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When I saw that KSWS announced a special $2/share dividend it made me scratch my head. Near-term payout trumped capitalism in a big way here.

During last week’s earning call, management stated that “the brand has slowed down and it needed to be ignited” – I agree. Utilize the balance sheet with $290 million in cash and drive growth by investing in new product initiatives -- or better yet put on the capitalist hat and go out and acquire one of the many troubled assets out there on the cheap. Instead, the Board paid out 24% of its cash in a special dividend. And the winner is… CEO, Steven Nichols.

As of June 30, the Nichols Family Trust owned 7.4 million shares or ~ 20% of the total shares outstanding making them the largest shareholder of KSWS stock (see table). As such, Steven Nichols would pocket ~$15 million. Nichols also owns substantially all of the class B shares (93%), which are super voting and account for ~70% of the total. How’s that for raising personal capital without sacrificing control of the company?

I don’t want to come across as too harsh here, because a rally in KSWS today will make some stockholders very happy. I like when stockholders are happy. But I like it more when management teams put the 5-year plan ahead of the 5-week plan.

Casey Flavin
Director