Document and Entity Information
Document and Entity Information - shares | 9 Months Ended | |
Oct. 02, 2015 | Nov. 05, 2015 | |
Document and Entity Information: | ||
Entity Registrant Name | EVANS & SUTHERLAND COMPUTER CORPORATION | |
Document Type | 10-Q | |
Document Period End Date | Oct. 2, 2015 | |
Amendment Flag | false | |
Entity Central Index Key | 276,283 | |
Current Fiscal Year End Date | --12-31 | |
Entity Common Stock, Shares Outstanding | 11,177,316 | |
Entity Filer Category | Smaller Reporting Company | |
Entity Current Reporting Status | Yes | |
Entity Voluntary Filers | No | |
Entity Well-known Seasoned Issuer | No | |
Document Fiscal Year Focus | 2,015 | |
Document Fiscal Period Focus | Q3 | |
Trading Symbol | escc |
CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands | Oct. 02, 2015 | Dec. 31, 2014 |
Current assets: | ||
Cash and cash equivalents | $ 3,660 | $ 7,038 |
Restricted cash | 600 | 711 |
Accounts receivable, net | 6,598 | 4,586 |
Costs and estimated earnings in excess of billings on uncompleted contracts | 3,045 | 1,699 |
Inventories, net | 5,023 | 4,163 |
Prepaid expenses and deposits | 773 | 635 |
Total current assets | 19,699 | 18,832 |
Property and equipment, net | 4,689 | 4,803 |
Goodwill | 635 | 635 |
Intangible assets, net | 37 | 68 |
Other assets | 1,056 | 1,118 |
Total assets | 26,116 | 25,456 |
Current liabilities: | ||
Accounts payable | 1,025 | 710 |
Accrued liabilities | 1,652 | 1,142 |
Billings in excess of costs and estimated earnings on uncompleted contracts | 4,980 | 5,176 |
Customer deposits | 4,002 | 4,081 |
Current portion of retirement obligations | 435 | 535 |
Current portion of pension settlement obligation | 534 | |
Current portion of long-term debt | 197 | 2,362 |
Total current liabilities | 12,825 | 14,006 |
Pension and retirement obligations, net of current portion | 4,207 | 40,076 |
Pension settlement obligation, net of current portion | 5,624 | |
Long-term debt, net of current portion | 2,009 | |
Deferred rent obligation | 1,759 | 2,077 |
Total liabilities | $ 26,424 | $ 56,159 |
Commitments and contingencies | ||
Stockholders' deficit: | ||
Preferred stock, no par value: 10,000,000 shares authorized; no shares outstanding | ||
Common stock, $0.20 par value: 30,000,000 shares authorized; 11,441,666 shares issued | $ 2,288 | $ 2,288 |
Additional paid-in-capital | 53,423 | 54,500 |
Common stock in treasury, at cost, 264,350 shares | (3,532) | (4,709) |
Accumulated deficit | (50,833) | (49,157) |
Accumulated other comprehensive loss | (1,654) | (33,625) |
Total stockholders' deficit | (308) | (30,703) |
Total liabilities and stockholders' deficit | $ 26,116 | $ 25,456 |
CONDENSED CONSOLIDATED BALANCE3
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares | Oct. 02, 2015 | Dec. 31, 2014 |
Statement of Financial Position | ||
Preferred Stock, par value | ||
Preferred Stock, shares authorized | 10,000,000 | 10,000,000 |
Preferred Stock, shares outstanding | ||
Common Stock, par value | $ 0.20 | $ 0.20 |
Common Stock, shares authorized | 30,000,000 | 30,000,000 |
Common Stock, shares issued | 11,441,666 | 11,441,666 |
Common stock in treasury, shares | 264,350 | 264,350 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($) shares in Thousands, $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Oct. 02, 2015 | Sep. 26, 2014 | Oct. 02, 2015 | Sep. 26, 2014 | |
Statement of Comprehensive Income | ||||
Sales | $ 9,375 | $ 7,656 | $ 27,666 | $ 20,040 |
Cost of sales | (6,049) | (4,371) | (17,956) | (12,669) |
Gross profit | 3,326 | 3,285 | 9,710 | 7,371 |
Operating expenses: | ||||
Selling, general and administrative | (1,535) | (1,637) | (5,132) | (5,211) |
Research and development | (563) | (537) | (1,702) | (1,608) |
Pension | (49) | (359) | (473) | (777) |
Pension settlement | (3,620) | |||
Total operating expenses | (2,147) | (2,533) | (10,927) | (7,596) |
Operating income (loss) | 1,179 | 752 | (1,217) | (225) |
Other expense, net | (231) | (192) | (404) | (567) |
Income (loss) before income tax benefit (provision) | 948 | 560 | (1,621) | (792) |
Income tax benefit (provision) | (27) | 79 | (55) | 12 |
Net income (loss) | $ 921 | $ 639 | $ (1,676) | $ (780) |
Net income (loss) per common share - basic and diluted | $ 0.08 | $ 0.06 | $ (0.15) | $ (0.07) |
Weighted average common shares outstanding - basic | 11,177 | 11,089 | 11,141 | 11,089 |
Weighted average common shares outstanding - diluted | 11,705 | 11,435 | 11,141 | 11,089 |
Comprehensive income (loss), net of tax: | ||||
Net income (loss) | $ 921 | $ 639 | $ (1,676) | $ (780) |
Other comprehensive income (loss): | ||||
Reclassification of pension expense to net income (loss) | 0 | 101 | 195 | 305 |
Pension settlement | 31,776 | |||
Other comprehensive income | 101 | 31,971 | 305 | |
Total comprehensive income (loss) | $ 921 | $ 740 | $ 30,295 | $ (475) |
CONDENSED CONSOLIDATED STATEME5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands | 9 Months Ended | |
Oct. 02, 2015 | Sep. 26, 2014 | |
Cash flows from operating activities: | ||
Net loss | $ (1,676) | $ (780) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||
Depreciation and amortization | 216 | 376 |
