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Tyco Gimmicks Inflated Profit, Audit Shows

From Bloomberg News

Tyco International Ltd., whose former chief executive was indicted on tax evasion charges, used bookkeeping gimmicks to inflate results during an acquisition spree in the 1990s, according to an internal accounting review.

Tyco will take $382.2 million in charges to adjust for accounting errors in fiscal 2002 and previous years.

The largest maker of industrial valves and electrical connectors also said it began handing over new documents related to a Securities and Exchange Commission probe of its acquisitions from 1999 and 2000 that was reopened this year.

The company “engaged in a pattern of aggressive accounting which, even when in accordance with generally accepted accounting principles, was intended to increase reported earnings” above more conservative estimates, the report said.

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Former Chief Executive Dennis Kozlowski built Tyco into the biggest maker of undersea fiber-optic cable through more than $64 billion in acquisitions that now are under scrutiny.

Lawyer David Boies of law firm Boies Schiller & Flexner led the review. Boies conducted an earlier Tyco investigation into alleged fraud and theft by former executives.

Tyco’s shares have dropped 74% this year as investors questioned the company’s accounting, liquidity and strategy. The company, now led by Edward Breen, has sued former executives including Kozlowski.

Tyco stock rose to $16.20 after the close of regular trading Monday. The shares rose 18 cents to $15.35 on the New York Stock Exchange before the report.

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Boies selected 15 “large” acquisitions to investigate, with advice from the SEC. Errors made in accounting for the acquisitions resulted in $36.1 million in fiscal 2002 restatements, the report said.

The company said it would change its practices because of the report. It will demand more documentation to justify accounting decisions and reduce “nonrecurring charges” that were used to exclude some costs from profit reported in news releases.

Tyco also said it planned to adopt accounting rules to “improve the clarity and consistency of its financial statements.”

Boies’ earlier report helped indict Kozlowski and former Chief Financial Officer Mark Swartz on charges they took $600 million in unauthorized compensation and illegal stock gains. Kozlowski was indicted in June on allegations that he evaded $1 million in New York sales taxes on purchases of paintings.

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Breen did not return messages for comment. Tyco spokesman Gary Holmes, in a phone interview, said company statements “speak for themselves.”


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