Welcome back, CompUSA!
The once-bankrupt electronics store is opening dozens of new stores (mostly in Florida), and operating with a new plan: Copy part of what made the Apple (AAPL) store successful.
Well, CompUSA isn't going with the Apple Store's stark minimalism, but they are making all of their floor demo computers available to the public, and connecting them to the Internet, Wired reports. That should encourage people to actually play with the products, start to lust after them, and loiter in the store. The ability to check Facebook on a demo Mac is part of what's made the Apple Store such a popular hangout -- all the while introducing people to Apple products.
We like the idea a lot, and a big part of our frustration with the old CompUSA (and big-box electronics stores in general) has always been that PC floor models tend to be turned on, but locked with a password-protected screen saver, preventing anyone from getting to know the computer.
And maybe the timing is right for a CompUSA comeback. One of CompUSA's biggest rivals, Circuit City, is now gone. At least some of the people who were buying things at Circuit City are now going to Best Buy (BBY) instead, but those customers can just as easily be CompUSA's.
Monday, April 13, 2009
Tuesday, March 17, 2009
NEWSPAPERS, HAIL AND FAREWELL
NEWSPAPERS, HAIL AND FAREWELL by Michael S. Malone
Newspapers, ave atque vale.
But as we bid you good-bye, just remember: in the digital age the death of an industry usually plants the seeds of its resurrection.
The last two weeks saw what may prove to be the tipping point in the history of newspapers. The Rocky Mountain News became the first major U.S. newspaper to close in the face of declining circulation and revenues created by competition from the digital media. Close on its heels may be the equally venerable San Francisco Chronicle, which announced that it would soon be seeking a buyer . . .and failing that, may go out of business.
This bad news is just the latest in what has been a long, sad downward spiral by the newspaper industry through most of this decade. The newspaper industry gave up denying that anything was wrong about five years ago, abandoned the fantasy that this was a temporary setback two years ago, and now - like a terminal patient completing the Kubler-Ross cycle - has all-but resigned itself to imminent oblivion.
And, if things keep going the way they have, that’s a pretty accurate prognosis.
I was one of the very first people in the national media to predict the death of newspapers (though Time editor Daniel Okrent gave a prescient speech on “The Death of Print” in 2000) . I did so in this column in March, 2005. Here’s what I wrote:
“So, let’s finally come out and say it: Newspapers are dead. They will never come back. By the end of this decade, the newspaper industry will suffer the same death rate — 90-plus percent — that every other industry experiences when run over by a technology revolution.”
I was a little ambitious in that prediction, but not by much. There isn’t a single major newspaper in this country that isn’t in serious financial trouble. Even the industry’s annual convention was canceled this year. And waiting in the wings, not far behind the RMN and Chron, are at least another dozen papers on the brink - with the next to go likely the Seattle Post-Intelligencer. And you can now buy a share of New York Times stock for less than the price of its Sunday paper.
I also wrote this:
“Before it is all over, the number of “newspapers” left in America will probably be less than 10 — and they might not be individual papers but rather new entities created out of the current large chains.”
Frankly, these days that prediction - especially if we’re talking major metropolitan papers (small local papers are still doing pretty well) - almost seems too optimistic.
As they say about leading the pack, it’s always a good way to get shot in the back. And I took my fair share of arrows, many of them from veteran reporters who either dismissed my notions as absurd (‘People will always want to read the morning paper with their coffee’) or as calling down the Furies (‘Articles like this certainly don’t help matters’). I wonder how many of those commentators are still in the business today, and how many still believe those arguments.
The reason I was confident then in my predictions was not out any animus towards newspapers - on the contrary, as I’ve written here before, I’m a fourth generation newspaperman. I love newspapers. And some of the most satisfying moments in my career have been sitting in a café on a Sunday morning watching people around me reading something I’d written. No, what made me certain about this unfolding scenario were my experiences in the electronics industry. Over the years I’d seen one traditional industry after another, all of them seemingly permanent, be destroyed by the arrival of the digital revolution.
In almost every case - adding machines, arcade games, printing, letter writing, typing, LP records, clocks and watches, even older electronics businesses - these once-giant industries had been so annihilated that they were almost erased from our memories, supplanted by wholly new industries defined by microprocessors, mass customization and Moore’s Law. Once I saw Google News and first great blogs, it was obvious to me that this same destruction was about to happen to newspapers - and that the real challenge was to overcome sentiment and tradition and look this transformation straight in the eye and accept the full implications of what I saw. The death of newspapers seemed impossible, but so did the death of typewriters. You had to bet on technology, wherever it led.
And in newspapers, it has led us to where we are now. The ‘death of newspapers’ is now generally assumed; it has become the common view that soon there won’t be any major newspapers left in this country, with local papers soon to follow once Craigslist gets around to setting up shop in their backyards.
But that isn’t what technology is telling us. Once again the scenario presented by technology departs from the received view.
What the history of technology tells is that at some point the slaughter stops. What remains are a handful of survivors. Some, like the handful of companies that still make typewriters, will cater to a small surviving pool of traditional customers. These companies will never be as big as they once were, and eventually they will slowly fade away, but for a generation or two it will still be a very profitable existence being a big fish in small pond. In newspapers, USA Today seems to have the greatest chance of ending up here (while the New York Times, which wants this slot, will never make it).
The other survivors will be very different - indeed they will look almost nothing like their former selves. They may bear the names of once famous newspapers, but that will be the only resemblance. Technology revolutions are like black holes: what comes out looks nothing like what went in.
If they are smart, some of the newspapers that survivor that survive this Great Shakeout have a chance to come all of the way back and be major players in the next wave.
But to do so, they have to recognize that everything has now changed - and they have break from their past, recognize the utterly changed nature of the marketplace, and embark on a radically new strategy.
