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Technology Stocks : Jimbo's Playhouse/CPQ -- Ignore unavailable to you. Want to Upgrade?

To: Kenya AA who wrote (4848)	11/2/1999 10:16:00 AM
From: fooledalot	Read Replies (1) \| Respond to of 12663

Good Morning K: Re: TYC You are right...the magnitude of the down volume has caused me great concern. The only problem is I can find no substantiation to support the "problem" at TYC. Tice's report came out several weeks ago and there have been conflicting reports that he has been shortin TYC. The article in the NY Times, written by Floyd Norris, talks about accounting glitches, but of a different nature than what Tice was talking about. See the article: Tyco International was a high-flying stock with a reputation for acquiring and improving the performance of companies in distinctly low-flying industries. Then questions were raised about its accounting and the stock began to slip. In a bravura performance two weeks ago, L. Dennis Kozlowski, the chairman and chief executive, held a teleconference with analysts to defend the company's accounting against questions raised by David Tice, a money manager and analyst whose publication "Behind The Numbers" is widely respected. Tice suggested that Tyco might be abusing accounting rules by setting up big reserves when it made acquisitions. Kozlowski vigorously denied it. "There is," he said, "no risk that investors will wake up one day and find out there's something wrong." At the time, I decided not to do a column on Tyco. The company does set up big restructuring reserves for many of its acquisitions, and such reserves are subject to abuse because they can be used to conceal operating expenses. But did Tyco abuse them? There was no proof that it did. But it turns out that the questions raised by Tice are not the only ones that can be raised regarding Tyco. His questions dealt with what Tyco does after it makes acquisitions. Perhaps more interesting is the issue of what happens to Tyco's purchases just before the deals close. Call it "The Case of the Hidden Bath." The issue is important because Tyco's reputation is based on the improvements it reports in operations after it takes over companies. It is famous for cutting costs and improving revenue. But in two recent purchases -- of AMP Inc. and U.S. Surgical -- the companies took big losses just before the acquisitions closed as sales dropped sharply and expenses soared. Those losses were, however, never reported to investors. By the time the reports would have been due, the acquisitions had been completed. "They aren't disclosed clearly," Mark Swartz, Tyco's chief financial officer, acknowledged in a telephone interview Thursday. But he said, rightly, that you could get at them by doing a lot of arithmetic involving various filings with the Securities and Exchange Commission. That's how I got the numbers, after I was tipped off about the issue by Jim Chanos, the president of Kynikos Associates, a firm that has a short position in Tyco. Tyco provided information on the hidden quarters, with far more detail than could be determined by the laborious arithmetic. It turns out that U.S. Surgical took a $190 million write-off to lower its asset values just before the deal closed. That will help in two ways. First, it makes the comparison with future quarters easy. Second, it will help profits by reducing depreciation charges. But nowhere was that disclosed in SEC filings. Such accounting, Chanos said, helps to explain "why these low-growth or no-growth businesses show great growth coming out of the box" after they are acquired by Tyco. Swartz assures me that any analyst interested in such detail already had the figures and says that the company has complied with SEC disclosure rules. If so, it is time for the SEC to change the rules. There is no reason why such figures should not be disclosed clearly to all investors. As for Tyco, the fact the company kept such things out of SEC filings is not reassuring. It certainly made it harder for investors not privy to analyst discussions to evaluate how the company was doing. Tyco then published a formal rebuttal: siliconinvestor.com And, Norris published his rebuttal to the rebuttal: Message 11777143 In the meantime, Merrill Lynch (among many others) have vigorously defended TYC. Comments from Merrill-Lynch: Investment Highlights: -A major story about Tyco appears in the 11/1/99 issue of Business Week that hits stands today. -The story recognizes a number of Tyco management's achievements reviewed below. The article also devotes significant - and in our view, undeserved attention to accounting issues raised in last weeks article by Tice & Associates "Behind the Numbers". -We have examined the Tice report criticizing Tyco. As we have indicated previously, Merrill Lynch's accounting expert, David Hawkins, has been through the Tyco financial statements and has found no evidence of anything improper. In fact, Tyco's management is taking the unprecedented step of holding a thorough public review of their accounting policies today in New York. -Our position on Tyco remains unchanged. It remains our number one pick with a price objective of $150, which is about 30x 2000E EPS. We view the turmoil of the past week as a significant buying opportunity. I added bold to highlight a key area. If TYC has been guilty of improper dealings, I doubt that they would open their books. Of course I also do not know for sure if this has happened or when it will happen. All FWIW, of course. f