{ "docId": "019dd923-622c-750b-8b96-aa4b5c012f2a", "docSlug": "aa7e6c3950ac", "documentTitle": "TAL Education Group (TAL)", "authorId": "51_Muddy_Waters", "authorName": "Carson C. Block", "documentKindSlug": "research-note", "documentKindLabel": "Research note", "sourceTypeSlug": "short_seller", "sourceTypeLabel": "Short seller", "presentationDate": "2018-06-13 00:00:00", "orientation": "portrait", "aspectRatio": 0.77272725, "pageNumber": 41, "pageCount": 71, "prevPage": 40, "nextPage": 42, "slideType": "appendix_disclosure", "function": "expose_contradiction", "density": "dense", "nDataPoints": 8, "notes": "Contains legal/financial evidence regarding lease payments and potential related party transactions.", "elementsJson": [ "paragraph", "footnote" ], "metadataConfidence": 0.95, "imagePath": null, "slideHref": "/slides/019dd923-622c-750b-8b96-aa4b5c012f2a/41", "deckHref": "/decks/019dd923-622c-750b-8b96-aa4b5c012f2a", "deckJsonHref": "/decks/019dd923-622c-750b-8b96-aa4b5c012f2a.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b96-aa4b5c012f2a#slide-41", "components": [ { "bbox": null, "kind": "callout", "text": "Because TAL was an investor in Changing Edu, if it acted as a rent payment agent on behalf of Changing Edu, it would have been a related party transaction that we understand mandated disclosure.", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd953-25b2-736e-8e68-3ed6e9fe4ad2", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.25, "w": 0.78, "x": 0.11, "y": 0.25 }, "kind": "paragraph", "text": "Shujia’s SAIC financials support the view that only one learning center lease was ever transferred from TAL. As established in the lawsuit, one year’s lease expense for a single learning center of 2,345 m² could be over Rmb 3 million per year or Rmb 300,000 per month. Deposits could be equal to two or more months of rent. The site leased in Shujia’s name was 929 m². Its monthly rent was just Rmb 65,959 and required a security deposit of Rmb 138,513. From our site visits, we found that the learning centers ranged in size from 20 to 50 classrooms, and use approximately 500 m² to 1000 m² of space.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "3c033a17-de45-48a4-8b6d-3c2096d215d7", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.12, "w": 0.78, "x": 0.11, "y": 0.51 }, "kind": "paragraph", "text": "Shujia’s SAIC financial statements show prepayments of only Rmb 3,000 as of December 31, 2015. It therefore appears that no learning center deposits were transferred to Shujia nor paid in the four months in CY2015 immediately after Changing Edu supposedly took over GZ 1-1. As such, we believe TAL continued to pay the leases for most if not all of the other nine learning centers transferred.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "a1d9cf08-0bd2-420e-a198-00231f88a73f", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.06, "w": 0.78, "x": 0.11, "y": 0.64 }, "kind": "paragraph", "text": "Because TAL was an investor in Changing Edu, if it acted as a rent payment agent on behalf of Changing Edu, it would have been a related party transaction that we understand mandated disclosure.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "fd5d93bd-64b0-47c2-a136-11371b057a7b", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.15, "w": 0.78, "x": 0.11, "y": 0.82 }, "kind": "source-note", "text": "101 Per the lease agreement contained in the Shujia SAIC files\n102 The larger leases covering several thousand square meters involved both the larger Peiyou learning centers and the smaller 1-1 learning centers.\n103 TAL FY2017 20-F, p.106; FY2016 20-F, p. 111: For FY2016 and 2017, TAL reports loans, prepayments, and advances to related parties, but does not provide detail or which related party was the beneficiary or whether the amounts due were for the loans, advances, or other transactions. As at Feb 29, 2016 the current amounts due totaled US$2.59 million and $1.34 million non-current. The loans were made to three different parties. As at Feb 28, 2017 TAL had $3.4 million in current amounts due from related parties. Additionally, the total deposits and lease payments for the learning centers would very likely be far in excess of these amounts. Therefore, we do not see an indication that prepayments made by TAL but not transferred and/or lease payments made by TAL on behalf of Shujia were reported fully and properly, if reported in any form at all.", "attrs": null, "subkind": null, "toolName": null, "toolSlug": null, "confidence": null, "componentId": "995bad09-5a92-49fc-8746-3eee6d54428f", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [], "frameworks": [], "arcBeats": [ { "to": 71, "from": 3, "beatId": "9de0976e-28e1-420f-a107-b337349d49c9", "arcName": "Problem-Agitate-Solution", "arcSlug": "problem-agitate-solution", "beatName": "Expose Contradiction", "beatSlug": null, "evidence": "The document is primarily composed of slides that expose contradictions in TAL Education's financial reports", "position": 0, "confidence": 0.8, "parentBeatName": null, "parentBeatSlug": null }, { "to": 71, "from": 24, "beatId": "f1a1059e-e779-4948-a18b-bd7e979146da", "arcName": "Problem-Agitate-Solution", "arcSlug": "problem-agitate-solution", "beatName": "Appendix Data", "beatSlug": null, "evidence": "The document includes extensive data and financial reports to support its claims", "position": 2, "confidence": 0.8, "parentBeatName": null, "parentBeatSlug": null } ], "loops": [ { "to": 71, "from": 2, "name": "Cost Of Inaction", "slug": "27-cost-of-inaction", "bestFor": "Urgent budget requests, compliance, risk mitigation", "matchId": "173d833e-f506-46f1-a81b-f0c40e490cd2", "evidence": "The document implies that investors who fail to address these discrepancies may suffer significant financial losses", "position": 2, "objective": "What is the cost of not addressing TAL Education's financial discrepancies?", "structure": "The Status Quo -> The Hidden Costs Accumulating -> The Future State of Inaction -> The Tipping Point", "confidence": 0.6, "description": "Quantify what happens if the audience does nothing" } ], "imagePathAlt": null, "thumbSrc": null, "thumbSrcAlt": null, "locked": true }