Gradco Reports $23.6-Million Loss in 2nd Quarter : Finances: It is the company’s first financial report since new management took over after a proxy battle. It includes $20.8 million in write-offs.

Gradco Systems Inc., a struggling office-equipment company that recently came under new management after a bitter proxy contest, reported Monday that it lost $23.6 million in its second quarter ended Sept. 30.

The loss, which compared to a deficit of $106,000 in the year-earlier quarter, included $20.8 million in write-offs of various expenses. The company reported an operating loss of $2.5 million for the three-month period.

It is Gradco’s first financial report since a shareholder group led by New York publisher Martin E. Tash took control of the company from founder Keith B. Stewart, who resigned as chairman last month after Tash won his fight to take over the firm.

Tash, chairman of New York-based Plenum Publishing, said in an interview that he was surprised by the size of the write-offs deemed to be necessary by accountants who reviewed Gradco’s books after Stewart left the company. Write-offs are those assets--such as uncollectible bills--that are deemed worthless and taken as an expense or loss on a company’s books.

Sales for the quarter plunged 24% to $18.4 million, down from $24.3 million a year earlier.

“We’re concentrating on the areas where we can operate profitably. . . . We feel we’re taking the proper steps any experienced management people would do,” said Tash, Gradco’s new chairman. “It was not a healthy situation we walked into.”

In March, Gradco wrote off the cost of a company restructuring program that included discontinuing its Santa Ana manufacturing. Tash said his management team reviewed the earlier write-offs and decided that more were necessary.

Harland L. Mischler, chief financial officer, said new management decided to take additional write-offs based on the weakness of the company’s unprofitable operations, such as its printer-systems subsidiary.

The loss for the latest quarter follows an $8.1-million loss for the first quarter, which ended June 30. That loss came despite a one-time gain of $18.8 million from the sale of 27% of the company’s Gradco Japan subsidiary.

The company said second-quarter sales were adversely impacted by the loss of some business with Xerox Corp. and delayed shipments of new laser-printer products.

The second-quarter write-offs included $10 million in goodwill related to five printer-products acquisitions that the company made in 1987. Mischler said the operations were written off as a loss because they are either unprofitable or have been shut down.

The company also wrote off as worthless $7 million in printer-products inventory, $2.5 million for design costs related to printer products and $1.2 million for other costs, Mischler added.

The company was notified in October that it was in default on a credit line from the Bank of California and on long-term loans received from the Teachers Insurance and Annuities Assn. Mischler said the company deposited $10 million in cash as collateral for the credit line. It also paid overdue interest to TIAA and reclassified $3.3 million in debt to the association as a current liability.

Some analysts said the Tash group is apparently writing down all the assets to clean up Gradco’s books and draw a clear line between the performance of the company under Stewart and the new management.

Tash said the company is reducing research and development spending for certain printer products and plans to go ahead with plans to shut down the Santa Ana manufacturing plant by March.

Mischler said the company’s Japanese subsidiary, which makes sorters for copier machines, continues to operate profitably. Tash said he made a trip last week to Japan to hold discussions for the first time with investors in the company’s Gradco Japan subsidiary.

Gradco stock closed Monday at $3.125 per share, up 12.5 cents, in over-the-counter trading.

GRADCO SYSTEMS PERFORMANCE

Gradco Systems Inc. reported a second-quarter loss of $23.6 million, which included $20.8 million in one-time write-offs, compared to a loss of $106,000 for the year-earlier quarter. Sales for the quarter were $18.4 million, down 24% from $24.3 million a year ago.

(in millions)

Year ended March 31 1990 1989 1988 1987 1986 Revenue $89.5 115.1 90.9 55.1 43.7 Net income ($28.1) 5.6 4.1 1.3 1.1 6 months ended June 30 1990 1989 Revenue $37.8 47.5 Net income (loss) * 8.1 .1

*Includes one-time gain of $17.8 million from sale of 27% share of Gradco Japan subsidiary Source: Gradco Systems Inc.