Course Code: F-209

REPORT AUDITING & TAXATION

Submitted To
Mohammad Salahuddin Chowdhury Lecturer, Department of Finance, University of Dhaka
:

Submitted By
Name Khaleda Aziz Akhter-E_Tamanna Md.Rajib Khan Sameya Azad Mohammad Rasel Mia Roll 16-24 16-102 16-134 16-152 16-156

Date of Submission: 17 November 2011

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November 17, 2011 Mohammad Salahuddin Chowdhury Lecturer, Department of Finance, University of Dhaka. Subject: Submission of report. Dear Sir, We are pleased to submit the report you have assigned to us. The report paper was to prepare the term paper on the course named Auditing & Taxation course code: F 209, as a part of our academic activities. This is a report on Tyco International Ltds scandal for fulfilling course work of BBA program and it is our pleasure to present such before you. We have prepared this report based on the data gathered from Internet and newspapers. For the preparation of the report, we have focused on the information that was found to be reliable and valid. We deeply regret for any inconvenience located in this report and we shall always be available for any clarification required. Sincerely yours, Sameya Azad On behalf of the group 14 Section: B B.B.A. 16th Batch Department of Finance Faculty of Business Studies University of Dhaka. 2

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This is high time we conveyed our deepest gratitude and sincere submission to the Almighty ALLAH for giving us the opportunity to accomplish such an enjoyable task of preparing this report in time. We express our thanks to our dear course teacher Mohammad Salahuddin Chowdhury for assigning us a report dealing with the Tyco International Ltds scandal. In this regard, we would also like to thank ourselves for our good teamwork and successful team spirit. Without co-operation and the support from each other, it would not be possible to prepare a resourceful report. The presentation of this formal study paper is of a great expectation in our BBA program and we are quite happy to submit it duly applying that we think should have to be included. Theoretical knowledge should be valued when it is successfully applied in practical decision-making scenario. In this respect we found this report a great opportunity to deal with some progressive methods. So lastly we would again like to express our heartfelt thanks to our course teacher for providing the theoretical knowledge and valuable guidelines related to management.

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Dennis Kozlowski worked all his life to get from the bottom to the top of Tyco International Ltd. However, he picked up a lavish lifestyle that would soon be his destruction and bring him behind bars. After purchasing many art pieces in 2002 the SEC started an investigation and accused him of failing to pay taxes of about $1 million dollars, but as the investigation proceeded the case became more complicated as it turned out that CEO Dennis Kozlowski and CFO Mark Swartz have been looting Tyco International of more than $600 million. Examples of how this was possible are following: When Tyco found out about the investigation they fired people involved and also replaced 10 of the top management positions to regain trust to the stockowner. Nevertheless the stock price has dropped 86% from $59.31 on 12/28/01 to $8.25 on 7/25/02. Three years later in September 2005 Kozlowski and Schwartz found themselves in court again after a mistrial in 2004 to face their sentence. They are charged for large larceny, falsifying business documents and securities fraud. Both are convicted to serve a minimum of 8 and to 25 years in jail. The biggest crime that happened here was that Kozlowski and Schwartz abused their power of control to steal from and lie to the stockowners. The journal Business Week posted Kozlowski as one of their TOP 25 CEOs in 2000. That is how good people thought he was. The money that was used to buy houses and silly things like $6000 shower curtains should have been used to push the company further or given to the shareholders. Is that worse than what the executives did in Enron? No, but bottom line is stealing is stealing. They believed that Kozlowski was sharing the same ideas and goals that the company represents as he has proven to them many times when he closed up million dollar deals that made a fortune for them. Instead he used the company funds like a private bank and spent it like it was his money. The dishonesty of Kozlowski has caused more distrust to the public, and of course the stock to drop to a price that is worth virtually nothing compared to what it used to be. Also Tyco as a company had to endure many million dollar lawsuits and lost a lot of money to that. I think Tyco did the right thing by replacing top management right away after the issue occurred. They hired Edward Breen as their new CEO, who invested a lot of time and money to communicate to the public that Tyco International is operating in many parts of the world and that they are trustworthy even though their former CEO failed to do so. It may be very far away from having the trust of investors again, but they took a step in the right direction.

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C o n t e n t s

PAGES

Contents Contents ..................................................................................................................................................3

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Origin:
This report is written for Course no.F-209(Auditing &Taxation) which is the part of 4th semester 2nd year of B.B.A. program of Finance Department. Moreover report writing is an important lesson of Auditing and Taxation course thus the report will work as a skill test of us about report writing. This report is based on Tyco International Ltds scandal.

