Evans & Sutherland Reports Fourth Quarter and Year End Results

Business Wire, Feb 17, 1999

SALT LAKE CITY--(BUSINESS WIRE)--Feb. 17, 1999--Evans & Sutherland Computer Corporation (E&S) (NASDAQ:ESCC) today reported financial results for the fourth quarter and year ended December 31, 1998.

Sales for the 1998 fiscal year were $191.8 million, up 20.3% over sales of $159.4 million in fiscal 1997. Net income for 1998, excluding acquisition-related restatement adjustments, was $7.5 million, or $.73 per share, compared to $5.1 million, or $.53 per share in 1997. This represents an increase in net income of 47.1%. For the fourth quarter ended December 31, 1998, sales were $58.4 million, an increase of 18.4% over sales of $49.4 million for the fourth quarter of 1997. Net income for the fourth quarter, excluding acquisition-related restatement adjustments, was $2.8 million, or $.26 per share, compared to a net loss of $2.1 million or a loss of $.23 per share for the fourth quarter of 1997.

Acquisition-related restatement adjustments in 1998 arose from the purchase of AccelGraphics and Silicon Reality in the second quarter. The restatement adjustments included $20.8 million for write-off of in-process research and development (IPR&D) taken in the second quarter, and an additional total of $2.8 million (net of income taxes) for goodwill amortization taken in the third and fourth quarters. (On February 12, 1999 the Company announced that it would restate the IPR&D charge from $27.9 million to $20.8 million for fiscal year 1998, based on new SEC guidance. The attached schedule provides a reconciliation to the previous accounting treatment.)

In the financial statements as reported, including all acquisition charges, the net loss for 1998 was $16.1 million, or $1.70 per share, compared to net income of $5.1 million, or $.53 per share in 1997. Net income for the fourth quarter was $1.4 million, or $.13 per share, compared to a net loss of $2.1 million, or $.23 per share for the fourth quarter of 1997.

Comments from James R. Oyler, President and Chief Executive Officer

"For the full year, revenue increased over 20%, and orders continued to be strong. Additionally, we introduced new products in every business segment, all using Intel/Microsoft architectures and open industry standards. Our relationship with Intel has been especially strong following Intel's investment in E&S during the second quarter.

"Our Simulation Group continued to win key programs around the world and had good revenue growth of almost 15%. Our Harmony product, the world's most powerful image generator, began shipping to customers during the year, though shipments were later than planned and the product transition caused increases in inventory to support shipments late in 1998 and into early 1999. We expect this inventory to be reduced in upcoming quarters.

"In the second quarter, we added significantly to the long-term potential of our Workstation Group through the acquisition of AccelGraphics and Silicon Reality. The Workstation Graphics unit continued to win OEM customers for its professional 3D graphics accelerators, including Dell, the largest high-end workstation supplier. Sales in this unit slowed unexpectedly in the third quarter, but were recovering at year end. Revenue more than tripled over the prior year, and is expected to continue to grow much faster than the simulation business. In 1998, we invested heavily in product development which will result in the release of a number of new products in 1999.

"Overall, we enter 1999 with a strong backlog in our simulation business, expenses under control, and much of the product transition cycle behind us. Our workstation graphics business is growing rapidly, and should achieve a profitable run rate in the second half. We also have a dynamic new organization in place to capitalize on the opportunities which our new products and acquired businesses provide."

Evans & Sutherland develops and manufactures hardware and software to produce highly realistic 3D images. E&S business units deliver high-quality visual systems for simulation and training in defense and commercial applications; graphics systems for high-performance workstations; and related applications throughout the world. Visit the E&S web page at http://www.es.com.

This news release contains forward-looking statements involving risks and uncertainties. These include but are not limited to quarterly fluctuations in results, timely availability and customer acceptance of new products, the impact of competitive products and pricing, general market trends and conditions, and other risks detailed in the Company's SEC reports. Actual results may vary materially from projected results.

