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EXCEL - IDEA: XBRL DOCUMENT - EVANS & SUTHERLAND COMPUTER CORP | Financial_Report.xls |
EX-23.1 - EXHIBIT 23.1 - EVANS & SUTHERLAND COMPUTER CORP | v305276_ex23-1.htm |
EX-31.2 - EXHIBIT 31.2 - EVANS & SUTHERLAND COMPUTER CORP | v305276_ex31-2.htm |
EX-32.1 - EXHIBIT 32.1 - EVANS & SUTHERLAND COMPUTER CORP | v305276_ex32-1.htm |
EX-31.1 - EXHIBIT 31.1 - EVANS & SUTHERLAND COMPUTER CORP | v305276_ex31-1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2011
or
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________________ to ___________________________
Commission file number 0-8771
EVANS & SUTHERLAND COMPUTER CORPORATION
(Exact name of registrant as specified in its charter)
Utah | 87-0278175 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) | |
770 Komas Drive, Salt Lake City, Utah | 84108 | |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: 801-588-1000
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class
Common Stock, $0.20 par value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ¨ Yes x No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. ¨ Yes x No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes ¨ No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨ | Accelerated filer ¨ | Non-accelerated filer ¨ | Smaller reporting company x |
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act). o Yes x No
The aggregate market value of the voting and non-voting common stock of the registrant held by non-affiliates of the registrant as of July 1, 2011 the last business day of the registrant’s most recently completed second fiscal quarter was $715,121 based on the closing sale price of $0.27 as reported by the Over-the-Counter Market. Shares of common stock held by each executive officer and director and by each person who owns 5% or more of the outstanding common stock, based on Schedule 13D and 13G filings, have been excluded since such persons may be deemed affiliates. This determination of affiliate status is not necessarily a conclusive determination of affiliate status for other purposes.
The number of shares of the registrant’s Common Stock outstanding as of February 29, 2012 was 11,089,199.
DOCUMENTS INCORPORATED BY REFERENCE:
Certain information from the Registrant’s definitive proxy statement for the 2012 Annual Meeting of Shareholders is incorporated by reference into Part III hereof.
EVANS & SUTHERLAND COMPUTER CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2011
PART I | |||
iTEM 1. | BUSINESS | 4 | |
ITEM 2. | PROPERTIES | 7 | |
ITEM 3. | LEGAL PROCEEDINGS | 7 | |
ITEM 4. | RESERVED | 7 | |
PART II | |||
ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES | 8 | |
ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 9 | |
ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | 20 | |
iTEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND ACCOUNTING AND FINANCIAL DISCLOSURE | 44 | |
ITEM 9A. | CONTROLS AND PROCEDURES | 44 | |
ITEM 9B. | OTHER INFORMATION | 44 | |
PART III | |||
ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE | 45 | |
ITEM 11. | EXECUTIVE COMPENSATION | 45 | |
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS | 46 | |
ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE | 46 | |
ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES | 46 | |
pART IV | |||
ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES | 47 | |
SIGNATURES | 51 |
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PART I
ITEM 1. BUSINESS
Throughout this document Evans & Sutherland Computer Corporation may be referred to as “Evans & Sutherland,” “E&S,” “we,” “us,” “our” or the “Company.” All dollar amounts are in thousands unless otherwise indicated.
Evans & Sutherland was incorporated in the state of Utah on May 10, 1968. Our principal offices are located at 770 Komas Drive, Salt Lake City, Utah 84108, and our telephone number is (801) 588-1000. Through a link on our website, www.es.com, we make available, free of charge, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission (the “SEC”). We make our website content available for informational purposes only. The information provided on our website is not incorporated by reference into this Form 10-K and our website address is not intended to be a hyperlink. The above reports and other information are also available, free of charge, at www.sec.gov. Alternatively, the public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.
General
Evans & Sutherland focuses on the production of high-quality advanced visual display systems used primarily in full-dome video projection applications, dome projection screens, dome architectural treatments, and unique content for planetariums, schools, science centers, other educational institutions, and entertainment venues. With a 43-year history in computer graphics, we are widely regarded as both a pioneer and a leader in providing the world’s most compelling full-dome digital theater and planetarium systems as well as original full-dome shows. With our subsidiary, Spitz, Inc., and its over 60-year history as a leading supplier of planetarium systems, dome projection screens and other dome displays, E&S supplies premier total system solutions for its digital theater markets as well as customized domes and other unique geometric structures in the architectural market.
We continue to maintain a significant share of the overall planetarium and digital theater market. We estimate that our market share has ranged from 35% to 70%, depending on the specific market and time period. We estimate that the size of the market for digital theater and planetarium systems is approximately $65 million annually.
Description of Products
E&S offers a range of products and services primarily for dome and planetarium theaters in educational institutions, training, and entertainment venues. These products include state of the art planetarium and dome theater systems consisting of proprietary hardware and software, and other unique visual display systems primarily used to project digital video on large curved surfaces. We also produce unique show content both for our own library which we license to customers and for specific customer requirements for planetarium and dome theaters. Additionally we manufacture and install metal domes with customized optical coatings and acoustical properties that are used for planetarium and dome theaters as well as many other unique custom applications. Our dome engineering and manufacturing resources also design and supply geometrically complex structures for customized architectural treatments, often involving curved metal shapes with unique optical and acoustical properties.
Description of Markets
We are an industry leader in providing full-dome hardware and software to an international customer base in the digital theater, planetarium, entertainment, training and educational markets. In each of these markets we face highly competitive conditions where we compete on features, performance, and responsiveness to customer needs as well as on price. E&S is unique among its competitors by virtue of its capability as a single source that can directly supply and integrate all of the equipment in the planetarium theater, including the projection system, sound, lighting, computer control system and domed projection screen. We believe our range of visual systems and services at various price and performance levels, our research and development investments and capabilities, our responsiveness to customers, and our ability to design and manufacture value-added visual systems enable us to compete effectively. Our competitive strengths with visual systems and services aid the sale of our dome projection screens as customers often require a new dome projection screen with their visual system. We also believe our capabilities to design and manufacture domes and certain other architectural structures are very unique and enable us to compete effectively in all of the markets where these products are sold.
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Digital Theater
In the digital theater market our products compete with traditional optical-mechanical products and digital display systems offered by GOTO Optical Mfg. Co., Konica-Minolta Planetarium Co. Ltd., Carl Zeiss Inc., Global Immersion Limited and Sky-Skan, Inc. The Company’s digital display systems can be configured with our proprietary projector systems or standard commercial projectors similar to systems sold by our competitors. Our proprietary Digistar 4 full-dome digital system, along with other customized software tools differentiate our digital theater systems and compete favorably with competitive digital display systems. Our SciDome planetarium system, which uses a dome theater version of a retail desktop astronomy product with curriculum tools for teachers, creates a unique competitive advantage when targeting smaller classroom planetarium theaters.
Advanced Displays
Our capabilities and products sometimes are used for special advance display applications primarily for wide audiences in specialty theaters and other visitor attractions. This includes the integration of the most advanced video projectors with customized lenses, software and unique application techniques to serve customers who are in search of extraordinary display of visual content. Our competition in these markets includes various specialty audio visual systems integrators and alternative solutions using other technologies.
Domed Structures
Our Spitz subsidiary is the world's leading producer of domed projection screens. At Spitz we design, manufacture, and install domed projection screens used in planetarium theaters and a variety of other applications such as ride simulators, special or large format film theaters, simulation training systems and architectural treatments. We have developed proprietary dome products such as our NanoSeam dome which we believe provides the smoothest, most uniform projection surface available. Our experience with dome projection screens enables us to advise on the architectural integration of domed projection screens and solve complex optical problems involving reflectivity and image distortion on compound curved surfaces. We believe that these skills are important to buyers of domed projection screens. The principal customers in our dome business are entities in the entertainment, educational and commercial and military simulation markets. Customers include major theme parks, casinos, world expositions, museums, schools, and military defense contractors. There is currently one known domestic competitor that manufactures domed projection screens. In addition, construction or metal fabrication contractors occasionally supply domed projection screens, particularly in foreign markets. The structures we design and supply for architectural treatments are sold as complements to our dome screen products or into the architectural market for a wide variety of interesting venues. Competition for our architectural treatment products usually comes from construction or metal fabrication contractors often with an alternative design idea.
Intellectual Property
We own a significant number of patents and trademarks and we are a licensee under several others. Our portfolio of patents and trademarks, as a whole, contributes to our business. However, no one piece of intellectual property is critical to our business, thus no individual piece of our intellectual property is separately discussed. In the U.S. and internationally, we hold active patents that cover many aspects of our visualization technology. Several patent applications are presently pending in the U.S., Japan and several European countries, and other patent applications are in preparation. We actively pursue patents on our new technology and we intend to vigorously protect our patent rights. We often trademark key product names and brand names to protect our equity in the marketplace. We routinely copyright software, documentation and chip masks designed by us and institute copyright registration when appropriate. Currently we retain a total of 33 active U.S. patents, and have licenses to additional U.S. patents.
Research & Development
We consider the timely development and improvement of our technology to be essential to maintain our competitive position and to capitalize on market opportunities. We continue to fund essentially all research and development (“R&D”) efforts internally.
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R&D efforts continue to improve Digistar, our popular full-dome digital system and a key component to our planetarium and dome theater products. We are also exploring the possibility of other commercial applications for Digistar technology. We conduct ongoing R&D to improve the functionality of SciDome to keep pace with updated versions of the desktop software it emulates and to take advantage of the latest digital display and theater technology. Some noteworthy specific R&D activities for our advance display and planetarium products include the development of unique techniques to display three dimensional digital video and the expansion of educational curriculum tools to cover new subject matter in addition to astronomy such as chemistry and earth sciences. We continue to develop improvements to our dome products including optical coatings and ways to make the projection surface more uniform. There are also R&D efforts ongoing to enhance components of the systems we sell, such as improvements to theater lighting.
We continually work with the new digital projection technologies to develop advanced visual display systems primarily to be used by wide audiences in specialty theaters and other visitor attractions. This includes the integration of the most advanced video projectors with customized lenses, software and unique application techniques to serve customers who are in search of extraordinary display of visual content.
We retain resources sufficient to provide customer support for our proprietary Evans & Sutherland Laser Projector System (“ESLP”) but have significantly curtailed efforts to expand the capability of our laser projection products for other markets. However, we continue to explore the possible opportunities for our laser projector technology through partnering and licensing arrangements.
Dependence on Suppliers
Most of our current parts and assemblies are readily available through multiple sources in the open market; however, a limited number are available only from a single source. In these cases, we either stock adequate inventory to cover future product demands, obtain the agreement of the vendor to maintain adequate stock for future demands, or develop alternative components or sources where appropriate.
Employees
As of December 31, 2011, Evans & Sutherland and its subsidiaries employed a total of 99 persons of which 97 were employed fulltime.
Environmental Standards
We believe our facilities and operations are within standards fully acceptable to the Environmental Protection Agency and that all facilities and procedures are operated in accordance with environmental rules and regulations, and international, federal, state and local laws.
Strategic Relationships
In the normal course of business, we develop and maintain various types of relationships with key customers and technology partners. The teaming agreements are with industry partners and are intended to improve our overall competitive position. The product development agreements enhance our products by the cooperative development of new features and capabilities necessary to maintain our industry leading position.
Forward-Looking Statements and Associated Risks
This annual report, including all documents incorporated herein by reference, includes certain “forward-looking statements” within the meaning of that term in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act of 1934, as amended, including, among others, those statements preceded by, followed by or including the words “estimates,” “believes,” “expects,” “anticipates,” “plans,” “projects,” “intends,” “predicts,” “may,” “will,” “could,” “would,” “potential” and similar expressions or the negative of such terms. See Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Part II of this annual report on Form 10-K for a list of some of the forward-looking statements included in this Form 10-K.
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executive officers of the registrant
The following sets forth certain information regarding the executive officers of E&S as of December 31, 2011.
Name | Age | Position |
David H. Bateman | 69 | President, Chief Executive Officer and Director |
Paul L. Dailey | 55 | Chief Financial Officer and Corporate Secretary |
Bob Morishita | 61 | Vice President Human Resources |
Kirk D. Johnson | 50 | Vice President and General Manager of Digital Theater |
Jonathan A. Shaw | 55 | President and Chief Executive Officer of Spitz, Inc. |
David H. Bateman was appointed President and Chief Executive Officer of E&S in February 2007. Mr. Bateman joined E&S as Director of Business Operations in May 1998. He was appointed Vice President – Business Operations in March 2000 and Interim President and Chief Executive Officer and a member of the Board of Directors in June 2006.
Paul L. Dailey was appointed Chief Financial Officer and Corporate Secretary of E&S in February 2007. He became an executive officer of E&S in August 2006 when he was appointed Acting Chief Financial Officer and Corporate Secretary. Prior to his appointments at E&S, Mr. Dailey served as Executive Vice President, Chief Financial Officer and Corporate Secretary of E&S’s subsidiary, Spitz, Inc., where he started as Controller in 1983. Mr. Dailey is a Certified Public Accountant.
Bob Morishita was appointed Vice President of Human Resources in 2000. He joined E&S as Compensation Manager in 1982 and was appointed Human Resources Director in 1997.
Kirk Johnson was appointed Vice President and General Manager of Digital Theater in January 2002. He joined E&S in April 1990 and has held various engineering and management positions throughout his service at E&S.
Jonathan A. Shaw was appointed President and Chief Executive Officer of E&S’s subsidiary, Spitz, Inc. in November 2001 where he held various management positions since 1985.
ITEM 2. | Properties |
Our principal executive, engineering, manufacturing and operations facilities are located in the University of Utah Research Park in Salt Lake City, Utah, where we lease two buildings, which we previously owned, totaling approximately 68,000 square feet. The buildings are located on land leased from the University of Utah with an initial term of 40 years or longer. During 2009, we concluded a sale-leaseback of the buildings whereby the buildings have been sold and the land lease has been assigned to a third-party lender. We lease the land and our buildings from that lender on a 5-year lease term with the option to renew the lease for two additional 5-year lease terms. Because we also have the option to buy back the property and interest in the land lease during the term of the lease, the transaction was recorded as a financing and therefore the buildings and related improvements are still recorded as assets as of December 31, 2011.
Spitz owns and occupies an approximately 47,000 square-foot building on approximately 15.2 acres in Chadds Ford, Pennsylvania. The property serves as collateral under Spitz’s debt agreements through a mortgage granted to The Bryn Mawr Trust Company, a commercial bank.
item 3. | legal proceedings |
In the normal course of business, we may have various legal claims and other contingent matters. We know of no legal claims or other contingent matters outstanding that would have a material adverse effect on our consolidated financial condition, liquidity or results of operations.
item 4. | RESERVED |
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PART II
item 5. | market for registrant’s common equity, RELATED STOCKHOLDER MATTERS and issuer purchases of equity securities |
Our common stock trades on the Over-the-Counter Markets under the symbol “ESCC.” On February 29, 2012, there were approximately 585 holders of record of our common stock. Because brokers and other institutions hold many of our shares on behalf of shareholders, we are unable to estimate the total number of shareholders represented by these record holders.
