<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the Quarterly Period Ended September 26, 1997 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the Transition Period from ________ to ________
COMMISSION FILE NUMBER 0-8771
---------------------------------------
EVANS & SUTHERLAND COMPUTER CORPORATION
(Exact name of registrant as specified in its charter)
UTAH 87-0278175
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
600 KOMAS DRIVE, SALT LAKE CITY, UTAH 84108
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (801) 588-1000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding Shares at October 31, 1997
----- --------------------------------------
COMMON STOCK, $0.20 PAR VALUE 9,090,758
<PAGE>
FORM 10-Q
EVANS & SUTHERLAND COMPUTER CORPORATION
QUARTER ENDED SEPTEMBER 26, 1997
Page No.
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS
<S> <C>
Condensed Consolidated Statements of Operations -
Three Months and Nine Months Ended September 26,
1997 and September 27, 1996 3
Condensed Consolidated Balance Sheets - September
26, 1997 and December 27, 1996 4
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 26, 1997 and September
27, 1996 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 7
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 10
SIGNATURE PAGE 10
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
EVANS & SUTHERLAND COMPUTER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------ ---------------------------------
September 26, September 27, September 26, September 27,
1997 1996 1997 1996
------------- ------------- ------------- ----------------
<S> <C> <C> <C> <C>
Net sales $ 38,451 $ 33,712 $ 110,000 $ 91,305
Cost of sales 19,167 16,948 58,164 47,332
------------- ------------- ------------- ----------------
Gross profit 19,284 16,764 51,836 43,973
------------- ------------- ------------- ----------------
Expenses:
Marketing, general and administrative 8,679 7,632 25,155 22,196
Research and development 5,822 4,975 18,414 15,793
------------- ------------- ------------- ----------------
Total expenses 14,501 12,607 43,569 37,989
------------- ------------- ------------- ----------------
Operating earnings 4,783 4,157 8,267 5,984
Other income, net 319 1,144 1,557 2,942
------------- ------------- ------------- ----------------
Earnings before income taxes 5,102 5,301 9,824 8,926
Income tax expense 1,277 2,015 2,613 3,392
------------- ------------- ------------- ----------------
Net earnings $ 3,825 $ 3,286 $ 7,211 $ 5,534
============= ============= ============= ================
Earnings per share (note 1):
Primary $ 0.40 $ 0.35 $ 0.76 $ 0.60
Fully diluted $ 0.39 $ 0.35 $ 0.74 $ 0.60
Weighted average common and common
equivalent shares outstanding:
Primary 9,597 9,257 9,477 9,206
Fully diluted 9,731 9,295 9,722 9,236
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
EVANS & SUTHERLAND COMPUTER CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
<TABLE>
<CAPTION>
September 26, December 27,
1997 1996
------------ ------------
Assets (Unaudited)
-------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,357 $ 16,521
Marketable securities 50,398 46,454
Accounts receivable, less allowance for doubtful
receivables of $876 in 1997 and $563 in 1996 34,483 34,842
Inventories (note 2) 26,938 20,202
Costs and estimated earnings in excess of billings
on uncompleted contracts 43,695 34,166
Deferred income taxes 5,085 4,841
Prepaid expenses and deposits 2,593 2,187
------------ ------------
Total current assets 168,549 159,213
Property, plant, and equipment, at cost 121,302 115,358
Less accumulated depreciation and amortization 77,898 72,687
------------ ------------
Net property, plant, and equipment 43,404 42,671
Investment securities 10,483 7,057
Other assets 1,904 1,950
------------ ------------
Total assets $ 224,340 $210,891
============ ============
Liabilities and Stockholders' Equity
-------------------------------------
Current liabilities:
Notes payable to banks $ 998 $ 5,334
Accounts payable 8,943 6,370
Accrued expenses 15,843 13,933
Customer deposits 5,322 2,058
Income taxes payable 1,682 -
Billings in excess of costs and estimated earnings
on uncompleted contracts 6,364 4,595
------------ ------------
Total current liabilities 39,152 32,290
Long-term debt 18,015 18,015
Deferred income taxes - 114
Stockholders' equity:
Common stock, $.20 par value; authorized 30,000,000 shares;
issued and outstanding 9,079,990 shares at September 26,
1997 and 9,056,871 shares at December 27, 1996 1,816 1,811
Additional paid-in capital 8,103 8,639
Retained earnings 157,707 150,496
Net unrealized loss on marketable securities (691) (541)
Cumulative translation adjustment 238 67
------------ ------------
Total stockholders' equity 167,173 160,472
------------ ------------
Total liabilities and stockholders' equity $ 224,340 $210,891
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
