<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 28, 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 July 31, 1996
- ------------------------------------ -----------------------------------
COMMON STOCK, $0.20 PAR VALUE 9,012,484
<PAGE>
FORM 10-Q
EVANS & SUTHERLAND COMPUTER CORPORATION
QUARTER ENDED JUNE 28, 1996
<TABLE>
<CAPTION>
Page No.
TABLE OF CONTENTS 2
PART I - FINANCIAL INFORMATION
<S> <C>
GENERAL STATEMENT 3
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Earnings - Three Months
Ended June 28, 1996 and June 30, 1995 4
Consolidated Balance Sheets - June 28, 1996 and
December 29, 1995 5-6
Consolidated Condensed Statements of Cash Flows -
Three Months Ended June 28, 1996 and June 30, 1995 7
Notes to Financial Statements 8
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-11
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 12
Signature Page 13
</TABLE>
2
<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
statement of the results of the interim period(s) in all material respects.
The results of operations for any interim period are not necessarily indicative
of results for a full year. These condensed financial statements should be read
in conjunction with the financial statements and notes thereto contained in the
Company's annual report on Form 10-K for the year ended December 29, 1995 as
filed with the Securities and Exchange Commission.
3
<PAGE>
EVANS & SUTHERLAND COMPUTER CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
Three Months and Six Months Ended
June 28, 1996 and June 30, 1995
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
(Unaudited) (Unaudited)
------------------------------ -----------------------------
June 28, June 30, June 28, June 30,
1996 1995 1996 1995
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Net sales $ 30,907 $ 25,081 $ 57,594 $ 44,367
Cost of sales 16,192 18,378 30,385 26,900
------------- ------------ ------------- ------------
Gross profit 14,715 6,703 27,209 17,467
Expenses:
Marketing, general and administrative 7,880 7,260 14,561 15,198
Research and development 5,499 4,711 10,819 10,919
------------- ------------ ------------- ------------
Total expenses 13,379 11,971 25,380 26,117
Gain from sale of business unit - 20,188 - 20,188
------------- ------------ ------------- ------------
Operating profit 1,336 14,920 1,829 11,538
Other income 1,072 4,282 1,798 8,621
------------- ------------ ------------- ------------
Earnings before income
and extraordinary gain 2,408 19,202 3,627 20,159
Income tax expense 915 8,108 1,377 8,467
------------- ------------ ------------- ------------
Earnings before extraordinary gain 1,493 11,094 2,250 11,692
Extraordinary gain from repurchase of
convertible debentures, net of income taxes - 200 - 200
------------- ------------ ------------- ------------
Net earnings $ 1,493 $ 11,294 $ 2,250 $ 11,892
============= ============ ============= ============
Earnings per share: (note 1)
Before extraordinary gain $ 0.16 $ 1.29 $ 0.25 $ 1.36
Extraordinary gain from repurchase of
convertible debentures: - 0.02 - 0.02
------------- ------------ ------------- ------------
Total earnings per share $ 0.16 $ 1.31 $ 0.25 $ 1.38
============= ============ ============= ============
Number of shares used in earnings
per share calculation 9,328 8,632 9,180 8,597
</TABLE>
4
<PAGE>
EVANS & SUTHERLAND COMPUTER CORPORATION
CONSOLIDATED BALANCE SHEETS
June 28, 1996 and December 29, 1995
(U.S. Dollars in Thousands)
<TABLE>
<CAPTION>
June 28, December 29,
1996 1995
Assets (Unaudited) (Audited)
------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 376 $ 5,023
Marketable securities 72,441 86,718
Receivables:
Trade accounts, less allowance for
doubtful receivables of $220 in
1996 and $172 in 1995 21,925 25,625
Interest 1,167 1,201
Employees and other 784 295
------------- --------------