We have never paid a cash dividend on our common stock and have used funds generated internally to operate our business. Currently we have an accumulated deficit. For the foreseeable future, we intend to follow our policy of retaining any future earnings to finance the development and growth of our business.
Additional information required by this item is incorporated by reference to the table captioned Securities Authorized for Issuance Under Equity Compensation Plans as of December 31, 2011 in Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters,” of Part III of this annual report on Form 10-K.
The table below presents the high and low sales prices per share as reported by the Over-the-Counter Markets, by quarter for 2011 and 2010. The quotations reflect inter-dealer prices, without retail mark-up, mark-down, or commission and may not necessarily represent actual transactions.
2011 | 2010 | |||||||||||||||
High | Low | High | Low | |||||||||||||
First Quarter | $ | 1.01 | $ | 0.55 | $ | 0.17 | $ | 0.10 | ||||||||
Second Quarter | 0.65 | 0.19 | 2.00 | 0.11 | ||||||||||||
Third Quarter | 0.75 | 0.10 | 1.01 | 0.43 | ||||||||||||
Fourth Quarter | 0.40 | 0.05 | 1.29 | 0.45 |
ITEM 6. | NOT APPLICABLE |
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item 7. | management’s discussion and analysis of financial condition and results of operations |
The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of our consolidated results of operations and financial condition. The discussion should be read in conjunction with our consolidated financial statements and notes included in Item 8, “Financial Statements and Supplementary Data,” of this annual report on Form 10-K. Information set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” includes forward-looking statements that involve risks and uncertainties. Many factors could cause actual results to differ materially from those contained in the forward-looking statements. See “Forward-Looking Statements” below for additional information concerning these items. All dollar amounts are in thousands unless otherwise indicated.
Executive Summary
Following an evaluation of our access to liquidity and capital resources and considering economic conditions, we concluded in early 2010 that we could no longer pursue our plans to expand our laser projector products into the wider high-end commercial display market. As a result, in March 2010, we began executing a plan to reduce our research and development activities to the minimum level to sustain the current digital theater business and the Evans & Sutherland Laser Projector (“ESLP”). We continue to reduce our overhead structure when feasible. This plan has significantly reduced our research and development activities and operating expenses, which limits opportunities for growth in the foreseeable future. However, we believe these actions are necessary to preserve liquidity resources for operations. We believe that with aggressive cost cutting efforts and, if necessary, use of our marketable securities, we will have sufficient liquidity to meet our obligations through at least the next twelve months. In the meantime, we continue to evaluate our strategies with the goal to preserve necessary resources and pursue worthwhile opportunities.
We intend to continue to aggressively pursue opportunities in the digital theater and other markets served by our products, including our continued support of the ESLP as well as the development and improvement of new innovative products such as Digistar for planetarium theaters. We will continue to develop and improve our planetarium products targeted for smaller venues in education markets such as our SciDome product. We intend to also continue development and improvement of our dome products used by planetarium theaters and many other varied applications. We also intend to continue the production of quality show content for planetarium theaters. We believe that the ability to include the wide range of complementary products in the systems we sell, along with access to the legacy customer base of E&S and our subsidiary, Spitz, Inc. (“Spitz”), provides a unique competitive advantage.
Revenue recorded in 2011 increased 3% compared to 2010 with a more significant improvement in gross profit. The revenue and gross profit increase was mostly attributable to strong fourth quarter revenue which resulted in fourth quarter net income of $865. As explained in more detail below under the caption “2011 Quarterly Results and Outlook for Sustained Profitability,” we have made significant progress but we do not believe the late 2011 results will be consistently sustainable considering our current expectations for future sales levels and our existing cost structure. We believe that results will be close to breakeven with expected future sales levels under our existing cost structure and we are in the process of evaluating several alternative strategies that will enable us to reach our goal of sustained profitability. The progress we have made is reflected in the operating expenses which were reduced significantly in early 2010. We expected the improvement in 2011 considering increased sales bookings and the effect of our cost cutting actions. The revenue backlog decreased to $17,449 as of December 31 2011 compared with $19,080 as of December 31, 2010. The decrease in revenue backlog is not expected to translate to lower sales in 2012 as it was attributable to the timing of revenue recognition and customer orders. We anticipate sufficient new orders to result in 2012 sales comparable to 2011. We are encouraged with the progress we have made and look forward to opportunities for more improvement in 2012 and beyond.
Our 2011 results were adversely affected by a $667 loss for the condemnation of a portion of our property through eminent domain whereby a public utility took possession of the property for public use. The public utility is required to pay fair value for the condemned property and this will be determined through negotiations or by legal proceedings. Although the condemnation increases our net loss, it will have a neutral or positive impact on near-term liquidity and cash flows to the extent of the consideration we ultimately receive. To date, the loss has produced no immediate cash effect and we believe we could potentially receive additional consideration of up to $400 in cash depending on the outcome of the negotiations and legal proceedings.
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Recurring losses have produced negative cash flows from operating activities and in recent years losses in the value of pension investments along with declining interest rates have increased our unfunded pension obligation with a corresponding adverse effect on our other comprehensive loss. As a result we have accumulated a stockholders’ deficit of $21,865 as of December 31, 2011. For 2012, we will expect a similar loss from operations and a lesser effect on other comprehensive loss from the measurement of the pension liability. The cost reductions we implemented in 2010 have significantly reduced our absorption of cash. Ultimately, the ability to generate sustained positive cash flows from future operating activities will depend on our ability to sustain sufficiently profitable sales of our products as well as our ability to further reduce overhead costs. In 2011, we made required cash payments to the pension trust of approximately $950. We anticipate approximately $2,000 to be paid in 2012 and comparable or increasing amounts in future years. The timing and amount of cash required to retire the pension obligations as they come due will depend on a number of factors including the return on pension trust investments, market interest rates, ongoing actuarial estimates and potential legislation that could affect required pension funding schedules. We believe existing sources of liquidity and results of operations will adequately fund our obligations through 2012 and into 2013. The longer term will depend on a sufficient stream of new orders with adequate customer progress payments and the ability of the Company to support its operations after reducing its resources. Beyond 2012, we may also be dependent on many factors that could affect the funding of our pension plan obligations.
Results of Operations
Consolidated Sales and Backlog
The following table summarizes our consolidated sales for fiscal year:
2011 | 2010 | |||||||
Sales | $ | 28,325 | $ | 27,481 |
Sales increased 3% from 2010 to 2011 due to a slight increase in the volume of orders and deliveries of all of our products. The increase was attributable to sales of domes for ride simulators and architectural treatments in the United States and Asia.
On December 31, 2011, our sales backlog was $17,449 compared with $19,080 as of December 31, 2010. The decrease is attributable to a high level backlog depleted by sales in the fourth quarter and the delay of some customer orders until January 2012. We anticipate that approximately 80% of the 2011 backlog will be converted to sales in 2012 and that we will receive sufficient new orders to produce total sales in 2012 comparable to 2011.
Gross Profit
The following table summarizes our gross profit and the percentage to total sales during fiscal year:
2011 | 2010 | |||||||
Gross profit | $ | 9,915 | $ | 9,114 | ||||
Gross profit percentage | 35 | % | 33 | % |
Our gross profit in 2011 was slightly improved as compared to 2010 due to improved performance on several customer projects. Margins suffered slightly from inventory impairment losses recorded in both years. We recorded losses on inventory impairment of $422 and $1,777 during 2011 and 2010, respectively, for obsolete and excess quantities of inventory primarily related to the ESLP.
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Operating Expenses
The following table summarizes our operating expenses during fiscal year:
2011 | 2010 | |||||||
Selling, general and administrative (excluding pension) | $ | 5,425 | $ | 6,600 | ||||
Research and development | 2,684 | 4,156 | ||||||
Pension | 2,543 | 1,827 | ||||||
Total operating expenses | $ | 10,652 | $ | 12,583 |
Selling, general and administrative expenses decreased by 15% compared to 2010 due to planned reductions in overhead costs and higher international sales commissions in 2010. Research and development expenses were 35% lower due to the planned reduction of research and development activities and overhead. The reductions to research and development were implemented in late March 2010 and cut resources to the minimum level to sustain the current digital theater business and the ESLP. Pension expense was higher in 2011, compared to 2010, due to higher settlement charges resulting from an increase in lump sum benefit payouts.
Other Income and Expense
The following table summarizes our other income and expense during fiscal year:
2011 | 2010 | |||||||
Interest expense | $ | (648 | ) | $ | (687 | ) | ||
Other income (expense) | 47 | (415 | ) |
Interest expense is due to the amortization of real estate financing in the form of mortgage notes and the sale/leaseback obligation. The change in other income (expense) is attributable to gains realized from the sale of marketable securities in 2011 as compared to losses in 2010.
Loss on Condemnation of Property and Equipment
The Company recorded a $667 loss on the condemnation of property and equipment as a result of Rocky Mountain Power (“RMP”) taking possession of a portion of our real property interest, known as the Substation, through its power of eminent domain. The loss consists of the Substation net book value of $819 less consideration of $152 received in the form of a reduction to the sale/leaseback financing obligation included with long-term debt. The loss of use of the Substation has had no adverse impact on the Company’s near term operations as RMP will continue to provide adequate power supply under public utility services. However, for the long term the Company expects its power costs will be greater than they would have been had it retained the Substation. We believe the Company could potentially receive additional cash consideration of up to $400 for the loss of the Substation pursuant to legal proceedings and the Company’s agreements with Wasatch Research Park I, LLC (“Wasatch”). The agreements with Wasatch and the disposition of the Substation are more fully described in Notes 7 and 12 of the consolidated financial statements.
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Income Taxes
Income tax expense consisted of state income taxes and was as follows:
2011 | 2010 | |||||||
Income tax expense | $ | (100 | ) | $ | (73 | ) |
State income tax expense was primarily due to state taxes incurred by Spitz in various jurisdictions due to normal business activity.
2011 Quarterly Results and Outlook for Sustained Profitability
Three Months Ended | ||||||||||||||||
April 1, | July 1, | September 30, | December 31, | |||||||||||||
2011 | 2011 | 2011 | 2011 | |||||||||||||
Sales | $ | 5,637 | $ | 6,582 | $ | 6,909 | $ | 9,197 | ||||||||
Cost of sales | 4,176 | 4,288 | 4,765 | 5,181 | ||||||||||||
Gross profit | 1,461 | 2,294 | 2,144 | 4,016 | ||||||||||||
Operating expenses: | ||||||||||||||||
Selling, general and administrative (excluding pension) | 1,291 | 1,390 | 1,381 | 1,363 | ||||||||||||
Research and development | 751 | 735 | 703 | 495 | ||||||||||||
Pension | 425 | 520 | 541 | 1,057 | ||||||||||||
Total operating expenses | 2,467 | 2,645 | 2,625 | 2,915 | ||||||||||||
Income (loss) from operations | (1,006 | ) | (351 | ) | (481 | ) | 1,101 | |||||||||
Loss on condemnation of property and equipment | - | - | (608 | ) | (59 | ) | ||||||||||
Other expense | (90 | ) | (173 | ) | (170 | ) | (168 | ) | ||||||||
Income (loss) before income taxes | (1,096 | ) | (524 | ) | (1,259 | ) | 874 | |||||||||
Income tax expense | (42 | ) | (25 | ) | (24 | ) | (9 | ) | ||||||||
Net income (loss) | $ | (1,138 | ) | $ | (549 | ) | $ | (1,283 | ) | $ | 865 |
The quarterly results of 2011 reflect a marked improvement in the results of operations in the fourth quarter which recorded net income of $865. Also notable is an increase in pension expense in the fourth quarter, which is attributable to greater than expected lump sum benefit payments, and the loss on condemnation of property plant and equipment in the third and fourth quarters. The profitable results in the fourth quarter demonstrate the potential of the business at higher sales levels and the effect of fluctuating pension expense. The higher sales levels in the fourth quarter are attributable to the timing of deliveries more than an increase in customer orders that we would need to sustain future revenues at a similar level as the fourth quarter. We continue to evaluate alternative strategies which may create opportunities for more sales and reduce our operating costs in order to reach our goal of sustained profitability.
12 |
Other Comprehensive Loss
The accumulated other comprehensive loss over the past two years has increased as follows:
2011 | 2010 | |||||||
Beginning balance | $ | (18,685 | ) | $ | (17,907 | ) | ||
Unrealized gains (losses) on marketable securities | (201 | ) | 679 | |||||
Increase in minimum pension liability | (8,245 | ) | (1,457 | ) | ||||
Ending balance | $ | (27,131 | ) | $ | (18,685 | ) |
The increase in accumulated other comprehensive loss has significantly increased our stockholders’ deficit. Most of the change consists of an increase in the minimum pension liability which is attributable to various factors affecting the actuarial measurement of the pension obligation. These factors include market interest rates used to discount the future payments of estimated benefits and the return on investments held in the pension trust. Declining market interest rates have lowered the discount rate which has significantly increased the measurement of the pension liability and other comprehensive loss. In the near future we expect to recognize much less of a change in accumulated other comprehensive loss. Our net periodic benefit cost will recognize $682 of accumulated other comprehensive loss as pension expense in 2012 earnings. It is also possible that we could experience other compressive income in the future which would decrease the accumulated other comprehensive loss and stockholders’ deficit. Economic conditions such as market investment returns and interest rates will continue to influence the measurement of our pension liability and could significantly affect our stockholders’ deficit through the balance in accumulated other comprehensive loss.
Liquidity and Capital Resources
Outlook
As discussed in the executive summary above, we have made significant progress in reducing the absorption of cash by operating activities. As a result, we believe existing liquidity resources and funds generated from forecasted revenue can meet our 2012 obligations. The outlook beyond 2012 depends on the continued success of the digital theater business and its ability to generate sufficient cash to meet our obligations, most significantly the pension obligation. The timing and amount of cash required to meet the pension obligation will depend on a number of factors including the return on pension trust investments, market interest rates, ongoing actuarial estimates and potential legislation that could affect required pension funding schedules. We continue to operate in a rapidly evolving and often unpredictable business environment that may change the timing or amount of expected future cash receipts and expenditures.
Cash Flow
Years Ended December 31, | ||||||||
Net cash and cash equivalents provided by (used in): | 2011 | 2010 | ||||||
Operating activities | $ | 3,227 | $ | (2,748 | ) | |||
Investing activities | 317 | 1,119 | ||||||
Financing activities | (636 | ) | 53 | |||||
Increase (decrease) in cash and cash equivalents | $ | 2,908 | $ | (1,576 | ) |
Cash and cash equivalents increased $2,908 to $3,932 during 2011, primarily as a result of cash provided by operating activities.