Amortization of deferred pension costs | 195 | 305 |
Pension settlement charge | 3,620 | |
Provision for excess and obsolete inventory | 76 | |
Other | 72 | 294 |
Changes in assets and liabilities: | ||
Decrease in restricted cash | 111 | 289 |
Decrease (increase) in accounts receivable | (2,054) | 726 |
Increase in inventories | (936) | (1,104) |
Decrease (increase) in costs and estimated earnings in excess of billings on uncompleted contracts, net | (1,542) | 516 |
Decrease (increase) in prepaid expenses and other assets | (76) | 402 |
Increase (decrease) in accounts payable | 315 | (596) |
Increase (decrease) in accrued liabilities | 510 | (21) |
Decrease in accrued pension and retirement liabilities | (100) | (54) |
Decrease in pension settlement obligation | (1,485) | |
Increase (decrease) in customer deposits | (79) | 445 |
Decrease in deferred rent obligation | (318) | |
Net cash provided by (used in) operating activities | (3,151) | 798 |
Cash flows from investing activities: | ||
Purchases of property and equipment | (71) | (289) |
Proceeds from sale of marketable securities | 229 | |
Net cash used in investing activities | (71) | (60) |
Cash flows from financing activities: | ||
Principal payments on long-term debt | (156) | (131) |
Net cash used in financing activities | (156) | (131) |
Net increase (decrease) in cash and cash equivalents | (3,378) | 607 |
Cash and cash equivalents as of beginning of the period | 7,038 | 3,376 |
Cash and cash equivalents as of end of the period | 3,660 | 3,983 |
Supplemental disclosures of non-cash investing and financing activities: | ||
Settlement of pension liability | 35,870 | |
Supplemental disclosures of cash flow information: | ||
Cash paid during the period for: Interest | 126 | 390 |
Cash paid during the period for: Income taxes | $ 12 | $ 45 |
1. General
1. General | 9 Months Ended |
Oct. 02, 2015 | |
Notes | |
1. General | 1. GENERAL Basis of Presentation The accompanying unaudited condensed consolidated financial statements of Evans & Sutherland Computer Corporation and subsidiaries (collectively, the Company or E&S) have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and notes necessary for a complete presentation of financial position, results of operations, and cash flows, in conformity with U.S. generally accepted accounting principles (US GAAP). This report on Form 10-Q should be read in conjunction with the Companys annual report on Form 10-K for the year ended December 31, 2014. The accompanying unaudited condensed consolidated balance sheets, statements of comprehensive income (loss), and statements of cash flows reflect all normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the Companys financial position, results of operations and cash flows. The results of operations for the three and nine months ended October 2, 2015 are not necessarily indicative of the results to be expected for the full year ending December 31, 2015. The Company operates on a calendar year with the first three fiscal quarters ending on the last Friday of the thirteenth week in the quarter. Revenue Recognition Sales include revenues from system hardware and the related integrated software, database products and service contracts. The following methods are used to determine revenue recognition: Percentage of Completion In those arrangements where software is a significant component of the contract, the Company uses the percentage-of-completion method as described above. Completed Contract Multiple Element Arrangements Other Anticipated Losses Stock-Based Compensation Compensation cost for all stock-based awards is measured at fair value on the date of grant and is recognized over the service period for awards expected to vest. Determining the fair value of share-based awards at the grant date requires judgment, including estimating the value of share-based awards that are expected to be forfeited. Actual results and future estimates may differ from the Companys current estimates. Net Loss Per Common Share Basic net loss per common share is computed based on the weighted-average number of common shares outstanding during the period. Diluted net loss per common share is computed based on the weighted-average number of common shares and dilutive common stock equivalents outstanding during the period. Stock options are considered to be common stock equivalents. When the Company incurs a loss, potentially dilutive common stock equivalents are excluded as their effect would be anti-dilutive, thereby decreasing the net loss per common share. Inventories, net Inventories consisted of the following: October 2, December 31, 2015 2014 Raw materials $6,992 $5,468 Work in process 1,106 1,678 Finished goods 217 233 Reserve for obsolete inventory (3,292) (3,216) Inventories, net $5,023 $4,163 Liquidity The Company has experienced recurring annual losses since 2007, except for 2013. In order to preserve the liquid resources required to operate the business, the Company stopped making cash payments due to the trust for the Companys defined benefit pension plan (the Pension Plan) beginning in October 2012. In January 2013, the Company initiated an