EXHIBIT 99.1
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CONCEPTUAL DESIGN AND RENDERING SYSTEM
OPERATIONS OF EVANS & SUTHERLAND COMPUTER CORPORATION
FINANCIAL STATEMENTS
DECEMBER 30, 1994
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
Independent Auditors' Report
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The Board of Directors of
Parametric Technology Corporation
We have audited the accompanying balance sheet of Conceptual Design and
Rendering System Operations of Evans & Sutherland Computer Corporation as of
December 30, 1994, and the related statements of operations, parent's equity,
and cash flows for the year ended December 30, 1994. These financial statements
are the responsibility of the management of Conceptual Design and Rendering
System Operations of Evans & Sutherland Computer Corporation. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Conceptual Design and Rendering
System Operations of Evans & Sutherland Computer Corporation as of December 30,
1994, and the results of its operations and its cash flows for the year ended
December 30, 1994, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Salt Lake City, Utah
May 26, 1995
CONCEPTUAL DESIGN AND RENDERING SYSTEM
OPERATIONS OF EVANS & SUTHERLAND COMPUTER CORPORATION
BALANCE SHEET
DECEMBER 30, 1994
Assets
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Current assets:
Accounts receivable $ 1,520,038
Inventories 96,442
Prepaid expenses 32,058
Deferred tax assets (note 4) 23,596
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Total current assets 1,672,134
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Property and equipment, net (note 2) 1,320,736
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$ 2,992,870
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Liabilities and Parent's Equity
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Current liabilities:
Accounts payable $ 259,226
Accrued expenses (note 3) 141,969
Deferred revenue 680,063
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Total current liabilities 1,081,258
Deferred tax liability (note 4) 23,596
Parent's equity 1,888,016
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$ 2,992,870
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See accompanying notes to financial statements.
CONCEPTUAL DESIGN AND RENDERING SYSTEM
OPERATIONS OF EVANS & SUTHERLAND COMPUTER CORPORATION
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 30, 1994
Net sales:
Software licenses $ 5,762,124
Maintenance and support 1,830,928
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Total net sales 7,593,052
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Cost of sales:
Software licenses 82,091
Maintenance and support 615,486
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Total cost of sales 697,577
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Gross profit 6,895,475
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Sales and marketing 3,988,086
Research and development 1,864,899
General and administrative 923,513
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6,776,498
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Earnings before income taxes 118,977
Income tax expense (note 4) 580,000
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Net loss $ (461,023)
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See accompanying notes to financial statements.
CONCEPTUAL DESIGN AND RENDERING SYSTEM
OPERATIONS OF EVANS & SUTHERLAND COMPUTER CORPORATION
STATEMENT OF PARENT'S EQUITY
YEAR ENDED DECEMBER 30, 1994
Balance at December 31, 1993 $ 2,367,560
Capital contribution for income tax expense 580,000
Return of capital to parent (598,521)
Net loss (461,023)
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Balance at December 30, 1994 $ 1,888,016
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See accompanying notes to financial statements.
CONCEPTUAL DESIGN AND RENDERING SYSTEM
OPERATIONS OF EVANS & SUTHERLAND COMPUTER CORPORATION
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 30, 1994
Cash flows from operating activities:
Net loss $ (461,023)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation on property and equipment 462,384
Tax expense offset to parent's equity 580,000
Change in operating assets and liabilities:
Accounts receivable 64,118
Inventories 281,291
Prepaid expenses (525)
Accounts payable and accrued expenses 265,350
Deferred revenue 405,355
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Net cash provided by operating activities 1,596,950
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Cash used in investing activities - purchases of property and equipment (921,794)
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Cash used in financing activities - return of capital to parent (598,521)
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Effect of foreign exchange rate changes (76,635)
Net change in cash -
Cash at beginning of year -
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Cash at end of year $ -
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See accompanying notes to financial statements.
CONCEPTUAL DESIGN AND RENDERING SYSTEM
OPERATIONS OF EVANS & SUTHERLAND COMPUTER CORPORATION
NOTES TO FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
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(a) Description of Business and Related Party Transactions
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The Conceptual Design and Rendering System Operations of Evans &
Sutherland Computer Corporation ("CDRS") are engaged in the
development, production, marketing, and support of computer software.
The rights to use the products are sold under license agreements. CDRS
is a business group of Evans & Sutherland Computer Corporation (the
"Parent"). General and administrative expenses are allocations from the
Parent, which are determined from a formula based on revenues, payroll,
property and equipment, and inventory. In the opinion of management
these allocations are reasonable.
(b) Fiscal Year
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The Parent's fiscal year ends the last Friday in December. The fiscal
year end for the year included in the accompanying financial statements
is the 52-week period ended December 30, 1994. Unless otherwise
specified, all references to a year are to the fiscal year ending in
the year stated.
