TYCO INTERNATIONAL LTD /BER/ - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-Q

/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002.

OR

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

001-13836
(COMMISSION FILE NUMBER)

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TYCO INTERNATIONAL LTD.
(Exact name of Registrant as specified in its charter)

BERMUDA 04-2297459
(JURISDICTION OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NUMBER)

THE ZURICH CENTRE, SECOND FLOOR, 90 PITTS BAY ROAD, PEMBROKE, HM 08, BERMUDA
(ADDRESS OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE)

441-292-8674
(REGISTRANT'S TELEPHONE NUMBER)

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Indicate by check mark whether the Registrant (1) has filed all reports to
be filed by Section 13 or 15 (d) of the Securities Exchange Act during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes /X/ No / /

The number of common shares outstanding as of August 9, 2002 was
1,995,175,466.

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TYCO INTERNATIONAL LTD.
INDEX TO FORM 10-Q

2

PART I--FINANCIAL INFORMATION

ITEM 1--FINANCIAL STATEMENTS

TYCO INTERNATIONAL LTD.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN MILLIONS, EXCEPT SHARE DATA)

See Notes to Consolidated Financial Statements (Unaudited).

3

TYCO INTERNATIONAL LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN MILLIONS, EXCEPT SHARE DATA)

See Notes to Consolidated Financial Statements (Unaudited)

4

TYCO INTERNATIONAL LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN MILLIONS)

See Notes to Consolidated Financial Statements (Unaudited).

5

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. BASIS OF PRESENTATION

BASIS OF PRESENTATION--The unaudited Consolidated Financial Statements
include the consolidated accounts of Tyco International Ltd., a company
incorporated in Bermuda, and its subsidiaries (hereinafter "we," the "Company"
or "Tyco"). As described in Note 2, CIT Group Inc. ("CIT"), which comprised the
operations of the Tyco Capital business segment, was sold in an initial public
offering ("IPO") in July 2002. Consequently, the results of CIT are presented as
discontinued operations. References to Tyco refer to its continuing operations,
with the exception of the discussions regarding discontinued operations in
Note 2. The continuing operations of Tyco represent what was referred to as Tyco
Industrial in prior filings.

The financial statements have been prepared in accordance with the
instructions to Form 10-Q and do not include all the information and note
disclosures required by generally accepted accounting principles in the United
States. These statements should be read in conjunction with the Company's Annual
Report on Form 10-K for the fiscal year ended September 30, 2001.

Mr. Edward Breen, who was appointed Chief Executive Officer at Tyco in
July 2002, has certified Tyco's Form 10-Q Report for the Third Quarter 2002 in
accordance with the requirements of Section 906 of the Sarbanes-Oxley Act 2002.

Mr. Breen joined the Company subsequent to the end of the Third Quarter
2002. Particularly because Mr. Breen has been employed by the Company for less
than three weeks, the Company emphasizes that his signature is subject to all of
the qualifications and precautionary statements incorporated in this 10-Q
Report. Mr. Breen has not been at Tyco long enough to have conducted an in-depth
review of Tyco's accounting. However, Mr. Breen has initiated an in-depth review
of Tyco's accounting beginning with fiscal year 1999 and extending into the
fourth quarter of the current fiscal year. Additional information on the nature
and scope of this review is provided on p. 41.

Upon assuming his position of Chief Executive Officer, Mr. Breen stated that
one of his immediate priorities is to restore the credibility of Tyco with
investors and regulators. For that reason, Mr. Breen believes it is important to
undertake this in-depth review. Accordingly, Mr. Breen has directed that the law
firm of Boies, Schiller & Flexner and the forensic accounting firm of Urbach
Kahn & Werlin, advisors, perform this review, in conjunction with the Company's
auditor, PricewaterhouseCoopers LLP ("PwC"). Boies, Schiller & Flexner and
Urbach Kahn & Werlin have been performing the previously announced internal
investigation of compensation, related-party transactions and other matters that
arose with the departure of the prior CEO.

Management notes that Tyco currently has no reason to believe that there are
any material adjustments necessary to the Company's financial results. However,
Mr. Breen believes that, in view of recent events at the Company, this in-depth
review of accounting practices is important if the Company is to provide further
assurance to shareholders and regulators that accounting decisions made at Tyco
have been appropriate and consistent with Generally Accepted Accounting
Principles. If this internal review were to reveal any material adjustments
necessary to the Company's financial results, the Company of course would
promptly disclose such adjustments.

The Division of Corporation Finance of the U.S. Securities and Exchange
Commission ("SEC") is performing a full review of Tyco's most recent Form 10-K
and subsequent Form 10-Q filings. While the review is still ongoing, to date we
have agreed to amend those filings to expand the disclosures throughout the
Notes to Consolidated Financial Statements ("Footnotes") and Management's
Discussion and Analysis of Financial Conditions and Results of Operations
("MD&A"), and we have agreed to reclassify amounts in the tables related to
restructuring liabilities and purchase accounting

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

1. BASIS OF PRESENTATION (CONTINUED)
liabilities. These reclassifications are reflected in this quarterly report on
Form 10-Q in Notes 3 and 7. As noted above, the SEC Staff review is ongoing and
we are in the process of responding to many questions regarding various
accounting and disclosure matters. To date the areas of comment include, among
others, adequacy of disclosures and explanations in the Footnotes and MD&A,
acquisition integration plans and related purchase accounting liabilities,
accounting for the purchase of security monitoring contracts and segment data.
In addition, during the course of the review, the SEC staff may raise comments
with respect to other accounting or disclosure matters. We cannot predict when
this review will be completed or the nature of amendments that may be required
as a result of this review.

In addition, the Company's outside counsel Boies, Schiller & Flexner LLP
("Boies") has conducted an investigation reviewing: (1) transactions between the
Company and its former Chief Executive Officer, certain other former and current
officers of the Company and members of the Board of Directors and (2) the
accounting for those and certain other transactions. Based on the Boies firm's
completion of the initial phase of its investigation, the Company expects to
file a Form 8-K report by September 15, 2002. As the investigation progresses
its scope may be expanded.

The Consolidated Financial Statements have not been examined by independent
accountants in accordance with generally accepted auditing standards, but in the
opinion of management, such financial statements include all adjustments,
consisting only of normal recurring adjustments, necessary to summarize fairly
the Company's financial position and results of operations. Certain prior period
amounts have been reclassified to conform with the current period presentation.
All references in this Form 10-Q to "$" are to U.S. dollars.

On April 25, 2002, the Company terminated its previously announced plan to
separate into four independent, publicly traded companies.

2. DISCONTINUED OPERATIONS OF TYCO CAPITAL (CIT GROUP INC.)

On April 25, 2002, the Company announced its plan to divest CIT potentially
through an IPO of all of CIT's outstanding shares. In June 2002, management and
the Company's Board of Directors approved the sale of common shares of CIT in an
IPO establishing a measurement date for discontinued operations. Accordingly,
the results of CIT are presented as discontinued operations for all periods.
Prior year amounts include CIT's operating results after June 1, 2001, the date
of its acquisition by Tyco. The sale of 100% of CIT's common shares through an
IPO was completed on July 8, 2002.

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

2. DISCONTINUED OPERATIONS OF TYCO CAPITAL (CIT GROUP INC.) (CONTINUED)
The following table presents summary balance sheet information for the
discontinued operations of Tyco Capital at June 30, 2002 and September 30, 2001
($ in millions):

Operating results from the discontinued operations of Tyco Capital were as
follows ($ in millions):

During the quarter ended March 31, 2002, Tyco experienced disruptions to its
business surrounding its announced break-up plan, a downgrade in its credit
ratings, and a significant decline in its market capitalization. During this
same time period, CIT also experienced credit downgrades and a disruption to its
historical funding base. The Company prepared valuations of its CIT subsidiary,
utilizing a

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

2. DISCONTINUED OPERATIONS OF TYCO CAPITAL (CIT GROUP INC.) (CONTINUED)
discounted cash flows approach updated for current information and considering
various marketplace assumptions, which indicated a range of values from
impairment of $750 million to excess fair value of $1.5 billion. Based on
management's belief that CIT would be separated from Tyco, receive an upgrade in
its credit ratings, and regain access to the unsecured credit markets, the
Company initially concluded that CIT had an excess of fair market value over net
book value. Accordingly, management did not believe that there was an impairment
of goodwill of CIT as of March 31, 2002.

However, market-based information used in connection with the Company's
preliminary consideration of the proposed IPO of CIT indicated that CIT's book
value exceeded its estimated fair value as of March 31, 2002. As a result, the
Company performed a SFAS 142 first step impairment analysis as of March 31, 2002
and concluded that an impairment charge was warranted at that date.

Management's objective in performing the SFAS 142 first step analysis was to
obtain relevant market-based data to calculate the estimated fair value of CIT
as of March 31, 2002 based on its projected earnings and market factors expected
to be used by market participants in ascribing value to CIT in the planned
separation of CIT from Tyco. Management obtained relevant market data from
financial advisors regarding the range of price to earnings multiples and market
condition discounts applicable to CIT as of March 31, 2002 and applied these
market data to CIT's projected annual earnings as of March 31, 2002 to calculate
an estimated fair value and any resulting goodwill impairment. The estimated
fair value was compared to the corresponding carrying value of CIT at March 31,
2002. As a result, we restated the Company's Consolidated Financial Statements
for the quarter ended March 31, 2002 to reflect an impairment for the decline in
the estimated fair value of CIT at that time, resulting in an estimated
$4,512.7 million impairment charge as of March 31, 2002, which is included in
discontinued operations.

SFAS 142 requires a second step analysis whenever a reporting unit's book
value exceeds estimated fair value. This analysis requires the Company to
estimate the fair value of the reporting unit's individual assets and
liabilities to complete the analysis of goodwill as of March 31, 2002. The
Company completed this second step analysis for CIT during the quarter ended
June 30, 2002 and, as a result, recorded an additional goodwill impairment of
$132.0 million. During the June 30, 2002 quarter, CIT experienced further credit
downgrades and the business environment and other factors continued to
negatively impact the likely proceeds of the IPO. As a result, we performed
another first step and second step analysis as of June 30, 2002 in a manner
consistent with the March 2002 process described above. Each of these analyses
was based upon updated market data at June 30, 2002 and through the period
immediately following the IPO, including the IPO proceeds. These analyses
resulted in first step and second step goodwill impairments of $1,719.0 million
and $148.0 million, respectively, which are also included in discontinued
operations as of June 30, 2002. Tyco also recorded an additional impairment
charge of $126.4 million in order to write-down its investment in CIT to net
realizable value for a total CIT goodwill impairment of $2,125.4 million for the
quarter ended June 30, 2002. This write-down was based upon net IPO proceeds of
$4,387.9 million, after deducting estimated out of pocket expenses, and is
included in the loss from discontinued operations.

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

2. DISCONTINUED OPERATIONS OF TYCO CAPITAL (CIT GROUP INC.) (CONTINUED)
The following table presents summary cash flow information for the
discontinued operations of Tyco Capital ($ in millions):

3. ACQUISITIONS

During the first nine months of fiscal 2002, the Company purchased businesses
for an aggregate cost of $4,822.3 million, consisting of $2,756.8 million in
cash, net of $155.3 million of cash acquired, the issuance of approximately
47.6 million common shares valued at $1,917.6 million, plus the fair value of
stock options and pre-existing put option rights assumed of $147.9 million
($101.9 million of the put option rights have been paid in cash). The Company
purchased all of the voting equity interests in each of the businesses acquired.
Tyco also issued approximately 17.7 million common shares valued at
$819.9 million in connection with its amalgamation with TyCom. Fair value of
debt of acquired companies aggregated $790.2 million. During the nine months,
the Company paid $381.7 million of cash for purchase accounting liabilities
related to current and prior years' acquisitions. In addition, the Company paid
cash of approximately $139.1 million relating to holdback and earn-out
liabilities

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

3. ACQUISITIONS (CONTINUED)
primarily related to certain prior period acquisitions. Holdback liabilities
represent a portion of the purchase price withheld from the seller pending
finalization of the acquisition balance sheet. Certain acquisitions have
provisions that would require Tyco to make additional "earn-out" payments to the
sellers if the acquired company achieves certain milestones subsequent to its
acquisition by Tyco. These earn-out payments are tied to certain performance
measures, such as revenue, gross margin or earnings growth and are generally
treated as additional purchase price. The Company also issued 44,139 common
shares valued at $2.3 million relating to earn-out liabilities during the nine
months. The value of these earn-out common shares is based upon the higher of
the closing stock price on the day the shares were issued or the day prior to
issuance. The cash portions of acquisition costs were funded utilizing net
proceeds from the issuance of long-term debt. The results of operations of the
acquired companies have been included in Tyco's consolidated results from their
respective acquisition dates.

At the time each acquisition is made, the Company records each asset
acquired and each liability assumed at its estimated fair value, which amount is
subject to future adjustment when appraisals or other valuation data are
obtained. The excess of (i) the total consideration paid for the acquired
company over (ii) the fair value of assets acquired less liabilities assumed and
purchase accounting liabilities established is recorded as goodwill. As a result
of acquisitions completed in the first nine months of fiscal 2002, and
adjustments to the fair values of assets and liabilities and purchase accounting
liabilities recorded for acquisitions completed prior to fiscal 2002, Tyco
recorded approximately $4,112.2 million in goodwill and $1,649.0 million in
other intangible assets during the nine months ended June 30, 2002. These
amounts include adjustments consisting of a $109.2 million increase to goodwill
and a $30.2 million decrease to other intangible assets related to fair value
adjustments associated with prior year acquisitions. The adjustments to goodwill
relate primarily to fiscal 2001 acquisitions of Lucent Technologies' Power
Systems ("LPS"), acquired in December 2000, Edison Select ("Edison"), acquired
in August 2001, Deutsche Armaturen AG ("DAAG"), acquired in September 2001, and
Scott Technologies ("Scott"), acquired in May 2001. Adjustments to goodwill for
LPS relate to the closure of a manufacturing plant and the adjustment of certain
opening balance sheet items, primarily property, plant and equipment, and
inventory write-downs. Finalization of the exit plan relating to the LPS
acquisition was completed during the quarter ended December 31, 2001.
Adjustments to goodwill for Edison relate primarily to severance, and to a
lesser extent, facility closures and the adjustment of certain opening balance
sheet items to fair value. Adjustments to goodwill for DAAG relate primarily to
facility closures and related severance and the adjustment of certain opening
balance sheet items to fair value. Adjustments to goodwill for Scott relate
primarily to the accrual of an environmental reserve resulting from the
finalization of the environmental study during the six months ended March 31,
2002.

Acquisitions were an important part of Tyco's growth during the first nine
months of fiscal 2002. Tyco makes acquisitions that complement existing products
and services, enhance the Company's product lines and/or expand its customer
base. Tyco determines what it is willing to pay for an acquisition partially
based on its expectation that it can cost effectively integrate the products and
services of an acquired company into Tyco's existing infrastructure and improve
earnings by removing overhead costs in areas where there are duplicate sales,
administrative or other facilities and functions. In addition, the Company
utilizes existing infrastructure (e.g., established sales force, distribution
channels, customer relations, etc.) of acquired companies to cost effectively
introduce Tyco's products to new geographic areas. The Company also targets
companies that are perceived to be experiencing depressed financial performance.
All these factors contribute to acquisition prices in excess of the fair value
of net assets acquired and the resultant goodwill. However, the Company expects
to complete fewer acquisitions prospectively due to its focus on enhancing
internal growth within its existing businesses.

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

3. ACQUISITIONS (CONTINUED)

The following table shows the fair values of assets and liabilities and
purchase accounting liabilities recorded for all acquisitions completed in the
first nine months of fiscal 2002 and the TyCom amalgamation, adjusted to reflect
changes in fair values of assets and liabilities and purchase accounting
liabilities and holdback/earn-out liabilities recorded for acquisitions
completed prior to fiscal 2002 ($ in millions):

Accounts receivables........................................ $ 529.9
Inventories................................................. 294.5
Prepaid expenses and other current assets................... 156.4
Property, plant and equipment, net.......................... 335.8
Goodwill.................................................... 4,112.2
Intangible assets........................................... 1,649.0
Other assets................................................ 488.8
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7,566.6
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Accounts payable............................................ 209.4
Accrued expenses and other current liabilities.............. 1,025.5
Holdback/earn-out liabilities............................... 169.0
Other long-term liabilities................................. (20.8)
Fair value of debt assumed.................................. 790.2
Minority interest........................................... (248.9)
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1,924.4
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$5,642.2
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Cash consideration paid (net of $155.3 million of cash
acquired)................................................. $2,756.8
Share consideration paid and fair value of stock options and
pre-existing put option rights assumed(1)................. 2,885.4
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$5,642.2
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(1) The value of common shares issued is based upon the average of the
volume-weighted average trading prices on the New York Stock Exchange for
three days before and three days after the measurement date. The stock
options assumed relate to the acquisition of Sensormatic in the first
quarter of fiscal 2002. The value of the stock options was determined using
the Black-Scholes valuation model based on the following assumptions: 39.0%
volatility; two-year expected life for in-the-money options and three-year
expected life for out-of-the-money options, except if the remaining term of
the options was less, in which case one-half of the remaining term was used;
annual dividends of $0.05; and risk-free interest rates based on U.S.
stripped Treasuries.

Fiscal 2002 acquisitions include, among others, SBC/Smith Alarm Systems
("Smith Alarm") and Century Tube Corporation ("Century") in October 2001;
Sensormatic Electronics Corporation ("Sensormatic"), Transpower Technologies,
DSC Group and Water & Power Technology ("Water & Power") in November 2001; Linq
Industrial Fabrics, Inc. ("Linq") and the purchase of the remaining minority
public interest of TyCom in December 2001; Paragon Trade Brands, Inc.
("Paragon") and Communications Instruments, Inc. ("CII") in January 2002; and
Clean Air Systems in February 2002.

