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 DECEMBER 31, 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 / /

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2) Yes /X/ No / /.

The number of common shares outstanding as of February 11, 2003 was
1,996,099,993.

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TYCO INTERNATIONAL LTD.
INDEX TO FORM 10-Q

PART I--FINANCIAL INFORMATION

ITEM 1--FINANCIAL STATEMENTS

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

See Notes to Consolidated Financial Statements (Unaudited).

1

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

See Notes to Consolidated Financial Statements (Unaudited).

2

TYCO INTERNATIONAL LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN MILLIONS)

See Notes to Consolidated Financial Statements (Unaudited).

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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").

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, 2002.

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.

SHORT-TERM INVESTMENTS--Short-term investments consist of fixed income
securities with maturities of greater than three months and less than one year,
and are available for current operations.

CHARGES RELATING TO PRIOR YEARS RECORDED IN THE QUARTER ENDED DECEMBER 31,
2001--As discussed in the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 2002, during the fourth quarter of fiscal 2002, the
Company identified various adjustments relating to prior year financial
statements. Management concluded the effects of these adjustments, as well as
any unrecorded proposed audit adjustments, were not material individually or in
the aggregate to fiscal 2002 or any year prior. Accordingly, prior year
financial statements have not been restated. Instead, these adjustments that
aggregate $261.6 million on a pre-tax income basis or $199.7 million on an
after-tax income basis have been recorded effective October 1, 2001. The nature
and amounts of these adjustments are principally as follows:

- The Company determined the amounts reimbursed from dealers under ADT's
authorized dealer program exceeded the costs actually incurred. The
cumulative effect of reimbursements recorded in years prior to fiscal 2002
in excess of costs incurred, net of the effect of the deferred credit,
which would have been amortized as described in Note 1 to the Company's
Form 10-K for the year ended September 30, 2002 is $185.9 million. This
amount is included on the selling, general and administrative expenses
line in the December 31, 2001 Consolidated Statement of Operations.

- The Company determined that the net gain of $64.1 million on the issuance
of TyCom shares previously reported for fiscal 2001 should have been lower
by $39.6 million. The $39.6 million associated with the sale of common
shares of TyCom is included on a separate line in the December 31, 2001
Consolidated Statement of Operations.

- As described in Note 1 to the Company's Form 10-K for the year ended
September 30, 2002, the Company identified several adjustments, both as a
result of the "Phase 2" review and the recording of previously unrecorded
audit adjustments, which are more appropriately recorded as expenses,
rather than as part of the Company's acquisition accounting. The
cumulative effect of the adjustments necessary to revise the prior
accounting is a pre-tax charge of $36.1 million, $25.4 million of which is
included in selling, general and administrative expenses and
$10.7 million of which is included in cost of sales in the December 31,
2001 Consolidated Statement of Operations.

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

1. BASIS OF PRESENTATION (CONTINUED)
ACCOUNTING PRONOUNCEMENTS

During the quarter ended December 31, 2002, the Company adopted the
disclosure provisions of FASB Interpretation No. 45, "Guarantor's Accounting and
Disclosure Requirements for Guarantees" ("FIN 45"). FIN 45 requires increased
disclosure of guarantees, including those for which likelihood of payment is
remote, and product warranty information (see Note 14). FIN 45 also requires
that guarantors recognize a liability for certain types of guarantees equal to
the fair value of the guarantee upon its issuance, effective for the quarter
ending March 31, 2003. We are currently assessing the impact of the accounting
requirements of this new interpretation.

Effective October 1, 2002, the Company adopted 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. The adoption of this new standard did not
have a material impact on our results of operations or financial position.

Effective October 1, 2002, the Company adopted 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. The
adoption of this new standard did not have a material impact on our results of
operations or financial position.

2. ACQUISITIONS AND DIVESTITURES

During the first quarter of fiscal 2003, the Company purchased businesses
for an aggregate cost of $239.5 million in cash. Of the $239.5 million,
$236.6 million was to acquire approximately 215,000 customer contracts for
electronic security services through the Company's dealer program. The remaining
$2.9 million relates to the acquisition of a business within the Engineered
Products and Services segment. During the quarter, the Company paid
$68.8 million of cash for utilization of purchase accounting liabilities related
to prior years' acquisitions. In addition, the Company paid cash of
approximately $43.0 million relating to holdback and earn-out liabilities
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 cash portions of acquisition costs
were funded utilizing cash from operations. The results of operations of the
acquired companies have been included in Tyco's consolidated results from their
respective acquisition dates.

The Company purchased all of the voting equity interests in each of the
businesses acquired. At the time each purchase 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 tangible and intangible assets
acquired less liabilities assumed and purchase accounting liabilities
established is recorded as goodwill. As a result of acquisitions completed
during fiscal 2003, and adjustments to the fair values of assets and liabilities
and purchase accounting liabilities recorded for acquisitions completed prior to
fiscal 2003, Tyco recorded a decrease of $128.4 million in goodwill and an
additional $236.5 million in other intangible assets during the quarter ended
December 31, 2002. The decrease in goodwill includes $131.3 million associated
with prior years'

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

2. ACQUISITIONS AND DIVESTITURES (CONTINUED)
acquisitions, primarily Sensormatic Electronics Corporation ("Sensormatic"),
acquired in November 2001, as well as fiscal 2001 acquisitions of Lucent
Technologies' Power Systems ("LPS"), acquired in December 2000, and
Mallinckrodt, Inc. ("Mallinckrodt"), acquired in October 2000. Adjustments for
Sensormatic primarily relate to finalization of deferred tax adjustments related
to previously recorded purchase accounting liabilities. Adjustments for LPS and
Mallinckrodt primarily relate to reductions in purchase accounting liabilities
due to actual costs being less than originally estimated. See roll forward of
purchase accounting accruals below. The increase in other intangible assets
primarily relates to $236.6 million of customer contracts acquired through the
Company's dealer program.

When Tyco makes acquisitions it seeks to 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 significantly fewer acquisitions prospectively due to its focus on
enhancing internal growth within its existing businesses.

The following table shows the fair values of assets and liabilities recorded
for the purchase acquisition and the acquisition of customer contracts completed
in the first quarter of fiscal 2003, adjusted to reflect changes in fair values
of assets and liabilities and purchase accounting liabilities and
holdback/earn-out liabilities recorded for purchase acquisitions completed prior
to fiscal 2003 ($ in millions):

Accounts receivables........................................ $ (0.7)
Inventories................................................. 8.7
Prepaid expenses and other current assets................... 26.5
Property, plant and equipment, net.......................... 13.7
Goodwill.................................................... (128.4)
Intangible assets........................................... 236.5
Other assets................................................ 10.3
-------
166.6
-------
Accounts payable............................................ (2.7)
Accrued expenses and other current liabilities.............. (71.4)
Holdback/earn-out liabilities............................... 3.3
Other long-term liabilities................................. (2.2)
Fair value of debt assumed.................................. 0.1
-------
(72.9)
-------
Cash consideration paid..................................... $ 239.5
=======

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

2. ACQUISITIONS AND DIVESTITURES (CONTINUED)
Purchase accounting liabilities recorded during the first quarter of fiscal
2003 in connection with the fiscal 2003 purchase acquisition were immaterial.

The following table summarizes the purchase accounting liabilities recorded
in connection with fiscal 2002 purchase acquisitions ($ in millions):

During the first quarter of fiscal 2003, we recorded additions to purchase
accounting liabilities as we continued to formulate the integration plans of
fiscal 2002 acquisitions, such as Paragon (integrated within the Healthcare
segment) and Eberle (integrated within the Electronics segment). Finalization of
components of integration plans associated with acquisitions resulted in
additional purchase accounting liabilities of $17.2 million and a corresponding
increase to goodwill and deferred tax assets. These additions reflect the
reduction of an additional 438 employees, the closure of an additional 14
facilities, additional distributor and supplier cancellation fees and other
acquisition related costs consisting primarily of professional fees and other
costs.

During the first quarter of fiscal 2003, the Company reduced its estimate of
purchase accounting liabilities relating to fiscal 2002 acquisitions by
$3.7 million primarily because actual costs were less than originally estimated
since the Company severed 395 fewer employees and closed 8 fewer facilities than
originally anticipated due to revisions to integration plans. Goodwill and
related deferred tax assets were reduced by an equivalent amount.

Tyco has not yet finalized all of its business integration plans for fiscal
2002 acquisitions. Accordingly, purchase accounting liabilities are subject to
revision in future quarters. There are approximately 10 acquisitions, with
estimated purchase accounting liabilities additions aggregating approximately
$15 million, for which business integration plans have not been finalized.
Individually, none of these acquisitions are expected to have increases in
purchase accounting liabilities in excess of $5 million as of December 31, 2002.
In addition, 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. We do
not expect any resulting adjustments to be significant.

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

2. ACQUISITIONS AND DIVESTITURES (CONTINUED)
The following table summarizes the purchase accounting liabilities recorded
in connection with the fiscal 2001 purchase acquisitions ($ in millions):

During the first quarter of fiscal 2003, the Company reduced its estimate of
purchase accounting liabilities relating to fiscal 2001 acquisitions by
$51.7 million primarily because actual costs were less than originally estimated
since the Company severed 376 fewer employees and closed 17 fewer facilities
than originally anticipated due to revisions to integration plans. Goodwill and
related deferred tax assets were reduced by an equivalent amount.

At December 31, 2002, holdback/earn-out liabilities of $234.1 million
remained on the Consolidated Balance Sheet, of which $111.3 million are included
in accrued expenses and other current liabilities and $122.8 million are
included in other long-term liabilities. In addition, a total of $427.7 million
of purchase accounting liabilities related to all acquisitions remained on the
Consolidated Balance Sheet, of which $231.3 million are included in accrued
expenses and other current liabilities and $196.4 million are included in other
long-term liabilities. At December 31, 2002, the Company had a contingent
liability of $80 million related to the fiscal 2001 acquisition of Com-Net by
the Electronics segment. The $80 million is the maximum payable to the former
shareholders of Com-Net only after the construction and installation of a
communications system for the State of Florida is finished and the State has
approved the system based on the guidelines set forth in the contract. The
$80 million is not accrued at December 31, 2002, as the outcome of this
contingency cannot be reasonably determined. At December 31, 2002, there
remained a total of $31.8 million in reserves related to fiscal 2000 and prior
acquisitions. These liabilities primarily relate to facility-related costs
(principally for rents under non-cancelable leases for vacated premises),
employee severance (principally for payments to employees already terminated
with severance paid out over time), and other costs. 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.

In accordance with Statement of Financial Accounting Standards No. 141,
"Business Combinations," the following unaudited pro forma data summarize the
results of operations for the period indicated as if fiscal 2002 acquisitions
and the amalgamation with TyCom had been completed as of the beginning of the
period 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

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

2. ACQUISITIONS AND DIVESTITURES (CONTINUED)
purport to be indicative of the results that would have actually been achieved
if the acquisitions had occurred as of the beginning of the periods presented or
that may be achieved in the future.

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

(1) Income includes restructuring and other unusual charges of $25.7 million and
charges related to prior years of $261.6 million (see Note 1).

The pro forma effects of the fiscal 2003 acquisition are immaterial.

3. CONSOLIDATED SEGMENT DATA

During the quarter ended December 31, 2002, a change was made to the
Company's internal reporting structure such that the operations of Tyco's
plastics and adhesives businesses (previously reported within the Healthcare and
Specialty Products segment) now comprise the Company's new Plastics and
Adhesives reportable segment. The Company has conformed its segment reporting
accordingly and has reclassified comparative prior period information to reflect
this change.

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

3. CONSOLIDATED SEGMENT DATA (CONTINUED)
Selected information for the Company's five segments is presented in the
following table.

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

(1) Excludes restructuring credits of $1.7 million related to a revision of
estimates of prior years' restructuring charges.

(2) Excludes restructuring credits of $2.0 million, of which $0.2 million is
included in cost of sales, related to a revision of estimates of prior
years' restructuring charges.

(3) Excludes restructuring and other unusual charges of $7.8 million primarily
related to severance associated with the closure of existing facilities that
had become redundant due to acquisitions.

(4) Excludes restructuring and other unusual charges of $17.9 million, of which
$5.8 million is included in cost of sales, primarily related to the
termination of employees and the write-down of inventory associated with
exiting a product line.

(5) Excludes charges related to prior years of $222.0 million (see Note 1).

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TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

4. RESTRUCTURING AND OTHER UNUSUAL (CREDITS) CHARGES

Restructuring and other unusual (credits) charges are as follows ($ in
millions):

2003 CREDITS

During the first quarter of fiscal 2003, the Electronics segment recorded
restructuring credits of $1.7 million and the Healthcare segment recorded
restructuring credits of $2.0 million, of which $0.2 million is included in cost
of sales, related to a revision of estimates of prior years' restructuring
charges.

2002 CHARGES AND CREDITS

The disclosures in the Company's fiscal 2002 Annual Report on Form 10-K
discuss net restructuring and other unusual charges of $1,954.3 million recorded
during fiscal 2002 and the related activity with respect to these charges
through September 30, 2002. The following tables provide a summary by segment of
the remaining balances as of September 30, 2002 related to these charges and the
activity with respect to these charges during the quarter ended December 31,
2002 ($ in millions):

During fiscal 2002, the Electronics segment incurred charges of
$608.2 million for inventory write-downs, of which $465.1 million had not been
utilized as of September 30, 2002. The $465.1 million is

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TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

4. RESTRUCTURING AND OTHER UNUSUAL (CREDITS) CHARGES (CONTINUED)
comprised of a lower of cost or market write-down of $131.4 million and a
write-down related to inventory to be scrapped of $333.7 million. Of the
$333.7 million, $183.0 million of inventory was scrapped during the quarter
ended December 31, 2002. We expect the remaining written-off inventory to be
scrapped over the next three to six months.

In addition to the above segment liabilities, a total of $17.2 million
remained on the balance sheet at December 31, 2002 related to 2002 corporate
restructuring and other unusual charges. These liabilities primarily relate to
severance, a legal settlement and other items associated with the downsizing of
the corporate headquarters.

During the first quarter of fiscal 2002, Tyco recorded restructuring and
other unusual charges of $25.7 million, of which $5.8 million has been included
in cost of revenue, related primarily to severance associated with the closure
of administrative buildings and a sales office within the Fire and Security
Services and Engineered Products and Services segments that became redundant due
to acquisitions.

At December 31, 2002, there remained a total of $730.1 million in reserves
related to fiscal 2002 restructuring and other unusual charges on the
Consolidated Balance Sheet, of which $601.0 million is included in accrued
expenses and other current liabilities and $129.1 million is included in other
long-term liabilities. The company currently anticipates that the restructuring
activities to which the above charges relate will be substantially completed
within fiscal 2003, except for certain long-term contractual obligations.

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TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

4. RESTRUCTURING AND OTHER UNUSUAL (CREDITS) CHARGES (CONTINUED)
2001 CHARGES AND CREDITS

The disclosures in the Company's fiscal 2002 Annual Report on Form 10-K
discuss net restructuring and other unusual charges of $418.5 million recorded
during fiscal 2001 and the related activity with respect to these charges
through September 30, 2002. The following tables provide a summary by segment of
the remaining balances as of September 30, 2002 related to these charges and the
activity with respect to these charges during the quarter ended December 31,
2002 ($ in millions):

In addition to the above segment reserves, a total of $0.1 million remained
on the balance sheet at December 31, 2002 related to fiscal 2001 corporate
severance charges.

At December 31, 2002, there remained a total of $74.9 million in liabilities
related to fiscal 2001 restructuring and other unusual charges on the
Consolidated Balance Sheet, of which $46.0 million is included in accrued
expenses and other current liabilities and $28.9 million is included in other

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TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

4. RESTRUCTURING AND OTHER UNUSUAL (CREDITS) CHARGES (CONTINUED)
long-term liabilities. The company currently anticipates that the restructuring
activities to which the above charges relate will be substantially completed
within fiscal 2003, except for certain long-term contractual obligations.

2000 AND PRIOR YEARS' CHARGES AND CREDITS

At December 31, 2002, there remained a total of $42.5 million in liabilities
related to fiscal 2000 and prior years' restructuring and other unusual charges
on the Consolidated Balance Sheet, of which $3.7 million is included in accrued
expenses and other current liabilities and $38.8 million is included in other
long-term liabilities. These liabilities primarily relate to a litigation
accrual in connection with patent infringements.

