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In the Headlines-February 13th, 2015

In The Headlines

RadioShack in Bankruptcy – New Life or Fade to Black?

After years of keeping investors wondering about how it managed to stay in business, RadioShack finally filed for bankruptcy. The retailer, best known to consumers in recent years as a trusty seller of cords, chargers and other technology accessories, also announced a deal to sell between 1,500 and 2,400 stores to a consortium including Standard General and Sprint while it is in restructuring.
The bankruptcy filing ends a surprisingly long run for RadioShack. While some electronics competitors such as Circuit City and Nobody Beats The Wiz died years ago, the company managed to withstand the internet age, the rise of Apple and consumers’ transition to wireless devices mostly by selling legacy technology items, including cords, battery packs and adapters.

Founded 94 years ago by Theodore and Milton Deutschmann in a storefront in Boston, RadioShack rose to glory with the mass adoption of the radio and the rise of electronics. In 1962, the company was acquired by Tandy Corporation, a Texas-based leather goods firm that was seeking to diversify.
The retailer sold its first mobile phone in 1984 and eventually peddled over 73 million cellular phones during the last three decades. The company also became a top seller of the Walkman, CD players, mini disk players and beepers (that were eventually made obsolete by the smartphone), in addition to do-it-yourself devices such as satellites dishes. As with Best Buy and Circuit City, RadioShack suffered from the rise of e-commerce, but it survived as a declining and niche electronics business for years.

Ultimately, changing technology and consumer habits proved too much to overcome. The company filed with $1.2 billion in assets and $1.38 billion in liabilities in a Delaware court, listing between 50,000 and 100,000 creditors. Wilmington Trust Company, owned by M&T Bank, is acting as a trustee representing unsecured creditors with $329 million in claims listed against RadioShack. Sprint holds a $6 million claim, the filing shows.

There will be life, of sorts, after bankruptcy. Standard General, a private equity fund said it reached a deal to acquire up to 2,400 RadioShack stores and will work with Sprint to create 1,750 store-within-a store concepts nationwide. Standard General also filed a motion to close RadioShack’s remaining company-owned stores under an agreement with Hilco Merchant Resources. Currently, RadioShack has approximately 4,000 company owned stores in the U.S., and over 1,000 dealer franchise stores in 25 countries. RadioShack stores operated by its Mexican subsidiary, and its Asia operations are not a part of the company’s Chapter 11 filing.

“These steps are the culmination of a thorough process intended to drive maximum value for our stakeholders,” Joe Magnacca, RadioShack’s CEO said in a statement and added that discussions are underway to sell the company’s remaining assets. As part of its bankruptcy filing, RadioShack said it has secured a $285 million “debtor-in-possession” financing commitment from its current asset-backed lenders group, which includes DW Partners. While falling sales and supplier worries restricted RadioShack’s liquidity, the company has enough money to implement its bankruptcy strategy. When it filed for bankruptcy, RadioShack had $44 million in cash. Thanks to store closing sales, that figure is expected to rise so that by the end of February, RadioShack will have more than $118 million in cash in its coffers.

Was Intuit’s Popular Turbo Tax Software Hacked?

Tax filing season arrived with a bang and an uptick in fears about fraud. For many, the tax season starts with collecting W-2s and 1099s and making those worrisome judgment calls about what is deductible. For the IRS and state tax agencies, however, it also means preventing fraud. Given that virtually everything is electronic these days that has become a big issue.

On February 5, Minnesota announced it would stop (at least temporarily) accepting returns submitted by TurboTax, one of the most popular individual return preparation programs. About 29 million people used TurboTax to file their tax returns last year. Minnesota’s Department of Revenue cited “potentially fraudulent activity.” So far 18 states, including New York, Georgia, and Alabama, plus the District of Columbia, have expressed concern about “data compromised through a third-party commercial tax-preparation software process,” according to the Utah State Tax Commission. But Minnesota is the first to say it will reject returns. Other states, including Connecticut, Massachusetts and Vermont, are holding back refund checks temporarily and warning of delays.

Minnesota and other states discovered that when some people log in to TurboTax to file their return, they find that a return has already been filed. Utah says its own fraud-detection systems began to identify similar activity about a week ago, and as of today, Utah has identified 18 fraudulent filings and flagged 8,000 more as potentially fraudulent.

Vermont also announced that after reports of a rise in fraudulent filings in other states it had suspended issuing refunds two days earlier “in an abundance of caution.” Massachusetts announced that it was holding back refunds and adding layers of screening to identify fraud; it said approximately 160,000 returns claiming refunds would get more scrutiny. Virginia, North Dakota, Delaware, Montana and Wisconsin Departments of Revenue all warn taxpayers on their websites that extra measures to validate tax refunds could delay checks.

Intuit, the company that makes TurboTax, said it briefly stopped transmitting state e-filing tax returns, and then resumed transmitting the returns after increasing security. The company also said it does not believe the fraudulent activity stemmed from a security breach of its systems but from “sources outside the tax-preparation process.” The investigation is ongoing, the company said, and Intuit is working with state agencies “to address growing concerns over state tax fraud.” Intuit has set up a dedicated toll-free number (800 944-8596) and says it will provide identity protection services, free credit monitoring, and access to tax preparers at no expense.

The IRS and the states have sophisticated software systems to detect and prevent identity theft. Still, no system is perfect. The IRS has an entire suite of resources available to taxpayer who think they have been victims of identity theft, including a hotline to call. Various states have similar resources.

