Lorimar-Telepictures surprised Wall Street on Wednesday by predicting a $63-million net loss for its fourth quarter ended March 31. The firm said $31 million of the loss is from its home video subsidiary, whose chief executive, Stuart G. Karl, was replaced last March.
In another major development, the big television programmer said it is negotiating to sell off such major assets as its six TV stations, its advertising agencies and its magazine publishing division, largely to existing managements. Lorimar also said its directors have authorized management to repurchase as much as 15% of the company's own shares.
The Culver City-based company's stock promptly fell by $1.25 a share to close at $16 Wednesday on the American Stock Exchange. One securities analyst said the firm's announced buyback of stock probably kept the decline from being greater.
Lorimar-Telepictures timed its announcement to coincide with a meeting with analysts in New York. Its management emphasized that the company had decided to strip down to its "core entertainment and production businesses."
A major surprise, according to an analyst who attended, was the disclosure by Chairman and Chief Executive Merv Adelson that millions of dollars worth of videocassettes reported as sales were returned to the company by dealers just this month.
In a telephone interview, Adelson called the loss "shocking" and said most of the home video loss was determined only in the last three weeks.
Management also examined other inventory and decided it was necessary to make further large writedowns to correct earlier "overestimates" of future sales, Adelson said. (An analyst said the writedowns also reflected overpayment for film product, including some from Playboy Enterprises.)
Alluding to former home video management, Adelson said it had been "represented" to the parent company that Karl Lorimar Home Video's policy on returns of merchandise was consistent with industry policy.
He blamed the returns on a policy that was "inconsistent" with what the parent had been led to believe was in place.
Adelson said that, on advice of attorneys, he would not comment on what recourse the company may have against the former Karl management. He also said that no litigation is pending in the matter.
Karl, who could not be reached for comment Wednesday, founded the video firm in late 1974 and sold it to Lorimar in late 1984 for undisclosed terms. Its products include the Jane Fonda exercise videos.
Lorimar announced March 11 that Karl and two other top executives had resigned after it was learned that they had a financial interest in a company that had been a supplier to Karl Lorimar. In Wednesday's announcement, Lorimar said it "replaced" the executives "for conflicts of interest."
A Lorimar-Telepictures officer said in March that the company had reached a settlement with the three executives and with the outside supplier in which they had an interest. The officer said Lorimar also had settled Karl's employment contract, which was to run to 1989.
Wednesday's announcement said the company expects to report a net loss of $59 million for the full 1987 fiscal year ended March 31. As previously reported, this includes a $37-million pretax charge linked to industrywide problems of collecting money owed by some non-network TV stations and to weakness in sales of syndicated TV shows.
Included in the anticipated fourth-quarter loss is a $14-million writeoff from discontinued operations. Final financial figures are expected to be disclosed next week, Adelson said.
He sought to emphasize that the losses are "non-recurring," and that the company has a net worth of nearly $400 million and expects to show a profit next year.
The intended sale of assets represents a major departure in the firm's program of diversification from its entertainment base since Lorimar and Telepictures Corp. merged last year.
A securities analyst, who attended Wednesday's meeting in New York but declined to be quoted by name, said analysts' opinions were divided on the company's restructuring plan.
In particular, the analyst said, some thought the sale of the Bozell, Jacobs, Kenyon & Eckhardt advertising agency--just acquired last January--would be "premature."
Others thought that the restructuring was "very positive" because it would allow the company to "focus on the businesses it knows best."
Another analyst, who also declined to speak for attribution, said he was "confident" that Lorimar-Telepictures will "turn around next year." With the writedowns reported Wednesday, he added, "it has really cleaned the slate."
Last year, the firm reported a $28.7-million net loss on $441 million in revenue.
'Substantial Gain' Expected
The company said it has an agreement in principle to sell three of its TV stations, including KCPM-TV in Chico-Redding, to a company formed by Joe Goldfarb, at present a member of the office of the president of Lorimar Broadcasting, and other investors. It said it is negotiating to sell its interest in US magazine and its children's publishing operations to their respective managements.
Further, it said, it is "exploring" the sale of its advertising agencies to the Bozell Jacobs management.
Adelson said in the interview that he expects the sale of those assets to result in a "substantial gain" to the company but declined to estimate the expected prices. He also declined to say how much the company may spend on acquiring its own stock but noted that it will be facilitated by the sale of assets.
When Lorimar acquired some of those businesses, it had intended to build a stronger base for the company, he said. However, the company now has a stronger base in its core businesses and wants to concentrate on them, he said.
Lorimar stands as "the leading supplier of original television programming in the United States," Adelson said. He added that all eight of its network programs have been renewed for the fall season, and the firm has five new television shows going on the air between September and January and 11 shows in first-run syndication.
LORIMAR-TELEPICTURES AT A GLANCE
Formed through the 1986 merger of Lorimar and Telepictures, the Culver City company produces and distributes network and syndicated television programs as well as feature films. It also owns six television stations; Lorimar Home Video; the Bozell, Jacobs, Kenyon & Eckhardt ad agency; several magazines including US; the former MGM studio lot, and the Metrocolor film-processing lab.
Year ended Mar. 31 1987* '86** '85 Revenue (millions) NA $441 $155 Net income (millions) (59) (28.7) 14.8
Assets ('86): $919 million Employees: 3,600 Shares outstanding: 46.4 million 12-mo. price range: $13.50-$33.375 Wed. close (Amex): $16, down $1.25
* Estimate; company reported net income of $4.1 million on sales of $542.8 million for nine months ended Dec. 31.
** 8 months
For Telepictures only; year ended Dec. 31.