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

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

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FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002.

OR

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

001-13836
(COMMISSION FILE NUMBER)

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

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

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

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

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

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

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TYCO INTERNATIONAL LTD.
INDEX TO FORM 10-Q

2

PART I--FINANCIAL INFORMATION

ITEM 1--FINANCIAL STATEMENTS

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

See Notes to Consolidated Financial Statements (Unaudited).

3

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

See Notes to Consolidated Financial Statements (Unaudited)

4

TYCO INTERNATIONAL LTD.

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

See Notes to Consolidated Financial Statements (Unaudited).

5

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. BASIS OF PRESENTATION

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

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

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

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

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

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

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

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

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

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

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

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

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

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

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

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

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

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

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

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

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

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

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

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

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

3. ACQUISITIONS

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

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

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

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

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

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

3. ACQUISITIONS (CONTINUED)

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

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

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

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

3. ACQUISITIONS (CONTINUED)

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

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

3. ACQUISITIONS (CONTINUED)

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

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

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

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

3. ACQUISITIONS (CONTINUED)

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

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

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

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

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

15

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

3. ACQUISITIONS (CONTINUED)

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

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

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

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

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

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

4. DEBT

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

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

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

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

17

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

4. DEBT (CONTINUED)

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

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

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

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

5. (LOSS) EARNINGS PER COMMON SHARE

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

18

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

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

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

6. SHAREHOLDERS' EQUITY

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

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

19

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

7. RESTRUCTURING AND OTHER UNUSUAL CHARGES (CREDITS)

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

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

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

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

20

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

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

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

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

9. IMPAIRMENTS

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

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

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

21

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

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

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

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

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

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

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

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

10. COMPREHENSIVE (LOSS) INCOME

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

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

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

22

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

11. CONSOLIDATED SEGMENT DATA

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

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

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

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

23

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

24

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

12. SUPPLEMENTARY BALANCE SHEET INFORMATION

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

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

25

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

13. CUMULATIVE EFFECT OF ACCOUNTING CHANGES

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

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

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

14. GOODWILL AND OTHER INTANGIBLE ASSETS

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

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

26

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

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

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

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

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

27

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

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

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

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