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Previous: CENTRAL FIDELITY BANKS INC, 10-Q, 1994-08-11 |
Next: GENERAL AMERICAN TRANSPORTATION CORP /NY/, 10-Q, 1994-08-11 |
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
Form 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the Quarterly Period Ended July 1, 1994 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.)
600 Komas Drive, Salt Lake City, Utah 84108
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (801) 582-5847
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. Yes X No
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding Shares at July 29, 1994
- ----------------------------------- -----------------------------------
Common Stock, $0.20 par value 8,533,005
<PAGE>
Form 10-Q
Evans & Sutherland Computer Corporation
QUARTER ENDED July 1, 1994
Page No.
TABLE OF CONTENTS 2
PART I - FINANCIAL INFORMATION
General Statement 3
ITEM 1. Financial Statements
Consolidated Statements of Earnings - Six Months Ended
July 1, 1994 and July 2, 1993 4
Consolidated Balance Sheets - July 1, 1994 and
December 31, 1993 5-6
Consolidated Abbreviated Statements of Cash Flows - Six
Months Ended July 1, 1994 and July 2, 1993 7
Notes to Financial Statements 8
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-12
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings 12
ITEM 6. Exhibits and Reports on Form 8-K 12
Signature Page 13
-2-
<PAGE>
Evans & Sutherland Computer Corporation
PART I - FINANCIAL INFORMATION
General Statement:
The following Consolidated Statements of Earnings, Consolidated Balance Sheets,
and Consolidated Abbreviated Statements of Cash Flows have been prepared from
the accounting records of Evans & Sutherland Computer Corporation without audit
(except where presented data is specifically identified as audited) in
accordance with Securities and Exchange Commission regulations.
The financial statements were prepared in conformity with generally accepted
accounting principles applied on a basis consistent with prior periods. All
adjustments reflected in the statements are of a normal recurring nature and are
necessary for a fair statement of results for the interim periods presented. It
is management's opinion that the information presented herein reflects a fair
statement of the results of the interim period(s) in all material respects.
-3-
<PAGE>
EVANS & SUTHERLAND COMPUTER CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
Three Months and Six Months Ended
July 1, 1994 and July 2, 1993
(Dollars in Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
(Unaudited) (Unaudited)
-------------------------- --------------------------
July 1, July 2, July 1, July 2,
1994 1993 1994 1993
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 22,839 $ 36,009 $ 49,699 $ 65,925
Cost of sales 11,354 17,162 23,631 32,129
---------- ---------- ---------- ----------
Gross profit 11,485 18,847 26,068 33,796
Expenses:
Marketing, general, and administrative 8,580 9,798 16,916 19,189
Research and development 6,814 8,591 14,700 16,460
---------- ---------- ---------- ----------
15,394 18,389 31,616 35,649
Operating earnings (loss) -3,909 458 -5,548 -1,853
Other income, net 1,365 987 2,869 949
---------- ---------- ---------- ----------
Earnings (loss) before income taxes,
extraordinary gain, and cumulative effect
of change in accounting principle -2,544 1,445 -2,679 -904
Income tax expense (benefit) -966 578 -1,019 -362
---------- ---------- ---------- ----------
Earnings (loss) before extraordinary
gain and cumulative effect of change in
accounting principle -1,578 867 -1,660 -542
Extraordinary gain from repurchase of convertible
debentures, net of income taxes of $226
and $282 369 - 459 -
Cumulative effect at December 26, 1992 of change
in accounting for income taxes - - - 2,267
---------- ---------- ---------- ----------
Net earnings (loss) $ -1,209 $ 867 $ -1,201 $ 1,725
========== ========== ========== ==========
Earnings (loss) per common and common equivalent shares:
Before extraordinary gain and cumulative effect
of change in accounting principle $ -0.18 $ 0.11 $ -0.19 $ -0.06
Extraordinary gain from repurchase of
convertible debentures 0.04 - 0.05 -
Cumulative effect of change in
accounting for income tax - - - 0.27
---------- ---------- ---------- ----------
Total earnings (loss) per share $ -0.14 $ 0.11 $ -0.14 $ 0.21
========== ========== ========== ==========
Weighted average number of
shares used for per share
earnings computation: 8,526 8,235 8,500 8,229
</TABLE>
-4-
<PAGE>
EVANS & SUTHERLAND COMPUTER CORPORATION
CONSOLIDATED BALANCE SHEETS
July 1, 1994 and December 31, 1993
(Dollars in Thousands)
<TABLE>
<CAPTION>
July 1, December 31,
1994 1993
Assets (Unaudited) (Audited)
------ ------------ -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,215 $ 3,250
Temporary cash investments 64,719 75,286
Receivables:
Trade accounts, less allowance for
doubtful receivables of $173 in
1994 and $406 in 1993 17,643 30,667
Interest 838 1,076
Other 455 399
----------- -----------
Total receivables 18,936 32,142
Inventories, net (note 1) 36,336 32,839
Costs and estimated earnings in excess of
billings on uncompleted contracts, net 13,715 10,048
Deferred income tax 4,330 6,050
Prepaid expenses and deposits 2,819 1,573
----------- -----------
Total current assets 146,070 161,188
----------- -----------
Property, plant, and equipment, at cost 103,961 113,366
Less accumulated depreciation and amortization 61,800 65,119
----------- -----------
Net property, plant, and equipment 42,161 48,247
Long-term investments:
Marketable equity securities at cost - 3,178
Marketable equity securities
available-for-sale, at fair value 9,652 -
Other, at cost 35 35
----------- -----------
Total long-term investments 9,687 3,213
Other assets, at cost, less
accumulated amortization 785 3,539
----------- -----------
$ 198,703 $ 216,187
=========== ===========
</TABLE>
Certain 1993 amounts have been reclassified to conform with 1994 presentation.
