Tyco restates its earnings, related to ADT acquisitions
PEMBROKE, Bermuda - Only a few months after handing down substantial changes to ADT 's Authorized Dealer program, parent company Tyco International said it would be restating its financials for the first three quarters of its last fiscal year after a forensic accounting team discovered the security subsidiary overstated its earnings by $125 million.
Suspicions of accounting improprieties at Tyco compelled new management to bring on the accounting team as an attempt to ensure investors that a alleged massive fraud scheme by former executives at the company didn't permeate operations on a company-wide basis.
Instead, auditors found that ADT had been recording expenses of
acquiring new customers as long-term capital costs instead as an expense, a practice that was, at one time, prevalent in the security industry, according to Industry analyst Jack Mallon, managing director at Mallon Capital.
"It has been one of the many gimmicks that have allowed alarm companies to show distorted profits," Mallon said. "It's been done for decades and been accepted where the full period (of the contract) is taken in initially. It really has been stretching the accounting rules to do so."
The restatement is one of many hurdles facing the company as it works to improve its massive dealer program. In August, ADT notified its more than 700 dealers that it was tightening credit requirements for account qualifications and dropping nearly 200 dealers from its program in an effort to boost the quality of accounts that it purchased from its dealer network. ADT officials could not be reached for comment by press time.
Now, most dealers are "settled in on what it is that (ADT is) willing to accept at this point," said Barry Simmons, chief executive officer of Security Solutions Inc., an ADT authorized dealer in Raleigh, N.C. and chairman of ADT's Authorized Dealer Council. That group comprises five ADT dealers selected by ADT to provide input to the company from the dealer perspective. At press time, Simmons was preparing an agenda for a quarterly ADT dealer conference in early December in Jacksonville, Fla.
"I think we will have a full agenda, let's put it that way," he said. Simmons said the dealer meetings are often the delivery method of changes that ADT is making to the dealer program, but said he didn't anticipate other major changes to be handed down.
In other news, Tyco employees are pursuing a class action lawsuit against the company after its sinking share price caused major devaluations in employee retirement funds. The employees cite the recent scandals at the company, which have driven more than $80 billion in shareholder value out of the company.