Berkshire's Apparent Heir Suddenly Resigns

David Sokol, Warren Buffet's #1 right-handed man, suddenly quits! Sokol's resignation came shortly after Sokol buys shares in a company that he originally suggested to Buffet. This is linked with to a business deal with Lubrizol Corp and Berkshire. Apparently, the transaction was not at arm's length. However, Buffet himself believes nothing unlawful had happened: "neither Dave nor I feel his Lubrizol purchases were in any way unlawful." 

According to WSJ, Mr. Buffett said Mr. Sokol wrote in a letter of resignation on March 28 that he wanted to "invest my family's resources in such a way as to create enduring equity value and hopefully an enterprise which will provide opportunity for my descendants and funding for my philanthropic interests." 

Clearly, these two are very different predictions. So what's the truth? At the moment SEC has declined to comment whether they will investigate this matter. 

If I was an apparent heir to Berkshire, would I quit at a moment's notice? Now speculations are rising on who the successor will be. Other candidates that are still in the race include Ajit Jain, the head of Berkshire's reinsurance operation, and Matt Rose, the CEO of Berkshire' railroad, Burlington Northern Santa Fe.

Because Warren Buffet is known for his high standard of moral and ethics, especially with his 99% pledge to donate his wealth, this news has tarnished the good reputation of Berkshire. The company's B shares declined 3.2% in after-hours trading.

World's Highest Hotel Opens in Hong Kong

The Ritz-Carlton in Hong Kong opened earlier this week! For those that are visiting Asia this summer, be sure to check it out. Not only is the world's highest hotel, it also offers a breathtaking panoramic view of Hong Kong. This luxurious hotel is catered to mostly visitors from mainland China, which are deemed as The Ritz-Carlton's best customers. Herve Humler, Ritz-Carlton President and COO, stated that mainland Chinese visitors "come to eat in the restaurants, they bring their family and they are eating better than anybody, drinking the best wines." 


According to Ritz Carlton's official website, The Ritz-Carlton Hong Kong has 312 rooms and is located at International Commerce Centre, 1 Austin Road West, Kowloon, Hong Kong. Starting price for rooms is HK$3,888 per night for a deluxe suite for an introductory package. For the presidential suite, it can cost $100,000 per night.

World's highest swimming pool

Ritz Carlton room

60 Minutes: Why are U.S. companies moving to tax havens

Here's a video of Lesley Stahl reports why U.S. companies are avoiding the statutory corporate tax rate of 35% by moving to countries that have far less lower corporate tax rates. Check it out!

AstraZeneca Pays $1.1 Billion for Tax Settlement

AstraZeneca, a global drug company with its headquarter in London, has reached an agreement with U.S. and U.K. tax regulators to pay $1.1 billion for tax issues that have been going on in the last decade.

AstraZeneca will pay the settlement in 2011 to resolve all transfer pricing issues in the United States. The payment is much less than what was determined in provisions. In fact, this good news raised AstraZeneca's 2011 core earnings to be $6.90 to $7.20 a share. This payment will cause AstraZeneca's effective tax rate this year will be some six percentage points lower than thought at about 21 percent." (FYI, the statutory corporate tax rate is 35%.)

According to this New York Times article, 

Transfer pricing concerns the price at which one unit of a group sells goods or services to another unit of the same group. Such practices are receiving increased attention as tax authorities around the world seek to limit any abuse of intracompany transfers of expenses or profits.

This is another interesting article about big corporates with tax issues. As an accounting major, I find transfer pricing to be a very subjective practice where GAAP recognizes the importance of different transfer pricing methods due to different industry standards. I find it amusing when U.S. government goes after corporates for tax issues because SEC's current accounting rules have too many loopholes that it seems silly if people don't take advantage of them. 

G.E. Claims $3.2 Billion In Tax Benefits Instead of Paying Taxes

General Electric should give their accountants salary raises. And big, fat bonuses.

