The Lane Report -- Fast Lane February 2000


	FAST LANE - February 2000 STATE PSC Rejects LG&E’s Performance-Based Rate ONE year after it encouraged LG&E Energy Corp. to prepare a new electrical rate system called Performance Based Rate (PBR), the state Public Service Commission (PSC) has rejected the proposal and ordered the utility to reduce rates for its 800,000 customers by $63.6 million. The decision, announced in early January, partially vindicated a protest of the proposed PBR structure by an odd couple of protesters – a group of advocates for low-income citizens and the Kentucky Industrial Utilities Customers (KIUC), a coalition of the utilities largest industrial users. KIUC, which had argued for "fair, just and reasonable" – and lower – rates for large users had sought a total rate reduction of $115 million. While not announcing an appeal of the ruling, LG&E Chairman and CEO Roger Hale blasted it as "unnecessary and irresponsible" and "punitive", an apparent reference to the assumption that the PSC was irked by the actions of Attorney General Ben Chandler, who first opposed the PBR proposal and then supported it in PSC hearings in September. The residential rate reductions, reflected in the PSC’s order, will range from $26 to $40 a year per household. The $63.6 million total, including cuts for the KIUC large users, will drain away 20 percent of LG&E’s total pre-tax income. LOUISVILLE Strategia Corp. Redefines Role After Y2K STRATEGIA Corp., a computer consulting firm that based virtually all its business on solving anticipated Y2K problems, has announced it will redefine its role now that the "crisis" has passed. The company also reported a loss of $2.4 million for the fiscal year ending December 31, 1998, or 52 cents a share. Strategia also had expected revenues of $20 million for 1999 but instead received only about $10 million as the flood of Y2K business never materialized. President and founder Richard Smith announced he had resigned effective December 31, 1999. The company’s board also reported it may buy back 10 percent of the 4.7 million outstanding shares while it decides what new businesses to pursue. According to its consulting investor relations firm, Murdock Capital Partners, Inc., Strategia still has "a significant amount of cash" and will be "going out of the businesses in which they have been involved" but will not "be going out of business" altogether. STATE Both Bricks and Clicks Enjoy Christmas ’99 AS the holiday season neared its close, analysts from PriceWaterhouseCoopers estimated a nine percent rise in retail sales. According to the International Council of Shopping Centers, holiday sales at the nation’s malls (excluding anchor stores) increased by 7.7 percent over last year, with music, video and home entertainment leading the charge. A study from Boston Consulting Group and Shop.org shows that holiday online sales increased by 300 percent over last year. While actual sales figures won’t be available until the spring, the groups projected total online sales of between $10 and $11 billion for the holiday season, $38 to $40 billion for the entire year. Yet online sales still remain a tiny percentage of overall retail sales, up from 0.5 percent last season to a projected 1.2 percent this year. Because so few online shoppers pay sales and use tax, the Kentucky Long-Term Policy Research Center estimates that the state treasury could realize a $48 million shortfall by 2003. About 35 percent of Kentucky’s total revenue collections come from the sales and use tax, bringing in about $1.9 billion a year. LOUISVILLE Jury Orders Humana to Pay Family $79.5 Million HUMANA Health Insurance Co., a subsidiary of Humana, Inc., has been ordered by a Florida jury to pay the family of a nine-year-old girl $79.5 million in compensatory and punitive damages. The jury in Palm Beach County ruled that Humana violated its own rules when it removed the girl, who has cerebral palsy, from a special program for the chronically ill for a 10-month period in 1995. While the company did not deny it did so, it argued unsuccessfully that the girl was not injured by its decision and that the action was medically defensible. The judgment, which included $78.5 million in punitive damages, is the largest ever returned against the company. Humana paid $13.3 million in 1998 to a Louisville woman who said the company improperly denied her radical treatment for cervical cancer. Although the company said the action was not related to the adverse judgment, Humana announced a few days later that it is selling its Medicare supplement business and a segment of its workers compensation business. According to CFO James Murphy, by selling the two lines, Humana will be able "to focus more effectively on our core health insurance businesses." The company will take a one-time charge of $400 to $500 million to cover tail claims from the two lines. (Tails are insurance claims incurred but not reported during a policy period; they can last for several years.) FolksAmerica Holding Co., Inc., of New York, a subsidiary of a Bermuda insurance group, will buy the PCA property and Casualty Insurance Co., the worker’s compensation business, for $125 million in cash. United Teachers Associates Insurance of Austin, Texas, will buy the 42,000-member Medicare supplement line for an undisclosed price. Humana will continue to own and operate Workers Compensation Services, with $23 million in annual premiums, and its Medicare HMO plan with almost 500,000 members. LOUISVILLE Magistrate Bans Papa John’s Slogan; Company Intends to Appeal Ruling IF Papa John’s still believes it has "Better Ingredients, Better Pizza" than its rival Pizza Hut, it must keep its opinion to itself – at least until it reverses an adverse ruling on appeal. A federal magistrate in Dallas, following a jury verdict that the fast-growing Louisville company defamed its larger competitor, has banned the use of the four-year-old slogan and its accompanying print and broadcast advertising campaigns. Additionally, Papa John’s must remove all traces of the claim from all company materials within three months. Papa John’s also must pay Pizza Hut, a division of Louisville-based Tricon Global Restaurants, $468,000 in damages. While the ruling is a victory for Pizza Hut in the "pizza wars," it does not mark the end of the war itself. For one thing, Papa John’s will appeal the ruling, claiming it would, in effect, ban all comparative advertising. For another, Papa John’s still has a separate suit pending against Pizza Hut in federal court in Louisville, contending that the company unlawfully appropriated images of Papa John’s founder John Schnatter in its own attack ads and also calling into question the Pizza Hut slogan: "Best Pizza Under One Roof." "If we can’t say better, why should they be able to say best?" Papa John’s spokesman Chris Sternberg asked the Courier-Journal. For its part, Pizza Hut contended it only adopted its counter advertising strategy in self-defense and did protest to the National Advertising Division of the Better Business Bureau before filing suit in November, 1997. Tricon spokesman Jonathan Blum called the magistrate’s ruling "a landmark victory for consumers and Pizza Hut. The court ruled Papa John’s does not have better ingredients or better pizza and they have been deceiving consumers by saying they do." Papa John’s is not backing off. "We’ve become the fastest-growing pizza company in America by consumers eating our pizza, not our slogan," Schnatter declared. STATE Kentucky’s Population Growing; Immigration Figures on the Rise FROM 1998 to 1999, the population of Kentucky increased as much as it did during the entire 1980s, according to information from the Kentucky State Data Center at the University of Louisville and the U.S. Census Bureau. State residents numbered 3.9 million as of last July, up by about 26,000 over the previous year, and over 8,000 of those new people moved here from other states. While Kentucky has gradually reversed its long-running population drain, Nevada leads the way for the 14th consecutive year as the country’s fastest-growing state population. LOUISVILLE Cobb Resigns as Greater Louisville Inc.’s President; COO to Take Helm DOUGLAS Cobb, the entrepreneur who led the effort to organize Greater Louisville, Inc. (GLI) has resigned as the first president of the principal economic development agency for the metropolitan area. Cobb is being succeeded by Steve Higdon, once an executive with United Parcel Service and, most recently, the COO of the group Cobb headed. Higdon was selected by GLI’s executive board without any candidate search process. GLI is a quasi-public agency. It was formed almost three years ago through a merger of the Louisville Area Chamber of Commerce and the Greater Louisville Economic Development Partnership and given responsibility for job growth and economic development. In that time, GLI has raised almost $15 million in public and private capital, written a five-year development plan and established The Enterprise Corp. to promote local entrepreneurship. LEXINGTON Lextran’s Innovative Ads Get Message Across – Your Ride is Out There LEXTRAN’S new employer subsidy program is claimed in public service announcements (PSAs) to be the "end of the ride to work as we know it." It supports the campaign for Lextran’s new "Way To Go" program to get employees to work with costs being 100 percent deductible and exempt from payroll taxes. The message is directed at riders, potential riders and employers. The night service PSAs on television investigate an intriguing query on where all the "night people" are going. And, in college newspapers and on college radio, Lexingtonians learn about the "abominable Tow-man" – that clandestine enemy waiting to "steal" parked cars on college campuses. The spots, as a whole, make reference to many aspects of Lextran including bicycle racks, wheelchair accessibility, the new Southside Connector Route and the economical cost of the bus ride itself. It’s educational, memorable and is being released to involve the community in an understanding of the growth of Lexington’s public transportation system. According to Jenny Williams, Marketing Director at Lextran, getting the word out about the improvements in Lextran over the years is valuable to riders and the general public as alike. "We all need to know about our community bus system and the services it offers. Our singing bus drivers did just that and now it’s a new approach with a new message, but hopefully the same impact for which our public service announcements are known." STATE House Bill 43 May Save Hotels and Revamp Tourism Tax Credits A tourism-tax-rebate bill that may save a hotel development complex in downtown Louisville is on a fast-track for passage by the General Assembly. House Bill 43, introduced