Spectrum Brands (stock symbol SPB) recently received a $4M forgivable loan from the Wisconsin Economic Development Corporation. WEDC is a public-private partnership that promotes governor Scott Walker's "Wisconsin is Open For Business Message." The question for this post is whether the $4M was a good investment of taxpayer money?
SPB is a highly leveraged holding company that picks up orphaned consumer brands and tries to bring them back to life. SPB hasn't had a great track record and recently emerged from bankruptcy in 2009. An old video above tells the story. None of the CNBC anchors are with the network anymore and neither is Chairman and CEO Kent Hussey. To emerge from bankruptcy, Hussey noted that the restructuring took out 42% of the population of the company (does this mean jobs?). They still had $800 M in debt out of an initial $1.8 B. Mr. Hussey retired from the company in June 2010. My analysis of their common stock price history (here) doesn't suggest a very bright future.
One interesting aspect of the deal is that the $4M forgivable loan is actually less than the yearly salary of the current CEO, Dave Lumley, who took home total compensation in 2010 of $7.3M (here). Now here's my suggestion for the WEDC: follow the IMF's lead (here) and, instead of offering forgivable loans, provide contingent credit lines, the contingency being that loan amounts are matched by commitments of executive compensation. So, if SPB wants a $4M loan, Mr. Lumley would match that $4M out of his compensation leaving him $3.3M as his yearly compensation.
Now maybe this is an impractical suggestions and maybe $3.3M is not enough salary for a top executive of a highly leveraged holding company. I'm not sure exactly what the senior executives of SPB do to deserve multi-million dollar compensation but this statement from Anthony L. Genito's, SPB's CFO, in the Nov 16 Q4 2011 Earnings Call (here) provides some idea:
As I've said previously, based on the level of NOLs [Net Operating Losses] we expect to be able to utilize, we do not anticipate being a U.S. federal taxpayer for at least the next 5 years. We will, however, continue to incur foreign and a very small amount of state taxes. Cash taxes are expected to approximate $45 million to $50 million for fiscal 2012.
As I've said previously, based on the level of NOLs [Net Operating Losses] we expect to be able to utilize, we do not anticipate being a U.S. federal taxpayer for at least the next 5 years. We will, however, continue to incur foreign and a very small amount of state taxes. Cash taxes are expected to approximate $45 million to $50 million for fiscal 2012.
Evidently, evading state and federal corporate taxation in addition to pilling up NOLs is one of the ways senior executives earn their compensation. Another contingency might be that the company pay substantial State taxes during the period they obtain the loan.
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