Tyco International said Wednesday that it had ousted the president of its fire and security operations and that it would take a noncash charge of at least $265-million because of problems discovered in that business.
The company also lowered its profit forecast for this year and disclosed that it would change how it calculated its cash flow numbers in a way that would substantially lower the reported figures.
The upheaval is another blow for Tyco, a onetime high-flying conglomerate whose former chief executive, L. Dennis Kozlowski, has been indicted on charges of looting the company.
Tyco said the changes at the security unit resulted from consolidation of businesses and complying with various policies. It did not provide details, but said more information would be available at an analysts meeting this morning in New York.
One person briefed by management said that Ed Breen, Tyco's chief executive, had concluded that the business, which includes the ADT home security business, had poor controls and had grown too fast, according to the New York Times.
Tyco's statement was released just before 6 p.m. Wednesday, well after the stock market closed. Tyco's shares had risen 33 cents to $14.03 during the regular trading day, but fell as low as $13.47 in after-hours trading.
Tyco said it had "terminated Jerry Boggess," who had served as president of Tyco fire and security services since 1995. He had joined Grinnell Fire and Security, a predecessor of Tyco, in 1968 and spent his career at the company.
Boggess was among the company's most highly compensated managers under Kozlowski, earning $8.55-million in salary and bonus in 2001 and $2.85-million in 2002.
Though it later dropped the idea, Tyco announced plans in early 2002 to split into several companies, and Boggess was picked to run one of them. Kozlowski said that he had known him for 27 years and had run the security business before Boggess. "Handing the reins off to Jerry was clearly one of the best things I ever did," Kozlowski said then.
Walter Montgomery, a spokesman for Tyco, said Boggess would receive no severance package.
Among Boggess' businesses, ADT has drawn attention for how it accounted for acquisitions. The accounting was altered by Breen last year, and in the latest announcement the company said that it would now treat the cost of buying home security contracts as part of operating cash flow. It was not clear if that change would affect reported profits, however.
Critics had claimed that the cost of buying those contracts, from local businesses that found customers and installed home alarm systems, was akin to a marketing expense, something Tyco denied.
Tyco's new cash flow guidance for fiscal 2003, which ends in September, is for free cash flow of $1.45-billion to $1.65-billion. Under its old cash flow definition, the range would be $2.6-billion to $3-billion.
Tyco had forecast profits for the year of $1.50 to $1.75 a share, and had then said that the number was likely to come in at the lower end of the range. On Wednesday night, it projected profits of $1.30 to $1.40, including about 10 cents a share in losses related to the announced writeoff, which it said would equal $265-million to $325-million before taxes.
"These charges result from conforming certain accounting policies across a number of Fire and Security European businesses that were recently reorganized under a single management team, improving compliance with other existing policies, conducting additional account reconciliation procedures, as well as other matters," the company said in its announcement.
Tyco said David Robinson, the president of Tyco Plastics and Adhesives, had been picked to replace Boggess. Tery Sutter, the former president of specialty chemicals at Cytec Industries, will replace Robinson.