<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 June 30, 1995 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 August 2, 1995
- --------------------------------------- ------------------------------------
COMMON STOCK, $0.20 PAR VALUE 8,670,667
<PAGE>
FORM 10-Q
EVANS & SUTHERLAND COMPUTER CORPORATION
QUARTER ENDED JUNE 30, 1995
<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 - Three Months & Six Months Ended
June 30, 1995 and July 1, 1994 4
Consolidated Balance Sheets - June 30, 1995 and
December 30, 1994 5-6
Consolidated Condensed Statements of Cash Flows - Six
Months Ended June 30, 1995 and July 1, 1994 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 6. EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURE PAGE 13
</TABLE>
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<PAGE>
EVANS & SUTHERLAND COMPUTER CORPORATION
PART I - FINANCIAL INFORMATION
GENERAL STATEMENT:
The following Consolidated Statements of Earnings, Consolidated Balance Sheets,
and Consolidated Condensed 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 presentation of results for the interim periods presented.
It is management's opinion that the information presented herein reflects a fair
presentation 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
June 30, 1995 and July 1, 1994
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
(Unaudited) (Unaudited)
----------------------- ------------------------
June 30, July 1, June 30, July 1,
1995 1994 1995 1994
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Net sales $ 25,081 $ 22,839 $ 44,367 $ 49,699
Cost of sales 18,378 11,354 26,900 23,631
---------- ---------- ---------- ----------
Gross profit 6,703 11,485 17,467 26,068
Expenses:
Marketing, general and administrative 7,260 8,580 15,198 16,916
Research and development 4,711 6,814 10,919 14,700
---------- ---------- ---------- ----------
Total expenses 11,971 15,394 26,117 31,616
Gain from sale of business unit 20,188 - 20,188 -
---------- ---------- ---------- ----------
Operating earnings (loss) 14,920 (3,909) 11,538 (5,548)
Other income 4,282 1,365 8,621 2,869
---------- ---------- ---------- ----------
Earnings (loss) before income
and extraordinary gain 19,202 (2,544) (20,159) (2,679)
Income tax expense (benefit) 8,108 (966) 8,467 (1,019)
---------- ---------- ---------- ----------
Earnings (loss) before extraordinary gain 11,094 (1,578) 11,692 (1,660)
Extraordinary gain from repurchase of
convertible debentures, net of income taxes 200 369 200 459
Net earnings (loss) $ 11,294 $ (1,209) $ 11,892 $ (1,201)
---------- ---------- ---------- ----------
Earnings (loss) per common and common equivalent share:
Before extraordinary gain $ 1.29 $ (0.18) $ 1.36 $ (0.19)
Extraordinary gain from repurchase of
convertible debentures: 0.02 0.04 0.02 0.05
---------- ---------- ---------- ----------
Total earnings per share $ 1.31 $ (0.14) $ 1.38 $ (0.14)
---------- ---------- ---------- ----------
Weighted average number of
shares used for per share
earnings computation: 8,632 8,526 8,597 8,500
</TABLE>
-4-
<PAGE>
EVANS & SUTHERLAND COMPUTER CORPORATION
CONSOLIDATED BALANCE SHEETS
June 30, 1995 and December 30, 1994
(U.S. Dollars in Thousands)
<TABLE>
<CAPTION>
June 30, December 30,
1995 1994
Assets (Unaudited) (Audited)
------ ----------------- -----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 40,255 $ 25,213
Short-term investments 52,077 26,597
Receivables:
Trade accounts, less allowance for
doubtful receivables of $58 in
1995 and $144 in 1994 22,027 20,724
Income taxes 2,344 1,633
Interest 868 1,142
Employees and other 252 150
-------------- -------------
Total receivables 25,491 23,649
Inventories, net (note 1) 20,007 26,192
Costs and estimated earnings in excess of
billings on uncompleted contracts, net 12,579 18,549
Deferred income tax 10,489 6,561
Prepaid expenses and deposits 1,172 1,425
-------------- -------------
Total current assets 162,070 128,186
-------------- -------------
Property, plant, and equipment, at cost 103,943 104,466
Less accumulated depreciation and amortization 63,251 62,802
-------------- -------------
Net property, plant, and equipment 40,692 41,664
Long-term investments:
Marketable equity securities
available-for-sale, at fair value 3,734 7,277
Other 35 35
-------------- -------------
Total long-term investments 3,769 7,312
Other assets, at cost, less
