Maybe Westinghouse Chairman Michael H. Jordan, a former chief financial officer at PepsiCo Inc., just wasn't used to seeing such miserable numbers. Or perhaps the $5.3 billion in charges Westinghouse Electric Corp. had suffered over the previous three years were too numbing. But when Jordan took the top job at the $8.9 billion electrical equipment and defense company last year, all he could see was a menacing cloud of financial distress. Had he looked a little harder, he might have seen the silver lining.
Thirteen months later, that's all Jordan wants to talk about. It turns out that the same massive losses that brought Westinghouse to the brink of Chapter 11 in 1992 translate into 12 to 14 years' worth of tax-loss carry-
forwards. Put more simply, Westinghouse won't write another check to the Internal Revenue Service for more than a decade. Instead, analysts estimate, Jordan will enjoy $150 million this year in free cash to go along with the $320 million he liberated by slashing costs and restructuring the company's balance sheet.
"Taxes don't mean much to us," Jordan says with a smile. And that's why he's suddenly out doing deals. On July 14, Westinghouse surprised Wall Street by announcing that it would enter into a joint venture with CBS Inc. to produce programming and invest in new television and radio stations. Investors had expected Jordan to sell Westinghouse's five profitable Group W TV stations to raise cash. Instead, Jordan has committed at least $250 million to expand the business.
SAVVY MOVES. He provoked the same sort of surprise in February, when he announced the purchase of United Technologies Corp.'s $220 million radar unit, Norden Systems. That bolstered a defense-electronics unit that many had expected him to sell. He also is bidding with Britain's Nuclear Electric PLC for a $4.7 billion nuclear power project in Taiwan. And Westinghouse has landed a $400 million contract to revamp a nuclear plant in the Czech Republic. Meanwhile, the nonnuclear power generation business, which has grown 50% in the past five years, is landing contracts in Asia and South America.
Since joining Westinghouse in June, 1993, Jordan has bolstered the Pittsburgh company's top ranks with executives from his two former employers--PepsiCo and McKinsey & Co. They have sold Westinghouse Electric Supply Co. and the company's Distribution & Control unit for a total of $1.4 billion. They have unloaded much of the real estate portfolio responsible for the losses under ousted former Chairman Paul E. Lego. That allowed them to reduce debt from $7.6 billion to $3.3 billion. Then came a $500 million private placement of convertible preferred stock to boost equity.
"The major financial issues are behind them," says PaineWebber Inc. analyst Mark D. Altman. But investors are slow to believe it. Wall Street responded to Jordan's CBS deal with a yawn, and the stock barely budged from 12. The problem is that several of the balance-sheet restructuring moves--including the private placement--will dump a pile of new common shares on the market over the next few years. Investors, figuring their own shares will be diluted in the process, had been hoping that Jordan would use his cash to buy back stock.
Jordan's response: Look at that silver lining. Not only is Westinghouse expected to turn a $265 million net profit this year, compared with a $326 million loss in 1993, but the tax benefit should free up $590 million in cash over the next three years, analysts say. Moreover, because of the carryforwards, any earnings in acquired companies, such as Norden, are also tax free. After paying down debt and pension obligations, Jordan says that he plans to use the cash to buy more TV and radio stations and defense companies. Within two or three years, he says, he will start buying back stock, giving beleaguered shareholders a break.
Westinghouse still has plenty of problems, not the least of which is its heavy reliance on the vexing nuclear energy industry for revenue growth. But given where the company was only a year ago, 1994 still looks good. Jordan, who often commutes on weekends to his homes in Dallas and Santa Fe, N.M., has even bought a house on the east side of Pittsburgh. "It's pretty nice around here," he says with a note of surprise, "when it's sunny." The same could be said for Westinghouse.
OLD WESTINGHOUSE, NEW TRICKS
POWER GENERATION Recent growth has come from nonnuclear power, a $1.9 billion business. Jordan hopes for big contracts in Latin America and Asia.
NUCLEAR Westinghouse is revamping plants in the Czech Republic and looking for similar contracts in Eastern Europe, Taiwan, and eventually, China.
BROADCASTING Its linkup with CBS gets the $705 million division into big new markets and provides a powerful partner for programming.
DEFENSE ELECTRONICS Jordan has phased back defense conversion, shying from the earlier goal of 50% nondefense business for the $2.6 billion division.