<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 September 30, 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 October 21, 1994
--------------------------------- ----------------------------------------
Common Stock, $0.20 par value 8,543,258
<PAGE>
Form 10-Q
Evans & Sutherland Computer Corporation
QUARTER ENDED SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
Page No.
<S> <C>
TABLE OF CONTENTS 2
PART I - FINANCIAL INFORMATION
General Statement 3
ITEM 1. Financial Statements
Consolidated Statements of Earnings - Nine Months Ended
September 30, 1994 and October 1, 1993 4
Consolidated Balance Sheets - September 30, 1994 and
December 31, 1993 5-6
Consolidated Abbreviated Statements of Cash Flows - Nine
Months Ended September 30, 1994 and October 1,
1993 7
Notes to Financial Statements 8-9
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operation 10-13
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings 14
ITEM 6. Exhibits and Reports on Form 8-K 14
Signature Page 15
</TABLE>
-2-
<PAGE>
Evans & Sutherland Computer Corporation
PART 1 - 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 OPERATIONS
Three Months and Nine Months Ended
September 30, 1994 and October 1, 1993
(Dollars in Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
(Unaudited) (Unaudited)
------------------------ ----------------------
Sept. 30, Oct. 1, Sept. 30, Oct. 1,
1994 1993 1994 1993
--------- ------- --------- -------
<S> <C> <C> <C> <C>
Net sales $21,934 $33,368 $71,633 $99,293
Cost of sales 11,452 14,989 35,083 47,118
------- ------- ------- -------
Gross profit 10,482 18,379 36,550 52,175
Expenses:
Marketing, general, and
administrative 6,878 10,064 23,794 29,253
Research and development 6,341 7,552 21,041 24,012
------- ------- ------- -------
13,219 17,616 44,835 53,265
------- ------- ------- -------
Operating earnings
(loss) (2,737) 763 (8,285) (1,090)
Other income, net 2,086 5,313 4,955 6,262
------- ------- ------- -------
Earnings (loss) before
income taxes, extraordinary
gain, and cumulative effect
of change in accounting
principle (651) 6,076 (3,330) 5,172
Income tax expense
(benefit) (246) 2,430 (1,265) 2,068
------- ------- ------- -------
Earnings (loss) before
extraordinary gain and
cumulative effect of
change in accounting
principle (405) 3,646 (2,065) 3,104
Extraordinary gain from
repurchase of convertible
debentures, net of income
taxes of $778 and $1,060 1,270 - 1,729 -
Cumulative effect at
December 26, 1992 of
change in accounting for
income taxes - - - 2,267
------- ------- ------- -------
Net earnings (loss) $ 865 $ 3,646 $ (336) $ 5,371
======= ======= ======= =======
Earnings (loss) per common
and common equivalent
shares:
Before extraordinary
gain and cumulative
effect of change in
accounting principle $ (0.05) $ 0.44 $ (0.24) $ 0.38
Extraordinary gain from
repurchase of convertible
debentures 0.15 - 0.20 -
Cumulative effect of
change in accounting for
income tax - - - 0.27
------- ------- ------- -------
Total earnings (loss)
per share $ 0.10 $ 0.44 $ (0.04) $ 0.65
======= ======= ======= =======
Weighted average number of
shares used for per share
earnings computation: 8,535 8,253 8,511 8,266
</TABLE>
-4-
<PAGE>
EVANS & SUTHERLAND COMPUTER CORPORATION
CONSOLIDATED BALANCE SHEETS
September 30, 1994 and December 31, 1993
(Dollars in Thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
Assets (Unaudited) (Audited)
- - - ------ ------------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,359 $ 3,250
Temporary cash investments 51,579 75,286
Receivables:
Trade accounts, less allowance for
doubtful receivables of $148 in
1994 and $406 in 1993 16,601 30,667
Interest 825 1,076
Other 231 399
-------- --------
Total receivables 17,657 32,142
Inventories, net (note 1) 42,518 32,839
Costs and estimated earnings in excess of
billings on uncompleted contracts, net 11,826 10,048
Deferred income taxes 4,061 6,050
Prepaid expenses and deposits 2,233 1,573
-------- --------
Total current assets 136,233 161,188
-------- --------
Property, plant, and equipment, at cost 103,616 113,366
Less accumulated depreciation and amortization 62,416 65,119
-------- --------
Net property, plant, and equipment 41,200 48,247
Long-term investments:
Marketable equity securities at cost - 3,178
Marketable equity securities
available-for-sale, at fair value 7,041 -
Other, at cost 35 35
-------- --------
Total long-term investments 7,076 3,213
Other assets, at cost, less
accumulated amortization 576 3,539
-------- --------
$185,085 $216,187
======== ========
</TABLE>
Certain 1993 amounts have been reclassified to conform with 1994 presentation.
