**** They retired 10% notes and will realize savings of about 20 million per year.****
They retired the 10% debt with borrowings on the revolver, so the savings isn't quite $20 million per year.
**** One important question about those NOLs. In a buyout/merger situation, can they be used to offset earnings in a new combined company? ****
I'm not a tax guy, so my opinion on whether RAD's NOLs could be acquired is just that - my opinion. This question was more actively debated on this board a few years ago with some posters maintaining that none of the of the NOLs could be acquired citing past comments made by mgmt. I'm of the opinion that the NOLs could be acquired, subject to certain limitations, and I point to the WAG acquisition of Duane Reade. The following disclosure is from WAG's 2011 Annual Report:
"The Company assumed federal net operating losses of $286 million and state net
operating losses of $261 million, both of which begin to expire in 2018, in conjunction
with the Duane Reade acquisition."
I believe that the reason WAG was able to acquire the NOLs is that they are operating Duane Reade as a separate subsidiary and those acquired NOLs will be used to offset the future earnings of the Duane Reade subsidiary only.
Just curious, what time is it where you're posting? A few comments:
**** First of all, the retained earnings section is off set with capital surplus on the balance sheet. ****
- US companies refer to capital surplus as additional paid in capital. It's reflected in RAD's shareholders' deficit.
**** In the last annual report, these lose basis after a period of time and can't offset taxes. ****
We have some time to utilize ($ in thousands [source 10-K])
"At March 1, 2014, the Company had federal net operating loss (NOL) carryforwards of approximately $3,507,186. Of these, $1,906,013 will expire, if not utilized, between fiscal 2020 and 2022. An additional $1,519,062 will expire, if not utilized, between fiscal 2028 and 2032.
At March 1, 2014, the Company had state NOL carryforwards of approximately $4,476,975, the majority of which will expire between fiscal 2019 and 2027."
**** and we are still underwater 2 billion in value.***
I've posted about this before. One reason RAD is currently underwater in book value is that RAD reflects a full valuation against net deferred tax assets. The reason RAD had a full valuation allowance as of March 1, 2014 is explained in the following disclosure from the last 10-K ($ in thousands):
"The Company maintained a full valuation allowance of $2,060,811 and $2,223,675 against net deferred tax assets as a result of a three year cumulative loss at March 1, 2014 and March 2, 2013, respectively."
RAD WILL not have a three year cumulative loss as of Mar. 2015, which means that RAD will reverse all or part of its valuation allowance on net deferred tax assets this year. The entry will be to increase deferred tax assets and decrease income tax expense/shareholders' deficit by up to $1.8 billion or so this year. In other words, we could end up FY2015 with a sharehlders' equity/deficit balance near $0, depending on RADs' forecasted utilization of NOLs.
If your question relates to principal payments on debt only:
Overall, debt increased about $100 million in Q3FY15. Net borrowings on the revolver of $375.0 million, were partially offset by principal payments on debt of $278.2 million. Financing fees on early retirement of debt were $13.8 million [Source – Form 8-K - cash flow statement for the 13 weeks ended Nov 29, 2014].
**** had to post profit within 5 years or lose tax loss carryforwards ****
NOT TRUE! The following is from the last 10-K (IN THOUSANDS):
Net Operating Losses and Tax Credits
At March 1, 2014, the Company had federal net operating loss (NOL) carryforwards of approximately $3,507,186. Of these, $1,906,013 will expire, if not utilized, between fiscal 2020 and 2022. An additional $1,519,062 will expire, if not utilized, between fiscal 2028 and 2032.
At March 1, 2014, the Company had state NOL carryforwards of approximately $4,476,975, the majority of which will expire between fiscal 2019 and 2027.
The Company's federal and state net operating loss carryforwards include deductions of $18,365 for windfall tax benefits that have not yet been recognized in the financial statements at March 1, 2014. These tax benefits will be credited to additional paid-in capital when they reduce current taxable income consistent with the tax law ordering approach.
At March 1, 2014, the Company had federal business tax credit carryforwards of $50,595, the majority of which will expire between 2019 and 2021. In addition to these credits, the Company had alternative minimum tax credit carryforwards of $3,221.
The valuation allowances as of March 1, 2014 and March 2, 2013 apply to the net deferred tax assets of the Company. The Company maintained a full valuation allowance of $2,060,811 and $2,223,675 against net deferred tax assets as a result of a three year cumulative loss at March 1, 2014 and March 2, 2013, respectively.
I believe that mgmt has historically been conservative reporting flu activity in revenue guidance. The 2012-2013 flu season was charactertized as being moderately severe and it peaked in Dec. 2012 [source CDC]. In the week ended Dec 13, 2014, we are now at about the same level of flu activity as the comparable week in Dec 2012:
45 juridictions reporting regional or widespread activity (2014) versus 41 in (2012);
29 jurisdictions reporting widespread activity in both 2014 and 2012;
25.9% of respiratory samples testing postive for the flu (2014) versus 28.3% in 2012.
