Monday, June 17, 2013

Questions for the Solitron Board of Directors

I am in Palm Beach mentally preparing myself for the Solitron annual meeting tomorrow.  This means I've been sitting on the beach, enjoying the sun, relaxing and eating fresh seafood.  I wanted to post the questions I intend to ask at the meeting tomorrow, and solicit other questions from shareholders.  I'm not sure how many questions I will get to ask, but I will try to get in as many as I can.

I'm expecting to post again tomorrow with a summary of how the meeting goes, so stay tuned. For anyone new to the Solitron situation I have a short summary below.  For everyone else skip straight to the questions.

Solitron Recap

In 2010 I discovered a tiny profitable net-net, with a slug of cash on their balance sheet.  The company had a number of liabilities stemming from their bankruptcy in the 1990s.  I wrote a number of posts detailing the investment case for the company, and ultimately waited for something to happen.

I eventually wrote a letter to the Board, urging a stock buyback and encouraged them to hold an annual meeting.  After hearing an outcry from investors (including one filing a lawsuit) the company acquiesced .

In the meantime the company paid off all of their known environmental liabilities stemming from their bankruptcy.  The company is now a pile of Treasury bonds with a profitable electronics manufacturing company attached.  It's worth noting they are still undervalued, according to some measures significantly so.

The annual meeting is tomorrow at 9am at the firm's law offices in central Miami.  I was disappointed by the location considering their facility and headquarters are than 10 miles from where I traditionally stay when in Florida.  I would have been nice to see their facility from the inside as well.

I have written too many posts on Solitron to link to each, so here is the Google link for all of them.

Solitron Board Questions


  • Are there any residual liabilities from the bankruptcy that are off balance sheet or haven't been noted?
  • Why hasn't the company grown in the last decade?  Especially in light of the extraordinary defense spending and growth rich environment.
  • What is your approach to target new markets?
  • Has your customer list changed much in the last decade?  Have you gained new customers?
  • How has the sequester affected your business?
  • What accounted for the $190k increase in SG&A this past year?
  • How do you measure the business?
  • What is your standard of success?
  • Do you consider Solitron successful?
  • Why haven't you hired a CFO?
  • [Statement] As a shareholder I, and others would be happy if the company paid more per year for an audit if the auditor would remain the same year over year. 
  • Have you considered taking the company private?
  • Is the company more likely to execute a dividend or buyback with the excess cash?
  • What is holding the company back from distributing excess cash to shareholders?
  • If the company pays a dividend or buys back shares, and shareholders become less vocal will you discontinue annual meetings and stop listening to shareholders again?
  • Have you considered an acquisition?
  • What would you look for in a potential acquisition?
  • Would you consider using debt to finance an acquisition?
  • How would you evaluate a potential acquisition target?
  • [Statement] As a shareholder, seeing how the business has failed to grow in the past decade I would prefer the company give cash back to shareholders, instead of attempting to grow the business through an acquisition.

If anyone has anything they wish to add to this list leave a comment.  Fair warning, I might be slower to approve comments, I will have my phone at the beach, but won't be checking it as often, please be patient!


Disclosure: Long Solitron

3 comments:

  1. Hi Nate,

    Thanks for typing up this list of questions. Here are the questions I TRIED to ask Saraf last year. He told me they were all insider info. I think maybe some of my questions were naive with respect to that issue but surely not all of them. Apologies if any are redundant given your questions above:

    * Is SODI still a potential takeover target?
    * Is SODI still interested in merging/acquiring a competitor or vendor?
    * Current thinking on R&D? Is this necessary? What could be gained?
    * What if gold prices rose significantly? What if copper fell? What can be done to contain materials costs aside from commodity prices falling?
    * You have said you haven't spent much time thinking about IR and capital allocation. Have you considered consulting with outside help on this measure?
    * Describe your revenue and customers... how much of the revenue is "fixed" or long-term in nature and how much is "variable" and could fluctuate strongly with business conditions?
    * Please comment on this: 80% of those former unsecured creditors are current suppliers to the company. <-- how many are shareholders?
    * Is MTBF (Mean Time Between Failures) still higher than competitors? What other competitive advantages do you possess?
    * What does this company's business look like in 10 years, conservatively speaking? How does the industry look?
    * Of the cash on the balance sheet, how much would you say, conservatively, is necessary to finance the current operations? How much is necessary to finance potential growth opportunities? How much of the total could be considered excess capital?
    * Tell me about the 2008-2009 time period. What did that period look like business-wise from the eyes of SODI?
    * You got rid of your CFO and took those duties on yourself. Why is this?
    * What are your plans for yourself as a long-term shareholder of 30% of SODI? Are you interested in seeing the highest market value for those shares possible, within reason, or is it unimportant to you? Do you have heirs you hope to pass the shares onto in time? Is your ownership of the company part of your personal retirement planning?

    ReplyDelete
  2. - Does the company have succession plans for Mr. Saraf?

    - Does Mr. Saraf have an estate plan for the company or for his shares?

    ReplyDelete
  3. Thank you for your significant work Nate. My firm owns 2% of SODI - same, disappointing responses as Taylor (above comment) experienced. I can't wait to hear your report re Mr. Safaf's honesty, bluntness and candor. I have high expectations as an owner. I can not make the annual meeting. Please ask the any of the following questions:

    1. What is your plan to create stockholder value with the $15.1 million of Net Operating Loss Carry-forwards (NOL's)? Are you actively looking to sell or merger the company with more profitable business where the $15.1 million NOL's can be utilized quickly? (Time value of money: Sooner the $15.1 million is utilized = the higher the stock price can go)
    A. 10-K states the $15.1 million of NOL's expire through 2031. What are the earliest expiration dates and amounts?
    2. What is your plan to utilize the $6 million of net cash on the Balance Sheet to increase shareholder value?
    3. Capital spending: This year you state $500,000 is needed. What are your projections for future capex needs to maintain the business? (Past years' capex = $150,000 to $350,000)
    4. What was the original philosophy behind creating the "shareholder rights plan?" Will you eliminate it now that the environmental liabilities and restrictions are gone? (I want it removed).

    Thank you,

    Bryce Peterson
    bryce.peterson@washingtonstreetinvestments.com

    ReplyDelete