Comsat planning write-down, layoffs

January 19, 1991|By Leslie Cauley

Trying to stem the flow of red ink from its struggling video unit, Communications Satellite Corp. said yesterday it plans to take a $90 million to $100 million pretax write-down for the fourth quarter of 1990 and to trim the video unit's 200-member work force by one-third.

The move will result in an after-tax loss of $3.60 to $4 a share, George Dellinger of Washington Analysis Corp. estimated.

About 70 employees at Comsat Video Enterprise, which has headquarters in Clarksburg, are expected to lose their jobs as a result of the restructuring. A Comsat spokesman said some of them will be offered other jobs with the parent company.

The video unit's restructuring will affect 14 people in management-related positions, said spokesman Arthur Sando. The remaining layoffs will be among clerical, sales and marketing workers, he said.

As a result of the write-down, Washington-based Comsat said, it will report a loss for the fourth quarter and the full year next month.

A spokesman declined to say what Comsat will lose for the quarter, but Mr. Dellinger estimated the loss at $60 million to $70 million.

That is in sharp contrast to the third quarter, when Comsat reported operating income of $21.2 million.

Losses at the video unit have skyrocketed over the past year, despite efforts by the parent company and its new management team, headed by Robert J. Wussler, a former Turner Broadcasting executive.

Mr. Wussler was instrumental last year in getting Comsat, an international satellite concern, to purchase the Denver Nuggets professional basketball team.

That deal was expected to lead to some major sports programming agreements for Comsat Video Enterprise, but none has materialized. The Nuggets organization, meanwhile, has dipped into the red.

The video unit, which provides television programming via satellite to major hotel chains across the United States, reported a loss of $3.2 million in the first quarter of 1989. By the third quarter last year, those losses had more than doubled.

Comsat Video Enterprise has been beset by problems over the past year. Besides the weak hotel industry, the unit was hit hard last year by a software programming bug in its technical network that left the company unable to collect payments from pay-per-view customers.

The bug, which has not been eliminated, cost the video unit up to $10 million in lost revenue last summer, Mr. Wussler estimated.

"That was a tough blow," he said.

Mr. Wussler predicted that the restructuring would permit Comsat Video Enterprise to break even by the second quarter.

"Things aren't going to kick in overnight, but I think by the second quarter we'll have some pretty good news," Mr. Wussler said.

Mr. Dellinger said he welcomed the restructuring but indicated that the unit still has a long way to go to return to profitability.

"I think it's good for shareholders to know they're going to downsize the operation and lose less money in the future," he said. "I just wish they'd done it a year ago."

Julian Menear, senior vice president of Young Capital Group Inc. in Chicago, said yesterday's announced write-down won't be the last for Comsat Video Enterprise.

"Unless large contract awards are pending, they may have to so some other write-downs in the third quarter," Mr. Menear said.

He said Comsat Video Enterprise's seeming inability to sign major contracts troubles the investment community, particularly in light of the unit's globe-trotting marketing efforts over the past year.

Moreover, he said, prospects for Comsat Video Enterprise's obtaining outside financing in the current economic climate are dismal at best. That leaves the unit financially dependent on Comsat, he said, a relationship the parent company might be reluctant to sustain.

"If they don't pull off some solid, long-term contracts within the next year, I think they have to do some major reassessment from the parent side," Mr. Menear said. "It's OK to take the write-down, but they need cash, and they're not going to get it from banks."

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