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

3. ACQUISITIONS (CONTINUED)

Smith Alarm, a security monitoring company for both residential and
commercial customers, was purchased for $78.2 million in cash and has been
integrated within the Fire and Security Services segment. Century, a
manufacturer of steel tubing, was purchased for $125.5 million in cash and has
been integrated within the Engineered Products and Services segment.
Sensormatic, a leading supplier of electronic security solutions to the retail,
commercial and industrial market places, was purchased for approximately
47.6 million Tyco common shares valued at $1,917.6 million, plus the fair value
of stock options and pre-existing put option rights assumed of $147.9 million,
and has been integrated within the Fire and Security Services segment.
Transpower Technologies, a designer and manufacturer of inductors and isolation
transformers, was purchased for $62.6 million in cash and has been integrated
within the Electronics segment. DSC Group, a manufacturer of security alarms,
fire alarms and panels, was purchased for $90.6 million in cash and has been
integrated within the Fire and Security Services segment. Water & Power, a
provider of water treatment products and services, was purchased for
$40.8 million in cash and has been integrated within the Engineered Products and
Services segment. Linq, a manufacturer of flexible intermediate bulk containers,
was purchased for $34.2 million in cash and has been integrated within the
Healthcare and Specialty Products segment. TyCom is a leading provider of
undersea fiber optic networks and services. In December 2001, the Company
completed its amalgamation with TyCom, and TyCom shares not already owned by
Tyco were converted into approximately 17.7 million Tyco common shares valued at
$819.9 million. Paragon, a global supplier of infant disposable diapers and
other absorbent personal care products, was purchased for $706.8 million in cash
and has been integrated within the Healthcare and Specialty Products segment.
CII, a provider of advanced control electronic solutions in high performance
relays, contractors, general-purpose relays, transformers, and EMI/RFI filters,
was purchased for $214.0 million in cash and has been integrated within the
Electronics segment. Clean Air Systems, a manufacturer of pollution control
systems in industrial plants and products including industrial valves, controls
and pneumatics, was purchased for $31.8 million in cash and has been integrated
within the Engineered Products and Services segment. In addition to the
acquisitions listed above, Tyco paid cash of $1,074.6 million to acquire
customer contracts for electronic security services through its dealer program
and $453.0 million to acquire approximately 118 other smaller companies. The
acquisitions were comprised primarily of businesses which: manufacture a broad
range of electronic products; manufacture a wide range of products used in the
disposable medical products industry as well as other plastic products;
manufacture valves and related products; manufacture fire and security products;
and provide electronic security services. All acquisitions were integrated
within the Electronics, Fire and Security Services, Healthcare and Specialty
Products, or Engineered Products and Services segments.

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

3. ACQUISITIONS (CONTINUED)

The following table summarizes activity with respect to purchase accounting
liabilities in the first nine months of fiscal 2002 ($ in millions):

In connection with fiscal 2002 purchase acquisitions, Tyco began to
formulate plans at the date of each acquisition for workforce reductions and the
closure and consolidation of an aggregate of 142 facilities. The costs of
employee terminations relate to the elimination of 3,040 positions in the United
States, 691 positions in Europe, 527 positions in Canada, 338 positions in Latin
America and 169 positions in the Asia-Pacific region, consisting primarily of
manufacturing and distribution, administrative, technical, and sales and
marketing personnel. Facilities designated for closure include 69 facilities in
the United States, 44 facilities in Europe, 19 facilities in the Asia-Pacific
region, 7 facilities in Canada and 3 facilities in Latin America, consisting
primarily of administrative offices, sales offices, manufacturing plants and
distribution centers. At June 30, 2002, 2,627 employees had been terminated and
49 facilities had been closed or consolidated related to fiscal
2002 acquisitions.

During the first nine months of fiscal 2002, we recorded additions to
purchase accounting reserves as we continued to formulate the integration plans
of fiscal 2001 acquisitions, such as LPS, Microser S.L. (integrated within the
Electronics segment), DAAG, Edison and SecurityLink (the electronic security
systems businesses of Cambridge Protection Industries, L.L.C.). These changes in
estimates resulted in additional purchase accounting liabilities of
$338.6 million and a corresponding increase to goodwill and deferred tax assets.
These additions reflect the elimination of an additional 5,299 positions in the
United States, 2,646 positions in Europe, 656 positions in the Asia-Pacific
region, 201 positions in Latin America and 78 positions in Canada, consisting of
manufacturing, administrative, technical, and sales and marketing personnel.
Additional facilities designated for closure include 255 facilities in the
United States, 184 facilities in Europe, 58 facilities in the Asia-Pacific
region, 9 facilities in Canada and 4 facilities in Latin America, consisting
primarily of sales and administrative offices and manufacturing plants.

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

3. ACQUISITIONS (CONTINUED)

During the first nine months of fiscal 2002, we reduced our estimate of
purchase accounting liabilities recorded in prior periods by $101.9 million,
primarily because costs were less than anticipated. Goodwill and related
deferred tax assets were reduced by an equivalent amount.

Also during the nine months ended June 30, 2002, we reclassified certain
fair value adjustments related to the write-down of assets for prior year
acquisitions out of purchase accounting accruals and into the appropriate asset
or liability account. In addition, we reclassified certain amounts in the
preceding table related to prior year acquisitions to separately classify
distributor and supplier cancellation fees and to correct the categorization of
other accruals. These reclassifications had no effect on the amount of goodwill
that was recorded.

Tyco has not yet finalized its business integration plans for fiscal 2002
acquisitions and those completed within the last quarter of fiscal 2001.
Accordingly, purchase accounting liabilities are subject to revision in future
quarters. As part of the finalization of business plans, the Company has engaged
third-party valuation firms to independently appraise the fair value of certain
assets acquired. Tyco is still in the process of obtaining independent
valuations in order to finalize estimates for the fair values of assets acquired
and liabilities assumed.

At June 30, 2002, holdback/earn-out liabilities of $277.7 million remained
on the Consolidated Balance Sheet, of which $126.5 million are included in
accrued expenses and other current liabilities and $151.2 million are included
in other long-term liabilities. In addition, a total of $714.1 million of
purchase accounting reserves remained on the Consolidated Balance Sheet, of
which $460.8 million are included in accrued expenses and other current
liabilities and $253.3 million are included in other long-term liabilities. Tyco
expects that the termination of employees and consolidation of facilities
related to all acquisitions will be substantially complete within two years of
the related dates of acquisition, except for certain long-term contractual
obligations.

The following unaudited pro forma data summarize the results of operations
for the periods indicated as if fiscal 2002 acquisitions and the amalgamation
with TyCom had been completed as of the beginning of the periods presented. The
pro forma data give effect to actual operating results prior to the acquisitions
and adjustments to interest expense and income taxes. No effect has been given
to cost reductions or operating synergies in this presentation. These pro forma
amounts do not purport to be

15

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

3. ACQUISITIONS (CONTINUED)

indicative of the results that would have actually been achieved if the
acquisitions and amalgamation had occurred as of the beginning of the periods
presented or that may be achieved in the future.

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(1) Includes charges for the impairment of long-lived assets of
$2,652.2 million; restructuring and other unusual charges of
$863.7 million; goodwill impairment charge of $513.0 million; loss on
investments of $187.1 million; loss from discontinued operations of
$6,293.6 million, net of tax; and extraordinary items of $3.5 million, net
of tax.

(2) Includes a net gain on sale of businesses and investments of
$276.6 million consisting of a $406.5 million net gain related primarily to
the sale of ADT Automotive, partially offset by a loss of $129.9 million
related to the write-down of an investment; a net gain of $64.1 million on
the sale of shares of a subsidiary; the write-off of purchased in process
research and development of $184.3 million; charges for the impairment of
long-lived assets of $27.9 million; restructuring and other unusual charges
totaling $86.9 million; extraordinary items of $13.7 million, net of tax;
and cumulative effect of accounting changes of $683.4 million, net of tax.

During fiscal 2001, Tyco entered into an agreement to acquire C.R.
Bard, Inc., a healthcare products manufacturer. On February 6, 2002, Tyco and
C.R. Bard, Inc. mutually terminated the merger agreement. Each party bore its
own costs, and no break up fee was paid.

During fiscal 2002, Tyco entered into an agreement to acquire McGrath
RentCorp, a leading provider of modular offices and classrooms and electronic
test equipment. On July 1, 2002, McGrath RentCorp elected to terminate the
transaction agreement. Tyco reimbursed McGrath's cost and expenses in the amount
of $1.25 million.

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

4. DEBT

In October 2001, Tyco International Group S.A. ("TIG"), a wholly-owned
subsidiary of Tyco, sold $1,500.0 million 6.375% notes due 2011 under its
$6.0 billion shelf registration statement in a public offering. The notes are
fully and unconditionally guaranteed by Tyco. The net proceeds of approximately
$1,487.8 million were used to repay borrowings under TIG's commercial paper
program.

In November 2001, TIG sold E500.0 million 4.375% notes due 2005,
E685.0 million 5.5% notes due 2009, L200.0 million 6.5% notes due 2012 and
L285.0 million 6.5% notes due 2032, utilizing capacity available under TIG's
European Medium Term Note Programme established in September 2001. The notes are
fully and unconditionally guaranteed by Tyco. The net proceeds of all four
tranches were the equivalent of $1,726.6 million and were used to repay
borrowings under TIG's commercial paper program.

In January 2002, TIG entered into a $1.5 billion bridge loan, which was
fully and unconditionally guaranteed by Tyco, with a variable LIBO-based rate,
which was 3.70% as of March 31, 2002. TIG repaid $645.0 million in April 2002
and the remainder in June 2002.

In February 2002, TIG borrowed the available $2.0 billion of capacity under
its 5-year unsecured revolving credit facility, which had been maintained as
liquidity support for its commercial paper program. The facility, which expires
in February 2006, is fully and unconditionally guaranteed by Tyco and has a
variable LIBO-based rate, which was 4.99% as of June 30, 2002.

17

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

4. DEBT (CONTINUED)

Also, in February 2002, TIG borrowed $3.855 billion under its 364-day
unsecured revolving credit facility and exercised its option to convert this
facility into a term loan expiring on February 6, 2003. The loan, which is fully
and unconditionally guaranteed by Tyco, has a variable LIBO-based rate, which
was 5.04% as of June 30, 2002.

Proceeds from the bridge loan and credit facilities were used to pay off
maturing commercial paper at the scheduled maturities and to provide additional
available capital for Tyco.

As a result of the rating agencies' downgrade of Tyco's debt to below
investment grade status in June 2002, Tyco was required to repurchase its
Y30 billion ($247.3 million as of June 30, 2002) 3.5% notes due 2030 in
July 2002.

Tyco has repurchased some high interest rate debt of acquired companies
prior to their scheduled maturities. In the nine months ended June 30, 2002, the
Company recorded extraordinary items totaling $3.5 million, net of tax, as
compared to $3.4 million and $13.7 million, net of tax, for the quarter and nine
months ended June 30, 2001, respectively, which represents the excess of
payments made to debtholders over the recorded book value of the debt
repurchased.

5. (LOSS) EARNINGS PER COMMON SHARE

The reconciliations of basic and diluted (loss) earnings per common share
are as follows (in millions, except per share data):

18

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

5. (LOSS) EARNINGS PER COMMON SHARE (CONTINUED)

The computation of diluted loss per common share in the quarter and nine
months ended June 30, 2002 excludes the effect of the potential exercise of
options to purchase approximately 2.2 million and 12.5 million shares,
respectively, and the potential exchange of convertible debt due 2010 for
2.9 million shares, because the effect would be anti-dilutive. The computation
of diluted earnings per common share in the quarter and nine months ended
June 30, 2001 excludes the effect of the assumed exercise of options to purchase
approximately 13.8 million and 10.6 million shares, respectively, because the
effect would be anti-dilutive. Diluted (loss) earnings per common share for all
periods presented also excludes 48.0 million and 26.4 million shares related to
the Company's zero coupon convertible debentures due 2020 and 2021,
respectively, because conversion conditions have not been met.

6. SHAREHOLDERS' EQUITY

Included within Tyco's outstanding common shares at June 30, 2002 and
September 30, 2001 are 3,252,864 and 4,243,108 common shares, respectively,
representing the assumed exchange of 4,709,540 and 6,143,199 exchangeable shares
(at 0.6907 of a Tyco common for each exchangeable share) of CIT
Exchangeco Inc., a wholly-owned subsidiary of CIT Group Inc. Tyco also has
authorized 125,000,000 preference shares, par value of $1 per share, at
June 30, 2002 and September 30, 2001, of which one such share has been issued
and designated a special voting preference share. This preference share provides
a mechanism by which the holders of outstanding exchangeable shares exercise
their voting, dividend and liquidation rights, which are equivalent to those of
Tyco common shareholders, except that each exchangeable share is equivalent to
0.6907 of a Tyco common share. In connection with the IPO of CIT, the
exchangeable shares were redeemed effective July 5, 2002 through the issuance of
3,243,322 Tyco common shares. As a result, no one is entitled to exercise the
rights attaching to the preference share.

Tyco paid a quarterly cash dividend of $0.0125 per common share in each of
the first three quarters of fiscal 2002 and fiscal 2001.

19

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

7. RESTRUCTURING AND OTHER UNUSUAL CHARGES (CREDITS)

The following table summarizes activity for the nine months of fiscal 2002
with respect to Tyco's restructuring and other unusual charges excluding
impairments of long-lived assets and goodwill which are discussed in Notes 9 and
14 ($ in millions):

During the nine months ended June 30, 2002, Tyco recorded restructuring and
other unusual charges of $877.2 million related primarily to the closure of
manufacturing plants, administrative offices, warehouses and sales offices
within the Electronics segment. Included within the charges of $877.2 million
are inventory write-downs of $244.5 million and unusual charges of
$15.1 million, both of which have been included in cost of sales. The
$15.1 million relates to the sale of inventory, which had been written-up under
purchase accounting. The $877.2 million includes other charges of
$124.0 million consisting of $76.0 million related to the write-off of
investment banking fees and other deal costs associated with the terminated
breakup plan and certain acquisitions that were not completed, and the remaining
$48.0 million primarily relates to an accrual for anticipated resolution and
disposition of various labor and employment matters within the Fire and Security
Services segment. During the nine months ended June 30, 2002, the Electronics
and Fire and Security Services segments recorded restructuring credits totaling
$13.5 million primarily relating to a revision in estimates of the facilities
charge recorded during the quarter ended March 31, 2002.

During the nine months ended June 30, 2001, Tyco recorded a net
restructuring and other unusual charge of $86.9 million. The net charge is
comprised of restructuring and other unusual charges of $253.7 million,
primarily related to the closure of several manufacturing plants, sales offices,
warehouses and administrative offices and charges for an environmental
remediation project. The $253.7 million includes inventory write-downs of
$39.8 million and unusual charges of $39.0 million related to the sale of
inventory, which had been written-up under purchase accounting, both of which
have been included in cost of sales. The charges were partially offset by a
restructuring and other unusual credit of $166.8 million related to the
settlement of litigation in which Tyco was provided with an ongoing OEM
arrangement valued at $166.8 million.

At June 30, 2002, there remained a total of $521.3 million in reserves for
restructuring and other unusual charges on the Consolidated Balance Sheet, of
which $376.5 million is included in accrued expenses and other current
liabilities and $144.8 million is included in other long-term liabilities. The
Company currently anticipates that the restructuring activities to which all of
the above charges relate will be substantially completed within one year, except
for certain long-term contractual obligations.

20

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

8. WRITE-OFF OF PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT

During the quarter ended June 30, 2002, in connection with Tyco's
acquisition of Sensormatic, the Company wrote-off the fair value of purchased
in-process research and development ("IPR&D") of various projects for the
development of new products and technologies in the amount of $13.4 million.
Management determined the valuation of the IPR&D using appraisals.

In connection with Tyco's acquisition of Mallinckrodt Inc. during the
quarter ended December 31, 2000, the Company wrote-off the fair value of
purchased IPR&D of various projects for the development of new products and
technologies in the amount of $184.3 million. Management determined the
valuation of the IPR&D using, among other factors, appraisals. The value was
based primarily on the discounted cash flow method. Although work on the
projects related to the IPR&D continued after the acquisition, the amount of
purchase price allocated to IPR&D was written off because the projects
underlying the IPR&D that was being developed were not considered
technologically feasible as of the acquisition date. As of June 30, 2002,
approximately 45% of the IPR&D projects have been successfully completed and
less than 15% of the projects have been discontinued or are currently inactive.
The remainder are in various stages of completion. There are currently no
expected material variations between projected results from the projects versus
those at the time of the acquisition.

9. IMPAIRMENTS

The Company periodically evaluates the net realizable value of long-lived
assets relying on a number of factors including operating results, business
plans, economic projections and anticipated future cash flows. An impairment in
the carrying value of an asset is recognized when the fair value of the asset is
less than its carrying value. During the quarter and nine months ended June 30,
2002, the Company recorded total charges for the impairment of long-lived assets
in continuing operations of $239.4 million and $2,652.2 million, respectively.

During the nine months ended June 30, 2002, the Electronics segment recorded
a charge of $2,412.5 million related to the impairment of the TGN
($2,242.5 million), and property, plant and equipment ($170.0 million)
associated with the closure of facilities as discussed in Note 7. The fiberoptic
capacity available in the market continues to significantly exceed overall
market demand, creating sharply declining prices and reduced anticipated future
cash flows. Further, based on available industry outlook information published
in February 2002, prices are expected to decline at a greater rate than
previously projected.

The Company has assessed the carrying value of the TGN using an analysis
that employs estimates as to current and future market pricing, demand and
network completion costs. This analysis is highly sensitive to changes in those
estimates noted above. Based upon management's estimates, the Company concluded
that the value of its fiberoptic network, which is carried at cost, was impaired
and consequently recorded an impairment charge during the quarter ended
March 31, 2002. The entire TGN placed in service was written-off at that time,
as well as a portion of construction in progress of the TGN. We reconsidered the
factors noted above, such as projected operating results, business plans and an
estimate of discounted future cash flows, in order to retest the carrying value
of the TGN for a further impairment at June 30, 2002. We determined that no
additional impairment was needed; however, changes to these forecasts and
assumptions could lead to further impairment of the TGN in future periods.
Accordingly, $946.5 million of Construction in Progress--TGN and TGN Placed in

21

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

9. IMPAIRMENTS (CONTINUED)
Service is on the Consolidated Balance Sheet at June 30, 2002, as compared to
$2,342.4 million at September 30, 2001.

During the nine months ended June 30, 2002, the Healthcare and Specialty
Products segment recorded a charge of $125.3 million related to the impairment
of intangible assets associated with a Healthcare business line sold in July
2002. In addition, the Healthcare and Specialty Products segment recorded a
charge of $2.5 million related to the impairment of property, plant and
equipment associated with the closure of facilities discussed in Note 7.

During the nine months ended June 30, 2002, the Fire and Security Services
segment recorded a charge of $105.1 million related to the impairment of
property, plant and equipment associated with the termination of a software
development project.

During the nine months ended June 30, 2002, the Engineered Products and
Services segment recorded a charge of $6.8 million related to the impairment of
property, plant and equipment associated with the closure of facilities
discussed in Note 7.

Also during the nine months ended June 30, 2002, the Company recognized a
$187.1 million loss on equity investments, primarily related to its investment
in FLAG Telecom Holdings Ltd. ("FLAG"), when it became evident that the declines
in fair value of FLAG and other investments were other than temporary.

During the nine months ended June 30, 2001, the Company recorded charges
totaling $27.9 million related primarily to the impairment of property, plant
and equipment associated with the closure of manufacturing plants discussed in
Note 7.

See Note 14, "Goodwill and Other Intangible Assets," for further information
regarding the $513.0 million estimated impairment of goodwill on continuing
operations during the quarter ended June 30, 2002.

10. COMPREHENSIVE (LOSS) INCOME

Total comprehensive (loss) income from continuing operations and its
components are as follows ($ in millions):

- ------------------------------
(1) Primarily related to Tyco's investment in 360networks Inc.

Accumulated other comprehensive loss on the accompanying Consolidated
Balance Sheets include $50.6 million and $76.8 million as of June 30, 2002 and
September 30, 2001, respectively, related to the Discontinued Operations of Tyco
Capital (CIT Group Inc.).

