Andy Dufresne

Agreed. However I've noticed that I make bad decisions when I allow any emotion, being annoyed included, to affect what we know to be the rational value of the company. What is worse, at least you can sip on some of the world's finest beers to take away this feeling of being annoyed ... some Leffe Radieuse, Forbidden Fruit or La Chouffe :o

Gio, I do not think there is a need to panic - nobody is suggesting fraud at the moment as we simply do not know whether or not VRX fudged only their presentations (and even this is something we should consider only after AZ completes his writeup) or their SEC filings. I agree that it is difficult to discover outright fraud for a publicly traded company (although it has happened before - think Enron, WorldCom, etc.). As I wrote to you last time, the business may be great, but there is always an incentive to make it look better and therefore the use of cheap tricks such as an average versus a weighted average is plausible. If you wish to sleep easier, buy some puts to cover your position or exit - at the moment I cannot imagine you've lost money on it. Andy

Gio, AZ Value drew a very important distinction between misrepresentations in any documents filed with the SEC compared with anything else. Mess up on the former, and you go to prison; mess up on the latter, consequences aren't that severe. So YES, there is a large incentive for management to disclose as little as possible on the 10Ks and 10Qs and then perform "creative story-telling" as AZ has shown. Sadly, with the amount of information and limited time, managements KNOW that 99.9% of analysts will not have the time and patience to look for inconsistencies between the SEC filings and the rest (=marketing). You ask why would a billionaire CEO do this? Well, in short, out of control ego. May I remind you of another McKinsey alumnus, Jeff Skilling of Enron, who had no need to fabricate? He was already a wealthy man, but shaping your own cult-like company proved to be too great a lure for him. I am in no way suggesting that either VRX or its CEO are anything like Enron - this remains to be seen, but I think the least we owe AZ for his wonderful effort is to examine his findings objectively (I have no position in VRX, so for me its easier I guess) and make sure that tough questions are asked both via VRX's IR and on the next quarterly call. Il bugiardo deve avere buona memoria! Andy

Agreed. We'll have something to look forward to in the next report :D

I haven't the foggiest, but at 463,000 it's a mere 0.3% of the company's investment portfolio and even stupendous performance won't really budge the needle on this one.

I'm reasonably pleased with the quarter. BV grew 2.8% (including dividend), for an implied annual CAGR of 11.6%. Loans totaling 44m were repaid, so the company still has nearly 60m in cash despite spending nearly 80m cash in the first half, which it intelligently allocated, with roughly half into investments and half into buybacks at a 20% discount to BV. Two points I would highlight are: 1. There may very well be another public tender as the NCIB was finished in a month's time: "Finally, as we completed our normal course issuer bid during the second quarter, we will evaluate the merits of additional share repurchases as the year progresses. " 2. Terravest managed to nearly double revenues and net income in 6 months despite the balance sheet staying practically the same.

Q2 2015 report: http://www.clarkeinc.com/documents/IN/2015%20Q2%20Quarterly%20Report.pdf BNN video on Clarke with CEO Michael Rapps: http://www.bnn.ca/Video/player.aspx?vid=672547

