Job cuts threaten Westinghouse unit

January 12, 1994|By Ian Johnson | Ian Johnson,New York Bureau

NEW YORK -- Hit by defense cuts and management blunders, Westinghouse Electric Corp. yesterday announced its second major restructuring in a little more than a year, saying it would cut 6,000 jobs and slice in half its dividend to shareholders.

Westinghouse, which employs about 10,000 people in Maryland, xTC did not specify where the cuts would occur, but it did not rule out layoffs at its Electronic Systems Group in Linthicum. The restructuring, which will cost the company $750 million before taxes, represents the first major action taken by Michael H. Jordan, the company's chairman and chief executive, who was brought in in June to shake up the industrial giant's business strategy.

"Our goal is to clear the decks so we can get on with building up this company," said Mr. Jordan, who succeeded Paul E. Lego, the longtime head of the company, who had resigned under pressure.

"It was clear that the credibility of this management had been lousy. We are going to restore that credibility."

Westinghouse, which will have 55,000 employees after it finishes its previously announced restructurings, said the 6,000 additional job cuts will be spread over two years. They will include 3,400 layoffs and 2,400 positions cut through early retirement and attrition.

The company also said it would strengthen its financial condition by selling $500 million worth of preferred stock and by cutting its annual dividend to 20 cents a share, from 40 cents.

Company officials declined to say which plants would be hit by the job cuts. But Mr. Jordan, in a news conference after the announcement, said the Electronic Systems Group would likely be affected. But he would not specify the extent of the unit's likely cuts.

The Linthicum-based division has already lost 7,000 jobs over the past few years, primarily because of cuts in defense spending. But the local operation still has several profitable military contracts and has been working to convert some of its business to commercial uses.

"I honestly believe that we can achieve growth in the Electronic Systems Group," Mr. Jordan said. "We have a strong portfolio [of defense products]. We have something worth holding onto."

The latest round of cuts, announced yesterday morning, were further outlined at a meeting of Wall Street analysts, many of whom have been critical of what Mr. Jordan called the company's penchant for coming up with a "disaster of the year."

After the meeting, several analysts said that the company's plans made sense but that they were perturbed that Mr. Jordan flubbed some of the basic financial numbers.

Mr. Jordan, who was formerly with the New York-based management consultancy McKinsey & Co., said he was unsure of revenue for some divisions, and he avoided directly answering some questions.

"He sounded like a McKinsey consultant," said Steven Wilson, an analyst with Reich & Tang Distributors, a Wall Street investment firm. "He was methodical and used lots of charts. But some of his assumptions were optimistic."

Westinghouse closed yesterday on the New York Stock Exchange at $14 a share, down 12.5 cents.

Specifically, Mr. Jordan called for Westinghouse to focus on four core businesses: power and energy, broadcasting, military electronics and refrigerator units. It would keep two noncore operations -- Knoll furniture manufacturing and Electronic Systems Group's nonmilitary products -- that it believes can be profitable, Mr. Jordan said.

Westinghouse said it would continue its plan to sell its real estate operations and to liquidate its financial portfolio. The company also said it would contribute $200 million of its common stock to its pension plan.

Although applauding the decision to shed extraneous businesses, analysts said they were worried by the fact that these actions have left Westinghouse shareholders with radically less equity in the company than they had five years ago -- from $4.5 billion in 1989 to $1 billion after the new charges are deducted.

Westinghouse, a longtime maker of electrical products, tried in the 1980s to diversify into financial services but has been burned by weak commercial real estate operations that helped saddle the company with $2.4 billion in losses over the past two years.

The bond market was also worried about the company's ability to repay its $4 billion in debt. Because of the increased risk, two bond-rating companies have cut the ratings of Westinghouse's bonds in the past few days. As a result, the company would be forced pay more to borrow from investors.

In the third quarter, the first complete three-month period under Mr. Jordan's leadership, Westinghouse earned $65 million, a 28 percent drop over results for the same period in 1992.

HIGHLIGHTS

Actions announced by Westinghouse yesterday:

* Cut 6,000 jobs, including 3,400 layoffs, over two years.

* Charge $750 million against fourth-quarter earnings.

* Halve annual dividend to 20 cents a share.

* Contribute $200 million in common stock to pension plan.

* Sell $500 million in preferred stock.

* Sell real estate division this year instead of 1995.

4( * Retain Knoll furniture subsidiary.

AT A GLANCE

Headquarters: Pittsburgh

Total employees: 55,000*

Employees in Md.: 10,000

3rd qtr. rev.: $2.1 billion

3rd qtr. net inc.: $65 million*

Stock: $14, down 12.5 cents

+ *Continuing operations only

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