Tyco Tries to Reassure Investors, But Could Miss 2002 Targets

Tyco International Ltd. on Wednesday attempted to reassure its investors, telling them it had no cash crunch or debts linked directly to its fallen share price but warned it could miss its full-year earnings target.

The Bermuda-based conglomerate, whose stock has lost 60 percent of its value since December amid mounting accounting worries, again stood by its accounting, calling it "sound and appropriate."

"Keep in mind from any other failed company, we actually make things and sell them for cash. You guys know that," Tyco Chairman Dennis Kozlowski told analysts and investors on a conference call. "Any connection with any other company is just so ridiculous it makes me, well, I won't say what it makes me."

Tyco's reassurances overshadowed a profit warning and boosted its shares, which were up $3.20, or 13.85 percent, to $26.30 in afternoon trade on Wednesday. The stock, which had been trading up as much as $3.00 before the call, remains about 53 percent off its price at the beginning of the year.

Tyco has been dogged by the same concerns that emerged after the collapse and scandal surrounding Enron Corp. . Scared investors began dumping Tyco shares at the beginning of the year as the gripes of short sellers took root on Wall Street.

Indicative of the frenzied interest in Tyco, the conference call was filled to capacity. Tyco spokeswoman Maryanne Kane said the company received thousands of calls from investors who couldn't get on.

In the call, Tyco said it plans to have an extra $1.5 billion in cash after 12 months, excluding public offerings of stock or divestments.

In a worst-case scenario, the company warned it could miss its 2002 earnings target because of more expensive debt, continued weakness in its electronics business, and persistent rumors about its accounting prices. Tyco's other businesses, such as security systems and healthcare, remain strong, Kozlowski said.

A credit downgrade has hit Tyco's finance arm, CIT, particularly hard. As a result, Tyco plans to forego an initial public offering for CIT, which it bought for about $10 billion last year, and distribute its shares as soon as possible. Tyco also is weighing interest from suitors to buy CIT outright.

Merrill Lynch analyst Phua Young in a research note to investors said the credit downgrade should not affect Tyco's ability to conduct business.

Kozlowski said, however, he expects the conglomerate's earnings to be hurt by as much as 15 cents per share from higher borrowing costs. He also said Tyco's electronics business, whose outlook remains "fuzzy," could decrease earnings by as much as 25 cents a share.

"I realize these numbers could point to something below our previous $3.70 earnings guidance," Kozlowski told analysts during a conference call.

Tyco has been hammered this year by investors concerned about its accounting and corporate ethics, leading Kozlowski to tell investors on the call that the company would "over communicate" to reassure investors.

Kozlowski didn't give an earnings per share range for the fiscal year that ends Sept. 30, but he pointed to three areas of increased costs that could hurt earnings.

He said the incremental costs from more expensive borrowings are expected to be 10 cents to 15 cents a share. He also said the downside from Tyco's electronics could be zero to 25 cents a share.

In addition, he said "market noise," or the distraction of responding to the rumors hurting Tyco's stock, could decrease earnings by as much as a 5 cents per share, Tyco said.

But Tyco expects its fiscal 2002 cash flow, for the year that ends Sept. 30, to be more than $4 billion.

Tyco's debt costs increased as it substituted cheaper public debt with more expensive bank debt. Kozlowski said the higher cost is justified because it gives the company more flexibility.

Tyco executives said they do not have any debt that's contingent on its share price, a linkage that played a role in the downfall of Enron.

Kozlowski conceded the speculation around Tyco has distracted management and its work force. Kozlowski and Chief Financial Officer Mark Swartz also took issue with recent press reports.

Tyco plans to split into four separate companies and sell its plastic business, which has drawn strong interest, including from private equity firms. The abrupt shift in strategy, announced last month, also has fueled the sell-off of Tyco shares.

Tyco officials said the company will continue to acquire other businesses, but not at the dizzying pace of recent years.

Swartz said Tyco completed $1.1 billion in cash acquisitions during the fiscal first quarter that ended Dec. 31 and issued another $2.8 billion in stock for acquisitions.

Tyco also plans another $1.4 billion in cash deals for the rest of the fiscal year that ends Sept. 30, Swartz said.

Reuters and the Associated Press contributed to this report.