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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Don Earl who wrote (13870)	2/5/2002 9:44:49 AM
From: TimbaBear	Respond to of 78752

I agree with what you say in your post. I am not up on bankruptcy law, but had anecdotal evidence from the KM news stories that bankruptcy offered them a way out of their non-performing leases. In my post, I think I indicated that I thought the long term leases obligations in a bankruptcy would be discounted somewhat due to the court discharging some of the obligation. There would still be some obligation until the date of discharge however (at least it seems like it would work that way). I agree with your point about heavy overhead for down-sized companies with full size lease commitments. My method of using Positive Free Cash Flow as one of the main determinants of suitability would generally show such companies to be less favorable investments as their current portion of the lease would be listed as part of current liabilities would negatively affect current cash flow. If that effect is such that the cash flow doesn't look attractive for the price of the stock, I move on. Timba

To: Don Earl who wrote (13870)	2/5/2002 10:42:27 AM
From: Bob Rudd	Respond to of 78752

<<Where leases start looking like debt is a situation like SCNT where they have to either pay for space they are unable to utilize or negotiate some kind of a settlement to cancel the lease.>>Cancellation of leases was cited as a primary motivation for the KMART bankruptcy...they had 250 or so LT leases on already closed stores and other stores with lease obligations they wanted to close. Only thru bankruptcy would they get out from under those obligations. With The GAP suffering hard times, I see similarities. A retrenchment by closing underperforming stores would leave them with lease obligations. Since the Operating lease obligations listed in 2000 K of $5.4 B were 41% of EV without lease inclusion [$13.26 B], and since lease obligations, like debt can usually only be avoided thru bankruptcy, the case of doing some sort of lease adjusted supplementary multiple looks strong.