22

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

11. CONSOLIDATED SEGMENT DATA

During the first quarter of fiscal 2002, the Company changed its internal
reporting structure (due to the amalgamation with TyCom which eliminated the
publicly held minority interest) such that the operations of the former
Telecommunications segment are now reported as part of the Electronics segment.
In addition, during the third quarter of fiscal 2002, a change was made to the
Company's internal reporting structure such that the operations of Tyco's flow
control businesses and the environmental engineering business (previously
reported within the Fire and Security Services segment) and Tyco's electrical
and metal products business (previously reported within the Electronics segment)
now comprise the Company's new Engineered Products and Services segment. Also in
the quarter ended June 30, 2002, Tyco began the execution of a plan to sell its
financial services business (Tyco Capital) through an IPO. The historical
results of our financial services business are presented as "Discontinued
Operations." See Note 2 for more information regarding the discontinued
operations of Tyco Capital. The Company has conformed its segment reporting
accordingly and has reclassified comparative prior period information to reflect
these changes. Selected information for the Company's four segments is presented
in the following table.

- ------------------------------
(1) Includes a charge for the impairment of goodwill of $389.1 million,
restructuring and other unusual charges of $7.3 million, of which
$0.4 million is included in cost of sales, primarily for contract
cancellation fees and employee severance, and impairment charges of
$5.4 million related to property, plant and equipment. Also includes
restructuring credits of $9.4 million due to costs being less than
anticipated.

(2) Includes an impairment charge of $105.1 million for the write-off of a
software development project and a net restructuring and other unusual
charge of $47.0 million. The $47.0 million net charge consists of charges of
$51.1 million primarily related to an accrual for anticipated resolution and
disposition of various labor and employment matters and severance and
facility-related charges associated with streamlining the business, somewhat
offset by restructuring credits of $4.1 million due to costs being less than
anticipated. Also includes a charge of $13.4 million for the write-off of
purchased IPR&D.

(3) Includes an impairment charge of $127.8 million for the write-off of
intangible assets related to a business line sold in July 2002 and
restructuring and other unusual charges of $34.6 million, of which
$1.3 million is included in cost of sales, primarily

23

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

11. CONSOLIDATED SEGMENT DATA (CONTINUED)
related to severance associated with the consolidation of operations and
facility-related costs due to exiting certain business lines within the
international operations.

(4) Includes a charge for the impairment of goodwill of $123.9 million,
restructuring charges of $14.2 million, of which $0.8 million is included
in cost of sales, related to severance and facility-related costs associated
with streamlining the business, and impairment charges of $1.1 million
related to property, plant and equipment due to the closure of facilities.

(5) Includes restructuring and other unusual charges of $89.2 million related
to the write-off of investment banking fees and other deal costs associated
with the terminated breakup plan and certain acquisitions that were not
completed, and to a lesser extent, severance associated with corporate
employees.

(6) Includes restructuring charges of $25.2 million, of which $5.0 million is
included in cost of sales, primarily related to the closure of existing
facilities that had become redundant due to acquisitions and charges of
$2.8 million for the impairment of property, plant and equipment primarily
associated with the closure of these facilities.

(7) Includes a restructuring and other unusual charge of $25.0 million, of
which $2.4 million is included in cost of sales, primarily related to a
voluntary replacement program of a potentially defective product and the
closure of manufacturing plants, warehouses, sales offices and
administrative offices.

(8) Includes impairment charges of $2,412.5 million primarily related to the
write-down of the TGN and other property, plant and equipment associated
with the closure of certain facilities, restructuring and other unusual
charges of $618.8 million, of which $237.9 million is included in cost of
sales, primarily related to the write-down of inventory and facility
closures, and a charge for the impairment of goodwill of $389.1 million.
Also includes restructuring credits of $9.4 million due to costs being less
than anticipated.

(9) Includes an impairment charge of $105.1 million for the write-off of a
software development project and a net restructuring and other unusual
charge of $82.9 million, of which charges of $13.8 million are included in
cost of sales. The $82.9 million net charge consists of charges of
$87.0 million primarily related to an accrual for anticipated resolution and
disposition of various labor and employment matters and severance and
facility-related charges associated with streamlining the business, somewhat
offset by restructuring credits of $4.1 million due to costs being less than
anticipated. Also includes a charge of $13.4 million for the write-off of
purchased IPR&D.

(10) Includes an impairment charge of $127.8 million for the write-off of
intangible assets related to a business line sold in July 2002,
restructuring and other unusual charges of $43.3 million, of which
$1.3 million is included in cost of sales, primarily related to severance
associated with the consolidation of operations and facility-related costs
due to exiting certain business lines within the international operations,
and the write-off of legal fees and other deal costs associated with
acquisitions that were not completed.

(11) Includes a charge for the impairment of goodwill of $123.9 million,
restructuring and other unusual charges of $38.9 million, of which
$6.6 million is included in cost of sales, related to severance and
facility-related costs associated with streamlining the business, and
impairment charges of $6.8 million related to property, plant and equipment
due to the closure of facilities that had become redundant due to
acquisitions.

(12) Includes restructuring and other unusual charges of $131.1 million, of
which $41.7 million is included in cost of sales, primarily related to
severance associated with the closure of facilities. Also includes charges
for the impairment of property, plant and equipment of $14.1 million
associated with the closure of these facilities.

(13) Includes restructuring and other unusual charges of $37.1 million, of which
$5.0 million is included in cost of sales, primarily related to severance
associated with the closure of existing facilities that had become redundant
due to acquisitions and an environmental remediation project. Also includes
charges of $2.8 million for the impairment of property, plant and equipment
primarily associated with the closure of these facilities.

(14) Includes the write-off of purchased in-process research and development of
$184.3 million, and restructuring and other unusual charges of
$34.0 million, of which $29.2 million is included in cost of sales,
primarily related to the write-up of inventory under purchase accounting and
the closure of two manufacturing plants. Also includes charges of
$9.6 million primarily related to the impairment of property, plant and
equipment associated with the closure of these plants.

(15) Includes restructuring and other unusual charges of $48.1 million, of which
$2.9 million is included in cost of sales, primarily related to the closure
of manufacturing plants, warehouses, sales offices and administrative
offices and a voluntary replacement program of a potentially defective
product. Also includes charges for the impairment of property, plant and
equipment of $1.4 million primarily associated with the closure of these
facilities.

(16) Includes an unusual credit of $166.8 million related to the settlement of
litigation and an unusual charge of $3.4 million related to severance.

24

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

12. SUPPLEMENTARY BALANCE SHEET INFORMATION

Inventories, other current assets, other assets, accrued expenses and other
current liabilities, and other long-term liabilities are as follows ($ in
millions):

Net property, plant and equipment is as follows ($ in millions):

25

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

13. CUMULATIVE EFFECT OF ACCOUNTING CHANGES

In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), in which the SEC Staff expressed
its views regarding the appropriate recognition of revenue with respect to a
variety of circumstances, some of which are relevant to the Company. As required
under SAB 101, the Company modified its revenue recognition policies with
respect to the installation of electronic security systems. In addition, in
response to SAB 101, the Company undertook a review of its revenue recognition
practices and identified certain provisions included in a limited number of
sales arrangements that delayed the recognition of revenue under SAB 101. During
the fourth quarter of fiscal 2001, the Company changed its method of accounting
for these items retroactive to the beginning of the fiscal year to conform to
the requirements of SAB 101. This was reported as a $653.7 million after-tax
($1,005.6 million pre-tax) charge for the cumulative effect of change in
accounting principle in the Consolidated Statement of Operations for the first
quarter of fiscal 2001.

During the nine months ended June 30, 2002, the Company recognized
$228.3 million of revenue that had previously been included in the SAB 101
cumulative effect adjustment recorded as of October 1, 2000. The impact of SAB
101 on total revenues in the first nine months of fiscal 2001 was a net decrease
in revenues of $176.0 million, reflecting the deferral of $415.0 million of
revenues, partially offset by the recognition of $239.0 million of revenue that
was included in SAB 101 deferred revenue as of September 30, 2001.

In addition, during the first quarter of fiscal 2001, the Company recorded a
cumulative effect adjustment, a $29.7 million loss, net of tax, in accordance
with the transition provisions of Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities."

14. GOODWILL AND OTHER INTANGIBLE ASSETS

The Company periodically reviews and evaluates its goodwill and other
intangible assets for potential impairment. Effective October 1, 2001, the
beginning of Tyco's fiscal year 2002, the Company adopted SFAS No. 142,
"Goodwill and Other Intangible Assets," under which goodwill is no longer
amortized but instead is assessed for impairment at least annually. Under the
transition provisions of SFAS No. 142, there was no goodwill impairment at
October 1, 2001. However, during the quarter ended March 31, 2002, circumstances
developed that indicated a potential impairment in the value of goodwill with
respect to Tyco Telecommunications, a reporting unit within the Electonics
segment, and our Tyco Capital segment. An updated valuation was completed as of
March 31, 2002 for Tyco Telecommunications, which resulted in no impairment of
goodwill at that date. See Note 2, "Discontinued Operations of Tyco Capital (CIT
Group Inc.)," for further information regarding the impairment of goodwill
relating to Tyco Capital.

During the quarter ended June 30, 2002, additional circumstances developed
that indicated a potential impairment of the value of goodwill with respect to
the Company's reporting units. Tyco experienced disruptions to its business
surrounding the termination of its previously announced break-up plan, the
resignation of its chief executive officer, further downgrades in its credit
ratings and an additional decline in its market capitalization. Updated
valuations were completed for all reporting units as of June 30, 2002 using an
income approach based on the present value of future cash flows of each
reporting unit. An additional discount factor was then applied to reflect a
decrease in reporting

26

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

14. GOODWILL AND OTHER INTANGIBLE ASSETS (CONTINUED)
unit valuations for recent disruptions at the Company's corporate offices and
negative publicity about Tyco, as evidenced by the decline in the Company's
total market capitalization. This resulted in an estimated goodwill impairment
on continuing operations of $513.0 million, $389.1 million relating to Tyco
Telecommunications and $123.9 million relating to Tyco Infrastructure, a
reporting unit within the Engineered Products and Services segment.

SFAS 142 requires a second step analysis whenever a reporting unit's book
value exceeds estimated fair value. This analysis requires the Company to
estimate the fair value of the reporting unit's individual assets and
liabilities to complete the analysis of goodwill as of June 30, 2002. The
Company expects to complete this analysis in the quarter ending September 30,
2002 for Tyco Telecommunications and Tyco Infrastructure to determine if any
adjustments to the estimated goodwill impairment charges recorded are necessary.

Further disruptions to Tyco's business such as vendor credit constraints,
continued downgrades in Tyco's credit ratings, and additional market
capitalization declines may result in the Company having to perform another SFAS
142 first step valuation analysis for all of its reporting units prior to the
required annual assessment. These types of events and the resulting analysis
could result in additional charges for goodwill and other asset impairments.

Following is a reconciliation of previously reported financial information
to pro forma amounts excluding goodwill amortization for the quarter and nine
months ended June 30, 2001 ($ in millions, except per share data):

27

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

14. GOODWILL AND OTHER INTANGIBLE ASSETS (CONTINUED)
The changes in the carrying amount of goodwill for the nine months ended
June 30, 2002, as reclassified for the adoption of SFAS 142, are as follows ($
in millions):

The following table sets forth the gross carrying amount and accumulated
amortization of the Company's intangible assets ($ in millions):

The contracts and related customer relationships are being amortized on a
straight-line basis over a range of less than one year to 40 years. Intellectual
property consists primarily of patents and unpatented technology, which are
being amortized on a straight-line basis over a range of less than one year to
40 years. As of June 30, 2002 the Company had $143.3 million of intellectual
property, consisting primarily of trademarks acquired from Sensormatic, that are
not subject to amortization. As of June 30, 2002 and Sepember 30, 2001, the
Company had $3.9 million of other intangible assets that are not subject to
amortization.

Intangible asset amortization expense for the quarters ended June 30, 2002
and 2001 was $161.2 million and $90.7 million, respectively. Intangible asset
amortization expense for the nine months ended June 30, 2002 and 2001 was
$417.1 million and $246.7 million, respectively.

Amortization expense on intangible assets currently owned by the Company is
expected to be approximately $600 million for each of the next five fiscal
years.

28

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

15. TYCO INTERNATIONAL GROUP S.A.

TIG has issued public and private debt securities, which are fully and
unconditionally guaranteed by Tyco. In accordance with SEC rules, the following
presents condensed consolidating financial information for Tyco, TIG and all
other subsidiaries. Condensed financial information for Tyco and TIG on a
stand-alone basis are presented using the equity method of accounting for
subsidiaries in which they own or control twenty percent or more of the voting
shares.

CONSOLIDATING BALANCE SHEET
JUNE 30, 2002
($ IN MILLIONS)

29

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

15. TYCO INTERNATIONAL GROUP S.A. (CONTINUED)

CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 2001
($ IN MILLIONS)

30

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

15. TYCO INTERNATIONAL GROUP S.A. (CONTINUED)

CONSOLIDATING STATEMENT OF OPERATIONS
QUARTER ENDED JUNE 30, 2002
($ IN MILLIONS)

31

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

15. TYCO INTERNATIONAL GROUP S.A. (CONTINUED)

CONSOLIDATING STATEMENT OF OPERATIONS
QUARTER ENDED JUNE 30, 2001
($ IN MILLIONS)

32

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

15. TYCO INTERNATIONAL GROUP S.A. (CONTINUED)

CONSOLIDATING STATEMENT OF OPERATIONS

NINE MONTHS ENDED JUNE 30, 2002
($ IN MILLIONS)

33

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

15. TYCO INTERNATIONAL GROUP S.A. (CONTINUED)

CONSOLIDATING STATEMENT OF OPERATIONS
NINE MONTHS ENDED JUNE 30, 2001
($ IN MILLIONS)

34

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

15. TYCO INTERNATIONAL GROUP S.A. (CONTINUED)

CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED JUNE 30, 2002
($ IN MILLIONS)

35

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

15. TYCO INTERNATIONAL GROUP S.A. (CONTINUED)

CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED JUNE 30, 2001
($ IN MILLIONS)

36

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

16. SUBSEQUENT EVENTS

On July 25, 2002, the Board of Directors elected Edward D. Breen, the former
President and Chief Operating Officer of Motorola, Inc., as Chairman, President
and Chief Executive Officer of the Company.

On August 1, 2002, Chief Financial Officer, Mark Swartz, announced that he
would leave the Company, but would remain in his current position until a
successor was found.

Also on August 1, 2002, General Counsel, Irving Gutin, announced that he
would be retiring, but would remain in his current position until a successor
was found.

On August 6, 2002, the Board of Directors elected John A. Krol, the former
Chairman and Chief Executive of E.I. du Pont de Nemours & Company, to assume the
seat on the Board of Directors vacated by Mark Swartz' resignation from the
Board on August 1, 2002.

Also on August 6, 2002, the Company appointed Eric M. Pillmore, the former
Senior Vice President and Secretary of Multilink Technology Corporation, to be
Senior Vice President of Corporate Governance, a newly created position.

37

ITEM 2--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

As described in Note 2 to the Consolidated Financial Statements, CIT
Group Inc. ("CIT"), which comprised the operations of the Tyco Capital business
segment, was sold in an initial public offering ("IPO") in July 2002.
Consequently, the results of CIT are presented as discontinued operations.
References to Tyco refer to its continuing operations, with the exception of the
discussions regarding discontinued operations below. The continuing operations
of Tyco represent what was referred to as Tyco Industrial in prior filings.

OVERVIEW

Our results for the quarter and nine months ended June 30, 2002 were
adversely affected by softness in demand in the telecommunications and
electronics markets, the termination of our previously announced break-up plan,
rumors, negative publicity, the resignation of our chief executive officer and
the announced investigation being conducted by the Company's outside counsel,
all of which affected employees, customers, vendors and investors. These effects
are continuing. Subsequent to the end of the third quarter, we announced the
hiring of a new chief executive officer, the resignation of our chief financial
officer as soon as a replacement is identified, turnover of other corporate
executive officers and external and internal investigations.

Mr. Edward Breen, who was appointed Chief Executive Officer at Tyco in
July 2002, has certified Tyco's Form 10-Q Report for the Third Quarter 2002 in
accordance with the requirements of Section 906 of the Sarbanes-Oxley Act 2002.

Mr. Breen joined the Company subsequent to the end of the Third Quarter
2002. Particularly because Mr. Breen has been employed by the Company for less
than three weeks, the Company emphasizes that his signature is subject to all of
the qualifications and precautionary statements incorporated in this 10-Q
Report. Mr. Breen has not been at Tyco long enough to have conducted an in-depth
review of Tyco's accounting. However, Mr. Breen has initiated an in-depth review
of Tyco's accounting beginning with fiscal year 1999 and extending into the
fourth quarter of the current fiscal year. Additional information on the nature
and scope of this review is provided on p. 41.

Upon assuming his position of Chief Executive Officer, Mr. Breen stated that
one of his immediate priorities is to restore the credibility of Tyco with
investors and regulators. For that reason, Mr. Breen believes it is important to
undertake this in-depth review. Accordingly, Mr. Breen has directed that the law
firm of Boies, Schiller & Flexner and the forensic accounting firm of Urbach
Kahn & Werlin advisors perform this review, in conjunction with the Company's
auditor, Pricewaterhousecoopers LLP ("PwC"). Boies, Schiller & Flexner and
Urbach Kahn & Werlin have been performing the previously announced internal
investigation of compensation, related-party transactions and other matters that
arose with the departure of the prior CEO.

Management notes that Tyco currently has no reason to believe that there are
any material adjustments necessary to the Company's financial results. However,
Mr. Breen believes that, in view of recent events at the Company, this in-depth
review of accounting practices is important if the Company is to provide further
assurance to shareholders and regulators that accounting decisions made at Tyco
have been appropriate and consistent with Generally Accepted Accounting
Principles. If this internal review were to reveal any material adjustments
necessary to the Company's financial results, the Company of course would
promptly disclose such adjustments.

The Division of Corporation Finance of the U.S. Securities and Exchange
Commission ("SEC") is performing a full review of Tyco's most recent Form 10-K
and subsequent Form 10-Q filings. While the review is still ongoing, to date we
have agreed to amend those filings to expand the disclosures throughout the
Notes to Consolidated Financial Statements ("Footnotes") and Management's
Discussion and Analysis of Financial Conditions and Results of Operations
("MD&A"), and we have

38

agreed to reclassify amounts in the tables related to restructuring liabilities
and purchase accounting liabilities. These reclassifications are reflected in
this quarterly report on Form 10-Q in Notes 3 and 7 to the Consolidated
Financial Statements. As noted above, the SEC Staff review is ongoing and we are
in the process of responding to many questions regarding various accounting and
disclosure matters. To date the areas of comment include, among others, adequacy
of disclosures and explanations in the Footnotes and MD&A, acquisition
integration plans and related purchase accounting liabilities, accounting for
the purchase of security monitoring contracts and segment data. In addition,
during the course of the review, the SEC staff may raise comments with respect
to other accounting or disclosure matters. We cannot predict when this review
will be completed or the nature of amendments that may be required as a result
of this review.

