CKI - Clarke Inc.

[kab60]

I read it and have been wondering about the fall in price. Seems like an attractive discount these days where you can pick up at 9.05.

[racemize]

I read it and have been wondering about the fall in price. Seems like an attractive discount these days where you can pick up at 9.05.

 

the discount has bee fairly consistent over the past year or two.  I think it closed to 15% or so at one point.

[kab60]

I might be wrong but I think discount has increased compared to year end. CKI down ~ 10% while TVK is pretty stable and HLC is down a wee bit. So it has to be energy basket but we don't know much about that. It might be warranted.

[jay21]

The under lyings here look very cheap and they keep shoveling cash back to shareholders. Trying to see how you lose here.

[writser]

Most of their assets have some correlation to oil - I guess that's one way things could go wrong. Nevertheless I agree with your assessment. I rebought shares the past few weeks after selling them last year at or around $11.80. Well-managed company, I like their portfolio (though granted I haven't spent too much time on it), ~30% discount to tangible book & returning money to shareholders. Nice and easy.

[wachtwoord]

I bought shares as well @9.14. Wanted to own them before but was too late.

[AtlCDore]

Does anyone know if Clarke would be considered a PFIC for a US investor?

 

Thanks,

 

AtlCDore

[bookie71]

What is a PFIC?

[rohitc99]

Does anyone know if Clarke would be considered a PFIC for a US investor?

 

Thanks,

 

AtlCDore

 

I checked with the company last year they mentioned they were not a PFIC. i dont know if that is true for 2015. checking with company directly should get you the answer

[sbalsam]

Check with the interim CFO Kim Langille who was previously Vice President of Taxation. The whole team is very easy to reach by phone or email, and very helpful.

For what it is worth, I am nearly certain Clarke is a PFIC. 2014 would have been different because Clarke had the trucking and other operating businesses. Now that there is no material operating business and all virtually all the assets are cash and securities, the Company appears to qualify as a PFIC.

Check with the Company though as I have not practiced U.S. tax law in a number of years.

Note that you can avoid the negative consequences of owning a PFIC by holding the shares in an IRA or other non-taxable account. There are other ways to mitigate the PFIC issues that you can look into if that is not possible.

Steve

 

[lschmidt]

There has been a previous thread on tax consequences of PFICs, I think with regard to PSH. You can avoid PFIC issues in some IRA accounts, but not others. You may run into trouble with ERISA-qualified IRA accounts. Be careful and check with an accountant.

[Jurgis]

There has been a previous thread on tax consequences of PFICs, I think with regard to PSH. You can avoid PFIC issues in some IRA accounts, but not others. You may run into trouble with ERISA-qualified IRA accounts. Be careful and check with an accountant.

 

I believe this is inaccurate.

 

There are no tax issues with ERISA-qualified IRA accounts.

 

There was a claim that the company may not allow its stock to be owned inside ERISA-qualified IRA accounts and may claw back gains. I don't know if that claim was ever shown to be true.

 

See http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/pfic-classification-for-us-investors/

For tax treatment, see http://www.pwc.com/us/en/tax-services/publications/insights/assets/pwc-irs-treasury-clarify-ownership-pfic-stock.pdf referenced in that thread.

[mikazo]

"Clarke Inc. Announces Special Dividend and Adopts New Dividend Policy"

 

http://www.stockhouse.com/news/press-releases/2016/06/10/clarke-inc-announces-special-dividend-and-adopts-new-dividend-policy

 

I don't quite understand this one. There are limited investment opportunities outside energy and they have enough energy exposure therefore... pay out 85% of cash? Why not still cut the dividend, but hold on to the cash?

[wachtwoord]

"Clarke Inc. Announces Special Dividend and Adopts New Dividend Policy"

 

http://www.stockhouse.com/news/press-releases/2016/06/10/clarke-inc-announces-special-dividend-and-adopts-new-dividend-policy

 

I don't quite understand this one. There are limited investment opportunities outside energy and they have enough energy exposure therefore... pay out 85% of cash? Why not still cut the dividend, but hold on to the cash?

 

If they cannot find a good use for cash they will return it to investors (If I wanted cash to sit in a bank account I wouldn't be investing). Having a regular dividend doesn't make sense if your cash flows are lumpy.