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Operating Activities
The net cash provided by operating activities in 2011 was attributable to changes in working capital of $2,972 plus an additional $255 provided by $2,360 of non-cash expenses offset by the $2,105 net loss. Significant changes in working capital that provided cash included a decrease in accounts receivable, an increase in customer progress payments and an increase in pension and retirement liabilities. The decrease in accounts receivable was mostly attributable to the collection of one significant account whereas the increase in customer progress payments is attributable to several customer orders. The increase in accrued pension and retirement liabilities reflects accumulating pension expense in excess of the required cash payments to the pension trust. Other changes in working capital in 2011 were due to differences in the timing of routine transactions.
The net cash used by operating activities in 2010 was attributable to cash used from changes in working capital of $1,556 plus non-cash expenses of $3,452 offsetting the $4,644 net loss. Significant changes in working capital that used cash included a decrease of customer progress payments, an increase in accounts receivable, and a decrease in accounts payable and accrued liabilities which were partially offset from the effects of an increase in pension and retirement liabilities and a decrease in inventory. The decrease in customer progress payments during 2010 was mostly attributable to revenue recorded on a project that had a large deposit carried over from 2009. The increase in accrued pension and retirement liabilities reflects accumulating pension expense while no cash payments to the pension trust were required due to credits for contributions made in prior years. Other changes in working capital in 2010 were due to differences in the timing of routine transactions.
Investing Activities
Investing activities provided $317 of cash during 2011 consisting of $603 of proceeds from the sale of marketable securities which was offset by $286 for purchases of property, plant and equipment.
Investing activities provided $1,119 of cash during 2010 consisting of $1,232 of proceeds from the sale of marketable securities which was offset by $113 for purchases of property, plant and equipment.
Financing Activities
Financing activities used $636 of cash during 2011 which included $500 to pay down the line of credit and $136 in principal payments on debt obligations.
Financing activities provided $53 of cash during 2010 which reflected $190 of borrowings on a line of credit offset by $137 in principal payments on debt obligations.
Credit Facilities
The Company is a party to a Credit Agreement with a commercial bank which permits borrowings of up to $1,100 to fund Spitz working capital requirements. Interest is charged on amounts borrowed at the Wall Street Journal Prime Rate. Borrowings under the Credit Agreement are secured by Spitz real and personal property and all of the outstanding shares of Spitz common stock. The Credit Agreement and Mortgage Notes contain cross default provisions whereby the default of either agreement will result in the default of both agreements. As of December 31, 2011 there was no amount outstanding under the Credit Agreement.
The ability to issue letters of credit and bank guarantees is important to our business. International sales are increasingly important to our business and in many countries, letters of credit and bank guarantees are required as part of sales contracts. Also, domestic sales sometimes require performance guarantees in the form of surety bonds. We have relationships with licensed surety companies to provide performance bonds subject to certain limitations and collateral which we must provide for security. Letters of credit and bank guarantees are issued to serve as collateral and to ensure our performance for these purposes.
The Company has finance arrangements which facilitate the issuance of letters of credit and bank guarantees. Under the terms of the arrangements, we are required to maintain a balance in a specific cash account equal to or greater than the outstanding value of all letters of credit or bank guarantees issued, plus other amounts necessary to adequately secure our obligations with the financial institution. As of December 31, 2011, we had outstanding letters of credit and bank guarantees of $1,414 of which $1,062 is scheduled to expire in 2012 and $352 is scheduled to expire in 2014.
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Mortgage Notes
Debt obligations include a first mortgage note payable which represents the balance on a $3,200 note (“First Mortgage Note”) issued on January 14, 2004 by Spitz. The First Mortgage Note requires repayment in monthly installments of principal and interest over 20 years. On each third anniversary of the First Mortgage Note, the interest rate is adjusted to the greater of 5.75% or 3% over the Three-Year Constant Maturity Treasury Rate published by the United States Federal Reserve (“3YCMT”). The monthly installment is recalculated on the first month following a change in the interest rate. The recalculated monthly installment is equal to the monthly installment sufficient to repay the principal balance, as of the date of the change in the interest rate, over the remaining portion of the original 20-year term. On January 14, 2010, the 3YCMT was 1.49% and the interest rate on the First Mortgage Note adjusted to 5.75% per annum. As a result of the interest rate adjustment, the monthly installment amount was changed from $26 to $23.
Debt obligations also include a second mortgage note payable which represents the balance on a $500 note (“Second Mortgage Note”) issued on September 11, 2008 by Spitz. The Second Mortgage Note requires repayment in monthly installments of principal and interest over 20 years. On each fifth anniversary of the Second Mortgage Note, the interest rate is adjusted to the greater of 5.75% or 3% over 3YCMT. The monthly installment is recalculated on the first month following a change in the interest rate. The recalculated monthly installment is equal to the monthly installment sufficient to repay the principal balance, as of the date of the change in the interest rate, over the remaining portion of the original 20-year term. The monthly installment for the first 5 years is $4 and includes interest at 5.75% per annum.
The Mortgage Notes are secured by the real property occupied by Spitz pursuant to a Mortgage and Security Agreement; the real property had a carrying value of $4,627 as of December 31, 2011. The Mortgage Notes are guaranteed by E&S.
Sale-Leaseback Financing
In November 2009, the Company completed a purchase agreement with a buyer, Wasatch Research Park I, LLC (“Wasatch”) to sell its corporate office buildings and its interest in the lease for the land occupied by the buildings in Utah for $2,500. Under the agreement, we transferred legal title of the buildings including improvements and assigned the related land lease to Wasatch. We also entered into a sublease agreement to lease back the land and building for rent of $501 per year, of which $126 represents the land lease and $375 represents the building lease. The sublease agreement has a term of 5 years with an option for two subsequent 5-year renewal periods. The agreement provided the Company with a 5-year option to repurchase all of the buildings under lease or only one of the buildings known as the Substation along with the lease interest in the land. In 2011, Rocky Mountain Power (“RMP”), a public utility company, obtained a decree of condemnation of the Substation so that RMP may repurpose the Substation for public use. As such, the Company no longer has the option to buy the Substation. The repurchase price for the buildings excluding the Substation for the remaining term of the repurchase option is as follows:
Date | |||||
From: | To: | Repurchase price: | |||
November 1, 2011 | October 31, 2012 | $ | 2,579 | ||
November 1, 2012 | October 31, 2013 | $ | 2,837 | ||
November 1, 2013 | October 31, 2014 | $ | 3,120 |
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The arrangement was accounted for as a financing and no sale was recorded because the Company has the right to repurchase the property. Therefore, the assets representing the building and improvements remain in property, plant and equipment and the Company recorded the net proceeds of the sale as long-term debt. The $126 portion of the sublease payment attributable to the land lease is equivalent to the payment under the assigned land lease and therefore is subject to the same rent escalations the Company was bound to before the assignment. The land lease portion of the sublease payment is recorded as rent expense consistent with the treatment of the prior land lease payment before the assignment of the lease. The $375 portion of the sublease agreement attributable to the building lease is accounted for as debt service under the financing transaction. The net proceeds of the financing amounted to $2,329 consisting of the $2,500 sales price less a security deposit of $125, prorated building rent of $15 and the first monthly payment of $31. We record interest expense at a rate of approximately 20% imputed from the estimated cash flows assuming we exercise the option to repurchase the property at the end of the 5-year term. In the event that we exercise the option to repurchase the property sooner than the end of the 5-year term, the difference between the book balance of the debt and the repurchase cost would be recorded as a prepayment premium or discount on the payoff of the debt balance. The cash payment required to repurchase the property on December 31, 2011 was $2,454 consisting of $2,579 repurchase price under the agreement less a credit for the $125 security deposit. Accordingly, if we had exercised our option to repurchase the property on December 31, 2011, we would have recorded a prepayment premium of approximately 1% in the amount of $26 over the $2,428 book balance of the debt.
Other
In 2012, we expect capital expenditures similar to 2011. There were no material capital expenditure commitments at the end of 2011, nor do we anticipate any over the next several years.
Our Board of Directors has authorized the repurchase of 1,600,000 shares of our common stock. As of February 28, 2012, 463,500 shares remained available for repurchase under the plans approved by the Board of Directors. No shares were repurchased during 2011 or 2010. Stock may be acquired on the open market or through negotiated transactions depending on market conditions, share price and other factors.
We also maintain trade credit arrangements with certain suppliers. The unavailability of a significant portion of, or the loss of, these trade credit arrangements from suppliers would have a material adverse effect on our financial condition and operations.
As of December 31, 2011, our total indebtedness was $5,291 on the mortgage notes, line of credit and sales-leaseback financing. Our cash, restricted cash and marketable securities, subject to various restrictions set forth in this annual report on Form 10-K, are available for working capital needs, capital expenditures, strategic investments, mergers and acquisitions, stock repurchases and other potential cash needs as they may arise.
Effects of Inflation
The effects of inflation were not considered material during the fiscal years ended 2011 and 2010, and are not expected to be material for the fiscal year ending 2012.
Application of Critical Accounting Estimates
The application of the accounting estimates discussed below is considered by management to be critical to an understanding of our consolidated financial statements. Their application places significant demands on management’s judgment, with financial reporting results relying on estimates about the effect of matters that are inherently uncertain. Specific risks for these critical accounting estimates are described in the following paragraphs. A summary of significant accounting policies can be found in Note 1, “Nature of Operations and Summary of Significant Accounting Policies,” of Item 8, “Financial Statements and Supplementary Data,” in this annual report on Form 10-K. For all of these policies, management cautions that future results rarely develop exactly as forecast, and the best estimates routinely require adjustment.
Revenue Recognition
Revenue from long-term contracts requiring significant production, modification and customization is recorded using the percentage-of-completion method. This method uses the ratio of costs incurred to management’s estimate of total anticipated costs. Our estimates of total costs include assumptions, such as man-hours to complete, estimated materials cost, and estimates of other direct and indirect costs. Actual results may vary significantly from our estimates. If the actual costs are higher than management’s anticipated total costs, then an adjustment is required to reduce the previously recognized revenue as the ratio of costs incurred to management’s estimate was overstated. If actual costs are lower than management’s anticipated total costs, then an adjustment is required to increase the previously recognized revenue as the ratio of costs incurred to management’s estimate is understated. Adjustments for revisions of previous estimates are made in the period they become known.
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Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts and Billings in Excess of Costs and Estimated Earnings on Uncompleted Contracts
Billings on uncompleted long-term contracts may be greater than or less than incurred costs and estimated earnings. As a result, these differences are recorded as an asset or liability on the balance sheet. Since revenue recognized on these long-term contracts includes management’s estimates of total anticipated costs, the amounts in costs and estimated earnings in excess of billings on uncompleted contracts and billings in excess of costs and estimated earnings on uncompleted contracts also include these estimates.
Inventories
Inventories includes materials at standard costs, which approximate average costs, as well as inventoried costs on programs (including material, labor, subcontracting costs, as well as an allocation of indirect costs). We periodically review inventories for excess supply, obsolescence, and valuations above estimated realizable amounts, and then provide a reserve we consider sufficient to cover these items. Reserve adequacy is based on estimates of future sales, product pricing, and requirements to complete projects. Revisions of these estimates would result in adjustments to our operating results.
Allowance for Doubtful Accounts
We specifically analyze accounts receivable and consider historical experience, customer creditworthiness, facts and circumstances specific to outstanding balances, current economic trends, and changes in payment terms when evaluating the adequacy of the allowance for doubtful accounts. Changes in these factors could result in material adjustments to the expense recognized for bad debts.
Income Taxes
As part of the process of preparing our consolidated financial statements we are required to estimate our actual income taxes in each of the jurisdictions in which we operate. This involves estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatments of items, such as accrued liabilities, for tax and accounting purposes. These differences result in deferred income tax assets and liabilities, which are included in our consolidated balance sheets. We must then assess the likelihood that our deferred income tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not likely, we must establish a valuation allowance. To the extent we establish a valuation allowance or increase or decrease this allowance in a period, we must include a corresponding adjustment within the income tax provision in the statement of operations. Significant judgment by management is required to determine our provision for income taxes, our deferred income tax assets and liabilities and any valuation allowance recorded against our net deferred income tax assets.
Impairment of Long- Lived Assets
Long-lived assets are reviewed for impairment when events or changes in circumstances indicate the book value of an asset may not be fully recoverable. When this occurs, we review the value assigned to long-lived assets by analyzing the anticipated, undiscounted cash flows they generate. When the expected future undiscounted cash flows from these assets do not exceed their carrying balances, the Company determines the estimated fair value of such assets. Impairment is recognized to the extent the carrying amount of the assets exceeds their estimated fair value. Assets held for sale are reported at the lower of their carrying amount or fair value less costs to sell.
Straight-Line Rent and Contingent Obligation
We recognize scheduled rent increases on a straight-line basis over the lease term, which may include optional lease renewal terms, and deferred rent income and expense is recognized to reflect the difference between the rent paid or received in the current period and the calculated straight-line amount.
Recent Accounting Pronouncements
In June 2011, the Financial Accounting Standards Board issued Accounting Standards Update No. 2011-05, which requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This guidance eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. The amendments do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The amendments should be applied retrospectively. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Early adoption is permitted, because compliance with the amendments is already permitted. The amendments do not require any transition disclosures. Adoption of this standard is expected to change the presentation of comprehensive income in the Company’s consolidated financial statements.
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Forward-Looking Statements
The foregoing contains “forward-looking statements” within the meaning of that term in Section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities Exchange Act of 1934, as amended, including among others, those statements preceded by, followed by or including the words “estimates,” “believes,” “expects,” “plans,” “projects,” and similar expressions.
These forward-looking statements include, but are not limited to, the following statements:
· | Our belief that our range of products and services at various price and performance levels, our research and development investments and capabilities, and our ability to design and manufacture products will enable us to compete effectively. | |
· | Our belief that our cost cutting actions were necessary to preserve liquidity resources for operations. | |
· | Our belief that with our cost cutting efforts and existing sources of liquidity, including marketable securities, operations will provide sufficient liquidity to meet our obligations through 2012 and into 2013. | |
· | Our belief that our ability to include the wide range of complementary products offered by E&S and Spitz in the systems we sell, along with access to the legacy customer base of E&S and Spitz, provides a unique competitive advantage. | |
· | Our belief that results would be close to breakeven with expected future sales levels under our existing cost structure. | |
· | Our belief that to attain sustained profitability we must exceed current sales expectations or take additional steps to reduce our cost structure. | |
· | Our belief that contributions from exceptionally large contracts are not expected to be recurring in every quarter but there are sales prospects which could potentially lead to significant impact in future quarters. | |
· | Our belief that the adoption of new accounting pronouncements will not have a material impact on our consolidated financial statements. | |
· | Our belief that our inventory obsolescence reserve is adequate and based on materially accurate estimates of future sales, product pricing, and requirements to complete projects. | |
· | Our belief that our estimates of total costs for customer contracts are materially accurate and include correct assumptions in computing such estimates, such as man-hours to complete, estimated materials cost, and estimates of other direct and indirect costs. | |
· | Our belief that our products are performing well, that we will meet all our delivery requirements, and as a result we will incur no damages or penalties for late deliveries in 2012. | |
· | Our belief that capital expenditures during 2012 will be similar to the capital expenditures incurred during 2011. | |
· | Our belief that any inherent risk that may exist in our foreign operations is not material. | |
· | Our belief that we will perform under the conditions of our letters of credit and therefore incur no losses with respect to these letters of credit in 2012 or future years. | |
· | Our belief that the effects of inflation will not be material for fiscal year 2012. |
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· | Our belief that most of our backlog will be converted to sales in 2012. | |
· | Our belief that our 2012 orders will continue at a level sufficient to sustain sales in 2012 comparable to 2011. | |
· | Our belief that we can continue to successfully implement a plan to reduce operating expenses to a level that will improve cash flow sufficiently to meet our 2012 obligations while sustaining our digital theater business with adequate support of the ESLP planetarium product. |
Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Future events and actual results could differ materially from those set forth in, contemplated by, or underlying the forward-looking statements. Our actual results could differ materially from these forward-looking statements. Important factors to consider in evaluating such forward-looking statements include risks of product demand, market acceptance, economic conditions, competitive products and pricing, difficulties in product development, and product delays. In light of these risks and uncertainties, there can be no assurance that the events contemplated by the forward-looking statements contained in this annual report will, in fact, occur.
