JimPinto.com - Connections for Growth & Success
No. 81 : April 4, 2002
Keeping an eye on technology futures.
Business commentary - no hidden agendas.
New attitudes, no platitudes.
- Tyco's "aggressive accounting" tricks
- CEO pay is out of control
- The lure of the lifestyle
- Superman suits for the soldiers of tomorrow
- Carver Mead's Telecosm speech
- Use of offshore design talent is shortsighted
- Life after Invensys - with a good twist
- More on Carlin's comments
Tyco's accounting tricks
Tyco, the conglomerate with $36b revenue and $4b profits last year, is
now under intense scrutiny. In post-Enron jitters, Tyco's stock dropped
61% (from about $60 to $23, recently about 30) erasing almost $70 billion
in market cap in just a few weeks.
In the past decade Tyco has acquired hundreds of businesses - 700 in just
the past 3 years. That helped fuel an average revenue growth rate of 24%,
which boosted the stock price and transformed CEO Dennis Kozlowski into
something of a hero. Even before Enron, analysts questioned whether Tyco's
growth was real - or whether the company was padding its numbers by being
overly aggressive in its acquisition accounting.
Tyco has consistently denied doing anything to artificially boost earnings.
But a recent Fortune article (Apr. 1, 2002) gives several examples of
"spring loading" tactics at Raychem, the $1.8b revenue company that was
acquired by TYCO for $2.9b in Aug. 99. Fortune suggests that more of this
type of thing has been going on regularly.
Raychem employees say that they were asked by Tyco to do such things as
accelerate payment of expenses, hold back the posting of payments received
until after the acquisition date, and overstate reserves. With the merger
near, there was a sudden rush to pay lots of bills quickly. Reserves
(for such things as inventory, worker's compensation, medical insurance,
pensions) were grossly inflated, supposedly to cover anticipated losses;
but too-high reserves are reversed at some point in the future, helping
earnings and making the Tyco post-acquisition tactics look good. A former
Raychem financial manager insists: "Tyco has systematically used dubious
accounting techniques to achieve the results that it presented to Wall
In December 1999, the SEC began an informal probe of Tyco's accounting
practices; this was closed 7 months later after Tyco backed away from some
of its aggressive moves, though the agency won't comment on why it ended
its probe. It is likely that they simply could not prove that Tyco's
accounting actions actually violated the law.
"Aggressive accounting" is indeed widespread and has become a serious issue
for most major companies. Off book accounting is not something that was
invented by Enron and this type of fiddling of financials is widespread.
The big accountants, aided and abetted by large financial institutions,
consistently look for tax and legal loopholes and actively market their
ability to do just that.
Lots of companies have large hidden liabilities off their books a la Enron.
In the post-Enron jitters, Tyco was one of the first to be accused of
having large off-balance sheet accounts in connection with its hundreds of
acquisitions. Indeed, Tyco was the lead bidder for Invensys' Flow Controls
group, until the SEC probe raised questions and they backed off; so
Flowserve's bid was accepted.
Growth through acquisition often covers up declining revenues and profits.
The ability to integrate and implement quick corrections is vital, and Tyco
appeared to have an awesome ability in this area. In retrospect, one
wonders how much of that was simply accounting shenanigans.
Lessons learned :
FORTUNE - Does TYCO play accounting games?
- Be wary of superstars in staid industries.
- Read the financial footnotes.
- Boards & management: recognize that running a company is not just an opportunity
for personal enrichment, but a trust on behalf of shareholders, customers, employees
and the community at large.
CEO pay is out of control
The out-of-control CEO pay machine has begun churning out dollar amounts
so humongous that even hardened professionals grope for words. Executive
compensation has become highway robbery - we all know that. But how does
this happen? And why can't we stop it? The answers lie in the perverse
interaction of CEOs, boards, and consultants, even the government.
While the US economy struggles to find an even keel, the stock market is
down and employee layoffs are widespread, CEOs and top executives continue
to collect gargantuan pay packages, almost defying comprehension.
If you're interested in reading more about the circus that is executive
compensation, be sure and check out this article.
Fortune - The Great CEO Pay Heist
The lure of the lifestyle
Have you wondered how those CEOs and "crony capitalists" spend the proceeds
of their enormous salaries, exercised stock-options and generous perks?
They become lifestyle junkies - hooked on pompous posturing, playing
follow-the-leader into an endless hedonistic spiral.
This type of escalation up the ladder of life is not limited just to the
filthy-rich. Our society stimulates people into thinking that wealth
accumulates and extrapolates endlessly. It's easy to succumb to
the lure of the lifestyle.
You might enjoy my new article The lure of the lifestyle which has just
been published (April 02) by the popular webzine Spark-online.
Pinto - The lure of the lifestyle
See the latest issue of Spark Online
Superman suits for the soldiers of tomorrow
Future battlefield scenario:
Under a hail of gunfire, the soldier drops to
the ground and stretches a flap of his battle suit in front of him; with
the push of a button it hardens into an instant shield. As he moves, the
browns and greens of his camouflage uniform change to shades of gray to
match the background. When he is hit, sensors immediately relay information
about the injuries and location to field headquarters, where doctors
instruct his suit to administer painkillers, apply pressure to the wound,
and harden into a cast around his leg. Sensors tell HQ which unit is
closest to the wounded man; new orders and the target's position appear
on the rescuer's heads-up display. To reach his comrade, the rescuer must
cross 20 feet of open ground - which he does with a single leap.