How? First of all: Don’t try to preserve what you were. It’s now too late. Look instead to what you must be in ten years, and get there in five. And for the next two years, do whatever it takes to survive.
What does that mean? Well, surprisingly it means: Forget computers. Newspapers have already lost that battle. Instead, move on - and target the next platform. My gut tells me that the future of news delivery is to e-Books, like Kindle, and even more, Smart Phones. So rebuild your paper for those platforms - automatic downloading of the daily news directly to e-books, and powerful new navigation and social networking (i.e., story reporting and sharing) tools for the phone.
It also means a new business model. The blogosphere has made one major mistake: it has yet to create a truly viable revenue model. And that represents a huge opportunity. Advertisers are still wary of the Web because they don’t see yet a vehicle that produces strong, verifiable results. That’s also the reason why (besides all of that capital equipment, like presses and buildings) that newspapers didn’t just migrate to the Web two years ago - it would have led to massive revenue losses. But newspapers have now taken those losses anyway, so accept the inevitable. A revenue model will emerge for the Web, so take your lumps now, shrink to 10 -20 percent of your original size, sell the buildings and presses, move exclusively to the Web, and get ready for the market to take off.
And, as long as you are thinking outside of the box, go all of the way. Why doesn’t a consortium of newspapers buy Craigslist, leave it intact, and divvy up the ads by region? Why not team up with the largest local TV station and become its integrated video-print website? Or better yet, buy one of those emerging Web aggregators - the Huffington Post, Pajamas Media, etc. - and embed yourselves within them. They’re going to be your future competitors anyway, so co-opt them now.
Finally, figure out a way to hang on to all of that reporting talent you have so indifferently tossed away. Turn them into contractors for a couple of stories per month, or put them on retainer. But don’t lose them - because five years from now there will be land rush on reporting talent to fill the new ‘newspapers’. So tie them up now.
In the end, it’s all about surviving short term, and starting over under the new rules long term. We will always need newspapers because we need news. But as to what form this transformed medium will take is as yet unknown. But we do have some ideas - and it is those ideas that America’s dying newspapers should now embrace, not wistful dreams of the past.
Newspapers, ave atque vale.
But as we bid you good-bye, just remember: in the digital age the death of an industry usually plants the seeds of its resurrection.
The last two weeks saw what may prove to be the tipping point in the history of newspapers. The Rocky Mountain News became the first major U.S. newspaper to close in the face of declining circulation and revenues created by competition from the digital media. Close on its heels may be the equally venerable San Francisco Chronicle, which announced that it would soon be seeking a buyer . . .and failing that, may go out of business.
This bad news is just the latest in what has been a long, sad downward spiral by the newspaper industry through most of this decade. The newspaper industry gave up denying that anything was wrong about five years ago, abandoned the fantasy that this was a temporary setback two years ago, and now - like a terminal patient completing the Kubler-Ross cycle - has all-but resigned itself to imminent oblivion.
And, if things keep going the way they have, that’s a pretty accurate prognosis.
I was one of the very first people in the national media to predict the death of newspapers (though Time editor Daniel Okrent gave a prescient speech on “The Death of Print” in 2000) . I did so in this column in March, 2005. Here’s what I wrote:
“So, let’s finally come out and say it: Newspapers are dead. They will never come back. By the end of this decade, the newspaper industry will suffer the same death rate — 90-plus percent — that every other industry experiences when run over by a technology revolution.”
I was a little ambitious in that prediction, but not by much. There isn’t a single major newspaper in this country that isn’t in serious financial trouble. Even the industry’s annual convention was canceled this year. And waiting in the wings, not far behind the RMN and Chron, are at least another dozen papers on the brink - with the next to go likely the Seattle Post-Intelligencer. And you can now buy a share of New York Times stock for less than the price of its Sunday paper.
I also wrote this:
“Before it is all over, the number of “newspapers” left in America will probably be less than 10 — and they might not be individual papers but rather new entities created out of the current large chains.”
Frankly, these days that prediction - especially if we’re talking major metropolitan papers (small local papers are still doing pretty well) - almost seems too optimistic.
As they say about leading the pack, it’s always a good way to get shot in the back. And I took my fair share of arrows, many of them from veteran reporters who either dismissed my notions as absurd (‘People will always want to read the morning paper with their coffee’) or as calling down the Furies (‘Articles like this certainly don’t help matters’). I wonder how many of those commentators are still in the business today, and how many still believe those arguments.
The reason I was confident then in my predictions was not out any animus towards newspapers - on the contrary, as I’ve written here before, I’m a fourth generation newspaperman. I love newspapers. And some of the most satisfying moments in my career have been sitting in a café on a Sunday morning watching people around me reading something I’d written. No, what made me certain about this unfolding scenario were my experiences in the electronics industry. Over the years I’d seen one traditional industry after another, all of them seemingly permanent, be destroyed by the arrival of the digital revolution.
In almost every case - adding machines, arcade games, printing, letter writing, typing, LP records, clocks and watches, even older electronics businesses - these once-giant industries had been so annihilated that they were almost erased from our memories, supplanted by wholly new industries defined by microprocessors, mass customization and Moore’s Law. Once I saw Google News and first great blogs, it was obvious to me that this same destruction was about to happen to newspapers - and that the real challenge was to overcome sentiment and tradition and look this transformation straight in the eye and accept the full implications of what I saw. The death of newspapers seemed impossible, but so did the death of typewriters. You had to bet on technology, wherever it led.
And in newspapers, it has led us to where we are now. The ‘death of newspapers’ is now generally assumed; it has become the common view that soon there won’t be any major newspapers left in this country, with local papers soon to follow once Craigslist gets around to setting up shop in their backyards.
But that isn’t what technology is telling us. Once again the scenario presented by technology departs from the received view.
