<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 March 28, 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 May 2, 1997
---------------------------- ---------------------------------
COMMON STOCK, $0.20 PAR VALUE 9,079,704
<PAGE>
FORM 10-Q
EVANS & SUTHERLAND COMPUTER CORPORATION
QUARTER ENDED MARCH 28, 1997
PAGE NO.
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS
<S> <C>
Condensed Consolidated Statements of Operations - Three Months
Ended March 28, 1997 and March 29, 1996 3
Condensed Consolidated Balance Sheets - March 28, 1997 and
December 27, 1996 4
Condensed Consolidated Statements of Cash Flows - Three
Months Ended March 28, 1997 and March 29, 1996 5
Notes to Condensed Consolidated Financial Statements 6
</TABLE>
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
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
-----------------------
March 28, March 29,
1997 1996
--------- ---------
<S> <C> <C>
Net sales $ 33,642 $ 26,686
Cost of sales 18,514 14,192
-------- --------
Gross profit 15,128 12,494
-------- --------
Expenses:
Marketing, general and administrative 7,844 6,684
Research and development 5,846 5,319
-------- --------
Total expenses 13,690 12,003
-------- --------
Operating earnings 1,438 491
Other income, net 577 726
-------- --------
Earnings before income taxes 2,015 1,217
Income tax expense 604 462
-------- --------
Net earnings $ 1,411 $ 755
======== ========
Earnings per share (note 1):
Primary $ 0.15 $ 0.08
Fully diluted $ 0.15 $ 0.08
Weighted average common and dilutive
common equivalent shares outstanding
Primary 9,440 9,032
Fully diluted 9,456 9,081
</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>
March 28, December 27,
1997 1996
--------- ------------
(Unaudited)
<S> <C> <C>
Assets
- ------
Current assets:
Cash and cash equivalents $ 12,519 $ 16,521
Marketable securities 51,297 46,454
Accounts receivable, less allowance
for doubtful receivables of $588
in 1997 and $563 in 1996 32,418 34,842
Inventories (note 2) 21,753 20,202
Costs and estimated earnings in excess
of billings on uncompleted contracts 34,725 34,166
Deferred income taxes 5,331 4,841
Prepaid expenses and deposits 2,539 2,187
-------- --------
Total current assets 160,582 159,213
Property, plant, and equipment, at cost 117,972 115,358
Less accumulated depreciation and
amortization 74,792 72,687
-------- --------
Net property, plant, and equipment 43,180 42,671
Investment securities 6,899 7,057
Other assets 1,944 1,950
-------- --------
Total assets $212,605 $210,891
======== ========
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Notes payable to banks $ 4,356 $ 5,334
Accounts payable 4,177 6,370
Accrued expenses 14,129 13,933
Customer deposits 5,155 2,058
Income taxes payable 244 -
Billings in excess of costs and estimated
earnings on uncompleted contracts 4,393 4,595
-------- --------
Total current liabilities 32,454 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 9,077,365 shares at March
28, 1997 and 9,056,871 shares at
December 27, 1996 1,815 1,811
Additional paid-in capital 9,012 8,639
Retained earnings 151,907 150,496
Net unrealized loss on marketable
securities (832) (541)
Cumulative translation adjustment 234 67
-------- --------
Total stockholders' equity 162,136 160,472
-------- --------
Total liabilities and stockholders'
equity $212,605 $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>
Three Months Ended
-----------------------
March 28, March 29,
1997 1996
--------- ---------
<S> <C> <C>
Net cash provided by (used in) operating
activities $ 3,969 $(15,606)
Cash flows from investing activities:
Capital expenditures (2,851) (1,857)
Purchase of marketable securities (9,211) (30,357)
Proceeds from sale of marketable
securities 4,131 43,353
------- -------
Net cash provided by (used in)
investing activities (7,931) 11,139
Cash flows from financing activities:
Net proceeds from issuance of common stock 377 573
Net borrowings (payments) under line of
credit agreement (616) 1,043
Other - 243
------- -------
Net cash provided by (used in)
financing activities (239) 1,859
Effect of foreign exchange rate
changes on cash 199 51
------- -------
Net decrease in cash and cash equivalents (4,002) (2,557)
Cash and cash equivalents at
beginning of year 16,521 5,023
------- -------
Cash and cash equivalents at end of period $12,519 $ 2,466
======= =======
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 607 $ 609
Income taxes $ 17 $10,292
</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 ended March 28, 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 March 28,
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. Fully diluted earnings per share for the quarters ended March
28, 1997 and March 29, 1996 were not materially different from primary
earnings per share.
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:
<TABLE>
<CAPTION>
March 28, December 27,
1997 1996
----------- ------------
(Unaudited)
<S> <C> <C>
Raw materials and supplies $ 7,167 $ 8,117
Work-in-process 13,234 11,211
Finished Goods 1,352 874
------- -------
$21,753 $20,202
======= =======
</TABLE>
4. STOCK REPURCHASE PROGRAM
On September 19, 1996, the Company announced that its board of directors had
authorized the repurchase of up to 500,000 shares of its common stock, either
in the open market or in private transactions. As of May 2, 1997, the
Company has repurchased 95,000 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 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.
