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Tyco

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Tyco – PowerPoint PPT presentation

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Title: Tyco


1
Tyco
International, Ltd.
ACCT 647-601 Lindsay Fredericks Angela
Guerra Aurelie Magnuson Paul VanderLinden
2
Tyco History
  • Tyco was founded in 1960 as a research
    laboratory.
  • Focus on commercial high-tech materials,
    science,
  • and energy conversion products.
  • The Company went public in September 1964.
  • Today, Tyco employs 260,000 people worldwide.
  • Core businesses are leaders in their markets.

http//www.tyco.com
3
Tyco History, cont.
  • Tyco has five major business segments
  • Tyco Electronics
  • Tyco Healthcare
  • Tyco Plastics Adhesives
  • Tyco Fire Security
  • Tyco Engineered Products Services

http//www.tyco.com
4
Tyco misled investors by
  • Pushing the limits of GAAP by employing
    aggressive accounting
  • practices.
  • Urged management to employ accounting practices
  • that suited the companys interests.
  • Operating expenses were lumped in with
    acquisition-related charges.
  • Management made acquisition deals look better
    than they actually were.

http//www.cfo.com
5
Tyco misled investors by
  • Attempting to post high earnings growth by
    implementing
  • aggressive acquisition accounting.
  • Used a purchase accounting liabilities account
    to keep acquisition-related expenses off the
    income statement.
  • Accrued for purchase accounting liabilities at
    the time of the acquisition.
  • When expenses were incurred, the company credited
    cash and debited the purchase accounting
    liabilities account.

http//www.cfo.com
6
Tyco misled investors by
  • Spending billions of dollars on numerous
    undisclosed
  • acquisitions.
  • Tyco spent approximately 8 billion over 3 years
    on undisclosed acquisitions.
  • In February 2002, Tyco acknowledged that 4.19
    billion was spent on undisclosed acquisitions in
    2001.
  • This amounted to 37 of the total cash spent on
    acquisitions for the year.
  • Details on smaller acquisitions were not
    disclosed in the financial statements.

http//www.cfo.com
7
Executive fraud
  • L. Dennis Kozlowski, CEO, and Mark Swartz, CFO
  • Received over 170 million in undisclosed loans
    from Tyco.
  • Sold seven and a half million shares of Tyco
    stock for 430 million without telling investors.

http//www.cfo.com
8
Tyco Exposed
  • On Jan. 16, 2002, it was announced that that L.
    Dennis Kozlowski, CEO, would have to be removed
    after learning that he had approved a 20 million
    "finder's fee" to another board member.
  • The board asked for the money to be returned.
  • Disclosure of the unauthorized payment was the
    beginning of Tyco's public troubles.

9
Tyco Exposed, cont
  • Kozlowskis luxurious lifestyles first attracted
    attention when he was charged with evading New
    York State sales tax on art purchases.
  • A closer look revealed huge illegal expenditures,
    payments and loans.
  • On Sept. 12, 2002, an SEC formally charged
    Kozlowski, Swartz, and Belnick.

10
Financial Statement Effects
  • Tyco International had over-reported its 2002
    results by nearly 400 million.
  • Its financial reports for the past five years
    were inflated as well.
  • While no major fraud was uncovered in the
    internal
  • investigation, creative accounting
    practices were.
  • Blame for the negative findings was put on the
    shoulders of Tycos former management.

11
Financial Statement Effects
  • The purchase price used to record the
    Mallinckrodt acquisition
  • was understated as a result of incorrectly
    computing the value
  • of equity securities.
  • Purchase price was understated as a result of
    incorrectly computing the value of employee stock
    options.
  • This caused the understatement of goodwill and
    equity.
  • Overstated pre-tax earnings were a result of the
    related
  • goodwill amortization that would have been
    recognized in
  • 2001.

12
Stock Price over 5 years
13
Penalties
  • No penalties have been assessed against Tyco.
  • The trial has been underway since October, and
    probably will continue through January.

14
Penalties
  • Kozlowskis and Swartzs assets were frozen.
  • Kozlowski and Swartz had to secure 100 million
    and 50 million bail bonds, respectively.
    Belnick was freed on a 1 million bond.

15
Penalties
  • Kozlowski and Swartz are charged with
  • Corruption
  • Conspiracy
  • Grand larceny
  • Falsifying records
  • The losses they caused Tyco are estimated at 600
    million.
  • Belnick is charged with
  • Falsifying business reports
  • Failing to disclose loans made to himself to
    investors and
  • Tyco's compensation committee

16
Penalties
  • The SEC seeks a final judgment ordering Kozlowski
    and Swartz to disgorge all of their ill-gotten
    gains.
  • These include
  • All compensation received subsequent to their
    fraudulent acts
  • All loans not properly repaid to Tyco
  • All losses avoided from sales of Tyco stock
  • Civil money penalties
  • Kozlowski and Swartz could face up to 30 years
    in prison if
  • convicted.

17
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