Monday, August 6, 2012

Worsley's Resume "Mark-up" Is As Much As An Item In A SkyMall Catalog

Seems we've been fed a
mile-high-pie-in-the-sky lie.  

Just how business savvy IS Mr. Worsley?  Or is this just another case of resume inflation from a wanna-be politician?

Let's first look at his bio which states:

Robert (“Bob”) M. Worsley ... was the Chairman of the Board, Chief Executive Officer and President of SkyMall, Inc., which he founded in 1989, until his retirement in 2003. During his tenure at SkyMall, Mr. Worsley was successful in leading the Company through a $16 million IPO in 1996 and a $70 million sale to Newscorp’s Gemstar affiliate in 2001, and growing the business to become the largest in-flight catalog company in the United States with over $85 million in annual revenues.

"Mark up" #1:  $70M sale to Gemstar in 2001?

It seems odd that every article we have found indicates that the sale price was more in the $47 million range.

From AZ Central:
"Online sales helped SkyMall before it sold in 2001 for about $47 million to Gemstar-TV Guide International Inc. and Worsley's 30 percent ownership was converted to Gemstar stock."

"Phoenix-based SkyMall was purchased by the Los Angeles-based parent company of TV Guide magazine (NASDAQ: GMST) for nearly $48 million in cash and stock in May 2001."

LA Times:

"Gemstar-TV Guide International Inc., the biggest seller of electronic television program guides, said Monday that it will buy airline flight catalog company SkyMall Inc. for about $47.5 million."

"Mark up"#2:  Worsley estimates to have created 1000 jobs through his ventures?

Based on the financial statements filed when SkyMall went public, the highest number of employees at one time was 324.  You'll then notice the following year, the number dropped to pre-1999 levels.

EMPLOYEES   (pg 13)
March 1, 1996, the Company had 180 employees.

EMPLOYEES  (pg 12)                                                                
March 12, 1998, the Company had 190 employees.

EMPLOYEES   (pg 13)                                                                      
March 22, 1999, the Company had 323 employees.

EMPLOYEES   (pg 17)                                                                      
March 27, 2000the Company had 324  employees.

March 14, 2001, the Company had 199 employees.

Let's also take a look at the number of employees from his most recent venture, Renegy Energy. 

Oops.  That company found itself in financial trouble less than six months after their $85M biomass plant opened in Snowflake which led to an almost 50% reduction in its workforce.

 By early January, Renegy plans to reduce its workforce to a total of 48 employees, of which seven employees will constitute its corporate staff, representing a 47% reduction in force compared with 90 employees at September 30, 2008.

The "estimated" 1000 jobs is closer to 414 in its prime.  Job losses between the two companies totalled 167 for a net of 247 jobs created (or shall we say, "saved"?).

"Mark up"#3:  Worsley grew SkyMall with annual sales revenue of over $85M.

Revenues/Gross Margins:

1996  Total Revenues  $46M / $19M
1997  Total Revenues  $66M / $25.7M
1998  Total Revenues  $72M / $32.7M
1999  Total Revenues  $79M / $32.5M
2000  Total Revenues  $82M / $34M
2001  Total Revenues (1st quarter prior to sale)  $18M / $7M


1996  Income of $2.5M
1997  Income of $2.9M
1998  Income of $3.6M
1999  Loss of $25M
2000  Loss of $16M
2001 (1st quarter prior to sale)  Loss of $2.5M

As you can see, while the 1999 and 2000 revenues may look impressive, SkyMall was actually operating at significant losses of $25M and $16M respectively.  Even leading up to the sale to Gemstar, they were on track to lose another $10M in 2001. 

In an effort to reduce losses, Skymall went through major restructuring in 2000.  They retained the Investor Relations firm Genesis Select to identify potential investors who could leverage SkyMall's distribution and inject additional capital into the flailing company.

"Genesis Select also identified and helped recruit a new President and CEO. The candidate was a well-established operator in retail merchandising, and was also well known with institutional investors. With the critical pieces now in place, Genesis Select introduced SkyMall to Robertson Stephens, who was retained by SkyMall as their investment banker. This relationship led to the purchase of SkyMall by Gemstar –TV Guide in March of 2001 at an attractive valuation in deteriorating market conditions for Internet stocks."

SkyMall consolidated offices in New York and Utah which eliminated at least 53 employees at a cost of $2M.  An additional 70 employees were also laid off in 2000.

More SkyMall controversy.

