The Haslam family and Berkshire Hathaway will square off in a Delaware court next month in their battle over accounting at Pilot Travel Centers, but a trial on charges Jimmy Haslam III secretly paid Pilot executives to give a short-term boost to the company’s earnings this year will need to wait.
Although Vice Chancellor Morgan Zurn of the Delaware Court of Chancery gave Berkshire Hathaway (NYSE: BRK.B) the opportunity to have its case over the Haslam payments heard at the same time as the proceedings over the accounting issues, attorneys for Berkshire Hathaway subsidiary NICO declined.
Zurn had spelled out restrictions on what NICO attorneys could do if the case was expedited and heard alongside the accounting case.
“NICO is not entitled to any additional discovery to investigate its counterclaims — it would be permitted to rely solely on the discovery it obtains in further of its defenses. The Court would not consider the existence of NICO’s affirmative defenses when ruling on any discovery, evidentiary, or similar motions. NICO would not be permitted to call any fact witnesses or experts to testify in support of its counterclaims unless the testimony also properly supports its other defenses,” Zurn wrote in a letter dated Friday and posted to the court’s website Monday.
In its response, NICO’s attorneys said that “given the uncertainty in the amount and type of evidence that will be allowed to be adduced and presented,” they chose not to proceed under those conditions.
The Haslams filed their original suit regarding Berkshire Hathaway’s accounting under the name of Pilot Corp. Pilot Travel Centers (PTC) along with several Berkshire Hathaway executives are defendants.
At the heart of that case are accounting changes Berkshire Hathaway implemented, moving to a basis known as “pushdown,” when it took control of PTC at the start of 2023. After the steps to take control, Berkshire Hathaway owned 80% of the country’s largest truck stop chain.
The two sides do not dispute the changes were implemented. They also do not seem to dispute that in the short term, it has an impact on the way Pilot’s earnings were measured.
But what is at issue is whether the accounting will be used to determine PTC’s earnings before interest and taxes this year, and if it does, whether it will affect the value of PTC should the Haslams pull the trigger on a put option that will require Berkshire Hathaway to buy the 20% of the company it does not own. EBIT will be the basis for determining how much that 20% stake is worth.
In its original lawsuit, the Haslams said Berkshire Hathaway founder Warren Buffett had told family representatives the accounting used to determine EBIT would be the same as the two sides agreed upon back in 2017 when the staggered acquisition of PTC by Berkshire Hathaway was decided. That agreed-upon accounting is not the pushdown accounting that was implemented after Berkshire Hathaway took control.
If the Haslams were to exercise the option in 2024, they must do so in a window during the first quarter. The next opportunity after that would be in 2025.
The trial over the accounting issue is set in the Delaware Chancery Court for Jan. 8.
Zurn, in his opinion, challenged the NICO argument that it would suffer irreparable harm if its claims regarding the Haslam payments weren’t heard by the time the family could exercise its put option in the first quarter. If NICO’s arguments were heard after the put was exercised and it went through with the question of whether the Haslam payments impacted PTC’s bottom line in 2023, that could be dealt with later, Zurn wrote. “It is the rare case in which it is so difficult to quantify purely and proximate monetary harm that the harm is irreparable.”
No date was set for the NICO claim over the payments to be heard.
The payments made by Haslam III were to a group of longtime Pilot employees still at the company, ostensibly to replace the end of another bonus system. But the payments were made privately out of Haslam’s pockets and Berkshire Hathaway management was not informed of them, calling them “illicit” in its lawsuit. Berkshire Hathaway charges that they led the Pilot executives to take steps mostly focused on boosting 2023 earnings — and thereby inflating the value of 2023 EBIT — rather than being concerned with the company’s long-term welfare.
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