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  "documentTitle": "TAL Education Group (TAL)",
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  "authorName": "Carson C. Block",
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  "presentationDate": "2018-06-13 00:00:00",
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  "notes": "Includes detailed footnotes regarding accounting practices (ASC 805) and specific CFO commentary.",
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      "text": "We believe that TAL should restate its financials to include the costs to develop Shunshun consolidated as of the date of initial investment in July 2015 or the transfer of DFRL in August 2015.",
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      "text": "Mounting losses: In CY 2017, Shunshun/DFRL’s combined loss increased from $14.8 million to $21.0 million. Fewer contracts: Our fieldwork indicates that the peak for new client contracts was likely in CY2016. Staff reduction: The 2017 Annual Reports for Shunshun / DFRL show declining headcount. DFRL dropped the number of official employees for whom it made social welfare tax payments from 277 in CY2016 to 184 in CY2017. Shunshun slashed its staff in half from 49 to 24. Branch closures: Shunshun’s website shows that it has cut its branch network by half, from 16 at peak to 8 offices in early CY2018. A Shunshun employee told our investigators two more closings are likely in the offing. Cash crunch: Shunshun’s credit report (not including that of DFRL) shows its year-end cash position dropped from $6.6 million (Rmb 42.9 million) in CY2016 to just $36 thousand (Rmb 0.2 million) in CY2017.",
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      "text": "goodwill impairment: $93 million",
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      "text": "We believe that TAL should restate its financials to include the costs to develop Shunshun consolidated as of the date of initial investment in July 2015 or the transfer of DFRL in August 2015. We estimate such a restatement would result in an additional decrease to operating and net profit of $10.17 million in FY2015, and $6.28 million in FY2016.",
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      "text": "In addition to restating to consolidate Shunshun’s combined FY2016 and FY2017 operational losses of ($16.5) million, we also believe that the fair value gains accrued in FY2016 of $1.9 million and FY2017 of $25.2 million, as well as at least $19.7 million in likely fraudulent FY2017 deferred revenue (that would enter TAL’s books as revenue in FY2018) should be adjusted out of earnings. As of the end of FY2017, the revenue had not been recognized; however, based on company disclosures, we expect it to have been recognized over the course of FY2018. Moreover, we strongly suggest that investors and analysts consider the negative impact of the ongoing losses and low deferred revenue to revenue conversation rate at Shunshun and to make adjustments to FY2018 after the audited financials are released.",
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      "text": "We see justifications for a significant impairment, including:",
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      "text": "TAL FY2017 1Q earnings call, CFO Rong Luo, “In July of 2017, Shunshun’s CFO explained on the 2017 Q1 earnings call that Shunshun’s revenue recognition is delayed by ten to twelve months.” — TAL FY2017 1Q earnings call",
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      "text": "71 As TAL appears to have fraudulently inflated deferred revenue acquired from Shunshun via its subsidiary DFRL, we believe it was unlikely that the proper discounting of deferred revenue obtained through an acquisition per ASC 805 was applied... 72 TAL FY2017 1Q earnings call, CFO Rong Luo, “In July of 2017, Shunshun’s CFO explained on the 2017 Q1 earnings call that Shunshun’s revenue recognition is delayed by ten to twelve months.”",
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      "text": "Should TAL Impair Any of Shunshun’s $93 Million of Goodwill?",
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