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item 8. | financial statements and supplementary data |
consolidated balance sheets
(In thousands, except share data)
December 31, | ||||||||
2011 | 2010 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 3,932 | $ | 1,024 | ||||
Restricted cash | 1,062 | 1,162 | ||||||
Marketable securities | 1,666 | 2,376 | ||||||
Accounts receivable, net | 4,040 | 6,654 | ||||||
Costs and estimated earnings in excess of billings on uncompleted contracts | 1,456 | 2,094 | ||||||
Inventories, net | 3,624 | 3,515 | ||||||
Prepaid expenses and deposits | 720 | 1,289 | ||||||
Total current assets | 16,500 | 18,114 | ||||||
Property, plant and equipment, net | 8,303 | 9,592 | ||||||
Goodwill | 635 | 635 | ||||||
Intangible assets, net | 224 | 343 | ||||||
Other assets | 1,828 | 1,276 | ||||||
Total assets | $ | 27,490 | $ | 29,960 | ||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 1,490 | $ | 1,438 | ||||
Accrued liabilities | 1,749 | 2,873 | ||||||
Billings in excess of costs and estimated earnings on uncompleted contracts | 3,438 | 3,565 | ||||||
Customer deposits | 2,834 | 2,218 | ||||||
Current portion of retirement obligations | 560 | 604 | ||||||
Current portion of long-term debt | 155 | 648 | ||||||
Total current liabilities | 10,226 | 11,346 | ||||||
Pension and retirement obligations, net of current portion | 32,513 | 23,220 | ||||||
Long-term debt, net of current portion | 5,136 | 5,302 | ||||||
Deferred rent obligation | 1,480 | 1,454 | ||||||
Total liabilities | 49,355 | 41,322 | ||||||
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 | 54,433 | 54,385 | ||||||
Common stock in treasury, at cost, 352,467 shares | (4,709 | ) | (4,709 | ) | ||||
Accumulated deficit | (46,746 | ) | (44,641 | ) | ||||
Accumulated other comprehensive loss | (27,131 | ) | (18,685 | ) | ||||
Total stockholders’ deficit | (21,865 | ) | (11,362 | ) | ||||
Total liabilities and stockholders’ deficit | $ | 27,490 | $ | 29,960 | ||||
See notes to consolidated financial statements.
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consolidated statements of operations
(In thousands, except per share data)
Years Ended December 31, | ||||||||
2011 | 2010 | |||||||
Sales | $ | 28,325 | $ | 27,481 | ||||
Cost of sales | 18,410 | 18,367 | ||||||
Gross profit | 9,915 | 9,114 | ||||||
Operating expenses: | ||||||||
Selling, general and administrative (excluding pension) | 5,425 | 6,600 | ||||||
Research and development | 2,684 | 4,156 | ||||||
Pension | 2,543 | 1,827 | ||||||
Total operating expenses | 10,652 | 12,583 | ||||||
Operating loss | (737 | ) | (3,469 | ) | ||||
Interest expense | (648 | ) | (687 | ) | ||||
Loss on condemnation of property and equipment | (667 | ) | - | |||||
Other income (expense), net | 47 | (415 | ) | |||||
Loss before income tax provision | (2,005 | ) | (4,571 | ) | ||||
Income tax provision | (100 | ) | (73 | ) | ||||
Net loss | $ | (2,105 | ) | $ | (4,644 | ) | ||
Net loss per common share – basic and diluted: | $ | (0.19 | ) | $ | (0.42 | ) | ||
Weighted average common shares outstanding – basic and diluted | 11,089 | 11,089 |
See notes to consolidated financial statements.
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consolidated statements of stockholders’
DEFICIT and Comprehensive loss
(In thousands)
Accumulated | ||||||||||||||||||||||||||||
Additional | Other | |||||||||||||||||||||||||||
Common Stock | Paid-in | Treasury | Accumulated | Comprehensive | ||||||||||||||||||||||||
Shares | Amount | Capital | Stock | Deficit | Loss | Total | ||||||||||||||||||||||
Balance, January 1, 2010 | 11,442 | $ | 2,288 | $ | 54,355 | $ | (4,709 | ) | $ | (39,997 | ) | $ | (17,907 | ) | $ | (5,970 | ) | |||||||||||
Components of comprehensive loss: | ||||||||||||||||||||||||||||
Net loss | - | - | - | - | (4,644 | ) | - | (4,644 | ) | |||||||||||||||||||
Unrealized gains on marketable securities | - | - | - | - | - | 679 | 679 | |||||||||||||||||||||
Increase in minimum pension liability | - | - | - | - | - | (1,457 | ) | (1,457 | ) | |||||||||||||||||||
Total comprehensive loss | (5,422 | ) | ||||||||||||||||||||||||||
Stock-based compensation | - | - | 30 | - | - | - | 30 | |||||||||||||||||||||
Balance, December 31, 2010 | 11,442 | 2,288 | 54,385 | (4,709 | ) | (44,641 | ) | (18,685 | ) | (11,362 | ) | |||||||||||||||||
Components of comprehensive loss: | ||||||||||||||||||||||||||||
Net loss | - | - | - | - | (2,105 | ) | - | (2,105 | ) | |||||||||||||||||||
Unrealized losses on marketable securities | - | - | - | - | - | (201 | ) | (201 | ) | |||||||||||||||||||
Increase in minimum pension liability | - | - | - | - | - | (8,245 | ) | (8,245 | ) | |||||||||||||||||||
Total comprehensive loss | (10,551 | ) | ||||||||||||||||||||||||||
Stock-based compensation | - | - | 48 | - | - | - | 48 | |||||||||||||||||||||
Balance, December 31, 2011 | 11,442 | $ | 2,288 | $ | 54,433 | $ | (4,709 | ) | $ | (46,746 | ) | $ | (27,131 | ) | $ | (21,865 | ) |
See notes to consolidated financial statements.
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consolidated statements of cash flows
(In thousands)
Years Ended December 31, | ||||||||
2011 | 2010 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (2,105 | ) | $ | (4,644 | ) | ||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
Depreciation and amortization | 954 | 1,150 | ||||||
Provision for excess and obsolete inventory | 361 | 1,777 | ||||||
Loss on condemnation of property | 667 | - | ||||||
Other | 378 | 525 | ||||||
Changes in assets and liabilities: | ||||||||
Decrease in restricted cash | 100 | 435 | ||||||
Decrease (increase) in accounts receivable | 2,644 | (2,345 | ) | |||||
Decrease (increase) in inventories | (552 | ) | 1,867 | |||||
Decrease (increase) in costs and estimated earnings in excess of billings on uncompleted contracts, net | 511 | (123 | ) | |||||
Increase in prepaid expenses and other assets | (304 | ) | (639 | ) | ||||
Increase (decrease) in accounts payable | 52 | (150 | ) | |||||
Decrease in accrued liabilities | (1,099 | ) | (538 | ) | ||||
Increase in accrued pension and retirement liabilities | 1,004 | 1,202 | ||||||
Increase (decrease) in customer deposits | 616 | (1,265 | ) | |||||
Net cash provided by (used in) operating activities | 3,227 | (2,748 | ) | |||||
Cash flows from investing activities: | ||||||||
Purchases of property, plant and equipment | (286 | ) | (113 | ) | ||||
Proceeds from sale of marketable securities | 603 | 1,232 | ||||||
Net cash provided by investing activities | 317 | 1,119 | ||||||
Cash flows from financing activities: | ||||||||
Net borrowings on line-of-credit agreement | (500 | ) | 190 | |||||
Principal payments on long-term debt | (136 | ) | (137 | ) | ||||
Net cash provided by (used in) financing activities | (636 | ) | 53 | |||||
Net change in cash and cash equivalents | 2,908 | (1,576 | ) | |||||
Cash and cash equivalents at beginning of the year | 1,024 | 2,600 | ||||||
Cash and cash equivalents at end of the year | $ | 3,932 | $ | 1,024 | ||||
Non-cash investing and finance activities | ||||||||
Increase to minimum pension and retirement obligation | $ | 8,245 | $ | 1,457 | ||||
Unrealized gain (loss) on marketable securities | (201 | ) | 678 | |||||
Transfer of inventory to property, plant & equipment | 82 | - | ||||||
Reduction of long-term debt due to condemnation of property & equipment | 153 | - | ||||||
Supplemental disclosure of cash flow information | ||||||||
Cash paid during the year for: | ||||||||
Interest | $ | 547 | $ | 569 | ||||
Income taxes | 59 | 52 |
See notes to consolidated financial statements.
23 |
notes to consolidated financial statements
All dollar amounts are in thousands except share and per share information or unless otherwise indicated.
Note 1 - Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
Evans & Sutherland Computer Corporation, referred to in these notes as “Evans & Sutherland,” “E&S,” or the “Company,” produces high-quality advanced visual display systems used primarily in full-dome video projection applications, dome projection screens and dome architectural treatments. E&S also produces unique content for planetariums, schools, science centers and other educational institutions and entertainment venues. The Company’s products include state of the art planetarium and dome theater systems consisting of proprietary hardware and software, and other unique visual display systems primarily used to project digital video on large curved surfaces. Additionally, E&S manufactures and installs metal domes with customized optical coatings and acoustical properties that are used for planetarium and dome theaters as well as many other unique custom applications. The Company operates in one business segment, which is the visual simulation market.
Basis of Presentation
Evans & Sutherland’s fiscal year ends on December 31. The consolidated financial statements include the accounts of Evans & Sutherland and its wholly owned subsidiaries. All inter-company accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The accounting estimates that require management’s most difficult and subjective judgments include revenue recognition based on the percentage-of-completion method, inventory reserves, allowance for doubtful accounts, income tax valuation allowance, impairment of long-lived assets, pension and retirement obligations and useful lives of depreciable assets. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three or fewer months to be cash equivalents. The Company maintains cash balances in bank accounts that, at times, may exceed federally insured limits. The Company has not experienced any losses in these accounts and believes it is not exposed to any significant risk with respect to cash. As of December 31, 2011, cash deposits, including restricted cash, exceeded the federally insured limits by approximately $4,819.
Restricted Cash
Restricted cash that guarantees issued letters of credit that mature or expire within one year is reported as a current asset. Restricted cash that guarantees issued letters of credit that mature or expire in more than one year are reported as long-term other assets. There was $352 of restricted cash included in other assets as of December 31, 2011 and 2010.
Marketable Securities
The Company classifies its marketable debt and equity securities as available-for-sale. Available-for-sale securities are recorded at fair value. Unrealized holding gains and losses, net of the related tax effect, are excluded from earnings and are reported as a component of accumulated other comprehensive loss until realized. Dividend and interest income are recognized when earned. Realized gains and losses from the sale of securities are included in results of operations and are determined on the specific identification basis. A decline in the market value that is deemed other-than-temporary results in a charge to other income (expense) and the establishment of a new cost basis for the investment.
Trade Accounts Receivable
In the normal course of business, E&S provides unsecured credit terms to its customers. Accordingly, the Company maintains an allowance for doubtful accounts for possible losses on uncollectible accounts receivable. The Company routinely analyzes accounts receivable and costs and estimated earnings in excess of billings, and considers history, customer creditworthiness, facts and circumstances specific to outstanding balances, current economic trends, and changes in payment terms when evaluating the adequacy of the allowance for doubtful accounts. Changes in these factors could result in material differences to bad debt expense. Past due balances are determined based on contractual terms and are reviewed individually for collectability. Uncollectible accounts receivable are charged against the allowance for doubtful accounts only after exhaustive efforts have been made to collect.
24 |
notes to consolidated financial statements
The table below represents changes in E&S’s allowance for doubtful receivables during fiscal year:
2011 | 2010 | |||||||
Beginning balance | $ | 679 | $ | 965 | ||||
Recovery of accounts receivable | (179 | ) | - | |||||
Reduction in estimated losses on accounts receivable | (30 | ) | (286 | ) | ||||
Ending balance | $ | 470 | $ | 679 |
Inventories
Inventories include materials at standard costs, which approximate average costs, as well as inventoried costs on programs and long-term contracts. Inventoried costs include material, direct engineering and production costs, and applicable overhead, not in excess of estimated realizable value. Spare parts and general stock materials are stated at cost not in excess of realizable value. E&S periodically reviews inventories for excess supply, obsolescence, and valuations above estimated realizable amounts, and provide a reserve sufficient to cover these items. Revisions of these estimates could result in the need for adjustments.
During the years ended December 31, 2011 and 2010, E&S recognized losses on inventory impairment of $361 and $1,777 for obsolete and excess quantities of inventory, primarily related to the Evans & Sutherland Laser Projector.