 

I own some companies with a large cash load which should take an example from Clarke (RSKIA and PDRX for instance).

[Hielko]

Yes, this is an excellent decision from Clarke.

[matts]

The stock is still cheap and trading under book. Why not tender for more shares instead of making me pay tax on the dividend?

 

I'm not as happy about it as you guys seem to be.

 

[Jurgis]

What matts said.

 

Also what will they do if investment opportunities appear and 85% of the cash is gone? Issue shares under book? Take debt at possibly crappy rates? Isn't the whole point to have money when investment opportunities appear?

 

Would you guys tell Buffett to return BRK cash to you too because he can't bag an elephant today?

[wachtwoord]

The stock is still cheap and trading under book. Why not tender for more shares instead of making me pay tax on the dividend?

 

I'm not as happy about it as you guys seem to be.

 

I don't pay dividend tax (different tax system). If they pay dividends I can buy more stock if I want (more efficient than them buying it back) or invest elsewhere.

[matts]

The stock is still cheap and trading under book. Why not tender for more shares instead of making me pay tax on the dividend?

 

I'm not as happy about it as you guys seem to be.

 

I don't pay dividend tax (different tax system). If they pay dividends I can buy more stock if I want (more efficient than them buying it back) or invest elsewhere.

 

That's great for you, but Clarke should be making decisions with respect to their entire shareholder base. Most shares would be held in taxable entities so as far as I am concerned this an example of sub-optimal (but still positive) capital allocation from a firm where sound capital allocation is a big part of my thesis. The risk is that next time they do something that makes 1 or 2 other shareholders happy (like George) at YOUR expense.

 

 

[writser]

@Jurgis: I think they are happy nurturing their two major holdings. The difference between BRK and CKI is that at Clarke the cash is perenially undervalued by the market, so distributing it makes sense. Also, I think it is refreshing that they are not dead-set on growing the company. Takes balls to shrink your company if the market doesn't like it. That said, the market likes the dividend even more than I do. Price overshot quite a bit imho so I sold my position.

 

With respect to a dividend vs. tender: I don't really care either personally but have you tried contacting IR to ask why they made this choice? They're usually quick to reply.

[wachtwoord]

The stock is still cheap and trading under book. Why not tender for more shares instead of making me pay tax on the dividend?

 

I'm not as happy about it as you guys seem to be.

 

I don't pay dividend tax (different tax system). If they pay dividends I can buy more stock if I want (more efficient than them buying it back) or invest elsewhere.

 

That's great for you, but Clarke should be making decisions with respect to their entire shareholder base. Most shares would be held in taxable entities so as far as I am concerned this an example of sub-optimal (but still positive) capital allocation from a firm where sound capital allocation is a big part of my thesis. The risk is that next time they do something that makes 1 or 2 other shareholders happy (like George) at YOUR expense.

 

So sell the shares before the ex-dividend and buy them back after for $2 less?

 

In fact if the price keeps rising like this I might sell before the dividend as well. The last reported book value per share is $11.72 (will likely be a little higher now due to the appreciation of the energy assets) and since 2009 shares have traded at a discount to book (although historically book value has been a proxy for share price).

 

Anyway, I don't think the tax situation of individual investors should have an effect of strategical business decisions. They have an international investor community from many different tax regimes. Personal taxes are your problem, not theirs. They deal with business taxes.

 

Edit:

 

too bad their quarterly will come out June 30, while the special dividend date is the 27th. Now I need to decide on the value of the stock based on an outdated book value.

[tripleoptician]

The stock is still cheap and trading under book. Why not tender for more shares instead of making me pay tax on the dividend?

 

I'm not as happy about it as you guys seem to be.

 

I don't pay dividend tax (different tax system). If they pay dividends I can buy more stock if I want (more efficient than them buying it back) or invest elsewhere.

 

That's great for you, but Clarke should be making decisions with respect to their entire shareholder base. Most shares would be held in taxable entities so as far as I am concerned this an example of sub-optimal (but still positive) capital allocation from a firm where sound capital allocation is a big part of my thesis. The risk is that next time they do something that makes 1 or 2 other shareholders happy (like George) at YOUR expense.

 

So sell the shares before the ex-dividend and buy them back after for $2 less?

