<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF
1934 For the Fiscal Year Ended December 27, 1996
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 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
Securities Registered Pursuant to Section 12(b) of the Act:
"None"
Securities Registered Pursuant to Section 12(g) of the Act:
Title of Class
----------------------
Common Stock, $.20 par value
6% Convertible Debentures Due 2012
Preferred Stock Purchase Rights
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (* 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by
non-affiliates of the Registrant as of February 28, 1997 was
approximately $150,647,000.
The Registrant had issued and outstanding 9,068,562 shares of its common
stock on February 28, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Those sections or portions of the Registrant's 1996 Proxy Statement for
its Annual Meeting of Shareholders to be held on May 22, 1997 are incorporated
by reference into Part III hereof.
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FORM 10-K
PART I
ITEM 1. BUSINESS
GENERAL
Evans & Sutherland Computer Corporation (E&S or the Company) was
founded by Drs. David C. Evans and Ivan E. Sutherland and incorporated under the
laws of the State of Utah on May 10, 1968. E&S became a publicly-owned company
in 1978. The Company has its principal executive and operations facilities in
Salt Lake City, Utah, on a 36-acre campus in the University of Utah Research
Park. The Company also has offices in Boston, Massachusetts; Orlando, Florida;
Beijing, China; Horsham, England; Munich, Germany; and Tokyo, Japan.
A leader in computer graphics since 1968, E&S develops and
manufactures hardware and software for visual systems that produce vivid and
highly realistic 3D (three-dimensional) graphics and synthetic environments. The
Company's product offerings include a full range of high-performance visual
systems for simulation, training, and virtual reality applications, as well as
graphic accelerator products for workstations and personal computers.
RECENT DEVELOPMENTS AND STRATEGIC ACTIVITIES
Evans & Sutherland follows a three-point growth strategy, consisting
of growing existing businesses, developing new businesses internally, and
selectively acquiring businesses. In growing and developing existing and new
businesses, E&S launched two new business units, including Desktop Graphics and
Digital Studio, and announced several new products utilizing the Company's new
Universal 3D(TM) architecture. In the area of acquisitions, E&S acquired one
company and established its Display Systems business unit. E&S also made
strategic minority investments in two software companies, and divested its
interests in another. A summary of recent developments and key strategic
activities that occurred in the past year are summarized below.
E&S completed the purchase of Terabit Computer Specialty Company,
Inc., on March 20, 1996. Terabit supplies simulated cockpit instruments and
other airborne electronics displays used in training simulators for military and
commercial aircraft. A new business unit was created, the Display Systems unit,
which incorporates the technologies and professional resources of E&S and
Terabit.
On August 16, 1996, the Company announced its selection by the U.S.
Air Force as the prime contractor on a key strategic program to provide visual
upgrade equipment used by the Air Mobility Command to train KC-135 and KC-10
pilots. The total value of the contract, which is the largest order in the
Company's history, could bring more than $70 million in revenues over the next
five years. Approximately $18.7 million of this order is recorded in the
Company's year-end backlog.
Evans & Sutherland announced on September 19, 1996 a stock repurchase
program by which up to 500,000 shares of its common stock may be acquired by the
Company in the open market or in negotiated transactions. Under the program,
repurchases may be made from time to time, depending on market conditions, share
price, and other factors. The Company believes this program represents efficient
management of its cash resources and an excellent way to provide additional
return to its shareholders. To date, the Company has not yet repurchased any of
such shares.
E&S announced formation of its Desktop Graphics business unit on
October 4, 1996. The new business unit will market products based on the
Company's REALimage(TM) technology to produce professional 3D graphics products
for the personal computer market. REALimage is part of a non-exclusive
partnership between Evans & Sutherland and Mitsubishi Electronics America, Inc.
(Mitsubishi). Mitsubishi sells chip sets that use the E&S REALimage design under
the name 3DPro. In addition, in March 1997, graphic accelerator boards utilizing
this technology were announced for delivery worldwide in the second quarter of
1997 by Diamond Multimedia Systems, Inc. and AccelGraphics, Inc.
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<PAGE>
On December 3, 1996, the Company announced its Universal 3D
architecture for the industry's highest performance 3D visual systems.
Previously, sophisticated 3D graphics were only available on proprietary
UNIX-based systems. The new Universal 3D architecture now moves these
capabilities to high-volume platforms running the Windows NT operating system,
providing graphics professionals high performance with the cost advantage of
high-volume platform production. (See "New Product Strategy" for additional
information.)
Evans & Sutherland announced the formation of its Digital Studio
business unit on January 8, 1997. The new unit will provide affordable,
state-of-the-art, real-time systems for digital content production in the
television, film, video, corporate training, and multimedia industries. Digital
Studio products incorporate the Company's Universal 3D architecture. The premier
product is the recently introduced MindSet(TM) virtual set, a computer-generated
synthetic environment rendered in real time and digitally composited with live
camera views of on-screen personalities such as actors, newscasters, or
corporate trainers. Digital Studio products will enable producers to create
films, programs, and videos more quickly and less expensively than ever before.
BUSINESS UNITS AND STRATEGY
E&S is organized into six business units. Each business unit develops
and markets its products for a worldwide customer base. These business units can
be grouped into two areas: core businesses and new start-ups. The core
businesses are the simulation-related units in which E&S has an established
market presence with significant market share, and have historically been
profitable. The start-ups are in high growth markets where E&S has superior
technology which can be applied to new applications.
Core businesses:
. Government Simulation provides visual systems for flight and
ground training and related services to U.S. and international
armed forces, NASA, and aerospace companies.
. Commercial Simulation is the world's leading independent supplier
of visual systems for flight simulators for commercial airline
pilot training.
. Display Systems provides a complete suite of avionics displays for
cockpit and flight training.
New business start-ups:
. Desktop Graphics provides graphic accelerator technology for the
world's leading workstation manufacturers and NT-based personal
computers.
. Digital Studio provides virtual studio products and services for
digital content production in the television, film, video,
corporate training, and multimedia industries.
. Entertainment and Education is the world's leading supplier of
digital planetarium projection systems, and provides virtual
reality experiences for location-based entertainment centers,
including entertainment simulators.
NEW PRODUCT STRATEGY
Evans & Sutherland's new products are based on its Universal 3D
architecture. Building upon its 29 years of graphics expertise, E&S has created
a family of products that meets the needs of developers and users of highly
realistic synthetic environments. At the core is an open structure based on
Intel architecture, with front end computation controlled by the Windows NT
operating system. This product strategy easily scales with technology
improvements and supports widely available software.
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Industry standard technologies used in the Company's Universal 3D
architecture include:
1. Windows NT: The operating system for hosting modeling software and
----------
tools, as well as administrative and control functions
in the new E&S products.
2. Pentium Pro: The leading processor in most NT workstations is also
-----------
used for geometry processing in the Company's new image
generators. Future generations of E&S products will track the
performance improvements of Intel processors, which are
increasing at the fastest rate in the industry.
3. OpenGL: Image database elements are rendered through the OpenGL
------
graphics library and Applications Programming Interface (API).
However, new E&S products are structured in a completely modular
fashion to allow future use of Direct3D or other graphics API's as
they become accepted for professional applications.
4. PCI: REALimage boards plug into standard PCI slots, and the
---
new high-end E&S image generators use the PCI bus to communicate
between the workstation front-end and the image generator hardware.
PRODUCTS AND MARKETS
Evans & Sutherland provides a broad line of visual system products
and related services for use in simulators and trainers for military,
commercial, and entertainment applications. The Company's product offerings
include: (1) visual system components and technology, such as ESIG(TM) image
generators and REALimage controller chip technology; (2) fully integrated
systems, such as the StarRider(TM) domed theater system or the MindSet virtual
set; and (3) related services, such as system integration and database creation.
These offerings, described below, are used in a wide variety of applications.
The product and service offerings are all grounded in Evans & Sutherland's
graphics technology and heritage. The Company's new product offerings are based
on the Universal 3D architecture. The goal has been to continuously improve the
core technology and offer it more broadly in existing markets, as well as extend
it into new markets. E&S products are sold worldwide.
Generally, E&S products consist of four major components. These
components are available as subsystems, but are commonly sold as part of a
complete visual system delivered to an operator or prime contractor.
1. Image generators which create the computer generated image and send
this image to a display device, such as a projector or CRT. Primary
E&S offerings include ESIG, Liberty(TM), Harmony(TM) (first shipments
in late 1997), and REALimage technology. REALimage is currently
manufactured and sold by Mitsubishi as part of a chip set.
2. Display systems which consist of a combination of projectors, display
screens, CRT screens, and specialized optics. These display systems
are offered in a broad range of configurations, from onboard
instrument displays to domes offering 360(degree) field of view,
depending on the applications.
3. Databases of the synthetic environment which are offered as standard
options or as custom creations. Military databases are commonly
customized and often cover large areas of terrain. E&S provides
database development as well as database tools, such as EaSIEST(TM)
and Integrator NT(TM). Integrator developed databases are a key
element of the Universal 3D architecture. These can be run on a full
range of image generators, from REALimage powered desktop graphics
accelerators to high-end Harmony systems.
4. System integration, installation, and support services which are also
key elements of most all systems and components sold.
These components and subsystems are often integrated and sold as
complete systems solutions. For example, the DIGISTAR II(TM) and StarRider
systems consist of E&S developed image generators, databases of synthetic
worlds, and display systems. These are integrated by E&S with components from
other suppliers, such as audience participation systems or the dome itself. E&S
combines and installs all these components into a complete system solution for
the planetarium.
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In the simulation training market, Evans & Sutherland's visual
systems create dynamic, high-quality, out-the-window scenes that represent the
view vehicle operators see when performing tasks under actual operating
conditions. The Company's visual systems are an integral part of full mission
simulators, which incorporate a number of other components, including cockpits
or vehicle cabs and large hydraulic motion systems.
MARKETING
Evans & Sutherland's products are marketed worldwide by the Company
or its agents. The Company's products and services are sold directly to
end-users by E&S as a prime contractor, through subcontractors or other prime
contractors, and through system OEMs. E&S continues to develop and form both
domestic and international marketing alliances, which are proving to be an
effective method of reaching specific markets. In addition, the Company has OEM
agreements for its visual system products with companies such as STN Atlas
Elektronik GmbH in Germany, and Mitsubishi Precision Co., Ltd. in Japan, and a
non-exclusive partnership with Mitsubishi Electronics to manufacture and sell
REALimage based chip sets under the 3DPro brand name. In cases were E&S sells
through OEM suppliers, sales, marketing, and product support are offered by
those OEM suppliers. Training Systems (Xionix Simulation, Inc.) products are
marketed and supported by the Company's sales and marketing staff.
SIGNIFICANT CUSTOMERS
Worldwide customers using E&S products include most major airlines,
U.S. and international armed forces, NASA, aerospace companies, film and video
studios, national laboratories, museums, planetariums, science centers, and
location-based entertainment centers.
Customers accounting for more than 10% of the Company's net sales in
1996 were the U.S. government, Thomson Training and Simulation, Ltd. (Thomson),
Hughes Training, Inc. (Hughes), and Rikei Corporation (Rikei). In 1995 and 1994,
Loral Corporation (Loral) accounted for more than 10% of the Company's sales in
the respective years. Sales to the U.S. government and prime contractors under
government contracts were $25.8 million in 1996 (20% of total sales), $54.7
million in 1995 (48% of total sales), and $51.4 million in 1994 (45% of total
sales). A portion of these sales are included in sales to Hughes and Loral.
Sales to Thomson were $15.8 million in 1996 (12% of total sales), $4.0 million
in 1995 (4% of total sales), and $7.6 million in 1994 (7% of total sales). Sales
to Hughes were $14.9 million in 1996 (11% of total sales), $11.0 million in 1995
(10% of total sales), and $6.3 million in 1994 (6% of total sales). Sales to
Rikei were $14.3 million in 1996 (11% of total sales), $8.8 million in 1995 (8%
of total sales), and $0.7 million in 1994 (less than 1% of total sales). Sales
to Loral were $6.9 million in 1996 (5% of total sales), $34.3 million in 1995
(30% of total sales), and $25.7 million in 1994 (23% of total sales). In 1996,
Loral was acquired by Lockheed Martin Information Systems, Inc. (Lockheed
Martin). See footnote 13 of "Notes to Consolidated Financial Statements" in Part
II of this report.