5. OTHER INCOME (EXPENSE)

Other income (expense) is as follows ($ in millions):

Tyco has repurchased some debt prior to scheduled maturities. During the
quarter ended December 31, 2002, the Company recorded other income from the
early retirement of debt totaling $1.4 million, as compared to expense of
$4.3 million during the quarter ended December 31, 2001.

During the quarter ended December 31, 2002, the Company recorded other
income of $20.0 million related to the return of an unauthorized payment to a
former director of the Company in connection with the acquisition of The CIT
Group, Inc.

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

On July 8, 2002, the Company completed the sale of 100% of the common shares
of CIT Group Inc., a wholly-owned subsidiary, through an initial public
offering. Operating results from the

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TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

6. DISCONTINUED OPERATIONS OF TYCO CAPITAL (CIT GROUP INC.) (CONTINUED)
discontinued operations of Tyco Capital for the quarter ended December 31, 2001
were as follows ($ in millions):

7. EARNINGS PER COMMON SHARE

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

The computation of diluted earnings per common share in the quarters ended
December 31, 2002 and 2001 excludes the effect of the potential exercise of
options to purchase approximately 138.9 million and 21.0 million shares,
respectively, because the effect would be anti-dilutive. Diluted earnings per
common share for the quarter ended December 31, 2002 excludes 47.5 million and
21.1 million

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TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

7. EARNINGS PER COMMON SHARE (CONTINUED)
shares related to the Company's zero coupon convertible debentures due 2020 and
2021, respectively, because conversion conditions have not been met. Dilutive
earnings per common share for the quarter ended December 31, 2001 excludes
48.0 million and 26.4 million shares respectively, related to the Company's zero
coupon convertible debentures due 2020 and 2021, respectively, because
conversion conditions have not been met.

8. GOODWILL AND OTHER INTANGIBLE ASSETS

The changes in the carrying amount of goodwill for the quarter ended
December 31, 2002 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):

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

(1) Intangible assets not subject to amortization are excluded from the
calculation of the weighted average amortization period.

As of December 31, 2002 and September 30, 2002 the Company had
$140.2 million and $140.1 million, respectively, of intellectual property,
consisting primarily of trademarks acquired from Sensormatic, that are not
subject to amortization. As of December 31, 2002 and September 30, 2002, the
Company had $25.8 million and $26.2 million, respectively, of other intangible
assets that are not subject to amortization.

Intangible asset amortization expense for the quarters ended December 31,
2002 and 2001 was $155.4 million and $121.1 million, respectively. Amortization
expense on intangible assets currently owned by the Company is expected to be
approximately $650 million for each of the next five fiscal years.

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

9. DEBT

Debt is as follows(1) ($ in millions):

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

(1) Debt maturity dates are presented on a calendar basis, consistent with the
respective offering documents.

(2) In January 2003, Tyco International Group S.A. ("TIG"), a wholly-owned
subsidiary of the Company, repaid its $3.855 billion unsecured term loan
scheduled to expire on February 6, 2003.

(3) Subsequent to December 31, 2002, Tyco purchased $544.7 million outstanding
under its zero coupon convertible debentures with a November 2003 put option
for cash of approximately $532.0 million.

(4) These instruments, plus $98.9 million of the amount shown as other, comprise
the current portion of long-term debt as of December 31, 2002.

(5) At February 12, 2003, the accreted value of TIG's zero coupon convertible
debentures with a February 2003 put option was $1,850.8 million. On February
13, 2003, TIG purchased $1,850.1 million of these debentures for cash at the
accreted value. This purchase resulted from the exercise of investors'
option under the indenture to require TIG to purchase debentures validly
surrendered by February 12, 2003.

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

9. DEBT (CONTINUED)
In January 2003, TIG issued $3.0 billion of 2.75% Series A convertible
senior debentures due January 2018 and $1.5 billion of 3.125% Series B
convertible senior debentures due January 2023. These debentures are fully and
unconditionally guaranteed by Tyco, and at any time, holders may convert each of
their debentures into Tyco common shares prior to the stated maturity at a rate
of $22.7832 and $21.7476 respectively, per share. Additionally, holders of the
Series A debentures may require the Company to purchase all or a portion of
their debentures on January 15, 2008 and January 15, 2013, and holders of the
Series B debentures may require the Company to purchase all or a portion of
their debentures on January 15, 2015. If the option is exercised at any one of
the aforementioned dates, TIG must repurchase the debentures at par plus accrued
interest, and may elect to repurchase the securities for cash, Tyco common
shares, or some combination thereof. TIG may redeem for cash some or all of the
Series A debentures and Series B debentures at any time on or after January 20,
2006 and January 20, 2008, respectively. Net proceeds of approximately
$4,387.5 million, before out of pocket expenses, from these debentures were used
primarily to repay debt.

Also in January 2003, TIG entered into a $1.5 billion 364-day unsecured
revolving credit facility which also provides for issuance of unsecured letters
of credit. The facility, which is fully and unconditionally guaranteed by Tyco
and certain of its subsidiaries and is guaranteed in part by various
subsidiaries of TIG, has a variable interest rate based on LIBOR. The margin
over LIBOR payable by TIG can vary depending upon changes in its credit rating
and in the market price of one of its outstanding debt securities.

Our credit agreements contain a number of financial covenants, such as
interest coverage and leverage ratios, and restrictive covenants that limit the
amount of debt we can incur and restrict our ability to pay dividends or make
other payments in connection with our capital stock, to make acquisitions or
investments, to pledge assets and to prepay debt that matures after
December 31, 2004. We have several synthetic lease facilities with similar
covenants. Our outstanding indentures contain customary covenants including a
negative pledge, limit on subsidiary debt and limit on sale/leasebacks. None of
these covenants is presently considered restrictive to our operations.

10. COMMITMENTS AND CONTINGENCIES

As a result of actions taken by our former senior corporate management, Tyco
and some members of our former senior corporate management and current and
former members of our board of directors are named defendants in a number of
purported class actions alleging violations of the disclosure provisions of the
federal securities laws, as well as a number of derivative actions. Certain of
our employees as well as Tyco and some members of our former corporate senior
management and current and former members of our board of directors are also
named as defendants in several ERISA actions. In addition, Tyco and some members
of prior senior corporate management are subject to an SEC inquiry; some members
of prior corporate senior management are named as defendants in criminal cases
being prosecuted by the District Attorney of New York County; and some members
of prior senior corporate management are subject to an investigation by the U.S.
Attorney for the District of New Hampshire. We recently signed a consent
agreement with the State of New Hampshire Bureau of Securities Regulation that
resolved the Bureau's investigation into the conduct of Tyco's previous
management, pursuant to which we agreed to pay a total of $5 million as an
administrative settlement to the State of New Hampshire and paid $100,000 to
cover the cost of the Bureau's investigation. We may be obliged to indemnify our
directors and our former directors and officers who also are named as

18

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
defendants in some or all of these matters. In addition, our insurance carriers
may decline coverage, or such coverage may be insufficient to cover our expenses
and liability, if any, in some or all of these matters. We received notice on
February 13, 2003 that one such carrier purports to have rescinded its policy
with us on the basis of alleged misrepresentations made by us under our former
senior corporate management. Unless we are able to successfully challenge the
rescission of this policy and any similar action that may be taken by our other
carriers, we will not have insurance coverage under such policies for such
expenses and liability. We believe that we have meritorious defenses and we are
vigorously defending these matters. However, we are currently unable to estimate
what our ultimate liability, if any, in these matters may be, and it is possible
that we will be required to pay judgments or settlements and incur expenses in
aggregate amounts that are material.

We and others have received various subpoenas and requests from the SEC, the
District Attorney of New York County, the U.S. Attorney for the District of New
Hampshire and others seeking the production of voluminous documents in
connection with various investigations into our governance, management,
operations, accounting and related controls. We cannot predict when these
investigations will be completed, nor can we predict what the results of these
investigations may be. It is possible that we will be required to pay material
fines, consent to injunctions on future conduct, lose the ability to conduct
business with government instrumentalities or suffer other penalties, each of
which could have a material adverse effect on our business. We cannot assure you
that the effects and result of these various investigations will not be material
and adverse to our business, financial condition and liquidity.

11. SHAREHOLDERS' EQUITY

Tyco paid a quarterly cash dividend of $0.0125 per common share in the first
quarter of fiscal 2003 and fiscal 2002.

12. COMPREHENSIVE INCOME

Total comprehensive income and its components are as follows ($ in
millions):

19

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

13. SUPPLEMENTARY BALANCE SHEET INFORMATION

Selected supplementary balance sheet information is presented below ($ in
millions):

20

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

14. GUARANTEES

TIG has issued a guarantee to a bank on behalf of an equity investee for a
reducing revolving line of credit, due November 30, 2005. The maximum borrowing
permitted under the facility is now $8.5 million, all of which is outstanding.
The maximum borrowing permitted under the facility will be further reduced by
$0.75 million on both December 20, 2003 and 2004. In the event that the equity
investee defaults on its payment obligations, the bank may demand that the
Company pay the outstanding principal on the loan. The Company does not have a
liability recorded for the guarantee as it is not probable at this time that the
Company will have to make any payments. In the instance that the Company would
be required to pay the bank, the Company has no recourse from a third-party
other than ultimate reimbursement from the equity investee in cash or common
shares.

The Company's healthcare business may, from time to time, enter into a sales
contract whereby it will buy back (at a discount) a transaction from a
customer's third-party financier in the event of a customer's default. For such
transactions that include "shared risk", the Company accrues a liability based
on historical loss data. As of December 31, 2002, $3.8 million was accrued
related to these contracts. In the event the Company must pay for this shared
risk, the Company's recourse is as follows: place the lease with another
third-party financier in which payment is highly likely; repossess the purchased
products or equipment; seek payment through a personal guarantee issued by the
customer; or, alternatively, sue the customer.

The Company's Fire and Security Services business has guaranteed the
performance of a third-party contractor. The performance guarantee arose from
contract negotiations, because the contractor could provide cost-effective
service on a telecommunications contract. In the event the contractor does not
perform its contractual obligations, Tyco Fire and Security would perform the
service itself. Therefore, the Company's exposure would be the cost on any
services performed, which would not have a material effect to the Company's
financial position or results of operations. However, because it is not probable
that the Company will have to make any payments or perform any services pursuant
to the guarantee, it is not accrued. The performance guarantee expires in
August 2003. Although not specified in the agreement, if the third-party
sub-contractor does not perform its obligations, Tyco may withhold any future
payment of work performed by the contractor.

The Company, in disposing of assets or businesses, often provides
representations, warranties and/or indemnities to cover various risks including,
for example, unknown damage to the assets, environmental risks involved in the
sale of real estate, liability to investigate and remediate environmental
contamination at hazardous waste disposal sites and manufacturing facilities,
and unidentified tax liabilities and legal fees related to periods prior to
disposition. The Company does not have the ability to estimate the potential
liability from such indemnities because they relate to unknown conditions.
However, we have no reason to believe that these uncertainties would have a
material adverse effect on the Company's financial position or results of
operations.

The Company has recorded liabilities for known indemnifications included as
part of environmental liabilities. The range of probability and the amount
accrued for known liabilities has not changed significantly since September 30,
2002. In view of our financial position and reserves for environmental matters,
we believe that any potential payment of such estimated amounts or additional
monetary sanctions will not have a material adverse effect on our consolidated
financial position, results of operations or liquidity.

Due to the Company's downsizing of certain operations as part of
restructuring plans, acquisitions, or otherwise, the Company has leased
properties, which it has vacated but has sub-let to third parties.

21

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

14. GUARANTEES (CONTINUED)
In the event third parties vacate the premises, the Company would be legally
obligated under master lease arrangements. The Company believes that the
financial risk of default by sub-lessors is individually and in the aggregate
not material to the Company's financial position or results of operations.

In the normal course of business, the Company is liable for contract
completion and product performance. In the opinion of management, such
obligations will not significantly affect the Company's financial position or
results of operations.

The Company generally accrues estimated product warranty costs at the time
of sale. In other instances, additional amounts are recorded when such costs are
probable and can be reasonably estimated. Manufactured products are warranted
against defects in material and workmanship when properly used for their
intended purpose, installed correctly, and appropriately maintained. Generally,
product warranties are implicit in the sale; however, the customer may purchase
an extended warranty. Manufactured equipment is also warranted in the same
manner as product warranties. However, in most instances the warranty is either
negotiated in the contract or sold as a separate component. Warranty period
terms range from 90 days (e.g., consumable products) up to 20 years (e.g., power
system batteries.) The amount of the accrued warranty liability is determined
based on historical information such as past experience, product failure rates
or number of units repaired, estimated cost of material and labor, and in
certain instances estimated property damage. The liability, shown in the
following table, is reviewed for reasonableness at least as often as quarterly.

Following is a roll forward of the Company's warranty accrual for the
quarter ended December 31, 2002 ($ in millions).

Balance at September 30, 2002....................... $692.9
Accruals for warranties issued during the period.... 7.2
Changes in estimates related to pre-existing
warranties........................................ 17.2
Settlements made.................................... (40.1)
Additions due to acquisitions....................... 0.1
------
Balance at December 31, 2002........................ $677.3
======

22

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 STATEMENT OF OPERATIONS
QUARTER ENDED DECEMBER 31, 2002
($ IN MILLIONS)

23

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

15. TYCO INTERNATIONAL GROUP S.A. (CONTINUED)
CONSOLIDATING STATEMENT OF OPERATIONS
QUARTER ENDED DECEMBER 31, 2001
($ IN MILLIONS)

24

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

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

CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2002
($ IN MILLIONS)

25

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

15. TYCO INTERNATIONAL GROUP S.A. (CONTINUED)
CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 2002
($ IN MILLIONS)

26

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

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

CONSOLIDATING STATEMENT OF CASH FLOWS
QUARTER ENDED DECEMBER 31, 2002
($ IN MILLIONS)

27

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

15. TYCO INTERNATIONAL GROUP S.A. (CONTINUED)
CONSOLIDATING STATEMENT OF CASH FLOWS
QUARTER ENDED DECEMBER 31, 2001
($ IN MILLIONS)

28

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

RESULTS OF OPERATIONS

INTRODUCTION

Information for all periods presented below reflects the grouping of Tyco's
businesses into five segments, consisting of Fire and Security Services,
Electronics, Healthcare, Engineered Products and Services, and Plastics and
Adhesives.

During the quarter ended December 31, 2002, a change was made to the
Company's internal reporting structure such that the operations of Tyco's
plastics and adhesives businesses (previously reported within the Healthcare and
Specialty Products segment) now comprise the Company's new Plastics and
Adhesives segment. The Company has conformed its segment reporting accordingly
and has reclassified comparative prior period information to reflect this
change.

CHARGES RELATING TO PRIOR YEARS RECORDED IN THE QUARTER ENDED DECEMBER 31,
2001--As discussed in the Company's Annual Report Form 10-K for the fiscal year
ended September 30, 2002, during the fourth quarter of fiscal 2002, the Company
identified various adjustments relating to prior year financial statements.
Management concluded the effects of these adjustments, as well as any unrecorded
proposed audit adjustments, were not material individually or in the aggregate
to fiscal 2002 or any year prior. Accordingly, prior year financial statements
have not been restated. Instead, these adjustments that aggregate
$261.6 million on a pre-tax income basis or $199.7 million on an after-tax
income basis have been recorded effective October 1, 2001. The nature and
amounts of these adjustments are principally as follows:

- The Company determined the amounts reimbursed from dealers under ADT's
authorized dealer program exceeded the costs actually incurred. The
cumulative effect of reimbursements recorded in years prior to fiscal 2002
in excess of costs incurred, net of the effect of the deferred credit,
which would have been amortized as described in Note 1 to the Company's
Form 10-K for the year ended September 30, 2002 is $185.9 million. This
amount is included on the selling, general and administrative expenses
line in the December 31, 2001 Consolidated Statement of Operations.

- The Company determined that the net gain of $64.1 million on the issuance
of TyCom shares previously reported for fiscal 2001 should have been lower
by $39.6 million. The $39.6 million associated with the sale of common
shares of TyCom is included on a separate line in the December 31, 2001
Consolidated Statement of Operations.