You basically nailed it on the head. Structured Products/Valuation at a Big4 for 4 years with a 3.6 accting degree from villanova. I want to work on the buyside (LBOs or distressed credit being my top choices) but am interested in research and consulting in NYC (flexible on geography). Obviously I would prefer to do that without having to go to school but I think I need an mba from a top program to make that switch. As I mentioned I have not taken the GMAT but I think I need to score mid700s to get there as well, which is possible (I hope). Passed the CPA and CFA Level 2 if that makes much of a difference. Trying to add a few extracurriculars as well and should be starting a mentoring program for nyc high school students in Sept. Any advice on anything I can do to improve my competitiveness would be great. Manhattan GMAT is indeed good. For the GMAT my best advice is to focus on the Verbal because its where you can push up your relative score the most - e.g. you might "only" score 47 or 48 (raw score) on the Quant section, but if you get a 44 or 45 on the Verbal you'll have a 730+ GMAT because most test-takers aren't native speakera and the 99th % for verbal in 42 IIRC while your raw score can go up to 51. If you can get a 49 Q or above then a 44-45 V will get you a 770+ score. In any case, I'd say that anything above a 730 with a good balance of V and Q will be good, though if you can break 760 it will help with known GMAT whore schools, e.g. Columbia, and might help you land a good scholarship. For ECs, while it's laudable you'll tutor, most elite programs will just see this as resume building, so unless you can really make a clear impact and get yourself in the newspaper or noticed by someone there (preferably an alum of your target school) it might not make a difference. CPA and CFA L2 are nice, but any very good to elite MBA will mainly judge you by how well you've done so far in your career (promotions, direct reports, salary, yada yada) and how convincing your story sounds, i.e. will you be an employable graduate. I'd also try to develop an interest and ability in a foreign language - its always in short supply! Spend time talking to people who've gone to the programs you are focusing on - it will help you later as they'll be able to connect you to others / help you along the way. Also do yourself a favor and visit campuses to get their vibe and meet current students. This is mostly about you and how you'll fit in and it will show in your essays if you can really connect with a place - it resonates. Beyond these points, it's my personal opinion, so: 1. With your stats I'd say H/S are a very long shot, W, Col, MIT and Chicago you have a chance with good execution, NYU and K are IMHO more quirky so more of a toss up though you might get in. 2. Don't go into debt - if you have a full ride at a top 15 and nothing from a top 5, and the top 15 places people / has recruiters from your target employers, go with the $$$. People get into GS and McK from all over (I worked at the latter, so I'm not just talking out of my rear end ...) If you are looking at buy side investing post MBA then Col and Chicago are your best bets after H/S/W, though don't discount Yale, especially with $$$. Feel free to PM if you want Cheers Andy

Jay It's a big decision but if you want good input you need to give us some color - what type of career have you had so far and what do you want to do after your MBA and where (e.g. I'm a Big4 Auditor with a 3.7 finance/accounting degree from X and I want to do investment banking in NYC) - based on this we might be able to give you better answers. In general, as someone with an MBA, I'd say it very much depends on the above - you might not need an MBA at all or it may even be detrimental, it can also be a great time ...

I do not know Plato, but LIBOR would need to rise above 1% from its current state in order to trigger their LIBOR hedges that go out beyond this year if memory serves me right. Any ideas on the cause of the price decrease are welcome

I don’t know where you live… So I guess your country has benefited much from this “so-called” EU… And I won’t speak for Greece, nor Spain, nor Portugal, nor France, because I have never lived there (actually I have lived in Barcelona for two year, but let’s disregard that!)… I speak for Italy though: if you think this “so-called” EU, or worse still the Euro!, have “brought jobs, well being and prosperity” to Italy… well then, believe me, you have no idea what you are talking about. Cheers, Gio I think Gio is spot on - I don't live in the EU but had the chance to see the effects of the Euro on another small economy - Cyprus - over frequent visits lasting a few years (starting when the Cypriot Pound was still the currency). After the Euro was introduced, prices for everything went up significantly in real terms, and new money poured in from both the EU and Russia to build a lot of expensive vacation units. However, in the longer term the price increases drove away those Northern Europeans, especially British, looking for a cheap vacation in the sun, on which the Cypriots had traditionally relied, to Egypt and other locales. I remember sitting at the bar of a hotel watching the 2010 World Cup only to have the owner of the hotel (a British/Cypriot) bemoan how they expected the hotel (and Cyprus) to be full of tourists and they actually had none.

In my limited experience with / exposure to sell-side "research", the bulk of it is very very poor - not only is there an almost myopic focus on short term prospects, but the numbers are fiddled around to get to a "price target" (heaven forbid someone tries to actually calculate intrinsic value) and the sentiment on a company can change rapidly so that a stock once lauded can be swiftly downgraded even though nothing intrinsically valuable has occurred with the company or the competitive environment. I could go on, but I think you get the point. As mentioned, they can serve as Cliff Notes / summaries of financials but I think it much better to go directly to the source material and see things there for myself.