-5-
<PAGE>
EVANS & SUTHERLAND COMPUTER CORPORATION
CONSOLIDATED BALANCE SHEETS
July 1, 1994 and December 31, 1993
(Dollars in Thousands)
<TABLE>
<CAPTION>
July 1, December 31,
1994 1993
Liabilities and Stockholders' Equity (Unaudited) (Audited)
------------------------------------------- ------------ -------------
<S> <C> <C>
Current liabilities:
Notes payable to banks $ - $ 2,685
Accounts payable 2,438 5,095
Accrued expenses 13,781 19,321
Customer deposits 16,047 11,303
Income taxes payable 303 2,112
---------- -----------
Total current liabilities 32,569 40,516
---------- -----------
Convertible subordinated debentures 32,412 37,066
Deferred income taxes 3,341 1,575
Stockholders' equity:
Common stock, $.20 par value; authorized
30,000,000 shares; issued and outstanding
8,529,757 shares at July 1, 1994 and
8,352,525 shares at December 31, 1993 1,706 1,671
Additional paid-in capital (note 2) 2,278 11,899
Retained earnings 121,750 122,951
Net unrealized gain on
marketable equity securities 4,200 -
Equity adjustment from foreign
currency translation 447 509
---------- -----------
Total stockholders' equity 130,381 137,030
---------- -----------
$ 198,703 $ 216,187
========== ===========
</TABLE>
Certain 1993 amounts have been reclassified to conform with 1994 presentation.
-6-
<PAGE>
EVANS & SUTHERLAND COMPUTER CORPORATION
CONSOLIDATED ABBREVIATED STATEMENTS OF CASH FLOWS
Six Months Ended
July 1, 1994 and July 2, 1993
(Dollars in Thousands)
<TABLE>
<CAPTION>
Six Months Ended
(Unaudited)
------------------------------------
July 1, July 2,
1994 1993
------------ ------------
<S> <C> <C>
Net cash provided by operating activities $ 2,344 $ 21,969
Cash flows from investing activities:
Capital expenditures -1,985 -5,700
Proceeds from sale of marketable sucurities 2,777 1,433
Proceeds from (purchases of) temporary cash investments 2,082 -19,876
Other -389 -559
---------- ----------
Net cash provided by (used in) investing activities 2,485 -24,702
Cash flows from financing activities:
Payments for repurchase of convertible debentures -3,831 -
Net proceeds from issuance of common stock 4,056 355
Net borrowings (payments) under line of credit agreements -2,765 1,382
Other -26 -
---------- ----------
Net cash provided by (used in) financing activities -2,566 1,737
Effect of foreign exchange rate changes on cash -298 141
---------- ----------
Net increase (decrease) in cash and cash equivalents 1,965 -855
Cash and cash equivalents at beginning of year 3,250 1,494
---------- ----------
Cash and cash equivalents at end of period $ 5,215 $ 639
========== ==========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 1,287 $ 1,276
Income taxes $ 316 $ 4,849
</TABLE>
-7-
<PAGE>
EVANS & SUTHERLAND COMPUTER CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Dollars in Thousands)
(1) Inventories are summarized as follows:
July 1, December 25,
1994 1993
(Unaudited) (Audited)
----------- ------------
Raw materials and supplies $ 15,173 $ 15,035
Work-in-process 16,069 14,470
Finished Goods 6,002 4,738
Inventory reserve -908 -1,404
---------- -----------
$ 36,336 $ 32,839
========== ===========
(2) The Tripos, Inc. Spin-off
Effective June 1, 1994, net assets of Tripos, Inc. totalling $13,300,000
were spun-off to E&S shareholders in the form of a special dividend. Each
Evans & Sutherland shareholder received one share of Tripos common stock
for every three shares of Evans & Sutherland common stock held on May 25,
1994, the record date for the spin-off.
