De La Salle Lipa College of Business, Economics, Accountancy and Management

De La Salle Lipa
College of Business, Economics, Accountancy and Management
Tyco International Company

Group 11
In Partial Fulfillment of Requirements in

Financial Accounting 3
Presented by:
Dimalibot, Danica A.
July 24, 2015
I.
Introduction (Profile of the Company, History and Development)
Greed and corruption are few of the words to describe the mismanagement of Tyco Internationals
CEO Dennis Kozlowski. Tyco International may not be a household name, however, after the 2002
scandal; they graced newspapers around the globe with stories of misconduct and unethical behavior
within the companys leadership. This multi-million dollar company faced scrutiny the likes of which
many thought they may not recover from.
Tyco, one of America's largest conglomerates, situated in Waltham, Massachusetts, was founded by
Arthur J. Rosenburg. Tyco began operations in 1960, performing experimental work for the U.S.
Government as an investment and holding company focused on solid-state science and energy
conversion. The firm went publicly traded by 1964, and quickly expanded, mostly by rapid acquisition
by 1968, to exploit the commercial applications of its work. The firm grew from $34 million to $500
million in consolidated sales between 1973 and 1982. In 1974, its stock was listed on the New York
Stock Exchange (NYSE), and its expansion continued through 1982 as the company sought to fill gaps
in its development and distribution networks. Dennis Kozlowski began to work for Tyco in 1975 under
the mentorship of CEO Joseph Gaziano; whose lavish lifestyle had a profound effect on Kozlowski
(Ferrell, 2011). In 1982, Gaziano died of cancer and was replaced by John F. Fort III. Kozlowksi keeps on
rising up the corporate ladder becoming the president and later CFO.
Early 1980s, Tyco focused on organizing its newly acquired subsidiaries, and divided the company
into three business segments: Fire Protection, Electronics, and Packaging, and implemented strategies
to reach a significant share in each of Tycos product lines. By 1986, Tyco reorganized its subsidiaries
into four segments: Electrical and Electronic Components, Healthcare and Specialty Products, Fire and
Security Services and Flow Control, which was then maintained through the 1990s, and later changed
its name to Tyco International signalizing is global presence to the financial community.
Kozlowski and Fort disagreed on Kozlowski's aggressive approach of acquisition and over rapid
changes made in Grinnell. The board sided with Kozlowski. In 1992, Fort resigned as CEO and chair of
the board passing the title to Kozlowski. In 1999, after a stock split, rumors began to spread about
Tycos accounting habits. It was said that Tyco was producing irregular financial accounts, but it was
denied by Tycos leaders.
Acquisition has risen up to more than thirty companies including well-known firms like ADT,
Raychem and the CIT Group in the early 2000's.Throughout the years of Kozlowskis leadership, Tyco
merged and bought out several companies, making their profits grow beyond $30 billion. In September
12, 2002, national television showcased Tyco Internationals former chief executive officer (CEO) L.
Dennis Kozlowski and former chief financial officer (CFO) Mark H. Swartz in handcuffs after being
arrested
and
charged
with
misappropriating
more
than
$170
million
from
the
company
(danielsethics.mgt.unm.edu). They were accused of stealing and concealing the information from
shareholders. Mark A. Belnick, another executive, was also charged of concealing of personal loans.
This issue becomes one of the biggest corporate scandals in the early 2000's which did drop share
prices at some points.
As of 2015, Tyco (NYSE: TYC) is the world's largest pure-play fire protection and security company.
Tyco provides more than three million customers around the globe with the latest fire protection and
security products and services. A company with $10+ billion in annual revenue, Tyco has over 57,000
employees in more than 900 locations across 50 countries serving various end markets, including
commercial, institutional, governmental, retail, industrial, energy, residential and small business.
II.
Problems and Causes
PROBLEMS
POSSIBLE CAUSES
Kozlowski had exploited the company by using company fund to fulfil his own
Embezzleme
desire of having a lavish lifestyle. From the case, we could identify that Kozlowski
nt of
had exploited the right of his employees by taking a large amount from a program
Company
that could help the employees to buy company stock in order to buy himself
Funds
Bribery
luxury homes, yachts and fine arts.

Frank E. Walsh Jr., the director of Tyco International had received $20 million for
helping the arrangement of the acquisition of CIT Group without the knowledge of
the rest of the board of director. Next, the second case is Stephen W. Foss, the
member of Tycos board of director received $751 101 for supplying a Cessna
Accounting
Fraud
Citation aircraft and pilot services.

Tyco International failed to give true financial picture for several years. Dennis
Kozlowski, Mark Swartz and Mark A. Belnick were those Tycos executives who
committed fraud by charged with falsifying business record to conceal a great
amount of loan without approval.

It had been found out that Tyco engaged in financial gimmicky to deliberate and
manipulating its earnings. Jerry Boggess, the president of Tyco Fire and Security is
the one who involved in bookkeeping fraud that affected the earning per share in
Tyco in this case.

Dennis Kozlowski also indicted on tax evasion for avoiding just over $1 million in
New York State and local sales tax (Andrew and Alex, 2002).
Statement of Facts
According to CNN News(2005), in a major victory in the government
crackdown on corporate corruption, former Tyco CEO Dennis Kozlowski and
ex-CFO Mark Swartz were found guilty Friday of stealing hundreds of millions
of dollars from the manufacturing conglomerate. With a total jury of six men
and six women who deliberated 11 days before finding Kozlowski and Swartz
guilty on 22 of 23 counts of grand larceny and conspiracy, falsifying business
records and violating general business law, both Dennis Kozlowski and Mark
Swartz face 15 to 30 years in prison. Table 1 shows the scorecard where both
Kowzlowski and Swartz received 12 votes being guilty with grand larceny, 1 vote for conspiracy, 1 vote for
violation of business law, and 8 votes for falsifying records. Kozlowski, 58, and Swartz, 44, were accused of
taking bonuses worth more than $120 million without the approval of Tyco's directors, abusing an
employee loan program, and misrepresenting the company's financial condition to investors to boost the
stock price while selling $575 million in stocks.
The crimes presented above such as grand larceny, conspiracy, violation of business law, and falsifying
business law, they did showed that they gave priority to self-interest rather than the interest of the
shareholders of the company. The U.S. Supreme Court rejected an appeal by former Tyco International Ltd.
Chief Executive Officer L. Dennis Kozlowski, who was challenging his conviction for looting the company.
Appeals have been made but in the end Kozlowksi and Swartz have been sent to jail. They were sentence
to imprisonment for 8 to 25 years.
Table 1

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De La Salle Lipa

College of Business, Economics, Accountancy and Management

Tyco International Company

In Partial Fulfillment of Requirements in

July 24, 2015

Introduction (Profile of the Company, History and Development)

Problems and Causes

luxury homes, yachts and fine arts.

Citation aircraft and pilot services.

amount of loan without approval.

Tyco in this case.

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