application process for the distress termination of the Pension Plan in accordance with provisions of the Employee Retirement Income Security Act of 1974, as amended (ERISA) with the goal of settling its Pension Plan liabilities on terms that are feasible for the Company to continue in business as a going concern. On April 21, 2015, the Company executed an agreement (the Settlement Agreement) which terminated the Pension Plan and settled the Pension Plans liabilities in exchange for an obligation to pay to the Pension Benefit Guaranty Corporation (PBGC) $10,500 over twelve years and issue to the PBGC 88,117 shares of E&S treasury stock (see Note 3). In addition, the Settlement Agreement has led to a new banking relationship and improved credit capacity. Aided by prior cost reduction efforts and improved sales volume, for the nine months ended October 2, 2015, the Company has generated profitable results before recording the pension expense and a charge for the settlement of the Pension Plan. The Company is no longer incurring expenses related to the terminated Pension Plan but is responsible for fixed annual installment payments of $750 to the PBGC. The Companys unrestricted cash balances totaling $3,660 as of October 2, 2015, improved credit capacity and forecasted operations indicate sufficient resources will be available to meet its obligations, including the terms of the Settlement Agreement, through at least September 30, 2016. |
2. Stock Option Plan
2. Stock Option Plan | 9 Months Ended |
Oct. 02, 2015 | |
Notes | |
2. Stock Option Plan | 2. STOCK OPTION PLAN As of October 2, 2015, options to purchase 1,312,613 shares of common stock under the Companys stock option plan were authorized and reserved for future grant. A summary of activity in the stock option plan for the nine months ended October 2, 2015 follows (shares in thousands): Weighted- Average Number Exercise of Shares Price Outstanding as of beginning of the period 1,333 $2.08 Granted 211 0.36 Exercised - - Forfeited or expired (83) 7.26 Outstanding as of end of the period 1,461 1.53 Exercisable as of end of the period 1,063 $2.02 As of October 2, 2015, options exercisable and options outstanding had a weighted average remaining contractual term of 3.63 and 5.03 years, respectively, and had an aggregate intrinsic value of $307 and $555, respectively. The Black-Scholes option-pricing model is used to estimate the fair value of options under the Companys stock option plan. The weighted average values of employee stock options granted under the stock option plan, as well as the weighted average assumptions used in calculating these values during the first nine months of 2015, were based on estimates as of the date of grant as follows: Risk-free interest rate 0.91% Dividend yield 0.00% Volatility 343% Expected life 3.5 years Expected option life and volatility are based on historical data of the Company. The risk-free interest rate is calculated based on the average US Treasury bill rate that corresponds with the option life. Historically, the Company has not declared dividends and there are no foreseeable plans to do so. As of October 2, 2015, there was approximately $37 of total unrecognized share-based compensation cost related to grants under the stock option plan that will be recognized over a weighted-average period of 2.1 years. Share-based compensation expense included in selling, general and administrative expense in the statements of comprehensive income (loss) for each of the nine-month periods ended October 2, 2015 and September 26, 2014 was $30 and $12, respectively. Share-based compensation expense included in selling, general and administrative expense in the statements of comprehensive income (loss) for each of the three-month periods ended October 2, 2015 and September 26, 2014 was $10 and $4, respectively. |
3. Employee Retirement Benefit
3. Employee Retirement Benefit Plans | 9 Months Ended |
Oct. 02, 2015 | |
Notes | |
3. Employee Retirement Benefit Plans | 3. EMPLOYEE RETIREMENT BENEFIT PLANS Settlement of Pension Plan Liabilities On January 7, 2013, the Company submitted a PBGC Form 600 Distress Termination, Notice of Intent to Terminate, to the PBGC. The notice filing initiated an application process by the Company with the PBGC for the distress termination of the Pension Plan. The Pension Plan benefits are guaranteed by the ERISA Title IV insurance fund, which is administered by the PBGC. The Company proposed a termination date of March 8, 2013. Through the application process, the Companys intent was to demonstrate to the PBGC that it qualified for a distress termination of the Pension Plan under either of two of the criteria of Section 4041(c)(2) of ERISA (inability to continue in business absent termination and unreasonably increased pension costs) and applicable PBGC regulations. To satisfy the criteria, the Company and its wholly owned subsidiary each had to demonstrate to the satisfaction of the PBGC that, unless the termination occurred, the Company would be unable to pay its debts when they come due and would be unable to continue in business, or that the costs of the Pension Plan had become