TYCO INTERNATIONAL LTD /BER/ - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K

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

FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2001
OR

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

001-13836

(COMMISSION FILE NUMBER)

TYCO INTERNATIONAL LTD.

(Exact name of registrant as specified in its charter)

BERMUDA NOT APPLICABLE
(Jurisdiction of Incorporation) (IRS Employer Identification No.)

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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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III or this Form 10-K or any amendment to this
Form 10-K. / /.

The aggregate market value of voting common shares held by nonaffiliates of
registrant was $113,942,034,049 as of December 20, 2001.

The number of common shares outstanding as of December 20, 2001 was
1,996,306,425.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's proxy statement to be filed within 120 days of
the close of the registrant's fiscal year in connection with the registrant's
2002 annual shareholders' meeting are incorporated by reference into Part III of
this Form 10-K.

See pages 20 to 22 for the exhibit index.
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PART I

ITEM 1. BUSINESS

INTRODUCTION

Tyco International Ltd. ("we" or "Tyco") is a diversified manufacturing and
service company that, through its subsidiaries:

- designs, manufactures and distributes electrical and electronic
components, multi-layer printed circuit boards, energy solutions and power
products; and designs, manufactures, installs, operates and maintains
undersea cable communications systems;

- designs, manufactures, installs and services fire detection and
suppression systems; designs, installs, monitors and maintains electronic
security systems; and designs, manufactures, distributes and services
specialty valves;

- designs, manufactures and distributes disposable medical supplies and
other specialty products; and

- offers vendor, equipment, commercial, factoring, consumer and structured
financing and leasing capabilities through Tyco Capital.

See Notes 24 and 25 to the Consolidated Financial Statements for certain
segment and geographic financial data relating to our business.

Tyco's strategy is to be the low-cost, high-quality producer and provider in
each of our industrial markets and, through Tyco Capital, to provide innovative
financing and leasing solutions to independent customers and in support of our
industrial segments. We promote our leadership position by investing in existing
businesses, developing new markets and acquiring complementary businesses and
products. Combining the strengths of our existing operations and our business
acquisitions, we seek to enhance shareholder value through increased earnings
per share and strong cash flows.

I. ELECTRONICS

Tyco is the world's leading supplier of passive electronic components and a
leading provider of undersea fiber optic networks and services. Our products and
services include:

- designing, engineering and manufacturing of electronic connector systems,
fiber optic components, wireless devices, heat shrink products, power
components, wire and cable, relays, sensors, touch screens, smart card
components, identification and labeling products, energy solutions, power
products, switches and battery assemblies; and

- designing, manufacturing, installing, operating and maintaining undersea
cable communications systems through our telecommunications subsidiary,
TyCom Ltd. ("TyCom"), and selling bandwidth on our own cable network.

TYCO ELECTRONICS

Tyco Electronics designs, manufactures and markets a broad range of
electronic, electrical and electro-optic passive and active devices and an
expanding number of interconnection systems and connector-intensive assemblies,
as well as wireless products including radar sensors, global positioning
satellite systems components, silicon and gallium arsenide semiconductors,
broadband Local Multipoint Distribution Systems ("LMDS") and microwave
sub-systems. Tyco Electronics' products have potential uses wherever an
electronic, electrical, computer or telecommunications system is involved, and
are becoming increasingly critical to the performance of these systems as signal
speeds and bandwidth

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increase to accommodate voice, data and video communications convergence. Tyco
Electronics manufactures and sells more than 200,000 parts in over 450 global
product lines, including terminals, fiber optic, printed circuit board and cable
connectors and assemblies, cable and cabling systems, and related application
tools and application tooling equipment.

The acquisition of the Power Systems business unit of Lucent
Technologies, Inc., now known as Tyco Electronics Power Systems ("TEPS"), in
December 2000 greatly expanded our product line and complemented existing
products and services. TEPS provides a full line of energy solutions and power
products for telecommunications service providers and for the computer industry.
TEPS products include AC/DC and DC/DC power supplies, inverters and back-up
power systems. TEPS also offers engineering and installation service
capabilities.

Tyco Electronics markets via direct sales and distributors to customers
including original equipment manufacturers ("OEMs") and their subcontractors,
utilities, government agencies, value-added resellers and those who install,
maintain and repair equipment. These customers are found in the automotive,
communications, computer, consumer electronics, industrial, commercial energy
and networking industries. In total, Tyco Electronics serves over 200,000
customers located in over 55 countries, and maintains a strong local presence in
the geographical areas in which it operates, including the Americas, Europe and
the Asia-Pacific region.

The markets that Tyco Electronics operates in are highly competitive. Tyco
Electronics faces competition across its product lines from other companies
ranging in size from large, diversified manufacturers to small, highly
specialized manufacturers.

TYCO PRINTED CIRCUIT GROUP

Tyco Printed Circuit Group ("TPCG") is one of the largest independent
manufacturers of complex multi-layer printed circuit boards and backplane
assemblies in the United States. TPCG manufactures multi-layer boards of up to
68 layers. TPCG also produces sophisticated flexible-rigid circuits and
assemblies for use in commercial, aerospace and military applications. TPCG's
backplane facilities produce soldered, press-fit and surface mount backplane
assemblies. In addition, these facilities provide turnkey manufacturing services
including full "box build" products. Printed circuit boards and backplane
products are manufactured on a job order basis to the customers' design
specifications. The majority of sales are derived from high-density multi-layer
boards.

TPCG markets its products primarily through a direct sales force and, to a
lesser extent, through a network of independent manufacturers' representatives.
Customers are OEMs and contract manufacturers in the communications, computer,
aircraft, military and other industrial and consumer electronics industries. We
compete with several other large independent and captive companies that
manufacture printed circuit boards. Competition is on the basis of quality,
reliability, price and timeliness of delivery.

TYCO ELECTRICAL AND METAL PRODUCTS

Tyco Electrical and Metal Products manufactures electrical raceway and
related products in North America, Europe and the Asia-Pacific region. Our
products include steel electrical conduit, pre-wired armored cable, flexible
electrical conduit, metal framing systems, cable tray and cable ladder and
related products utilized in the construction, industrial and original equipment
markets. In North America, Allied Tube & Conduit is the leading manufacturer of
steel electrical conduit, and AFC Cable Systems is the leading manufacturer of
steel and aluminum pre-wired armored cable. Georgia Pipe manufactures plastic
conduit. Allied manufactures metal framing and support systems and electrical
cable tray and cable ladders in North America and sells them under the
Powerstrut, Unistrut and T.J. Cope trade names. We also manufacture metal
framing and support products in Europe, which we sell

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under the Unistrut and other trade names. In Australia and Asia, we manufacture
and sell these products under the Unistrut, A.C.S. and other trade names. We
manufacture specialty fastening products in the United Kingdom under the
Lindapter and Anccon trade names. We manufacture and distribute welded and drawn
steel tube products in the United Kingdom under the trade names of Newman
Monmore, Newman Phoenix, Tyco Tube Components and HUB LeBas. We manufacture and
distribute specialty steel strip products in the United Kingdom under the JB&S
Lees, Firth Cleveland Steel Strip and Ductile Stourbridge trade names and in
Brazil under the trade names of Frefer and Dinaco.

TELECOMMUNICATIONS

The Telecommunications segment is comprised of the operations of TyCom Ltd.
and its subsidiaries.

TyCom is a leading provider of undersea fiber optic networks and services.
TyCom's products and services include: designing, manufacturing and installing
undersea cable communications systems; servicing and maintaining major undersea
cable networks; and designing, manufacturing and installing a global undersea
fiber optic network, known as the TyCom Global Network-TM- ("TGN"). TyCom
operates, maintains and sells bandwith capacity on the TGN.

The transatlantic segment of the TGN became operational in June 2001, and
the Company continues the buildout of its global network, expected to be
operational by the end of fiscal 2002. The timing and sequence of implementing
additional phases of the network will be based on future needs.

In July 2000, TyCom sold approximately 14% of its common shares in an
initial public offering. Net proceeds from the offering were approximately
$2.1 billion, which were used primarily in the construction and deployment of
the TGN. On December 18, 2001, we completed our amalgamation with TyCom and each
of the approximately 56 million TyCom common shares not owned by Tyco were
converted into the right to receive 0.3133 of a Tyco common share. Upon
completion of the amalgamation, TyCom became a wholly-owned subsidiary of Tyco.

TyCom's sales and marketing personnel consist of professionals with
extensive telecommunications, technical or service backgrounds, and are located
in offices in Bermuda, France, Singapore, the United Kingdom and the United
States.

As a supplier of undersea fiber optic cable systems, TyCom competes on a
worldwide basis primarily against two other providers: Alcatel-Alsthom
("Alcatel") and KDD Submarine Cable Systems Inc. ("KDD"). Other companies
compete on a more limited basis, either as subcontractors to other providers or
as suppliers of regional systems. Alcatel, like TyCom, is vertically integrated
and produces its own cable, whereas KDD utilizes a Japanese cable manufacturer.
Participants in this market compete on the basis of, among other things, price,
technology, time-to-market, the provision of financing and regional and
long-term relationships.

With respect to the TGN, TyCom faces competition in the sale of bandwidth
capacity from existing and planned fiber optic cable networks, as well as
satellite providers and, on certain routes, terrestrial networks, including
those owned by Global Crossing Ltd., FLAG Telecom, and various participants in
cable system consortia. As a provider of undersea cable maintenance, TyCom
competes primarily with Global Marine Systems Ltd., a subsidiary of Global
Crossing Ltd., as well as Alcatel and KDD.

We currently operate TyCom as part of our Electronics group; however TyCom
is presented separately as the Telecommunications segment for reporting purposes
through the period covered by this report.

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II. FIRE AND SECURITY SERVICES

Tyco is the world's leading provider of both fire protection services and
electronic security services. Our products and services include:

- designing, installing and servicing a broad line of fire detection,
prevention and suppression systems, and manufacturing and servicing of
fire extinguishers and related products;

- designing, installing, monitoring and maintaining electronic security
systems;

- designing and manufacturing valves and related products; and

- providing a broad range of consulting, engineering and construction
management and operating services for water, wastewater, environmental,
transportation and infrastructure markets.

FIRE PROTECTION CONTRACTING AND SERVICES

We design, fabricate, install and service automatic fire sprinkler systems,
fire alarm and detection systems, and special hazard suppression systems in
buildings and other installations. Tyco's fire protection contracting and
service business utilizes a worldwide network of sales offices, operating
globally under various trade names including Simplex/Grinnell, Wormald,
Mather & Platt, Total Walther, O'Donnell Griffin, Dong Bang, Ansul and Tyco.

We install fire protection systems in both new and existing structures.
Typically, contracts for fire protection installation are let by owners,
architects, construction engineers and mechanical or general contractors. In
recent years, the business of retrofitting existing buildings has grown as a
result of legislation mandating the installation of fire protection systems and
also as a result of lower insurance costs available for structures with
automatic sprinkler systems. We continue to focus on system maintenance and
inspection, which has become a more significant part of our business.

The majority of the fire suppression systems installed by Tyco are
water-based. However, we are also the world's leading provider of custom
designed fire hazard protection systems which incorporate various specialized
non-water agents such as foams, dry chemicals and gases. Systems using agents
other than water are especially suited to fire protection in certain
manufacturing, power generation, petrochemical, offshore oil exploration,
transportation, telecommunications, mining and marine applications.

In Australia, New Zealand and Asia, Tyco also engages in the installation of
electrical wire and related electrical equipment in new and existing structures
and provides specialized electrical contracting services, including applications
for railroad and bridge construction, primarily through its O'Donnell Griffin
division.

Substantially all of the mechanical components (and, in North America, a
high proportion of the pipe) used in the fire protection systems installed by us
are manufactured by us. We also have fabrication plants worldwide that cut,
thread and weld pipe, which is then shipped with other prefabricated components
to job sites for installation. We have developed our own computer-aided-design
technology that reduces the time required to design systems for specific
applications and coordinates the fabrication and delivery of system components.

Our acquisition of Simplex Time Recorder in January 2001 expanded our line
of fire protection and security products. Simplex manufactures fire and security
products and communications systems including control panels, detection devices
and system software. Simplex also installs, monitors and services fire alarms,
security systems and access control systems.

Competition in the fire protection contracting business varies by geographic
region. In North America, Tyco competes with hundreds of smaller contractors on
a regional or local basis for the

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installation of fire suppression and fire alarm and detection systems. Many of
the regional and local competitors employ non-union labor. In Europe, Tyco
competes with many regional or local contractors on a country-by-country basis.
In Australia, New Zealand and Asia, we compete with a few large fire protection
contractors, as well as with many smaller regional or local companies. Tyco
competes for fire protection systems contracts primarily on the basis of price,
service and quality.

Tyco also manufactures and sells a wide variety of products to other fire
protection contractors and fabricators of fire protection systems. These
products include a complete line of fire sprinkler devices, valves, plastic pipe
and pipe fittings and ductile iron pipe couplings. We manufacture these products
in the United States, the United Kingdom, Germany, China and Malaysia and sell
them under the Central Sprinkler, GEM Sprinkler, Star Sprinkler and Spraysafe
trade names.

Central Sprinkler maintains a network of distribution facilities in the
United States which stock and sell a full line of fire protection products
directly to contractors and installers. GEM Sprinkler and Star Sprinkler sell
fire protection products through a network of independent distributors. In
Canada, Central America, South America and the Asia-Pacific region, we sell fire
protection products through independent distribution and in some cases directly
to fire protection contractors. In Europe and the Middle East, we operate a
number of company-owned distribution facilities which stock and sell a full line
of fire protection, mechanical and other flow control products. Competition for
the sale of fire products is based on price, delivery, breadth of product line
and specialized product capability. The principal competitors are specialty
products manufacturing companies based in the United States, with other smaller
competitors in Europe and Asia.

In addition, our Ansul subsidiary manufactures and sells various lines of
dry chemical, liquid and gaseous portable fire extinguishers and related agents
for industrial, government, commercial and consumer applications. Ansul also
manufactures and sells special hazard fire suppression systems designed for use
in restaurants, marine applications, mining applications, the petrochemical
industry, confined industrial spaces and commercial spaces housing electronic
and other delicate equipment. Ansul also manufactures spill control products
designed to absorb, neutralize and solidify spills of various hazardous
materials.

Our acquisition of Scott Technologies, Inc. in May 2001 expanded our line of
fire protection products. Scott manufacturers respiratory systems and other
life-saving devices for the firefighting and aviation markets.

ELECTRONIC SECURITY SERVICES

We are the world's leading provider of electronic security services and
event monitoring, which includes the monitoring of burglar alarms, fire alarms,
heating services, medical alert systems and activities where around the clock
monitoring and response is required. We also offer regular inspection and
maintenance services so that systems will function properly and will be upgraded
as technology or risk profiles change. We offer our services throughout North
America, Europe, the Middle East, the Asia-Pacific region, Latin America and
South Africa. Our services are provided principally under the ADT trade name and
also under other trade names including Alarmguard, Thorn Security, Total
Walther, Holmes Protection, CIPE, CAPS, Zettler, Sonitrol, TEPG and Armourguard.

Our acquisition of the electronic security systems businesses of Cambridge
Protection Industries, L.L.C. ("SecurityLink") in July 2001 expanded our
services offered, particularly our Personal Emergency Response Systems and
offender monitoring services. SecurityLink also provides electronic security
systems to residential, commercial and government customers.

Electronically monitored security systems involve the installation and use
on a customer's premises of devices designed to detect or react to various
occurrences or conditions, such as intrusion, movement, fire, smoke, flooding,
environmental conditions (including temperature or humidity

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variations), industrial operations (such as water, gas or steam pressure and
process flow controls) or other hazards. These detection devices are connected
to a microprocessor-based control panel which communicates through telephone
lines to a monitoring center, often located at remote distances from the
customer's premises, where alarm and supervisory signals are received and
recorded. In most systems, control panels can identify the nature of the alarm
and the areas within a building where the sensor was activated. Depending upon
the type of service for which the subscriber has contracted, monitoring center
personnel respond to alarms by relaying appropriate information to the local
fire or police departments, notifying the customer or taking other appropriate
action, such as dispatching employees to the customer's premises. In some
instances, the customer may monitor the system at its own premises or the system
may be connected to local fire or police departments.

We provide electronic security services to both commercial and residential
customers. Our commercial customers include financial institutions, industrial
and commercial businesses, facilities of federal, state and local government
departments, defense installations, and health care and educational facilities.
We provide residential electronic security services primarily in North America
and Europe, with a growing presence in the Asia-Pacific region. Our customers
are often prompted to purchase security systems by their insurance carriers,
which may offer lower insurance premium rates if a security system is installed
or require that a system be installed as a condition to coverage.

Our electronic security systems and products are tailored to our customers'
specific needs and include electronic monitoring services that provide intrusion
and fire detection, as well as card or keypad activated access control systems
and closed circuit television systems. Systems may be monitored by the customer
at its premises or connected to one of our monitoring centers. In either case,
we usually provide support and maintenance through service contracts. It has
been our experience that commercial and residential contracts are generally
renewed after their initial terms. Contract discontinuances occur principally as
a result of customer relocation or closure. Systems installed at commercial
customers' premises may be owned by us or by our customer. We usually retain
ownership of standard residential systems, but more sophisticated residential
systems are usually purchased by our customers.

We market our electronic security services to commercial and residential
customers through a direct sales force and an authorized dealer network.
Commercial customers are serviced by a separate national accounts sales force.
We also utilize advertising, telemarketing and direct mail to market our
services.

We purchase most of the electronic components we install. Most of these
components are manufactured outside of the United States by a number of
suppliers, and many of the components are manufactured to our specifications. We
manufacture certain alarm, detection and activation devices and central
monitoring station equipment both for installation by us as well as for sale to
other installers of alarm and detection devices.

The electronic security services business in North America is highly
competitive, with a number of major firms and approximately 12,000 smaller
regional and local companies. Tyco also competes with several national companies
and several thousand regional and local companies in Europe, the Middle East,
the Asia-Pacific region, Latin America and South Africa. Competition is based
primarily on price in relation to quality of service. We believe that the
quality of our electronic security services is higher than that of many of our
competitors and, therefore, our prices may be higher than those charged by our
competitors.

In November 2001, we completed our acquisition of Sensormatic Electronics
Corporation, a supplier of electronic security solutions to the retail,
commercial and industrial marketplaces. Sensormatic is also the leader in
integrated source tagging, a process where consumer goods manufacturers apply
anti-theft tags at the point of packaging or manufacturing.

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TYCO VALVES AND CONTROLS

Tyco manufactures both standard and highly specialized valves in a wide
variety of configurations, body types, materials, pressure ratings and sizes. We
also manufacture related equipment and products such as valve actuators, gauges,
positioners, valve control systems, vapor control products, heat tracing and
leak detection systems and other related products. These products are
manufactured in Tyco's facilities located in North America, Europe, South
America and the Asia-Pacific region. The Tyco Valve and Control group's products
are used in power generation, chemical, petrochemical, oil and gas, water
distribution, wastewater, pulp and paper, commercial irrigation, mining,
industrial process, food and beverage, plumbing, HVAC and other applications.
Tyco Valves and Controls also provides engineering, design, inspection, repair
and commissioning services.

Tyco's valves and related products are sold under many trade names,
including Keystone, Grinnell, Hindle, KTM, Flow Control Technologies, Gachot,
Richards, Sapag, Winn, Vanessa, Raimondi, Fasani, Sempell, Descote, Klein,
Biffi, Morin Actuators, Westlock Controls, Crosby, Anderson Greenwood, Yarway,
Valvtron, Neotecha, Belucci, Intecva, Bayard, Belgicast, Whessoe Varec, Bailey
Birkett, Cash, Erhard, Schmieding and Frischhut. Tyco Valves and Controls sells
heat tracing products and services under the Raychem HTS, Tracer Industries,
Pyrotenax, Accutron and Isopad names.

We sell valves and related products in some geographic areas directly
through our internal sales force and in other geographic areas through a network
of independent distributors and manufacturers' representatives. The valve
industry is highly fragmented, and we compete against a number of international,
national and local manufacturers as well as against specialized manufacturers on
the basis of price, delivery, breadth of product line and specialized product
capability.

In Australia, Tyco Valves and Controls manufactures ductile and steel pipe,
steel fittings, valves and related products primarily for the water industry at
several locations under the trade name Tyco Water. We also manufacture a line of
plastic pipe and fittings in Australia and Malaysia.

TYCO INFRASTRUCTURE

Through our Tyco Infrastructure Services subsidiary, we provide a broad
range of environmental, consulting and engineering services. Tyco
Infrastructure's principal services consist of a full-spectrum of water,
wastewater, environmental and hazardous waste management services. These
services include infrastructure and transportation design and construction
services for institutional, civic, commercial and industrial clients; design,
construction management, project financing and facility operating services for
water and wastewater treatment facilities for municipal and industrial clients;
and transportation engineering and consulting. Tyco Infrastructure operates
through a network of offices in the United States, Canada, the United Kingdom,
Mexico, Brazil, Singapore, Germany and Sweden. Tyco Infrastructure competes with
a number of international, national, regional and local companies on the basis
of price and the breadth and quality of services.

III. HEALTHCARE AND SPECIALTY PRODUCTS

Tyco is a world leader in the medical products industry and has a strong
leadership position in the plastics industry. Our products include:

- a wide variety of disposable medical products, including wound care and
closure products, syringes and needles, sutures and surgical staplers,
products used for vascular therapy and respiratory care, infant medical
accessories, incontinence products, anesthetic supplies, electrosurgical
instruments and laparoscopic instruments; and

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- polyethylene film and film products such as flexible plastic packaging,
plastic bags and sheeting, coated and laminated packaging materials, tapes
and adhesives, plastic garment hangers and pipeline coatings for the oil,
gas and water distribution industries.

TYCO HEALTHCARE GROUP

The Tyco Healthcare Group consists of five primary business units including
Kendall Healthcare, Tyco Healthcare International, U.S. Surgical Corporation,
ValleyLab and Mallinckrodt.

Kendall Healthcare manufactures and markets worldwide a broad range of
needles, syringes, electrodes and wound care, specialized paper and film,
vascular therapy, urological care, incontinence care and other nursing care
products to hospitals and to alternate site healthcare customers. Its Confab
unit sells store brand baby diapers and incontinence and feminine hygiene
products through retail outlets in the United States and Canada.

Kendall Healthcare distributes its products in the United States through its
own sales force and through a network of more than 250 independent distributors.
Kendall Healthcare is the industry leader in gauze products with its
Kerlix-Registered Trademark- and Curity-Registered Trademark- brand dressings.
Kendall Healthcare's other core product category consists of its vascular
therapy products, principally anti-embolism stockings, marketed under the
T.E.D.-Registered Trademark- brand name, sequential pneumatic compression
devices sold under the SCD-Registered Trademark- brand name and a venous plexus
foot pump. Kendall Healthcare pioneered the pneumatic compression form of
treatment and continues to be the leading participant in the pneumatic
compression and elastic stocking segments of the vascular therapy market.
Kendall Healthcare is also an industry leader in the adult incontinence market
serving the acute care, long-term care and retail markets. It offers a complete
line of disposable adult briefs, underpads and other related products.

The Kendall-LTP division, which includes Graphic Controls, manufactures and
sells a variety of disposable medical products, specialized paper and film
products. These include medical electrodes and gels for monitoring and
diagnostic tests and hydrogel wound care products, which are used primarily in
critical care, physical therapy and rehabilitative departments in hospitals.
Graphic Controls also sells operating room kits, sharps containers and other
operating room related products.

Tyco Healthcare International is responsible for the manufacturing,
marketing, distribution and export of the Tyco Healthcare Group products outside
of the United States. Tyco Healthcare International markets directly to
hospitals and medical professionals, as well as through independent
distributors, with a presence in more than 75 countries. Although the mix of
product lines offered varies from country to country, its operations are
organized primarily into three geographic regions: Europe, Latin America and the
Asia-Pacific region.

U.S. Surgical, a leader in innovative wound closure products and
laparoscopic instrumentation, develops, manufactures and markets its products to
hospitals throughout the world. Its products include surgical staplers, sutures
and disposable laparoscopic instrumentation, in addition to numerous other
products used in surgical and medical specialties including spine surgery,
cardiovascular surgery, cancer biopsies and orthopedic surgery. The acquisition
of Innerdyne, Inc. in December 2000 expanded our product line and complemented
existing products and services. Innerdyne manufactures and distributes patented
radial dilating access devices used in minimally invasive medical surgical
procedures.

ValleyLab is a leading manufacturer and marketer of electrosurgical and
ultrasonic surgical products used in open and minimally invasive surgical
procedures. Additional product lines relate to radio frequency energy and vessel
sealing technology.

During Fiscal 2001, we acquired Mallinckrodt Inc., a global company whose
products are used primarily for respiratory care, diagnostic imaging and pain
relief. Mallinckrodt is the leader in the global respiratory care market,
alternate care market, diagnostic imaging, and bulk pharmaceuticals

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markets. Mallinckrodt's products are sold to hospitals and alternate care sites,
clinical laboratories, pharmaceutical manufacturers and other customers on a
worldwide basis.

Tyco Healthcare's competitors include Johnson & Johnson, Becton Dickinson,
and Smith and Nephew, among others.

In May 2001, we entered into an agreement to acquire C.R. Bard, Inc., a
multinational developer, manufacturer and marketer of healthcare products used
for vascular, urological and oncological diagnosis and intervention, as well as
surgical specialties. The acquisition has been approved by Bard shareholders but
is still contingent on regulatory clearance under United States anti-trust laws.

TYCO PLASTICS AND ADHESIVES

Tyco Plastics & Adhesives consists of Tyco Plastics, A&E Products, Tyco
Adhesives and Ludlow Coated Products.

