Figgie Turns Over A New LeafZachary Schiller
No one would ever accuse John P. Reilly, the new CEO of troubled Figgie International Inc., of ducking a challenge. Fresh out of college, he passed up a cushy desk job at Chrysler Corp. to work on the plant floor. In the early 1980s, he helped run a tough downsizing at International Harvester Co. Later, as CEO of Tenneco Automotive, Reilly led a bid by U.S auto-parts makers to crack the Japanese market.
It all makes good training for the task now facing the 51-year-old Reilly at Figgie: turning around the ailing Willoughby (Ohio) conglomerate. As recently as 1989, Figgie was a healthy $1.3 billion company. Starting from a 1963 leveraged buyout of Automatic Sprinkler Corp. of America, founder Harry E. Figgie Jr. built a far-flung empire. More than 30 divisions made everything from fire-fighting gear to sporting goods. But poor management, bad luck, and heavy debt sent the company into a nosedive. A late-1993 cash squeeze nearly drove Figgie bankrupt.
On Feb. 15, just six weeks into his new job, Reilly announced a drastic shrinkage. He aims to pare Figgie to less than a quarter of its former size and use proceeds from asset sales to pay off a crushing $250 million in bank loans and leases. At the same time, he's hacking away at the bloated overhead left behind by Figgie and his son, Harry E. Figgie III. The moves will leave Figgie with a smaller--but profitable--core, he vows. "It's not how big you are," says Reilly, who has half a million stock options riding on the outcome. "It's how much money you make."
Reilly has announced plans to put at least 15 of Figgie's 22 businesses--including Automatic Sprinkler--on the block. Sales at units Figgie will keep--including Scott Aviation and Interstate Electronics Corp.--total $319 million. The CEO says all show operating profits.
Reilly estimates Figgie will reap $300 million from the castoffs by yearend, which will let it pay down leases and bank loans. That will cut total debt to $220 million--and with 1995 free cash flow projected at $41 million, new Chief Financial Officer Steven L. Siemborski says the shrunken company should readily cover its $25 million in annual interest. Reilly reckons Figgie will return to the black by the third quarter.
To investors who have watched Figgie shares fall from 21 in 1992 to around 7 today, making any money would be a nice change. After losing $180 million on sales of $769 million in 1993, Figgie lost $167 million--including a $57 million write-off and $76 million from discontinued operations--on sales of $762 million in 1994. Wall Street has been wary since Reilly's arrival, but initial reaction to the plan was favorable. "We're generally very pleased with the bold direction that [management has] charted," says Charles K. Gifford, president of the Bank of Boston Corp., Figgie's lead bank.
New direction was certainly needed. When Figgie spurted red ink in 1993, executives blamed a series of one-time problems, such as floods that hit three plants. But an ill-conceived manufacturing revamp, led by son Harry after he in effect took over from his ailing father in 1992, hurt even more. Figgie spent $200 million to automate but has yet to see the payoff.
"OUT OF CASH." What it did see was a big jump in debt. Total debt rose $82 million in 1993, to $536 million, as Figgie borrowed to pay for equipment. By late 1993, Figgie's banks were unwilling to roll over its loans. It was "out of cash and out of credit," says Siemborski.
To make matters worse, just as the elder Figgie returned to work in late 1993, a former executive filed a lawsuit alleging the Figgies had diverted company assets to private use and inflated financial results. By early 1994, "the house was burning, and we had to do something," concedes longtime director Walter M. Vannoy, who became chairman in May after Harry Figgie retired. The younger Figgie resigned in March.
The slim-down, announced by the Figgies, got going in earnest after they left. Some $175 million in assets, including crown jewel Rawlings Sporting Goods Co., have since been sold. And Reilly, who joined Figgie after a brief stint as COO at Brunswick Corp., is slashing overhead--including perks such as a pool. But Figgie still had negative cash flow of $76 million in 1994.
Will Reilly's plan finally give Figgie the jolt it needs? One question is whether it can get good prices for units it's selling--some of them mediocre performers. But Reilly says he already has letters of intent offering roughly $100 million for some units. He must also rev up the ongoing businesses.
Reilly says he is keeping only market leaders, such as Interstate Electronics, a $113 million maker of global positioning systems, and Scott Aviation, a $99 million maker of emergency breathing systems. With gross margins averaging 22.5%, all have done well despite Figgie's problems--and Reilly is counting on expansion abroad and new products to double revenues by 2000. "These companies would be very profitable with a normal debt load and normal corporate expenses," he says.
Still, if Reilly has unveiled a new Figgie, problems remain. A settlement of the suit alleging mismanagement is under negotiation, and a host of other legal wrangles are still being fought. But the plainspoken CEO vows these divestitures and write-offs will be the last. "It's absolutely over. This is the end of the line," he says. If Figgie's survival no longer looks in doubt, shareholders may still have to wait for their reward.
SELL ASSETS Will unload at least 15 of Figgie's 22 divisions. Annual revenues will shrink from $762 million in 1994 to around $359 million in 1995.
SLASH OVERHEAD Corporate art collection and jet have gone. Now, Reilly will ax perks such as a company pool, decentralize, cut corporate staff in half, and slash outside professional fees. Savings: $22 million annually.
REFOCUS MANAGEMENT Reilly wants an early settlement of a lawsuit charging the board and the Figgie family with mismanagement. Resolving that--and a host of other legal disputes--will slash legal fees and free management to focus on operations.