Just the numbers, please
Global services and manufacturing conglomerate Tyco
Swartz's $72 million payment accounted for $0.04 per share, and when former CEO Dennis Kozlowski pays up his $162 million fine, that will add $0.08 per share to the bottom line. It ain't small potatoes, folks.
At first blush, it looks as though the health-care and engineered-products divisions drove the earnings improvement. It's not that the electronics and security operations did badly -- they grew operating income by an aggregate 13% -- but the 46% bottom-line increase for the star performers makes 13 sound just unlucky. Dig just below the surface, though, and you see that the engineered-products division is the clear winner. The year-ago results from health care included a $277 million legal charge, and if you exclude that cost, operating income decreased by $50 million, or 6.5%.
Where's the beef?
Along with the financial results, Tyco had a couple of other announcements to make. There's the wide-ranging restructuring program to consider, which will cost $600 million to implement but should save $200 million a year as early as 2008. The timing is somewhat curious, considering the imminent breakup of the conglomerate, but I suppose you could call it laying the foundation for the three separate organizations the company will become early next year.
After plenty of pondering, the company has decided to keep the Tyco name for at least two of the new companies. After talking to customers, management has concluded that the value of the brand name outweighs the scandal taint it carries. Kozlowski and Swartz are currently serving lengthy prison terms for their roles in the accounting scandals of the Tyco/Enron/WorldCom -- first MCI, now a part of Verizon
There's no word yet on headcount reductions or other concrete restructuring details. The process was simplified somewhat by the recent sale of Tyco's printed-circuit-board operations to TTM Technologies
And finally, there was an update on the accounting mishaps du jour, regarding options backdating. Unlike the investigations of granting practices at the likes of UnitedHealth Group
Taken all together, the accounting missteps are substantial but not disastrous, and recent results look healthy enough. After the split, the combined security and engineered-products company looks to be a tempting standalone entity, with one-half dependable income and one-half exciting growth. The health-care company and electronics business don't look quite as compelling right now, but we have yet to see a prospectus for any of these proposed entities, and time will tell.
At the very least, Tyco appears to be making the transition with a clean slate. The Kozlowski scandals are getting old and mostly straightened out; the options review is over and done with; and even before the cost-cutting plan takes effect, results are looking good, too. In short, if you're a Tyco shareholder today, there's no reason to sell, though I wouldn't go as far as backing up the truck, either.
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