Inventories as of fiscal year-end were as follows:
2011 | 2010 | |||||||
Raw materials | $ | 4,767 | $ | 7,016 | ||||
Work-in-process | 547 | 316 | ||||||
Finished goods | 571 | 1,144 | ||||||
Reserve for obsolete inventory | (2,261 | ) | (4,961 | ) | ||||
Total inventories, net | $ | 3,624 | $ | 3,515 |
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is computed using the straight-line method based on the estimated useful lives of the related assets. Expenditures that materially increase values or capacities or extend useful lives of property and equipment are capitalized. Leasehold improvements are assigned useful lives the shorter of their useful life or the term of the related lease, including renewal options likely to be exercised. Routine maintenance, repairs and renewal costs are expensed as incurred. When property is retired or otherwise disposed of, the book value of the property is removed from the fixed assets and the related accumulated depreciation accounts. Depreciation is included in cost of sales, research and development or selling, general and administrative expenses depending on the nature of the asset. The cost and estimated useful lives of property, plant and equipment and the total accumulated depreciation and amortization were as follows as of December 31:
Estimated | ||||||||||||
useful lives | 2011 | 2010 | ||||||||||
Land | n/a | $ | 2,250 | $ | 2,250 | |||||||
Buildings and improvements | 5 - 40 years | 9,717 | 11,638 | |||||||||
Manufacturing machinery and equipment | 3 - 8 years | 5,523 | 5,717 | |||||||||
Office furniture and equipment | 3 - 8 years | 779 | 789 | |||||||||
Total | 18,269 | 20,394 | ||||||||||
Less accumulated depreciation and amortization | (9,966 | ) | (10,802 | ) | ||||||||
Net property, plant and equipment | $ | 8,303 | $ | 9,592 |
25 |
notes to consolidated financial statements
Goodwill
The Company tests its recorded goodwill for impairment on an annual basis during the fourth quarter, or more often if indicators of potential impairment exist, by determining if the carrying value of each reporting unit exceeds its estimated fair value. Factors that could trigger impairment include, but are not limited to, underperformance relative to historical or projected future operating results, significant changes in the manner of use of the acquired assets or the Company’s overall business and significant negative industry or economic trends. Future impairment reviews may require write-downs in the Company’s goodwill and could have a material adverse impact on the Company’s operating results for the periods in which such write-downs occur.
Intangible Assets
E&S amortizes the cost of intangible assets over their estimated useful lives. Amortizable intangible assets are reviewed at least annually to determine whether events and circumstances warrant a revision to the remaining period of amortization.
Software Development Costs
Software development costs, if material, are capitalized from the date technological feasibility is achieved until the product is available for general release to customers. Such costs have not been material during the years presented.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment when events or changes in circumstances indicate the book value of an asset may not be fully recoverable. When this occurs, the Company reviews the value assigned to long-lived assets by analyzing the anticipated, undiscounted cash flows they generate. When the expected future undiscounted cash flows from these assets do not exceed their carrying balances, the Company determines the estimated fair value of such assets. Impairment is recognized to the extent the carrying amount of the assets exceeds their estimated fair value. Assets held for sale are reported at the lower of their carrying amount or fair value less costs to sell.
Warranty Reserve
E&S provides a warranty reserve for estimated future costs of servicing products under warranty agreements extending for periods from 90 days to one year. Anticipated costs for product warranties are based upon estimates derived from experience factors and are recorded at the time of sale or over the period revenues are recognized for long-term contracts. Warranty reserves are classified as accrued liabilities in the accompanying consolidated balance sheets.
Revenue Recognition
Sales includes revenue from system hardware, software, database products and service contracts. The following table provides information on revenue by recognition method applied during fiscal years:
2011 | 2010 | |||||||
Percentage-of-completion | $ | 16,632 | $ | 13,542 | ||||
Completed contract | 10,169 | 12,197 | ||||||
Other | 1,524 | 1,742 | ||||||
Total sales | $ | 28,325 | $ | 27,481 |
The following methods are used to compute revenue recognition:
Percentage-of-Completion. In arrangements that are longer in term and require significant production, modification or customization, revenue is recognized using the percentage-of-completion method. In applying this method, the Company utilizes cost-to-cost methodology whereby it estimates the percent complete by calculating the ratio of costs incurred (consisting of material, labor and subcontracting costs, as well as an allocation of indirect costs) to its estimate of total anticipated costs. This ratio is then utilized to determine the amount of gross profit earned based on its estimate of total gross profit at completion. The Company routinely reviews estimates related to percentage-of-completion contracts and adjusts for changes in the period the revisions are made. Billings on uncompleted percentage-of-completion contracts may be greater than or less than incurred costs and estimated earnings and are recorded as an asset or liability in the accompanying condensed consolidated balance sheets.
26 |
notes to consolidated financial statements
Completed Contract. Contract arrangements which typically require a relatively short period of time to complete the production, modification, and customization of products are accounted for using the completed contract method. Accordingly, revenue is recognized upon delivery of the completed product, provided persuasive evidence of an arrangement exists, title and risk of loss have transferred, the fee is fixed or determinable, and collection is probable.
Multiple Element Arrangements. Some contracts include multiple elements. Significant deliverables in such arrangements commonly include various hardware components of visual display systems, domes, show content and various service and maintenance elements. Revenue earned on elements such as products, services and maintenance contracts are allocated to each element based on the relative fair values of the elements. Relative fair values of elements are generally determined based on actual and estimated selling price. Delivery times of such contracts typically occur within a three to six month time period.
Other. Other revenue consists primarily of amounts earned under maintenance contracts that are generally sold as a single element to customers. Revenue from product maintenance contracts, including separately priced extended warranty contracts, is deferred and recognized over the period of performance under the contract.
Anticipated Losses. For contracts with anticipated losses at completion, a provision is recorded when the loss is probable. After an anticipated loss is recorded, subsequent revenue and cost of sales are recognized in equal, offsetting amounts as contract costs are incurred and do not generate further gross profits.
Net Income (Loss) per Common Share
Net income (loss) per common share is computed based on the weighted-average number of common shares and, as appropriate, dilutive common stock equivalents outstanding during the year. Stock options are common stock equivalents.
Basic income or loss per common share is based upon the average number of shares of common stock outstanding during the year. There were no dilutive shares in 2011 or 2010. Potentially dilutive securities from stock options are discussed in Note 10.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred income tax assets and liabilities are recognized for the future income tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases and operating loss and income tax credit carry-forwards. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in income tax rates is recognized in the period that includes the enactment date.
Other Comprehensive Loss
On a net basis for 2011 and 2010, there were deferred income tax assets resulting from items reflected in comprehensive loss. However, E&S has determined that it is more likely than not that it will not realize such net deferred income tax assets and has therefore established a valuation allowance against the full amount of the net deferred income tax assets. Accordingly, the net income tax effect of the items included in other comprehensive loss is zero. Therefore, the Company has included no income tax expense or benefit in relation to items reflected in other comprehensive loss.
The components of accumulated other comprehensive loss were as follows as of December 31:
2011 | 2010 | |||||||
Additional minimum pension liability | $ | (26,949 | ) | $ | (18,704 | ) | ||
Net unrealized holding gains (losses) on investments | (182 | ) | 19 | |||||
Total accumulated other comprehensive loss | $ | (27,131 | ) | $ | (18,685 | ) |
27 |
notes to consolidated financial statements
Leases
The Company recognizes scheduled rent increases on a straight-line basis over the lease term, which may include optional lease renewal terms, and deferred rent income and expense are recognized to reflect the difference between the rent paid or received in the current period and the calculated straight-line amount.
Recent Accounting Pronouncements
In June 2011, the Financial Accounting Standards Board issued Accounting Standards Update No. 2011-05, which requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This guidance eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. The amendments do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The amendments should be applied retrospectively. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Early adoption is permitted, because compliance with the amendments is already permitted. The amendments do not require any transition disclosures. Adoption of this standard is expected to change the presentation of comprehensive income in the Company’s consolidated financial statements.
Liquidity
Recurring losses have produced negative cash flows from operating activities and losses in the value of investments in late 2008 along with low market interest rates have increased E&S’s unfunded pension obligation. As a result, the Company has accumulated a stockholders’ deficit of $21,865 as of December 31, 2011 which has negatively affected its liquidity and capital resources. This pressure on near term liquidity and capital resources continues but has lessened in 2011 with cost reduction efforts that have improved the results of operations. After reductions in R&D activities and overhead costs, improved results have significantly reduced the Company’s use of cash in operating activities. Also marketable securities provide a liquid resource that is available if needed for working capital. The Company believes existing sources of liquidity and results of operations will adequately fund its obligations through 2012 and into 2013. This will continue to depend on a sufficient stream of new orders with adequate customer progress payments in 2012. There can be no assurance that the Company will be successful in these efforts. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Note 2 – Marketable Securities
As of July 2, 2010, the Company amended the terms of the trust used to fund the Supplemental Executive Retirement Plan (the “SERP”)(see Note 6 - Employee Retirement Benefit Plans). As a result, the marketable securities previously held in the trust are in a custodial account with the former trustee from which it continues to pay the SERP benefits and are available for other working capital requirements if necessary. The Company has classified its marketable securities as available for sale. Prior to the July 2, 2010 amendment, the investments were presented as long-term restricted marketable securities.
Realized gains on marketable securities totaled $94 and $319 for the years ended December 31, 2011 and 2010, respectively. The following tables summarize the Company’s marketable securities’ adjusted cost, gross unrealized gains (losses) and fair value:
28 |
notes to consolidated financial statements
December 31, 2011 | ||||||||||||||||
Adjusted | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
Mutual funds - equity securities | $ | 1,488 | $ | 15 | $ | (202 | ) | $ | 1,301 | |||||||
Mutual funds - debt securities | 309 | 8 | (3 | ) | 314 | |||||||||||
Money market mutual funds | 51 | - | - | 51 | ||||||||||||
Total | $ | 1,848 | $ | 23 | $ | (205 | ) | $ | 1,666 |
December 31, 2010 | ||||||||||||||||
Adjusted | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
Mutual funds - equity securities | $ | 1,859 | $ | 143 | $ | (139 | ) | $ | 1,863 | |||||||
Mutual funds - debt securities | 443 | 16 | (1 | ) | 458 | |||||||||||
Money market mutual funds | 55 | - | - | 55 | ||||||||||||
Total | $ | 2,357 | $ | 159 | $ | (140 | ) | $ | 2,376 |
The Company considers the declines in market value of its marketable securities to be temporary in nature. The investments consist of mutual funds selected according to an asset allocation policy of diversification and long-term growth. When evaluating the investments for other-than-temporary impairment, the Company reviews factors such as the length of time and extent to which fair value has been below cost basis, the financial condition of the issuer and any changes thereto, and the Company’s intent to sell the investment before recovery of the investment’s amortized cost basis. During the years ended December 31, 2011 and 2010, the Company did not recognize any other-than-temporary impairment charges on outstanding securities. As of December 31, 2011, the Company does not consider any of its investments to be other-than-temporarily impaired.
Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs according to valuation methodologies used to measure fair value:
Level 1—Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2—Observable inputs (other than Level 1) that are directly or indirectly observable in the marketplace.
Level 3—Unobservable inputs which are supported by little or no market activity.
Marketable securities are classified within Level 1 because the underlying investments have readily available market prices.
29 |
notes to consolidated financial statements
Marketable securities measured at fair value on a recurring basis are summarized below:
Description | December 31, 2011 | Level 1 | Level 2 | Level 3 | ||||||||||||
Assets: | ||||||||||||||||
Mutual funds - equity securities | $ | 1,301 | $ | 1,301 | $ | - | $ | - | ||||||||
Mutual funds - debt securities | 314 | 314 | - | - | ||||||||||||
Money market mutual funds | 51 | 51 | - | - | ||||||||||||
Total | $ | 1,666 | $ | 1,666 | $ | - | $ | - |
Description | December 31, 2010 | Level 1 | Level 2 | Level 3 | ||||||||||||
Assets: | ||||||||||||||||
Mutual funds - equity securities | $ | 1,863 | $ | 1,863 | $ | - | $ | - | ||||||||
Mutual funds - debt securities | 458 | 458 | - | - | ||||||||||||
Money market mutual funds | 55 | 55 | - | - | ||||||||||||
Total | $ | 2,376 | $ | 2,376 | $ | - | $ | - |
Note 3 – Definite-Lived Intangible Assets and Goodwill
Definite-lived intangible assets and goodwill consisted of the following as of December 31, 2011 and 2010:
December 31, | ||||||||||||||||||||
2011 | 2010 | |||||||||||||||||||
Class | Weighted Avg. Amortization Period in Years | Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | |||||||||||||||
Maintenance and legacy customers | 10 | $ | 350 | $ | (219 | ) | $ | 350 | $ | (185 | ) | |||||||||
Planetarium shows | 10 | 280 | (187 | ) | 280 | (161 | ) | |||||||||||||
Intellectual property rights | - | 350 | (350 | ) | 350 | (291 | ) | |||||||||||||
Total | 10 | $ | 980 | $ | (756 | ) | $ | 980 | $ | (637 | ) |
Amortization expense for the years ended December 31, 2011 and 2010 was $119 and $136, respectively.
Maintenance and legacy customers and planetarium shows represent the value of definite-lived intangibles that were identified in the acquisition of Spitz, Inc. (“Spitz”) in 2006. Also in 2006, the Company acquired certain intellectual property rights to protect the application of certain processes in the use of its products for cash payments totaling $350.
30 |
notes to consolidated financial statements
Estimated future amortization expense is as follows:
December 31, | ||||||||||||||||||||
Class | 2012 | 2013 | 2014 | 2015 | 2016 | |||||||||||||||
Maintenance and legacy customers | $ | 30 | $ | 30 | $ | 28 | $ | 28 | $ | 15 | ||||||||||
Planetarium shows | 25 | 22 | 20 | 14 | 12 | |||||||||||||||
Total | $ | 55 | $ | 52 | $ | 48 | $ | 42 | $ | 27 |
Goodwill of $635 resulted from the acquisition of the Company’s wholly owned subsidiary, Spitz, and was measured as the excess of the $2,884 purchase consideration paid over the fair value of the net assets acquired. The Company has made its annual assessment of impairment of goodwill and has concluded that goodwill is not impaired as of December 31, 2011.
Note 4 - Costs and Estimated Earnings on Uncompleted Contracts
Comparative information with respect to uncompleted contracts at fiscal year-end:
2011 | 2010 | |||||||
Total accumulated costs and estimated earnings on uncompleted contracts | $ | 20,117 | $ | 24,436 | ||||
Less total billings on uncompleted contracts | (22,099 | ) | (25,907 | ) | ||||
$ | (1,982 | ) | $ | (1,471 | ) |
The above amounts are reported in the consolidated balance sheets as follows:
2011 | 2010 | |||||||
Costs and estimated earnings in excess of billings on uncompleted contracts | $ | 1,456 | $ | 2,094 | ||||
Billings in excess of costs and estimated earnings on uncompleted contracts | (3,438 | ) | (3,565 | ) | ||||
$ | (1,982 | ) | $ | (1,471 | ) |
Note 5 - Leases
The Company occupies real property and uses certain equipment under lease arrangements that are accounted for as operating leases. The Company’s real property leases contain escalation clauses. Rental expense for all operating leases for 2011 and 2010 was $172 and $171, respectively.
Future minimum lease payments under operating leases that have initial or remaining non-cancelable lease terms in excess of one year are as follows:
Fiscal year | ||||
2012 | $ | 116 | ||
2013 | 131 | |||
2014 | 136 | |||
2015 | 136 | |||
2016 | 136 | |||
Thereafter | 2,510 | |||
Total | $ | 3,165 |
Note 6 - Employee Retirement Benefit Plans
Pension Plan
The Pension Plan is a qualified defined benefit pension plan funded by Company contributions. The Company’s funding policy is to contribute amounts sufficient to satisfy regulatory funding standards, based upon independent actuarial valuations. The Pension Plan was frozen in 2002. Benefits at normal retirement age (65) are based upon the employee’s years of service as of the date of the curtailment for employees not yet retired, and the employee’s compensation prior to the curtailment.