At year-end 2010, G.E. reported $14.2 billion in annual worldwide profits ($5.1 billion domestic profit), the company paid nothing to Uncle Sam. On top of that, G.E. claimed $3.2 billion in tax benefits. The New York Times had an interesting evaluation of the situation:

Its extraordinary success is based on an aggressive strategy that mixes fierce lobbying for tax breaks and innovative accounting that enables it to concentrate its profits offshore. G.E.’s giant tax department, led by a bow-tied former Treasury official named John Samuels, is often referred to as the world’s best tax law firm. Indeed, the company’s slogan “Imagination at Work” fits this department well. The team includes former officials not just from the Treasury, but also from the I.R.S. and virtually all the tax-writing committees in Congress.

For those that are interested in the detailed accounting works performed by G.E., depreciation and leasing are two major areas where most tax benefits were achieved.

Over the last decade, G.E. has spent tens of millions of dollars to push for changes in tax law, from more generous depreciation schedules on jet engines to “green energy” credits for its wind turbines. But the most lucrative of these measures allows G.E. to operate a vast leasing and lending business abroad with profits that face little foreign taxes and no American taxes as long as the money remains overseas. 

Failing Borders Wants to Pay $8.3 Million Bonuses to Top Execs

Check out this interesting timeline:

2/16/11 Borders filed for bankruptcy protection this morning, and said it will close at least 200 stores, plus the option for about 75 more — or about 30% of the company’s total.

3/17/11 Borders said it will close another 28 stores by late May. FYI: Here's a list of all the Borders stores that are expected to foreclose.

3/26/11 Borders announced they want bankruptcy court to approve a bonus payout of $8.3 million to its top executives, with $1.7 million to President Mike Edwards.

Peg Brickley from WSJ reported:

For Borders' five highest-level executives, the bonuses would mean extra pay of between 90% and 150% of their base salaries, depending on how quickly the company exits bankruptcy or is sold as a going concern.

The catch? The bonus won't be paid if Borders liquidates.

One investor laments the irony of the situation: "The idea of retention bonuses are killing me, but you'd have to pay a king's ransom for the next group. It irks me because it's money that won't go to paying creditors."

USC Receives $200 Million in Donation

As a Trojan, I'm very excited to hear this news! 

USC Alumnus Donald Dornsife and his wife Dana presented USC's College of Letter, Arts, and Sciences with an unrestricted endowment of $200 million. This beats George Lucas' $175 million donation to USC in 2006. According to Pamela Johnson of USC News, Dornsifes' endowment marks "the largest naming gift in the history of higher education for a college of letters, arts, and sciences." 

Check out a celebration video of Donald and Dana Dornsife. It's narrated by USC Professor Kevin Starr, whom was inducted into the California Hall of Fame last year by Governor Arnold Schwarzenegger. 

Unrestricted, you say? Now that's impressive. But Donald Dornsife believed it was a simple decision. He said, "We think we understand the people who are going to administer the gift. We have a lot of faith in them. And if it's a good friend of mine, I say, 'They don't tell me how to put a steel building up. And I don't tell them how to run a university." 

President Nikias is bringing serious dough. On the day of Nikias' inauguration in October, 2010, USC Trustee Ming Hsieh and the Annenberg foundation announced that they will donation $50 million donations each to fund cancer research and journalist education. That's another $100 million for my beloved school! 

When I was a freshman, I always hear about how strong the Trojan network is. As a senior, I am grateful to witness it in action. I'm very proud to be a Trojan. Fight on! 

AT&T bids on a $39 billion merger with T-Mobile

Released on March 20, 2011, AT&T announced on its official website of a merger with T-Mobile:

AT&T Inc. (NYSE: T) and Deutsche Telekom AG (FWB: DTE) today announced that they have entered into a definitive agreement under which AT&T will acquire T-Mobile USA from Deutsche Telekom in a cash-and-stock transaction currently valued at approximately $39 billion. The agreement has been approved by the Boards of Directors of both companies. 