Tyco Plastics manufactures polyethylene-based films, packaging products,
bags and sheeting in a wide range of size, gauge, strength, stretch capacity,
clarity and color. Tyco Plastics' products include:
Ruffies-Registered Trademark-, a national brand consumer trash bag sold to mass
merchants, grocery chains and other retail outlets, and
Film-Gard-Registered Trademark-, a leading plastic sheeting product sold to
consumers and professional contractors through do-it-yourself outlets, home
improvement centers and hardware stores. A wide range of Film-Gard products are
sold for various uses, including painting, renovation, construction, landscaping
and agriculture. Tyco Plastics sells its products directly to retailers for
resale, to distributors for resale or directly to end-users. Tyco Plastics
competes with other nationally recognized brands and also many smaller regional
producers on the basis of price, delivery, breadth of product line and
specialized product capabilities. Manufacturing facilities are located
throughout the United States to ensure proper customer service and competitive
transportation costs.

A&E Products manufactures and sells garment hangers throughout the world and
associated apparel products and packing materials to garment manufacturers and
merchants in the Americas. The majority of A&E Products' clientele are garment
manufacturers, national, regional and local retailers, as well as merchants. In
addition to the manufacturing and selling of new hangers, A&E Products also
operates hanger-recycling facilities in the United States and Europe. Used
hangers are bought from various retailers; they are then sorted, processed and
repackaged for sale back to the general marketplace.

The Tyco Adhesives division manufactures and markets specialty adhesive
products and tapes for industrial applications, including external corrosion
protection products for oil, gas and water pipelines. Tyco Adhesives also
produces duct, foil, strapping, packaging and electrical tapes and spray
adhesives for industrial and consumer markets worldwide and manufactures cloth
and medical tapes for Tyco Healthcare and others. Products are sold under the
Polyken-Registered Trademark-, Nashua Tape-Registered Trademark-,
Raychem-Registered Trademark-, Betham-Registered Trademark- and National-TM-
brand names.

Ludlow Coated Products produces protective packaging and other materials
made of coated or laminated combinations of paper, polyethylene and foil. Ludlow
markets its laminated and coated products through its own sales force and
through independent manufacturers' representatives. Ludlow competes with many
large manufacturers of laminated and coated products on the basis of price,
service, marketing coverage and custom application engineering. It has various
specialized competitors in different markets.

9

IV. TYCO CAPITAL

Through its Tyco Capital subsidiaries, Tyco is a leading source of financing
and leasing capital for many of today's leading industries. Tyco Capital's
services include:

- commercial financing and leasing--offering equipment, commercial factoring
and structured financing; and

- specialty financing and leasing--consumer lending and retail sales and
vendor financing.

On June 1, 2001, Tyco acquired The CIT Group, Inc. ("CIT"), an independent
commercial finance company, now Tyco Capital Corporation. The Tyco Capital
segment represents Tyco Capital Corporation and all its subsidiaries and
reflects their results of operations from June 2, 2001. In addition, Tyco
Capital includes certain international subsidiaries that were sold by Tyco
Capital Corporation to a non-U.S. subsidiary of Tyco on September 30, 2001. Tyco
Capital Corporation and its subsidiaries will continue to operate and report
their consolidated results separately as a wholly-owned unit of Tyco. We refer
you to the Transition Report on Form 10-K for the period ended September 30,
2001 of Tyco Capital Corporation for a more detailed description of the
business.

Tyco Capital's commercial lending and leasing businesses are diverse and
offer a wide range of financing and leasing products to small, midsize and
larger companies across a wide variety of industries, including: manufacturing,
retailing, transportation, aerospace, construction, technology, communication
and various service related industries. Tyco Capital offers direct loans and
leases, operating leases, leveraged and single investor leases, secured
revolving lines of credit and term loans, credit protection, accounts receivable
collection, import and export financing, debtor-in-possession, turnaround
financing, and acquisition and expansion financing. Tyco Capital's commercial
financing and leasing activities are carried out in the following business
divisions: Equipment Financing and Leasing, Specialty Finance, Commercial
Finance and Structured Finance. Tyco Capital's Specialty Finance segment also
conducts a consumer lending business consisting primarily of home equity lending
to consumers, originated largely through a network of brokers and
correspondents.

EQUIPMENT FINANCING AND LEASING

Equipment Financing and Leasing offers secured equipment financing and
leasing products, including loans, leases, wholesale and retail financing for
distributors and manufacturers, loans guaranteed by the U.S. Small Business
Administration, operating leases, sale and leaseback arrangements, portfolio
acquisitions, municipal leases, revolving lines of credit and in-house
syndication capabilities. Equipment Financing and Leasing is a diversified,
middle market, secured equipment lender with a global presence and strong North
American marketing coverage. Products are originated through direct calling on
customers and through relationships with manufacturers, dealers, distributors
and intermediaries that have leading or significant marketing positions in their
respective industries.

The Capital Finance group within equipment financing and leasing specializes
in providing customized leasing and secured financing primarily to end-users of
commercial aircraft and railcars, including operating leases, single investor
leases, equity portions of leveraged leases, sale and leaseback arrangements, as
well as loans secured by equipment. Typical Capital Finance customers are
middle-market to larger-sized companies. New business is generated through
direct calling efforts supplemented with transactions introduced by
intermediaries and other referral sources. Capital Finance has provided
financing to commercial airlines for over 30 years. The Capital Finance
aerospace portfolio includes most of the leading U.S. and foreign commercial
airlines, with a fleet of approximately 200 aircraft having an average life of
approximately nine years.

10

SPECIALTY FINANCE

Specialty Finance product lines include vendor programs, consumer home
equity and certain small-ticket commercial financing and leasing assets.

Vendor alliances are with industry-leading equipment vendors, including
manufacturers, dealers and distributors delivering customized asset-based sales
and financing solutions in a wide array of vendor programs. These alliances
allow Specialty Finance's vendor partners to better utilize core competencies,
reduce capital needs and drive incremental sales volume. As part of the vendor
alliances, credit financing to the manufacturer's customers for the purchase or
lease of the manufacturer's products is offered, and enhanced sales tools are
offered to manufacturers and vendors, such as asset management services,
efficient loan processing, and real-time credit adjudication. Specialty Finance
has significant vendor programs in information technology and telecommunications
equipment and serves many other industries through its global network.

Consumer finance offers both fixed and variable-rate, closed-end loans and
variable-rate lines of credit. It originates, purchases and services loans
secured by first or second liens primarily on detached, single-family
residential properties. Customers borrow for the purpose of consolidating debts,
refinancing an existing mortgage, funding home improvements, paying education
expenses and, to a lesser extent, purchasing a home, among other reasons.
Specialty Finance originates loans primarily through brokers and correspondents
with a high proportion of home equity applications processed electronically over
the internet via BrokerEdge. Through experienced lending professionals and
automation, Specialty Finance provides rapid turnaround time from application to
loan funding, a characteristic considered to be critical by its broker
relationships.

COMMERCIAL FINANCE

Tyco Capital conducts the Commercial Finance operations through two
strategic business units, Commercial Services and Business Credit, both of which
focus on providing working capital for commercial enterprises via lending
arrangements collateralized by accounts receivable and inventories.

Commercial Services offers a full range of U.S. and non-U.S. customized
credit protection, lending and outsourcing services that include working capital
and term loans, factoring, receivable management outsourcing, bulk purchases of
accounts receivable, import and export financing and letter of credit programs.
Financing is provided to clients through the purchase of accounts receivable
owed to clients by their customers, as well as by guaranteeing amounts due under
letters of credit issued to the clients' suppliers, which are collateralized by
accounts receivable and other assets. The purchase of accounts receivable is
traditionally known as "factoring" and results in the payment by the client of a
factoring fee which is commensurate with the underlying degree of credit risk
and recourse, and which is generally a percentage of the factored receivables or
sales volume. Clients use Commercial Services' products and services for various
purposes, including improving cash flow, mitigating the risk of charge-offs,
increasing sales and improving management information. Further, with the
TotalSource(SM) product, clients can outsource bookkeeping, collection and other
receivable processing activities. Commercial Services generates business
regionally from a variety of sources, including direct calling efforts and
referrals from existing clients and other sources.

Business Credit offers revolving and term loans secured by accounts
receivable, inventories and fixed assets to smaller through larger-sized
companies. Through its variable interest rate senior revolving and term loan
products, Business Credit meets its customers' financing needs that are
otherwise not met through bank or other unsecured financing alternatives,
including expansion and turnaround financing and debtor-in-possession
arrangements. Business Credit typically structures financing on a secured basis,
though, from time to time, it may look to a customer's cash flow to support a
portion of the credit facility. Business Credit has focused on increasing the
proportion of

11

direct business origination to improve its ability to capture or retain
refinancing opportunities and to enhance finance income. Business is originated
through direct calling efforts and intermediary and referral sources, as well as
through sales and regional offices.

STRUCTURED FINANCE

Structured Finance operates internationally through locations in the United
States, Canada and Europe. Structured Finance provides specialized investment
banking services to the international corporate finance and institutional
finance markets by providing asset-based financing for large-ticket asset
acquisitions and project financing and related advisory services to equipment
manufacturers, corporate clients, regional airlines, governments and public
sector agencies. Communications, transportation, and the power and utilities
sectors are among the industries that Structured Finance serves.

Structured Finance also arranges financing transactions for its lending
partners, and, in some cases, participates in the transactions by taking on a
debt or equity interest. Structured Finance currently has investments in
emerging growth enterprises in the information technology, communications, life
science and consumer products industries.

SECURITIZATION PROGRAM

Tyco Capital funds most of its assets on balance sheet by accessing various
sectors of the capital markets, including the commercial paper and term debt
markets. In an effort to broaden funding sources and to provide an additional
source of liquidity, Tyco Capital has in place an array of programs to access
both the public and private asset-backed securitization markets. Current
products in these programs include receivables and leases secured by equipment
and consumer loans secured by residential real estate. Under a typical
asset-backed securitization, Tyco Capital sells a "pool" of secured loans or
leases to a special-purpose entity, typically a trust. The special-purpose
entity, in turn, issues certificates and/or notes that are collateralized by the
pool and entitle the holders thereof to participate in certain pool cash flows.
Tyco Capital retains the servicing of the securitized contracts, for which it
earns a servicing fee. Tyco Capital also participates in certain "residual" cash
flows (cash flows after payment of principal and interest to certificate and/or
note holders, servicing fees and other credit-related disbursements). At the
date of securitization, Tyco Capital estimates the "residual" cash flows to be
received over the life of the securitization, records the present value of these
cash flows based on current market rates as a retained interest in the
securitization (retained interests can include bonds issued by the
special-purpose entity, cash reserve accounts on deposit in the special-purpose
entity or interest-only receivables) and typically recognizes a gain.

COMPETITION

Tyco Capital's markets are highly competitive and are characterized by
competitive factors that vary based upon product and geographic region.
Competitors include captive and independent finance companies, commercial banks
and thrift institutions, industrial banks, leasing companies, manufacturers and
vendors with global reach. Substantial financial services operations with global
reach have been formed by bank holding, leasing, finance and insurance companies
that compete with Tyco Capital. On a local level, community banks and smaller
independent finance and mortgage companies are a competitive force. Some
competitors have substantial local market positions. Many of Tyco Capital's
competitors are large companies that have substantial capital, technological and
marketing resources. Some of these competitors are larger than Tyco Capital and
may have access to capital at a lower cost. Competition had been enhanced in
recent years by a strong economy and growing marketplace liquidity, although
during 2001 the economy has slowed and marketplace liquidity has tightened. The
markets for most of Tyco Capital's products are characterized by a large number
of competitors,

12

although there continues to be consolidation in the industry. However, with
respect to some products, competition is more concentrated.

Tyco Capital competes primarily on the basis of pricing, terms and
structure. From time to time, Tyco Capital's competitors seek to compete
aggressively on the basis of these factors. Other primary competitive factors
include industry experience, client service and relationships.

The amount of business done with companies in particular industries, such as
the commercial airlines industry, will be affected by the economic conditions in
those industries.

REGULATION

Tyco Capital's operations are subject, in certain instances, to supervision
and regulation by state, federal and various foreign governmental authorities
and may be subject to various laws and judicial and administrative decisions
imposing various requirements and restrictions, which, among other things,
(i) regulate credit granting activities, including establishing licensing
requirements, if any, in applicable jurisdictions, (ii) establish maximum
interest rates, finance charges and other charges, (iii) regulate customers'
insurance coverages, (iv) require disclosures to customers, (v) govern secured
transactions, (vi) set collection, foreclosure, repossession and claims handling
procedures and other trade practices, (vii) prohibit discrimination in the
extension of credit and administration of loans, and (viii) regulate the use and
reporting of information related to a borrower's credit experience. In addition
to the foregoing, CIT Online Bank, a Utah industrial loan corporation wholly
owned by Tyco Capital, is subject to regulation and examination by the Federal
Deposit Insurance Corporation and the Utah Department of Financial Institutions.

BACKLOG

At September 30, 2001, we had a backlog of unfilled orders of
$10,999.1 million, compared to a backlog of $10,418.2 million as of
September 30, 2000. We expect that approximately 76% of our backlog at
September 30, 2001 will be filled during Fiscal 2002. Backlog by reportable
industry segment is as follows ($ in millions):

Backlog for Fire and Security Services includes recurring "revenue in
force," which represents one year's fees for security monitoring and maintenance
services under contract. The amount of backlog as of September 30, 2000 has been
restated to include recurring revenue in force at that date of
$2,203.4 million. The amount of recurring revenue in force at September 30, 2001
is $3,099.6 million. Within the Fire and Security Services segment, backlog
increased due to the following: the deferral of $1,453.5 million of net revenue
as a result of the adoption of SEC Staff Accounting Bulleting No. 101
("SAB 101"), an increase in services contracts of the security business, an
increase in contract bookings at Tyco Infrastructure and, to a lesser extent,
the effect of acquisitions.

Within the Electronics segment, backlog decreased due to the cancellation
and/or delay of orders by customers in certain end-markets, such as the computer
and consumer electronics and communications industries. The decrease in backlog
within the Telecommunications segment reflects

13

generally the downturn in the telecommunications industry and specifically a
decrease in third-party contracts for undersea communications systems, partially
offset by contracts signed for capacity sales on the TGN. In addition, a
$710.5 million contract previously booked was removed from backlog pending
customer financing. The increase in backlog in Healthcare and Specialty Products
is due to the deferral of $71.6 million of net revenue as a result of the
adoption of SAB 101. Backlog in the Healthcare and Specialty Products segment
represents unfilled orders which, in the nature of the business, are normally
shipped shortly after purchase orders are received. We do not view backlog in
the healthcare industry to be a significant indicator of the level of future
sales activity.

PROPERTIES

Our operations are conducted in facilities throughout the world aggregating
approximately 89.5 million square feet of floor space, of which approximately
49.6 million square feet are owned and approximately 39.9 million square feet
are leased. These facilities house manufacturing, distribution and warehousing
operations, as well as sales and marketing, engineering and administrative
offices.

The Electronics segment has manufacturing facilities in North America,
Central and South America, Europe, Asia and Australia. TyCom has manufacturing
and storage facilities in the United States, St. Croix, the United Kingdom,
Curacao, Guam and Spain. The groups occupy approximately 48.0 million square
feet, of which 30.3 million square feet are owned and 17.7 million square feet
are leased.

Within the Fire and Security Services segment, the fire protection
contracting and service business operates through a network of offices located
in North America, Central America, South America, Europe, the Middle East and
Asia-Pacific regions. Fire protection components are manufactured at locations
in North America, the United Kingdom, Germany, Australia, New Zealand and South
Korea. The electronic security services business operates through a network of
monitoring centers and sales and service offices and other properties in North
America, Europe, the Asia-Pacific region, Latin America and South Africa. The
environmental services business operates through a network of offices throughout
North America. The Fire and Security Services segment occupies approximately
10.7 million square feet, of which 2.7 million square feet are owned and
8.0 million square feet are leased.

The Healthcare and Specialty Products segment has manufacturing facilities
in North America, Europe and Asia. The group occupies approximately
21.3 million square feet, of which 13.2 million square feet are owned and
8.1 million square feet are leased.

Tyco Capital conducts its operations in the United States, Canada, Europe,
Latin America, Australia and the Asia-Pacific region. Tyco Capital occupies
approximately 2.7 million square feet of office space, substantially all of
which is leased.

In the opinion of management, our properties and equipment generally are in
good operating condition and are adequate for our present needs. We do not
anticipate difficulty in renewing existing leases as they expire or in finding
alternative facilities. See Note 22 to Consolidated Financial Statements for a
description of our rental obligations.

14

RESEARCH AND DEVELOPMENT

The amounts expended for Tyco-sponsored research and development during
Fiscal 2001, Fiscal 2000, and Fiscal 1999 were $572.0 million, $527.5 million
and $450.5 million, respectively. Customer-funded research and development
expenditures were $40.4 million, $18.6 million and $4.6 million, respectively.

Approximately 5,600 full-time scientists, engineers and other technical
personnel are engaged in our product research and development activities.

Research activity at Tyco Electronics focuses specifically on new product
development and a continuous expansion of technical capabilities. Tyco
Healthcare focuses on technologies to complement existing product lines and
applying expertise to refine and successfully commercialize such products and
technologies and on acquiring rights to new products. Research activity in the
Fire and Security Services segment is related to improvements in hydraulic
design which controls the motion of fluids, resulting in new sprinkler devices
and flow control products.

RAW MATERIALS

We are one of the largest buyers of steel and plastic resin in the United
States. We are also large buyers of copper, brass, plastic, gold, polyethylene
resin and film, polypropylene, electronic components, chemicals and additives,
thin and flexible copper clad materials, paper, ink, foil, adhesives, cloth,
wax, pulp and cotton. Certain of the components used in the Fire Protection
business, principally certain valves and fittings, are purchased for
installation in fire protection systems or for distribution. Our electronic
security systems are purchased from suppliers and are manufactured to our
specification. Materials are purchased from a large number of independent
sources around the world. There have been no shortages in materials which have
had a material adverse effect on our businesses.

PATENTS AND TRADEMARKS

We own a portfolio of patents, which principally relate to electrical and
electronic products, healthcare and specialty products, fire protection devices,
electronic security systems, flow control products, pipe and tubing manufacture,
and cable manufacture. We also own a portfolio of trademarks and are a licensee
under various patents. Although these have been of value and are expected to
continue to be of value in the future, in the opinion of management the loss of
any single patent or group of patents would not materially affect the conduct of
the business in any of our segments. The patents and licenses have remaining
lives of from one to twenty years.

EMPLOYEES

Tyco employed approximately 242,500 people at September 30, 2001, of which
approximately 108,700 are employed in the United States and 133,800 are outside
the United States. We have collective bargaining agreements with labor unions
covering approximately 54,400 employees at certain of our North American,
European and Asia-Pacific businesses. We believe that our relations with the
labor unions and with our employees are generally satisfactory. In April 1994,
following lengthy negotiations, contracts between our Grinnell subsidiary and a
number of local unions affiliated with the United Association of Plumbers and
Pipefitters were not renewed. Employees in those locations, representing
64 percent of Grinnell Fire Protection's North American union employees at the
time, went on strike. The strike ended in January 2001. Grinnell has reinstated
relevant terms of the expired collective bargaining agreement and has resumed
negotiations with the local unions over a new agreement. Grinnell is currently
participating in a proceeding to determine what payments are necessary to
compensate certain employees for losses they may have suffered as a result of
changes in their wages and benefits that Grinnell implemented in 1994. The
action has not had, and is not expected to have, any material adverse effect on
our business or results of operations.

15

ENVIRONMENTAL MATTERS

We make a substantial effort to operate our facilities in compliance with
laws relating to the protection of the environment. Compliance has not had and
is not expected to have a material adverse effect upon our capital expenditures,
earnings or competitive position.

We believe that, consistent with applicable laws and regulations, we
exercise due care and take appropriate precautions in the management of wastes.
We have received notification from the United States Environmental Protection
Agency, and from certain 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.

We also have a number of projects underway at several of our manufacturing
facilities in order to comply with environmental laws. These projects relate to
a variety of activities, including 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. Based upon
our experience with the foregoing environmental matters, we have concluded that
there is at least a reasonable possibility that we will incur remedial costs in
the range of $186.0 million to $492.1 million. As of September 30, 2001, we
concluded that the best estimate within this range is $268.5 million, of which
$206.2 million is included in accrued expenses and other current liabilities and
$62.3 million is included in other long-term liabilities on the Consolidated
Balance Sheet. The increase in the environmental remediation reserve at
September 30, 2001 compared to the $68.3 million reserve at September 30, 2000
is due to the acquisition of Mallinckrodt. In view of our financial position and
reserves for environmental matters of $268.5 million, we have concluded that any
potential payment of such estimated amounts will not have a material adverse
effect on our consolidated financial position, results of operations or
liquidity. See Item 3. "Business--Legal Proceedings" for a description of a
pending legal proceeding regarding alleged Clean Water Act violations involving
Tyco Printed Circuit Group.

ITEM 2. PROPERTIES

See Item 1. "Business--Properties" for information relating to the Company's
owned and leased properties.

ITEM 3. LEGAL PROCEEDINGS

SECURITIES LITIGATION

Beginning on December 9, 1999, Tyco and two Tyco executive officers were
named as defendants in thirty-eight substantially identical class action
lawsuits that were filed in various Federal courts seeking damages on account of
alleged violations of the securities laws in connection with Tyco's financial
disclosures concerning certain mergers and acquisitions and Tyco's accounting
therefor. All of the cases have been consolidated for pretrial purposes before
the United States District Court for the District of New Hampshire.

The Court has selected lead plaintiffs. A Second Amended Class Action
Complaint and Jury Trial Demand was filed on November 2, 2000, purporting to
name two additional Tyco officers and a Tyco Director as defendants. In the
Second Amended Complaint, plaintiffs seek certification of a class of persons
who purchased or acquired Tyco securities during the period from October 1, 1998
through December 8, 1999, as well as certification of certain subclasses. The
plaintiffs seek money damages and/or rescission. Tyco and the other defendants
have moved to dismiss the Second Amended Complaint, but the Court has not as yet
ruled on the motion.

16

TYCOM (US) INC./GLOBAL CROSSING ARBITRATION AND LITIGATION

TyCom (US) Inc. (formerly known as Tyco Submarine Systems Ltd.), a
subsidiary of Tyco, was named as the respondent in an arbitration proceeding
that was commenced on May 22, 2000, by Atlantic Crossing Ltd., GT Hauling Corp.,
GT U.K. Ltd., Global Telesystems GmbH, and GT Netherlands BV (all subsidiaries
of Global Crossing Ltd.) under the international rules of the American
Arbitration Association, asserting claims for breach of duty of loyalty and
breach of three agreements between the parties relating to the Atlantic
Crossing-1 subsea cable system; TyCom (US) Inc. asserted counterclaims for
breach of those agreements. TyCom (US) Inc. was also named as the defendant in
an action brought in the United States District Court for the Southern District
of New York on May 22, 2000, by Global Crossing Ltd. and its subsidiary South
American Crossing (Subsea) Ltd., alleging that in connection with the
development of a South American subsea cable system to be owned by South
American Crossing (Subsea) Ltd., TyCom (US) Inc. misappropriated trade secrets,
committed fraud, breached several alleged agreements and defamed South American
Crossing (Subsea) Ltd.; TyCom (US) Inc. asserted counterclaims for breach of
contract. On October 4, 2001, the parties to the arbitration and the litigation
entered into a settlement agreement, pursuant to which the arbitration
proceeding was terminated with prejudice by Stipulation of Termination dated
October 5, 2001, and the litigation was terminated with prejudice by Stipulation
of Dismissal dated October 5, 2001.

TYCO PRINTED CIRCUIT GROUP

In June 2001, Tyco Printed Circuit Group ("TPCG"), a Tyco subsidiary in the
Electronics segment, was advised by the office of the U.S. Attorney for the
District of Connecticut that TPCG is the target of a federal grand jury
investigation concerning alleged Clean Water Act violations at one or more of
TPCG's Connecticut manufacturing plants. TPCG also understands that employees at
one of these plants are subjects of the investigation, and that the alleged
violations relate to violations of applicable permits. Tyco management does not
believe that the investigation will have a material impact on the financial
condition of Tyco and its subsidiaries, taken as a whole. TPCG is cooperating
fully in the investigation.

See also the discussions under Item 1. "Business--Environmental Matters."

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON SHARES AND RELATED SECURITY HOLDER
MATTERS

The number of registered holders of Tyco's common shares at November 7, 2001
was 45,854.

Tyco common shares are listed and traded on the New York Stock Exchange
("NYSE") and the Bermuda Stock Exchange under the symbol "TYC," and on the
London Stock Exchange under the symbol "TYI." The following table sets forth the
high and low sales prices per Tyco common share as reported by the NYSE, and the
dividends paid on Tyco common shares, for the quarterly periods presented below.
The price and dividends for Tyco common shares have been restated to reflect a
two-for-one stock split on October 21, 1999 in the form of a 100% stock
dividend.

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PART II

ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth selected consolidated financial information
of Tyco as at and for the fiscal years ended September 30, 2001, 2000, 1999 and
1998 and the nine-month fiscal period ended September 30, 1997. This selected
financial information should be read in conjunction with Tyco's Consolidated
Financial Statements and related notes. The selected financial data reflect the
combined results of operations and financial position of Tyco, AMP Incorporated,
United States Surgical Corporation, Former Tyco (as defined in Note 7 below),
Keystone International, Inc. and Inbrand Corporation restated for all periods
presented pursuant to the pooling of interests method of accounting. See
Notes 1 and 3 to the Consolidated Financial Statements.

- ------------------------------
(1) In fiscal 2001, we changed our revenue recognition accounting policy to
conform with the requirements of Staff Accounting Bulletin No. 101 issued by
the Staff of the Securities and Exchange Commission, as more fully described
in Note 18 to the Consolidated Financial Statements.

