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Krispy Kreme Doughnuts, Inc. Message Board

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  • diogenes1234 diogenes1234 Dec 19, 2003 2:27 PM Flag

    Urquhart

    ... in humility ...

    Writing up assets in a buyout is old hat, lo these many years. Merger accounting. The origin of Goodwill.

    ... of course. So?

    There's been a continuing debate as to if and how such Goodwill should be written off. Over many years or not at all. Impairment or not. Krispy has chosen the "not at all" approach.

    ... make your point.

    Well, its been largely concluded that in fact Goodwill does have some kind of a useful life, so more and more folks have taken to writing it off, albeit over many years -- 20 or more, sometimes as much as 50. There is the obvious problem, however. Such amortization creates a continuing drag on earnings -- hard to explain to the investing public, thus a continuing drag on share price. A bummer.

    ... The answer?

    Increasingly, the new fangled approach is to write off the entire Bundle in one fell swoop, either to reported earnings with an explanation; or as a one-time, non-operating charge to be foot-noted and ignored. Advent of the "pro-forma" statement so dearly loved in such as Silicon Valley.

    ... Are you suggesting KKD should take such a write-off and get that $197 million off the books?

    Not necessarily. Their "not at all" approach is tried and true. Just a little old-fashioned.

    Now take their Bankers -- Wachovia, or whomever -- they're beyond old fashioned. They just ignore Goodwill when sizing up a loan and how it gets repaid. Back to operating cash flow. Beyond the Smoke and Mirrors.

 
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