<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 29, 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) 588-1000
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 November 3, 1995
- ----------------------------------- --------------------------------------
COMMON STOCK, $0.20 PAR VALUE 8,698,754
<PAGE>
FORM 10-Q
EVANS & SUTHERLAND COMPUTER CORPORATION
QUARTER ENDED SEPTEMBER 29, 1995
Page No.
TABLE OF CONTENTS 2
PART I - FINANCIAL INFORMATION
GENERAL STATEMENT 3
ITEM 1. Financial Statements
Consolidated Statements of Earnings -
Three Months & Nine Months Ended
September 29, 1995 and September 30, 1994 4
Consolidated Balance Sheets - September 29,
1995 and December 30, 1994 5-6
Consolidated Condensed Statements of Cash
Flows - Nine Months Ended September 29, 1995
and September 30, 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
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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 Nine Months Ended
September 29, 1995 and September 30, 1994
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
(Unaudited) (Unaudited)
----------------------- -----------------------
Sept. 29, Sept. 30, Sept. 29, Sept. 30,
1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $33,662 $21,934 $78,029 $71,633
Cost of sales 17,245 11,452 44,145 35,083
------ ------ ------ ------
Gross profit 16,417 10,482 33,884 36,550
Expenses:
Marketing, general and administrative 6,721 6,878 21,919 23,794
Research and development 4,451 6,341 15,370 21,041
------ ------ ------ ------
Total expenses 11,172 13,219 37,289 44,835
Gain from sale of business unit - - 20,188 -
------ ------ ------ ------
Operating earnings (loss) 5,245 (2,737) 16,783 (8,285)
Other income 959 2,086 9,580 4,955
------ ------ ------ ------
Earnings (loss) before income
and extraordinary gain 6,204 (651) 26,363 (3,330)
Income tax expense (benefit) 2,605 (246) 11,072 (1,265)
------ ------ ------ ------
Earnings (loss) before extraordinary gain 3,599 (405) 15,291 (2,065)
Extraordinary gain from repurchase of
convertible debentures, net of income taxes 111 1,270 311 1,729
------ ------ ------ ------
Net earnings (loss) $ 3,710 $ 865 $15,602 $ (336)
====== ====== ====== ======
Earnings (loss) per common and common equivalent share:
Before extraordinary gain $ 0.42 $ (0.05) $ 1.77 $ (0.24)
Extraordinary gain from repurchase of
convertible debentures: 0.01 0.15 0.04 0.20
------ ------ ------ ------
Total earnings per share $ 0.43 $ 0.10 $ 1.81 $ (0.04)
====== ====== ====== ======
Weighted average number of
shares used for per share earnings computation: 8,659 8,535 8,618 8,511
</TABLE>
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<PAGE>
EVANS & SUTHERLAND COMPUTER CORPORATION
CONSOLIDATED BALANCE SHEETS
September 29, 1995 and December 30, 1994
(U.S. Dollars in Thousands)
<TABLE>
<CAPTION>
September 29, December 30,
1995 1994
Assets (Unaudited) (Audited)
------ ------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 51,141 $ 25,213
Short-term investments 43,481 26,597
Receivables:
Trade accounts, less allowance for
doubtful receivables of $2,073 in
1995 and $144 in 1994 18,466 20,724
Income taxes 3,683 1,633
Interest 1,629 1,142
Other 390 150
------------ ------------
Total receivables 24,168 23,649
Inventories, net (note 1) 18,456 26,192
Costs and estimated earnings in excess of
billings on uncompleted contracts, net 11,126 18,549
Deferred income tax 6,949 6,561
Prepaid expenses and deposits 989 1,425
------------ ------------
Total current assets 156,310 128,186
------------ ------------
Property, plant, and equipment, at cost 107,634 104,466
Less accumulated depreciation and amortization 64,698 62,802
------------ ------------
Net property, plant, and equipment 42,936 41,664
Long-term investments:
Marketable equity securities
available-for-sale, at fair value 3,791 7,277
Other 3,035 35
------------ ------------
Total long-term investments 6,826 7,312
Other assets, at cost, less
accumulated amortization 1,606 1,578
----------- ------------
Total assets $207,678 $178,740
=========== ============
</TABLE>
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<PAGE>
EVANS & SUTHERLAND COMPUTER CORPORATION
CONSOLIDATED BALANCE SHEETS
September 29, 1995 and December 30, 1994
(U.S. Dollars in Thousands)
<TABLE>
<CAPTION>
