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Tuesday, May 31, 2005

Ballistic Recovery Systems

These guys (website) make parachutes for entire airplanes, mostly Cirrus models but also ultra-lights. Walking through the 10-K statement, the oddest thing was that they seem to pay out every last dime of operational cash flow in the form of dividends. Reading down to the legal proceedings section, it seems there were a few crashes where the parachutes did not prevent deaths. In one case, the NTSB ruled it was pilot error. Two other cases are still up in the air (ok, maybe not up in the air).

Other than the legal issues, it seems like an interesting business that pays a hefty dividend: relative to cash flow, not relative to price. The dividend for 2004 was $0.08 while the recent stock price was $2.9. However, they are growing fast.

Given the uncertainty of the legal issues, the patent running out of time, and the single large customer, I have to wonder how a pink sheet company rates such a high price? Perhaps I'll dig some more later on. The news items show that Cirrus is buying big chunks of this company. That's a good sign.

UPDATE: They lost one lawsuit for $3.4 million, which coincidentally happens to be exactly the amount of equity on the books. And within a couple of days they saved another life.

The company lost a $3.4 million lawsuit.
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