WWSD (What would Superman do)?

December 11, 2007

uj321-pipthumbnail-1.JPGIt’s been a pretty tough year for investors in Sharper Image (SHRP). As we footnoted in our very first post in January, Chairman and CEO Richard Thalheimer, who resigned in September 2006, left with his Superman and 3CPO statues in tow. And, after an initial jump under the reigns of Jerry Levin, who initially took over for Thalheimer and now Steven Lightman, who was named CEO in late March, things started looking up until the stock started falling sharply over the summer.

Yesterday, the company reported its results for the third quarter, which showed a 35% decline in revenues and a wider than expected third quarter loss. But it was something in the 10-Q that they filed yesterday that really caught my attention:

We had borrowed $6.3 million as of October 31, 2007 against life insurance policies for our executives. We can only borrow using the life insurance policies as collateral if the borrowings are to be used for payments due under the our deferred compensation plan or for certain other payments. These borrowings bear interest at 0.75% and do not require cash interest payments as the growth in the underlying cash values funds the interest payments.

A quick skim of Sharper Image’s earlier disclosures on this shows that they’ve been tapping into this money all year. In the 10-K filed back in May, they had borrowed $2 million, which then climbed to $5.8 million and is now at $6.3 million. While there’s not enough details in the filing to really figure out what’s going on here, it does make one wonder about the need to tap into a life insurance policy to cover deferred compensation or some other undefined expense. As best as I can tell, this isn’t all that common, but if readers know something different, I’m all ears.

Maybe, instead of giving Thalheimer the 50% discount on the statues, they should have charged him the full price!

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