COMPETITIVE CONDITIONS
Primary competitive factors for the Company's products are
performance, price, and product accessibility. Because competitors are
constantly striving to improve their products, E&S must assure that it continues
to offer products with the best performance at a competitive price. In 1996, the
Company gained market share in the government simulation market. Prime
contractors, including CAE Electronics, Ltd. (CAE), Lockheed Martin, and
Thomson, offer competing visual systems in the government simulation market. The
Company believes it is able to compete well in this environment and will
continue to be able to do so. In 1996, the Commercial Simulation business unit
was awarded several highly competitive orders and gained market share against
CAE and FlightSafety International, Inc., the principal competitors in the
commercial simulation market. In both simulation markets, competition for
graphics computers also comes from Silicon Graphics, Inc.
The Desktop Graphics business unit competes against companies like
Intergraph, Inc. as a system OEM that use their own chip design, and 3D Labs
that sells chip sets to board manufacturers. Digital Studio competitors consist
primarily of smaller start-up companies. This market is still in its infancy and
may experience significant change. Display Systems is also in a highly
fragmented market where consultive engineering is the primary mechanism for
winning orders.
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In the Education and Entertainment business, the Company's DIGISTAR
II digital planetarium product competes with traditional optical-mechanical
products. Competitors include Minolta Planetarium Co. Ltd., Goto Optical Mfg.
Co., Carl Zeiss Inc., and Spitz Inc. In entertainment systems, E&S is one of
many companies in a highly competitive and fragmented market.
BACKLOG
The Company's backlog was $127.4 million on December 27, 1996,
compared with $76.8 million on December 29, 1995, and $67.1 million on December
30, 1994. The predominant portion of the backlog as of December 27, 1996 is for
visual simulation products. It is anticipated that most of the 1996 backlog will
be filled in 1997.
INTERNATIONAL SALES
Sales known to be ultimately installed outside the U.S. are
considered international sales by the Company. Sales to foreign end-users were
$88.4 million or 68% of the Company's 1996 sales. To take full advantage of this
sales pattern, the Company operated a wholly-owned Foreign Sales Corporation
(FSC) subsidiary through fiscal year 1996, the use of which resulted in tax
benefits in 1996 amounting to approximately $0.3 million. For additional
information, see footnote 13 of "Notes to Consolidated Financial Statements" in
Part II of this report.
DEPENDENCE ON SUPPLIERS
Most parts and assemblies used by E&S are readily available in the
open market; however, a limited number are available only from a single vendor.
In these instances the Company stocks a substantial inventory and attempts to
develop alternative components or sources where appropriate.
PATENTS
Evans & Sutherland owns a number of patents and is a licensee under
several others which were developed principally at the University of Utah.
Several patent applications are presently pending in the United States, Japan,
and several European countries. E&S is continuing the practice, begun in 1985,
of copyrighting chip masks designed by the Company and has instituted copyright
procedures for these masks in Japan. E&S does not rely on, and is not dependent
on, patent ownership for its competitive position. Were any or all patents held
to be invalid, management believes the Company would not suffer significant
damage. However, E&S actively pursues patents on its new technology.
RESEARCH & DEVELOPMENT
In 1996, company-funded research and development increased 12% to
$21.8 million from $19.4 million. As a percentage of sales, research and
development remained constant at 17% in 1996, the same as in 1995. The Company
continues to fund substantially all research and development efforts internally.
It is anticipated that high levels of research and development will continue in
support of essential product research and development efforts to ensure the
Company maintains technical excellence, leadership, and market competitiveness.
ENVIRONMENTAL STANDARDS
The Company believes its facilities and operations are within
standards fully acceptable to the Environmental Protection Agency and that all
facilities and procedures are in accordance with environmental rules and
regulations, and federal, state, and local laws.
EMPLOYEES
As of February 28, 1997, Evans & Sutherland and its subsidiaries
employed 784 persons. The Company believes its relations with its employees are
good.
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SEASONALITY
E&S believes there is no inherent seasonal pattern to its business.
However, sales volume fluctuates quarter-to-quarter due to relatively large
individual sales and the random nature of customer-established shipping dates.
Although the Company's volume has been skewed toward the fourth quarter, the
Company has worked diligently to smooth quarter-to-quarter revenues and expects
further success in achieving this goal.
ITEM 2. PROPERTIES
Evans & Sutherland's principal executive, manufacturing, engineering,
and operations facilities are located in the University of Utah Research Park,
in Salt Lake City, Utah, where it owns six buildings totaling approximately
440,000 square feet. E&S occupies four buildings and leases out the remaining
two buildings. The buildings are located on land leased from the University of
Utah on 40-year land leases. Two buildings have options to renew the land leases
for an additional 40 years, and four have options to renew the land leases for
10 years. The Company also owns 46 acres of land in North Salt Lake. E&S has no
encumbrance on any of the real property. The Company and its subsidiaries hold
leases on several sales, service, and production facilities located throughout
the U. S., in Europe, and in Asia.
ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor any of its subsidiaries is a party to any
material legal proceeding. However, the Company is involved in ordinary routine
litigation incidental to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of fiscal year 1996.
[THIS SPACE INTENTIONALLY LEFT BLANK]
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EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth certain information regarding the executive
officers of the Company as of March 27, 1997:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------------------------------------------
<S> <C> <C>
Stewart Carrell 63 Chairman of the Board of Directors
James R. Oyler 51 President of the Company and Chief Executive Officer
John T. Lemley 53 Vice President and Chief Financial Officer
Gary E. Meredith 62 Senior Vice President and Secretary
Stuart J. Anderson 57 Vice President and General Manager of Commercial Simulation
Gene R. Chidester 48 Vice President of Manufacturing
Peter K. Doenges 50 Director of Strategic Technology
Bruce E. Erickson 52 Vice President and General Manager of Digital Studio
Gordon B. Hurley 52 Vice President of Shared Technology
Charles R. Maule 46 Vice President and General Manager of Desktop Graphics
Mark C. McBride 35 Vice President and Corporate Controller
Gregory J. Phipps 37 Vice President of Marketing
C. Grant Schultz 53 Vice President and Treasurer
Ronald R. Sutherland 58 Vice President and General Manager of Government Simulation
Allen H. Tanner 43 Vice President and General Manager of Display Systems
</TABLE>
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Mr. Carrell was elected Chairman of the Board of Directors of the Company on
March 7, 1991. He has been a member of the Board for 13 years. He also serves as
the Chairman of Seattle Silicon Corporation, and he is a director of Tripos,
Inc. From mid-1984 until October 1993, Mr. Carrell was Chairman and Chief
Executive Officer of Diasonics, Inc., a medical imaging company. From November
1983 until early 1987, Mr. Carrell was also a General Partner in Hambrecht &
Quist LLC, a west coast based investment banking and venture capital firm.
Mr. Oyler was appointed President and Chief Executive Officer of the Company and
a member of the Board of Directors in December 1994. He is also a director of
Ikos Systems, Inc. Previously, Mr. Oyler served as President of AMG, Inc. from
mid-1990 through 1994 and as Senior Vice President of Harris Corporation from
1976 through mid-1990. He has 2 years of service with the Company.
Mr. Lemley joined the Company in November 1995 as Vice President and Chief
Financial Officer. Prior to coming to the Company, he was Senior Vice President
and Chief Financial Officer at Megahertz Corporation. Previously, Mr. Lemley was
with Medtronic, Inc., where he was Corporate Controller and Acting Chief
Financial Officer. Prior to Medtronic, Mr. Lemley spent 17 years in a variety of
financial management positions with Hewlett Packard Company. He has 1 year of
service with the Company.
Mr. Meredith has been Senior Vice President and Secretary since 1995. He is also
the acting General Manager of the Entertainment and Education business unit
since 1996, and is a director of Blue Cross Blue Shield of Utah, Strata, Inc.,
and Tripos, Inc. Previously, Mr. Meredith served as Vice President and Chief
Financial Officer and Secretary and in other capacities with E&S. He has 19
years of service with the Company.
Mr. Anderson has been Vice President and General Manager of Commercial
Simulation since 1994. Prior to joining the Company, he served as General
Manager of Business Development for Hughes Rediffusion Simulation Ltd. from 1992
to 1994, and numerous other positions with Rediffusion Simulation beginning in
1961. He has 2 years of service with the Company.
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<PAGE>
Mr. Chidester has been Vice President of Manufacturing since 1994. He previously
served as Director of Graphics Workstation Manufacturing and has 8 years of
service with the Company.
Mr. Doenges has been Director of Strategic Technology since 1994. He previously
served as Manager of New Business Development. He has 23 years of service with
the Company.
Mr. Erickson was appointed Vice President and General Manager of Digital Studio
on January 1, 1997. He previously served as Vice President of New Market
Development in the Government Simulation business unit, Vice President of the
Government Business Group, and in other capacities with E&S. He has 10 years of
service with the Company.
Mr. Hurley has been Vice President of Shared Technology since 1994. He
previously served as Vice President of Engineering in the Simulation Division.
Mr. Hurley has 16 years of service with the Company.
Mr. Maule has been Vice President and General Manager of Desktop Graphics since
1996. Prior to joining the Company, he was Vice President of Marketing and
Strategy for Concurrent Computer Corporation. Previously, Mr. Maule served as
Director of Business Development for Lockheed Missiles & Space Company. He has 1
year of service with the Company.
Mr. McBride joined the Company in September 1996 as Vice President and Corporate
Controller. Prior to joining the Company, he was Senior Vice President and Chief
Financial Officer at HealthRider, Inc. Previously, Mr. McBride was employed by
Price Waterhouse LLP, independent accountants, in various capacities, ending
with Senior Manager. He is a Certified Public Accountant. Mr. McBride has less
than 1 year of service with the Company.
Mr. Phipps joined the Company in October 1996 as the Vice President of
Marketing. Prior to joining the Company, he was Regional Vice President of
Western Operations for Stream International, a software manufacturing division
of R.R. Donnelley, and Vice President of Marketing for the Global Software
Services division of R.R. Donnelley. Mr. Phipps has less than 1 year of service
with the Company.
Mr. Schultz has been Vice President and Treasurer since 1996. He previously
served as Corporate Controller. He has 21 years of service with the Company.
Mr. Sutherland has been Vice President and General Manager of Government
Simulation since 1994. He previously served as Executive Vice President of the
Government Sector, and Vice President of Simulation Products. Mr. Sutherland has
15 years of service with the Company.
Mr. Tanner joined the Company in March 1996 as Vice President and General
Manager of Display Systems. Prior to joining the Company, Mr. Tanner was
President of Terabit Computer Specialty Company, Inc. between 1979 and 1996.
Terabit was acquired by E&S in March 1996. Mr. Tanner has 1 year of service with
the Company.
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FORM 10-K
PART II
ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
The Company's common stock trades on The NASDAQ Stock Market under
the symbol "ESCC". The following table sets forth the range of the high and low
sales prices per share of the Company's common stock for the fiscal quarters
indicated, as reported by NASDAQ. Quotations represent actual transactions in
NASDAQ's quotation system but do not include retail markup, markdown, or
commission.
<TABLE>
<CAPTION>
HIGH LOW
-------- ----------
<S> <C> <C>
1996:
----
First Quarter 25 19
Second Quarter 29 21
Third Quarter 23 3/4 19 1/2
Fourth Quarter 26 1/4 20
1995:
----
First Quarter 16 1/4 11 1/4
Second Quarter 17 3/4 13
Third Quarter 20 14 3/4
Fourth Quarter 25 1/4 16 1/2
</TABLE>
APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS
On March 24, 1997, there were 883 shareholders of record of the
Company's common stock. Because many of such shares are held by brokers and
other institutions on behalf of shareholders, the Company is unable to estimate
the total number of shareholders represented by these record holders.
DIVIDENDS
Evans & Sutherland has never paid a cash dividend on its common
stock, retaining its earnings for the operation and expansion of its business.
The Company intends for the foreseeable future to continue the policy of
retaining its earnings to finance the development and growth of its business.