unreasonably burdensome solely as a result of a decline in the workforce covered by the Pension Plan. A distress termination under Section 4041(c)(2) of ERISA transfers the Pension Plans benefit obligations to the PBGC, up to ERISA guaranteed limits, without requiring reorganization under bankruptcy law. The Pension Plans actuary informed the Company that following termination of the Pension Plan and subject to the PBGCs review of participant benefits, all of the benefits earned by participants as of the date of plan termination are expected to fall within ERISA guaranteed limits. The Companys goal in seeking a distress termination of the Pension Plan was to ensure that the pension benefits of all Pension Plan participants are paid up to federally guaranteed limits and that the Company continues to operate as a going concern while avoiding the costly damage and disruption to the business which would result from reorganization. Pursuant to a determination by the PBGC that the requirements of the distress termination of the Pension Plan had been met, on April 21, 2015, the Company, as the administrator of the Pension Plan, and the PBGC entered into an Agreement For Appointment of Trustee and Termination of Plan (the Termination Agreement) (a) terminating the Plan, (b) establishing March 8, 2013 as the Plans termination date and (c) appointing the PBGC as statutory trustee of the Plan. In connection with the Termination Agreement, on April 21, 2015, the Company entered into the Settlement Agreement (the Settlement Agreement) with the PBGC to settle all liabilities of the Pension Plan including any termination premium resulting from the Pension Plan termination (the Settled ERISA Liabilities). Pursuant to the Settlement Agreement, the Company agreed to (a) pay to the PBGC a total of $10,500, with $1,500 due within ten days following the effective date of the Settlement Agreement and the remainder paid in twelve annual installments of $750 beginning on October 31, 2015 (the Pension Settlement Obligation) and (b) issue within ten days following the effective date of the Settlement Agreement 88,117 shares of the Companys treasury stock in the name of the PBGC. On April 23, 2015, the Company issued to the PBGC the 88,117 shares of stock and on May 1, 2015 it paid the initial $1,500 amount due to the PBGC. On October 22, 2015, the Company made the first of the twelve annual installments. The Settlement Agreement further provides that the PBGC will be deemed to have released the Company from all Settled ERISA Liabilities upon payment of the Pension Settlement Obligation. In the event of a default by the Company of its obligations under the Settlement Agreement or the underlying agreements which secure the Pension Settlement Obligation, the PBGC may enforce payment of the Settled ERISA Liabilities, which would accrue interest at various rates until payment is made and be reduced by any payments made by the Company pursuant to the Settlement Agreement. The estimated total Settled ERISA Liabilities as of the settlement date is $46,000. To secure the Companys obligations under the Settlement Agreement, on April 21, 2015, the Company also entered into a Security Agreement with the PBGC (the Security Agreement), and executed an Open-End Mortgage in favor of the PBGC (the Mortgage) on certain real property owned by the Companys subsidiary, Spitz, Inc. (Spitz). The Security Agreement and Mortgage grant to the PBGC a security interest on all of the Companys presently owned and after-acquired property and proceeds thereof, free and clear of all liens and other encumbrances, except those described therein (the Senior Liens). The PBGCs security interest in the Companys property is subordinate to the Companys two senior lenders pursuant to the Security Agreement and agreements between the PBGC and the lenders (the Intercreditor Agreements). The Intercreditor Agreements provide for the lenders to extend credit to the Company, secured by the Senior Liens, up to specified limits. The Intercreditor Agreement between the lender of the mortgage notes and line of credit (see Note 4) provides for total aggregate loans of up to $6,500 secured by Senior Liens on Spitz assets. The second Intercreditor Agreement between another lender and the PBGC provides for up to $3,000 of letter of credit indebtedness secured by Senior Liens on cash deposits. The Settlement Agreement also required that the PBGC withdraw all lien notices with respect to the statutory liens it previously perfected on behalf of the Pension Plan with respect to all real and personal property of the Company as soon as reasonably practicable after the 91st day after the perfection of all consensual liens granted to the PBGC by the Security Agreement and Mortgage. In August 2015, the PBGCs lien notices with respect to the statutory liens were withdrawn. The termination of the Pension Plan and settlement of its underlying liabilities enables the Company to satisfy the previously disclosed unfunded liability attributable to the Pension Plan by the issuing to the PBGC the 88,117 shares of stock from treasury and making the fixed installment payments of the