In addition, the Company's outside counsel Boies, Schiller & Flexner LLP
("Boies") has conducted an investigation reviewing: (1) transactions between the
Company and its former Chief Executive Officer, certain other former and current
officers of the Company and members of the Board of Directors and (2) the
accounting for those and certain other transactions. Based on the Boies firm's
completion of the initial phase of its investigation, we expect to file a Form
8-K report by September 15, 2002. As the investigation progresses its scope may
be expanded.

Our strategy and near-term actions focus on enhancing internal growth within
existing Tyco businesses. We plan to achieve this goal through new product
innovation, increased service and continued geographic expansion. Acquisitions
have been an important part of Tyco's growth in recent years. While we will
continue to make selected complementary acquisitions, we anticipate that the
amount of acquisition activity will be significantly reduced, and, therefore,
expect that our growth rate in revenues and earnings from acquisitions will also
be reduced as compared to prior periods.

As evidenced by the restructuring charges recorded during the nine months
ended June 30, 2002, we will continue to implement cost-cutting initiatives in
order to improve earnings and margins on a prospective basis.

Information for all periods presented below reflects the grouping of Tyco's
businesses into four segments, consisting of Electronics, Fire and Security
Services, Healthcare and Specialty Products, and Engineered Products and
Services. During the first quarter of fiscal 2002, we changed our internal
reporting structure (due to the amalgamation with TyCom which eliminated the
publicly held minority interest) such that the operations of the former
Telecommunications segment are now reported as part of the Electronics segment.
In addition, during the third quarter of fiscal 2002, a change was made to our
internal reporting structure such that the operations of Tyco's flow control
businesses and the environmental engineering business (previously reported
within the Fire and Security Services segment) and Tyco's electrical and metal
products business (previously reported within the Electronics segment) now
comprise the Company's new Engineered Products and Services segment. Also in the
quarter ended June 30, 2002, Tyco began the execution of a plan to sell its
financial services business (Tyco Capital) through an IPO. The historical
results of our financial services business are presented as "Discontinued
Operations." See "Discontinued Operations of Tyco Capital (CIT Group Inc.)"
below for more information regarding the discontinued operations of Tyco
Capital. The Company has conformed its segment reporting accordingly and has
reclassified comparative prior period information to reflect these changes.

Sales increased 5.1% during the quarter ended June 30, 2002 to
$9,123.7 million from $8,680.4 million in the quarter ended June 30, 2001. Tyco
had a loss from continuing operations of $84.1 million for the quarter ended
June 30, 2002, as compared to income from continuing operations of
$1,109.2 million in the quarter ended June 30, 2001. Loss from continuing
operations for the quarter ended June 30, 2002 included charges totaling
$955.2 million ($897.7 million after-tax) consisting of the following:
(i) goodwill impairment charges of $513.0 million relating to continuing
operations; (ii) impairment charges of $239.4 million related primarily to the
impairment of intangible assets

39

associated with a Healthcare business line sold in July 2002 and the impairment
of property, plant and equipment associated with the termination of a software
development project within the Fire and Security Services segment; (iii) net
restructuring and other unusual charges of $182.9 million, of which
$2.5 million is included in cost of sales, related primarily to the write-off of
investment banking fees and other deal costs associated with the terminated
breakup plan and certain acquisitions that were not completed, and to a lesser
extent, to severance associated with consolidating and streamlining operations
and an accrual for anticipated resolution and disposition of various labor and
employment matters within the Fire and Security Services segment and severance
and facility-related charges associated with streamlining the business; (iv) a
write-off of purchased in-process research and development related to the
acquisition of Sensormatic of $13.4 million; and (v) a loss on the write-off of
investments of $6.5 million. Income from continuing operations for the quarter
ended June 30, 2001 included a net charge of $118.8 million ($92.8 million
after-tax charge) consisting of the following: (i) a loss on the write-down of
investments of $129.9 million; (ii) restructuring and other unusual charges of
$50.2 million, of which $7.4 million is included in cost of sales, primarily
related to certain Fire and Security Services and Engineered Products and
Services businesses; (iii) impairment charges of $2.8 million primarily
associated with the closure of certain manufacturing plants; and (iv) an unusual
credit of $64.1 million related to the sale of common shares of a subsidiary.

Sales increased 3.5% during the nine months ended June 30, 2002 to
$26,414.8 million from $25,519.2 million in the nine months ended June 30, 2001.
Tyco had a loss from continuing operations of $989.4 million in the nine months
ended June 30, 2002, as compared to income from continuing operations of
$3,220.4 million in the nine months ended June 30, 2001. Loss from continuing
operations for the nine months ended June 30, 2002 included charges totaling
$4,229.4 million ($4,064.8 million after-tax), consisting of the following:
(i) goodwill impairment charge of $513.0 million relating to continuing
operations; (ii) impairment charges of $2,652.2 million primarily related to the
write-down of the TGN; (iii) restructuring and other unusual charges of
$863.7 million, of which $259.6 million is included in cost of sales, primarily
related to the write-down of inventory and facility closures within our
Electronics segment; (iv) a write-off of purchased in-process research and
development related to the acquisition of Sensormatic of $13.4 million; and
(v) a loss on the write-off of investments of $187.1 million. Income from
continuing operations for the nine months ended June 30, 2001 included a net
credit of $41.6 million ($96.9 million after-tax net charge) consisting of the
following: (i) restructuring and other unusual charges of $253.7 million, of
which $78.8 million is included in cost of sales, related primarily to the
closure of certain facilities within the electronics businesses; (ii) a
write-off of purchased in-process research and development related to the
acquisition of Mallinckrodt Inc. ("Mallinckrodt") of $184.3 million; (iii) a
loss on the write-down of investments of $133.8 million; (iv) impairment charges
of $27.9 million primarily related to the closure of certain facilities within
the Electronics and Healthcare businesses; (v) a net gain on sale of businesses
of $410.4 million, principally related to the sale of ADT Automotive; (vi) an
unusual credit of $166.8 million related to the settlement of litigation; and
(vii) an unusual credit of $64.1 million related to the sale of common shares of
a subsidiary.

We are currently assessing the potential impact of various proposed
legislation, which would deny U.S. federal government contracts to U.S.
companies that move their corporate location abroad. Tyco's evolution to
becoming a Bermuda-based company was a result of the 1997 business combination
of Tyco International Ltd., a Massachusetts corporation, and ADT Limited (a
public company that had been located in Bermuda since the 1980's with origins
dating back to the United Kingdom since the early 1900's). Currently, Tyco's
revenues related to U.S. federal government contracts account for less than 3%
of the total sales for the nine months ended June 30, 2002. There is other
similar proposed tax legislation which could substantially increase our
corporate income taxes and, consequently, decrease future net income and
increase our future cash outlay for taxes.

40

Results before impairment, restructuring and other unusual items are
commonly used as a basis for measuring operating performance, but they should
not be considered an alternative to operating income determined in accordance
with generally accepted accounting principles ("GAAP"). For more information on
impairment, restructuring and other unusual charges (credits), see Notes 7, 8
and 9 to the Consolidated Financial Statements.

With respect to the internal review of the Company's accounting cited on p. 6,
Mr. Breen has directed that the following measures be taken:

- In conjunction with PwC, the law firm of Boies, Schiller & Flexner and the
forensic accounting firm, Urbach Kahn & Werlin Advisors (UKW), will
conduct an in-depth review of Tyco's accounting beginning with fiscal year
1999 and extending into the fourth quarter of the current fiscal year
including, but not limited to, reviewing Tyco's revenues, profits, cash
flow and internal auditing procedures as well as past and present
accounting for acquisitions and reserves. UKW has been working with the
Boies firm, the Company's outside counsel, in the Company's internal
investigation of compensation, related-party transactions and other
matters that arose with the departure of the prior CEO.

- The presidents of Tyco's operating businesses and their financial officers
will work with PwC, UKW and the Boies firm in this review. All relevant
officers and accounting personnel in the Company have been directed to
cooperate in the review.

- The presidents of Tyco's operating businesses and their financial officers
will be informed that they will be required to sign and certify the
financial results of their respective operations.

The Company understands that PwC, UKW, the Boies firm and all the executives
and officers of the company will continue to cooperate fully with the Securities
and Exchange Commission (SEC) and other authorities.

41

The following table reconciles operating income before charges (credits) to
net (loss) income for the quarters and nine months ended June 30, 2002 and 2001
($ in millions):

- ------------------------------

(1) This amount is the sum of the operating profits of Tyco's four business
segments as set forth in the segment discussion below, less certain
corporate expenses in the amount of $70.0 million and $55.2 million for the
quarters ended June 30, 2002 and 2001 and $203.8 million and $163.9 million
for the nine months ended June 30, 2002 and 2001, respectively, and is
before net restructuring and other unusual charges, the write-off of
purchased in-process research and development, charges for the impairment of
goodwill and long-lived assets, and goodwill amortization. Restructuring and
other unusual charges related to inventory in the amount of $2.5 million and
$7.4 million for the quarters ended June 30, 2002 and 2001, and
$259.6 million and $78.8 million for the nine months ended June 30, 2002 and
2001, respectively, have been deducted as part of cost of sales in the
Consolidated Statements of Operations. They have not, however, been deducted
as part of cost of sales for the purpose of calculating operating income
before certain (charges) credits, net, in this table. These charges are
instead included in restructuring and other unusual (charges) credits, net.

Segment revenues increased $443.3 million, or 5.1%, to $9,123.7 million for
the quarter, and increased $895.6 million, or 3.5%, to $26,414.8 million in the
nine months ended June 30, 2002, respectively. For the quarter and nine month
periods ended June 30, 2002, the increases in revenue at Fire and Security
Services, Healthcare and Specialty Products, and Engineered Products and
Services in the aggregate were slightly greater than the decrease in revenue in
the Electronics segment, resulting in a modest overall increase in revenues. The
net increases resulted primarily from acquisitions. Operating income before
certain (charges) credits decreased $534.3 million, or 28.5%, to
$1,341.3 million in the quarter ended June 30, 2002 and decreased
$976.7 million, or 18.1%, to $4,408.7 million in the nine months ended June 30,
2002.

Total operating income before charges (credits) as a percentage of revenue
was 14.7% and 21.6% in the quarters ended June 30, 2002 and 2001, and 16.7% and
21.1% in the nine months ended June 30, 2002 and 2001, respectively. The
decrease in the quarter was due to decreased margins in all

42

four segments, particularly within our Electronics segment. The decrease in the
nine months was primarily due to decreased margins in the Electronics segment
and, to a lesser extent, in the Fire and Security Services segment. More
detailed information by segment is provided further below.

When we make an acquisition, the acquired company is immediately integrated
with our existing operations. As part of our integration process, we often
eliminate duplicate functions by closing corporate and administrative offices,
and we attempt to make the combined companies more cost efficient by combining
manufacturing processes, product lines, sales offices and marketing efforts. As
a result of our integration processes, most acquired companies become no longer
separately identifiable. Consequently, we do not separately track the
post-acquisition financial results of acquired companies. The discussions
following the tables below include percentages for revenue growth or decline
that exclude increased revenue attributable to specified acquisitions and that
eliminate the effects of period to period currency fluctuations. Revenue growth
percentages excluding the specified acquisitions are pro forma estimates
calculated by assuming the acquisitions were made at the beginning of the
relevant fiscal periods by adding back pre-acquisition results of the specified
acquired companies for both periods in the comparison. We calculate pro forma
segment growth using this methodology because we generally do not have the
ability to capture post-acquisition revenues related to individual acquisitions
since most companies are immediately integrated upon acquisition. The
calculations of the pro forma growth analysis, excluding acquisitions discussed
in the segment narratives below, include all acquisitions with a purchase price
of $10 million or more in the pro forma calculation and do not include
acquisitions with a purchase price of less than $10 million, due to the relative
size of these smaller acquisitions compared to Tyco's operating results and the
large number of acquisitions during the periods presented. These smaller
acquisitions represent less than 3% of the total purchase price for all
acquisitions during the nine months ended June 30, 2002. Since these pro forma
estimates are based on pre-acquisition revenues, they are not necessarily
indicative of post-acquisition results. This calculation is similar to the
method used in calculating the acquisition-related pro forma results of
operations in Note 3 to the Consolidated Financial Statements, pursuant to
Statement of Financial Accounting Standards No. 141.

QUARTER ENDED JUNE 30, 2002 COMPARED TO QUARTER ENDED JUNE 30, 2001

SALES AND OPERATING INCOME (LOSS) AND MARGINS

The following tables summarize operating results by segment for the quarters
ended June 30, 2002 and 2001 ($ in millions):

- ------------------------------

(1) Results are before impairment, restructuring and other unusual charges,
net, of $948.7 million, of which $2.5 million is included in cost of sales,
for the quarter ended June 30, 2002 and charges of $53.0 million, of which
$7.4 million is included in cost of sales, for the quarter ended June 30,
2001, and goodwill amortization.

ELECTRONICS

The following table sets forth sales and operating income (loss) and margins
for the Electronics segment ($ in millions):

Sales in the Electronics segment decreased 23.4% in the quarter ended
June 30, 2002 compared with the quarter ended June 30, 2001, as a result of
continued softness in demand in the telecommunications, power systems and
printed circuit end markets across all geographic regions. The Electronics
segment is comprised of the core Tyco Electronics group, as well as Tyco
Telecommunications (formerly TyCom). Sales at core Tyco Electronics decreased
$350.6 million, or 12.3%, reflecting softness in demand in most end markets.
Sales at the segment's Telecommunications business declined $461.4 million, or
76.8%, due to fewer third-party manufacturing contracts and a weak undersea
capacity sales market. Excluding the $16.4 million increase from foreign
currency fluctuations and the acquisitions of Transpower Technologies in
November 2001, Communications Instruments, Inc. ("CII") in January 2002, and all
other acquisitions with a purchase price of $10 million or more, pro forma sales
(calculated in the manner described above in "Overview") for the segment
decreased an additional 3.7%. Although there has been approximately 6.3%
quarterly sequential growth in the Electronics segment, we expect the segment to
continue to experience softness in demand as the current downturn in a majority
of the segment's end markets continues, particularly in our Telecommunications
business, where the market is not expected to begin to show signs of recovery in
the near term. As evidenced by the current and preceding quarters' restructuring
charges, management has implemented plans within this segment to reduce the
number of manufacturing plants and sales offices, along with the related
employees, to a size appropriate for the current business environment, while
attempting to maintain the flexibility needed for a potential upturn in these
markets.

44

The 60.8% decrease in operating income before certain charges (credits) and
the decrease in operating margins in the quarter ended June 30, 2002 compared
with the quarter ended June 30, 2001 was primarily due to the decrease in
revenue, which resulted in lower manufacturing volume and increased per unit
costs. To a much lesser extent, the decrease was a result of business
distractions. However, this effect on per unit costs was slightly offset by cost
reduction initiatives.

Operating loss and margins after certain charges (credits) for the quarter
ended June 30, 2002 include a net restructuring and other unusual credit of
$2.1 million. The $2.1 million net credit consists of a restructuring credit of
$9.4 million primarily relating to a revision in estimates of the facilities
charge recorded during the quarter ended March 31, 2002, partially offset by a
restructuring charge of $7.3 million, of which inventory write-downs of
$0.4 million are included in cost of sales, primarily for contract cancellation
fees and employee severance. The net restructuring and other unusual credit for
the quarter is included within the schedule of activity table below within the
segment discussion for the nine months ended June 30, 2002. Operating loss and
margins after certain charges (credits) for the quarter ended June 30, 2002 also
include charges of $5.4 million related to the impairment of property, plant and
equipment and an estimated goodwill impairment charge of $389.1 million relating
to Tyco Telecommunications. For additional information regarding our accounting
for goodwill impairments, see "Accounting Policies--Goodwill" below.

FIRE AND SECURITY SERVICES

The following table sets forth sales and operating income and margins for
the Fire and Security Services segment ($ in millions):

Sales in the Fire and Security Services segment increased 41.7% in the
quarter ended June 30, 2002 over the quarter ended June 30, 2001 primarily as a
result of higher sales volume and increased service revenue within the U.S.
security business and worldwide fire protection business. This increase in
service revenue was due to growth within the ADT U.S. customer base as a direct
result of our worldwide dealer program (security monitoring contracts purchased
from authorized dealers), acquisitions and a strong performance from our
internal sales force. Significant acquisitions included Scott
Technologies, Inc. ("Scott") in May 2001, the electronic security systems
businesses of Cambridge Protection Industries, L.L.C. ("Security Link") and
Sentry S.A. in July 2001, Edison Select in August 2001, SBC/Smith Alarm Systems
("Smith Alarm") in October 2001, and DSC Group and Sensormatic in
November 2001. Excluding the $22.2 million increase from foreign currency
fluctuations, our dealer program, the acquisitions listed above and all other
acquisitions with a purchase price of $10 million or more, pro forma sales
(calculated in the manner described above in "Overview") for the segment were
flat compared to the prior year quarter. There has been approximately 5.5%
sequential quarterly growth in revenues for the segment due to increased revenue
at fire protection, slightly offset by a sequential decline in the U.S. security
business. The U.S. security business has experienced a sequential quarter to
quarter decline in revenues following a temporary surge in activity in the
months immediately after September 11th. This surge in demand has started to
slow down in the third quarter.

45

The 14.8% increase in operating income before certain charges (credits) in
the quarter ended June 30, 2002 over the quarter ended June 30, 2001 was due to
increased revenues as a result of acquisitions. The decrease in operating
margins before certain charges (credits) for the segment was primarily a result
of increased amortization expense, decreased margins at fire protection in Asia
and Australia, lower profitability in the international security businesses as a
result of more difficult commercial markets, and, to a lesser extent, business
distractions. During the current quarter, we received an appraisal of the fair
value of certain intangible assets at Sensormatic, acquired in November 2001,
which caused us to transfer approximately $559.0 million from goodwill to
intangible assets. This resulted in a cumulative catch-up adjustment to
amortization expense of approximately $20.8 million, which is included in
selling, general and administrative expenses.

Operating income and margins after certain charges (credits) for the quarter
ended June 30, 2002 reflect a net restructuring and other unusual charge of
$47.0 million. The $47.0 million net restructuring and other unusual charge
consists of charges of $51.1 million primarily related to an accrual for
anticipated resolution and disposition of various labor and employment matters
and severance and facility-related charges associated with streamlining the
business, somewhat offset by a restructuring credit of $4.1 million. The net
restructuring and other unusual charge for the quarter is included within the
schedule of activity table below within the segment discussion for the nine
months ended June 30, 2002. Also included within operating income for the
quarter ended June 30, 2002 is a charge of $13.4 million for the write-off of
purchased in-process research and development associated with the acquisition of
Sensormatic and a charge of $105.1 million for the impairment of property, plant
and equipment resulting from the termination of a software development project.
Operating income and margins for the quarter ended June 30, 2001 include
restructuring charges of $25.2 million, of which inventory write-downs of
$5.0 million are included in cost of sales, and charges of $2.8 million for the
impairment of property, plant and equipment primarily related to the closure of
existing facilities that had become redundant due to acquisitions.