- As described in Note 1 to the Company's Form 10-K for the year ended
September 30, 2002, the Company identified several adjustments, both as a
result of the Phase 2 review and the recording of previously unrecorded
audit adjustments, which are more appropriately recorded as expenses,
rather than as part of the Company's acquisition accounting. The
cumulative effect of the adjustments necessary to revise the prior
accounting is a pre-tax charge of $36.1 million, $25.4 million of which is
included in selling, general and administrative expenses and
$10.7 million of which is included in cost of sales in the December 31,
2001 Consolidated Statement of Operations.

OVERVIEW

Revenues increased 4.2% during the quarter ended December 31, 2002 to
$8,939.4 million from $8,578.7 million in the quarter ended December 31, 2001.
Tyco had income from continuing operations of $634.5 million for the quarter
ended December 31, 2002, as compared to $934.7 million in the quarter ended
December 31, 2001. Income from continuing operations for the quarter ended
December 31, 2002 included restructuring credits of $3.7 million ($2.6 million
after-tax) within the Healthcare and Electronics segments. Income from
continuing operations for the quarter ended December 31, 2001 included
restructuring and other unusual charges of $25.7 million ($17.7 million
after-tax) primarily related to severance associated with the closure of
existing facilities within certain

29

Engineered Products and Services and Fire and Security Services businesses; and
charges related to prior years of $261.6 million ($199.7 million after-tax).

We are currently assessing the potential impact of various legislative
proposals that 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). Tyco's revenues related to
U.S. federal government contracts account for less than 2% of the net revenues
for the quarter ended December 31, 2002. In addition, various state and other
municipalities in the U.S. have proposed similar legislation. There is also
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. We are unable to predict, with any
level of certainty, the likelihood or final form in which any proposed
legislation might become law, or the nature of regulations that may be
promulgated under any such future legislative enactments.

The following table details net revenues and earnings for the quarters ended
December 31, 2002 and 2001 ($ in millions):

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

(1) This amount includes restructuring and other unusual (credits) charges
related to inventory in the amount of $(0.2) million and $5.8 million for
the quarters ended December 31, 2002 and 2001, respectively, which have been
included as part of cost of sales in the Consolidated Statements of
Operations.

Net revenues increased $360.7 million, or 4.2%, to $8,939.4 million in the
first quarter of fiscal 2003 as compared to $8,578.7 million in the first
quarter of fiscal 2002. For the quarter ended December 31, 2002, the increases
in revenue at Fire and Security Services, Healthcare, and Engineered Products
and Services in the aggregate exceeded the decrease in revenue in the
Electronics segment, resulting in an overall increase in revenues. Revenue at
our Plastics and Adhesives segment remained relatively flat. Operating income
was $1,124.1 million in the first quarter of fiscal 2003 as compared to
$1,359.1 million in the first quarter of fiscal 2002. Total operating income as
a percentage of revenue was 12.6% and 15.8% during the quarters ended
December 31, 2002 and 2001, respectively. Operating income and margins declined
in each of our business segments, most notably in Electronics, Fire and Security
Services and Plastics and Adhesives. We expect revenues and operating income to
increase

30

during the next quarter primarily as a result of increased sales prices and the
impact of cost cutting initiatives. However, we expect such factors to be
slightly offset by softness in demand and generally weak economic conditions.

Historically, in acquisitions, the acquired company has been 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, and
therefore, are not able to quantify the actual impact of our acquisitions on
revenues, expenses or operating results. The discussions following the tables
below include pro forma 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 approximately 5% of the aggregate purchase price for all acquisitions
during the quarter ended December 31, 2002 and the fiscal year ended
September 30, 2002. Since these pro forma estimates are based on pre-acquisition
revenues, they are not necessarily indicative of post-acquisition results.
Further, the pro forma amount provided inherently assumes that the acquired
companies have a comparable organic growth percentage and earn revenues in the
same proportion throughout the year as the segments that acquired the companies.
In cases where the organic growth percentages or the proportion of revenue
earned during the year are different, the pro forma amount could vary
significantly from the actual organic growth of the segment. This calculation is
similar to the method used in calculating the acquisition-related pro forma
results of operations in Note 2 to the Consolidated Financial Statements,
pursuant to Statement of Financial Accounting Standards No. 141.

QUARTER ENDED DECEMBER 31, 2002 COMPARED TO QUARTER ENDED DECEMBER 31, 2001

SALES AND OPERATING INCOME AND MARGINS

FIRE AND SECURITY SERVICES

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

31

Net revenues in the Fire and Security Services segment increased 11.3% in
the quarter ended December 31, 2002 over the quarter ended December 31, 2001,
including a 12.3% increase in product revenue and a 10.3% increase in service
revenue, primarily as a result of higher sales volume and increased service
revenue in both the worldwide security business and our worldwide fire
protection business. The increase in net revenues was due to fiscal 2002
acquisitions and, to a lesser extent, customer contracts purchased through our
authorized dealer program. Significant acquisitions included SBC/Smith Alarm
Systems in October 2001, and DSC Group and Sensormatic in November 2001.
Excluding a $69.6 million increase from foreign currency fluctuations, our
dealer program (the Company purchases residential monitoring contracts from an
external network of dealers who operate under ADT's authorized "dealer
program"), the acquisitions listed above, the transfer of the Graphic Controls
business from the Healthcare segment in April 2002, and all other acquisitions
with a purchase price of $10 million or more, pro forma revenues (calculated in
the manner described above in "Overview") for the segment decreased 3.9% from
$2,665.2 million for the quarter ended December 31, 2001 to $2,561.4 million for
the quarter ended December 31, 2002. Although, our net revenue growth for the
first quarter of fiscal 2003 was due to acquisitions completed in fiscal 2002
(including the authorized dealer program), our current long-term strategy is to
grow our existing business. We plan to do this by gaining and maintaining high
quality security monitoring accounts through our internal sales force
supplemented by the authorized dealer program in key geographic areas.

Operating income decreased 32.7% in the quarter ended December 31, 2002 over
the quarter ended December 31, 2001 due to weaker market conditions in the U.S.
commercial construction industry and lower operating margins in both the
security and fire protection businesses. The decrease in operating margins for
the segment was primarily a result of increased amortization and depreciation
expense, due largely to the acquisition of Sensormatic and DSC in fiscal 2002,
in addition to a weak commercial construction market affecting the U.S. security
business, reduced profit levels in Europe affecting the fire protection
businesses, generally weak market conditions in the U.S., and an increase in bad
debt expense in our security business.

Operating income and margins for the quarter ended December 31, 2001 include
restructuring charges of $7.8 million primarily related to severance associated
with the closure of existing facilities that had become redundant due to
acquisitions.

ELECTRONICS

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

32

Net revenues for the Electronics segment decreased 10.3% in the quarter
ended December 31, 2002 compared with the quarter ended December 31, 2001,
including a 9.7% decrease in product revenue and a 21.9% decrease in service
revenue, as a result of further softening in the customer demand in the markets
we serve, including undersea fiber optic system installations. Revenues at the
electronics components group increased $90.2 million, or 3.7% due primarily to
the impact of the changes in foreign currency exchange rates. Revenues were up
12.9% for the products sold in the automotive market offset by decreased
revenues in the telecommunications industry. Revenues at the segment's
Telecommunications business declined $379.2 million, or 93.6%, due to lack of
demand for the construction of third-party networks and lower capacity sales on
the Tyco Global Network. Excluding a $72.3 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 14.7% from $2,877.8 million for the quarter ended December 31, 2001 to
$2,456.0 million for the quarter ended December 31, 2002.

The 44.3% decrease in operating income and the decrease in operating margins
for the quarter ended December 31, 2002 compared with the quarter ended
December 31, 2001 was primarily due to the significant decrease in revenue in
the undersea fiber optic cable business due in large part to the complete
absence of revenue and income for the construction of third-party networks and
lower sales of capacity on the Tyco Global Network.

Operating income and margins for the quarter ended December 31, 2002 include
restructuring credits of $1.7 million primarily relating to a revision in
estimates of prior years' restructuring charges.

HEALTHCARE

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

Net revenues for the Healthcare segment increased 13.3% in the quarter ended
December 31, 2002 over the quarter ended December 31, 2001, including a 13.2%
increase in product revenue and a 27.0% increase in service revenue, primarily
as a result of acquisitions, which increased volume in our domestic healthcare
business. The increase in net revenues resulted from increased sales volume
primarily from acquisitions and, to a lesser extent, due to increased revenues
throughout the surgical, medical, imaging, respiratory and pharmaceutical
healthcare businesses. However, these increases were partially offset by reduced
sales in our international healthcare business, specifically in Europe and
Japan. In addition, our retail business continued to experience depressed sales
in its diaper product line. This decrease in diaper product sales, which is
prevalent among our competitors as well, is expected to be temporary and
directly results from new packaging down-counts implemented on an

33

industry-wide basis. Excluding a $32.3 million increase from foreign currency
exchange fluctuations, the acquisition of Paragon Trade Brands ("Paragon") in
January 2002, the divestiture of Surgical Dynamics, Inc. in July 2002 and the
transfer of our Graphic Controls business to the Fire and Security Services
segment in April 2002, revenue for the Healthcare segment increased an estimated
5.7% from $1,740.0 million for the quarter ended December 31, 2001 to
$1,840.0 million for the quarter ended December 31, 2002.

The 4.6% decrease in operating income and decrease in margins in the quarter
ended December 31, 2002 compared to the quarter ended December 31, 2001 was due
primarily to a lower mix of non-U.S. sales which typically yield higher margins,
the acquisition of Paragon which yields a lower margin percentage, favorable
manufacturing absorption variances impacting operating results in the quarter
ended December 31, 2001 related to a significant inventory build up in
connection with plant closures and consolidation and delivery on a significant
contract, and higher selling, general and administrative expenses in certain
areas. 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 for the quarter ended December 31, 2002 include
restructuring credits of $2.0 million, of which $0.2 million is included in cost
of sales, related to a revision in estimates of prior years' restructuring
charges.

ENGINEERED PRODUCTS AND SERVICES

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

Net revenues for the Engineered Products and Services segment increased
11.6% in the quarter ended December 31, 2002 over the quarter ended
December 31, 2001, including a 7.3% increase in product revenue and a 50.4%
increase in service revenue, primarily as a result of the integration of
acquisitions and due to higher volume at Tyco Flow Control ("TFC"). Increased
sales at TFC were largely due to higher demand for waterworks and thermal
control products. This increase was partially offset by weakness in our
industrial valve and control markets in North America, Europe and Japan. Selling
prices are expected to remain competitive in most of our businesses worldwide
due to continuing depressed economic conditions. Acquisitions included Century
Tube Corporation ("Century") in October 2001, Water & Power Technologies
("Water & Power") in November 2001, and Clean Air Systems in February 2002.
Excluding a $27.8 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

34

segment increased 5.9% from $1,103.0 million for the quarter ended December 31,
2001 to $1,167.9 million for the quarter ended December 31, 2002.

The 4.5% decrease in operating income and the decrease in margins in the
quarter ended December 31, 2002 compared to the quarter ended December 31, 2001
was due primarily to the continued consolidation of facilities and reduction of
headcount which resulted in one time costs totaling $13.6 million during the
first quarter of fiscal 2003. In addition, unfavorable economic conditions,
which have resulted in the slowdown of commercial construction in North America
and Europe, have resulted in lower unit volume. Higher raw material costs
combined with market resistance to further increases in sales prices have
resulted in reduced margins. The lower unit volume is particularly evident
within Tyco Electrical & Metal Products ("TEMP") where price increases have
partially offset the lower unit volume to result in relatively level net volume
from quarter to quarter. However, the increases in sales prices were not
proportionate to the increase in costs which has resulted in lower margins.
Slightly offsetting the overall decrease in margins was an increase in operating
income and margins at TFC.

Operating income and margins for the quarter ended December 31, 2001
includes restructuring and other unusual charges of $17.9 million, of which
$5.8 million is included in cost of sales, primarily related to the termination
of employees and the write-down of inventory associated with exiting a product
line.

PLASTICS AND ADHESIVES

The following table sets forth revenues and operating income and margins for
the Plastics and Adhesives segment ($ in millions):

Net revenues at Tyco Plastics and Adhesives increased 2.6% in the quarter
ended December 31, 2002 over the quarter ended December 31, 2001 due to the
effect of acquisitions. Excluding a $4.8 million increase from foreign currency
exchange fluctuations and the acquisition of Linq Industrial Fabrics, Inc. in
December 2001, and all other acquisitions with a purchase price of $10 million
or more, pro forma revenues (calculated in the manner described above in
"Overview") for the Plastics and Adhesives segment decreased an estimated 3.1%
from $460.0 million for the quarter ended December 31, 2001 to $445.8 million
for the quarter ended December 31, 2002. The pro forma revenue decline was due
to lost market share in an environment of enhanced global price competition that
hindered our ability to pass pricing increases to our customers, principally in
our Films operation.

The 52.8% decrease in operating income and decrease in operating margins in
the quarter ended December 31, 2002 over the record levels reported for the
quarter ended December 31, 2001 was primarily due to higher raw material costs,
with the most significant adverse impact on our Films operation. Higher raw
material costs and unfavorable product mix also adversely impact our Adhesives,
Ludlow Coated Products and A&E Molded Products operations.

FOREIGN CURRENCY

The effect of changes in foreign exchange rates for the quarter ended
December 31, 2002 compared to the quarter ended December 31, 2001 was an
increase in revenues and operating income of approximately $206.8 million and
$20.6 million, respectively.

35

CORPORATE EXPENSES

Corporate expenses were $68.2 million and $275.3 million in the quarters
ended December 31, 2002 and 2001, respectively. Corporate expenses were
$26.7 million (excluding unusual charges of $38.5 million related to the
internal investigation fees, and $3.0 million of severance associated with
corporate employees) in the quarter ended December 31, 2002 as compared to
$53.3 million (excluding charges related to prior years of $222.0 million) in
the quarter ended December 31, 2001. The decrease in the quarter ended
December 31, 2002 as compared to the quarter ended December 31, 2001 was
primarily due to decreased costs as a result of the corporate restructuring that
occurred in prior year.

OTHER INCOME (EXPENSE)

Tyco has repurchased some debt prior to scheduled maturities. During the
quarter ended December 31, 2002, the Company recorded other income from the
early retirement of debt totaling $1.4 million, as compared to expense of
$4.3 million during the quarter ended December 31, 2001. Also, during the
quarter ended December 31, 2002, the Company recorded other income of
$20.0 million related to the return of an unauthorized payment to a former
director of the Company in connection with the acquisition of The CIT
Group, Inc.

INTEREST EXPENSE, NET

Net interest expense was $263.2 million in the quarter ended December 31,
2002, as compared to $189.2 million in the quarter ended December 31, 2001. The
increase is primarily the result of a higher average interest rate, as well as,
higher average debt balances during the quarter ended December 31 2002. We
expect our net interest expense to increase for our next fiscal quarter,
primarily due to a decrease in capitalized interest as a result of the TGN being
placed in service.

INCOME TAX EXPENSE

The effective income tax rate was 28.0% and 17.1% for the quarters ended
December 31, 2002 and 2001, respectively. The effective income tax rate,
excluding the impact of restructuring and other unusual charges, was 28.0% and
18.6% in the quarters ended December 31, 2002 and 2001, respectively. The
increase in the effective income tax rate was primarily due to lower earnings in
tax jurisdictions with lower income tax rates.

CRITICAL 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.

LONG-LIVED ASSETS--Management periodically evaluates the net realizable
value of long-lived assets, including property, plant and equipment, the TGN and
intangible assets, 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 fair value. Since judgment is involved
in determining the fair 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 the TGN during fiscal 2002, and
management continues to monitor developments in the fiber optic capacity
markets. It is possible that the assumptions underlying an impairment analysis
will change in such a manner that a further impairment in value may occur in

36

the future. In addition, we may experience TGN impairments if the downturn in
the telecommunications industry continues.

The determination of the depreciable lives of subscriber systems included in
property, plant and equipment, and the amortizable lives of customer contracts
and related customer relationships included in intangible assets, are primarily
based on historical attrition rates, third party lifing studies and the useful
life of the underlying tangible asset. The realizable value and remaining useful
lives of these assets could be impacted by changes in customer attrition rates.

GOODWILL--Management assesses goodwill 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 judgment 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.