Pension Settlement Obligation. As of the date of the Settlement Agreement, the balance of the unfunded liability attributable to the Pension Plan, which was previously reported with Pension and Retirement Obligations, was $35,870, of which $31,776 was attributable to accumulated other comprehensive loss. The market value of the 88,117 shares of stock issued to the PBGC from treasury on April 23, 2015 was $71. The Pension Settlement Obligation was recorded as a liability of the Company as of April 21, 2015 in the amount of $7,643, reflecting the present value of the installments at an interest rate 7%, which the Company believes represents the fair market interest rate for junior secured debt with similar secured terms of the Security Agreement. The unfunded Pension Plan liability of $35,870 exceeded the $7,714 combined value of the stock issued to the PBGC and the Pension Settlement Obligation by $28,156. There are no income tax consequences of the settlement since no tax deduction was taken for the pension expense that gave rise to the Pension Plan liability. Accordingly, the settlement of the Pension Plan Liabilities was recorded as of April 21, 2015 as follows: Unfunded Pension Plan Liability $35,870 Market value of common shares issued from treasury (71) Pension Settlement Obligation (7,643) Total consideration to PBGC (7,714) Total gain from settlement of Pension Plan Liabilities $28,156 Gain recorded as: Charge to statement of operations $(3,620) Other comprehensive Income 31,776 Contribution to total comprehensive income $28,156 After applying the first $1,500 installment made on May 1, 2015 and recording imputed interest expense at 7%, the balance of the Pension Settlement Obligation is recorded with liabilities on the Balance Sheet as follows as of October 2, 2015: Current portion of pension settlement obligation $534 Pension settlement obligation, net of current portion 5,624 Total Pension Settlement Obligation $6,158 As a result of the settlement of Pension Plan liabilities on April 21, 2015, the Companys only remaining pension obligation is the Supplemental Executive Retirement Plan (SERP). The Company recorded expense of $326 related to the Pension Plan for the first quarter prior to the Termination Agreement executed on April 21, 2015. Employer Contributions Through September 15, 2012, the Companys funding policy was to contribute to the Pension Plan trust amounts sufficient to satisfy regulatory funding standards, based upon independent actuarial valuations. Beginning in October 2012, the Company discontinued this policy in order to preserve the necessary liquidity for its operations. As a result, a lien in favor of the PBGC was placed against the assets of the Company to secure aggregate unpaid contributions which amounted to $6,979, including interest, as of January 15, 2015, which is the date the most recent contribution was due. However, under the Settlement Agreement all of the Pension Plans liabilities, including the unpaid contributions were settled for an amount substantially less than the total and the PBGC lien was withdrawn in favor of new consensual liens which are subordinate to the Companys senior lenders (see Settlement of Pension Plan Liabilities The Company is not currently required to fund the SERP. All benefit payments are made by the Company directly to those who receive benefits from the SERP. As such, these payments are treated as both contributions and benefits paid for reporting purposes. The Company expects to contribute and pay SERP benefits of approximately $435 in the next 12 months. Components of Net Periodic Benefit Expense Supplemental Executive Pension Plan Retirement Plan October 2, September 26, October 2, September 26, For the three months ended: 2015 2014 2015 2014 Service cost $- $- $- $- Interest cost - 569 44 55 Expected return on assets - (574) - - Amortization of actuarial loss - 101 17 12 Amortization of prior year service cost - - (12) (12) Net periodic benefit expense - 96 49 55 Insurance premium due PBGC - 208 - - $- $304 $49 $55 Supplemental Executive Pension Plan Retirement Plan October 2, September 26, October 2, September 26, For the nine months ended: 2015 2014 2015 2014 Service cost $- $- $- $- Interest cost 617 1,706 132 164 Expected return on assets (585) (1,724) - - Amortization of actuarial loss 195 304 51 37 Amortization of prior year service cost - - (36) (36) Net periodic benefit expense 227 286 147 165 Insurance premium due PBGC 99 326 - - $326 $612 $147 $165 For the three-month periods ended October 2, 2015 and September 26, 2014, the Company reclassified $0 and $101, respectively, of actuarial loss from accumulated other comprehensive loss that was included in pension expense in the statements of comprehensive loss for the same periods. For the nine-month periods ended October 2, 2015 and September 26, 2014, the Company reclassified $195 and $305, respectively, of actuarial loss from accumulated other comprehensive loss that was included in pension expense in the statements of comprehensive loss for the same periods. |
4. Debt
4. Debt | 9 Months Ended |
Oct. 02, 2015 | |
Notes | |
