Westinghouse Posts Charge of $975 Million
Westinghouse Electric Corp. on Wednesday said it was taking a $975-million pretax charge against fourth-quarter 1990 earnings to cover the cost of liquidating sour junk bond and real estate investments at its financial services unit.
The charge led to restatement of fourth-quarter results to a loss of $449 million, contrasting with a profit of $270 million a year earlier.
The vast restructuring of Westinghouse Financial Services Inc. includes a $3-billion reduction in its $8-billion assets over the next two years.
Westinghouse said it is quitting the deeply battered market for high-yield bonds and focusing on lower-risk investments. The unit is also cutting its commercial paper holdings by up to $1.5 billion. Roughly 10% of its 671 employees could also be cut in the move.
The company hopes that the restructuring will improve its cash flow and balance sheet. A turnaround in the finance unit will bring it into line with the company’s healthy operations in broadcasting, electronics and other businesses.
Taking its restructuring a step further, the company said it will sell $600 million in common stock, $500 million through a public offering in the near future.
Westinghouse shares declined on the news, ending down $1.875 at $27.25 on the New York Stock Exchange, where it was the second most active issue.
The charge left full-year 1990 earnings at a profit of $268 million compared to $922 million a year earlier.
Westinghouse Chairman Paul Lego told shareholders in a letter that first-quarter 1991 earnings will drop more than 50% from the 1990 quarter, while second-quarter net will also fall sharply.
Then he sees a pickup. “Earnings in the second half of 1991 are expected to be higher than those of the second half of 1990,” Lego said.
The company decided to take the charge after an evaluation by investment banking firm Lazard Freres, which it retained in September to help with a strategic plan.
“We asked Lazard Freres to help us with the asset-by-asset evaluation that was completed in mid-February,” Lego said.