accumulated amortization 1,699 1,578
-------------- -------------
Total assets $ 208,230 $ 178,740
============== =============
</TABLE>
-5-
<PAGE>
EVANS & SUTHERLAND COMPUTER CORPORATION
CONSOLIDATED BALANCE SHEETS
June 30, 1995 and December 30, 1994
(U.S. Dollars in Thousands)
<TABLE>
<CAPTION>
June 30, December 30,
1995 1994
Liabilities and Stockholders' Equity (Unaudited) (Audited)
-------------------------------------- ---------------- --------------
<S> <C> <C>
Current liabilities:
Notes payable to banks $ 5,990 $ 1,817
Accounts payable 1,781 2,401
Accrued expenses 19,276 15,556
Customer deposits 10,099 9,182
Income taxes payable 13,690 -
------------- ------------
Total current liabilities 50,836 28,956
Convertible subordinated debentures 18,875 20,375
Deferred income taxes 1,189 2,291
Stockholders' equity:
Common stock, $.20 par value; authorized
30,000,000 shares; issued and outstanding
8,641,826 shares at June 30, 1995 and
8,552,106 shares at December 30, 1994 1,728 1,710
Additional paid-in capital 4,067 2,850
Retained earnings 131,143 119,251
Net unrealized gain on securities
available-for-sale. 995 2,847
Cumulative translation adjustment (303) 460
Common stock in treasury (300) -
------------- ------------
Total stockholders' equity 137,330 127,118
------------- ------------
Total liabilities and stockholders' equity $208,230 $178,740
============= ============
</TABLE>
-6-
<PAGE>
EVANS & SUTHERLAND COMPUTER CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30, 1995 and July 1, 1994
(U.S. Dollars in Thousands)
<TABLE>
<CAPTION>
Six Months Ended
(Unaudited)
---------------------------
June 30, July 1,
1995 1994
---------- -----------
<S> <C> <C>
Net cash provided by operating activities $ 33,931 $ 2,344
Cash flows from investing activities:
Capital expenditures (4,368) (1,985)
Proceeds from sale of marketable equity securities 7,930 2,777
Net sales (purchases) of short-term investments (25,480) 2,082
Other - (389)
---------- -----------
Net cash provided by (used in) investing activities (21,918) 2,485
Cash flows from financing activities:
Payments for repurchase of convertible debentures (1,159) (3,831)
Net sales of short-term investments 934 4,056
Net borrowings (payments) under line of credit agreement 3,812 (2,765)
Other - (26)
---------- -----------
Net cash provided by (used in) financing activities 3,587 (2,566)
Effect of foreign exchange rate changes on cash (558) (298)
---------- -----------
Net increase in cash and cash equivalents 15,042 1,965
Cash and cash equivalents at beginning of year 25,213 3,250
---------- -----------
Cash and cash equivalents at end of period $ 40,255 $ 5,215
========== ===========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 626 $ 1,287
Income taxes $ 86 $ 316
</TABLE>
-7-
<PAGE>
EVANS & SUTHERLAND COMPUTER CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Dollars in Thousands)
(1) Inventories are summarized as follows:
<TABLE>
<CAPTION>
June 30, December 30,
1995 1994
(Unaudited) (Audited)
----------- -----------
<S> <C> <C>
Raw materials and supplies $ 8,018 $ 10,498
Work-in-process 10,305 13,491
Finished Goods 1,684 2,203
---------- -----------
$ 20,007 $ 26,192
========== ===========
</TABLE>
-8-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(U.S. 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 June 30, 1995 Ended June 30, 1995
And July 1, 1994 And July 1, 1994
------------------------- ----------------------------
<S> <C> <C> <C> <C>
Net sales $ 2,242 9.8% $(5,332) (10.7%)
Cost of sales 7,024 61.9% 3,269 13.8%
---------- ----------
Gross profit (4,782) (41.6%) (8,601) (33.0%)
Expenses:
Marketing, general and administrative (1,320) (15.4%) (1,718) (10.2%)
Research and development (2,103) (30.9%) (3,781) (25.7%)
---------- ----------
Total expenses (3,423) (22.2%) (5,499) (17.4%)
Gain from sale of business unit 20,188 100.0% 20,188 100.0%
---------- ----------
Operating earnings 18,829 481.7% 17,086 308.0%
Other income (expense), net 2,917 213.7% 5,752 200.5%
---------- ----------
Earnings before income taxes
and extraordinary gain 21,746 854.8% 22,838 852.5%
Income tax expense 9,074 939.3% 9,485 931.7%
---------- ----------
Earnings before extraordinary gain 12,672 803.0% 13,353 803.9%
Extraordinary gain from repurchase of
convertible debentures, net of income taxes (169) (45.8%) (260) (56.5%)
---------- ----------