4. Debt | 4. Debt Mortgage Notes On October 3, 2014, the holder of the mortgage notes, a commercial bank, notified the Company that the liens placed on the Companys assets by the Pension Plan constituted an event of default under the mortgage note agreements. The commercial bank agreed to forbear from exercising any further remedies, other than suspension of advances under the working capital line of credit, until August 31, 2015 by which time the process of withdrawing the Pension Plan liens was completed in accordance with terms of the Settlement Agreement (see Note 3) curing the default. The agreement to forbear from exercising any further remedies was subject to the Company continuing to make debt service payments under the mortgage note agreements, the occurrence of no further adverse events in the condition of the Company and the Companys agreement to the incorporation of the financial covenants in the line of credit agreement as additional covenants in the mortgage note agreements effective immediately and continuing until the mortgage notes are paid in full. One of the covenants requires Spitz to maintain tangible net worth of at least $6,000 measured upon issuance of quarterly and annual financial statements. As of the end of the second and third quarters of 2014, Spitzs tangible net worth measured $5,914 and $5,801, respectively. As of December 31, 2014, Spitzs tangible net worth measured $5,744. The commercial bank granted a waiver of the event of default for the failure to maintain Spitzs tangible net worth of at least $6,000 as of the end of the second and third quarters of 2014 and as of December 31, 2014. At the end of each fiscal quarter of 2015 Spitz tangible net worth exceeded the $6,000 covenant compliance threshold. The Company believes that it will be in compliance with the additional covenants in future periods based on forecasts and management of intercompany accounts payable and receivable. Lines of Credit Because of cross default provisions, the October 3, 2014 notice of default under the mortgage notes included notification by the commercial bank that it is no longer obligated to make advances under its line-of-credit agreement with Spitz and its election to suspend future advances. In September 2015 the bank confirmed that the defaults were cured as a result of the settlement of the pension liabilities. As of October 2, 2015, there were no borrowings outstanding under the credit agreement and there have been no borrowings outstanding since February 2011. |
1. General (Policies)
1. General (Policies) | 9 Months Ended |
Oct. 02, 2015 | |
Policies | |
Basis of Presentation | Basis of Presentation The accompanying unaudited condensed consolidated financial statements of Evans & Sutherland Computer Corporation and subsidiaries (collectively, the Company or E&S) have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and notes necessary for a complete presentation of financial position, results of operations, and cash flows, in conformity with U.S. generally accepted accounting principles (US GAAP). This report on Form 10-Q should be read in conjunction with the Companys annual report on Form 10-K for the year ended December 31, 2014. The accompanying unaudited condensed consolidated balance sheets, statements of comprehensive income (loss), and statements of cash flows reflect all normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the Companys financial position, results of operations and cash flows. The results of operations for the three and nine months ended October 2, 2015 are not necessarily indicative of the results to be expected for the full year ending December 31, 2015. The Company operates on a calendar year with the first three fiscal quarters ending on the last Friday of the thirteenth week in the quarter. |
Revenue Recognition | Revenue Recognition Sales include revenues from system hardware and the related integrated software, database products and service contracts. The following methods are used to determine revenue recognition: Percentage of Completion In those arrangements where software is a significant component of the contract, the Company uses the percentage-of-completion method as described above. Completed Contract Multiple Element Arrangements Other Anticipated Losses |
Stock-based Compensation | Stock-Based Compensation Compensation cost for all stock-based awards is measured at fair value on the date of grant and is recognized over the service period for awards expected to vest. Determining the fair value of share-based awards at the grant date requires judgment, including estimating the value of share-based awards that are expected to be forfeited. Actual results and future estimates may differ from the Companys current estimates. |
Net Income (loss) Per Common Share | Net Loss Per Common Share Basic net loss per common share is computed based on the weighted-average number of common shares outstanding during the period. Diluted net loss per common share is computed based on the weighted-average number of common shares and dilutive common stock equivalents outstanding during the period. Stock options are considered to be common stock equivalents. When the Company incurs a loss, potentially dilutive common stock equivalents are excluded as their effect would be anti-dilutive, thereby decreasing the net loss per common share. |