-5-
<PAGE>
EVANS & SUTHERLAND COMPUTER CORPORATION
CONSOLIDATED BALANCE SHEETS
September 30, 1994 and December 31, 1993
(Dollars in Thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
Liabilities and Stockholders' Equity (Unaudited) (Audited)
- - - ----------------------------------------- ------------- ------------
<S> <C> <C>
Current liabilities:
Notes payable to banks $ 944 $ 2,685
Accounts payable 1,361 5,095
Accrued expenses 13,637 19,321
Customer deposits 15,879 11,303
Income taxes payable 46 2,112
-------- --------
Total current liabilities 31,867 40,516
-------- --------
Convertible subordinated debentures 21,123 37,066
Deferred income taxes 2,425 1,575
Stockholders' equity:
Common stock, $.20 par value; authorized
30,000,000 shares; issued and outstanding
8,540,591 shares at September 30, 1994 and
8,352,525 shares at December 31, 1993 1,708 1,671
Additional paid-in capital (note 2) 2,205 11,899
Retained earnings 122,615 122,951
Net unrealized gain on
marketable equity securities 2,701 -
Equity adjustment from foreign
currency translation 441 509
-------- --------
Total stockholders' equity 129,670 137,030
-------- --------
$185,085 $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
Nine Months Ended
September 30, 1994 and October 1, 1993
(Dollars in Thousands)
<TABLE>
<CAPTION>
Nine Months Ended
(Unaudited)
-----------------------------
September 30, October 1,
1994 1993
------------- ----------
<S> <C> <C>
Net cash provided by (used in) operating activities $ (1,847) $ 28,805
Cash flows from investing activities:
Capital expenditures (3,354) (6,983)
Proceeds from sale of marketable securities 4,502 2,835
Purchase of long-term investments - (2,000)
Proceeds from (purchases of) temporary cash investments 15,222 (18,773)
Other (341) (824)
-------- --------
Net cash provided by (used in) investing activities 16,029 (25,745)
Cash flows from financing activities:
Payments for repurchase of convertible debentures (12,872) -
Net proceeds from issuance of common stock 4,192 760
Net borrowings (payments) under line of credit agreements (1,946) 1,369
Other (233) -
-------- --------
Net cash provided by (used in) financing activities (10,859) 2,129
Effect of foreign exchange rate changes on cash (214) (2)
-------- --------
Net increase (decrease) in cash and cash equivalents 3,109 5,187
Cash and cash equivalents at beginning of year 3,250 1,494
-------- --------
Cash and cash equivalents at end of period $ 6,359 $ 6,681
======== ========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 2,514 $ 2,385
Income taxes $ 358 $ 5,022
</TABLE>
-7-
<PAGE>
EVANS & SUTHERLAND COMPUTER CORPORATION
NOTES TO FINANCIAL STATEMENTS
(In thousands, except per share data)
(1) Inventories are summarized as follows:
<TABLE>
<CAPTION>
Sept. 30, 1994 Dec. 31, 1993
(Unaudited) (Audited)
----------- ---------
<S> <C> <C>
Raw materials and supplies $15,164 $15,035
Work-in-process 22,598 14,470
Finished goods 5,863 4,738
Inventory reserve (1,107) (1,404)
------- -------
$42,518 $32,839
======= =======
</TABLE>
Inventories as of September 30, 1994 are $42,518,000 as compared to
$32,839,000 for year ended December 31, 1993. The increase of $9,679,000 or
29% is primarily the result of buildup in work-in-process inventories
associated with the U.S. Government and the Design Systems sectors. It is
anticipated that the fourth quarter deliveries in both these sectors will
reduce inventory to approximately 1993 levels.