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<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
------------ ----------- ------------ ------------ ------------
FOR THE YEAR
<S> <C> <C> <C> <C> <C>
Net sales $130,564 $113,194 $113,090 $142,253 $148,594
Research and development 21,753 19,406 27,890 31,757 31,342
Gain from sale of business unit - 23,506 - - -
Earnings (loss) before income taxes,
extraordinary gain, and cumulative
effect of change in accounting
principle 16,029 33,580 (11,384) 2,831 11,024
Earnings (loss) before
extraordinary gain and
cumulative effect of change
in accounting principle 10,352 20,484 (5,559) 1,826 6,849
Per share 1.12 2.37 (0.65) 0.22 0.78
Net earnings (loss) 10,352 20,811 (3,700) 4,093 7,558
Per share 1.12 2.41 (0.43) 0.50 0.86
Per share - fully diluted 1.11 2.31 - - -
Weighted average number
of shares outstanding 9,222 8,639 8,520 8,256 8,780
Return on equity 6.7 % 15.1 % (2.8)% 3.1 % 5.7 %
AT END OF THE YEAR
Current assets $159,213 $161,004 $127,051 $161,188 $141,824
Current liabilities 32,290 42,593 30,980 40,516 29,286
Current ratio 4.9 3.8 4.1 4.0 4.8
Working capital 126,923 118,411 96,071 120,672 112,538
Net fixed assets 42,671 40,855 44,823 48,247 53,531
Total assets 210,891 211,002 180,764 216,187 200,979
Long-term debt 18,015 18,015 20,375 37,066 37,067
Stockholders' equity 160,472 148,491 127,118 137,030 130,795
Stockholders' equity
per outstanding share 17.72 17.04 14.86 16.41 15.91
</TABLE>
-12-
<PAGE>
QUARTERLY FINANCIAL DATA (Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
1996
March 29 June 28 Sep. 27 Dec. 27
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Net sales $26,686 $30,907 $33,712 $39,259
Gross profit 12,494 14,715 16,764 20,656
Operating expenses 12,003 13,379 12,607 15,121
Operating profit 491 1,336 4,157 5,535
Other income, net 726 1,072 1,144 1,568
Earnings before income taxes 1,217 2,408 5,301 7,103
Net earnings 755 1,493 3,286 4,818
Earnings per common and common
equivalent share 0.08 0.16 0.35 0.52
<CAPTION>
1995
March 31 June 30 Sep. 29 Dec. 29
------------- ------------- ------------ -----------
<S> <C> <C> <C> <C>
Net sales $19,286 $25,081 $33,662 $35,165
Gross profit 10,764 6,703 16,417 16,542
Operating expenses 14,146 11,971 11,172 13,536
Gain from sale of business unit - 20,188 - 3,318
Operating profit (loss) (3,382) 14,920 5,245 6,324
Other income, net 4,339 4,282 959 893
Earnings before income taxes and
extraordinary gain 957 19,202 6,204 7,217
Earnings before extraordinary gain 598 11,034 3,599 5,253
Extraordinary gain from repurchase of
convertible debentures, net of
income taxes - 200 111 16
Net earnings 598 11,234 3,710 5,269
Earnings per common and common equivalent
share before extraordinary gain 0.07 1.28 0.42 0.61
Extraordinary gain - 0.02 0.01 -
Earnings per common and common
equivalent share 0.07 1.30 0.43 0.61
</TABLE>
-13-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussions should be read in conjunction with the
Company's Consolidated Financial Statements contained herein under Item 8 of
this report.
ITEMS FROM THE CONSOLIDATED STATEMENTS OF OPERATION (as a percent of sales)
<TABLE>
<CAPTION>
Year-Ended Year-Ended Year-Ended
Dec. 27, Dec. 29, Dec. 30,
1996 1995 1994
--------------- ---------------- -------------
<S> <C> <C> <C>
Net sales 100.0 % 100.0 % 100.0 %
Cost of sales 50.5 55.5 53.6
----------- ---------- ---------
Gross profit 49.5 44.5 46.4
Expenses:
Marketing, general and administrative 24.0 27.1 29.1
Research and development 16.7 17.2 24.7
Restructuring charge - - 7.2
Write-off of acquired research and development - 0.6 -
----------- ---------- ---------
Total expenses 40.7 44.9 61.0
----------- ---------- ---------
Gain from sale of business unit - 20.8 -
Operating earnings (loss) 8.8 20.4 (14.6)
Other income, net 3.5 9.3 4.5
----------- ---------- ---------
Earnings (loss) before income taxes and extraordinary gain 12.3 29.7 (10.1)
Income tax expense (benefit) 4.4 11.6 (5.2)
----------- ---------- ---------
Earnings (loss) before extraordinary gain 7.9 18.1 (4.9)
Extraordinary gain from repurchase of convertible
debentures, net of income taxes - 0.3 1.6
----------- ---------- ---------
Net earnings (loss) 7.9 % 18.4 % (3.3) %
=========== ========== =========
</TABLE>
RESULTS OF OPERATIONS
SUMMARY
Evans & Sutherland experienced another good year in 1996. E&S
continues to see improved operating efficiencies from the previous years'
restructuring and rebuilding efforts. The Company's net sales increased 15% in
1996. Net earnings decreased 50%; however, after adjusting for the effect of the
sale of CDRS and other non-recurring items, net earnings increased 47%. Another
important indicator of the Company's progress was strong performance in winning
new orders. Bookings of over $181 million and ending backlog of $127 million has
placed E&S in a strong position for the future. These orders were also well
balanced between U.S. (46%) and international (54%) markets. Total backlog of
$127 million is at a record level. In addition, E&S acquired one company; made
strategic minority investments in two software companies; and divested its
interests in another. Corporate development activities continue to be an
important part of the Company's strategic growth plan. All of these
accomplishments represent real progress in strengthening Evans & Sutherland as a
leading provider of high quality visual systems.
SALES
In 1996, sales increased 15% ($130.6 million versus $113.2 million in
1995). The improvement was primarily due to increased market share and strong
international activity. International sales increased 99% ($88.4 million versus
$44.5 million in 1995) and U.S. sales decreased 39% ($42.2 million compared to
$68.7 million in 1995). Based on the year-end backlog, the Company expects sales
in the U.S. to increase in 1997. Strong growth in the international markets was
primarily due to a 219% increase in sales in the Pacific Rim region ($44.3
million compared to $13.9 million in 1995), a 58% sales increase in Europe,
excluding Great Britain ($26.6 million compared to $16.8 million in 1995), and a
20% sales increase in Great Britain ($13.9 million compared to $11.6 million in
1995).
-14-
<PAGE>
In 1995, sales increased less than 1% ($113.2 million versus $113.1
million in 1994). International sales increased 17% ($44.5 million versus $37.9
million in 1994) and U.S. sales decreased 9% ($68.7 million compared to $75.2
million in 1994). Strong growth in the international markets was led by a 99%
sales increase in the Pacific Rim region ($13.9 million compared to $7.0 million
in 1994) and a 26% sales increase in Great Britain ($11.6 million compared to
$9.2 million in 1994). Sales in other European and foreign locations showed a
slight decrease.
COSTS AND EXPENSES
Cost of Sales, as a percent of sales, were 51%, 56%, and 54%,
respectively, in 1996, 1995, and 1994. In 1996, the decrease in the cost of
sales percentage was due primarily to product mix and, in part, to the
Company-wide restructuring that occurred in 1994 and 1995 which eliminated
non-profitable product lines and included a write-down of inventory. However,
increased competition and contracts in which the Company is functioning as the
prime contractor are expected to reduce gross margins in 1997 and beyond. In
1995, the increase in cost of sales as a percentage of sales was due to
increased competition in nearly all of the Company's product lines, which added
pressure on prices and margins. Also, the Company-wide restructuring, which
included elimination of the non-profitable product lines, principally the
Freedom series products, resulted in a $7.4 million write-down of inventory in
1995.
Total operating expenses increased 6% in 1996 ($53.1 million versus
$50.1 million in 1995, excluding the write-off of acquired research and
development in 1995), but decreased as a percent of sales (41% versus 44% in
1995). The trend of operating expenses increasing in total but being lower as a
percent of sales is expected to continue in 1997. In 1995, total operating
expenses decreased 18% ($50.1 million versus $60.8 million in 1994, excluding
the write-off of acquired research and development in 1995 and the cost of
restructuring in 1994), and also decreased as a percent of sales (44% versus 54%
in 1994).
Marketing, general, and administrative expenses increased 2% in 1996
($31.4 million versus $30.7 million in 1995), but decreased as a percent of
sales (24% versus 27% in 1995). The increase in these expenses is due primarily
to increased marketing costs related to tradeshow activity and additional
marketing and administrative expenses related to the operation of the new
business units launched during the year. In 1995, these expenses decreased 7%
($30.7 million versus $32.9 million in 1994), and also decreased as a percent of
sales (27% versus 29% in 1994). The lower expenses in 1995 were due to the
Company-wide restructuring.
Research and development expenses increased 12% in 1996 ($21.8
million versus $19.4 million in 1995), but slightly decreased as a percent of
sales (16.7% versus 17.2% in 1995). The increase in these expenses in 1996 is
due primarily to increased activity related to the introduction of several new
products, and additional expenses related to the new business units created
during the year. In 1995, research and development expenses decreased 30% ($19.4
million versus $27.9 million in 1994), and also decreased as a percent of sales
(17% versus 25% in 1994) due to the restructuring. Management intends to
continue to reduce research and development, as a percent of sales, over the
next few years. However, high levels of research and development will continue
in support of essential product development to ensure that the Company maintains
technical excellence and market competitiveness. The Company continues to fund
substantially all research and development costs internally.
OTHER INCOME, NET
Other income, net, decreased 57% in 1996 ($4.5 million versus $10.5
million in 1995) due primarily to a lower gain on sale of investment securities
($1.9 million versus $7.1 million in 1995) and a decrease in interest income
($3.9 million versus $4.8 million in 1995). In 1996, cash and marketable
securities balances were lower compared to 1995, primarily as the result of
proceeds received from the sale of CDRS in April 1995. In 1995, other income,
net, increased 104% ($10.5 million versus $5.1 million in 1994) due to a 75%
increase in interest income ($4.8 million versus $2.7 million in 1994) resulting
from the higher cash balances received from the sale of CDRS, and a 78% increase
from the sale of investment securities ($7.1 million versus $4.0 million in
1994).
-15-
<PAGE>
EXTRAORDINARY GAIN
Evans & Sutherland realized extraordinary gains in 1995 and 1994 from
repurchase of its 6% Subordinated Convertible Debentures at less than par. There
were no repurchases of debentures by the Company in 1996. The current face
amount of debentures outstanding is $18.0 million.
INCOME TAXES
Provision (benefit) for income taxes was 35%, 39%, and (51%) of
pre-tax earnings (loss) for 1996, 1995, and 1994 respectively. The Company
expects the income tax rate to continue to decrease in 1997.
LIQUIDITY AND CAPITAL RESOURCES
Funds to support the Company's operations come from net cash provided
by operating activities, sale of marketable securities held for investment, and
proceeds from employee stock purchase and option plans. The Company also has
cash equivalents and short-term marketable securities which can be used as
needed.
During 1996, proceeds from employee stock purchases contributed $3.6
million and proceeds from the sale of investment securities provided $1.9
million. The major use of cash in 1996 was the funding of operating activities
of $21.7 million (primarily an increase in working capital and payment of income
taxes related to the gain on the sale of CDRS), the purchase of capital
equipment for $10.5 million, and the purchase of investment securities of $1.4
million. The net result was a decrease in cash and marketable securities of
$28.8 million to $63.0 million at the end of 1996 from $91.7 million in 1995. At
the end of 1996, there were no material capital commitments. The Company
believes that through internal cash generation, plus the cash equivalents and
marketable securities identified above, it has sufficient resources to cover its
cash needs during fiscal year 1997.
EFFECTS OF INFLATION
The effects of inflation were not considered material during 1996.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Evans & Sutherland's domestic and international businesses operate in
highly competitive markets. The business of the Company is subject to national
and worldwide economic and political influences such as recession, political
instability, the economic strength of governments, and rapid changes in
technology. The Company's operating results are dependent on its ability to
rapidly develop, manufacture, and market innovative products that meet customers
needs. Inherent in this process are a number of risks that the Company must
manage in order to achieve favorable operating results. The process of
developing new high technology products is complex and uncertain, requiring
innovative designs and features that anticipate customer needs and technological
trends. The products, once developed, must be manufactured and distributed in
sufficient volumes at acceptable costs to meet demand. Furthermore, portions of
the manufacturing operations are dependent on the ability of suppliers to
deliver components and subassemblies in time to meet critical manufacturing and
distribution schedules. Constraints in these supply lines may adversely affect
the Company's operating results until alternate sourcing can be developed.