The stock value of SkyMall (SKYM) wildly fluctuated since it first went public.  Here is a chart that shows the highs and lows per share by quarter:

1Q     4.00 - 5.38
2Q     4.00 - 7.50
3Q     2.25 - 5.64
4Q     1.88 - 4.30

1Q     11.38 - 27.13
2Q     9.00 - 23.13
3Q     5.55 - 12.63
4Q     5.25 - 13.13

1Q     7.00 - 10.19
2Q     2.31 - 6.63
3Q     2.00 - 3.63
4Q     1.06 - 2.50

1Q     1.00 - 2.63

Notice the sudden spike in the stock price between 4Q 1998 and 1Q 1999? 

On Monday, December 28, 1998, SkyMall announced that they expected their internet sales to grow "sevenfold" during the next year.

"Shares of the nation's largest in-flight catalog retailer soared yesterday rising to $48 before closing up 23 at $35.56 after it said Internet sales were expected to jump sevenfold."

You can tell by the 1999 revenue chart above, SkyMall only increased revenue by $7M and after the cost of goods were deducted, the gross margins were actually less than the previous year.  SkyMall also saw a record loss of $24M during 1999.

So, where did SkyMall get the idea that they would be able to forecast a "sevenfold" increase in their internet sales going forward?

Coincidentally, on Thursday, December 31, 1998, an article announced that the SkyMall CEO, Bob Worsley, had sold 675,000 shares of SKYM at $35/share.  He then used that money to buy out two of his partners at a pre-determined share price agreed upon back in October of $6.75 and $7.35/share.  This gave Worsley a 54% stake in the company. 

Needless to say, the circumstances of the sales projection announcement coupled with the massive sell-off of Worsley's shares at an inflated value to buy off his partners at a significantly lower price seemed a bit...shall we say...suspect?

We weren't the only ones who thought so.  SkyMall and Worsley were taken to court over possible SEC violations.  The complaint charged the defendants

"... the complaint alleges on December 28, 1998, SkyMall announced in a press release that the Company’s Internet sales were expected to increase by 600 percent over the previous year. As a result of this announcement, the price per share of SkyMall’s common stock soared from $12 to $48, and closed at $35. That same day, unbeknownst to the investing public, including plaintiff and the members of the class, SkyMall’s President and CEO, took advantage of the anticipated surge in the value of the Company’s stock by selling 675,000 of his shares of SkyMall common stock at an average price of $35 a share. He then used the proceeds from those sales to exercise options which he held to purchase 2.9 million shares of the Company’s stock at an average price of $7.23 a share....Further, the complaint alleges on or around December 30, 1998, when it became publicly known that SkyMall’s President and CEO had taken advantage of the expected dramatic rise in the price of SkyMall’s shares caused by the December 28 press release by selling 675,000 of his shares at inflated prices, and then, by exercising his options, increasing his equity stake in the Company from 2.3 million to almost 4.6 million shares, the price of SkyMall’s shares plummeted to $27 3/4 a shares."

The Court issued a final judgment in December 2002 dismissing the action "with prejudice."  The Plaintiff was reimbursed attorney fees and expenses of over $88,000.

As part of the sales agreement in 2001 between SkyMall and Gemstar, Worsley was required to transfer his SKYM stock over to GMST stock.  Gemstar agreed to pay $2.80/share for SkyMall stock.  At the time of the sale, Worsley had a 30% stake in SkyMall and 4.8M shares. 

Worsley "retired" in 2003. 

Four years later, Worsley began work on his next (failed) project at Renegy, LLC.  When money was quickly drying up, he once again retained the services of Genesis Select to help improve Renegy's exposure to institutional investors. 

You can hear Worsley inflate his role and qualifications as a small business owner on his campaign website here.  In the video, Worsley mentions that he sat in a room across from Rupert Murdoch to personally negotiate the sale of SkyMall.  However, we are unable to either confirm or deny this account because according to the SEC report (pg 36), Mr. Murdoch was not mentioned as being present in the room when discussions took place.  During the same month in 2001, Murdoch was negotiating a $70 BILLION merger attempt with DirecTV .  We aren't sure how critical it would have been for Mr. Murdoch to be a part of the negotiations for a $50M company when News Corp only held a 39% stake in Gemstar.

SkyMall and Gemstar met at the offices of Gemstar in Pasadena, California on March 3, 2001. representatives of Gemstar that attended the meeting included Dr. Yuen, Elsie Leung, Chief Financial Officer and Co-President, Mike Jeffress, Vice President of Business Development, and Jim Gregg and Eric Jue, both of Gemstar's Business Development Group. SkyMall management that participated in the meeting included Mr. Worsley, Mr. Deacon and Ms. Aguilera. A representative from Robertson Stephens, SkyMall's financial advisor, also attended the meeting.

If this is how Worsley does business, just imagine what he might do to a state budget...