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Outlook improving for E&S after loss

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Evans & Sutherland Computer Corp. had a profitable fourth quarter, but for all of 2003 saw sales slip more than 30 percent and its net loss more than triple the 2002 figure.

The Salt Lake-based company attributed the year's figures to several factors, including a restatement of United Kingdom operations figures for three quarters that originally were wrong.

For 2003, the company reported a net loss of $36 million, or $3.44 per share, which compares with a loss of $11.7 million, or $1.12 per share, for 2002. Sales totaled $84.8 million, slipping from $122.6 million in 2002.

The 2003 fourth quarter had net profits of $1.5 million, or 14 cents per share, which compares with a net loss of $6 million, or 58 cents per share, in the 2002 fourth quarter. Sales totaled $25.4 million, down from $29.2 million.

Some of the depressed figures for the fiscal year were due to errors detected late in the year regarding revenue, cost and profit recognition in the company's U.K. subsidiary during the first three quarters.

James R. Oyler, president and chief executive officer, said the errors derived from incorrect estimates of the percentage completion on that unit's contracts. Correcting that caused a restatement of results for the first three quarters, totaling an $8.9 million drop in revenue and $5.7 million in earnings for those quarters, he said.

"Based on the revised completion estimates we have made, most of this revenue, cost and gross margin will now be recognized in 2004," Oyler said.

"We are implementing control systems and procedures in our U.K. unit to prevent such estimating errors in the future. Similar control systems and procedures were installed for U.S. operations in 2003 and have proven effective, and we are confident that all operations will now have adequate controls to prevent a recurrence in the future."

During the year, the company had two job cuts, wrote down inventory held for older products when customer demand waned and incurred costs to complete a number of older military contracts.

"All of these factors contributed to a sizable loss in the first three quarters," Oyler said. "The fourth quarter was profitable, as we had previously forecast. We have been expecting for some time that 2003 would be a transition year for the company, leading to a return to profitability. This transition has occurred in a difficult market environment and has required numerous changes in the company."

Oyler's outlook for 2004 was based on the belief that "both our products and internal systems are now operating successfully." He noted that the company will introduce more products this year.

"Both our cash position and our backlog increased during 2003, and we anticipate modest market improvement in the current year. Based on the pattern of our backlog and orders, we expect a loss in (the first quarter) but a profit for the full year," Oyler said.

E&S stock rose 38 cents, or more than 9 percent, Thursday to close at $4.59 per share on Nasdaq. During the past year, the price has ranged from $3.30 to $6.90.

Evans & Sutherland produces visual systems for simulation, training and visualization in defense and commercial applications and digital theaters and related applications.

E-mail: bwallace@desnews.com