HEALTHCARE AND SPECIALTY PRODUCTS

The following table sets forth sales and operating income and margins for
the Healthcare and Specialty Products segment ($ in millions):

Sales for the Healthcare and Specialty Products segment increased 11.7% in
the quarter ended June 30, 2002 over the quarter ended June 30, 2001 primarily
as a result of acquisitions, which increased volume in our domestic healthcare
business. The Healthcare and Specialty Products segment is comprised of Tyco
Healthcare and Tyco Plastics and Adhesives. Sales at Tyco Healthcare increased
$236.5 million or 13.1%, reflecting increased sales volume resulting from
acquisitions and, to a lesser extent, due to the introduction of new products at
U.S. Surgical. However, the increase resulting from the launch of new products
was offset by reduced sales of ultrasound and surgical cables (which we

46

expect to continue), the strategic exiting of the diaper business in Canada and
reduced sales of sanitary products. Sales at Tyco Plastics and Adhesives
increased 6.2% over the prior year quarter due to the effect of acquisitions.
The Plastics business has been negatively impacted by the general weakness in
certain of the markets it serves, such as adhesives and hangers. Excluding the
$9.1 million increase from foreign currency exchange fluctuations and the
acquisitions of Linq Industrial Fabrics, Inc. ("Linq") in December 2001, Paragon
Trade Brands ("Paragon") in January 2002, and all other acquisitions with a
purchase price of $10 million or more pro forma sales (calculated in the manner
described above in "Overview") for the Healthcare and Specialty Products segment
remained flat as compared to the same quarter last year. Segment revenues
increased approximately 3% over the last sequential quarter, primarily due to
sales at Tyco Healthcare's international business, the domestic healthcare
business and Mallinckrodt. Sales of medical and imaging product lines increased,
particularly in Japan, as did imaging, nuclear medicine, pharmaceutical, and
respiratory products at Mallinckrodt.

The 2.7% decrease in operating income and decrease in margins before certain
charges in the quarter ended June 30, 2002 compared to the quarter ended
June 30, 2001 was due primarily to a shift in the product mix, higher selling
expenses in certain areas, foreign currency exchange, and unfavorable purchase
price variances, which were partially offset by the benefits of ongoing cost
reductions and lower raw material prices. The introduction of new product lines,
along with cost cutting initiatives implemented during the year, should allow
for prospective revenue growth and margin improvements.

Operating income and margins after certain charges for the quarter ended
June 30, 2002 reflect restructuring and other unusual charges of $33.3 million
primarily related to severance associated with the consolidation of operations
and facility-related costs due to exiting certain business lines within the
international operations. Also included are charges of $1.3 million related to
the write-up of inventory under purchase accounting, which is included in cost
of sales. The restructuring and other unusual charges for the quarter are
included within the schedule of activity table below within the segment
discussion for the nine months ended June 30, 2002. In addition, operating
income and margins after certain charges for the quarter ended June 30, 2002
include a charge for the write-off of long-lived assets of $127.8 million
primarily related to the write-off of intangible assets associated with a
business line sold in July 2002.

ENGINEERED PRODUCTS AND SERVICES

The following table sets forth sales and operating income and margins for
the Engineered Products and Services segment ($ in millions):

Sales for the Engineered Products and Services segment increased 18.5% in
the quarter ended June 30, 2002 over the quarter ended June 30, 2001, primarily
as a result of the integration of

47

acquisitions and, to a lesser extent, due to higher volume at Tyco Valves and
Controls ("TV&C") and an increase in projects at Tyco Infrastructure. Increased
sales at TV&C were largely due to higher demand for industrial valve products
and thermal control products, although product pricing on these valve and
control products remains at very competitive levels. Growth in Tyco
Infrastructure's business over the same quarter last year was primarily due to
revenues from several large water and wastewater projects. Acquisitions included
IMI Bailey Birkett ("IMI") in June 2001, Century Tube Corporation ("Century") in
October 2001, Water & Power Technologies ("Water & Power") in November 2001, and
Clean Air Systems in February 2002. Excluding the $8.5 million increase from
foreign currency exchange fluctuations, the acquisitions listed above, and all
other acquisitions with a purchase price of $10 million or more, pro forma sales
(calculated in the manner described above in "Overview") for the segment
increased 2.4% over the same quarter of the prior year. Sales for the segment
increased approximately 7% over the last sequential quarter primarily due to
increased volume at TV&C and at Tyco Electrical and Metal Products ("TEMP") and
an increase in project revenue at Tyco Infrastructure. TEMP's sales increased
due to the acquisition of Century Tube and increased sales prices as a result of
higher raw material costs, slightly offset by a continued softness in demand
within the automotive and mechanical industries.

The 11.7% decrease in operating income and the decrease in margins before
certain charges in the quarter ended June 30, 2002 compared to the quarter ended
June 30, 2001 was due primarily to the impact of decreased royalty and licensing
fee income from divested businesses, lower margins at TEMP, and business
distractions. Although sales prices increased at TEMP, margins remained flat due
to the higher raw material costs noted above. Slightly offsetting the overall
decrease in margins was an increase in operating income and margins at TV&C.
Despite increased pricing pressures, TV&C has maintained margins as a result of
cost control measures, which were implemented earlier in the year. Although
market weakness and competitive pricing pressures exist in certain of the
segment's markets, cost control initiatives should enable the business to
achieve margin improvements going forward.

Operating income and margins after certain charges for the quarter ended
June 30, 2002 reflect restructuring and other unusual charges of $14.2 million,
of which inventory write-downs of $0.8 million are included in cost of sales,
primarily related to severance and facility-related costs associated with
streamlining the business. The restructuring and other unusual charges for the
quarter are included within the schedule of activity table below within the
segment discussion for the nine months ended June 30, 2002. Operating income
also includes charges of $1.1 million for the impairment of property, plant and
equipment related to the facility closures. Also included is an estimated
goodwill impairment charge of $123.9 million relating to Tyco Infrastructure.
For additional information regarding our accounting for goodwill impairments,
see "Accounting Policies--Goodwill" below. Operating income and margins after
charges for the quarter ended June 30, 2001 includes restructuring and other
unusual charges of $25.0 million, of which $2.4 million is included in cost of
sales, primarily related to a non-recurring charge for warranty reserves and to
the closure of facilities.

FOREIGN CURRENCY

The effect of changes in foreign exchange rates for the quarter ended
June 30, 2002 compared to the quarter ended June 30, 2001 was an increase in
sales of approximately $56.2 million and a decrease in operating income of
approximately $2.8 million.

CORPORATE EXPENSES

Corporate expenses were $70.0 million (excluding unusual charges of
$89.2 million related to the write-off of investment banking fees and other deal
costs associated with the terminated breakup plan and certain acquisitions that
were not completed, and to a lesser extent, severance associated with corporate
employees) in the quarter ended June 30, 2002 as compared to $55.2 million in
the quarter ended June 30, 2001. The increase in the quarter ended June 30, 2002
as compared to the quarter

48

ended June 30, 2001 was due to increased insurance costs, legal fees and other
costs associated with the business disruptions that began during the second
quarter of fiscal 2002.

INTEREST EXPENSE, NET

Net interest expense was $235.5 million in the quarter ended June 30, 2002,
as compared to $178.9 million in the quarter ended June 30, 2001. The increase
is primarily the result of higher average debt balances during the quarter ended
June 30, 2002. Although market interest rates have decreased from the prior
year, our average interest rate for the quarter was flat as compared to the same
quarter last year. This is due to the drawdown of our bank credit facilities,
which replaced our commercial paper program, and the downgrades to our credit
rating, both of which negatively impacted our average rate. We expect our net
interest expense to increase for our fourth fiscal quarter, due to an increase
in our average interest rate partially offset by the expected repayment of debt
during the quarter.

INCOME TAX EXPENSE

The effective income tax rate, excluding the impact of impairment,
restructuring and other unusual charges and loss on the write-off of
investments, was 26.4% during the quarter ended June 30, 2002, as compared to
21.3% in the quarter ended June 30, 2001. The increase in the effective income
tax rate was primarily due to lower earnings in tax jurisdictions with lower
income tax rates.

EXTRAORDINARY ITEMS

In the quarter ended June 30, 2001, Tyco repurchased some high interest rate
debt of acquired companies prior to their scheduled maturities. As a result,
during the quarter ended June 30, 2001, we recorded extraordinary items totaling
$3.4 million, net of tax, which represents the excess of payments made to
debtholders over the recorded book value of the debt repurchased.

49

NINE MONTHS ENDED JUNE 30, 2002 COMPARED TO NINE MONTHS ENDED JUNE 30, 2001

REVENUE AND OPERATING (LOSS) INCOME AND MARGINS

The following tables summarize operating results for the nine months ended
June 30, 2002 and 2001 ($ in millions):

- ------------------------------

(1) Results for the nine months ended June 30, 2002 are before restructuring
and other unusual charges of $863.7 million, of which $259.6 million is in
cost of sales; charges for the impairment of long-lived assets of
$2,652.2 million; charges for goodwill impairment of $513.0 million; and the
write-off of purchased in-process research and development of
$13.4 million.

(2) Results for the nine months ended June 30, 2001 are before net
restructuring and other unusual charges of $86.9 million, of which
$78.8 million is in cost of sales; charges for the impairment of long-lived
assets of $27.9 million; and write-off of purchased in-process research and
development of $184.3 million.

ELECTRONICS

The following table sets forth sales and operating (loss) income and margins
for the Electronics segment ($ in millions):

50

Sales for the Electronics segment decreased 26.2% in the nine months ended
June 30, 2002 compared with the nine months ended June 30, 2001, as a result of
continued softness in demand in the telecommunications, power systems and
printed circuit end markets across all geographic regions. The Electronics
segment is comprised of the core Tyco Electronics group, as well as Tyco
Telecommunications. Sales at core Tyco Electronics decreased $1,842.8 million,
or 20.3%, reflecting softness in demand in certain end markets. Sales at the
segment's Telecommunications business declined $983.0 million, or 58.2%, due to
lack of demand for new cable construction and very weak demand for capacity
sales on the TGN. Excluding the $75.7 million decrease from foreign currency
fluctuations and the acquisitions of CIGI Investment Group, Inc. in
October 2000, Lucent Technologies' Power Systems business in December 2000,
Transpower Technologies in November 2001, CII in January 2002, and all other
acquisitions with a purchase price of $10 million or more, pro forma sales
(calculated in the manner described above in "Overview") for the segment
decreased an additional 7.1%. We expect our Electronics segment to continue to
experience softness in demand during the current downturn in these end markets,
particularly in our Telecommunications business, where the market is not
expected to begin to show signs of recovery in the near term. As evidenced by
the current period's restructuring charges, management has begun to implement
plans within this segment to reduce the number of manufacturing plants and sales
offices, along with the related employees, to a size appropriate for the current
business environment, while attempting to maintain the flexibility needed for a
potential upturn in these markets.

The 51.9% decrease in operating income before certain charges (credits) and
the decrease in operating margins in the nine months ended June 30, 2002
compared with the nine months ended June 30, 2001 was primarily due to the
decrease in revenue, which resulted in lower manufacturing volume and increased
per unit costs. However, per unit costs were slightly offset by cost reduction
initiatives. Results for the current year period also include the continuing
effect of the business distractions that began during the second quarter.

Operating loss and margins after charges (credits) for the nine months ended
June 30, 2002 include net restructuring and other unusual charge of
$609.4 million. The $609.4 million net charge consists of charges totaling
$618.8 million, of which inventory write-downs of $237.9 million are included in
cost of sales, primarily related to the facility closures slightly offset by a
restructuring credit of $9.4 million primarily relating to a revision in
estimates of the facilities charge recorded during the quarter ended March 31,
2002. Also included within operating loss and margins after certain charges
(credits) for the nine months ended June 30, 2002 are charges of
$2,412.5 million for the impairment of property, plant and equipment, primarily
related to the TGN, and goodwill impairment charges of $389.1 million related to
Tyco Telecommunications. For additional information regarding our accounting for
goodwill impairments, see "Accounting Policies--Goodwill" above. Operating
income and margins after charges for the nine months ended June 30, 2001 include
restructuring and other unusual charges of $131.1 million, of which inventory
write-downs of $41.7 million are included in cost of sales, primarily related to
severance associated with the closure of facilities. Also included is a charge
of $14.0 million related to the write-up of inventory under purchase accounting,
which is included in cost of sales, and charges for the impairment of property,
plant and equipment of $14.1 million associated with the facility closures.

As a result of the charges recorded within the Electronics segment during
the nine months ended June 30, 2002, we estimate that our overall cost structure
will be reduced due to the impact of these charges by approximately
$354.7 million on an annualized basis, of which $259.6 million relates to cost
of sales, $6.2 million to depreciation expense and $88.9 million to other
selling, general and administrative expenses. However, since business conditions
do not remain constant the actual reductions in cost may significantly differ
from these amounts.

51

The following table provides additional information about the restructuring
and other unusual charges recorded during the nine months ended June 30, 2002
related to the Electronics segment:

FIRE AND SECURITY SERVICES

The following table sets forth sales and operating income and margins for
the Fire and Security Services segment ($ in millions):

Sales for the Fire and Security Services segment increased 49.2% in the nine
months ended June 30, 2002 over the nine months ended June 30, 2001, primarily
as a result of higher sales volume and increased service revenue in the
worldwide security business and, to a lesser extent, our worldwide fire
protection business. The increase in sales was mostly due to acquisitions and a
higher volume of recurring service revenues from our worldwide security business
and increased sales of fire safety and video surveillance products and access
control systems. Sales for the nine months ended June 30, 2002 include the
effect of the heightened level of security concerns that followed September
11th, which temporarily increased the demand for security-related products.
Significant acquisitions included Simplex Time Recorder Co. in January 2001,
Scott in May 2001, Security Link and Sentry S.A. in July 2001, Edison Select in
August 2001, Smith Alarm in October 2001, and DSC Group and Sensormatic in
November 2001. Excluding the $50.0 million decrease from foreign currency
fluctuations, our dealer program, the acquisitions listed above, and all other
acquisitions with a purchase price of $10 million or more, pro forma sales
(calculated in the manner described above in "Overview") for the segment
increased an estimated 3.4%. We expect that the continued awareness of the need
for fire and security products should offset any general market softness
experienced by the segment.

52

The 45.0% increase in operating income before certain charges (credits) in
the nine months ended June 30, 2002 over the nine months ended June 30, 2001 was
primarily due to acquisitions and, to a lesser extent, due to increased service
volume in our worldwide security and fire protection business. Operating margins
before certain charges (credits) slightly decreased primarily due to lower
margins on newly acquired businesses, pricing pressures in the international
security business, and increased amortization expense. Results for the current
year period also include the continuing effect of the business distractions that
began during the second quarter.

Operating income and margins after certain charges (credits) in the nine
months ended June 30, 2002 include a net restructuring and other unusual charge
of $82.9 million. The net $82.9 million charge consists of charges of
$87.0 million, of which $13.8 million related to the write-up of inventory under
purchase accounting are included in cost of sales, primarily related to an
accrual for anticipated resolution and disposition of various labor and
employment matters and severance and facility-related charges associated with
streamlining the business, slightly offset by a credit of $4.1 million relating
to fiscal 2001 charges. Also included within operating income and margins after
certain charges (credits) for the nine months ended June 30, 2002 is a charge of
$13.4 million for the write-off of purchased in-process research and development
associated with the acquisition of Sensormatic and a charge of $105.1 million
for the impairment of property, plant and equipment resulting from the
termination of a software development project. Operating income and margins
after charges for the nine months ended June 30, 2001 include restructuring and
other unusual charges of $37.1 million, of which inventory write-downs of
$5.0 million are included in cost of sales, primarily related to severance
associated with the closure of existing facilities that had become redundant due
to acquisitions and an environmental remediation project. Also included are
charges of $2.8 million for the impairment of property, plant and equipment
primarily associated with the facility closures.

As a result of the charges recorded within the Fire and Security segment
during the nine months ended June 30, 2002, we estimate that our overall cost
structure will be reduced due to the impact of these charges by approximately
$82.2 million on an annualized basis, $12.2 million of which relates to
depreciation and $70.0 million to other selling, general and administrative
expenses. However, since business conditions do not remain constant, the actual
reductions in cost may significantly differ from these amounts.

The following table provides additional information about the restructuring
and other non-recurring charges recorded during the nine months ended June 30,
2002 related to the Fire and Security Services segment:

53

HEALTHCARE AND SPECIALTY PRODUCTS

The following table sets forth sales and operating income and margins for
the Healthcare and Specialty Products segment ($ in millions):

Sales for the Healthcare and Specialty Products segment increased 10.9% in
the nine months ended June 30, 2002 over the nine months ended June 30, 2001 as
a result of the integration of acquisitions and, to a lesser extent, increased
sales at our domestic healthcare business. The Healthcare and Specialty Products
segment is comprised of Tyco Healthcare and Tyco Plastics and Adhesives. Tyco
Healthcare's sales increased $573.1 million or 11% reflecting increased sales
volume resulting from acquisitions in both our U.S. and international healthcare
businesses. Sales at Tyco Plastics and Adhesives increased $142.3 million or
11.3% over the prior year quarter due to the effect of acquisitions. In
addition, sales for the nine months ended June 30, 2001 included $9.9 million
related to our ADT Automotive business which was sold in October 2000. Excluding
the $42.1 million decrease from foreign currency exchange fluctuations and the
acquisitions of Mallinckrodt in October 2000, InnerDyne, Inc. in December 2000,
Linq in December 2001, Paragon in January 2002, and all other acquisitions with
a purchase price of $10 million or more, pro forma sales (calculated in the
manner described above in "Overview") for the segment were flat compared with
the nine month period of the prior year.

The 9.2% increase in operating income before certain charges in the nine
months ended June 30, 2002 compared to the nine months ended June 30, 2001 was
due primarily to the acquisitions listed above, and operating efficiencies
realized from cost reductions at Mallinckrodt, partially offset by decreased
margins as a result of unfavorable manufacturing variances at Tyco Healthcare,
and decreased margins at Plastics and Adhesives as a result of volume shortfalls
and unfavorable manufacturing variances. The slight decrease in operating
margins before certain charges was due primarily to a shift in the product mix,
higher selling prices in certain areas and unfavorable manufacturing variances.

Operating income and margins after certain charges for the nine months ended
June 30, 2002 reflect restructuring and other unusual charges of $43.3 million
primarily related to severance associated with the consolidation of operations
and facility-related costs due to exiting certain business lines within the
international operations, and to a lesser extent, the write-off of legal fees
and other deal costs associated with acquisitions that were not completed.
Included within the charges of $43.3 million are charges of $1.3 million related
to the write-up of inventory under purchase accounting, which are included in
cost of sales. Operating income and margins after certain charges for the nine
months ended June 30, 2002 also include a charge for the write-off of long-lived
assets of $127.8 million primarily related to the write-off of intangible assets
associated with a business line sold in July 2002.