Objective:
The specific objectives aimed for this report are:
Know about one of the biggest scandal of corporate world TYCOs Scandal How the corporate scandal occurs. Who are responsible behind the scandals? How these scandals affected our International market.

Scope of the report:

The proposed report is one of the biggest corporate scandal Tyco International Ltd. Scandal.

Methodology:
Our report is based on Secondary Data from internet.

Limitations:
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There was no authorization letter with us when we went for collecting information to the companies. At first they were not agreed enough to give information. We had to pursue them for that time had passed and we could not form our report well. They think some information is confidential enough to publish in any journal. As a result they did not give us the information as details as we wanted. So we had to be satisfied by that information. Those are the limitations we faced during the formation the report.

Type Traded as Industry Founded Headquarters

Public NYSE: TYC Conglomerate 1960, incorporated 1962 Incorporation: Schaffhausen, Switzerland Operational/Corporate: Princeton, New Jersey Security Solutions, Fire Protection and Flow Control $18.80 billion USD (2007)[1] $1,715 million USD (2007)[1] $1,742 million USD (2007)[1] 106,000 (2010)[2] www.tyco.com

Products Revenue Operating income Net income Employees Website

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Tyco International Ltd. NYSE: TYC is a highly diversified global manufacturing company incorporated in Switzerland, with United States operational headquarters in Princeton, New Jersey (Tyco International (US) Inc.). Tyco International is composed of three major business segments: Security Solutions, Fire Protection and Flow Control. In June 2007, Tyco concluded a corporate separation that split the company into three publicly independent companies: Covidien Ltd. (formerly Tyco Healthcare), Tyco Electronics Ltd. (now TE Connectivity Ltd.) and Tyco International Ltd. (formerly Tyco Fire & Security and Tyco Engineered Products & Services (TFS/TEPS))

Net revenues by year

Year 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 Revenue (in US$B) $18.8* $41.0 $39.3 $38.0 $36.8 $35.6 $34.0 $28.9 $22.5 $19.1 $6.6

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Tyco International Ltds scandal

Tyco is a global company, employing over 270,000 people, with $36 billion in annual revenues, that manufactures, distributes and services products and systems for a broad spectrum of markets, with core business segments in electronics, telecommunications, healthcare and specialty products, fire and security services, and flow control. Prior to July 1997, and a merger with a Bermuda company, a current Tyco subsidiary, now named Tyco International (US) Inc., was Tycos main operating company under the name Tyco International Ltd. (Mass.) (Former Tyco). Tyco has approximately 2,342 subsidiaries, including non-operating holding companies; the corporate headquarters staff of Tyco, with fewer than 400 people, is paid through a subsidiary named TME Management Corp. (TME). Tyco itself, other than in its subsidiaries, has fewer than 20 employees.

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During the period from on or about January 1, 1995, through September 9, 2002, in the County of New York and elsewhere, intentionally engaged in a scheme constituting a systematic on-going course of conduct with intent to defraud ten and more persons, to wit, shareholders and regulators, and to obtain property, to wit money and securities, from ten and more persons, to wit, Tyco International Ltd. (Bermuda) (Tyco), and its subsidiaries and predecessors, as well as investors in, prospective purchasers of, and other acquirers of Tycos securities and debt instruments by false and fraudulent pretenses, representations, and promises, and so obtained property from one and more of such persons while engaged in inducing and promoting the issuance, distribution, exchange, sale, negotiation and purchase of securities issued by Tyco, as follows: Tyco is a publicly-owned corporation, the shares of which are traded on the New York Stock Exchange. Prior to July 1997, and to a merger with a Bermuda corporation, a Tyco subsidiary, now named Tyco International (US) Inc., was Tycos main operating company, and was then a corporation named Tyco International Ltd. (Mass.) (Former Tyco), that traded on the New York Stock Exchange. For purposes of this count, Tyco hereinafter includes, unless otherwise indicated, Former Tyco. At all times during the scheme Tyco and its subsidiaries issued stock and debt instruments whose market value depended on the "market perception" of how valuable Tyco was. Information material to market perception includes financial statements issued by the corporation, filings by the corporation with the United States Securities and Exchange Commission (SEC) and other regulatory bodies, public statements by corporate officers, press reports, releases, and statements issued by the corporation, and reports disseminated by ostensibly independent analysts and credit rating agencies, all of which are required to be accurate and truthful. Among the matters which Tyco, by its officers, reported to the public, and was required by law to report publicly were (1) The compensation paid to Tyco's directors and five highest paid executive officers, (2) The existence of loans outstanding to executive officers and directors, if in amounts greater than $60,000, (3) The sales of stock by executive officers and directors, and (4) Certain related party transactions between Tyco and its directors and officers.