This annual report contains both historical facts and forward-looking
statements. Any forward-looking statements involve risks and uncertainties,
including but not limited to risk of product demand, market acceptance, economic
conditions, competitive products and pricing, difficulties in product
development, commercialization, and technology, and other risks detailed in this
filing. Although the Company believes it has the product offerings and resources
for continuing success, future revenue and margin trends cannot be reliably
predicted. Factors external to the Company can result in volatility of the
Company's common stock price. Because of the foregoing factors, recent trends
are not necessarily reliable indicators of future stock prices or financial
performance.
-16-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following constitutes a list of Financial Statements included in Part II of
this report:
. Report of Management
. Independent Auditors' Report
. Consolidated Balance Sheets - December 27, 1996 and
December 29, 1995.
. Consolidated Statements of Operations - Years ended
December 27, 1996, December 29, 1995, and December 30, 1994.
. Consolidated Statements of Stockholders' Equity - Years ended
December 27, 1996, December 29, 1995, and December 30, 1994.
. Consolidated Statements of Cash Flows - Years ended December
27, 1996, December 29, 1995, and December 30, 1994.
. Notes to Consolidated Financial Statements - Years ended
December 27, 1996, December 29, 1995, and December 30, 1994.
The following constitutes a list of Financial Statement Schedules included in
Part IV of this report:
. Schedule II - Valuation and Qualifying Accounts
Schedules other than those listed above are omitted because of the
absence of conditions under which they are required or because the required
information is presented in the Financial Statements or notes thereto.
[THIS SPACE INTENTIONALLY LEFT BLANK]
-17-
<PAGE>
REPORT OF MANAGEMENT
Responsibility for the integrity and objectivity of the financial
information presented in this report rests with the management of Evans &
Sutherland. The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles applied on a consistent
basis and, where necessary, include estimates based on management judgment.
Management also prepared other information in this report and is responsible for
its accuracy and consistency with the financial statements.
Evans & Sutherland has established and maintains an effective system
of internal accounting controls. The Company believes this system provides
reasonable assurance that transactions are executed in accordance with
management authorization in order to permit the financial statements to be
prepared with integrity and reliability and to safeguard, verify, and maintain
accountability of assets. In addition, Evans & Sutherland's business ethics
policy requires employees to maintain the highest level of ethical standards in
the conduct of the Company's business.
Evans & Sutherland's financial statements have been audited by KPMG
Peat Marwick LLP, independent public accountants. Management has made available
all the Company's financial records and related data to allow KPMG Peat Marwick
LLP to express an informed professional opinion in their accompanying report.
The Audit Committee of the Board of Directors is composed of the
Chairman of the Board and all outside directors and meets regularly with the
independent accountants, as well as with Evans & Sutherland management and
internal auditing, to review accounting, auditing, internal accounting control,
and financial reporting matters.
James R. Oyler John T. Lemley
President and Vice President and
Chief Executive Officer Chief Financial Officer
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
Evans & Sutherland Computer Corporation:
We have audited the consolidated financial statements of Evans &
Sutherland Computer Corporation and subsidiaries as listed in the accompanying
index. In connection with our audits of the consolidated financial statements,
we also have audited the financial statement schedule as listed in the
accompanying index. These consolidated financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Evans & Sutherland Computer Corporation and subsidiaries as of December 27, 1996
and December 29, 1995, and the results of their operations and their cash flows
for each of the years in the three-year period ended December 27, 1996, in
conformity with generally accepted accounting principles. Also in our opinion,
the related financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
KPMG Peat Marwick LLP
February 7, 1997
Salt Lake City, Utah
-18-
<PAGE>
EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 27, 1996 and December 29, 1995
(Dollars in thousands, except share amounts)
<TABLE>
<CAPTION>
Assets 1996 1995
------
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 16,521 $ 5,023
Marketable securities (note 2) 46,454 86,718
Accounts receivable, less allowance for doubtful receivables
of $563 in 1996 and $172 in 1995 34,842 27,121
Inventories (note 3) 20,202 18,981
Costs and estimated earnings in excess of billings on
uncompleted contracts (note 4) 34,166 15,052
Deferred income taxes (note 9) 4,841 6,645
Prepaid expenses and deposits 2,187 1,464
--------- ---------
Total current assets 159,213 161,004
Property, plant and equipment (note 5) 42,671 40,855
Investment securities (note 2) 7,057 7,437
Other assets 1,950 1,706
--------- ---------
$ 210,891 $ 211,002
========= =========
<CAPTION>
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Notes payable to banks (note 6) $ 5,334 $ 3,773
Accounts payable 6,370 2,804
Accrued expenses (note 7) 13,933 14,849
Customer deposits 2,058 5,436
Income taxes payable (note 9) - 10,676
Billings in excess of costs and estimated earnings on
uncompleted contracts (note 4) 4,595 5,055
--------- ---------
Total current liabilities 32,290 42,593
Long-term debt (note 8) 18,015 18,015
Deferred income taxes (note 9) 114 1,903
Stockholders' equity (notes 10 and 15):
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 9,056,871 shares in 1996 and 8,715,320 shares in 1995 1,811 1,743
Additional paid-in capital 8,639 5,112
Retained earnings 150,496 140,062
Net unrealized (loss) gain on marketable and investment securities (541) 1,694
Cumulative translation adjustment 67 (120)
--------- ---------
Total stockholders' equity 160,472 148,491
Commitments and contingencies (notes 11 and 17)
--------- ---------
$ 210,891 $ 211,002
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
-19-
<PAGE>
EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 27, 1996,
December 29, 1995, and December 30, 1994
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
1996 1995 1994
----------- ------------ ------------
<S> <C> <C> <C>
Net sales (notes 12 and 13) $ 130,564 $ 113,194 $ 113,090
Cost of sales 65,935 62,768 60,626
----------- ------------ ------------
Gross profit 64,629 50,426 52,464
----------- ------------ ------------
Expenses:
Marketing, general and administrative 31,357 30,714 32,874
Research and development 21,753 19,406 27,890
Restructuring charge (note 18) - - 8,212
Write-off of acquired research and development - 705 -
----------- ------------ ------------
53,110 50,825 68,976
Gain from sale of business unit (note 19) - 23,506 -
----------- ------------ ------------
Operating earnings (loss) 11,519 23,107 (16,512)
Other income (expense):
Interest income 3,892 4,752 2,710
Interest expense (1,434) (1,477) (1,902)
Gain on sale of marketable and investment securities (note 2) 1,868 7,126 4,009
Other 184 72 311
----------- ------------ ------------
4,510 10,473 5,128
----------- ------------ ------------
Earnings (loss) before income taxes and extraordinary gain 16,029 33,580 (11,384)
Income tax expense (benefit) (note 9) 5,677 13,096 (5,825)
----------- ------------ ------------
Earnings (loss) before extraordinary gain 10,352 20,484 (5,559)
Extraordinary gain from repurchase of convertible debentures,
net of income taxes of $209 in 1995 and $1,115 in 1994 (note 8) - 327 1,859
=========== ============ ============
Net earnings (loss) $ 10,352 $ 20,811 $ (3,700)
=========== ============ ============
Earnings (loss) per common and common equivalent share:
Before extraordinary gain $ 1.12 $ 2.37 $ (.65)
Extraordinary gain from repurchase of convertible debentures - .04 .22
----------- ------------ ------------
$ 1.12 $ 2.41 $ (.43)
=========== ============ ============
Fully-diluted earnings (loss) per share:
Before extraordinary gain $ 1.11 $ 2.28 $ -
Extraordinary gain from repurchase of convertible debentures - .03 -
----------- ------------ ------------
$ 1.11 $ 2.31 $ -
=========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
-20-
<PAGE>
EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 27, 1996, December 29, 1995, and December 30, 1994
(Dollars in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- ------------
<S> <C> <C> <C>
Common stock:
Beginning of year $ 1,743 $ 1,710 $ 1,671
Par value of shares issued for cash (195,571 shares in 1996,
181,734 shares in 1995, and 199,581 shares in 1994) 39 36 41
Par value of shares issued to acquire Terabit (149,215 shares in 1996) 30 - -
Par value of shares purchased and retired (3,235 shares in 1996, 18,520
shares in 1995, and 11,806 shares in 1994) (1) (3) (2)
----------- ----------- ------------
End of year 1,811 1,743 1,710
----------- ----------- ------------
Additional paid-in capital:
Beginning of year 5,112 2,850 11,899
Proceeds in excess of par value of shares issued for cash 2,746 2,504 3,273
Compensation expense on employee stock purchase plan 90 74 83
Tax benefit from issuance of common stock to employees 691 - 217
Retirement of treasury stock (51) (316) (243)
Terabit acquisition 51 - -
Tripos spin off (note 19) - - (12,379)
----------- ----------- ------------
End of year 8,639 5,112 2,850
----------- ----------- ------------
Retained earnings:
Beginning of year 140,062 119,251 122,951
Terabit acquisition 82 - -
Net earnings (loss) 10,352 20,811 (3,700)
----------- ----------- ------------
End of year 150,496 140,062 119,251
----------- ----------- ------------
Net unrealized (loss) gain on investment securities:
Beginning of year 1,694 2,847 -
Effect of change in accounting for investment securities - - 6,838
Fair value adjustment of marketable securities (2,235) (1,153) (3,991)
----------- ----------- ------------
End of year (541) 1,694 2,847
----------- ----------- ------------
Cumulative translation adjustment:
Beginning of year (120) 460 509
Translation adjustment 187 (580) (49)
----------- ----------- ------------
End of year 67 (120) 460
----------- ----------- ------------
Total stockholders' equity $ 160,472 $ 148,491 $ 127,118
=========== =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
-21-
<PAGE>
EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 27, 1996, December 29, 1995, and December 30, 1994
(Dollars in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 10,352 $ 20,811 $ (3,700)
Adjustments to reconcile net earnings (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 9,120 9,950 10,704
Provision for losses on accounts receivable 335 158 99
Provision for write down of inventory (535) 7,988 4,316
Provision for warranty expense 673 470 348
Gain on sale of marketable and investment securities (1,868) (7,126) (4,009)
Gain on repurchase of convertible debentures - (536) (2,974)
Gain on sale of business unit - (23,506) -
Restructuring charge - - 8,212
Other, net 69 (93) 69
Changes in operating assets and liabilities, net of effects of
purchase/sale of businesses:
Accounts receivable (7,406) (6,117) 7,426
Inventories (3,093) (7,695) (772)
Costs and estimated earnings in excess of
billings on uncompleted contracts, net (19,036) 8,530 (8,789)
Deferred income taxes 1,283 414 (1,541)
Prepaid expenses and deposits (745) (423) (241)
Accounts payable and accrued expenses 3,790 (3,912) (10,713)
Customer deposits (3,489) (3,472) 691
Income taxes payable (11,180) 12,169 (3,760)
---------- ---------- -----------
Net cash (used in) provided by operating activities (21,730) 7,610 (4,634)
---------- ---------- -----------
Cash flows from investing activities:
Purchases of marketable securities (57,354) (145,047) 32,627
Proceeds from sale of marketable securities 97,262 85,147 16,062
Purchase of investment securities (1,447) (3,000) -
Proceeds from sale of investment securities 1,886 7,930 4,502
Capital expenditures (10,521) (5,846) (6,417)
Tripos spin off - - (8,485)
Proceeds from sale of business unit - 31,488 -
Payment for acquisition, net of cash acquired - (93) (975)
Increase in other assets (1,463) - (404)
Proceeds from disposal of fixed assets and other assets - - 61
---------- ---------- -----------
Net cash provided by (used in) investing activities 28,363 (29,421) 36,971
---------- ---------- -----------
</TABLE>
-22-
<PAGE>
EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years ended December 27, 1996, December 29, 1995, and December 30, 1994
(Dollars in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- -----------
<S> <C> <C> <C>
Cash flows from financing activities:
Payments for repurchase of convertible debentures $ - $ (1,831) $ (13,748)
Net borrowings (payments) under notes payable to banks 1,904 1,758 (1,142)
Net proceeds from issuance of common stock 3,594 2,295 4,607
---------- ---------- -----------
Net cash provided by (used in) financing activities 5,498 2,222 (10,283)
---------- ---------- -----------
Effect of foreign exchange rate changes on cash (633) (601) (91)
---------- ---------- -----------
Net change in cash and cash equivalents 11,498 (20,190) 21,963
Cash and cash equivalents at beginning of year 5,023 25,213 3,250
---------- ---------- -----------
Cash and cash equivalents at end of year $ 16,521 $ 5,023 $ 25,213
========== ========== ===========
Supplemental Disclosures of Cash Flow Information
- -------------------------------------------------
Cash paid during the year for:
Interest $ 1,385 $ 1,500 $ 2,225
Income taxes 14,736 1,134 432
</TABLE>
See accompanying notes to consolidated financial statements.