EVANS & SUTHERLAND COMPUTER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
----------------------------------------
September 26, September 27,
1997 1996
----------------- ------------------
<S> <C> <C>
Net cash provided by (used in) operating activities $ 8,592 $ (21,461)
Cash flows from investing activities:
Capital expenditures (8,184) (7,860)
Purchases of marketable securities (59,479) (51,342)
Proceeds from sale of marketable securities 55,558 81,587
Purchases of investment securities (3,650) -
Proceeds from sale of investment securities - 1,070
Purchases of other long-term assets - (1,625)
----------------- ------------------
Net cash provided by (used in) investing activities (15,755) 21,830
Cash flows from financing activities:
Net proceeds from issuance of common stock 2,443 2,650
Net borrowings (payments) under line of credit agreement (3,816) 2,030
Purchases of treasury stock (2,974) -
----------------- ------------------
Net cash provided by (used in) financing activities (4,347) 4,680
Effect of foreign exchange rate changes on cash 346 (56)
----------------- ------------------
Net decrease in cash and cash equivalents (11,164) 4,993
Cash and cash equivalents at beginning of year 16,521 5,023
----------------- ------------------
Cash and cash equivalents at end of period $ 5,357 $ 10,016
================= ==================
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 1,325 $ 1,303
Income taxes $ 1,909 $ 11,967
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
EVANS & SUTHERLAND
COMPUTER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)
1. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
- ---------------------
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and, therefore, do not
include all information and footnotes necessary for a complete presentation of
the results of operations, the financial position, and cash flows, in conformity
with generally accepted accounting principles. This report on Form 10-Q for the
three months and nine months ended September 26, 1997 should be read in
conjunction with the Company's annual report on Form 10-K for the year ended
December 27, 1996.
The accompanying unaudited condensed consolidated balance sheets and statements
of operations and cash flows reflect all normal recurring adjustments which are,
in the opinion of management, necessary for a fair presentation of the Company's
financial position, results of operations and cash flows. The results of
operations for the interim period ended September 26, 1997 are not necessarily
indicative of the results to be expected for the full year.
The Company has changed its fiscal year end from the last Friday in December
to a calendar year end.
Earnings Per Share
- ------------------
Earnings per 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.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings per Share (SFAS 128). SFAS 128
establishes a different method of computing earnings per share than is currently
required under the provisions of Accounting Principles Board Opinion No. 15.
Under SFAS 128, the Company will be required to present both basic earnings per
share and diluted earnings per share. Basic earnings per share is expected to be
higher than the currently presented primary earnings per share as the effect of
dilutive stock options will not be considered in computing basic earnings per
share. Diluted earnings per share is expected to be comparable or slightly lower
than the currently presented primary earnings per share.
The Company plans to adopt SFAS 128 in its fiscal fourth quarter and at that
time all historical earnings per share data presented will be restated to
conform to the provisions of SFAS 128.
2. INVENTORIES
Inventories consist of the following:
September 26, December 27,
1997 1996
------------- ------------
(Unaudited)
Raw materials and supplies $12,671 $ 8,117
Work-in-process 11,352 11,211
Finished Goods 2,915 874
------- -------
$26,938 $20,202
======= =======
4. STOCK REPURCHASE PROGRAM
On September 19, 1996, the Company announced that its board of directors had
authorized the repurchase of up to 500,000 shares of its common stock, either in
the open market or in private transactions. As of November 6, 1997, the Company
has repurchased and retired 152,000 shares since the announcement of the
repurchase program.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the condensed
consolidated financial statements and notes thereto included elsewhere herein.
All data in the tables are in thousands except for percentages. Except for the
historical information contained herein, this report on Form 10-Q contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results may differ materially.
OVERVIEW
- --------
Evans & Sutherland Computer Corporation (E&S or the Company) 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.
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 has 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.
