Tyco’s Revolving Door

The revolving door at Tyco; when accounting is an extreme sport; CFOs on the move.
CFO StaffMay 1, 2005

It’s under investigation by the Securities and Exchange Commission, and its former CEO (Dennis Kozlowski) and CFO (Mark Swartz) are facing retrial on grand-larceny and securities-fraud charges. Yet, Tyco International’s star is on the rise. As Barron’s pointed out in February, the stock is up threefold since its scandal-driven low in 2003, and the company is again a Wall Street darling, with 16 of 18 sell-side analysts calling the Bermuda-based conglomerate a buy.

So maybe it shouldn’t have surprised anyone when turnaround CFO David J. FitzPatrick suddenly stepped down in mid-February to pursue other “private-equity and corporate-turnaround opportunities.” His tenure as CFO ended March 7, but he’ll finish out the year as an adviser to Tyco chairman and CEO Edward Breen, who hired FitzPatrick in September 2002 to help the company clean house and set its finances aright.

Tyco maintained that the 50-year-old FitzPatrick’s resignation had nothing to do with the company’s operations. That rings true to Joel Levington, an analyst at Standard and Poor’s, who thinks FitzPatrick is leaving because he felt his work was done. “David’s real ambitions lie in working with turnaround companies,” he says, and “the major turnaround activities at Tyco have been completed.”

Indeed, when FitzPatrick left United Technologies to join Tyco, the company faced a liquidity crisis, with more than $10 billion in debt coming due in 2003. Under FitzPatrick’s stewardship, Tyco paid down the debt and resolved issues with integrating acquisitions, reestablishing its credibility in the capital markets and increasing annual cash flow from $800 million to $4.5 billion. “Tyco has divested about $2 billion worth of assets, and free cash flow is roughly six times higher than it was before Breen and FitzPatrick,” says Levington, whose agency raised it to BBB from BBB- in 2004, and has given it a positive outlook.

Replacing FitzPatrick is Christopher J. Coughlin, 52, who resigned as CFO of Interpublic Group in June 2004. That announcement, coming in the middle of a difficult turnaround effort, truly surprised investors, and Coughlin told the Wall Street Journal that he didn’t have the “fire in his belly” to make a long-term commitment to the troubled advertising giant. Can’t say we blame him: beset by accounting woes and its own SEC investigation, Interpublic still hadn’t released audited financials for 2004 at press time.

Going to Extremes

No, it doesn’t refer to cooking the books. Extreme accounting is instead the latest extreme sport, in which participants liven up daring activities like skydiving, snowboarding, and rock climbing with a little double-entry bookkeeping.

Inspired by the quirky British danger sport extreme ironing (yes, as in clothes), extreme accounting began as a Website spoof (www. staged by Coda Group, a UK-based financial-software company. Since then, however, accountants from all over the world have been submitting pictures of themselves “injecting the adrenaline rush of accounting” into extreme sports, according to Emma Hoyle, a spokesperson for the Extreme-Accounting Members’ Association. The Website is now co-sponsored by Coda and Britain’s Chartered Institute of Manage-ment Accountants.

Hoyle says the purpose of the Website is to “debunk any myths about accountants being dull, suited people with uninteresting lives outside of work.” So far, there are no entries from American CPAs, but Hoyle says the association would welcome them. “They wouldn’t even have to be involved in extreme sports, but just something that helps them shrug off the dull image of accountancy,” she adds.

For its part, the American Institute of Certified Public Accountants has no plans to replicate the campaign, says spokesman Joel Allegretti. Maybe it’s just as well. After all, given the rash of recent accounting scandals, being dull isn’t such a bad thing. —Alix Nyberg Stuart

CFOs On The Move

Former State Street Bank and Trust CEO Marshall Carter has been elected to chair the New York Stock Exchange…. Linda Rubinstein has been named finance chief at Solexa Inc., a gene-analysis company…. Time Warner Telecom has promoted Mark Peters from treasurer to CFO…. Former Levitz Home Furnishings Inc. finance chief Carl Landeck is taking on the same role at workout chain Bally Total Fitness Holding Corp…. Countrywide Financial Corp. has named Eric Sieracki to the top finance post…. Auto-parts supplier ArvinMeritor has selected former Kmart CFO James Donlon to run its finance department…. Retired J.P. Morgan Chase CFO Dina Dublon is the newest director at Microsoft.