What do the UTC layoff numbers mean?

I've read through the 2008 annual report that UTC put out recently, and I think I've got a pretty good handle on what those layoff numbers will mean for their Fire & Security business. (And, yes, I did call and ask them what they would mean, and this is the only comment they're making: "The restructuring will affect all UTC business units to some extent, but the exact number of jobs at individual buisness units and locations has not yet been determined.") However, these layoffs aren't that new or dramatic for UTC. It's just that most people weren't paying attention to layoffs last year when the economy hasn't yet totally nosedived. First, here's where you can find their annual report yourself. It's one of the most detailed and well put together annual reports you'll find, I must say. I recommend downloading the pdf, as the interface online is a little slow for my taste. Now, on to the analysis. See, in 2008, the company announced $357 million in "net pre-tax restructuring and related charges," which the company predicted would translate to 6,300 hourly and salaried employees. So, for 2008, they were basically valuing an employee at about $56,666 (obviously, not all of that restructuring cost is laying off employees - it's also closing facilities and doing away with assets, etc., but I think you'll see it basically works for my reasoning). UTC recorded $63 million in charges for the F&S segment, which is 17 percent of the total charges. So, if you take that 17 percent and apply it to the 6,300 jobs, you get 1,071 jobs, or, if you take $63 million and divide it by $56,666 you get 1,111 jobs. So a ballpark of 1,100 jobs lost at UTC F&S makes sense to me. Now, for 2009, they're predicting $750 million in restructuring and 11,600 jobs eliminated. So, this year, they're theoretically valuing jobs at $64,655 each. But what percentage of the restructuring will be attributed to UTC F&S? In 2007, the company attributed 23 percent of $166 million in restructuring to F&S, and in 2008, as I said, it was 17 percent. So, should we average the two and go with 20 percent? Well, it might be higher than that. If you look at UTC's six business segments right now, F&S has just about the lowest operating profit margin at 8 percent. Further, while they only contribute 11 percent of the company's revenue, they make up 19 percent of its workforce. Further further, if you divide revenue by employees, each employee only creates about $150,000 in revenue at F&S, vs. an average of $260,000 for the whole company. This is likely because F&S is the most in-the-field-oriented of the business units (I'm sort of guessing here, as Otis does a lot of installation) and maybe employs a lot of lower-wage techs across the globe. So maybe we just take the high side of the 2007 and 2008 percentages and say 23 percent of the restructuring will affect F&S. So, 23 percent of $750 million is $172.5 million, and that divided by $64,655 is 2,668 jobs. Or 23 percent of 11,600=2668. So, I think a ballpark of 2,500 jobs lost in F&S is fair. What percentage of that is in North America? Well, 83 percent of F&S' revenues were generated outside of the US last year, but they do a lot of business in Canada, so maybe 70 percent is outside of the U.S. and Canada, so maybe 30 percent of those job losses are in North America? That works out to about 750 jobs. Not too dissimilar, actually, to what ADT just announced. This is very rough, obviously. If anyone sees major holes in the reasoning, let me know.


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