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
Ended March 28, 1997
and March 29, 1996
---------------------
(Unaudited)
<S> <C> <C>
Net Sales $6,956 26.1%
Cost of Sales 4,322 30.5%
----------
Gross Profit 2,634 21.1%
----------
Expenses:
Marketing, general & administrative 1,160 17.4%
Research & development 527 9.9%
----------
Total expenses 1,687 14.1%
----------
Operating earnings 947 192.9%
Other income, net (149) (20.5%)
----------
Earnings before income taxes 798 65.6%
Income tax expense 142 30.7%
----------
Net earnings $ 656 86.9%
==========
</TABLE>
SALES
- -----
Sales for the first quarter of 1997 increased 26.1% to $33.6 million compared to
$26.7 million for the first quarter of 1996. The increased sales in 1997 for
the first quarter over the corresponding period in 1996 were primarily due to
the record backlog going into 1997. Domestic sales increased approximately
126%, due primarily to delivery on large orders received in the latter portion
of 1996 and increased work on long-term contracts received in the same time
frame. Foreign sales are down approximately 15% due to a significant amount of
revenue being recognized on one long-term contract during the first quarter of
1996.
COST OF SALES
- -------------
Cost of sales, as a percentage of sales, was 55.0% for the first quarter of 1997
compared to 53.2% for the first quarter 1996. The increase in cost of sales, as
a percentage of sales, for the first quarter is primarily due to product mix.
The Company experienced higher cost of sales as a percentage of sales in its
non-simulation business units which are in the start-up phase. Cost of sales as
a percentage of sales in the simulation business units was unchanged.
EXPENSES
- --------
Total expenses for the first quarter of 1997 increased 14.1% to $13.7 million
compared to $12.0 million for the first quarter of 1996, but decreased as a
percentage of sales to 40.7% from 45.0% for the respective periods.
Marketing, General, and Administrative: Marketing, general, and administrative
- ---------------------------------------
expense for the first quarter of 1997 increased 17.4% to $7.8 million compared
to $6.7 million for the first quarter of 1996, but decreased as a percentage of
sales to 23.3% from 25.0% for the respective periods. The increase in marketing,
general, and administrative expense during the first quarter is primarily due to
increased labor costs related to increased headcount, wages and incentive
bonuses due to higher profitability, travel costs and administrative costs
related to the start-up of the new business units.
8
<PAGE>
Research and Development: Research and development expense for the first
- -------------------------
quarter of 1997 increased 9.9% to $5.8 million compared to $5.3 million for the
first quarter of 1996, but decreased as a percentage of sales to 17.4% from
19.9% for the respective periods. The increase in research and development
expense during the first 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 first quarter of 1997 decreased 20.5% to $0.6 million
compared to $0.7 million for the first quarter of 1996. The decrease in other
income for the first quarter is primarily due to a decrease in interest income
due to lower average cash and marketable securities balances.
INCOME TAXES
- ------------
The Company's combined federal, state and foreign effective income tax rate was
30% for the first quarter of 1997. The tax rate for the same period in 1996 was
38%. 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 March 28, 1997 was $128.1 million compared to $126.9 million
at December 27, 1996. This includes cash, cash equivalents and marketable
securities of $63.8 million and $63.0 million at March 28, 1997 and December 27,
1996, respectively. The Company's operations provided $4.0 million during the
first quarter of 1997, compared to $15.6 million of cash used in operations
during the first quarter 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 and
capital equipment and 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 May 2, 1997, the Company has repurchased 95,000 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
March 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 March 28, 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 MAY 12, 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 Three Months Ended
March 28, 1997 March 29, 1996
----------------------- -----------------------
Primary Fully Diluted Primary Fully Diluted
------- ------------- ------- -------------
<S> <C> <C> <C> <C>
Average number of common
shares outstanding during
the period
Common shares outstanding
during the entire period 9,059 9,059 8,715 8,715
Weighted average common
shares issued during the
period 8 8 27 27
------- ------- ------- -------
Weighted average number
of common shares
outstanding 9,067 9,067 8,742 8,742
Weighted average number
of dilutive common
equivalent shares
outstanding 373 389 290 339
------- ------- ------- -------
Weighted average common
and dilutive common
equivalent shares
outstanding 9,440 9,456 9,032 9,081
======= ======= ======= =======
Net earnings applicable
to common stock $ 1,411 $ 1,411 $ 755 $ 755
======= ======= ======= =======
Net earnings per common
and dilutive common
equivalent shares
outstanding $ 0.15 $ 0.15 $ 0.08 $ 0.08
======= ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> DEC-28-1996
<PERIOD-END> MAR-28-1997
<CASH> 12,519
<SECURITIES> 51,297
<RECEIVABLES> 32,418
<ALLOWANCES> 588
<INVENTORY> 21,753
<CURRENT-ASSETS> 160,582
<PP&E> 117,972
<DEPRECIATION> 74,792
<TOTAL-ASSETS> 212,605
<CURRENT-LIABILITIES> 32,454
<BONDS> 18,015
0
0
<COMMON> 1,815
<OTHER-SE> 160,321
<TOTAL-LIABILITY-AND-EQUITY> 212,605
<SALES> 33,642
<TOTAL-REVENUES> 33,642
<CGS> 18,514
<TOTAL-COSTS> 18,514
<OTHER-EXPENSES> 13,363
<LOSS-PROVISION> 327
<INTEREST-EXPENSE> 338
<INCOME-PRETAX> 2,015
<INCOME-TAX> 604
<INCOME-CONTINUING> 1,411
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,411
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