Disruptions to our business such as end market conditions and protracted
economic weakness, unexpected significant declines in operating results of
reporting units, continued downgrades in our credit ratings, and additional
market capitalization declines may result in our having to perform an 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 in
the future.

REVENUE RECOGNITION--Contract sales for the installation of fire protection
systems, large security intruder 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.

INCOME TAXES--Estimates of full year taxable income of the various legal
entities and jurisdictions are used in the tax rate calculation, which change
throughout the year. Management uses judgment in estimating what the income will
be for the year. Since judgment is involved, there is risk that the tax rate may
significantly increase or decrease in any period.

37

DISCONTINUED OPERATIONS OF TYCO CAPITAL (CIT GROUP INC.)

On July 8, 2002, the Company completed the sale of 100% of the common shares
of CIT Group Inc., a wholly-owned subsidiary, through an IPO. Operating results
from the discontinued operations of Tyco Capital for the quarter ended
December 31, 2001 were as follows ($ in millions):

38

LIQUIDITY AND CAPITAL RESOURCES

The following table summarizes 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 ended December 31, 2002 and 2001. We refer to
the net amount of cash generated from operating activities, less capital
expenditures, TGN spending, dividends and increases or decreases associated with
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 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 depreciation of tangible property ($361.1 million
and $359.6 million for the quarters ended December 31, 2002 and 2001,
respectively) and amortization of intangible assets ($155.4 million and
$121.1 million for the quarters ended December 31, 2002 and 2001,
respectively).

(2) This amount includes cash paid out for restructuring and other unusual
charges of $159.0 million and $90.9 million for the quarters ended
December 31, 2002 and 2001, respectively.

(3) This amount is net of proceeds of $29.5 million received in sale-leaseback
transactions during the quarter ended December 31, 2001. It is also net of
proceeds of $28.9 million and $15.4 million received in sale/disposition of
property, plant and equipment for the quarters ended December 31, 2002 and
2001, respectively.

(4) This amount is before cash payments for purchase accounting and
holdback/earn-out liabilities of $111.8 million and $218.7 million for the
quarters ended December 31, 2002 and 2001, respectively.

39

The following table shows cash flow from operating activities and free cash
flow by segment for the quarter ended December 31, 2002.

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

(1) These amounts include cash paid out for restructuring and other unusual
charges.

The net change in working capital, net of the effects of acquisitions and
divestitures, was an increase of $616.0 million in the quarter ended
December 31, 2002, including cash paid out for restructuring and other unusual
charges of $159.0 million. The components of this change are set forth in detail
in our Consolidated Statement of Cash Flows. Historically, the Company generates
the lowest level of cash flow in its first fiscal quarter. The significant
changes in working capital included a $473.6 million decrease in accounts
payable, a $180.8 million decrease in accrued expenses and other current
liabilities and an $108.0 million increase in inventory. In prior years, the
Company paid out cash bonuses in the first fiscal quarter on account of
performance in the prior fiscal year. Approximately $200 million of fiscal 2002
performance bonuses were paid in January 2003.

During the quarter ended December 31, 2002, the aggregate sale of accounts
receivables decreased by approximately $80.4 million.

During the quarter ended December 31, 2002, we paid out $111.8 million in
cash that was charged against 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 quarter ended December 31, 2002, we recorded restructuring
credits of $3.7 million, of which $0.2 million is included in cost of sales,
related to a revision of estimates of prior years' restructuring charges. At
September 30, 2002, there were liabilities for restructuring and other unusual
charges of $1,006.9 million on the Consolidated Balance Sheet. During the
quarter ended

40

December 31, 2002, we paid out $159.0 million in cash and incurred $0.3 million
in non-cash uses that were charged against these liabilities. We also recorded
$3.6 million in foreign currency translation adjustments. At December 31, 2002,
there were $847.5 million of reserves remaining for restructuring and other
unusual charges on our Consolidated Balance Sheet, of which $650.7 million is
included in accrued expenses and other current liabilities and $196.8 million is
included in other long-term liabilities.

During the quarter ended December 31, 2002, we purchased a business for cash
of $2.9 million and customer contracts for electronic security services for cash
of $236.6 million.

At the beginning of fiscal 2003, our purchase accounting reserves were
$539.0 million as a result of purchase accounting transactions in prior years.
Purchase accounting liabilities of $17.4 million and a corresponding increase to
goodwill and deferred tax assets were recorded during the quarter ended
December 31, 2002 relating to fiscal 2003 and 2002 acquisitions. These reserves
related primarily to revisions associated with finalizing the exit plans of
Paragon and Eberle, both acquired during fiscal 2002. Also, during fiscal 2003,
we reclassified $0.6 million of fair value adjustments related to the write-down
of assets for fiscal 2002 acquisitions out of purchase accounting accruals into
the appropriate asset or liability account. We also recorded $4.1 million in
cumulative translation adjustments. During the quarter ended December 31, 2002,
we paid out $68.8 million in cash for utilization of purchase accounting
liabilities related to prior years' acquisitions. In addition, we paid out
$43.0 million relating to holdback/earn-out liabilities related to certain prior
period acquisitions. 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 quarter ended December 31, 2002, we determined
that $63.4 million of purchase accounting reserves related to acquisitions prior
to fiscal 2003 were not needed and reversed that amount against goodwill. At
December 31, 2002, there remained $427.7 million in purchase accounting reserves
on our Consolidated Balance Sheet, of which $231.3 million is included in
accrued expenses and other current liabilities and $196.4 million is included in
other long-term liabilities. In addition, $234.1 million of holdback/earn-out
liabilities remained on our Consolidated Balance Sheet, of which $111.3 million
are included in accrued expenses and other current liabilities and
$122.8 million are included in other long-term liabilities at December 31, 2002.

CAPITALIZATION

Shareholders' equity was $25,891.4 million, or $12.97 per share, at
December 31, 2002, compared to $24,790.6 million, or $12.42 per share, at
September 30, 2002. The increase in shareholders' equity was due primarily to
net income of $634.5 million and currency translation adjustment of
$464.3 million for the quarter ended December 31, 2002.

Tangible shareholders' deficit was $7,001.2 million at December 31, 2002, as
compared to $7,865.2 million at September 30, 2002. Goodwill and other
intangible assets were $32,892.6 million at December 31, 2002, compared to
$32,655.8 million at September 30, 2002. Acquisitions have been an important
part of Tyco's growth in recent years. While we may 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.

41

Total debt as a percentage of total capitalization (total debt and
shareholders' equity) was 48% at December 31, 2002 and 49% at September 30,
2002. Tyco International Group S.A. ("TIG"), a wholly-owned subsidiary of Tyco,
is party to a $2.0 billion revolving credit facility due 2006 containing a
covenant that would result in a default if our total debt as a percentage of
total capitalization exceeds 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 $5.7 billion of cash
and cash equivalents as of December 31, 2002. Net debt (total debt less cash and
cash equivalents) as a percent of net capitalization (net debt and shareholders'
equity) was 42% at both December 31, 2002 and September 30, 2002.

At December 31, 2002, total debt was $24,216.2 million, as compared to
$24,205.8 million at September 30, 2002. Our cash balance decreased to
$5,732.0 million at December 31, 2002, as compared to $6,186.8 million at
September 30, 2002.

The following summarizes Tyco's change in net debt for the quarter ended
December 31, 2002 ($ in millions):

Total debt at September 30, 2002............................ $24,205.8
Less: cash and cash equivalents and short-term investments
at
September 30, 2002........................................ (6,280.3)
---------
NET DEBT BALANCE AT SEPTEMBER 30, 2002...................... 17,925.5
Less the following:
Operating cash flow from continuing operations.............. 827.8
Purchase of property, plant and equipment................... (314.1)
Dividends................................................... (25.2)
Decreases in sale of accounts receivable programs........... 80.4
Construction in progress--TGN............................... (86.5)
------
Free cash flow.............................................. 482.4
Acquisition of businesses................................... (239.5)
Cash paid for purchase accounting and holdback/earn-out
liabilities............................................... (111.8)
Increase in restricted cash................................. (296.6)
Other items................................................. (139.9)
------
(305.4)
---------
NET DEBT BALANCE AT DECEMBER 31, 2002....................... 18,230.9
Plus: cash and cash equivalents and short-term investments
at December 31, 2002...................................... 5,985.3
---------
Total debt at December 31, 2002............................. $24,216.2
=========

In January 2003, TIG repaid its $3.855 billion unsecured term loan from
banks scheduled to expire on February 6, 2003.

In January 2003, TIG issued $3.0 billion of 2.75% Series A convertible
senior debentures due January 2018 and $1.5 billion of 3.125% Series B
convertible senior debentures due January 2023. These debentures are fully and
unconditionally guaranteed by Tyco, and at any time, holders may convert each of
their debentures into Tyco common shares prior to the stated maturity at a rate
of $22.7832 and $21.7476 respectively, per share. Additionally, holders of the
Series A debentures may require the Company to purchase all or a portion of
their debentures on January 15, 2008 and January 15, 2013, and holders of the
Series B debentures may require the Company to purchase all or a portion of
their debentures on January 15, 2015. If the option is exercised at any one of
the aforementioned dates, TIG must repurchase the debentures at par plus accrued
interest, and may elect to repurchase the securities for cash, Tyco common
shares, or some combination thereof. TIG may

42

redeem for cash some or all of the Series A debentures and Series B debentures
at any time on or after January 20, 2006 and January 20, 2008, respectively. Net
proceeds of approximately $4,387.5 million, before out of pocket expenses, from
these debentures were used primarily to repay debt.

Also in January 2003, TIG entered into a $1.5 billion 364-day unsecured
revolving credit facility which also provides for issuance of unsecured letters
of credit. The facility, which is fully and unconditionally guaranteed by Tyco
and certain of its subsidiaries and is guaranteed in part by various
subsidiaries of TIG, has a variable interest rate based on LIBOR. The margin
over LIBOR payable by TIG can vary depending upon changes in its credit rating
and in the market price of one of its outstanding debt securities.

Our credit agreements contain a number of financial covenants, such as
interest coverage and leverage ratios, and restrictive covenants that limit the
amount of debt we can incur and restrict our ability to pay dividends or make
other payments in connection with our capital stock, to make acquisitions or
investments, to pledge assets and to prepay debt that matures after
December 31, 2004. We have several synthetic lease facilities with similar
covenants. Our outstanding indentures contain customary covenants including a
negative pledge, limit on subsidiary debt and limit on sale/leasebacks. None of
these covenants is presently considered restrictive to our operations.

At February 12, 2003, the accreted value of TIG's zero coupon convertible
debentures with a February 2003 put option was $1,850.8 million. On
February 13, 2003, TIG purchased $1,850.1 million of these debentures for cash
at the accreted value. This purchase resulted from the exercise of investors'
option under the indenture to require TIG to purchase debentures validly
surrendered by February 12, 2003.

The following table sets forth the capitalization of the Company at
December 31, 2002 on an actual basis and pro forma to give effect to: (i) the
issuance of $4,500.0 million convertible debentures for net proceeds of
approximately $4,387.5 million in January 2003, (ii) repayment of the Company's
$3.855 billion unsecured term loan from banks in January 2003 and (iii) the
repurchase of $1,850.1 million of the accreted amount outstanding under the
Company's zero coupon convertible debentures with February 2003 put option for
cash ($ in millions):

Total debt as a percentage of total capitalization decreased from 48% at
December 31, 2002 to 47% on a pro forma basis.

As a result of the rating agencies' downgrade of Tyco's debt to below
investment grade status in fiscal 2002, investors in one of our accounts
receivable programs have the option to discontinue reinvestment in new
receivables. The amount outstanding under this program was $106.0 million at
December 31, 2002.

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

43

exercise its option, then all Drs. are required to be tendered to the Company in
June 2003. If these debentures are tendered, TIG would be required to repurchase
them for cash.

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.

The table below includes our projected cash flows through December 2003, our
first quarter of fiscal 2004 ($ in millions).

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

(1) Fiscal 2003 free cash flow is estimated to be in the range of $2.5 billion
to $3.0 billion.

(2) From time to time the Company repurchases its debentures in the open market
prior to maturity.

(3) Of this amount, $3.9 billion represents repayment of our $3.855 billion term
loan scheduled to expire in February 2003 and $1.8 billion of this amount
represents payment for repurchase of substantially all of the zero coupon
convertible debentures with February 2003 put option. In addition,
subsequent to December 31, 2002, Tyco purchased $544.7 million outstanding
under its zero coupon convertible debentures with a November 2003 put option
for cash of $532.0 million.

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

(5) The Company does not expect restricted cash to significantly increase in the
foreseeable future.

(6) Amounts assume that the $400 million and $350 million outstanding under two
of the Company's accounts receivable programs with a total available
capacity of $850 million will be renewed in the third and fourth quarters of
fiscal 2003, respectively.

(7) This amount excludes approximately $469 million of short-term restricted
cash and $24 million of non-current restricted cash primarily related to the
funding of long-term construction projects.

As illustrated in the foregoing table and discussed above, we have
significant amounts of debt which matures in calendar 2003 as well as future
periods. In addition, our two largest accounts receivables programs with amounts
outstanding of $750 million and aggregate available capacity of $850 million
expire during the fiscal year. However, we believe these programs will be
renewed. In addition, as previously discussed, in January 2003, we received net
proceeds of approximately $4.4 billion from the issuance of convertible debt. We
used the proceeds and cash on hand to repay our $3.9 billion then existing
credit facility and $1.8 billion outstanding under our zero coupon convertible
senior debentures due February 2021 (with a February 2003 put option.). In
addition, in January 2003 we entered into a new $1.5 billion 364-day unsecured
revolving credit facility, none of which has been drawn down. We believe that
our cash flow from our operations, together with proceeds from the

44

convertible debt offering and our new credit facility, is adequate to fund our
operations and service our debt through December 31, 2003. However, events
beyond our control such as the result of ongoing litigation and governmental
investigations, a decrease in demand for our products and services, further debt
rating downgrades or deterioration in our financial ratios could negatively
impact our access to financing and increase our cost of funds.

The Company's zero coupon convertible senior debentures due 2020 (with a
November 2003 put option) and zero coupon convertible senior debentures due 2021
(with a February 2003 put option) may be converted into Tyco common shares at
the option of the holders if any one of the following conditions is satisfied
for the relevant debentures:

- if the closing sale price of Tyco common shares for at least 20 trading
days in the 30 trading day period ending on the trading day prior to the
date of surrender is more than 110% of the accreted conversion price per
common share of the relevant debentures on that preceding day;

- if the Company has called the relevant debentures for redemption after a
certain date; and

- upon the occurrence of specified corporate transactions, such as if Tyco
makes a significant distribution to its shareholders or if it is a party
to specific consolidations, mergers or binding share exchanges.

The conversion feature of the zero coupon convertible debentures due 2020
and 2021 was not available to the debt holders at December 31, 2002 as shown in
the following table:

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

(1) Accreted conversion price per common share is equal to the accreted value of
the debentures at December 31, 2002 divided by the conversion rate. The
conversion price increases as interest on the notes accretes.

GUARANTEES, COMMITMENTS AND CONTINGENCIES

TIG has issued a guarantee to a bank on behalf of an equity investee for a
reducing revolving line of credit, due November 30, 2005. The maximum borrowing
permitted under the facility is now $8.5 million, all of which is outstanding.
The maximum borrowing permitted under the facility will be further reduced by
$0.75 million on both December 20, 2003 and 2004. In the event that the equity
investee defaults on its payment obligations, the bank may demand that the
Company pay the outstanding principal on the loan. The Company does not have a
liability recorded for the guarantee as it is not probable at this time that the
Company will have to make any payments. In the instance that the Company would
be required to pay the bank, the Company has no recourse from a third-party
other than ultimate reimbursement from the equity investee in cash or common
shares.

The Company's healthcare business may, from time to time, enter into a sales
contract whereby it will buy back (at a discount) a transaction from a
customer's third-party financier in the event of a customer's default. For such
transactions that include "shared risk", the Company accrues a liability based
on historical loss data. As of December 31, 2002, $3.8 million was accrued
related to these contracts. In the event the Company must pay for this shared
risk, the Company's recourse is as follows: place the lease with another
third-party financier in which payment is highly likely; repossess the purchased
products or equipment; seek payment through a personal guarantee issued by the
customer; or, alternatively, sue the customer.