-8-
<PAGE>
EVANS & SUTHERLAND COMPUTER CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in Thousands)
The following table summarizes changes in operations for the periods indicated
and presents the percentage of increase (decrease) by listed items compared to
the indicated prior period:
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Quarters Six Months
Ended July 1, 1994 Ended July 1, 1994
And July 2, 1993 And July 2, 1993
-------------------------------- --------------------------------
<S> <C> <C> <C> <C>
Net sales $ -13,170 -37% $ -16,226 -25%
Cost of sales -5,808 -34% -8,498 -26%
------------ ----------- ------------ -----------
Gross profit -7,362 -39% -7,728 -23%
Expenses:
Marketing, general and administrative -1,218 -12% -2,273 -12%
Research and development -1,777 -21% -1,760 -11%
------------ ----------- ------------ -----------
-2,995 -16% -4,033 -11%
Operating earnings (loss) -4,367 -953% -3,695 -199%
Other income (expense), net 378 38% 1,920 202%
------------ ----------- ------------ -----------
Earnings (loss) before income taxes, extraordinary
gain, and cumulative effect of change in
accounting principle -3,989 -276% -1,775 -196%
Income tax expense (benefit) -1,544 -267% -656 -181%
------------ ----------- ------------ -----------
Earnings (loss) before extraordinary gain and
cumulative effect of change in accounting principle -2,445 -282% -1,119 -206%
Extraordinary gain from repurchase of
convertible debentures, net of income taxes 369 100% 460 100%
------------ ----------- ------------ -----------
Cumulative effect at December 26, 1992, of
change in accounting for income taxes - - -2,267 -100%
------------ ----------- ------------ -----------
Net earnings $ -2,076 -239% $ -2,926 -170%
============ =========== ============ ===========
</TABLE>
-9-
<PAGE>
RESULTS OF OPERATIONS
- ---------------------
Sales
- -----
The following table summarizes sales for the six months of 1994 and 1993 and
also for the second quarters of 1994 and 1993. As shown, sales are lower in
1994 compared with 1993 in most all market sectors served by the Company.
<TABLE>
<CAPTION>
SALES
Quarter Ended Six Months Ended
------------------------------------ -----------------------------------
% Change % Change
July 1, July 2, increase July 1, July 2, increase
1994 1993 (decrease) 1994 1993 (decrease)
---- ---- ---------- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
World civil pilot training 1,997 4,590 -56% 2,637 6,748 -61%
U.S. government &
engineering 9,787 12,070 -19% 19,917 26,047 -24%
International government
& engineering 4,756 8,311 -43% 13,006 13,290 -2%
Education &
entertainment 605 41 1376% 927 785 18%
Design systems 3,363 5,674 -41% 7,257 9,814 -26%
Tripos * 2,331 5,323 -56% 5,955 9,241 -36%
-------- -------- -------- --------
$ 22,839 $ 36,009 -37% $ 49,699 $ 65,925 -25%
======== ======== ======== ========
</TABLE>
* Tripos numbers for 1994 represent results for two months & five months
respectively because the Tripos Spin-off occurred June 1, 1994
Sales decreased $13,170,000 in the second quarter of 1994 as compared with the
same period in 1993. Of this amount, 23% or $2,992,000 is related to the spin-
off of Tripos which took place on June 1, 1994. For the six months ended July
1, 1994 sales decreased $16,226,000 from the comparable period in 1993. Tripos
accounted for 20% of this reduction.
Sales in the civil pilot training sector continue to reflect the weak condition
of the aerospace industry. The Company announced during the quarter the
termination of its agreement with Thomson-CSF for the exclusive sale of E&S
image generators in the civil pilot training market. At the same time, it was
also announced that the Company is now offering a full range of integrated
visual systems to the civil pilot training market. With these developments,
as the civil pilot training market begins to recover, the Company will be well
positioned to serve this market with superior products and services.
Sales in the U. S. and International Government sectors are slower than
expected. However, second half sales in the U.S. should increase as delivery of
systems for the Close Combat Tactical Training (CCTT) program occur. Sales for
the international sector are expected to remain at their present rate through
the balance of the year.