Inventories, Net | Inventories, net Inventories consisted of the following: October 2, December 31, 2015 2014 Raw materials $6,992 $5,468 Work in process 1,106 1,678 Finished goods 217 233 Reserve for obsolete inventory (3,292) (3,216) Inventories, net $5,023 $4,163 |
1. General_ Inventories, Net_ S
1. General: Inventories, Net: Schedule of Inventory (Tables) | 9 Months Ended |
Oct. 02, 2015 | |
Tables/Schedules | |
Schedule of Inventory | Inventories consisted of the following: October 2, December 31, 2015 2014 Raw materials $6,992 $5,468 Work in process 1,106 1,678 Finished goods 217 233 Reserve for obsolete inventory (3,292) (3,216) Inventories, net $5,023 $4,163 |
2. Stock Option Plan_ Schedule
2. Stock Option Plan: Schedule of Stock Option Plan Activity (Tables) | 9 Months Ended |
Oct. 02, 2015 | |
Tables/Schedules | |
Schedule of Stock Option Plan Activity | A summary of activity in the stock option plan for the nine months ended October 2, 2015 follows (shares in thousands): Weighted- Average Number Exercise of Shares Price Outstanding as of beginning of the period 1,333 $2.08 Granted 211 0.36 Exercised - - Forfeited or expired (83) 7.26 Outstanding as of end of the period 1,461 1.53 Exercisable as of end of the period 1,063 $2.02 |
3. Employee Retirement Benefi13
3. Employee Retirement Benefit Plans: Schedule of Settlement of Pension Plan Liabilities (Tables) | 9 Months Ended |
Oct. 02, 2015 | |
Tables/Schedules | |
Schedule of Settlement of Pension Plan Liabilities | Unfunded Pension Plan Liability $35,870 Market value of common shares issued from treasury (71) Pension Settlement Obligation (7,643) Total consideration to PBGC (7,714) Total gain from settlement of Pension Plan Liabilities $28,156 Gain recorded as: Charge to statement of operations $(3,620) Other comprehensive Income 31,776 Contribution to total comprehensive income $28,156 After applying the first $1,500 installment made on May 1, 2015 and recording imputed interest expense at 7%, the balance of the Pension Settlement Obligation is recorded with liabilities on the Balance Sheet as follows as of October 2, 2015: Current portion of pension settlement obligation $534 Pension settlement obligation, net of current portion 5,624 Total Pension Settlement Obligation $6,158 |
3. Employee Retirement Benefi14
3. Employee Retirement Benefit Plans: Schedule of Net Periodic Benefit Expense (Tables) | 9 Months Ended |
Oct. 02, 2015 | |
Tables/Schedules | |
Schedule of Net Periodic Benefit Expense | Components of Net Periodic Benefit Expense Supplemental Executive Pension Plan Retirement Plan October 2, September 26, October 2, September 26, For the three months ended: 2015 2014 2015 2014 Service cost $- $- $- $- Interest cost - 569 44 55 Expected return on assets - (574) - - Amortization of actuarial loss - 101 17 12 Amortization of prior year service cost - - (12) (12) Net periodic benefit expense - 96 49 55 Insurance premium due PBGC - 208 - - $- $304 $49 $55 Supplemental Executive Pension Plan Retirement Plan October 2, September 26, October 2, September 26, For the nine months ended: 2015 2014 2015 2014 Service cost $- $- $- $- Interest cost 617 1,706 132 164 Expected return on assets (585) (1,724) - - Amortization of actuarial loss 195 304 51 37 Amortization of prior year service cost - - (36) (36) Net periodic benefit expense 227 286 147 165 Insurance premium due PBGC 99 326 - - $326 $612 $147 $165 |
1. General_ Inventories, Net_15
1. General: Inventories, Net: Schedule of Inventory (Details) - USD ($) $ in Thousands | Oct. 02, 2015 | Dec. 31, 2014 |
Details | ||
Raw Materials | $ 6,992 | $ 5,468 |
Work in process | 1,106 | 1,678 |
Finished goods | 217 | 233 |
Reserve for obsolete inventory | (3,292) | (3,216) |
Inventories, net | $ 5,023 | $ 4,163 |
1. General (Details)
1. General (Details) - USD ($) $ in Thousands | 9 Months Ended | ||||
Oct. 02, 2015 | Apr. 21, 2015 | Dec. 31, 2014 | Sep. 26, 2014 | Dec. 31, 2013 | |
Details | |||||
Pension Plan Settlement Agreement, Amount Payable | $ 10,500 | ||||
Pension Plan Settlement Agreement, Stock Payable | 88,117 | ||||
Pension Plan Settlement Agreement, Payment Schedule | The Company is no longer incurring expenses related to the terminated Pension Plan but is responsible for fixed annual installment payments of $750 to the PBGC | ||||
Cash and cash equivalents | $ 3,660 | $ 7,038 | $ 3,983 | $ 3,376 |
2. Stock Option Plan (Details)
2. Stock Option Plan (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Oct. 02, 2015 | Sep. 26, 2014 | Oct. 02, 2015 | Sep. 26, 2014 | |
Options Exercisable, Weighted Average Remaining Contractual Term | 3 years 7 months 17 days | |||
Options, Outstanding, Weighted Average Remaining Contractual Term | 5 years 11 days | |||
Options, Exercisable, Aggregate Intrinsic Value | $ 307 | $ 307 | ||
Options, Outstanding, Aggregate Intrinsic Value | 555 | $ 555 | ||
Method Used | Black-Scholes option-pricing model | |||
Risk-free interest rate | 0.91% | |||
Dividend yield | 0.00% | |||
