Comment by Mikhail

June 14, 2007 @ 9:34 am

Who’s that interview with? Do tell. Big it up.

Comment by Steve Schapiro

June 14, 2007 @ 9:50 am

No, we don’t all know how the repeal of the Glass-Stiegel Act turned out, we don’t even know how to spell it.

You might want to explain Sarbanes-Oxley, too, if you’re going to reference it. Don’t forget the general ineterst listeners.

Comment by ken

June 14, 2007 @ 11:41 am

Steve: Google

Comment by DeOrio

June 14, 2007 @ 12:09 pm

Great show, guys. One question: Do you know whence this assumption that Japanese consumers are going for higher-quality burgers comes? MegaMac’s success could be due solely to the promotion or novelty. MOS’s high-end image would seem to suggest that most consumers have underdeveloped burger palates and would definitely suggest that size is not necessarily what people want. (Granted, insufficient size might be adding to MOS’s woes.)

Any idea how Ku’a Aina (sp?) and other high-end burger shops have been doing overall? Wendy’s seems to have contracted a bit, at least in Tokyo, in recent years.

Will the Burger King be enough to help Lotteria enter the high-end market? Their Lotteria Plus thing didn’t work, it seems, and the co. overall has had some hard times lately, has it not?

Comment by Steve Schapiro

June 14, 2007 @ 8:51 pm

Ken, you’re lucky I like you, you cheeky fuck. Thanks for the link to Google. I searched for it on Yahoo, but couldn’t find it.

The trouble is that Albrecht mentioned Glass-Stiegel in a podcast, when listeners are not necessarily in front of a PC as they listen. Just throw a guy a bone! Make me feel smart and remind of what happened.

Good show overall, though. I dig it.

Comment by ken

June 14, 2007 @ 9:00 pm

Steve, haha…Actually, that is something we think about, but with the limited time we have it’s tough to get into contextualizing stuff too much, since we’re afraid of getting too far off topic (perhaps the stuff about JR strayed a bit off? I’m not sure…)

About eight minutes of this one disappeared just to get it down to 40 mins. And we’re hoping to always keep it in the 27-30 range, which is proving to be tough.

Comment by Steve Schapiro

June 14, 2007 @ 9:36 pm

The JR stuff was in bounds and relevant. Besides, it wasn’t too long.
I’m actually torn about one thing. I’m glad you didn’t do what I expected and spend a lot of time on Nova, but I do wonder what you guys think of it.

If I were to corner you into giving a number, what would you say the chances are of Nova’s failing within the year? (I’m looking for a concrete answer - a ratio or percentage.) And, of course, why do you think so?

Comment by ken

June 15, 2007 @ 2:15 am

Steve: let me know if you want that double comment to stay or what…

Anyway, you’re not going to corner me into giving a number, but I’d say there are certainly chances of them going bust within a year. Some huge changes would have to be made to turn things around. At the same time, Nova’s President, Nozomu Saruhashi, has said that the effects of the METI order will not be so severe, given that many of the student contracts are for under one year. I don’t have exact numbers on that, and I’m not sure whether he was playing around to try to instill some confidence in their ability to survive.

Signups during February and March were 1/4 of what they usually are, although Nova claims that three times as many existing students renewed their contracts. With such a severe fall even before this announcement, there’s bound to be a massive dent coming up in earnings.

Looking at Nova’s financials, I see that about 50% of fees collected from prepaid orders are booked as sales. This is a bit dangerous because it is listed on their balance sheet as a ‘current asset’ when in fact, those students could cancel and get that money back.

Here are some interesting differences in their 2005 and 2006 consolidated financial statements:

Current Assets

Cash and Savings:
2005: 13.9 billion yen
2006: 4.1 billion yen

Sales pending:
2005: 6.5 billion yen
2006: 8.6 billion yen

Marketable Securities, Stocks and Bonds:
2005: 40,978,000 yen
2006: 15,205,000 yen

Inventory:
2005: 3.8 billion yen
2006: 3.1 billion yen

Deferred Tax Assets:
2005: 1.1 billion yen
2006: 1.2 billion yen

Other:
2005: 2.7 billion yen
2006: 2.0 billion yen

Reserves:
2005: 216 million yen
2006: 186 million yen

Total Current Assets:
2005: 27.9 billion yen
2006: 18.7 billion yen

Total Assets:
2005: 68.8 billion yen
2006: 55.3 billion yen

Current Liabilities/Costs:
2005: 37.8 billion yen
2006: 35.0 billion yen

Fixed Liabilities/Costs:
2005: 25.2 billion yen
2006: 17.5 billion yen

Total Liabilities:
2005: 63.0 billion yen
2006: 52.5 billion yen

I’m not sure how they have over 3 billion yen (over $30 million) in inventory, or how that might be valued, but that line looks a bit suspicious.

The big thing I see here is the reduction in fixed liabilities, which is a step in the right direction, in terms of fiscal control.

At the same time, the reduction in assets has to be cause for alarm. Total sales (not just what has been booked as current assets) actually fell a bunch from FY2004 to FY2006:

2004: 75,275,000,000 yen
2005: 69,812,000,000 yen
2006: 66,949,000,000 yen

They have software listed as a 938,000,000 yen asset on their (non-consolidated) balance sheet for FY2006.

Comment by John

June 17, 2007 @ 1:39 am

What is Steel Partners’ batting average so far in takeovers? They think owning stock for 7 years makes them not in it for the short term? Just a new way to play the game…

Comment by Ken

June 18, 2007 @ 12:20 am

John, I’m going to assume that you’re being sarcastic. None of of know their true intentions (other than to make money), but it’s crazy to call owning shares in a firm for seven years to be the new definition of “short term.”

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