Boring Portfolio

<THE BORING PORTFOLIO>
The Boring Week in Review
Cisco wins

by Alex Schay (TMF Nexus6)

ALEXANDRIA, VA (Dec. 11, 1998) -- Almost every Friday, we run for the Borders (NYSE: BGP) here at the Boring Portfolio. As Dale promised at the beginning of the week, we will indeed take another look at Borders today, but it will be within the context of a weekly wrap-up. Many of you have expressed an interest in seeing some form of ongoing, updated information about the current holdings in the Portfolio, so Dale and I will try to reserve Friday for that. In some instances, it will be in addition to another topic that we are discussing for the day. Today, however, the body of the report will be devoted exclusively to a summary of the news events that have made our little inherited Portfolio's world turn over the last week. Given that, we'll postpone our more thorough discussion of the disposition of Borders until Wednesday and Friday of next week.

As we look at our companies each week, we're going to try and focus on the incremental information leaked into the public space that might have had an effect on stock prices. Of course, these events may or may not impact our assessment of intrinsic value. To begin, let's take a look at what each company in the Portfolio has returned over the last week.

      Close 12/4 Close 12/11 %Change
ANDW  $16 7/8    $17 13/16   5.56%
BGP   $22 1/16   $22 7/16    1.69%
CSL   $46 3/16   $46 9/16    0.08%
CSCO  $78 1/4    $83 1/2     6.70%
FCH   $24 1/16   $22 1/2    -6.49%
PNR   $37 1/8    $35 7/8    -3.37%
TBY    $7 3/16    $6 3/4    -6.08%

Andrew Corp. (Nasdaq: ANDW) finished the week at $17 13/16, up 5.56%. On Tuesday, an SC 13G was filed with the SEC concerning the extent of "beneficial ownership" by American Express (NYSE: AXP) in the common stock of Andrew (at November 30, 1998). The global financial services firm reported ownership of 4,103,672 shares, or 4.8% of Andrew, which is down from its reported stake of 5,817,802 shares (6.6%) on December 31, 1997. That means, Andrew was sold for prices anywhere between $28.663 and $11.913 in the interim.

It was also reported this week that Thomas A. Donahoe was elected to the firm's Board of Directors. It looks like that gesture of good faith back on November 13, when Donahoe bought 1500 shares of Andrew between $17.56 and $17.63 (upping his stake to 3000 shares), was a related transaction. Andrew ended the week with a product release -- aluminum feeds with wideband capabilities, which will hopefully enhance performance and boost the potential use of Andrew's antennae in the 7Ghz band.

Borders Group (NYSE: BGP) concluded the week up only at $22 7/16, after mounting an early week rally, up 10% by Wednesday. However, that was the day the Borders 10Q for the third quarter was filed. Looking through some of the cash flow information, it looks like capital expenditures moved up 50% over the comparable period last year -- all for 25% growth in superstore build.


Calendar(end) 1996    1997  Chng. (AT change)  9 mos.'98  (AT)
Operating     103.1    138  34.90 (21.39)      20.1       (12.33)          
Net Income     57.9   80.2                      5.4
Cash Flow      78.4  141.2                     56.3
(before change in current acounts)
Cap Expen.     97.2  113.6                    120.8
Superstore Total                                238  (YOY store 189)  

After changes in current accounts, cash flow from operations dropped to negative ($147.1) million, with payables financing almost 40% less inventory than in the prior year period (although with inventory turns at 1.7, Borders can't really take full advantage of the float anyway). Net cash provided by financing grew to $243 million. Again, as we've said before, a lot is riding on this fourth quarter. A couple insider sales were reported as well:

  • 11/19 George Mrkonic, an officer and director, sold 400,000 shares at $22.56, bringing his holdings to 168,993 shares.
  • 11/24 Robert Diromulado, the Chairman of the Board, sold 158,000 shares at $22 - $26.25 bringing his holdings to 1,101,902 shares.
  • 11/30 Richard Flanagan, an officer, sold 100,000 shares at $26 - $26.63 bringing his holdings to 167,354 shares.
  • 12/07 Richard Flanagan filed to sell 100,000 shares.