54

Operating income and margins after certain charges for the nine months ended
June 30, 2001 include restructuring and other unusual charges of $34.0 million,
of which a charge of $25.0 million for the write-up of inventory under purchase
accounting and inventory write-downs of $4.2 million, are included in cost of
sales. Operating income and margins after certain charges for the nine months
ended June 30, 2001 also include a charge of $184.3 million for the write-off of
purchased in-process research and development associated with the acquisition of
Mallinckrodt and charges for the impairment of property, plant and equipment of
$9.6 million primarily related to the closure of the manufacturing plants. As a
result of the charges recorded within the Healthcare and Specialty Products
segment during the nine months ended June 30, 2002, we estimate that our overall
cost structure will be reduced due to the impact of these charges by
approximately $32.7 million on an annualized basis, of which $12.0 million
relates to amortization, $0.2 million to depreciation and $20.5 million to other
selling, general and administrative expenses. However, since business conditions
do not remain constant, the actual reductions in cost may significantly differ
from these amounts.

The following table provides additional information about the restructuring
and other unusual charges recorded during the nine months ended June 30, 2002
related to the Healthcare and Specialty Products segment:

ENGINEERED PRODUCTS AND SERVICES

The following table sets forth sales and operating income and margins for
the Engineered Products and Services segment ($ in millions):

The 14.9% increase in sales in the nine months ended June 30, 2002 over the
nine months ended June 30, 2001 was primarily the result of the integration of
acquisitions and increased revenue at TV&C and Tyco Infrastructure. The increase
at TV&C was due to increased demand of industrial valve and control products, as
well as thermal control products, while the increase at Tyco Infrastructure was
due to several large water and wastewater projects. Acquisitions included
Pyrotenax in March 2001, IMI in June 2001, Century in October 2001, Water &
Power in November 2001, and Clean Air Systems in February 2002. Excluding the
$31.9 million decrease from foreign currency exchange and the impact of the
acquisitions listed above, and all other acquisitions with a purchase price of
$10 million or more, pro forma sales (calculated in the manner described above
in "Overview") for the segment were flat compared with the nine month period of
the prior year.

55

The 7.9% decrease in operating income and the decrease in operating margins
before certain charges in the nine months ended June 30, 2002 over the nine
months ended June 30, 2001 was primarily due to the impact of lower margins at
TEMP, decreased royalty and licensing fee income from divested businesses and
reduced market activity due to continued softness in demand and worldwide
competitive pressures. This overall decrease was slightly offset by increased
margins at Tyco Flow Control, due to the effect of acquisitions. Results for the
current year period also include the continuing effect of the business
distractions that began during the second quarter.

Operating income and margins after certain charges for the nine months ended
June 30, 2002 reflect restructuring and other unusual charges of $38.9 million,
of which inventory write-downs of $6.6 million are included in cost of sales,
primarily related to severance and facility-related costs associated with
streamlining the business and charges of $6.8 million for the impairment of
property, plant and equipment associated with the closure of facilities. Also
included are goodwill impairment charges of $123.9 million relating to Tyco
Infrastructure. For additional information regarding our accounting for goodwill
impairments, see "Accounting Policies--Goodwill" above. Operating income and
margins after charges for the nine months ended June 30, 2001 include
restructuring and other unusual charges of $48.1 million, of which inventory
write-downs of $2.9 million are included in cost of sales, and charges for the
impairment of property, plant and equipment of $1.4 million, primarily related
to the closure of facilities.

As a result of the charges recorded within the Engineered Products and
Services segment during the nine months ended June 30, 2002, we estimate that
our overall cost structure will be reduced due to the impact of these charges by
approximately $29.0 million on an annualized basis, of which $24.2 million
relates to cost of sales and $4.8 million to selling, general and administrative
expenses. However, since business conditions do not remain constant the actual
reductions in cost may significantly differ from these amounts.

The following table provides additional information about the restructuring
and other unusual charges recorded during the nine months ended June 30, 2002
related to the Engineered Products and Services segment:

FOREIGN CURRENCY

The effect of changes in foreign exchange rates for the nine months ended
June 30, 2002 compared to the nine months ended June 30, 2001 was a decrease in
sales of approximately $199.7 million and a decrease in operating income of
approximately $63.2 million.

CORPORATE EXPENSES

Corporate expenses were $203.8 million (excluding an unusual charge of
$89.2 million, of which $76.0 million relates to the write-off of investment
banking fees and other deal costs associated with the terminated breakup plan
and certain acquisitions that were not completed, and $13.2 million related to
severance associated with corporate employees) in the nine months ended
June 30, 2002 as compared to $163.9 million (excluding an unusual net credit of
$163.4 million primarily for the settlement of litigation) in the nine months
ended June 30, 2001. The increase in the nine months ended June 30, 2002 as
compared to the nine months ended June 30, 2001 was due to increased insurance
costs, legal fees and other costs associated with the business disruptions that
began during the second quarter of fiscal 2002.

56

INTEREST EXPENSE, NET

Net interest expense was $634.2 million in the nine months ended June 30,
2002, as compared to $574.3 million in the nine months ended June 30, 2001. The
increase is primarily the result of higher average debt balances during the nine
months ended June 30, 2002, slightly offset by a lower average interest rate.
Interest on our variable-rate term debt declined due to a decline in market
interest rates; however, this decline was offset by an increase in the spreads
over market rates at which we were able to borrow due to the credit downgrades
that began in February 2002.

INCOME TAX EXPENSE

The effective income tax rate, excluding the impact of purchased in-process
research and development, restructuring and other unusual charges, charges for
the impairment of long-lived assets and net loss on investments and gain on the
sale of businesses, was 18.5% during the nine months ended June 30, 2002, as
compared to 23.9% in the nine months ended June 30, 2001. The decrease in the
effective income tax rate was primarily due to lower earnings in tax
jurisdictions with higher income tax rates and due to goodwill (which was not
deductible for tax purposes) no longer being amortized.

EXTRAORDINARY ITEMS

Tyco has repurchased some high interest rate debt of acquired companies
prior to their scheduled maturities. In the nine months ended June 30, 2002, the
Company recorded extraordinary items totaling $3.5 million, net of tax, as
compared to $13.7 million, net of tax, in the nine months ended June 30, 2001,
which represents the excess of payments made to debtholders over the recorded
book value of the debt repurchased.

CUMULATIVE EFFECT OF ACCOUNTING CHANGES

In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), in which the SEC Staff expressed
its views regarding the appropriate recognition of revenue in a variety of
circumstances, some of which are relevant to us. As required under SAB 101, we
modified our revenue recognition policies with respect to the installation of
electronic security systems. In addition, in response to SAB 101, we undertook a
review of our revenue recognition practices and identified certain provisions
included in a limited number of sales arrangements that delayed the recognition
of revenue under SAB 101. During the fourth quarter of fiscal 2001, we changed
our method of accounting for these items retroactive to the beginning of the
fiscal year to conform to the requirements of SAB 101. This was reported as a
$653.7 million after-tax ($1,005.6 million pre-tax) charge for the cumulative
effect of change in accounting principle in the Consolidated Statement of
Operations for the first quarter of fiscal 2001.

In addition, during the first quarter of fiscal 2001, we recorded a
cumulative effect adjustment, a $29.7 million loss, net of tax, in accordance
with the transition provisions of Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities."

ACCOUNTING POLICIES

The preparation of consolidated financial statements in conformity with GAAP
requires management to use judgment in making estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities and the reported amounts of revenues and expenses. The
following accounting policies are based on, among other things, judgments and
assumptions made by management that include inherent risks and uncertainties.
Management's estimates are based on the relevant information available at the
end of each period.

Investments--Investments for which Tyco does not have the ability to
exercise significant influence and for which there is not a readily determinable
market value are accounted for under the cost method of accounting. Investments
are recorded at the lower of cost or net realizable value. We write

57

down investments to net realizable value when the loss is deemed to be other
than temporary. Management uses judgment in determining when an unrealized loss
is deemed to be other than temporary, in which case such loss is charged to
earnings. Since judgment is involved in determining when a loss is other than
temporary, there is risk that the carrying value of our investments may be
overstated or understated.

Long-Lived Assets--Management periodically evaluates the net realizable
value of long-lived assets, including property, plant and equipment and the TGN,
relying on a number of factors including operating results, business plans,
economic projections and anticipated future cash flows. We carry long-lived
assets at the lower of cost or net realizable value. Since judgment is involved
in determining the net realizable value of long-lived assets, there is risk that
the carrying value of our long-lived assets may be overstated or understated. We
wrote-off a significant portion of Construction in progress--TGN and the entire
amount placed in service as of March 31, 2002, and management continues to
monitor developments in the fiberoptic capacity markets. It is possible that the
assumptions underlying the impairment analysis will change in such a manner that
a further impairment in value may occur in the foreseeable future.

Goodwill--Effective October 1, 2001, the beginning of Tyco's fiscal year
2002, we adopted SFAS No. 142, "Goodwill and Other Intangible Assets," for all
of Tyco and its subsidiaries.

Since adoption of SFAS No. 142, goodwill is no longer amortized but instead
is assessed for impairment at least as often as annually and as triggering
events occur. In making this assessment, management relies on a number of
factors including operating results, business plans, economic projections,
anticipated future cash flows, and transactions and market place data. There are
inherent uncertainties related to these factors and management's judgement in
applying them to the analysis of goodwill impairment. Since management's
judgment is involved in performing goodwill valuation analyses, there is risk
that the carrying value of our goodwill may be overstated or understated. We
have determined that there is no impact of adopting this new standard under the
transition provisions of SFAS No. 142. However, during the quarter ended
March 31, 2002, circumstances developed that indicated a potential impairment in
the value of goodwill with respect to Tyco Telecommunications, a reporting unit
within the Electronics segment, and our Tyco Capital segment. An updated
valuation was completed as of March 31, 2002 for Tyco Telecommunications, which
resulted in no impairment of goodwill at that date. For additional information
regarding the impairment of goodwill relating to Tyco Capital, see "Discontinued
Operations of Tyco Capital (CIT Group Inc.)" below.

During the quarter ended June 30, 2002, additional circumstances developed
that indicated a potential impairment of the value of goodwill with respect to
our reporting units. We experienced disruptions to our business surrounding the
termination of our previously announced break-up plan, the resignation of our
chief executive officer, further downgrades in our credit ratings and an
additional decline in our market capitalization. Updated valuations were
completed for all reporting units as of June 30, 2002 using an income approach
based on the present value of future cash flows of each reporting unit. An
additional discount factor was then applied to reflect a decrease in reporting
unit valuations for recent disruptions at our corporate offices and negative
publicity, as evidenced by the decline in our total market capitalization. This
resulted in an estimated goodwill impairment on continuing operations of
$513.0 million, $389.1 million relating to Tyco Telecommunications and
$123.9 million relating to Tyco Infrastructure, a reporting unit within the
Engineered Products and Services segment.

SFAS 142 requires a second step analysis whenever a reporting unit's book
value exceeds estimated fair value. This analysis requires that we estimate the
fair value of the reporting unit's individual assets and liabilities to complete
the analysis of goodwill as of June 30, 2002. We expect to complete this
analysis in the quarter ending September 30, 2002 for Tyco Telecommunications
and Tyco Infrastructure to determine if any adjustments to the estimated
goodwill impairment charges recorded are necessary.

58

Further disruptions to our business such as vendor credit constraints,
continued downgrades in our credit ratings, and additional market capitalization
declines may result in our having to perform another SFAS 142 first step
valuation analysis for all of our reporting units prior to the required annual
assessment. These types of events and the resulting analysis could result in
additional charges for goodwill and other asset impairments.

Revenue Recognition--Contract sales for the installation of fire protection
systems, underwater cable systems and other construction related projects are
recorded on the percentage-of-completion method. Profits recognized on contracts
in process are based upon contracted revenue and related estimated cost to
completion. The risk of this methodology is its dependence upon estimates of
costs to completion, which are subject to the uncertainties inherent in
long-term contracts. Revisions in cost estimates as contracts progress have the
effect of increasing or decreasing profits in the current period. Provisions for
anticipated losses are made in the period in which they first become
determinable. If estimates are inaccurate, there is risk that our revenues and
profits for the period may be overstated or understated.

DISCONTINUED OPERATIONS OF TYCO CAPITAL (CIT GROUP INC.)

On April 25, 2002 the Company announced its plan to divest CIT potentially
through an IPO of all of CIT's outstanding shares. In June 2002, management and
the Company's Board of Directors approved the sale of common shares of CIT in an
IPO establishing a measurement date for discontinued operations. Accordingly,
the results of CIT are presented as discontinued operations for all periods.
Prior year amounts include CIT's operating results after June 1, 2001, the date
of its acquisition by Tyco. The sale of 100% of CIT's common shares through an
IPO was completed on July 8, 2002.

The following table presents summary balance sheet information for the
discontinued operations of Tyco Capital at June 30, 2002 and September 30, 2001
($ in millions):

59

Operating results from the discontinued operations of Tyco Capital were as
follows ($ in millions):

- ------------------------------

(1) Average earning assets is the average of finance receivables, operating
lease equipment, finance receivables held for sale and certain investments,
less credit balances of factoring clients.

Tyco Capital's revenues were $1,268.1 million and $4,049.9 million for the
quarter and nine months ended June 30, 2002, respectively, consisting of finance
income of $1,021.9 million and other income of $246.1 million for the quarter
ended June 30, 2002 and finance income of $3,327.6 million and other income of
$723.3 million for the nine months ended June 30, 2002. Tyco Capital's revenues
for the period June 2 through June 30, 2001 were $513.8 million, consisting of
finance income of $417.9 million and other income of $95.9 million. As a
percentage of AEA, finance income was 11.8%, 12.2% and 12.4% for the quarter and
nine months ended June 30, 2002 and for the period June 2 through June 30, 2001,
respectively. For the quarter and nine months ended June 30, 2002, Tyco
Capital's loss before income taxes and minority interest was $2,111.4 million
and $5,976.5 million, respectively. For the period June 2 through June 30, 2001,
Tyco Capital's income before income taxes and minority interest was
$126.0 million.

Net finance margin as a percentage of AEA for the quarter ended June 30,
2002 was favorably impacted primarily by the effect of fair value adjustments in
a new basis of accounting to reflect market interest rates on debt and assets,
including liquidating receivables. Other factors favorably impacting AEA were
the following: (1) exits from non-strategic and under-performing businesses;
(2) the decline in short term interest rates and (3) lower leverage. These
positive factors were partially offset by the full quarterly impact of higher
cost of bank line borrowings and excess cash maintained for liquidity purposes
during the quarter ended June 30, 2002.

Interest expense totaled $370.2 million, $1,091.5 million and
$161.8 million for the quarter and nine months ended June 30, 2002 and for the
period June 2 through June 30, 2001, respectively. As a percentage of AEA,
interest expense was 4.3%, 4.0% and 4.8% for the quarter and nine months ended
June 30, 2002 and for the period June 2 through June 30, 2001, respectively.

60

Other income for Tyco Capital was $246.1 million, $723.3 million and
$95.9 million for the quarter and nine months ended June 30, 2002 and for the
period June 2 through June 30, 2001 respectively, as set forth in the following
table ($ in millions):

Included in fees and other income are miscellaneous fees, syndication fees
and gains from receivable sales.

During the quarter and nine months ended June 30, 2002, Tyco Capital
recorded charges of $260.0 million and $355.0 million, respectively, relating
primarily to a weakness in the competitive local exchange carrier industry
included within its telecommunications portfolio and the economic reforms
instituted by the Argentine government that converted Tyco Capital's
dollar-denominated receivables into peso-denominated receivables. These charges
have been included in the provision for credit losses. The provision for credit
losses was $357.7 million, or 4.13% of AEA, $665.6 million, or 2.45% of AEA, and
$18.6 million, or 0.55% of AEA for the quarter and nine months ended June 30,
2002 and the period June 2 through June 30, 2001. Financing and leasing
portfolio assets totaled $35.7 billion at June 30, 2002 as compared to
$40.7 billion at September 30, 2001, while managed assets totaled $47.7 billion
at June 30, 2002 as compared to $50.9 billion at September 30, 2001. Managed
assets include finance receivables, operating lease equipment, finance
receivables held for sale, certain investments, and finance receivables
previously securitized and still managed by Tyco Capital. The reduced asset
levels reflect the sale and liquidation of under-performing assets in industries
expected to continue to have low margins coupled with lower origination volumes
due to the soft economic environment and funding constraints arising from Tyco
Capital's increased costs of borrowing.

During the quarter ended March 31, 2002, we experienced disruptions to our
business surrounding our announced break-up plan, a downgrade in our credit
ratings, and a significant decline in our market capitalization. During this
same time period, CIT also experienced credit downgrades and a disruption to its
historical funding base. We prepared valuations of our CIT subsidiary, utilizing
a discounted cash flows approach updated for current information and considering
various marketplace assumptions, which indicated a range of values from
impairment of $750 million to excess fair value of $1.5 billion. Based on
management's belief that CIT would be separated from Tyco, receive an upgrade in
its credit ratings, and regain access to the unsecured credit markets, we
initially concluded that CIT had an excess of fair market value over net book
value. Accordingly, management did not believe that there was an impairment of
goodwill of CIT as of March 31, 2002.

However, market-based information used in connection with our preliminary
consideration of the proposed IPO of CIT indicated that CIT's book value
exceeded its estimated fair value as of March 31, 2002. As a result, we have
performed a SFAS 142 first step impairment analysis as of March 31, 2002 and
concluded that an impairment charge was warranted at that date.

Management's objective in performing the SFAS 142 first step analysis was to
obtain relevant market-based data to calculate the estimated fair value of CIT
as of March 31, 2002 based on its projected earnings and market factors expected
to be used by market participants in ascribing value to CIT in the planned
separation of CIT from Tyco. Management obtained relevant market data from our

61

financial advisors regarding the range of price to earnings multiples and market
condition discounts applicable to CIT as of March 31, 2002 and applied these
market data to CIT's projected annual earnings as of March 31, 2002 to calculate
an estimated fair value and any resulting goodwill impairment. The estimated
fair value was compared to the corresponding carrying value of CIT at March 31,
2002. As a result, we restated our Consolidated Financial Statements for the
quarter ended March 31, 2002 to reflect an impairment for the decline in the
estimated fair value of CIT at that time, resulting in an estimated
$4,512.7 million impairment charge as of March 31, 2002, which is included in
discontinued operations.

SFAS 142 requires a second step analysis whenever a reporting unit's book
value exceeds estimated fair value. This analysis requires that we estimate the
fair value of the reporting unit's individual assets and liabilities to complete
the analysis of goodwill as of March 31, 2002. We completed this second step
analysis for CIT during the quarter ended June 30, 2002 and, as a result,
recorded an additional goodwill impairment of $132.0 million. During the
June 30, 2002 quarter, CIT experienced further credit downgrades and the
business environment and other factors continued to negatively impact the likely
proceeds of the IPO. As a result, we performed another first step and second
step analysis as of June 30, 2002 in a manner consistent with the March 2002
process described above. Each of these analyses was based upon updated market
data at June 30, 2002 and through the period immediately following the IPO,
including the IPO proceeds. These analyses resulted in first step and second
step goodwill impairments of $1,719.0 million and $148.0 million, respectively,
which are also included in discontinued operations as of June 30, 2002. We also
recorded an additional impairment charge of $126.4 million in order to
write-down its investment in CIT to net realizable value for a total CIT
goodwill impairment charge of $2,125.4 million for the quarter ended June 30,
2002. This write-down was based upon net IPO proceeds of $4,387.9 million, after
deducting estimated out of pocket expenses, and is included in the loss from
discontinued operations.

