 on October 21, 2005. EastGroup also paid quarterly dividends of $.4969 per share on its Series D Preferred Stock on October 15, 2005, to stockholders of record as of September 30, 2005. Strong Financial Position EastGroup's balance sheet continues to be strong and flexible with debt-to-total market capitalization of 29.6% at Sept. 30, 2005. For the quarter, the Company had an interest coverage ratio of 3.7x and a fixed charge coverage ratio of 3.3x. Total debt at September 30, 2005 was $419.1 million with floating rate bank debt comprising $113.7 million of that total. On September 2, 2005, the Company signed an application on a $39 million, nonrecourse first mortgage loan secured by five properties. The note is expected to close in late November and will have a fixed interest rate of 4.98%, a ten-year term and an amortization schedule of 20 years. The proceeds of the note will be used to reduce floating rate bank borrowings. During 2005, the Company has repaid five mortgages. FFO guidance for 2005 has been narrowed from our previous guidance on an FFO per share basis to a range of $2.64 to $2.67. Earnings per share for 2005 should be in the range of $.95 to $.97. The EastGroup Properties, Inc., is a self-administered equity real estate investment trust focused on the development, acquisition and operation of industrial properties in major Sunbelt markets throughout the United States with a special emphasis in the states of Florida, Texas, California and Arizona. EastGroup's portfolio currently includes 21.4 million square feet with an additional 863,000 square feet of properties under development. * * * Fitch Ratings puts BB+ rating on EastGroup's $1.32 billion 7.95% preferred shares. ENRON CORP: Bankruptcy Court Approves FERC Settlement Agreement --------------------------------------------------------------- The U.S. Bankruptcy Court for the Southern District of New York approved a settlement agreement dated Aug. 24, 2005, that provides for a comprehensive resolution of disputed regulatory proceedings, bankruptcy and adversary proceedings, appellate proceedings, litigation and investigations relating to events in the California and western electricity and natural gas markets. The parties to the Settlement are: a. the Enron Parties: -- Enron Corp., -- Enron Power Marketing, Inc., -- Enron North America Corp., -- Enron Energy Marketing Corp., -- Enron Energy Services Inc., -- Enron Energy Services North America, Inc., -- Enron Capital & Trade Resources International Corp., -- Enron Energy Services, LLC, -- Enron Energy Services Operations, Inc., -- Enron Natural Gas Marketing Corp., and -- ENA Upstream Company, LLC; b. the Federal Energy Regulatory Commission's Office of Market Oversight and Investigations -- OMOI; c. the California Parties: -- Pacific Gas and Electric Company, -- Southern California Edison Company, -- San Diego Gas & Electric Company, -- the California Attorney General, -- California Department of Water Resources -- CERS, -- California Electricity Oversight Board, and -- California Public Utilities Commission; and d. the Oregon Attorney General and the Washington Attorney General -- the Additional Claimants. According to Edward A. Smith, Esq., at Cadwalader, Wickersham & Taft, in New York, the Settlement will avoid future disputes and litigation concerning the disputes since the parties have agreed, subject to certain restrictions and reservations, to release one another from claims, causes of action, obligations and liabilities with respect to the matters addressed in the Settlement. The Settlement will also result in the resolution of billions of dollars in claims filed by a number of the Settling Participants, California Power Exchange Corporation, and the California Independent System Operator Corporation. The material terms of the Settlement are: A. Monetary Consideration The Enron Parties will provide monetary consideration, including: 1. the assignment to the California Parties the Enron Parties' rights, title and interest in the first $25,000,000 of certain undistributed funds relating to transactions in the markets of the PX and the ISO currently held by the PX in all its accounts or the reorganized PX holding funds in trust pursuant to the terms of the PX Tariff, ISO Tariff, or a court order; 2. granting the Settling Claimants an allowed Class 6 unsecured claim pursuant to the Plan totaling $875,000,000 against EPMI, without offset, defense or reduction on account of any claim or counterclaim the Enron Parties may have against any of the Settling Claimants; 3. collectively granting the California Attorney General, the CPUC, the CEOB and the Additional Claimants an allowed subordinated Class 380 penalty claim aggregating $600,000,000; 4. assignment of any refunds or rights to refunds that the Enron Parties have received or will receive from other entities in the refund proceeding conducted before the FERC, or the FERC Refund Related Proceedings, excluding the California Energy Resources Scheduling division of CERS, to the California Parties; 5. assignment to CERS of the Enron Parties' claim for refunds, and related right, title or interest, resulting from any mitigation of sales by CERS of imbalance energy into the ISO real-time market, as well as any interest, surcharges, other charges or payments associated with the sales, that may be payable pursuant to FERC's May 12, 2004 Order on Requests for Rehearing and Clarification and subsequent orders. B. Non-Monetary Consideration The Enron Parties also agreed to provide certain non-monetary consideration. Specifically, the Enron Parties agreed to cooperate with the Settling Claimants in the Claimants' pursuit of claims against entities other than the Enron Parties and their affiliates relating to events in the western energy markets or relating to third-party participation in alleged Enron financial misconduct during the Settlement Period. The Enron Parties have also authorized the PX and the ISO to provide the California Parties any additional information, materials, or data that would otherwise be available to one or more of the Enron Parties and that are related to Enron's sales and purchases in the ISO and PX markets, provided that the California Parties have agreed to maintain the information in confidence and not to disclose it to third-parties, with certain exceptions. C. Withdrawals, Releases and Waivers All claims against Enron for the Settlement Period by the Settling Claimants for refunds, disgorgement of profits, or other monetary or non-monetary remedies in the FERC Proceedings will be deemed settled and fully discharged. The FERC Proceedings will not be deemed settled or discharged as to the Non-Settling Participants. The Enron Parties will, without prejudice to any subsequent action, withdraw all subpoenas they have served in any of the FERC Proceedings against PG&E, SCE, or their employees. Enron and the Settling Claimants will be deemed to reserve and retain all claims and defenses they may have against Non- Settling Participants. The Settling Claimants will sign and file all documentation necessary to effectuate withdrawal of their Proofs of Claim. Enron will sign any documentation necessary to effect withdrawal of Claim No. 8879 in the PG&E bankruptcy case, in a form and content acceptable to PG&E. All Scheduled Liabilities relating to any of the Settling Claimants will be disallowed in their entirety and each of the Enron Parties will release the Settling Claimants from all claims, obligations, causes of action, liabilities under specified provisions of the Bankruptcy Code. A full-text copy of the Settlement Agreement is available for free at http://ResearchArchives.com/t/s?238 The Settlement is subject to the approval of the Federal Energy Regulatory Commission and California Public Utilities Commission. Headquartered in Houston, Texas, Enron Corporation -- http://www.enron.com/-- is in the midst of restructuring various businesses for distribution as ongoing companies to its creditors and liquidating its remaining operations. Before the company agreed to be acquired, controversy over accounting procedures had caused Enron's stock price and credit rating to drop sharply. Enron filed for chapter 11 protection on December 2, 2001 (Bankr. S.D.N.Y. Case No. 01-16033). Judge Gonzalez confirmed the Company's Modified Fifth Amended Plan on July 15, 2004, and numerous appeals followed. The Confirmed Plan took effect on Nov. 17, 2004. Martin J. Bienenstock, Esq., and Brian S. Rosen, Esq., at Weil, Gotshal & Manges, LLP, represent the Debtors in their restructuring efforts. (Enron Bankruptcy News, Issue No. 161; Bankruptcy Creditors' Service, Inc., 15/945-7000) FIBERMARK INC: Court Approves Revised Disclosure Statement ---------------------------------------------------------- The U.S. Bankruptcy Court for the District of Vermont authorized FiberMark, Inc. (OTC Bulletin Board: FMKIQ) to begin the voting process on its revised Plan of Reorganization based on a newly-approved Disclosure Statement. The revised Plan incorporates a settlement reached among the company's three largest bondholders and the company. If approved, the Plan will result in increased distributions to the company's other bondholders and unsecured creditors and resolution of issues identified by a Court-appointed examiner. The company's prior Plan had proposed a litigation mechanism for addressing the issues that are now the subject of the settlement. The Court had approved the prior Plan's associated disclosure statement last month, in case a settlement was not achieved. Voting on the company's revised Plan will commence Nov. 1, with a voting deadline of Nov. 22 set by the Court. The Court also scheduled a confirmation hearing for Dec. 2. Assuming confirmation, the company would expect to emerge from chapter 11 during the first week in January. As expected, the company will become a private company upon its emergence. The shares of current stockholders will be cancelled under the Plan and will have no value upon emergence. Public trading of its stock is not expected to continue beyond the date of chapter 11 emergence, at the latest. Headquartered in Brattleboro, Vermont, FiberMark, Inc. -- http://www.fibermark.com/-- produces filter media for transportation applications and vacuum cleaning; cover stocks and cover materials for books, graphic design, and office supplies and base materials for specialty tapes, wall coverings and sandpaper. The Company filed for chapter 11 protection on March 30, 2004 (Bankr. D. Vt. Case No. 04-10463). Adam S. Ravin, Esq., D.J. f, Esq., David M. Turetsky, Esq., and Rosalie Walker Gray, Esq., at Skadden, Arps, Slate, Meagher & Flom LLP, represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $329,600,000 in total assets and $405,700,000 in total debts. FOAMEX INT'L: Gets Final Court Okay to Pay Critical Vendor Claims ----------------------------------------------------------------- Foamex International Inc., and its debtor-affiliates identified three categories of their critical vendors: 1. Specialty Chemical Providers 2. Cloth Producers 3. Maintenance, Repair and Operations Suppliers In manufacturing foam products, the Debtors utilize chemicals that are especially formulated to meet their specific needs and are capable of being obtained from only a few select providers, Joseph M. Barry, Esq., at Young Conaway Stargatt & Taylor, in Wilmington, Delaware, relates. The inventory of many of the major chemicals is limited and at any point in time is sufficient to sustain the Debtors' operations for up to one week. The chemicals are the fundamental building blocks for the Debtors' foam products. According to Mr. Barry, it would be very difficult, if not impossible, for the Debtors to find replacements if one or more Chemical Providers decides not to ship to the Debtors postpetition. The reasons are at least threefold: (i) many chemicals are in short supply; (ii) some of the Debtors' suppliers placed the Debtors on fixed dollar credit limit more than a year ago; and (iii) if the Debtors change suppliers, they might need to alter their product formulations and there is no assurance of customer approval. The Debtors estimate that $28,000,000 is needed to pay the Chemical Providers. The large amount, Mr. Barry explains, reflects the reality that the Debtors must constantly purchase chemicals given their very small chemical inventories and the fact that many of the Chemical Providers supply the Debtors on 60-day trade terms. For automotive customers, the Debtors utilize various made-to- order cloth provided by certain cloth producers and suppliers. The Cloth Producers supply material according to specifications mandated by various OEMs. The Debtors laminate foam backing to the cloth and sell the resulting product to various Tier 1 suppliers, who, in turn, incorporate it into interior vehicle components and sell these products to the OEMs. The Debtors do not choose their cloth suppliers, Mr. Barry states. The choice is made for them by the OEMs because they require that the Debtors use specific cloth, which is only made by certain producers. Mr. Barry asserts that the Debtors' inability to purchase the specified cloth could seriously jeopardize their automotive business, which is their second largest business segment. The Debtors estimate that they need $3,000,000 to pay the Cloth Producers. The Debtors regularly purchase various MRO Supplies through American Express. Many of the MRO Supplies, like customized motors, pumps and other mechanized parts, though relatively inexpensive when compared to the cost of the chemicals, nonetheless are sufficiently important, that without them, the Debtors cannot operate the machinery and equipment located in their various plants, Mr. Barry says. Purchases of MRO Supplies are consummated via American Express in two ways. One way is through procurement cards and the other is through the "point-of-sale" program. American Express bills the Debtors every month. Mr. Barry points out that many of the Debtors' MRO Suppliers are small businesses and any interruption in payment to them could damage their own business prospects and ongoing viability, which, in turn, could prevent the Debtors from continuing to purchase MRO Supplies from them. In addition, Mr. Barry attests, replacing the American Express services is difficult. The American Express programs reduce the administrative costs associated with having separate accounts payable for each MRO Supplier. American Express' purchasing method is embedded in the Debtors' purchasing software and its corporate purchasing policies and procedures have been implemented to establish proper internal financial controls. The Debtors need to pay approximately $2,000,000 for the MRO Supplies. The Debtors seek the U.S. Bankruptcy Court for the District of Delaware's permission to pay the prepetition claims of their Critical Vendors. Based on their estimates, the Debtors will have to pay $33,000,000 in aggregate to their Critical Vendors. The Debtors contemplate making prepetition payments as and when they become due and solely to the entities that agree to supply the Debtors postpetition according to the normal trade terms that existed prepetition or on terms that are otherwise acceptable to the Debtors. The Honorable Peter J. Walsh of the District of Delaware issues an interim order allowing the Debtors to make Critical Vendor Payments of not more than $21 million. Judge Walsh grants the Debtors' request on a final basis to pay the prepetition claims of their Critical Vendors. Headquartered in Linwood, Pa., Foamex International Inc. -- http://www.foamex.com/-- is the world's leading producer of comfort cushioning for bedding, furniture, carpet cushion and automotive markets. The Company also manufactures high- performance polymers for diverse applications in the industrial, aerospace, defense, electronics and computer industries. The Company and eight affiliates filed for chapter 11 protection on Sept. 19, 2005 (Bankr. Del. Case Nos. 05-12685 through 05-12693). Attorneys at Paul, Weiss, Rifkind, Wharton & Garrison LLP, represent the Debtors in their restructuring efforts. Houlihan, Lokey, Howard and Zukin and O'Melveny & Myers LLP are advising the ad hoc committee of Senior Secured Noteholders. As of July 3, 2005, the Debtors reported $620,826,000 in total assets and $744,757,000 in total debts. (Foamex International Bankruptcy News, Issue No. 5; Bankruptcy Creditors' Service, Inc., 215/945- 7000) FOAMEX INT'L: Gets Final Order on Injunction vs. Utility Companies ------------------------------------------------------------------ Foamex International Inc. and its debtor-affiliates asserted the need for continuation of utility services. As reported in the Troubled Company Reporter on Oct. 17, 2005, Pauline K. Morgan, Esq., at Young Conaway Stargatt & Taylor LLP, in Wilmington, Delaware, asserted that if utility companies are permitted to terminate utility services on the 21st day after the Debtors' bankruptcy petition date, substantial disruption to the Debtors' operations will occur and the Debtors' business will be irreparably harmed. To avert a potential disaster, the Debtors would then be forced to pay whatever amounts are demanded by the Utility Companies to avoid the cessation of essential Utility Services and, ultimately, the demise of their business, Ms. Morgan added. Consequently, the Debtors asked the Honorable Peter J. Walsh of the District of Delaware Bankruptcy Court to preclude Utility Companies from altering, refusing or discontinuing services on account of unpaid prepetition invoices or prepetition claims on the basis of the Debtors' bankruptcy filing or any outstanding prepetition invoice. The Debtors sought authority, but not the obligation, to pay prepetition amounts owing to a Utility Company. If a Utility Company accepts the payment, the Utility Company will be deemed adequately assured of future payment and to have waived any right to seek additional adequate assurance in the form of a deposit or otherwise. Constellation Responds Constellation NewEnergy, Inc., sells electricity to Foamex International Inc., pursuant to a Master Retail Energy Supply Agreement. The Supply Agreement will expire in January 2006. David L. Finger, Esq., at Finger & Slanina LLC, in Wilmington, Delaware, informs the Court that the Supply Agreement is a forward contract, and Constellation is a forward contract merchant. The Supply Agreement provides that the commencement of a bankruptcy proceeding or Foamex's insolvency is an "event of default" permitting Constellation to terminate the Supply Agreement. Mr. Finger notes that pursuant to Section 556 of the Bankruptcy Code, the contractual right of a forward contract merchant to cause the liquidation of a forward contract because of a condition of the kind specified in Section 365(e)(1), will not be stayed, avoided or otherwise limited by the Bankruptcy Code or by order of the Court. Accordingly, Mr. Finger asserts, Constellation's contractual right to terminate the Supply Agreement is not stayed, avoided or otherwise limited by any order of the Court. Constellation intends to continue to sell electricity to Foamex until the Supply Agreement expires in January 2006 as long as Foamex continues to perform its obligations under the Supply Agreement, Mr. Finger says. Constellation does not oppose the Debtors' request. It, however, wants to clarify that it is not waiving its rights as a forward contract merchant under Section 566. Judge Wash grants the Debtors' request on a permanent basis. Judge Walsh clarifies that his approval is without prejudice to the rights of any Utility Company to immediately file a request for additional assurance in the form of deposits or security. Any Utility Company that files a request for additional adequate assurance will be deemed to have adequate assurance until further Court order is entered in connection with the Additional Assurances Request. With regards to the forward contract with Constellation NewEnergy, Inc., Judge Walsh rules that nothing in the Order is intended to limit or impair Constellation's rights under Section 556 of the Bankruptcy Court. The Order also does not limit the Debtors' right to argue that Constellation is not a forward contract merchant. Headquartered in Linwood, Pa., Foamex International Inc. -- http://www.foamex.com/-- is the world's leading producer of comfort cushioning for bedding, furniture, carpet cushion and automotive markets. The Company also manufactures high- performance polymers for diverse applications in the industrial, aerospace, defense, electronics and computer industries. The Company and eight affiliates filed for chapter 11 protection on Sept. 19, 2005 (Bankr. Del. Case Nos. 05-12685 through 05-12693). Attorneys at Paul, Weiss, Rifkind, Wharton & Garrison LLP, represent the Debtors in their restructuring efforts. Houlihan, Lokey, Howard and Zukin and O'Melveny & Myers LLP are advising the ad hoc committee of Senior Secured Noteholders. As of July 3, 2005, the Debtors reported $620,826,000 in total assets and $744,757,000 in total debts. (Foamex International Bankruptcy News, Issue No. 5; Bankruptcy Creditors' Service, Inc., 215/945- 7000) FOAMEX INT'L: Can Continue Hiring 37 Ordinary Course Professionals ------------------------------------------------------------------ Pursuant to Sections 327 and 328 of the Bankruptcy Code, Foamex International Inc., and its debtor-affiliates sought and obtained the U.S. Bankruptcy Court for the District of Delaware 's permission to employ 37 ordinary course professionals without the submission of individual employment applications and retention orders. A list of the Professionals is available for free at: http://bankrupt.com/misc/FoamexOrdinaryCourseProfList1.pdf The Debtors told the Court that the Ordinary Course Professionals will render a wide range of legal, accounting and consultancy services for the Debtors. The Professionals will provide services that are similar to those rendered to the Debtors before the Petition Date. It is essential that the employment of the Professionals, who are already familiar with the Debtors' affairs, be continued to enable the Debtors to conduct, without disruption, their ordinary business affairs, Pauline K. Morgan, Esq., at Young Conaway Stargatt & Taylor LLP, in Wilmington, Delaware, asserted. The Debtors find it impractical and inefficient to submit individual applications and retention orders for each of the Professionals, in light of the costs associated with the preparation of employment applications for professionals who will receive relatively small fees. Furthermore, the Debtors asserted, relieving the Professionals of the requirement of preparing and prosecuting fee applications will save the estates additional professional fees and expenses that would necessarily be incurred as a result of the requirement. Likewise, it will spare the Court, the U.S. Trustee and other interested parties from considering numerous fee applications involving relatively modest amounts of fees and expenses, Ms. Morgan added. The Debtors proposes to pay the Professionals 100% of the fees and disbursements incurred. The payments would be made following the submission to, and approval by, the Debtors of an appropriate invoice of the nature of services rendered and disbursements incurred up to $50,000 per month per Professional. If a Professional seeks more than $50,000 in a single month, that Professional is required to file a fee application for the full amount in accordance with Sections 330 and 331. The Debtors reserve the right to supplement the list of the Ordinary Course Professionals from time-to-time as necessary. The Court fixes the monthly fee cap at $40,000 per Ordinary Course Professional. Payments to all Professionals should not exceed $1,400,000 per month, on average, over the prior rolling three-month period. To the extent any new Professional is employed, then the Aggregate Cap will be increased by $40,000 per month per Professional, and the Debtors reserve the right to seek to otherwise increase the Aggregate Cap if necessary. Headquartered in Linwood, Pa., Foamex International Inc. -- http://www.foamex.com/-- is the world's leading producer of comfort cushioning for bedding, furniture, carpet cushion and automotive markets. The Company also manufactures high- performance polymers for diverse applications in the industrial, aerospace, defense, electronics and computer industries. The Company and eight affiliates filed for chapter 11 protection on Sept. 19, 2005 (Bankr. Del. Case Nos. 05-12685 through 05-12693). Attorneys at Paul, Weiss, Rifkind, Wharton & Garrison LLP, represent the Debtors in their restructuring efforts. Houlihan, Lokey, Howard and Zukin and O'Melveny & Myers LLP are advising the ad hoc committee of Senior Secured Noteholders. As of July 3, 2005, the Debtors reported $620,826,000 in total assets and $744,757,000 in total debts. (Foamex International Bankruptcy News, Issue No. 5; Bankruptcy Creditors' Service, Inc., 215/945- 7000) GENERAL MOTORS: SEC Probes Accounting Practices & Delphi Deals -------------------------------------------------------------- The Securities and Exchange Commission issued subpoenas to General Motors Corp. inquiring on the automaker's accounting practices and certain transactions with its former unit, the now-bankrupt Delphi Corp. According to published reports, the Company's finance unit, General Motors Acceptance Corp., is also part of an insurance-industry investigation regarding the use of finite-risk insurance to control reported losses. "We're just cooperating with the SEC at this point," GM spokeswoman Toni Simonetti told Lee Hawkins Jr. of The Wall Street Journal. "This is an investigation, not an accusation. We have not been accused of any wrongdoing," she added. The SEC probes of GM, Alan Ohnsman of Bloomberg News reports, include: -- financial reporting of pension and other retiree benefit programs; -- transactions between the automaker and Delphi; -- recovery of recall costs from suppliers and supplier price reductions and credits; and -- GM's possible obligation to fund Delphi's pensions. GM has said that its pension plans are fully funded, although it covers the expected cost of health care for the retirees, not paid out of pension, Chris Isidore reports for CNN Money. As reported in the Troubled Company Reporter on Oct. 21, GM disclosed a tentative pact with the United Auto Workers to reduce the automaker's health-care costs by about $15 billion. GM estimates a $1 billion a year cash savings as a result of the union's concession. GM Chief Executive G. Richard Wagoner Jr. told the Associated Press last week that it isn't considering bankruptcy protection to solve its financial difficulties. Mr. Wagoner stressed bankruptcy is not an option. GM has been suffering from declining U.S. market share, rising costs for materials like steel and a drop in sales of sport utility vehicles, the company's longtime cash cows. It cut production by 20 percent in the first three quarters of this year, hurting profits. General Motors Corp. (NYSE: GM) -- http://www.gm.com/-- the world's largest automaker, has been the global industry sales leader since 1931. Founded in 1908, GM today employs about 317,000 people around the world. It has manufacturing operations in 32 countries and its vehicles are sold in 200 countries. In 2004, GM sold nearly 9 million cars and trucks globally, up 4 percent and the second-highest total in the company's history. GM reported a $1.6 billion net loss for the quarter ended Sept. 30, 2005. GM's losses for the four quarters ending Sept. 30 top $3.1 billion. GM lost its investment grade rating earlier this year. GRIFFETH BUILDERS: Voluntary Chapter 11 Case Summary ---------------------------------------------------- Debtor: Griffeth Builders, Inc. 585 Tanners Bridge Road Bethlehem, Georgia 30620 Bankruptcy Case No.: 05-38010 Type of Business: The Debtor is a building contractor. Chapter 11 Petition Date: October 27, 2005 Court: Middle District of Georgia (Athens) Debtor's Counsel: Ernest V. Harris, Esq. Harris & Liken, L.L.P. P.O. Box 1586 Athens, Georgia 30603 Tel: (706) 613-1953 Fax: (706) 613-0053 Total Assets: $4,389,602 Total Debts: $2,606,000 The Debtor does not have unsecured creditors who are not insiders. GSI COMMERCE: Postpones Release of Fiscal 2005 3rd Quarter Results ------------------------------------------------------------------ GSI Commerce Inc. (Nasdaq: GSIC) postponed the release of its fiscal 2005 third quarter operating results and conference call, but issued preliminary estimated fiscal third quarter results and issued updated 2005 fiscal year guidance. The company is tentatively targeting to release its full fiscal 2005 third quarter operating results and hold a conference call on or before Nov. 10, 2005. Likely Material Weakness GSI Commerce postponed the release of its third quarter operating results to allow for more time to complete the evaluation of two issues. First, in August 2005, GSI Commerce's internal auditor and GSI Commerce's controller found potential discrepancies with certain credits, amounting to approximately $283,000, that were recorded as part of the company's fiscal fourth quarter 2004 results, some portion of which potentially should have been recorded in fiscal year 2005. The company alerted both its audit committee and independent auditors of the potential discrepancies. The audit committee retained independent counsel and commenced an independent investigation. The investigation covers the specific credits initially identified as well as other entries recorded during the same period. Second, during the third quarter of fiscal 2005, the company determined that a systemic control on which the company relied to reconcile its accounts payable balance had failed. The result meant the company could not validate its general ledger balance for the account. Subsequently, the company changed to a manual control to validate this account. The failure of the systemic control may be a material weakness and the change to a manual control may have materially affected GSI Commerce's internal control over financial reporting. Management has developed a plan to address the failure of this systemic control. Based on the manual calculation, the company currently estimates it may need to record a charge of as much as $300,000, or a gain of as much as $1.2 million. However, this range could change, plus or minus on either side, based on the results of the ongoing review. The company is evaluating whether an adjustment, if any, is required. Preliminary 3rd Quarter Results As a result of these two issues, GSI Commerce has not finalized its fiscal 2005 third quarter operating results. While the company is not announcing its final fiscal 2005 third quarter results at this time, it is issuing the following preliminary estimated results. The estimated results do not reflect any adjustments that may be made as a result of the issues discussed above in this news release. The actual results that the company reports could differ materially from the following estimated results and the estimated results should only be considered an indication of what management believes at this time. Net revenues for the fiscal 2005 third quarter are expected to be approximately $84 million to $85 million compared to the company's guidance issued on July 27 of $79 million to $84 million. Net loss is expected to be approximately $4.2 million to $4.5 million, compared to the company's guidance issued on July 27 of a net loss of $2.5 million to $3 million. Cash, cash equivalents and marketable securities at the end of the fiscal 2005 third quarter are expected to be approximately $112.2 million. The company notes that the estimated shortfall in net income compared to its guidance issued for the third quarter on July 27 is the result of the cost of partner launches in the second half of fiscal 2005 being greater than anticipated, and to a lesser extent, because of delays in actual launch dates. These issues had a particularly negative impact on the second half of the third quarter. As a result of these factors, which the company also expects to impact its fiscal 2005 fourth quarter results, GSI Commerce now estimates net income for fiscal 2005 to be approximately $5.5 million to $6.5 million compared the company's guidance issued on July 27 of $9.5 million to $10.5 million. The estimated results do not reflect any adjustments that may be made as a result of the issues discussed earlier in this news release. The company also reported that the following events occurred since July 27, 2005: -- The company has launched new e-commerce operations for RadioShack, Bath & Body Works, Levis Brand and C.C. Filson & Co. -- The company signed a multiyear extension with a partner in the health & beauty category. -- The company signed a multiyear agreement to provide a new partner in the home category with an e-commerce solution that includes core technology platform, fulfillment services and customer care operations. The launch is expected to occur during the first quarter of 2006. Revenues from the new partner will be recorded as service fees. The addition of the new partner brings the total number of new partners announced in fiscal 2005 to 10. GSI Commerce is a leading provider of e-commerce solutions that enable retailers, branded manufacturers, entertainment companies and professional sports organizations to operate e-commerce businesses. The Company provides solutions for its partners through its integrated e-commerce platform, which is comprised of three components: core technology, supporting infrastructure and partner services. The Company either operates, or will operate pursuant to signed agreements, all or portions of the e-commerce businesses for approximately 50 partners. GUARDIAN TECHNOLOGIES: Talks About Financial Reporting Weaknesses ----------------------------------------------------------------- Guardian Technologies International Inc. delivered its amended quarterly report on Form 10-Q/A for the quarter ended June 30, 2005, to the Securities and Exchange Commission on Oct. 17, 2005. The Company amended the quarterly report, originally filed with the SEC on Aug. 12, 2005, to incorporate additional information requested by the SEC related to: -- management's discussion and analysis of financial condition and results of operations; and -- controls and procedures Second Quarter Results For the three-months ended June 30, 2005, Guardian Technologies reports a $3,449,548 net loss on $122,835 of revenues compared to a $10,733,852 net loss on zero revenues for the same period in 2004. The Company's balance sheet showed $3,061,330 of assets at June 30, 2005, and liabilities totaling $1,142,823. At June 30, 2005, the Company had a $642,809 net working capital deficit of compared with a net working capital surplus of $4,711,783 at June 30, 2004. The Company's principal source of liquidity has been the net proceeds from external financing transactions. For the six months ended June 30, 2005 and 2004 the Company provided net cash of $2,641,621 and $7,308,697, respectively, from such financing transactions. The available cash balances at June 30, 2005 and 2004 were $107,022 and $4,818,825, respectively. Controls and Procedure Amendments Guardian Technologies' certifying officers concluded that the Company's disclosure controls and procedures were not effective as they relate to timely filing. The Company had failed to timely file its Form 10-KSB for the year ended Dec. 31, 2004, and its Form 10-Q for the quarter ended March 31, 2005. The Company has implemented revised disclosure controls and procedures to help assure timely filing of reports required by the SEC, including controls and procedures related to the time line for the Company's preparation and distribution of such reports for review by management, the Company's Audit Committee, its auditors and outside legal counsel prior to filing with the SEC. Going Concern Doubt Aronson & Company expressed substantial doubt about Guardian Technologies' ability to continue as a going concern after it audited the Company's financial statements for the year ended Dec. 31, 2004. The auditing firm pointed to the Company's significant operating losses since inception and dependence on additional funding through debt or equity financing to continue its operations. Guardian Technologies -- http://www.guardiantechintl.com/-- designs, develops and delivers sophisticated imaging informatics solutions to its target markets: security and healthcare. The Company utilizes high-performance imaging technologies and advanced analytics to create integrated information management technology products and services that address critical problems in healthcare and homeland security for corporations and governmental agencies. HARTCOURT COMPANIES: Earns $31,534 of Net Income in 1st Quarter --------------------------------------------------------------- Hartcourt Companies Inc. delivered its financial results for the quarter ended Aug. 31, 2005, to the Securities and Exchange Commission on Oct. 17, 2005. Hartcourt Companies reported $31,534 of net income for the three months ended Aug. 31, 2005, compared to a $2,847,967 net loss for the same period in 2004. The Company has suffered recurring losses from operations and has an accumulated deficit of $67,109,555 as of Aug. 31, 2005. The Company's balance sheet showed $15,395,139 of assets at Aug. 31, 2005, and liabilities totaling $6,897,731. The Company's working capital at Aug. 31, 2005, total approximately $5 million. Going Concern Doubt As reported it the Troubled Company Reporter on Oct. 6, 2005, Kabani & Company, Inc., CPA's, expressed substantial doubt about Hartcourt Companies' ability to continue as a going concern after auditing the Company's financial statements for the period ending May 31, 2005. The auditing firm pointed to the Company's accumulated deficit of $67,141,089 at May 31, 2005 and negative cash flow from operations amounting $1,256,734 for the period ended May 31, 2005. About Hartcourt Companies Hartcourt Companies Inc. -- http://www.hartcourt.com/-- is a business development company specializing in the Chinese Information Technology, or IT, market. It researches and identifies Chinese companies in the IT industry that meet its acquisition criteria. The Company then acquires equity ownership or assets in the targeted companies to be part of its investment portfolio. Hartcourt distributes internationally well known brand named IT hardware products and related software and services. The main products are Samsung branded notebooks and monitors. The Company also distributes audio and video conferencing products. HELL'S BAY: Case Summary & 20 Largest Unsecured Creditors --------------------------------------------------------- Debtor: Hell's Bay Boatworks, LLC 1520 Chaffee Drive Titusville, Florida 32780 Bankruptcy Case No.: 05-17567 Type of Business: The Debtor builds and repairs boats. See http://www.hellsbay.com Chapter 11 Petition Date: October 25, 2005 Court: Middle District of Florida (Orlando) Debtor's Counsel: David R. McFarlin, Esq. Wolff, Hill, McFarlin & Herron, P.A 1851 West Colonial Drive Orlando, Florida 32804 Tel: (407) 648-0058 Fax: (407) 648-0681 Estimated Assets: $1 Million to $10 Million Estimated Debts: $1 Million to $10 Million Debtor's 20 Largest Unsecured Creditors: Entity Nature of Claim Claim Amount ------ --------------- ------------ Chittum, Harold T. III Arbitration award $1,778,597 Ladd H. Fasset Esq. 1325 West Colonial Drive Orlando, FL 32804 Florida Department of Revenue Sales Tax $300,000 Bankruptcy Unit P.O. Box 6668 Tallahassee, FL 32314-6668 Mercury Marine Supplies $231,759 P.O. Box 96964 Chicago, IL 60693 Sea Lion Productions Advertising $48,000 AIG Claim Services Inc Insurance $47,000 Van Rooy, Carl Deposit for boat $22,270 Wilson, Price Accounting $20,335 Fiberglass Florida Supplies $18,716 Starke Agency Insurance $17,716 Polygard Inc. Supplies $13,805 HK Research Supplies $12,570 Lewis Marine & Supply, Inc. Supplies $11,703 Composites One LLC Supplies $9,927 Langston Hess Dolton & Shepa Legal $8,336 AIM Supply Supplies $5,964 Total Recovery Systems Engine $5,792 Charging Systems International Electrical $5,586 Fishkind and Associates Legal $4,900 Rushton, Stakely Legal $8,419 Xerox Trade Debt $3,649 I2 TECHNOLOGIES: Sept. 30 Balance Sheet Upside-Down by $144 Mil. ---------------------------------------------------------------- i2 Technologies, Inc. (Nasdaq:ITWO) reported results for its third quarter ended September 30, 2005. The company reported development services revenue totaling $7.2 million, which includes the $3.1 million allocated license component previously noted and an allocated services component of $4.1 million. This compares to third quarter 2004 development services revenue of $7.5 million, which included $5.1 million of allocated services and $2.4 million of allocated licenses. Year-do-date, development services revenue for 2005 was $44.1 million compared to $23.3 million for the same period a year ago. i2 reported total costs and operating expenses of $54.4 million which includes a $2.2 million gain on the sale of TSC assets. In comparison, total costs and operating expenses in the third quarter of 2004 were $90.2. "In the third quarter we completed the cost reductions we began on March 30, meeting the goals we set out to achieve. We are now able to invest in the best areas of our business to support profitable growth," said i2 Chief Executive Officer Michael McGrath. The company reported third quarter net income applicable to common shareholders of $8.6 million, compared to net income of $17.1 million, in the third quarter of 2004. Operating income for the third quarter was $14.8 million versus $20.8 million in the third quarter of 2004. On a year-to-date basis, operating income was $24.7 million in 2005, 70% above the same period in 2004. "This is the second consecutive quarter of significant operating profit, excluding any impact of contract revenue from previous years, demonstrating that i2 has turned the corner on profitability. This has been our number one objective," said Mr. McGrath. i2 recently reduced its long-term debt with the purchase on the open market of $50 million of its outstanding 5.25% convertible notes due on December 15, 2006. Of the purchase, $21.5 million was settled and recorded in the third quarter, with an additional $28.5 million settled and recorded in early October. The Company ended the quarter with $272 million in total cash, down from $298.3 million in the prior quarter. At the end of the quarter, the gap between the Company's long term debt and total cash was approximately $23.2 million. "The repurchase of this debt is another important step in our plan to strengthen our overall balance sheet," said i2 Chief Financial Officer Michael Berry. "We are optimistic that the combination of our cash balances, our focus on cash flow, opportunities to monetize the value of our assets, and the variety of capital sources available to us will allow us to address our outstanding debt and further establish a proper liquidity balance for i2's future." i2 Technologies, Inc. -- http://www.i2.com/-- provides software designed to synchronize demand and supply across global business networks. i2's supply chain management tools and services are used by lots of industries; 19 of the AMR Research Top 25 Global Supply Chains belong to i2 customers. At Sept. 30, 2005, i2 Technologies, Inc.'s balance sheet showed a $143,787,000 stockholders' deficit compared to a $173,033,000 deficit at Dec. 31, 2004. INTERMET CORP: Court Okays Rejection of Five Representative Pacts ----------------------------------------------------------------- The Honorable Marci B. McIvor of the U.S. Bankruptcy Court for the Eastern District of Michigan gave Intermet Corporation authority to reject five executory manufacturer's representative agreements: -- Sullivan Precision Components 1020 Springfield Avenue #204 Mountainside, NJ 07092 -- Engineered Precision Components 105 23rd Avenue NW New Brighton, MN 55112-7166 -- Integrated Sales & Engineering 736 West Ingomar Road Pittsburgh, PA 15237-4986 -- Liebel & Merle Sales 2507 Browncroft Boulevard Rochester, NY 14625 -- Phelps Associates, Inc. 1801 South Federal Highway #243 Delrary Beach, FL 33483 Under the Agreements, the representatives market and sell Intermet's products to customers in exchange for a percentage of sales. The Agreements also provide that they will automatically terminate on Dec. 31, 2004, unless the parties enter into new agreements. If no new Agreement is inked, the representative is entitled to termination damages. The Debtors contend that all the Agreements expired by their own terms on Dec. 31, 2004, and are therefore not executory contracts. But, some Representatives may argue that the Agreements are executory contracts because of the Termination Damages Section. The Debtors contend that the Agreements are burdensome to the estates because Intermet has its own internal sales force, which is capable of handling the majority of its needs for sales support. The Debtors added that the services of the Representatives are no longer needed in order for the Debtors to operate their business. The rejection of these Agreements will benefit the Debtors' estate and creditors. Headquartered in Troy, Michigan, Intermet Corporation -- http://www.intermet.com/-- provides machining and tooling services for the automotive and industrial markets specializing in the design and manufacture of highly engineered, cast automotive components for the global light truck, passenger car, light vehicle and heavy-duty vehicle markets. Intermet, along with its debtor-affiliates, filed for chapter 11 protection on Sept. 29, 2004 (Bankr. E.D. Mich. Case Nos. 04-67597 through 04-67614). Salvatore A. Barbatano, Esq., at Foley & Lardner LLP represents the Debtors. When the Debtors filed for protection from their creditors, they listed $735,821,000 in total assets and $592,816,000 in total debts. On Sept. 26, 2005, Judge McIvor confirmed the Debtors' Amended Plan of Reorganization. INTERNATIONAL PAPER: Earns $1.04 Bil. of Net Income in 3rd Quarter ------------------------------------------------------------------ International Paper (NYSE: IP) reported third-quarter 2005 net earnings of $1.04 billion, compared with $77 million in the second quarter of 2005 and a net loss of $470 million in the 2004 third quarter. Third quarter 2005 earnings included $278 million from discontinued operations relating to the sale of the company's interest in Carter Holt Harvey Ltd. and $603 million principally from a U.S. federal income tax audit agreement reached with the U.S. Internal Revenue Service. The 2004 third quarter results included a discontinued operations charge of $684 million primarily from the sale of Weldwood of Canada Ltd. Amounts for all quarters also included certain other special items. Earnings from continuing operations and before special items in the third quarter of 2005 were $162 million, compared with $143 million in the second quarter of 2005 and $200 million in the third quarter of 2004. Third-quarter 2005 net sales were $6 billion, compared with $5.9 billion in the second quarter of 2005 and $6.0 billion in the third quarter of 2004. The company experienced seasonal sales increases in most businesses, with the exception of a slight decline in the industrial packaging business. Operating profits of $489 million for the 2005 third quarter were slightly lower compared with second-quarter 2005 operating profits of $491 million, due principally to lower price realizations and higher energy costs. However, higher earnings from land and real estate sales and continued strong productivity improvements helped offset some of these negative impacts. "Our mills ran well and continued the aggressive improvement we've been seeing all year, which helped offset some of the impact of pricing pressure and energy costs," said Chairman and Chief Executive Officer John Faraci. "This improvement at the mill level, combined with the execution of our transformation plan, is positioning International Paper for much stronger results once input costs abate." Commenting on the fourth quarter of 2005, Mr. Faraci said, "We estimate fourth-quarter earnings from continuing operations and before special items to be lower than third quarter predominantly because of skyrocketing raw material costs, particularly energy, and higher transportation costs." Segment Information Third-quarter operating profits for Printing Papers were $132 million compared with second-quarter operating profits of $149 million. The decline in earnings was largely caused by a decline in uncoated freesheet price realizations, as well as higher input costs. Increases in coated paper pricing and seasonally stronger volumes, as well as solid performance by Brazilian operations helped offset some of the negative impacts. The results also include $9 million in special charges for environmental reserves and severance and other charges relating to the previously announced indefinite shutdown of three U.S. paper machines. In the second quarter 2005, the business took $17 million in special charges related to the three machine shutdowns. Industrial Packaging operating profits for the third quarter were $33 million compared with $85 million in second quarter, largely because of lower pricing for linerboard and boxes together with higher input costs. Consumer Packaging operating profits were down slightly at $37 million, compared with $41 million in the previous quarter, largely because of higher input costs. The company's distribution business reported operating profits of $23 million for the third quarter, up from $18 million in the previous quarter, on the strength of stronger sales. High energy prices are impacting transportation costs. Third-quarter Forest Products operating profits rose to $272 million from second-quarter earnings of $191 million. Forest Resources saw strong earnings mainly due to a $58 million increase in timberland sales from second quarter and a $26 million increase in "higher and better use" land sales. In Wood Products, prices have come down from second-quarter highs, but both pricing and volume for lumber and plywood were strong through the end of the quarter. Hurricane-related downtime had a minor impact on the quarter. Net corporate expenses of $142 million in the 2005 third quarter were up slightly from second quarter's $133 million. Discontinued Operations During the 2005 third quarter, the company completed the sale of its majority share of Carter Holt Harvey Ltd. to Rank Group Investments Ltd. Cash proceeds totaled US $1.14 billion. The pre-tax and after-tax gains on the sale were approximately $29 million and $361 million, respectively. All prior period financial information has been restated to reflect Carter Holt Harvey Ltd. as a discontinued operation. Effective Tax Rate The effective tax rate excluding special items for the third quarter of 2005 was 23 percent, compared with a tax rate of 35% in the 2005 second quarter. The lower tax rate in the 2005 third quarter reflected the reduction of the projected 2005 full-year tax rate to 27 percent. Effects of Special Items Special items in the third quarter included a pretax charge of $70 million ($48 million after taxes) for organizational restructuring charges and losses on debt extinguishment, a pretax credit of $188 million ($109 million after taxes) for insurance recoveries related to the hardboard siding and roofing litigation, a $5 million pretax charge ($3 million after taxes) for adjustments of losses on businesses previously sold, and a $3 million pretax credit ($2 million after taxes) for the net adjustment of previously provided reserves. In addition, a $517 million income tax benefit was recorded, principally as a result of an agreement reached with the U.S. Internal Revenue Service concerning the 1997 through 2000 U.S. federal income tax audit. Net interest expense also includes a $43 million pretax credit ($26 million after taxes) relating to this agreement. The net after-tax effect of all of these special items was a credit of $1.19 per share. Special items in the second quarter included a pretax charge of $31 million ($19 million after taxes) for organizational restructuring charges, a pretax credit of $35 million ($21 million after taxes) for insurance recoveries related to the hardboard siding and roofing litigation, and a $19 million pretax credit ($12 million after taxes) for net adjustments of losses on businesses previously sold, including a $25 million credit from the collection of a note receivable from the 2001 sale of the Flexible Packaging business. In addition, Interest expense, net, included pretax interest income of $11 million ($7 million after taxes) collected on this note. Additionally, a $94 million increase in the income tax provision was recorded principally for deferred taxes related to earnings repatriated during the quarter under the American Jobs Creation Act of 2004. The net after-tax effect of all of these special items was an expense of $0.15 per share. Special items in the 2004 third quarter included a charge of $26 million before taxes ($16 million after taxes) for restructuring and other costs, a pre-tax credit of $103 million ($64 million after taxes) for insurance recoveries related to the hardboard siding and roofing litigation, a charge of $38 million for estimated losses on sales and impairments of businesses held for sale and a $6 million credit ($4 million after taxes) for the net reversal of restructuring and realignment reserves no longer required. The net after-tax effect of all of these special items was a credit of $0.03 per share. International Paper Inc. -- http://www.internationalpaper.com/-- is the world's largest paper and forest products company. Businesses include paper, packaging, and forest products. As one of the largest private forest landowners in the world, the company manages its forests under the principles of the Sustainable Forestry Initiative (R) (SFI) program, a system that ensures the continual planting, growing and harvesting of trees while protecting wildlife, plants, soil, air and water quality. * * * As reported in the Troubled Company Reporter on July 22, 2005, Moody's Investors Service placed International Paper Company's ratings on review for possible downgrade. International Paper Company: * Senior Unsecured Baa2 * Subordinate Shelf (P)Baa3 * Preferred Shelf (P)Ba1 * Commercial Paper P-2 International Paper Capital Trust II: * Bkd Preferred Stock Baa3 * International Paper Capital Trust III: * Bkd Preferred Shelf Baa3 International Paper Capital Trust IV: * Bkd Preferred Shelf (P) Ba1 * International Paper Capital Trust VI: * Bkd Preferred Shelf (P) Ba1 Champion International Corporation: * Senior Unsecured Baa2 * Federal Paper Board Co., Inc. * Senior Unsecured Baa2 Union Camp Corporation: * Senior Unsecured Baa2 INTERSTATE BAKERIES: Delays Filing of Required Financial Reports ---------------------------------------------------------------- Interstate Bakeries Corporation (OTC: IBCIQ) continues to seek information it deems accurate and reliable enough to enable it to properly account for a defined benefit pension plan to which it contributes. However, at this time, IBC does not have sufficient information from the pension plan and its representatives necessary for IBC to complete its financial statements and thereafter make its required filings with the Securities and Exchange Commission. The pension plan in question, the American Bakers Association Retirement Plan, was established in 1961 to provide benefits to certain employees of several unrelated companies in the baking industry. IBC is currently one of seven active participating sponsors under the pension plan. Prior to the company's recent restructuring efforts, approximately 900 active IBC employees participated under the pension plan, although the number of active employees has significantly decreased as a result of those efforts. While the company continues to seek the necessary information, it has not yet obtained this information and is not able to predict if and when such information will be available. Accordingly, IBC is not able to provide any assurances on its ability to file with the SEC its: * Annual Reports on Form 10-K for the fiscal years ended May 29, 2004 and May 28, 2005; * Quarterly Reports for the quarters ended Aug. 21, 2004, Nov. 13, 2004, Mar. 5, 2005 and Aug. 20, 2005; * amended Quarterly Reports for the quarters ended Nov. 15, 2003 and Mar. 6, 2004; and * future periodic reports required to be filed with the SEC. In addition, under the terms of IBC's "debtor-in-possession" credit facility, failure