Total receivables 23,876 27,121
Inventories, net (note 2) 22,126 18,981
Costs and estimated earnings in excess
of billings on uncompleted contracts 25,615 15,052
Deferred income tax 6,627 6,645
Prepaid expenses and deposits 2,760 1,464
------------- --------------
Total current assets 153,821 161,004
------------- --------------
Property, plant, and equipment, at cost 110,442 106,147
Less accumulated depreciation and
amortization 68,851 65,292
------------- --------------
Net property, plant, and equipment 41,591 40,855
Investment securities 7,887 7,437
Other assets, at cost, less
accumulated amortization 2,611 1,706
------------- --------------
Total assets $ 205,910 $ 211,002
============= ==============
</TABLE>
<PAGE>
EVANS & SUTHERLAND COMPUTER CORPORATION
CONSOLIDATED BALANCE SHEETS
June 28, 1996 and December 29, 1995
(U.S. Dollars in Thousands)
<TABLE>
<CAPTION>
June 28, December 29,
1996 1995
Liabilities and Stockholders' Equity (Unaudited) (Audited)
- ------------------------------------ ---------------- -----------------
<S> <C> <C>
Current liabilities:
Notes payable to banks $ 4,876 $ 3,773
Accounts payable 3,740 2,804
Accrued expenses 15,560 14,849
Customer deposits 4,514 5,436
Income taxes payable 1,300 10,676
Billings in excess of cost and estimated earnings on
uncompleted contracts 4,035 5,055
---------------- -----------------
Total current liabilities 34,025 42,593
Long-term debt 18,015 18,015
Deferred income taxes 1,345 1,903
Stockholders' equity:
Common stock, $.20 par value; authorized
30,000,000 shares; issued and outstanding
9,007,832 shares at June 28, 1996 and
8,715,320 shares at December 29, 1995 1,802 1,743
Additional paid-in capital 7,181 5,112
Retained earnings 142,927 140,062
Net unrealized gain on marketable securities 559 1,694
Cumulative translation adjustment 56 (120)
---------------- -----------------
Total stockholders' equity 152,525 148,491
---------------- -----------------
Total liabilities and stockholders' equity $ 205,910 $ 211,002
================ =================
</TABLE>
6
<PAGE>
EVANS & SUTHERLAND COMPUTER CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Six Months Ended
June 28, 1996 and June 30, 1995
(U.S. Dollars in Thousands)
<TABLE>
<CAPTION>
Six Months Ended
(Unaudited)
-------------------------------------
June 28, June 30,
1996 1995
----------- -----------
<S> <C> <C>
Net cash provided by (used in) operating activities $ (15,443) $ 33,931
Cash flows from investing activities:
Capital expenditures (5,135) (4,368)
Proceeds from sale of marketable equity securities 432 7,930
Net sales (purchases) of short-term investments 13,390 (25,480)
Investment in other long-term assets (1,450) -
Other - -
----------- -----------
Net cash provided by (used in) investing activities 7,237 (21,918)
Cash flows from financing activities:
Payments for repurchase of convertible debentures - (1,159)
Net proceeds from issuance of common stock 2,126 934
Net borrowings under line of credit agreement 1,340 3,812
Other - -
---------- -----------
Net cash provided by financing activities 3,466 3,587
Effect of foreign exchange rate changes on cash 93 (558)
----------- -----------
Net increase (decrease) in cash and cash equivalents (4,647) 15,042
Cash and cash equivalents at beginning of year 5,023 25,213
----------- -----------
Cash and cash equivalents at end of period $ 376 $ 40,255
=========== ===========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 677 $ 626
Income taxes $ 10,394 $ 86
</TABLE>
7
<PAGE>
EVANS & SUTHERLAND COMPUTER CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Dollars in Thousands)
(1) Earnings per share:
Prior to January 1, 1996, the Company has not included common stock
equivalents in its earning per share calculation as the impact was
immaterial. Beginning January 1, 1996 the Company has included such items.