(2) Income from continuing operations in the fiscal year ended September 30,
2001 includes a net charge of $418.5 million, of which $184.9 million is
included in cost of revenue, for restructuring and other non-recurring
charges, a charge for the write-off of in-process research and development
of $184.3 million and charges of $120.1 million for the impairment of
long-lived assets. See Notes 2, 16 and 21 to the Consolidated Financial
Statements. Income from continuing operations for the fiscal year ended
September 30, 2001 also includes a net gain on sale of businesses and
investments of $276.6 million and a net gain on the sale of common shares of
a subsidiary of $64.1 million.

(3) Income from continuing operations in the fiscal year ended September 30,
2000 includes a net charge of $176.3 million, of which $1.0 million is
included in cost of revenue, for restructuring and other non-recurring
charges, and charges of $99.0 million for the impairment of long-lived
assets. See Notes 16 and 21 to the Consolidated Financial Statements. Income
from continuing operations for the fiscal year ended September 30, 2000 also
includes a one-time pre-tax gain of $1,760.0 million related to the sale by
a subsidiary of its common shares. See Note 20 to the Consolidated Financial
Statements.

(4) Income from continuing operations in the fiscal year ended September 30,
1999 is net of charges of $1,035.2 million for merger, restructuring and
other non-recurring charges, of which $106.4 million is included in cost of
revenue, and charges of $507.5 million for the impairment of long-lived
assets related to the mergers with U.S. Surgical and AMP and AMP's profit
improvement plan. See Notes 16 and 21 to the Consolidated Financial
Statements.

(5) Income from continuing operations in the fiscal year ended September 30,
1998 is net of charges of $80.5 million related primarily to costs to exit
certain businesses in U.S. Surgical's operations and restructuring charges
of $12.0 million related to the continuing operations of U.S. Surgical. In
addition, AMP recorded restructuring charges of $185.8 million in connection
with its profit improvement plan and a credit of $21.4 million to
restructuring charges representing a revision of estimates related to its
1996 restructuring activities.

(6) In September 1997, Tyco changed its fiscal year end from December 31 to
September 30. Accordingly, the nine-month transition period ended
September 30, 1997 is presented.

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(7) In July 1997, a wholly-owned subsidiary of what was formerly called ADT
Limited ("ADT") merged with Tyco International Ltd., a Massachusetts
Corporation at the time ("Former Tyco"). Upon consummation of the merger,
ADT (the continuing public company) changed its name to Tyco International
Ltd. Former Tyco became a wholly-owned subsidiary of the Company and changed
its name to Tyco International (US) Inc. ("Tyco US"). Income from continuing
operations in the nine months ended September 30, 1997 is net of charges
related to merger, restructuring and other non-recurring costs of
$917.8 million and impairment of long-lived assets of $148.4 million related
primarily to the mergers and integration of ADT, Former Tyco, Keystone, and
Inbrand, and charges of $24.3 million for litigation and other related costs
and $5.8 million for restructuring charges in U.S. Surgical's operations.
The results for the nine months ended September 30, 1997 also include a
charge of $361.0 million for the write-off of purchased in-process research
and development related to the acquisition of the submarine systems business
of AT&T Corp.

(8) Per share amounts have been retroactively restated to give effect to the
mergers with Former Tyco, Keystone, Inbrand, U.S. Surgical and AMP; a
0.48133 reverse stock split (1.92532 after giving effect to the subsequent
stock splits) effected on July 2, 1997; and two-for-one stock splits on
October 22, 1997 and October 21, 1999, both of which were effected in the
form of a stock dividend.

(9) Tyco has paid a quarterly cash dividend of $0.0125 per common share since
July 2, 1997, the date of the Former Tyco/ADT merger. Prior to the merger
with ADT, Former Tyco had paid a quarterly cash dividend of $0.0125 per
share of common stock since January 1992. ADT had not paid any dividends on
its common shares since 1992. U.S. Surgical paid quarterly dividends of
$0.04 per share in the year ended September 30, 1998 and the nine months
ended September 30, 1997. AMP paid dividends of $0.27 per share in the first
two quarters of the year ended September 30, 1999, $0.26 per share in the
first quarter and $0.27 per share in the last three quarters of the year
ended September 30, 1998, $0.26 per share in each of the three quarters of
the nine months ended September 30, 1997. The payment of dividends by Tyco
in the future will depend on business conditions, Tyco's financial condition
and earnings and other factors.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

See Management's Discussion and Analysis of Financial Condition and Results
of Operations which appears on pages 91 to 113 of this Form 10-K.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See Management's Discussion and Analysis of Financial Condition and Results
of Operations which appears on pages 91 to 113 of this Form 10-K.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following consolidated financial statements and schedule are filed as
part of this Annual Report:

Financial Statements:

Report of Independent Accountants

Consolidated Balance Sheets--September 30, 2001 and 2000

Consolidated Statements of Operations for the fiscal years
ended September 30, 2001, 2000 and 1999.

Consolidated Statements of Shareholders' Equity for the
fiscal years ended September 30, 2001, 2000 and 1999

Consolidated Statements of Cash Flows for the fiscal years
ended September 30, 2001, 2000 and 1999

Notes to Consolidated Financial Statements

Financial Statement Schedule:

Schedule II--Valuation and Qualifying Accounts

All other financial statements and schedules have been omitted since the
information required to be submitted has been included in the consolidated
financial statements and related notes or because they are either not applicable
or not required under the rules of Regulation S-X.

See Notes to Consolidated Financial Statements for Summarized Quarterly
Financial Data (unaudited).

19

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information concerning the Directors and Executive Officers of the
Registrant is hereby incorporated by reference to the Registrant's definitive
proxy statement which will be filed with the Commission within 120 days after
the close of the fiscal year.

ITEM 11. EXECUTIVE COMPENSATION

Information concerning executive compensation is hereby incorporated by
reference to the Registrant's definitive proxy statement which will be filed
with the Commission within 120 days after the close of the fiscal year.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information concerning security ownership of certain beneficial owners and
management is hereby incorporated by reference to the Registrant's definitive
proxy statement which will be filed with the Commission within 120 days after
the close of the fiscal year.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information concerning certain relationships and related transactions is
hereby incorporated by reference to the Registrant's definitive proxy statement
which will be filed with the Commission within 120 days after the close of the
fiscal year.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)(1) and (2) Financial Statements and Schedules--see Item 8.

(b) Reports on Form 8-K

Current Report on Form 8-K filed on July 25, 2001 announcing Tyco's results for
the third quarter of Fiscal 2001.

Current Report on Form 8-K filed on August 3, 2001 announcing the proposed
acquisition of Sensormatic Electronics Corporation.

Current Report on Form 8-K filed on August 16, 2001 to include, as an exhibit,
the unaudited Consolidated Financial Statements of The CIT Group, Inc. and
subsidiaries as of June 30, 2001 and December 31, 2000 and for the six months
ended June 30, 2001 and 2000, and to include, as an exhibit, Tyco and CIT
unaudited pro forma combined financial information for the nine months ended
June 30, 2001 and for the year ended September 30, 2000.

(c) Exhibits

2.1 Agreement and Plan of Merger, dated June 28, 2000, by and
among Tyco Acquisition Corp. VI (NV), EVM Merger Corp. and
Mallinckrodt Inc. (Incorporated by reference to the
Registrant's Form S-4 filed July 12, 2000).
2.2 Agreement for the Purchase and Sale of Assets, dated
November 13, 2000, by and between Lucent Technologies and
Tyco Group S.a.r.L. (Incorporated by reference to an Exhibit
to the Registrant's Annual Report on Form 10-K filed
December 21, 2000).

20

2.3 Amendment No. 1 dated December 29, 2000 to Agreement for the
Purchase and Sale of Assets, dated November 13, 2000, by and
between Lucent Technologies and Tyco Group S.a.r.L. (Filed
herewith).
2.4 Agreement and Plan of Merger dated March 12, 2001, by and
between Tyco Acquisition Corp. XIX (NV) and The CIT Group,
Inc., including guarantee of Tyco International Ltd.
(Incorporated by reference to the Registrant's Form S-4
filed March 29, 2001).
2.5 Agreement and Plan of Merger dated May 29, 2001, by and
between Tyco Acquisition Corp. XXII (NV) and C.R.
Bard, Inc., including guarantee of Tyco International Ltd.
(Incorporated by reference to the Registrant's Form S-4
filed June 15, 2001).
2.6 Agreement and Plan of Merger dated August 3, 2001 by and
between Tyco Acquisition Corp. XXIV (NV) and Sensormatic
Electronic Corporation, including guarantee of Tyco
International Ltd. (Incorporated by reference to the
Registrant's Prospectus filed August 23, 2001).
2.7 Agreement and Plan of Amalgamation dated October 18, 2001,
by and between TGN Holdings, Ltd. and TyCom Ltd., including
guarantee of Tyco International Ltd. (Incorporated by
reference to the Registrant's Form S-4 filed October 23,
2001).
3.1 Memorandum of Association (as altered) (Incorporating all
amendments to May 26, 1992). (Incorporated by reference to
an Exhibit to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1992).
3.2 Certificate of Incorporation on change of name dated July 2,
1997. (Incorporated by reference to an Exhibit to the
Registrant's Current Report dated July 2, 1997 on Form 8-K
filed July 10, 1997).
3.3 Bye-Laws (Incorporating all amendments to March 27, 2001).
(Incorporated by reference to an Exhibit to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended
March 31, 2001 filed May 11, 2001).
4.1 Form of Indenture, dated as of June 9, 1998, among Tyco
International Group S.A. (TIG), Tyco and The Bank of New
York, as trustee (Incorporated by reference to an Exhibit to
the Registrant's and TIG's Co-Registration Statement on Form
S-3 filed June 9, 1998).
4.2 Form of Indenture dated as of September 24, 1998 by and
between Tyco Capital Corporation (formerly known as The CIT
Group, Inc.) and The Bank of New York, as trustee, for the
issuance of unsecured and unsubordinated debt securities
(Incorporated by reference to an Exhibit to CIT's Form S-3
filed September 24, 1998).
4.3 Form of Indenture dated as of September 24, 1998 by and
between Tyco Capital Corporation (formerly known as The CIT
Group, Inc.) and Bank One Trust Company, N.A., as trustee,
for the issuance of unsecured and unsubordinated debt
securities (Incorporated by reference to an Exhibit to CIT's
Form S-3 filed September 24, 1998).
4.4 Form of Indenture dated as of September 24, 1998 by and
between Tyco Capital Corporation (formerly known as The CIT
Group, Inc.) and The Bank of New York, as trustee, for the
issuance of unsecured and senior subordinated debt
securities (Incorporated by reference to an Exhibit to CIT's
Form S-3 filed September 24, 1998).
4.5 Certain instruments defining the rights of holders of TIG's
and TIL's long-term debt, none of which authorize a total
amount of indebtedness in excess of 10% of the total assets
of TIL and its subsidiaries on a consolidated basis, have
not been filed in exhibits. TIL agrees to furnish a copy of
these agreements to the Commission upon request.
4.6 Indenture by and among TIG, Tyco, and State Street Bank and
Trust Company, as trustee, dated as of February 12, 2001
relating to Zero Coupon Convertible Debentures due 2021.
(Incorporated by reference to an Exhibit to the Registrants'
and TIG's Co-Registration on Form S-3 filed March 16, 2001).
4.7 364-Day Credit Agreement dated as of February 7, 2001 among
TIG, Tyco, the banks named therein and The Chase Manhattan
Bank, as Agent (Incorporated by reference to an Exhibit to
the Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2001 filed May 11, 2001).

21

4.8 Amendment No. 1 dated May 25, 2001 among TIG, Tyco, the
banks named therein and The Chase Manhattan Bank, as Agent,
relating to the 364-Day Credit Agreement dated February 7,
2001 (Filed herewith).
4.9 Indenture dated November 17, 2000 between Tyco and State
Street Bank and Trust Company, as trustee relating to Zero
Coupon Convertible Debentures due 2020. (Incorporated by
reference to the Registrant's Form S-3 filed December 8,
2000).
4.10 Five-year Credit Agreement dated as of February 7, 2001
among TIG, Tyco, the Banks named therein and The Chase
Manhattan Bank, as Agent (Incorporated by reference to an
Exhibit to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 2001 filed May 11, 2001).
4.11 Amendment No. 1 dated May 25, 2001 among TIG, Tyco, the
banks named therein and The Chase Manhattan Bank, as Agent,
relating to the Five-year Credit Agreement dated
February 7, 2001 (Filed herewith).
10.1 The Tyco International Ltd. Long Term Incentive Plan
(formerly known as the ADT 1993 Long-Term Incentive Plan)
(as amended May 12, 1999) (Incorporated by reference to the
Registrant's Form S-8 filed on June 10, 1999).*
10.2 1981 Key Employee Loan Program (Incorporated by reference to
Former Tyco's Form 10-K for the year ended May 31, 1982).*
10.3 1983 Restricted Stock Ownership Plan for Key Employees
(Incorporated by reference to Former Tyco Shareholders'
Proxy Statement for Annual Meeting of Shareholders on
October 18, 1983).*
10.4 1983 Key Employee Loan Program, as amended December 9, 1993
(Incorporated by reference to Former Tyco's Form 10-K for
the year ended June 30, 1994).*
10.5 1994 Restricted Stock Ownership Plan for Key Employees
(Incorporated by reference to the Registrant's Form S-8
filed on December 21, 1999).*
10.6 Tyco International Ltd. Supplemental Executive Retirement
Plan (Incorporated by reference to Former Tyco's Form 10-K
for the year ended June 30, 1995).*
10.7 The Tyco International Ltd. Long Term Incentive Plan II
(Incorporated by reference to the Registrant's Form S-8
filed March 25, 1999).*
10.8 Retention Agreement for L. Dennis Kozlowski dated
January 22, 2001 and Amendment thereto dated August 1, 2001
(Filed herewith).*
10.9 Retention Agreement for Mark H. Swartz dated January 22,
2001 and Amendment thereto dated August 1, 2001 (Filed
herewith).*
10.10 Retention Agreement for Albert R. Gamper, Jr. dated
March 12, 2001 (Filed herewith).*
21.1 Subsidiaries of the registrant (Filed herewith).
23.1 Consent of PricewaterhouseCoopers (Filed herewith).

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

* Management contract or compensatory plan.

22

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

TYCO INTERNATIONAL LTD.

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

Date: December 28, 2001

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on December 28, 2001 in
the capacities indicated below.

24

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
and Shareholders of Tyco International Ltd.

In our opinion, based upon our audits, the accompanying consolidated balance
sheets and the related consolidated statements of operations, of shareholders'
equity and of cash flows present fairly, in all material respects, the financial
position of Tyco International Ltd. and its subsidiaries at September 30, 2001
and 2000, and the results of their operations and their cash flows for each of
the three years in the period ended September 30, 2001, in conformity with
accounting principles generally accepted in the United States of America. In
addition, in our opinion, the accompanying financial statement schedule presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

As described in Note 18, the Company changed its method of revenue
recognition and changed its method of accounting for derivative instruments and
hedging activities.

PRICEWATERHOUSECOOPERS

Hamilton, Bermuda
October 18, 2001, except as to Note 31
which is as of December 18, 2001

25

CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)

See Notes to Consolidated Financial Statements
and, in particular, see Note 1 for definitions of Tyco Industrial and Tyco
Capital.

26

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE DATA)

See Notes to Consolidated Financial Statements
and, in particular, see Note 1 for definitions of Tyco Industrial and Tyco
Capital.

27

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN MILLIONS, EXCEPT PER SHARE DATA)

See Notes to Consolidated Financial Statements.

28

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)

See Notes to Consolidated Financial Statements
and, in particular, see Note 1 for definitions of Tyco Industrial and Tyco
Capital.

29

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION--The Consolidated Financial Statements include the
consolidated accounts of Tyco International Ltd., a company incorporated in
Bermuda ("Tyco"), and its subsidiaries (Tyco and all its subsidiaries,
hereinafter "we" or the "Company") and have been prepared in United States
dollars, unless indicated otherwise, in accordance with generally accepted
accounting principles in the United States ("GAAP").

On June 1, 2001, a subsidiary of the Company acquired The CIT Group, Inc.
("CIT"), an independent commercial finance company, now Tyco Capital
Corporation. The discussion and financial data presented herein are furnished
separately for each of the following:

- Tyco Industrial--This represents Tyco and all its subsidiaries other than
Tyco Capital, and includes the results of operations of Tyco Capital from
June 2, 2001 on the equity method of accounting.

- Tyco Capital--This represents Tyco Capital Corporation and all its
subsidiaries and reflects their results of operations from June 2, 2001.
In addition, Tyco Capital includes certain international subsidiaries that
were sold by Tyco Capital Corporation to a non-U.S. subsidiary of Tyco on
September 30, 2001.

- Consolidated--This represents Tyco Industrial and Tyco Capital on a
consolidated basis.

As described more fully in Note 3, subsidiaries of Tyco merged with United
States Surgical Corporation ("U.S. Surgical") and AMP Incorporated ("AMP") on
October 1, 1998 and April 2, 1999, respectively. These transactions are referred
to herein as the "mergers." The Consolidated Financial Statements have been
prepared following the pooling of interests method of accounting for the mergers
and, therefore, reflect the combined financial position, operating results and
cash flows of U.S. Surgical and AMP as if they had been subsidiaries of Tyco for
all periods presented.

BUSINESS--the Company operates in the following business segments:

ELECTRONICS

Electronics' products and services include:

- designing, engineering and manufacturing of electronic connector systems,
fiber optic components, wireless devices, heat shrink products, power
components, wire and cable, relays, sensors, touch screens, smart card
components, identification and labeling products, energy solutions, power
products, switches and battery assemblies; and

- designing, manufacturing, installing, operating and maintaining undersea
cable communications systems through our telecommunications subsidiary,
TyCom Ltd. ("TyCom"), and selling bandwidth on our own cable network.

FIRE AND SECURITY SERVICES

Fire and Security Services' products and services include:

- designing, installing and servicing a broad line of fire detection,
prevention and suppression systems, and manufacturing and servicing of
fire extinguishers and related products;

- designing, installing, monitoring and maintaining electronic security
systems;

- designing and manufacturing valves and related products; and

30

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- providing a broad range of consulting, engineering and construction
management and operating services for water, wastewater, environmental,
transportation and infrastructure markets.

HEALTHCARE AND SPECIALTY PRODUCTS

Healthcare and Specialty Products include:

- a wide variety of disposable medical products, including wound care and
closure products, syringes and needles, sutures and surgical staplers,
products used for vascular therapy and respiratory care, infant medical
accessories, incontinence products, anesthetic supplies, electrosurgical
instruments and laparoscopic instruments; and

- polyethylene film and film products such as flexible plastic packaging,
plastic bags and sheeting, coated and laminated packaging materials, tapes
and adhesives, plastic garment hangers and pipeline coating for the oil,
gas and water distribution industries.

TYCO CAPITAL

Tyco Capital's services include:

- commercial financing and leasing--offering equipment, commercial factoring
and structured financing; and

- specialty financing and leasing--consumer lending and retail sales and
vendor financing.

PRINCIPLES OF CONSOLIDATION--Tyco is a holding company whose assets consist
of its investments in its subsidiaries, intercompany balances and holdings of
cash and cash equivalents. The businesses of the consolidated group are
conducted through Tyco's subsidiaries. The Company consolidates companies in
which it owns or controls more than fifty percent of the voting shares unless
control is likely to be temporary. The results of companies acquired or disposed
of during the fiscal year are included in the Consolidated Financial Statements
from the effective date of acquisition or up to the date of disposal, except in
the case of mergers accounted for as poolings of interests (see Note 3). All
significant intercompany balances and transactions have been eliminated in
consolidation.

CASH AND CASH EQUIVALENTS--All highly liquid investments purchased with an
original maturity of three months or less are considered to be cash equivalents.

INVENTORIES--Inventories are recorded at the lower of cost (primarily
first-in, first-out) or market value.

FINANCING AND LEASING ASSETS--Tyco Capital provides funding for a variety of
financing arrangements, including term loans, lease financing and operating
leases. The amounts outstanding on loans and leases are referred to as finance
receivables. Financing and leasing assets consist of finance receivables,
finance receivables held for sale, net book value of operating lease equipment
and certain investments.

At the time of designation for sale, securitization or syndication, assets
are classified as finance receivables held for sale, which are included in other
assets on the Consolidated Balance Sheet. These assets are carried at the lower
of aggregate cost or market value.

31

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CHARGE-OFF OF FINANCE RECEIVABLES--Finance receivables are reviewed
periodically to determine the probability of loss. Charge-offs are taken after
considering such factors as the borrower's financial condition and the value of
underlying collateral and guarantees (including recourse to dealers and
manufacturers). Such charge-offs are deducted from the carrying value of the
related finance receivables. To the extent that an unrecovered balance remains
due, a final charge-off is taken at the time collection efforts are no longer
deemed useful. Charge-offs are recorded on consumer and certain small ticket
commercial finance receivables beginning at 180 days of contractual delinquency
based upon historical loss severity.

PROPERTY, PLANT AND EQUIPMENT--Property, plant and equipment is recorded
principally at cost less accumulated depreciation. Maintenance and repair
expenditures are charged to expense when incurred. For the years ended
September 30, 2001, 2000 and 1999, the Company capitalized interest of
$76.3 million, $10.8 million and $8.7 million, respectively. The increase in
capitalized interest is primarily due to construction of the TyCom Global
Network ("TGN"), which began during the last quarter of Fiscal 2000. The
straight-line method of depreciation is used over the estimated useful lives of
the related assets as follows:

Buildings and related improvements....... 5 to 50 years
Leasehold improvements and equipment
leased to others....................... Remaining term of the lease
Subscriber systems....................... 10 to 14 years
Other plant, machinery, equipment and
furniture and fixtures................. 2 to 25 years
TyCom Global Network..................... 15 years

Equipment leased to others by Tyco Capital is also included in property,
plant and equipment. Gains and losses arising on the disposal of property, plant
and equipment are included in the Consolidated Statements of Operations and were
not material.

GOODWILL AND OTHER INTANGIBLE ASSETS--Goodwill, net was $29,790.8 million
and $13,723.0 million at September 30, 2001 and 2000, respectively. Accumulated
amortization amounted to $1,556.5 million and $959.3 million at September 30,
2001 and 2000, respectively. In accordance with Statement of Financial
Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets,"
goodwill associated with acquisitions consummated after June 30, 2001 is not
being amortized. All other goodwill is being amortized on a straight-line basis
over periods ranging from 10 to 40 years through September 30, 2001. See
"ACCOUNTING PRONOUNCEMENTS" within Note 1 for more information on SFAS No. 142.

Other intangible assets, net were $5,519.6 million and $2,609.6 million at
September 30, 2001 and 2000, respectively. These amounts include patents,
trademarks, customer contracts and other items, which are being amortized on a
straight-line basis over lives ranging from 2 to 40 years. At September 30, 2001
and 2000, accumulated amortization amounted to $885.3 million and
$525.2 million, respectively.

INVESTMENTS--The Company accounts for its long-term investments that
represent less than twenty percent ownership by adjusting the securities to
market value at the end of each accounting period. Unrealized market gains and
losses are charged to earnings if the securities are traded for short-term

32

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
profit. Otherwise, such unrealized gains and losses are charged or credited to
shareholders' equity unless an unrealized loss is deemed to be other than
temporary, in which case such loss is charged to earnings. Management determines
the proper classification of investments in debt obligations with fixed
maturities and securities for which there is a readily determinable market value
at the time of purchase and reevaluates such classifications as of each balance
sheet date. Realized gains and losses on sales of investments, as determined on
a specific identification basis, are included in the Consolidated Statements of
Operations.

Other investments for which the Company does not have the ability to
exercise significant influence and for which there is not a readily determinable
market value are accounted for under the cost method of accounting. The Company
periodically evaluates the carrying value of its investments accounted for under
the cost method of accounting. At September 30, 2001 and 2000, such investments
were recorded at the lower of cost or estimated net realizable value.

For investments in which the Company owns or controls twenty percent or more
of the voting shares, or over which it exerts significant influence over
operating and financial policies, the equity method of accounting is used. The
Company's share of net income or losses of equity investments is included in the
Consolidated Statements of Operations and was not material in any period
presented.

Investments are included in other assets on the Consolidated Balance Sheets.

LONG-LIVED ASSETS--The Company periodically evaluates the net realizable
value of long-lived assets, including property, plant and equipment, 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.

IMPAIRED LOANS--Impaired loans include primarily large loans that are placed
on non-accrual status or any troubled debt restructuring. Loan impairment is
defined as any shortfall between the estimated value and the recorded investment
in the loan, with the estimated value determined using the fair value of the
collateral, if the loan is collateral dependent, or the present value of
expected future cash flows discounted at the loan's effective interest rate.

SECURITIZATIONS--Pools of assets are originated and sold to independent
trusts which, in turn, issue securities to investors backed by the asset pools.
Tyco Capital retains the servicing rights and participates in certain cash flows
from the pools. The present value of expected net cash flows that exceeds the
estimated cost of servicing is recorded at the time of sale as a "retained
interest." Tyco Capital's retained interests in securitized assets are included
in other assets. Subsequent to the recording of retained interests, Tyco Capital
reviews such values on an asset by asset basis at least as often as quarterly.
Fair values of retained interests are calculated utilizing current and
anticipated credit losses, prepayment speeds and discount rates and are then
compared to the respective carrying values. Losses, representing the excess of
carrying value over estimated current fair market value, are recorded as
impairments and are recognized as a charge to operations. Unrealized gains are
not credited to current earnings but are reflected in shareholders' equity as
part of other comprehensive income.

SHARE PREMIUM AND CONTRIBUTED SURPLUS--In accordance with the Bermuda
Companies Act of 1981, when Tyco issues shares for cash at a premium to their
par value, the resulting premium is credited to a share premium account, a
non-distributable reserve. When Tyco issues shares in exchange for shares of
another company, the excess of the fair value of the shares acquired over the
par value of the shares

33

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
issued by Tyco is credited, where applicable, to contributed surplus, which is,
subject to certain conditions, a distributable reserve.