(2) The Tripos, Inc. Spin-off
Effective June 1, 1994, net assets of Tripos, Inc. totalling $12,700,000
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. As a part of this transaction, the
Company forgave Tripos of inter-company debt owed to the Company of
$6,421,000 and made a cash contribution to Tripos of $6,909,000. Included
in the Consolidated Statements of Operations for the three months ended
October 1, 1993 is a full quarter's results for Tripos and included in the
nine months ended September 30, 1994 and October 1, 1993 is five months and
nine months respectively of Tripos operations. The following Pro Forma
statement reflects operations without Tripos.
-8-
<PAGE>
EVANS & SUTHERLAND COMPUTER CORPORATION
PROFORMA STATEMENT OF EARNINGS
(Without Tripos, Inc.)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------------------
Oct. 1, 1993 Sept. 30, 1994 Oct. 1, 1993
------------ -------------- ------------
<S> <C> <C> <C>
Net sales $29,885 $65,678 $87,468
Cost of sales 14,282 33,499 43,187
------- ------- -------
Gross profit 15,603 32,179 44,281
Expenses 14,683 39,540 45,137
------- ------- -------
Operating earnings (loss) 920 (7,367) (856)
Other income, net 5,315 4,955 6,261
Income tax expense (benefit) 2,407 (1,265) 1,985
Extraordinary items -- 1,729 2,267
------- ------- -------
Net earnings $ 3,828 $ 582 $ 5,687
======= ======= =======
Earnings per share $0.46 $0.07 $0.69
======= ======= =======
</TABLE>
-9-
<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 three month and
nine month periods ending September 30, 1994 and October 1, 1993. This table
compares the respective periods and presents the amount and percentage increase
(decrease) by the listed items.
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Three Months Ended Nine Months Ended
----------------------- ------------------------
Sept. 30, and Oct. 1, Sept. 30, and Oct. 1,
1994 1993 1994 1993
----------------------- ------------------------
$ Increase % $ Increase %
(Decrease) Change (Decrease) Change
----------------------- ------------------------
<S> <C> <C> <C> <C>
Net sales $(11,434) (34%) $(27,660) (28%)
Cost of sales (3,537) (24%) (12,035) (26%)
-------- ------- -------- -------
Gross profit (7,897) (43%) (15,625) (30%)
Expenses:
Marketing, general and administrative (3,186) (32%) (5,459) (19%)
Research and development (1,211) (16%) (2,971) (12%)
-------- ------- -------- -------
(4,397) (25%) (8,430) (16%)
Operating earnings (loss) (3,500) (459%) (7,195) (660%)
Other income (expense), net (3,227) (61%) (1,307) (21%)
-------- ------- -------- -------
Earnings (loss) before income taxes,
extraordinary gain, and cumulative effect
of change in accounting principle (6,727) (111%) (8,502) (164%)
Income tax expense (benefit) (2,676) (110%) (3,333) (161%)
-------- ------- -------- -------
Earnings (loss) before extraordinary
gain and cumulative effect of change in
accounting principle (4,051) (111%) (5,169) (16%)
Extraordinary gain from repurchase of
convertible debentures, net of income taxes 1,270 100% 1,729 100%
Cumulative effect at December 26, 1992, of
change in accounting for income taxes - - (2,267) (100%)
-------- ------- -------- -------
Net earnings $ (2,781) (76%) $ (5,707) (106%)
======== ======= ======== =======
</TABLE>
-10-
<PAGE>
RESULTS OF OPERATIONS
- - - ---------------------
Sales
- - - -----
The following table summarizes sales for the nine months of 1994 and 1993 and
also for the third quarters of 1994 and 1993. As shown, total sales are lower
in 1994 compared with 1993 in both quarter and nine month periods.