31 |
notes to consolidated financial statements
Supplemental Executive Retirement Plan
The Company maintains an unfunded Supplemental Executive Retirement Plan (“SERP”). The SERP provides eligible executives defined pension benefits, outside the pension plan, based on average salary, years of service and age at retirement. The SERP was amended in 2002 to discontinue further SERP gains from future salary increases and close the SERP to new participants.
401(k) Deferred Savings Plan
The Company has a deferred savings plan that qualifies under Section 401(k) of the Internal Revenue Code. The 401(k) plan covers all employees of the Company who have at least one year of service and who are age 18 or older. Matching contributions are made on employee contributions after the employee has achieved one year of service. Extra matching contributions can be made based on profitability and other financial and operational considerations. No extra matching contributions have been made to date. Contributions to the 401(k) plan for 2011 and 2010 were $170 and $172, respectively.
Executive Savings Plan
The Executive Savings Plan (“ESP”) was an unfunded nonqualified deferred compensation plan that had been in effect since 1995. The ESP provided management employees designated by the Board of Directors with the opportunity for supplemental tax-deferred retirement savings. Under the ESP, eligible employees made annual elections to contribute a portion of their cash compensation on a tax-deferred basis and received Company matching amounts with the same percentage limit as the qualified 401(k) plan. The ESP also provided participants with a supplemental death benefit. E&S purchased Company-owned life insurance policies insuring the lives of participants in the ESP which accumulated asset values to offset the deferred compensation liability and insure the potential cost of death benefits.
In 2011, the Board of Directors terminated the ESP. The termination eliminates the cost of matching contributions and insurance as well as the administration of the ESP. After the termination of the ESP in 2011, the Company surrendered the company-owned life policies and used the accumulated cash value proceeds to pay a portion of the deferred compensation liability to eligible plan participants. Remaining proceeds were invested in certificates of deposits held in a bank custodial account to supplement the payment of the remaining deferred compensation liability. The custodial account funds and cash value of Company-owned life insurance policies were recorded as prepaid expense and deposits of $339 and $843 as of December 31, 2011 and 2010, respectively. The liability for deferred compensation under the ESP was $524 and $959 as of December 31, 2011 and 2010, respectively, and was recorded with accrued liabilities. There were no contributions to the ESP in 2011 and 2010. The remaining deferred compensation liability of $524, which was frozen upon termination of the ESP, is expected to be paid to participants in 2012.
Obligations and Funded Status for Pension Plan and SERP
E&S uses a December 31 measurement date for both the Pension Plan and the SERP.
Information concerning the obligations, plan assets and funded status of employee retirement defined benefit plans are provided below:
Pension Plan | SERP | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Changes in benefit obligation | ||||||||||||||||
Projected benefit obligation at beginning of the year | $ | 44,802 | $ | 42,303 | $ | 5,544 | $ | 5,563 | ||||||||
Service cost | - | - | - | - | ||||||||||||
Interest cost | 2,110 | 2,299 | 257 | 294 | ||||||||||||
Actuarial loss | 7,498 | 2,850 | 480 | 314 | ||||||||||||
Benefits paid | (290 | ) | (317 | ) | (591 | ) | (627 | ) | ||||||||
Settlement payments | (3,510 | ) | (2,332 | ) | - | - | ||||||||||
Projected benefit obligation at end of the year | $ | 50,610 | $ | 44,803 | $ | 5,690 | $ | 5,544 |
32 |
notes to consolidated financial statements
Pension Plan | SERP | |||||||||||||||
Changes in plan assets | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Fair value of plan assets at beginning of the year | $ | 26,522 | $ | 26,700 | $ | - | $ | - | ||||||||
Actual return (loss) on plan assets | (442 | ) | 2,472 | - | - | |||||||||||
Contributions | 945 | - | 592 | 627 | ||||||||||||
Benefits paid | (290 | ) | (317 | ) | (592 | ) | (627 | ) | ||||||||
Settlements payments | (3,509 | ) | (2,332 | ) | - | - | ||||||||||
Fair value of plan assets at end of the year | $ | 23,226 | $ | 26,523 | $ | - | $ | - |
Net Amount Recognized | ||||||||||||||||
Unfunded status | $ | (27,384 | ) | $ | (18,280 | ) | $ | (5,689 | ) | $ | (5,544 | ) | ||||
Unrecognized net actuarial loss | 25,399 | 17,648 | 1,755 | 1,309 | ||||||||||||
Unrecognized prior service cost | - | - | (205 | ) | (253 | ) | ||||||||||
Net amount recognized | $ | (1,985 | ) | $ | (632 | ) | $ | (4,139 | ) | $ | (4,488 | ) |
Amounts recognized in the consolidated balance sheets consisted of:
Pension Plan | SERP | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Accrued liability | $ | (27,384 | ) | $ | (18,280 | ) | $ | (5,689 | ) | $ | (5,544 | ) | ||||
Accumulated other comprehensive loss | 25,399 | 17,648 | 1,550 | 1,056 | ||||||||||||
Net amount recognized | $ | (1,985 | ) | $ | (632 | ) | $ | (4,139 | ) | $ | (4,488 | ) |
Components of net periodic benefit cost:
Pension Plan | SERP | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Service cost | $ | - | $ | - | $ | - | $ | - | ||||||||
Interest cost | 2,110 | 2,299 | 257 | 294 | ||||||||||||
Expected return on assets | (2,003 | ) | (2,053 | ) | - | - | ||||||||||
Amortization of actuarial loss | 431 | 397 | 36 | 21 | ||||||||||||
Amortization of prior year service cost | - | - | (49 | ) | (49 | ) | ||||||||||
Settlement charge | 1,761 | 918 | - | - | ||||||||||||
Net periodic benefit cost | $ | 2,299 | $ | 1,561 | $ | 244 | $ | 266 |
Additional information
There was an increase to unrecognized net actuarial loss recorded in other comprehensive loss for the Pension Plan of $7,752 and $1,116 during 2011 and 2010, respectively, which arose from changes to the funded status of the Pension Plan obligations at the end of each year. During 2012, E&S expects to recognize $682 of accumulated other comprehensive loss as a component of 2012 net periodic benefit cost.
There was an increase to the SERP minimum liability recorded in other comprehensive income of $493 and $340 during 2011 and 2010, respectively, which arose from changes to the funded status of SERP obligations at the end of each year.
Assumptions
The weighted average assumptions used to determine benefit obligations and net periodic cost as of December 31, 2011 and 2010, included a discount rate of 3.8% and 4.9%, respectively, in each period for the Pension Plan and SERP. The weighted average assumption used to determine an expected long-term rate of return on Pension Plan assets was 8.0%.
33 |
notes to consolidated financial statements
The long-term rate of return on plan assets was estimated as the weighted average of expected return of each of the asset classes in the target allocation of plan assets. The expected return of each asset class is based on historical market returns.
Pension Plan Assets
The Pension Plan’s weighted-average asset allocations and weighted-average targeted asset allocations for each of the years presented are as follows:
2011 | 2011 | 2010 | ||||||||||
Asset allocation category of plan assets | Target % | Actual % | Actual % | |||||||||
Mutual funds - equity securities | 60 | 57 | 61 | |||||||||
Mutual funds - debt securities | 25 | 24 | 23 | |||||||||
Real estate investment trust | 5 | 7 | 5 | |||||||||
Hedge funds | 10 | 12 | 11 |
The asset allocation policy, consistent with the long-term growth objectives of the Pension Plan, is to invest on a diversified basis among various asset classes as determined by the Pension Plan Administrative Committee. Assets will be invested in a manner that will provide for long-term growth with a goal to achieve returns equal to or greater than applicable benchmarks. Investments will be managed by registered investment advisors.
No securities of the Company were part of the Pension Plan assets as of December 31, 2011 or 2010.
Fair Value Measurements
The pension plan assets include a significant amount of mutual funds invested in equity and debt securities that are classified within Level 1 because the underlying investments have readily available market prices. Fair values of real estate investments within the real estate investment trust are valued using real estate valuation techniques and other methods that include reference to third-party sources and sales comparables where available. Hedge fund investments are classified in Level 2 and the fair values are generally calculated from pricing models with market input parameters from third-party sources. The pension plan assets fair value measurements are summarized below:
Description | December 31, 2011 | Level 1 | Level 2 | Level 3 | ||||||||||||
Pension Plan Assets: | ||||||||||||||||
Mutual funds - equity securities | $ | 13,208 | $ | 13,208 | $ | - | $ | - | ||||||||
Mutual funds - debt securities | 5,381 | 5,381 | - | - | ||||||||||||
Real estate investment trust | 1,630 | - | - | 1,630 | ||||||||||||
Hedge fund | 2,667 | - | 2,667 | - | ||||||||||||
Money market mutual funds | 340 | 340 | - | - | ||||||||||||
Total | $ | 23,226 | $ | 18,929 | $ | 2,667 | $ | 1,630 |
34 |
notes to consolidated financial statements
Description | December 31, 2010 | Level 1 | Level 2 | Level 3 | ||||||||||||
Pension Plan Assets: | ||||||||||||||||
Mutual funds - equity securities | $ | 16,058 | $ | 16,058 | $ | - | $ | - | ||||||||
Mutual funds - debt securities | 6,010 | 6,010 | - | - | ||||||||||||
Real estate investment trust | 1,442 | - | - | 1,442 | ||||||||||||
Hedge fund | 2,725 | - | 2,725 | - | ||||||||||||
Money market mutual funds | 288 | 288 | - | - | ||||||||||||
Total | $ | 26,523 | $ | 22,356 | $ | 2,725 | $ | 1,442 |
The following table provides further details of the Level 3 fair value measurements.
Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | December 31, | |||||||
Pension Plan Assets – Real estate investment trust: | 2011 | 2010 | ||||||
Beginning balance | $ | 1,442 | $ | 1,142 | ||||
Actual return on plan assets – gain (loss) | (91 | ) | (100 | ) | ||||
Purchases, sales, issuances and settlements (net) | 50 | 400 | ||||||
Ending balance | $ | 1,401 | $ | 1,442 |
Cash Flow
Employer contributions
The Company’s funding policy is to contribute amounts sufficient to satisfy regulatory funding standards, based upon independent actuarial valuations. E&S expects to make contributions of approximately $2,030 to the Pension Plan in 2012.
The Company is not currently required to fund the SERP. All benefit payments are made by E&S 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 previously had marketable securities invested in a trust intended to fund the SERP obligations. As of July 2, 2010, the Company amended the terms of the trust used to fund the SERP. As a result, the marketable securities previously held in the trust are in a custodial account with the former trustee from which it continues to pay the SERP benefits and are available for other working capital requirements, if necessary. The Company has classified these investments as marketable securities. Prior to the July 2, 2010 amendment, the investments were presented as restricted marketable securities.
The Company expects to contribute and pay benefits of approximately $560 related to the SERP in 2012. This contribution is expected to be made by liquidating marketable securities.
35 |
notes to consolidated financial statements
Estimated future benefit payments
The following benefit payments are expected to be paid based on actuarial estimates and prior experience:
Pension | ||||||||
Fiscal years | Plan | SERP | ||||||
2012 | $ | 2,893 | $ | 560 | ||||
2013 | 2,426 | 531 | ||||||
2014 | 3,418 | 523 | ||||||
2015 | 2,941 | 533 | ||||||
2016 | 3,518 | 502 | ||||||
2017-2021 | 18,565 | 2,104 |
Note 7 –Debt
Long-term debt consisted of the following as of December 31:
2011 | 2010 | |||||||
First mortgage note payable due in monthly installments of $23 including interest at 5.75% through January 1, 2024; payment and rate subject to adjustment every 3 years, next adjustment January 14, 2013 | $ | 2,407 | $ | 2,529 | ||||
Second mortgage note payable due in monthly installments of $4 including interest at 5.75% through October 1, 2028; payment and rate subject to adjustment every 5 years, next adjustment October 1, 2013 | 456 | 470 | ||||||
Revolving credit note payable, interest at Wall Street Journal Prime Rate of 3.25% | - | 500 | ||||||
Sale/leaseback financing | 2,428 | 2,451 | ||||||
Total debt | 5,291 | 5,950 | ||||||
Current portion of long-term debt | (155 | ) | (648 | ) | ||||
Long-term debt, net of current portion | $ | 5,136 | $ | 5,302 |
Principal maturities on total debt are scheduled to occur in the following years:
2012 | $ | 155 | ||
2013 | 165 | |||
2014 | 2,603 | |||
2015 | 186 | |||
2016 | 196 | |||
Thereafter | 1,986 | |||
Total debt | $ | 5,291 |
36 |
notes to consolidated financial statements
Mortgage Notes
The first mortgage note payable represents the balance on a $3,200 note (“First Mortgage Note”) issued on January 14, 2004 by Spitz. The First Mortgage Note requires repayment in monthly installments of principal and interest over 20 years. On each third anniversary of the First Mortgage Note, the interest rate is adjusted to the greater of 5.75% or 3% over the Three-Year Constant Maturity Treasury Rate published by the United States Federal Reserve (“3YCMT”). The monthly installment is recalculated on the first month following a change in the interest rate. The recalculated monthly installment is equal to the monthly installment sufficient to repay the principal balance as of the date of the change in the interest rate over the remaining portion of the original 20-year term. On January 14, 2010, the 3YCMT was 1.49% and the interest rate on the First Mortgage Note adjusted to 5.75% per annum. As a result of the interest rate adjustment, the monthly installment amount was changed from $26 to $23.
The second mortgage note payable represents the balance on a $500 note (“Second Mortgage Note”) issued on September 11, 2008 by Spitz. The Second Mortgage Note requires repayment in monthly installments of principal and interest over 20 years. On each fifth anniversary of the Second Mortgage Note, the interest rate is adjusted to the greater of 5.75% or 3% over 3YCMT. The monthly installment is recalculated on the first month following a change in the interest rate. The recalculated monthly installment is equal to the monthly installment sufficient to repay the principal balance, as of the date of the change in the interest rate, over the remaining portion of the original 20-year term. The monthly installment for the first 5 years is $4 and includes interest at 5.75% per annum.
The Mortgage Notes are secured by the real property occupied by Spitz pursuant to a Mortgage and Security Agreement. The real property had a carrying value of $4,627 as of December 31, 2011. The Mortgage Notes are guaranteed by E&S.
Line of Credit
The Company is a party to a Credit Agreement with a commercial bank which permits borrowings of up to $1,100 to fund Spitz working capital requirements. Interest is charged on amounts borrowed at the Wall Street Journal Prime Rate. Borrowings under the Credit Agreement are secured by Spitz real and personal property and all of the outstanding shares of Spitz common stock. The Credit Agreement and Mortgage Notes contain cross default provisions whereby the default of either agreement will result in the default of both agreements. The Credit Agreement has no fixed term or maturity date but can be terminated by the bank at any time whereby any borrowings under the Credit Agreement are payable upon demand by the bank. The weighted average balance for borrowings outstanding under the Credit Agreement was $342 for 2010 and the weighted average interest rate charged on borrowings outstanding under the Credit Agreement was 3.25% for 2010. There were no borrowings outstanding under the Credit Agreement during 2011.