The Company's Fire and Security Services business has guaranteed the
performance of a third-party contractor. The performance guarantee arose from
contract negotiations, because the contractor

45

could provide cost-effective service on a telecommunications contract. In the
event the contractor does not perform its contractual obligations, Tyco Fire and
Security would perform the services itself. Therefore, the Company's exposure
would be the cost on any services performed, which would not have a material
effect to the Company's financial position or results of operations. However,
because it is not probable that the Company will have to make any payments
pursuant to the guarantee, it is not accrued. The performance guarantee expires
in August 2003. Although not specified in the agreement if the third-party
sub-contractor does not perform its obligations, Tyco may withhold any future
payment of work performed by the contractor.

The Company, in disposing of assets or businesses, often provides
representations, warranties and/or indemnities to cover various risks including,
for example, unknown damage to the assets, environmental risks involved in the
sale of real estate, liability to investigate and remediate environmental
contamination at hazardous waste disposal sites and manufacturing facilities,
and unidentified tax liabilities and legal fees related to periods prior to
disposition. The Company does not have the ability to estimate the potential
liability from such indemnities because they relate to unknown conditions.
However, we have no reason to believe that these uncertainties would have a
material adverse effect on the Company's financial position or results of
operations.

The Company has recorded liabilities for known indemnifications included as
part of environmental liabilities. The range of probability and the amount
accrued for known liabilities has not changed significantly since September 30,
2002. In view of our financial position and reserves for environmental matters,
we believe that any potential payment of such estimated amounts or additional
monetary sanctions will not have a material adverse effect on our consolidated
financial position, results of operations or liquidity.

Due to the Company's downsizing of certain operations as part of
restructuring plans, acquisitions, or otherwise, the Company has leased
properties, which it has vacated, but has sub-let to third parties. In the event
third parties vacate the premises, the Company would be legally obligated under
master lease arrangements. The Company believes that the financial risk of
default by sub-lessors is individually and in the aggregate not material to the
Company's financial position or results of operations.

In the normal course of business, the Company is liable for contract
completion and product performance. In the opinion of management, such
obligations will not significantly affect the Company's financial position or
results of operations.

As a result of actions taken by our former senior corporate management, Tyco
and some members of our former senior corporate management and current and
former members of our board of directors are named defendants in a number of
purported class actions alleging violations of the disclosure provisions of the
federal securities laws, as well as a number of derivative actions. Certain of
our employees as well as Tyco and some members of our former corporate senior
management and current and former members of our board of directors are also
named as defendants in several ERISA actions. We may be obliged to indemnify our
directors and our former directors and officers who also are named as defendants
in some or all of these matters. In addition, our insurance carriers may decline
coverage, or such coverage may be insufficient to cover our expenses and
liability, if any, in some or all of these matters. We received notice on
February 13, 2003 that one such carrier purports to have rescinded its policy
with us on the basis of alleged misrepresentations made by us under our former
senior corporate management. Unless we are able to successfully challenge the
rescission of this policy and any similar action that may be taken by our other
carriers, we will not have insurance coverage under such policies for such
expenses and liability. See "Risk Factors" and Part II, Item 1. "Legal
Proceedings."

We and others have received various subpoenas and requests from the SEC, the
District Attorney of New York County, the U.S. Attorney for the District of New
Hampshire and others seeking the production of voluminous documents in
connection with various investigations into our governance,

46

management, operations, accounting and related controls. We cannot predict when
these investigations will be completed, nor can we predict what the results of
these investigations may be. It is possible that we will be required to pay
material fines, consent to injunctions on future conduct, lose the ability to
conduct business with government instrumentalities or suffer other penalties,
each of which could have a material adverse effect on our business. See "Risk
Factors" and Part II, Item 1. "Legal Proceedings."

Like many other companies, Tyco and some of our subsidiaries are named as
defendants in personal injury lawsuits based on alleged exposure to
asbestos-containing materials. Consistent with the national trend of increased
asbestos-related litigation, we have observed an increase in the number of these
lawsuits in the past several years. The majority of these cases have been filed
against subsidiaries in our Healthcare and Specialty Products division and our
Engineered Products and Services division. A limited number of the cases allege
premises liability, based on claims that individuals were exposed to asbestos
while on a subsidiary's property. Some of the cases involve product liability
claims, based principally on allegations of past distribution of heat-resistant
industrial products incorporating asbestos or the past distribution of
industrial valves that incorporated asbestos-containing gaskets or packing. Each
case typically names between dozens to hundreds of corporate defendants.

Tyco's involvement in asbestos cases has been limited because our
subsidiaries did not mine or produce asbestos. Furthermore, in our experience, a
large percentage of these claims were never substantiated and have been
dismissed by the courts. Our vigorous defense of these lawsuits has resulted in
judgments in our favor in all cases tried to verdict. We have not suffered an
adverse verdict in a trial court proceeding related to asbestos claims.

When appropriate, we settle claims. However, the total amount paid to date
to settle and defend all asbestos claims has been immaterial. Currently, there
are approximately 11,000 asbestos liability cases pending against us and our
subsidiaries.

We believe that we and our subsidiaries have substantial indemnification
protection and insurance coverage, subject to applicable deductibles, with
respect to asbestos claims. These indemnitors and the relevant carriers
typically have been honoring their duty to defend and indemnify. We believe that
we have valid defenses to these claims and intend to continue to defend them
vigorously. Additionally, based on our historical experience in asbestos
litigation and an analysis of our current cases, we believe that we have
adequate amounts accrued for potential settlements and judgments in
asbestos-related litigation. While it is not possible at this time to determine
with certainty the ultimate outcome of these asbestos-related proceedings, we
believe that the final outcome of all known and anticipated future claims, after
taking into account our substantial indemnification rights and insurance
coverage, will not have a material adverse effect on our results of operations,
financial position or cash flows.

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,
2002.

BACKLOG

At December 31, 2002, Tyco had a backlog of unfilled orders of approximately
$11,762.0 million, as compared to a backlog of $11,591.3 million at
September 30, 2002. Backlog by industry segment is as follows ($ in millions):

47

Within the Fire and Security Services segment, backlog increased due
primarily to an increase in recurring revenue in force resulting from net growth
in ADT's dealer program and price increases in various markets. Within both the
Engineered Products and Services and Electronics segments, backlog remained
relatively flat. Backlog in the Healthcare 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 and
Plastics and Adhesives segments to be a significant indicator of the level of
future sales activity.

ACCOUNTING PRONOUNCEMENTS

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.

In December 2002, the FASB issued SFAS No. 148, "Amendment of FASB Statement
No. 123 on Stock Based Compensation," which is effective for interim reporting
periods beginning after December 15, 2002. The provision requires prominent
disclosure about the effects on reported net income of an entity's accounting
policy decisions with respect to stock-based employee compensation. We are
currently assessing the impact of this new standard.

In December 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees" ("FIN 45"). The
disclosure requirement of this interpretation is effective for interim and
annual periods ending after December 15, 2002. See Note 14--Guarantees to the
Consolidated Financial Statements for further information. FIN 45 also requires
that guarantors recognize a liability for certain types of guarantees equal to
the fair value of the guarantee upon its issuance, effective for the quarter
ending March 31, 2003. We are currently assessing the impact of the accounting
requirements of this new interpretation.

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities." This interpretation clarifies the application of
Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to
certain entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from other parties. The interpretation further clarifies the identity of
a party with a controlling financial interest that may be achieved through
arrangements that do not involve voting interests. This Interpretation applies
immediately to variable interest entities created after January 31, 2003, and to
variable interest entities in which an enterprise obtains an interest after that
date. The entity shall disclose the primary beneficiary of a variable interest
entity including the nature, purpose, size and activities of the variable
interest entity and the enterprise's maximum exposure to loss as a result of its
involvement with the variable interest entity. We are currently assessing the
accounting impact of this new interpretation. We have not created any variable
interest in any variable interest entities subsequent to January 31, 2003.

48

RISK FACTORS

YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE INVESTING IN
OUR PUBLICLY TRADED SECURITIES. THE RISKS DESCRIBED BELOW ARE NOT THE ONLY ONES
FACING US. OUR BUSINESS IS ALSO SUBJECT TO THE RISKS THAT AFFECT MANY OTHER
COMPANIES, SUCH AS COMPETITION, TECHNOLOGICAL OBSOLESCENCE, LABOR RELATIONS,
GENERAL ECONOMIC CONDITIONS, GEOPOLITICAL EVENTS AND INTERNATIONAL OPERATIONS.
ADDITIONAL RISKS NOT CURRENTLY KNOWN TO US OR THAT WE CURRENTLY BELIEVE ARE
IMMATERIAL ALSO MAY IMPAIR OUR BUSINESS OPERATIONS AND OUR LIQUIDITY.

RISKS RELATING TO RECENT DEVELOPMENTS AT TYCO

CONTINUING NEGATIVE PUBLICITY MAY ADVERSELY AFFECT OUR BUSINESS.

As a result of actions taken by our former senior corporate management, Tyco
has been the subject of continuing negative publicity focusing on former senior
corporate management's actions. Some of these press reports have suggested that
the accounting treatment of several of our prior acquisitions was improper, that
certain of our operating companies improperly conducted business or recorded
revenues and assets and that information was withheld from the SEC in connection
with an inquiry into our accounting practices. This negative publicity has
contributed to significant declines in the prices of our publicly traded
securities and we have experienced reluctance on the part of certain customers
and suppliers to continue working with us on customary terms. A number of
suppliers have requested letters of credit to support our purchase orders. We
also believe that many of our employees are operating under stressful
conditions, which reduces morale and could lead to increased employee turnover.
Continuing negative publicity could have a material adverse effect on our
results of operations and liquidity and the market price of our publicly traded
securities.

PENDING LITIGATION COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR LIQUIDITY AND
FINANCIAL CONDITION.

As a result of actions taken by our former senior corporate management, Tyco
and some members of our former senior corporate management and current and
former members of our board of directors are named defendants in a number of
purported class actions alleging violations of the disclosure provisions of the
federal securities laws, as well as a number of derivative actions. Certain of
our employees as well as Tyco and some members of our former senior corporate
management and current and former members of our board of directors are also
named as defendants in several ERISA actions. In addition, Tyco and some members
of prior senior corporate management are subject to an SEC inquiry; some members
of prior senior corporate management are named as defendants in criminal cases
being prosecuted by the District Attorney of New York County; and some members
of prior senior corporate management are subject to an investigation by the U.S.
Attorney for the District of New Hampshire. The findings and outcomes of the
prosecutions and the SEC civil action may affect the course of the purported
class actions, derivative actions and ERISA claims pending against Tyco. We are
generally obliged to indemnify our directors and our former directors and
officers who also are named as defendants in some or all of these matters to the
extent permitted by Bermuda law. In addition, our insurance carriers may decline
coverage, or our coverage may be insufficient to cover our expenses and
liability, in some or all of these matters. We received notice on February 13,
2003 that one such carrier purports to have rescinded its policy with us on the
basis of alleged misrepresentations made by us under our former senior corporate
management. Unless we are able to successfully challenge the rescission of this
policy and any similar action that may be taken by our other carriers, we will
not have insurance coverage under such policies for such expenses and liability.
We are unable at this time to estimate what our ultimate liability in these
matters may be, and we may be required to pay judgments or settlements and incur
expenses in aggregate amounts that would have a material adverse effect on our
liquidity and financial condition.

49

OUR SENIOR CORPORATE MANAGEMENT TEAM IS NEW TO TYCO AND IS REQUIRED TO DEVOTE
SIGNIFICANT ATTENTION TO MATTERS ARISING FROM ACTIONS OF PRIOR MANAGEMENT.

In the past year, we have replaced our senior corporate executives with an
entirely new team, and our entire board of directors determined not to stand for
reelection at our next annual general meeting of shareholders. It will take some
time for our new management team and our new board of directors to learn about
our various businesses and to develop strong working relationships with our
cadre of operating managers at our various subsidiary companies. Our new senior
corporate management team's ability to complete this process has been and
continues to be hindered by their need to spend significant time and effort
dealing with internal and external investigations, developing effective
corporate governance procedures, strengthening reporting lines and reviewing
internal controls. During this period and in order to complete this process, our
new executives will depend in part on advisors, including certain former
directors. We cannot assure you that this major restructuring of our board of
directors and senior management team and the accompanying distractions, in this
environment, will not adversely affect our results of operations.

CONTINUED SCRUTINY RESULTING FROM ONGOING INVESTIGATIONS MAY HAVE AN ADVERSE
EFFECT ON OUR BUSINESS.

We and others have received subpoenas and requests from the SEC, the
District Attorney of New York County and the U.S. Attorney for the District of
New Hampshire and others seeking the production of voluminous documents in
connection with various investigations into our governance, management,
operations, accounting and related controls. In addition, the Department of
Labor is investigating us and the administrators of certain of our benefit
plans. We are also subject to ongoing audits by the Internal Revenue Service. We
cannot predict when these investigations will be completed, nor can we predict
what the results of these investigations may be. It is possible that we will be
required to pay material fines, consent to injunctions on future conduct, lose
the ability to conduct business with government instrumentalities or suffer
other penalties, each of which could have a material adverse effect on our
business. We cannot assure you that the effects and results of these
investigations will not be material and adverse to our business, financial
condition and liquidity.

Tyco and its subsidiaries' income tax returns are routinely examined by
various regulatory tax authorities. In connection with such examinations, tax
authorities, including the Internal Revenue Service, have raised issues and
proposed tax deficiencies. We are reviewing the issues raised by the tax
authorities and are contesting such proposed deficiencies. Amounts related to
these tax deficiencies and other tax contingencies that management has assessed
as probable and estimable have been accrued through the income tax provision. We
believe but cannot assure you that ultimate resolution of these tax deficiencies
and contingencies will not have a material adverse effect on our results of
operations, financial position or cash flows.

AN ONGOING SEC REVIEW OF OUR PUBLIC FILINGS MAY REQUIRE US TO AMEND OR RESTATE
OUR PUBLIC DISCLOSURES.

We continue to be engaged in a dialogue with the Staff of the SEC's Division
of Corporation Finance as part of their review of our periodic filings with the
SEC and are subject to an investigation by the SEC's Division of Enforcement. We
cannot assure you that the resolution of the remaining comments that the Staff
has made on our periodic filings or the resolution of the Division of
Enforcement's investigation will not necessitate amendments or restatements to
our previously-filed periodic reports or some enforcement proceedings against
Tyco.

THE PHASE 2 REVIEW WAS NOT AN EXHAUSTIVE REVIEW OF OUR ACCOUNTING AND
GOVERNANCE.

In December 2002, we released a report summarizing the findings of the Phase
2 review. The Phase 2 review covered a variety of aspects of our accounting,
including a review of many specific accounting policies and 15 of our most
significant acquisitions. You should be aware that the review did have
limitations, as it did not seek to go back and identify every accounting
decision and every

50

corporate act over a multi-year period that was wrong or questionable. Moreover,
in part because of the passage of time, documentation was not always available;
the documentation that was available was often dispersed; and the review did not
have the benefit of information from prior senior corporate management. In
addition, the conclusion reached by the review required the exercise of
judgment, and others could disagree with its conclusions. Neither the SEC
Division of Enforcement nor its Division of Corporation Finance has completed
its review of our accounting, including the matters covered by the Phase 2
review.

You should note that the review found that, during at least the five years
preceding our prior CEO's resignation in June 2002, Tyco's prior management
engaged in a pattern of aggressive accounting which, even when in accordance
with GAAP, was intended to increase reported earnings above what they would have
been if more conservative accounting had been employed. This pattern may have
had the effect of reducing the clarity and effectiveness of the financial
statements in conveying to investors the most accurate picture of our operations
and may affect the comparability of our historical financial results to our
current and future results of operations.

FURTHER INSTANCES OF BREAKDOWNS IN OUR INTERNAL CONTROLS AND PROCEDURES COULD
HAVE AN ADVERSE EFFECT ON US.

