Food fight?

September 5, 2007

images.jpegWhile the brain behind footnoted only eats raw food, mostly from the organic farm up the road, there’s plenty of people who feed their pets kibble, and, judging by the Q that Petsmart (PETM) filed late Friday, the lawsuits over the melamine-tainted food continue to move forward, so much so that Petsmart changed its language in the most recent filing regarding the lawsuits. Gone from the most recent filing is this key sentence: “The Company does not believe its defense or the outcome of these matters will materially harm its operations or financial condition.”

Now that’s a subtle change, but potentially a key one, given the issue of materiality. It also wasn’t the only change regarding this issue. There was the addition that the lawsuits are now in North America, as opposed to the old language of “the country”, meaning the US. According to the most recent K, Petsmart also has 33 stores in Canada, and parsing the language they’re facing lawsuits there too. Finally, there was the addition that some of the lawsuits have been consolidated in the U.S. District of New Jersey. Granted, Petsmart says it intends to “vigorously defend” itself against the claims. But all of these changes are definitely worth paying attention to.

Speaking of parsing the language on these pet food lawsuits, it was interesting that Procter & Gamble (PG) all but avoided the issue of tainted pet food in the10-K it filed last week, despite the fact that its Iams and Eukanuba brands were among those at the center of the controversy. In the 272-page filing, there’s only this one sentence: “In March 2007, we voluntarily recalled certain lams and Eukanuba wet pet foods to help ensure maximum pet safety following the discovery of contaminated materials at a pet food supplier” about the issue and no mention about any lawsuits, which seems more than a bit odd. After all, if Petsmart is being sued for selling the stuff, you’d have to assume that P&G is facing its own bevy of suits for its role in the manufacturing process. Granted, the materiality test for P&G is no doubt bigger than for Petsmart. But not mentioning this seems more than a simple error of omission.

On a totally unrelated note, the subprime mess marches on. In August 2007, the word subprime was mentioned in 788 filings. That’s more than double the 308 times it was mentioned in August 2006. Today, the SEC’s Eric Sirri is testifying before the House Financial Services Committee on the issue and is talking about the role of the SEC in this ever-growing mess. One indicator I check regularly is the number of foreclosed properties that Countrywide Financial (CFC) lists in Florida. Last month, it was 588. Today, it’s 680.

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