to file audited financial statements for fiscal 2005 with its lenders before December 31, 2005, will result in a default thereunder unless IBC's lenders waive such requirement or amend the DIP credit facility to extend the required filing date. The representatives of the ABA Retirement Plan have asserted that as of May 31, 2005, the present value of accrued benefits under the pension plan attributable to IBC's employees and retirees was approximately $60 million and the assets in the pension plan attributable to IBC had a negative balance of about $3 million, resulting in IBC's share of the total pension plan underfunding being approximately $63 million. These amounts are based upon the assumption that the pension plan is an aggregate of single employer pension plans. However, IBC believes that the pension plan has been historically administered as a multiple employer plan and should be treated as such. Treatment of the ABA Retirement Plan as a multiple employer plan will, in IBC's view, result in an allocation of pension plan assets to IBC's pension plan participants in an amount equal to approximately $37 million. Accordingly, IBC believes that its allocable share of pension plan underfunding relative to IBC's pension plan participants is approximately $23 million. IBC is still reviewing the manner and basis for the calculation of pension plan assets and liabilities and there can be no assurance as to the accuracy of IBC's asset and liability balances in the pension plan at this time. In addition, IBC notes its expectation that future required contributions to the ABA Retirement Plan will increase as compared to its historical contributions and this increase will be substantial even if the pension plan is finally determined to be a multiple employer plan. A final determination that the ABA Retirement Plan should be considered an aggregate of single employer plans will cause the increase in contributions to be even more significant. IBC's responsibility to pay its allocable share of the pension plan underfunding and future required contributions, as well as the timing of such payments, may be impacted by application of the bankruptcy code and/or other applicable law. IBC's preliminary determination that its obligations under the ABA Retirement Plan should be considered obligations under a single employer pension plan as reported in its Apr. 20, 2005, release has been called into question in light of information regarding the operation of the pension plan and other matters that have come to IBC's attention during its continuing review of the ABA Retirement Plan issues. Although IBC now believes the pension plan should be treated as a multiple employer plan, it will likely be required to account for its interests in the pension plan as a single employer plan for all periods prior to a final determination that the pension plan is a multiple employer plan if such determination is ever made. Due to the uncertainties surrounding its interest in the pension plan, IBC is still not able to predict with certainty the amount of any impact on earnings, any net liability or any reduction in equity resulting from the application of proper accounting treatment to IBC's participation in the ABA Retirement Plan, but any such impact is expected to be substantial. Headquartered in Kansas City, Missouri, Interstate Bakeries Corporation is a wholesale baker and distributor of fresh baked bread and sweet goods, under various national brand names, including Wonder(R), Hostess(R), Dolly Madison(R), Baker's Inn(R), Merita(R) and Drake's(R). The Company employs approximately 32,000 in 54 bakeries, more than 1,000 distribution centers and 1,200 thrift stores throughout the U.S. The Company and seven of its debtor-affiliates filed for chapter 11 protection on September 22, 2004 (Bankr. W.D. Mo. Case No. 04-45814). J. Eric Ivester, Esq., and Samuel S. Ory, Esq., at Skadden, Arps, Slate, Meagher & Flom LLP, represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $1,626,425,000 in total assets and $1,321,713,000 (excluding the $100,000,000 issue of 6.0% senior subordinated convertible notes due August 15, 2014, on August 12, 2004) in total debts. JEROME-DUNCAN: Unsecured Creditors Will Recover 100% of Claims -------------------------------------------------------------- Jerome-Duncan, Inc., delivered to the U.S. Bankruptcy Court for the Eastern District of Michigan its Plan of Reorganization and accompanying Disclosure Statement. Treatment of Claims Under the Plan, Ford Motor Credit Company, owed $62,302,970, will be paid in accordance with the terms of the loan agreement. Defaults under the agreement will be waived on the confirmation date. The Debtor will sell its membership interests in Sterling and Minority Enterprises. Proceeds of the sale will be used to satisfy the Debtor's indebtedness to Jerome-Duncan Leasing. Shashi K. Tejpaul -- husband of Gail Duncan and majority shareholder in the Debtor -- is owed $4,000,000. His claim will be paid in full on the Plan's effective date or 10 days after his claim becomes allowed. SBC Capital Services will be paid a monthly payment in accordance with the terms of the Capital Services Indebtedness. Unsecured creditors are expected to recover 100% of their allowed claims. Insiders will be paid 10% of their allowed claims on or six months after the Effective Date of the Plan. Interest holders won't receive anything under the Plan. Plan Implementation Two days after the Court confirms the Plan, the Debtor will auction all of its interests at the offices of Schafer and Weiner, PLLC, located at 40950 Woodward Avenue, Suite 100 in Bloomfield Hills, Michigan. A copy of Jerome-Duncan's Disclosure Statement is available for a fee at http://www.researcharchives.com/bin/download?id=051027214516 Headquartered in Sterling Heights, Michigan, Jerome-Duncan, Inc., is the largest dealer of automobiles manufactured by Ford Motor Company in the state of Michigan. The Debtor is one of the most well-known, modern automobile dealers in the area and has a tradition of serving customers in southeastern Michigan for the past 50 years. The Debtor employs over 200 individuals in its operations and generates between $300 and $500 million in annual sales. The company filed for chapter 11 protection on June 17, 2005 (Bankr. E.D. Case No. 05-59728). Arnold S. Schafer, Esq., at Schafer and Weiner, PLLC, represents the Debtor in its restructuring efforts. JEROME-DUNCAN: UST & Committee Want Chapter 11 Trustee Appointed ---------------------------------------------------------------- Saul Eisen, the U.S. Trustee for Region 9 and the Official Committee of Unsecured Creditors of Jerome-Duncan, Inc., ask the U.S. Bankruptcy Court for the Eastern District of Michigan, Southern Division, to appoint a chapter 11 trustee in the Debtor's case. The U.S. Trustee asserts that a chapter 11 trustee is warranted in this case based on these backdrop: a) Debtor's payment of over $74,000 to S.K. Paul on a prepetition debt; b) continuation of unjustified salaries to Gail Duncan and Richard Duncan, who isn't an employee of the Debtor; c) continuation of rent payments to Gail Duncan and S.K. Paul on real estate leases which result in net profit to those principals/insiders after payment of debt service; d) postpetition payments to professional firms on account of prepetition debts or for retainers for post petition services without proper notice and court approval or retention of the professionals under 11 U.S.C. Section 327; e) failure to put adequate accounting and other financial controls into place to prevent unauthorized payments from the Debtor's accounts; f) failure to meet projected and budgeted sales forecasts by almost 40%; g) failure of the Debtor to establish appropriate reporting procedures to ensure accurate and timely provision of financial information to the U.S. Trustee, the Creditors Committee and the Court, including, among other things, the Debtor's failure to provide any reconciled bank statements as required by the U.S. Trustee's Operating Guidelines and Reporting Requirements, and the Debtor's failure to promptly provide disbursement information to the U.S. Trustee once it became available; h) failure of the Debtor to respond to requirements for information routinely sought at the First Meeting of Creditors, including, among other questions involving the Debtor's transactions with companies owned by Gail Duncan and S.K. Paul, whether the Sterling entities (owned by Gail Duncan and S.K. Paul) were making payments on their obligations to the Debtor, requiring the meeting to be adjourned twice; i) numerous questionable expenditures in light of the Debtor's precarious financial position; and j) the continuing shareholder dispute between Gail Duncan and Richard Duncan. The U.S. Trustee also asserts that the Debtor's prepetition conduct speaks of fraud, incompetence and gross mismanagement as evidenced by: a) numerous loans and other myriad inter-company transactions between the Debtor and companies owned and controlled by Gail Duncan and S.K. Paul at a time when the Debtor appeared to be, at best, financially unstable; b) acquisitions of additional auto dealerships and other related and unrelated businesses by S.K. Paul and Gail Duncan allegedly with funds of the Debtor, and the eve-of- bankruptcy transfer of some of those entities to the Debtor; and c) shareholder dispute litigation and resulting instability in the management and control of the Debtor. Although the Debtor filed a plan of reorganization, the U.S. Trustee doesn't believe it is feasible. The plan, the U.S. Trustee appears to have been proposed as a tactical measure, is not in the creditors best interests and is facially deficient. The Court recently appointed a corporate restructuring officer for the Debtor to monitor and control the cash disbursement process. But, the CRO doesn't have the power and authority to negotiate with the Committee or other parties-in-interest over a consensual plan. The Committee supports the points and reasons supporting the U.S. Trustee's pitch for a chapter 11 trustee in Jerome-Duncan's bankruptcy estate. Headquartered in Sterling Heights, Michigan, Jerome-Duncan, Inc., is the largest dealer of automobiles manufactured by Ford Motor Company in the state of Michigan. The Debtor is one of the most well-known, modern automobile dealers in the area and has a tradition of serving customers in southeastern Michigan for the past 50 years. The Debtor employs over 200 individuals in its operations and generates between $300 and $500 million in annual sales. The company filed for chapter 11 protection on June 17, 2005 (Bankr. E.D. Case No. 05-59728). Arnold S. Schafer, Esq., at Schafer and Weiner, PLLC, represents the Debtor in its restructuring efforts. JLG INDUSTRIES: Moody's Affirms B3 Rating on Senior Sub. Notes -------------------------------------------------------------- Moody's Investors Service affirmed the debt ratings of JLG Industries, Inc. -- Corporate Family Rating at B1, Senior Unsecured Notes at B2, and Senior Subordinate Notes at B3. The outlook is changed to positive from stable. The B1 corporate family rating reflects JLG's solidly competitive position in the global aerial work platform industry and the telehandler industry, and the recent improvement in the company's credit metrics. This improvement has been driven by: * the success of JLG's cost reduction initiatives; * the strong rebound in North American economy; * the replacement and expansion of rental fleets as a result of a robust non-residential construction market; and * the receipt of $119 million in proceeds from an equity offering in March 2005 associated with the exercise of a clawback provision in the Senior Subordinated Notes. These strengths, however, are balanced against the ongoing cyclicality of the construction market. The positive outlook reflects Moody's expectations that JLG's debt protection measures will continue to improve as a result of: * the increasing diversification of its channel markets; * the strong demand in the non-residential construction market; and * the prudent financial policies being embraced by management. The key risk that JLG will continue to face is the cyclicality in the construction market. Nevertheless, JLG should be able to weather future cyclical downturns much better than in the past due to its: * growing channel diversification; * expanding product offerings; * an improving balance sheet; and * a commitment to maintain ample liquidity. Despite the severe mid-2001 through 2003 cyclical downturn in the non-residential construction market, JLG continued to successfully pursue a number of operational initiatives that Moody's believes are helping to build a more robust and sustainable business model. These initiatives include: * reducing its exposure to equipment rental companies by broadening its channels to market; * growing its after-market business; * expanding its European footprint; * reducing direct financing for its customers; and * continuing to expand its product offerings. As a result of JLG's operational initiatives and the recovery in the construction market, the company's financial performance and credit metrics have improved markedly. Between FYE July 2003 and FYE July 2005, key metrics have shown these improvements: * operating margin expanded from 4.7% to 6.9%; * free cash flow grew from a use of $119 million to a positive $92 million, which excludes $35 million from used equipment sales; * interest coverage increased from 1.3x to 3.5x; * free cash flow to debt rose from a negative 18.6% to a positive 20.3%; and * debt-to-EBITDA declined from 9.7x to 2.8x. Moreover, as JLG's operational and financial profile has improved, the company has committed itself to strengthening its balance sheet. During the third quarter of 2005, the company received $119 million from a secondary stock issuance and repurchased about $76 million in long-term debt, resulting in JLG achieving a 55% ratio of debt to capital at FYE July 2005. The key factor that could contribute to an improvement in JLG's ratings is the degree to which the company continues to embrace a financial strategy that enables it to sustain the improvement in credit metrics that will likely result from stronger market fundamentals. Such a strategy would likely include a disciplined approach toward acquisitions. A continued commitment to further debt reductions would be an additional positive. Evidence that the company can maintain an operating model and its fixed cost structure that lessen its vulnerability to future cyclical downturns would also be an important positive rating consideration. Developments which might result in pressure on the company's ratings include: * any material shareholder return actions;' * softening of demand in construction and industrial end- markets; or * an increase in leverage due to overly aggressive expansion in capital expenditures, working capital, or acquisitions. JLG industries, Inc., headquartered in McConnellsburg, Pennsylvania, with executive offices in Hagerstown, Maryland, is a leading manufacturer of aerial work platforms and telehandlers. JOHN COOPER: Case Summary & 20 Largest Unsecured Creditors ---------------------------------------------------------- Debtors: John G. Cooper & Sue A. Cooper 5388 Warwick Trail Grand Blanc, Michigan Bankruptcy Case No.: 05-36477 Chapter 11 Petition Date: October 13, 2005 Court: Eastern District of Michigan (Flint) Judge: Walter Shapero Debtors' Counsel: Michael I. Zousmer, Esq. Nathan, Neuman & Nathan, P.C. 29100 Northwestern Highway, Suite# 260 Southfield, Michigan 48034 Tel: (248) 351-0099 Estimated Assets: $1 Million to $10 Million Estimated Debts: $1 Million to $10 Million Debtors' 20 Largest Unsecured Creditors: Entity Nature of Claim Claim Amount ------ --------------- ------------ Republic Bank $3,004,614 31155 Northwestern Hiway Farmington Hills, MI 48334 Republic Bank $1,813,848 Commercial Loan Operations 31155 Northwestern Hiway Farmington Hills, MI 48334 Citizens Bank Commercial Loan $375,692 328 South Saginaw Flint, MI 48502 Cox Hodgman & Giamarco Lawsuit $227,527 Citizens Bank Commercial Loan $198,096 Michael Donnelly Lawsuit $120,792 Citizens Bank Commercial Loan $40,571 Silverman & Morris Legal Fees $29,084 Schwartz Law Firm Legal Fees $27,527 Reid & James Legal Fees $25,993 Lewis & Knopf Accountant Fees $25,000 MBNA America Credit Card Purchase $18,743 Indiago America, Inc. Service Agreement $17,171 US Bank Credit Card Purchase $16,721 Jeffrey Lesser Lawsuit $14,203 American Express Credit Card Purchase $13,740 Garratt & Bachard, P.C. Legal Fees $13,283 Gary Leeman, CPA Professional Fees $12,822 Paul Goyette Professional Fees $12,217 JOHN KIENOSKI: Case Summary & 20 Largest Unsecured Creditors ------------------------------------------------------------ Debtors: John Kienoski & Meili Liu d/b/a John's Bargain Imports d/b/a Crazyjohns Superdeals d/b/a Johns Home Improvement 2014 Central Avenue Alameda, California 94501 Bankruptcy Case No.: 05-47568 Type of Business: The Debtor is an importer & wholesale supplier of hand tools, power tools, garden tools, sporting goods, general merchandise, cookware, gift items, housewares, office supplies, fishing gear, packing materials, work gloves, and more. The Debtor specializes in discount items, closeouts and liquidations. See http://www.crazyjohns.com/. Chapter 11 Petition Date: October 13, 2005 Court: Northern District of California (Oakland) Judge: Randall J. Newsome Debtors' Counsel: Darya Sara Druch, Esq. Law Offices of Darya Sara Druch 1 Kaiser Plaza #480 Oakland, California 94612 Tel: (510) 465-1788 Total Assets: $2,668,948 Total Debts: $4,407,348 Debtor's 20 Largest Unsecured Creditors: Entity Nature of Claim Claim Amount ------ --------------- ------------ Balco Properties Rent Arrears $1,068,599 1624 Franklin Street Suite 310 Oakland, CA 94612 Small Business Administration Mortgage $726,785 4 New York Plaza, 11th Floor Value of Security: New York, NY 10004 $1,500,000 East Bay Conversion & UCC-1 Financing $151,000 Reinvestment Commission Statement 300 Frank Ogawa Plaza Value of Security: Suite 205 $104,725 Oakland, CA 94612 Yuquin Ji Loan $106,000 Wells Fargo Business Direct Line of Credit $100,000 Alameda Reuse & Development Rent Arrears $89,097 Citibank (West) Credit Card Purchases $47,262 MBNA America Credit Card Purchases $42,235 Frank Deville Loan $26,550 American Express Platinum Line of Credit $24,573 Maylon O'Brien Goods $18,688 GMAC Auto Purchase Money Security $18,687 Value of Security: $10,000 Unigard Insurance Insurance $17,586 M. Rothman & Associates Goods $14,122 AT&T Universal Card Credit Card Purchases $13,173 Alfred Saroni III Goods $11,099 StK International Goods $10,768 H&L International Goods $9,500 Bank of America Visa Credit Card Purchases $9,184 Duraco Products Inc. Goods $8,500 JUSTIN ROBERTS: Case Summary & 11 Largest Unsecured Creditors ------------------------------------------------------------- Debtor: Justin James Louis Roberts 9523 Marquis Lane Fort Wayne, Indiana 46835 Bankruptcy Case No.: 05-17901 Chapter 11 Petition Date: October 15, 2005 Court: Northern District of Indiana (Fort Wayne Division) Judge: Robert E. Grant Debtor's Counsel: Robert L. Nicholson (BW), Esq. Beckman, Lawson LLP 200 East Main Street, Suite# 800 Post Office Box 800 Fort Wayne, Indiana 46802 Tel: (260) 422-0800 Fax: (260) 420-1013 Estimated Assets: $1 Million to $10 Million Estimated Debts: $1 Million to $10 Million Debtor's 11 Largest Unsecured Creditors: Entity Nature of Claim Claim Amount ------ --------------- ------------ The Hicksville Bank 1st & 2nd Mortgages $620,847 144 East High Street Value of Security: Hicksville, OH 43526 $334,000 The Hicksville Bank 1st & 2nd Mortgages $506,642 144 East High Street Value of Security: Hicksville, OH 43526 $292,000 Hicksville Building L&S Mortgage $225,000 100 North Main Street Value of Security: Hicksville, OH 43526 $147,000 Hicksville Building L&S Mortgage $217,949 Value of Security: $188,000 Hicksville Building L&S Mortgage $112,246 Value of Security: $90,000 Hicksville Building L&S Value of Security: $78,538 $58,000 Equimax Lending Mortgage $54,000 Value of Security: $50,000 Ocwen Federal Mortgage $43,927 Value of Security: $25,000 Hicksville Building L&S Credit $24,610 Hicksville Building L&S Value of Security: $15,792 $10,550 The Hicksville Bank Value of Security: $5,981 $3,250 KAISER ALUMINUM: Asks Court to Reduce Bonneville Power Claims ------------------------------------------------------------- Kaiser Aluminum and Chemical Corporation and the Bonneville Power Administration were parties to a Block Power Sales Agreement dated October 31, 2000. Pursuant to the Power Contract, KACC agreed to purchase from the BPA power from October 1, 2001, through September 30, 2006, at rates to be determined according to certain power supply schedules. The Power Contract contained "take-or-pay" provisions requiring KACC to pay the BPA for damages in the event KACC failed to take all or any portion of its power allocation. The damages were to be calculated as the difference between: (a) the revenues the BPA would have received each month from KACC had KACC purchased the power not taken that month at the applicable contract rate; and (b) the revenues the BPA would realize from remarketing the power into the market. On September 30, 2002, KACC rejected the Power Contract. The BPA subsequently filed Claim No. 3105 against KACC asserting: (a) $1,061,116 for unpaid power invoices covering January 1, 2002, through the Petition Date; and (b) $74,453,855 for estimated contract rejection damages calculated from September 30, 2002, through September 30, 2006. The BPA argued that Claim No. 3105 is entitled to treatment as a secured claim under Section 506 of the Bankruptcy Code to the extent it is subject to set-off by a claim of KACC against the BPA or any other United States agency or entity. The BPA noted that "the market price for power for the present through 2006 is also unknown at the present time," and the BPA reserved its right to amend the BPA Claim to reflect the actual rates and market prices for the relevant period. As of October 14, 2005, the BPA has not filed any amendment to the BPA Claim or submitted any documentation to prove any actual damages. KACC asks the U.S. Bankruptcy Court for the District of Delaware to reduce Claim No. 3105 to $1,061,116, the amount owed under the prepetition power invoices. According to Kimberly D. Newmarch, Esq., at Richards, Layton & Finger, in Wilmington, Delaware, since the beginning of 2003, actual market prices for power in the Pacific Northwest have been in excess of the Power Contract rates, and the BPA has been forced to augment its power supply by purchasing power to meet its supply commitments. Hence, KACC does not believe that any amounts are owed, or will be owed, under the Power Contract's take-or-pay provision, or that the BPA has suffered any damages as a result of rejection of the contract. The BPA Claim was filed in January 2003 and relied on, among other things, market figures supplied by the BPA from October 2002 to estimate the $74,453,855 contract rejection damage amount. Since the end of 2002, however, KACC believes that the market price of power in the Pacific Northwest region has consistently exceeded the rate that would have applied under the Power Contract. In addition, KACC believes that during that period the BPA was forced to augment its power supply through purchases of power at prices that exceeded the prices that would have been payable by KACC under the Power Contract. Ms. Newmarch contends that while the term of the Power Contract extended through September 30, 2006, due to: (a) the high rates that the BPA likely received or could have received remarketing the power to other customers since rejection of the Power Contract; and (b) the avoided cost of additional purchases that would have been required to further augment the BPA's power supply during the period, the BPA may have realized more benefit in the form of income and avoided costs than the benefit it would have received if KACC had performed under the Power Contract through September 2006, Ms. Newmarch says. ?