7
<PAGE>
RESULTS OF OPERATIONS
- ---------------------
The following table summarizes changes in operations for the periods indicated
and presents the percentage of increase (decrease) by listed items compared to
the indicated prior period (unaudited):
<TABLE>
<CAPTION>
Quarters Nine Months
Ended Sept. 26, 1997 Ended Sept. 26, 1997
and Sept. 27, 1996 and Sept. 27, 1996
-------------------- --------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net Sales $4,739 14.1% $18,695 20.5%
Cost of Sales 2,219 13.1% 10,832 22.9%
------- -------
Gross Profit 2,520 15.0% 7,863 17.9%
------- -------
Expenses:
Marketing, general & administrative 1,047 13.7% 2,959 13.3%
Research & development 847 17.0% 2,621 16.6%
------- -------
Total expenses 1,894 15.0% 5,580 14.7%
------- -------
Operating earnings 626 15.1% 2,283 38.2%
Other income, net (825) (72.1%) (1,385) (47.1%)
------- -------
Earnings before income taxes (199) (3.8%) 898 10.1%
Income tax expense (738) (36.6%) (779) (23.0%)
------- -------
Net earnings $ 539 16.4% $ 1,677 30.3%
======= =======
</TABLE>
SALES
- -----
Sales for the third quarter of 1997 increased 14.1% to $38.5 million compared to
$33.7 million for the third quarter of 1996. Sales for the nine month period
ended September 26, 1997 increased 20.5% to $110.0 million compared to $91.3
million for the nine month period ended September 27, 1996. Domestic sales for
the third quarter increased approximately 47% over the third quarter of 1996 as
a result of increased sales to the civil airline market and of the REALImage
product. Foreign sales for the third quarter increased approximately 2% over
the third quarter of 1996.
COST OF SALES
- -------------
Cost of sales as a percentage of sales was 49.8% for the third quarter of 1997
compared to 50.3% for the third quarter 1996. For the nine month period ended
September 26, 1997, cost of sales as a percentage of sales was 52.9% compared to
51.8% for the nine month period ended September 27, 1996. The decrease in cost
of sales as a percentage of sales for the third quarter is due primarily to
lower cost of sales as a percentage of sales in the non-simulation business
units in 1997 compared to 1996. This is primarily due to royalties and
commissions of REALImage product that have relatively low associated costs.
EXPENSES
- --------
Total expenses for the third quarter of 1997 increased 15.0% to $14.5 million
compared to $12.6 million for the third quarter of 1996, and increased as a
percentage of sales to 37.7% from 37.4% for the respective periods. Total
expenses for the nine month period ended September 26, 1997 increased 14.7% to
$43.6 million compared to $38.0 million for the nine month period ended
September 27, 1996, but decreased as a percentage of sales to 39.6% from 41.6%
for the respective periods.
8
<PAGE>
Marketing, General, and Administrative: Marketing, general, and administrative
- ---------------------------------------
expenses for the third quarter of 1997 increased 13.7% to $8.7 million compared
to $7.6 million for the third quarter of 1996, but stayed constant as a
percentage of sales at 22.6% for the respective periods. Marketing, general,
and administrative expenses for the nine month period ended September 26, 1997
increased 13.3% to $25.2 million compared to $22.2 million for the nine month
period ended September 27, 1996, but decreased as a percentage of sales to 22.9%
from 24.3% for the respective periods. The increase in marketing, general, and
administrative expenses during the third quarter is primarily due to increased
labor costs related to increased headcount and wages, travel costs, tradeshow
activity, and marketing and administrative costs related to the start-up of the
new business units.
Research and Development: Research and development expenses for the third
- -------------------------
quarter of 1997 increased 17.0% to $5.8 million compared to $5.0 million for the
third quarter of 1996, and increased as a percentage of sales to 15.1% from
14.8% for the respective periods. Research and development expense for the nine
month period ended September 26, 1997 increased 16.6% to $18.4 million compared
to $15.8 million for the nine month period ended September 27, 1996, but
decreased as a percentage of sales to 16.7% from 17.3% for the respective
periods. The increase in research and development expenses during the third
quarter is primarily due to increased activity related to the development of the
next generation of the image generator product, Harmony.
OTHER INCOME, NET
- -----------------
Other income for the third quarter of 1997 decreased 72.1% to $0.3 million
compared to $1.1 million for the third quarter of 1996. For the nine month
period ended September 26, 1997, other income decreased 47.1% to $1.6 million
compared to $2.9 million for the nine month period ended September 27, 1996.
The decrease in other income for the third quarter and nine month period is due
to a decrease in interest income due to lower average cash and marketable
securities balances and gains recognized on the sale of investment securities in
1996.
