mew Doc 3250 Filed 05/23/18 Entered 05/23/18 10:38:43 Main Document Pg 1 of 5

Transcription

1 Pg 1 of 5 UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK x In re : : Chapter 11 WESTINGHOUSE ELECTRIC : COMPANY LLC, et al., : Case No (MEW) : Debtors. 1 : (Jointly Administered) x SUPPLEMENTAL DECLARATION OF LISA J. DONAHUE IN SUPPORT OF MOTION OF DEBTORS PURSUANT TO 11 U.S.C. 363(b) AND 503(c)(3) FOR ENTRY OF AN ORDER APPROVING KEY EMPLOYEE INCENTIVE PROGRAM I, Lisa J. Donahue, pursuant to section 1746 of title 28 of the United States Code, hereby declare that the following is true to the best of my knowledge, information, and belief: 1. I submit this supplemental declaration (this Supplemental Declaration ) in further support of the Motion of Debtors Pursuant to 11 U.S.C. 363(b) and 503(c)(3) for Entry of an Order Approving Key Employee Incentive Program [Docket No. 3176] (the Motion ). 2 My background and qualifications are set forth in the Declaration of Lisa J. Donahue in Support of the Motion of Debtors Pursuant to 11 U.S.C. 363(b) and 503(c)(3) for 1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor s federal tax identification number, if any, are: Westinghouse Electric Company LLC (0933), CE Nuclear Power International, Inc. (8833), Fauske and Associates LLC (8538), Field Services, LLC (2550), Nuclear Technology Solutions LLC (1921), PaR Nuclear Holding Co., Inc. (7944), PaR Nuclear, Inc. (6586), PCI Energy Services LLC (9100), Shaw Global Services, LLC (0436), Shaw Nuclear Services, Inc. (6250), Stone & Webster Asia Inc. (1348), Stone & Webster Construction Inc. (1673), Stone & Webster International Inc. (1586), Stone & Webster Services LLC (5448), Toshiba Nuclear Energy Holdings (UK) Limited (N/A), TSB Nuclear Energy Services Inc. (2348), WEC Carolina Energy Solutions, Inc. (8735), WEC Carolina Energy Solutions, LLC (2002), WEC Engineering Services Inc. (6759), WEC Equipment & Machining Solutions, LLC (3135), WEC Specialty LLC (N/A), WEC Welding and Machining, LLC (8771), WECTEC Contractors Inc. (4168), WECTEC Global Project Services Inc. (8572), WECTEC LLC (6222), WECTEC Staffing Services LLC (4135), Westinghouse Energy Systems LLC (0328), Westinghouse Industry Products International Company LLC (3909), Westinghouse International Technology LLC (N/A), and Westinghouse Technology Licensing Company LLC (5961). The Debtors principal offices are located at 1000 Westinghouse Drive, Cranberry Township, Pennsylvania Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Motion.

2 Pg 2 of 5 Entry of an Order Approving Key Employee Incentive Plan, annexed to the Motion as Exhibit B (the Declaration ). 2. Except as otherwise indicated, all statements in this Supplemental Declaration are based on my personal experience and knowledge, my opinions, my discussions with the Debtors management and professionals, and my review of the relevant documents. If called to testify, I could and would testify to each of the facts and opinions set forth herein. 3. I am submitting this Supplemental Declaration in response to discussions with the United States Trustee regarding the relief requested in the Motion. 4. As set forth in the Declaration, the Debtors designed the KEIP to ensure that key members of the Debtors workforce is properly incentivized during the Interim Period to preserve and improve upon the operational and performance enhancements realized to-date, and to continue performing under the PFA, by conditioning any award granted under the KEIP on meeting challenging financial and operational metrics. The financial performance metrics, Threshold, Target, and Maximum EBITDA, are calibrated against the Debtors 5 year business plan originally approved by WEC s Board of Directors (the Board ) in August 2017 and amended and approved by the Board on April 24, 2018 (the Amended Business Plan ). Achieving Threshold, Target, and Maximum EBITDA requires the Debtors to make ambitious cost savings while still generating significant revenue. 5. With respect to generating revenue, under the Amended Business Plan, Westinghouse will have to generate significant new revenues in addition to the savings it must achieve. More than 21% of the revenue required under the Amended Business Plan during the Plan Period is not included in the existing revenue backlog. Thus, the Debtors believe it is 2

