Tyco To Cut 7,100 Jobs, 24 Factories
Tyco International Ltd. plans to close 24 factories and eliminate 7,100 jobs, primarily in its electronics and telecommunications businesses, and is scrapping its plan to break the company into four parts.
The manufacturing and services conglomerate said Thursday it will hold on to its plastics division which it had hoped to sell for about $4 billion and said it will spin off its CIT financial division.
Its chairman and chief executive, Dennis Kozlowski, said the breakup plan announced in January was a mistake.
The company did not release details about where and when the job cuts will take place. They represent about 3 percent of the company's worldwide work force of almost 250,000 people. It said the charges resulted from a "fierce decline" in the electronics and telecommunications markets.
The announcements came as Tyco announced it lost $1.9 billion, or 96 cents per share, in the three months ended March 31 in contrast to a profit of $1.1 billion, or 62 cents per share, a year ago.
Revenue slipped to $8.66 billion from $8.81 billion a year ago.
Excluding the charges, Tyco's earnings were 65 cents per share, 3 cents ahead of Wall Street expectations.
The results for the second fiscal quarter include a $3.3 billion charge.
The company cut its earnings projections for the fiscal year to $2.60 to $2.70 per share, before charges. Analysts surveyed by Thompson Financial/First Call had projected $3.14.
Tyco said its estimate assumed CIT remain part of Tyco through the fiscal year, which ends in September.
The company projected third quarter earnings of 58 cents to 62 cents per share, below Wall Street's expectations of 81 cents.
Tyco is based in Bermuda but has headquarters in Exeter. Its products include electronic equipment, fire and security systems and disposable medical supplies.
In a letter to shareholders, Kozlowski said the company remains in negotiations to sell CIT but decided that spinning it off in a public offering would reduce Tyco's vulnerability to debt markets, make the company less complex and allow it to focus on its core markets.
Kozlowski said senior corporate managers will not receive bonuses this year.
Tyco announced Jan. 22 that it would separate into four companies, and said that it expected to sell its plastics division for as much as $4 billion.
The breakup plan was partly a response to criticism of Tyco's accounting practices and debt load following the Enron scandal. Those concerns contributed to a 57 percent drop in Tyco's share price since December. Simplifying the company would make its accounting easier to understand, officials said at the time. Tyco executives also embarked on a series of weekly conference calls with analysts and shareholders designed to explain its accounting practices.
"We took all questions asked and didn't shy away from answering them," Kozlowski said in his letter. He added that it was upsetting to him that Tyco's name was mentioned in stories about accounting scandals.
The decision to stop the planned breakup was difficult, Kozlowski said.
"In retrospect, it is now clear that we took the market by surprise with our announcement (to break up), and failed adequately to take into account the extraordinarily fragile market psychology and hostile environment that has distracted and damaged our business in recent months," he said.
"We know now it was a mistake, and it is time for us to return our focus to what we do best."
The largest part of the $3.3 billion charge is a $2.4 billion pretax writedown because of the telecommunication and electronics slowdown.
The company also took a $250 million inventory writeoff and a $95 million credit loss on receivables from Argentinia for CIT. The loss was connected to the devaluation of the Argentine peso.
By Stephen Frothingham