-23-
<PAGE>
EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 27, 1996, December 29, 1995, and December 30, 1994
(Dollars in thousands, except share and per share amounts)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Description of Business
-----------------------
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.
The Company's fiscal year ends the last Friday in December. The fiscal
year ends for the years included in the accompanying consolidated
financial statements are the periods ended December 27, 1996, December
29, 1995, and December 30, 1994. Unless otherwise specified, all
references to a year are to the fiscal year ended in the year stated.
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Revenue Recognition
-------------------
Net sales include revenue from system and software products, software
license rights, and service contracts. Product revenues are generally
recognized when the product is shipped and the Company has no additional
performance obligations.
Revenue from long-term contracts is recorded using the
percentage-of-completion method, determined by the units-delivered
method, or when there is significant nonrecurring engineering, the ratio
of costs incurred to management's estimate of total anticipated costs.
If estimated total costs on any contract indicate a loss, the Company
provides currently for the total anticipated loss on the contract.
Billings on uncompleted long-term contracts may be greater than or less
than incurred costs and estimated earnings and are recorded as an asset
or liability in the accompanying consolidated balance sheets.
Software license fees are recognized when the product has been
delivered, provided that the Company has no additional performance
obligations. Revenues from service contracts are recognized ratably over
the related contract period.
-24-
<PAGE>
EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid financial instruments purchased
with an original maturity to the Company of three months or less to be
cash equivalents. Cash equivalents consist of debt securities of $11,902
at December 27, 1996.
Inventories
-----------
Raw materials and supplies inventories are stated at the lower of
weighted average cost or market. Work-in-process and finished goods are
stated on the basis of accumulated manufacturing costs, but not in
excess of market (net realizable value).
Property, Plant, and Equipment
------------------------------
Property, plant, and equipment are stated at cost. Depreciation and
amortization are computed using the straight-line and double-declining
balance methods based on the estimated useful lives of the related
assets.
Other Assets
------------
Other assets include deferred bond offering costs, goodwill and certain
other intangible assets and are being amortized on the straight-line
basis over the estimated useful lives of the respective assets.
Software Development Costs
--------------------------
Software development costs, if material, are capitalized from the date
technological feasibility is achieved until the product is available for
general release to customers. Such deferrable costs have not been
material during the periods presented.
Marketable and Investment Securities
------------------------------------
The Company classifies its marketable debt and equity securities as
available-for-sale. Available-for-sale securities are recorded at fair
value. Unrealized holding gains and losses, net of the related tax
effect, are excluded from earnings and are reported as a separate
component of stockholders' equity until realized. A decline in the
market value below cost that is deemed other than temporary is charged
to results of operations resulting in the establishment of a new cost
basis for the security. Dividend income is recognized when earned.
Realized gains and losses from the sale of securities are included in
results of operations and are determined on the specific-identification
basis.
Nonmarketable investment securities are recorded at the lower of cost or
net realizable value.
-25-
<PAGE>
EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Warranty Reserve
----------------
The Company provides a warranty reserve for estimated future costs of
servicing products under warranty agreements extending for periods from
90 days to one year. Anticipated costs for product warranty are based
upon estimates derived from experience factors and are recorded at the
time of sale or over the contract period for long-term contracts.
Stock-Based Compensation
------------------------
Effective January 1, 1996, the Company adopted the footnote disclosure
provisions of Statement of Financial Accounting Standards No. 123,
Accounting for Stock Based Compensation (SFAS 123). SFAS 123 encourages
entities to adopt a fair value based method of accounting for stock
options or similar equity instruments. However, it also allows an entity
to continue measuring compensation cost for stock based compensation
using the intrinsic-value method of accounting prescribed by Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees (APB 25). The Company has elected to continue to apply the
provisions of APB 25 and provide pro forma footnote disclosures required
by SFAS 123.
Earnings (Loss) Per Common and Common Equivalent Share
------------------------------------------------------
Earnings (loss) per common and common equivalent share is computed based
on the weighted average number of common shares and, as appropriate,
dilutive common stock equivalents outstanding during the period. Stock
options are considered to be common stock equivalents. The number of
shares used to compute primary earnings (loss) per common and common
equivalent share were 9,222,301, 8,638,665, and 8,519,990 shares in
1996, 1995, and 1994, respectively. The number of shares used to compute
fully-diluted earnings per share reflect additional dilution related to
stock options and warrants using the market price at the end of the
period when higher than the average price for the period. The number of
shares used to compute fully-diluted earnings per share were 9,331,138
and 9,000,710 shares in 1996 and 1995, respectively.
Income Taxes
------------
The Company uses the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
-26-
<PAGE>
EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Foreign Currency Translation
----------------------------
The local foreign currency is the functional currency for the Company's
foreign subsidiaries. Assets and liabilities of foreign operations are
translated to U.S. dollars at the current exchange rates as of the
applicable balance sheet date. Revenues and expenses are translated at
the average exchange rates prevailing during the period. Adjustments
resulting from translation are reported as a separate component of
stockholders' equity. Certain transactions of the foreign subsidiaries
are denominated in currencies other than the functional currency,
including transactions with the parent company. Transaction gains and
losses are included in other income (expense) for the period in which
the transaction occurs.
Estimates
---------
The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Concentration of Credit Risk
----------------------------
Financial instruments that potentially subject the Company to
concentrations of credit risk are primarily cash, cash equivalents,
marketable securities, and accounts receivable. The Company's marketable
securities portfolio consists of investment-grade securities diversified
among security types, industries, and issuers. The Company's investments
are managed by recognized financial institutions that follow the
Company's investment policy. The Company's policy limits the amount of
credit exposure in any one issue, and the Company believes no
significant concentration of credit risk exists with respect to these
investments.
In the normal course of business, the Company provides unsecured credit
terms to its customers. Accordingly, the Company performs ongoing credit
evaluations of its customers and maintains allowances for possible
losses which, when realized, have been within the range of management's
expectations.
Reclassifications
-----------------
Certain reclassifications have been made in the 1995 and 1994
consolidated financial statements to conform with classifications
adopted in 1996.
-27-
<PAGE>
EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) MARKETABLE AND INVESTMENT SECURITIES
------------------------------------
The amortized cost, gross unrealized holding gains, gross unrealized
holding losses, and fair value for securities by major security type and
class of security at 1996 and 1995, are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross
unrealized unrealized
Amortized holding holding Fair
cost gains losses value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year ended 1996:
U.S. government securities:
Maturing in one year or less $ 2,081 $ 3 $ - $ 2,084
Maturing between one and three years 16,253 5 80 16,178
State and municipal securities:
Maturing in one year or less 2,005 10 - 2,015
Maturing between one and three years 16,058 47 1 16,104
Corporate debt securities - Maturing between one and
three years 4,004 - - 4,004
Marketable securities 6,051 18 - 6,069
---------- ---------- ---------- ----------
$ 46,452 $ 83 $ 81 $ 46,454
========== ========== ========== ==========
Year ended 1995:
U.S. government securities:
Maturing in one year or less $ 17,734 $ 35 $ - $ 17,769
Maturing between one and three years 28,932 210 - 29,142
State and municipal securities:
Maturing in one year or less 1,005 1 - 1,006
Maturing between one and three years 28,194 85 8 28,271
Corporate debt securities - Maturing between one and
three years 5,418 34 - 5,452
Mortgage-backed securities - maturing in one year or less 5,077 1 - 5,078
---------- ---------- ---------- ----------
$ 86,360 $ 366 $ 8 $ 86,718
========== ========== ========== ==========
Long-term investment securities are summarized as follows:
<CAPTION>
Gross Gross
unrealized unrealized
holding holding Market
Cost gains losses value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year ended 1996:
Marketable securities:
Iwerks Entertainment, Inc. $ 2,000 $ - $ 868 $ 1,132
========== ========== ========== ==========
Year ended 1995:
Marketable securities:
Iwerks Entertainment, Inc. $ 2,000 $ 345 $ 1,000 $ 1,345
Adobe Systems, Inc. 19 3,073 - 3,092
---------- ---------- ---------- ----------
$ 2,019 $ 3,418 $ 1,000 $ 4,437
========== ========== ========== ==========
</TABLE>
-28-
<PAGE>
EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) MARKETABLE AND INVESTMENT SECURITIES (continued)
------------------------------------
The Company has investments in nonmarketable securities of three
companies in 1996 and one company in 1995. These investments are
recorded at cost, adjusted for permanent impairment if necessary, and
total $5,925 and $3,000 at December 27, 1996 and December 29, 1995,
respectively.
On December 27, 1996, the Company contributed all of the issued and
outstanding capital stock of Portable Graphics, Inc., a wholly-owned
subsidiary and $350 cash in exchange for 1,570,667 Class A Shares of
Total Graphics Solution N.V. (TGS) and a warrant to purchase an
additional 832,355 Class A Shares (note 19). The total shares purchased
and available to purchase under the warrant represent 15 percent of the
total outstanding common shares at the time of the transaction. The
shares are not marketable. TGS develops and markets portable graphics
software tools which provide hardware independence for application
developers.
On June 25, 1996, the Company purchased 70,782 shares of Series B
Preferred Stock of Sense8 Corporation which is convertible to 70,782
common shares and represents less than 10 percent of the outstanding
common shares and common equivalent shares. The shares are not
marketable and are stated at cost. Sense8 Corporation designs and
markets software development tools for the creation of virtual reality
applications.
On August 10, 1995, the Company purchased 109,259 common shares of
Strata, Inc. (Strata) which represents less than 10 percent of the
outstanding common shares. The shares are not marketable and are stated
at cost. Strata is a developer of software tools for multimedia
producers.
(3) INVENTORIES
-----------
Inventories are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Raw materials and supplies $ 8,117 $ 7,404
Work-in-process 11,211 8,983
Finished goods 874 2,594
----------- -----------
$ 20,202 $ 18,981
=========== ===========
</TABLE>
-29-
<PAGE>
EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) LONG-TERM CONTRACTS
-------------------
Comparative information with respect to uncompleted contracts are
summarized as follows:
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Accumulated costs and estimated earnings on
uncompleted contracts $ 160,069 $ 297,039
Less billings 130,498 287,042
----------- ----------
$ 29,571 $ 9,997
=========== ==========
Costs and estimated earnings in excess of billings on
uncompleted contracts $ 34,166 $ 15,052
Billings in excess of costs and estimated earnings on
uncompleted contracts (4,595) (5,055)
----------- ----------
$ 29,571 $ 9,997
=========== ==========
</TABLE>
(5) PROPERTY, PLANT, AND EQUIPMENT
------------------------------
The cost and estimated useful lives of property, plant, and equipment
are summarized as follows:
<TABLE>
<CAPTION>
Estimated
useful lives 1996 1995
--------------- ------------ ------------
<S> <C> <C> <C>
Land - $ 1,436 $ 1,436
Buildings and improvements 40 years 35,970 35,366
Machinery and equipment 3 to 8 years 74,005 66,427
Office furniture and equipment 8 years 2,052 1,849
Construction-in-process - 1,895 1,069
----------- -----------
115,358 106,147
Less accumulated depreciation and amortization 72,687 65,292
----------- -----------
$ 42,671 $ 40,855
=========== ===========
</TABLE>
All buildings and improvements owned by the Company are constructed on
land leased from an unrelated third party. Such leases extend for a term
of 40 years from 1986, with options to extend two of the leases for an
additional 40 years and the remaining four leases for an additional
10 years. At the end of the lease term, including any extension, the
buildings and improvements revert to the lessor.
