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Tyco Finds $300 Million in Accounting Errors December 30, 2002 By REUTERS Filed at 9:13 p.m. ET BOSTON (Reuters) - Tyco International Ltd., battered this year by scandal and accounting worries, on Monday said an internal investigation found no fraud, but uncovered $382 million in accounting errors. While Tyco (TYC.N) said the errors did not represent significant or systemic fraud, the Bermuda-based conglomerate admitted previous management used aggressive bookkeeping to boost results. The results also confirmed some of the suspicions that have been dogging Tyco since 1999. Tyco's stock is down about 74 percent this year. Tyco said the company kept shoddy records and had inadequate corporate governance policies during the reign of indicted former chairman Dennis Kozlowski. In fact, Kozlowski's personal assistant authorized restricted stock awards and investigators found internal memos using terms such as ``financial engineering'' in discussions on how to meet profit goals. To correct the accounting errors, Tyco said it would take pretax charges totaling $382 million in the 2002 fiscal year, which ended Sept. 30. Of that amount, more than half stemmed from Tyco's ADT burglar alarm business, which recognized income too soon from fees it charged a network of independent dealers who sell and install security systems. Tyco CEO Edward Breen, chief financial officer David FitzPatrick and outside auditor PriceWaterhouseCoopers signed off on the company's fiscal 2002 financial statements, according to the annual report. Shares of Tyco rose to $15.95 in Instinet trade on Monday from a closing price of $15.35. AGGRESSIVE ACCOUNTING Aggressive accounting is not necessarily improper. But the Tyco investigation concluded former management was not neutral in its treatment of accounting policies. It sought out techniques that would boost profits while shying away from those that would reduce them, the report said. Specifically, the report said prior management manipulated its accounting for acquisitions to boost its financial results. This long-running criticism of the conglomerate was central to an earlier probe by the Securities and Exchange Commission which ended in July 2000 with the body taking no action. The SEC began another investigation into Tyco's accounting earlier this year. No results have been reported. As part of Tyco's internal accounting investigation, Tyco reviewed 15 acquisitions that were valued at about $30 billion at the suggestion of the SEC. Tyco said it completed more than 700 acquisitions between 1999 and 2001. The report questioned accounting surrounding the acquisitions of electronics companies AMP and Raychem and health care company U.S. Surgical. Tyco boosted earnings in the companies it was acquiring by artificially reducing revenue or increasing expenses in the quarter immediately before the deal closed. The effect was that earnings were enhanced after the acquisition. One example showed that Tyco understated by $235 million the value of equity and employee stock options it issued to acquire medical product maker Mallinckrodt Inc. in 2000. This meant a $5.6 million overstatement in fiscal 2001 earnings because of the related goodwill. ``There were also instances where senior management exerted pressure and provided incentives which had the purpose and effect of encouraging unit and segment officers to achieve higher earnings, including in some cases by their choice of accounting treatments,'' the Tyco report stated. Tyco said $185.9 million of the $382.2 million in errors for fiscal 2002 were a result of miscalculation of reimbursements to dealers of its ADT burglar alarms. Earlier this year, Tyco hired lawyer David Boies, who prosecuted the Justice Department's antitrust case against Microsoft Corp. (MSFT.O) during the Clinton administration, to conduct an internal investigation. Boies and an army of forensic accountants stepped in as New York City prosecutors investigated Tyco's former chairman, Kozlowski, and his top lieutenant, ex-finance chief Mark Swartz. The men are accused of orchestrating a corruption scheme that netted them more than $600 million through unauthorized compensation and fraudulent stock transactions. Both men have pleaded innocent to the charges. http://www.nytimes.com/reuters/business/business-manufacturing-tyco-investigation.html?ex=1042370728&ei=1&en=942834ab3af89300 HOW TO ADVERTISE --------------------------------- For information on advertising in e-mail newsletters or other creative advertising opportunities with The New York Times on the Web, please contact [EMAIL PROTECTED] or visit our online media kit at http://www.nytimes.com/adinfo For general information about NYTimes.com, write to [EMAIL PROTECTED] Copyright 2002 The New York Times Company <A HREF="http://www.ctrl.org/";>www.ctrl.org</A> DECLARATION & DISCLAIMER ========== CTRL is a discussion & informational exchange list. Proselytizing propagandic screeds are unwelcomed. Substance—not soap-boxing—please! 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