That's the sci-fi scenario the U.S. Army has charged the Massachusetts
Institute of Technology to make real. The Army has chosen MIT for a new
$50m Institute for Soldier Nanotechnologies, with the goal of creating
futuristic battle suits. This research center will develop new materials
that industrial partners (including DuPont, Raytheon and two Boston
hospitals) will integrate into practical products for future battlefields.
On the same theme, Molecular Mechanisms in Cambridge, MA is developing
technology for a "superman suit" - to enable running, jumping and lifting
to a nearly superhuman degree. Working with a polymer for artificial
muscle, the company has engineered molecules that undergo a fundamental
change in structure when a voltage is applied.
The new "muscles" go through an accordion-like deformation, stretching out
and becoming highly elongated, then buckling in. This movement mimics that
way muscles work, which is why the possibilities are exciting. The material
looks nothing like muscle - thin, black ribbon that feels almost like
electrical tape - but is claimed to be 100 times stronger than mammalian
Applications are countless. Instead of having motors with gears and
bearings, a blob with wires attached can change shape as desired. While
a superman suit might be the long-term goal, more prosaic applications are
emerging. Examples: leg socks that massage to prevent abnormal blood
clotting after long periods of immobility; cardio-wraparounds for patients
with weakened heart muscles; controllable, artificial urinary sphincters.
These materials could cost as little as one dollar per kilogram to mass
produce, so there may be consumer applications like toys (moving action
figures), or cosmetic and toothpaste dispensers. These products could be
on the market in one to two years.
The soldier of tomorrow
Artificial muscles gain strength
The legend of Carver Mead continues
Carver Mead is a silicon legend, pioneering chip technology in the early
days of Intel (employee No. 5). He made many of the Information Age's
most significant advances in micro circuitry, including HEMT, VLSI, and
neuromorphic electronic systems. At 67, he’s part academic superstar (as
physics professor, he’s a Caltech family jewel), part entrepreneur and part
sage (straightest talker in the Valley).
Carver Mead is a seminal thinker whose work has spanned much of the
growth of electronics. Mead suggests that advancements in vastly different
arenas - biology, for example - will help push semiconductor technology
beyond the limit of the single-electron gate.
Mead's new company Foveon (previous JimPinto.com eNews) emerged as
a result of his ideas and his connections. A business relationship with National
Semiconductor led not only to a strategic investment, but an OK to start
Foveon in 1997, together with a brilliant National scientist, Dick Merrill.
Listening to a Carver Mead speech is almost a spiritual experience.
You might enjoy almost the same feeling by reading a transcript of his
recent talk at George Gilder's Telecosm conference.
Carver Mead's Telecosm speech
Full speed ahead - Mead sees a future without boundaries
Regarding Jack Welch's comments about the use of offshore design talent,
Jonathan Schacher [firstname.lastname@example.org] a manufacturing
controls engineer wrote:
"As a small owner of GE stock I resent Welch's view of the worth of the
American worker. It is clear to me that the only thing people like him are
interested in is increasing their own wealth, regardless of the
implications it has for our society.
Len Sorrell [email@example.com] writes enthusiastically about his new
business, selling Invensys products in Australia:
"Those low-level design jobs mentioned are the foundation. Remove the
foundation and the house falls. I wonder if Corporate America recognizes
how layoffs, plant closings, utilization of offshore resources including
cheap labor and material will ultimately affect society. They seem to
forget how to plan beyond the reach of their own bank accounts. In the
end, America may be reduced to a third world country begging for financial
handouts and low paying engineering and manufacturing jobs from the
countries that took our jobs in the first place.
"Silicon Valley may be on the cutting edge and employment may be good.
But I still think that the rest of American manufacturing is being destroyed
and what's left will be low paying assembly jobs."
"Just like a bad penny I have turned up in the "Land of Automation" once
more. However this time the only person who will make me redundant, for the
fifth time, will be GOD, my wife, bank manager or myself not necessarily in
Ralph Mackiewicz [firstname.lastname@example.org] comments on
George Carlin's uncharacteristically soft comments:
"After I fell through the safety net during a belt-tightening exercise at
Foxboro Australia, this left them without sales representation for Field
Measurement and Control in the state of Queensland. I did the arithmetic
and decided that I would go out on my own. I am now the Official Exclusive
Queensland Representative for Foxboro FMC Products, with my own company:
FoxAus. My clients of 20 or so years are buying the same brand product,
from the same salesman, at the same pricing structure, same supplier,
technical backup, etc. The only difference is that they are dealing with
FoxAus not Foxboro.
"I will keep in touch and let you know how my fledgling Automation
"Other than the last paragraph, which is about simple human decency,
I don't find George Carlin's ranting particularly insightful or useful.
I find his cute little pronunciations a bit amusing but mostly superficial
and shortsighted. I think its wrong to assume that just because life isn't
perfect that it isn't good. I find his trite comparisons so negative as to
be mostly ignorant of the fact of life in the modern western civilization
that he lives in.
"The facts are that we are living longer, healthier, wealthier, and happier
lives. Unlike our ancestors and those unfortunate people that are forced
to live their lives in abject poverty or tyranny in the "third world", we
aren't working 120 hours a week just to produce sufficient food to prevent
starvation. Yes, we are working harder than ever. But we are doing this to
afford college for our kids, an easy retirement, or a summer home. Hardly
"The same superficial and meaningless civilization that people like Carlin
decry enables us to afford the luxury of listening to whiners like him. His
pessimism and negativity is sometimes hard for me to correlate with his
occasionally outstanding sense of humor. Too bad his thinking isn't as
sharp as his wit!"
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