-30-
<PAGE>
EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) NOTES PAYABLE TO BANKS
----------------------
The following is a summary of notes payable to banks:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Balance at end of year $ 5,334 $ 3,773
Weighted average interest rate at end of year 7.5% 7.9%
Maximum balance outstanding during the year $ 5,553 $ 6,180
Average balance outstanding during the year $ 4,833 $ 4,390
Weighted average interest rate during the year 7.6% 8.9%
</TABLE>
The average balance outstanding and weighted average interest rate are
computed based on the outstanding balances and interest rates at
month-end during each year.
The Company has unsecured revolving line-of-credit agreements with
foreign banks totaling $7,626 at December 27, 1996, of which
approximately $2,476 was unused and available. The Company also has a
$5,000 unsecured line of credit with a U.S. bank for which no amounts
were outstanding at December 31, 1996 and 1995.
(7) ACCRUED EXPENSES
----------------
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Pension plan obligation (note 14) $ 3,781 $ 2,153
Compensation and benefits 5,671 5,897
Provision for CDRS expenses (note 19) - 2,414
Other 4,481 4,385
---------- ----------
$ 13,933 $ 14,849
========== ==========
</TABLE>
(8) LONG-TERM DEBT
--------------
Long-term debt is comprised of six percent convertible subordinated
debentures due in 2012. The six percent convertible subordinated
debentures are convertible at the bondholders option at any time prior
to maturity, subject to adjustments in certain events. The debentures
are redeemable at the Company's option, in whole or in part, at
declining redemption premiums until March 1, 1997, and at par on and
after such date. The Company is required to provide a sinking fund
balance of five percent of the applicable principal amount of the
debentures annually beginning March 1, 1998. The debentures are
subordinated to all existing and future superior indebtedness.
During 1995 and 1994, the Company repurchased $2,360 and $16,691,
respectively, of convertible debentures on the open market. These
purchases resulted in extraordinary gains of approximately $536 and
$2,974 in 1995 and 1994, respectively. These extraordinary gains are
shown net of income taxes in the accompanying consolidated statements of
operations.
-31-
<PAGE>
EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(9) INCOME TAXES
------------
Components of income tax expense (benefit) attributable to income
(loss) from continuing operations:
<TABLE>
<CAPTION>
Share and
stock
option
Current Deferred benefit Total
----------- --------------- ------------- ----------
<S> <C> <C> <C> <C>
1996:
Federal $ 3,130 $ 1,200 $ 595 $ 4,925
State 474 182 96 752
------------ ------------- ---------- --------
$ 3,604 $ 1,382 $ 691 $ 5,677
============ ============= ========== ========
1995:
Federal $ 11,085 $ 202 $ - $ 11,287
State 1,654 31 - 1,685
Foreign 124 - - 124
------------ ------------- ---------- --------
$ 12,863 $ 233 $ - $ 13,096
============ ============= ========== ========
1994:
Federal $ (4,505) $ (1,086) $ 188 $ (5,403)
State (636) (167) 29 (774)
Foreign 352 - - 352
------------ ------------- ---------- --------
$ (4,789) $ (1,253) $ 217 $ (5,825)
============ ============= ========== ========
</TABLE>
The actual tax expense differs from the expected tax expense (benefit)
as computed by applying the U.S. federal statutory tax rate of 34
percent for 1996 and 1994 and 35 percent for 1995 as a result of the
following:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ----------- ---------
<S> <C> <C> <C>
Tax at U.S. federal statutory rate $ 5,450 $ 11,753 $ (3,871)
Research and development and foreign tax credits - (124) (226)
Foreign taxes - 124 352
Losses (gains) of foreign subsidiaries (165) 217 (1,461)
Earnings of foreign sales corporation (368) (344) (123)
State taxes (net of federal income tax benefit) 496 1,075 (511)
Other, net 264 395 15
------------ ----------- --------
$ 5,677 $ 13,096 $ (5,825)
============ =========== ========
</TABLE>
-32-
<PAGE>
EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(9) INCOME TAXES (continued)
------------
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 27, 1996 and December 29, 1995, are presented below:
<TABLE>
<CAPTION> Domestic Foreign
------------------------ ------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Deferred tax assets:
Warranty, vacation, and other accruals $ 1,839 $ 3,347 $ - $ -
Inventory reserves and other inventory-related
temporary basis differences 2,067 2,381 - -
Pension accrual 992 558 - -
Long-term contract related temporary differences 461 824 - -
Net operating loss carryforwards 147 479 2,276 2,276
Unrealized loss on marketable equity securities 325 - - -
Other 324 344 - -
---------- ---------- ---------- ---------
Total gross deferred tax assets 6,155 7,933 2,276 2,276
Less valuation allowance 189 520 2,276 2,276
---------- ---------- ---------- ---------
Total deferred tax assets 5,966 7,413 - -
---------- ---------- ---------- ---------
Deferred tax liabilities:
Plant and equipment, principally due to differences in
depreciation and capitalized interest (993) (1,549) - -
Unrealized gain on marketable equity securities - (1,041) - -
Other (246) (81) - -
---------- ---------- ---------- ---------
Total gross deferred tax liabilities (1,239) (2,671) - -
---------- ---------- ---------- ---------
Net deferred tax asset $ 4,727 $ 4,742 $ - $ -
========== ========== ========== =========
1996 1995
---------- ----------
Net current deferred tax asset $ 4,841 $ 6,645
Net noncurrent deferred tax liability (114) (1,903)
---------- ----------
Net deferred tax asset $ 4,727 $ 4,742
========== ==========
</TABLE>
-33-
<PAGE>
EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(9) INCOME TAXES (continued)
------------
Management believes the existing net deductible temporary differences
will reverse during the periods in which the Company generates net
taxable income. The Company has a strong taxable earnings history. A
valuation allowance is provided when it is more likely than not that
some portion of the deferred tax asset may not be realized. The Company
has established a valuation allowance primarily for net operating loss
and tax credit carryforwards from an acquired subsidiary and foreign
subsidiaries as a result of the uncertainty of realization.
(10) STOCK OPTION, PURCHASE, AND BONUS PLANS
---------------------------------------
Stock Option Plans - Under two fixed option plans, the Company grants
------------------
options to officers and employees to acquire shares of the Company's
common stock at a purchase price equal to the fair market value on the
date of grant. Options generally vest ratably over three years and
expire ten years from date of grant. The Company grants options to its
directors under its Director Plan. Option grants are limited to 10,000
shares per director in each fiscal year. Options generally vest ratably
over four years and expire ten years from the date of grant.
Shareholders authorized an additional 150,000 and 350,000 shares to be
granted under the plans during 1996 and 1995, respectively. In addition,
180,000 authorized shares from the stock bonus plan were transferred to
the stock option plan during 1995 and the stock bonus plan was
eliminated. At December 27, 1996, 308,000 shares of common stock were
authorized and reserved for issuance, but were not granted. A summary of
activity follows (shares in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
--------------------------- ---------------------------- -------------------------------
Weighted- Weighted-
average average
Number of exercise Number of exercise Number of Exercise
shares price shares price shares price
----------- ------------- ---------- ------------ ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of year 842 $ 14.45 815 $ 13.22 895 $15.25 to 23.00
Options granted 724 21.32 291 16.93 1,173 12.22 to 19.94
------------ ----------- ------------
1,566 1,106 2,068
----------- ----------- -----------
Options exercised 169 13.44 139 13.71 173 15.60 to 18.00
Options canceled 88 18.20 125 13.00 1,080 13.60 to 23.00
----------- ----------- -----------
257 264 1,253
----------- ----------- -----------
Options outstanding
at end of year 1,309 $ 18.14 842 $ 14.45 815 $12.22 to 19.94
=========== =========== ===========
Options exercisable
at end of year 271 $ 14.67 312 $ 13.78 333 $12.22 to 19.94
=========== =========== ===========
Weighted-average
fair value of
options granted
during the year $ 7.15 $ 5.65
</TABLE>
-34-
<PAGE>
EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(10) STOCK OPTION, PURCHASE, AND BONUS PLANS (continued)
---------------------------------------
The following table summarizes information about fixed stock options
outstanding at December 27, 1996 (options in thousands):
<TABLE>
<CAPTION>
Options outstanding Options exercisable
---------------------------------------------------------- -------------------------------------
Number Weighted-average
Range of out- remaining Weighted-average Number Weighted-average
exercise standing at contractual exercise exercisable at exercise
prices December 27, 1996 life price December 27, 1996 price
----------------- ----------------- ----------------- ---------------- ------------------ ---------------
<S> <C> <C> <C> <C> <C>
$ 12.22 - 12.25 312 7.99 $12.24 133 $12.23
13.22 - 15.25 151 8.40 14.96 46 14.94
15.39 - 20.50 169 7.00 19.00 92 18.06
20.75 - 20.88 411 9.12 20.87 - -
21.00 - 25.25 266 9.56 22.12 - -
================= -----------------
12.22 - 25.25 1,309 8.58 18.14 271 14.67
================= =================
</TABLE>
The Company accounts for these plans under APB 25, under which no
compensation cost has been recognized. Had compensation cost for these
plans been determined consistent with SFAS 123, the Company's net
earnings and earnings per share would have been changed to the following
pro forma amounts:
<TABLE>
<CAPTION>
1996 1995
--------- -----------
<S> <C> <C>
Net earnings As reported $ 10,352 $ 20,811
Pro forma 8,570 20,319
Primary earnings per share As reported 1.12 2.41
Pro forma 0.96 2.35
Fully-diluted earnings per share As reported 1.11 2.31
Pro forma 0.92 2.26
</TABLE>
Pro forma net earnings reflects only options granted in 1996 and 1995.
Therefore, the effect that calculating compensation cost for stock-based
compensation under SFAS 123 has on the pro forma net earnings as shown
above may not be representative of the effects on reported net earnings
for future years.
The fair value of each option grant is estimated on the date of the
grant using the Black-Scholes option pricing model with the following
weighted average assumptions used for grants in 1996 and 1995,
respectively: risk-free interest rates of 6.1 percent and 5.7 percent;
expected dividend yields of 0 percent; expected lives of 3.3 years; and
expected volatility of 49 percent.
Stock Purchase Plan - The Company has an employee stock purchase plan
-------------------
whereby qualified employees are allowed to purchase limited amounts of
the Company's common stock at 85 percent of the market value of the
stock at the time of the sale. A total of 500,000 shares are authorized
under the plan.
-35-
<PAGE>
EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(11) LEASES
------
The Company leases certain of its buildings and related improvements to
third parties under noncancelable operating leases. Cost and accumulated
depreciation of the leased buildings and improvements at December 27,
1996 were $8,079 and $2,370, respectively. Rental income for all
operating leases for 1996, 1995 and 1994 were $770, $431 and $150,
respectively.
The Company occupies real property and uses certain equipment under
lease arrangements which are accounted for primarily as operating
leases. Rental expenses for all operating leases for 1996, 1995 and 1994
were $1,506, $1,770 and $1,897, respectively.
At December 27, 1996, the future minimum rental income and commitment
under operating leases that have initial or remaining noncancelable
lease terms in excess of one year are as follows:
<TABLE>
<CAPTION>
Rental
Rental commit
income -ment
---------- ---------
<S> <C> <C>
Fiscal year(s):
1997 $ 873 $ 1,497
1998 783 1,164
1999 759 918
2000 751 776
2001 731 776
Thereafter 3,849 7,726
---------- ---------
$ 7,746 $ 12,857
========== =========
</TABLE>
(12) INDUSTRY SEGMENT AND FOREIGN OPERATIONS
---------------------------------------
The Company operates in a single industry segment, the visual simulation
and computer graphics marketplace. A summary of operations by geographic
area follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Net sales:
U.S. operations $ 121,759 $ 110,004 $ 107,477
European operations 16,625 4,618 6,813
Eliminations (7,820) (1,428) (1,200)
----------- ----------- -----------
Total net sales $ 130,564 $ 113,194 $ 113,090
=========== =========== ===========
Operating earnings (loss):
U.S. operations $ 9,943 $ 25,866 $ (14,490)
European operations 1,730 (2,953) (2,436)
Eliminations (154) 194 414
----------- ----------- -----------
Total operating earnings (loss) $ 11,519 $ 23,107 $ (16,512)
=========== =========== ===========
</TABLE>
-36-
<PAGE>
EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(12) INDUSTRY SEGMENT AND FOREIGN OPERATIONS (continued)
---------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Identifiable assets:
U.S. operations $ 120,466 $ 94,233 $ 104,773
European operations 14,547 3,483 3,694
Eliminations (159) - (216)
----------- ----------- -----------
Total identifiable assets 134,854 97,716 108,251
Corporate assets 76,037 113,286 72,513
----------- ----------- -----------
Total assets $ 210,891 $ 211,002 $ 180,764
=========== =========== ===========
</TABLE>
Transfers between geographic areas are accounted for at market price and
intercompany profit is eliminated in consolidation. Operating earnings
(loss) are total sales less operating expenses. Identifiable assets are
those assets of the Company that are identified with the operations in
each geographic area. Corporate assets are principally cash, marketable
securities, and long-term investments.