<TABLE>
<CAPTION>
SALES
Three Months Ended Nine Months Ended
------------------------------------------- ---------------------------------------
% Change % Change
increase increase
Sept. 30, 1994 Oct. 1, 1993 (decrease) Sept. 30, 1994 Oct. 1, 1993 (decrease)
-------------- ------------ ---------- -------------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
World civil pilot training $ 1,345 $ 4,028 (67%) $ 3,982 $10,776 (63%)
U.S. Government 9,337 8,572 9% 29,254 34,619 (15%)
International Government 3,429 11,575 (70%) 16,435 24,865 (34%)
Education & Entertainment 231 296 (22%) 1,158 1,081 7%
Design Systems 7,592 5,414 40% 14,849 16,127 ( 8%)
Tripos, Inc. * -- 3,483 (100%) 5,955 11,825 (50%)
------- ------- ------- -------
$21,934 $33,368 (34%) $71,633 $99,293 (28%)
======= ======= ======= =======
</TABLE>
* The sales of Tripos for 1994 represent results for only five months due to the
Tripos Spin-off which occurred June 1, 1994. See notes to Financial Statements
(2).
Sales decreased $11,434,000 in the third quarter of 1994 as compared with the
same period in 1993. Of this amount, 30% or $3,483,000 is related to the spin-
off of Tripos which took place on June 1, 1994. For the respective nine month
periods, the absence of Tripos accounts for 21% of the $27,660,000 decrease in
sales.
The world civil pilot training market showed continued weakness during the
quarter with sales of $1,345,000 compared to $4,028,000 for the same quarter in
1993. It is expected that orders in this sector will strengthen based upon
renewed market demand. The Company's announcement that it will serve its
worldwide customers as an independent supplier of fully integrated visual
systems is expected to provide a welcome alternative to purchasers of simulation
equipment. There are, of course, risks in this course of action and certain
start-up costs are involved. Part of this plan to better serve the Company's
worldwide customer base was announced in August, 1994 when the Company announced
plans to establish a sales, engineering, manufacturing, and support facility in
Europe.
-11-
<PAGE>
U.S. Government sales for the quarter were up 9% over the third quarter of 1993.
International Government sales were $8,146,000 lower in the third quarter of
1994 as compared to the same period of 1993. Many contract announcements have
been delayed as international government budgets have been restricted.
Sales in the education and entertainment market continued to be slow during the
third quarter. Sales for the third quarter were $231,000 compared with $296,000
for the same quarter last year. Sales during the quarter included installation
and training on three Digistar planetarium systems. The first Digistar II
system, a new generation of planitarium systems, is scheduled to be installed
during the fourth quarter.
Design Systems sales increased $2,178,000, 40% more than 1993's third quarter.
Sales of Freedom Series accelerators are slightly ahead of last year. The
Company's industrial design software product (CDRS) continues to experience
increased sales. The Ford Motor Company took delivery of a multimillion dollar
worldwide site license of CDRS during the quarter. Third quarter sales of CDRS
were $3,510,000, an increase of $1,868,000 when compared with the same quarter
of 1993.
Cost of Sales
- - - -------------
Cost of sales for the quarter, as a percentage of sales, was 52% as compared to
the 45% for the corresponding third quarter of 1993. By removing the Tripos
cost of sales amounts for the third quarter of 1993, cost of sales as a
percentage of sales would have been 48%. In addition to the absence of low cost
Tripos sales in the third quarter 1994, higher costs can be attributed to the
mix of sales in U.S. Government and International Government. The third quarter
of 1993 saw a high proportion of high margin International sales and a
relatively low number of higher cost U.S. government sales, while the third
quarter of 1994 had a large proportion of U.S. Government and a smaller
proportion of International Government sales.
Cost of sales as a percentage of sales for the nine month period of 1994 is 49%
compared to 47% for the comparable period in 1993. By removing the Tripos cost
of sales amounts from the nine months figures, the cost of sales as a percentage
of sales would have been 51% for 1994 compared with 49% for 1993.