(c) Inventories
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Inventories are stated at lower of first-in, first-out cost or market.
(d) Property and Equipment
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Property and equipment are stated at cost. Depreciation on property and
equipment is calculated on the straight-line method over the estimated
useful lives of the assets, ranging from five to seven years.
(e) Software Development Costs
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CDRS applies the criteria set forth in the Statement of Financial
Accounting Standards (SFAS) No. 86, Accounting for the Costs of
Software to be Sold, Leased, or Otherwise Marketed, to determine the
amount of capitalized software development costs upon the establishment
of technological feasibility of the product. The capitalization of
software costs has been determined to have an immaterial effect on
CDRS's financial statements. All development costs have been expensed
in the period incurred.
CONCEPTUAL DESIGN AND RENDERING SYSTEM
OPERATIONS OF EVANS & SUTHERLAND COMPUTER CORPORATION
NOTES TO FINANCIAL STATEMENTS
(f) Revenue Recognition
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CDRS recognizes revenue from software licenses upon delivery and
customer acceptance. CDRS recognizes revenue from software maintenance
contracts ratably over the term of the contract, typically one year.
(g) Income Taxes
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The provision for income taxes is computed using the asset and
liability method on a separate return basis. CDRS is included in the
consolidated federal and state income tax returns of its parent. The
Parent does not allocate income taxes to CDRS. Accordingly, tax expense
is reflected as a capital contribution in the accompanying statement of
parent's equity.
(h) Foreign Currency Translation
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The local foreign currency is the functional currency for CDRS's
foreign operations. Assets and liabilities of foreign subsidiaries 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. Non-cash
adjustments resulting from translation are included in capital
contributions in the accompanying statement of parent's equity. Net
gains and losses from foreign currency transactions were not
significant during the year presented.
(2) Property and equipment
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Property and equipment is summarized as follows:
Computer equipment $ 2,746,102
Furniture and fixtures 178,394
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2,924,496
Less accumulated depreciation (1,603,760)
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$ 1,320,736
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(3) Accrued Expenses
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Accrued expenses consist of the following:
Accrued employee related costs $ 118,297
Other 23,672
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$ 141,969
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CONCEPTUAL DESIGN AND RENDERING SYSTEM
OPERATIONS OF EVANS & SUTHERLAND COMPUTER CORPORATION
NOTES TO FINANCIAL STATEMENTS
(4) Income Taxes
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The components of income tax expense were as follows:
Current tax expense:
Federal $ 500,000
State and local 80,000
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Total tax expense $ 580,000
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The actual tax expense differs from the "expected" tax expense (computed by
applying the U.S. corporate tax rate of 34 percent) as follows:
Expected tax expense $ 40,435
Loss on foreign operations for which there is no
current tax benefit 308,301
Change in the beginning of the year valuation
allowance for deferred taxes 144,000
State income taxes, net of federal income tax benefit 53,000
Other 34,264
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$ 580,000
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The tax effects of temporary differences that give rise to deferred tax
assets and liabilities are summarized as follows:
Current deferred income taxes - deferred revenue $ 255,024
Current deferred income taxes - vacation accrual 44,514
Less valuation allowance (275,942)
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Deferred tax assets 23,596
Noncurrent deferred income taxes - property and equipment (23,596)
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Deferred tax liability (23,596)
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Net deferred tax asset $ -
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The valuation allowance for deferred tax assets as of January 1, 1994 was
$131,942. The valuation allowance increased $144,000 for the year ended
December 30, 1994.
CONCEPTUAL DESIGN AND RENDERING SYSTEM
OPERATIONS OF EVANS & SUTHERLAND COMPUTER CORPORATION
NOTES TO FINANCIAL STATEMENTS
(5) Foreign Operations and Foreign Sales
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CDRS's foreign operations have historically been conducted principally
through the Parent's foreign subsidiaries. Foreign operations are
summarized below:
Net sales to unaffiliated customers $ 1,283,259
Operating loss 906,768
Identifiable assets 855,272
Total CDRS sales to unaffiliated foreign customers (including export sales)
are as follows:
Europe $ 1,283,259
Far East 491,826
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Total $ 1,775,085
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(6) Concentration of Credit Risks
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Financial instruments that potentially subject CDRS to concentrations of
credit risks consist of trade receivables. CDRS has adopted credit policies
and standards to evaluate the risk associated with its sales. CDRS's
largest customer accounted for more than 73 percent of sales and 38 percent
of gross accounts receivable at December 30, 1994. Two additional customers
accounted for 30 percent of gross accounts receivable at December 30, 1994.
Management believes that any risk of loss is significantly reduced due to
the financial position of the customers and distributors with whom it does
business.
(7) Subsequent Event
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On April 12, 1995, the Parent completed the sale of CDRS to Parametric
Technology Corporation for cash consideration of approximately $34,500,000.