[E]en if the BPA has not already done so, given the current market rate and the rates over the last two years, the BPA will certainly eventually realize more benefit than if KACC had performed under the Power Contract though the end of its term. Thus, the BPA has not, and will not, suffer any damages as a result of rejection of the Power Contract,? Ms. Newmarch tells the Court. Ms. Newmarch also asserts that under Section 101, there is no right to payment where the asserted liabilities are not due and owing by a debtor. Hence, the BPA's only right to payment is in respect of the $1,061,116 in prepetition invoices that were not paid. The BPA Claim, therefore, should be reduced to that amount. Headquartered in Foothill Ranch, California, Kaiser Aluminum Corporation -- http://www.kaiseraluminum.com/-- is a leading producer of fabricated aluminum products for aerospace and high- strength, general engineering, automotive, and custom industrial applications. The Company filed for chapter 11 protection on February 12, 2002 (Bankr. Del. Case No. 02-10429), and has sold off a number of its commodity businesses during course of its cases. Corinne Ball, Esq., at Jones Day, represents the Debtors in their restructuring efforts. On June 30, 2004, the Debtors listed $1.619 billion in assets and $3.396 billion in debts. (Kaiser Bankruptcy News, Issue No. 81; Bankruptcy Creditors' Service, Inc., 215/945-7000) KAISER ALUMINUM: Wants Scope of Ernst & Young's Services Expanded ----------------------------------------------------------------- As previously reported in the Troubled Company Reporter on Aug. 8, 2005, Judge Fitzgerald authorized Kaiser Aluminum Corporation and its debtor-affiliates to employ Ernst & Young LLP as their tax servicer, nunc pro tunc to May 21, 2005. Kaiser Aluminum Corporation and its debtor-affiliates intend to pursue the State of Washington's aerospace tax incentives. Thus, the Debtors seek the U.S. Bankruptcy Court for the District of Delaware's permission to expand the scope of Ernst & Young LLP's employment to include tax consulting services and assistance in pursuing Washington aerospace tax incentives, nunc pro tunc to September 19, 2005. The parties have entered into an addendum to E&Y's Engagement Letter, dated September 12, 2005. According to Kerry A. Shiba, E&Y's vice president and chief financial officer, the additional services will be divided into two phases. In Phase I, the firm will work collaboratively with the Debtors to co-develop a strategy to seek a favorable interpretation from the Washington Department of Revenue that the Debtors are qualified for aerospace incentives. Upon completion of the tentative work in Phase I, the firm will take these action steps in Phase II: 1. Research and analyze the applicable Washington statutes, regulations, and legislative history to develop the position that the Debtors qualify for the aerospace incentives; 2. Review and evaluate the Debtors' efforts to secure support for its position, including that of other consultants; 3. Review the Federal Aviation Association certification process on aerospace parts and airframes and determine how that process pertains to the Debtors' products; 4. Meet with key industry members and associations to discuss the Washington Department of Revenue's implementation of the aerospace incentive legislation; 5. Meet with government and elected officials to discuss their view of the aerospace legislation, and determine what, if any, support is available from these officials for the Debtors' position in their discussions with the Washington Department of Revenue; 6. Prepare memoranda, position papers and correspondence in support of the Debtors' position; 7. Meet with the Washington Department of Revenue and present the Debtors' position to tax policy decision makers; 8. If appropriate, prepare and submit a request for a formal binding ruling from the Washington Department of Revenue that the Debtors qualify for the aerospace incentives; and 9. Prepare and submit any applications and refund claims for aerospace incentives that the Debtors qualify for on a retroactive basis. The Debtors will pay E&Y in accordance with its agreed-upon discounted hourly rates: Professional Hourly Rates ------------ ------------ Partners, Principals and Directors $462 - $616 Senior Managers $369 - $545 Managers $270 - $413 Seniors $187 - $330 Staff $154 - $209 Kimberly D. Newmarch, Esq., at Richards, Layton & Finger, in Wilmington, Delaware, tells the Court that the additional services to be provided by E&Y are necessary to assist the Debtors in managing their tax liabilities in Washington. Ms. Newmarch emphasizes that E&Y is well qualified to provide the additional services. Headquartered in Foothill Ranch, California, Kaiser Aluminum Corporation -- http://www.kaiseraluminum.com/-- is a leading producer of fabricated aluminum products for aerospace and high- strength, general engineering, automotive, and custom industrial applications. The Company filed for chapter 11 protection on February 12, 2002 (Bankr. Del. Case No. 02-10429), and has sold off a number of its commodity businesses during course of its cases. Corinne Ball, Esq., at Jones Day, represents the Debtors in their restructuring efforts. On June 30, 2004, the Debtors listed $1.619 billion in assets and $3.396 billion in debts. (Kaiser Bankruptcy News, Issue No. 81; Bankruptcy Creditors' Service, Inc., 215/945-7000) KENNETH MEAD: Section 341(a) Meeting Slated for November 29 ----------------------------------------------------------- The U.S. Trustee for Region 21 will convene a meeting of Kenneth H. Mead's creditors at 1:00 p.m., on Nov. 29, 2005, at 300 North Hogan Street, Suite 1-200, Jacksonville, Florida 32202. This is the first meeting of creditors required under 11 U.S.C. Sec. 341(a) in all bankruptcy cases. All creditors are invited, but not required, to attend. This Meeting of Creditors offers the one opportunity in a bankruptcy proceeding for creditors to question a responsible office of the Debtor under oath about the company's financial affairs and operations that would be of interest to the general body of creditors. Headquartered in Ocala, Florida, Kenneth H. Mead filed for chapter 11 protection on Oct. 14, 2005 (Bankr. M.D. Fla. Case No. 05- 13930). Ronald Bergwerk, Esq., at the Law Offices of Ronald Bergwerk represents the Debtor in his restructuring efforts. When the Debtor filed for protection from his creditors, he listed estimated assets and debts of more than $100 million. KEY ENERGY: Asks Senior Lenders to Raise CapEx Limit Covenant ------------------------------------------------------------- Key Energy Services, Inc. (OTC Pink Sheets: KEGS), is seeking a waiver under its $547.25 million Senior Credit Facility to increase the limit on capital expenditures allowed under the Facility. As a result of strong customer demand, the Company is seeking an increase in the amount of capital expenditures permitted under the $547.25 million Senior Credit Facility. Under the Facility, the Company is currently limited to annual capital expenditures of $150 million. The Company is requesting an increase to: * $175 million for 2005, and * $200 million for 2006. Although the Company's current 2005 and 2006 capital expenditure budgets are $150 million for each year, the Company is seeking flexibility to support additional investments in the Company's well service, pressure pumping, rental tool, trucking and wireline services as well as to provide flexibility for potential international projects in 2006. The Company anticipates that cash flow from operations will be sufficient to support its capital expenditure program. The Company has made a formal waiver request to the lenders under the $547.25 million Senior Credit Facility and a decision is expected in early November. The Company's request for waiver of the capital expenditure covenant is unrelated to the pending restatement process. Key Energy Services, Inc., is the world's largest rig-based well service company. The Company provides oilfield services including well servicing, contract drilling, pressure pumping, fishing and rental tools and other oilfield services. The Company has operations in essentially all major onshore oil and gas producing regions of the continental United States and internationally in Argentina. * * * As reported in the Troubled Company Reporter on July 11, 2005, Standard & Poor's Ratings Services revised the CreditWatch implications on its 'B-' corporate credit rating on Key Energy Services Inc. to developing from negative. As reported in the Troubled Company Reporter on June 17, 2005, Moody's Investors Service continues to leave Key Energy Services' ratings on review for downgrade pending the filing of its 2003, 2004 and 2005 financial statements. Though receiving a notice of default on June 7, 2005, from the trustees on behalf of both the 6.375% and the 8.375% noteholders, Moody's is currently not taking any ratings action as the company has procured a commitment for a new financing package from Lehman Brothers which, combined with the company's cash balances, appears sufficient to refinance essentially all of Key's existing debt. The notice of default stems from the company not meeting its recent waiver from the bondholders and bank lenders to file its 2003 Form 10-K by May 31, 2005. Under the terms of the indenture, the company now has 60 days to cure the default (by Aug. 5, 2005, at which time the trustee or 25% of each class of noteholders will have the right to accelerate each series of notes). KMART CORP: Philip Morris & HNB Slam Move on Multi-Million Claims ----------------------------------------------------------------- Philip Morris Capital Corporation and HNB Investment Corp. assert that Kmart Corporation's proposal to amend its objections to their Claims is inappropriate. Jeremy C. Kleinman, Esq., at Quarles & Brady LLP, in Chicago, Illinois, argues that allowing Kmart to amend its Objections two years after the Claims were filed and 19 months after the Objection Deadline is inexcusable and prejudicial at this late stage of the bankruptcy proceedings. Mr. Kleinman says that for over two years after they filed their Claims, the Claimants have been forced to wait for the opportunity to litigate the merits of their claims and the timely filed objections. During the two-year period, the Claimants have watched the value of the shares of Kmart Holding Company stock, and now Sears Holding Company stock, ascend to heights at $161.30 per share, only to see this stock subsequently shed over 20% of its value. Millions of shares have been distributed to creditors, providing each with 85% of the allotted shares to be received on account of their claims. These creditors have been free to protect themselves from risk associated with the market forces controlling the distributions. The Claimants, however, have been without the ability to do so while their Claims remain disputed. By the very terms of its own Plan, Kmart sought and was granted 270 days to craft its objections to the Claims. PMCC and HNB, therefore, should not be subjected to further delay as a result of Kmart's determination, after almost two years of inattentiveness and undue delay, to examine the Claims in an effort to substantiate additional objections, Mr. Kleinman contends. Kmart Defends Request William J. Barrett, Esq., at Barack Ferrazzano Kirschbaum, Perlman & Nagelberg LLP, notes that Rule 15 of the Federal Rules of Civil Procedure applies to the contested matter. Pursuant to Rule 15, the U.S. Bankruptcy Court for the Northern District of Illinois needs to resolve questions on: (1) whether Kmart should be granted leave to amend to assert the application of the Section 502(b)(6) cap to each of the claims; (2) whether it is necessary to amend Kmart's claims objection to assert that the claims are "overstated," or whether, as Kmart argued in it motion, the demonstration of the correctness of its damages model is part of the Claimants' case -- not an "affirmative defense" that must even be pled in response to the proof of claim; and (3) whether Kmart should be granted leave to amend its objection if "overstated" must be "pled" as if it were an affirmative defense. Mr. Barrett contends that the Court should allow Kmart to amend the Objections because the damages actually suffered by the Claimants are in an amount less than those asserted in the proofs of claim and the Claimants' associated damages model. Moreover, the cap on damages stated in Section 502(b)(6) of the Bankruptcy Code applies to the Claims. As previously reported in the Troubled Company Reporter on Septermber 6, 2005, Philip Morris Capital Corporation and HNB Investment Corporation filed 11 claims against Kmart Corporation: Claim No. Store No. Location Claim Amount --------- --------- ---------- ------------ 42208 4759 LaFayette, Georgia $2,324,291 42209 4923 Amsterdam, New York 5,540,007 42289 7609 Highland, California 3,425,048 42290 7564 Mission Viejo, California 5,170,273 42291 3974 Fresno, California 6,995,687 42292 7704 Mankato, Minnesota 3,192,290 50110 4941 San Antonio, Texas 13,113,196 50111 4931 Sherman, Texas 13,666,752 50112 7700 Hilliard, Ohio 8,636,041 50113 4948 Waco, Texas 16,847,716 50863 - - 21,250,840 Kmart objected to certain PMCC and HNB Claims. William J. Barrett, Esq., at Barack Ferrazzano Kirschbaum Perlman & Nagelberg LLP, in Chicago, Illinois, explains that the contested matter arises out of various sale and leaseback transactions under which Kmart sold stores to PMCC and HNB, then leased back the stores from them. PMCC and HNB financed their acquisition of the Kmart properties by selling notes to various lenders that were governed by noted indentures entered into with the Bank of New York as indenture trustee. PMCC and HNB anticipated receiving a certain return of investment as well as receiving various tax benefits. Because of Kmart's rejection of the agreements, PMCC and HNB surrendered the properties to the note holders by tendering deeds in lieu of foreclosure to the indenture trustee. PMCC and HNB were unable to enjoy the expected economic return. Headquartered in Troy, Michigan, Kmart Corporation (n/k/a KMART Holding Corporation) -- http://www.bluelight.com/-- 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. The Company filed for chapter 11 protection on January 22, 2002 (Bankr. N.D. Ill. Case No. 02-02474). Kmart emerged from chapter 11 protection on May 6, 2003. John Wm. "Jack" Butler, Jr., Esq., at Skadden, Arps, Slate, Meagher & Flom, LLP, represented the retailer in its restructuring efforts. The Company's balance sheet showed $16,287,000,000 in assets and $10,348,000,000 in debts when it sought chapter 11 protection. Kmart bought Sears, Roebuck & Co., for $11 billion to create the third-largest U.S. retailer, behind Wal-Mart and Target, and generate $55 billion in annual revenues. The waiting period under the Hart-Scott-Rodino Antitrust Improvements Act expired on Jan. 27, without complaint by the Department of Justice. (Kmart Bankruptcy News, Issue No. 103; Bankruptcy Creditors' Service, Inc., 215/945-7000) KMART CORP: Withdraws Motion for Further Pleadings on GPS Claims ---------------------------------------------------------------- As previously reported in the Troubled Company Reporter on September 2, 2005, Global Property Services, Inc., filed Claim No. 2261 against Kmart Corporation on account of amounts owed on prepetition invoices. A year later, GPS filed an administrative expense claim, Claim No. 53441, for postpetition invoices. GPS also asserted Claim No. 53442 against Kmart for unliquidated damages due to breach of contract and tortious misconduct. On September 10, 2003, GPS filed Claim No. 56747, which purports to amend Claim No. 53441. Kmart filed its 19th Omnibus Objection to Claims, which sought to disallow the GPS Claims, among others. Kmart asserted that the GPS Claims had either been paid in full or that Kmart has no liability and, therefore, the GPS Claims have no merit. GPS opposed Kmart's contention. On April 19, 2005, the U.S. Bankruptcy Court for the Northern District of Illinois entered a pre-trial scheduling order with respect to the GPS Claims and Kmart's Objection. Consequently, Kmart and GPS have commenced extensive discovery. In addition, GPS provided Kmart with a supplemental statement of its claims. Kmart asks Judge Sonderby to require the parties to submit further pleadings that spell out in reasonable detail the claims and objections involved in the contested matter. GPS Files Statement of Claims Global Property Services, Inc., provided white and green services for Kmart Corporation before the Petition Date. GPS explains that white and green services are the landscaping, parking lot sweeping, and snow removal services that keep a business accessible and pleasant to visit. GPS provides these services by subcontracting to service providers who are directed and managed by the company. David A. Newby, Esq., at Johnson & Newby, LLC, in Chicago, Illinois, relates that through Kmart's series of promises and other inducements, GPS became the preferred national supplier for Kmart after the Petition Date and was to become the exclusive supplier. However, Kmart breached various agreements with GPS, tortuously interfered with GPS' contracts, and defamed GPS to other stores within its network, as well as to GPS' contracting partners and service providers. Because of these activities, which Kmart undertook with a calculated purpose to take for itself the profits that GPS had earned through its own efforts, Kmart is liable to GPS for money damages, Mr. Newby asserts. Mr. Newby says that Kmart requested from GPS an audit under the guise of ensuring proper billing. GPS initially balked at this request, particularly as Kmart specifically asked GPS for confidential information related to subcontractor pricing. Mr. Newby explains that GPS had invested significant amounts of time and money negotiating its prices with its subcontractors. The information that Kmart was asking for was the fruit of GPS' long labor and, if used in contravention of the parties' agreement, could result in significant long-term losses to GPS. To protect its proprietary information, GPS insisted that Kmart sign an Audit Disclosure and Confidentiality Acknowledgment as a condition precedent to the audit. After reviewing the Audit Agreement, Kmart agreed to the terms requested by GPS. Kmart particularly agreed that: (a) all information that GPS provides to Kmart will be treated as strictly confidential and GPS' proprietary information and will only be used in conjunction with Kmart's audit of GPS by Kmart's Audit Services Department; (b) any of the Confidential Information disclosed is to be used for the sole purpose of enabling the parties to confirm the accuracy of the information requested by and reported to Kmart; (c) Kmart will not acquire any right or interest in or to Confidential Information disclosed by GPS; (d) Kmart will restrict dissemination of GPS's Confidential Information only to those individuals who must be directly involved in evaluating the Confidential Information; and (e) failure to adhere to the obligations and agreements set out in the Agreement may result in irreparable injury to GPS. Accordingly, in addition to remedies otherwise available at law and equity, any and all obligations may be enforced by suit, restraining order, and injunction. Moreover, GPS and its contractors and subcontractors have entered into various agreements, which provide, among other things, that: * the Contractors will not compete with GPS or will otherwise only provide services to Kmart by and through GPS; and * Kmart agrees that it will not contract with, directly or indirectly, Contractors or otherwise interfere with GPS' contractors or agreements. Pursuant to the Audit Agreement, Kmart also promised to provide GPS with a detailed report on the results of its audit. However, according to Mr. Newby, Kmart contacted GPS' service providers directly and told them that to continue servicing Kmart stores, they must provide their services to Kmart at the same price they currently provide to GPS and bill those services directly to Kmart. GPS' owner and president, Tom Brock, complained to Kmart about its actions. Mr. Newby recounts that Kmart responded to Mr. Brock's concerns by disparaging GPS and its services. In an e-mail from Bill Ellis of Kmart on April 22, 2003, store managers were told that GPS "may have misrepresented their business relationship with KRC in an attempt to gain business from the store base (landscaping, parking lot sweeping, snowplowing, etc.)" and "nor would we recommend the use of Global Property Services based on our view of their past and current business practices." "Since that day, Kmart has continued inducing GPS subcontractors to breach their contracts with GPS so that Kmart can contract directly with those subcontractors," Mr. Newby tells the Court. Mr. Newby contends that Kmart's actions in inducing GPS' subcontractors to breach their contracts interfered with GPS' business relationships and expectancies, causing GPS to lose extensive amounts of profits and rendering GPS' past expenditures in support of those subcontractors useless. As a direct and proximate result of Kmart's wrongful conduct, GPS has suffered substantial economic injury, loss of good will, harm to its business reputation, loss of esteem and standing in the community, and loss of business opportunities, Mr. Newby asserts. GPS wants the Court to enter a judgment for monetary damages against Kmart. GPS further requests payment of costs, attorney's fees, interest, and punitive damages to the extent permitted by law. Parties File Joint Pre-trial Statement On October 4, 2005, Kmart and GPS filed a joint pre-trial statement in which they stipulated: (a) on certain rules under the Federal Rules of Bankruptcy Procedure that will apply to GPS' Claim No. 53442; (b) that all discovery previously issued by each party will be deemed to be initial disclosures under Rule 26(a) of the Federal Rules of Civil Procedure, and that the parties will supplement their responses to the discovery; and (c) the stipulation will not be deemed to nullify the evidentiary effect of the burdens of proof with respect to GPS' Claims under Rule 3001 of the Federal Rules of Bankruptcy Procedure. Judge Sonderby approves the Stipulation. Kmart withdraws its request for further pleadings to identify issues on GPS' Claims. Headquartered in Troy, Michigan, Kmart Corporation (n/k/a KMART Holding Corporation) -- http://www.bluelight.com/-- 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. The Company filed for chapter 11 protection on January 22, 2002 (Bankr. N.D. Ill. Case No. 02-02474). Kmart emerged from chapter 11 protection on May 6, 2003. John Wm. "Jack" Butler, Jr., Esq., at Skadden, Arps, Slate, Meagher & Flom, LLP, represented the retailer in its restructuring efforts. The Company's balance sheet showed $16,287,000,000 in assets and $10,348,000,000 in debts when it sought chapter 11 protection. Kmart bought Sears, Roebuck & Co., for $11 billion to create the third-largest U.S. retailer, behind Wal-Mart and Target, and generate $55 billion in annual revenues. The waiting period under the Hart-Scott-Rodino Antitrust Improvements Act expired on Jan. 27, without complaint by the Department of Justice. (Kmart Bankruptcy News, Issue No. 103; Bankruptcy Creditors' Service, Inc., 215/945-7000) KNOLL INC: Earns $8.2 Million of Net Income in Third Quarter ------------------------------------------------------------ Knoll, Inc. (NYSE: KNL), reported results for the third quarter ended September 30, 2005. Net sales were $209.3 million for the quarter, an increase of 15.4% from third quarter 2004. Operating income was $26.3 million, an increase of 24.1% from the third quarter 2004, while net income was $8.2 million, an increase of 36.7% over the third quarter 2004, and adjusted earnings per share was $0.25 compared to $0.20 per share in the prior year. Andrew Cogan, Chief Executive Officer, stated, "We are very pleased by the strong double digit growth in backlog, sales, operating profits, net income and adjusted EPS that we delivered in the third quarter. Not only were we able to grow our top line faster than the industry but we were able to continue to expand our industry leading operating margins in spite of additional inflationary and foreign exchange pressures." "Across the board our growth strategies are yielding results and we are particularly heartened by the number of large project awards we have won and anticipate booking in the fourth quarter of this year and shipping out in the first half of 2006. As a result we expect backlog to end the year up approximately 20% over prior year - the highest level in over 4 1/2 years. I want to congratulate and thank our associates and dealers on this strong performance." 2005 Financial Results Net sales for the quarter were $209.3 million, reflecting year-over-year growth of 15.4%. Approximately $3.7 million of the $27.9 million increase was attributable to additional revenues realized from price increases with the remainder due to higher volume as the Company's growth initiatives take hold and industry growth continues. Backlog of unfilled orders at Sept. 30, 2005, increased $11.6 million or 10.2% versus the prior year. Gross margin for the quarter was $71.4 million, an increase of $8.4 million or 13.3%, over the same period in 2004. As a percentage of sales, gross margin declined to 34.1% from 34.7% in the same quarter of 2004. The decrease from the third quarter of 2004 largely resulted from the appreciation of the Canadian dollar, which had the effect of decreasing gross margin by approximately $1.9 million related to higher product costs compared to the third quarter of 2004. For the most part the Company was able to offset increased material and transportation costs through price realization, continuous improvement and global sourcing initiatives. Without the appreciation of the Canadian dollar gross margins would have increased on a year over year basis. Third quarter 2005 gross margins also include $200,000 of restructuring charges related to the exiting of one of our leased facilities in Canada concurrent with the expiration of the lease. Total pre-tax restructuring charges for the year are expected to approximate $800,000 as the operations in this facility are moved into our main manufacturing location by the end of the year. Operating expenses for the quarter were $45.1 million, or 21.6% of sales, compared to $41.8 million, or 23.0% of sales for third quarter of 2004. Third quarter 2005 operating expenses include approximately $1 million of stock based compensation costs related to restricted stock grants and approximately $1 million of additional costs as a result of operating as a public company. Third quarter 2004 operating expenses included approximately $600,000 of costs associated with our 2004 initial public offering. Operating income for the quarter was $26.3 million, an increase of $5.1 million, or 24.1%, from operating income of $21.2 million for third quarter 2004. As a percentage of sales, operating income increased to 12.6% for third quarter 2005 from 11.7% for third quarter 2004. Net income for third quarter 2005 was $8.2 million, or $0.15 per share including special charges, non-recurring items and stock based compensation as compared to $6.0 million or $0.12 per share for the same quarter in 2004. Third quarter 2005 net income benefited from a lower effective tax rate due to the mix of pretax income in the countries in which we operate but was negatively impacted by increased interest expense as a result of higher interest rates. One-time charges in the third quarter 2005 included $3.1 million in additional taxes as a result of our Canadian earnings repatriation of $45 million pursuant to the American Jobs Creation Act. The 2004 third quarter net income included $1.5 million after tax write-off of deferred financing costs related to the refinancing of a previously existing credit facility on September 30, 2004. In addition, both quarter's net income is negatively impacted by $1.5 million of foreign currency charges as a result of the strengthening of the Canadian dollar and the remeasurement of the Company's intercompany balance with its Canadian subsidiary. Cash flow from operations for the third quarter totaled $18.7 million, an increase of $7.1 million or 61.2% from the same period last year. The Company repaid $22.1 million of debt in the quarter, $11.4 million from operations and $10.7 million from the proceeds received from the exercise of stock options in the quarter. Barry McCabe, Knoll's CFO noted, "Year to date we have now paid down approximately $59 million of debt and our bank debt has been reduced to $333 million. We are very pleased to have closed on our new $450 million credit facility which will reduce our borrowing costs and give us more financial flexibility. The new facility will allow us to increase our quarterly dividends to $0.10 per share, returning more cash to our shareholders. In addition our new stock repurchase program, using option proceeds to buy back shares, approved in August will also enhance shareholder value." Fourth Quarter Outlook As a result of completing the Company's amended credit facility, which was announced on October 3, 2005, the Company expects to incur approximately $1 million of costs related to putting the new facility in place and to write-off approximately $3.7 million of deferred financing fees related to the old facility. In addition, as discussed above, an additional $600,000 of estimated restructuring charges are expected to be incurred related to the consolidation of one our Canadian leased facilities. The Company will also incur approximately $1 million of stock based compensation costs related to restricted stock grants. The Company stated that it expects fourth quarter 2005 revenue to be in the $206 to $211 million range, an increase of 7% - 9% from the fourth quarter of 2004. Headquartered in East Greenville, Pennsylvania, Knoll Inc., designs and manufactures branded office furniture products and textiles, serves clients worldwide. * * * As reported in the Troubled Company Reporter on Sept. 12, 2005, Standard & Poor's Ratings Services assigned its 'BB-' rating and its '3' recovery rating to Knoll Inc.'s proposed $450 million senior secured credit facilities, indicating that lenders can expect meaningful recovery of principal (50% to 80%) in the event of payment default. These ratings are based on preliminary offering statements and are subject to review upon final documentation. In addition, Moody's Investors Service assigned a Ba3 rating to the Company's $450 million senior secured credit facility, which is comprised of a revolver and a term loan. At the same time, Moody's affirmed Knoll's corporate family rating at Ba3. Moody's said the ratings outlook is stable. Moody's will withdraw its ratings on Knoll's $425 million senior secured term loan and $75 million revolver upon the closing of the new secured credit facility. LA QUINTA: Fitch Puts BB- Rating on Senior Unsecured Notes ---------------------------------------------------------- Fitch Ratings has affirmed La Quinta Corp.'s issuer default rating at 'BB-', its senior unsecured notes at 'BB-', and its preferred stock at 'B'. Additionally, Fitch has assigned a 'BB' rating to the senior secured credit facility. The Rating Outlook has been revised to Positive from Stable. The one notch difference in the rating of the senior secured credit facility and the IDR is due to the guarantee provided to the credit lenders by La Quinta Corp.'s subsidiaries. Additionally, the credit facility has a stronger covenant package than any of the senior unsecured notes, which are currently rated 'BB-'. La Quinta's ratings reflect the company's solid market position as a leading limited service lodging provider, its high quality asset portfolio, an improved credit profile, robust lodging fundamentals, and Fitch's expectation for a strong 2006. Also considered is management's strong track record of executing on operational goals. Management has delivered on its stated goals to divest the health care assets completed fourth quarter 2002, launch a successful franchise program, upgrade assets to improve future performance, and expand its hotel system through strategic acquisitions. Rating concerns include expanded capital expenditures in the near term, acquisition risk, and pricing transparency due to proliferation of information on the internet and expansion of third party