September 29, December 30,
1995 1994
Liabilities and Stockholders' Equity (Unaudited) (Audited)
- ------------------------------------ -------------- -------------
<S> <C> <C>
Current liabilities:
Notes payable to banks $ 5,428 $ 1,817
Accounts payable 2,197 2,401
Accrued expenses 17,565 15,556
Customer deposits 7,141 9,182
Income taxes payable 14,038 -
------------- -------------
Total current liabilities 46,369 28,956
Convertible subordinated debentures 18,015 20,375
Deferred income taxes 1,210 2,291
Stockholders' equity:
Common stock, $.20 par value; authorized
30,000,000 shares; issued and outstanding
8,682,442 shares at September 29, 1995 and
8,552,106 shares at December 30, 1994 1,736 1,710
Additional paid-in capital 4,645 2,850
Retained earnings 134,853 119,251
Net unrealized gain on securities
available-for-sale. 1,028 2,847
Cumulative translation adjustment (178) 460
-------------- -------------
Total stockholders' equity 142,084 127,118
-------------- -------------
Total liabilities and stockholders' equity $207,678 $178,740
============== =============
</TABLE>
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<PAGE>
EVANS & SUTHERLAND COMPUTER CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 29, 1995 and September 30, 1994
(U.S. Dollars in Thousands)
<TABLE>
<CAPTION>
Nine Months Ended
(Unaudited)
-----------------------------
September 29, September 30,
1995 1994
------------ -------------
<S> <C> <C>
Net cash provided by (used in) operating activities $43,886 $(1,847)
Cash flows from investing activities:
Capital expenditures (9,009) (3,354)
Proceeds from sale of marketable equity securities 7,930 4,502
Net sales (purchases) of short-term investments (16,884) 15,222
Long-term investment (3,000) 0
Other 0 (341)
------------ -------------
Net cash provided by (used in) investing activities (20,963) 16,029
Cash flows from financing activities:
Payments for repurchase of convertible debentures (1,832) (12,872)
Net proceeds from issuance of common stock 1,821 4,192
Net borrowings (payments) under line of credit agreement 3,442 (1,946)
Other 0 (233)
------------ -------------
Net cash provided by (used in) financing activities 3,431 (10,859)
Effect of foreign exchange rate changes on cash (426) (214)
------------ -------------
Net increase in cash and cash equivalents 25,928 3,109
Cash and cash equivalents at beginning of year 25,213 3,250
------------ -------------
Cash and cash equivalents at end of period $51,141 $ 6,359
============ =============
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 1,191 $ 2,514
Income taxes $ 264 $ 358
</TABLE>
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<PAGE>
EVANS & SUTHERLAND COMPUTER CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Dollars in Thousands)
(1) Inventories are summarized as follows:
September 29, December 30,
1995 1994
(Unaudited) (Audited)
------------- ------------
Raw materials and supplies $ 9,718 $10,498
Work-in-process 4,815 13,491
Finished Goods 3,923 2,203
------ ------
$18,456 $26,192
====== ======
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<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 Nine Months
ended Sept. 29, 1995 ended Sept. 29, 1995
and Sept. 30, 1994 and Sept. 30, 1994
-------------------- --------------------
<S> <C> <C>
Net sales $11,728 53.5% $ 6,396 8.9%
Cost of sales 5,793 50.6% 9,062 25.8%
-------- --------
Gross profit 5,935 56.6% (2,666) (7.3%)
Expenses:
Marketing, general and administrative (157) (2.3%) (1,875) (7.9%)
Research and development (1,890) (29.8%) (5,671) (27.0%)
-------- --------
Total expenses (2,047) (15.5%) (7,546) (16.8%)
Gain from sale of business unit - 0.0% 20,188 100.0%
-------- --------
Operating earnings 7,982 291.6% 25,068 302.6%
Other income (expense), net (1,127) (54.0%) 4,625 93.3%
-------- --------
Earnings before income taxes
and extraordinary gain 6,855 1,053.0% 29,693 891.7%
Income tax expense 2,851 1,158.9% 12,337 975.3%
-------- --------
Earnings before extraordinary gain 4,004 988.6% 17,356 840.5%
Extraordinary gain from repurchase of
convertible debentures, net of income taxes (1,159) (91.3%) (1,418) (82.0%)
-------- --------
Net earnings $ 2,845 328.9% $15,938 4,743.5%
======== ========
</TABLE>
-9-
<PAGE>
RESULTS OF OPERATIONS
- ---------------------