Dennis Kozlowski worked all his life to get from the bottom to the top of Tyco International Ltd. And when he reached the CEO position he was often compared to other great CEOs in history like Jack Welch. However, he picked up a lavish lifestyle that would soon be his destruction and bring him behind bars. After purchasing many art pieces in 2002 the SEC started an investigation and accused him of failing to pay taxes of about $1 million dollars, but as the investigation proceeded the case became more complicated as it turned out that CEO Dennis Kozlowski and CFO Mark Swartz have been looting Tyco International of more than $600 million. Examples of how this was possible are following: 10

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Over the years they have been giving themselves interest free loans from the company and then later on forgave themselves for it through Mark Schwartz falsifying documents. Dennis Kozlowski gave himself bonuses to repay the debt.They sold stocks at inflated prices.

When Tyco found out about the investigation they fired people involved and also replaced 10 of the top management positions to regain trust to the stockowner. Nevertheless the stock price has dropped 86% from $59.31 on 12/28/01 to $8.25 on 7/25/02. Three years later in September 2005 Kozlowski and Schwartz found themselves in court again after a mistrial in 2004 to face their sentence. They are charged for large larceny, falsifying business documents and securities fraud. Both are convicted to serve a minimum of 8 and to 25 years in jail. The biggest crime that happened here was that Kozlowski and Schwartz abused their power of control to steal from and lie to the stockowners. Given that Tyco was not a case like Enron where the employees lost everything, it is still very serious. The journal Business Week posted Kozlowski as one of their TOP 25 CEOs in 2000. That is how good people thought he was. The money that was used to buy houses and silly things like $6000 shower curtains should have been used to push the company further or given to the shareholders. Is that worse than what the executives did in Enron? No, but bottom line is stealing is stealing. I believe Tyco has only did one thing wrong, trusting their CEO too much. They believed that Kozlowski was sharing the same ideas and goals that the company represents as he has proven to them many times when he closed up million dollar deals that made a fortune for them. Instead he used the company funds like a private bank and spent it like it was his money. The dishonesty of Kozlowski has caused more distrust to the public, and of course the stock to drop to a price that is worth virtually nothing compared to what it used to be. Also Tyco as a company had to endure many million dollar lawsuits and lost a lot of money to that.

Overacts in year 2000

On or about May 29, 2000, defendant Kozlowski obtained in excess of $7,000,000 from Tyco for the purchase of property from Tyco located at 610 Park Avenue in New York County. In or about September 11, 2000, defendant Kozlowski caused a memorandum to issue to forgive the relocation loans for a list of Tyco employees that included himself and defendant Swartz.

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In or about September 2000, defendant Kozlowski told Tycos Director of Human Resources that the Board of Directors of Tyco had approved the forgiveness of over $56,000,000 in loans to himself and other Tyco employees, and the "gross-up" of their income by more than $39,000,000.

In or about September 2000, defendants Kozlowski and Swartz authorized a Tyco book entry forgiving loans previously booked as relocation loans to Tyco employees aggregating in excess of $56,000,000. In or about November 2000, defendants Kozlowski and Swartz caused an illegal special bonus in excess of $8,000,000 to be paid to defendant Swartz.

Corporate scandal of 2002

Former chairman and chief executive Dennis Kozlowski and former chief financial officer Mark H. Swartz were accused of the theft of more than $150 million from the company. During their trial in March 2004, they contended the board of directors authorized it as compensation. During jury deliberations, juror Ruth Jordan, while passing through the courtroom, appeared to make an "okay" sign with her fingers to the defense table. She later denied she had intended that gesture, but the incident received much publicity (including a caricature in the Wall Street Journal), and the juror received threats after her name became public. Judge Michael Obus declared a mistrial on April 2, 2004. On June 17, 2005, after a retrial, Kozlowski and Swartz were convicted on all but one of the more than 30 counts against them. The verdicts carry potential jail terms of up to 25 years in state prison. Kozlowski himself was sentenced to no less than eight years and four months and no more than 25 years in prison. Swartz received the same sentence. Then in May 2007, New Hampshire Federal District Court Judge Paul Barbadoro approved a class action settlement whereby Tyco agreed to pay $2.92 billion to a class of defrauded shareholders represented by Grant & Eisenhofer P.A., Schiffrin, Barroway, Topaz & Kessler, and Milberg Weiss & Bershad.

