Tuesday, January 13, 2009

Premier's shareholders need to act now

3rd quarter results at Premier were dismal, and that's putting it mildly. Attendances were down big, revenues suffered and Premier reported a net loss of $1.8 million for this quarter. All of this after recognizing $4 million in revenue from an option pickup by a third party to co-host the Bodies exhibitions. As Sellers pointed out in a press release once the results came out, taking out this non-recurring revenue and focusing exclusively on ticket sales would cause gross margins to come in at 9.1%. This compares with gross margins of 47.3% from the same quarter last year. Terrible by any measure. The accounting is also very aggressive, too aggressive for my own comfort. I'd have expected the revenue to be recognized over the period for which the option to co-host the exhibitions is effective(between 12-18 months, I believe).

The balance sheet continues to deteriorate as well. We are down to $4.709 million in cash. The $4 million payment from the option pickup is reflected in Accounts Receivable at the time of the end of the 3rd quarter($8.212 million). This is essentially a wash with what's owed as reflected by Accounts Payable at the end of the 3rd quarter($8.38 million). It also looks like we'll be getting back about $3.271 million in taxes previously paid. The $10 million line of credit that was available at the start of the quarter through Bank of America has now been cut to $7.1 million based on the deterioration in the operating results. At this rate of cash burn, we are looking at a quarter or two more of operations before capital needs to be raised. All of this cheerful news is available in the latest 10-Q:

http://www.sec.gov/Archives/edgar/data/796764/000119312509004043/d10q.htm

On the salvage award trial, things have progressed some with both Premier and the U.S. Govt submitting their changes to the revised covenants. As of Nov. 18, it looks like it's in the Court's hands to decide. I ran across this interesting article with respect to the case:

http://hamptonroads.com/2008/11/judge-decide-fate-5500-titanic-artifacts-soon

Looks like Sellers' fairly outspoken plan to monetize the Titanic assets have caused the judge some serious reservations. Sellers was rebuked by Premier as well. I suspect that this, as well as Premier's deteriorating financial condition, may play a part in the timing of the judge's decision. We'll see.  

If the 3rd quarter results don't cheer you enough, the conference call to discuss them ought to. After what was essentially a regurgitation of the details in the press release, Geller talked about how Sellers didn't have a specific plan for turning the company around and why shareholders should vote for incumbent management instead(no good reason). He then ended the call without allowing for questions. If not for anything else, he needs to go just for this blatant disregard for corporate governance. 

Post this conference call, Sellers Capital made this filing that pretty much destroys(not that this needed much destroying) any little credibility that management might have had remaining:

http://www.sec.gov/Archives/edgar/data/796764/000095015209000197/l35069adfan14a.htm

Quoting the relevant section:

"We also question how the Special Committee can allow serious and unfounded allegations to be made against Sellers Capital and our representatives, particularly after having offered to give us control of the company’s board as part of a settlement, which the Special Committee offered us in return for little more than full releases from liability for its members. " (emphasis mine)


This is no good and a serious indication that Geller and co.'s biggest troubles might begin once the proxy contest is over.

If you are a shareholder, I'd recommend that you call your brokerage or the Altman Group at 1-866-828-6934 and vote your shares in favour of Sellers Capital's slate of nominated directors now. Risk has been ratcheted up in my opinion, given what's come out in the public domain re. management's character and intentions. Shareholders need to act urgently to give themselves every chance of preserving, let alone enhancing, their original investment. 

Often wrong but seldom in doubt,
Ragu

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