Evans & Sutherland (OOTC:ESCC) engages in the production and sale of visual display systems used primarily in full-dome video projection applications, dome projection screens, and dome architectural treatments in the United States and internationally. Reasons for tracking:
- We believe ESCC presents a potential special situation opportunity rather than a growth opportunity. The company had good Q3 2013 financial results.
- Sales for the third quarter were $8.5 million, compared to sales of $5.4 million for the third quarter 2012.
- Net profit for the quarter was $1.0 million or $0.09 per share compared to a net loss for the third quarter 2012 of $1.1 million or $0.10 per share.
- This appears to be the first time ESCC has reported a quarterly profit since going public in 2002. Company guidance infers that it will report EPS of at least $ 0.07 for the fourth quarter 2013, and that it may be able to maintain profitability going forward.
- Unfortunately, this story is not without significant risk, as is the case for stocks with depressed valuation. The company’s balance sheet reveals a $33 million pension liability that has resulted in stockholder equity being negative. A special situation opportunity arises from a possibility, through negotiations with relevant regulatory bodies (ERISA), that the company may be permitted to settle its pension liability, thereby removing it from the balance sheet.
- We presume that if the company is successful with this endeavor, and given its improved cost structure, shares would see a significant lift somewhere between its cash per sale of $0.40 and to it’s tangible book value of $0.90
- Another positive aspect to the story is that an increasing interest rate environment should lower the pension liability.
- It is still unclear to us if the company can maintain profitability at a lower level of sales revenue that it reported in the third quarter 2013. The company is also not ready to commit to consistent growth. Please see link for full management commentary.