Net earnings $12,503 1,034.2% $13,093 1,090.2%
========== ==========
</TABLE>
-9-
<PAGE>
RESULTS OF OPERATIONS
- ---------------------
SALES
- -----
The following table summarizes sales for the first six months of 1995 and 1994
and also for the second quarters of 1995 and 1994
<TABLE>
<CAPTION>
NET SALES
(U.S. Dollars in Thousands)
____________________________________________________________________________
Quarter Ended Six Months Ended
------------- ----------------
June 30, July 1, increase June 30, July 1, increase
1995 1994 (decrease) 1995 1994 (decrease)
-------- ------- ---------- -------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Commercial Simulation $ 1,324 $ 1,997 (34%) $ 1,727 $ 2,637 (35%)
Government Simulation 18,473 14,543 27% 33,065 32,923 0%
Education & Entertainment 2,362 605 290% 3,115 927 236%
Graphics Systems a) b) 2,922 5,694 (49%) 6,460 13,212 (51%)
----- ------ ------ ------
$25,081 $22,839 10% $44,367 $49,699 (11%)
====== ====== ====== ======
</TABLE>
a) Includes $2,331 of Tripos, Inc. (Tripos) sales in the quarter ended
7/1/94 and $5,955 in Tripos sales in the six months ended 7/1/94. (Tripos spun-
off to shareholders June 1, 1994.)
b) Includes $78 of Design Systems (CDRS) sales in the quarter ended 6/30/95
compared with $1,386 of CDRS sales in the quarter ended 7/1/94; and includes
$800 in CDRS sales in the six months ended 6/30/95 and $3,040 in CDRS sales for
the six months ended 7/1/94. (CDRS sold to Parametric Technology Corporation
April 12, 1995.)
The above table shows an increase of sales of 10% for the quarter ended June 30,
1995 compared with the same period last year, and a decrease of sales of 11% for
the six month period ended June 30, 1995 compared with the same period last
year. Excluding Tripos and CDRS sales, the quarter, in comparison, would have
reflected a 31% increase in sales and for the six month comparison a 7% increase
in sales would have been reflected.
Without Tripos and CDRS, the Graphics Systems sector would show a 44% increase
for the quarter rather than 49% decrease and a 34% increase versus a 51%
decrease for the six month period. The Company is continuing to work and
strengthen its relationships with its OEM partners (DEC, Sun Microsystems,
Hewlett Packard, and IBM).
The Government Simulation business experienced a strong second quarter with
sales 27% higher compared to the same quarter in 1994 . Sales are higher than
planned and there is continued strong order activity, particularly in the
international markets.
Commercial Simulation is still in the rebuilding phase, however, this sector met
the Company's expectations for the quarter and for the six month period. With a
recent order from Airbus Industrie, the Company believes that its new marketing
strategy for the civil pilot training business is achieving some success.
Education and Entertainment experienced strong sales growth for the quarter and
the six month period with increases of $1,757,000 and $2,188,000 respectively.
The market's response to DIGISTAR II, the new generation of digital planetarium
systems, has been very good. Recent installations in Salt Lake City and London
have been completed. The Company has orders for thirteen systems and sales are
expected to meet anticipated levels for the rest of the year.
-10-
<PAGE>
COST OF SALES
- -------------
Cost of sales, as a percentage of sales, was 73% for the second quarter ended
June 30, 1995 compared with 50% for the same period in 1994. For the six month
period ended June 30, 1995, the cost of sales percentage is 61% as compared with
48% for the six month period ended July 1, 1994. The increased percentage is
due to a one-time charge against cost of sales of $1,550,000 related to a
possible contract dispute in the Government Simulation business and a $2,000,000
charge related to writedown of inventory. In addition, during the second
quarter of 1995, the Company substantially concluded and booked a military
contract with margins that are lower than typical margins in that business. If
one-time charges, CDRS, Tripos, and the low margin military sales are removed
from the equation, cost of sales for the second quarter of 1995 is 52% as
compared with 55% for the second quarter 1994.
EXPENSES
- --------
Total expenses for the second quarter of 1995 decreased $3,423,000 or 22% below
the corresponding 1994 period.