sellers. La Quinta's credit profile has improved over the latest 12 months due to stronger cash flow. As of June 30, 2005, LTM EBITDA/interest exceeded 3.0 times, lease adjusted debt/EBITDA was under 4.5x, and free cash flow -- cash flow from operations less capital expenditures less dividends -- was greater than $50 million. EBITDA during this period was $218 million, significantly greater than the same period one year earlier due to the acquisition of Marcus Corporation's limited service business, the increased number of franchised hotels, and an improved lodging environment. The lodging environment continues to improve as indicated by La Quinta's RevPAR, which advanced 8% in 2004 and is expected to rise by a similar percentage in 2005. Furthermore, the outlook for 2006 is optimistic due to expected GDP growth of more than 3%, which should lead to increased demand for hotels from business, group and leisure segments. Meanwhile, supply of new hotels is expected to be limited for the next several years with only 1%-2% of new supply per year. The combination of higher average daily rates and higher occupancy rates should contribute to year over year RevPAR growth in the upper single digits in 2006. The Positive Outlook is based on the expectation that La Quinta will continue to benefit from the improving industry fundamentals, maintain a disciplined growth strategy, and gradually strengthen its balance sheet. In the third quarter, $116 million of debt was repaid, which should leave the company with about $809 million of total debt. The company has $20 million of debt maturing in 2006 and $210 million of debt due in 2007. Fitch expects a portion of the debt due in 2007 to be refinanced. Following the $165 million equity offering in May 2005, La Quinta's liquidity is strong with more than $296 million of cash on hand and $130 million of availability through its revolver as of June 30, 2005. La Quinta Corporation is one of the largest owner/operators of limited-service hotels in the United States, with over 64,000 rooms system wide. At June 30, 2005, La Quinta owned 362 hotels and 45,194 rooms. It franchised or managed 230 hotels and 19,202 rooms. Franchise fee made up less than 5% of revenue. LEVITZ HOME: Wants Court Okay to Hire AlixPartners as Consultants ----------------------------------------------------------------- Levitz Home Furnishings, Inc., and its debtor-affiliates seek the U.S. Bankruptcy Court for the Southern District of New York's permission to employ AlixPartners, LLC, to provide special operational and financial advisory and bankruptcy consulting services in their Chapter 11 cases. The Debtors have determined that the size of their business operations and the complexity of the financial difficulties attendant upon operations of the scope require them to employ experienced professionals to render advisory and consulting services in connection with their bankruptcy cases. Richard H. Engman, Esq., at Jones Day, in New York, relates that AlixPartners is well qualified to serve as the Debtors' bankruptcy consultant and special financial advisor. AlixPartners is a leading corporate restructuring advisor, which has a wealth of experience in providing services in Chapter 11 cases and has an excellent reputation for services it has rendered on behalf of debtors in cases throughout the United States. Pursuant to an agreement dated October 1, 2005, effective on the Debtors' bankruptcy petition date, AlixPartners agrees to: -- analyze cash sources and identify potential additional sources of cash; -- review the status of product in the supply chain and in inventory; -- assess the relationship of Levitz Home Furnishings, Inc. with its key vendors; -- review the restructuring/business plan of Levitz and provide Levitz and others, as Levitz may direct, AlixPartners' assessment thereof; -- review the borrowing base and collateral reporting of Levitz; -- assist Levitz in supporting the due diligence and other activities of its current and prospective lenders in evaluating Levitz and its requests for financing; -- assist management to improve Levitz's net cash position; -- assist Levitz in reviewing and updating existing alternative strategy plans, if requested; -- develop, with management and other advisors to Levitz, contingency plans and financial alternatives in the event an out-of-court restructuring cannot be achieved; -- assist in the preparation of documents and the implementation of procedures related to the filing and subsequent administration of a bankruptcy petition including claims management and reconciliation procedures; and -- provide other assistance as may be requested and is within AlixPartners' expertise to support. The Debtors will pay AlixPartners in accordance with its hourly rates: Professional Hourly Rate ------------ ----------- Managing Directors $570 - $690 Directors $430 - $530 Vice Presidents $320 - $410 Associates $250 - $280 Analysts $180 - $200 Paraprofessionals $150 During the first two weeks of this assignment, AlixPartners agrees to cap its hourly fees at a maximum of $150,000. AlixPartners will also bill the Debtors for reasonable expenses in connection with the services provided. AlixPartners has provided certain restructuring advisory services to the Debtors since October 1, 2005. Before the Petition Date, the Debtors paid AlixPartners $150,000 by wire transfer for fees and expenses since October 1, 2005. The amount was offset against the retainer, leaving a balance of $23,160, which will be held by AlixPartners as a postpetition retainer. The Debtors do not anticipate any duplication in the services provided by AlixPartners and The Blackstone Group, L.P., given their well-defined roles. Regardless, AlixPartners and Blackstone will make every effort to function cohesively to ensure that services provided to the Debtors by each firm are not duplicative. Edward J. Stenger, managing director at AlixPartners, assures the Court that the firm is a "disinterested person" under Section 101(14) of the Bankruptcy Code. Mr. Stenger discloses that Jay Alix, a managing director at AlixPartners, is also the president and CEO of Questor Management Company, LLC, the entity that manages the equity funds Questor Partners Fund, L.P., and Questor Partners Fund, L.P. II. Mr. Alix and other officers at AlixPartners have interests in QPT I, and QPT II. In addition, a "Confidential Client", a director/officer affiliated company to the Debtors, was a former AlixPartners or APS client in matters unrelated to the Debtors. The Client was a customer of a former QPF II portfolio firm. Moreover, AlixPartners has transacted with various parties-in- interest in matters unrelated to the Debtors: -- A.T. Kearney, -- Bank of America, -- Bank of New York, -- Bear Steams, -- The Blackstone Group, -- The CIT Group and affiliates, -- Deutsche Bank, -- First Unum Life Insurance Company, -- Fleet Bank -- Goldman Sachs, -- Jefferies & Company, -- JPMorgan Chase, -- Jones Day, -- Morgan Stanley, -- Sullivan & Cromwell, -- UBS AG, -- Wells Fargo, -- American Insurance Group/National Union Fire Insurance, -- St. Paul Travelers Companies and affiliates, -- General Electric Capital, -- HSBC Group, and -- Ableco Finance. Headquartered in Woodbury, New York, Levitz Home Furnishings, Inc. -- http://www.levitz.com/-- is a leading specialty retailer of furniture in the United States with 121 locations in major metropolitan areas principally the Northeast and on the West Coast of the United States. The Company and its 12 affiliates filed for chapter 11 protection on Oct. 11, 2005 (Bank. S.D.N.Y. Lead Case No. 05-45189). David G. Heiman, Esq., and Richard Engman, Esq., at Jones Day, represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they reported $245 million in assets and $456 million in debts. (Levitz Bankruptcy News, Issue No. 3; Bankruptcy Creditors' Service, Inc., 215/945-7000) LEVITZ HOME: Wants Court OK to Hire ADA as Disposition Advisors --------------------------------------------------------------- Levitz Home Furnishings, Inc., and its debtor-affiliates seek the U.S. Bankruptcy Court for the Southern District of New York's consent to employ Asset Disposition Advisors, LLC, as advisors and consultants in connection with the disposition and sale of certain of their assets, particularly their inventory and trade fixtures in certain locations designated for closure. Richard H. Engman, Esq., at Jones Day, in New York, relates that the Debtors have selected ADA because the firm has developed an expertise in the matters that will significantly enhance the value recovered for the Debtors' assets designated for disposition through the conduct of strategic store closings, including, but not limited to, its inventory, trade fixtures and other personal property. Mr. Engman adds that ADA is familiar with the retail businesses generally, and the Debtors' business operations specifically, and is well regarded and a leader in the distressed asset acquisition and disposition field. Pursuant to an Engagement Agreement, dated October 3, 2005, ADA will: (a) perform or advise the Debtors regarding the disposition of selected non-core business assets, including designated store location inventory, furniture, fixtures and equipment: -- review and advise with respect to issues associated with any planned store closures, including, but not limited to, evaluation and consultation with the Debtors with regard to real estate disposition efforts and activities, or with respect to the engagement and activities of the real estate disposition consultants as may be engaged by the Debtors; -- review and advise with respect to the timing and coordination of any planned store closures; and -- review and advise the Debtors with respect to the cash flow implications and needs associated with any strategic store closing program. (b) identify and contact proposed purchasers of select business operations or assets, including stores selected for closure: -- assist the Debtors in connection with the preparation of bid information or financial data packages and proposed sale or agency agreements which would be delivered to interested parties upon their execution and delivery of a satisfactory confidentiality agreement; -- upon receipt of the initial proposals from interested parties, ADA would assist and advise the Debtors in (i) selecting and negotiating a "stalking horse" proposals, and (ii) negotiating definitive agreements and related documentation concerning the proposals; -- following identification and documentation of the Stalking Horse Agreement, ADA would then work with the Debtors to organize and conduct one or more orderly auction processes under procedures and a timeline commensurate with the then prevailing restructuring environment; -- work with the Debtors in connection with the preparation of the closing locations for the physical inventory taking, and attend, observe and supervise the same, as appropriate, and the valuation of inventory in connection therewith; -- monitor the conduct and results of any third party selected to sell or otherwise dispose of any inventory or other assets in any closing location; -- assist the Debtors in coordinating activities of any third party selected to sell or otherwise dispose of any inventory or other assets in any closing location with third parties affected by the sale, including, but not limited to, states' attorneys general; and -- assist the Debtors in the reconciliation of the physical inventory process. (c) review value and inspect the Debtors' assets, including, but not limited to inventory, operating leases and fixed assets. (d) work in conjunction with the Debtors and the Debtors' other retained advisors as to the evaluation, valuation, and, where appropriate, disposition of certain of the Debtors' leasehold interests or fee owned properties. (e) attend meetings, as requested, with the Debtors, its lenders, any official or unofficial committee of creditors that may be appointed, potential investors, and other parties-in-interest. Paul Traub and Barry Gold, principals at ADA, will be primarily responsible for the work performed by ADA in the Debtors' bankruptcy cases. The Debtors will pay ADA in accordance with its hourly rates: Professional Hourly Rate ------------ ----------- Paul Traub $825 Barry Gold $550 Senior Consultants $500 - $540 Junior Consultants $395 - $265 Support Staff $90 - $165 In the event of a successful outcome in the engagement, ADA is entitled to request a "success fee" in an amount to be agreed upon by ADA and the Debtors. The Debtors will also reimburse the firm for actual and necessary out-of-pocket expenses. Before the Petition Date, ADA rendered certain advisory services to the Debtors, for which it received a retainer from the Debtors totaling $90,000. Pursuant to an invoice dated October 10, 2005, ADA billed the Debtors $86,533, against which it applied a portion of the Retainer to its prepetition fees and expenses, leaving an unapplied Retainer balance as at the Petition Date of $3,467. As a result, ADA is not owed any sums for services provided prepetition. Mr. Traub assures the Court that the principals or consultants at ADA are "disinterested persons," as that term is defined in Section 101(14) of the Bankruptcy Code. He discloses that ADA has in the past, or present, transacted with various parties-in- interest in matters unrelated to the Debtors. Headquartered in Woodbury, New York, Levitz Home Furnishings, Inc. -- http://www.levitz.com/-- is a leading specialty retailer of furniture in the United States with 121 locations in major metropolitan areas principally the Northeast and on the West Coast of the United States. The Company and its 12 affiliates filed for chapter 11 protection on Oct. 11, 2005 (Bank. S.D.N.Y. Lead Case No. 05-45189). David G. Heiman, Esq., and Richard Engman, Esq., at Jones Day, represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they reported $245 million in assets and $456 million in debts. (Levitz Bankruptcy News, Issue No. 3; Bankruptcy Creditors' Service, Inc., 215/945-7000) LEVITZ HOME: Gets Interim Okay to Hire Kurtzman as Claims Agent --------------------------------------------------------------- Levitz Home Furnishings, Inc., and its debtor-affiliates have identified thousands of creditors, potential creditors, and other parties-in-interest to whom certain notices, including notice of the commencement of the Debtors' Chapter 11 cases, and voting documents, must be sent. The sheer magnitude of the Debtors' creditor body makes it impracticable for the Clerk of the Bankruptcy Court for the Southern District of New York to effectively and efficiently docket and maintain the extremely large numbers of proofs of claim that likely will be filed in the Debtors' Chapter 11 cases. Accordingly, the Debtors seek the U.S. Bankruptcy Court for the Southern District of New York 's permission to employ Kurtzman Carson Consultants LLC as claims, noticing, and balloting agent. Richard H. Engman, Esq., at Jones Day, in New York, relates that Kurtzman has assisted and advised numerous Chapter 11 debtors in connection with noticing, claims administration and reconciliation, and the administration of plan votes. The Debtors, therefore, believe that the firm is well qualified to provide the services, expertise, consultation, and assistance required in their Chapter 11 cases. Moreover, Mr. Engman relates that Kurtzman's assistance will: (i) expedite service of notices that must be provided to creditors and other parties-in-interest in bankruptcy cases, as regulated by Rule 2002 of the Federal Rules of Bankruptcy Procedure; (ii) streamline the claims administration process; and (iii) permit the Debtors to focus on their reorganization efforts. Under a services agreement between the Debtors and Kurtzman dated as of September 30, 2005, the firm will, among others: (a) assist in the preparation and filing of the Debtors' schedules of assets and liabilities and statement of financial affairs; (b) prepare and serve required notices in these Chapter 11 cases, including: (1) a notice of the commencement of these cases and the initial meeting of creditors under Section 341(a) of the Bankruptcy Code; (2) a notice of the claims bar date; (3) notices of objections to claims; (4) notices of hearings on a disclosure statement and confirmation of a plan of reorganization; (5) other miscellaneous notices as the Debtors or the Court may deem necessary or appropriate for an orderly administration of these Chapter 11 cases; and (6) assisting with the publication of required notices, as necessary; (c) file with the Clerk an affidavit or certificate of service with a copy of the notice, an alphabetical list of persons with their addresses to whom it was served, and the date the notice was served and the manner of service, within five days of service; (d) maintain copies of all proofs of claim and proofs of interest filed in these cases; (e) specify, in the applicable Claims Register, these information for each claim docketed: -- the claim number assigned; -- the date received; -- the name and address of the claimant and, if applicable, the agent who filed the claim; and -- the asserted amount and classification of the claim; (f) implement necessary security measures to ensure the completeness and integrity of the claims registers; (g) transmit to the Clerk's Office a copy of the claims registers on a weekly basis, unless requested by the Clerk's Office on a more or less frequent basis; (h) maintain an up-to-date mailing list for all entities that have filed proofs of claim or proofs of interest and make the list available to the Clerk's Office or any party-in interest upon request; (i) provide access to the public for examination of copies of the proofs of claim or proofs of interest filed in these cases without charge during regular business hours; (j) create and maintain a public access Web site containing pertinent case information and allowing access to certain documents filed in the Debtors' Chapter 11 cases; (k) record all transfers of claims pursuant to Rule 3001(e) of the Federal Rules of Bankruptcy Procedure and provide notice of the transfers to the extent required by Rule 3001(e); (l) assist the Debtors in the reconciliation and resolution of claims; (m) comply with applicable federal, state, municipal, and local statutes, ordinances, rules, regulations, orders, and other requirements; (n) provide temporary employees to process claims, as necessary; (o) promptly comply with further conditions and requirements as the Clerk's Office or the Court may at any time prescribe; (p) provide balloting and solicitation services, including producing personalized ballots and tabulating creditor ballots on a daily basis; and (q) provide other claims processing, noticing, balloting, and related administrative Services as may be requested from time to time by the Debtors. Kurtzman will charge the Debtors for its services, expenses and supplies in accordance with its existing Fee Structure. The firm will also bill the Debtors for reasonable expenses for transportation, lodging, meals and related items. Kurtzman will receive a $25,000 "evergreen retainer," which will not be segregated in a separate account, and will be held in trust by the firm until the end of the Debtors' cases to secure timely payment of its fees. If any of the Debtors' cases are converted to Chapter 7, Kurtzman will continue to be paid in accordance with 28 U.S.C. Section 156(c). Christopher R. Schepper, chief operating officer of Kurtzman, assures the Court that the firm: -- does not have any connection with the Debtors, their creditors, or any other party-in-interest; -- is a "disinterested person," as that term is defined under Section 101(14) of the Bankruptcy Code; and -- does not hold or represent any interest adverse to the Debtors' estates. The Court grants interim approval to the Debtors' Application. Headquartered in Woodbury, New York, Levitz Home Furnishings, Inc. -- http://www.levitz.com/-- is a leading specialty retailer of furniture in the United States with 121 locations in major metropolitan areas principally the Northeast and on the West Coast of the United States. The Company and its 12 affiliates filed for chapter 11 protection on Oct. 11, 2005 (Bank. S.D.N.Y. Lead Case No. 05-45189). David G. Heiman, Esq., and Richard Engman, Esq., at Jones Day, represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they reported $245 million in assets and $456 million in debts. (Levitz Bankruptcy News, Issue No. 3; Bankruptcy Creditors' Service, Inc., 215/945-7000) LIDO ISLAND: Case Summary & 14 Largest Unsecured Creditors ---------------------------------------------------------- Debtor: Lido Island Apartments, LLC 1330 South Highway 160, Suite 9 Pahrump, Nevada 89048 Bankruptcy Case No.: 05-28179 Chapter 11 Petition Date: October 27, 2005 Court: District of Nevada (Las Vegas) Debtor's Counsel: David Kimball, Esq. 520 South 6th Street Las Vegas, Nevada 89101 Tel: (702) 262-0234 Fax: (702) 262-0230 Estimated Assets: $1 Million to $10 Million Estimated Debts: $1 Million to $10 Million Debtor's 14 Largest Unsecured Creditors: Entity Nature of Claim Claim Amount ------ --------------- ------------ Betty Cramblet 60 West Eaton $90,000 140 East Cash Avenue Pahrump, NV 89060 Pahrump, NV 89048 26C, LLC 1330 S. Highway $60,000 1304 North Highland Avenue Pahrump, NV 89041 Suite 201 Los Angeles, CA 90028 Yiee, Jong, et al. 1330 S. Highway $50,000 P.O. Box 28624 Pahrump, NV 89041 Las Vegas, NV 89126 Sonja Lande-Ratterree 40 West Eaton $40,000 50 Murphy Street Pahrump, NV 89060 Pahrump, NV 89060 Cosbey Watson 1330 S. Highway $36,000 P.O. Box 747 Pahrump, NV 89041 Pahrump, NV 89041 26C, LLC 1330 S. Highway $30,000 1304 North Highland Avenue Pahrump, NV 89041 Suite 201 Los Angeles, CA 90028 Showplace Galleries Lease $2,700 1330 South Highway 160, Suite 2 Pahrump, NV 89048 Utilities Inc. Central Nevada Utilities $2,649 1240 East State Avenue, Suite 115 Pahrump, NV 89048 Archies Lease $870 1330 South Highway 160, Suite 1 Pahrump, NV 89048 Exotica Bookstore Lease $770 1330 South Highway 160, Suite 10 Pahrump, NV 89048 Pixey Nails Lease $760 1330 South Highway 160, Suite 6 Pahrump, NV 89048 Kung Fu Lease $300 1330 South Highway 160, Suite 11a Pahrump, NV 89048 Pahrump RV Parts Lease $300 1330 South Highway 160, Suite 11 Pahrump, NV 89048 Gene Isaac Professional Unknown 3967 Salisbury Plaza Services Las Vegas, NV 89121 LODGENET ENT: Sept. 30 Balance Sheet Upside-Down by $69 Million --------------------------------------------------------------- LodgeNet Entertainment Corporation (Nasdaq:LNET) reported net income for the first time since it became a public company and its 48th consecutive increase of comparative quarterly revenue. For the three months ended Sept. 30, 2005, the company reported $585,000 of net income, compared to a $3.5 million net loss in the same period last year. Revenue for the quarter was $74.1 million, a 3.5% increase in comparison to the third quarter of 2004. LodgeNet also reported $13 million in net free cash flow for the first nine months of 2005, as compared to $13.2 million during the first nine months of 2004. "In the third quarter, we continued to deliver on our strategic financial goals - most notably reporting quarterly net income for the first time in our public company history," said Scott C. Petersen, LodgeNet President and CEO. "Over the past several years, we have focused on growing our core business while simultaneously generating increasing levels of net free cash flow and improved profitability metrics. This focus is producing real, tangible results." At Sept. 30, 2005, the LodgeNet's balance sheet showed a $69,021,000 stockholders' deficit, compared to a $72,118,000 deficit at Dec. 31, 2004. LodgeNet Entertainment Corporation -- http://www.lodgenet.com/-- is the world's largest provider of interactive television and broadband solutions to hotels, including resort and casino hotels, throughout the United States and Canada as well as select international markets. These services include on-demand movies, music and music videos, on-demand videogames, Internet on television, and television on-demand programming, as well as high-speed Internet access, all designed to serve the needs of the lodging industry and the traveling public. LodgeNet provides service to more than one million interactive guest pay rooms and serves more than 6,000 hotel properties worldwide. LodgeNet estimates that during 2004 approximately 275 million travelers had access to LodgeNet's interactive television systems. LodgeNet is listed on NASDAQ and trades under the symbol LNET. LONGYEAR HOLDINGS: S&P Puts Low-B Ratings on New $575M Lien Loans ----------------------------------------------------------------- Standard & Poor's Ratings Services assigned its 'B+' bank loan rating and '3' recovery rating to the proposed $500 million first-lien term loan of Longyear Holdings Inc. maturing in 2012 and its 'B-' bank loan rating and '5' recovery rating to Longyear's proposed $75 million second-lien term loan maturing in 2013. The '3' recovery rating indicates our belief that lenders will receive meaningful recovery of principal in the event of a payment default. The proposed $75 million second-lien term loan is rated 'B-', with a recovery rating of '5', indicating our belief that lenders will receive negligible recovery of principal in the event of a payment default. The proceeds from these debt offerings together with $75 million of cash on the balance sheet will be used to pay a $210 million dividend to the equity holders and refinance the company's existing $325 million first-lien term loan and the existing $100 million second-lien term loan. At the same time, Standard & Poor's lowered its recovery rating to a '3' from a '2' on the company's existing $75 million revolving credit facility due 2010 and affirmed its 'B+' bank loan rating. The revolving credit facility will share the same collateral with the proposed $500 million first-lien term loan, similar to the current arrangement where it shares the same collateral with the existing $325 million first-lien term loan. The additional $175 million of first-lien debt applied against the same asset base results in a lower recovery level. Standard & Poor' also affirmed its 'B+' corporate credit rating on Longyear. The outlook is stable. Longyear Holdings is highly leveraged, and debt levels will increase by $150 million, to $575 million, as a result of the proposed dividend recapitalization. "We expect Longyear to benefit from robust mining activity due to current high commodity prices. We expect the company to reduce some of its debt in the near term, given the favorable prospects for commodity-based metals," said Standard & Poor's credit analyst Dominick D'Ascoli. "Ratings could be raised if the company reduces financial leverage and establishes a commitment to a more conservative financial policy. A negative rating action could be triggered by a precipitous decline during the next industry downturn or if the company takes additional actions to reward its shareholders that results in a weakening of its financial profile." Longyear is one of a few global drilling services companies in this fragmented market, competing mostly against regional and local contractors. Upon the closing of the proposed dividend recapitalization, Longyear is expected to have full availability on its $75 million revolving credit facility maturing in 2010 and approximately $12 million of cash. There are no near-term maturities, and amortization is only required on the first-lien term loan, at 1% per year. S&P expects pension and postretirement funding to be moderate. Capital expenditures are limited under the credit agreement to $54 million annually through 2007. LUCENT TECHNOLOGIES: Fitch Lifts Ratings on $5.4-Bil Securities --------------------------------------------------------------- Fitch Ratings has upgraded Lucent Technologies: -- Issuer default rating to 'BB-' from 'B'; -- Senior unsecured debt to 'BB-' from 'B'; -- Subordinated convertible debentures to 'B' from 'CCC+' -- Convertible trust preferred securities to 'B' from 'CCC+'. Fitch has also withdrawn the 'R4' recovery rating for Lucent's senior unsecured debt, along with the 'R6' recovery ratings for the subordinated convertible debentures and convertible trust preferred securities. The Rating Outlook is Stable. Approximately $5.4 