(2) Inventories are summarized as follows:
<TABLE>
<CAPTION>
June 28, December 29,
1996 1995
(Unaudited) (Audited)
----------- ------------
<S> <C> <C>
Raw materials and supplies $ 8,173 $ 7,404
Work-in-process 12,397 8,983
Finished Goods 1,556 2,594
----------- ------------
$ 22,126 $ 18,981
=========== ============
</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 28, 1996 Ended June 28, 1996
And June 30, 1995 And June 30, 1995
---------------------- -----------------------
<S> <C> <C> <C> <C>
Net sales $ 5,826 23.2% $ 13,227 29.8%
Cost of sales (2,186) (11.9%) 3,485 13.0%
--------- ----------
Gross profit 8,012 119.5% 9,742 55.8%
Expenses:
Marketing, general and administrative 620 8.5% (637) (4.2%)
Research and development 788 16.7% (100) (0.9%)
--------- ----------
Total expenses 1,408 11.8% (737) (2.8%)
Gain from sale of business unit (20,188) (100.0%) (20,188) (100.0%)
--------- --------
Operating earnings (13,584) (91.0%) (9,709) (84.1%)
Other income (expense), net (3,210) (75.0%) (6,823) (79.1%)
--------- ----------
Earnings before income taxes
and extraordinary gain (16,794) (87.5%) (16,532) (82.0%)
Income tax expense (7,193) (88.7%) (7,090) (83.7%)
--------- ----------
Earnings before extraordinary gain (9,601) (86.5%) (9,442) (80.8%)
Extraordinary gain from repurchase of
convertible debentures, net of income taxes (200) (100.%) (200) (100.%)
--------- ----------
Net earnings $( 9,801) (86.8%) $(9,642) (81.1%)
========= ==========
</TABLE>
9
<PAGE>
RESULTS OF OPERATIONS
- ---------------------
SALES
- -----
Sales for the quarter ended June 28, 1996 were $30,907,000, an increase of 23.2%
over the respective quarter for 1995. For the six month period ended June 28,
1996, sales increased $13,227,000, or 29.8%, over the same period of 1995.
Orders for the first half of 1996 are $84.7 million. This represents a 70%
increase over the same reporting period in 1995.
Government Simulation sales make up the largest share of the Company's sales.
The second quarter showed this business group with a 38% increase over the
second quarter of 1995. This increase reflects the strong activity during 1995
where orders were up 22% from the previous year and backlog stood at record
levels. Orders continue to be strong during the first half of 1996 as
anticipated.
In the Graphics Systems product line, sales are disappointing and are 21% lower
than the second quarter of 1995. Future growth will come with new product
offerings expected later this year with deliveries in the first and second
quarters of 1997.
The Commercial Simulation business continues to show improvement. Sales for the
quarter were up 69% over the previous year's second quarter. Recently announced
contract awards for simulators to United and Sabena Airlines demonstrates the
success the Company is having with its new marketing strategy and the
improvement that is taking place in the commercial simulation market place.
Education and Entertainment sales are lower for the second quarter 1996 as
compared with 1995, but are expected to have increases on a comparative annual
basis. The timing of installations on the Company's Digistar II product has
created quarterly revenue variations for 1996.
The Display Systems business began with the acquisition of Terabit Computer
Speciality Company, Inc. in March of this year. Assimilation into the Company's
organization has proceeded smoothly. Sales are low, but new orders are running
70% greater than expected and will result in the expected revenues for the year
during the next two quarters.
COST OF SALES
- -------------
Cost of sales, as a percentage of sales, averaged 52% for the second quarter of
1996. This is in line with the first quarter of 1996 or 53% and the annual rate
of 55% for 1995. The second quarter rate in 1995 was much higher at 73% due to
one-time charges of $3,550,000 for inventory writedown provisions and possible
contract dispute provisions. Excluding the one-time charges in 1995, the second
quarter rate for 1996 is 6% better than 1995 due to high margin large quantity
shipments of the Company's ESIG 3000 image generators.
OPERATING PROFIT
- ----------------
In April, 1995, the Company completed the sale of its CDRS business to
Parametric Technology Corporation (PTC). This sale resulted in a gain of
$20,188,000. By excluding this gain from 1995 results and comparing operating
profits from on-going business units, the period ending June 28, 1996 would have
a 125% improvement over the same period in 1995.
EXPENSES
- --------
Total expenses for the second quarter of 1996 increased $1,408,000 (12%) above
the corresponding 1995 second quarter.
Marketing, General, and Administrative: Marketing, general, and
administrative expense increased $620,000 (9%) in 1996 as compared with the
second quarter of 1995.
10
<PAGE>
Research and Development: Research and development increased $788,000 (17%)
in 1996 as compared with the second quarter of 1995.
Although absolute second quarter expenses are higher than the previous year's
expenses, as a percentage of sales, both categories of expenses are lower in
1996 as compared with 1995. Marketing, general and administrative expenses as a
percentage of sales are 25% in 1996 versus 29% in 1995 for the second quarter.