With this transaction, AT&T commits to a significant expansion of robust 4G LTE (Long Term Evolution) deployment to 95 percent of the U.S. population to reach an additional 46.5 million Americans beyond current plans – including rural communities and small towns.  This helps achieve the Federal Communications Commission (FCC) and President Obama’s goals to connect “every part of America to the digital age.”

An interesting clause within the merger deal: Even if the merger doesn't go through, At&T will pay T-Mobile $3 billion for the hassle. 

What does this mean for the average American consumer? Be on the lookout for a future post of my detailed analysis about this merger!

Chinese Entertainment Firms and IPOs

The Hollywood Reporter compared quarterly earnings of two Chinese entertainment firms that went publicly recently - Youku.com and Bona Film Group.

Youku.com was successful in its IPO endeavor as China's leading video sharing website. With less than three months since its IPO offering, the company released better quarterly report in December 2010. Youku.com's debut was the strongest in the United States in five years.

On the other hand, Bona Film Group was not as lucky. In its end of year quarterly report, Bona Film Group had a whopping 22.2% loss in net revenue. Company's managers blamed the loss on movie flop and bad investments. 

The mix results have investors feeling antsy. Expert said it will take time to rebuild confidence in China's growing entertainment industry.

Fed Makes It Rain! Banks Gets the OK To Pay $8.7 Billion in Dividends!

The federal gives the green light to lift restriction oversight for the first time since banks were forced to cut dividends during the financial crisis in 2008. This signifies a dividend payment of $8.7 billion to U.S. shareholders this year. The Wall Street Journal reports:

Minutes after the Federal Reserve privately notified some financial institutions that they passed a new round of regulatory "stress tests," a half-dozen sent out a flurry of statements Friday detailing the new payouts. Three more banks said they may raise dividends without specifying the amounts, likely providing another $3.4 billion for shareholders this year, according to research firms SNL Financial LC and RBC Capital Markets LLC.

IBM Pays SEC To Settle Bribery Charges

The Wall Street Journal reported today that IBM has agreed to settle bribery charges with SEC for $10 million. This came from a "a decade-long campaign of bribery in Asia, saying employees handed over shopping bags stuffed with cash in South Korea and arranged junkets for government officials in China in exchange for millions of dollars in contracts." The settlement included $5.3 million in disgorged profit, $2.7 million in interest and a penalty of $2 million. The payment is relatively small for an FCPA civil case, which may reflect that the alleged bribes, while pervasive, weren't very large.

However, the International Business Machines Corp. has neither admitted nor denied the charges.

IMF: Food Prices Will Remain High

(Source: IMF)

IMF published its March 2011 Finance & Development issue to address a key statement -- Higher food prices may be here to stay.
 
According to Thomas Helbing and Shaun Roache, two staff members of IMF's research department, these price spikes are results of poor weather around the world. As energy prices increases, it will create a knock-on effects on food.

The most crucial explanation is that "consumers in emerging and developing economies are eating more high-protein foods such as meat, dairy products, edible oils, fruits and vegetables, and seafood. These products are more “income elastic” than staple grains.

However, every cloud has a silver lining. IMF staff reports that growth in supplies will take the pressure off costs and slowly take the pressures off on food markets over time. But, "this will take time counted in years rather than months.”

iPad 2.0

The highly anticipated iPad 2 was unveiled today at Apple's exclusive launch event. Guess the rumours were true this time!

If you'd like to witness the unveiling, you can see Apple's iPad 2 keynote live on Apple's website in iTunes. 

 

This Wall Street Journal article has a brief description of what to expect of the upgraded  iPad:

"The iPad 2, which like its predecessors starts at $499, will ship in the U.S. on March 11 and in 26 more countries on March 25. It comes with front and rear cameras—addressing an omission in the initial model—and a new Apple-designed chip that Mr. Jobs said performs standard calculations twice as fast as its predecessor and offers a nine-fold boost in graphics performance."