In the week ended Dec. 13, 2014, the number of jurisdictions reporting regional or widespread flu activity was 45 of 54 jurisdictions as compared to 24 of 54 jurisdictions in the prior year week ended Dec. 14, 2013. Of the jurisdictions reporting regional or widespread flu activity, 29 reported widespread activity in the current year as compared to 4 in the prior year period. The percentage of respiratory samples testing postive for the flu was 25.9% in the week ended Dec. 13, 2014 as compared with 17.8% in the week ended Dec. 7, 2013.
An unintended consequence of the lowered guidance maybe that RAD mgmt. picks up stock options at lower exercise prices. I'll be interested to see how many options were granted in Q3.
**** An interest rate hike does not effect current debt loads, only future borrowing.****
What you posted is only true for outstanding debt at fixed rates of interest. As of Aug 30, 2014, approximately 42% of RAD's outstanding debt was at variable rates of interest. The following disclosure was made in RAD's last 10-Q:
"The interest rate on our variable rate borrowings, which include our revolving credit facility, our new Tranche 7 Term Loan and Tranche 1 Term Loan and our Tranche 2 Term Loan, are all based on LIBOR. However, the interest rate on our Tranche 7 Term Loan has a LIBOR floor of 75 basis points and our Tranche 1 Term Loan and Tranche 2 Term Loan have a LIBOR floor of 100 basis points. If the market rates of interest for LIBOR changed by 100 basis points as of August 30, 2014, our annual interest expense would change by approximately $10.3 million."
In the week ended Dec. 6, 2014, the number of jurisdictions reporting regional or widespread flu activity was 41 of 54 jurisdictions as compared to 21 of 54 jurisdictions in the previous week ended Nov. 29, 2014 and 14 of 54 jurisdictions in the prior year week ended Dec. 7, 2013. The percentage of respiratory samples testing postive for the flu was 21.2% in the week ended Dec. 6, 2014 as compared with 17.0% in the week ended Nov. 29, 2014 and 13.3% in the week ended Dec. 7, 2013.
I was surprised to see a CDC warning. as uually they tell us that flu activity ia and flu seasons are unpredictable. Last year, flu activity peaked in Dec. In the week ended Nov 29, 2014, 21 of 54 jurisdictions reported regional or widespread activty and 17% of respiratory samples tested since Sep 28, 2014 have tested positive for the flu. In the week ended Nov 30, 2013 (no cumulative data posted by CDC), 9 of 54 jurisdictions reported regional or widespread activty and 10.1% of respiratory samples tested postive for the flu. [Source - CDC]
"Bad flu season ahead?
by CNBC Videos
Due the severity of the flu strain, the CDC has warned of a bad season this year, reports CNBC's Bertha Coombs."
**** If one doesn't like the "socialist" decisions/mandates to improve the well being of everyone than that's a shame, luckily you can emigrate. ****
You too. Have you consdidered working in a hospital in Cuba? I mean, why live and work in a socialist utopia work-in progress when you you can live and work in the final product today?
Good point on the gas prices. I expect that some product costs, transportation costs, utility costs, etc. should also be favorably impacted by lower oil prices.
Original full year guidance on 4/10/14: SSS increase - 2.5% to 4.5%; Net income - $0.31 to $0.42
Revised full year guidance on 9/18/14: SSS increase - 3.0% to 4.0%; Net income - $0.22 to $0.33
Actual SSS increase for the 39 weeks ended 11/29/14 - 4.2%
So, after mgmt. has lowered guidance twice this year, is it possible now that we going to end up with SSS for FY15 that is near or higher than the top end of the original guidance range and EPS somewhere in the middle to high end of the original guidance range?
If that's what it ends up being, I'll take it. But, with some mixed feelings.
Let me clarify my posts as there are 2 aspects to the DTA (accounting and cash flow). Nothing that I've commmented on here has anything to do with the cash flow impact of the DTA ("the payment of taxes") as nothing changes. RAD pays only minimum state taxes for the foreseeable future.
The accounting - What will happen in Q4 of this year, is that RAD will have to adjust the DTA to net realizable value (not unlike an AR account - allowance for doubtful accounts. They will do this by debiting the DTA valuation allowance (increasing a net asset) and booking an offsetting credit to income tax expense (increasing net income). It's the exact opposite of what they did several years go when they set up the valuation allowance as realizabilty of the DTA was determined to be zero at that time The amount recorded will be determined by using estimated future earnings (and determing DTA expected to be utilized) and could be booked in stages as it was when RAD established the allowance.
What I believe is that RAD will not get a benefit in PPS for recording a large tax credit this year (but I could be wrong). But, once the DTA valuation allowance is reversed, the utilization of the DTA will start to be reflected as income tax expense and reduce earnings going forward. My concern is that this could negatively impact the PPS going forward (but I could be wrong).
And from what I can see, RAD didn't get a lot of help from flu activity (perhaps more flu shots) as flu activity so far in the 2014-2015 season is essentially flat as compared the 2013-2014 season (source CDC, Google flu trends). Last year, flu activity peaked in Dec 2013 (source CDC), so it will be interesting to see if flu activity peaks later this season. If so, perhaps RAD SSS will benefit in Q4.