What the history of technology tells is that at some point the slaughter stops. What remains are a handful of survivors. Some, like the handful of companies that still make typewriters, will cater to a small surviving pool of traditional customers. These companies will never be as big as they once were, and eventually they will slowly fade away, but for a generation or two it will still be a very profitable existence being a big fish in small pond. In newspapers, USA Today seems to have the greatest chance of ending up here (while the New York Times, which wants this slot, will never make it).
The other survivors will be very different - indeed they will look almost nothing like their former selves. They may bear the names of once famous newspapers, but that will be the only resemblance. Technology revolutions are like black holes: what comes out looks nothing like what went in.
If they are smart, some of the newspapers that survivor that survive this Great Shakeout have a chance to come all of the way back and be major players in the next wave.
But to do so, they have to recognize that everything has now changed - and they have break from their past, recognize the utterly changed nature of the marketplace, and embark on a radically new strategy.
How? First of all: Don’t try to preserve what you were. It’s now too late. Look instead to what you must be in ten years, and get there in five. And for the next two years, do whatever it takes to survive.
What does that mean? Well, surprisingly it means: Forget computers. Newspapers have already lost that battle. Instead, move on - and target the next platform. My gut tells me that the future of news delivery is to e-Books, like Kindle, and even more, Smart Phones. So rebuild your paper for those platforms - automatic downloading of the daily news directly to e-books, and powerful new navigation and social networking (i.e., story reporting and sharing) tools for the phone.
It also means a new business model. The blogosphere has made one major mistake: it has yet to create a truly viable revenue model. And that represents a huge opportunity. Advertisers are still wary of the Web because they don’t see yet a vehicle that produces strong, verifiable results. That’s also the reason why (besides all of that capital equipment, like presses and buildings) that newspapers didn’t just migrate to the Web two years ago - it would have led to massive revenue losses. But newspapers have now taken those losses anyway, so accept the inevitable. A revenue model will emerge for the Web, so take your lumps now, shrink to 10 -20 percent of your original size, sell the buildings and presses, move exclusively to the Web, and get ready for the market to take off.
And, as long as you are thinking outside of the box, go all of the way. Why doesn’t a consortium of newspapers buy Craigslist, leave it intact, and divvy up the ads by region? Why not team up with the largest local TV station and become its integrated video-print website? Or better yet, buy one of those emerging Web aggregators - the Huffington Post, Pajamas Media, etc. - and embed yourselves within them. They’re going to be your future competitors anyway, so co-opt them now.
Finally, figure out a way to hang on to all of that reporting talent you have so indifferently tossed away. Turn them into contractors for a couple of stories per month, or put them on retainer. But don’t lose them - because five years from now there will be land rush on reporting talent to fill the new ‘newspapers’. So tie them up now.
In the end, it’s all about surviving short term, and starting over under the new rules long term. We will always need newspapers because we need news. But as to what form this transformed medium will take is as yet unknown. But we do have some ideas - and it is those ideas that America’s dying newspapers should now embrace, not wistful dreams of the past.
Tuesday, March 3, 2009
Buffett's Stock Picks Are Flat!
No, we don't mean in the good way (who wouldn't kill for flat performance over the past year?). We mean in the round-trip way.
As in: All those stock gains Warren had amassed over the years, including the moonrocket WaPo and Coke stakes, have now disappeared.
At the end of 2007, says hedge fund manager Jeff Matthews, Warren had an embedded gain in Berkshire's stock portfolio of $35 billion. Now, he's flat.
From Jeff Matthews Is Not Making This Up:
Based on the year-end portfolio presented in the letter (and it has changed only modestly over time, but now excludes two stocks, Burlington Northern and Moody’s, in which Berkshire owns 20% and must report its holdings under the equity method,) Berkshire’s entire equity portfolio, which had a $37 billion cost basis and a $49 billion market value at year-end 2008, was, as of yesterday’s market close, worth only about $37 billion...
Now, the calculation itself is fairly straightforward. Since year-end Berkshire’s equity portfolio has suffered losses of close to $1 billion or more in American Express, Conoco-Phillips, P&G, and USB, if the computers here at NotMakingThisUp are correct.
And while some of those losses are certainly temporary, the hits to his financial holdings look more permanent—as does the whopping $5 billion decline in Berkshire's 7% stake in Wells Fargo thus far in 2009.
Virtually every other named holding in Berkshire’s portfolio—including Coke, Tesco, Swiss Re, and even poor old Washington Post—is also down year-to-date.
Consequently, if our math is correct, Berkshire’s equity portfolio stands at roughly $37 billion as of yesterday's market close, dead even with its $37.1 billion reported cost basis at year-end 2008.
And here's another bombshell:
Buffett also disclosed what might go down as the second most surprising disclosure in today’s letter: he had to sell some of Berkshire's stocks to make those headline-grabbing investments in GE, Goldman Sachs and Wrigley.
As in: All those stock gains Warren had amassed over the years, including the moonrocket WaPo and Coke stakes, have now disappeared.
At the end of 2007, says hedge fund manager Jeff Matthews, Warren had an embedded gain in Berkshire's stock portfolio of $35 billion. Now, he's flat.
From Jeff Matthews Is Not Making This Up:
Based on the year-end portfolio presented in the letter (and it has changed only modestly over time, but now excludes two stocks, Burlington Northern and Moody’s, in which Berkshire owns 20% and must report its holdings under the equity method,) Berkshire’s entire equity portfolio, which had a $37 billion cost basis and a $49 billion market value at year-end 2008, was, as of yesterday’s market close, worth only about $37 billion...
Now, the calculation itself is fairly straightforward. Since year-end Berkshire’s equity portfolio has suffered losses of close to $1 billion or more in American Express, Conoco-Phillips, P&G, and USB, if the computers here at NotMakingThisUp are correct.
