No Alternative Facts For Andy
Esteemed institutional investor, Andrew “Andy” Shapiro, portfolio manager of Lawndale Capital Management, released his PICO Holdings‘ voting intentions on May 1. See Mr. Shapiro’s voting selections and rationale here.
Great minds think alike and we are happy to report that, except for one small discrepancy, RPN’s card and Andy’s card are the same.
Andy has been a friend to PICO owners. He has asked insightful and penetrating questions at last year’s Annual Meeting and on the earnings calls. His inquiries have provided all investors with better information about PICO. When you see Andy at the Annual Meeting, thank him for his dedication to shareholders.
We encourage other investors to take an active role in their PICO investment and ask difficult questions of the PICO Board at the Annual Meeting. Andy can’t do it all, ya know.
UCP’s Amended 10-K & Amended Future
On April 28, UCP issued a 10-K/A, or an amended 10-K with the Securities Exchange Commission. Under SEC rules, the information contained in Items 10-14 of the 10-K must be provided to shareholders annually. Firms can provide this information in either the 10-K or the Proxy Statement, but if they elect the Proxy Statement, the 10-K must reference Items 10-14 and the Proxy Statement must be issued within 30 days of the 10-K.
Items 10-14 pertain to:
Item 10: Directors, Executive Officers and Corporate Governance
Item 11: Executive Compensation
Item 12: Security Ownership
Item 13: Relationships, Related Transactions and Director Independence|
Item 14: Accountant Fees and Services
Once UCP signed its deal with Century Communities, there was no need for an Annual Meeting and a 2017 Proxy Statement. But UCP was still required to provide Items 10-14 to the investing public. To comply with this requirement, UCP amended its 10-K to include Items 10-14.
The 10-K/A is rife with interesting information. As we implied earlier, UCP does not anticipate holding an Annual Meeting. The next time shareholders will opine on anything related to UCP will be at a Special Meeting of Stockholders to vote on the Century-UCP deal – or any other deal that may arise (hopefully at a higher price).
Assuming UCP is acquired by someone, UCP will not adopt the corporate governance improvement proposals advanced by PICO and formalized in the March 29, 2017 Agreement. PICO’s nominee for the Board of UCP, Keith Locker, will not stand for election or occupy a UCP Board seat. UCP owners will not vote on Mr. Bogue’s pay or execute a symbolic protest vote against Kathleen Wade.
Both the Merger Agreement and the 10-K/A reveal that UCP can shop assets, provided that such assets represent less than 20% of the balance sheet or less than 20% or of earnings power or revenues. UCP doesn’t have any earnings power, so assets and revenues are the relevant categories here. This would appear to give UCP the right to sell off the operation in Washington State. UCP doesn’t break it out separately, but we are pretty sure it represents less than 20% of assets or revenues. UCP should test the market for its Washington State operation. The Century-UCP merger price can be adjusted if it is sold.
Of course, this should only be done with Century’s blessing. Given UCP’s bleak future as a standalone and the upcoming tidal wave of debt maturity, UCP’s first priority is to get sold to a stronger, more competently run, enterprise.
Amended (Augmented) Compensation
Although this 10-K/A is supposed to provide the same information as the Proxy Statement, it avoids all specifics about the UCP Compensation Committee and the Corporate Governance and Nominating Committee. There is information about the Audit Committee and the Special Committee (which was established to address PICO’s corporate governance proposals), but nothing about the CGN Committee or the Comp Committee. Recall that the dubiously configured Comp Committee, comprised of only Michael Cortney and Peter Lori, fortified CEO Dustin Bogue‘s Employment Agreement and golden parachute.
The lack of detail on the Comp Committee does not hide the ineptitude of Messrs. Cortney and Lori – both lackeys to Mr. Bogue. These gentlemen have dug unjustifiably into shareowners’ pockets once again.
The ethically challenged Messrs. C0rtney and Lori awarded Mr. Bogue probably the most undeserved bonus in homebuilder history. For 2016, Messrs. Cortney and Lori gifted Mr. Bogue a bonus of $182,639. He was also gifted $525,000 in stock awards. The man who we have labelled “America’s Worst Homebuilder CEO,” has been rewarded by his supplicants as if he created value in 2016. Shareholders will pay the price.