62

The following table presents summary cash flow information for the
discontinued operations of Tyco Capital ($ in millions):

LIQUIDITY AND CAPITAL RESOURCES

The following table shows the sources of our cash flow from operating
activities from our continuing operations and the use of a portion of that cash
in our operations for the quarters and nine months ended June 30, 2002 and 2001.
We refer to the net amount of cash generated from operating activities, less
capital expenditures, dividends and proceeds from the sale of accounts
receivable program, as "free cash flow." Management believes cash flow from
operating activities and free cash flow are important measures of operating
performance. However, free cash flow as determined below is not a measure of
financial performance under GAAP, should not be considered a substitute for cash

63

flows from operating activities as determined in accordance with GAAP as a
measure of liquidity, and may not be comparable to similarly titled measures
reported by other companies.

- ------------------------------

(1) This amount is the sum of the operating profits of Tyco's four business
segments as set forth above, less certain corporate expenses, and is before
net restructuring and other unusual charges, a charge for the write-off of
purchased in-process research and development, charges for the impairment of
goodwill and long-lived assets, and goodwill amortization.

(2) This amount is the sum of depreciation of tangible property
($367.3 million and $298.1 million for the quarters ended June 30, 2002 and
2001 and $1,098.8 million and $917.2 million for the nine months ended
June 30, 2002 and 2001, respectively) and amortization of intangible assets
other than goodwill ($161.2 million and $90.7 million for the quarters ended
June 30, 2002 and 2001 and $417.1 million and $246.7 million for the nine
months ended June 30, 2002 and 2001, respectively).

(3) This amount excludes increases in accrued expenses for net restructuring
and other unusual charges of $182.9 million and $50.2 million for the
quarters ended June 30, 2002 and 2001 and charges of $863.7 million and
$86.9 million for the nine months ended June 30, 2002 and 2001 respectively.

(4) This amount includes cash received of $821.5 million and $1,096.7 million
for the quarters ended June 30, 2002 and 2001 and $2,429.0 million and
$2,745.6 million for the nine months ended June 30, 2002 and 2001,
respectively, related to deferred revenue. These amounts exclude deferred
revenue from acquisitions in all periods.

(5) This amount excludes the income tax effect related to restructuring and
other unusual charges of $57.5 million and $26.0 million of benefit for the
quarters ended June 30, 2002 and 2001 and $164.6 million of benefit and
$138.5 million of expense for the nine months ended June 30, 2002 and 2001,
respectively.

(6) This amount is cash paid out for restructuring and other unusual charges.

(7) This amount is net of proceeds of $70.0 million for the quarter ended
June 30, 2001 and $29.5 million and $321.2 million for the nine months
ended June 30, 2002 and 2001, respectively, received in sale-leaseback
transactions.

(8) This amount is before cash payments for purchase accounting and
holdback/earn-out liabilities of $144.4 million and $223.2 million for the
quarters ended June 30, 2002 and 2001 and $520.8 million and $540.6 million
for the nine months ended June 30, 2002 and 2001, respectively.

64

The following table shows cash flow from operating activities and free cash
flow by segment for the nine months ended June 30, 2002.

- ------------------------------

(1) These amounts exclude increases in accrued expenses for restructuring and
other unusual charges and credits and the related income tax effects.

(2) These amounts exclude the income tax effect related to restructuring and
other unusual charges and credits.

During the nine months ended June 30, 2002, we paid out $520.8 million in
cash that was charged against purchase accounting reserves established in
connection with acquisitions. This amount is included in "Cash paid for purchase
accounting and holdback/earn-out liabilities" under Cash Flows From Investing
Activities in the Consolidated Statement of Cash Flows.

During the nine months ended June 30, 2002, we recorded net restructuring
and other unusual charges of $863.7 million, of which charges of $259.6 million
are included in cost of sales, related primarily to the write-down of inventory
and the closure of facilities within the Electronics segment. At September 30,
2001, there existed reserves for restructuring and other unusual charges of
$340.2 million. During the nine months ended June 30, 2002, we paid out
$359.9 million in cash and incurred $322.7 million in non-cash charges that were
charged against these reserves. At June 30, 2002, there remained $521.3 million
of reserves for restructuring and other unusual charges on our Consolidated
Balance Sheet, of which $376.5 million is included in accrued expenses and other
current liabilities and $144.8 million is included in other long-term
liabilities.

In April 2002, we terminated our previously announced plan to separate into
four independent, publicly traded companies. In addition, we announced that we
planned to divest of CIT Group Inc. through an initial public offering ("IPO")
of all of CIT's outstanding shares, which was completed on July 8, 2002.

During the nine months ended June 30, 2002, we purchased businesses for
$3,747.7 million and customer contracts for electronic security services for
$1,074.6 million. The aggregate cost of $4,822.3 million consists of
$2,756.8 million paid in cash, net of $155.3 million of cash acquired,
$1,917.6 million paid in the form of Tyco common shares, and assumed stock
options and pre-existing put option rights with a fair value of $147.9 million
($101.9 million of put option rights have been paid

65

in cash). Also during the nine months, we completed our amalgamation with TyCom,
and TyCom shares not already owned by Tyco were converted into approximately
17.7 million Tyco common shares valued at $819.9 million. Debt of acquired
companies aggregated $790.2 million.

During fiscal 2001, we entered into an agreement to acquire C.R.
Bard, Inc., a healthcare products manufacturer. On February 6, 2002, Tyco and
C.R. Bard, Inc. mutually terminated the merger agreement. Each party bore its
own costs, and no break up fee was paid.

During fiscal 2002, we entered into an agreement to acquire McGrath
RentCorp, a leading rental provider of modular offices and classrooms and
electronic test equipment. On July 1, 2002, McGrath RentCorp elected to
terminate the transaction agreement. Tyco reimbursed McGrath's cost and expenses
in the amount of $1.25 million.

At the beginning of fiscal 2002, our purchase accounting reserves were
$702.1 million as a result of purchase accounting transactions in prior years.
In connection with fiscal 2002 acquisitions, we established purchase accounting
reserves of $182.2 million for transaction and integration costs. In addition,
purchase accounting liabilities of $338.6 million and a corresponding increase
to goodwill and deferred tax assets were recorded during the nine months ended
June 30, 2002 relating to fiscal 2001 acquisitions. These reserves related
primarily to revisions associated with finalizing the exit plans of LPS,
Microser, DAAG, Edison and SecurityLink, all acquired during fiscal 2001. Also,
during the nine months ended June 30, 2002, we reclassified $25.0 million of
fair value adjustments related to the write-down of assets for prior year
acquisitions out of purchase accounting accruals and into the appropriate asset
or liability account. This reclassification had no effect on the amount of
goodwill that was recorded. During the nine months ended June 30, 2002, we paid
out $381.7 million in cash for purchase accounting liabilities related to
current and prior years' acquisitions. In addition, we paid out $139.1 million
relating to holdback/earn-out liabilities primarily related to certain prior
period acquisitions, and incurred $2.5 million in non-cash charges and
reclassifications (including $2.3 million relating to earn-out liabilities)
against the reserves established during and prior to this nine-month period. In
addition, during the nine months ended June 30, 2002, we assumed pre-existing
put option rights of $105.9 million, of which $101.9 million has been paid in
cash. Holdback liabilities represent a portion of the purchase price that is
withheld from the seller pending finalization of the acquisition balance sheet.
Certain acquisitions have provisions which require Tyco to make additional
"earn-out" payments to the sellers if the acquired company achieves certain
milestones subsequent to its acquisition by Tyco. These earn-out payments are
tied to certain performance measures, such as revenue, gross margin or earnings
growth. Also, in the nine months ended June 30, 2002, we determined that
$101.9 million of purchase accounting reserves related to acquisitions prior to
fiscal 2002 were not needed and reversed that amount against goodwill. At
June 30, 2002, there remained $714.1 million in purchase accounting reserves on
our Consolidated Balance Sheet, of which $460.8 million is included in accrued
expenses and other current liabilities and $253.3 million is included in other
long-term liabilities. In addition, $277.7 million of holdback/earn-out
liabilities remained on our Consolidated Balance Sheet, of which $126.5 million
are included in accrued expenses and other current liabilities and
$151.2 million are included in other long-term liabilities at June 30, 2002.

The net change in working capital, net of the effects of acquisitions and
divestitures, was an increase of $252.5 million in the nine months ended
June 30, 2002, excluding restructuring and other unusual charges of
$4,042.3 million. The components of this change are set forth in detail in our
Consolidated Statement of Cash Flows. We focus on maximizing the cash flow from
our operating businesses and attempt to keep the working capital employed in the
businesses to the minimum level required for efficient operations. Working
capital increased during the period, in part due to a significant decrease in
accounts payable. Many of our suppliers would not extend normal credit terms as
a result of our perceived liquidity issues related to rumors, negative
publicity, resignations and turn-over of corporate executive officers, and other
matters.

66

During the nine months ended June 30, 2002, we decreased our participation
in our sale of accounts receivable program by approximately $113.6 million.

Acquisitions have been an important part of Tyco's growth in recent years.
While we will continue to make selected complementary acquisitions, we
anticipate that the amount of acquisition activity will be significantly reduced
and, therefore, our growth rate from acquisitions will continue to be reduced as
compared to prior quarters. Goodwill and other intangible assets were
$33,599.1 million at June 30, 2002, compared to $28,740.9 million at
September 30, 2001.

During the nine months ended June 30, 2002, we received proceeds of
$186.3 million from the exercise of common share options and used
$789.1 million of cash to repurchase our own common shares. Other than to
satisfy the pre-existing put option rights associated with the acquisition of
Sensormatic, we ceased repurchasing our common shares and will not consider
implementing future repurchases until our short-term debt levels are
significantly reduced.

Shareholders' equity was $27,202.3 million, or $13.63 per share, at
June 30, 2002, compared to $31,737.4 million, or $16.40 per share, at
September 30, 2001. The decrease in shareholders' equity was due primarily to:
(i) a net loss of $7,286.5 million for the nine months ended June 30, 2002, and
(ii) the repurchase of our common shares discussed above. This decrease was
partially offset by the following: (i) the issuance of approximately
47.6 million common shares valued at $1,917.6 million for the acquisition of
Sensormatic, (ii) the conversion of TyCom shares not already owned by Tyco into
17.7 million Tyco common shares valued at $819.9 million in connection with the
amalgamation with TyCom, (iii) the issuance of 44,139 common shares valued at
$2.3 million related to an earn-out payment, and (iv) $42.0 million for the fair
value of options assumed.

Total debt as a percentage of total capitalization (total debt and
shareholders' equity) was 49% at June 30, 2002 and 41% at September 30, 2001.
Some of our debt agreements, including our bank credit agreements, contain
covenants that would result in a default if our total debt as a percentage of
total capitalization is greater than 52.5%. A significant decline in our
shareholders' equity, including a decline due to a significant impairment of
goodwill or other assets, could cause a default under this covenant. We had
$2.8 billion of cash and cash equivalents as of June 30, 2002 and received
$4.4 billion of proceeds from the CIT IPO in July 2002. These funds could be
used to repurchase debt and lower this ratio. Net debt (total debt less cash and
cash equivalents) as a percent of net capitalization (net debt and shareholders'
equity) was 46% at June 30, 2002 and 38% at September 30, 2001.

The source of the cash used for acquisitions in fiscal 2002 was primarily
proceeds from the issuance of debt. At June 30, 2002, total debt relating to
continuing operations was $26,127.1 million, as compared to $21,619.0 million at
September 30, 2001. Our cash balance relating to continuing operations increased
to $2,793.9 million at June 30, 2002, as compared to $1,779.2 million at
September 30, 2001.

67

The following summarizes Tyco's change in net debt for the nine months ended
June 30, 2002 ($ in millions):

Total debt at September 30, 2001............................ $21,619.0
Less: cash and cash equivalents at September 30, 2001....... (1,779.2)
---------
NET DEBT BALANCE AT SEPTEMBER 30, 2001...................... 19,839.8
Less the following:
Operating cash flow from continuing operations.............. 3,931.5
Purchase of property, plant and equipment................... (1,411.3)
Dividends................................................... (75.0)
Sales of accounts receivable program elimination............ 113.6
Construction in progress -- TGN............................. (1,062.4)
---------
Free cash flow.............................................. 1,496.4
Acquisition of businesses, net of cash acquired............. (2,756.8)
Cash paid for purchase accounting and holdback/
earn-out liabilities...................................... (520.8)
Proceeds from exercise of options........................... 186.3
Repurchase of common shares................................. (789.1)
Debt of acquired companies.................................. (790.2)
Net cash payments to Tyco Capital........................... (200.0)
Other items................................................. (119.2)
---------
(3,493.4)
---------
NET DEBT BALANCE AT JUNE 30, 2002........................... 23,333.2
Plus: cash and cash equivalents at June 30, 2002............ 2,793.9
---------
Total debt at June 30, 2002................................. $26,127.1
=========

In October 2001, Tyco International Group S.A. ("TIG"), a wholly-owned
subsidiary of Tyco, sold $1,500.0 million 6.375% notes due 2011 under its
$6.0 billion shelf registration statement in a public offering. The notes are
fully and unconditionally guaranteed by Tyco. The net proceeds of approximately
$1,487.8 million were used to repay borrowings under TIG's commercial paper
program.

In November 2001, TIG sold E500.0 million 4.375% notes due 2005,
E685.0 million 5.5% notes due 2009, L200.0 million 6.5% notes due 2012 and
L285.0 million 6.5% notes due 2032, utilizing capacity available under TIG's
European Medium Term Note Programme established in September 2001. The notes are
fully and unconditionally guaranteed by Tyco. The net proceeds of all four
tranches were the equivalent of $1,726.6 million and were used to repay
borrowings under TIG's commercial paper program.

In January 2002, TIG entered into a $1.5 billion bridge loan, which was
fully and unconditionally guaranteed by Tyco, with a variable LIBO-based rate,
which was 3.70% as of March 31, 2002. TIG repaid $645.0 million in April 2002
and the remainder in June 2002.

In February 2002, TIG borrowed the available $2.0 billion of capacity under
its 5-year unsecured revolving credit facility, which had been maintained as
liquidity support for its commercial paper program. The facility, which expires
in February 2006, is fully and unconditionally guaranteed by Tyco and has a
variable LIBO-based rate, which was 4.99% as of June 30, 2002.

Also, in February 2002, TIG borrowed $3.855 billion under its 364-day
unsecured revolving credit facility and exercised its option to convert this
facility into a term loan expiring on February 6, 2003. The loan, which is fully
and unconditionally guaranteed by Tyco, has a variable LIBO-based rate, which
was 5.04% as of June 30, 2002.

Proceeds from the bridge loan and credit facilities were used to pay off
maturing commercial paper at the scheduled maturities and to provide additional
available capital.

The following table details our debt ratings at September 30, 2001,
March 31, 2002 and June 30, 2002. Following the borrowings in February 2002,
Standard & Poor's and Fitch downgraded our

68

long-term debt and commercial paper ratings, while Moody's confirmed its
ratings, resulting in the ratings shown in the March 31, 2002 column in the
table below. In April 2002, Moody's downgraded, and Fitch further downgraded,
our ratings. The April downgrade was primarily the result of Tyco's revision of
its plan to separate into four independent public companies and the weak
economic environment of the electronics and telecommunications industries. In
June 2002, Moody's, Standard & Poor's and Fitch further downgraded our ratings
as shown in the June 30, 2002 column in the table below primarily as a result of
the resignations of our chief executive officer and chief counsel.

- ------------------------------

(1) At June 30, 2002, Moody's differentiated the ratings between Tyco's and
TIG's outstanding debt. The Moody's debt rating on Tyco's convertible
debentures was downgraded to a Ba3 rating.

THE SECURITY RATINGS SET FORTH ABOVE ARE NOT A RECOMMENDATION TO BUY, SELL
OR HOLD SECURITIES AND MAY BE SUBJECT TO REVISION OR WITHDRAWAL BY THE ASSIGNING
RATING ORGANIZATION. EACH RATING SHOULD BE EVALUATED INDEPENDENTLY OF ANY OTHER
RATING.

As a result of the rating agencies' downgrade of Tyco's debt to below
investment grade status in June 2002, Tyco was required to repurchase its
Y30 billion ($247.3 million as of June 30, 2002) 3.5% notes due 2030 in
July 2002. The buyers at their option may discontinue their reinvestment in new
receivables. The aggregate amount outstanding under these programs as of
June 30, 2002 was $539 million.

In February 2001, TIG issued $3,035,000,000 principal amount at maturity of
zero coupon convertible debentures due 2021 for aggregate net proceeds of
$2,203,400,000. The debentures, which are guaranteed by Tyco, accrete interest
at a rate of 1.5% per annum. TIG may be required to repurchase these securities
at the option of the holder at the accreted value of approximately $2.3 billion
in February 2003. TIG may elect to refinance these debentures, or repurchase
them for cash or Tyco common shares, or some combination thereof.

In June 1998, TIG issued $750,000,000 6.25% Dealer Remarketable Securities
("Drs.") due 2013. Under the terms of the Drs., the Remarketing Dealer has an
option to remarket the Drs. in June 2003. If this option is exercised it would
subject the Drs. to mandatory tender to the Remarketing Dealer and reset the
interest rate to an adjusted fixed rate until June 2013. If the Remarketing
Dealer does not exercise its option, then all Drs. are required to be tendered
to the Company in June 2003. If these debentures are tendered, TIG may be
required to repurchase them for cash. However, TIG could refinance these
securities.

In November 2000, Tyco issued $4,657,500,000 principal amount at maturity of
zero coupon convertible debentures due 2020 for aggregate net proceeds of
approximately $3,374,000,000. The debentures accrete interest at a rate of 1.5%
per annum. Tyco may be required to repurchase these securities for cash at the
option of the holder at the accreted value of approximately $3.6 billion in
November 2003.

69

The table below includes our projected cash flows through December 2003 our
first quarter of fiscal 2004 ($ in millions). This table assumes that the
convertible debentures described above are retired for cash.

- ------------------------------

(1) Fiscal 2002 Free Cash Flow is estimated to be in the range of $2.3 billion
to $2.5 billion reflecting fourth quarter fiscal 2002 Free Cash Flow of
$800 million to $1.0 billion. Fiscal 2003 Free Cash Flow is estimated to be
in a range of $4.0 billion to $4.2 billion.

(2) Includes $1.0 billion scheduled maturities, $2.0 billion of open market
purchases/prepaid debt and $255.0 million for JPY bond. Timing of the
$2.0 billion open market purchases/prepaid debt is for presentation purposes
only.