And while some of those losses are certainly temporary, the hits to his financial holdings look more permanent—as does the whopping $5 billion decline in Berkshire's 7% stake in Wells Fargo thus far in 2009.
Virtually every other named holding in Berkshire’s portfolio—including Coke, Tesco, Swiss Re, and even poor old Washington Post—is also down year-to-date.
Consequently, if our math is correct, Berkshire’s equity portfolio stands at roughly $37 billion as of yesterday's market close, dead even with its $37.1 billion reported cost basis at year-end 2008.
And here's another bombshell:
Buffett also disclosed what might go down as the second most surprising disclosure in today’s letter: he had to sell some of Berkshire's stocks to make those headline-grabbing investments in GE, Goldman Sachs and Wrigley.
Saturday, February 28, 2009
Berkshire Hathaway Reports Worst Year Ever
In Letter to Shareholders, Buffett Calls Credit Markets 'Nonfunctional' but Strikes Upbeat Note for Long Term
By SCOTT PATTERSON
Warren Buffett's Berkshire Hathaway Inc. reported Saturday morning that 2008 was the legendary investor's worst year ever. It also reported a grim fourth quarter, though it eked out a slight gain. (Berkshire's annual letter to shareholders.)
[Berkshire Hathaway] Associated Press
A common metric Berkshire uses to track performance, book value per share, fell 9.6% in 2008, its biggest decline since Mr. Buffett took over the company in 1965.
It was only the second year in more than 40 years that Berkshire posted negative results. In 2001, Berkshire's book value per share fell 6.2%. The company's performance in 2008 still far outpaced the Standard & Poor's 500-stock index, which fell 37% last year, including dividends.
Berkshire's fourth-quarter net income was $117 million, a whopping 96% decline from last year's $2.9 billion fourth-quarter income. The results mark Berkshire's fifth year-over-year quarterly decline in a row.
Annual net income fell to $4.99 billion in 2008 from $13.21 billion the previous year amid poor results from the firm's insurance holdings and big declines in stock holdings such as Coca-Cola Co. and American Express Co. Berkshire also owns See's Candy, Fruit of the Loom and Benjamin Moore paint, but its insurance businesses generate the bulk of the parent company's results.
Annual Letter
* Berkshire's annual letter to shareholders
In his letter to shareholders, Mr. Buffett said that in the fourth quarter, a "series of life-threatening problems within many of the world's great financial institutions was unveiled." Credit markets turned "nonfunctional," Berkshire's chairman said.
Still, Mr. Buffett struck an upbeat note in his letter that detailed the current woes of the financial system. "[N]ever forget that our country has faced far worse travails in the past. … Without fail, however, we've overcome them."
Amid the turmoil of last year, Mr. Buffett did make some moves that could pay off in the long run. In late September, he agreed to buy $5 billion of perpetual preferred stock with a 10% yield from Goldman Sachs Group Inc., which was reeling after the collapse of Lehman Brothers Holdings Inc.
The deal, concocted in the heat of the moment during the September swoon, was agreed to in a matter of hours as Mr. Buffett swigged Cherry Coke and munched mixed nuts from his office in Omaha.
Berkshire also received warrants to purchase Goldman common stock at $115 a share. While the vote of confidence in Goldman by the savvy investor temporarily helped stabilize the bank's share price at around $120, since then Goldman's stock has wilted to well below $100.
In October, Mr. Buffett agreed to invest $3 billion, and potentially as much as $6 billion, in General Electric Co. preferred shares, which also sport a 10% yield. Friday, GE said it would slash its quarterly stock dividend by more than two-thirds to 10 cents a share, letting the company salt away about $9 billion a year. The move doesn't have an impact on Mr. Buffett's preferred holdings, however.
Berkshire recently has made other high-yielding investments in companies ranging from Swiss Reinsurance Co. to Harley-Davidson Inc.
By SCOTT PATTERSON
Warren Buffett's Berkshire Hathaway Inc. reported Saturday morning that 2008 was the legendary investor's worst year ever. It also reported a grim fourth quarter, though it eked out a slight gain. (Berkshire's annual letter to shareholders.)
[Berkshire Hathaway] Associated Press
A common metric Berkshire uses to track performance, book value per share, fell 9.6% in 2008, its biggest decline since Mr. Buffett took over the company in 1965.
It was only the second year in more than 40 years that Berkshire posted negative results. In 2001, Berkshire's book value per share fell 6.2%. The company's performance in 2008 still far outpaced the Standard & Poor's 500-stock index, which fell 37% last year, including dividends.
Berkshire's fourth-quarter net income was $117 million, a whopping 96% decline from last year's $2.9 billion fourth-quarter income. The results mark Berkshire's fifth year-over-year quarterly decline in a row.
Annual net income fell to $4.99 billion in 2008 from $13.21 billion the previous year amid poor results from the firm's insurance holdings and big declines in stock holdings such as Coca-Cola Co. and American Express Co. Berkshire also owns See's Candy, Fruit of the Loom and Benjamin Moore paint, but its insurance businesses generate the bulk of the parent company's results.
Annual Letter
* Berkshire's annual letter to shareholders
In his letter to shareholders, Mr. Buffett said that in the fourth quarter, a "series of life-threatening problems within many of the world's great financial institutions was unveiled." Credit markets turned "nonfunctional," Berkshire's chairman said.
Still, Mr. Buffett struck an upbeat note in his letter that detailed the current woes of the financial system. "[N]ever forget that our country has faced far worse travails in the past. … Without fail, however, we've overcome them."
Amid the turmoil of last year, Mr. Buffett did make some moves that could pay off in the long run. In late September, he agreed to buy $5 billion of perpetual preferred stock with a 10% yield from Goldman Sachs Group Inc., which was reeling after the collapse of Lehman Brothers Holdings Inc.