REVENUE RECOGNITION--In December 1999, the Securities and Exchange
Commission ("SEC") issued Staff Accounting Bulletin No. 101 ("SAB 101"),
"Revenue Recognition in Financial Statements." In SAB 101, 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, the Company adopted SAB 101 in the fourth quarter of
Fiscal 2001 retroactive to the beginning of the fiscal year and is now
recognizing revenues from the installation of security systems and deferring the
associated direct incremental costs over the estimated customer lives.

Revenue from the sale of products is recognized according to the terms of
the sales arrangement, which is generally upon shipment. Revenue from the sale
of services is recognized as services are rendered. Subscriber billings for
services not yet rendered are deferred and taken into income as earned, and the
deferred element is included in accrued expenses and other current liabilities
or other long-term liabilities, as appropriate.

Contract sales for the installation of fire protection systems, underwater
cable systems and other construction related projects are recorded on the
percentage-of-completion method. Profits recognized on contracts in process are
based upon estimated contract revenue and related cost to completion. 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.

At September 30, 2001, accounts receivable included retainage provisions of
$100.7 million, of which $73.7 million remained unbilled. At September 30, 2000,
accounts receivable included retainage provisions of $58.6 million, of which
$2.0 million remained unbilled. These retention provisions relate primarily to
fire protection and electronics contracts and become due upon contract
completion and acceptance. Of the balance of $100.7 million at September 30,
2001, $44.7 million is expected to be collected during Fiscal 2002.

Finance income includes interest on loans, the accretion of income on direct
financing leases, and rents on operating leases. Related origination and other
nonrefundable fees and direct origination costs are deferred and amortized as an
adjustment of finance income over the contractual life of the transactions.
Income on finance receivables other than leveraged leases is recognized on an
accrual basis commencing in the month of origination using methods that
generally approximate the interest method. Leveraged lease income is recognized
on a basis calculated to achieve a constant after-tax rate of return for periods
in which Tyco Capital has a positive investment in the transaction, net of
related deferred tax liabilities. Rental income on operating leases is
recognized on an accrual basis.

The accrual of finance income on commercial and consumer finance receivables
is generally suspended and an account is placed on non-accrual status when
payment of principal or interest is contractually delinquent for 90 days or
more, or earlier when, in the opinion of management, full collection of all
principal and interest due is doubtful.

LEASE FINANCING--Direct financing leases are recorded at the aggregate
future minimum lease payments plus estimated residual values less unearned
finance income. Operating lease equipment is carried at cost less accumulated
depreciation and is depreciated to estimated residual value using the
straight-line method over the lease term or projected economic life of the
asset. Equipment acquired in

34

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
satisfaction of loans and subsequently placed on operating lease is recorded at
the lower of carrying value or estimated fair value when acquired. Lease
receivables include leveraged leases, for which a major portion of the funding
is provided by third party lenders on a nonrecourse basis, with Tyco Capital
providing the balance and acquiring title to the property. Leveraged leases are
recorded at the aggregate value of future minimum lease payments plus estimated
residual value, less nonrecourse third-party debt and unearned finance income.
Management performs periodic reviews of the estimated residual values with
impairment, other than temporary, recognized in the current period.

RESERVE FOR CREDIT LOSSES ON FINANCE RECEIVABLES--The reserve for credit
losses is periodically reviewed for adequacy considering economic conditions,
collateral values and credit quality indicators, including historical and
expected charge-off experience and levels of past due loans and non-performing
assets. Changes in economic conditions or other events affecting specific
obligors or industries may necessitate additions or deductions to the reserve
for credit losses. In management's judgment the reserve for credit losses is
adequate to provide for credit losses inherent in the portfolio.

INCOME TAXES--Deferred tax liabilities and assets are recognized for the
expected future tax consequences of events that have been reflected in the
Consolidated Financial Statements. Deferred tax liabilities and assets are
determined based on the differences between the book values and the tax bases of
particular assets and liabilities, using tax rates in effect for the years in
which the differences are expected to reverse. A valuation allowance is provided
to offset any net deferred tax assets if, based upon the available evidence, it
is more likely than not that some or all of the deferred tax assets will not be
realized.

RESEARCH AND DEVELOPMENT--Research and development expenditures are expensed
when incurred and are included in cost of revenue.

ADVERTISING--Advertising costs are expensed when incurred and are included
in selling, general, administrative and other costs and expenses.

SALE OF COMMON SHARES OF A SUBSIDIARY--Gains on the sale by a subsidiary of
its common shares are included in the Consolidated Statement of Operations.

TRANSLATION OF FOREIGN CURRENCY--Assets and liabilities of the Company's
subsidiaries operating outside the United States which account in a functional
currency other than U.S. dollars, other than those operating in highly
inflationary environments, are translated into U.S. dollars using year-end
exchange rates. Revenues and expenses are translated at the average exchange
rates effective during the year. Foreign currency translation gains and losses
are included as a component of accumulated other comprehensive (loss) income
within shareholders' equity. For subsidiaries operating in highly inflationary
environments, inventories and property, plant and equipment, including related
expenses, are translated at the rate of exchange in effect on the date the
assets were acquired, while other assets and liabilities are translated at
year-end exchange rates. Translation adjustments for the assets and liabilities
of these subsidiaries are included in net income.

Gains and losses resulting from foreign currency transactions, the amounts
of which are not material, are included in net income.

35

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

FINANCIAL INSTRUMENTS--Effective October 1, 2000, the Company adopted SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities," as
amended, which requires that all derivative instruments be reported on the
balance sheet at fair value and that changes in a derivative's fair value be
recognized currently in earnings unless specific hedge criteria are met. If the
derivative is designated as a fair value hedge, the changes in the fair value of
the derivative and of the hedged item attributable to the hedged risk are
recognized as a charge or credit to earnings. If the derivative is designated as
a cash flow hedge, the effective portions of changes in the fair value of the
derivative are recorded in other comprehensive (loss) income and are recognized
in the Consolidated Statement of Operations when the hedged item affects
earnings. Ineffective portions of changes in the fair value of cash flow hedges
are recognized as a charge or credit to earnings.

The fair value estimates are based on relevant market information, including
current interest rates, and information about the financial instrument, assuming
adequate market liquidity. Fair value estimates are based on judgments regarding
future expected loss experience, current economic conditions, risk
characteristics of the financial instruments, and other factors.

The Company uses derivative instruments to manage exposures to foreign
currency, commodity price, and interest rate risks. The Company's objectives for
holding derivatives are to minimize these risks using the most effective methods
to eliminate or reduce the impacts of these exposures. The Company documents
relationships between hedging instruments and hedged items, and links
derivatives designated as fair value, cash flow or foreign currency hedges to
specific assets and liabilities on the Consolidated Balance Sheet or to specific
firm commitments or forecasted transactions. The Company also assesses and
documents, both at the hedge's inception and on an ongoing basis, whether the
derivatives that are used in hedging transactions are highly effective in
offsetting changes in fair values or cash flows associated with the hedged
items.

As part of managing the exposure to changes in market interest rates, the
Company, as an end-user, enters into various interest rate swap transactions,
all of which are transacted in over-the-counter markets, with other financial
institutions acting as principal counterparties. To ensure both appropriate use
as a hedge and hedge accounting treatment, all derivatives entered into are
designated according to a hedge objective against specified liabilities
including commercial paper, or a specifically underwritten debt issue. The
Company's primary hedge objectives include the conversion of variable-rate
liabilities to fixed rates, and the conversion of fixed-rate liabilities to
variable rates. The derivatives associated with these objectives are classified
as cash flow hedges and fair value hedges, respectively. The notional amounts,
rates, indices and maturities of Tyco Capital's derivatives are required to
closely match the related terms of Tyco Capital's hedged liabilities.

The Company's financial instruments present certain market and credit risks;
however, concentration of credit risk is mitigated as Tyco deals with a variety
of major banks worldwide and its accounts receivable are spread among a number
of major industries, customers and geographic areas. None of the Company's
financial instruments would result in a significant loss to the Company if a
counterparty failed to perform according to the terms of its agreement. The
Company does not require collateral or other security to be furnished by the
counterparties to its financial instruments. The Company does, however, maintain
reserves for potential credit losses on financial instruments.

USE OF ESTIMATES--The preparation of consolidated financial statements in
conformity with GAAP requires management to make extensive use of estimates and
assumptions that affect the reported

36

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
amount of assets and liabilities and disclosure of contingent assets and
liabilities and the reported amounts of revenues and expenses. Significant
estimates in these Consolidated Financial Statements include merger,
restructuring and other non-recurring charges (credits), purchase accounting
reserves, allowances for doubtful accounts receivable, reserve for credit
losses, estimates of future cash flows associated with assets, asset
impairments, useful lives for depreciation and amortization, loss contingencies,
net realizable value of inventories, fair values of financial instruments,
estimated contract revenues and related costs, environmental liabilities, income
taxes and tax valuation reserves, and the determination of discount and other
rate assumptions for pension and post-retirement employee benefit expenses.
Actual results could differ from these estimates.

ACCOUNTING PRONOUNCEMENTS--In June 2001, the Financial Accounting Standards
Board ("FASB") issued SFAS No. 141, "Business Combinations," and SFAS No. 142,
"Goodwill and Other Intangible Assets." SFAS No. 141 requires all business
combinations initiated after June 30, 2001 to be accounted for using the
purchase method. In addition, companies are required to review goodwill and
intangible assets reported in connection with prior acquisitions, possibly
disaggregate and report separately previously identified intangible assets and
possibly reclassify certain intangible assets into goodwill. SFAS No. 142
establishes new guidelines for accounting for goodwill and other intangible
assets. In accordance with SFAS No. 142, goodwill associated with acquisitions
consummated after June 30, 2001 is not amortized. The Company implemented the
remaining provisions of SFAS No. 142 on October 1, 2001. Since adoption,
existing goodwill is no longer amortized but instead will be assessed for
impairment at least annually. The Company is currently determining the impact of
adopting this standard under the transition provisions of SFAS No. 142. Goodwill
amortization expense for Fiscal 2001 was $597.2 million.

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143, addresses accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. This statement is effective for fiscal years beginning
after June 15, 2002. The Company is currently assessing the impact of this new
standard.

In July 2001, the FASB issued SFAS No. 144, "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 Company is currently assessing
the impact of this new standard.

RECLASSIFICATIONS--Certain prior year amounts have been reclassified to
conform with current year presentation.

STOCK SPLITS--Per share amounts and share data have been retroactively
restated to give effect to the two-for-one stock split on October 21, 1999,
effected in the form of a 100% stock dividend (see Note 13).

2. ACQUISITIONS AND DIVESTITURES

FISCAL 2001

During Fiscal 2001, the Company purchased businesses for an aggregate cost
of $19,554.2 million, consisting of $8,800.2 million in cash, net of cash
acquired, and the issuance of approximately 211.2 million common shares valued
at $10,435.4 million, plus the fair value of options assumed of

37

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. ACQUISITIONS AND DIVESTITURES (CONTINUED)
$318.6 million. In addition, $894.4 million of cash was paid during the year for
purchase accounting liabilities related to current and prior years'
acquisitions, which includes approximately $105.7 million relating to purchase
price adjustments and earn-out liabilities on certain acquisitions and
$51.5 million in transaction costs paid related to the acquisition of CIT. The
cash portions of the acquisition costs were funded utilizing net proceeds from
the issuance of long-term debt and Tyco common shares and net proceeds from the
disposal of businesses. Debt of acquired companies aggregated
$40,643.2 million, including $39,050.9 million of debt of CIT. Each acquisition
was accounted for as a purchase, and the results of operations of the acquired
companies have been included in the Company's consolidated results from their
respective acquisition dates.

In connection with these acquisitions, the Company recorded purchase
accounting liabilities of $1,120.0 million for the costs of integrating the
acquired companies and transaction costs. Details regarding these purchase
accounting liabilities are set forth below. In Fiscal 2001, the Company spent a
total of $9,694.6 million in cash related to the acquisition of businesses,
consisting of $8,800.2 million of cash in purchase price for these businesses
(net of cash acquired) plus $894.4 million of cash paid out during the year for
purchase accounting liabilities related to current and prior years'
acquisitions.

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 recorded is recorded as
goodwill. As a result of acquisitions completed in Fiscal 2001, and adjustments
to the fair values of assets and liabilities and purchase accounting liabilities
recorded for acquisitions completed prior to Fiscal 2001, the Company recorded
approximately $19,902.1 million in goodwill and other intangible assets in
Fiscal 2001.

The following table shows the fair values of assets and liabilities and
purchase accounting liabilities recorded for purchase acquisitions completed in
Fiscal 2001, adjusted to reflect changes in fair values

38

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. ACQUISITIONS AND DIVESTITURES (CONTINUED)
of assets and liabilities and purchase accounting liabilities recorded for
acquisitions completed prior to Fiscal 2001 ($ in millions):

Receivables................................................. $ 1,728.0
Inventories................................................. 1,081.6
Finance receivables, net.................................... 30,203.3
Property, plant and equipment, net.......................... 8,735.2
Goodwill and other intangible assets........................ 19,902.1
Other assets................................................ 7,774.8
---------
69,425.0
---------
Accounts payable............................................ 1,306.9
Accrued expenses and other current liabilities.............. 6,014.1
Other long-term liabilities................................. 1,906.6
---------
9,227.6
---------
$60,197.4
=========
Cash consideration paid (net of cash acquired).............. $ 8,800.2
Share consideration paid.................................... 10,754.0
Debt assumed................................................ 40,643.2
---------
$60,197.4
=========

Fiscal 2001 purchase acquisitions include, among others, Mallinckrodt Inc.
("Mallinckrodt") and CIGI Investment Group, Inc. ("CIGI") in October 2000,
InnerDyne, Inc. ("InnerDyne") and Lucent Technologies' Power Systems business
unit ("LPS") in December 2000, Simplex Time Recorder Co. ("Simplex") in
January 2001, Scott Technologies, Inc. ("Scott") in May 2001, CIT in June 2001
and the electronic security systems businesses of Cambridge Protection
Industries, L.L.C. ("SecurityLink") in July 2001. Mallinckrodt, a global
healthcare company with products used primarily for respiratory care, diagnostic
imaging and pain relief, was purchased for approximately 65.2 million Tyco
common shares valued at $3,096.9 million and has been integrated within the
Healthcare and Specialty Products segment. CIGI, a designer and manufacturer of
inductors and isolation transformers for telecommunications applications,
primarily modems, Digital Subscriber Lines (DSL) and network equipment, was
purchased for approximately 2.3 million Tyco common shares valued at
$118.9 million, plus cash of $29.6 million, and has been integrated within the
Electronics segment. InnerDyne, a manufacturer and distributor of patented
radial dilating access devices used in minimally invasive medical surgical
procedures, was purchased for approximately 3.2 million Tyco common shares
valued at $178.0 million and has been integrated within the Healthcare and
Specialty Products segment. LPS, a provider of a full line of energy solutions
and power products for telecommunications service providers and for the computer
industry, was purchased for approximately $2,501.0 million in cash and has been
integrated within the Electronics segment. Simplex, a manufacturer of fire and
security products and communications systems including control panels, detection
devices and system software, was purchased for approximately $1,094.7 million in
cash and has been integrated within the Fire and Security Services segment.
Scott, a designer and manufacturer of respiratory systems and other life-saving
devices for the firefighting and aviation markets, was purchased for
approximately 7.5 million Tyco common shares valued at $391.1 million and has
been integrated within the Fire and Security Services segment. CIT was purchased
for $9,455.5 million, consisting of: the issuance of approximately
133.0 million Tyco

39

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. ACQUISITIONS AND DIVESTITURES (CONTINUED)
common shares, valued at $6,650.5 million, for approximately 73% of the
outstanding shares of CIT; a cash payment of $2,486.4 million to Dai-Ichi Kangyo
Bank, Limited for the purchase of approximately 27% of the outstanding shares of
CIT; and options assumed valued at $318.6 million. The $9,455.5 million purchase
price plus $29.2 million in acquisition related costs incurred by Tyco
Industrial have been reflected on Tyco Capital's Consolidated Balance Sheet as a
contribution by Tyco, in accordance with "push-down" accounting for business
combinations. In addition, $22.3 million was paid by Tyco Industrial for
acquisition related costs and have been reflected on Tyco Capital's Consolidated
Balance Sheet as an additional capital contribution. SecurityLink, a provider of
electronic security systems to residential, commercial and government customers,
was purchased for cash of approximately $1,000.0 million and has been integrated
within the Fire and Security Services segment.

In connection with the acquisition of Mallinckrodt, the Company obtained an
appraisal from an independent appraiser of the fair value of its intangible
assets. This appraisal valued purchased in-process research and development
("IPR&D") of various projects for the development of new products and
technologies at $184.3 million. The purchased IPR&D was written off during the
quarter ended December 31, 2000. The value of the purchased IPR&D was based on
the value of the various projects utilizing the discounted cash flow method.
This valuation included consideration of (i) the stage of completion of each of
the projects, (ii) the technological feasibility of each of the projects,
(iii) whether the projects had an alternative future use, and (iv) the estimated
future residual cash flows that could be generated from the various projects and
technologies over their respective projected economic lives.

As of the Mallinckrodt acquisition date, there were several projects under
development at different stages of completion. The primary basis for determining
the technological feasibility of these projects was obtaining Food and Drug
Administration ("FDA") approval. As of the acquisition date, none of the IPR&D
projects had received FDA approval. In assessing the technological feasibility
of a project, consideration was also given to the level of complexity and future
technological hurdles that each project had to overcome prior to being submitted
to the FDA for approval. As of the acquisition date, none of the IPR&D projects
was considered to be technologically feasible or to have any alternative future
use.

Future residual cash flows that could be generated from each of the projects
were determined based upon management's estimate of future revenue and expected
profitability of the various products and technologies involved. These projected
cash flows were then discounted to their present values taking into account
management's estimate of future expenses that would be necessary to bring the
projects to completion. The discount rates include a rate of return, which
accounts for the time value of money, as well as risk factors that reflect the
economic risk that the cash flows projected may not be realized. The cash flows
were discounted at discount rates ranging from 14% to 25% per annum, depending
on the project's stage of completion and the type of FDA approval needed. This
discounted cash flow methodology for the various projects included in the
purchased IPR&D resulted in a total valuation of $184.3 million.

40

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (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):

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

(1) Included within the $1,120.0 million reserve established is $98.7 million in
purchase accounting liabilities recorded by Tyco Industrial related to the
acquisition of CIT and reported as a liability of Tyco Capital.

Purchase accounting liabilities recorded during Fiscal 2001 consist of
$367.9 million for severance and related costs; $393.6 million for costs
associated with the shut down and consolidation of certain acquired facilities,
including unfavorable leases, lease terminations and other related fees and
other costs; and $358.5 million for transaction and other costs. These purchase
accounting liabilities relate primarily to the acquisitions of Mallinckrodt,
LPS, CIT, Simplex and SecurityLink.

In connection with the Fiscal 2001 purchase acquisitions, the Company began
to formulate plans at the date of each acquisition for workforce reductions and
the closure and consolidation of an aggregate of 349 facilities. The costs of
employee termination benefits relate to the elimination of 6,651 positions in
the United States, 1,559 positions in Europe, 1,354 positions in the
Asia-Pacific region and 706 positions in Canada and Latin America, consisting
primarily of manufacturing and distribution, administrative, technical, and
sales and marketing personnel. Facilities designated for closure include 226
facilities in the United States, 54 facilities in Europe, 48 facilities in the
Asia-Pacific region and 21 facilities in Canada and Latin America, consisting
primarily of manufacturing plants, distribution facilities, sales offices,
corporate administrative facilities and research and development facilities. At
September 30, 2001, 8,201 employees had been terminated and 172 facilities had
been closed or consolidated.

In connection with the purchase acquisitions consummated during Fiscal 2001,
liabilities for approximately $151.5 million for severance and related costs,
$330.9 million for the shutdown and consolidation of acquired facilities and
$108.9 million in transaction and other direct costs remained on the
Consolidated Balance Sheet at September 30, 2001. The Company expects that the
termination of employees and consolidation of facilities related to all such
acquisitions will be substantially complete within one year of plan
finalization, except for certain long-term contractual obligations.

During Fiscal 2001, the Company reduced its estimate of purchase accounting
liabilities recorded in prior years by $68.9 million primarily because costs
were less than originally anticipated. Goodwill and related deferred tax assets
were reduced by an equivalent amount. In addition, the Company finalized its
business plans for the exiting of businesses and the termination of employees in
connection with the Fiscal 2000 acquisitions and integration of the electronic
OEM business of Thomas & Betts, AFC Cable Systems, Inc., Critchley Group PLC and
Siemens Electromechanical Components GmbH & Co. KG, and as a result recorded
$103.7 million of additional purchase accounting liabilities. The Company has
not yet finalized its business integration plans for recent acquisitions and,
accordingly, purchase accounting liabilities are subject to revision in future
quarters. In addition, the Company is

41

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. ACQUISITIONS AND DIVESTITURES (CONTINUED)
still in the process of obtaining information to finalize estimates for the fair
values of certain assets acquired and liabilities assumed.

In October 2000, the Company sold its ADT Automotive business to Manheim
Auctions, Inc., a wholly-owned subsidiary of Cox Enterprises, Inc., for
approximately $1.0 billion in cash. The Company recorded a net gain on the sale
of businesses and investments of $406.5 million, principally related to the sale
of ADT Automotive.

The following unaudited pro forma data summarize the results of operations
for the periods indicated as if the Fiscal 2001 acquisitions and divestitures
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
divestitures and adjustments to interest expense, goodwill amortization 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 indicative of
the results that would have actually been obtained if the acquisitions and
divestitures had occurred as of the beginning of the periods presented or that
may be obtained in the future.

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

(1) Includes a net gain on sale of businesses and investments of $276.6 million
and a net gain on sale of common shares of a subsidiary of $64.1 million,
partially offset by a decrease of $241.1 million related to a change in
revenue recognition policies to conform to SAB 101. Income also includes net
restructuring and other non-recurring and impairment charges of $538.6
million.

(2) Includes a non-recurring gain of $1,760.0 million on the sale by a
subsidiary of its common shares. Income also includes net non-recurring and
impairment charges of $275.3 million.

On May 30, 2001, a subsidiary of the Company entered into a definitive
agreement to acquire C.R. Bard, Inc. ("Bard"), a multinational developer,
manufacturer and marketer of healthcare products used for vascular, urological
and oncological diagnosis and intervention, as well as surgical specialties, in
a tax-free stock-for-stock merger, in exchange for approximately 58 million Tyco
common shares. The transaction is valued at approximately $3,200.0 million,
including the assumption of net debt of $72.9 million. The merger has been
approved by Bard shareholders but is still contingent on regulatory clearance
under United States anti-trust laws. If consummated, Bard would be integrated
within the Company's Healthcare and Specialty Products segment and the
transaction will be accounted for as a purchase.

FISCAL 2000

During Fiscal 2000, the Company purchased businesses for an aggregate cost
of $4,917.9 million, consisting of $4,246.5 million in cash, net of cash
acquired, and the issuance of approximately

42

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. ACQUISITIONS AND DIVESTITURES (CONTINUED)
15.6 million common shares valued at $671.4 million. In addition,
$544.2 million of cash was paid during Fiscal 2000 for purchase accounting
liabilities related to 2000 and prior years' acquisitions. The cash portions of
the acquisition costs were funded utilizing cash on hand, the issuance of
long-term debt and borrowings under the Company's commercial paper program. Debt
of acquired companies aggregated $244.1 million. Each of these acquisitions was
accounted for as a purchase, and the results of operations of the acquired
companies have been included in the consolidated results of the Company from
their respective acquisition dates. As a result of acquisitions completed in
Fiscal 2000, and adjustments to the fair values of assets and liabilities and
purchase accounting liabilities recorded for acquisitions completed prior to
Fiscal 2000, the Company recorded approximately $5,206.8 million in goodwill and
other intangible assets.

In connection with these acquisitions, the Company recorded purchase
accounting liabilities of $426.2 million for transaction costs and the costs of
integrating the acquired companies within our various business segments. Details
regarding these purchase accounting liabilities are set forth below. During
Fiscal 2000, the Company spent a total of $4,790.7 million in cash related to
the acquisition of businesses, consisting of $4,246.5 million of purchase price
(net of cash acquired) plus $544.2 million of cash paid out during Fiscal 2000
for purchase accounting liabilities related to 2000 and prior years'
acquisitions.

The following table summarizes the purchase accounting liabilities recorded
in connection with the Fiscal 2000 purchase acquisitions ($ in millions):

Purchase accounting liabilities recorded during Fiscal 2000 consist of
$243.0 million for severance and related costs, $87.6 million for costs
associated with the shut down and consolidation of certain acquired facilities
and $95.6 million for transaction and other direct costs. The $243.0 million of
severance and related costs covers employee termination benefits for
approximately 7,215 employees located throughout the world, consisting primarily
of manufacturing and distribution employees to be terminated as a result of the
shut down and consolidation of production facilities and, to a lesser extent,
administrative, technical and sales and marketing personnel. At September 30,
2001, 8,985 employees had been terminated and $34.8 million in severance and
related costs remained on the Consolidated Balance Sheet. The Company expects
that the remaining employee terminations will be completed in Fiscal 2002.

43

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. ACQUISITIONS AND DIVESTITURES (CONTINUED)

The $87.6 million of exit costs are associated with the closure and
consolidation of 102 facilities located primarily in the Asia-Pacific region and
the United States. These facilities include manufacturing plants, sales offices,
corporate administrative facilities and research and development facilities.
Included within these costs are accruals for non-cancelable leases associated
with certain of these facilities. Approximately 118 facilities had been closed
or consolidated at September 30, 2001. The remaining facilities are primarily
small manufacturing plants, which are expected to be shut down in Fiscal 2002.
Expenses in connection with the closure of these remaining facilities, as well
as the rental payments under non-cancelable leases (less any expected sublease
income for facilities already closed), comprise the approximately $32.5 million
for facility related costs remaining on the Consolidated Balance Sheet at
September 30, 2001.