Neither Carlisle Companies (NYSE: CSL), which closed slightly higher this week, nor TCBY Enterprises (NYSE: TBY), which dropped about 6% week over week, made any significant announcements over the course of the last seven days. This was pretty much the case with Pentair (NYSE: PNR) as well, although back on December 3rd the company announced that it expects to meet estimates for 1998, with revenues coming in at around $2 billion (according to Chairman Winslow Buxton). Pentair also stated that it's still on track to cut costs by around $60 million over the next 18-24 months. So put that into your model and smoke it!

Felcor Lodging Trust (NYSE: FCH) closed slightly down for the week at $22 1/2 while the company filed amendments to forms 3 and 4 with the SEC. So, here's a trivia question for you. What's the dreaded "form number 4?" Answer?

4: Any changes to a previously filed form 3 are reported in this filing. This form type is not required to be filed with the EDGAR system.

So, what's form 3?

3: An initial filing of equity securities filed by every director, officer, or owner of more than ten percent of a class of equity securities. Contains information on the reporting person's relationship to the company and on purchases and sales of equity securities. This form type is not required to be filed with the EDGAR system.

OK, so this week Felcor voluntarily filed two amendments to forms that they aren't required to file with EDGAR in the first place. Anyway, aside from this dramatic move on the intrinsic value front, Felcor announced renovations galore over the last week, including these: Holiday Inn Texarkana will spend $1.7 million on renovations, Holiday Inn San Francisco (Financial District) is planning on spending $2.7 million, Holiday Inn Cambridge will throw $1.6 million at the project, and Holiday Independence Mall Philadelphia will blow a whopping $6.7 million. Of course, one ultimately hopes all this will jump to the topline over a sufficient time period.

Finally, Cisco (Nasdaq: CSCO) won for the week, gaining more than the rest and moving from $78 1/4 to $83 1/2, largely on optimism about its product portfolio heading into 1999. The opportunity to provide equipment to phone companies, such as the 12000 GSR and other product developments on the voice over data front, auger well for Cisco in the coming months. We'll take the opportunity to discuss Cisco, in a more detailed manner next week. Until then, we hope to see you on the boards.


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12/11/98 Close

Stock  Change    Bid
ANDW    ---    17.81
BGP   -  5/16  22.50
CSL   -1 3/16  46.56
CSCO  +2 5/16  83.50
FCH   +  3/16  22.50
PNR   +  1/16  35.88
TBY   -  1/8   6.81
                   Day   Month    Year  History
        BORING   +0.24%   1.84%  -0.27%  25.50%
        S&P:     +0.12%   0.24%  20.20%  87.65%
        NASDAQ:  +0.66%   4.09%  29.22%  94.95%

    Rec'd   #  Security     In At       Now    Change
  6/26/96  225 Cisco Syst    23.96     83.50   248.56%
  2/28/96  400 Borders Gr    11.26     22.50    99.89%
  8/13/96  200 Carlisle C    26.32     46.56    76.88%
  4/14/98  100 Pentair       43.74     35.88   -17.99%
  1/21/98  200 Andrew Cor    26.09     17.81   -31.73%
  5/20/98  400 TCBY Enter    10.05      6.81   -32.18%
  11/6/97  200 FelCor Sui    37.59     22.50   -40.14%

    Rec'd   #  Security     In At     Value    Change
  6/26/96  225 Cisco Syst  5389.99  18787.50 $13397.51
  2/28/96  400 Borders Gr  4502.49   9000.00  $4497.51
  8/13/96  200 Carlisle C  5264.99   9312.50  $4047.51
  4/14/98  100 Pentair     4374.25   3587.50  -$786.75
  5/20/98  400 TCBY Enter  4018.00   2725.00 -$1293.00
  1/21/98  200 Andrew Cor  5218.00   3562.50 -$1655.50
  11/6/97  200 FelCor Sui  7518.00   4500.00 -$3018.00

                             CASH  $11273.22
                            TOTAL  $62748.22

</THE BORING PORTFOLIO>

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