billion of securities are affected by Fitch's action. The rating upgrades reflect Lucent's continued improvement in quarterly operating performance, strengthened credit protection measures, and return to consistent profitability due to an improved cost structure and industry environment. The ratings are also supported by Lucent's strengthened balance sheet, primarily through management's focus on debt reduction, and manageable near- term debt obligations. While Fitch believes the wireless telecommunications equipment market will be sluggish over the near-term and could possibly peak in 2006 with further pressure expected from certain wireline equipment segments, the Stable Rating Outlook is driven by Fitch's belief that Lucent's ongoing operating and financial results will be less volatile and the company will continue to opportunistically reduce debt. Ratings concerns center on Lucent's limited financial flexibility as the company currently has no committed financial facilities and relies on cash as its only source of liquidity, significant OPEB and pension requirements although no significant pension contributions should exist for the next two years given current legislation, customer concentration in the wireless segment as Verizon Wireless and Sprint-Nextel Corp. constitute the vast majority of Lucent's wireless equipment sales, stronger competition from foreign-based companies, and lack of significant presence in higher growth markets such as India. For the fiscal year ended Sept. 30, 2005, Lucent's total revenue was $9.4 billion, compared to $9 billion and $8.5 billion for the fiscal years 2004 and 2003, respectively. EBITDA -- pre net pension credit -- was approximately $1.2 billion for fiscal 2005 billion, compared to $1.1 billion in fiscal 2004, both substantial improvements from break-even EBITDA achieved in fiscal 2003 as Lucent has rationalized its cost structure and higher volume and product mix have increased margins. Consequently, Lucent's credit protection measures continue to improve moderately due primarily to debt reduction and, to a lesser extent, financial performance. Leverage -- measured by total debt/pre-pension EBITDA -- was approximately 4.6 times for fiscal 2005 compared to 5.6x for fiscal 2004, while interest coverage -- pre-pension EBITDA/interest incurred -- improved to approximately 3.5x compared to 2.7x for the same time periods. Adjusted leverage was approximately 4.7x and considers operating leases and partial equity credit for Lucent's convertible trust preferred securities. Fitch would expect the aforementioned credit metrics to improve in the intermediate term from continued debt reduction, balanced against flat profitability and minimal free cash flow. Total debt as of Sept. 30, 2005, was $5.4 billion, a decline of $556 million from a year ago, and consisted primarily of: -- $3.8 billion of senior unsecured debt; -- $1.1 billion of convertible trust securities; -- $501 million of convertible subordinated debentures. Assuming holders of the 8% convertible security exercise their redemption rights, approximately 80% of Lucent's total debt matures after 2010 and the nearest significant long-term debt maturity occurs in 2006 when approximately $368 million of notes are due. Additionally, the 8% $501 million convertible subordinated debentures are redeemable at the option of the holders on various dates, the earliest of which is Aug. 2, 2007. Lucent may satisfy this obligation using cash, common stock, or a combination of both and the company also has the right to call this debt on Aug. 15, 2006. Although Lucent's financial flexibility remains limited, Fitch believes the company's current resources are adequate to meet near-term obligations, with cash and marketable securities of approximately $4.9 billion as of Sept. 30, 2005. Fitch expects cash balances to remain above $4 billion for the intermediate term. The cash balance includes an approximate $900 million tax refund including statutory interest to the date of payment that was received in August 2005. Fitch continues to believe that Lucent's free cash flow will fluctuate and be inconsistent. Although free cash flow was approximately $500 million for fiscal 2005 ended Sept. 30, 2005 compared to $477 million for fiscal 2004, free cash flow in fiscal 2005 includes a tax refund of approximately $900 million offset by $600 million of incentive awards and the settlement of a shareholder lawsuit for approximately $215 million. Even if Lucent continues to achieve solid operating performance, Fitch expects free cash flow will be minimal. As of Sept. 30, 2005, the total remaining cash costs for Lucent's restructuring program were approximately $150 million, which will paid over several years. While Lucent does not expect to make a cash contribution to its U.S. pension plans in fiscal 2006 and 2007, annual contributions to the non-qualified and non-U.S. pension plans are expected to be approximately $50 million annually through fiscal 2010. In addition, the expected funding requirements for Lucent's post-retirement health care benefits are expected to be $243 million, $438 million, $563 million and $533 million for fiscal years 2006-2009. Lucent in conjunction with its unions is seeking legislative relief that may enable the company to use excess pension assets to cover a portion of healthcare benefits without the associated maintenance of costs constraints. KELLY LINEHAN: Case Summary & 7 Largest Unsecured Creditors ----------------------------------------------------------- Debtor: Kelly L. Linehan a/k/a Kelly Seacrest 9 Whites Mountain Road Glouchester, Massachusetts 01930 Bankruptcy Case No.: 05-22470 Chapter 11 Petition Date: October 14, 2005 Court: District of Massachusetts (Boston) Judge: Robert Somma Debtor's Counsel: Ann Brennan, Esq. Stephen E. Shamban Law Offices, P.C. 222 Forbes Road, Suite# 208 Post Office Box 850973 Braintree, Massachusetts 02815-0973 Tel: (718) 849-1136 Fax: (781) 848-9055 Estimated Assets: Less than $50,000 Estimated Debts: $1 Million to $10 Million Debtor's 7 Largest Unsecured Creditors: Entity Nature of Claim Claim Amount ------ --------------- ------------ TD Bank North New Hampshire 1994 Bounder $33,528 P.O. Box 8400 Lewiston, ME 04243 Marriott Vacation Club Intl $23,793 Box 382028 Pittsburg, PA Providian $6,523 P.O. Box 660487 Dallas, TX 75266 Capital One $1,668 Capital One Visa $1,422 Desco $450 Sears $196 KENNETH MEAD: Can Employ Ronald Bergwerk as Bankruptcy Counsel -------------------------------------------------------------- The U.S. Bankruptcy Court for the Middle District of Florida gave Kenneth H. Mead permission to employ the Law Offices of Ronald Bergwerk as his general bankruptcy counsel. Ronald Bergwerk will: 1) advise the Debtor of his duties and responsibilities as a debtor and debtor-in-possession under chapter 11 of the Bankruptcy Code; 2) prosecute and defend any causes of action on behalf of the Debtor and prepare on behalf of the Debtor all necessary applications, motions, reports and other legal papers in his bankruptcy case; 3) assist and advise the Debtor in the formulation and preparation of a plan of reorganization and its accompanying disclosure statement; and 4) perform all other legal services to the Debtor that are necessary in his chapter 11 case. Ronald Bergwerk, Esq., a Member of Ronald Bergwerk, is one of the lead attorneys for the Debtor. Mr. Bergwerk discloses that his Firm received a $15,000 retainer. Ronald Bergwerk had not yet submitted the hourly rates of his Firm's professionals performing services to the Debtor when the Debtor filed his request with the Court to employ the Firm as his bankruptcy counsel. Ronald Bergwerk assures the Court that it does not represent any interest materially adverse to the Debtor or its estate. Headquartered in Ocala, Florida, Kenneth H. Mead filed for chapter 11 protection on Oct. 14, 2005 (Bankr. M.D. Fla. Case No. 05-13930). When the Debtor filed for protection from its creditors, he listed estimated assets and debts of more than $100 million. KINETIC CONCEPTS: Incurs $1.2 Million Net Loss in Third Quarter --------------------------------------------------------------- Kinetic Concepts, Inc. (NYSE: KCI) reported third quarter 2005 total revenue of $312.3 million, an increase of 21% from the third quarter of 2004. Total revenue for the first nine months of 2005 was $886.5 million, a 23% increase from the prior-year period. Foreign currency exchange movements favorably impacted total revenue for the third quarter and first nine months of 2005 by 1% and 2%, respectively, compared to the corresponding periods of the prior year. During the 2005 third quarter, the Company reached an agreement to settle its 13-year old litigation with Novamedix Limited. Under the terms of the settlement, KCI agreed to pay Novamedix $75 million. The settlement payment resulted in a charge of $72 million, net of recorded reserves of $3.0 million, or $47.4 million, net of taxes. As a result of the litigation settlement, the Company reported a net loss for the third quarter of 2005 of $1.2 million compared to net earnings of $32.8 million for the same period in 2004. For the third quarter, the Company reported a corresponding net loss per diluted share of $0.02 compared to net earnings per diluted share of $0.46 for the third quarter of 2004. On a non-GAAP basis, excluding the litigation settlement expense, third quarter net earnings of $46.3 million increased 41% from the prior year. Diluted earnings per share on a non-GAAP basis, excluding the litigation expense, were $0.63 per share for the 2005 third quarter compared to $0.46 per diluted share under GAAP in 2004, an increase of 37%. For the first nine months of 2005, net earnings were $75.8 million, including litigation settlement expense, compared to a net loss of $3.3 million for the same period in 2004, including IPO and follow-on stock offering expenses. Earnings per diluted share were $1.04 for the first nine months of 2005 compared to a net loss per share of $0.05 for the same period of 2004. On a non-GAAP basis, excluding the litigation settlement expense for 2005 and IPO and follow-on stock offering expenses for 2004, net earnings for the first nine months of 2005 were $123.2 million compared to $83.9 million for the same period in 2004, an increase of 47%. Earnings per diluted share, on that same non-GAAP basis, were $1.69 for the first nine months of 2005, an increase of 42% from the year-ago period. "Our third quarter financial results reflect continuing demand for V.A.C. therapy in our U.S. and international markets," said Dennert O. Ware, President and Chief Executive Officer of KCI. "We settled a long-outstanding legal case that pertained to a product line that is not core to our business, while generating strong operating returns during the period." Revenue Recap Domestic revenue was $232.3 million for the third quarter and $646.4 million for the first nine months of 2005, representing increases of 20% and 19%, respectively, from the prior year due to increased rental and sales volumes for V.A.C. wound healing devices and related disposables. International revenue of $80 million for the third quarter and $240.1 million for the first nine months of 2005 increased 25% and 36%, respectively, compared to the prior year, due to increased V.A.C. demand and higher than expected first quarter surfaces sales. Foreign currency exchange movements favorably impacted international revenue by 2% during the third quarter and 6% during the first nine months of 2005. Worldwide V.A.C. revenue was $240.5 million for the third quarter of 2005, and $658.9 million for the first nine months, representing increases of 30% and 32%, respectively, from the corresponding periods of the prior year. Foreign currency exchange movements favorably impacted worldwide V.A.C. revenue by 1% during the third quarter and first nine months of the prior year. The growth in V.A.C. revenue stemmed from volume increases driven by our continued focus on marketing and selling efforts combined with higher than expected international V.A.C. sales in the first quarter of 2005. Worldwide surfaces revenue was $71.8 million for the third quarter and $227.6 million for the first nine months of 2005, representing continued stability in the third quarter and a 4% increase for the first nine months resulting primarily from higher international surfaces sales in the first quarter. For the third quarter, higher international units in use were offset by lower unit pricing due to pricing pressure on lower-end therapies, which was partially offset by favorable product mix shifts in the U.S. Foreign currency exchange movements favorably impacted worldwide surfaces revenue by 1% in the third quarter and by 2% for the first nine months of 2005 compared to the same periods one year ago. Income Tax Rate The effective income tax rate for the first nine months of 2005 was 34.0% compared to 36.0% for the same period in 2004. The income tax rate reduction was primarily attributable to a higher portion of taxable income being generated in lower tax jurisdictions, as well as favorable resolution of certain foreign tax audits. Outlook KCI presently projects full year 2005 total revenue of $1.20 to $1.25 billion based on continued demand for its V.A.C. negative pressure wound therapy devices and related supplies. The Company currently projects full year 2005 U.S. V.A.C. revenue to be $705 to $730 million. Kinetic Concepts, Inc., designs, manufactures, markets and provides a wide range of proprietary products that can improve clinical outcomes while helping to reduce the overall cost of patient care. * * * As reported in the Troubled Company Reporter on Apr. 20, 2005, Moody's Investors Service upgraded these ratings of Kinetic Concepts, Inc.: * Guaranteed senior secured revolving credit facility due 2009, upgraded to Ba3 from B1 * Guaranteed senior secured term loan B due 2010, upgraded to Ba3 from B1 * Guaranteed unsecured subordinated notes due 2013, upgraded to B2 from B3 * Senior implied rating, upgraded to Ba3 from B1 * Senior unsecured issuer rating, upgraded to B1 from B2 The ratings outlook was also changed from stable to positive. As reported in the Troubled Company Reporter on Mar. 16, 2005, Standard & Poor's Ratings Services raised its corporate credit rating on medical device manufacturer and hospital supplier Kinetic Concepts Inc. to 'BB' from 'BB-'. At the same time, Standard & Poor's raised its rating on the senior secured credit facility and raised its rating on KCI's senior subordinated debt. The outlook remains stable. NORTEL NETWORKS: Selling Brampton Site to Rogers for $100 Million ----------------------------------------------------------------- Nortel Network (NYSE:NT)(TSX:NT) is selling its site in Brampton, Ontario to Rogers Communications Inc. (TSX: RCI; NYSE: RG) for approximately $100 million. Under the terms of the agreement, which is subject to due diligence and other terms and conditions, Rogers will acquire the almost one million square feet facility, including fixtures and certain personal property located at the facility, and the 63 acres of land the facility is located on. "This agreement is a win for both companies," said Bill Owens, vice chairman and chief executive officer, Nortel. "This is another proof point that we continue to execute on our strategy of cost leverage through business simplification. A key part of this strategy has been to ensure that our real estate requirements are sized to the needs of current business realities in order to maximize our return on assets, bring our teams together, and minimize operating expense. We welcome Rogers Communications to Brampton as they acquire one of the most impressive corporate facilities in Canada." "We're excited to return to Brampton, the City where our cable operations began in 1967," said Ted Rogers, president and chief executive officer, Rogers Communications Inc. "Rogers is looking forward to moving into this facility and continuing our focus on innovation." Pending completion of due diligence mid-December, Rogers will take possession of the site on January 4, 2006. Nortel is planning to relocate to two offices in the Toronto region, a sales studio and a larger corporate centre. "Nortel will continue to have a significant presence in the Toronto-area in order to remain close to customers, be in close proximity of the financial capital of the country and to leverage the large talent pool in the area," said Owens. About Rogers Communications Rogers Communications Inc. (TSX: RCI; NYSE: RG) -- http://www.rogers.com/-- is a diversified Canadian communications and media company engaged in three primary lines of business. Rogers Wireless Inc. is Canada's largest wireless voice and data communications services provider and the country's only carrier operating on the world standard GSM/GPRS technology platform; Rogers Cable Inc. is Canada's largest cable television provider offering cable television, high-speed Internet access, voice-over- cable telephony services and video retailing; and Rogers Media Inc. is Canada's premier collection of category leading media assets with businesses in radio and television broadcasting, televised shopping, publishing and sports entertainment. On July 1, 2005, Rogers completed the acquisition of Call-Net Enterprises Inc. (now Rogers Telecom Holdings Inc.), a national provider of voice and data communications services. About Rogers Telecom Rogers Telecom Holdings Inc. (formerly Call-Net Enterprises Inc.) -- http://www.sprint.ca/-- was acquired by Rogers Communications Inc. on July 1, 2005, and through its wholly owned subsidiary Rogers Telecom Inc. (formerly Sprint Canada Inc.) is a leading Canadian integrated communications solutions provider of home phone, wireless, long distance and IP services to households, and local, long distance, toll free, enhanced voice, data and IP services to businesses across Canada. Rogers Telecom owns and operates an extensive national fiber network, has over 150 co- locations in major urban areas across Canada including 33 municipalities and maintains network facilities in the U.S. and the U.K. About Nortel Networks Nortel Networks -- http://www.nortel.com/-- is a recognized leader in delivering communications capabilities that enhance the human experience, ignite and power global commerce, and secure and protect the world's most critical information. Serving both service provider and enterprise customers, Nortel delivers innovative technology solutions encompassing end-to-end broadband, Voice over IP, multimedia services and applications, and wireless broadband designed to help people solve the world's greatest challenges. Nortel does business in more than 150 countries. Nortel does business in more than 150 countries. * * * As reported in the Troubled Company Reporter on July 8, 2005, Moody's Investors Service confirmed the ratings of Nortel Networks Corporation (holding company) and Nortel Networks Limited (principal operating subsidiary and debt guarantor). The ratings confirmation concludes a ratings review for possible downgrade under effect since April 28, 2004. Moody's also assigned a new Speculative Grade Liquidity rating of SGL-3 to Nortel, reflecting adequate liquidity to fund debt maturities and other cash outflows over the next 12 months. The ratings outlook is negative. The ratings confirmed include: Nortel Networks Corporation: -- Senior Secured rating at B3 (guaranteed by Nortel Networks Limited) Nortel Networks Limited: -- Corporate Family Rating (formerly known as the Senior Implied rating) at B3 -- Senior Secured rating at B3 -- Issuer rating (senior unsecured) at Caa1 -- Preferred Stock rating at Caa3 Nortel Networks Capital Corporation: -- Senior Secured rating at B3 (guaranteed by Nortel Networks Limited). This new rating was assigned: -- Speculative Grade Liquidity rating of SGL-3. As reported in the Troubled Company Reporter on Jan. 31, 2005, Standard & Poor's Ratings Services affirmed its 'B-' credit rating on Nortel Networks Lease Pass-Through Trust certificates series 2001-1 and removed it from CreditWatch with negative implications, where it was placed Dec. 8, 2004. The affirmation was based on a valuation analysis of properties that provide security for the two notes that serve as collateral for the pass through trust certificates. The initial rating on the securities relied upon the ratings assigned to both Nortel Networks Ltd. and ZC Specialty Insurance Co. The Dec. 8, 2004, CreditWatch placement followed the Dec. 3, 2004 withdrawal of the rating assigned to ZC. NORTHWEST AIRLINES: Opts to Outsource Sr. Flight Attendant Jobs --------------------------------------------------------------- Northwest Airlines plans to farm out senior flight attendant positions on coveted international routes, Susan Carey writes for The Wall Street Journal. In addition to 17% pay cuts for its flight attendants, the bankrupt airline is proposing to have 75% of its flights across the Atlantic and Pacific and all flights between Amsterdam and India staffed by regional flight attendants who aren't currently members of the Professional Flight Attendants Association union, Ms. Carey reports. The union represents Northwest's 9,800 U.S.- based flight attendants. As reported in the Troubled Company Reporter on Sept. 26, 2005, the Company will be laying off 1,400 flight attendants by January 2006. The airline rehired about 8,500 flight attendants in May 2005. These flight attendants were laid off after the Sept. 11, 2001 attacks. In September 2005, Northwest disclosed it will be laying off 400 pilots in the next eight months, the first 70 will be out of work by Nov. 1. The U.S. Bankruptcy Court for the Southern District of New York will convene a hearing on Nov. 16 to consider Northwest Airlines and its debtor-affiliates' request to cancel its current labor contracts if unions won't accept terms that could save the company hundreds of millions of dollars a year. Northwest Airlines Corporation -- http://www.nwa.com/-- is the world's fourth largest airline with hubs at Detroit, Minneapolis/St. Paul, Memphis, Tokyo and Amsterdam, and approximately 1,400 daily departures. Northwest is a member of SkyTeam, an airline alliance that offers customers one of the world's most extensive global networks. Northwest and its travel partners serve more than 900 cities in excess of 160 countries on six continents. The Company and 12 affiliates filed for chapter 11 protection on Sept. 14, 2005 (Bankr. S.D.N.Y. Lead Case No. 05-17930). Bruce R. Zirinsky, Esq., and Gregory M. Petrick, Esq., at Cadwalader, Wickersham & Taft LLP in New York, and Mark C. Ellenberg, Esq., at Cadwalader, Wickersham & Taft LLP in Washington represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $14.4 billion in total assets and $17.9 billion in total debts. (Northwest Airlines Bankruptcy News, Issue No. 5; Bankruptcy Creditors' Service, Inc., 215/945-7000) NORTHWEST AIRLINES: Files Prospectus on Resale of Notes Due 2023 ---------------------------------------------------------------- Northwest Airlines Corporation filed a supplemental prospectus with the Securities and Exchange Commission on the resale of the company's 7.625% Convertible Senior Notes due 2023 issued in a private offering in November 2003 and 9,825,322 shares of common stock issuable upon conversion of the notes. Northwest issued and sold $225,000,000 aggregate original principal amount of the Notes on November 4, 2003, to Citigroup Global Markets Inc. Northwest says it has been advised by Citigroup that the notes were resold in transactions, which were exempt from registration requirements of the Securities Act to persons reasonably believed by Citigroup to be "qualified institutional buyers." The company will not receive any of the proceeds from the sale of the notes or the shares of common stock offered by the selling securityholders, Northwest explains. The selling securityholders will receive all proceeds from the sale of the notes or the shares of common stock. Northwest will pay cash interest on the notes at 7.625% per year on the original principal amount from November 4, 2003, or from the most recent date to which interest has been paid or provided for, until November 15, 2008. During this period, cash interest is payable semiannually in arrears on May 15 and November 15 of each year, beginning May 15, 2004, until November 15, 2008, unless the notes are earlier converted. Beginning November 15, 2008, the notes will cease bearing cash interest. Instead, from that date the original principal amount of each note will commence increasing daily by 7.625% per year to produce the accreted principal amount. The accreted principal amount of a note will compound semiannually, not daily. On the maturity date, a holder will receive $3,072.48 for each $1,000 original principal amount of notes, which is the fully accreted principal amount of the note on that date. Holders may convert all or a portion of their notes into shares of common stock of Northwest Airlines Corporation prior to stated maturity under these circumstances: (1) At any time in any fiscal quarter commencing after December 31, 2003, if the closing sale price of the common stock for at least 20 trading days in a period of 30 consecutive trading days ending on the last trading day of the fiscal quarter prior to the quarter is greater than 120% of the accreted conversion price per share of common stock on the last day; (2) during the five business day period after any five consecutive trading day period in which the trading price per $1,000 original principal amount of the notes for each day of the five trading day period was less than 98% of the product of the closing sale price of the common stock and the number of shares issuable upon conversion of $1,000 original principal amount of the notes; (3) if the notes have been called for redemption; or (4) upon the occurrence of certain corporate transactions. The initial conversion rate will be 43.6681 shares of common stock of Northwest Airlines Corp. per $1,000 original principal amount of the notes. The conversion rate will be subject to adjustment in some events but will not be adjusted for increases in the accreted principal amount of the notes, accrued cash interest or interest payable upon the occurrence of a tax event. Upon conversion, Northwest may at its option choose to deliver, in lieu of common stock, cash or a combination of cash and common stock. Beginning November 15, 2006, the company may redeem all or a portion of the notes for cash for a price equal to 100% of the accreted principal amount of the notes to be redeemed plus accrued and unpaid interest, if any. A full-text copy of the Supplement is available at no charge at: http://researcharchives.com/t/s?288 Northwest Airlines Corporation -- http://www.nwa.com/-- is the world's fourth largest airline with hubs at Detroit, Minneapolis/St. Paul, Memphis, Tokyo and Amsterdam, and approximately 1,400 daily departures. Northwest is a member of SkyTeam, an airline alliance that offers customers one of the world's most extensive global networks. Northwest and its travel partners serve more than 900 cities in excess of 160 countries on six continents. The Company and 12 affiliates filed for chapter 11 protection on Sept. 14, 2005 (Bankr. S.D.N.Y. Lead Case No. 05-17930). Bruce R. Zirinsky, Esq., and Gregory M. Petrick, Esq., at Cadwalader, Wickersham & Taft LLP in New York, and Mark C. Ellenberg, Esq., at Cadwalader, Wickersham & Taft LLP in Washington represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $14.4 billion in total assets and $17.9 billion in total debts. (Northwest Airlines Bankruptcy News, Issue No. 6; Bankruptcy Creditors' Service, Inc., 215/945-7000) NORTHWEST AIRLINES: Chromalloy Opposes Claims Resolution Process ---------------------------------------------------------------- Northwest Airlines Corp. and its debtor-affiliates asked the U.S. Bankruptcy Court for the Southern District of New York to: (i) establish procedures for the resolution and payment of reclamation claims; (ii) provide administrative treatment for certain holders of valid reclamation claims; and (iii) prohibit third parties from interfering with delivery of the Debtors' goods. Chromalloy and Pacific Gas Object Chromalloy Gas Turbine Corporation and Pacific Gas Turbine Center, LLC, want the Reclamation Procedures modified. Alan