INCOME TAXES
- ------------
The Company's combined federal, state, and foreign effective income tax rate was
26.6% for the first nine months of 1997. The tax rate for the same period in
1996 was 38.0%. These rates are calculated based on an estimated annual
effective tax rate applied to income before income taxes. The improvement in
1997 over 1996 is attributable to utilization of foreign loss carryforwards
against U.S. taxable income and increased benefit of the foreign sales
corporation.
LIQUIDITY & CAPITAL RESOURCES
- -----------------------------
Working capital at September 26, 1997 was $129.4 million compared to $126.9
million at December 27, 1996. This includes cash, cash equivalents, and
marketable securities of $55.8 million and $63.0 million at September 26, 1997
and December 27, 1996, respectively. The Company's operations provided $8.6
million of cash during the first nine months of 1997, compared to $21.5 million
of cash used in operations during the first nine months of 1996. Cash was also
provided from proceeds of sales of marketable securities and proceeds from
employee stock purchase and option plans. Cash was principally used to purchase
marketable securities, capital equipment, investment securities and treasury
stock, and to make payments on the line of credit.
On September 19, 1996, the Company announced that its Board of Directors had
authorized a plan that allows the Company to repurchase up to 500,000 shares of
its common stock. As of November 6, 1997, the Company has repurchased and
retired 152,000 shares of its common stock.
Management believes that existing cash and marketable securities balances,
borrowings available under the line of credit and cash generated from operations
will be adequate to meet the Company's anticipated cash requirements through
September 1998.
This quarterly report on Form 10-Q may be deemed to contain certain 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.
9
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Regulation S-K
Exhibit No. Description
----------- -----------
11 Earnings Per Share Calculation
27 Financial Data Schedule
(b) There were no reports on Form 8-K filed for the three-month
period ended September 26, 1997.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
EVANS & SUTHERLAND COMPUTER CORPORATION
---------------------------------------
Registrant
Date NOVEMBER 10, 1997 /S/
----------------- -------------------------------
JOHN T. LEMLEY, VICE PRESIDENT
AND CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL OFFICER)
10
<PAGE>
EXHIBIT 11
EVANS & SUTHERLAND COMPUTER CORPORATION
EARNINGS PER SHARE CALCULATION
Unaudited
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------------- -------------------------------
September 26, September 27, September 26, September 27,
1997 1996 1997 1996
--------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Net earnings applicable to common stock $ 3,825 $ 3,286 $ 7,211 $ 5,534
=============== =============== ============== ==============
Primary shares outstanding:
Weighted average number of
common shares outstanding 9,056 9,025 9,047 8,907
Common equivalent shares outstanding 541 232 430 299
--------------- --------------- -------------- --------------
Weighted average common and
common equivalent shares outstanding 9,597 9,257 9,477 9,206
=============== =============== ============== ==============
Fully diluted shares outstanding:
Weighted average number of
common shares outstanding 9,056 9,025 9,047 8,907
Common equivalent shares outstanding 675 270 675 329
--------------- --------------- -------------- --------------
Weighted average common and
common equivalent shares outstanding 9,731 9,295 9,722 9,236
=============== =============== ============== ==============
Primary net earnings per common and
common equivalent share outstanding $ 0.40 $ 0.35 $ 0.76 $ 0.60
=============== =============== ============== ==============
Fully diluted net earnings per common and
common equivalent share outstanding $ 0.39 $ 0.35 $ 0.74 $ 0.60
=============== =============== ============== ==============
</TABLE>
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> DEC-28-1996
<PERIOD-END> SEP-26-1997
<CASH> 5,357
<SECURITIES> 50,398
<RECEIVABLES> 34,483
<ALLOWANCES> 876
<INVENTORY> 26,938
<CURRENT-ASSETS> 168,549
<PP&E> 121,302
<DEPRECIATION> 77,898
<TOTAL-ASSETS> 224,340
<CURRENT-LIABILITIES> 39,152
<BONDS> 18,015
0
0
<COMMON> 1,816
<OTHER-SE> 165,357
<TOTAL-LIABILITY-AND-EQUITY> 224,340
<SALES> 110,000
<TOTAL-REVENUES> 110,000
<CGS> 58,164
<TOTAL-COSTS> 58,164
<OTHER-EXPENSES> 41,937
<LOSS-PROVISION> 1,632
<INTEREST-EXPENSE> 991
<INCOME-PRETAX> 9,824
<INCOME-TAX> 2,613
<INCOME-CONTINUING> 7,211
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,211
<EPS-PRIMARY> .76
<EPS-DILUTED> .74
</TABLE>