UCP’s dishonest communication with owners continues. In last year’s Proxy Statement, UCP revealed that it paid Mr. Bogue a “Bonus” of $200,000 – the merits of which we leave undiscussed. This year, Messrs. Cortney and Lori did not pay Mr. Bogue a “Bonus”; instead, they paid him “Non-Equity Incentive Plan Compensation.”
Hmmmmm. The $182,639 payment appears in the table entitled “Summary Compensation,” just like last year’s “Bonus.” Beneath this year’s figure of $182,639, we see the $200,000 payment from 2015, which was labelled “Bonus” back then. Yet somehow, last year’s “Bonus” is this year’s “Non-Equity Incentive Plan Compensation.”
Mr. Bogue was paid a shameful total compensation of $1,267,027 for 2016.
Dustin Bogue – Doing What He Does Best
The 10-K/A indicates that CFO James Pirrello was paid “Non-Equity Incentive Plan Compensation,” in other words a Bonus, of $163,363. We are not sure how this Bonus is justified. Perhaps it was the “Core Earnings” of $.84 cents or the “6.5% Core ROE” Mr. Pirrello disingenuously highlighted in Q4.
More unfathomable is Mr. Pirrello’s $993,247 in total compensation for 2016.
Bogue & Pirrello Miss Targets
According to a description of their Employment Agreements in the 10-K/A, Messrs. Bogue and Pirrello were to receive 2016 Bonuses targeted at not less than 50% of their annual base salaries.
Mr. Bogue’s Bonus – excuse us, “Non-Equity Incentive Plan Compensation” – amounted to 37% of his annual base salary. Mr. Pirrello’s Non-Equity Incentive Plan Compensation was 44% of his base salary. Even the UCP Comp Committee’s supplicatively low standards were not met.
Cortney & Lori Pay Cortney & Lori
Messrs. Cortney and Lori, the only two members of the UCP Comp Committee for 2016, shamefully increased their own compensation in 2016, by an average of about $50,000 or more than 60%.
In 2015, Mr. Cortney paid himself $85,000 – an amount that was unjustified given UCP’s poor performance and wanting corporate governance. In 2016, Mr. Cortney raised his own compensation to $135,000, an increase of 59%.
In 2015, Mr. Lori paid himself $95,000. In 2016, Mr. Lori paid himself $135,000, an increase of 42%.
In 2015, Mrs. Wade was gifted $71,217 in 2015, but was bestowed $130,000 in 2016 compensation, an increase of a ridiculous 83%.
For 2016, Messrs. Cortney and Lori raised Director compensation by an average of 61%. Some people are incapable of doing the right thing.
What Have U[CP] Done For Me Lately?
One glaring omission from the 10-K/A is an explanation and clarification of the UCP Executive Stock Ownership Guidelines.
The 2015 Proxy Statement made these Guidelines clear: UCP Executives had to own five times their base salary in UCP equity. Mr. Bogue failed to comply with the Guidelines for much of the last two years.
Recall that those Guidelines mysteriously disappeared from the 2016 Proxy Statement. We have been asking Mr. Cortney, as Chair of the Comp Committee, to clarify for owners the fate of the Guidelines. Mr. Cortney has deceived owners and clarified nothing. It appears UCP shareholders will never know what happened to the Guidelines.
We guess this is how Mr. Cortney runs a Board – promulgate Guidelines and when those Guidelines become inconvenient, deceptively rescind them. When caught red handed, keep silent.
May 4 – Hammer Time
May 4 will be a big day for owners of PICO and UCP.
The PICO Annual Meeting will take place. We expect PICO to report Q1 results that morning. PICO will update owners on several matters, including the $11 million in Juicer Termination Payments and return of capital to owners. We might even get lucky and learn about the status of UCP monetization bonus.
On May 4, UCP will report Q1 results. UCP has historically released earnings in the morning and hosted an earnings call a few hours later. Given that Q1 earnings will be released after market close, we assume that UCP will not hold an earnings call. This is typical of firms about to be acquired. And in UCP’s case, it is appropriate: Messrs. Bogue and Pirrello have been paid handsomely for creating no value for owners through operations. They should appropriately devote all their time and energy to providing owners with value the only way they can: by selling the firm.
On May 4, Century Communities, UCP’s future groom, will also release Q1 earnings. Root for a big number from Century. There is no collar on the share exchange ratio.
Don’t sleep in on Thursday. It’s gonna be a big day!