Wal-Mart, Procter and Gamble, Briggs and Stratton and more...

“No Pressure, No Diamonds.”
Diamonds are formed from carbon under extreme pressure beneath the earth’s surface.

ANY OPENINGS FOR A GREETER?
Lee Scott’s announcement that he would be stepping down as CEO caught many observers flat-footed. While the 59 year-old Scott will continue as an “associate” for the next two years at a mere $1.1 million per annum, his employment agreement reveals other interesting details. Mr. Scott will continue to be quite visible over the next year and will step back sharply in year two. Mr. Scott is foregoing any future grants of stock. As well, he has agreed to forfeit about 216,000 shares worth an estimated $12 million. Not to worry, Scott will have another 4.1 million shares valued at about $230 million to cover rent, groceries, and perhaps a yacht or two. Scott won’t have to wait until age 65 to access his restricted stock grants as vesting on those will be accelerated to February 1, 2011. If that’s not enough, Section 4(b) of the employment agreement will not “limit or impede...[Scott’s] right to file a claim for unemployment compensation benefits.” Though Mr. Scott has done well and deserves every penny he has earned, his employment agreement is innocuous compared to others we have seen. In particular it contains no provision for Wal-Mart to grant airplane usage, pay taxes for him, or provide for generous lifetime consulting agreements. (Footnoted.org, SEC Filings)

SPLITTING HAIRS
The IRS has arrived at a different value than Procter & Gamble has for the value of technology patents that P&G donated to various universities between 2001 and 2004 and took tax deductions for. According to P&G, the patents were worth $416 million; the IRS thinks they’re worth $68 million. (Forbes)

BRIGGS & STRATTON
Something interesting surfaced in the latest financial filing of the supplier of gasoline engines to suppliers of Wal-Mart. Like most public companies, Briggs has been repurchasing its stock. It seems that the turmoil in the credit markets has created an opportunity for companies (that have cash) to repurchase their debt. Recently a large bondholder approached Briggs about buying back some of its 8.875% interest-rate bonds. Briggs bought $20 million of the bonds at a discount, producing a gain and lowering its interest expense. Look for companies with strong finances to take advantage of the bond market turmoil. (Company Filings)

CONSUMER FINANCES
At first glance, the debt-collection industry should be doing well. However, it seems that consumers have little cash with which to pay debt collectors. John Nemo, spokesman for an industry trade group of debt collectors states that “more and more accounts are going out to debt collectors, but it’s harder than ever to collect.” Last year, bill collectors recovered some $40 billion in bad debt, according to PricewaterhouseCoopers. Profits are down for debt collectors. Public utilities used to be able to sell 1-2 year old uncollected debt at three to four cents on the dollar, and are now selling that debt at two to three cents, a 50% decline. The stimulus package postponed the inevitable. “Only a fifth of the $100 billion in tax rebates was spent on new purchases; the rest went to pay bills according to columnist Gary Shilling.” (Forbes, Wall Street Journal)

LUXURY
Eight of every 10 of the world’s finished diamonds are cut and polished in the Western Indian state of Gujarat. The labor-intensive industry employs some 500,000. Business leaders are fearful of the slowdown in the U.S., which imported roughly half of the Gujarat’s finished diamonds, will decimate their jobs. Perhaps indicative of things to come: At Sotheby’s most recent auction for contemporary art, collector’s auctioned off works at some 60% of estimated value of $202 million. More telling was that nearly one-third of the lots failed to sell. Conversely, Hormel, parent of the moldable meat Spam, reported that revenues grew 10% in the most recent quarter, excluding acquisitions. (Wall Street Journal, New York Times)

PAYMENTS
An upstart is aiming to shakeup the U.S. credit card industry and take a bite out of the hefty 2% fee that merchants pay companies like Visa on transactions. “RevolutionMoney aims to charge merchants only 0.5% of transaction value — 75% less than they fork over to Visa and MasterCard...The company expects that its cards will be accepted in a million stores by year-end, including Wal-Mart and Macy’s...Murphy Oil, which runs gas stations at 1,000 Wal-Marts, is offering a 3-cent-a-gallon discount for users of the card.” Beleaguered Citigroup has an investment in the company along with
others who have plowed more than $80 million into the startup. (Forbes. Tampa Bay Business Journal)

TECHNOLOGY
Raytheon’s SureView product gives employers access to suspicious behavior of employees and provides real-time recordings of what web sites workers are visiting, their e-mail content, which files have been copied, renamed, and emailed, and what is being transferred from employee’s terminals to USB ports. Wal-Mart is purportedly a user. Separately, the defense contractor is putting its radio technology expertise to use in new markets. The company tested towers in California that have microwave emitters which detect freezing conditions, and signal heaters to turn on and protect orange groves from frosting over. (Forbes)

New refrigerators may hurt the grocery business. High-end manufacturers like Sub-Zero and Viking are rolling out products with a host of technological features that reduce spoilage. The average US household wastes 14% of its food purchases. That’s $70 billion of food that is tossed from the $500 billion in the annual U.S. grocery industry sales, or about as much in revenue as Kroger and Safeway have combined. The fridges cost $5,000-plus. (Wall Street Journal)

EXTRAS
Tuna or Ham? Ebags.com reported that sales of lunch bags are up 39% over a year ago as more workers dine at their desks. (Forbes)

Grinch Arrives— 25% of companies will not be hosting Christmas office parties this year according to a survey by Challenger, Gray & Christmas, up from 10% in 2007. (Portfolio.com)

Quote of the day — “Without the girls, we are just selling overpriced beer” notes Eric Langan, CEO of Rick’s Cabaret International, a publicly-traded purveyor of strip clubs. Langan boasts that he purchases Coors Lite for $0.63 a bottle but charges $12 for it.” (Forbes)

I FEEL MUCH SAFER NOW
The Federal Reserve has hired Bear Stearns’ former Chief Risk Officer to help oversee the financial safety and soundness of U.S. banks. Before it detonated and was sold to JP Morgan, Michael Alix, was responsible for ensuring that Bear, Stearns was careful about the risks it took with shareholder’s money. This is like putting Joseph Hazelwood, Captain of the Exxon Valdez, in charge of the U.S. Department of Transportation. (New York Times)

“If you are playing poker and you look around the table and don’t know who the patsy is, it’s you.”
— Paul Newman


At the time of writing, the authors held positions in Wal-Mart Stores, Inc. and Briggs & Stratton, Inc.

A Few Good Thoughts is published monthly by Boston Mountain Money Management, Inc. 300 North College Avenue, Suite 224, Fayetteville, AR 72701. 479-251-8400. www.bostonmmm.com

Information in this report has been obtained from sources that we believe to be reliable. Boston Mountain Money Management does not guarantee its accuracy or completeness and assumes no responsibility for actions taken with respect to information contained herein.