<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 27, 1996 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 1, 1996
- ------------------------------------ --------------------------------------
Common Stock, $0.20 par value 9,050,556
<PAGE>
Form 10-Q
Evans & Sutherland Computer Corporation
QUARTER ENDED September 27, 1996
Page No.
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1. Financial Statements
<S> <C> <C>
Condensed Consolidated Statements of Operations
- Three Months and Nine Months Ended September
27, 1996 and September 29, 1995 3
Condensed Consolidated Balance Sheets -
September 27, 1996 and December 29, 1995 4
Condensed Consolidated Statements of Cash Flows
- Nine Months Ended September 27, 1996 and
September 29, 1995 5
Notes to Condensed Consolidated Financial
Statements 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 9
Signature Page 10
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
EVANS & SUTHERLAND COMPUTER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------ ------------------------
Sept. 27, Sept. 29, Sept. 27, Sept. 29,
1996 1995 1996 1995
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Net sales $33,712 $33,662 $91,305 $78,029
Cost of sales 16,948 17,245 47,332 44,145
---------- ----------- ---------- -----------
Gross profit 16,764 16,417 43,973 33,884
Expenses:
Marketing, general and administrative 7,632 6,721 22,196 21,919
Research and development 4,975 4,451 15,793 15,370
---------- ----------- ---------- -----------
Total expenses 12,607 11,172 37,989 37,289
Gain from sale of business unit - - - 20,188
---------- ----------- ---------- -----------
Operating earnings 4,157 5,245 5,984 16,783
Other income 1,144 959 2,942 9,580
---------- ----------- ---------- -----------
Earnings before income taxes
and extraordinary gain 5,301 6,204 8,926 26,363
Income tax expense 2,015 2,605 3,392 11,072
---------- ----------- ---------- -----------
Earnings before extraordinary gain 3,286 3,599 5,534 15,291
Extraordinary gain from repurchase of
convertible debentures, net of income taxes - 111 - 311
---------- ----------- ---------- -----------
Net earnings $3,286 $3,710 $5,534 $15,602
========== =========== ========== ===========
Earnings per share (note 1):
Before extraordinary gain $0.35 $0.42 $0.60 $1.77
Extraordinary gain from repurchase of
convertible debentures - 0.01 - 0.04
---------- ----------- ---------- -----------
Total earnings per share $0.35 $0.43 $0.60 $1.81
========== =========== ========== ===========
Number of shares used in earnings
per share calculation 9,257 8,659 9,206 8,618
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
EVANS & SUTHERLAND COMPUTER CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
<TABLE>
<CAPTION>
September 27, December 29,
1996 1995
------------- ------------
Assets (Unaudited)
- ------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 10,016 $ 5,023
Marketable securities 55,916 86,718
Accounts receivable, less allowance for doubtful
receivables of $255 in 1996 and $172 in 1995 24,495 27,121
Inventories, net (note 3) 22,978 18,981
Costs and estimated earnings in excess of billings on uncompleted contracts 33,639 15,052
Deferred income taxes 6,385 6,645
Prepaid expenses and deposits 3,326 1,464
------------- ------------
Total current assets 156,755 161,004
Property, plant, and equipment, at cost 113,160 106,147
Less accumulated depreciation and amortization 70,921 65,292
------------- ------------
Net property, plant, and equipment 42,239 40,855
Investment securities 6,923 7,437
Other assets, at cost, less accumulated amortization 2,496 1,706
------------- ------------
Total assets $ 208,413 $ 211,002
============= ============
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Notes payable to banks $ 5,553 $ 3,773
Accounts payable 3,495 2,804
Accrued expenses 16,416 14,849
Customer deposits 5,501 5,436
Income taxes payable 1,649 10,676
Billings in excess of costs and estimated earnings on uncompleted contracts 1,121 5,055
------------- ------------
Total current liabilities 33,735 42,593
Long-term debt 18,015 18,015
Deferred income taxes 850 1,903
Stockholders' equity:
Preferred stock, no par value; authorized 10,000,000 shares;
no shares issued and outstanding - -
Common stock, $.20 par value; authorized 30,000,000 shares;
issued and outstanding 9,045,495 shares at September 27,
1996 and 8,715,320 shares at December 29, 1995 1,809 1,743
Additional paid-in capital 7,696 5,112
Retained earnings 146,213 140,062
Net unrealized gain on marketable securities 57 1,694
Cumulative translation adjustment 38 (120)
------------- ------------
Total stockholders' equity 155,813 148,491
------------- ------------
Total liabilities and stockholders' equity $ 208,413 $ 211,002
============= ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
EVANS & SUTHERLAND COMPUTER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
----------------------
Sept. 27, Sept. 29,
1996 1995
---------- ---------
<S> <C> <C>
Net cash provided by (used in) operating activities $ (21,461) $ 12,398
Cash flows from investing activities:
Capital expenditures (7,860) (9,009)
