Warner Reports Net Loss of $586 Million in ’84

Warner Communications Inc. on Thursday reported a net loss of $203.7 million for the fourth quarter ended last Dec. 31 and a loss of $586.1 million for all of 1984, blaming most of the red ink on the Atari operation that it sold last June to businessman Jack Tramiel.

Warner said it took $225 million in fourth-quarter write-downs and reserves for discontinued operations, offset by income of $21.3 million from continuing operations.

The New York-based entertainment firm disclosed that it will no longer attach any balance-sheet value to the $240-million face value of long-term notes that Tramiel issued to acquire the Atari home-computer and video-game business because of “significant differences” between Warner and Tramiel arising from the Atari sale and the recent softness in the home-computer market.

Tramiel’s notes were initially carried at $180 million on the Warner balance sheet last year, but the company reduced the sum to $150 million in the third quarter. On Thursday, Warner said that it had removed the sum altogether and intends to recognize any interest and principal payments from Atari Corp. as income when received.

Warner also disclosed that it has created a $75-million reserve for certain discontinued operations.

Although Warner refused to specify which operations are involved, The Times has learned that reserves were established for Warner’s remaining 41% stake in its Atari coin-operated video-game business, the Gadgets restaurant chain, the Eastern Mountain Sports retail chain, a San Jose office complex and Warner’s 48% stake in the Pittsburgh Pirates baseball team.

Of those operations, Warner Vice President Geoffrey W. Holmes would only confirm reserves for Gadgets and the Atari coin-operated business. Holmes noted that nine Gadgets restaurants have been closed in recent weeks, leaving only two in operation.

Separately, New York-based Chris-Craft Industries Inc., Warner’s largest shareholder, said Thursday that it expects to record a loss in its second quarter ending Feb. 28 as a result of Warner’s problems. Chris-Craft, which didn’t specify the amount of the quarterly deficit, estimated its share of the Warner losses at about $11.2 million.

Two of Warner’s three remaining businesses posted strong gains for the fourth quarter and for the year.

The filmed entertainment unit, which includes the Warner Bros. film studio in Burbank, reported operating income of $27.28 million, more than double the $12.59 million recorded a year earlier. For the year, the unit posted operating income of $150.38 million, up from $109.32 million in 1983.

The recorded music division reported operating income of $32.22 million for the fourth quarter, up from $24.75 million in the same period a year earlier. For the year, the recorded music division posted operating income of $89.6 million, up from $60.72 million.

Fourth-quarter operating income for the publishing and related distribution division declined to $3.01 million, down from $3.67 million a year earlier. For the year, the unit reported operating income of $16 million, up from $14.27 million.

Warner reported that its investments in cable TV and broadcasting showed some improvement, with fourth-quarter operating losses declining to $5 million from $19.45 million in 1983. For the year, the losses were $40.81 million, down from $63.82 million.

Revenue for the year rose to $2.02 billion from $1.72 billion, while quarterly revenue rose to $535.37 million from $499.4 million.

Warner reduced its corporate overhead expenses to $57.67 million for the year, down from $96.05 million in 1983, while the 1984 interest expense of $111.52 million declined only slightly from the 1983 expense of $114.34 million.

In response to a question, Holmes said Warner’s shareholder equity at year-end was about $340 million, compared to $960.05 million at the end of 1983.

Holmes noted that the write-down of the Tramiel notes “does not eliminate any liability on his part” for the purchase of the Atari operation.

Under the terms of the purchase agreement, the price may be lowered if Tramiel does not succeed in collecting at least $106.5 million owed to Atari by next June.

In a prepared statement, Warner said that the two “have been unable to resolve their significant differences as to the amounts owed” Warner.

Holmes confirmed that, because of the dispute, Tramiel was not obligated to make a $9.1-million payment due on one of his notes in January, and that the sum was not paid.