-12-
<PAGE>
Expenses
- - - --------
Expenses for the third quarter of 1994 are lower than the same quarter of 1993
by $4,397,000 or 25%. The exclusion of Tripos expenses for the third quarter of
1993 accounts for $2,993,000 of this reduction, and the balance is due to
restructuring efforts that took place in January of this year. The Company is
continuing to review expenses and may make further reductions in the future.
Other Income (Expense), Net
- - - ---------------------------
Other income decreased during the quarter over the previous year's third quarter
by $3,227,000. The primary reason for the decrease is due to the significant
gains attributed to sales of marketable equity securities during the third
quarter of 1993 of $5,096,000 as compared to gains in the third quarter of 1994
of $1,533,000. Other income resulting from interest income and expense (net)
and foreign currency gains are higher in 1994 for the respective third quarters
by $336,000. This is due to reduced interest expense due to the Company's
repurchasing of interest-bearing convertible debentures and foreign currency
gains recognized during the third quarter of 1994 which were greater than those
of the third quarter 1993.
Income Taxes
- - - ------------
A tax rate of 38% was utilized for income tax transactions in 1994 compared with
a 40% rate used in 1993. The rate for 1994 is estimated to be lower due to
improved performance from our foreign subsidiaries.
LIQUIDITY & CAPITAL COMMITMENTS
- - - -------------------------------
Funds to support the Company's operations come mainly from net cash provided by
operating activities, sales of marketable securities, and proceeds from employee
stock purchases and option plans. The Company also has cash equivalents and
temporary cash investments which can be used as needed for operating funds.
Cash and cash equivalents and temporary cash investments decreased $20,598,000
to $57,938,000 during the first nine months of 1994, principally due to the cash
expenditures and contributions 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 $7,166,000 to $7,041,000 during the same nine
month period. Approximately $3,100,000 of the decline is due to the sale of
VLSI shares and the balance is a result of changing market values of other
securities held.
INFLATION
- - - ---------
Inflation has not had a significant impact in the Company's results of
operations during any of the last three fiscal years.
-13-
<PAGE>
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. As
provided by the terms of the Agreement, the Company has now filed with the
American Arbitration Association a "Notice of Intention to Arbitrate" the
matters involved in the termination. The Company claims damages in excess of $26
million exclusive of costs against Thomson Training & Simulation Limited and
Thomson-CSF, S.A. in the Arbitration. Thomson Training & Simulation has filed
counterclaims claiming damages in excess of $30 million. The Company believes
these counterclaims are without merit and intends to vigorously defend against
them.
Item 6. Exhibits and Reports on Form 8-K
- - - -----------------------------------------
(b) The Company filed a Form 8-K on October 6, 1994. This filing provided
the following Proforma Financial Information relative to the Tripos
spin-off effective June 1, 1994.
. Consolidated Pro Forma Statement of Earnings - Year Ended
December 31, 1993
. Consolidated Pro Forma Statement of Earnings - 3 Months Ended
April 1, 1994
. Consolidated Pro Forma Balance Sheet dated April 1, 1994
-14-
<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 November 9, 1994 /s/
--------------------------------------------
Gary E. Meredith, Vice President, Secretary,
and Chief Financial Officer
-15-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Dec-30-1994
<PERIOD-END> Sep-30-1994
<CASH> 57,938
<SECURITIES> 7,076
<RECEIVABLES> 16,749
<ALLOWANCES> 148
<INVENTORY> 42,518
<CURRENT-ASSETS> 136,233
<PP&E> 103,616
<DEPRECIATION> 62,416
<TOTAL-ASSETS> 185,085
<CURRENT-LIABILITIES> 31,867
<BONDS> 21,123
<COMMON> 1,708
0
0
<OTHER-SE> 127,962
<TOTAL-LIABILITY-AND-EQUITY> 185,085
<SALES> 21,934
<TOTAL-REVENUES> 21,934
<CGS> 11,452
<TOTAL-COSTS> 13,219
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 298
<INCOME-PRETAX> (651)
<INCOME-TAX> 246
<INCOME-CONTINUING> (2,737)
<DISCONTINUED> 0
<EXTRAORDINARY> 1,270
<CHANGES> 0
<NET-INCOME> 865
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
</TABLE>