Sales
- -----
The following table summarizes sales for the first nine months of 1995 and 1994
and also for the third quarters of 1995 and 1994
<TABLE>
<CAPTION>
NET SALES
(U.S. Dollars in Thousands)
----------------------------------------------------------------
Quarter Ended Nine Months Ended
------------------------------- -------------------------------
Sept. 29, Sept. 30, increase Sept. 29, Sept. 30, increase
1995 1994 (decrease) 1995 1994 (decrease)
--------- --------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Commercial Simulation $ 5,478 $ 1,345 307% $ 7,205 $ 3,982 81%
Government Simulation 23,272 12,766 82% 56,337 45,689 23%
Education & Entertainment 1,518 231 557% 4,633 1,158 300%
Graphics Systems a) b) 3,394 7,592 (55%) 9,854 20,804 (53%)
------- ------- ------- --------
$33,662 $21,934 53% $78,029 $71,633 9%
====== ====== ====== ======
</TABLE>
- -----------
a) Includes $5,955 of Tripos, Inc. (Tripos) sales in the nine months ended
9/30/94. (Tripos spun-off to Evans & Sutherland shareholders June 1, 1994.)
b) Includes $3,510 of Design Systems (CDRS) sales in the quarter ended
9/30/94 and includes $815 in CDRS sales in the nine months ended 9/29/95 and
$6,550 in CDRS sales for the nine months ended 9/30/94. (CDRS sold to
Parametric Technology Corporation April 12, 1995.)
The above table shows an increase of sales of 53% for the quarter ended
September 29, 1995 as compared with the same period last year, and an increase
of sales of 9% for the nine month period ended September 29, 1995 compared with
the same period last year. Excluding CDRS and Tripos sales, the quarter, in
comparison, would have reflected an 83% increase in sales and for the nine month
comparison, a 31% increase in sales would have been reflected.
Without Tripos and CDRS, the Graphics Systems sector would show a 17% decrease
for the quarter rather than 55% decrease and a 18% increase versus a 53%
decrease for the nine month period. This sector slowly continues to improve.
Work on the Company's 3-D graphics PC product is on schedule. Mitsubishi
Electronics and Evans & Sutherland previously announced an agreement to develop
a 3-D graphics product in this sector.
The Government Simulation business continues to demonstrate growth led by the
strength of the international market with an 82% increase for the quarter and a
23% nine month improvement over the previous years respective periods.
The Company's Commercial Simulation business also reported strong revenue
growth, particularly when compared with its startup in the third quarter of
1994. Sales for the nine month period were 81% higher than the same period in
1994. In September, the Company reached an agreement with Thomson Training &
Simulation which will allow each company to pursue opportunities in the civil
pilot market on a non-exclusive basis. During the period, $3.25M in disputed
revenue was paid to the Company at termination of the market agreement. In
October, the Company announced the acquisition of Dallas-based Xionix
Simulation, Inc. Xionix is a small operation which specializes in the supply of
low-cost flight management training systems and provides a low end product
opportunity to the company. This combination further strengthens the Company's
position in this market sector.
-10-
<PAGE>
The Education and Entertainment business delivered four DIGISTAR II systems
during the quarter and received orders for two more. These deliveries drive the
557% sales growth in the quarter compared with the third quarter of 1994.
Interest continues to be strong with the DIGISTAR II and other virtual reality
technology products. In October, the Company announced a preliminary agreement
with United Artists Theatre Circuit Inc. to install its Virtual Glider product
in its location-based entertainment venues.
COST OF SALES
- -------------
Cost of sales, as a percentage of sales, was 51% for the third quarter ended
September 29, 1995 compared with 52% for the same period in 1994. During the
third quarter of 1995, a large number of high margin, short term Government
Simulation units were delivered. This product mix coupled with lower
manufacturing costs stemming from the Company's previously announced restructure
partially offset a $2 million bad debt provision booked near the end of the
quarter.