by Rep. Ron Crimm of Middletown, has been approved by the House Tourism, Development and Energy Committee and could take effect immediately upon approval by both houses. It has been endorsed by Lt. Governor Steve Henry and Tourism Secretary Ann Latta. The bill would amend current law by changing the qualifying formula for tourism tax credits which rebate 25 percent of development costs over a 10-year period. However, current law requires that hotel projects, when included in "tourism" development, must not exceed 50 percent of the total project cost to receive the credits. Consequently, only three projects statewide have qualified – the Gallatin Speedway, the Newport Aquarium and a proposed Newport entertainment complex – while a half dozen historic hotel projects have been delayed by the relative high cost of renovation. LOUISVILLE Vencor Seeks 62-Day Extension to Complete Reorganization VENCOR Inc., in Chapter 11 bankruptcy since September 13, has asked the presiding judge in Delaware for additional time to complete its reorganization plan. The company is seeking a 62-day extension beyond the original January 11 deadline to file the plan and another 62-day period to complete negotiations with creditors. If granted, the extension would give Vencor until May 12 to emerge from Chapter 11. In a related development, presiding judge Mary Walrath has approved a controversial plan that will reward 12 key employees of the troubled company with cash bonuses ranging from 50 percent to 125 percent of their annual salaries. The payments, to be made in three installments tied to court-approved reorganization requirements, are designed to keep the 12 from leaving the company. The bonuses have drawn criticism in Louisville because Vencor has said it will lay off several hundred employees in its Vencare division while it rewards its top executives. The company attempted to keep the list sealed from the public but the names of the 12 beneficiaries, and the bonus amounts, were released by the court. CEO Edward Kuntz received a $312,500 payment. Meanwhile, Vencor also reported that Frank Anastasio, the former president of the Vencare division, received a severance payment of $530,400 after one year of service. A series of whistle-blower suits alleging Medicare fraud resulted in a $130 million settlement with the U.S. Justice Department during his tenure, although the alleged improprieties occurred before he was hired. Vencor reported that it has lost $119 million for the first 11 months of 1999 and that it still losing money each month. STATE WOTC Extends Tax Credit Programs for Employers Through 2001 TWO federal tax credit programs for employers who hire welfare recipients and people from other certain groups have been extended through December 31, 2001. The Work Opportunity Tax Credit (WOTC) and the Welfare-to-Work Tax Credit (W2W Tax Credit) programs offer employers annual tax savings for each eligible hire. Margaret Whittet, commissioner of the Department for Employment Services, which administers the programs, said the programs are designed to help individuals who have historically had the most difficulty obtaining employment. The WOTC program gives employers a federal income tax credit of up to $2,400 for each eligible person hired. Among those potentially eligible for the WOTC are certain welfare recipients, food stamp and Supplemental Security Income recipients, young people living in federal empowerment zones and enterprise communities, veterans, people with disabilities and ex-felons. The W2W Tax Credit program provides up to $8,500 federal income tax credit for each eligible hire. Those eligible for the W2W Tax Credit Program are generally persons who have been long-term welfare recipients. HEBRON Pomeroy Computer Resources Announces Pomeroy On-Line POMEROY Computer Resources recently announced Pomeroy On-Line, an e-commerce site that is offered to assist customers in the procurement of information technologies. The site provides users with the products, pricing and availability specific to their accounts as well as detailed technical specification and configuration detail on thousands of products. Pomeroy On-Line also provides real-time access to detailed order tracking information for all orders, even those not placed on-line. Since August of 1999, the company has established on-line catalogues for 60 customers, enabling $1.2 million in on-line sales. Currently, approximately five-to-seven customer catalogues are being added per week, indicating increased interest in on-line ordering by Pomeroy’s clientele. "Pomeroy On-Line provides our customers with convenient, live access to product and order tracking information with the goal of saving the customer both time and money," explained Tim Tonges, executive vice president of sales and operations. With Pomeroy On-Line, users can submit a search for products using keywords and provide the customer with the tools necessary to directly access their orders and pricing information. Business Briefs A Compilation of Statewide Business and Economic News STATE According to the Kentucky Tobacco Settlement Trust Corp., Kentucky growers and quota holders received almost $109 million in Phase Two tobacco trust fund checks issued by Chase Manhattan Bank during the first week of the year. Out of the more than 167,000 people who were to receive checks, Kentucky residents were first in line. With over 40 million