Marketing, General, and Administrative: Marketing, general, and
---------------------------------------
administrative expense decreased $1,320,000 or 15% in the second quarter 1995
as compared to the same quarter of 1994. As a percent of sales, the rates
for the second quarter 1995 and 1994 are respectively 29% and 38%.
Excluding expenses generated by Tripos, expenses have increased 8%. This
increase refects additional expenses used to strengthen the Commercial
Simulation and Education & Entertainment businesses.
Research and Development: Company-funded research and development costs
-------------------------
decreased $2,103,000 in the second quarter 1995 as compared to the same
period of 1994. Excluding research and development costs of Tripos and
CDRS, the reduction would be $1,321,000. This decrease is a result of the
Company's restructuring efforts that took place in January of this year.
GAIN ON SALE OF BUSINESS UNIT (CDRS)
- ------------------------------------
On April 12, 1995, the Company completed the sale of its CDRS business to
Parametric Technology Corporation (PTC), a Massachusetts Corporation. The sale
was effected pursuant to an Asset Purchase Agreement dated March 1, 1995 by and
among the Company, PTC, and PTC Acquisition Corporation, a wholly owned
subsidiary of PTC. The aggregate purchase price of the sale was approximately
$34,100,000 in cash. At the current time, several purchase price adjustments
are still being negotiated which may affect the final purchase price. Costs and
expenses associated with the sale of the CDRS business include a $5.3 million
writedown of inventory directly related to the sale of CDRS.
OTHER INCOME (EXPENSE), NET
- ---------------------------
Other income increased $2,917,000 in the second quarter of 1995 compared to the
second quarter 1994. $2,252,000 of this increase is due principally to the sale
of VLSI stock held for investment. Interest income for the second quarter was
$747,000 higher in 1995 than the respective quarter of 1994 due to an increase
in short-term investments and higher interest rates applicable to such
investments. Interest expense was $84,000 lower in 1995 than 1994 due to lower
interest on the Company's Convertible Debentures.
-11-
<PAGE>
INCOME TAXES
- ------------
A tax rate of 42% was utilized for income tax transactions in 1995 as compared
to 38% for 1994. A higher rate is justified upon greater taxable income and
reduced tax benefits such as Research and Development credits as a percentage of
total tax.
LIQUIDITY & CAPITAL COMMITMENTS
- -------------------------------
Funds to support the Company's operations come mainly from: net cash provided by
operating activities and sales of marketable securities. The Company also has
cash equivalents and temporary cash investments which can be used as needed for
operating funds.
Cash and cash equivalents and short-term investments increased $37,774,000 to
$92,332,000 during the second quarter of 1995 principally due to the sale of the
CDRS business unit to PTC. Marketable equity securities declined $2,434,000 to
$3,734,000 as a result of the Company's sales of certain shares held for
investment.
There were no material capital commitments as the fiscal year 1995 began, and no
major commitments were extended during the second quarter of 1995.
The Company believes that, through internal cash generation plus the cash
investments and marketable securities identified above, it has sufficient
resources to cover its cash needs during fiscal year 1995.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------- --------------------------------
(b) On April 12, 1995 a Form 8-K was filed regarding the sale of the
Company's Design Software business to Parametric Technology Corporation.
-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, 1995 /s/
--------------- --------------------------------------------------
GARY E. MEREDITH, VICE PRESIDENT, SECRETARY,
AND CHIEF FINANCIAL OFFICER
-13-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-29-1995
<PERIOD-END> JUN-30-1995
<CASH> 92,332
<SECURITIES> 3,734
<RECEIVABLES> 22,085
<ALLOWANCES> 58
<INVENTORY> 20,007
<CURRENT-ASSETS> 162,070
<PP&E> 103,943
<DEPRECIATION> 63,251
<TOTAL-ASSETS> 208,230
<CURRENT-LIABILITIES> 50,836
<BONDS> 18,875
<COMMON> 1,728
0
0
<OTHER-SE> 135,602
<TOTAL-LIABILITY-AND-EQUITY> 208,230
<SALES> 25,081
<TOTAL-REVENUES> 25,081
<CGS> 18,378
<TOTAL-COSTS> 11,971
<OTHER-EXPENSES> 103
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 432
<INCOME-PRETAX> 20159
<INCOME-TAX> 8,467
<INCOME-CONTINUING> 11,692
<DISCONTINUED> 0
<EXTRAORDINARY> 200
<CHANGES> 0
<NET-INCOME> 11,892
<EPS-PRIMARY> 1.38
<EPS-DILUTED> 1.38
</TABLE>