(13) SALES TO FOREIGN AND MAJOR CUSTOMERS
------------------------------------
Sales to foreign customers are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Sales to foreign end-users:
Europe (excluding Great Britain) $ 26,621 $ 16,801 $ 18,499
Pacific Rim 44,262 13,888 6,988
Great Britain 13,913 11,612 9,250
Other 3,572 2,202 3,160
--------- --------- ---------
Total $ 88,368 $ 44,503 $ 37,897
========= ========= =========
</TABLE>
Customers comprising 10 percent or greater of the Company's net sales
are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Thomson Training & Simulation Ltd. 12% 4% 7%
Hughes Training Incorporated 11% 10% 6%
Rikei Corporation 11% 8% 1%
Loral Corporation 5% 30% 23%
</TABLE>
The Company's products are sold to agencies of the United States
Government through prime contractors or subcontractors thereof. The
percentage of net sales to total sales attributed to the U.S. Government
either directly or through prime contractors or subcontractors for 1996,
1995 and 1994 was 20 percent, 48 percent, and 45 percent, respectively,
of which 6 percent, 34 percent, and 20 percent are also included as
sales to the customers above.
-37-
<PAGE>
EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(14) EMPLOYEE BENEFIT PLANS
----------------------
Pension Plan (Plan) - The Company has a defined benefit pension plan
-------------------
covering substantially all employees who have attained age 21 with
service in excess of one year. Benefits at normal retirement age (65)
are based upon the employee's years of service and the employee's
highest compensation for any consecutive five of the last ten years of
employment. The Company's funding policy is to contribute annually the
maximum amount that can be deducted for federal income tax purposes.
Supplemental Executive Retirement Plan (SERP) - Effective July 1, 1995,
---------------------------------------------
the Company introduced a non-qualified SERP which will be phased in over
three years. The SERP, which is unfunded, provides eligible executives
defined pension benefits, outside the Company's pension plan, based on
average earnings, years of service, and age at retirement.
Net annual Plan and SERP expense is summarized as follows:
<TABLE>
<CAPTION>
1996 1995
------------------------- ------------------------- 1994
Plan SERP Plan SERP Plan
---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Benefits for services rendered during the year $ 1,989 $ 265 $ 1,594 $ 91 $ 2,549
Interest on projected benefit obligation 1,776 98 1,763 44 1,979
Actual return on plan assets (3,546) - (4,978) - 427
Net amortization and deferral 875 86 2,419 36 (2,790)
---------- ---------- ---------- ---------- ----------
$ 1,094 $ 449 $ 798 $ 171 $ 2,165
========== ========== ========== ========== ==========
</TABLE>
The following assumptions were used in accounting for the Plan and SERP
at the end of each year:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Discount rates used in determining benefit obligations 7.50% 7.00% 8.50%
Rates of increase in compensation levels 4.50 4.50 4.50
Expected long-term rate of return on plan assets 9.00 9.00 9.00
</TABLE>
-38-
<PAGE>
EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(14) EMPLOYEE BENEFIT PLANS (continued)
----------------------
The following summarizes the funded status and amounts recognized in the
Company's consolidated financial statements:
<TABLE>
<CAPTION> 1996 1995
--------------------------- ---------------------------- 1994
Plan SERP Plan SERP Plan
----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefits $ (15,033) $ - $ (16,183) $ - $ (11,231)
Nonvested benefits (610) (1,136) (732) (900) (735)
----------- ----------- ----------- ----------- -----------
Accumulated benefit obligation (15,643) (1,136) (16,915) (900) (11,966)
Effect of projected future
salary increases (10,135) (620) (12,548) (503) (8,801)
----------- ----------- ----------- ----------- -----------
Projected benefit obligation (25,778) (1,756) (29,463) (1,403) (20,767)
Plan assets at fair value 32,912 - 29,174 - 24,619
----------- ----------- ----------- ----------- -----------
Projected benefit obligation below (in
excess of) plan assets 7,134 (1,756) (289) (1,403) 3,852
Unrecognized net gain (9,116) - (1,657) 138 (6,858)
Unrecognized prior service cost (440) 1,136 (512) 1,094 (547)
Unrecognized net transition
obligation 397 - 476 - 555
----------- ----------- ----------- ----------- -----------
Accrued pension plan obligation (2,025) (620) (1,982) (171) (2,998)
Additional minimum liability - (1,136) - - -
----------- ----------- ----------- ----------- -----------
Total liability $ (2,025) $ (1,756) $ (1,982) $ (171) $ (2,998)
=========== =========== =========== =========== ===========
</TABLE>
The additional minimum liability is offset by an equal intangible asset
recorded in other assets in the consolidated financial statements.
Deferred Savings Plan - The Company has a deferred savings plan which
---------------------
qualifies under Section 401(k) of the Internal Revenue Code. The plan
covers all employees of the Company who have at least one year of
service and who are age 18 or older. The Company makes matching
contributions of 50 percent of each employee's contribution not to
exceed six percent of the employee's compensation. The Company's
contributions to this plan for 1996, 1995 and 1994 were $948, $836 and
$1,064, respectively.
Life Insurance - In 1995, the Company purchased company-owned life
--------------
insurance policies insuring the lives of certain active employees. The
policies accumulate asset values to meet future liabilities including
the payment of employee benefits such as supplemental retirement. At
December 27, 1996 and December 29, 1995, the investment in the policies
was $643 and $294, respectively, and net life insurance expense was $91
and $57 for 1996 and 1995, respectively.
-39-
<PAGE>
EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(15) PREFERRED STOCK
---------------
The Company has both Class A and Class B Preferred Stock with 5,000,000
shares authorized for each class. The Company has reserved 300,000
shares of the Class A Preferred Stock as Series A Junior Preferred Stock
under a shareholder rights plan. This preferred stock entitles holders
to 100 votes per share and to receive the greater of $2.00 per share or
100 times the common dividend declared. Upon voluntary or involuntary
liquidation, dissolution, or winding up of the Company, holders of the
preferred stock would be entitled to be paid, to the extent assets are
available for distribution, an amount of $100 per share plus any accrued
and unpaid dividends before payment is made to common stockholders.
In connection with this preferred stock, the Company issued one warrant
to each common stockholder that would be exercisable contingent upon
certain conditions and would allow the holder to purchase 1/100th of a
preferred share per warrant. The warrants attached to the shares
outstanding on November 30, 1988 and to all new shares issued after that
date; the warrants outstanding at December 27, 1996 and December 29,
1995 are equal to the shares outstanding of 9,056,871 and 8,715,320,
respectively. At December 27, 1996 and December 29, 1995, the warrants
were not exercisable and no shares of preferred stock have been issued.
(16) DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
---------------------------------------------------------
The carrying amount of cash and cash equivalents, receivables, notes
payable to bank, accounts payable, and accrued expenses approximates
fair value because of their short maturity.
The fair value of the Company's long-term debt instruments ($15,498 at
December 27, 1996) is based on quoted market prices.
(17) COMMITMENTS AND CONTINGENCIES
-----------------------------
In the normal course of business, the Company has various legal claims
and other contingent matters, including items raised by government
contracting officers and auditors. Although the final outcome of such
matters cannot be predicted, the Company believes the ultimate
disposition of these matters will not have a material adverse effect on
the Company's consolidated financial condition, liquidity, or results of
operations.
In September 1995, the Company reached a settlement agreement with
Thomson Training & Simulation (Thomson). Under the agreement, the
Company received $3,750 from lost revenues for breach of a working
agreement by Thomson. The settled agreement allows the Company and
Thomson to pursue opportunities in the civil pilot market on a
nonexclusive basis. The amount paid to the Company under this settlement
is classified as sales in the Company's consolidated statements of
operations.
-40-
<PAGE>
EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(18) RESTRUCTURING CHARGES
---------------------
In the fourth quarter of 1994, the Company incurred a restructuring
charge of $8,212. The restructuring was undertaken to remove the
Company's divisional structure, reengineer research and development,
consolidate manufacturing, finance, administration and field service
operations, and to modify product lines. This restructuring eliminated
approximately 200 jobs worldwide in the areas noted above or about
20 percent of the work force. Amounts expended in 1995 approximated the
December 30, 1994 accrual balance.
(19) BUSINESSES SOLD, ACQUIRED, AND SPIN-OFF
---------------------------------------
On December 27, 1996, the Company contributed all of the issued and
outstanding capital stock of Portable Graphics, Inc., a wholly-owned
subsidiary, and paid $100 cash in exchange for 1,570,667 Class A Shares
of Total Graphics Solution N.V. (TGS) pursuant to Section 351(a) of the
Internal Revenue Code of 1986, whereby the Company immediately
thereafter had control of the TGS Class A Shares. Based upon an
independent valuation of TGS, the Company has recorded its investment in
TGS at $1,250. In addition, the Company paid TGS $250 in exchange for a
warrant to purchase an additional 832,355 Class A Shares at a price of
$1.40 per share. The warrant expires on the earlier of December 27, 2001
or the effective date of an underwritten public offering of the capital
stock of TGS. The cost of the warrant has been recorded in investment
securities in the consolidated financial statements.
On March 20, 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.
On April 12, 1995, the Company sold its CDRS business unit to Parametric
Technology Corporation (PTC), a Massachusetts Corporation. The proceeds
from the sale net of direct expenses of $1,591 was approximately $31,488
resulting in a gain of $23,506 summarized as follows:
<TABLE>
<S> <C> <C>
Proceeds $ 31,488
Assets and liabilities sold:
Accounts receivable $ (961)
Inventory (466)
Net property, plant, and equipment (1,228)
Liabilities 387 (2,268)
-----------
Provision for expenses (2,414)
Write-off of inventory (3,300)
============
$ 23,506
============
</TABLE>
-41-
<PAGE>
EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(19) BUSINESSES SOLD, ACQUIRED, AND SPIN-OFF (continued)
---------------------------------------
On October 3, 1995 and on November 21, 1994, the Company acquired all of
the outstanding common stock of Xionix Simulation, Inc. (Xionix) and
Portable Graphics, Inc. (PGI) for $1,080 and $1,300, respectively.
Xionix manufactures low-cost flight-system trainers and PGI is involved
in software development. These business combinations were accounted for
under the purchase method of accounting. Accordingly, the purchase price
was allocated to assets and liabilities based on their estimated fair
values as of the date of acquisition. Operations of Xionix and PGI are
included in the accompanying consolidated financial statements from the
date of acquisition, and are not material in relation to the Company's
consolidated financial statements; pro forma financial information has
therefore not been presented. The Company allocated $705 of the Xionix
purchase price to in-process research and development which has no
alternative future use and this amount was written off during 1995.
Effective June 1, 1994 the Company's stockholders received a special
dividend in the form of a spin-off of Tripos, Inc. (Tripos), a
wholly-owned subsidiary of the Company at the time. Stockholders
received one share of Tripos common stock for every three shares of E&S
common stock held on May 25, 1994, the record date of the spin-off.
-42-
<PAGE>
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
"None"
[THIS SPACE INTENTIONALLY LEFT BLANK]
-43-
<PAGE>
FORM 10-K
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Information regarding directors of the Company is incorporated by
reference from "Election of Directors" in the 1996 Proxy Statement to be
delivered to shareholders in connection with the Annual Meeting of Shareholders
to be held on May 22, 1997.