pounds and 39 million pounds respectively, producers in Barren and Shelby counties led the way in dollars, receiving over $3 million in each county. In his State of the Commonwealth speech, Governor Patton voiced support for collective bargaining by public employees, as well as overhauling their antiquated compensation system. He hopes to see tobacco-settlement money spent on childhood development and family farm assistance programs. From total sales of $583 million, the Kentucky Lottery paid $153.8 million to the state’s general fund in the most recently ended fiscal year, according to president Arch Gleason, and $5.8 million in unclaimed monies went to a housing trust established in 1998 for low-income people. But a report from the state auditor criticized the lottery for failing to return the 35 percent of sales recommended by the original 1988 state lottery law, a goal that has never been met, and which Gleason argues would decrease total actual dollars flowing into state coffers. After increasing its production by over 100,000 vehicles from 1998, Toyota passed the one million mark in 1999, including over 477,000 Camrys, Avalons and Siennas from the Georgetown plant. A recently announced $800 million expansion of the Princeton, Indiana assembly plant will add 2,000 more jobs and is projected to increase the number of vehicles Toyota builds in North America to 1.45 million in four years. Our Lady of the Way Hospital in Martin and Meadowview Regional Medical Center in Maysville made a list of the Top 100 Hospitals in the country published by HCIA and The Health Network. Facilities were evaluated on both patient care and financial performance. According to a report published in Education Week, Kentucky is among the top five states in the nation in its efforts to improve teaching quality in its public schools. While the publication criticized the lack of charter schools in the Commonwealth, it praised Kentucky’s certification and training programs. Richard "Smitty" Taylor resigned as chairman of the Kentucky Racing Commission, replaced by former vice chairman Frank Shoop, a car dealer, who has held finance chairman posts for the governor’s re-election campaign and for the state Democratic Party. Prison Realty Trust Inc. of Nashville will reclaim its former name, Corrections Corporation of America, in a major restructuring that requires the resignation of its co-founder Doctor R. Crants, a $350 million cash investment and the establishment of a 10-member board of directors. CCA, the world’s largest for-profit prison company, manages Kentucky prisons in Beattyville, St. Mary, Wheelwright and Louisville. Fruit of the Loom, which eliminated over 7,000 jobs at its Kentucky locations over the past decade, filed for bankruptcy protection. The company still operates plants in Jamestown, Bowling Green and Frankfort, employing over 1,600 workers. Economist Christopher Waller and Mark Berger, director of the University of Kentucky’s Center for Business and Economic Research, have forecast annual growth of 2.5 percent in the state economy in 2000 and 2001, and 2.6 percent in 2002. They also expect personal income to increase by 2.1 percent a year through 2002. BARBOURVILLE Yahoo! Internet Life names Barbourville as one of the "Best-Wired Towns in America’’ in its March issue. The smallest community so honored, the town gained recognition because of its leaders’ foresight in offering Internet services through both phone lines and cable, and offering fiber-optic data links for businesses. BOWLING GREEN Vision Airways Inc., which flies to Cincinnati and Atlanta, is considering a hub operation in Bowling Green, which would require a $750,000 terminal and a $2.1 million hangar. BROWNSVILLE In the first step of a program to eliminate all six dams on the Green River, the Army Corps of Engineers wants to spend $1.8 million to remove Lock 6, located near Mammoth Cave National Park and unused for 30 years. But local residents are protesting the planned action, saying it will keep away tourists because of added drive time, and force several ferries and tour boats out of business. Environmentalists have said that the dam threatens the survival of certain mussel species as well as a rare species of shrimp found only in Kentucky caves. DANVILLE Centre College will play host to an October 5th vice presidential debate, expected to draw 2,000 journalists and bring in tens of thousands of dollars in business to area hotels, restaurants and stores. FRANKFORT Over 68,000 central Kentucky Medicaid recipients will be served by a new provider as of June, as Kentucky Health Select’s board of directors decided to go out of business. Of the eight regional partnerships that were supposed to be set up according to a 1997 state plan, only one, Passport Health Plan in Louisville, still exists and six never got out of the starting gate. HILLVIEW Through teamwork with computer experts from Rogers Group, the nation’s largest privately owned crushed stone producer, city officials gained the equipment and systems to be adequately prepared for Y2K. But in the process they gained something more. Through study of Hillview’s former systems, Rogers Group’s Y2K project manager Lynne Hall worked with city staff and Huntsville, Alabama-based software company KBM to develop a new program for processing and maintaining property records. Now KBM is receiving queries from other area cities, and will