Troubled Zenith Electronics Corp has reported 1997 losses of almost $300m and says it is working on a massive operational and financial restructuring plan. The Glenview, Illinois company also warns that its independent auditor has doubts about its ability to stay afloat. The loss for the year came in at $299.4m, compared with a 1996 net loss of $178.m. Revenue for the year was $1.17bn, down 9% from 1996 sales of $1.29bn. For the fourth quarter, Zenith’s net loss was $155.7m compared with a net loss of $69.3m in the year-ago quarter. Fourth-quarter revenue stood at $348m, down 18.7%. More than half of the 1997 operating loss is being blamed on its color picture tube plant in Melrose Park, Illinois, which saw production problems that stemmed from the transition to a new automated process. Softness in the US color TV market, especially in the fourth-quarter also contributed to the debacle. Details of the restructuring plan, which will include actions to reduce costs (presumably including serious staff reductions), to outsource more component and product manufacturing, and to capitalize on Zenith-patented digital TV technology, will be announced during the second quarter. The company reckons it needs at least $225m to fund restructuring costs and operations through the end of 1998. Its majority stockholder, LG Electronics Inc, has agreed to provide a secured credit facility for up to $45m through June 30, which Zenith says will get it through until that time. LG is considering providing long-term financial support but if that doesn’t materialize there are no guarantees from Zenith that additional financing can be obtained from conventional sources. It’s exploring other alternatives, including seeking strategic investors, lenders and/or technology partners, or selling substantial assets. It also plans to restructure its outstanding debt and existing credit agreements. Regardless of the details of a restructuring plan, Zenith common stock would most likely be subject to massive dilution as a result of the conversion of debt to equity or otherwise, the company warned. The situation is serious enough to warrant Zenith’s independent auditor issuing a going concern qualification on its year-end financial statement, an accounting term that basically means it has raised concerns about the company’s ability to stay in business. Chief executive Jeffrey Gannon, who came on board in January to turn the company around, is optimistic about the company’s ability to hang on. He predicts that, restructuring charges aside, 1998 should show a major improvement in operating results. LG bought its 55% stake in Zenith in 1995 for $351m. Zenith shares fell $2.0625 to $4.5625 on Wednesday.
