From the article:
A synthetic lease essentially treats the lease payments as a current expense, like employees' salaries, rather than a debt.
BB&T Capital Markets analyst Andrew Wolf said the method of accounting is fairly common.
"A lot of retailers have been doing this for years," he said. "It's like renting an apartment."
Wolf said he doubted Krispy Kreme was involved in any questionable accounting practices.
"Their cash flow is tremendous," he said. "They do not need to do sneaky things."
Guess where BB&T is headquartered?
Yup, Winston-Salem, NC, the home of KKD.
BB&T Corporation, headquartered in Winston-Salem, N.C., is a fast growing, highly profitable financial holding company with $70.9 billion in assets.
Guess what services BB&T performed for KKD in January 2001?
1) $72.45 million IPO
2) $134 million secondary offering
Guess who's on BB&T's board of directors:
Yup, a KKD board member:
Joseph A. McAleer, Jr.
Manager and Member
Krispy Kreme Doughnut
Joseph A. McAleer, Jr. (51)
Joseph A. McAleer, Jr. has been a director since May 1988. Mr. McAleer served as Chairman of the Board of Directors and Chief Executive Officer from September 1995 until his retirement from Krispy Kreme in January 1998. He also served as President from May 1988 until August 1992 and as Chief Operating Officer from May 1988 until August 1992. Mr. McAleer is a co-owner with Mr. Smith, another one of our directors, of Dallas Doughnuts, our Dallas/Fort Worth franchisee. Mr. McAleer is also manager and owner of Mackk LLC, our Mobile, Alabama franchisee. Mr. McAleer is the brother of John N. McAleer, Vice Chairman of our Board of Directors.
Three great posts. This one is very very good. I must use it in a chapter on use of online data; great example. If OK let me know.
Frankly, there are good longs and good shorts and both deliver defensible opinion and clear evidence with supporting documentation. Congratulations.
What tax savings are you speaking of? I have looked a little bit into the implications of a synthetic lease and could see no real tax savings.
Some claim that there is a tax savings because the "leasee" gets to deduct the depreciation expense in a synthetic lease. However, that argument seem highly questionable to me. In a regular lease, the leasor gets to deduct the depreciation expense so they can charge less on a regular lease.
There is a recent article in CFO magazine about synthetic leases. My take away from the article is that synthetic leases are basically ways of keeping assets and liabilities off the balance sheet.
could one of you accounting gurus do a little math for me? about how many "synthetic leases" does kk have, and what kind of effect would they have on their #'s if they were treated like the real lease agreements they are?
Just a thought--in my limited understanding, the synthetic lease results in a tax savings to the company, which means that the company will make more net profit.
If so, isn't it a sign of good management to use it?
If they passed up the opportunity, you would probably criticize them for that oversight.
At least you are honest. Obviously, you must have some bias as you need this thing to drop for you to make your dough. However, stats are stats and your analysis still shows eye opening troubles.....
I think that whether Di has facts to back up clearly defined problems or analyzes facts and finds subsequent problems, it's evidence none the less. KKD is not the rosy company it would like everyone to think and his research shows where the holes are. Remember, I hold no position in KKD right now and I am trying to do my own analysis to see if an entry point is worth it given how low some other stocks are right now. KKD may not be the mega money maker it used to be (aside from the shorts.) Di, do you hold a position in KKD right now????
I think it's a good thing you are on the sidelines. But that's just me. This bubble has been stretched to the extreme. It has a pinhole in it now. That hole will enlarge (I think). I've said this for a long time. It has gone on and on and on. Maybe it will continue on for some time. Who knows? Only time will tell!