contribute $50 from each sale it makes to the City of Hillview. LEXINGTON Despite ringing up numbers like over $41 million in revenue last year, Wyncom, Inc. – whose "Lessons in Leadership" brand is connected with seminars and a worldwide annual teleconference featuring speakers like Stephen Covey and Tom Peters – lost money in both 1998 and 1999. So the company has replaced co-founder Larry Holman as CEO with turnaround expert Lee Katz. Holman’s wife and company co-founder, Bunny, is still company president, and the couple retain their co-chair status as well as a 42-percent stake in the firm. Village Voice Media, new owner of the eponymous New York alternative newspaper as well as the weekly Nashville Scene, has purchased a controlling interest in ACE Magazine of Lexington. By spring, ACE will be published weekly, and will carry significantly more content addressing a wider variety of subjects. A concerted effort by city government, the University of Kentucky Athletic Association and Central Bank and Trust Co. will attempt to bail out the sluggish UK Basketball Museum over the next six months, as museum officials try to jumpstart the attraction. It opened last February with $2.2 million in debt, and has failed to deliver the expected number of visitors by a large margin. The museum was built for $5.3 million, including $1 million from city government. Bull Run Corp. closed the deal in its acquisition of Host Communications and its sister company Universal Sport America, paying $93 million in cash and stock. HCI founder Jim Host will serve as the president and CEO of the new, wholly owned subsidiary of Bull Run, to be called Streetball Partners International. Businessman Howard Settle plans to spend $11 million to build a 40,000-S.F. alternative medicine clinic at UK’s Coldstream Research Campus. Adjacent to the clinic will be a 15,000-S.F. headquarters for Settle’s oil exploration company, Century Offshore Management Corp. After a tumultuous year, Lexington Clinic has formally dissolved its five-year relationship with PhyCor, a professional management company from Nashville, and returned to being fully doctor-owned and operated. The sale of the Red Mile harness racing track, its 143 acres of real estate and Tattersall’s Standardbred sales to a group of unnamed investors for an undisclosed amount is pending before the Kentucky Racing Commission. LONDON Image Entry, a London-based data processing company with offices in six Kentucky cities, distributed over $516,000 in year-end profit-sharing bonuses to its employees, more than doubling last year’s amount. MOREHEAD Developers are hoping that the spring of 2003 will see the blossoming of a $75 million resort project on 950 acres within the Daniel Boone National Forest near Morehead. NORTHERN KENTUCKY Ashland Energy Service, a unit of Ashland Specialty Chemical Co., will handle energy purchasing, supplying, scheduling and delivery for Honda of America’s Ohio plants. After being short 300 workers last year, the Covington IRS processing center is looking to fill 700 vacancies as this new year dawns. Because of the expected manpower shortage, up to 1 million of the expected 16 million returns may have to be shipped to other centers for processing. The center’s work force usually doubles to 5,000 for the first six months of a year. OWENSBORO The strong storms and tornados that swept through Owensboro in early January damaged over 2,200 homes and businesses. Trees were uprooted and roofs torn off from high winds striking the Kentucky Wesleyan College campus. One person was killed and 22 injured throughout western Kentucky. A multi-agency disaster relief task force has set up a special warehouse to accept non-perishable food items, cleaning supplies and building materials for storm victims from a host of donation efforts across the state. PADUCAH Computer Services, Inc. rode its community bank processing business, Y2K preparation and growing imaging services to record third-quarter net income, the company’s ninth consecutive quarterly increase. CSI serves over 350 community banks in 12 states, and just signed on with its first national account, Lexington-based Medical Acceptance Corporation. Barkley Regional Airport added 10,000 passengers and brought $21 million into the area economy in 1999. Officials pointed to a new website and a decrease in ticket prices as the main reasons for the airport’s 20 percent increase in ridership. VMV Enterprises, a locomotive overhauler and rebuilder, has temporarily laid off 120 workers due to a slowdown in business. The company normally employs over 600 workers and has annual revenues of $80 million. PIKE COUNTY The U.S. Department of Agriculture’s Rural Development program awarded $1.2 million in aid to partially fund a planned $4.7 million water treatment facility to be operated by Mountain Water District. In combination with efforts to install water lines in the Feds Creek, Mouthcard and Ferrells Creek areas, the plant will provide the district with the capacity to supply public water to the estimated 5,000 county residents currently without service. After weeks of controversy, the Pike Fiscal Court voted 5-2 to contribute $1.3 million to be used for property acquisition for the proposed $22.5 million Eastern Kentucky Exposition Center in downtown Pikeville. Back to February Issue Back to Fast Lane Index

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