Tyco Fraud

I. COMPANY BACKGROUND

Tyco was founded in 1960 when Arthur J. Rosenburg, Ph.D., opened a research laboratory to do experimental work for the government. He incorporated the business as Tyco Laboratories in 1962, and changed its focus to high-tech materials science and energy conversion products for the commercial sector. In September 1964, the Company went public, and in 1965 it began to acquire other companies to fill gaps in its development and distribution network. As a result, Tyco's thrust changed to manufacturing industrial products.

Today, Tyco is a model of sophisticated and innovative manufacturing and service employing 250,000 employees worldwide. Each of Tyco's core businesses holds a leadership position in its specific market.

1960

Tyco, Inc. is formed as an investment and holding company in Waltham, Massachusetts. The two primary holdings are Tyco Semiconductor and the Materials Research Laboratory, which studies materials and devices with applications in the fields of solid state sciences and energy conversion.

1962

The Materials Research Laboratory and Tyco Semiconductor are merged. The business is supported by U.S. government research contracts. But soon, management recognizes the commercial applications of its work and Tyco begins to search for acquisitions to develop product, manufacturing and marketing capabilities.

1964

Tyco becomes a publicly owned company.

1965

Mule Battery Products is Tyco's first acquisition. Tyco Inc. changes its name to Tyco Laboratories.

1968

By this time, Tyco has acquired sixteen companies, including North American Printed Circuits, one of six companies that would later form Tyco's Printed Circuit Group.

1973-1982: Growth through Acquisitions

In 1973, consolidated sales and stockholder equity reached $34 million and $15 million, respectively. The next year, Tyco's stock was listed on the New York Stock Exchange. By 1982, Tyco had become a much bigger and more diverse corporation with sales topping $500 million and a net worth of nearly $140 million. Much of this growth was achieved through larger and more ambitious acquisitions including:

Ð'* 1974: Simplex Technologies, manufacturers of undersea fiber optic telecommunications cable

Ð'* 1976: Grinnell Fire Protection Systems, manufacturers of and contractors for fire sprinkler systems

Ð'* 1979: Armin Plastics, manufacturers of polyethylene film products

Ð'* 1981: Ludlow Corporation, manufacturers of packaging products.

1982-1986: Developing Market Leadership

It has always been Tyco's policy to acquire profitable companies and to operate them at continually increasing profitability for the benefit of its shareholders. For that reason, after Tyco's 1973-1982 period of rapid growth, management focused on strengthening the company from within. To do so, Tyco organized its subsidiaries into three business segments (Fire Protection, Electronics and Packaging), and created an operating plan that focused on strengthening market leadership and being the high-quality, low-cost producer within its markets. The plan's objectives were:

Ð'* To achieve significant market share in each of its principal product lines;

Ð'* Establishment of each product line as the leader and high-value producer in its field;

Ð'* To maintain, throughout all Tyco business segments and product lines, a reputation for product quality, reliability, and customer service.

Tyco accomplished this by:

Ð'* Decentralizing company operations into a more cost-effective, independent profit center operating system;

Ð'* Selling unprofitable units and existing business, and divesting itself of companies not fully owned by Tyco;

Ð'* Reducing administrative overhead by consolidating under Tyco Corporate appropriate business functions like: taxes, legal, financial reporting, insurance and human resources;

Ð'* Reducing subsidiary operating costs by providing them with opportunities to take advantage of Tyco's global corporate economies of scale through such activities like inter-company purchasing of raw materials.

1986 to 2005: Synergistic-Strategic, Highly-Disciplined Acquisitions/Strong Organic Growth

In 1986, Tyco returned its focus to sharply accelerating growth. During this period, it reorganized its subsidiaries into what became the basis for the current business segments: Electrical and Electronic Components, Healthcare and Specialty Products, Fire and Security Services, and Flow Control. The Company's name was changed from Tyco Laboratories, Inc. to Tyco International Ltd. in 1993, to reflect Tyco's global presence. Furthermore, it became, and remains, Tyco's policy to add high-quality, cost-competitive, lower-tech industrial/commercial products to its product lines whenever possible.

The Company also adopted synergistic and strategic acquisition guidelines which established three base-line standards for potential acquisitions:

Ð'* An acquisition candidate must be in a business related to one of Tyco's four business segments;

Ð'* It must be able to expand the product line and/or improve product distribution for at least one of Tyco's business segments;

Ð'* It must have excellent long-term growth prospects.

Ð'* It must be using a manufacturing and/or processing technology already familiar to one of Tyco's business segments if it plans to introduce a new product or product line.

Using the synergistic/strategic guidelines and stringent financial requirements to guide acquisitions, Tyco succeeded in significantly improving the Company's positions in each of its four business segments. Major acquisitions included:

1986

Ð'* Grinnell Corporation, manufacturers and distributors of industrial/construction