Pico Revamps to Recover Lost Trade

Pico Products in Lake View Terrace sells hundreds of different products to the cable television industry, including electronic gear that prevents unauthorized viewing of cable television programs. But last year, Pico nearly lost its own signal.

In December, the company’s stock sank to an all-time low of 19 cents a share, and Pico had only $100,000 in cash on hand. It was two months behind in mortgage payments on its upstate New York manufacturing facility, and the company was in violation of a $5.5-million line of credit.

Staring at bankruptcy, Pico had no choice but to revamp.

The rebuilding began last fall when the board of directors hired Everett T. Keech, former vice dean at the University of Pennsylvania’s Wharton School of Business, as a consultant to try to turn things around. In February, Keech was elected chairman.

In February, the board also relieved Pico’s chairman and chief executive, Bernard K. Hitchcock, of command, and now an executive committee of three directors performs the duties of chief executive. That same month, it closed the money-losing New York plant, laid off 45 workers, and moved its headquarters and other operations to Lake View Terrace, home of its still-profitable Pico Macom subsidiary.

“If nothing had been done in November or December, they would have been in pretty serious trouble by now,” said John W. Brown, a member of Pico’s executive committee and managing director of Philadelphia First Group, an investment banking concern that was called in to help in the restructuring. “Bankruptcy was an option.”

The layoffs and consolidations have cut expenses by about $150,000 a month, said Pico President George M. Knapp, a 15-year Pico veteran. It helped the company post a modest profit of $10,700 in the third quarter that ended April 30 on sales of $4.4 million, contrasted with a loss of $321,000 a year earlier on sales of $5.54 million. Pico’s stock, meanwhile, has begun to recover and is trading for around $1.25 a share.

Still, Pico looks as if it’s headed for another loss this year: In the nine months that ended April 30, Pico lost nearly $1 million on sales of $13.4 million. In fact, the company has posted only one full-year’s profit in seven years and last year had a $2.7-million loss as sales fell 22% to $22.6 million.

The problem is that Pico’s CATV division, which accounts for about 11% of Pico’s sales, also produced virtually all of the company’s losses.

“The purpose of the restructuring was to stop the tail from wagging the dog,” said Peter J. Moerbeek, Pico’s vice president of finance.

CATV has stumbled since 1985 in part due to quality control problems with its “traps”--three- to five-inch-long metal cylinders that scramble cable TV signals so they can’t be viewed by nonsubscribers. CATV also failed in its attempt to diversify through ventures into home satellite dishes and a new line of traps.

It also didn’t help last year when Pico lost $4.5 million in orders when its biggest customer ceased operations. On top of that, many cable operators have cut back on orders because of the recession, and last year a new line of Pico equipment was late in arriving because testing of the devices took longer than expected, company officials said.

Whatever its problems, Pico has plenty of products to offer. Pico Macom, which accounts for about 80% of Pico’s sales, sells everything from wall plates for cable outlets to sophisticated components priced at more than $10,000.

Most of the more than 500 products sold by Pico Macom are priced at less than $5 and supply the nuts and bolts of cable hardware, including switches that allow viewers to change from cable to standard antenna reception, “splitters” that permit cable viewing on more than one television in a home, and connectors that attach cables to wall outlets.

Desperate for cash, the parent company in 1989 tried to take Pico Macom public but failed because of poor market conditions, Moerbeek said. Pico Products had hoped to sell 40% of its stake in Pico Macom for about $10 million, he said.

Then last year, the parent company entered a non-binding letter of intent to sell Pico Macom outright. But the deal fell through because the buyer, a mergers and acquisition concern called Palisades Associates, couldn’t raise the capital, Moerbeek said.

One of Pico’s new strategies is to try to push into the export market, including Eastern Europe, where Pico hopes to sell its high-end cable components for use in individual apartment buildings. The components send cable channels from a nearby satellite dish to customers in the building.

Knapp said such systems are increasingly coming into use in poorer countries that can’t afford to wire whole communities. Accordingly, Pico has established footholds in Brazil, Venezuela and Central America, and is talking with prospective buyers in Czechoslovakia, Poland and the Soviet Union, Knapp said.

“Many of the international cities are mainly apartment buildings,” Knapp said. “We expect the way they will start is to wire building by building with satellite dishes. All of our products are used in those applications.”

James Allen, who monitors cable signal theft for the National Cable Television Assn., agreed. “You’re seeing a proliferation of cable systems all over the world,” he said. “There’s been a tremendous expansion.”

Meanwhile, Pico is banking on foreign markets to also boost sales of its low-end products, such as traps, which company officials hope will be used in conjunction with Pico’s more expensive cable operating systems. Pico’s latest redesign should help restore customer confidence in its traps, Knapp said.

“That’s a very simple and economic method of securing signals,” Knapp said. “That same thing will happen in Central and South America and Europe. We expect markets to open up to us around the world.”

Pico Products at a Glance Pico Products, based in Lake View Terrace, sells a variety of equipment for the cable television industry, including devices that prevent nonsubscribers from receiving cable channels. The company has suffered a string of losses because of an industry-wide slowdown in sales of cable products, and the bankruptcy filing of its largest customer.

For fiscal years ended July 31; in millions Net Income (Loss) ‘91*: $986,000 loss *For nine months ended April 30, 1991.