(3) $2.3 billion of this amount represents payment for repurchase of the
February 2001 zero coupon convertible bonds at the option of the holders in
February 2003. We may elect to satisfy this payment with the issuance of
common shares under the terms of the indenture for these February 2001 zero
coupon convertible bonds. This number was reduced by $2.0 billion reflecting
the open market repurchases discussed above, for presentation purposes only.

(4) This amount represents payment for repurchase of the November 2000 zero
coupon convertible bonds at the option of the holders in November 2003.

(5) Expected discounts based on current trading value of debt.

The Fiscal 2002 Free Cash Flow range reflects uncertainties as a result of
our perceived liquidity issues, which may continue to impact our accounts
payable. In July 2002, we received net proceeds of $4,416.0 million, before
estimated out of pocket expenses, from the sale of all of CIT's common shares
through an initial public offering. We plan to use the net proceeds to repay
short-term and long-term borrowings and for working capital and other corporate
purposes.

We believe that our cash flow from our operations, together with proceeds
from the CIT IPO and the borrowings under our existing credit facilities, is
adequate to fund our operations through the end of fiscal 2003. However, a
decrease in demand for our products and services, further debt rating downgrades
or deterioration in our financial ratios could negatively impact our
accessibility to financing and cost of funds. We believe there are numerous
financing alternatives which we could explore during the fourth quarter of
fiscal 2002 and full year fiscal 2003 to meet the projected cash deficit in the
first quarter of fiscal 2004, including refinancing maturing debt, raising funds
through the sale of non-core businesses, raising capital through new debt,
and/or equity issuances.

Except as disclosed elsewhere in this document, our contractual obligations,
contingencies and commitments for minimum lease payment obligations under
non-cancelable operating leases have not changed materially from September 30,
2001.

70

BACKLOG

At June 30, 2002, Tyco had a backlog of unfilled orders of approximately
$11,990.8 million, as compared to a backlog of $10,999.1 million at
September 30, 2001. Backlog by industry segment is as follows ($ in millions):

The decrease in backlog within the Electronics segment reflects the
continued softness in demand in the communications, telecommunications, printed
circuit, and computer and consumer electronics end markets. Within the Fire and
Security Services segment, backlog increased in part due to the acquisition of
Sensormatic, which resulted in an addition of approximately $57.0 million to
backlog. Within the Engineered Products and Services segment, backlog increased
primarily due to the acquisitions of JMI and TAMS ($360.0 million of backlog)
and due to increased orders at Tyco Infrastructure of approximately
$160.0 million. Backlog in the Healthcare and Specialty Products segment
represents unfilled orders, which, in the nature of the business, are normally
shipped shortly after purchase orders are received. We do not view backlog in
the healthcare industry to be a significant indicator of the level of future
sales activity.

ACCOUNTING PRONOUNCEMENTS

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143 addresses accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. This statement is effective for fiscal years beginning
after June 15, 2002. We are currently assessing the impact of this new standard.
However, we do not expect the impact to be material.

In July 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets," which is effective for fiscal years beginning
after December 15, 2001. The provisions of this statement provide a single
accounting model for impairment of long-lived assets. We are currently assessing
the impact of this new standard.

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections," which is effective for fiscal years beginning after May 15, 2002.
This statement rescinds the indicated statements and amends other existing
authoritative pronouncements to make various technical corrections, clarify
meanings, or describe their applicability under changed conditions. We are
currently assessing the impact of this new standard. However, we do not expect
the impact to be material.

In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities," which is effective for exit or disposal
activities that are initiated after December 31, 2002. This statement nullifies
Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring)." This statement requires that
liabilities associated with exit or disposal activities be recognized and
measured at fair value when incurred as opposed to at the date an entity commits
to the exit or disposal plans. We are currently assessing the impact of this new
standard.

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FORWARD-LOOKING INFORMATION

Certain statements in this report are "forward-looking statements" within
the meaning of the U.S. Private Securities Litigation Reform Act of 1995. All
forward-looking statements involve risks and uncertainties. All statements
contained herein that are not clearly historical in nature are forward-looking,
and the words "anticipate," "believe," "expect," "estimate," "project" and
similar expressions are generally intended to identify forward-looking
statements. Any forward-looking statement contained herein, in press releases,
written statements or other documents filed with the Securities and Exchange
Commission, or in Tyco's communications and discussions with investors and
analysts in the normal course of business through meetings, webcasts, phone
calls and conference calls, regarding expectations as to sales, earnings, cash
flows, operating efficiencies, product expansion, backlog, the consummation and
benefits of acquisitions, financings and share repurchases, are subject to known
and unknown risks, uncertainties and contingencies, many of which are beyond our
control, which may cause actual results, performance or achievements to differ
materially from anticipated results, performances or achievements. Factors that
might affect such forward-looking statements include, among other things,
overall economic and business conditions;

- the demand for Tyco's goods and services;

- competitive factors in the industries in which Tyco competes;

- changes in tax requirements (including tax rate changes, new tax laws and
revised tax law interpretations);

- results and consequences of Tyco's internal investigation and governmental
investigations concerning the Company's governance, management and
operations;

- the ratings on our debt and our ability to refinance our outstanding
indebtedness as it matures;

- interest rate fluctuations and other changes in borrowing costs;

- other capital market conditions, including foreign currency rate
fluctuations;

- economic and political conditions in international markets, including
governmental changes and restrictions on the ability to transfer capital
across borders;

- the timing of construction and the successful operation of the Tyco Global
Network;

- the ability to achieve anticipated synergies and other cost savings in
connection with acquisitions;

- the timing, impact and other uncertainties of future acquisitions;

- potential further impairment of our goodwill;

- the impact of fluctuations in the share price of Tyco common shares;

- changes in U.S. and non-U.S. government regulations in general, and in
particular changes in rules and regulations regarding the safety,
efficacy, sales, promotions, insurance reimbursement and pricing of Tyco's
disposable medical products and other specialty products, and regarding
Tyco's ability to operate and set prices with respect to its undersea
cable communications systems;

- impact of recent management changes;

- the possible effects on Tyco of pending legislation in the U.S., if
enacted, that may limit or eliminate potential U.S. tax benefits resulting
from Tyco's incorporation in Bermuda or that may deny U.S. government
contracts to Tyco based upon its incorporation in Bermuda; and

- the potential continuing disruption to our business and related
distraction costs associated with negative publicity and recent
announcements.

ITEM 3--QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's exposure to market risk from changes in interest rates,
foreign currency exchange rates and commodity prices has not changed materially
from our exposure during the year ended September 30, 2001, except for possible
additional interest rate exposure discussed in liquidity above.

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PART II--OTHER INFORMATION

ITEM 1--LEGAL PROCEEDINGS

SECURITIES AND ERISA LITIGATION (2002)

As described below, the Company and certain of its current and former
directors and officers have been named as defendants in 27 securities cases and
6 Employee Retirement Income Security Act ("ERISA") cases.

As previously reported in Tyco's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 2002, beginning on February 4, 2002,
twenty-three securities class action lawsuits were filed against Tyco and all or
some of five current and former Tyco executive officers. On March 29, 2002, an
ERISA class action lawsuit was filed against Tyco and eleven current and former
Tyco directors. On May 6, 2002, the Judicial Panel on Multidistrict Litigation
("the Panel") issued a conditional transfer order transferring all but one of
the then-pending class action cases to the United States District Court for the
District of New Hampshire for coordinated or consolidated pretrial proceedings.
A number of plaintiffs objected to the May 6 order; certain of the securities
plaintiffs have requested that the class action suits, including the ERISA suit,
be transferred to the United States District Court for the Southern District of
Florida for coordinated or consolidated proceedings, while the ERISA plaintiff
has opposed any transfer and consolidation of that case with the securities
suits. The Panel has stayed the May 6 order pending briefing and oral argument
by the parties. The Panel heard oral argument on July 18, 2002.

Two additional cases have been transferred by the Panel to the District of
New Hampshire. On May 31, 2002, the Panel entered an order conditionally
transferring the securities case that was not subject to the May 6 order to the
District of New Hampshire for coordinated or consolidated pretrial proceedings.
This order was unopposed and became final on June 17, 2002.

On May 10, 2002, Edmund J. Dunne filed a class action lawsuit against Tyco,
Tyco International (US) Inc., and eleven current and former Tyco directors in
the United States District Court for the Southern District of New York. The suit
is allegedly brought on behalf of the Tyco Retirement Savings and Investment
Plan and a purported class of persons who were participants in the Plan whose
accounts held shares of Tyco stock from August 12, 1998 through the date of the
complaint. Plaintiff seeks damages on account of alleged violations of ERISA in
connection with Tyco's financial disclosures concerning certain mergers and
acquisitions and Tyco's accounting therefor. Plaintiff seeks money damages and
restitution. On June 27, 2002, the Panel entered an order conditionally
transferring the case to the District of New Hampshire for coordinated or
consolidated pretrial proceedings. This order was unopposed and became final on
July 12, 2002.

Beginning on July 3, 2002, three class action lawsuits were filed against
Tyco, Tyco International (US) Inc., and eleven current and former Tyco directors
in the United States District Court for the Southern District of Florida. The
suits allegedly are brought on behalf of persons who were participants or
beneficiaries in the Tyco Retirement Savings and Investment Plan at any time
since July 1999. Plaintiffs seek damages on account of alleged violations of
ERISA in connection with Tyco's financial disclosures concerning certain mergers
and acquisitions and Tyco's accounting therefor. Plaintiffs seek class
certification, declaratory relief, extraordinary, equitable, and/or injunctive
relief, and restitution and/or remedial relief. Defendants have requested that
the Panel treat these as related actions and transfer them to the District of
New Hampshire for coordinated or consolidated pretrial proceedings.

On July 10, 2002, an amended class action lawsuit (originally filed on
June 6, 2002) was filed in the United States District Court for the District of
New Hampshire against Tyco, its former CEO, and its former chief legal officer.
The suit is allegedly brought on behalf of persons who purchased Tyco
securities, call options or debt instruments, or who sold Tyco put options,
between April 25, 2002 and June 12, 2002. Plaintiffs seek damages on account of
alleged violations of the securities laws in

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connection with Tyco's financial disclosures concerning the sale or IPO of CIT
Group, Inc. The plaintiffs seek class certification and money damages. Certain
of the plaintiffs in the securities class action lawsuits previously filed and
discussed above have requested that the Panel treat this case as a related
action, and that it be transferred with the other class actions for coordinated
or consolidated pretrial proceedings. Plaintiffs have opposed this request, and
the issue is currently pending before the Panel.

On June 26, 2002, a class action lawsuit was filed in the Circuit Court of
Cook County, Illinois, County Department, Chancery Division, against Tyco and
ten current and former Tyco directors. Defendants removed the case to the United
States District Court for the Northern District of Illinois. Plaintiff has moved
to remand the case back to state court. The suit is allegedly brought on behalf
of persons who exchanged their Mallinckrodt Inc. stock for shares of Tyco stock
in connection with the October 17, 2000 merger of the two companies. Plaintiff
seeks damages on account of alleged violations of the securities laws in
connection with Tyco's financial disclosures concerning certain mergers and
acquisitions and Tyco's accounting therefor. The plaintiff seeks class
certification and money damages. Defendants have requested that the Panel treat
this case as a related action and transfer it to the District of New Hampshire
for coordinated or consolidated pretrial proceedings.

Beginning on July 16, 2002, two class action lawsuits were filed in the
United States District Court for the Southern District of Florida against Tyco
and nine current and former Tyco directors and officers. The suits are allegedly
brought on behalf of persons who purchased Tyco securities between May 1, 2002
and June 12, 2002. Plaintiffs seek damages on account of alleged violations of
the securities laws in connection with Tyco's alleged failure to disclose
related-party transactions with its officers and directors. The plaintiffs seek
class certification and money damages.

On July 26, 2002, Kay M. Jepson filed a class action lawsuit against Tyco,
Tyco International (US) Inc., and eleven current and former Tyco directors in
the United States District Court for the Southern District of New York. The suit
is allegedly brought on behalf of the Tyco Retirement Savings and Investment
Plan and a purported class of persons who were participants in or beneficiaries
of the Plan from August 12, 1998 through the date of the complaint. Plaintiff
seeks damages on account of alleged violations of ERISA in connection with
Tyco's financial disclosures concerning certain mergers and acquisitions and
Tyco's accounting therefor. Plaintiff seeks money damages, as well as injunctive
and other equitable relief.

DERIVATIVE LITIGATION

As previously reported in Tyco's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 2002, on February 4, 2002, an action was filed
in the Superior Court of New Hampshire, Rockingham County, by John Gebhardt,
purporting to bring suit derivatively on behalf of Tyco International (US) Inc.
against twelve current and former Tyco directors and Tyco International
(US) Inc. as a nominal defendant. On May 31, 2002, plaintiff moved for a
voluntary non-suit without prejudice.

The actions described below have been filed purporting to bring suit
derivatively on behalf of Tyco International, Ltd. against all or some of twelve
current and former Tyco directors and officers and Tyco International Ltd. as a
nominal defendant.

On June 7, 2002, an action was filed in the Supreme Court of the State of
New York, County of New York, by Robert Mark Levin, alleging that the
individually named defendants breached their fiduciary duties, committed waste
and mismanagement and engaged in self-dealing in connection with Tyco's
accounting practices, individual board members' use of funds, and the financial
disclosures of certain mergers and acquisitions. It is further alleged that
certain of the individual defendants converted corporate assets for their own
use. Plaintiff seeks money damages.

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On June 18, 2002, an action was filed in the United States District Court
for the District of New Hampshire, by Shelley Evans, alleging that the
individually named defendants breached their fiduciary duties and committed
waste and mismanagement in connection with the compensation of certain board
members and their use of corporate assets for their own benefit. Plaintiff seeks
money damages, declaratory relief, and the removal and replacement of the
director defendants.

On June 21, 2002, an action was filed in the Superior Court of New
Hampshire, Rockingham County, by Bobbie Weiner, alleging that the individually
named defendants breached their fiduciary duties and committed waste and
mismanagement in connection with Tyco's accounting practices, individual board
members' use of funds, and the company's financial disclosures. Plaintiffs seek
money damages.

On June 21, 2002, an action was filed in the United States District Court
for the Southern District of New York, by Joan L. Weisberg, alleging that the
individually named defendants breached their fiduciary duties and committed
waste in connection with Tyco's accounting practices, individual board members'
use of funds, and the compensation of certain board members. Plaintiff seeks
money damages, injunctive relief, and an equitable accounting. Defendants have
requested that the Judicial Panel on Multidistrict Litigation treat this as a
related action and transfer the suit to the District of New Hampshire for
coordinated or consolidated pretrial proceedings.

On August 2, 2002, an action was filed in the United States District Court
for the District of New Hampshire, by Paul Manko, alleging that the
individually-named defendants breached their fiduciary duties and committed
waste and mismanagement in connection with Tyco's accounting practices,
individual board members' use of funds, and the Company's financial disclosures.
Plaintiffs seek summary damages.

TYCO INTERNATIONAL LTD V. MARK A. BELNICK, UNITED STATES DISTRICT COURT,
SOUTHERN DISTRICT OF NEW YORK, FILED JUNE 17, 2002.

The Company has filed a civil complaint against its former Executive Vice
President and Chief Corporate Counsel for breach of fiduciary duty and other
wrongful conduct. The suit alleges and seeks to recover unapproved compensation
and profits received from employment at the Company, repayment of all loans
fraudulently procured, with interest, damages for the harm caused to the
Company, and punitive damages.

TYCO INTERNATIONAL LTD V. FRANK E. WALSH, JR., UNITED STATES DISTRICT COURT,
SOUTHERN DISTRICT OF NEW YORK, FILED JUNE 17, 2002.

The Company has filed a civil complaint against a former director for breach
of fiduciary duty, inducing breaches of fiduciary duty, and related wrongful
conduct involving a $20 million payment in connection with a 2001 acquisition by
the Company. The action alleges causes of action for restitution, breach of
fiduciary duty and inducing breach of fiduciary duty, conversion, unjust
enrichment, and a constructive trust, and seeks recovery for all of the losses
suffered by the Company as a result of the former director's conduct.

SUBPOENAS AND DOCUMENT REQUESTS FROM THE SECURITIES AND EXCHANGE COMMISSION, THE
NEW YORK COUNTY DISTRICT ATTORNEY, THE HOUSE COMMITTEE ON ENERGY AND COMMERCE OF
THE UNITED STATES CONGRESS, THE BUREAU OF SECURITIES REGULATION OF THE STATE OF
NEW HAMPSHIRE AND THE UNITED STATES DISTRICT ATTORNEY OF THE DISTRICT OF NEW
HAMPSHIRE

The Company and others have received various subpoenas and requests from the
preceding entities seeking the production of voluminous documents in connection
with various investigations into the Company's governance, management,
operations, accounting and related disclosures. The Company is cooperating fully
with these investigations and is complying with these requests.

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TYCO PRINTED CIRCUIT GROUP

As disclosed in Tyco's most recent Form 10-K, in June 2001 Tyco Printed
Circuit Group ("TPCG"), a Tyco subsidiary in the Electronics segment, was
advised by the office of the U.S. Attorney for the District of Connecticut that
TPCG is the target of a federal grand jury investigation concerning alleged
Clean Water Act violations at one or more of TPCG's Connecticut manufacturing
plants. TPCG also understands that employees at one of these plants are subjects
of the investigation, and that the alleged violations relate to violations of
applicable permits. TPCG further understands that a former supervisor at its
Manchester, Connecticut manufacturing plant who is no longer an employee has
pleaded guilty to a felony violation of the Clean Water Act. Tyco management
does not believe that the investigation will have a material impact on the
financial condition of Tyco and its subsidiaries, taken as a whole. TPCG is
cooperating fully in the investigation.

ITEM 6--EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits
10.1 Edward D. Breen employment contract
10.2 Memo Summarizing Mark H. Swartz's Severance Arrangement
10.3 Memo Summarizing John Fort's Interim Consulting Arrangement
10.4 Memo Summarizing Joshua M. Berman's Compensation Arrangement
99.1 CEO Certification
99.2 CFO Certification

(b) Reports on Form 8-K

Current Report on Form 8-K filed pursuant to Item 5 on May 1, 2002 to
include, as an exhibit, the press release of Tyco dated April 25, 2002
announcing that it had terminated its plan to separate into four separate
businesses.

Current Report on Form 8-K filed pursuant to Item 5 on June 4, 2002 to
include, as an exhibit, the press release of Tyco dated June 3, 2002 announcing
that L. Dennis Kozlowski had resigned as Chairman and Chief Executive Officer
and John F. Fort had assumed primary executive responsibility until a permanent
replacement was found.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

TYCO INTERNATIONAL LTD.

By: /s/ MARK H. SWARTZ
-----------------------------------------
Mark H. Swartz
EXECUTIVE VICE PRESIDENT
AND CHIEF FINANCIAL OFFICER
(PRINCIPAL ACCOUNTING AND FINANCIAL
OFFICER)

Date: August 14, 2002

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