Research and development are 18% and 19%, as a percentage of sales for the
respective 1996 and 1995 quarters. Expenses for 1996 are in line with the
Company's operating plan.
For the six month period ended June 28, 1996, total expenses are running 3%
below the level of expenses for the same period in 1995.
OTHER INCOME (EXPENSE), NET
- ---------------------------
Other income is down for the six month period ended June 28, 1996 as compared to
the same period in 1995 by $6,823,000. Most of the difference is due to the fact
that in 1996 there were only $428,000 pre-tax sales of investment securities,
whereas in 1995 there were pre-tax sales of $7,263,000. Currency transactions,
net interest income and expense, and other miscellaneous items accounted for the
rest of the differences between the respective six month periods.
INCOME TAXES
- ------------
The Company's combined federal, state and foreign effective income tax rate was
38% for first six months of 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 COMMITMENTS
- -------------------------------
Funds to support the Company's operations come from proceeds of sales of
temporary cash investments, sales of investment securities, borrowings under
bank lines of credit agreements, and proceeds from employee stock purchase and
option plans.
Cash and cash equivalents and marketable securities decreased $2,818,000 to
$72,817,000 during the second quarter of 1996 and $18,924,000 for the six month
period ended June 28, 1996. The value of investment securities has increased
$450,000 to $7,887,000 during the six month period ended June 28, 1996.
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
(a) The Company held its Annual Meeting of Stockholders on May 16, 1996.
Proxies for the meeting were solicited pursuant to Regulation 14A.
(b) The Company's Board of Directors is divided into three classes, with
directors in each class serving for three-year terms. Accordingly, not all
directors are elected at each Annual Meeting of Stockholders. Stewart Carrell
and John E. Warnock were re-elected as Directors and other continuing Directors
are: Henry N. Christiansen, Peter O. Crisp, James R. Oyler, and Ivan E.
Sutherland.
(c) The matters described below were voted on at the Annual Meeting of
Stockholders, and the number of votes cast with respect to each matter and, with
respect to the election of directors, for each nominee, were as indicated.
1. To elect two directors to serve until the 1999 Annual Meeting of
Shareholders.
Nominees for Director
---------------------
STEWART CARRELL
For: 7,485,210 Against: 103,468
JOHN E. WARNOCK
For: 7,485,687 Against: 102,991
2. To approve an amendment to the 1989 Stock Option Plan for Non-
Employee Directors, increasing the number of shares of annual option grant
awards by 5,000 shares, increasing the cumulative ceiling of option grant awards
for a given director by 55,000 shares, and increasing the number of shares
reserved for issuance by 150,000 shares.
For: 4,298,495 Against: 1,969,266 Abstained: 110,003
Unvoted: 1,210,914
3. To approve an amendment to the Evans & Sutherland 1995 Long-Term
Incentive Equity Plan to increase the number of shares issuable under such plan
by 985,000 shares.
For: 2,654,102 Against: 3,630,055 Abstained: 50,378
Unvoted: 1,254,143
4. To ratify the appointment of KPMG Peat Marwick LLP as independent
auditors of the Company for the fiscal year ending December 27, 1996.
For: 7,444,536 Against: 66,599 Abstained: 8,243
Unvoted: 69,300
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 June 28, 1996.
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 8, 1996 /S/
-------------- ---------------------------------------
JOHN T. LEMLEY, VICE PRESIDENT
AND CHIEF FINANCIAL OFFICER
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-27-1996
<PERIOD-END> JUN-28-1996
<CASH> 72,817
<SECURITIES> 7,887
<RECEIVABLES> 24,096
<ALLOWANCES> 220
<INVENTORY> 22,126
<CURRENT-ASSETS> 153,821
<PP&E> 110,442
<DEPRECIATION> 68,851
<TOTAL-ASSETS> 205,910
<CURRENT-LIABILITIES> 34,025
<BONDS> 18,015
<COMMON> 1,802
0
0
<OTHER-SE> 150,723
<TOTAL-LIABILITY-AND-EQUITY> 205,910
<SALES> 30,907
<TOTAL-REVENUES> 30,907
<CGS> 16,192
<TOTAL-COSTS> 13,379
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 352
<INCOME-PRETAX> 2,408
<INCOME-TAX> 915
<INCOME-CONTINUING> 1,493
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,493
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