New management has determined that, in the past, Tyco in general suffered
from: poor documentation; inadequate policies and procedures to prevent the
misconduct of senior corporate executives; inadequate procedures for proper
corporate authorizations; inadequate approval procedures and documentation; a
lack of oversight by senior management at the corporate level; a pattern of
using aggressive accounting which, even when in accordance with GAAP, was
intended to increase reported earnings above what they would have been if more
conservative accounting had been employed; pressure on, and inducements to,
segment and unit managers to increase current earnings, including by decisions
as to what accounting treatment to employ; and a lack of a stated and
demonstrable commitment by former senior corporate management to set high
standards of ethics, integrity, accounting, and corporate governance. We cannot
assure you that we will not discover that there have been further instances of
breakdowns in our internal controls and procedures. See "Item 4--Controls and
Procedures."

RISKS RELATING TO OUR SUBSTANTIAL DEBT AND LIQUIDITY

WE HAVE SUBSTANTIAL CASH NEEDS AND WILL NEED TO OBTAIN ADDITIONAL FUNDING TO
SATISFY THOSE NEEDS.

After giving effect to net proceeds of approximately $4,387.5 million from
the issuance of $4,500.0 million convertible debentures in January 2003, the
repayment of the Company's $3.855 billion unsecured term loan from banks in
January 2003 and the repurchase of $1,850.1 million of the accreted amount
outstanding under the Company's zero coupon convertible debentures with February
2003 put options for cash, we have approximately $5.5 billion of debt payable at
maturity or upon the option of the holder thereof during calendar year 2003. In
addition, we have other substantial capital commitments, including the following
in fiscal 2003:

- approximately $700-750 million of cash to acquire ADT accounts from
dealers;

- approximately $665 million of cash restructuring expenses relating to
restructuring charges we have previously recorded;

- approximately $450 million of cash purchase accounting spending, including
earn-out payments, holdbacks of purchase price and the cost of exit plans;
and

- operating lease payments of $808.4 million.

We estimate that our cash flow from operations, together with proceeds from our
January 2003 convertible debt offering and our new credit facility will be
adequate to fund our operations and service our debt through December 31, 2003.
In making this estimate, we have not assumed the need to make

51

any material payments in connection with our pending litigation during that
period and have assumed that we will be able to extend approximately
$750 million of receivables facilities that expire in calendar year 2003. Any
material adverse legal judgments, fines, penalties or settlements arising from
our pending investigations and litigations could require additional funding. We
have also assumed a certain level of operating performance in making these
estimates. Our future operating performance will be affected by general
economic, financial, competitive, legislative, regulatory, business and other
factors beyond our control. If our future operating performance is less than
anticipated, our need for additional funding would increase.

We obtained a new $1.5 billion credit facility in January 2003. However, if
our estimates are incorrect and we need to obtain additional funding, we cannot
assure you that we will be able to obtain the additional funding that we need on
commercially reasonably terms or at all, which would have a material adverse
effect on our results of operations and liquidity.

OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL HEALTH AND
PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER OUR DEBENTURES.

Our substantial indebtedness could have important consequences to you. For
example, it could:

- require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, thereby reducing the
availability of our cash flow to fund working capital, capital
expenditures, research and development efforts and other general corporate
purposes;

- increase our vulnerability to general adverse economic and industry
conditions;

- limit our flexibility in planning for, or reacting to, changes in our
businesses and the industries in which we operate;

- restrict our ability to introduce new technologies or exploit business
opportunities;

- make it more difficult for us to satisfy our payment obligations with
respect to the debentures; and

- increase the difficulty and/or cost to us of refinancing our indebtedness.

See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources."

RESTRICTIVE COVENANTS IN OUR DEBT INSTRUMENTS MAY ADVERSELY AFFECT US.

Our credit agreements contain a number of financial covenants, such as
interest coverage and leverage ratios, and restrictive covenants that limit the
amount of debt we can incur and restrict our ability to pay dividends or make
other payments in connection with our capital stock, to make acquisitions or
investments, to pledge assets and to prepay debt that matures after
December 31, 2004. We have several synthetic lease facilities with similar
covenants. Our outstanding indentures contain customary covenants including a
negative pledge, limit on subsidiary debt and limit on sale/leasebacks.

Our ability to meet those financial ratios and tests can be affected by
events beyond our control, and we cannot assure you that we will meet those
tests. A breach of any of these covenants could result in a default under our
credit agreements or indentures. Upon the occurrence of an event of default
under any of our credit agreements, the lenders could elect to declare all
amounts outstanding thereunder to be immediately due and payable and terminate
all commitments to extend further credit. If the lenders under our credit
agreements accelerate the repayment of borrowings, we cannot assure you that we
will have sufficient assets to repay our credit facilities and our other
indebtedness, including the debentures. Acceleration of any obligation under any
of our material debt instruments will permit the holders of our other material
debt to accelerate their obligations.

Downgrades of our ratings would adversely affect us and the trading prices
of our securities. Certain downgrades by Moody's and S&P would permit the
providers of our receivables facilities to

52

terminate the facilities and would increase the interest cost of our credit
facility borrowings. It may also increase our cost of capital and make it harder
for us to obtain new financing and would likely negatively impact the trading
price of our securities.

RISKS RELATING TO OUR BUSINESSES

CYCLICAL INDUSTRY AND ECONOMIC CONDITIONS HAVE AFFECTED AND MAY CONTINUE TO
ADVERSELY AFFECT OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Our operating results in some of our segments are affected adversely by the
general cyclical pattern of the industries in which they operate. For example,
demand for the products and services of our Fire and Security Services and
Engineered Products and Services segments is significantly affected by levels of
new home and commercial construction and consumer and business discretionary
spending. Most importantly, our electronics components business is heavily
dependent on the end market it serves and therefore has been affected by the
weak demand and declining capital investment in the communications, computer,
consumer electronics, industrial machine and aerospace industries. We have also
experienced pricing pressures, which have reduced our margins, and we do not
expect significant margin improvements in the near future. This cyclical impact
can be amplified because some of our business segments purchase products from
other business segments. For example, our Fire and Security Services segment
purchases certain products sold by our Engineered Products and Services segment.
Therefore, a drop in demand for our fire prevention products, due to lower new
residential or office construction or other factors, can cause a drop in demand
for certain of our products sold by our Engineered Products and Services
segment.

WE WILL NOT BE ABLE TO GROW OUR BUSINESS AT THE SAME RATE AS WE HAVE IN THE
RECENT PAST DUE TO REDUCED ACQUISITION ACTIVITY AND CAPITAL CONSTRAINTS.

Acquisitions of complementary products and businesses have been an important
part of Tyco's growth in recent years. Our current business strategy and
near-term actions will focus on conserving cash and enhancing internal growth
within our existing businesses. In addition, our new credit facility will impose
restrictions on our ability to consummate new acquisitions. Our business
requires substantial capital expenditures for new technology and product
innovation, expansion or replacement of facilities and equipment and compliance
with environmental laws and regulations. We may be required to pay significant
amounts in excess of any insurance coverage as a result of settlements of or
judgments in pending litigation. In addition, we will require access to
significant capital in order to repay substantial indebtedness which matures in
fiscal 2003 and in future periods. The concentration of available capital
resources to repay indebtedness, combined with our reduced share price, will
limit our ability to make acquisitions of other companies and to purchase new
contracts under ADT's dealer program. As a result, we do not anticipate that we
will experience growth in the foreseeable future that is comparable to our
historic growth.

OUR OPERATIONS EXPOSE US TO THE RISK OF MATERIAL ENVIRONMENTAL LIABILITIES,
LITIGATION AND VIOLATIONS.

We are subject to numerous foreign, federal, state and local environmental
protection and health and safety laws governing, among other things: the
generation, storage, use and transportation of hazardous materials; emissions or
discharges into the ground, air or water; and the health and safety of our
employees. There can be no assurances that we have been or will be at all times
in compliance with environmental laws. If we violate these laws, we could be
fined, criminally charged or otherwise sanctioned by regulators. One of our
subsidiaries in our Electronics segment was advised by the U.S. Attorney for the
District of Connecticut that it is the target of a federal grand jury
investigation concerning alleged Clean Water Act violations at two manufacturing
plants. We understand that employees at these plants are subjects of the
investigation relating to violations of applicable permits, and that a former
supervisor at one of these plants who is no longer an employee has pleaded
guilty to a felony violation of the Clean Water Act.

53

Certain environmental laws assess liability on current or previous owners or
operators of real property for the cost of removal or remediation of hazardous
substances at their properties or at properties at which they have disposed of
hazardous substances and costs to restore damage to natural resources. In
addition to clean-up costs resulting from environmental laws, private parties
could bring personal injury or other claims due to the presence of, or exposure
to, hazardous substances used, stored or disposed of by us or contained in our
products.

We have been notified by the U.S. Environmental Protection Agency and
certain foreign and state environmental agencies that conditions at a number of
sites where we and others disposed of hazardous wastes require cleanup and other
possible remedial action and may be the basis for monetary sanctions. We also
have a number of projects underway at several of our current and former
manufacturing facilities in order to comply with environmental laws. These
projects relate to a variety of activities, including radioactive materials
decontamination and decommissioning, solvent and metal contamination clean up
and oil spill equipment upgrades and replacement. These projects, some of which
are voluntary and some of which are required under applicable law, involve both
remediation expenses and capital improvements. In addition, we remain
responsible for certain environmental issues at manufacturing locations sold by
us.

The ultimate cost of site cleanup is difficult to predict given the
uncertainties regarding the extent of the required cleanup, the interpretation
of applicable laws and regulations and alternative cleanup methods. We have
concluded that it is probable that we will incur remedial costs in the range of
approximately $160 million to $460 million. As of September 30, 2002, we
concluded that the best estimate within this range is approximately
$248 million, of which $221 million is included in accrued expenses and other
current liabilities and $27 million is included in other long-term liabilities
on the Consolidated Balance Sheet. Environmental laws are complex, change
frequently and have tended to become more stringent over time. While we have
budgeted for future capital and operating expenditures to maintain compliance
with such laws, we cannot assure you that our costs of complying with current or
future environmental, health and safety laws, or our liabilities arising from
past or future releases of, or exposures to, hazardous substances will not
exceed our estimates or adversely affect our financial condition and results of
operations or that we will not be subject to additional environmental claims for
personal injury or cleanup in the future based on our past, present or future
business activities.

WE MAY BE REQUIRED TO RECOGNIZE ADDITIONAL IMPAIRMENT CHARGES.

Pursuant to GAAP, we are required to periodically assess our goodwill to
determine if it is impaired. Further disruptions to our business, protracted
economic weakness, unexpected significant declines in operating results of
reporting units, continued downgrades in our credit ratings or additional market
capitalization declines may result in additional charges to goodwill and other
asset impairments in the future. Future impairment charges could substantially
affect our reported earnings in the period of such charge. In addition, such
charges would reduce our consolidated net worth and our shareholders' equity,
increasing our debt to total capitalization ratio. Such reduction in
consolidated net worth and increase in debt as a percent of total capitalization
could result in a default under our credit facilities.

WE ARE SUBJECT TO A VARIETY OF LITIGATION IN THE COURSE OF OUR BUSINESS THAT
COULD CAUSE AN ADVERSE EFFECT ON OUR RESULTS OF OPERATIONS AND FINANCIAL
CONDITION.

In the ordinary course of business, we are subject to a significant amount
of litigation, including litigation alleging the infringement of intellectual
property rights, litigation alleging anti-competitive behavior and product
liability litigation. Patent infringement and anti-trust laws permit successful
plaintiffs to recover treble damages. In addition, our healthcare business is
subject to regulation and potential litigation. The defense of these lawsuits
may divert our management's attention, and we may

54

incur significant expenses in defending these lawsuits. In addition, we may be
required to pay awards or settlements that could cause a material adverse effect
on our financial condition and results of operations.

OUR ADT BUSINESS HAS RECENTLY EXPERIENCED HIGHER RATES OF CUSTOMER ATTRITION,
WHICH MAY REDUCE OUR FUTURE REVENUES AND COULD REQUIRE US TO CHANGE THE USEFUL
LIFE OF ACCOUNTS, INCREASING OUR DEPRECIATION AND AMORTIZATION EXPENSE.

ADT has historically estimated the useful life of residential customer
installations (whether internally- or dealer-generated) at ten years, which is
consistent with an expected attrition rate of 14% per year. It is this period
over which the cost of acquiring accounts in the United States from dealers is
amortized and over which the capitalized cost of company initiated U.S.
residential accounts is depreciated. During fiscal years 2002 and 2001, the
attrition rate of U.S. dealer accounts has increased to 15.3% in each year,
compared to 12.7% in fiscal 2000 and 9.4% in fiscal 1999. If attrition rates
continue to rise, ADT's recurring revenues and results of operations will be
adversely affected. In addition, if these attrition rates continue, we may need
to reduce the estimated useful life of those accounts, which would increase our
depreciation and amortization expense.

RISKS RELATING TO OUR JURISDICTIONS OF INCORPORATION

PROPOSED LEGISLATION AND NEGATIVE PUBLICITY REGARDING BERMUDA COMPANIES COULD
INCREASE OUR TAX BURDEN AND AFFECT OUR OPERATING RESULTS.

Several members of the U.S. Congress have introduced legislation relating to
the tax treatment of U.S. companies that have undertaken certain types of
expatriation transactions, which could be deemed to cover the combination in
1997 with ADT, as a result of which ADT, a Bermuda company, changed its name to
Tyco and became the parent of the Tyco group. Any such legislation, if enacted
could have the effect of substantially reducing or eliminating the tax benefits
of our structure and materially increasing our future tax burden or otherwise
adversely affecting our business. In addition, even if no tax legislation is
ultimately enacted that specifically covers our 1997 combination, the enactment
of other tax proposals that have been or may be made in the future to address
expatriation transactions could have a material impact on our future tax burden.
Other federal and state legislative proposals, if enacted, could limit or even
prohibit our eligibility to be awarded U.S. or state government contracts. We
are unable to predict the likelihood or final form in which any proposed
legislation might become law or the nature of regulations that may be
promulgated under any such future legislative enactments. As a result of these
uncertainties, we are unable to assess the impact on us of any proposed
legislation in this area. There has recently been negative publicity regarding,
and criticism of, U.S. companies' use of, or relocation to, offshore
jurisdictions, including Bermuda. As a Bermuda company, this negative publicity
could harm our reputation and impair our ability to generate new business if
companies or government agencies decline to do business with us as a result of
the negative public image of Bermuda companies or the possibility of our clients
receiving negative media attention from doing business with a Bermuda company.

BERMUDA LAW DIFFERS FROM THE LAWS IN EFFECT IN THE UNITED STATES AND MAY AFFORD
LESS PROTECTION TO HOLDERS OF OUR SECURITIES.

Holders of Tyco common shares may have more difficulty protecting their
interests than would holders of securities of a corporation incorporated in a
jurisdiction of the United States.

As a Bermuda company, Tyco is governed by the Companies Act 1981 of Bermuda,
which differs in some material respects from laws generally applicable to United
States corporations and shareholders, including differences relating to
interested director and officer transactions, shareholder lawsuits and
indemnification. Under Bermuda law, directors and officers may have a personal
interest in contracts or arrangements with a company or its subsidiaries
transactions so long as such personal

55

interest is first disclosed to the company. Likewise, the duties of directors
and officers of a Bermuda company are generally owed to the company only.
Shareholders of Bermuda companies do not generally have a personal right of
action against directors or officers of the company and may only do so on behalf
of the company in limited circumstances. Under Bermuda law, a company may also
agree to indemnify directors and officers for any personal liability, not
involving fraud or dishonesty, incurred in relation to the company.

FORWARD-LOOKING INFORMATION

We have made forward-looking statements in this report, including the
section entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations," that are based on our management's beliefs and
assumptions and on information currently available to our management.
Forward-looking statements include the information concerning our possible or
assumed future results of operations, future liquidity needs, business
strategies, financing plans, competitive position, potential growth
opportunities, cost saving expectations, litigation and governmental
investigations, the effects of future regulation and the effects of competition.

Forward-looking statements include all statements that are not historical
facts and can be identified by the use of forward-looking terminology such as
the words "believes," "expects," "anticipates," "intends," "plans," "estimates"
or similar expressions. Forward-looking statements involve risks, uncertainties
and assumptions. Actual results may differ materially from those expressed in
these forward-looking statements. You should not put undue reliance on any
forward-looking statements. We do not have any intention or obligation to update
forward-looking statements after the date of this report.

You should understand that many important factors, in addition to those
discussed elsewhere in this report, could cause our results to differ materially
from those expressed in forward-looking statements. These factors include the
"Risk Factors" included in this report.