Proceeds from sale of CDRS - 31,488
Proceeds from sale of marketable equity securities 1,070 7,930
Net sales (purchases) of short-term investments 30,245 (16,884)
Investment in other long-term assets (1,625) (3,000)
--------- ---------
Net cash provided by investing activities 21,830 10,525
Cash flows from financing activities:
Payments for repurchase of convertible debentures - (1,832)
Net proceeds from issuance of common stock 2,650 1,821
Net borrowings under line of credit agreement 2,030 3,442
--------- ---------
Net cash provided by financing activities 4,680 3,431
Effect of foreign exchange rate changes on cash (56) (426)
--------- ---------
Net increase in cash and cash equivalents 4,993 25,928
Cash and cash equivalents at beginning of year 5,023 25,213
--------- ---------
Cash and cash equivalents at end of period $ 10,016 $ 51,141
========= =========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 1,303 $ 1,191
Income taxes $ 11,967 $ 264
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
EVANS & SUTHERLAND COMPUTER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)
1. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the instructions to Form 10-Q and,
therefore, do not include all information and footnotes necessary for a
complete presentation of the results of operations, the financial position,
and cash flows, in conformity with generally accepted accounting principles.
This report on Form 10-Q for the three months and nine months ended September
27, 1996 should be read in conjunction with the Company's annual report on
Form 10-K for the year ended December 29, 1995.
The accompanying unaudited condensed consolidated balance sheets and
statements of operations and cash flows reflect all normal recurring
adjustments which are, in the opinion of management, necessary for a fair
presentation of the Company's financial position, results of operations and
cash flows. The results of operations for the interim periods ended September
27, 1996 are not necessarily indicative of the results to be expected for the
full year.
Earnings per share
Prior to January 1, 1996, the Company has not included common stock
equivalents in its earnings per share calculation as the impact was
immaterial. Beginning January 1, 1996 the Company has included such items.
2. ACQUISITIONS
In March 1996, the Company acquired Terabit Computer Specialty Company, Inc.
(Terabit). Terabit, established in 1979, developed, marketed and supported
simulated cockpit instruments and other airborne electronics displays used in
training simulators for military and commercial aircraft. To effect the
acquisition, 149,215 shares of the Company's common stock were issued in
exchange for all of the outstanding common stock of Terabit. The acquisition
was accounted for using the pooling of interests method. However, due to
immateriality, the Company's financial information has not been restated to
include the accounts and operations of Terabit prior to January 1, 1996. The
Company has created a fifth business unit, the Display Systems unit, to
incorporate Terabit and related projects.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
September 27, December 29,
1996 1995
-------------- ------------
(Unaudited)
<S> <C> <C>
Raw materials and supplies $ 8,793 $ 7,404
Work-in-process 13,049 8,983
Finished Goods 1,136 2,594
------------- ------------
$ 22,978 $ 18,981
============= ============
</TABLE>
4. STOCK REPURCHASE PROGRAM
On September 19, 1996, the Company announced that its board of directors had
authorized the repurchase of up to 500,000 shares of its common stock, either
in the open market or in private transactions. The Company has not purchased
any shares since the announcement of the repurchase program.
6
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the condensed
consolidated financial statements and notes thereto included elsewhere herein.
All data in the tables are in thousands except for percentages. Except for the
historical information contained herein, this report on Form 10-Q contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results may differ materially.
OVERVIEW
- --------
Evans & Sutherland Computer Corporation (E&S or the Company) is in the business
of developing, marketing, and supporting visual simulation computer systems.
The Company's current products are of four basic types: (a) visual systems which
create and display computer images of stored digital models of various real-
world environments that allow real-time interaction within databases that
replicate specific geographic areas or imaginary worlds; (b) graphics
accelerators which are used as a component in high-performance, interactive
graphics display systems for workstations; (c) software systems and development
tools which are used with multi-platform interactive graphics systems to produce
3D (three dimensional) graphics software and hardware solutions to a broad
customer base; and (d) training systems for flight management which are used
within the commercial aviation training market for pilot training.
In March 1996, the Company acquired Terabit Computer Specialty Company, Inc.