Growth in the education and entertainment market is slower than expected,
although sales are up from the previous year's second quarter. The first
commercial installation of Virtual Adventures is now open at the Nauticus Museum
in Norfolk, Virginia and public reaction
-10-
<PAGE>
is positive. Jointly developed with Iwerks, this location-based entertainment
attraction is scheduled for its second installation in Connecticut in the fourth
quarter. Orders for the Company's Digistar II system continue to be received
with three systems to be delivered during the remainder of 1994.
Design systems sales are lower for the second quarter by $2,311,000 from the
previous year's second quarter. The recent announcement of an OEM agreement
with Hewlett-Packard to supply high performance Freedom Series graphics
accelerators with Hewlett-Packard workstations combined with earlier and similar
announcements with IBM and Sun Microsystems now places the Company in a position
to show improved performance in this sector. With these agreements, the Company
is provided the most substantial OEM marketing channel available for high
performance graphics accelerators. These OEM agreements along with the just
announced signing of a letter of intent to purchase Portable Graphics, Inc.
(PGI) of Austin, Texas should accelerate sales of graphics hardware and software
solutions. PGI is a small company and a leading supplier of GL-based software
development libraries and tool kits for developing 3D graphics applications for
all major hardware platforms.
Cost of Sales
- -------------
Cost of sales, as a percentage of sales, was 49.7% for the three months of 1994
compared to the 47.7% rate experienced during the corresponding 1993 period.
The main reason for the increase is due to lower cost of sales with Tripos
software sales. Since the Tripos spin-off was effective June 1, 1994, only two
months are included in the second quarter 1994 figures as compared with three
months for 1993. Cost of sales in the other sectors have remained at the same
levels for all periods when Tripos costs are discounted.
Expenses
- --------
Expenses for the second quarter of 1994 are lower than the same quarter of 1993
by $2,995,000 (16%). All expenses are lower as a result of restructuring
efforts that took place in January of this year. Cost reductions have improved
the Company's efficiency and have not impaired its ability to operate.
Other Income (Expense), Net
- ---------------------------
Other income increased during the quarter over the second quarter of the
previous year by $373,000. The primary reasons for the increase is due to
foreign currency exchange gains in 1994 of $103,000 compared to losses of
$87,000 in 1993 and interest expense reductions in 1994 due to the Company's
repurchasing of interest-bearing convertible debentures.
Income Taxes
- ------------
Tax expense for 1994 is based on an effective tax rate of 38% compared to an
effective rate of 40% for 1993. The rate for 1994 is estimated to be lower due
to improved performance from the Company's foreign subsidiaries.
Inflation
- ---------
Inflation has not had a significant impact in the Company's results of
operations during any of the last three fiscal years.
LIQUIDITY & CAPITAL COMMITMENTS
- -------------------------------
Funds to support the Company's operations are generated primarily from net cash
provided by operating activities, sales of marketable securities, and proceeds
from employee stock purchase and option plans. The Company also has cash
equivalents and temporary cash investments which can be used as needed for
operating funds. No major capital expenditures are expected for the balance of
the year.
-11-
<PAGE>
Cash and cash equivalents and temporary cash investments decreased $8,602,000 to
$69,934,000 during the first six months of 1994 principally due to cash
expenditures related to the Tripos spin-off and due to the repurchase of the
Company's subordinated debt. The value of Company owned marketable securities
declined $4,555,000 to $9,652,000 during the same six month period.
Approximately $2,000,000 of the decline is due to the sale of VLSI shares and
the balance is a result of changing market values of shares held.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- --------------------------
The company has previously announced the fact that it has terminated its
exclusive arrangement with Thomson Training and Simulation Limited for the
marketing of the Company's products to the civil airline training market. The
Company has now filed a "Notice of Intention to Arbitrate" the matters involved
in the termination with the American Arbitration Association as provided by the
terms of the agreement. The Company claims damages in excess of $26 million
exclusive of costs as a result of this dispute.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(b) There were no reports on Form 8-K filed for the six-month period ended
July 1, 1994.
[THIS SPACE INTENTIONALLY LEFT BLANK]
-12-
<PAGE>
Evans & Sutherland Computer Corporation
SIGNATURES
Pursuant to the requirements of the Securities and 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
---------------------------------------
Registrant
Date August 10, 1994 /s/ .
--------------- ---------------------------------------
Gary E. Meredith, Vice President,
Secretary, and Chief Financial Officer
-13-
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