KKD is still over $6? But everyone (at least almost everyone here) says it will be BK soon! WHY would anyone be buying?? And here I though we had this all figured out!!
.....Oh that's right, it's all Short covering!!
Look at open Interest on Feb puts and you will see the only Buying interest today to settle up puts. This is the total buying interest. Very little Short covering and this slight demand disappears Monday until the March expiration. Some big instittution is trying to sell into this waning demand with very little luck ,expect an explosion of volume after 2:30 but then it quiets down again until news. Perhaps this weekend as the sooner Cooper pulls the plug the sooner he can stop Pre-petition claims. Its the smartest course so that he can negotiate from strength.
My understanding (I'm not a tax expert, accountant, or lawyer) is that if you build a capital asset yourself, the cost of building is a capital investment that you can't deduct in the first year (generally) but can depreciate.
For example, if you build a store, what you pay for bricks, glass, wages of people that do the construction, payments to contractor, etc. is all added up and becomes the capital investment. If your regular employees work on it, their wages and benefits are supposed to be prorated and an appropriate amount put into the capital asset.
If you pay real money for the intangible, even if it is to an insider you can still write it off, provided you actually dispose of it. The rights will have to actually be sold to get the tax writeoff even it is for $1.00. (even prior to sale, paid for intangibles are written off for tax purposes over 15 years per IRC section 197) Uncle Sam is only paying for it if you assume that the money belongs to the government in the first place. At least $67 million went out the door to McAleer and no tax deduction was taken at the time. Maybe this is why the government is not as agressive as we think it should be in pursuing asset overstatement fraud. Overstateing profit also overstates tax liabilities and payments. Why agressively persue something that fills the coffers?
The tax refund you are referring to are probably due to overpaid quarterly income tax estimated payments. I'll look at the 10-K and get back to you later on the last question. Even if carrybacks are as limited as you may suggest they can still be carried forward, assumiing no BK.
<If it was that simple, though, why can't kkd just write off the intangible and use a collateralized (the tax refund due) loan to fund operations. At current tax rates (between just KC and Dallas) this would be at least $30 million in cash.>
I don't think there would be a tax refund due because the loss would apply to the period of the writeoff/sale, which would probably be fiscal '05 when they're likely to have little if any GAAP income when the restatements are done. Income for tax purposes would probably be even less than GAAP income because of the tax benefit from stock option exercises prior to the collapse of the stock in May, accelerated depreciation for tax purposes, etc.
Perhaps a buyer of KKD could use the tax loss carryforward over one or more years; if so that would make KKD worth more in bankruptcy. But I'm not a tax or bankruptcy expert.
How do you know the analysts will be wrong? Forget restatements for now. Here is how much KKD reported in net income the last three years:
I love it. "Forget restatements for now". You can assume away an assumption in a theoretical exercise, but this is reality. THE BOOKS ARE CRAP. LIVENGOOD IS A THIEF. Its like the jone about an economist with a can of food but no way to get it open....but he doesn't see the problem because he can just "assume a can opener"
It's fair to ask why the stock sells for $6, when fair value looks more like $2 (the ballpark I would put it in, if it doesn't go bankrupt). But one could equally have asked why it was selling for $49, when fair value was around $15 even if the anomalies di_vur_se_fi had found in the books were assumed to be inconsequential.
As a general rule, it seems to me, one will do better in the stockmarket if one buys stocks that are worth $6 and sell for $2 than if one buys stock that are worth $2 and sell for $6. So why do you think the risk-reward is on the long side?