Tyco International (TYC)

Tyco remains a shining example of how financial manipulation conceals the true story. We originally warned our clients in October 1999 of the company’s habit of taking frequent, non-recurring charges, and of habitual acquisitions that obscured the actual financial position. As a result, management reported significant top-line growth and operating margin expansion by not including frequent “non-recurring” charges. Including these charges, which in reality were quite recurring, the operating margin was less than half the reported number. Given the proposition that management was artificially sustaining growth, we examined the financial statements further to see if were correct. Closer analysis revealed a number of "cookie jars" that the company could use to further obscure growth and artificially inflate the stock price. Wall Street was not breaking down the numbers to see that the company’s growth was being generated by the financial statements rather than the underlying business.

Current Example: Newell Rubbermaid (NWL)