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, 2002.

ITEM 4--CONTROLS AND PROCEDURES

As reported more fully in our Form 10-K filed December 30, 2002, we learned
of instances of breakdowns of certain internal controls during fiscal 2002.

Our Board of Directors retained the law firm of Boies, Schiller & Flexner
LLP in April 2002 to conduct an investigation. The scope of the investigation
consisted of a review and analysis of transactions between and among Tyco and
its subsidiaries and our directors and officers. The findings of the first phase
(Phase 1) were reported on September 17, 2002 in a Current Report on Form 8-K.

In connection with the Phase 1 findings and at the direction of the Board
and our new Chief Executive Officer, the investigation was expanded to a second
phase (Phase 2), which involved a more comprehensive review of Tyco's accounting
and financial reporting. The scope of the Phase 2 review included an examination
of Tyco's reported revenues, profits, cash flow, internal auditing and control
procedures, use of reserves, and non-recurring charges, as well as corporate
governance issues such as the personal use of corporate assets and the use of
corporate funds to pay personal expenses, and employee loan and loan forgiveness
programs. Phase 2 of the investigation was completed by the Boies firm in late
December 2002.

56

It was concluded that:

- There was no significant or systemic fraud affecting Tyco's prior
financial statements;

- There were a number of accounting entries and treatments that were
incorrect and required correction;

- The incorrect accounting entries and treatments are not individually or in
the aggregate material to the overall financial statements of Tyco; and

- Our prior senior management engaged in a pattern of aggressive accounting
which, even when in accordance with generally accepted accounting
principles, was intended to increase reported earnings above what they
would have been if more conservative accounting had been employed;

- Reversal or restatement of prior accounting entries and treatments
resulting from the aggressive accounting pursued by prior senior
management would not materially adversely affect our reported revenue,
earnings and cash flow for 2003 and thereafter.

These findings were reported on December 30, 2002 in a Current Report on
Form 8-K.

While most of the matters identified by the review as "aggressive
accounting" were determined by Tyco, in consultation with its auditors, to be in
accordance with generally accepted accounting principles, there were, as
indicated above, certain adjustments (19 in total) identified as relating to
years preceding fiscal 2002. These adjustments which included adjustments from
the recording of previously unrecorded audit adjustments aggregated
$36.1 million and were recorded in the first quarter of fiscal 2002.

Additionally, our new senior management team in conjunction with our Board
of Directors reviewed overall company policies and procedures in areas that were
viewed as important. Specific areas of focus included acquisition accounting,
restructuring, financial and legal controls, reserve utilization, incentive
compensation and a number of other areas relevant to our financial statements.
New senior management determined that Tyco's existing policies and standards of
approval needed substantial improvement and found that there were instances in
which documentation of important financial reporting matters was substandard;
there had been limited review of bonuses and incentive compensation across Tyco;
and the manner in which former senior management managed Tyco did not reflect a
commitment to sound corporate governance nor the processes required to ensure
the highest standards of financial integrity and accounting rigor to which the
new senior management team and our Board of Directors is committed and our
shareholders deserve.

New senior management believes that prior senior management's primary focus
was on earnings-per-share accretive acquisitions which resulted in our growing
considerably over the past several years, including the acquisition of
approximately 700 companies of varying size and in varying businesses around the
world, but which also strained the internal control environment and limited our
investment in these areas. In addition, new senior management believes that
prior senior management during the past three years placed undue reliance on
non-recurring charges and pro forma financial information. New senior management
also believes that the rapid pace of acquisitions and attendant restructurings
made it difficult to ascertain the level of our organic growth.

New senior management is committed to improving the state of our internal
controls, corporate governance and financial reporting. Our Board of Directors
and new senior management have initiated the following actions:

- Added new nominees for the Board of Directors;

- Created new Board charters;

- Created a new employee code of conduct;

- Created new mission, values and goals statements;

57

- Conducted the Phase 2 review;

- Instituted detailed operating reviews with the Chief Executive Officer and
Chief Financial Officer and each business segment;

- Realigned reporting such that the business segment chief financial
officers and general counsels report directly to our Chief Financial
Officer and our General Counsel, respectively, and instituted similar
reporting within each business segment;

- Reviewed total incentive compensation spending with the Compensation
Committee of the Board of Directors;

- Issued a new delegation of authority to govern, among other business
processes, the expenditure or commitment of funds;

- Initiated a controllership assessment process to identify the status of
key routines and controls;

- Conducted a thorough review of internal audit processes and procedures;

- Required internal representation letters, similar to the certifications by
our Chief Executive Officer and Chief Financial Officer, for key financial
and legal executives;

- Instituted a code of conduct for all financial executives;

- Developed a corporate policy manual to provide broadly applicable and
consistent direction on authority, procedures and accountability with
respect to business operations;

- Instituted an account reconciliation process to improve controls over core
accounting records; and

- Created an Ombudsman network.

Although the framework has been put in place to materially improve the
control structure of Tyco, it will take some time to realize all of the benefits
from our initiatives. Our Board of Directors and new senior management are
committed not only to a sound internal control environment but also to be
recognized as a leader in corporate governance. We have committed considerable
resources to date on the aforementioned reviews and remedies. A review of
controls of a company the size of Tyco, which includes approximately 2,300
subsidiaries, is not a one-time event. We are committed to ongoing periodic
reviews of our controls and their effectiveness, the results of which will be
reported to our shareholders. Our controls are improving and new senior
management has no reason to believe that the financial statements included in
this report are not fairly stated in all material respects. There can be no
assurances, however, that new problems will not be found in the future. We
expect to continue to improve our controls with each passing quarter. It will
take some time, however, before we have in place the rigorous controls that our
Board of Directors and new senior management desires and our shareholders
deserve.

Within the past 90 days, an evaluation was performed of the effectiveness of
the design and operation of the Company's disclosure controls and procedures by
senior management. Based on that evaluation, the Company's management, including
the CEO and CFO, concluded that these procedures and controls are effective,
given the cautions stated above. This quarter, there have been no significant
changes in the Company's internal controls or in other factors that could
significantly affect internal controls. The Company will continue to make
ongoing assessments of these controls and procedures periodically.

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PART II--OTHER INFORMATION

ITEM 1--LEGAL PROCEEDINGS

SECURITIES CLASS ACTIONS

As previously reported in our Annual Report on Form 10-K for the fiscal year
ended September 30, 2002, Tyco and certain of our former directors and officers
have been named as defendants in more than two dozen securities class actions.

All but five of the securities class actions have been transferred to the
United States District Court for the District of New Hampshire by the Judicial
Panel on Multidistrict Litigation for coordinated or consolidated pretrial
proceedings.

On January 28, 2003, the court-appointed lead plaintiffs in the New
Hampshire securities actions filed a Consolidated Securities Class Action
Complaint against certain of our former directors and officers, our auditors and
Tyco. As to Tyco and certain of its former directors and officers, the complaint
asserts causes of action under Section 10(b) of the Securities Exchange Act of
1934 and Rule 10b-5 promulgated thereunder, and Section 14(a) of that Act and
Rule 14a-9 promulgated thereunder, as well as Sections 11 and 12(a)(2) of the
Securities Act of 1933. Claims against our former directors and officers are
also asserted under Sections 20(a) and 20A of the Securities Exchange Act of
1934 and Section 15 of the Securities Act of 1933. The complaint asserts that
the Tyco defendants violated the securities laws by making materially false and
misleading statements and omissions concerning, among other things, the
following: Tyco's mergers and acquisitions and the accounting therefor, as well
as allegedly undisclosed acquisitions; misstatements of Tyco's financial
results; the impact of a new accounting standard (SAB 101, promulgated in 1999)
on our earnings performance; compensation of certain of our former executives;
their improper use of our funds for personal benefit and their improper
self-dealing real estate transactions; their sales of Tyco stock; payment of
$20 million to one of our former directors and a charity of which he is a
trustee; and the criminal investigation of our former Chief Executive Officer.
The plaintiffs seek class certification, compensatory damages, rescission,
disgorgement and attorneys' fees and expenses.

On November 27, 2002, the State of New Jersey, on behalf of several state
pension funds, filed a complaint in the United States District Court for the
District of New Jersey, naming Tyco, our auditors and certain of our current and
former directors and officers as defendants. The Judicial Panel on Multidistrict
Litigation has transferred the action to the United States District Court for
the District of New Hampshire.

As to all defendants, the State of New Jersey's complaint asserts causes of
action under Section 10(b) of the Securities Exchange Act of 1934 and
Rule 10b-5 promulgated thereunder, common law fraud, aiding and abetting common
law fraud, and negligent misrepresentation. Claims are asserted against our
former and current directors and officers under Section 20(a) of the Securities
Exchange Act of 1934 and for common law breach of fiduciary duties; against Tyco
and certain of our former and current directors and officers under
Section 14(a) of Securities Exchange Act of 1934 and Rule 14A-9 promulgated
thereunder, the New Jersey RICO statute and for aiding and abetting under the
New Jersey RICO statute, conspiracy to violate the New Jersey RICO statute and
conspiracy to commit common law fraud; and against Tyco only, for respondeat
superior liability under the New Jersey RICO statute. The complaint asserts that
the Tyco defendants violated the securities laws and otherwise engaged in
fraudulent acts by making materially false and misleading statements and
omissions concerning, among other things, the following: compensation of certain
of our former executives; their improper use of our funds for personal benefit
and their improper self-dealing real estate transactions; their sales of Tyco
stock; payment of $20 million to one of our former directors and a charity of
which he is a trustee; and the criminal investigation of our former Chief
Executive Officer. Plaintiffs seek damages, including treble damages under New
Jersey's RICO statute and punitive damages, along with attorney's fees and
costs.

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The remaining five cases are pending in the United States District Court for
the Southern District of Florida. In November 2002, a class action complaint,
SCHULDT LIMITED PARTNERSHIP V. TYCO INTERNATIONAL LTD., ET AL., was filed in the
Circuit Court for Palm Beach County, Florida, asserting causes of action against
Tyco and certain of our current and former directors and officers under the
Securities Act of 1933. Defendants removed the case to the United States
District Court for the Southern District of Florida and plaintiffs have moved
that Court to remand the action to state court. The Judicial Panel on
Multidistrict Litigation has conditionally transferred the action to the United
States District Court for the District of New Hampshire.

The complaint purports to bring suit on behalf of persons who exchanged
their Sensormatic Electronics Corp. ("Sensormatic") stock for shares of Tyco in
connection with our acquisition of Sensormatic. The complaint alleges that the
registration statement filed in connection with the Sensormatic acquisition
contained false and misleading statements concerning, among other things,
financial disclosures concerning certain of our mergers and acquisitions and
accounting therefor. Plaintiff seeks class certification, compensatory damages
and attorneys' fees and expenses.

In December 2002, four additional class action complaints were filed in the
Circuit Court for Palm Beach County, Florida: (1) HROMYAK V. TYCO
INTERNATIONAL LTD., ET AL.; (2) RAPPOLD V. TYCO INTERNATIONAL LTD., ET AL.;
(3) MYERS V. TYCO INTERNATIONAL LTD., ET AL.; AND (4) GOLDFARB V. TYCO
INTERNATIONAL LTD., ET AL. Plaintiffs in each of these actions also assert
claims against Tyco, certain of our current and former directors and officers,
and in three instances our auditors under the Securities Act of 1933, and seek
class certification, compensatory damages and attorneys' fees and expenses.

The HROMYAK complaint purports to bring suit on behalf of persons who
exchanged their United States Surgical Corporation ("US Surgical") stock for
shares of Tyco in connection with our acquisition of US Surgical in or about
October of 1998. The complaint alleges that the registration statement filed in
connection with the US Surgical acquisition contained false and misleading
statements concerning, among other things, financial disclosures concerning
certain of our mergers and acquisitions and accounting therefor.

The RAPPOLD complaint purports to bring suit on behalf of persons who
exchanged their InnerDyne, Inc. ("InnerDyne") stock for shares of Tyco in
connection with our acquisition of InnerDyne in or about December of 2001. The
complaint alleges that the registration statement filed in connection with the
InnerDyne acquisition contained false and misleading statements concerning,
among other things, financial disclosures concerning certain of our mergers and
acquisitions and accounting therefor.

The MYERS complaint purports to bring suit on behalf of persons who
exchanged their TyCom, LTD ("TyCom") stock for shares of Tyco in connection with
our acquisition of TyCom in or about December of 2001. The complaint alleges
that the registration statement filed in connection with the TyCom acquisition
contained false and misleading statements concerning, among other things,
financial disclosures concerning certain of our mergers and acquisitions and
accounting therefor.

The GOLDFARB complaint purports to bring suit on behalf of persons who
exchanged their Scott Technologies, Inc. ("Scott") stock for shares of Tyco in
connection with our acquisition of Scott in or about May of 2001. The complaint
alleges that the registration statement filed in connection with the Scott
acquisition contained false and misleading statements concerning, among other
things, financial disclosures concerning certain of our mergers and acquisitions
and accounting therefor.

Defendants have removed these four actions from Florida state court to the
United States District Court for the Southern District of Florida and have
requested their transfer to the District of New Hampshire.

SHAREHOLDER DERIVATIVE LITIGATION

As previously reported in our Annual Report on Form 10-K for the fiscal year
ended September 30, 2002, four actions have been filed purporting to bring suit
derivatively on behalf of Tyco

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against certain former officers and certain current and former directors of Tyco
and against Tyco as a nominal defendant.

Three of these actions were transferred to the United States District Court
for the District of New Hampshire by the Judicial Panel on Multidistrict
Litigation. The fourth derivative action is pending in the Supreme Court of the
State of New York (New York County). Plaintiffs in that state court action have
agreed to stay the action pending resolution of the federal action.

On January 29, 2003, plaintiffs in the actions pending in the United States
District Court for the District of New Hampshire filed a Verified Stockholders'
First Consolidated and Amended Derivative Complaint against certain former
officers and certain current and former directors of Tyco, our auditors, and
Tyco as a nominal defendant. As to our present or former personnel, the
complaint asserts causes of action for breach of fiduciary duty and waste of
corporate assets. As against our auditors, the complaint asserts causes of
action for negligence, negligent misrepresentations, and breach of contract. The
action alleges that individual defendants engaged in, permitted and/or
acquiesced in the following alleged improper conduct: using Tyco funds for
personal benefit, including misappropriation of funds from our Key Employee Loan
Program and relocation programs; engaging in improper self-dealing real estate
transactions; entering into improper undisclosed retention agreements; and
filing false and misleading financial statements with the Securities and
Exchange Commission that were based on improper accounting methods. Plaintiffs
seek money damages and attorneys' fees and expenses.

ERISA LITIGATION AND INVESTIGATION

As previously reported in our Annual Report on Form 10-K for the fiscal year
ended September 30, 2002, Tyco and certain of our current and former employees,
officers and directors, have been named as defendants in eight class actions
brought under the Employee Retirement Income Security Act ("ERISA"). The
complaints purported to bring claims on behalf of the Tyco International
(US) Inc. Retirement Savings and Investment Plans and the participants therein.

Two of the actions were filed in the United States District Court for the
District of New Hampshire, and the six remaining actions were transferred to
that Court by the Judicial Panel on Multidistrict Litigation. All eight actions
have been consolidated in the District Court in New Hampshire.

On February 3, 2003, the plaintiffs filed a Consolidated Amended Complaint
asserting causes of action under ERISA. That complaint named as defendants Tyco
and certain of its present and former officers and directors, its wholly-owned
subsidiary Tyco International (US) Inc., its retirement committee, and certain
of its present and former officers, directors and employees. The complaint
asserts that the defendants breached their fiduciary duties under ERISA by
negligently misrepresenting and negligently failing to disclose material
information concerning, among other things, the following: related-party
transactions and executive compensation; Tyco's mergers and acquisitions and the
accounting therefor, as well as allegedly undisclosed acquisitions; and
misstatements of Tyco's financial results. The complaint also asserts that the
defendants breached their fiduciary duties by allowing the Plans to invest in
Tyco stock when it was not a prudent investment. The plaintiffs seek a
declaration that the defendants are not entitled to protection under ERISA's
safe harbor provision; an order compelling the defendants to make good to the
Plans all losses caused by the defendants' alleged breaches of fiduciary duty;
imposition of a constructive trust on any amounts by which any defendant was
unjustly enriched; an order enjoining future violations of ERISA; actual damages
in the amount of any losses the Plans suffered; costs and attorneys' fees, and
an order for equitable restitution and other appropriate equitable monetary
relief.