Volatility | 343.00% | |||
Expected life | 3 years 6 months | |||
Total unrecognized share-based compensation cost | 37 | $ 37 | ||
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition | 2 years 1 month 6 days | |||
Allocated Share-based Compensation Expense | $ 10 | $ 4 | $ 30 | $ 12 |
Employee Stock Option | ||||
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized | 1,312,613 | 1,312,613 |
2. Stock Option Plan_ Schedul18
2. Stock Option Plan: Schedule of Stock Option Plan Activity (Details) shares in Thousands | 9 Months Ended |
Oct. 02, 2015$ / sharesshares | |
Details | |
Outstanding as of the beginning of the period | 1,333 |
Outstanding as of the beginning of the period, weighted average exercise price | $ / shares | $ 2.08 |
Granted | 211 |
Granted, weighted average exercise price | $ / shares | $ 0.36 |
Exercised | 0 |
Exercised, weighted average exercise price | $ / shares | $ 0 |
Forfeited or expired | (83) |
Forfeited or expired, weighted average exercise price | $ / shares | $ 7.26 |
Outstanding as of the end of the period | 1,461 |
Outstanding as of the end of the period, weighted average exercise price | $ / shares | $ 1.53 |
Exercisable as of the end of the period | 1,063 |
Exercisable as of the end of the period, weighted average exercise price | $ / shares | $ 2.02 |
3. Employee Retirement Benefi19
3. Employee Retirement Benefit Plans (Details) - USD ($) $ in Thousands | May. 01, 2015 | Apr. 23, 2015 | Oct. 02, 2015 | Sep. 26, 2014 | Oct. 02, 2015 | Sep. 26, 2014 | Apr. 21, 2015 | Jan. 15, 2015 |
Pension Plan Settlement Agreement, Amount Payable | $ 10,500 | |||||||
Pension Plan Settlement Agreement, Payment Schedule | $1,500 due within ten days following the effective date of the Settlement Agreement and the remainder paid in twelve annual installments of $750 beginning on October 31, 2015 | |||||||
Pension Plan Settlement Agreement, Stock Payable | 88,117 | |||||||
Stock issued pursuant to Pension Plan Settlement Agreement | 88,117 | |||||||
Pension Contributions | $ 1,500 | |||||||
Settled ERISA Liabilities | $ 46,000 | |||||||
Stock Issued During Period, Value, Other | $ 71 | |||||||
Pension Settlement Obligation, Interest Rate | 7.00% | |||||||
Lien against assets of the company for unpaid pension contributions | $ 6,979 | |||||||
Reclassification of pension expense to net income (loss) | $ 0 | $ 101 | $ 195 | $ 305 | ||||
Supplemental Executive Retirement Plan | ||||||||
Expected Future Benefit Payments, Next Twelve Months | 435 | 435 | ||||||
Intercreditor Agreement | ||||||||
Line of Credit Facility, Maximum Borrowing Capacity | 6,500 | 6,500 | ||||||
Second Intercreditor Agreement | ||||||||
Line of Credit Facility, Maximum Borrowing Capacity | $ 3,000 | $ 3,000 |
3. Employee Retirement Benefi20
3. Employee Retirement Benefit Plans: Schedule of Settlement of Pension Plan Liabilities (Details) - USD ($) $ in Thousands | Apr. 21, 2015 | Oct. 02, 2015 | Jul. 03, 2015 |
Details | |||
Unfunded Pension Plan Liability | $ 35,870 | ||
Market value of common shares issued from treasury | (71) | ||
Pension Settlement Obligation | (7,643) | $ (6,158) | |
Total consideration to PBGC | (7,714) | ||
Total gain from settlement of Pension Plan Liabilities | 28,156 | ||
Pension settlement | (3,620) | $ (3,620) | |
Other Comprehensive Income | 31,776 | 31,776 | |
Contribution to total comprehensive income | 28,156 | ||
Current portion of pension settlement obligation | 534 | 534 | |
Pension settlement obligation, net of current portion | $ 5,624 | 5,624 | |
Pension Settlement Obligation | $ 7,643 | $ 6,158 |
3. Employee Retirement Benefi21
3. Employee Retirement Benefit Plans: Schedule of Net Periodic Benefit Expense (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Oct. 02, 2015 | Sep. 26, 2014 | Oct. 02, 2015 | Sep. 26, 2014 | |
Pension Expenses for the period | $ 49 | $ 359 | $ 473 | $ 777 |
Pension Plan | ||||
Service cost | 0 | 0 | 0 | 0 |
Interest cost | 0 | 569 | 617 | 1,706 |
Expected return on assets | 0 | (574) | (585) | (1,724) |
Amortization of actuarial loss | 0 | 101 | 195 | 304 |
Amortization of prior year service cost | 0 | 0 | 0 | 0 |
Net periodic benefit cost | 0 | 96 | 227 | 286 |
Insurance premium due PBGC | 0 | 208 | 99 | 326 |
Pension Expenses for the period | 0 | 304 | 326 | 612 |
Supplemental Executive Retirement Plan | ||||
Service cost | 0 | 0 | 0 | 0 |
Interest cost | 44 | 55 | 132 | 164 |
Expected return on assets | 0 | 0 | 0 | 0 |
Amortization of actuarial loss | 17 | 12 | 51 | 37 |
Amortization of prior year service cost | (12) | (12) | (36) | (36) |
Net periodic benefit cost | 49 | 55 | 147 | 165 |
Insurance premium due PBGC | 0 | 0 | 0 | 0 |
Pension Expenses for the period | $ 49 | $ 55 | $ 147 | $ 165 |
4. Debt (Details)
4. Debt (Details) - USD ($) $ in Thousands | 9 Months Ended | |||
Oct. 02, 2015 | Dec. 31, 2014 | Sep. 26, 2014 | Jun. 27, 2014 | |
Debt Instrument, Covenant Description | One of the covenants requires Spitz to maintain tangible net worth of at least $6,000 measured upon issuance of quarterly and annual financial statements | |||
Spitz, Inc. | ||||
Tangible Net Worth | $ 5,744 | $ 5,801 | $ 5,914 |