The deal, concocted in the heat of the moment during the September swoon, was agreed to in a matter of hours as Mr. Buffett swigged Cherry Coke and munched mixed nuts from his office in Omaha.
Berkshire also received warrants to purchase Goldman common stock at $115 a share. While the vote of confidence in Goldman by the savvy investor temporarily helped stabilize the bank's share price at around $120, since then Goldman's stock has wilted to well below $100.
In October, Mr. Buffett agreed to invest $3 billion, and potentially as much as $6 billion, in General Electric Co. preferred shares, which also sport a 10% yield. Friday, GE said it would slash its quarterly stock dividend by more than two-thirds to 10 cents a share, letting the company salt away about $9 billion a year. The move doesn't have an impact on Mr. Buffett's preferred holdings, however.
Berkshire recently has made other high-yielding investments in companies ranging from Swiss Reinsurance Co. to Harley-Davidson Inc.
Sunday, February 22, 2009
The Lure of Sirius: Tax Losses
By JESSE DRUCKER and MATTHEW KARNITSCHNIG
Some investors are baffled why media titans John Malone and Charles Ergen are competing to throw money at Sirius XM Radio Inc., the money-losing satellite-radio company that was perilously close to bankruptcy.
But in fact, the company's most valuable asset could be precisely all the money it has lost.
Sirius XM has at least $6 billion of tax losses, according to securities filings. That means that the losses it has accumulated over the years can be used as deductions to cut taxes on future profits. As long as those losses stay with Sirius, they have little value, securities filings show, because the company's future prospects for significant profits are still slim.
But in the eventual hands of another company, like Mr. Malone's Liberty Media Corp., those tax losses could become extremely valuable, helping to wipe more than $6 billion in taxable income off of its income tax returns -- thus some day cutting Liberty's corporate income-tax bill by more than $2 billion.
Tax concerns are often a big driver of corporate deal making, but few players maneuver through the tax code as thoroughly as Mr. Malone. In 2006, he acquired the Atlanta Braves in a way that enabled Liberty to effectively cash out its stake in Time Warner without incurring taxes.
Money for Nothing?
* Sirius XM's most valuable asset is the at least $6 billion it holds in "tax losses," which can be used to offset taxes on future profits.
* But those aren't worth much to Sirius, since its prospects for profits are slim.
* However, in the eventual hands of Liberty or EchoStar, they could cut those companies' taxes by more than $2 billion.
Similarly, Sirius's tax losses are considered a key part of the company's appeal to Liberty, according to people familiar with the matter. They were considered less significant to Mr. Ergen, who bought up Sirius debt in hopes of adding Sirius to his strategic arsenal of satellite assets. On Tuesday, Liberty announced it would rescue the company from a bankruptcy filing with a $530 million loan. Liberty will receive a 40% stake in Sirius.
Companies often have tax losses. But experts say it is unusual that they are potentially a firm's most valuable asset, as with Sirius. The only asset that is comparable is the company's collection of radio wave spectrum licenses granted by the Federal Communications Commission valued at $2 billion, according to a Sirius securities filing. "That's uncommon that the [tax loss] would be ... the most valuable asset," said Robert Willens, who runs a corporate tax advisory firm.
However, for Liberty to maximize the use of those tax losses, it must navigate Internal Revenue Service rules intended to prevent companies from acquiring others solely for their losses -- so-called "trafficking in losses."
Indeed, that issue is getting renewed attention: In late September, the Treasury Department lifted those tax-loss restrictions for some companies to encourage a spate of bank mergers. Congress effectively repealed Treasury's move for future bank deals as part of the recent stimulus package.
The IRS curbs already kicked in after the Sirius XM merger was closed in last July and limit how much of the losses can be used as tax deductions each year.
Based on those rules, Mr. Willens estimates that, for the first five years that the tax losses could be used, Sirius is limited to about $580 million a year in deductions stemming from the losses. After that, it drops even lower, to about $250 million a year for the next 15 years. Thus, all the losses would be used, but not immediately, which reduces their effective value. People familiar with the matter confirmed that those estimates are in the range of the company's working projections.
Another complication hangs over these tax losses. If ownership of the company changes again, the use of the tax losses would become even more limited, according to IRS rules. That is because the restrictions are calculated based in part on the market value of the company -- which is roughly 10% of what it was when the Sirius XM merger closed.
Under IRS rules, the restrictions on the use of the tax losses kick in if the company's major shareowners increase their ownership stakes by more than 50 percentage points. Liberty's current 40% investment is restricted to no more than 49.9% for the next three years, which prevents the Liberty deal from triggering another ownership change.
There is an additional wrinkle: If another investor purchased enough stock to give it a stake of 5% or more during the next three years, that could combine with Liberty's stake to trigger those restrictions anew. Sirius can implement trading restrictions to prevent that. At current values, a new restriction on the losses could cause Sirius to lose about 80% of its tax losses over the next 20 years, according to Mr. Willens.
Absent such changes, Liberty would then be free to acquire the rest of Sirius in three years and use all the losses to shelter taxable profits elsewhere.
Some investors are baffled why media titans John Malone and Charles Ergen are competing to throw money at Sirius XM Radio Inc., the money-losing satellite-radio company that was perilously close to bankruptcy.
But in fact, the company's most valuable asset could be precisely all the money it has lost.
Sirius XM has at least $6 billion of tax losses, according to securities filings. That means that the losses it has accumulated over the years can be used as deductions to cut taxes on future profits. As long as those losses stay with Sirius, they have little value, securities filings show, because the company's future prospects for significant profits are still slim.
But in the eventual hands of another company, like Mr. Malone's Liberty Media Corp., those tax losses could become extremely valuable, helping to wipe more than $6 billion in taxable income off of its income tax returns -- thus some day cutting Liberty's corporate income-tax bill by more than $2 billion.
