I totally agree with you that I think they are capitalizing operating expenses to pump up profits. I was talking about income statement classification only.
GAAP can be interpreted quite broadly as to income statement classification, especially one that presented in the condensed manner in whitch KK does. The admin charge I was referring to is for company stores only. It is an allocation of corporate office expenses only. (at least it was back in the day) Expenses at the store level are classified as operating costs even if they are fixed such as rent, proerty taxes depreciation etc. Since operating costs have a large fixed element the effect on profit by a deline in sales will be much more devastating that one might think, assuming, as many do, that cost of sales is primarily variable. Allocating overhead costs is one accounting trick to shift profits between business units or inflate profits by throwing it on the balance sheet as asset cost. Some stores, stripped of all of the corporate baggage can be profitable. This is no panacea, however, as many markets are oversaturated with shops and will still be cash drains and must close. Livengood probably has done a good job of burying the true amount of money he was wasting. Again do not feel that reversing this will keep KK out of chapter 11. The mix plant, distribution center, equipment manufacturing as well as corporate admin used to be under one paid for roof in Winston-Salem. They now must carry the cost for a second mix plant, expensive corporate offices and a equipment manufacturing facility that will operate at maybe 20% of capacity, all either leased or financed. They no longer have luxury of allocating the overhead expenses to equipment cost or selling it at inflated prices to area developers. Do not get too hung up on percentages when analyzing fixed cost. What I was referring to with the Lance comparison is looking at each companies last quarter income statement presented on the yahoo financials for a comparble sales level, Lance reported G & A cost of $61 million vs KK's $11 million. It sort of illustrated my point on the surface that true G & A cost for KK may be understated and buried in cost of operations. May be valid may be not.