Thanks for the reply! Having looked at what you suggest, the 10K and 10Q only increase the gulf between the 5.75%, 6.3% and the effective interest. The company states in the 10Q that it would classify such expenses as you mentioned in Other Expense in the income statement (top of p.22 of the 10Q): Other expense includes interest expense on debt instruments, corporate financing costs and debt discounts associated with the repricing and refinancing of our debt instruments and, as appropriate, related charges or amortization of such costs and discounts, changes in the fair value of our interest rate cap and other items such as interest income and fees. It does not say whether this would then be classified in one of the two subsections being Interest Expense and Other Expense, Net. If we assume only the first, then all the charges, including what you suggested would already be included in my calculations so this should not be the source of the difference; however, if these charges were to be included in the latter subsection, this would only mean the effective interest is higher as the expenses are higher - e.g., for 2014, these extra charges were roughly 1.1m, bringing the total interest expense to 33.8m for an average debt of 502.5m, or a 6.72% effective rate. I am sorry I am being "annoying" but given the high debt-load here and the fact that in 4 years' time they will need to pay of the bulk of it (or refinance), I want to know how much of the CFO will be left as FCF to decrease leverage, re-institute the dividend or buy back shares ... Andy

Hi Packer, I am trying to reconcile the interest rates in the latest 10K and 10Q without success. The 10K indeed states that the Term loan is at LIBOR + 4.75% with a floor of 1%, for an effective rate of 5.75%, which you used in your model. However, in Note 7 of the 10Q (page 12), it states: The Company’s blended average effective interest rate on its long-term debt was approximately 6.3% for both the three months ended March 31, 2015 and 2014, respectively. I cannot reconcile these two numbers - 6.3% and 5.75%. To the best of my knowledge LIBOR has been under 0.25% since 2013, so the Term Rate effective interest should indeed be 5.75% for both Q1 2014 and 2015. Also, when I take the average LT debt in 2014 (using 485 from end of 2013 and 520 from the end of 2014) and divide the interest paid in 2014 of 32.7m I get ~6.5% effective interest rate ... I am trying to understand what I am missing ... TIA, Andy I'm not sure this is the case with NTLS, but generally the lenders on a term loan B will require the borrower to convert a portion of the loan, say 50%, to fixed rate debt via a back-to-back interest rate swap. This reduces the likelihood of default due to rising interest rates but creates a higher all in cost of debt for the borrower. Given that term loan B's are generally 7 year loans, the fixed rate portion would be meaningfully higher that the floating rate. I haven't read this section of the 10K but would be surprised if this wasn't a requirement from the lender group at loan origination. Lowlight - thanks for your answer - I refer you to Note 9 of the 10Q entitled Financial Instruments where the company states it has a single interest rate cap with a notional sum of 350m that caps LIBOR at 1% good until August 2015 - the company paid 0.9m for this swap which it purchased in Feb 2013 (see Note 10 to the latest 10K p. 58). I see nothing in the financial statements about a variable to fixed IR swap. Assuming the cap is good for 2.5 years, or 10 quarters it comes out to 90,000 USD per quarter. Given that Interest payments per quarter are roughly 8m I do not think the cost of the cap explains the difference. Andy

Hi Packer, I am trying to reconcile the interest rates in the latest 10K and 10Q without success. The 10K indeed states that the Term loan is at LIBOR + 4.75% with a floor of 1%, for an effective rate of 5.75%, which you used in your model. However, in Note 7 of the 10Q (page 12), it states: The Company’s blended average effective interest rate on its long-term debt was approximately 6.3% for both the three months ended March 31, 2015 and 2014, respectively. I cannot reconcile these two numbers - 6.3% and 5.75%. To the best of my knowledge LIBOR has been under 0.25% since 2013, so the Term Rate effective interest should indeed be 5.75% for both Q1 2014 and 2015. Also, when I take the average LT debt in 2014 (using 485 from end of 2013 and 520 from the end of 2014) and divide the interest paid in 2014 of 32.7m I get ~6.5% effective interest rate ... I am trying to understand what I am missing ... TIA, Andy