Note to Editors: E&S is a registered trademark of Evans & Sutherland Computer Corporation. -0-

SUMMARY STATEMENTS OF CONSOLIDATED OPERATIONS
(In thousands, except per share data)

                                   Quarter Ended        Year Ended
                                 -----------------   -----------------
                                 Dec. 31, Dec. 31,   Dec. 31, Dec. 31,
                                   1998     1997       1998     1997
                                  -------  -------  -------   -------
Sales                             $58,445  $49,353 $191,766  $159,353
Cost of sales                      34,040   25,975  110,320    84,139
                                  -------  -------  -------   --------
       Gross profit                24,405   23,378   81,446    75,214
                                  -------  -------  -------   --------
Expenses:
    Selling, general and
     administrative                10,990   10,178   40,088    35,333
    Research and development        9,508    7,078   31,797    25,492
                                  -------  -------  --------  --------
                                   20,498   17,256   71,885    60,825
                                  -------  -------  --------  --------
       Operating earnings
        before acquisition-
        related expenses            3,907    6,122    9,561    14,389
    Write-off of acquired
     in-process technology              -        -   20,780         -
    Amortization of goodwill        2,403        -    4,767         -
                                  -------  -------  -------   -------
       Operating earnings
        (loss)                      1,504    6,122  (15,986)   14,389
Other income, net                     568   (9,108)   2,129    (7,551)
                                  -------  -------- --------  --------
       Earnings (loss) before
        income taxes                2,072   (2,986) (13,857)    6,838
Income tax expense (benefit)          579     (855)   2,126     1,758
                                  -------  -------- --------  --------
       Net earnings (loss)          1,493   (2,131) (15,983)    5,080

Accretion of preferred stock           95        -       95         -
                                 --------  -------- --------  --------
Net earnings (loss) applicable
 to common stock                   $1,398  ($2,131 ($16,078)   $5,080
                                 ========  ======= =========  ========

Diluted earnings (loss) per
 common share                       $0.13   ($0.23)  ($1.70)    $0.53
                                 =========================== =========

Number of shares used in
   earnings per share
   calculation                     11,115    9,096    9,461     9,502


RECONCILIATION TO NET EARNINGS BEFORE SEC RESTATEMENT
(In thousands, except per share data)

                                        Quarter Ended     Year Ended
                                        Dec. 31, 1998    Dec. 31, 1998
                                        -------------    -------------
Net earnings (loss) applicable to
 common stock, as reported                   $1,398        ($16,078)
Adjustments:
    Write-off of acquired in-process
     technology                                  -           20,780
    Additional amortization of
     goodwill due to SEC change, net
     of income taxes                          1,441           2,772
                                        ------------     ------------
Net earnings applicable to common
 stock, adjusted                             $2,839          $7,474
                                        ============     ============
Diluted earnings per common share,
 adjusted                                     $0.26           $0.73
                                        ============     ============
Number of shares used in
 earnings per share calculation              11,115          10,213


CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)                           Dec. 31, 1998   Dec. 31, 1997
                                         -------------   -------------

Assets
    Cash and marketable securities         $ 27,741        $ 57,104
    Receivables                              46,866          36,066
    Inventories                              53,319          26,885
    Other current assets                     75,410          59,643
                                         -----------     -----------
       Total current assets                 203,336         179,698
    Net property, plant and equipment        53,693          44,368
    Other assets                             18,639          10,324
                                         ----------      -----------
       Total assets                        $275,668        $234,390
                                         ===========     ===========

Liabilities and Stockholders' Equity
   Accounts payable and accruals            $51,814         $32,414
   Other current liabilities                 17,165          18,327
                                         -----------     -----------
       Total current liabilities             68,979          50,741
   Other long-term liabilities               18,062          18,015
   Redeemable preferred stock                23,544               -
   Stockholders' equity                     165,083         165,634
                                         -----------     -----------
       Total liabilities and
        stockholders' equity               $275,668        $234,390
                                         ===========     ===========

BACKLOG
(In thousands)       Dec. 31, 1998          Dec. 31, 1997
                     -------------          -------------

                        $155,742               $154,875
                     ===============       ================