New Audit Problems Discovered at Tyco
Tyco International Ltd. said Wednesday that it had a fiscal second-quarter net loss after it discovered about $1 billion in new accounting discrepancies four months after telling investors that an audit found no “significant” fraud.
That adds to at least $6 billion in write-downs, restatements and charges Tyco has taken since it ousted Chief Executive L. Dennis Kozlowski in June and accused him of mismanagement.
“I believe at this point we have identified all, or nearly all, legacy accounting issues,” new Chairman and CEO Edward Breen said.
Most of the “issues” concern the way Kozlowski booked sales of ADT alarms and how he valued Tyco’s former CIT finance unit. The irregularities were uncovered in a financial audit led by Breen that followed a separate investigation by lawyer David Boies, who said he had found nothing significant.
Tyco’s net loss in the quarter ended in March narrowed to $467.9 million, or 23 cents a share, from a net loss of $6.38 billion, or $3.20, in the year-earlier period that also included write-downs and restatements. Sales rose about 4.5% to $9 billion from $8.61 billion, Tyco said.
Charges totaled about $1.36 billion before taxes and include $265 million to $325 million in costs announced in March. About half the expenses concerned the revaluation of reserves and investments, and the rest involved discrepancies in reporting sales and profit, mostly at the company’s fire and security unit, Tyco said.
The company also said it had a $206.7-million after-tax expense recorded over the last six months for changing the way it accounts for fees its ADT dealers get for connecting new customers to its security system.
Breen said Tyco still is in talks with the Securities and Exchange Commission about the way it booked sales at its ADT business and hopes to resolve the investigation this quarter.
Analysts surveyed by Thomson First Call expected second-quarter profit of 32 cents. Breen said Tyco would try to meet the low end of the fiscal 2003 profit forecast of $1.30 to $1.40 a share it gave in March.
Tyco shares rose 23 cents to $15.60 on the New York Stock Exchange. Tyco, based in Bermuda and run from New York and New Hampshire, is the biggest maker of undersea fiber optic cable.
According to the report issued by Boies’ team in December, Tyco did use “aggressive accounting” to bolster past results. The report said Tyco would need to take $382.2 million in charges to adjust for accounting errors in fiscal 2002 and prior years. Breen said Boies’ report would allay concerns that Tyco inflated earnings and allow the company to “move forward.”
Some observers had questioned whether that report was intended to ease the concerns of potential buyers of $4.5 billion in convertible bonds sold in January.
The new accounting issues “put a big question mark generally above reported figures,” said Rik Fennema, a credit analyst at Dresdner Kleinwort Wasserstein in London. “You’re to a certain extent going to feel in the blind as to what’s going on. It makes lenders uneasy and new buyers more hesitant.”
Boies couldn’t immediately be reached to comment.