 

In fact if the price keeps rising like this I might sell before the dividend as well. The last reported book value per share is $11.72 (will likely be a little higher now due to the appreciation of the energy assets) and since 2009 shares have traded at a discount to book (although historically book value has been a proxy for share price).

 

Anyway, I don't think the tax situation of individual investors should have an effect of strategical business decisions. They have an international investor community from many different tax regimes. Personal taxes are your problem, not theirs. They deal with business taxes.

 

Edit:

 

too bad their quarterly will come out June 30, while the special dividend date is the 27th. Now I need to decide on the value of the stock based on an outdated book value.

 

Based on my rough calculations at my sell price of $10.9, it was at close to 95% of book value based on current market values of holloway/terravest/keck seng. I took NRG basket at same reported value of Mar 31st.

My feeling is the pension asset is an unproductive asset as they haven't been able to monetize it. If you discount this, I think you are getting above adjusted book value currently. Will keep following and if it gets back down to 75-80% of book I'll buy again. Rinse, cycle and repeat. Have done this 3 times in the past few years

[Jurgis]

too bad their quarterly will come out June 30, while the special dividend date is the 27th. Now I need to decide on the value of the stock based on an outdated book value.

 

Actually, you need to decide earlier than that. Ex-dividend date is June 16th:

 

Clarke's board of directors has, therefore, declared a special dividend in the amount of $2.00 per share, payable on June 27, 2016 to shareholders of record at the end of business on June 16, 2016.

Read more at http://www.stockhouse.com/news/press-releases/2016/06/10/clarke-inc-announces-special-dividend-and-adopts-new-dividend-policy#Ot0V4V5xYBYUlUwK.99

[jay21]

@Jurgis: I think they are happy nurturing their two major holdings. The difference between BRK and CKI is that at Clarke the cash is perenially undervalued by the market, so distributing it makes sense. Also, I think it is refreshing that they are not dead-set on growing the company. Takes balls to shrink your company if the market doesn't like it. That said, the market likes the dividend even more than I do. Price overshot quite a bit imho so I sold my position.

 

With respect to a dividend vs. tender: I don't really care either personally but have you tried contacting IR to ask why they made this choice? They're usually quick to reply.

 

Yes - both generate lots of cash and can raise capital at their levels. I think Terravest maybe a roll up so that may take the bulk of their acquisition time.

[Hielko]

The stock is still cheap and trading under book. Why not tender for more shares instead of making me pay tax on the dividend?

 

I'm not as happy about it as you guys seem to be.

 

I don't pay dividend tax (different tax system). If they pay dividends I can buy more stock if I want (more efficient than them buying it back) or invest elsewhere.

 

That's great for you, but Clarke should be making decisions with respect to their entire shareholder base. Most shares would be held in taxable entities so as far as I am concerned this an example of sub-optimal (but still positive) capital allocation from a firm where sound capital allocation is a big part of my thesis. The risk is that next time they do something that makes 1 or 2 other shareholders happy (like George) at YOUR expense.

 

So sell the shares before the ex-dividend and buy them back after for $2 less?

 

In fact if the price keeps rising like this I might sell before the dividend as well. The last reported book value per share is $11.72 (will likely be a little higher now due to the appreciation of the energy assets) and since 2009 shares have traded at a discount to book (although historically book value has been a proxy for share price).

 

Anyway, I don't think the tax situation of individual investors should have an effect of strategical business decisions. They have an international investor community from many different tax regimes. Personal taxes are your problem, not theirs. They deal with business taxes.

 

Edit:

 

too bad their quarterly will come out June 30, while the special dividend date is the 27th. Now I need to decide on the value of the stock based on an outdated book value.

 

Based on my rough calculations at my sell price of $10.9, it was at close to 95% of book value based on current market values of holloway/terravest/keck seng. I took NRG basket at same reported value of Mar 31st.

My feeling is the pension asset is an unproductive asset as they haven't been able to monetize it. If you discount this, I think you are getting above adjusted book value currently. Will keep following and if it gets back down to 75-80% of book I'll buy again. Rinse, cycle and repeat. Have done this 3 times in the past few years

You can find my calculation of current book value here: https://alphavulture.com/2016/06/11/clarke-announces-2share-special-dividend/