Tyco International Ltd. Analysis of Financial Condition and Results of operations

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Our results for fiscal 2002 were adversely affected by: decreased demand, as a result of the overall economic downturn, particularly in the telecommunications and electronics markets; the termination of our previously announced plan to separate into four independent publicly traded companies; rumors and negative publicity; the resignation of our chief executive officer and chief financial officer; the replacement of other members of our senior management; the indictment of former members of our senior management; concern regarding our ability to maintain compliance with debt covenants and meet upcoming debt maturities; and the announced investigation being conducted by the Companys outside counsel. All of these factors affected employees, customers, vendors and investors. These effects are continuing. In January 2002, our Board of Directors became aware of the first of many unauthorized actions that ultimately led to the resignations of our former chief executive officer and chief financial officer and the termination of our chief legal officer as well as the decision not to renominate one of our directors. In September 2002, our former chief executive officer, chief financial officer and chief legal officer were each charged with violating New York state criminal law as a result of their actions. In December 2002, the former director was charged with, and pleaded guilty to, violating New York state criminal law as a result of his actions. During the fourth quarter of fiscal 2002, we announced the hiring of a new chief executive officer, a new chief financial officer and a new chief legal officer, as well as other key executives, and also announced the initiation of external and internal investigations. The impact on the Consolidated Statements of Operations, Consolidated Balance Sheets and Consolidated Statements of Cash Flow, as a result of the above adjustments, is as follows (in millions, except per share data). The amounts previously reported are derived from the original Form 10K for the year ended September 30, 2002 filed on December 30, 2002.

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Company separations
An announcement was made publicly on January 13, 2006, that the company would subdivide into three smaller independent companies. An official "Separation Management Team" was created to deal with all aspects of the separation and to make it as smooth as possible for customers, employees, and shareholders. Bob Scott was announced as its leader.[12] Scott had joined Tyco in 2004. On June 29, 2007, Tyco completed the share distribution separating the company into three wholly independent, publicly traded companies,[13][14][15] each with its own board of directors, CEO, management staff, and financial structure.[16] The three new companies became:

Covidien Ltd., formerly Tyco Healthcare Tyco Electronics Ltd., now TE Connectivity Tyco International Ltd., formerly Tyco Fire & Security and Tyco Engineered Products & Services (TFS/TEPS)

Edward Breen, CEO of Tyco at the time of the split, announced that he would be staying on as CEO of the newly structured Tyco International, overseeing TFS/TEPS. Completing the share distribution, on June 29, shareholders received one common share each of the two new companies, Covidien and Tyco Electronics, for every four common shares held of the old Tyco International stock. That July 6, the new Tyco International issued a one-for-four reverse stock split. On September 19, 2011, Tyco International Ltd. announced once again that the company would split into three businesses. ADT North America, to be incorporated in the United States, would deal with residential security. Other companies incorporated in countries other than the United States would cover flow control and commercial fire and security.

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Tyco is a global company, employing over 270,000 people, with $36 billion in annual revenues, that manufactures, distributes and services products and systems for a broad spectrum of markets, with core business segments in electronics, telecommunications, healthcare and specialty products, fire and security services, and flow control. Prior to July 1997, and a merger with a Bermuda company, a current Tyco subsidiary, now named Tyco International (US) Inc., was Tycos main operating company under the name Tyco International Ltd. (Mass.) (Former Tyco). Tyco has approximately 2,342 subsidiaries, including non-operating holding companies; the corporate headquarters staff of Tyco, with fewer than 400 people, is paid through a subsidiary named TME Management Corp. (TME). Tyco itself, other than in its subsidiaries, has fewer than 20 employees. Compensation amounting to millions paid to executive officers, loans extended to executive officers which were later forgiven, related party transactions, certain executives utilizing Tycos corporate resources to fund personal ventures and property acquisitions, to increase their own personal wealth. The first trial of Kozlowski and Swartz, who are accused of looting the company of $600 million, ended in a mis-trial in April 2004. Prosecutors retrying the men say they'd like to begin proceedings in September 2004.

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Bibliography
http://www.forbes.com http://news.findlaw.com/hdocs/docs/tyco/nykozlo wski91202ind.pdf http://www.tyco.com

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