(Terabit). Terabit, established in 1979, developed, marketed and supported
simulated cockpit instruments and other airborne electronics displays used in
training simulators for military and commercial aircraft. To effect the
acquisition, 149,215 shares of the Company's common stock were issued in
exchange for all of the outstanding common stock of Terabit. The acquisition was
accounted for using the pooling of interests method. However, due to
immateriality, the Company's financial information has not been restated to
include the accounts and operations of Terabit prior to January 1, 1996. The
Company has created a fifth business unit, the Display Systems unit, to
incorporate Terabit and related projects.
RESULTS OF OPERATIONS
- ---------------------
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 (unaudited):
<TABLE>
<CAPTION>
Quarters Nine Months
Ended Sept. 27, 1996 Ended Sept. 27, 1996
and Sept. 29, 1995 and Sept. 29, 1995
----------------------- ----------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net Sales $ 50 0.1% $ 13,276 17.0%
Cost of Sales (297) (1.7%) 3,187 7.2%
---------- ----------
Gross Profit 347 2.1% 10,089 29.8%
Expenses:
Marketing, general & administrative 911 13.6% 277 1.3%
Research & development 524 11.8% 423 2.8%
---------- ----------
Total expenses 1,435 12.8% 700 1.9%
Gain from sale of business unit - 0.0% (20,188) (100.0%)
---------- ----------
Operating earnings (1,088) (20.7%) (10,799) (64.3%)
Other income, net 185 19.3% (6,638) (69.3%)
---------- ----------
Earnings before income taxes
and extraordinary gain (903) (14.6%) (17,437) (66.1%)
Income tax expense (590) (22.6%) (7,680) (69.4%)
---------- ----------
Earnings before extraordinary gain (313) (8.7%) (9,757) (63.8%)
Extraordinary gain from repurchase of
convertible debentures, net of
income taxes (111) (100.0%) (311) (100.0%)
---------- ----------
Net earnings $ (424) (11.4%) $(10,068) (64.5%)
========== ==========
</TABLE>
7
<PAGE>
Sales
- -----
Sales for the third quarter of 1996 were $33.7 million, unchanged from the $33.7
million for the third quarter of 1995. Sales for the nine month period ended
September 27, 1996 increased 17.0% to $91.3 million compared to $78.0 million
for the nine month period ended September 29, 1995. Sales for the third quarter
of 1995 included $3.8 million of non-recurring revenue related to settlement of
contractual claims. Excluding the non-recurring revenue, sales increased 12.7%
in the third quarter of 1996 compared to the third quarter of 1995. The
increased sales in 1996 for the third quarter and for the nine month period over
the corresponding periods in 1995 were the result of higher order and unit sales
activity. Orders for the first nine months of 1996 are $124.7 million, a 69%
increase over the same reporting period in 1995.
Cost of Sales
- -------------
Cost of sales, as a percentage of sales, was 50.3% for the third quarter of 1996
compared to 51.2% for the third quarter 1995. Cost of sales, as a percentage of
sales, was 51.8% for the nine month period ended September 27, 1996 compared to
56.6% for the nine month period ended September 29, 1995. The decrease in cost
of sales, as a percentage of sales, for the third quarter is primarily due to
product mix. The decrease in cost of sales, as a percentage of sales, for the
nine month period ended September 27, 1996 compared to the respective period in
1995 is primarily due to a non-recurring charge of $3.6 million relating to
provisions for obsolete inventory and for a possible contract dispute incurred
during the second quarter of 1995.
Expenses
- --------
Total expenses for the third quarter of 1996 increased 12.8% to $12.6 million
compared to $11.2 million for the third quarter of 1995 and increased as a
percentage of sales to 37.4% from 33.2% for the respective periods. Total
expenses for the nine month period ended September 27, 1996 increased 1.9% to
$38.0 million compared to $37.3 million for the nine month period ended
September 29, 1995, but decreased as a percentage of sales to 41.6% from 47.8%
for the respective periods.
Marketing, General, and Administrative: Marketing, general, and administrative
- ---------------------------------------
expense for the third quarter of 1996 increased 13.6% to $7.6 million compared
to $6.7 million for the third quarter of 1995 and increased as a percentage of
sales to 22.6% from 20.0% for the respective periods. Marketing, general, and
administrative expense for the nine month period ended September 27, 1996
increased 1.3% to $22.2 million compared to $21.9 million for the nine month
period ended September 29, 1995, but decreased as a percentage of sales to 24.3%
from 28.1% for the respective periods. The increase in marketing, general, and
administrative expense during the third quarter is primarily due to increased
marketing costs related to tradeshow activity and additional marketing and
administrative expenses related to the operation of the additional business unit
created with the Terabit acquisition.