During Fiscal 2001, the Company reduced its estimate of purchase accounting
liabilities relating primarily to Fiscal 2000 acquisitions by $33.3 million and,
accordingly, goodwill and related deferred tax assets were reduced by an
equivalent amount. These reductions resulted primarily from costs being less
than originally anticipated.

During Fiscal 2000, the Company sold certain of its businesses, primarily
within the Healthcare and Specialty Products segment, for net proceeds of
approximately $74.4 million in cash.

FISCAL 1999

During Fiscal 1999, the Company acquired companies for an aggregate cost of
$5,996.4 million, consisting of $4,546.8 million in cash and the issuance of
32.4 million common shares valued at $1,449.6 million. The cash portions of the
acquisition costs were funded utilizing cash on hand, the issuance of long-term
debt and borrowings under the Company's commercial paper program. Debt of
acquired companies aggregated $926.9 million. Each of these acquisitions was
accounted for as a purchase, and the results of operations of the acquired
companies were included in the consolidated results of the Company from their
respective acquisition dates. As a result of the acquisitions, the Company
recorded approximately $5,807.9 million in goodwill and other intangible assets.
At September 30, 2001, there remained on the Consolidated Balance Sheet purchase
accounting liabilities of $34.5 million for employee severance (principally for
payments to employees already terminated), facility related costs (principally
for rents under non-cancelable leases for vacated premises) and other costs.

3. POOLING OF INTERESTS TRANSACTIONS

During Fiscal 1999, subsidiaries of Tyco merged with U.S. Surgical and AMP.
A total of approximately 118.4 million and 329.2 million Tyco common shares,
respectively, were issued to the former shareholders of these companies. Both
these merger transactions were accounted for under the pooling of interests
accounting method, which presents as a single interest common shareholder
interests that were previously independent. The historical consolidated
financial statements for periods prior to the consummation of the mergers are
restated as though the companies had been combined during such periods.

Aggregate fees and expenses related to the mergers and to the integration of
the combined companies have been expensed in the Consolidated Statements of
Operations in the periods in which

44

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. POOLING OF INTERESTS TRANSACTIONS (CONTINUED)
the mergers were consummated, as required under the pooling of interests method
of accounting (see Notes 16 and 21).

In connection with the U.S. Surgical merger, the Company assumed an
operating lease for U.S. Surgical's North Haven facilities. In December 1998,
the Company assumed the debt related to the North Haven property of
approximately $211 million. The assumption of the debt combined with the
settlement of certain other obligations in the amount of $23 million resulted in
the Company acquiring ownership of the North Haven property for a total cost of
$234 million.

Combined and separate results of the Company and AMP for the period
preceding the merger are as follows ($ in millions):

- ------------------------
(1) Includes merger, restructuring and other non-recurring charges of
$414.6 million and impairment charges of $76.0 million related primarily
to the merger with U.S. Surgical, and restructuring and other non-recurring
charges of $275.3 million, of which $55.2 million is included in cost of
revenue, and impairment charges of $236.7 million related to AMP's profit
improvement plan. Also includes a credit of $8.3 million representing a
revision of estimates related to the Company's 1997 merger, restructuring
and other non-recurring accruals.

(2) As a result of the combination of the Company and AMP, an income tax
adjustment was recorded to conform tax accounting.

4. FINANCE RECEIVABLES, NET

The following table presents the details of Tyco Capital's finance
receivables, net ($ in millions):

Included in finance receivables at September 30, 2001 are leveraged lease
receivables of $1.0 billion. Leveraged lease receivables exclude the portion
funded by third-party, non-recourse debt payable of $2.4 billion at
September 30, 2001. Net finance receivables exclude $10.1 billion of finance
receivables previously securitized and managed by Tyco Capital.

45

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. FINANCE RECEIVABLES, NET (CONTINUED)
The following table sets forth Tyco Capital's contractual maturities of
finance receivables ($ in millions).

The following table presents changes in Tyco Capital's reserve for credit
losses for the period June 2 through September 30, 2001 ($ in millions):

Balance, June 1, 2001....................................... $ 462.7
Provision for credit losses................................. 116.1
Net credit losses........................................... (86.8)
Acquisitions and other...................................... 0.9
---------
Balance, September 30, 2001................................. $ 492.9
=========
Reserve for credit losses as a percentage of finance
receivables at
September 30, 2001........................................ 1.55%
=========

Total non-performing assets of Tyco Capital were $969.7 million at
September 30, 2001. Non-performing assets reflect both finance receivables on
non-accrual status (primarily loans that are ninety days or more delinquent) and
assets received in satisfaction of loans.

The fair value of finance receivable loans for Tyco Capital was
approximately $23,683.9 million (book value of $23,226.2 million) at
September 30, 2001, based on discounted cash flow analysis using interest rates
that were being offered at the end of the period for loans with similar terms to
borrowers of similar credit quality. The net carrying value of lease finance
receivables not subject to fair value disclosure totaled $8.2 billion.

5. INVESTMENTS IN DEBT AND EQUITY SECURITIES

At September 30, 2001 and 2000, Tyco Industrial had available-for-sale
equity investments with a fair market value of $84.4 million and
$1,320.3 million and a cost basis of $205.6 million and $218.7 million,
respectively. The gross unrealized losses of $149.6 million and $16.4 million
and gross unrealized gains of $28.4 million $1,118.0 million at September 30,
2001 and 2000 have been recorded net of deferred taxes of $2.5 million and
$18.1 million, respectively. These amounts have been included as a separate
component of shareholders' equity.

At September 30, 2001, Tyco Capital's investments in debt and equity
securities designated as available-for-sale totaled $972.6 million and have been
included in other assets on the Consolidated Balance Sheet.

46

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. INVESTMENTS IN DEBT AND EQUITY SECURITIES (CONTINUED)
Included in Tyco Capital's investments in debt and equity securities are
retained interests in commercial securitized assets of $843.6 million and
consumer securitized assets of $126.5 million at September 30, 2001. Retained
interests include interest-only strips, retained subordinated securities, and
cash reserve accounts related to securitizations. The carrying value of the
retained interests in securitized assets is reviewed at least quarterly for
valuation impairment.

The securitization programs cover a wide range of products and collateral
types with significantly different prepayment and credit risk characteristics.

The prepayment speed, in the tables below, is based on Constant Prepayment
Rate ("CPR"), which expresses payments as a function of the declining amount of
loans at a compound annual rate. Expected credit losses are based upon annual
loss rates. The key economic assumptions used in measuring the retained
interests at the date of securitization for transactions completed during the
period from June 2 through September 30, 2001 were as follows:

Ranges of key economic assumptions used in calculating the fair value of the
retained interests in securitized assets by product type at September 30, 2001
were as follows:

The impact of 10 percent and 20 percent adverse changes to the key economic
assumptions on the fair value of retained interests as of September 30, 2001 is
as follows ($ in millions):

47

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. INVESTMENTS IN DEBT AND EQUITY SECURITIES (CONTINUED)
These sensitivities are hypothetical and should be used with caution.
Changes in fair value based on a 10 percent variation in assumptions generally
cannot be extrapolated because the relationship of the change in assumptions to
the change in fair value may not be linear. Also, in this table, the effect of a
variation in a particular assumption on the fair value of the retained interest
is calculated without changing any other assumption. In reality, changes in one
factor may result in changes in another (for example, increases in market
interest rates may result in lower prepayments and increased credit losses),
which might magnify or counteract the sensitivities.

Static pool credit losses represent the sum of actual and projected future
credit losses divided by the original balance of each pool of the respective
assets. At September 30, 2001, actual and projected losses were 1.92% on a
weighted-average basis for commercial equipment securitizations during Fiscal
2001.

The following table summarizes certain cash flows received from and paid to
securitization trusts for the period from June 2 through September 30, 2001 ($
in millions):

Proceeds from new securitizations........................... $2,229.1
Other cash flows received on retained interests............. 105.2
Servicing fees received..................................... 22.2
Repurchases of ineligible contracts......................... (83.4)
Reimbursable servicing advances, net........................ (4.2)
--------
Total, net.................................................. $2,268.9
========

Charge-offs for the period from June 2 through September 30, 2001 and
receivables past due 60 days or more at September 30, 2001 are set forth below,
for both finance receivables and managed receivables. In addition to finance
receivables, managed receivables include finance receivables previously
securitized and still managed by Tyco Capital, but exclude operating leases and
equity investments ($ in millions).

48

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. DEBT

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

(1) Tyco Capital Corporation's senior notes and commercial paper have a
priority position over its other debt obligations. Tyco Capital
Corporation's debt is not an obligation of Tyco Industrial, and Tyco
International Ltd. has not guaranteed this debt.

(2) Tyco Industrial plans to use its long-term credit facilities to support
borrowings under its commercial paper program.

49

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. DEBT (CONTINUED)

TYCO INDUSTRIAL

In November 2000, Tyco Industrial completed a private placement offering of
$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.
In December 2000, Tyco filed a registration statement registering the securities
for resale by the holders. Each $1,000 principal amount at maturity debenture
was issued at 74.165% of principal amount at maturity, accretes at a rate of
1.5% per annum and is convertible into 10.3014 Tyco common shares if certain
conditions are met. The Company may be required to repurchase the securities at
the accreted value at the option of the holders on November 17, 2003, 2005, 2007
or 2014. The net proceeds were used to finance acquisitions and to repay
borrowings under the commercial paper program of Tyco International Group S.A.
("TIG"), a wholly-owned subsidiary of Tyco and Tyco's corporate finance
subsidiary, which is included as part of Tyco Industrial.

In December 2000, in accordance with the terms of the original issuance, TIG
exchanged its 6.125% euro denominated private placement notes due 2007 for
public notes. The form and terms of the public notes are identical in all
material respects to the form and terms of the outstanding private placement
notes of the corresponding series, except that the public notes are not subject
to restrictions on transfer under United States securities laws.

In February 2001, TIG issued $1.0 billion 6.375% notes due 2006 and
$1.0 billion 6.75% notes due 2011 in a public offering. The notes are fully and
unconditionally guaranteed by Tyco. The net proceeds of approximately
$1,982.1 million were used primarily to repay borrowings under TIG's commercial
paper program.

In February 2001, TIG completed a private placement offering of
$3,035,000,000 principal amount at maturity of zero coupon convertible
debentures due 2021, which are guaranteed by Tyco, for aggregate net proceeds of
approximately $2,203,400,000. In April 2001, Tyco filed a registration statement
registering the securities for resale by the holders. Each $1,000 principal
amount at maturity debenture was issued at 74.165% of principal amount at
maturity, accretes at a rate of 1.5% per annum and is convertible into 8.6916
Tyco common shares if certain conditions are met. TIG may be required to
repurchase the securities at the accreted value at the option of the holders on
February 12, 2003, 2005, 2007, 2009 or 2016. If the February 12, 2003 option is
exercised, TIG may elect to repurchase the securities for cash, Tyco common
shares, or some combination thereof. The net proceeds were used primarily to
repay borrowings under TIG's commercial paper program.

In February 2001, TIG replaced its $4.5 billion and $0.5 billion revolving
credit facilities with a $3.855 billion facility expiring on February 6, 2002,
with an option to extend to February 6, 2003, and a $2.0 billion facility
expiring on February 6, 2006. These credit facilities are guaranteed by Tyco.
Under the terms of the facilities, the Company is required to meet certain
covenants, none of which is considered restrictive to its operations. Also, in
May 2001, TIG increased the borrowing capacity under its commercial paper
program from $5.0 billion to $5.855 billion. TIG plans to use the credit
facilities to support borrowings under its commercial paper program and
therefore expects these facilities to remain largely undrawn.

In July 2001, TIG issued $500 million floating rate notes due 2003,
$600 million 4.95% notes due 2003 and $700 million 5.8% notes due 2006 in a
public offering. The notes are fully and unconditionally guaranteed by Tyco. The
net proceeds of approximately $1,787.9 million were used to repay borrowings
under TIG's commercial paper program.

50

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. DEBT (CONTINUED)
In August 2001, Tyco and TIG filed a shelf registration statement to enable
TIG to offer from time to time unsecured debt securities guaranteed by Tyco at
an aggregate initial offering price not to exceed $6.0 billion.

The fair value of debt of Tyco Industrial was approximately $21,895.0
million (book value of $21,619.0 million) and $10,851.6 million (book value of
$10,999.0 million) at September 30, 2001 and 2000, respectively, based on
discounted cash flow analyses using current market interest rates.

The impact of Tyco Industrial's interest rate swap activities on its
weighted-average borrowing rate was not material in any year. The impact on Tyco
Industrial's reported interest expense was a reduction of $9.7 million,
$6.6 million and $0.9 million for Fiscal 2001, Fiscal 2000 and Fiscal 1999,
respectively.

TYCO CAPITAL

In June 2001, Tyco Capital Corporation filed a shelf registration statement
to enable it to offer from time to time debt securities at an aggregate initial
offering price not to exceed $16.2 billion. In August 2001, Tyco Capital sold
$1,000.0 million of debt in a public offering under this registration statement.
The fair value of debt of Tyco Capital (including accrued interest) was
approximately $36,465.6 million (book value of $36,013.5 million including
accrued interest of $315.8 million) at September 30, 2001, based on discounted
cash flow analyses using current market interest rates.

The aggregate amounts of total debt maturing during the next five years are
as follows ($ in millions):

7. SALE OF ACCOUNTS RECEIVABLE

Tyco Industrial has an agreement under which several of its operating
subsidiaries sell a defined pool of trade accounts receivable to a limited
purpose subsidiary of the Company. The subsidiary, a separate corporate entity,
holds these receivables and sells participating interests in such accounts
receivable to financiers who, in turn, purchase and receive ownership and
security interests in those receivables. As collections reduce accounts
receivable included in the pool, the operating subsidiaries sell new receivables
to the limited purpose subsidiary. The limited purpose subsidiary has the risk
of credit loss on the receivables and, accordingly, the full amount of the
allowance for doubtful accounts has been retained on the Consolidated Balance
Sheets. The availability under the program is $500 million. At September 30,
2001 and 2000, $466 million and $450 million, respectively, was utilized under
the program. The proceeds from the sales were used to reduce borrowings under
TIG's commercial paper program and are reported as operating cash flows in the
Consolidated Statements of Cash Flows. The proceeds of sale are less than the
face amount of accounts receivable sold by an amount that approximates the cost
that the limited purpose subsidiary would incur if it were to issue commercial
paper backed by these accounts receivable. The discount from the face amount is
accounted for as a loss on the sale of receivables and has been included in
selling, general, administrative and other costs and expenses in the
Consolidated Statements of Operations. Such discount aggregated $25.3 million,
$25.7 million, and $15.7 million, or 5.3%, 6.6% and 5.6% of the

51

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. SALE OF ACCOUNTS RECEIVABLE (CONTINUED)
weighted-average balance of the receivables outstanding, during Fiscal 2001,
Fiscal 2000 and Fiscal 1999, respectively. The operating subsidiaries retain
collection and administrative responsibilities for the participating interests
in the defined pool.

In September 2001, TIG entered into a separate agreement to sell a defined
pool of trade accounts receivable from time to time to a financial institution
in Europe. The terms and conditions of the agreement are substantially similar
to the program discussed above, although in this case there is no limited
purpose subsidiary acting as an intermediary. The availability under this
program is $175.0 million. TIG sold certain accounts receivable under this
program for net proceeds of $160.0 million, which is net of a discount of
$1.4 million.

Also in September 2001, Tyco Industrial sold certain accounts receivable to
Tyco Capital for net proceeds of approximately $297.8 million, which is net of a
discount of $4.3 million. This sale is eliminated as an intercompany transaction
in Tyco's Consolidated Financial Statements.

8. FINANCIAL INSTRUMENTS

The Company's financial instruments consist primarily of cash and cash
equivalents, accounts receivable, finance receivables, retained interest in
securitizations, long-term investments, accounts payable, debt, derivative
financial instruments and mandatorily redeemable preferred securities. The fair
value of cash and cash equivalents, accounts receivables, retained interests in
securitizations, long-term investments, accounts payable and manditorily
redeemable preferred securities approximated book value at September 30, 2001
and 2000. See Notes 4 and 6 for the fair value estimates of finance receivables
and debt, respectively.

In accordance with SFAS No. 133, all derivative financial instruments are
reported on the Consolidated Balance Sheet at fair value, and changes in a
derivative's fair value are recognized currently in earnings unless specific
hedge criteria are met. While it is not the Company's intention to terminate its
derivative financial instruments, based on their estimated fair values the
termination of forward foreign currency exchange contracts, cross-currency swap
agreements, forward commodity contracts and interest rate swaps at
September 30, 2001 would have resulted in a $120.4 million gain, a
$93.2 million gain, a $6.8 million loss and a $103.9 million loss, respectively,
and at September 30, 2000 would have resulted in a $279.0 million gain, a
$15.3 million loss, an $11.1 million gain and a $95.7 million loss,
respectively. At September 30, 2001 and 2000, the book values of derivative
financial instruments recorded on the Consolidated Balance Sheets equaled fair
values.

INTEREST RATE EXPOSURES

The Company uses interest rate swaps to hedge its exposure to interest rate
risk by exchanging fixed rate interest on certain of its debt for variable rate
amounts. These interest rate swaps are designated as fair value hedges. Certain
of the Company's interest rate swaps entered into during Fiscal 2001, as
assessed using the short-cut method under SFAS No. 133, were highly effective.
The ineffective element of the gains and losses on certain other interest rate
swaps during Fiscal 2001, totaling a net gain of $19.7 million, has been
recognized in interest and other financial charges, along with the effective
element of the change in fair value of the interest rate swaps and the related
hedged debt.

Tyco Capital also exchanges variable rate interest on certain of its debt
for fixed rate amounts. These interest rate swaps are designated as cash flow
hedges. Unrealized gains and losses on the effective portion of derivatives
designated as cash flow hedges are recorded in accumulated other comprehensive
income within the Consolidated Statements of Shareholders' Equity. Assuming no

52

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. FINANCIAL INSTRUMENTS (CONTINUED)
change in interest rates, $13.5 million would be credited to earnings in Fiscal
2002 as contractual cash payments are made. For the period June 2 through
September 30, 2001, the ineffective portion of changes in the fair value of cash
flow hedges amounted to $3.9 million and has been recorded as a reduction to
interest expense.

NET INVESTMENTS

Tyco Industrial uses cross currency swaps and designated portions of
foreign-currency denominated debt to hedge the foreign-currency exposure of
certain net investments in foreign operations. A net unrealized loss of
$39.4 million was included in the cumulative translation adjustment during
Fiscal 2001 in connection with these hedges.

Tyco Capital uses foreign exchange forward contracts and cross-currency
swaps to hedge its net investments in foreign operations. A net unrealized loss
of $13.4 million was included in the cumulative translation adjustment during
the period from June 2 through September 30, 2001 in connection with these
hedges.

OTHER

Tyco Industrial uses various options, swaps and forwards not designated as
hedging instruments under SFAS No. 133 to hedge the impact of the variability in
the price of raw materials, such as copper and other commodities, and the impact
of the variability in foreign exchange rates on accounts and notes receivable,
intercompany loan balances and subsidiary earnings denominated in certain
foreign currencies.

9. INCOME TAXES

The provision for income taxes and the reconciliation between the notional
United States federal income taxes at the statutory rate on consolidated income
before taxes and the Company's income tax provision are as follows ($ in
millions):

The provisions for Fiscal 2001, Fiscal 2000, and Fiscal 1999 include $629.2
million, $648.6 million and $263.9 million, respectively, for non-U.S. income
taxes. The non-U.S. component of income before income taxes was $4,398.8
million, $3,343.6 million and $1,376.3 million for Fiscal 2001, Fiscal 2000 and
Fiscal 1999, respectively.

53

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. INCOME TAXES (CONTINUED)
The deferred income tax balance sheet accounts result from temporary
differences between the amount of assets and liabilities recognized for
financial reporting and tax purposes. The components of the net deferred income
tax asset are as follows ($ in millions):

At September 30, 2001, the Company had approximately $586 million of net
operating loss carryforwards in certain non-U.S. jurisdictions. Of these,
$222 million have no expiration, and the remaining $364 million will expire in
future years through 2011. U.S. operating loss carryforwards at September 30,
2001 were approximately $1,605 million and will expire in future years through
2021. A valuation allowance has been provided for operating loss carryforwards
that are not expected to be utilized.

In the normal course, the Company and its subsidiaries' income tax returns
are examined by various regulatory tax authorities. In connection with such
examinations, substantial tax deficiencies have been proposed. However, the
Company is contesting such proposed deficiencies, and ultimate resolution of
such matters is not expected to have a material adverse effect on the Company's
financial position, results of operations or liquidity.

10. KEY EMPLOYEE LOAN PROGRAM

Loans are made to employees under the Company's Key Employee Loan Program
for the payment of taxes upon the vesting of shares granted under our Restricted
Share Ownership Plans. The loans are unsecured and bear interest, payable
annually, at a rate which approximates the Company's incremental short-term
borrowing rate. Loans are generally repayable in ten years, except that earlier
payments are required under certain circumstances. During Fiscal 2001, the
maximum amount outstanding under this program was $29.5 million. Loans
receivable under this program were $11.2 million and $11.4 million at
September 30, 2001 and 2000, respectively.

54

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. MANDATORILY REDEEMABLE PREFERRED SECURITIES

In connection with the acquisition of CIT, the Company assumed
$260.0 million of 7.70% Preferred Capital Securities (the "Capital Securities"),
which were originally issued in February 1997. A subsidiary of Tyco Capital,
Capital Trust I ("The Trust"), invested the offering proceeds in Junior
Subordinated Debentures (the "Debentures") of Tyco Capital, having identical
rates of return and payment dates. The Debentures of Tyco Capital represent the
sole assets of the Trust. Holders of the Capital Securities are entitled to
receive cumulative distributions at an annual rate of 7.70% through either the
redemption date or maturity of the Debentures (February 15, 2027). Both the
Capital Securities issued by the Trust and the Debentures of Tyco Capital owned
by the Trust are redeemable in whole or in part on or after February 15, 2007 or
at any time in whole upon changes in specific tax legislation, bank regulatory
guidelines or securities law. Distributions by the Trust are guaranteed by Tyco
Capital to the extent that the Trust has funds available for distribution.
Distributions payable on the Capital Securities are recorded as minority
interest expense in the Consolidated Statements of Operations.

12. PREFERENCE SHARES

Tyco has authorized 125,000,000 preference shares, par value of $1 per
share, none of which was issued or outstanding at September 30, 2001 or 2000.
Rights as to dividends, return of capital, redemption, conversion, voting and
otherwise may be determined by Tyco's Board of Directors on or before the time
of issuance. In the event of the liquidation of the Company, the holders of any
preference shares then outstanding would be entitled to payment to them of the
amount for which the preference shares were subscribed and any unpaid dividends
prior to any payment to the common shareholders.

13. SHAREHOLDERS' EQUITY

Tyco has authorized 2,500,000,000 common shares, par value of $.20 per
share, 1,935,464,840 and 1,684,511,070 of which were outstanding, net of
17,026,256 and 31,551,310 shares owned by subsidiaries, at September 30, 2001
and 2000, respectively. Shares owned by subsidiaries are treated as treasury
shares and are recorded at cost. Included within Tyco's outstanding common
shares at September 30, 2001 are 4,243,108 common shares representing the
assumed exchange of 6,143,199 exchangeable shares (at 0.6907 of a Tyco common
share per exchangeable share). Exchangeable shares of CIT Exchangeco Inc., a
wholly-owned subsidiary of Tyco Capital Corporation were issued by CIT prior to
CIT's acquisition by Tyco. In connection with the acquisition of CIT, each
outstanding exchangeable share, which was exchangeable prior to the merger for
one share of CIT common stock, became exchangeable for 0.6907 of a Tyco common
share. The holders of these exchangeable shares have dividend, liquidation and
voting rights equivalent to those of Tyco common shareholders, except that each
exchangeable share is equivalent to 0.6907 of a Tyco common share. These shares
may be exchanged for Tyco common shares at any time at the option of the holder.
The Company may redeem these shares for Tyco common shares at any time on or
after November 1, 2004.

Contributed Surplus includes $85.3 million and $59.4 million in deferred
compensation at September 30, 2001 and 2000, respectively.

During the last quarter of Fiscal 1999, Tyco's Board of Directors declared a
two-for-one stock split in the form of a 100% stock dividend on its common
shares. The split was payable on October 21, 1999 to shareholders of record on
October 1, 1999. Per share amounts and share data have been retroactively
adjusted to reflect the stock split. There was no change in the par value or the
number of authorized shares as a result of the stock split.

55

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

13. SHAREHOLDERS' EQUITY (CONTINUED)
On June 6, 2001, Tyco sold 39 million common shares for approximately
$2,198.0 million in an underwritten public offering. Net proceeds from the
offering were $2,196.6 million and were used to repay debt incurred to finance a
portion of the acquisition of CIT.

Information with respect to U.S. Surgical and AMP common shares and options
has been retroactively restated in connection with their mergers with the
Company to reflect their applicable merger per share exchange ratios of 0.7606
and 0.7507, respectively (1.5212 and 1.5014, respectively, after giving effect
to the subsequent split).

The total compensation cost expensed for all stock-based compensation awards
discussed below was $116.8 million, $137.4 million and $96.9 million for Fiscal
2001, Fiscal 2000 and Fiscal 1999, respectively.

RESTRICTED SHARES--The Company maintains a restricted share ownership plan,
which provides for the award of an initial amount of common shares plus an
amount equal to one-half of one percent of the total shares outstanding at the
beginning of each fiscal year. At September 30, 2001, there were 39,978,168
shares authorized under the plan, of which 13,796,851 shares had been granted.
Common shares are awarded subject to certain restrictions with vesting varying
over periods of up to ten years.