For the nine month period ended September 29, 1995, the cost of sales percentage
is 56% as compared with 49% for the nine month period ended September 30, 1994.
The Cost of Sales was higher in the first nine months of 1995 compared with the
same period of 1994 due to the sale of the CDRS software business and the spin
off of the Tripos software business. Other one time charges included in Cost of
Sales in the period were made during the second quarter and included $1,550,000
for a possible contract dispute in the Government Simulation business and a
$2,000,000 inventory writedown charge.
EXPENSES
- --------
Total expenses for the third quarter of 1995 decreased $2,047,000 or 16% below
the corresponding period of 1994.
Marketing, General, and Administrative: Marketing, general, and
---------------------------------------
administrative expenses are $157,000 lower or 2.3% less in the third quarter
1995 as compared to the same quarter of 1994. As a percent of sales, the
rates for the third quarter 1995 and 1994 are respectively 20% and 31%.
Excluding CDRS costs in 1994, expenses have increased 19%. The increase is a
result of efforts to develop and strengthen the Commercial Simulation and
Education & Entertainment businesses.
Research and Development: Company-funded research and development costs
-------------------------
decreased $1,890,000 in the third quarter 1995 as compared to the same period
of 1994. Excluding research and development costs of CDRS, the reduction
would be $1,462,000. This decrease is a result of the Company's efforts to
strategically refocus its research and development program in January of
1995.
OTHER INCOME (EXPENSE), NET
- ---------------------------
Other income decreased $1,127,000 in the third quarter of 1995 compared to the
third quarter 1994. The principal reason for the decrease is that the results in
the period do not include gains from the sale of investments. By contrast, in
1994 there was a $1,533,000 gain from the sale of VLSI stock. Interest income
continues to run higher than in previous periods due to better performance of
short-term cash investments.
-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 due to greater taxable income and reduced
benefits such as Research and Development credits and other credits.
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, cash equivalents and short-term investments increased $2,330,000 to
$94,622,000 during the third quarter of 1995. Marketable equity securities
remained relataively the same with other long-term investments increasing
$3,000,000 due to the Company's investment in Strata, Inc.
There were no material capital commitments as the fiscal year 1995 began, and no
major commitments were extended during the third quarter of 1995. The Company's
estimated capital budget for fiscal 1995 is $10,500,000.
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 1. LEGAL PROCEEDINGS
- -------------------------
The Company announced on September 14, 1995 the resolution of
differences with Thomson Training and Simulation Limited and the
dismissal of any and all legal actions resulting from contractual
disputes related to prior distribution agreements to which the Company
and Thomson had been parties. The settlement will allow the companies to
proceed to supply their products to the market and will make it
possible for each party to work with one or more other parties in
serving the market.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ----------------------------------------
(b) There were no reports on Form 8-K filed for the three-month period
ended September 29, 1995.
-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 November 9, 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> 9-MOS
<FISCAL-YEAR-END> DEC-29-1995
<PERIOD-END> SEP-29-1995
<CASH> 94,622
<SECURITIES> 3,791
<RECEIVABLES> 24,168
<ALLOWANCES> 2,073
<INVENTORY> 18,456
<CURRENT-ASSETS> 156,310
<PP&E> 107,634
<DEPRECIATION> 64,698
<TOTAL-ASSETS> 207,678
<CURRENT-LIABILITIES> 46,369
<BONDS> 18,015
<COMMON> 1,736
0
0
<OTHER-SE> 140,348
<TOTAL-LIABILITY-AND-EQUITY> 207,678
<SALES> 33,662
<TOTAL-REVENUES> 33,662
<CGS> 17,245
<TOTAL-COSTS> 11,172
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 360
<INCOME-PRETAX> 6,204
<INCOME-TAX> 2,605
<INCOME-CONTINUING> 3,599
<DISCONTINUED> 0
<EXTRAORDINARY> 111
<CHANGES> 0
<NET-INCOME> 3,710
<EPS-PRIMARY> 0.43
<EPS-DILUTED> 0.43
</TABLE>