D. Halperin, Esq., at Halperin Battaglia Raicht, LLP, in New York, explains that under the Reclamation Procedures, the Debtors would have 120 days to determine whether a reclamation claim is valid, and then to pay on that claim absent any objection to their determination. Even after payment, the claims are still subject to "Reserved Defenses" that the Debtors will retain until the earlier of: (a) the effective date of the Debtors' confirmed plan of reorganization; or (b) the date one year following the last payment of an allowed Claim. However, the Procedures mandate an amazingly broad release of rights that a reclamation claimant might have in exchange for a payment subject to disgorgement, Mr. Halperin notes. "The procedures give nothing, but take quite a bit. They are inequitable and must be modified to provide creditors with a fair process." Northwest Airlines Corporation -- http://www.nwa.com/-- is the world's fourth largest airline with hubs at Detroit, Minneapolis/St. Paul, Memphis, Tokyo and Amsterdam, and approximately 1,400 daily departures. Northwest is a member of SkyTeam, an airline alliance that offers customers one of the world's most extensive global networks. Northwest and its travel partners serve more than 900 cities in excess of 160 countries on six continents. The Company and 12 affiliates filed for chapter 11 protection on Sept. 14, 2005 (Bankr. S.D.N.Y. Lead Case No. 05- 17930). Bruce R. Zirinsky, Esq., and Gregory M. Petrick, Esq., at Cadwalader, Wickersham & Taft LLP in New York, and Mark C. Ellenberg, Esq., at Cadwalader, Wickersham & Taft LLP in Washington represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $14.4 billion in total assets and $17.9 billion in total debts. (Northwest Airlines Bankruptcy News, Issue No. 6; Bankruptcy Creditors' Service, Inc., 215/945-7000) NVF COMPANY: Wants Exclusive Period Stretched to January 16 ----------------------------------------------------------- NVF Company and its debtor-affiliate ask the U.S. Bankruptcy Court for the District of Delaware to extend until January 16, 2005, the period within which they have exclusive right to file a chapter 11 plan. The Debtors also want their exclusive right to solicit plan acceptances extended through March 17, 2005. The Debtors said the extension will allow them to: a) avoid premature formulation of a chapter 11 plan of reorganization or liquidation, and b) ensure that the formulated plan takes into account the best interests of the Debtors, their creditors and estates. The Debtors anticipate pursuing an orderly administration of their estates to preserve and maximize value for their creditors. Headquartered in Yorklyn, Del., NVF Company -- http://www.nvf.com/ -- manufactures thermoset composites (glass, Kevlar), vulcanized fiber, custom containers, circuitry materials, custom fabrication, and welding products. The Company along with its wholly owned subsidiary, Parsons Paper Company, Inc., filed for chapter 11 protection on June 20, 2005 (Bankr. D. Del. Case Nos. 05-11727 and 05-11728). Rebecca L. Booth, Esq., at Richards, Layton & Finger, P.A., represents the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed estimated assets between $10 million to $50 million and estimated debts of more than $100 million. NVF COMPANY: Courts Extends Removal Period Until December 17 ------------------------------------------------------------ The Honorable Peter J. Walsh of the U.S. Bankruptcy Court for the District of Delaware extended until Dec. 17, 2005, the period within which NVF Company and its debtor-affiliate, can remove prepetition civil actions pending in various state and federal courts. The Debtors believe that the extension will afford them more time to make fully informed decisions concerning the removal of each civil action. To determine which civil actions should be removed, the Debtors must analyze each proceeding in light of these factors: a) the importance of the proceeding to the expeditious resolution of the Debtors' chapter 11 cases, b) the time it would take to complete the proceeding in its current value, c) the absence of federal questions in the proceeding that increase the likelihood that one or more aspects thereof will be heard by a federal court, d) the relationship between the proceeding and matters to be considered in connection with any proposed plan in these cases, the claims allowance process, and the assumption and rejection of executory contracts, and e) the progress made to date in the proceeding. Headquartered in Yorklyn, Del., NVF Company -- http://www.nvf.com/ -- manufactures thermoset composites (glass, Kevlar), vulcanized fiber, custom containers, circuitry materials, custom fabrication, and welding products. The Company along with its wholly owned subsidiary, Parsons Paper Company, Inc., filed for chapter 11 protection on June 20, 2005 (Bankr. D. Del. Case Nos. 05-11727 and 05-11728). Rebecca L. Booth, Esq., at Richards, Layton & Finger, P.A., represents the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed estimated assets between $10 million to $50 million and estimated debts of more than $100 million. NVF CO: Forshee & Boardroom Approved as Accounting Consultants -------------------------------------------------------------- The U.S. Bankruptcy Court for the District of Delaware gave NVF Company and its debtor-affiliate permission to employ Forshee & Lockwood, P.A., and its affiliate, Boardroom Accounting & Consulting Services, LLC, as their accounting consultants, auditors and tax service providers, nunc pro tunc to Aug. 3, 2005. Forshee & Lockwood and Boardroom Accounting will: 1) finalize a compilation of the Debtors' 2003 year-end balance sheet, statement of operations, retained earnings and cash flows on an unaudited basis; 2) compile the Debtors' 2004 year-end balance sheet, statement of operations, retained earnings and cash flows on an unaudited basis; 3) audit the Debtors' 401(k) plans; 4) prepare federal and state tax returns and related schedules as agreed upon by the Debtors and the firm; and 5) provide other services as may be requested by the Debtors. Kevin J. Lockwood, a Forshee & Lockwood partner, reports the Firm's professionals bill: Professional Designation Hourly Rate ------------ ----------- ----------- Kevin J. Lockwood Partner $300 Gerald Bowers Senior Manager $275 Evelyn Perez Senior $200 Jackie McLean Paraprofessional $100 Headquartered in Yorklyn, Del., NVF Company -- http://www.nvf.com/ -- manufactures thermoset composites (glass, Kevlar), vulcanized fiber, custom containers, circuitry materials, custom fabrication, and welding products. The Company along with its wholly owned subsidiary, Parsons Paper Company, Inc., filed for chapter 11 protection on June 20, 2005 (Bankr. D. Del. Case Nos. 05-11727 and 05-11728). Rebecca L. Booth, Esq., at Richards, Layton & Finger, P.A., represents the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed estimated assets between $10 million to $50 million and estimated debts of more than $100 million. MERCURY INTERACTIVE: Noteholders Waive Default Until March 31 ------------------------------------------------------------- As reported in the Troubled Company Reporter on Oct. 21, 2005, Mercury Interactive Corporation was soliciting consents from the holders of its: -- $300 million aggregate principal amount of 4.75% Convertible Subordinated Notes due 2007; and -- $500 million aggregate principal amount of Zero Coupon Senior Convertible Notes due 2008. In each case, Mercury is requesting a limited waiver, until March 31, 2006, of any default or event of default arising from Mercury's failure to file with the Securities and Exchange Commission and furnish to the holders of notes, those reports required to be filed under the Securities Exchange Act of 1934. The Company reports that upon the expiration of the consent solicitations at 5:00 p.m., Eastern Standard Time, on October 25, 2005, holders of over 94% of the outstanding aggregate principal amount of 2007 Notes and over 93% of the outstanding aggregate principal amount of 2008 Notes submitted consents and therefore the Report Defaults were waived. In consideration of the waiver, Mercury will: (i) pay to each holder of 2007 Notes from whom a properly executed, unrevoked and completed letter of consent was received on or prior to the Expiration Time a consent fee of $25.00 for each $1,000 principal amount of 2007 Notes and (ii) enter into an amendment to the Indenture governing the 2008 Notes pursuant to which Mercury shall be required to repurchase the 2008 Notes, at the option of the holder, on November 30, 2006 at a repurchase price equal to 107.25% of the principal amount. Mercury Interactive Corporation (Nasdaq: MERQE) -- http://www.mercury.com/-- provides software and services for IT Governance, Application Delivery, and Application Management. Mercury BTO offerings are complemented by technologies and services from global business partners. * * * Financial Restatements As reported in the Troubled Company Reporter on Aug. 31, 2005, the Company concluded that its previously issued financial statements for the fiscal years 2002, 2003 and 2004, which are included in the Company's Annual Report on Form 10-K for the year ended Dec. 31, 2004, the Quarterly Reports on Form 10-Q filed with respect to each of these fiscal years and the financial statements included in the Company's Quarterly Report on Form 10-Q for the first quarter of fiscal year 2005, should no longer be relied upon and will be restated. In addition, the restatement will affect financial statements for prior fiscal years, and the Company will also require a revision of the previously reported financial information included in its press release of July 28, 2005 and its Current Report on Form 8-K dated Aug. 17, 2005. Mercury intends to complete the restatements and make the required amended Form 10-K and Form 10-Q filings and to file its Form 10-Q for the second quarter of fiscal year 2005 as soon as practicable following completion of the Special Committee investigation, the Company's review and restatement of its historical financials and completion of the audit process. The Company does not expect that it will be able to complete this process and make the required filings before November 2005. The errors resulting in the required restatement relate to the Special Committee's conclusion that the actual dates of determination for certain past stock option grants differed from the originally selected grant dates for such awards. Because the prices at the originally selected grant dates were lower than the price on the actual dates of determination, the Company will incur additional charges to its stock-based compensation expense, which were not included in the above-referenced financial statements. The Company has determined that the amounts of these charges are material but has not yet determined the final amount of the additional charges to be incurred. Likely Material Weakness Additionally, Mercury is evaluating Management's Report on Internal Control Over Financial Reporting set forth in Item 9a on page 53 of the Company's 2004 Annual Report. Although Mercury has not yet completed its analysis of the impact of management's evaluation on its internal controls over financial reporting, it has determined that it is highly likely that Mercury had a material weakness in internal control over financial reporting as of Dec. 31, 2004. MMRENTALSPRO LLC: Wants Plan-Filing Period Stretched to Jan. 13 --------------------------------------------------------------- MMRentalsPro, LLC, asks the U.S. Bankruptcy Court for the Eastern District of Tennessee to extend, through and including Jan. 13, 2006, the time within it alone can file a chapter 11 plan. The Debtor also asks the Court for more time to solicit acceptances of that plan from their creditors, through and including March 14, 2006. The Debtor explains that the complexity of its chapter 11 case justifies the extension of its exclusivity period. Since its bankruptcy filing, the Debtor has employed Lincoln Apartment Management Limited Partnership to operate its three apartment complexes located in Dalton, Georgia. Lincoln Management will be responsible for determining the scope of the work for rehabilitating those three apartment complexes and for obtaining bids for those works. Until now, Lincoln has not submitted its report for the works involved in those apartments. The Debtor assures the Court the requested extension will not harm its creditors or other parties-in-interest. The Court will convene a hearing at 10:00 a.m., on Nov. 17, 2005, to consider the Debtor's request. Headquartered in Chattanooga, Tennessee, MMRentalsPro, LLC, and its owner, Roy Michael Malone, Sr., filed for chapter 11 protection on June 17, 2005 (Bankr. E.D. Tenn. Case No 05-13814). Richard C. Kennedy, Esq., at Kennedy, Fulton & Koontz, represents the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they estimated less than $50,000 in assets and between $10 million to $50 million in debts. MMRENTALSPRO LLC: Lincoln Apartment Approved as Property Manager ---------------------------------------------------------------- The U.S. Bankruptcy Court for the Eastern District of Tennessee granted MMRentalsPro, LLC, and LaSalle Bank National Association's joint request to employ Lincoln Apartment Management Limited Partnership as the Debtor's property manager. LaSalle Bank is the Trustee for the Certificateholders of Morgan Stanley Capital I Inc. Commercial Mortgage Pass-Through Certificates Series 2004-HQ4, acting by and through its special servicer GMAC Commercial Mortgage Corporation, a creditor and party-in-interest in the Debtor's chapter 11 case. The Debtor operates three apartment complexes in Dalton, Georgia, known as The Georgian Apartments, Stone Ridge Apartments and Stone Brooke Apartments. Lincoln Apartment will: 1) perform full property management services for the Debtors' three apartment complexes; 2) render executive management and full property related accounting services for the three apartment complexes, 3) supervise day-to-day maintenance, operation and resident services and apartment turnover at the three apartment complexes; and 4) perform all other property management services to the Debtor in connection with the three apartment complexes. Chris Burns, the Vice-President of Lincoln Apartment, reports that his Firm will be paid with either: a) a monthly management fee equal to the greater of 4% of the Gross Collections of all amounts actually collected as rents or other charges for the use and occupancy of the apartment units at The Georgian Apartments, Stone Ridge Apartments and Stone Brooke Apartments, or b) a minimum fee of $22 per unit per month, whichever is greater, payable monthly in arrears for the first six months and $16 per unit per month after the sixth month. Lincoln Apartment assures the Court that it does not represent any interest materially adverse to Debtor or its estates. Headquartered in Chattanooga, Tennessee, MMRentalsPro, LLC, and its owner, Roy Michael Malone, Sr., filed for chapter 11 protection on June 17, 2005 (Bankr. E.D. Tenn. Case No 05-13814). Richard C. Kennedy, Esq., at Kennedy, Fulton & Koontz, represents the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they estimated less than $50,000 in assets and between $10 million to $50 million in debts. MOUNTAIN MAX: Case Summary & 15 Largest Unsecured Creditors ----------------------------------------------------------- Debtor: Mountain Max Auto Superstore, LLC P.O. Box 1810 Blairsville, Georgia 30514 Bankruptcy Case No.: 05-25002 Chapter 11 Petition Date: October 26, 2005 Court: Northern District of Georgia (Gainesville) Debtor's Counsel: Charles N. Kelley, Jr., Esq. Cummings Kelley & Bishop PC 340 Jesse Jewell Parkway, Suite 602 Gainesville, Georgia 30501-7701 Tel: (770) 531-0007 Fax: (770) 533-9087 Estimated Assets: Less than $50,000 Estimated Debts: $1 Million to $10 Million Debtor's 15 Largest Unsecured Creditors: Entity Nature of Claim Claim Amount ------ --------------- ------------ Bank Of America Bank loan $1,500,000 c/o Miller & Martin 1170 Peachtree Street NE Suite 800 Atlanta, GA 30309 Pinkleton, Aaron J. Employee $0 594 Tanglewood Road Murphy, NC 28906 Pruden, Michelle D. Employee $0 4780 Fortenberry Road Blairsville, GA 30512 Seawright, Joe Employee $0 P.O. Box 790 Ducktown, TN 37326 Shields, Chris M. Employee $0 1059 Pinhook Road Robbinsville, NC 28771 Sneed, Douglas M. Employee $0 P.O. Box 1336 Murphy, NC 28906 Thomas, Latrelle B. Employee $0 2219 Brentwood Drive Cleveland, TN 27311 Block, Joseph P. Employee $0 179 Hilton Street Murphy, NC 28906 Cearley, Shannon S. Employee $0 87 Bethel Church Road McCaysville, GA 30555 Cearley, Julie Bank loan $0 P.O. Box 1112 McCaysville, GA 30555 Cowart, Barbara Employee $0 P.O. BOx 2075 Blue Ridge, GA 30513 Bills, Michael L. Employee $0 78 Johnson Road Hayesville, NC 28904 Hammond, Henry O. Employee $0 P.O. Box 1478 Woodstock, GA 30188 Laska, Benjamin M. Employee $0 4780 Fortenberry Road Blairsville, GA 30512 Owens, Marni M. Employee $0 P.O. Box 434 Mineral Bluff, GA 30559 MUZAK HOLDINGS: Strained Liquidity Cues S&P to Junk Credit Rating ----------------------------------------------------------------- Standard & Poor's Ratings Services affirmed its ratings, including its 'CCC+' corporate credit ratings, on Muzak Holdings LLC and Muzak LLC. The companies are analyzed on a consolidated basis. At the same time, Standard & Poor's removed all of the ratings from CreditWatch, where they were placed on April 8, 2005 with negative implications. The outlook is negative. The Fort Mill, South Carolina-based provider of business music services had about $470 million in consolidated debt, including capital leases, and $177 million in debt-like preferred stock at June 30, 2005. "The rating affirmation is based on our view that Muzak's existing cash balances will be sufficient to meet its operating and capital needs for at least the next 12 months," said Standard & Poor's credit analyst Tulip Lim. "This is a result of restructuring cost savings and the company's revised operating plan to improve cash flow by substantially reducing growth-related capital spending." Even so, Muzak's liquidity is limited and will only cover its near-term needs if its new operating strategy is successful and if it can offset various cost pressures. The very low speculative- grade rating also reflects the company's high leverage, the noncritical nature of its products, its lack of business diversity, and the threat of substitution from competitive alternatives. These factors are minimally offset by the company's leading position in its niche market and by some recurring revenue from its five-year contracts. Standard & Poor's views Muzak's ability to improve profitability as uncertain because of competition, limited demand, and higher music licensing fees. Profitability and cash flow could be further undermined if the company's new strategy to slow growth, raise prices, and concentrate on cash flow increases customer churn. Also, Muzak's leverage is high, driven in part by the large up-front cash needed to acquire new customers. O'SULLIVAN IND: Gets Interim OK to Borrow $35-Mil. DIP Financing ---------------------------------------------------------------- The U.S. Bankruptcy Court for the Northern District of Georgia has granted O'Sullivan Industries Holdings, Inc. (OTC: OSULP), interim authorization to draw on a $35 million debtor-in-possession credit facility provided by CIT Group/Business Credit, Inc., and other lenders. The company will use the new facility to pay off its prepetition credit agreement and to support ongoing operations. "With the new credit facility in place, vendors and customers should feel confident about doing business with O'Sullivan Industries," said Robert S. Parker, president and chief executive officer of O'Sullivan Industries. "The new credit line, combined with cash from operations, will enable us to maintain the inventories and supplies we need to continue to serve our customers and generate revenues. This authorization represents an important step in our progress toward a final capital restructuring." The court earlier approved other typical "first-day" motions, including authorizing the company to continue to pay employee salaries, wages and benefits and honor prepetition employee obligations. The company, with headquarters in Roswell, Georgia, is a leading designer, manufacturer and distributor of ready-to-assemble furniture and other products. On Friday, October 14, 2005, O'Sullivan Industries Holdings, Inc., and certain of its direct and indirect subsidiaries filed voluntary petitions under Chapter 11 of the U.S. Bankruptcy Code. Court Order Judge Mullins rules that the Debtors' authority to borrow or incur Letter of Credit Obligations pursuant to the Interim DIP Order will terminate on November 14, 2005, unless otherwise extended. Upon the satisfaction of certain financing conditions, as adequate protection for the priming liens granted to the Agent, on behalf of the DIP Lenders, the Court directs the Debtors to: a) repay the $6,637,692 prepetition indebtedness outstanding to General Electric Capital Corporation, as agent, on behalf of the lender to a prepetition credit agreement, together with all accrued interest and fees; b) issue back to back letters of credit equal to 105% of the face amount of all letters of credit outstanding; and c) tender $500,000 into a segregated account held by the Prepetition Agent for the payment of the indemnification claim. The Court rules that the liens and security interests of CIT Group for the benefit of the DIP Lenders in the collateral, the Prepetition Lender's Liens and the Prepetition Lender's Junior Liens will be subject only to: 1. fees payable pursuant to Section 1930 of the Judiciary Code and to the Clerk of Court; and 2. unpaid and outstanding Chapter 11 professionals' fees and disbursements and unpaid and outstanding Senior Secured Noteholders' Fees and Expenses less the amount of any Retainers in an amount not to exceed: a) $500,000 for the first 30 days after the closing of the DIP Facility; b) $1,000,000 for the next 30 days after the Closing Date; and c) 1,500,000 thereafter. A final hearing on the Debtors' request is set for 2:00 p.m. on November 7, 2005. Headquartered in Roswell, Georgia, O'Sullivan Industries Holdings, Inc. -- http://www.osullivan.com/-- designs, manufactures, and distributes ready-to-assemble furniture and related products, including desks, computer work centers, bookcases, filing cabinets, home entertainment centers, commercial furniture, garage storage units, television, audio, and night stands, dressers, and bedroom pieces. O'Sullivan sells its products primarily to large retailers including OfficeMax, Lowe's, Wal-Mart, Staples, and Office Depot. The Company and its subsidiaries filed for chapter 11 protection on October 14, 2005 (Bankr. N.D. Ga. Case No. 05- 83049). On September 30, 2005, the Debtor listed $161,335,000 in assets and $254,178,000 in debts. (O'Sullivan Bankruptcy News, Issue No. 3; Bankruptcy Creditors' Service, Inc., 215/945-7000) O'SULLIVAN IND: Taps FTI Consulting as Restructuring Advisor ------------------------------------------------------------ O'Sullivan Industries Holdings, Inc., and its debtor-affiliates engaged FTI Consulting, Inc., in August 2005 to serve as their restructuring officer and to provide them certain financial advisory and other consulting services. The Debtors seek the U.S. Bankruptcy Court for the Northern District of Georgia's authority to continue the firm's engagement as their restructuring advisor during the course of their Chapter 11 cases. The Debtors tell the Court that FTI has a wealth of experience in providing financial advisory services in restructurings and reorganizations and enjoys an excellent reputation for services it has rendered in large and complex Chapter 11 cases on behalf of debtors and creditors throughout the United States. The Debtors are convinced that an experienced restructuring advisor like FTI fulfills a critical service that complements other management, as well as the services provided by their other professionals. As a restructuring advisor, FTI will: (a) serve as the Debtors' restructuring officer responsible for the overall direction of their restructuring efforts; (b) review operating and restructuring initiatives and assist with the development and implementation of the Debtors' long-term business plan; (c) assist the Debtors in the preparation of financial related disclosures required by the Court, including the schedules of assets and liabilities, the statement of financial affairs, and monthly operating reports; (d) assist the Debtors with information and analyses required pursuant to the Debtors' postpetition financing including, but not limited to, preparing for hearings regarding the use of cash collateral and DIP financing; (e) assist with the identification and implementation of short-term cash management procedures; (f) provide advisory assistance in connection with the development and implementation of key employee retention and other critical employee benefit programs; (g) assist and advise the Debtors with respect to the identification of core business assets and the disposition of assets or liquidation of unprofitable operations; (h) assist with the identification of executory contracts and leases and performance of cost or benefit evaluations with respect to the assumption or rejection of each; (i) assist in the valuation of the present level of operations and identifying areas of potential cost savings, including overhead and operating expense reductions and efficiency improvements; (j) assist in the preparation of financial information for distribution to creditors and others, including, but not limited to, cash flow projections and budgets, fully integrated financial models, cash receipts and disbursement analysis, analysis of various asset and liability accounts, and analysis of proposed transactions for which Court approval is sought; (k) attend meetings and assist in discussions with potential investors, banks, and other secured lenders, any official committees appointed in the Debtors' Chapter 11 cases, the United States Trustee, other parties-in-interest, and professionals hired by the same, as requested; (l) provide analysis of creditor claims by type, entity, and individual claim, including assistance with the development of databases, as necessary, to track the claims; (m) assist in the preparation of information and analysis necessary for the confirmation of a plan in the Debtors' Chapter 11 cases; (n) assist in the evaluation and analysis of avoidance actions, including fraudulent conveyances and preferential transfers; (o) provide litigation advisory services with respect to accounting and tax matters, along with expert witness testimony on case related issues as required by the Company; and (p) render other general business consulting or other assistance as the Debtors' management or counsel may deem necessary that are consistent with the role of a restructuring advisor and not duplicative of services provided by other professionals. Pursuant to a retention letter dated August 24, 2005, the Debtors agree to pay FTI professional fees ranging from $95 to $625 an hour, depending on the staff member assigned to the project, and reasonable expenses incurred by FTI. The Debtors will also pay the firm for additional profit improvement initiatives FTI may identify during the course of its engagement, like specific efficiency improvements, cost reductions, and revenue enhancements. FTI will be entitled to 10% of the incremental value derived to the Debtors. However, any incentive fee due would be reduced by the hourly fees charged by FTI in connection with the analysis and implementation of the additional profit improvement initiatives. Before the Petition Date, FTI received a $75,000 retainer from the Debtors to secure payment for the services provided. The parties agree that the Retainer would be held by FTI and applied to FTI's final bill for fees and expenses, and the unused portion of the Retainer, if any, would be refunded to the Debtors. Keith F. Cooper, a Senior Managing Director at FTI, assures the Court that the firm is a "disinterested person," as the term is defined in Section 101(14) of the Bankruptcy Code, as modified in Section 