{ "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": 62, "pageCount": 71, "prevPage": 61, "nextPage": 63, "slideType": "expose_contradiction", "function": "expose_contradiction", "density": "balanced", "nDataPoints": 4, "notes": "This is a text-heavy research note page focusing on forensic accounting/fraud allegations.", "elementsJson": [ "paragraph" ], "metadataConfidence": 1, "imagePath": null, "slideHref": "/slides/019dd923-622c-750b-8b96-aa4b5c012f2a/62", "deckHref": "/decks/019dd923-622c-750b-8b96-aa4b5c012f2a", "deckJsonHref": "/decks/019dd923-622c-750b-8b96-aa4b5c012f2a.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b96-aa4b5c012f2a#slide-62", "components": [ { "bbox": null, "kind": "callout", "text": "After assessing the numerous red flags and contradictions claimed by TAL, we conclude that TAL's purported transfer and requisition of GZ 1-1 was a sham.", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd953-25b2-736e-8e6a-6bad129a0bb5", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.07, "w": 0.78, "x": 0.11, "y": 0.38 }, "kind": "paragraph", "text": "After assessing the numerous red flags and contradictions claimed by TAL, we conclude that TAL's purported transfer and requisition of GZ 1-1 was a sham. Although Changing Edu set up a new company, called Shujia, which was supposed to be managing this business, in substance the GZ 1-1 operation seem to have never fully left TAL's control.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "259fd6fa-b2d7-47aa-b295-4d369e39b8be", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.08, "w": 0.78, "x": 0.11, "y": 0.09 }, "kind": "paragraph", "text": "flowed into its top line and down to its bottom line in FY2016 and FY2017. TAL's claim to $9.43 million in deferred revenue upon the purported buyback appears to be largely if not entirely fraudulent and likely booked at 100% margin. We believe these gains would primarily have been recognized in FY2018.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "911cfd9c-b1bd-438f-ba11-55b4ff09239c", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.18, "w": 0.78, "x": 0.11, "y": 0.18 }, "kind": "paragraph", "text": "We believe that GZ 1-1 was never truly disposed of as described by TAL. TAL retained the student contracts and revenues after the purported transfer and continued to pay most of the teachers and learning center lease payments. As such, TAL's claim to $50 million in gains upon disposal appears fictitious. Our reviews of Shujia's business during the period of the alleged disposal find that Shujia's 2015 revenue and pre-payments were too small to accord with the size of the GZ 1-1 business it was said to have been given, while its 2016 financials appear to be comingled with other Changing Edu businesses. Even then, the claim to $9.43 million in deferred revenue returning with GZ 1-1 would mean the pre-payments it collected exceeded its full year revenue by ~50%.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "a02ccf6a-71e4-4828-bac8-9b1efe2f600b", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.02, "w": 0.1, "x": 0.79, "y": 0.94 }, "kind": "source-note", "text": "Page 61 of 70", "attrs": null, "subkind": null, "toolName": null, "toolSlug": null, "confidence": null, "componentId": "c765f5e0-ed09-46fe-b401-a85f6e44e831", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [], "frameworks": [ { "name": "fraud-exposure", "slug": null, "matchId": "6d749c23-6c9f-4320-a3f7-f0d12466feaf", "evidence": "The slide explicitly identifies 'red flags' and 'contradictions' to argue that a corporate transaction was a 'sham' and 'fraudulent'.", "confidence": 0.9 } ], "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 }