Tyco Profit Restatement Gets Buried Sunday October 27, 9:41 am ET
By Tim McLaughlin
BOSTON (Reuters) - Edward Breen's housecleaning at Tyco International Ltd. (NYSE:TYC - News) started out with a bang, but the company's latest earnings release demonstrated that it won't be so easy to leave the old Tyco behind.
Breen, appointed chief executive in July with a mission to restore credibility at Tyco, on Thursday took a page from the old regime's playbook and released an earnings report that buried a profit restatement and tried to gloss over a $1.75 billion loss.
"While pledging allegiance to clarity in financial reporting, the new guys announced a bewildering array of charges, restatements and inter-segment switcheroos," said Carol Levenson, an analyst at research company Gimme Credit.
The restatement for nine months of results was not mentioned in the text of the earnings release, and almost as an afterthought, Tyco left its explanation to a table in the earnings release.
Perhaps more telling, first word did not come from the company, but in a story published by The Wall Street Journal earlier on Thursday.
David FitzPatrick, the new chief financial officer, later acknowledged the release was messy, and promised "straightforward and clear" financial reporting in the future.
The release was in sharp contrast to FitzPatrick's tenure as CFO of United Technologies Corp. (NYSE:UTX - News), which put out crisp and clear earnings releases that highlighted net income performance and eschewed pro forma accounting, which has been abused by CFOs trying to highlight the good and bury the bad.
When former Chairman Dennis Kozlowski and CFO Mark Swartz ran the company, Tyco's one-time items were regular features that Wall Street looked past as the company overshadowed weak organic growth with a dizzying array of acquisitions.
RESTATEMENT DISMISSED
Investors shrugged off Tyco's restatement, a concession that earnings were artificially inflated by about $135 million at its ADT security alarm business during the first nine months of fiscal 2002.
The response underscored the fact that Wall Street was relieved that a crew of forensic accountants scouring Tyco's books had not found massive fraud.
"It's minor," said John Boland, an analyst and fund manager at NL Capital Management, which owns about 50,000 Tyco shares. "All (the restatement) does is shift revenue from one reporting period to the next."
Breen is working to change a company whose culture was transformed by Kozlowski, who faces up to 30 years in prison on charges he looted and defrauded to the tune of $600 million. Under Kozlowski, the company shed its sleepy Tyco Laboratories image and became Tyco International, one of the world's largest manufacturing conglomerates.
When asked, analysts and investors are hard pressed to name any companywide efficiency programs instituted during Kozlowski's 10-year reign. Some of his most celebrated claims, such as the modest of Tyco's New Hampshire headquarters, have been revealed as myth in the wake of allegations against him and Swartz.
In fact, Kozlowski spent much of his time in company offices in New York and Boca Raton, Florida.
While Kozlowski seemed preoccupied with living a life of luxury, other corporate CEOs honed efficiency programs such as Six Sigma, which Breen said on Thursday Tyco is implementing.
"Under Kozlowski, Tyco had a program to share best practices, but it was not as formal or wide ranging as what Ed Breen is talking about," Deutsche Bank analyst Harriet Baldwin said.
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