Sale/Leaseback Financing
In November 2009, the Company completed a purchase agreement with a buyer, Wasatch Research Park I, LLC (“Wasatch”) to sell its corporate office buildings and its interest in the lease for the land occupied by the buildings in Utah for $2,500. Under the agreement, E&S transferred legal title of the buildings including improvements and assigned the related land lease to Wasatch. E&S also entered into a sublease agreement to lease back the land and building for rent of $501 per year, of which $126 represents the land lease and $375 represents the building lease. The sublease agreement has a term of 5 years with an option for two subsequent 5 year renewal periods. The agreement provided the Company with a 5-year option to repurchase all of the buildings under lease or only one of the buildings known as the Substation along with the lease interest in the land. In 2011, Rocky Mountain Power (“RMP”), a public utility company, obtained a decree of condemnation of the Substation so that RMP may repurpose the Substation for public use (see Note 12). As such the Company no longer has the option to buy the Substation.
37 |
notes to consolidated financial statements
The repurchase price for the buildings excluding the Substation for the remaining term of the repurchase option is as follows:
Date | ||||||||
From: | To: | Repurchase price: | ||||||
November 1, 2011 | October 31, 2012 | $ | 2,579 | |||||
November 1, 2012 | October 31, 2013 | $ | 2,837 | |||||
November 1, 2013 | October 31, 2014 | $ | 3,120 |
The arrangement was accounted for as a financing and no sale was recorded because the Company has the right to repurchase the property. Therefore, the assets representing the building and improvements remain in property, plant and equipment and the Company recorded the net proceeds of the sale as long-term debt. The $126 portion of the sublease payment attributable to the land lease is equivalent to the payment under the assigned land lease and therefore is subject to the same rent escalations the Company was bound to before the assignment. The land lease portion of the sublease payment is recorded as rent expense consistent with the treatment of the prior land lease payment before the assignment of the lease. The $375 portion of the sublease agreement attributable to the building lease is accounted for as debt service under the financing transaction. The net proceeds of the financing amounted to $2,329 consisting of the $2,500 sales price less a security deposit of $125, prorated building rent of $15 and the first monthly payment of $31. E&S records interest expense at a rate of approximately 20% imputed from the estimated cash flows assuming it exercises the option to repurchase the property at the end of the 5-year term. In the event that E&S exercises the option to repurchase the property sooner than the end of the 5-year term, the difference between the book balance of the debt and the repurchase cost would be recorded as a prepayment premium or discount on the payoff of the debt balance. The cash payment required to repurchase the property on December 31, 2011 was $2,454 consisting of $2,579 repurchase price under the agreement less a credit for the $125 security deposit. Accordingly, if the Company had exercised its option to repurchase the property on December 31, 2011, it would have recorded a prepayment premium of approximately 1% in the amount of $26 over the $2,428 book balance of the debt.
Note 8 - Income Taxes
The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company is subject to audit by the IRS and various states for tax years dating back to 2008. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense.
Income tax expense for 2011 and 2010 consisted of $100 and $73, respectively, of state income taxes. The actual expense differs from the expected tax (expense) benefit as computed by applying the U.S. federal statutory income tax rate of 34 percent, during fiscal year:
2011 | 2010 | |||||||
Tax (expense) benefit at U.S. federal statutory rate | $ | 682 | $ | 1,551 | ||||
State taxes (net of federal income tax benefit) | - | 155 | ||||||
Change in cash surrender value of life insurance | (197 | ) | (6 | ) | ||||
Change in valuation allowance attributable to operations | (520 | ) | (1,272 | ) | ||||
Other, net | (65 | ) | (501 | ) | ||||
Tax expense | $ | (100 | ) | $ | (73 | ) |
38 |
notes to consolidated financial statements
The tax effects of temporary differences that give rise to significant portions of the deferred income tax assets and liabilities as of fiscal year-end:
2011 | 2010 | |||||||
Deferred income tax assets: | ||||||||
Plant and equipment, principally due to differences in depreciation | $ | 662 | $ | 630 | ||||
Inventory reserves and other inventory related temporary basis differences | 357 | 1,481 | ||||||
Warranty, vacation, deferred rent and other liabilities | 970 | 1,631 | ||||||
Retirement liabilities | 1,614 | 1,750 | ||||||
Net operating loss carryforwards | 65,356 | 62,903 | ||||||
Credit carryforwards | 1,428 | 1,428 | ||||||
Other | 955 | 999 | ||||||
Total deferred income tax assets | 71,342 | 70,822 | ||||||
Less valuation allowance | (71,342 | ) | (70,822 | ) | ||||
Net deferred income tax assets | - | - | ||||||
Deferred income tax liabilities: | ||||||||
Total deferred income tax liabilities | - | - | ||||||
Net deferred income tax assets and liabilities | $ | - | $ | - |
Worldwide loss before income taxes consisted of the following:
2011 | 2010 | |||||||
United States | $ | (2,005 | ) | $ | (4,561 | ) | ||
Foreign | - | (10 | ) | |||||
Total | $ | (2,005 | ) | $ | (4,571 | ) |
Income tax (expense) benefit consisted of the following:
2011 | 2010 | |||||||
Current | ||||||||
U.S. federal | $ | - | $ | - | ||||
State | (100 | ) | (73 | ) | ||||
Foreign | - | - | ||||||
Total | $ | (100 | ) | $ | (73 | ) | ||
Deferred | ||||||||
U.S. federal | $ | 235 | $ | 1,069 | ||||
State | 285 | 203 | ||||||
Foreign | - | - | ||||||
Total | 520 | 1,272 | ||||||
Valuation allowance increase | (520 | ) | (1,272 | ) | ||||
Total | $ | - | $ | - |
E&S has total federal net operating loss carryforwards of approximately $170,000 which expire from 2012 through 2031. The Company has various federal tax credit carryforwards of approximately $1,400, a portion of which expire between 2012 and 2016. E&S also has state net operating loss carryforwards of approximately $148,500 that expire at various dates depending on the rules of the states to which the loss or credit is allocated.
During the years ended December 31, 2011 and 2010, the valuation allowance on deferred income tax assets increased by $520 and $1,272, respectively. Valuation allowances were established according to the belief that it is more likely than not that these net deferred income tax assets will not be realized.
39 |
notes to consolidated financial statements
Note 9 - Commitments and Contingencies
Letters of Credit
The Company has finance arrangements which facilitate the issuance of letters of credit and bank guarantees. Under the terms of the arrangements, E&S is required to maintain a balance in a specific cash account equal to or greater than the outstanding value of all letters of credit or bank guarantees issued, plus other amounts necessary to adequately secure obligations with the financial institution. As of December 31, 2011, there were outstanding letters of credit and bank guarantees of $1,414, which are scheduled to expire between 2012 and 2014. There was $352 of restricted cash included in other assets as of each of December 31, 2011 and 2010.
Note 10 - Stock Option Plan
In 2004, shareholders approved the adoption of the 2004 Stock Incentive Plan of Evans & Sutherland Computer Corporation (“2004 Plan”), which expires in 2014. The 2004 Plan is a stock incentive plan that provides for the grant of options and restricted stock awards to employees and for the grant of options to non-employee directors. Under the 2004 Plan non-employee directors may receive an annual option grant for no more than 10,000 shares. New non-employee directors may receive an option grant for no more than 10,000 shares upon their appointment or election. In addition, with the adoption of this plan no additional options can be issued under any of the prior stock-based plans. The 2004 Plan establishes a minimum exercise price for options of 110% of fair market value on the date of grant. Restricted stock awards may be qualified as a performance-based award that conditions a participant’s award upon achievement by the Company or its subsidiaries of performance goals established by the Board of Directors’ Compensation Committee.
The number of shares, terms, and exercise periods of option grants are determined by the Board of Directors on an option-by-option basis. Options generally vest ratably over three years and expire ten years from the date of grant. As of December 31, 2011, options to purchase 1,622,496 shares of common stock were authorized and reserved for future grant.
A summary of activity follows (shares in thousands):
2011 | 2010 | |||||||||||||||
Weighted- | Weighted- | |||||||||||||||
Average | Average | |||||||||||||||
Number | Exercise | Number | Exercise | |||||||||||||
of Shares | Price | of Shares | Price | |||||||||||||
Outstanding at beginning of the year | 1,138 | $ | 4.29 | 1,355 | $ | 4.80 | ||||||||||
Granted | 101 | .88 | - | - | ||||||||||||
Exercised | - | - | - | - | ||||||||||||
Cancelled | (88 | ) | 7.62 | (217 | ) | 7.46 | ||||||||||
Outstanding at end of year | 1,151 | 3.74 | 1,138 | 4.29 | ||||||||||||
Exercisable at year end | 989 | 4.24 | 961 | 4.98 |
The weighted average fair value of options granted during 2011 and 2010 was $0.80 and none. As of December 31, 2011, options exercisable and options outstanding had a weighted average remaining contractual term of 4.1 and 4.7 years, respectively, and an aggregate intrinsic value of $6 and $8, respectively. As of December 31, 2010, options exercisable and options outstanding had a weighted average remaining contractual term of 4.4 and 4.9 years, respectively, and an aggregate intrinsic value $44 and $131, respectively.
40 |
notes to consolidated financial statements
The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for the grants made in 2011:
Expected life (in years) | 3.5 | |||
Risk free interest rate | 1.03 | |||
Expected volatility | 357 | % | ||
Dividend yield | - |
Expected option lives and volatilities are based on historical data of the Company. The risk free interest rate is calculated as the average US Treasury bill rate that corresponds with the option life. Historically, the Company has not declared dividends and there are no future plans to do so.
As of December 31, 2011, there was approximately $34 of total unrecognized share-based compensation cost related to grants under the plans that will be recognized over a weighted-average period of two years.
Share-based compensation expense, from awards under the 2004 Plan for the years ended December 31, 2011 and 2010 amounted to $48 and $30, respectively, and was recorded as general and administrative expense.
Note 11 - Preferred Stock
Class A Preferred Stock
The Company has 5,000,000 authorized shares of Class A Preferred Stock. As of December 31, 2011 and 2010, there were no Class A Preferred shares of stock outstanding.
Class B Preferred Stock
The Company has 5,000,000 authorized shares of Class B Preferred Stock. As of December 31, 2011 and 2010, there were no Class B Preferred shares of stock outstanding.
Note 12 – Loss on Condemnation of Property
In April 2011, Rocky Mountain Power (“RMP”), a public utility company, filed a complaint against the Company and Wasatch Research Park I, LLC (“Wasatch”) in the Third Judicial District Court, Salt Lake County, UT. Wasatch owns legal title to the buildings and leasehold interest in the land which the Company occupies (collectively, the “Properties”) pursuant to a series of agreements (the “Agreements”) which also grants the Company the option to repurchase the Properties or a certain portion of the Properties, known as the Substation Building (the “Substation”). The arrangement between E&S and Wasatch was accounted for as a financing and the lease obligation and repurchase option has been recorded as long-term debt as discussed more fully in Note 7. The Agreements also provided for a sharing of proceeds between the Company and Wasatch in the event of a sale of the Substation through various scenarios. In the complaint, RMP obtained a decree of condemnation of the Substation so that RMP may repurpose the Substation for public use. RMP requested a determination of just compensation for the appropriation of the Substation from the Company and Wasatch, and has offered and paid to Wasatch a preliminary compensation amount of $231.
During September 2011, RMP took possession of the Substation and the Company no longer retained use of the assets. The loss of the Substation has had no adverse impact on the Company’s near term operations as RMP will continue to provide adequate power supply under public utility services. However, for the long term the Company expects its power costs will be greater than they would have been had it retained ownership of the Substation. During November 2011, the Company and Wasatch entered into an amendment (the “Amendment”) to the Agreements that clarified the sharing of proceeds from the condemnation and the Company’s option to repurchase the Substation. The Amendment provided that Wasatch will retain 100% of the $231 preliminary compensation and the Company forfeited its right to repurchase the Substation. The Amendment also provides that the Company and Wasatch will share equally in any proceeds in excess of the $231 less legal expenses.
41 |
notes to consolidated financial statements
The Substation was recorded as part of property, plant and equipment at a net book value of $819 at the time RMP took possession of it. As a result of the possession of the Substation by RMP, the Company has recorded a $667 loss on condemnation of property, which consisted of the Substation net book value of $819 less consideration of $152 received in the form of a reduction to the sale/leaseback financing obligation included with long-term debt (see Note 7). The $152 debt reduction represents the repurchase option for the Substation only which was originally recorded as part of the sale/leaseback financing obligation. The Company and Wasatch are awaiting the final determination of the value of the Substation through negotiation and legal proceedings. The Company believes that the Substation value is higher than the offer of $231, but the Company is uncertain as to the final outcome of this matter.
Note 13 - Geographic Information
The table below presents sales by geographic location:
2011 | 2010 | |||||||
United States | $ | 15,624 | $ | 12,092 | ||||
International | 12,701 | 15,389 | ||||||
Total sales | $ | 28,325 | $ | 27,481 |
Note 14 - Significant Customers
As of December 31, 2011, Customers A and B represented 36% and 15% of accounts receivable, respectively. As of December 31, 2010, Customers A and C represented 22% and 35% of accounts receivable, respectively.
As of December 31, 2011, Customers A, D, E and F represented 16%, 16%, 15% and 11% of costs and estimated earnings in excess of billings. As of December 31, 2010, Customers C and G represented 19% and 14% of accounts receivable, respectively.
For the year ended December 31, 2011, no individual customer represented 10% or more of total sales. For the year ended December 31, 2010, Customers A, C and H represented 10%, 13% and 12% of total sales.
42 |
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
Evans & Sutherland Computer Corporation
We have audited the accompanying consolidated balance sheets of Evans & Sutherland Computer Corporation (the Company) as of December 31, 2011 and 2010, and the related consolidated statements of operations, stockholders’ deficit and comprehensive loss, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Evans & Sutherland Computer Corporation as of December 31, 2011 and 2010, and the consolidated results of its operations and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.
/s/ Tanner LLC
Salt Lake City, Utah
March 12, 2012
43 |
item 9. changes in and disagreements with accountants on accounting and financial disclosure
None.
item 9a. controls and procedures
Evaluation of Disclosure Controls and Procedures.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective at the reasonable assurance level such that the information required to be disclosed by us in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.
Management’s Annual Report on Internal Control over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes of accounting principles generally accepted in the United States. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives. Further, because of changes in conditions, the effectiveness of internal control may vary over time.
Our management, with the participation of the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s internal control over financial reporting as of December 31, 2011. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework. Based on this evaluation, our management, with the participation of the Chief Executive Officer and Chief Financial Officer, concluded that, as of December 31, 2011, our internal control over financial reporting was effective based on those criteria.