Research and Development: Research and development expense for the third
- -------------------------
quarter of 1996 increased 11.8% to $5.0 million compared to $4.5 million for the
third quarter of 1995 and increased as a percentage of sales to 14.8% from 13.2%
for the respective periods. Research and development expense for the nine month
period ended September 27, 1996 increased 2.8% to $15.8 million compared to
$15.4 million for the nine month period ended September 29, 1995, but decreased
as a percentage of sales to 17.3% from 19.7% for the respective periods. The
increase in research and development expense during the third quarter is
primarily due to increased activity related to the introduction of two new
products, a projector for Commercial Simulation business and the Real Image 3D
Technology, and additional research and development expenses related to the
additional business unit created with the Terabit acquisition.
Other Income, Net
- -----------------
Other income for the third quarter of 1996 increased 19.3% to $1.1 million
compared to $1.0 million for the third quarter of 1995. Other income for the
nine month period ended September 27, 1996 decreased 69.3% to $2.9 million
compared to $9.6 million for the nine month period ended September 29, 1995.
The decrease in other income for the nine month period ended September 27, 1996
as compared to the same period in 1995 is primarily due to fewer sales of
investment securities offset by a slight increase in interest income.
8
<PAGE>
Income Taxes
- ------------
The Company's combined federal, state and foreign effective income tax rate was
38% for the nine month period ended September 27, 1996. The tax rate for the
same period in 1995 was 42%. These rates are calculated based on an estimated
annual effective tax rate applied to income before income taxes. The
improvement in 1996 over 1995 is based on improved estimates for foreign taxes.
LIQUIDITY & CAPITAL RESOURCES
- -----------------------------
Working capital at September 27, 1996 was $123.0 million compared to $118.4
million at December 29, 1995. This includes cash, cash equivalents and
marketable securities of $65.9 million and $91.7 million at September 27, 1996
and December 29, 1995, respectively. Cash was principally used to fund
operations and purchase capital equipment. Cash to support the Company's
operations came from proceeds of sales of marketable securities, sales of
investment securities, borrowings under bank lines of credit agreements and
proceeds from employee stock purchase and option plans.
On September 19, 1996, the Company announced that its Board of Directors had
authorized a plan that allows the Company to repurchase up to 500,000 shares of
its common stock. To date, the Company has not yet repurchased any of such
shares.
RECENT BUSINESS DEVELOPMENTS
- ----------------------------
On August 16, 1996, the Company announced an award from the United States Air
Force to upgrade up to 25 visual systems. These systems will be used by the Air
Mobility Command to train KC-10 pilots. The total value of the Visual Upgrade
Effort (VUE) contract could bring more than $70 million in revenues to the
Company over the next five years. The initial phase of the contract, valued at
$13 million, will include visual system upgrades to four KC-135 simulators with
the first delivery in the third quarter of 1997. The Company will provide its
ESIG-4530 image generators, database generation system, spares and training
support.
PART II - OTHER INFORMATION
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 27, 1996.
9
<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 12, 1996 /S/
----------------- ---------------------------------------
John T. Lemley, Vice President
and Chief Financial Officer
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-27-1996
<PERIOD-START> DEC-30-1995
<PERIOD-END> SEP-27-1996
<CASH> 10,016
<SECURITIES> 55,916
<RECEIVABLES> 24,495
<ALLOWANCES> 255
<INVENTORY> 22,978
<CURRENT-ASSETS> 156,755
<PP&E> 113,160
<DEPRECIATION> 70,921
<TOTAL-ASSETS> 208,413
<CURRENT-LIABILITIES> 33,735
<BONDS> 18,015
0
0
<COMMON> 1,809
<OTHER-SE> 154,004
<TOTAL-LIABILITY-AND-EQUITY> 208,413
<SALES> 91,305
<TOTAL-REVENUES> 91,305
<CGS> 47,332
<TOTAL-COSTS> 47,332
<OTHER-EXPENSES> 36,591
<LOSS-PROVISION> 1,398
<INTEREST-EXPENSE> 1,053
<INCOME-PRETAX> 8,926
<INCOME-TAX> 3,392
<INCOME-CONTINUING> 5,534
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,534
<EPS-PRIMARY> .60
<EPS-DILUTED> .60
</TABLE>