Information required by item 405 of Regulation S-K is incorporated by
reference from "Compliance with Section 16(a) of the Securities Exchange Act of
1934" in the 1996 Proxy Statement to be delivered to shareholders in connection
with the Annual Meeting of Shareholders to be held on May 22, 1997.
Information concerning current executive officers of the Company is
incorporated by reference to the section in Part I hereof found under the
caption "Executive Officers of the Registrant".
ITEM 11. EXECUTIVE COMPENSATION
Information regarding this item is incorporated by reference from
"Executive Compensation" in the 1996 Proxy Statement to be delivered to
shareholders in connection with the Annual Meeting of Shareholders to be held on
May 22, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding this item is incorporated by reference from
"Security Ownership of Certain Beneficial Owners and Management" in the 1996
Proxy Statement to be delivered to shareholders in connection with the Annual
Meeting of Shareholders to be held on May 22, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding this item is incorporated by reference from
"Executive Compensation - Summary Compensation Table", "Report of the
Compensation and Stock Options Committee of the Board of Directors", and
"Termination of Employment and Change of Control Arrangements", in the 1996
Proxy Statement to be delivered to shareholders in connection with the Annual
Meeting of Shareholders to be held on May 22, 1997.
-44-
<PAGE>
FORM 10-K
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The following constitutes a list of Financial Statements, Financial
Statement Schedules, and Exhibits required to be included in this report:
1. Financial Statements - Included in Part II, Item 8 of this report:
--------------------
Report of Management
Report of Independent Auditors
Consolidated Balance Sheets - December 27, 1996 and December 29,
1995.
Consolidated Statements of Operations - Years ended December 27,
1996, December 29, 1995, and December 30, 1994.
Consolidated Statements of Stockholders' Equity - Years ended
December 27, 1996, December 29, 1995, and December 30, 1994.
Consolidated Statements of Cash Flows - Years ended December 27,
1996, December 29, 1995, and December 30, 1994.
Notes to Consolidated Financial Statements - Years ended December 27,
1996, December 29, 1995, and December 30, 1994.
2. Financial Statement Schedules - included in Part IV of this report:
-----------------------------
Schedule II - Valuation and Qualifying Accounts
Schedules other than those listed above are omitted because of the
absence of conditions under which they are required or because the
required information is presented in the Financial Statements or
notes thereto.
3. Exhibits
--------
3.1 Articles of Incorporation, as amended, filed as Exhibit 3.1
to the Company's Annual Report on Form 10-K for the fiscal
year ended December 25, 1987, and incorporated herein by
this reference.
Amendments to Articles of Incorporation filed as Exhibit
3.1.1 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 30, 1988, and incorporated
herein by this reference.
3.2 By-laws, as amended, filed as Exhibit 3.2 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 25, 1987, and incorporated herein by this
reference.
10.1 1985 Stock Option Plan, filed as Exhibit 1 to the Company's
Post-effective Amendment No. 1 to Registration Statement on
Form S-8, SEC File No. 2-76027, and incorporated herein by
this reference.
-45-
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(Continued)
3. Exhibits (Continued)
--------
10.2 1989 Stock Option Plan for Non-employee Directors, filed as
Exhibit 10.5 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 29, 1989, and
incorporated herein by this reference.
10.3 The Company's 1991 Employee Stock Purchase Plan, filed as
Exhibit 4.1 to the Company's Registration Statement on Form
S-8, SEC File No. 33-39632, and incorporated herein by this
reference.
10.4 Employment Agreement dated November 17, 1994, between the
Company and Mr. Gary E. Meredith, filed as Exhibit 10.9 to
the Company's Annual Report on Form 10-K for the fiscal
year ended December 26, 1994, and incorporated herein by
this reference.
10.5 Employment Agreement dated November 29, 1994, between the
Company and Mr. James R. Oyler, filed as Exhibit 10.10 to
the Company's Annual Report on Form 10-K for the fiscal
year ended December 26, 1994, and incorporated herein by
this reference.
10.6 The Company's 1995 Long-Term Incentive Equity Plan, filed
as Exhibit 10.11 to the Company's Annual Report on Form
10-K for the fiscal year ended December 29, 1995, and
incorporated herein by this reference.
10.7 Asset Purchase Agreement dated March 1, 1995, between the
Company and Parametric Technology Corporation as to E&S'
divestiture of its Design Software group (CDRS), filed as
Exhibit 10.12 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 29, 1995, and
incorporated herein by this reference.
10.8 The Company's Executive Savings Plan, filed as Exhibit
10.14 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 29, 1995, and incorporated
herein by this reference.
10.9 The Company's Supplemental Executive Retirement Plan
(SERP), filed as Exhibit 10.15 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 29,
1995, and incorporated herein by this reference.
23.1 Consent of Independent Accountants.
24.1 Powers of Attorney for Messrs. Stewart Carrell, Henry N.
Christiansen, Peter O. Crisp, John T. Lemley, Gary E.
Meredith, James R. Oyler, Ivan E. Sutherland, and John E.
Warnock.
No reports on Form 8-K were filed during the fourth quarter
of the year ended December 27, 1996.
TRADEMARKS USED IN THIS FORM 10-K
DIGISTAR II, E&S, EaSIEST, ESIG, Evans & Sutherland, Harmony,
Integrator NT, Liberty, MindSet, REALimage, StarRider, and Universal 3D are
trademarks or registered trademarks of Evans & Sutherland Computer Corporation.
All other product, service, or trade names or marks are the properties of their
respective owners.
-46-
<PAGE>
Schedule II
-----------
EVANS & SUTHERLAND COMPUTER CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended December 27, 1996, December 29, 1995, and December 30, 1994
(Dollars in thousands)
<TABLE>
<CAPTION>
Balance at Additions charged Receivables
beginning of to cost and charged against Balance at end
Allowance for doubtful receivables year expenses allowance of year
- ---------------------------------- ----------------- ------------------- -------------------- ------------------
<S> <C> <C> <C> <C>
Year ended December 27, 1996 $ 172 $ 335 $ (56) $ 563
=========== =========== =========== ===========
Year ended December 29, 1995 $ 144 $ 158 $ 130 $ 172
=========== =========== =========== ===========
Year ended December 30, 1994 $ 406 $ 99 $ 361 $ 144
=========== =========== =========== ===========
<CAPTION>
Balance at Additions charged Costs incurred for
beginning of to cost and product warranty Balance at end
Warranty reserve year expenses provisions of year
- ---------------- ----------------- ------------------- -------------------- ------------------
<S> <C> <C> <C> <C>
Year ended December 27, 1996 $ 848 $ 673 $ 713 $ 808
============ =========== ============ ===========
Year ended December 29, 1995 $ 876 $ 470 $ 498 $ 848
============ =========== ============ ===========
Year ended December 30, 1994 $ 1,600 $ 348 $ 1,072 $ 876
============ =========== ============ ===========
<CAPTION>
Deferred tax asset valuation Balance at
- ---------------------------- beginning of Additions and Charges against Balance at end
allowance year adjustments allowance of year
- --------- ---------------- -------------------- -------------------- -----------------
<S> <C> <C> <C> <C>
Year ended December 27, 1996 Domestic $ 520 $ - $ 331 $ 189
=========== =========== =========== ===========
Foreign $ 2,276 $ - $ - $ 2,276
=========== =========== =========== ===========
Year ended December 29, 1995 Domestic $ 520 $ - $ - $ 520
=========== =========== =========== ===========
Foreign $ 2,276 $ - $ - $ 2,276
=========== =========== =========== ===========
Year ended December 30, 1994 Domestic $ 560 $ (40) $ - $ 520
=========== =========== =========== ===========
Foreign $ 1,802 $ 474 $ - $ 2,276
=========== =========== =========== ===========
</TABLE>
-47-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
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
March 27, 1997 By: /s/
-------------------------------------------------
JAMES R. OYLER, PRESIDENT
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ * Chairman of the March 27, 1997
- ---------------------------------------------------- Board of Directors
STEWART CARRELL
/s/ Director and President March 27, 1997
- ---------------------------------------------------- (Chief Executive Officer)
JAMES R. OYLER
/s/ Vice President and Chief March 27, 1997
- ---------------------------------------------------- Financial Officer
JOHN T. LEMLEY (Principal Financial Officer)
/s/ Vice President and March 27, 1997
- ---------------------------------------------------- Corporate Controller
MARK C. MCBRIDE (Principal Accounting Officer)
/s/ * Director March 27, 1997
- ----------------------------------------------------
HENRY N. CHRISTIANSEN
/s/ * Director March 27, 1997
- ----------------------------------------------------
PETER O. CRISP
/s/ * Director March 27, 1997
- ----------------------------------------------------
IVAN E. SUTHERLAND
/s/ * Director March 27, 1997
- ----------------------------------------------------
JOHN E. WARNOCK
By: /s/ * March 27, 1997
-------------------------------------------------
GARY E. MEREDITH
Attorney-in-Fact
</TABLE>
-48-
<PAGE>
EXHIBIT 23.1
ACCOUNTANTS' CONSENT
The Board of Directors
Evans & Sutherland Computer Corporation:
We consent to incorporation by reference in the Registration Statements No.
33-39623 and No. 2-76027 on Forms S-8 and Registration Statement No. 333-09657
on Form S-3 of Evans & Sutherland Computer Corporation of our report dated
February 7, 1997, relating to the consolidated balance sheets of Evans &
Sutherland Computer Corporation and subsidiaries as of December 27, 1996 and
December 29, 1995, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 27, 1996, which report appears in the December 27, 1996
Annual Report on Form 10-K of Evans & Sutherland Computer Corporation.
KPMG Peat Marwick LLP
Salt Lake City, Utah
March 25, 1997
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each officer and/or director of
Evans & Sutherland Computer Corporation whose signature appears below
constitutes and appoints James R. Oyler, John T. Lemley, and Gary E. Meredith,
or any of them, as his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign in the name on behalf of the
undersigned, as a director and/or officer of said corporation, the Annual Report
on Form 10K of Evans & Sutherland Computer Corporation for the year ended
December 27, 1996, and any and all amendments to such Annual Report, and to file
the same with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission granting unto said
attorney's-in-fact and agents and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorney's-in-fact
and agents, or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned have executed this Power of Attorney
this 27th day of February, 1997.
SIGNATURE TITLE DATE
/s/ STEWART CARRELL Chairman of the Board of February 27, 1997
- ------------------------- Directors
Stewart Carrell
/s/ JAMES R. OYLER President and Chief February 27, 1997
- ------------------------- Executive Officer
James R. Oyler (Principal Executive
Officer) and Director
/s/ JOHN T. LEMLEY Vice President and Chief February 27, 1997
- ------------------------- Financial Officer
John T. Lemley (Principal Financial and
Accounting Officer)
/s/ GARY E. MEREDITH Senior Vice President and February 27, 1997
- ------------------------- Secretary
Gary E. Meredith
/s/ HENRY N. CHRISTIANSEN Director February 27, 1997
- -------------------------
Henry N. Christiansen
/s/ PETER O. CRISP Director February 27, 1997
- -------------------------
Peter O. Crisp
/s/ IVAN E. SUTHERLAND Director February 27, 1997
- -------------------------
Ivan E. Sutherland
/s/ JOHN E. WARNOCK Director February 27, 1997
- -------------------------
John E. Warnock
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-27-1996
<PERIOD-START> DEC-30-1995
<PERIOD-END> DEC-27-1996
<CASH> 16,521
<SECURITIES> 46,454
<RECEIVABLES> 35,405
<ALLOWANCES> 563
<INVENTORY> 20,202
<CURRENT-ASSETS> 159,213
<PP&E> 115,358
<DEPRECIATION> 72,687
<TOTAL-ASSETS> 210,891
<CURRENT-LIABILITIES> 32,290
<BONDS> 18,015
0
0
<COMMON> 1,811
<OTHER-SE> 158,661
<TOTAL-LIABILITY-AND-EQUITY> 210,891
<SALES> 130,564
<TOTAL-REVENUES> 130,564
<CGS> 65,935
<TOTAL-COSTS> 53,110
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,434
<INCOME-PRETAX> 16,029
<INCOME-TAX> 5,677
<INCOME-CONTINUING> 10,352
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,352
<EPS-PRIMARY> 1.12
<EPS-DILUTED> 1.11
</TABLE>