Tax concerns are often a big driver of corporate deal making, but few players maneuver through the tax code as thoroughly as Mr. Malone. In 2006, he acquired the Atlanta Braves in a way that enabled Liberty to effectively cash out its stake in Time Warner without incurring taxes.
Money for Nothing?
* Sirius XM's most valuable asset is the at least $6 billion it holds in "tax losses," which can be used to offset taxes on future profits.
* But those aren't worth much to Sirius, since its prospects for profits are slim.
* However, in the eventual hands of Liberty or EchoStar, they could cut those companies' taxes by more than $2 billion.
Similarly, Sirius's tax losses are considered a key part of the company's appeal to Liberty, according to people familiar with the matter. They were considered less significant to Mr. Ergen, who bought up Sirius debt in hopes of adding Sirius to his strategic arsenal of satellite assets. On Tuesday, Liberty announced it would rescue the company from a bankruptcy filing with a $530 million loan. Liberty will receive a 40% stake in Sirius.
Companies often have tax losses. But experts say it is unusual that they are potentially a firm's most valuable asset, as with Sirius. The only asset that is comparable is the company's collection of radio wave spectrum licenses granted by the Federal Communications Commission valued at $2 billion, according to a Sirius securities filing. "That's uncommon that the [tax loss] would be ... the most valuable asset," said Robert Willens, who runs a corporate tax advisory firm.
However, for Liberty to maximize the use of those tax losses, it must navigate Internal Revenue Service rules intended to prevent companies from acquiring others solely for their losses -- so-called "trafficking in losses."
Indeed, that issue is getting renewed attention: In late September, the Treasury Department lifted those tax-loss restrictions for some companies to encourage a spate of bank mergers. Congress effectively repealed Treasury's move for future bank deals as part of the recent stimulus package.
The IRS curbs already kicked in after the Sirius XM merger was closed in last July and limit how much of the losses can be used as tax deductions each year.
Based on those rules, Mr. Willens estimates that, for the first five years that the tax losses could be used, Sirius is limited to about $580 million a year in deductions stemming from the losses. After that, it drops even lower, to about $250 million a year for the next 15 years. Thus, all the losses would be used, but not immediately, which reduces their effective value. People familiar with the matter confirmed that those estimates are in the range of the company's working projections.
Another complication hangs over these tax losses. If ownership of the company changes again, the use of the tax losses would become even more limited, according to IRS rules. That is because the restrictions are calculated based in part on the market value of the company -- which is roughly 10% of what it was when the Sirius XM merger closed.
Under IRS rules, the restrictions on the use of the tax losses kick in if the company's major shareowners increase their ownership stakes by more than 50 percentage points. Liberty's current 40% investment is restricted to no more than 49.9% for the next three years, which prevents the Liberty deal from triggering another ownership change.
There is an additional wrinkle: If another investor purchased enough stock to give it a stake of 5% or more during the next three years, that could combine with Liberty's stake to trigger those restrictions anew. Sirius can implement trading restrictions to prevent that. At current values, a new restriction on the losses could cause Sirius to lose about 80% of its tax losses over the next 20 years, according to Mr. Willens.
Absent such changes, Liberty would then be free to acquire the rest of Sirius in three years and use all the losses to shelter taxable profits elsewhere.
Wednesday, February 18, 2009
Buffett & Berkshire Hathaway Disclose Holdings
It’s that time again. Warren Buffett and Berkshire Hathaway, Inc. (NYSE: BRK-A) have filed with the SEC showing what the Oracle of Omaha owns in public stocks as of the quarter or as of December 31, 2008 in this case: These are broken out alphabetically by company, along with some color on each stock compared to prior report:
* American Express Co. (NYSE: AXP) over 151.6 million shares, looks same as before.
* Bank of America Corp. (NYSE: BAC) 5,000,000 shares; same as last quarter but lower than the 9.1 million shares reported in June.
* Burlington Northern Santa Fe (NYSE: BNI) 70.089 million shares, higher than the 63,785,418 shares reported previously but we already knew this one was higher from prior transactions.
* Carmax Inc. (NYSE: KMX) 17.63 million, down from 18.444 million last quarter.
* Coca Cola (NYSE: KO) right at 200,000,000 shares, same as before.
* Comcast (NASDAQ: CMCSA) 12 million shares, same as before.
* Comdisco Holdings (NASDAQ: CDCO) just over 1.5 million shares, same as before.
* ConocoPhillips (NYSE: COP) 79.896 million, above the 59.688 million in one unit, but was previously about 83.9 million total. Hard to know if this is a real change or just more reporting or more/less units….
* Constellation Energy Group (NYSE: CEG) 19.897 million shares, but this may have already ended after the last merger.
* Costco Wholesale (NASDAQ: COST) 5.254 million shares, same as before.
* Gannett Co. (NYSE: GCI) 3.447 million shares, same as before.
* General Electric Corp. (NYSE: GE) 7.777 million shares, same as before but that does not include the 10% interest bought last year.
* GlaxoSmithkline (NYSE: GSK) 1.51 million shares, same as before.
* Home Depot Inc. (NYSE: HD) 3.7 Million shares; same as before but down from June.
* Ingersoll-Rand (NYSE: IR) 7.78 million, above the 5.6366 million before.
* Iron Mountain (NYSE: IRM) 3.3722 million shares, same as last quarter.
* Johnson & Johnson (NYSE: JNJ) 28.6 million shares, down by more than half from about 62 million last quarter.
* Kraft Foods (NYSE: KFT) over 138 million. We had 148 million last time but that could have been a carrying difference we didn’t catch.
* Lowes Companies (NYSE: LOW) 6.5 million shares, same as last quarter.
* M&T Bank Corp. (NYSE: MTB) 6.71 million shares, same as last quarter.