For grants which vest based on certain specified performance criteria, the
fair market value of the shares at the date of vesting is expensed over the
period of performance, once achievement of criteria is deemed probable. For
grants that vest through passage of time, the fair market value of the shares at
the time of the grant is amortized (net of tax benefit) to expense over the
period of vesting. The unamortized portion of deferred compensation expense is
recorded as a reduction of shareholders' equity. Recipients of all restricted
shares have the right to vote such shares and receive dividends. Income tax
benefits resulting from the vesting of restricted shares, including a deduction
for the excess, if any, of the fair market value of restricted shares at the
time of vesting over their fair market value at the time of the grants and from
the payment of dividends on unvested shares, are credited to contributed
surplus.

EMPLOYEE STOCK PURCHASE PLAN--Substantially all full-time employees of the
Company's U.S. subsidiaries and employees of certain qualified non-U.S.
subsidiaries are eligible to participate in an employee share purchase plan.
Eligible employees authorize payroll deductions to be made for the purchase of
shares. The Company matches a portion of the employee contribution by
contributing an additional 15% of the employee's payroll deduction. All shares
purchased under the plan are purchased on the open market by a designated
broker.

SHARE OPTIONS--Tyco has granted employee share options which were issued
under two fixed share option plans which reserve common shares for issuance to
Tyco's directors, executives and managers. The majority of options have been
granted under the Tyco International Ltd. Long-Term Incentive Plan (the
"Incentive Plan"). The Incentive Plan is administered by the Compensation
Committee of the Board of Directors of the Company, which consists exclusively
of independent directors of the Company. Options are granted to purchase common
shares at prices which are equal to or greater than the market price of the
common shares on the date the option is granted. Conditions of vesting are
determined at the time of grant. Options which have been granted under the
Incentive Plan to date have generally vested and become exercisable over periods
of up to five years from the date of grant and have a maximum term of ten years.
Tyco has reserved 140.0 million common shares for issuance under the Incentive
Plan. Awards which Tyco becomes obligated to make through the assumption of, or
in substitution for, outstanding awards previously granted by an acquired
company are assumed and administered under the Incentive Plan but do not count
against this limit. At September 30, 2001, there

56

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

13. SHAREHOLDERS' EQUITY (CONTINUED)
were approximately 32.8 million shares available for future grant under the
Incentive Plan. During October 1998, a broad-based option plan for non-officer
employees, the Tyco Long-Term Incentive Plan II ("LTIP II"), was approved by the
Board of Directors. Tyco has reserved 100.0 million common shares for issuance
under the LTIP II. The terms and conditions of this plan are similar to the
Incentive Plan. At September 30, 2001, there were approximately 43.4 million
shares available for future grant under the LTIP II.

Options assumed as part of business combination transactions are
administered under the Incentive Plan but retain all the rights, terms and
conditions of the respective plans under which they were originally granted.

Share option activity for all Tyco plans since September 30, 1998 is as
follows:

57

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

13. SHAREHOLDERS' EQUITY (CONTINUED)
The following table summarizes information about outstanding and exercisable
Tyco options at September 30, 2001:

As a result of the mergers with U.S. Surgical and AMP, approximately
22.0 million options, which had not previously been exercisable, became
immediately exercisable when the mergers were consummated.

TyCom has two option plans and an employee share purchase plan. The exercise
price of options granted under the plans is equal to the fair market value at
the date of grant of TyCom common shares. TyCom has reserved 51.9 million common
shares for issuance under its option plans. At September 30, 2001, there were
approximately 22.3 million shares available for future grant. TyCom options
outstanding and exercisable at September 30, 2001 were 29,559,490 and 6,170,984,
respectively, at prices ranging from $12.92 to $44.62 per share. TyCom options
outstanding and exercisable at September 30, 2000 were 21,607,050 and 26,250,
respectively, at prices ranging from $32.00 to $44.62 per share.

STOCK-BASED COMPENSATION--SFAS No. 123, "Accounting for Stock-Based
Compensation," allows companies to measure compensation cost in connection with
employee share option plans using a fair value based method, or to continue to
use an intrinsic value based method, which generally does not result in a
compensation cost. Tyco and TyCom continue to use the intrinsic value based
method and do not recognize compensation expense for the issuance of options
with an exercise price equal to or greater than the market price at the time of
grant. Had the fair value based method been adopted by

58

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

13. SHAREHOLDERS' EQUITY (CONTINUED)
Tyco and TyCom, the Company's pro forma net income and pro forma net income per
common share for Fiscal 2001, Fiscal 2000 and Fiscal 1999 would have been as
follows:

On the dates of grant using the Black-Scholes option-pricing model and
assumptions set forth below, the estimated weighted-average fair value of Tyco
and TyCom options granted during Fiscal 2001 was $19.72 and $9.11, respectively;
the estimated weighted-average fair value of Tyco and TyCom options granted
during Fiscal 2000 was $16.26 and $17.47, respectively; and the estimated
weighted-average fair value of Tyco and TyCom options granted during Fiscal 1999
was $12.13 and $7.11, respectively.

The following weighted-average assumptions were used for Fiscal 2001:

The following weighted-average assumptions were used for Fiscal 2000:

The following weighted-average assumptions were used for Fiscal 1999:

The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of what the effects may be in future years. SFAS No. 123 does not
apply to awards prior to 1995. Additional awards in future years are
anticipated.

DIVIDENDS--Tyco has paid a quarterly cash dividend of $0.0125 per common
share since July 1997. AMP paid dividends of $0.27 per share in the first two
quarters of Fiscal 1999.

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14. COMPREHENSIVE (LOSS) INCOME

The purpose of reporting comprehensive (loss) income is to report a measure
of all changes in equity, other than transactions with shareholders. Total
comprehensive (loss) income is included in the Consolidated Statements of
Shareholders' Equity. The components of accumulated other comprehensive (loss)
income are as follows ($ in millions):

15. OTHER INCOME

Other income of Tyco Capital was $335.1 million for the period from June 2
through September 30, 2001, as set forth in the following table ($ in millions):

Fees and other income....................................... $212.3
Gains on securitizations.................................... 59.0
Factoring commissions....................................... 50.7
Gains on sales of leasing equipment......................... 14.2
Losses on venture capital investments....................... (1.1)
------
Total..................................................... $335.1
======

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

16. CHARGES FOR THE IMPAIRMENT OF LONG-LIVED ASSETS

The Company reviews the recoverability of the carrying value of long-lived
assets, primarily property, plant and equipment and related goodwill and other
intangible assets, for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be fully recoverable.
Impairment losses are recognized when the fair value is less than the asset's
carrying value. When indicators of impairment are present, the carrying values
of the assets are evaluated in relation to the operating performance and future
undiscounted cash flows of the underlying business. The net book value of the
underlying assets is adjusted to fair value if the sum of expected future
undiscounted cash flows is less than book value. Fair values are based on quoted
market prices and assumptions concerning the amount and timing of estimated
future cash flows and assumed discount rates, reflecting varying degrees of
perceived risk.

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

16. CHARGES FOR THE IMPAIRMENT OF LONG-LIVED ASSETS (CONTINUED)
2001 CHARGES

During Fiscal 2001, the Electronics, Healthcare and Specialty Products and
Fire and Security Services segments recorded charges of $98.6 million,
$15.4 million and $6.1 million, respectively, related primarily to the
impairment of property, plant and equipment associated with the closure of
facilities.

2000 CHARGES

The Healthcare and Specialty Products segment recorded a charge of
$99.0 million in Fiscal 2000 primarily related to an impairment in goodwill and
other intangible assets associated with the Company exiting the interventional
cardiology business of U.S. Surgical.

1999 CHARGES

The Electronics segment recorded a charge of $431.5 million in Fiscal 1999,
which includes $350.1 million related to the write-down of property, plant and
equipment, primarily manufacturing and administrative facilities, associated
with facility closures throughout AMP's worldwide operations in connection with
its profit improvement plan and the combination of facilities as a result of its
merger with the Company, approximately $143.6 million of which was taken as part
of the AMP profit improvement plan prior to its acquisition by the Company. It
also includes an impairment in the value of goodwill and other intangible assets
of $81.4 million. The Company evaluated the profitability and products and found
that certain product lines were underperforming relative to expectations. As a
result of this analysis, which was performed in connection with AMP's profit
improvement plan, the book value of goodwill and other intangible assets was
deemed impaired and written down to fair value.

The Healthcare and Specialty Products segment recorded a charge of
$76.0 million in Fiscal 1999 relating primarily to the write-down of property,
plant and equipment, principally administrative facilities, associated with the
consolidation of facilities in U.S. Surgical's operations in the United States
and Europe as a result of its merger with the Company.

17. EXTRAORDINARY ITEMS

Tyco Industrial recorded an extraordinary item of $17.1 million, net of tax
benefit of $9.2 million, in Fiscal 2001 relating to the early extinguishment of
debt. The extraordinary item in Fiscal 2000 of $0.2 million, net of tax benefit
of $0.1 million, and the extraordinary item in Fiscal 1999 of $45.7 million, net
of tax benefit of $18.0 million, related primarily to the write-off of
unamortized deferred financing costs related to the early extinguishment of
debt.

18. CUMULATIVE EFFECT OF ACCOUNTING CHANGES

In December 1999, the SEC issued 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 (see "REVENUE
RECOGNITION" within Note 1). 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

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

18. CUMULATIVE EFFECT OF ACCOUNTING CHANGES (CONTINUED)
$653.7 million after-tax ($1,005.6 million pre-tax) charge for the cumulative
effect of change in accounting principle in the Fiscal 2001 Consolidated
Statement of Operations.

The impact of SAB 101 on total revenues in Fiscal 2001 was a net decrease of
$241.1 million, reflecting the deferral of $520.5 million of Fiscal 2001
revenues, partially offset by the recognition of $279.4 million of revenue that
is included in the cumulative effect adjustment as of the beginning of the
fiscal year. The Company restated each of the first three quarters of Fiscal
2001 in the Consolidated Statement of Operations to reflect the adoption of SAB
101 (see Note 29). Pro forma amounts for the periods prior to Fiscal 2001 have
not been presented since the effect of the change in accounting principle for
these periods could not be reasonably determined.

The Company recorded a cumulative effect adjustment, a $29.7 million loss,
net of tax, in Fiscal 2001 in accordance with the transition provisions of SFAS
No. 133 (see Note 1).

19. EARNINGS PER COMMON SHARE

The reconciliations between 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 Fiscal 2001, Fiscal
2000 and Fiscal 1999 excludes the effect of the assumed exercise of
approximately 12.2 million, 7.3 million and 3.1 million stock options,
respectively, that were outstanding as of September 30, 2001, 2000 and 1999,
respectively, because the effect would be anti-dilutive. Dilutive earnings per
common share also excludes 48.0 million and 26.4 million shares related to Tyco
Industrial's zero coupon convertible debentures due 2020 and 2021, respectively,
because conversion conditions were not met.

20. TYCOM LTD.

During Fiscal 2000, TyCom Ltd., a majority-owned subsidiary of the Company,
completed an initial public offering (the "TyCom IPO") of 70,300,000 of its
common shares at a price of $32.00 per share. Net proceeds to TyCom from the
TyCom IPO, after deducting the underwriting discount, commissions and other
direct costs, were approximately $2.1 billion. Of that amount, TyCom paid
$200 million as a dividend to the Company. Prior to the TyCom IPO, the Company's
ownership in TyCom's outstanding

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

20. TYCOM LTD. (CONTINUED)
common shares was 100%, and at September 30, 2001 the Company's ownership in
TyCom's outstanding common shares was approximately 89%. As a result of the
TyCom IPO, the Company recognized a pre-tax gain on its investment in TyCom of
approximately $1.76 billion ($1.01 billion, after-tax), which has been included
in net gain on sale of common shares of subsidiary in the Fiscal 2000
Consolidated Statement of Operations.

21. MERGER, RESTRUCTURING AND OTHER NON-RECURRING CHARGES, NET

Merger, restructuring and other non-recurring charges, net, are as follows
($ in millions):

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

(1) Includes $74.6 million charge related to the write-down of inventory
associated with the exiting of business product lines and $51.7 million
charge related to the sale of inventory which had been written-up under
purchase accounting, both of which are included in cost of revenue.

(2) Includes $14.6 million charge related to the write-down of inventory, which
is included in cost of revenue.

(3) Includes $35.0 million charge related to the sale of inventory which had
been written-up under purchase accounting and $9.0 million related to the
impairment of inventory, both of which are included in cost of revenue.

(4) Includes $0.9 million charge related to the write-down of inventory, which
is included in cost of revenue, and a credit of $6.3 million also included
in cost of revenue.

(5) Includes $6.4 million charge related to the write-down of inventory, which
is included in cost of revenue.

(6) Includes $106.4 million charge related to the write-down of inventory,
which is included in cost of revenue.

2001 CHARGES AND CREDITS

The Electronics segment recorded restructuring and other non-recurring
charges of $334.7 million, of which charges of $74.6 million are included in
cost of revenue, related primarily to facility closures within the computer and
consumer electronics and communications industries. The following table provides
information about the restructuring and other non-recurring charges related to
the Electronics segment recorded in Fiscal 2001 ($ in millions):

The cost of announced workforce reductions of $178.2 million includes the
elimination of 10,453 positions primarily in the United States and Latin America
consisting primarily of manufacturing personnel. Facilities-related costs
include the shut-down of 42 facilities primarily in the United States consisting
primarily of manufacturing plants and the write-down of the related inventory.
At September 30, 2001, 6,096 employees had been terminated and 14 facilities had
been shut down.

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

21. MERGER, RESTRUCTURING AND OTHER NON-RECURRING CHARGES, NET (CONTINUED)
The other charges of $36.5 million consist primarily of vendor commitment
cancellations and payments on non-cancelable machinery and equipment leases. In
addition to the charges above, the Electronics segment recorded a non-recurring
charge of $51.7 million related to the sale of inventory which had been
written-up under purchase accounting. The $51.7 million non-recurring charge has
been included in cost of revenue.

The Fire and Security Services segment recorded restructuring and other
non-recurring charges of $138.8 million, of which charges of $14.6 million are
included in cost of revenue, related primarily to the restructuring of the
existing U.S. security business and U.S. fire protection business in connection
with the acquisitions of SecurityLink and Simplex and, to a lesser extent, a
restructuring of the valves and controls business. The following table provides
information about the restructuring and other non-recurring charges related to
the Fire and Security Services segment recorded in Fiscal 2001 ($ in millions):

The cost of announced workforce reductions of $26.0 million includes the
elimination of 1,864 positions primarily in the United States and Europe
consisting primarily of manufacturing, general and administrative and sales and
marketing personnel. The cost of facility closures of $62.9 million consists of
the shut-down of 196 facilities in the United States, Europe and Canada
consisting primarily of sales offices and manufacturing plants. At
September 30, 2001, 862 employees had been terminated and 69 facilities had been
shut down.

The other charges of $49.9 million consist primarily of contract
cancellation costs and non-recurring charges relating to an environmental
remediation project.

The Healthcare and Specialty Products segment recorded restructuring and
other non-recurring charges of $21.7 million, of which charges of $9.0 million
are included in cost of revenue, related primarily to the closure of
manufacturing plants. The following table provides information about the
restructuring and other non-recurring charges related to the Healthcare and
Specialty Products segment recorded in Fiscal 2001 ($ in millions):

The cost of announced workforce reductions of $15.2 million includes the
elimination of 1,100 positions primarily in the United States consisting
primarily of manufacturing and sales personnel. The cost of facility closures of
$5.4 million consists of the shut-down of 5 manufacturing and

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

21. MERGER, RESTRUCTURING AND OTHER NON-RECURRING CHARGES, NET (CONTINUED)
administrative facilities in the United States. At September 30, 2001,
444 employees had been terminated and 2 facilities had been shut down.

The other charges of $1.1 million consist primarily of the cost for lease
buyouts and distributor termination fees. In addition to the charges above, the
Healthcare and Specialty Products segment recorded a non-recurring charge of
$35.0 million related to the sale of inventory, which had been written-up under
purchase accounting. The $35.0 million non-recurring charge has been included in
cost of revenue.

In addition to segment charges, the Company recorded a net credit of
$163.4 million, consisting of a non-recurring credit of $166.8 million related
to the settlement of litigation in which the Company was provided with an
ongoing OEM arrangement valued at $166.8 million and a non-recurring charge of
$3.4 million related to severance. At September 30, 2001, $35.5 million of the
$275.0 million litigation reserve established in Fiscal 2000 remains in accrued
expenses and other current liabilities on the Consolidated Balance Sheet, and
$1.4 million relating to the $3.4 million severance charge remains in accrued
expenses and other current liabilities on the Consolidated Balance Sheet.

2000 CHARGES AND CREDITS

In Fiscal 2000, the Electronics segment recorded a net merger, restructuring
and other non-recurring credit of $90.9 million, which consists of credits of
$107.8 million and charges of $16.9 million. The merger, restructuring and other
non-recurring credit of $107.8 million, of which a credit of $6.3 million is
included in cost of revenue, is related to the merger with AMP and costs
associated with AMP's profit improvement plan. The $107.8 million credit
consists of a revision in estimates of severance reserves of $55.2 million,
facility reserves of $7.8 million and other reserves of $44.8 million. The
restructuring and other non-recurring charges of $16.9 million, of which
$0.9 million is included in cost of revenue, is related to restructuring
activities in AMP's Brazilian operations and wireless communications business.

Included in the $16.9 million restructuring and other non-recurring charges
are the cost of announced workforce reductions of $4.9 million for the
elimination of 941 positions primarily in Brazil; the cost of facility closures
of $4.8 million for the shut-down and consolidation of 3 facilities; and other
charges of $7.2 million consisting of the write-off of non-facility assets and
other direct costs. At September 30, 2001, substantially all of these
restructuring activities were completed. The remaining balance at September 30,
2001 of $4.2 million, of which $1.0 million is included in accrued expenses and
other current liabilities and $3.2 million is included in other long-term
liabilities on the Consolidated Balance Sheet, is primarily for payments on
non-cancelable lease obligations.

In Fiscal 2000, the Fire and Security Services segment recorded
restructuring and other non-recurring credits of $11.2 million related to
revisions in estimates of the Company's 1997 restructuring activities for
amounts lower than originally recorded. Actions under the Company's 1997
restructuring plans have been completed.

In Fiscal 2000, the Healthcare and Specialty Products segment recorded a net
merger, restructuring and other non-recurring credit of $10.9 million. The
$10.9 million net credit consists of charges of $11.1 million related to U.S.
Surgical's suture business and charges of $7.9 million, of which charges of
$6.4 million are included in cost of revenue, related to exiting U.S. Surgical's
interventional cardiology business. All of these restructuring activities have
been completed. Also recorded was a credit of $29.9 million representing a
revision in estimates of prior years' merger, restructuring and other
non-recurring accruals, of which $19.7 million related primarily to the merger
with U.S. Surgical

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

21. MERGER, RESTRUCTURING AND OTHER NON-RECURRING CHARGES, NET (CONTINUED)
and $10.2 million related to the Company's 1997 restructuring accruals. The
$19.7 million credit relates to a revision in estimates of severance reserves of
$4.2 million, facility reserves of $4.5 million and other reserves of
$11.0 million.

In Fiscal 2000, the Telecommunications segment recorded a non-recurring
charge of $13.1 million incurred in connection with the TyCom IPO.

In addition to segment charges (credits), the Company recorded non-recurring
charges of $275.0 million in Fiscal 2000 as a reserve for certain claims
relating to a merged company in the Healthcare business and $1.2 million for
other non-recurring charges. In Fiscal 2001, the Company recorded a credit of
$166.8 million related to the settlement of litigation in which the Company was
provided with an ongoing OEM arrangement valued at $166.8 million. At
September 30, 2001, $35.5 million of the $275.0 million non-recurring charge
remains in accrued expenses and other current liabilities on the Consolidated
Balance Sheet.

1999 CHARGES AND CREDITS

In Fiscal 1999, the Electronics segment recorded net merger, restructuring
and other non-recurring charges of $643.3 million, of which charges of
$106.4 million are included in cost of revenue, related primarily to the merger
with AMP and costs associated with AMP's profit improvement plan. These charges
include the cost of workforce reductions of $433.7 million for the elimination
of 16,139 positions primarily in the United States and Europe, consisting
primarily of manufacturing and distribution, administrative, research and
development and sales and marketing personnel, and the cost of facility closures
of $68.6 million relating to the shut-down and consolidation of 87 facilities
primarily in the United States and Europe. It also includes other charges of
$141.0 million consisting of $88.1 million related to the write-down of
inventory; transaction costs of $67.9 million for direct expenses related to the
AMP merger; other costs of $25.4 million relating primarily to the consolidation
of certain product lines and other non-recurring charges related to the AMP
merger; lease termination costs following the merger of $9.6 million; and a
credit of $50.0 million related to a litigation settlement with
AlliedSignal Inc. At September 30, 2001, these restructuring activities were
substantially completed. The remaining balance of $13.6 million at
September 30, 2001 relates to payments on non-cancelable lease obligations and
is included in other long-term liabilities on the Consolidated Balance Sheet.

In Fiscal 1999, the Healthcare and Specialty Products segment recorded net
merger, restructuring and other non-recurring charges of $419.1 million,
consisting of a $423.8 million charge related primarily to the merger with U.S.
Surgical and a $4.7 million credit representing a revision of estimates related
to the Company's 1997 restructuring and other non-recurring accruals. The
$423.8 million charge includes workforce reductions of $124.8 million for the
elimination of 1,467 positions primarily in the United States and Europe,
consisting primarily of manufacturing and distribution, sales and marketing,
administrative and research and development personnel. In addition, these
charges include the cost of facility closures of $51.8 million for the shut-down
and consolidation of 45 facilities primarily in Europe and the United States.
The charges also include other charges of $247.2 million consisting of lease
termination costs following the merger of $156.8 million relating to the U.S.
Surgical North Haven facility that was purchased by the Company subsequent to
the merger (see Note 3); transaction costs of $53.3 million related to the U.S.
Surgical merger; and other costs of $37.1 million relating to the consolidation
of certain product lines and other non-recurring charges related primarily to
the U.S. Surgical merger. At September 30, 2001, these restructuring activities
were completed.

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

21. MERGER, RESTRUCTURING AND OTHER NON-RECURRING CHARGES, NET (CONTINUED)
In Fiscal 1999, the Company recorded a credit of $31.9 million, including
$27.2 million in the Fire and Security Services segment and $4.7 million in the
Healthcare and Specialty Products segment referred to above, representing a
revision of estimates related to the Company's 1997 restructuring and other
non-recurring accruals. The actions under the Company's 1997 restructuring plans
have been completed.

22. COMMITMENTS AND CONTINGENCIES

The Company occupies certain facilities under leases that expire at various
dates through the year 2031. Rental expense under these leases and leases for
equipment was $652.5 million, $442.7 million and $381.0 million for Fiscal 2001,
Fiscal 2000 and Fiscal 1999, respectively. At September 30, 2001, the minimum
lease payment obligations under noncancelable operating leases were as follows:
$666.6 million in Fiscal 2002, $590.3 million in Fiscal 2003, $471.5 million in
Fiscal 2004, $350.3 million in Fiscal 2005, $286.3 million in Fiscal 2006 and an
aggregate of $1,499.0 million in Fiscal years 2007 through 2031.

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 is a defendant in a number of other pending legal proceedings
incidental to present and former operations, acquisitions and dispositions. The
Company does not expect the outcome of these proceedings, either individually or
in the aggregate, to have a material adverse effect on its financial position,
results of operations or liquidity.

TYCO INDUSTRIAL

Tyco Industrial is involved in various stages of investigation and cleanup
related to environmental remediation matters at a number of sites. 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. Based upon Tyco Industrial's
experience with environmental remediation matters, Tyco Industrial has concluded
that there is at least a reasonable possibility that we will incur remedial
costs in the range of $186.0 million to $492.1 million. As of September 30,
2001, Tyco Industrial concluded that the best estimate within this range is
$268.5 million, of which $206.2 million is included in accrued expenses and
other current liabilities and $62.3 million is included in other long-term
liabilities on the Consolidated Balance Sheet. The increase in the environmental
remediation reserve at September 30, 2001 compared to the $68.3 million reserve
at September 30, 2000 is due to the acquisition of Mallinckrodt. In view of the
Company's financial position and reserves for environmental matters of
$268.5 million, the Company has concluded that any potential payment of such
estimated amounts will not have a material adverse effect on its financial
position, results of operations or liquidity.

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

22. COMMITMENTS AND CONTINGENCIES (CONTINUED)
TYCO CAPITAL

The following table summarizes Tyco Capital's contractual amounts of
credit-related commitments ($ in millions).

In the normal course of meeting the financing needs of its customers, Tyco
Capital enters into various credit-related commitments. These financial
instruments generate fees and involve, to varying degrees, elements of credit
risk in excess of the amounts recognized on the Consolidated Balance Sheet. To
minimize potential credit risk, Tyco Capital generally requires collateral and
other credit-related terms and conditions from the customer. It is Tyco
Capital's policy that, at the time credit-related commitments are granted, the
fair value of the underlying collateral and guarantee must approximate or exceed
the contractual amount of the commitment. In the event a customer defaults on
the underlying transaction, the maximum potential loss to Tyco Capital will be
the contractual amount outstanding less the value of all underlying collateral
and guarantees.

During 2001, Tyco Capital entered into an agreement with The Boeing Company
to purchase 25 aircraft with a list price of more than $1.3 billion, with
options to purchase an additional five units. Deliveries are scheduled to take
place from 2003 through 2005. In prior years, Tyco Capital entered into
agreements with both Airbus Industrie and The Boeing Company to purchase a total
of 88 aircraft (at an estimated cost of approximately $5 billion), with options
to acquire additional units, and with the flexibility to delay or terminate
certain positions. Deliveries of these new aircraft are scheduled to take place
over a five-year period, which started in the first quarter of Fiscal 2001.
Outstanding commitments to purchase aircraft, rail and other equipment to be
placed on operating lease totaled approximately $5.3 billion at September 30,
2001. Outstanding commitments relating to Fiscal 2002 totaled $901.2 million, of
which $840.2 million have agreements in place to lease to third parties.

