Communications Satellite Corp. said yesterday it would write off up to $100 million to cover the cost of restructuring its money-losing hotel-movie business, a move the company said would wipe out its 1990 profit.
The Washington-based company also said it has laid off about a third of the 200 employees in the troubled Comsat Video Enterprises division to reduce expenses. Most of the 60 to 65 workers who were laid off are in the Washington area.
Comsat Video President Robert J. Wussler, who was hired away from Turner Broadcasting Co. 18 months ago to turn around the three-year-old video unit, said yesterday the division's losses have grown over the past two years. Wussler said adding a pay channel last year to Comsat's hotel program services was costly.
Comsat's main business is channeling telephone calls and data and video transmissions in and out of the United States through satellites owned by an international communications consortium, of which the company is a member. That business is profitable and highly regulated.
Comsat Video's push into the unregulated hotel-programming business, however, has been troubled. Comsat Video beams movies and other pay programs to 1,760 hotels with more than 310,000 rooms around the United States. Hotel guests pay to view the programming on a special TV channel. The division also includes Comsat's majority stake in the Denver Nuggets pro basketball team, which Comsat bought for $17 million in a 1989 diversification move.
Comsat's major competitor in the hotel-video business is Spectradyne Corp.'s SpectraVision, which has a larger presence than Comsat in upscale hotels. Comsat, by contrast, typically serves Holiday Inns and Ramada motels, where use of pay-TV services is generally lower.
"In a $30- or $50-a-night hotel, a $7 movie ticket is an expensive bite," Wussler said. "The kind of people who use those facilities are watching every buck." Wussler said he expected the division's losses to shrink during 1991 and its operating margins and cash flow to improve.
Comsat pegged the restructuring charge at $90 million to $100 million and said it will be written off against its fourth-quarter results, dashing any hope for a profit during the quarter or year. The charge will equal $3.60 to $4 per share. Comsat earned $50 million, or $2.66 per share, through the first nine months of 1990.
Companies typically take write-offs to reflect a reduction in the value of an asset. Despite reducing profits, a write-off often has a positive effect over the long term because it also reduces the charges a company's must make to cover the asset's depreciation.
As a result, Wall Street responded favorably to Comsat's decision to take the write-off yesterday, as investors bid up Comsat shares 37 1/2 cents to $23.87 1/2. "This is positive for shareholders that they're indicating they're going to downsize this losing venture. ... I just wish they had done it a year ago," said George Dellinger, an analyst at the Washington office of County Natwest Securities.