* Moody’s (NYSE: MCO) about 48 million shares, same as before but may actually be larger since the 12/31 reporting.
* Nalco Holding (NYSE: NLC) 8.730 million shares; NEW HOLDING from last quarter.
* Nike Inc. (NYSE: NKE) 7.641 million shares, same as last quarter.
* Norfolk Southern (NYSE: NSC) 1.933 million shares, still same.
* NRG Energy (NYSE: NRG) 7.2 million, up from 5 million last quarter.
* Procter & Gamble (NYSE: PG) 96.3 million, down from more than 105.8 million last quarter. * Sanofi Aventis (NYSE: SNY) more than 3.9 million shares, same as before.
* Sun Trust Bank (NYSE: STI) more than 3.2 million shares, same as before.
* Torchmark Corp. (NYSE: TMK) looks roughly the same at 2.82 million.
* US Bancorp (NYSE: USB) about 67.6 million shares, down from over 72.9 million last quarter.
* USG Corp. (NYSE: USG) 17.072 million shares, looks same as last quarter.
* Union Pacific Corp. (NYSE: UNP) 8.9 million shares, same as before.
* United Parcel Service (NYSE: UPS) 1.429 million shares, same as before.
* WABCO Holdings (NYSE: WBC) 2.7 million shares, same as before.
* Wal-Mart Stores Inc. (NYSE: WMT) over 19.9 million shares, same as before.
* Washington Post (NYSE: WPO) over 1.72 million shares, same as before.
* Wells Fargo (NYSE: WFC) roughly 290.4 million shares, looks same as before.
* Wellpoint Inc. (NYSE: WLP) 4.7773 million shares, same as before.
* Wesco Financial Corp. (NYSE: WSC) 5.7 million shares, same as before.
* American Express Co. (NYSE: AXP) over 151.6 million shares, looks same as before.
* Bank of America Corp. (NYSE: BAC) 5,000,000 shares; same as last quarter but lower than the 9.1 million shares reported in June.
* Burlington Northern Santa Fe (NYSE: BNI) 70.089 million shares, higher than the 63,785,418 shares reported previously but we already knew this one was higher from prior transactions.
* Carmax Inc. (NYSE: KMX) 17.63 million, down from 18.444 million last quarter.
* Coca Cola (NYSE: KO) right at 200,000,000 shares, same as before.
* Comcast (NASDAQ: CMCSA) 12 million shares, same as before.
* Comdisco Holdings (NASDAQ: CDCO) just over 1.5 million shares, same as before.
* ConocoPhillips (NYSE: COP) 79.896 million, above the 59.688 million in one unit, but was previously about 83.9 million total. Hard to know if this is a real change or just more reporting or more/less units….
* Constellation Energy Group (NYSE: CEG) 19.897 million shares, but this may have already ended after the last merger.
* Costco Wholesale (NASDAQ: COST) 5.254 million shares, same as before.
* Gannett Co. (NYSE: GCI) 3.447 million shares, same as before.
* General Electric Corp. (NYSE: GE) 7.777 million shares, same as before but that does not include the 10% interest bought last year.
* GlaxoSmithkline (NYSE: GSK) 1.51 million shares, same as before.
* Home Depot Inc. (NYSE: HD) 3.7 Million shares; same as before but down from June.
* Ingersoll-Rand (NYSE: IR) 7.78 million, above the 5.6366 million before.
* Iron Mountain (NYSE: IRM) 3.3722 million shares, same as last quarter.
* Johnson & Johnson (NYSE: JNJ) 28.6 million shares, down by more than half from about 62 million last quarter.
* Kraft Foods (NYSE: KFT) over 138 million. We had 148 million last time but that could have been a carrying difference we didn’t catch.
* Lowes Companies (NYSE: LOW) 6.5 million shares, same as last quarter.
* M&T Bank Corp. (NYSE: MTB) 6.71 million shares, same as last quarter.
* Moody’s (NYSE: MCO) about 48 million shares, same as before but may actually be larger since the 12/31 reporting.
* Nalco Holding (NYSE: NLC) 8.730 million shares; NEW HOLDING from last quarter.
* Nike Inc. (NYSE: NKE) 7.641 million shares, same as last quarter.
* Norfolk Southern (NYSE: NSC) 1.933 million shares, still same.
* NRG Energy (NYSE: NRG) 7.2 million, up from 5 million last quarter.
* Procter & Gamble (NYSE: PG) 96.3 million, down from more than 105.8 million last quarter. * Sanofi Aventis (NYSE: SNY) more than 3.9 million shares, same as before.
* Sun Trust Bank (NYSE: STI) more than 3.2 million shares, same as before.
* Torchmark Corp. (NYSE: TMK) looks roughly the same at 2.82 million.
* US Bancorp (NYSE: USB) about 67.6 million shares, down from over 72.9 million last quarter.
* USG Corp. (NYSE: USG) 17.072 million shares, looks same as last quarter.
* Union Pacific Corp. (NYSE: UNP) 8.9 million shares, same as before.
* United Parcel Service (NYSE: UPS) 1.429 million shares, same as before.
* WABCO Holdings (NYSE: WBC) 2.7 million shares, same as before.
* Wal-Mart Stores Inc. (NYSE: WMT) over 19.9 million shares, same as before.
* Washington Post (NYSE: WPO) over 1.72 million shares, same as before.
* Wells Fargo (NYSE: WFC) roughly 290.4 million shares, looks same as before.
* Wellpoint Inc. (NYSE: WLP) 4.7773 million shares, same as before.
* Wesco Financial Corp. (NYSE: WSC) 5.7 million shares, same as before.