23. RETIREMENT PLANS

DEFINED BENEFIT PENSION PLANS--The Company has a number of noncontributory
and contributory defined benefit retirement plans covering certain of its U.S.
and non-U.S. employees, designed in accordance with conditions and practices in
the countries concerned. Contributions are based on periodic actuarial
valuations which use the projected unit credit method of calculation and are
charged to the Consolidated Statements of Operations on a systematic basis over
the expected average remaining service lives of current employees. The net
pension expense is assessed in accordance with the advice of professionally
qualified actuaries in the countries concerned or is based on subsequent formal
reviews for the purpose. The Company's funding policy is to make annual
contributions to the extent such contributions are tax deductible as actuarially
determined. The benefits under the defined benefit plans are based on years of
service and compensation.

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

23. RETIREMENT PLANS (CONTINUED)

The net periodic pension (income) cost for all U.S. and non-U.S. defined
benefit pension plans includes the following components ($ in millions):

The curtailment/settlement gain in Fiscal 2001 relates partially to the
freezing of certain pension plans. The curtailment/settlement gains in Fiscal
1999 relate primarily to the termination of employees at AMP and the freezing of
AMP's pension plan. These curtailment/settlement gains have been recorded in
selling, general, administrative and other costs and expenses in the
Consolidated Statements of Operations.

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

23. RETIREMENT PLANS (CONTINUED)
The net pension cost recognized at September 30, 2001 and 2000 for all U.S.
and non-U.S. defined benefit plans is as follows ($ in millions):

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

23. RETIREMENT PLANS (CONTINUED)

The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for U.S. pension plans with accumulated benefit obligations
in excess of plan assets were $1,986.3 million, $1,921.6 million and $1,550.8
million, respectively, at September 30, 2001 and $30.3 million, $29.3 million
and $9.3 million, respectively, at September 30, 2000.

The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for non-U.S. pension plans with accumulated benefit
obligations in excess of plan assets were $1,078.8 million, $938.7 million and
$603.9 million, respectively, at September 30, 2001 and $543.8 million,
$464.0 million and $256.1 million, respectively, at September 30, 2000.

The Company also participates in a number of multi-employer defined benefit
plans on behalf of certain employees. Pension expense related to multi-employer
plans was $6.4 million, $8.2 million and $7.5 million for Fiscal 2001, Fiscal
2000 and Fiscal 1999, respectively.

DEFINED CONTRIBUTION RETIREMENT PLANS--The Company maintains several defined
contribution retirement plans, which include 401(k) matching programs, as well
as qualified and nonqualified profit sharing and share bonus retirement plans.
Pension expense for the defined contribution plans is computed as a percentage
of participants' compensation and was $157.4 million, $132.7 million and
$73.2 million for Fiscal 2001, Fiscal 2000 and Fiscal 1999, respectively. The
Company also maintains an unfunded Supplemental Executive Retirement Plan
("SERP"). This plan is nonqualified and restores the employer match that certain
employees lose due to IRS limits on eligible compensation under the defined
contribution plans. Expense related to the SERP was $9.0 million, $10.8 million
and $6.9 million in Fiscal 2001, Fiscal 2000 and Fiscal 1999, respectively.

POSTRETIREMENT BENEFIT PLANS--The Company generally does not provide
postretirement benefits other than pensions for its employees. Certain of the
Company's acquired operations provide these benefits to employees who were
eligible at the date of acquisition.

AMP provides postretirement health care coverage to qualifying U.S.
retirees. As a result of the merger with the Company, a $13.7 million adjustment
was recorded to conform AMP's accounting method for postretirement benefits to
the Company's method regarding the initial recognition of such benefits upon
adoption of SFAS No. 106 "Employers' Accounting for Postretirement Benefits
Other Than Pensions."

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

23. RETIREMENT PLANS (CONTINUED)
In the second quarter of Fiscal 1999, AMP offered enhanced postretirement
benefits to terminated employees totaling $16.0 million, which was recorded as
part of AMP's second quarter restructuring charge. This amount has not been
included in the determination of net periodic benefit cost presented below.

Net periodic postretirement benefit cost reflects the following components
($ in millions):

The components of the accrued postretirement benefit obligation, all of
which are generally unfunded, are as follows ($ in millions):

For measurement purposes, in Fiscal 2001, a 9.0% composite annual rate of
increase in the per capita cost of covered health care benefits was assumed. The
rate was assumed to decrease gradually to 5.0% by the year 2008 and remain at
that level thereafter. The health care cost trend rate assumption

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

23. RETIREMENT PLANS (CONTINUED)
may have a significant effect on the amounts reported. A one-percentage-point
change in assumed healthcare cost trend rates would have the following effects
($ in millions):

The combined weighted average discount rate used in determining the
accumulated postretirement benefit obligation was 7.5% at September 30, 2001
(8.0% at September 30, 2000).

24. CONSOLIDATED SEGMENT DATA

The Company's reportable segments are strategic business units that operate
in different industries and are managed separately. Segment data have been
presented on a basis consistent with how business activities were reported
internally to management through the period covered by this report. Certain
corporate expenses were allocated to each operating segment's operating income,
based generally on net revenues and other factors. For additional information,
including a description of the products and services included in each segment,
see Note 1.

During Fiscal 2001, a change was made to the Company's internal reporting
structure such that the operations of the former Flow Control Products and
Services segment are now reported in part within the Fire and Security Services
and in part within the Electronics segments. The Company has conformed its
segment reporting accordingly and has reclassified comparative prior period
information to reflect this change.

On June 1, 2001, the Company acquired CIT, now Tyco Capital Corporation.
Tyco Capital's operating activities include vendor, equipment, commercial,
factoring, consumer, and structured financing and leasing, and its results of
operations are included from June 2, 2001.

Selected information for the Company's four manufacturing and service
segments and the Tyco Capital segment is presented in the following tables.
While our Telecommunications business currently operates as part of our
Electronics segment, it is presented separately in the segment data below. The
segment profit measure for Tyco Industrial's businesses is operating profit
(earnings before interest, corporate expenses, goodwill amortization and income
taxes). The segment profit measure for Tyco Capital is earnings before goodwill
amortization and income taxes.

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

(1) Includes an increase of $55.4 million relating to the adoption of SAB 101.

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TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

24. CONSOLIDATED SEGMENT DATA (CONTINUED)
(2) Includes a decrease of $275.9 million relating to the adoption of SAB 101.

(3) Includes a decrease of $20.6 million relating to the adoption of SAB 101.

(4) Consists of a net gain on sale of businesses and investments of
$276.6 million, which includes 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 permanent impairment of an equity investment. Also includes a
net gain of $64.1 million on the sale of common shares of a subsidiary.

(5) Consists of gain on the sale by a subsidiary of its common shares.

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

(1) Includes restructuring and other non-recurring charges of $334.7 million, of
which charges of $74.6 million are included in cost of revenue, primarily
related to the closure of facilities within the computer and consumer
electronics and communications industries, and a non-recurring charge of
$51.7 million related to the sale of inventory which had been written-up
under purchase accounting, which is included in cost of revenue. Also
includes a charge of $98.6 million related to the impairment of property,
plant and equipment associated with the closure of these facilities and an
increase of $22.5 million relating to the adoption of SAB 101.

(2) Includes a restructuring and other non-recurring charge of $138.8 million,
of which $14.6 million is included in cost of revenue, related primarily to
the closure of manufacturing plants, warehouses, sales offices and
administrative offices. Also includes a charge of $6.1 million related
primarily to the impairment of property, plant and equipment associated with
the closure of these facilities and a decrease of $183.8 million relating to
the adoption of SAB 101.

(3) Includes the write-off of purchased in-process research and development of
$184.3 million, a non-recurring charge of $35.0 million related to the sale
of inventory which had been written-up under purchase accounting, and
restructuring and other non-recurring charges of $21.7 million, of which
$9.0 million is included in cost of revenue, related to the closure of
several manufacturing plants. Also includes a charge of $15.4 million
related primarily to the impairment of property, plant and equipment
associated with the closure of these plants and a decrease of $9.8 million
relating to the adoption of SAB 101.

(4) 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 permanent impairment of an equity investment. Also includes a
net gain of $64.1 million on the sale of a subsidiary's common shares, a
non-recurring credit of $166.8 million related to the settlement of
litigation and a non-recurring charge of $3.4 million related to severance.

(5) Includes a restructuring charge of $16.9 million, of which $0.9 million is
included in cost of revenue, related to AMP's Brazilian operations and
wireless communications business and a credit of $107.8 million, of which
$6.3 million is included in

74

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

24. CONSOLIDATED SEGMENT DATA (CONTINUED)
cost of revenue, representing primarily a revision of estimates of merger,
restructuring and other non-recurring accruals related to the merger with
AMP and AMP's profit improvement plan.

(6) Includes a merger, restructuring and other non-recurring credit of
$11.2 million representing a revision in estimates related to the Company's
1997 restructuring accruals.

(7) Includes charges for the impairment of long-lived assets of $99.0 million
and restructuring and other non-recurring charges of $7.9 million, of which
$6.4 million is included in cost of revenue, related to exiting U.S.
Surgical's interventional cardiology business. Includes restructuring and
other non-recurring charges of $11.1 million related to U.S. Surgical's
suture business. Also includes a credit of $29.9 million representing a
revision in estimates of merger, restructuring and other non-recurring
accruals consisting of $19.7 million related primarily to the merger with
U.S. Surgical and $10.2 million related to the Company's 1997 restructuring
accruals.

(8) Includes a non-recurring charge of $13.1 million incurred in connection with
the TyCom IPO.

(9) Includes a non-recurring gain on the sale by a subsidiary of its common
shares of $1,760.0 million. Also includes charges of $275.0 million as a
reserve for certain claims relating to a merged company in the Healthcare
business and other non-recurring charges of $1.2 million.

(10) Includes merger, restructuring and other non-recurring charges of
$643.3 million, of which $106.4 million is included in cost of revenue, and
charges for the impairment of long-lived assets of $431.5 million related
primarily to the merger with AMP and AMP's profit improvement plan.

(11) Includes a credit of $27.2 million representing a revision of estimates
related to the Company's 1997 restructuring and other non-recurring
accruals.

(12) Includes merger, restructuring and other non-recurring charges of
$423.8 million and charges for the impairment of long-lived assets of
$76.0 million, related primarily to the merger with U.S. Surgical, and a
credit of $4.7 million representing a revision of estimates related to the
Company's 1997 restructuring and other non-recurring accruals.

75

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

24. CONSOLIDATED SEGMENT DATA (CONTINUED)

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

(1) Excludes $2,247.7 million in spending for construction of the TGN.

(2) Includes $427.7 million received in sale-leaseback transactions.

(3) Excludes $111.1 million in spending for construction of the TGN.

(4) Includes $172.0 million received in sale-leaseback transactions.

(5) Excludes $234.0 million related to the purchase of property previously
leased by U.S. Surgical.

(6) Excludes amounts related to Tyco Capital's equipment to be leased to others.

76

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

25. CONSOLIDATED GEOGRAPHIC DATA

Selected information by geographic area is presented below ($ in millions).

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

(1) Includes net gain on sale of business and investments of $276.6 million,
consisting of a $406.5 net gain primarily related to the sale of ADT
Automotive, partially offset by a loss of $129.9 million related to the
permanent impairment of an equity investment. Also includes a net gain of
$64.1 million on the sale of common shares of a subsidiary.

(2) Includes a gain on the sale by a subsidiary of its common shares of
$1,760.0 million.

26. SUPPLEMENTARY BALANCE SHEET INFORMATION

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

Tyco Industrial's inventories are classified as follows:

77

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

26. SUPPLEMENTARY BALANCE SHEET INFORMATION (CONTINUED)
Net property, plant and equipment (including equipment leased to others) is
as follows ($ in millions):

Accrued expenses and other current liabilities include the following ($ in
millions):

27. SUPPLEMENTARY INCOME STATEMENT INFORMATION

Selected supplementary income statement information is presented below ($ in
millions).

78

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

28. SUPPLEMENTARY CASH FLOW INFORMATION

Selected supplementary cash flow information is presented below ($ in
millions).

Tyco Industrial's net proceeds from debt consist of the following:

Tyco Capital's net decrease in financing and leasing assets consist of the
following:

Tyco Capital's net repayments of debt consist of the following:

79

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

29. SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED)

During the fourth quarter of Fiscal 2001, the Company adopted SAB 101,
retroactive to the beginning of the fiscal year. Summarized quarterly financial
data for the year ended September 30, 2001 on an as reported basis and restated
for the adoption of SAB 101 are included in the table below ($ in millions,
except per share data).

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

(1) Includes a net restructuring and other non-recurring credit of
$175.6 million, of which a charge of $25.0 million is included in cost of
revenue. The net credit consists of a net gain on the sale of businesses of
$410.4 million principally related to the sale of ADT Automotive; a
write-off of purchased in-process research and development of
$184.3 million; a non-recurring charge of $25.0 million related to the sale
of inventory, which had been written-up under purchase accounting;
restructuring and other non-recurring charges of $18.1 million primarily
related to an environmental remediation project and the closure of a
manufacturing plant; and a charge of $7.4 million primarily related to the
impairment of property, plant and equipment associated with the closure of a
manufacturing plant.

(2) Includes a net restructuring and other non-recurring charge of $15.2, of
which a charge of $46.4 million is included in cost of revenue. The net
charge consists of a non-recurring credit of $166.8 million related to the
settlement of litigation, a non-recurring charge of $46.4 million, which is
included in cost of revenue, primarily related to the sale of inventory,
which had been written-up under purchase accounting; a non-recurring charge
of $114.0 million primarily related to the closure of

80

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

29. SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED)
facilities; charges of $17.7 million related to the impairment of property,
plant and equipment associated with the closure of these facilities; and a
net loss on the sale of businesses and investments of $3.9 million primarily
related to the sale of ADT Automotive.

(3) Includes a net restructuring and other non-recurring charge of
$118.8 million, of which charges of $7.4 million are included in cost of
revenue. The net charge consists of a net loss on sale of investments of
$129.9 million and restructuring and other non-recurring and impairment
charges totaling $53.0 million, related to certain Fire and Security
Services businesses, partially offset by a $64.1 million net gain on the
sale of shares of a subsidiary.

(4) Includes a restructuring and other non-recurring charge of $423.8 million,
of which charges of $106.1 million are included in cost of revenue. The
charge consists of restructuring and other non-recurring charges of
$283.9 million, of which charges of $58.4 million are included in cost of
revenue, primarily related to the closure of manufacturing facilities within
the Electronics and Fire and Security Services segments; charges of
$92.2 million related to the impairment of property, plant and equipment
associated with the facilities closures; and a non-recurring charge of
$47.7 million, which is included in cost of revenue, related to the sale of
inventory, which had been written-up under purchase accounting.

(5) Extraordinary items relate principally to the early extinguishment of debt.
Cumulative effect of accounting changes relate to the adoption of SAB 101
and SFAS No. 133.

Summarized quarterly financial data for Fiscal 2000 are presented below ($
in millions, except per share data).

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

(1) Includes charges for the impairment of long-lived assets of $99.0 million
and restructuring and other non-recurring charges of $7.9 million, of which
charges of $6.4 million are included in cost of revenue, related to exiting
U.S. Surgical's interventional cardiology business; restructuring and other
non-recurring charges of $7.7 million related to U.S. Surgical's suture
business; and restructuring charges of $6.5 million related to AMP's
Brazilian operations. Also includes a credit of $94.7 million representing a
revision in estimates of merger, restructuring and other non-recurring
accruals, consisting of $57.8 million related to the merger with AMP and
AMP's profit improvement plan, $15.5 million related primarily to the merger
with U.S. Surgical and $21.4 million related to the Company's 1997
restructuring accruals.

(2) Includes merger, restructuring and other non-recurring charges of
$10.4 million, of which charges of $0.9 million are included in cost of
revenue, primarily related to activities in AMP's wireless communications
business and restructuring and other non-recurring charges of $0.5 million
related to U.S. Surgical's suture business. Also includes a credit of
$12.7 million, of which a credit of $6.3 million is included in cost of
revenue, primarily representing a revision of estimates of merger,
restructuring and other non-recurring accruals related to the merger with
AMP and AMP's profit improvement plan.

(3) Includes restructuring and other non-recurring charges of $2.9 million
related to U.S. Surgical's suture business. Also includes a merger,
restructuring and other non-recurring credit of $9.8 million representing a
revision of estimates of merger, restructuring and other non-recurring
accruals related to the merger with AMP and AMP's profit improvement plan.

(4) Includes a non-recurring gain on issuance of common shares by subsidiary of
$1,760.0 million. Also includes charges of $275.0 million as a reserve for
certain claims relating to a merged company in the Healthcare business, a
non-recurring charge of $13.1 million incurred in connection with the TyCom
IPO and other non-recurring charges of $1.2 million. Also includes credits
of $27.5 million and $4.2 million representing a revision of estimates of
merger, restructuring and other non-recurring accruals related to the merger
with AMP and AMP's profit improvement plan and the merger with U.S.
Surgical, respectively.

(5) Extraordinary items relate principally to the early extinguishment of debt.

81

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

30. TYCO INTERNATIONAL GROUP S.A.

During Fiscal 2001 and Fiscal 2000, Tyco International Group S.A. ("TIG"), a
wholly-owned subsidiary of the Company, issued public debt securities (see
Note 6) which are fully and unconditionally guaranteed by Tyco. The following
presents condensed consolidating financial information for TIG and its
subsidiaries as if TIG and its current organizational structure were in place
for all periods presented. Condensed financial information for Tyco and TIG on a
stand-alone basis are presented using the equity method of accounting for
subsidiaries in which it owns or controls twenty percent or more of the voting
shares.

CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 2001

82

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

30. TYCO INTERNATIONAL GROUP S.A. (CONTINUED)
CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 2000

83

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 2001

84

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

30. TYCO INTERNATIONAL GROUP S.A. (CONTINUED)
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 2000

85

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1999

86

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

30. TYCO INTERNATIONAL GROUP S.A. (CONTINUED)
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED SEPTEMBER 30, 2001

87

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED SEPTEMBER 30, 2000

88

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

30. TYCO INTERNATIONAL GROUP S.A. (CONTINUED)
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED SEPTEMBER 30, 1999

31. SUBSEQUENT EVENTS

On October 26, 2001, TIG 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.

On November 13, 2001, Tyco completed the acquisition of Sensormatic
Electronics Corporation ("Sensormatic"), a leading supplier of electronic
security solutions to the retail, commercial and industrial market-places. The
acquisition was accomplished through an exchange offer followed by a short-form
merger and is valued at approximately $2.3 billion, including the assumption of
$116 million of net debt. An aggregate of approximately 48 million common shares
of Tyco were issued for all the outstanding capital stock of Sensormatic.

On November 19, 2001, TIG issued E500 million 4.375% notes due 2005, E685
million 5.5% notes due 2009, L200 million 6.5% notes due 2012 and L285 million
6.5% notes due 2032, utilizing the

89

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

31. SUBSEQUENT EVENTS (CONTINUED)
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 $1,726.6 million were used to repay borrowings under TIG's
commercial paper program.

On December 18, 2001, the Company completed its amalgamation with TyCom and
each of the approximately 56 million TyCom common shares not owned by Tyco were
converted into the right to receive 0.3133 of a Tyco common share. Upon
completion of the amalgamation, TyCom became a wholly-owned subsidiary of Tyco,
and each outstanding option to purchase TyCom common shares is exercisable for
Tyco common shares, with the number of Tyco shares equal to the number of TyCom
common shares issuable upon exercise immediately prior to the consummation
multiplied by the exchange ratio of 0.3133. The per share exercise price for the
Tyco common shares issuable upon the exercise of TyCom options equals the
exercise price per TyCom common share, at the price such options were
exercisable prior to the amalgamation, divided by the exchange ratio. In
addition, each outstanding TyCom restricted share was converted into a
restricted Tyco common share based on the exchange ratio. The options and
restricted shares are subject to the same terms and conditions that were
applicable immediately prior to the amalgamation.

90

TYCO INTERNATIONAL LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The accompanying Consolidated Financial Statements include the consolidated
accounts of Tyco International Ltd. ("Tyco") and its subsidiaries (Tyco and all
its subsidiaries, hereinafter "we" or the "Company"). On June 1, 2001, a
subsidiary of the Company acquired The CIT Group, Inc. ("CIT"), an independent
commercial finance company, now Tyco Capital Corporation. The discussion and
financial data presented herein are furnished separately for each of the
following:

- Tyco Industrial--This represents Tyco and all its subsidiaries other than
Tyco Capital, and includes the results of operations of Tyco Capital from
June 2, 2001 on the equity method of accounting.

- Tyco Capital--This represents Tyco Capital Corporation and all its
subsidiaries and reflects their results of operations from June 2, 2001.
In addition, Tyco Capital includes certain international subsidiaries that
were sold by Tyco Capital Corporation to a non-U.S. subsidiary of Tyco on
September 30, 2001.

- Consolidated--This represents Tyco Industrial and Tyco Capital on a
consolidated basis.

RESULTS OF OPERATIONS

TYCO INDUSTRIAL

OVERVIEW

Information for all periods presented below reflects the grouping of Tyco
Industrial's businesses into four segments, consisting of Electronics, Fire and
Security Services, Healthcare and Specialty Products, and Telecommunications.
While our Telecommunications business currently operates as part of our
Electronics segment, it is broken out separately in the segment discussion
below.

During Fiscal 2001, a change was made in the Company's internal management
reporting structure such that the operations of the former Flow Control Products
and Services segment are now reported in part within the Fire and Security
Services and in part within the Electronics segments. The Company has conformed
its segment reporting accordingly and has reclassified comparative prior period
information to reflect this change.

In Fiscal 1999, we consummated two mergers that were accounted for under the
pooling of interests method of accounting: the merger with United States
Surgical Corporation ("U.S. Surgical") and the merger with AMP Incorporated
("AMP"). As required by generally accepted accounting principles in the United
States ("GAAP"), we restated our financial statements as if U.S. Surgical and
AMP had always been a part of Tyco.

Tyco Industrial segment revenues increased 17.6% during Fiscal 2001 to
$34,036.6 million compared to $28,931.9 million in Fiscal 2000. Fiscal 2001
revenues reflect a decrease of $241.1 million resulting from the adoption of
Staff Accounting Bulletin No. 101 ("SAB 101"). Tyco Industrial segment revenues
increased 28.6% during Fiscal 2000 to $28,931.9 million from $22,496.5 million
in Fiscal 1999.

Income before extraordinary items and cumulative effect of accounting
changes was $4,671.1 million in Fiscal 2001 as compared to $4,520.1 million in
Fiscal 2000 and $1,067.7 million in Fiscal 1999. Income before extraordinary
items and cumulative effect of accounting changes for Fiscal 2001 included a net
charge of $382.2 million ($366.8 million after-tax) consisting of the following:
(i) restructuring and other non-recurring charges and impairment charges
totaling $705.4 million related primarily to the closure of facilities within
the Electronics and Fire and Security Services segments; (ii) $184.3 million
write-off of purchased in-process research and development related to the
acquisition of Mallinckrodt Inc. ("Mallinckrodt"); (iii) a non-recurring credit
of $166.8 million related

91

to the settlement of litigation; (iv) a net gain on sale of businesses and
investments of $276.6 million principally related to the sale of ADT Automotive,
partially offset by the permanent impairment of an equity investment; and (v) a
$64.1 million net gain on the sale of common shares of a subsidiary. Income
before extraordinary items and cumulative effect of accounting changes for
Fiscal 2001 also reflects a $111.2 million decrease resulting from the Fiscal
2001 impact of the adoption of SAB 101. Income before extraordinary items for
Fiscal 2000 included a net credit of $1,484.7 million ($793.7 million after-tax)
consisting of the following: (i) a gain of $1,760.0 million on the sale by a
subsidiary of its common shares in connection with TyCom's initial public
offering; (ii) restructuring, non-recurring and impairment charges of
$424.2 million primarily for non-recurring claims related to a merged company
and the exiting of U.S. Surgical's interventional cardiology business; and
(iii) a credit of $148.9 million representing a revision of estimates of merger,
restructuring and other non-recurring accruals. Income before extraordinary
items for Fiscal 1999 included a net charge of $1,542.7 million
($1,304.8 million after-tax) related primarily to the mergers with U.S. Surgical
and AMP and costs associated with AMP's profit improvement plan.

The following table details Tyco Industrial's net revenue and earnings in
Fiscal 2001, Fiscal 2000 and Fiscal 1999 ($ in millions):

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

(1) This amount is the sum of the operating income of Tyco Industrial's four
business segments set forth in the segment discussion below, less certain
corporate expenses, and is before merger, restructuring and other
non-recurring charges (credits), the write-off of purchased in-process
research and development, charges for the impairment of long-lived assets,
amortization of goodwill and the adoption of SAB 101. Merger, restructuring
and other non-recurring charges, net, in the amount of $184.9 million,
$1.0 million and $106.4 million related to inventory have been deducted as
part of cost of revenue in the Consolidated Statements of Operations for
Fiscal 2001, 2000 and 1999, respectively. However, they have not been
deducted as part of cost of revenue for the purpose of calculating operating
income before certain charges (credits) in this table. These charges are
instead included in merger, restructuring and other non-recurring charges.

92

During Fiscal 2001, we recorded merger, restructuring and other
non-recurring charges and charges for the impairment of long-lived assets
related primarily to cost reduction actions and acquisitions. Under our
restructuring and integration programs, we terminate employees and close
facilities made redundant. The reduction in manpower and facilities comes from
the manufacturing, sales and administrative functions. In addition, we
discontinue or dispose of product lines which do not fit the long-term strategy
of the respective businesses. We do not separately track the impact on financial
results of the restructuring and integration programs. However, we estimate that
our overall cost structure has been reduced by approximately $300.0 million on
an annualized basis due to the impact associated with these charges. The
significant decreases have been to selling, general and administrative expenses
and to cost of revenue.

