Inman's record stirs doubts about his fiscal skills

December 20, 1993|By New York Times News Service

AUSTIN, TEXAS — AUSTIN, Tex. -- At his Rose Garden introduction last week as the nation's next defense secretary, Bobby Ray Inman promised to apply the experience he gained in corporate America to the Pentagon in the hopes of bringing what he called the "best business practices" to the government and getting "a dollar value for a dollar spent on defense."

But during the 1980s, Mr. Inman presided over a costly business debacle, a leveraged buyout failure that resulted in the bankruptcy of a Fortune 500 military contractor named Tracor Inc., which made submarine and aviation weapons systems.

Once the largest commercial employer in Austin, Tracor is now much smaller. Although it has emerged from bankruptcy and is now considered financially healthy, the company became a casualty not only of the excesses of Wall Street but also of mismanagement, cost overruns and shrinking Pentagon spending.

"Tracor was like a lot of other deals in the mid- to late 1980s," said Robert Miller, a bankruptcy lawyer who represented many of the company's creditors during its reorganization. "The management substantially overpaid for the company and tried to expand it, and ultimately it hit the skids."

Frank McBee, Tracor's founder, said in an interview that Mr. Inman was making a smart decision returning to Washington, where he "at least knows his way around." He pointedly did not want to discuss anything about Mr. Inman's stewardship.

The company filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code nine months after Mr. Inman abruptly left as its chief executive and chairman in December 1989.

By all accounts, its debt problems were caused both by mismanagement and the move to take it private that was led by the retired admiral.

As Tracor was sinking, Mr. Inman continued to receive a large compensation package, according to documents later filed with the Securities and Exchange Commission. While two other executives were paid even more money, Mr. Inman received nearly $1 million in 1989, including $422,000 in salary, $250,000 in deferred compensation and a $300,000 bonus from the previous year. The company never disclosed how much he received in compensation in 1988, his first year at Tracor.

To Mr. Inman's critics, the story of Tracor illustrates his penchant for big spending on high technology defense, a penchant that will undoubtedly come under considerable scrutiny as he moves on to head the world's largest procurement organization. The Pentagon's $262 billion budget this year is larger than the budgets of many small nations.

A member of President Clinton's Cabinet who has closely followed Mr. Inman's career over the years expressed some concern about the nominee, observing that he seemed to be an expert at spending money but not particularly adept at raising it or saving it or at cutting costs.

Mr. Inman said in an interview yesterday from his home in Austin that the bulk of Tracor's problems had been caused by bankers and lawyers from Wall Street, whose excessive fees had added significantly to the cost of buying the company and had led it down a road of debt that broke the company's back. He acknowledged that there were cost overruns and performance problems while he headed the company that reduced its cash flow, making it even harder to service the crushing debt load.

"I would say that the lesson I took from Tracor was that you don't do a leveraged transaction at a time of contraction because unless you have the cash flow, you're not going to be in control of your fate," he said. Still, he conceded that the military side of Tracor was stubbornly resistant to cutting costs, a mind-set that has dominated the defense-contracting industry.

Asked how he would apply this experience to the Pentagon, he said,"We're going to have to change the procurement system." But he declined to comment on any future policies before his confirmation proceedings.

He also said it would be unfair to focus on his two years at Tracor. He said that he had also played significant roles in helping to reshape Fluor, Southwestern Bell and Xerox as a member of the boards of those companies, and that it was those experiences that he had in mind when he touted his business background at the White House ceremony.

Since 1987, Mr. Inman has also served as a director of Dell Computer and was the head of its audit committee. The company is now under investigation by the Securities and Exchange Commission for improper currency speculation. But executives at Dell said there was no evidence that Mr. Inman had been involved in the questionable trading or in possible securities violations for failing to disclose losses from the currency speculation. Mr. Inman said Sunday that when he and the board learned of the currency transactions, "we were taken by total surprise."

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