1107(b). Headquartered in Roswell, Georgia, O'Sullivan Industries Holdings, Inc. -- http://www.osullivan.com/-- designs, manufactures, and distributes ready-to-assemble furniture and related products, including desks, computer work centers, bookcases, filing cabinets, home entertainment centers, commercial furniture, garage storage units, television, audio, and night stands, dressers, and bedroom pieces. O'Sullivan sells its products primarily to large retailers including OfficeMax, Lowe's, Wal-Mart, Staples, and Office Depot. The Company and its subsidiaries filed for chapter 11 protection on October 14, 2005 (Bankr. N.D. Ga. Case No. 05- 83049). On September 30, 2005, the Debtor listed $161,335,000 in assets and $254,178,000 in debts. (O'Sullivan Bankruptcy News, Issue No. 2; Bankruptcy Creditors' Service, Inc., 215/945-7000) O'SULLIVAN INDUSTRIES: Hires Lazard Freres as Financial Advisor --------------------------------------------------------------- Before they filed for bankruptcy protection, O'Sullivan Industries Holdings, Inc. and its debtor-affiliates retained Lazard Freres & Co., LLC, as their financial advisor to provide general restructuring advice as part of their restructuring process. Lazard is a financial advisory and investment banking firm focused on providing financial and investment banking advice and transaction execution on behalf of its clients. The firm has advised debtors, creditors, equity constituencies, and government agencies in many complex financial reorganizations. Since 1990, Lazard's professionals have collectively been involved in over 200 reorganizations and have restructured over $300 billion in debtor assets. According to the Debtors, Lazard and its senior professionals have an excellent reputation for providing high quality financial advisory and investment banking services to debtors and creditors in bankruptcy reorganizations and other debt restructurings. Furthermore, in providing the Prepetition Services to the Debtors, Lazard has developed significant relevant experience and expertise with respect to the Debtors' financial and business operations. The Debtors seek the U.S. Bankruptcy Court for the Northern District of Georgia's authority to retain Lazard as their Chapter 11 financial advisor to: -- review and analyze their business, operations, and financial projections; -- evaluate their potential debt capacity in light of its projected cash flows; -- assist in the determination of their capital structure; -- assist in the determination of a range of values on a going concern basis; -- advise them on tactics and strategies for negotiating with Stakeholders; -- render them financial advice and participate in meetings or negotiations with the Stakeholders or rating agencies or other appropriate parties in connection with any restructuring alternatives; -- advise them on the timing, nature, and terms of new securities, other consideration, or other inducements to be offered pursuant to the Restructuring; -- in coordination and partnership with Lazard Capital Markets LLC, as is appropriate or necessary, * advise and assist them in evaluating potential capital markets transactions of public or private debt or equity offerings; * evaluate and contact potential sources of capital as they may designate; and * assist them in negotiating the Financing; -- assist them in preparing documentation within Lazard's area of expertise, as required in connection with the Restructuring; -- assist them in identifying and evaluating candidates for a potential Sale Transaction, advise them in connection with negotiations, and aid in the consummation of a Sale Transaction; -- attend meetings of their Board of Directors and its committees; -- provide testimony, as necessary, with respect to matters for which Lazard has been engaged to advise them on in any proceeding before the Bankruptcy Court; and -- provide them with other general restructuring advice. Pursuant to an engagement letter, the Debtors will pay Lazard: (a) a $125,000 monthly fee; (b) a $2,000,000 fee payable upon the consummation of a Restructuring; (c) a sale transaction fee equal to the greater of the Fee calculated based on the Aggregate Consideration and the Restructuring Fee in the event the Debtors consummate a Sale Transaction incorporating all or a majority of the assets or equity securities of the Debtors; (d) a fee equal to a percentage of the aggregate gross proceeds raised, including un-borrowed portions of credit facilities, in a Financing based on the form of security issued; and (f) reimbursement for all: * reasonable out-of-pocket expenses; and * other reasonable fees and expenses, including expenses of outside legal counsel, if any. Richard F. NeJame, a director at Lazard, discloses that during the 90 days immediately preceding the Petition Date, the Debtors paid $500,000 in fees to Lazard. Mr. NeJame assures the Court that the firm is a "disinterested person," as the term is defined in Section 101(14) of the Bankruptcy Code, as modified in Section 1107(b). Headquartered in Roswell, Georgia, O'Sullivan Industries Holdings, Inc. -- http://www.osullivan.com/-- designs, manufactures, and distributes ready-to-assemble furniture and related products, including desks, computer work centers, bookcases, filing cabinets, home entertainment centers, commercial furniture, garage storage units, television, audio, and night stands, dressers, and bedroom pieces. O'Sullivan sells its products primarily to large retailers including OfficeMax, Lowe's, Wal-Mart, Staples, and Office Depot. The Company and its subsidiaries filed for chapter 11 protection on October 14, 2005 (Bankr. N.D. Ga. Case No. 05- 83049). On September 30, 2005, the Debtor listed $161,335,000 in assets and $254,178,000 in debts. (O'Sullivan Bankruptcy News, Issue No. 2; Bankruptcy Creditors' Service, Inc., 215/945-7000) OPEN SOLUTIONS: S&P Rates $415-Mil. Sr. Secured Loans at Low-B -------------------------------------------------------------- Standard & Poor's Ratings Services assigned its 'B+' corporate credit rating to Glastonbury, Connecticut-based Open Solutions Inc. The rating outlook is negative. At the same time, Open Solutions' proposed $340 million first-lien senior secured bank facility was rated 'B+', with a recovery rating of '2', indicating the expectation for substantial recovery of principal in the event of a payment default. In addition, the company's $75 million six-year second-lien senior secured term loan was rated 'B-', with a recovery rating of '5', indicating the expectation for negligible recovery of principal in the event of a payment default. Proceeds from the bank facilities will primarily be used to partially finance the acquisition of the BISYS Information Services business, owned in a wholly owned subsidiary of The BISYS Group, Inc. "The ratings on Open Solutions reflect a targeted industry product focus with strong competitors, an aggressive financial policy, and an acquisitive growth strategy," said Standard & Poor's credit analyst Lucy Patricola. "These are only partly offset by an increasing contractually recurring revenue base, good technology with high switching costs, and adequate cash flow for the rating." Open Solutions is a provider of enterprise-wide proprietary software and services to the financial services industry. The acquisition of the BISYS Information Services business provides additional scale in outsourced processing, customer care, and check imaging solutions. BISYS has been a strategic reseller of Open Solutions software -- accounting for about 12% of Open Solutions' total revenues in 2004, which should mitigate client attrition risk and provide an opportunity to leverage its infrastructure across a greater number of client programs and into new markets like insurance and health care. Pro forma for the acquisition, revenues are expected to approach $400 million, and debt to EBITDA is expected to be in the 5.5x area. The company is not working capital intensive, and is expected to generate modest levels of free cash flow, which could be used for debt reduction in the absence of acquisitions that could expand the customer and product portfolio. PACIFIC COAST: Fitch Junks $29.52M Class Notes & $26M Pref. Shares ------------------------------------------------------------------ Fitch Ratings downgrades five classes of notes issued by Pacific Coast CDO Ltd. These rating actions are effective immediately: -- $275,649,084 class A notes to 'AA' from 'AAA'; -- $96,000,000 class B notes to 'B' from 'BBB-'; -- $20,693,833 class C-1 notes to 'C' from 'B-'; -- $8,824,963 class C-2 notes to 'C' from 'B-'; -- $26,000,000 preference shares to 'C' from 'CC'. Pacific Pacific Coast is a collateralized debt obligation, which closed Sept. 25, 2001 and is managed by Pacific Investment Management Company. Pacific Coast is composed of 50.7% residential mortgage-backed securities, 17.3% asset-backed securities, 16.1% commercial mortgage-backed securities, 9.2% corporate bonds, and 6.8% CDOs. As a result of failing coverage tests, PIMCO is limited to the sale of credit risk and defaulted securities. Pacific Coast has been failing both the class A/B overcollateralization test and class C OC test since February 2004. As of the latest Trustee report dated Sept. 30, 2005, the class A/B OC ratio is 92.2% versus a required minimum level of 105.9% and the class C OC ratio is 85.4% versus a required minimum of 101.7%. Additionally, as of October 2004, Pacific Coast has been in an event of default, resulting from the class A/B OC ratio falling below 100%. To date, no action has been taken to accelerate the notes. Since Fitch's last rating action on Aug. 31, 2005, the portfolio has continued to deteriorate. Large exposures in the Manufactured Housing and Aircraft sectors have led to approximately 28.2% of the portfolio being downgraded since that action. As of the latest Trustee report dated Sept. 30, 2005, assets rated 'BBB-' or lower represented approximately 37.6% of the portfolio. The weighted average rating factor has increased to 31 from 19 as of the Sept. 30, 2005 and July 20, 2004 trustee reports, respectively. The ratings of the classes A and B notes address the likelihood that investors will receive full and timely payments of interest, as per the governing documents, as well as the stated balance of principal by the legal final maturity date. The ratings of the classes C-1 and C-2 notes address the likelihood that investors will receive ultimate and compensating interest payments, as per the governing documents, as well as the stated balance of principal by the legal final maturity date. The rating of the preference shares addresses the likelihood that investors will receive ultimate and compensating payments resulting in a yield on the preference shares rated balance equivalent to 2% per annum, as per the governing documents, as well as the initial preference share rated balance by the legal final maturity date. For more information on the Fitch VECTOR Model, see 'Global Rating Criteria for Collateralized Debt Obligations,' dated Sept. 13, 2004, also available at http://www.fitchratings.com/ PAN AMERICAN: Fitch Affirms BB- Int'l Foreign Currency Rating ------------------------------------------------------------- Fitch Ratings has affirmed Pan American Energy LLC's international foreign currency rating at 'B+' and local currency rating at 'BB-'. A Stable Rating Outlook has also been assigned. The ratings reflect the continued strength of PAE's financial flexibility and credit protection measures. The rating is also supported by PAE's high level of dollar denominated revenues from exports, its ability to maintain a material amount of export revenues offshore, and expanding base of hydrocarbon reserves. The ratings further reflect the risks of operating in Argentina, commodity price volatility, and operational risks typical of the industry. PAE is the second largest and efficient hydrocarbon producer in the Argentine market. Crude oil sales as of fiscal year 2004 represented 83% of total revenues and production is currently at its peak. During the first half of 2005, PAE's cash generation has benefited from the combination of the high international crude oil price environment and the company's export-oriented profile. These positives coupled with production increases contributed to a 20% rise in revenues to $869 million through June 2005 from US$725 million through June 2004. As of June 2005 credit protection measures were at record levels, with EBITDA/interest of 25 times, EBITDA-capital expenditures/interest of 11x, total debt/EBITDA of 0.7x and a total debt-to-capitalization of 16%, metrics considered strong for the ratings category. PAE's investment requirements are significant, averaging approximately $420 million per annum and increasing to $550 million in 2005, mainly focused on the development of reserves at the Cerro Dragon basin. These capital requirements are expected to be funded with PAE's strong internal cash generation and potentially new external financing. Fitch estimates financial leverage will be maintained at reasonable levels given its strong cash flow from operations and conservative capital structure target. Total financial debt at June 2005 was approximately $720 million. PAE's current debt profile includes short-term debt of $177 million, plus current portion of long-term debt of $157 million and long-term debt of $372 million. In mid September PAE repaid in full a US$100 million bullet bond guaranteed by its parent company, BP plc. Almost at the same time, PAE received the second disbursement of the IFC loan -- total accrued US$175 million. Core borrowing facilities are generally held at the Argentine Branch level. Given PAE's conservative balance sheet, the company is expected to continue to issue debt on a periodic basis to refinance maturities, extend the average life of its debt, and maintain a relatively stable debt-to-capitalization ratio. PAE is owned 60% by BP and 40% by Bridas and has been the vehicle for the exploration and production of oil and gas and mid- and downstream gas activities in the southern cone. Historically, PAE's main cash generating assets were located in Argentina, at the Pan American Energy LLC, Argentine Branch level. PATCH INTERNATIONAL: Posts $281,898 Net Loss in FY 2005 1st Qtr. ---------------------------------------------------------------- Patch International Inc. delivered its financial results for the quarter ended Aug. 31, 2005, to the Securities and Exchange Commission on Oct. 17, 2005. For the three-month period ended Aug. 31, 2005, Patch International incurred a $281,898 net loss, an 85.6% increase over the $151,891 net loss reported a year earlier. The Company has accumulated losses of $1,942,678 since inception. The Company's balance sheet showed $12,539,243 of assets at Aug. 31, 2005, and liabilities totaling $633,105. As of Aug. 31, 2005, the Company had a working capital deficiency of $497,717 compared to a $441,549 working capital deficiency at May 31, 2005. Going Concern Doubt As reported in the Troubled Company Reporter on Sept. 30, 2005, Morgan & Company expressed substantial doubt about Patch International's ability to continue as a going concern after it audited the Company's financial statements for the fiscal year ended May 31, 2005. The auditing firm says that the Company needs to have future profitable operations or obtain additional financing in order to continue as a going concern. Available-For-Sale Securities Patch International holds an approximate 8.6% equity interest in Pharmaxis Ltd., an Australian company listed on the Australian Stock Exchange. These shares are restricted from trading until Nov. 11, 2005 and are recorded at fair value. At Aug. 31, 2005, the Company has recognized a discount from quoted market value of securities held for resale due to the following factors: -- lack of marketability of the Company's holdings due to the trading restriction until Nov. 2005; -- the ability to dispose of large-block holdings in a timely manner; and -- the risk associated with an investment in a startup company engaged in research and development. The discounted market value at Aug. 31, 2005, is recorded at $12,189,000, net of tax of $5,485,000, resulting in an unrealized gain of $12,188,999, which is recorded as other comprehensive income, a separate component of shareholders' equity. About Patch International Patch International -- http://www.patchenergy.com/-- is a junior oil and gas producer that currently earns oil revenue from 19 oil wells. These wells provide the company with both short-term and long-term cash flow. It is anticipated that these wells will have a life of over 15 years. PTII has properties in North America, and is exploring opportunities in North Africa, South America, and Ukraine. Praxis Pharmaceuticals Inc. acquired Patch International through a stock-for-stock transaction on March 15, 2004. As a result of the acquisition, the Company is a wholly owned subsidiary of Praxis. PHILLIP COLLECTOR: Case Summary & 20 Largest Unsecured Creditors ---------------------------------------------------------------- Debtor: Phillip Howard Collector 717 Light Street, Suite 300 Baltimore, Maryland 21230 Bankruptcy Case No.: 05-42339 Chapter 11 Petition Date: October 15, 2005 Court: District of Maryland (Baltimore) Debtor's Counsel: Marc Robert Kivitz, Esq. 201 North Charles Street, Suite 1330 Baltimore, Maryland 21201 Tel: (410) 625-2300 Fax: (410) 576-0140 Total Assets: $242,789 Total Debts: $1,310,411 Debtor's 20 Largest Unsecured Creditors: Entity Claim Amount ------ ------------ Internal Revenue Service $340,393 Centralized Insolvency Unit P.O. Box 21126 Philadelphia, PA 19114 Internal Revenue Service $152,201 Centralized Insolvency Unit P.O. Box 21126 Philadelphia, PA 19114 Internal Revenue Service $149,418 Centralized Insolvency Unit P.O. Box 21126 Philadelphia, PA 19114 Internal Revenue Service $110,931 Internal Revenue Service $104,122 Internal Revenue Service $94,671 Internal Revenue Service $79,038 Internal Revenue Service $68,277 Internal Revenue Service $65,412 Internal Revenue Service $61,839 Internal Revenue Service $43,092 Internal Revenue Service $20,250 Internal Revenue Service $17,034 Internal Revenue Service $16,327 Internal Revenue Service $13,160 Internal Revenue Service $12,342 Internal Revenue Service $11,261 Internal Revenue Service $9,869 Internal Revenue Service $7,128 Internal Revenue Service $6,011 PLEJ'S LINEN: Case Summary & 20 Largest Unsecured Creditors ----------------------------------------------------------- Lead Debtor: Plej's Linen Supermarket SoEastStores LLC aka Ostrow Textile Co., Inc. aka Ostrow Textile LLC 454 South Anderson Road, Suite 600 Rock Hill, South Carolina 29730 Bankruptcy Case No.: 05-35484 Debtor affiliates filing separate chapter 11 petitions: Entity Case No. ------ -------- Ostrow Holdings, Inc. 05-35493 Ostrow Company, LLC 05-35498 Ostrow Wholesale Company, LLC 05-35504 Type of Business: The Debtors have two core business -- retail sale of first quality program home accessories for bed, bath, window, decorative and house wares and limited closeout and discontinued opportunistic merchandise and wholesale of bed and bath textiles. The Debtors previously filed for chapter 11 protection on April 14, 2004(Bankr. W.D. N.C. Case No. 04-31383) and emerged from that bankruptcy proceeding on April 12, 2005. Chapter 11 Petition Date: October 14, 2005 Court: Western District of North Carolina (Charlotte) Judge: George R. Hodges Debtors' Counsel: Paul R. Baynard, Esq. Rayburn, Cooper & Durham, P.A. 227 West Trade Street, Suite 1200 Charlotte, North Carolina 28202 Tel: (704) 334-0891 Fax: (704) 377-1897 Estimated Assets Estimated Debts ---------------- --------------- Plej's Linen Supermarket $100,000 to $1 Million to SoEastStores LLC $500,000 $10 Million Ostrow Holdings, Inc. Less than $50,000 $1 Million to $10 Million Ostrow Company, LLC $1 Million to $1 Million to $10 Million $10 Million Ostrow Wholesale Less than $50,000 $1 Million to Company, LLC $10 Million Consolidated List of Debtors' 20 Largest Unsecured Creditors: Entity Nature of Claim Claim Amount ------ --------------- ------------ Springs Industries, Inc. Trade debt $201,563 P.O. Box 75066 Charlotte, NC 28275 Larson Allen Weishair & Co. LLP Professional $129,000 SDS12-2363 Services P.O. Box 86 Minneapolis, MN 55486-2363 Arlee Home Fashions Trade debt $76,925 P.O Box 3463 Buffalo, NY 14240 The Finley Group Professional $64,546 6100 Fairview Road, Suite 1220 Services Charlotte, NC 28210 Phi Trading Company Ltd. Trade debt $63,077 Elite Home Products, Inc. Trade debt $62,807 Hollander Home Fashions Corp. Trade debt $55,544 Fallani and Cohn Trade debt $48,198 Creative Bath Products Inc. Trade debt $46,946 Rug Doctor LP Trade debt $44,710 UMA Enterprises Inc. Trade debt $40,617 Beatrice Home Fashions, Inc. Trade debt $39,225 L R Resources Inc. Trade debt $35,132 Kimlor Innovative Home Fashions Trade debt $29,513 Gramercy Marketing Associates Trade debt $28,684 Artistry Designs By Reliance Trade debt $27,063 Evergreen Enterprises, Inc. Trade debt $27,030 International Brass House Inc. Trade debt $24,904 International Silver Company Trade debt $24,888 Creative Motion Industries Inc. $24,716 PQ CORP: Moody's Affirms $275-Million Sr. Sub. Notes' B3 Rating --------------------------------------------------------------- Moody's Investors Service affirmed the B1 rating for PQ Corporation's senior secured bank debt, the B3 rating on its senior subordinated notes, and its SGL-2 speculative grade liquidity rating. However, the rating outlook was changed to negative from stable as a result of the company's recent announcement that it will increase debt by $80 million in order to pay a $110 million cash dividend to its shareholders. Ratings Affirmed: 1) Corporate Family Rating -- B1 2) $100 million six-year guaranteed secured revolving credit facility -- B1 3) $335 million guaranteed secured term loan due 2012 -- B1 4) $275 million 7.50% guaranteed senior subordinated notes due 2013 -- B3 5) Speculative Grade Liquidity rating -- SGL-2 Moody's views PQ's strong, stable, and geographically diverse inorganic specialty chemicals and engineered glass materials businesses as its primary credit strengths. The ratings consider the strength of PQ's franchise in terms of its market positions and long-lived customer relationships, offset by the leveraged nature of its balance sheet. More than 85% of sales reflect products in which PQ has a meaningful number one position. In addition, the B1 corporate family rating recognizes PQ's strong profit margins, stable source of revenues and operating cash flow, and ability to generate meaningful free cash flow. Moody's believes that PQ's raw material supply contracts and natural gas hedges are important to PQ maintaining the current level of profitability. The B1 corporate family rating also reflects PQ's high leverage and the relatively small size of PQ's revenue base. Total debt, after the announced dividend is financed, will initially exceed total annual revenues. The rating also anticipates that PQ may pursue modest bolt-on acquisitions (of no more than $10 million) as it has been a consolidator in its industries. PQ's natural gas costs have been insulated from the full effect of recent price increases due to the low costs embedded in its natural gas hedges but these hedges diminish over time. Therefore, PQ's margins and its ratings could be pressured if natural gas prices do not ease in the second half of 2006. Moody's notes that the credit agreement for the credit facility contains many standard covenants. An amendment to the credit agreement requiring the approval of the banks holding a majority of the commitments must be secured to approve the $80 million in additional debt needed to fund the dividend. The possibility of additional indebtedness and restricted payments allowed under the credit agreement raises concern given the company's already substantial leverage. The credit agreement may allow for substantial additional indebtedness that could further subordinate the notes and investments that could reduce cash flow available for debt reduction. The credit facilities are guaranteed by PQ's parent, Niagara Holdings, Inc. The credit facilities and the notes are guaranteed by all domestic subsidiaries. PQ's negative outlook reflects the additional $80 million in debt PQ plans to take on to fund the recently announced $110 million dividend ($30 million will be funded with cash) and management's departure from the debt reduction philosophy initially set forth when PQ was taken private in February 2005. The negative outlook also reflects Moody's expectations that raw material prices and energy costs (PQ has not hedged 100% of next year's energy usage) will pressure operating margins and that credit metrics could worsen in the near-term. A downgrade could result from: 1) PQ making additional dividends before reducing debt to levels below the current level (i.e., before the effect of financing the recently announced dividend); 2) taking on additional debt; 3) a diminished ability to meet covenants; 4) a deterioration in operating results or free cash flow; or 5) a deterioration in other fundamentals. Moody's would look for meaningful debt reduction and an improvement in PQ's credit metrics before considering moving the outlook back to stable. PQ's interest coverage is considered modest, with projected EBITDA covering interest expense approximately 2.3 times for the year ending December 31, 2006. Moody's expects leverage, Total Debt/EBITDA, on a consolidated basis, to drop to about 5 times by the end of 2006. Structurally, the B1 assigned to the credit facilities reflects their senior secured position in the capital structure although asset coverage in a distressed scenario does not provide the support necessary to move the B1 rating higher even with its secured position. Moody's views the level of asset coverage in a distressed scenario as marginal. The credit facilities will be secured by perfected first priority pledges of all the equity interests of PQ and each of PQ's direct and indirect US subsidiaries and 65% of the equity interests of the first tier Foreign Subsidiaries (except Unrestricted Subsidiaries) and perfected first priority security interests in and mortgages on all material tangible and intangible assets of PQ and the guarantors. The credit facilities are fully and unconditionally guaranteed on a joint and several basis by Holdings. The credit facilities and the notes are fully and unconditionally guaranteed on a joint and several basis by all of the existing and future direct and indirect US subsidiaries of PQ. The SGL-2 rating indicates good liquidity. PQ's liquidity is supported by: * its ability to generate positive pro forma free cash flow; * the anticipated availability under its $100 million committed bank facility ($25 million will be drawn to fund the dividend); * modest near-term debt maturities; and * the expectation that it will be in compliance with its financial covenants over the next four quarters. Asset sales are not expected to be a significant source of liquidity in the near term. However, Moody's notes that a decline in anticipated annual free cash flow to less than $20 million, or a modest reduction in either cash balances (after the $30 million reduction to fund the dividend) or availability on the revolving credit facility could result in a lower liquidity rating. PQ Corporation, headquartered in Berwyn, Pennsylvania, is a leading provider of inorganic specialty chemicals, including: * sodium silicate, * high performance silicate derivatives, and * engineered glass materials. PRESIDENT CASINOS: Earns $2MM of Net Income in FY 2005 2nd Quarter ------------------------------------------------------------------ President Casinos Inc. delivered its financial results for the quarter ended Aug. 31, 2005 to the Securities and Exchange Commission on Oct. 13, 2005. In its Form 10-Q for the quarter ended Aug. 31, 2005, President Casinos reports a $2,127,000 net income compared to a $744,000 net loss for the same period in 2004. The Company had accumulated of $112,986,000 at Aug. 31, 2005. However, the Company incurred a net loss from continuing operations of $0.6 million during the three-month period ended Aug. 31, 2005 compared to a net loss from continuing operations of $1.3 million a year