3 Pg 3 of 5 essential to incentivize the KEIP Participants to achieve their revenue goals in order to meet the EBITDA projections in the Amended Business Plan. 6. The Amended Business Plan also contemplates realizing savings from major and complex cost-reductions in a short period of time in order to yield approximately $177 million in savings over the course of the Plan Period for an annual run rate savings of approximately $241 million. These initiatives include (i) simplifying Westinghouse s operating model to increase effectiveness and utilization, clarify accountability, minimize redundancy, and reduce overhead costs, (ii) implementing a strategic sourcing campaign with the aim of lowering the cost profile of the business and increasing EBITDA, (iii) identifying and implementing cost reduction projects and best practices at nuclear fuels and component manufacturing plants, and (iv) a components manufacturing operations productivity improvement plan. The key elements of such cost-savings initiatives are summarized below: (a) (b) Enterprise-Wide Operational Efficiencies: As part of the operating model restructuring, Westinghouse has implemented reductions of approximately 1,300 positions through March 31, Maintaining these reductions will be a key driver to realizing the savings during the Plan Period. This included restructuring region responsibilities, product line organization, and corporate support functions. Westinghouse also plans to continue to overhaul corporate non-compensation spend during the Plan Period via a restructuring of IT infrastructure and reductions in overhead and facilities cost, external consulting, legal fees, travel cost, and marketing & communication spend. As of March 31, 2018, Westinghouse had implemented approximately $155 million in annual run rate savings. The Amended Business Plan also requires Westinghouse to save an incremental $12 million in annual run rate savings during the Plan Period for a total implemented run rate savings of approximately $167 million. Strategic Sourcing: Westinghouse is conducting one-on-one negotiations with suppliers while leveraging Westinghouse s renewed focus on consolidating its supplier base and limiting the number of its sole-source relationships. Targeted areas of consolidation include contingent labor, maintenance, repair & overhaul activity ( MRO ), logistics, and components & 3

4 Pg 4 of 5 equipment costs. As of March 31, 2018, negotiations had yielded approximately $27 million in annual run rate savings and the Amended Business Plan requires Westinghouse to save an incremental $3 million in annual run rate savings during the Plan Period for a total implemented run rate savings of approximately $30 million. (c) Nuclear Fuels Productivity Plan: The nuclear fuel operations productivity improvement plan will provide savings achieved by three types of projects: (1) exit an existing joint-venture with State Nuclear Baoti Zirconium Industry Co. Ltd. (a Chinese entity) to reduce excess production capacity, (2) systematic process changes to structurally drive improvements, (3) upgrades to manufacturing and inspection technology, and (4) restructuring work to optimize resources. Major projects in nuclear fuel include an overhaul of maintenance and work management, reduction of MRO costs, improvement of equipment uptime & schedule attainment, and an evaluation of quality costs. As of March 31, 2018, Westinghouse had implemented actions yielding approximately $14 million in run rate savings and the Amended Business Plan requires Westinghouse to save an incremental $11 million in annual run rate savings during the Plan Period for a total implemented run rate savings of approximately $25 million. (d) Component Manufacturing Productivity Plan: The components manufacturing operations productivity improvement plan provides for savings achieved by downsizing the product portfolio to concentrate on profitable product lines, closing excess plant locations and relocation of those operations to existing plants and finding solutions for exiting current joint ventures. This productivity plan includes major milestones occurring in 2018 including complete transfer of product line production from locations set to close, reductions in force, re-haul of overtime assessment, a review of quality costs, and re-evaluation of inspection requirements. As of March 31, 2018, implemented actions had yielded approximately $13 million in run rate savings and the Amended Business Plan requires Westinghouse to save an incremental $6 million in annual run rate savings during the Plan Period for a total implemented run rate savings of approximately $19 million. 4

5 Pg 5 of 5 7. Additionally, the Debtors recently acquired Mangiarotti S.p.A. ( Mangiarotti ) 3 which provides critical support to Westinghouse Electrique France SAS in its fulfillment of contractual obligations to one of the Debtors largest customers. Integrating Mangiarotti s businesses into the Debtors existing operations during the Plan Period will pose numerous logistical and operational challenges, further enhancing the difficulty of meeting the EBITDA Performance Metrics. 8. I believe the Performance Metrics demand an appropriate reach from KEIP Participants to drive outperformance. The KEIP Participants will have to drive the Debtors to implement the extensive operational and restructuring initiatives described above while continuing to maintain high levels of quality and performance. Accordingly, I believe Threshold, Target, and Maximum EBITDA are ambitious and will be challenging to attain. I, the undersigned, declare under penalty of perjury that the foregoing is true and correct. Dated: May 22, 2018 New York, New York /s/ Lisa J. Donahue By: Lisa J. Donahue Title: Chief Transition and Development Officer Westinghouse Electric Company LLC 3 Before the Debtors acquisition, Mangiarotti was 70% owned by Toshiba Corporation and 30% owned by non- Debtor Westinghouse Electric Holdings UK Limited. 5