Thursday, February 5, 2009
WSJ NEWS ALERT: News Corp. Posts Loss on $8.4 Billion in Write-Downs
By SHIRA OVIDE
News Corp. posted a $6.42 billion loss for its fiscal second quarter, as it took a stiff charge to write down the value of its assets and as deteriorating advertising spending crimped its broadcast television and newspaper businesses.
The New York media company, which owns The Wall Street Journal, was dragged down by an $8.44 billion impairment charge to reflect the declining value of its TV licenses, acquisitions and other assets. Other media companies, including Time Warner Inc. and CBS Corp., have taken similar charges.
The dour results Thursday – coming on the heels of rocky earnings reports from Walt Disney Co. and Time Warner – underscore the accelerating pace of the ad downturn, particularly for traditional media. News Corp., which relies on ad sales for roughly one-third of its profits, saw earnings decline in all its major divisions except its cable-television networks, which continue to be a bright spot.
"While we anticipated a weakening, the downturn is more severe and likely longer lasting than previously thought," News Corp. Chief Executive Rupert Murdoch said in a statement. Mr. Murdoch said the company was working to cut jobs and restrain costs to withstand the tough operating climate. Among the reductions, The Wall Street Journal said about two dozen newsroom jobs were cut through layoffs, buyouts and elimination of open positions
News Corp.'s loss, which amounted to $2.45 a share for the quarter ended Dec. 31, compared to earnings of 27 cents a share, or $832 million, in the same quarter a year earlier. Excluding the impairment charge, operating income declined 42% as revenue fell 8.4% to $7.87 billion.
The results were released after the market closed. In 4 p.m. Nasdaq trading, News Corp. Class A shares were ahead 5% at $6.94. News Corp.'s stock price has fallen by two-thirds in the last year. Among the major U.S. media conglomerates, only CBS has faded more over the same period.
The biggest deadweight on operating income was a 72% decline at News Corp.'s TV-and-film production division, which produces TV hits such as "24," and "The Unit," and recent movies including "Marley and Me." News Corp. said the decline largely reflects tough comparisons to a year ago, when the company had strong DVD sales of "The Simpsons Movie" and the latest in the "Die Hard" series.
The television division – which includes the Fox broadcast network and local TV stations – posted less than one-tenth of the operating income of a year ago. Local television market has been a particular worry, with spiraling declines in ad spending from auto makers and dealers, and News Corp. said local TV station ad marketing slumped 19% in its second quarter.
Cable networks were a spot of strength, as they were for Time Warner on Wednesday. Operating income rose 27%, helped by higher licensing fees for Fox News Channel and the first profitable quarter for News Corp.'s startup Big Ten sports channel.
Operating income declined 9% at the unit that includes News Corp.'s newspapers, as ad spending dropped 10% at the company's U.K. newspapers and 4% as its Australian titles. News Corp. papers include the Times and News of the World in the U.K., and the Herald Sun in Australia. The downturns more than offset lower depreciation expenses and the inclusion of results from Journal publisher Dow Jones & Co., which News Corp. acquired in December 2007.
News Corp. posted a $6.42 billion loss for its fiscal second quarter, as it took a stiff charge to write down the value of its assets and as deteriorating advertising spending crimped its broadcast television and newspaper businesses.
The New York media company, which owns The Wall Street Journal, was dragged down by an $8.44 billion impairment charge to reflect the declining value of its TV licenses, acquisitions and other assets. Other media companies, including Time Warner Inc. and CBS Corp., have taken similar charges.
The dour results Thursday – coming on the heels of rocky earnings reports from Walt Disney Co. and Time Warner – underscore the accelerating pace of the ad downturn, particularly for traditional media. News Corp., which relies on ad sales for roughly one-third of its profits, saw earnings decline in all its major divisions except its cable-television networks, which continue to be a bright spot.
"While we anticipated a weakening, the downturn is more severe and likely longer lasting than previously thought," News Corp. Chief Executive Rupert Murdoch said in a statement. Mr. Murdoch said the company was working to cut jobs and restrain costs to withstand the tough operating climate. Among the reductions, The Wall Street Journal said about two dozen newsroom jobs were cut through layoffs, buyouts and elimination of open positions
News Corp.'s loss, which amounted to $2.45 a share for the quarter ended Dec. 31, compared to earnings of 27 cents a share, or $832 million, in the same quarter a year earlier. Excluding the impairment charge, operating income declined 42% as revenue fell 8.4% to $7.87 billion.
The results were released after the market closed. In 4 p.m. Nasdaq trading, News Corp. Class A shares were ahead 5% at $6.94. News Corp.'s stock price has fallen by two-thirds in the last year. Among the major U.S. media conglomerates, only CBS has faded more over the same period.
The biggest deadweight on operating income was a 72% decline at News Corp.'s TV-and-film production division, which produces TV hits such as "24," and "The Unit," and recent movies including "Marley and Me." News Corp. said the decline largely reflects tough comparisons to a year ago, when the company had strong DVD sales of "The Simpsons Movie" and the latest in the "Die Hard" series.
The television division – which includes the Fox broadcast network and local TV stations – posted less than one-tenth of the operating income of a year ago. Local television market has been a particular worry, with spiraling declines in ad spending from auto makers and dealers, and News Corp. said local TV station ad marketing slumped 19% in its second quarter.
Cable networks were a spot of strength, as they were for Time Warner on Wednesday. Operating income rose 27%, helped by higher licensing fees for Fox News Channel and the first profitable quarter for News Corp.'s startup Big Ten sports channel.
Operating income declined 9% at the unit that includes News Corp.'s newspapers, as ad spending dropped 10% at the company's U.K. newspapers and 4% as its Australian titles. News Corp. papers include the Times and News of the World in the U.K., and the Herald Sun in Australia. The downturns more than offset lower depreciation expenses and the inclusion of results from Journal publisher Dow Jones & Co., which News Corp. acquired in December 2007.
Subscribe to:
Posts (Atom)