We and certain of our current and former executives have received requests
from the United States Department of Labor for information concerning the
administration of the Tyco International (US) Inc. Retirement Savings and
Investment Plans. The current focus of the Department's inquiry

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concerns losses allegedly experienced by the plans due to investments in our
stock. The Department of Labor has authority to bring suit on behalf of the
plans and their participants against those acting as fiduciaries to the plans
for recovery of losses and additional penalties, although it has not informed us
of any intention to do so.

TYCO LITIGATION AGAINST FORMER SENIOR MANAGEMENT

TYCO INTERNATIONAL LTD V. MARK A. BELNICK, UNITED STATES DISTRICT COURT,
SOUTHERN DISTRICT OF NEW YORK, FILED JUNE 17, 2002. As previously reported in
our Current Report on Form 8-K filed on September 17, 2002, we have filed a
civil complaint against our former Executive Vice President and Chief Corporate
Counsel for breach of fiduciary duty and other wrongful conduct. The action
alleges that the defendant: solicited and accepted cash and stock bonuses
without Board approval; took interest-free loans from our relocation program
without Board approval; failed to disclose to the Board and to the SEC his
Retention Agreement and compensation; failed to advise the Board of the improper
conduct of other officers; refused to cooperate with internal investigations;
and engaged in other improper conduct. The action asserts causes of action for
breach of fiduciary duty, inducement to breach fiduciary duty, conspiracy to
breach fiduciary duty, fraud and other wrongful conduct and seeks to recover
compensation and profits received from employment at Tyco, repayment of all
loans fraudulently procured, with interest, damages for the harm caused to us,
and punitive damages. Discovery in this action has been stayed as a result of a
motion by the New York County District Attorney's Office to delay discovery
until after the completion of its prosecution of Mr. Belnick and other former
Tyco officers. The Judicial Panel on Multidistrict Litigation has issued a
conditional transfer order transferring this action to the United States
District Court for the District of New Hampshire, to which we have objected.

TYCO INTERNATIONAL LTD V. FRANK E. WALSH, JR., UNITED STATES DISTRICT COURT,
SOUTHERN DISTRICT OF NEW YORK, FILED JUNE 17, 2002. As previously reported in
our Current Report on Form 8-K filed on September 17, 2002, we have 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 Tyco. 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 us as a result of
the defendant director's conduct. On December 17, 2002, Mr. Walsh paid
$20 million in restitution to Tyco, which was deposited by the Company in
January 2003, as a result of a plea bargain agreement with the New York County
District Attorney. See "--Subpoenas and document requests from Governmental
Entities". Our claims against Mr. Walsh are still pending. Discovery in this
action has been stayed as a result of a motion by the New York County District
Attorney's Office. The Judicial Panel on Multidistrict Litigation has issued a
conditional transfer order transferring this action to the United States
District Court for the District of New Hampshire, to which we have objected.

TYCO INTERNATIONAL LTD. V. L. DENNIS KOZLOWSKI, UNITED STATES DISTRICT
COURT, SOUTHERN DISTRICT OF NEW YORK, FILED SEPTEMBER 12, 2002. As previously
reported in our Current Report on Form 8-K filed on September 17, 2002, we have
filed a civil complaint against our former Chairman and Chief Executive Officer
for breach of fiduciary duty and other wrongful conduct. The action alleges that
the defendant misappropriated millions of dollars from our Key Employee Loan
Program and relocation program; awarded millions of dollars in unauthorized
bonuses to himself and certain other Tyco employees; engaged in improper
self-dealing real estate transactions involving our assets; and conspired with
certain other former Tyco employees in committing these acts. The action alleges
causes of action for breach of fiduciary duty, fraud, unjust enrichment, breach
of contract, conversion, a constructive trust, and other wrongful conduct. The
action seeks recovery for all of the losses suffered by us as a result of the
former director's conduct. Discovery in this action has not yet begun. The New
York County District Attorney's Office has filed a motion to stay all discovery
until after the completion of its pending prosecution of Mr. Kozlowski and other
former Tyco officers. A decision is expected in the

62

near future. The Judicial Panel on Multidistrict Litigation has issued a
conditional transfer order transferring this action to the United States
District Court for the District of New Hampshire, to which we have objected.

TYCO INTERNATIONAL LTD. V. MARK H. SWARTZ, AMERICAN ARBITRATION ASSOCIATION
ARBITRATION PROCEEDING, FILED OCTOBER 7, 2002. As previously reported in our
Current Report on Form 8-K filed on October 8, 2002 and Annual Report on
Form 10-K for the fiscal year ended September 30, 2002, we have filed an
arbitration claim against Mark H. Swartz, our former Chief Financial Officer.
The action alleges that the defendant breached his fiduciary duties and
otherwise engaged in wrongful conduct relating to this employment by Tyco and
misappropriated Tyco funds and other assets and seeks to recover from
Mr. Swartz all damages suffered by Tyco as a result of such breach, wrongful
conduct and misappropriation. The Demand was filed with the American Arbitration
Association in New York City, New York. Discovery in this action has not yet
begun.

TYCO INTERNATIONAL, LTD V. L. DENNIS KOZLOWSKI AND MARK H. SWARTZ, UNITED
STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK, FILED DECEMBER 6, 2002. As
previously disclosed in our Annual Report on Form 10-K for the fiscal year ended
September 30, 2002, we have filed a civil complaint against our former Chairman
and Chief Executive Officer and our former Chief Financial Officer pursuant to
Section 16(b) of the Securities Exchange Act of 1934 for disgorgement of
short-swing profits from prohibited transactions in our common shares believed
to exceed $40 million. The action seeks disgorgement of profits, interest,
attorneys' fees and costs. The Judicial Panel on Multidistrict Litigation has
transferred this action to the United States District Court for the District of
New Hampshire.

SUBPOENAS, DOCUMENT REQUESTS FROM GOVERNMENTAL ENTITIES AND CRIMINAL PROCEEDINGS
AGAINST FORMER MANAGEMENT

As previously disclosed in our Annual Report on Form 10-K for the fiscal
year ended September 30, 2002, we and others have received various subpoenas and
requests from the SEC, the District Attorney of New York County, the U.S.
Attorney for the District of New Hampshire and others seeking the production of
voluminous documents in connection with various investigations into our
governance, management, operations, accounting and related controls. We are
cooperating fully with these investigations and are complying with these
requests.

On October 23, 2002, we signed a consent agreement with the Bureau of
Securities Regulation of the State of New Hampshire that resolved the Bureau's
investigation into the conduct of Tyco's previous management. Under the terms of
the consent agreement, we will pay a total of $5 million as an administrative
settlement to the State of New Hampshire and have paid $100,000 to cover the
cost of the Bureau's investigation. We signed the consent agreement without
admitting any wrongdoing with respect to the Bureau's allegations.

On December 17, 2002, Frank E. Walsh, Jr., a former director of Tyco,
pleaded guilty to a felony violation of New York law in the Supreme Court of the
State of New York (New York County) and settled a civil action for violation of
federal securities laws brought by the Securities and Exchange Commission in
United States District Court for the Southern District of New York. Both the
felony charge and the civil action were brought against Mr. Walsh based on a
$20 million payment by Tyco, $10 million of which went to Mr. Walsh with the
balance going to a charity of which Mr. Walsh is trustee. The payment was
purportedly made for Mr. Walsh's assistance in arranging our acquisition of The
CIT Group, Inc. The felony charge accused Mr. Walsh of intentionally concealing
information concerning the payment from Tyco's directors and shareholders while
engaged in the sale of Tyco securities in the State of New York. The SEC action
alleged that Mr. Walsh knew that the registration statement covering the sale of
Tyco securities as part of the CIT acquisition contained a material
misrepresentation concerning fees payable in connection with the acquisition.
Pursuant to the plea, Mr. Walsh agreed to pay $20 million in restitution to Tyco
and to pay other fines to the State of New York. Pursuant to the settlement,
Mr. Walsh consented to an order permanently enjoining him from violating
provisions of the federal securities laws, requiring him to pay restitution to
Tyco and

63

permanently barring him from serving as an officer or director of a publicly
held company. Tyco received Mr. Walsh's restitution payment of $20 million.

On February 3, 2003, the New York County District Attorney announced a
superseding indictment against Mark Belnick. This new indictment added three
additional charges against Mr. Belnick, including grand larceny in the first
degree, a felony violation of New York State's securities law (the Martin Act),
and an additional charge of falsifying business records. The superseding
indictment includes the original six counts of falsifying business records which
had been included in the original indictment filed in September 2002. The new
grand larceny count charges Mr. Belnick with stealing $12 million from Tyco by
accepting payment of a special bonus, in addition to his salary and annual
bonus, that had not been approved by the Board of Directors. The Martin Act
count charges Mr. Belnick with participation in a scheme to defraud, whereby
Messrs. Belnick, Kozlowski, Swartz, and others knowingly made false
representations concerning Tyco's financial condition in order to obtain money
for themselves. There is no trial date yet scheduled for the criminal charges
against Mr. Belnick.

INTELLECTUAL PROPERTY LITIGATION

Applied Medical Resources Corp. v. U.S. Surgical Corp. is a patent
infringement action in which U.S. Surgical Corp., a subsidiary of Tyco, is the
defendant. In February 2002, the U.S. District Court for the Central District of
California held that U.S. Surgical's Versaseal universal seal system, contained
in certain surgical trocar and access devices manufactured by U.S. Surgical,
infringed certain of the plaintiff's patents. The court entered a permanent
injunction against U.S. Surgical, based upon infringement of one of the three
patents involved in the suit, the appeal of which is pending in the U.S. Court
of Appeals for the Federal Circuit. A trial on invalidity of the other two
patents and on damages is currently scheduled for January 2004. If there is
ultimately a determination of liability, the amount of damages will be strongly
contested by us. We estimate that damages could range from $32 million to
$83 million, with the possibility of enhanced damages up to treble damages if
there is a finding of willful infringement. We currently do not expect, however,
to incur losses beyond what we have already accrued.

ENVIRONMENTAL INVESTIGATION

As previously reported in our Annual Report on Form 10-K for the year ended
September 30, 2001, we became aware in June 2001 that the Office of the U.S.
Attorney for the District of Connecticut had initiated an investigation of one
of the subsidiaries in our Electronics segment. Subsequently, we were notified
that the subsidiary was the target of a federal Grand Jury investigation
concerning alleged Clean Water Act violations. We understand that the government
investigation concerns manufacturing facilities in Manchester and Stafford,
Connecticut. We also understand that employees at these plants are subjects of
the investigation. A former supervisor at the subsidiary's Manchester plant (who
is no longer an employee) has pleaded guilty to a felony violation of the Clean
Water Act. We do not believe that the investigation will have a material impact
on the financial condition of Tyco and its subsidiaries, taken as a whole. We
are cooperating fully in the investigation.

ITEM 2--CHANGES IN SECURITIES AND USE OF PROCEEDS

On January 13, 2003, Tyco International Group S.A. ("TIG"), a wholly owned
subsidiary of Tyco completed a private offering of $3.0 billion principle amount
of 2.75% Series A convertible senior debentures due 2018 and $1.5 billion
principle amount of 3.125% Series B convertible debentures due 2023. These
debentures are fully and unconditionally guaranteed by Tyco, and at any time,
holders may convert each of their debentures into Tyco common shares prior to
the stated maturity at a rate of $22.7832 and $21.7476 respectively, per share.
Additionally, holders of the Series A debentures may require the Company to
purchase all or a portion of their debentures on January 15, 2008 and
January 15, 2013, and holders of the Series B debentures may require the Company
to purchase all or a portion of their debentures on January 15, 2015. If the
option is exercised at any one of the

64

aforementioned dates, TIG must repurchase the debentures at par plus accrued
interest, and may elect to repurchase the securities for cash, Tyco common
shares, or some combination thereof. TIG may redeem for cash some or all of the
Series A debentures and Series B debentures at any time on or after January 20,
2006 and January 20, 2008, respectively. Net proceeds before out of pocket
expenses of approximately $4,387.5 million from these debentures were used
primarily to repay debt. This transaction was completed without registration in
reliance upon section 4(2) of the Securities Act. The securities were initially
sold to the following initial purchasers for resale to qualified institutional
buyers pursuant to Rule 144A under the Securities Act: Morgan Stanley & Co.
Incorporated; Banc of America Securities LLC; Salomon Smith Barney Inc.; Credit
Suisse First Boston Corporation; Goldman Sachs & Co.; J.P. Morgan
Securities Inc. ABN AMRO Incorporated; CIBC World Markets Corp; SG Cowen
Securities Corporation; Blaylock & Partners, L.P.; Muriel Siebert & Co., Inc.;
and The Williams Capital Group, L.P. The initial purchasers purchased the
convertible senior debentures from TIG at 97.5% of the aggregate principal
amount.

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

(a) Exhibits

4.1 Indenture by and among Tyco International Group S.A. and U.S. Bank,
N.A., as trustee, dated as of January 13, 2003 relating to Series A
2.750% Convertible Senior Debentures due 2018 and Series B 3.125%
Convertible Senior Debentures due 2023 (filed herewith).

4.2 Supplemental Indenture No. 1, dated January 10, 2003, by and among Tyco
International Group S.A., Tyco International Ltd. and U.S. Bank, N.A.
(formerly, State Street Bank and Trust Company). (Incorporated by
reference to the Registrants' and TIG's Schedule TO filed January 14,
2003).

10.1 Eric M. Pillmore Employment Contract effective August 12, 2002 and
executed on January 29, 2003 (filed herewith).

10.2 364-Day Revolving Credit Agreement dated as of January 31, 2003 among
Tyco International Group S.A., Tyco International Ltd., Sensormatic
Electronics Corporation, Scott Technologies, Inc., Innerdyne, Inc., the
banks named therein and Bank of America, N.A., as Administrative Agent
(filed herewith).

(b) Reports on Form 8-K

Current Report on Form 8-K filed pursuant to Item 5 on October 7, 2002
announcing the filing of a Demand for Arbitration against Mark H. Swartz, the
Company's former Chief Financial Officer and Director.

Current Report on Form 8-K filed pursuant to Item 5 on October 24, 2002 to
include, as an exhibit, the press release of Tyco dated October 24, 2002
announcing the Company's results for the fourth quarter.

Current Report on Form 8-K filed pursuant to Item 9 on November 8, 2002 to
include, as an exhibit, the press release of Tyco dated November 8, 2002
announcing that the Company's Board of Directors reaffirmed that nine current
board members will not stand for re-election and that Admiral Dennis C. Blair
was nominated to fill an expected vacancy.

Current Report on Form 8-K filed pursuant to Item 9 on November 18, 2002
announcing the appointment of Jerome B. York and Mackey J. McDonald to the
Company's Board of Directors following the resignation of Lord Michael Ashcroft
and James S. Pasman.

Current Report on Form 8-K filed pursuant to Item 9 on December 5, 2002 to
include, as an exhibit, the press release of Tyco dated December 5, 2002
announcing the appointment of George W. Buckley to the Company's Board of
Directors following the resignation of Joshua Berman.

Current Report on Form 8-K filed pursuant to Item 9 on December 30, 2002
announcing the results of the Phase 2 review, which included a review and
analysis of, and litigation concerning, selected accounting and corporate
governance issues and transactions.

65

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/ DAVID J. FITZPATRICK
------------------------------------------------
David J. FitzPatrick
EXECUTIVE VICE PRESIDENT
AND CHIEF FINANCIAL OFFICER
(PRINCIPAL ACCOUNTING AND FINANCIAL OFFICER)

Date: February 14, 2003

66

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Edward D. Breen, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Tyco
International Ltd.;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;

b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
functions):

a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

Date: February 14, 2003

/s/ EDWARD D. BREEN
----------------------------------------------------
Edward D. Breen
CHIEF EXECUTIVE OFFICER

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, David J. FitzPatrick, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Tyco
International Ltd.;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;

b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
functions):

a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

Date: February 14, 2003

/s/ DAVID J. FITZPATRICK
----------------------------------------------------
David J. FitzPatrick
CHIEF FINANCIAL OFFICER