This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
Changes in Internal Control Over Financial Reporting.
During the quarter ended December 31, 2011, there has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Our process for evaluating controls and procedures is continuous and encompasses constant improvement of the design and effectiveness of established controls and procedures and the remediation of any deficiencies which may be identified during this process.
item 9B. OTHER INFORMATION
None
44 |
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND cORPORATE gOVERNANCE
Certain information required by Item 401 of Regulation S-K will be included under the caption “Election of Directors” in the Proxy Statement for our 2012 Annual Meeting of Shareholders and that information is incorporated herein by reference. Information required by Item 405 of Regulation S-K will be included under the caption “Compliance with Section 16(a) of the Securities Exchange Act of 1934” in the Proxy Statement for our 2012 Annual Meeting of Shareholders and that information is incorporated herein by reference. Certain information required by Item 401 of Regulation S-K is included in Part I of this Form 10-K under the caption “Executive Officers of the Registrant.” The information required by Item 407(c)((3), 407(d)(4) and 407(d)(5) of Regulation S-K will be included under the caption “Election of Directors” in the Proxy Statement for our 2012 Annual Meeting of Shareholders and that information is herein incorporated by reference.
Code of Ethics
Evans & Sutherland maintains a Code of Ethics and Business Conduct which is applicable to all employees, including all officers, and including our independent non-employee directors with regard to Evans & Sutherland related activities. The Code of Ethics and Business Conduct incorporates our guidelines designed to deter wrongdoing and to promote honest and ethical conduct and compliance with applicable laws and regulations. It also incorporates our expectations of our employees that enable us to provide accurate and timely disclosure in our filings with the Securities and Exchange Commission and other public communications. In addition, they incorporate our expectations of our employees concerning prompt internal reporting of violations of our Code of Ethics and Business Conduct.
The full text of the Evans & Sutherland Code of Ethics and Business Conduct is published on our Investors Relations website at www.es.com. We intend to disclose future amendments to certain provisions of our Code of Ethics and Business Conduct or waivers of such provisions granted to executive officers and directors, on this website within four business days following the date of such amendment or waiver.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item will be included under the captions, “Executive Compensation,” and, “Election of Directors,” in the Proxy Statement for our 2012 Annual Meeting of Shareholders and that information is herein incorporated by reference.
45 |
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELaTED STOCKHOLDER MATTERS
The information required by Item 403 of Regulation S-K will be included under the caption, “Security Ownership of Certain Beneficial Owners and Management,” in the Proxy Statement for our 2012 Annual Meeting of Shareholders and that information is herein incorporated by reference.
Securities Authorized for Issuance Under Equity Compensation Plans as of December 31, 2011
Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | ||||||||||
Equity compensation plans approved by security holders | 1,151,185 | $ | 3.74 | 1,622,496 | ||||||||
Equity compensation plans not approved by security holders | - | - | - | |||||||||
Total | 1,151,185 | $ | 3.74 | 1,622,496 |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by Item 404 of Regulation S-K will be included under the caption, “Certain Relationships and Related Party Transactions,” in the Proxy Statement for our 2012 Annual Meeting of Shareholders and that information is herein incorporated by reference. The information required by Item 407(a) of Regulation S-K will be included under the caption, “Election of Directors,” in the Proxy Statement for our 2012 Annual Meeting of Shareholders and that information is herein incorporated by reference
ITEM 14. pRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item will be included under the caption, “Report of the Audit Committee of the Board of Directors,” in the Proxy Statement for our 2012 Annual Meeting of Shareholders and that information is herein incorporated by reference.
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PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) | List of documents filed as part of this report |
1. Financial Statements
The following consolidated financial statements are included in Part II, Item 8 of this report on Form 10-K.
· | Consolidated Balance Sheets as of December 31, 2011 and 2010 |
· | Consolidated Statement of Operations for the years ended December 31, 2011 and 2010 |
· | Consolidated Statements of Stockholders’ Deficit and Comprehensive Loss for the years ended December 31, 2011 and 2010 |
· | Consolidated Statement of Cash Flows for the years ended December 31, 2011 and 2010 |
· | Notes to Consolidated Financial Statements |
2. Financial Statement Schedules
There are no schedules filed because of the absence of conditions under which they are required or because the required information is presented in the consolidated financial statements or the notes thereto.
3. | Exhibits |
Articles of Incorporation and Bylaws
3.1.1 | Articles of Incorporation, as amended, filed as Exhibit 3.1 to Evans & Sutherland Computer Corporation’s Annual Report on Form 10-K, SEC File No. 000-08771, for the fiscal year ended December 25, 1987, and incorporated herein by this reference. |
3.1.2 | Amendments to Articles of Incorporation filed as Exhibit 3.1.1 to Evans & Sutherland Computer Corporation’s Annual Report on Form 10-K, SEC File No. 000-08771, for the fiscal year ended December 30, 1988, and incorporated herein by this reference. |
3.1.3 | Certificate of Designation, Preferences and Other Rights of the Class B-1 Preferred Stock of Evans & Sutherland Computer Corporation, filed as Exhibit 3.1 to Evans & Sutherland Computer Corporation’s Form 10-Q, SEC File No. 000-08771, for the quarter ended September 25, 1998, and incorporated herein by this reference. |
3.2.1 | Amended and Restated Bylaws of Evans & Sutherland Computer Corporation, filed as Exhibit 3.2 to Evans & Sutherland Computer Corporation’s Form 10-K for the year ended December 31, 2000, and incorporated herein by this reference. |
3.2.2 | Amendment No. 1 to the Amended and Restated Bylaws of Evans & Sutherland Computer Corporation, filed as Exhibit 3.3 to Evans & Sutherland Computer Corporation’s Form 10-K for the year ended December 31, 2000, and incorporated herein by this reference. |
Material contracts
Management contracts and compensatory plans
10.1 | Evans & Sutherland Computer Corporation 2004 Stock Incentive Plan, filed as Annex A to Evans & Sutherland’s Form 14A, SEC File No. 001-14667, filed on April 19, 2004 and incorporated herein by this reference. |
10.2 | Amended and restated Evans & Sutherland Computer Corporation’s Supplemental Executive Retirement Plan (SERP), dated May 16, 2002, filed as Exhibit 10.38 to Evans & Sutherland Computer Corporation’s Form 10-K for the year ended December 31, 2002, and incorporated herein by reference. |
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10.3 | Amended and restated Evans & Sutherland Computer Corporation’s Executive Savings Plan, dated May 16, 2002, filed as Exhibit 10.39 to Evans & Sutherland Computer Corporation’s Form 10-K for the year ended December 31, 2002, and incorporated herein by reference. |
10.4 | Employment agreement between Evans & Sutherland Computer Corporation and Kirk Johnson, dated August 26, 2002, filed as Exhibit 10.14 to Evans & Sutherland Computer Corporation’s Form 10-K for the year ended December 31, 2004, and incorporated herein by reference. |
10.5 | Employment Agreement, dated February 8, 2006, by and between Evans & Sutherland Computer Corporation and Jonathan Shaw, filed as Exhibit 10.1 to Evans & Sutherland Computer Corporation’s Form 10-Q for the quarter ended June 30, 2006, and incorporated herein by reference. |
10.6 | Employment Agreement dated February 8, 2006, by and between Evans & Sutherland Computer Corporation and Paul Dailey, filed as Exhibit 10.2 to Evans & Sutherland Computer Corporation’s Form 10-Q for the quarter ended June 30, 2006, and incorporated herein by reference. |
10.7 | Employment Agreement, dated August 26, 2002, by and between Evans & Sutherland Computer Corporation and David H. Bateman, filed as Exhibit 10.13 to Evans & Sutherland Computer Corporation’s Form 10-K for the year ended December 31, 2006, and incorporated herein by reference. |
Other material contracts
10.8 | Line of Credit Agreement, dated April 28, 2006, between Evans & Sutherland Computer Corporation, Spitz, Inc. and First Keystone Bank, filed as Exhibit 10.4 to Evans & Sutherland Computer Corporation’s Form 10-Q for the quarter ended June 30, 2006, and incorporated herein by reference. |
10.9 | Line of Credit Note, dated April 28, 2006, by and between Evans & Sutherland Computer Corporation, Spitz, Inc. and First Keystone Bank, filed here with filed as Exhibit 10.6 to Evans & Sutherland Computer Corporation’s Form 10-Q for the quarter ended June 30, 2006, and incorporated herein by reference. |
10.10 | Guaranty, dated April 28, 2006, by Evans and Sutherland Computer Corporation, filed as Exhibit 10.7 to Evans & Sutherland Computer Corporation’s Form 10-Q for the quarter ended June 30, 2006, and incorporated herein by reference. |
10.11 | Pledge Agreement, dated April 28, 2006, by and between Evans & Sutherland Computer Corporation, Spitz, Inc. and First Keystone Bank, filed as Exhibit 10.8 to Evans & Sutherland Computer Corporation’s Form 10-Q for the quarter ended June 30, 2006, and incorporated herein by reference. |
10.12 | Security Agreement, dated April 28, 2006, by and between Spitz, Inc. and First Keystone Bank, filed here with filed as Exhibit 10.9 to Evans & Sutherland Computer Corporation’s Form 10-Q for the quarter ended June 30, 2006, and incorporated herein by reference. |
10.13 | Open-end Mortgage and Security Agreement, dated April 28, 2006, by and between Spitz, Inc. and First Keystone Bank, filed as Exhibit 10.10 to Evans & Sutherland Computer Corporation’s Form 10-Q for the quarter ended June 30, 2006, and incorporated herein by reference. |
10.14 | First Modification Agreement to Line of Credit Agreements, dated July 28, 2006, by and between Evans & Sutherland Computer Corporation, Spitz, Inc. and First Keystone Bank, filed as Exhibit 10.11 to Evans & Sutherland Computer Corporation’s Form 10-Q for the quarter ended June 30, 2006, and incorporated herein by reference. |
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10.15 | Credit Agreement between Evans & Sutherland Computer Corporation and Wells Fargo Bank, National Association effective December 1, 2006, filed as Exhibit 10.24 to Evans & Sutherland Computer Corporation’s Form 10-K for the year ended December 31, 2006, and incorporated herein by reference. |
10.16 | Mortgage Note dated January 14, 2004, of Transnational Industries, Inc. and Spitz, Inc. to First Keystone Bank filed as Exhibit 10.25 to Evans & Sutherland Computer Corporation’s Form 10-K for the year ended December 31, 2006, and incorporated herein by reference. |
10.17 | Open-End Mortgage and Security Agreement dated January 14, 2004, between Spitz, Inc. and First Keystone Bank filed as Exhibit 10.26 to Evans & Sutherland Computer Corporation’s Form 10-K for the year ended December 31, 2006, and incorporated herein by reference. |
10.18 | Loan Agreement dated as January 14, 2004, between First Keystone Bank, Transnational Industries, Inc. and Spitz, Inc filed as Exhibit 10.27 to Evans & Sutherland Computer Corporation’s Form 10-K for the year ended December 31, 2006, and incorporated herein by reference. |
10.19 | First Modification Agreement to Mortgage Loan Agreements, dated March 30 2007, by and between Evans & Sutherland Computer Corporation, Spitz, Inc. and First Keystone Bank, filed as Exhibit 10.28 to Evans & Sutherland Computer Corporation’s Form 10-K for the year ended December 31, 2006, and incorporated herein by reference. |
10.20 | Second Modification Agreement to Line of Credit Agreements, dated March 30 2007, by and between Evans & Sutherland Computer Corporation, Spitz, Inc. and First Keystone Bank, filed as Exhibit 10.29 to Evans & Sutherland Computer Corporation’s Form 10-K for the year ended December 31, 2006, and incorporated herein by reference. |
10.21 | Guaranty, dated March 30, 2007 by Evans and Sutherland Computer Corporation, filed as Exhibit 10.30 to Evans & Sutherland Computer Corporation’s Form 10-K for the year ended December 31, 2006, and incorporated herein by reference. |
10.22 | Third Modification Agreement to Line of Credit Agreements, dated August 24 2007, by and between Evans & Sutherland Computer Corporation, Spitz, Inc. and First Keystone Bank, filed as Exhibit 10.31 to Evans & Sutherland Computer Corporation’s Form 10-K for the year ended December 31, 2007, and incorporated herein by reference. |
10.23 | Sublease Agreement, filed as Exhibit 10.1 to Evans & Sutherland Computer Corporation’s Form 8-K dated November 17, 2009, by and between Evans & Sutherland Computer Corporation and Wasatch Research Park I, LLC, and incorporated herein by reference. |
10.24 | Purchase Option Agreement, filed as Exhibit 10.2 to Evans & Sutherland Computer Corporation’s Form 8-K dated November 17, 2009, by and between Evans & Sutherland Computer Corporation and Wasatch Research Park I, LLC, and incorporated herein by reference. |
10.25 | Marketing Agreement, filed as Exhibit 10.3 to Evans & Sutherland Computer Corporation’s Form 8-K dated November 17, 2009, by and between Evans & Sutherland Computer Corporation and Wasatch Research Park I, LLC, and incorporated herein by reference. |
Subsidiaries of the registrant
21.1 | Subsidiaries of Registrant, filed as Exhibit 21.1 to Evans & Sutherland Computer Corporation’s Form 10-K for the year ended December 31, 2007, and incorporated herein by reference. |
Consent of experts and counsel
23.1 | Consent of Independent Registered Public Accounting Firm, filed herein. |
Rule 13a-14(a)/15d-14(a) Certifications
31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended, filed herein. |
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31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended, filed herein. |
Section 1350 Certifications
32.1 | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herein. |
trademarks used in this form 10-k
E&S, ESLP, and Digistar are trademarks or registered trademarks of Evans & Sutherland Computer Corporation. All other product, service, or trade names or marks are the properties of their respective owners.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
EVANS & SUTHERLAND COMPUTER CORPORATION | ||
By | /s/ DAVID H. BATEMAN | |
David H. Bateman | ||
Chief Executive Officer and Director | ||
March 12, 2012 |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature | Title | Date | |||
Chief Executive Officer | |||||
/s/ | David H. Bateman | and Director | March 12, 2012 | ||
David H. Bateman | (Principal Executive Officer) | ||||
Chief Financial Officer | |||||
/s/ | Paul L. Dailey | (Principal Financial Officer and | March 12, 2012 | ||
Paul L. Dailey | Principal Accounting Officer) | ||||
/s/ | David J. Coghlan | Chairman of the Board | March 12, 2012 | ||
David J. Coghlan | |||||
/s/ | William Schneider Jr. | Director | March 12, 2012 | ||
William Schneider, Jr. | |||||
/s/ | James P. McCarthy | Director | March 12, 2012 | ||
James P. McCarthy | |||||
/s/ | E. Michael Campbell | Director | March 12, 2012 | ||
E. Michael Campbell |
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