Prime Sees $20-Million Loss for 4th Quarter

Prime Computer Inc. expects to post a loss of more than $20 million for the fourth quarter, citing the expense of a pending reorganization and the “extraordinary costs” of fighting a $970-million takeover bid by MAI Basic Four Inc. of Tustin.

But in a bid to persuade shareholders that its stock is worth more than the $20 per share offered by MAI, Prime--the computer manufacturer based in Natick, Mass.--said it expects to post strong gains in operating income in the next 2 years.

The company downplayed its expected fourth-quarter loss, which reflects a one-time charge of up to $45 million to cover the costs of its reorganization and work-force reduction, as well as its efforts to rebuff MAI’s hostile tender offer.

In an interview Monday, Prime President Anthony L. Craig said the costs associated with the MAI offer represent a “good part” of the $40 million to $45 million the company will deduct from earnings.

Other costs reflected in the figure include severance pay for 1,200 workers being laid off in the next 5 months and expenses involved in assimilating two recent acquisitions.

Layoffs Meant to Cut Costs

Prime has said the layoffs are designed to cut costs and improve profits in the long term. While they were announced after MAI made its tender offer, the company said the layoffs had been planned and were not a response to the takeover bid.

Craig told analysts at a meeting Monday in New York that excluding the one-time charge, Prime expects fourth-quarter earnings to top $16 million. After the charge, however, the quarter will show a net loss of $24 million to $28 million.

Craig said Prime expects operating income to increase by 40% to 50% in 1989, and by 20% to 30% in 1990.

He added, however, that charges for the ongoing reorganization and for expenses incurred as the company tries to cope with MAI’s unsolicited tender offer could reduce gains this year, resulting in lower net income.

Boosting Prime’s performance, he said, is the company’s just-completed acquisition of the Calma computer-aided design unit of General Electric Co.

Calma’s $70 Million in Sales

Calma, which has its headquarters in Milpitas in Santa Clara County, has sales of about $70 million, Craig said.

The acquisition, he said, solidifies Prime’s position as the second-largest player in the $5.2-billion market for computer-assisted design and manufacturing.

Craig said Monday’s meeting with stock analysts was not a normal practice for Prime. “But when you see the analysts’ reports getting so diverse in their projections for the company, it becomes incumbent to share an early look at our projections . . . so people don’t get a deluded opinion.”

Prime’s shareholders, he said, “so far have only seen the $20 unfinanced and contingent offer by MAI and have had no framework from which to evaluate the company.”

Losing Major Market Ground

In addition to MAI’s insistence that Prime has not shown reason to value its stock at more than $20 a share, several analysts have criticized Prime’s performance recently, stating that the company has been losing ground in its major markets. Craig, however, said those losses have been offset by gains in new markets, such as computer-assisted design and manufacturing.

Prime’s sales have increased in the last year, but earnings have dropped. For the first 9 months of 1988, the company reported earnings of $33.4 million on sales of $1.2 billion; it had net income of $64.7 million and sales of $960 billion for all of 1987.

Craig declined to comment on how much Prime’s opposition to the MAI acquisition offer might cost the company in 1989 and refused to discuss the steps Prime might take to remain independent.