Of course, identity theft is just one of many types of fraud that taxing agencies must monitor closely and guard against. Common items, like the earned income tax credit, are often flagged as potentially fraudulent by automated systems. Still, the government’s record on preventing such fraud is not stellar. It looks like it is going to be a long, difficult tax season ahead for state and federal tax agencies.

1. http://onforb.es/1vva9YI – Forbes
2. http://bloom.bg/1DahkX4 – BusinessWeek

The Good News Is . . .

• Total nonfarm payroll employment rose by 257,000 in January, and the unemployment rate was remained at 5.7%, the U.S. Bureau of Labor Statistics reported. Job gains occurred in retail trade, construction, health care, financial activities, and manufacturing. Average hourly earnings climbed 0.5% last month—up 12 cents to $24.75—and 2.2% over the past year.

• Biogen Idec, Inc., a leading global biotechnology firm, reported earnings of $4.09 per share, an increase of 74.8% over year-ago earnings of $2.34. The firm’s earnings topped the consensus estimate of analysts by $0.31. The company reported revenues of $2.6 billion, an increase of 34.3%. Management attributed the company’s results to the strong performance of its TECFIDERA and TYSABRI products in world markets.

• The Harris Corporation, which makes satellite and other communications equipment for businesses and governments, said that it had agreed to acquire Exelis for $4.7 billion in cash and stock. Exelis makes navigation equipment, sensors and air traffic management and communications systems for aerospace and defense. Together, the companies have more than $8 billion in annual sales and 23,000 employees.

1. http://1.usa.gov/1gck641 – Bureau of Labor Statistics
2. http://www.cnbc.com/id/18080780/ – CNBC
3. http://bit.ly/1usGxdB – Biogen Idec Inc.
4. http://nyti.ms/16YAy63 – NY Times Dealbook

Planning Tips

Guidelines on Different Ways to Invest in Gold

Gold has been a favorite investment of the wealthy throughout history, and it remains the most popular investment of all the precious metals. Gold is fungible, portable, and accepted anywhere in the world. Below are some guidelines for ways to invest in gold. The best choice depends on the amount of money you have to invest, your investment objectives, the amount of risk you can absorb, and the length of time you intend to hold on to your gold investment. As with all investments, it is a good idea to consult with your financial advisor before committing any funds.

Why invest in gold? – If you have funds to invest, it is important to understand why people invest in gold in the first place, so that you can make sure it is the right thing for you. Understand that gold mainly serves as a store of value and as an investment hedge. Common reasons for investing in gold include:

• Gold is always in high demand. It is a tangible product that can always be passed on without concerns for its desirability in the future.
• Owning gold can protect you from a decline in currencies or from inflation. Countries often start investing in gold when economic growth starts to decline; the more debt-laden an economy, the higher the price of gold.
• Gold can be a way to diversify your investment portfolio. Diversification is considered to be the best reason to own gold, according to many financial experts.
• Gold is a sound means for protecting wealth over a long period of time.

Buying scrap gold – Collecting and storing scrap gold has become a popular investment strategy. During times of rising gold prices, buying scrap gold is a low-risk way to invest in this valuable resource. You can acquire scrap gold from family or friends, by placing ads in local papers, or on Internet auction sites where gold items may sell for less than its scrap value.

Buying gold coins or bars – Often, the same dealers, brokerage houses and banks sell both coins and bars. When assessing a dealer, see how long they have been in business, whether they are certified with an industry or government body, and in what investment activities they specialize. In the United States, the U.S. Mint provides a list of authorized sellers that you can check One factor to keep in mind is your ability to safely store your bars or coins.. With bars and coins, the greater the weight, the greater its price will be.

• The American Eagle Gold Coin and the other coins listed above are made in four weights: 1 oz., 0.5 oz., 0.25 oz. and 0.10 oz.
• Gold bullion bars are generally sold by the ounce and include 1 oz.,- 10 oz.- and 100 oz.-bars.

Buying shares in gold mining companies – Gold mining stocks are divided into two distinct groups: majors and juniors. The majors are well-capitalized companies with decades of history, world-spanning operations and a slow and steady cash flow. Major mining companies are no different from large oil companies, and many of the same metrics apply with a mining twist. Both have proven and probable reserves, except mining companies break down profit and cost on a given deposit by ton, instead of barrel. In short, a mining major is easy to evaluate and easy to invest in. The junior gold mining stocks tend to have little capital, short histories and high hopes for huge returns in the future. The most common fate for these stocks is failure and for that reason should be shunned by investors who are risk averse.

Gold exchange traded funds (ETFs) – Exchange Traded Funds (ETFs) aim to track silver and gold prices and are generally bought through a typical stockbroker. They are much like derivative contracts that track prices, but they differ in that you will not own the underlying gold assets if you invest in this vehicle. Note that these funds may charge a fee each year that deducts from the amount of gold backing your investment.

1. http://bit.ly/1yXy5jb – Investopedia
2. http://bit.ly/1CIIuW4 – TheStreet.com
3. http://www.cnbc.com/id/101853499 – CNBC
4. http://www.wikihow.com/Buy-Gold – WikiHow
5. http://bit.ly/1Dahz49 – WikiHow
6. http://bit.ly/1ljiE2p – Kiplinger

Please don’t hesitate to give us a call if you need help with any component of your financial planning.

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