Thursday, December 31, 2009

Footnote Fun at Chesapeake Energy (CHK)

Footnoted.org has announced their embarrassing footnote of the year.  (Footnotes are the common term for company disclosures in SEC filings).  The winner comes from Oklahoma City-based Chesapeake Energy (CHK), an oil and natural gas exploration firm with about $8billion in annual revenues.


Chesapeake's co-founder is Aubrey McClendon.  Oh he's also Chairman of the Board, CEO, and maybe most importantly, "Chairman of Employee Benefits and Compensation Committee."  Might explain his $78million in compensation in 2008 despite the 57% decline in the stock price the same year.


Many investors, myself included, take note when a CEO buys shares of his own company, as it's a usually a positive sign.  McClendon used to buy shares of CHK hand over foot, consistently placing himself atop the insier buying lists.  That came back to haunt him (and anyone piggybacking his moves) in October 2008, when he had to sell his entire 33million share stake in CHK due to margin calls.  Maybe the worst "CEO trade" ever.


Anyway that's not the point.  As I mentioned above, footnoted.org designated CHK as their most embarrassing footnote of the year, for having to point out that they purchased Mr. McClendon's historical map collection for $12million.  Ridiculous cash handout to the CEO and Chairman?  No way, because these maps are displayed at company headquarters and improve WORKPLACE CULTURE!"  I love that the Company decided that it was appropriate to pay for these "cost-free loans of artwork."


"In December 2008, the Company purchased an extensive collection of historical maps of the American Southwest from Mr. McClendon for $12.1 million, which represented his cost. A dealer who had assisted Mr. McClendon in acquiring this collection over a period of six years advised the Company that the replacement value of the collection in December 2008 exceeded the purchase price by more than $8 million....These maps have been displayed throughout the Company’s headquarters for a number of years, complementing the interior design features of our campus buildings and contributing to our workplace culture...The Company was interested in continuing to have use of the map collection and believed it was not appropriate to continue to rely on cost-free loans of artwork from Mr. McClendon. "


Even though this transaction was awarded the top honor at Footnoted.org, if you keep reading the proxy further, the handouts become even more embarrassing.  The next two entries are cash dealings with McCledon-owned businesses.  In the first it's the company paying millions for advertising, tickets and suites at the McCledon-owned Oklahoma City Thunder, followed by payments to a McCledon-owned catering firm.  In the case of the basketball team, they go to lengths to assure people that the company would patronize a sporting team even if it was not affiliated with McCledon, and in the case of the catering deal they come out and say it's outright inappropriate.


Oh and to top things off they pay the governor's kids six figure salaries,, which should curry favor pretty well:



"In 2008, the Company became a founding sponsor of the Oklahoma City Thunder, a National Basketball Association franchise owned and operated by The Professional Basketball Club, LLC (“PBC”). Mr. McClendon has a 19.2% equity interest in and is a non-management member of the PBC. The Company paid $3,495,525 in 2008 and $1,165,175 in 2009 pursuant to its sponsorship agreement for the Oklahoma City Thunder’s 2008-2009 season. As a founding sponsor, the Company received television and radio advertising for local broadcasts of Thunder games, arena advertising space, advertising in game-day programs and on the team website, team participation in a Company-sponsored community event, game tickets and use of an arena suite. In addition to the advertising and promotional activities related to its sponsorship of the Oklahoma City Thunder, the Company believes the sponsorship provides valuable support to the local community and contributes to employee morale.



The Oklahoma City Thunder is the first major-league professional sports franchise to permanently reside in Oklahoma, and the Company recognizes our CEO’s efforts, through PBC, to bring the team to Oklahoma City. However, Mr. McClendon’s ownership was not a determining factor in the Company’s decision to sponsor the team. After Hurricane Katrina caused significant damage to the Superdome in New Orleans, the New Orleans Hornets (another National Basketball Association franchise) was temporarily relocated to Oklahoma City for two consecutive seasons, during which the Company sponsored the Hornets in a manner similar to its current sponsorship of the Thunder. The Company values the cohesiveness that professional sports teams have brought to the central Oklahoma community and would sponsor the team in the same manner if Mr. McClendon did not own an equity interest in the franchise. 
In 2008, the Company paid Deep Fork Catering approximately $177,150 for food and beverage catering services, primarily for two large events sponsored by the Company. Deep Fork Catering is an affiliate of the Deep Fork Grill, an Oklahoma City restaurant in which Mr. McClendon is a 49.7% owner. Mr. McClendon is not involved in decisions to hire Deep Fork Catering and has requested that the Company’s future use of Deep Fork Catering be eliminated.
Governor Keating’s daughter-in-law, Brittney Keating, has served as a Landman for the Company since July 2005 and served as an Associate Landman from September 2004 to July 2005. Ms. Keating’s total cash compensation for 2008 was $139,327.
Governor Keating’s son, Chip Keating, has served as Manager—Real Estate Development since August 2008, served as Land Negotiator from January 2008 to August 2008 and served as Associate Landman from March 2007 to January 2008. Mr. Keating’s total cash compensation for 2008 was $135,242.




Copyright 2009 AlphaNinja

1 comment:

  1. It will be great to watch New Orleans Hornets, i have bought tickets from
    http://ticketfront.com/event/New_Orleans_Hornets-tickets looking forward to it.

    ReplyDelete