Just returned from yesterdays meeting-below are my impressions of the meeting in no particular ordder of importance:
A. Most of the attendees were long-long term holders who seemed to be gulping down the Kool-Aid supplied by management. This was honestly managements story "...you should not be too concerned that the stock is down 50% from last year, since if you bought 5 or 10 years ago you still have a nice profit..." If I closed my eyes I could almost hear Ken Lay of Enron fame giving the same speech right before the company imploded.
B. Could not believe that no one bothered to question the seriousness of two major internal control problems in little over a year with NO ONE HELD ACCOUNTABLE. The first one last year almost resulted in SHFL being delisted. No one in Finance, no board member, no one at the Audit firm-NO ONE.
C. I raised the question about the dramatic deterioration of the company's balance sheet during the past year. The fact that for the first time in memory the company ended the year with Current Liabilities EXCEEDING Current Assets. Also pointed out that last year receivables grew at a rate 4 times that of revenue and inventory grew at a rate in excess of 5 times revenue. The fact that cash flow has been negative for several quarters and that Return on Invested Capital had gone from historic rates of 30% to about 13% were also troubling. The CFO's answer to these concerns? He stated that Shuffle Master had gone from a largely low cost shuffler business where they manufactured product at low cost and high margins to the Star machines which cost about $100,000 each and were consuming cash and inflating inventories.
D. Several people referenced a Las Vegas Review Journal article which stated that many on Wall St were loosing confidence in the company and nothing new the company might announce would come as much of a surprise. The general reaction was that this is more a PR problem and it didn't make sence to fight with the press.
E. Some issues that didn't arrise that are concerns. 1) According to the Annual Report there is $150,000,000 in long term debt due 2009. Logical question is how is this going to be repaid given negative cash flows and an untapped line of credit not large enough to handle 2) Several respected Wall St Firms i.e Morningstar have given the company poor marks in corporate governance due among other things to the positions of Chairman and CEO not being split-as is recommended as Best Practice. One can only draw parallels between our CEO and Michael Eisner at Disney. Both these executives did some good during their early tenure but latter on seemed more concerned with increasing their personal wealth and power than with the best interests of the company. Just an fyi,if these positions are not seperated I will propose that shareholders vote on this issue at next years meeting.
E. I raised the question about "Shuffle Up Productions" why despite much hype the past several years there was no mention of it at this years meeting. And I asked what the prospects were for this venture. I was told that while the venture had lost money the past few years it was expected to be marginally profitable this year.
In summary I left the meeting with the uneasy feeling that this management team, as currently composed, is ill equiped to handle a company that is as geographically dispersed and with the multitude of products that is Shuffle Master today.
Just one mans opinion but judging from Wall St recation it is an opinion that is gaining increased credence.
<<<C. I raised the question about the dramatic deterioration of the company's balance sheet during the past year. The fact that for the first time in memory the company ended the year with Current Liabilities EXCEEDING Current Assets. Also pointed out that last year receivables grew at a rate 4 times that of revenue and inventory grew at a rate in excess of 5 times revenue. The fact that cash flow has been negative for several quarters and that Return on Invested Capital had gone from historic rates of 30% to about 13% were also troubling. The CFO's answer to these concerns? He stated that Shuffle Master had gone from a largely low cost shuffler business where they manufactured product at low cost and high margins to the Star machines which cost about $100,000 each and were consuming cash and inflating inventories. >>>
Hi jmoskow --
I was at the meeting. You asked good questions.
Although Baldwin might not have answered the question clearly, my understanding is that the reason why current liabilities exceeded current assets at year-end is that the bridge loan to finance the Stargames acquisition had not yet been refinanced, and the $70 million balance on the bridge loan was classified as a current liability. Now that the bridge loan has been replaced by a revolver, I would expect current assets to easily exceed current liabilities when the first fiscal qtr. balance sheet is published.
I do think the growth in inventories makes perfect sense given the company's move into electronic table games. Also, if something is leased (or placed on a participation basis) does the leased equipment continue to be part of inventory? If so, then the TableMasters placed in Delaware racinos would continue to be counted as inventory.
You can't expect a company like SHFL to move into a very different business like electronic table games without the move coinciding with a big change in the inventory number.
When equipment is leased it no longer shows as inventory. According to proper accounting it should show as a 'non-current' asset. As you stated the CFO didn't exactly come across as the sharpest knife in the drawer-couple this was some real issues with internal controls and I really question quality of management.
Do you see what you are saying? You are just juggling numbers around to make things look better. You have been sucked into the Yoseloff accounting system. Anyone with half a brain is going to look at the overall and figure out real fast that this company is in real trouble. Now start looking at the company as if you were going to buy the whole thing from Yoseloff--just your-noone else-no partners and you are putting all your have and will have and your family on the line. Now would you buy this company or look elsewhere. I can see your neck is getting sore looking around.
This company has been spinning/cooking the books for way to long. I have the feeling that when they have to redo this past years books and last years-that the wall of Jericho are going to be falling down.
Oh and Asian aliances? They lost thier connection with Elixir--which is part of Melco which has a large chunk of PBL_Melco. Now who is in like Flynn with Elixir? Nope not going to give you any clues.
SHORT IT or PUT IT but don't take this baby long !!!!!!
JMOSKOW 2000 --Thanks very much for your Shfl share holders meeting report.
Wethinks you have accurately summarized the sorry state of affairs within Shfl.As for the CEO, he is a hypster and an incompetent SLEAZO of the first magnitude.