On Friday, GeoInvesting issued a premium tweet, followed by a public tweet to our followers noting that Evans & Sutherland (ESCC) had entered into a pension settlement regarding its outstanding pension liability, as we had previously predicted. By clicking here, you can read all of the previous notes we’ve issued on ESCC. The stock reached our initial target price of $0.80, which we are now reevaluating. We believe shares could trade as high as $1.70.
Evans & Sutherland Computer Corporation (ESCC), filed a Form 8K Friday announcing that the company has entered a pension settlement agreement (the “Settlement Agreement”) with the Pension Benefit Guaranty Corporation (the “PBGC”) to settle previously disclosed liabilities (the “ERISA Liabilities”) under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”).
At December 31, 2014, ESCC reported total liabilities related to the pension and retirement obligations of $40.6 million. The pension liabilities have been settled for a total of $10.5 million including a $1.5 million cash payment to the PBGC within 10 days of the April 21, 2015, agreement with the $9.0 million remainder to be paid in twelve annual installments of $750,000, beginning on October 31, 2015.
Settlement of the pension liability removes a cloud that has been hanging over ESCC. The company described its predicament regarding the pension obligations in its Form 10K, page 9, for the year ended December 31, 2014, as follows:
“For the past several years we have employed various strategies for growth and costs reduction in an effort to reverse a long history of operating losses. While this effort has significantly reduced our recent operating losses and we recorded net income in 2013, we do not believe that the business, as currently capitalized, is capable of overcoming the enormous burden of our defined benefit pension plan (the “Pension Plan”). ………. Because we believe that the business has the potential for long-term profitability without the burden of the Pension Plan, we have applied for a distress termination of the Pension Plan under provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”) as described more fully in Note 6 of the financial statements. If the distress termination application is approved, the Pension Benefit Guaranty Corporation (“PBGC”) will take possession of the assets in the Pension Plan trust and pay future Pension Plan benefits while the Company would owe the PBGC a termination liability.”
Pension Settlement Obligations Resolved; ESCC Free to Focus on Growing Business
Now that ESCC pension obligations are resolved, management is free to focus on growing the business. We believe that ESCC could generate over $36 million sales and $.17 EPS in 2015 based on a series of assumptions that are detailed in the following pro forma statement of operations.
At a conservative 10x multiple, if the company were able to generate $0.17 and pending Geo’s further due diligence, we have set our amended price target at $1.70, up from previous estimates of $0.80.
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