Tyco International Ltd. said it widened an existing internal inquiry to include a review of its past accounting practices, conducted by the same outside lawyers and forensic accountants looking at the actions of its former chief executive L. Dennis Kozlowski, Thursday’s Wall Street Journal reported.
It also said a continuing review of its accounting by the Securities and Exchange Commission had already caused it to “reclassify” some items.
The disclosures came in Tyco’s quarterly report for its fiscal third quarter ended June 30. Tyco for months has been the subject of investor concern about its complex accounting practices, but the company has staunchly defended its bookkeeping as proper.
In the filing, the conglomerate, based in Bermuda, said it didn’t have any reason to believe it needs to make any “material adjustments” to its past financial results. However, Tyco said its new chief executive officer, Edward Breen, decided to launch the accounting review as part of a drive to restore the company’s credibility. Mr. Breen joined the company three weeks ago from Motorola Inc.
Although Tyco executives had said that the company would voluntarily comply with the SEC’s mandate to certify its financial statements, Mr. Breen and Mark Swartz, Tyco’s outgoing chief financial officer, didn’t do so in Wednesday’s filing. As a Bermuda company, Tyco wasn’t included in the SEC’s order.
A Tyco spokesman, Walter Montgomery, said Mr. Breen had just joined the company, and wants to await the results of the new accounting review before complying with the SEC order. Mr. Montgomery pointed out that Messrs. Breen and Swartz did certify the third-quarter results under a separate law recently passed by Congress. Unlike the SEC mandate, that law doesn’t require executives to put their imprimatur on prior financial statements as well.
In addition to accounting questions, Tyco has been beset this year by strategic missteps and concerns about its liquidity. The company was rocked in June by the sudden departure of Mr. Kozlowski, before his indictment on sales- tax evasion charges.
Tyco’s stock has plunged 78% this year, wiping out more than $90 billion in market value. At 4 p.m. Wednesday, Tyco was up 48 cents to $12.90 in New York Stock Exchange composite trading.
The internal accounting probe, examining bookkeeping matters dating back to 1999, will be conducted by lawyers at the firm of Boies, Schiller & Flexner LLP, along with an outside forensic accounting firm, Urbach Kahn & Werlin, Tyco said. The same firms are conducting an investigation into the activities of Mr. Kozlowski and other current and former officers, including huge expenditures by Tyco on Mr. Kozlowski’s behalf. Tyco said it expects to file a statement about the “initial phase” of that probe by Sept. 15.
Tyco said the continuing SEC review of its accounting is being conducted by the agency’s Division of Corporation Finance, which typically looks at company regulatory filings. Tyco’s Mr. Montgomery said the reclassifications the SEC required were minor. However, the filing says the SEC has made additional comments about a range of other accounting matters, including the adequacy of its disclosures and its accounting treatment of security-monitoring contracts.
Tyco said the company can’t predict when the review will end or whether it will require further amendments to its filings. The company has said the SEC’s Division of Enforcement is conducting a separate probe into its past disclosure practices surrounding the activities of Mr. Kozlowski.
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