Operating income and margins for Tyco Industrial's four business segments,
which are presented in accordance with GAAP in the following discussion, are
supplemented by a discussion of operating income and margins stated before
deductions for merger, restructuring and other non-recurring charges, charges
for impairment of long-lived assets and the adoption of SAB 101. This
supplemental discussion of operating results before certain charges (credits)
and accounting change should not be considered an alternative to operating or
net income as an indicator of the performance of our business, or as an
alternative to cash flows from operating activities as a measure of liquidity,
in each case determined in accordance with GAAP.

Operating income, before certain (charges) credits and accounting change,
improved in all segments in each of Fiscal 2001 and Fiscal 2000, with the
exception of the Telecommunications segment as discussed below. The operating
improvements are the result of both increased revenues in all but our
Telecommunications segment and enhanced margins in all but our Healthcare and
Specialty Products segment. Increased revenues resulted from acquisitions that
are accounted for under the purchase method of accounting and from organic
growth. We enhanced our margins through improved productivity and cost
reductions in the ordinary course of business, unrelated to acquisition or
divestiture activities. We regard charges that we incurred to reduce costs in
the ordinary course of business as recurring charges, which are reflected in
cost of revenue and in selling, general, administrative and other costs and
expenses in the Consolidated Statements of Operations.

When we make an acquisition, the acquired company is immediately integrated
with our existing operations. Consequently, we do not separately track the
financial results of acquired companies. The discussions following the tables
below include estimates of year-to-year revenue growth that exclude the effects
of indicated acquisitions. These estimates assume that the acquisitions were
made at the beginning of the relevant fiscal periods.

REVENUE AND OPERATING INCOME AND MARGINS

ELECTRONICS

Electronics' products and services include:

- designing, engineering and manufacturing of electronic connector systems,
fiber optic components, wireless devices, heat shrink products, power
components, wire and cable, relays, sensors, touch screens, smart card
components, identification and labeling products, energy solutions, power
products, switches and battery assemblies.

The AMP merger occurred in April 1999, but, as required under the pooling of
interests method of accounting, Fiscal 1999 results are presented as though the
companies had been combined since the

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beginning of Fiscal 1999. The following table sets forth revenue and operating
income (loss) and margins for the Electronics segment ($ in millions):

The 14.3% increase in revenue, before accounting change, in Fiscal 2001 over
Fiscal 2000 resulted primarily from acquisitions. These acquisitions included:
Siemens Electromechanical Components GmbH & Co. KG ("Siemens") and AFC Cable
Systems, Inc. ("AFC Cable") in November 1999; Praegitzer Industries, Inc.
("Praegitzer") in December 1999; Critchley Group PLC ("Critchley") in
March 2000; the electronic OEM business of Thomas & Betts in July 2000; CIGI
Investment Group, Inc. ("CIGI") in October 2000; and Lucent Technologies' Power
Systems business unit in December 2000. Excluding the impact of these
acquisitions, revenue increased an estimated 0.3%, which reflects an economic
slowdown in the computer and consumer electronics and communications industries
and, to a lesser extent, the effect of foreign exchange rates.

The 62.1% increase in revenue in Fiscal 2000 over Fiscal 1999 was
predominantly due to acquisitions and, to a lesser extent, organic growth. These
acquisitions included: Glynwed International, plc in March 1999; Raychem
Corporation ("Raychem") in August 1999; Siemens and AFC Cable in November 1999;
Praegitzer in December 1999; Critchley in March 2000; and the electronic OEM
business of Thomas & Betts in July 2000. Excluding the impact of these
acquisitions, revenue increased an estimated 13.1%.

The 20.0% increase in operating income and the increase in margins, before
certain (charges) credits and accounting change, in Fiscal 2001 compared with
Fiscal 2000 was primarily due to acquisitions and improved margins at both Tyco
Printed Circuit Group and AMP. These increases were somewhat offset by decreased
operating income and margins at Allied Tube and Conduit resulting from higher
raw material prices.

Operating income and margins, after certain (charges) credits and accounting
change, include restructuring and other non-recurring and impairment charges of
$485.0 million, partially offset by an increase of $22.5 million relating to the
adoption of SAB 101 in Fiscal 2001, as compared to a net merger, restructuring
and other non-recurring credit of $90.9 million in Fiscal 2000.

The substantial increase in operating income and margins, before certain
(charges) credits, in Fiscal 2000 compared with Fiscal 1999 was primarily due to
the acquisitions of Raychem and Siemens and improved margins at both AMP and
Tyco Printed Circuit Group. The improved operating margins, before certain
(charges) credits, in Fiscal 2000 compared with Fiscal 1999 resulted from
increased volume, improved pricing and continuing cost reduction programs
following the AMP merger.

In addition to the items discussed above, the substantial increase in
operating income and margins, after certain (charges) credits, was due to a
merger, restructuring and other non-recurring net credit of $90.9 million in
Fiscal 2000 compared with a restructuring and other non-recurring charge of
$1,074.8 million in Fiscal 1999.

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FIRE AND SECURITY SERVICES

Fire and Security Services' products and services include:

- designing, installing and servicing a broad line of fire detection,
prevention and suppression systems, and manufacturing and servicing of
fire extinguishers and related products;

- designing, installing, monitoring and maintaining electronic security
systems;

- designing and manufacturing valves and related products; and

- providing a broad range of consulting, engineering and construction
management and operating services for water, wastewater, environmental,
transportation and infrastructure markets.

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

The 23.8% increase in revenue, before accounting change, in Fiscal 2001 over
Fiscal 2000 resulted primarily from higher sales volume and increased service
revenue in fire protection in North America and Asia and higher revenues in the
worldwide electronic security services business. The increases were due
primarily to a higher volume of recurring service revenues and, to a lesser
extent, the effects of acquisitions. These acquisitions included: Flow Control
Technologies ("FCT") in February 2000; Simplex Time Recorder Co. in
January 2001; Scott Technologies, Inc. ("Scott") in May 2001; and the electronic
security systems businesses of Cambridge Protection Industries, L.L.C.
("SecurityLink") in July 2001. Excluding the impact of these acquisitions,
revenue increased an estimated 9.9%.

The 5.2% increase in revenue in Fiscal 2000 over Fiscal 1999 resulted
primarily from increased sales in the worldwide electronic security services
business and higher sales volume in fire protection operations in North America,
Asia and Australia. The increases were due primarily to a higher volume of
recurring service revenues and, to a lesser extent, the effects of acquisitions
in the security services business. These acquisitions included: Entergy Security
Corporation in January 1999; Alarmguard Holdings in February 1999; Central
Sprinkler Corporation in August 1999; and FCT in February 2000. In August 1999,
we sold certain businesses within this segment, including The Mueller Company
and portions of Grinnell Supply Sales and Manufacturing. Excluding the impact of
these acquisitions and divestitures, revenue increased an estimated 11.9%.

The 37.9% increase in operating income, before certain (charges) credits and
accounting change, in Fiscal 2001 over Fiscal 2000 was primarily due to
acquisitions and increased service volume in the fire protection business in
North America and Asia and worldwide security business. The increase in
operating margins, before certain (charges) credits and accounting change, was
primarily due to increased service revenues in fire protection and improved
margins at both the valve operations and at Tyco Infrastructure (formerly known
as Earth Tech).

Operating income and margins, after certain (charges) credits and accounting
change, include restructuring and other non-recurring and impairment charges of
$144.9 million, as well as a decrease of $183.8 million relating to the adoption
of SAB 101, in Fiscal 2001, as compared to a restructuring and other
non-recurring credit of $11.2 million in Fiscal 2000. As required under
SAB 101, we modified our revenue recognition policies with respect to the
installation of electronic security systems as of the beginning of the fiscal
year. See Consolidated Items--CUMULATIVE EFFECT OF ACCOUNTING CHANGES.

95

The 11.8% increase in operating income, before certain (charges) credits, in
Fiscal 2000 over Fiscal 1999 reflects increased service volume in security
operations in the United States and fire protection businesses in North America
and Asia. The increase in operating margins, before certain credits, was due to
increased sales volume in both security services and fire protection offset
slightly, in the case of security services, by the costs of the reorganization
of the security services' dealer program and internal sales force during the
first two quarters of Fiscal 2000.

In addition to the items discussed above, operating income and margins,
after certain (charges) credits, reflect restructuring and other non-recurring
credits of $11.2 million in Fiscal 2000 and $27.2 million in Fiscal 1999.

HEALTHCARE AND SPECIALTY PRODUCTS

Healthcare and Specialty Products include:

- a wide variety of disposable medical products, including wound care and
closure products, syringes and needles, sutures and surgical staplers,
products used for vascular therapy and respiratory care, infant medical
accessories, incontinence products, anesthetic supplies, electrosurgical
instruments and laparoscopic instruments;

- polyethylene film and film products such as flexible plastic packaging,
plastic bags and sheeting, coated and laminated packaging materials, tapes
and adhesives, plastic garment hangers and pipeline coatings for the oil,
gas and water distribution industries; and

- ADT Automotive's auto redistribution services, which was sold on
October 6, 2000.

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

The 36.6% increase in revenue, before accounting change, in Fiscal 2001 over
Fiscal 2000 resulted primarily from acquisitions and, to a lesser extent,
organic growth. These acquisitions included: General Surgical Innovations, Inc.
("GSI") in November 1999; Radionics in January 2000; Fiber-Lam in March 2000;
Mallinckrodt Inc. ("Mallinckrodt") in October 2000; and InnerDyne, Inc.
("InnerDyne") in December 2000. The revenue increase was somewhat offset by the
sale of our ADT Automotive business. Excluding the impact of these acquisitions
and this divestiture, revenue increased an estimated 5.9%.

The 12.6% increase in revenue in Fiscal 2000 over Fiscal 1999 was primarily
the result of increased sales at Tyco Plastics and Adhesives and Tyco Healthcare
and, to a lesser extent, ADT Automotive. The increases for Tyco Healthcare were
due to organic growth and, to a lesser extent, acquisitions. These acquisitions
included: Graphic Controls Corporation and Sunbelt Plastics, both in
November 1998; Batts, Inc. in April 1999; GSI in November 1999; Radionics in
January 2000; and Fiber-Lam in March 2000. Excluding the impact of these
acquisitions, revenue for the segment increased an estimated 8.2% in Fiscal 2000
over Fiscal 1999.

The 35.5% increase in operating income, before certain (charges) credits and
accounting change, and the slight decrease in operating margins, before certain
(charges) credits and accounting change, in

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Fiscal 2001 compared to Fiscal 2000 was due to the acquisition of Mallinckrodt,
which generally has lower operating margins than other businesses in this
segment.

Operating income and margins, after certain (charges) credits and accounting
change, include restructuring and other non-recurring and impairment charges of
$256.4 million, as well as a decrease of $9.8 million relating to the adoption
of SAB 101, in Fiscal 2001, as compared to net merger, restructuring and other
non-recurring and impairment charges of $88.1 million in Fiscal 2000.

The 10.2% increase in operating income, before certain (charges) credits and
accounting change, in Fiscal 2000 over Fiscal 1999 was due to increased sales
volume at Tyco Healthcare, Tyco Plastics and Adhesives and, to a lesser extent,
ADT Automotive, slightly offset by a lower operating margin percentage at Tyco
Healthcare principally due to higher raw materials costs.

In addition to the items discussed above, the substantial increase in
operating income and margins, after certain (charges) credits in Fiscal 2000
over Fiscal 1999, was due to net merger, restructuring and other non-recurring
and impairment charges of $88.1 million in Fiscal 2000 compared with net merger,
restructuring and other non-recurring charges of $495.1 million in Fiscal 1999.

TELECOMMUNICATIONS

Tyco's subsidiary, TyCom Ltd. ("TyCom"), is a leading independent provider
of undersea fiber optic networks and services, and its products and services
include:

- designing, engineering, manufacturing and installing undersea cable
communications systems; and

- servicing and maintaining major undersea cable networks.

Beginning in the fourth quarter of Fiscal 2000, TyCom began the design,
manufacture and installation of a global undersea fiber optic network, known as
the TyCom Global Network-TM- ("TGN"). In the third quarter of Fiscal 2001, TyCom
began operating, maintaining and selling bandwidth capacity on the TGN.

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

Since the fourth quarter of Fiscal 2000, when we began construction of the
transatlantic portion of the TGN, TyCom's revenues have decreased due to lower
third-party contract sales, while fixed costs have generally increased due to
our building the infrastructure to support the TGN, including network
operations, sales and marketing, research and development and administration.
The 26.6% decrease in revenue in Fiscal 2001 as compared to Fiscal 2000 reflects
generally the downturn in the telecommunications industry and specifically a
decrease in third-party contract sales for undersea communication systems. In
addition, certain revenues were deferred pending customer financing. TyCom may
continue to experience softness in demand if the current downturn in the
telecommunications industry continues. However, TyCom believes that its
technological capabilities and contraction in the number of competitors should
mitigate the negative effects of industry trends on its results in the longer
term.

97

The 56.4% increase in revenue in Fiscal 2000 over Fiscal 1999 resulted
primarily from increased demand for third-party sales of undersea communications
systems and, to a much lesser extent, the acquisition in May 1999 of
Telecomunicaciones Marinas, S.A. ("Temasa"). Excluding the effect of Temasa, the
revenue increase for the segment in Fiscal 2000 was an estimated 54.0%.

The 21.7% decrease in operating income, before certain charges, in Fiscal
2001 compared with Fiscal 2000 was principally due to the decrease in the volume
of undersea cable communications systems sales and services to others. The
increase in operating margins was primarily due to project completions and
certain reduced accruals due to lower profitability levels for Fiscal 2001 and
certain contractual settlements.

The substantial increase in operating income, before and after certain
charges, in Fiscal 2000 compared with Fiscal 1999 was primarily due to higher
sales volume, and to a lesser extent, the Temasa acquisition. The increase in
operating income, after certain charges, was offset by a non-recurring charge of
$13.1 million incurred in connection with the TyCom initial public offering.

FOREIGN CURRENCY

The effect of changes in foreign exchange rates for Fiscal 2001 compared to
Fiscal 2000 was a decrease in revenue of approximately $1,053.6 million and a
decrease in operating income of approximately $199.5 million. The effect of
changes in foreign exchange rates for Fiscal 2000 compared to Fiscal 1999 was a
decrease in revenue of approximately $528.6 million and a decrease in operating
income of approximately $105.9 million.

CORPORATE EXPENSES

Corporate expenses, excluding a net gain on sale of businesses and
investments of $276.6 million, a net non-recurring credit of $163.4 million,
primarily for the settlement of litigation, and a net gain of $64.1 million on
the sale of common shares of a subsidiary, were $191.9 million in Fiscal 2001 as
compared to $187.4 million in Fiscal 2000 and $122.9 million in Fiscal 1999.
These increases were due principally to higher compensation expense under our
equity-based incentive compensation plans and an increase in corporate staffing
and related costs to support and monitor our expanding businesses and
operations.

AMORTIZATION OF GOODWILL

Amortization of goodwill, a non-cash charge, increased $193.0 million to
$537.4 million in Fiscal 2001 compared with Fiscal 2000. Fiscal 2000
amortization of goodwill increased to $344.4 million from $216.1 million in
Fiscal 1999. The increases in goodwill amortization expenses were due to net
increases in goodwill balances of $10,066.2 million in Fiscal 2001 and
$3,764.4 million in Fiscal 2000, all due to acquisitions. In accordance with
recently adopted accounting rule changes, goodwill will no longer be amortized
beginning with our Fiscal 2002 year. See ACCOUNTING AND TECHNICAL PRONOUNCEMENTS
within Note 1 to our Consolidated Financial Statements for a discussion of these
accounting rule changes.

INTEREST EXPENSE, NET

Interest expense, net, increased $6.9 million to $776.5 million in Fiscal
2001, as compared to Fiscal 2000, and increased $284.0 million to
$769.6 million in Fiscal 2000, as compared to Fiscal 1999. These increases were
due primarily to higher average debt balances, resulting from borrowings to
finance acquisitions and our share repurchase program, offset by lower interest
rates during Fiscal 2001. The increase in borrowings was mitigated in part by
the generation of a substantial amount of free cash flow. The weighted-average
rates of interest on Tyco Industrial's long-term debt outstanding at
September 30, 2001 and 2000 were 4.2% and 6.6%, respectively.

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TYCO CAPITAL

On June 1, 2001, a subsidiary of Tyco acquired The CIT Group, Inc., an
independent commercial finance company, now Tyco Capital Corporation. The
discussion herein is only for the period June 2 through September 30, 2001 (the
"Four Month Period"). The results for the Four Month Period are not indicative
of results which would have been achieved for an entire year. Tyco Capital's
services include:

- commercial financing and leasing--offering equipment, commercial factoring
and structured financing; and

- specialty financing and leasing--consumer lending and retail sales and
vendor financing.

The following table sets forth operating results of Tyco Capital:

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

(1) Depreciation on operating lease equipment has been included within selling,
general, administrative and other costs and expenses in the Consolidated
Statements of Operations.

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

Tyco Capital's revenues were $2,011.6 million for the Four Month Period.
Finance income totaled $1,676.5 million for the Four Month Period. As a
percentage of AEA, finance income (excluding interest income related to
short-term interest-bearing deposits) was 12.70%.

Interest expense totaled $597.1 million for the Four Month Period. As a
percentage of AEA, interest expense (excluding interest related to short-term
interest-bearing deposits and dividends related to preferred capital securities)
was 4.43%.

Other income for Tyco Capital was $335.1 million for the Four Month Period
as set forth in the following table ($ in millions):

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

The provision for credit losses was $116.1 million for the Four Month
Period, while charge-offs were $86.8 million. Managed assets were $50.9 billion
at September 30, 2001, while financing and

99

leasing portfolio assets totaled $40.7 billion. Managed assets include finance
receivables, operating lease equipment, finance receivables held for sale,
certain investments, and finance receivables previously securitized and still
managed by Tyco Capital.

CONSOLIDATED ITEMS

CONSOLIDATED INCOME TAX EXPENSE

The effective income tax rate, excluding the impact of purchased in-process
research and development, merger, restructuring and other non-recurring
(charges) credits, charges for the impairment of long-lived assets, net gain on
the sale of businesses and investments, net gain on the sale of common shares of
a subsidiary and accounting change, was 23.0% during Fiscal 2001, as compared to
24.8% in Fiscal 2000 and 27.0% in Fiscal 1999. The decrease in the effective
income tax rate was primarily due to higher earnings in tax jurisdictions with
lower income tax rates. We believe that we will generate sufficient future
income to realize the tax benefits related to our deferred tax assets. A
valuation allowance has been maintained due to continued uncertainties of
realization of certain tax benefits, primarily tax loss carryforwards (see Note
9 to our Consolidated Financial Statements).

EXTRAORDINARY ITEMS

Extraordinary items in Fiscal 2001, Fiscal 2000 and Fiscal 1999 included
after-tax losses amounting to $17.1 million, $0.2 million and $45.7 million,
respectively, relating primarily to the early extinguishment of debt (see Note
17 to our Consolidated Financial Statements).

CUMULATIVE EFFECT OF ACCOUNTING CHANGES

In December 1999, the Securities and Exchange Commission ("SEC") issued
SAB 101, in which the SEC Staff expressed its views regarding the appropriate
recognition of revenue in a variety of circumstances, some of which are relevant
to us. As required under SAB 101, we modified our revenue recognition policies
with respect to the installation of electronic security systems (see "REVENUE
RECOGNITION" within Note 1 to our Consolidated Financial Statements). In
addition, in response to SAB 101, we undertook a review of our revenue
recognition practices and identified certain provisions included in a limited
number of sales arrangements that delayed the recognition of revenue under
SAB 101. During the fourth quarter of Fiscal 2001, we changed our method of
accounting for these items retroactive to the beginning of the fiscal year to
conform to the requirements of SAB 101. This was reported as a $653.7 million
after-tax ($1,005.6 million pre-tax) charge for the cumulative effect of change
in accounting principle in the Fiscal 2001 Consolidated Statement of Operations.

The impact of SAB 101 on total revenues in Fiscal 2001 was a net decrease of
$241.1 million, reflecting the deferral of $520.5 million of Fiscal 2001
revenues, partially offset by the recognition of $279.4 million of revenue that
is included in the cumulative effect adjustment as of the beginning of the
fiscal year. We restated each of the first three quarters of Fiscal 2001 in the
Consolidated Statement of Operations to reflect the adoption of SAB 101 (see
Note 29 to our Consolidated Financial Statements). Pro forma amounts for the
periods prior to Fiscal 2001 have not been presented since the effect of the
change in accounting principle for these periods could not be reasonably
determined.

We recorded a cumulative effect adjustment, a $29.7 million loss, net of
tax, in Fiscal 2001 in accordance with the transition provisions of SFAS
No. 133 (see Note 1 to our Consolidated Financial Statements).

100

LIQUIDITY AND CAPITAL RESOURCES

TYCO INDUSTRIAL

The following table shows the sources of our cash flow from operating
activities and the use of a portion of that cash in our operations in Fiscal
2001, Fiscal 2000 and Fiscal 1999. We refer to the net amount of cash generated
from operating activities less capital expenditures and dividends as "free cash
flow."

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

(1) This amount is the sum of the operating income of the four Tyco Industrial
business segments as set forth above, less certain corporate expenses, and
is before merger, restructuring and other non-recurring charges (credits), a
charge for the write-off of purchased in-process research and development,
charges for the impairment of long-lived assets, goodwill amortization and
the adoption of SAB 101.

(2) This amount is the sum of depreciation of tangible property
($1,243.1 million, $1,095.0 million and $979.6 million in Fiscal 2001,
Fiscal 2000 and Fiscal 1999, respectively) and amortization of intangible
assets other than goodwill ($360.1 million, $205.0 million and
$115.5 million in Fiscal 2001, Fiscal 2000 and Fiscal 1999, respectively).

(3) This amount includes $490.6 million (of which $297.8 million relates to
sales to Tyco Capital), $100.0 million and $50.0 million received on the
sale of accounts receivable in Fiscal 2001, Fiscal 2000 and Fiscal 1999,
respectively.

(4) This amount is cash paid for merger, restructuring and other non-recurring
charges.

(5) This amount excludes expenditures related to construction of the TGN of
$2,247.7 million and $111.1 million for the years ended September 30, 2001
and 2000, respectively. This amount includes $427.7 million and
$172.0 million received in sale-leaseback transactions for the years ended
September 30, 2001 and 2000, respectively.

In addition, in Fiscal 2001, Fiscal 2000 and Fiscal 1999 we paid out
$737.2 million, $544.2 million and $354.4 million, respectively, in cash that
was charged against reserves established in connection with acquisitions
accounted for under the purchase accounting method. This amount is included in
"Acquisition of businesses, net of cash acquired" in the Consolidated Statements
of Cash Flows.

Reserves for restructuring and other non-recurring items are taken as a
charge against current earnings at the time the reserves are established.
Amounts expended for restructuring and other non-recurring costs are charged
against the reserves as they are paid out. If the amount of the reserves proves
to be greater than the costs actually incurred, any excess is credited against
restructuring and other non-recurring charges in the Consolidated Statement of
Operations in the period in which that determination is made.

In Fiscal 2001, we recorded net restructuring and other non-recurring
charges of $331.8 million, of which charges of $98.2 million are included in
cost of revenue, consisting of charges of $498.6 million, related primarily to
the closure of manufacturing plants, sales offices, warehouses and
administrative offices in the Electronics and Fire and Security Services
segments, partially offset by a $166.8 million

101

credit to litigation reserves established in the prior year. In addition, we
incurred a non-recurring charge of $86.7 million related to the sale of
inventory which had been written-up under purchase accounting, which has been
included in cost of revenue. At September 30, 2000, there existed merger,
restructuring and other non-recurring reserves of $365.9 million. During Fiscal
2001, we paid out $215.5 million in cash and incurred $228.7 million in non-cash
charges that were charged against these reserves. At September 30, 2001, there
remained $340.2 million of merger, restructuring and other non-recurring
reserves on Tyco Industrial's Consolidated Balance Sheet, of which
$304.9 million is included in accrued expenses and other current liabilities and
$35.3 million is included in other long-term liabilities.

All business combinations completed in Fiscal 2001 were accounted for under
the purchase accounting method. At the time each purchase acquisition is made,
we establish a reserve for transaction costs and the costs of integrating the
purchased company within the relevant Tyco business segment. The amounts of such
reserves established in Fiscal 2001 are detailed in Note 2 to the Consolidated
Financial Statements. These amounts are not charged against current earnings but
are treated as additional purchase price consideration and have the effect of
increasing the amount of goodwill recorded in connection with the respective
acquisition. We view these costs as the equivalent of additional purchase price
consideration when we consider making an acquisition. If the amount of the
reserves proves to be in excess of costs actually incurred, any excess is used
to reduce the goodwill account that was established at the time the acquisition
was made.

In Fiscal 2001, Tyco Industrial made acquisitions that were accounted for
under the purchase accounting method at an aggregate cost of $14,741.5 million.
Of this amount, $10,956.6 million was paid in cash, net of cash acquired
(excluding $2,156.4 million of cash acquired from Tyco Capital), and
$3,784.9 million was paid in the form of Tyco common shares. Debt of acquired
companies aggregated $1,592.3 million. In connection with these acquisitions, we
established purchase accounting reserves of $1,021.3 million for transaction and
integration costs. In addition, purchase accounting liabilities of
$103.7 million and a corresponding increase to goodwill and deferred tax assets
were recorded during Fiscal 2001. Changes in estimates related to acquisitions
consummated prior to Fiscal 2001, primarily related to revisions associated with
finalizing the exit plans of the electronic OEM business of Thomas & Betts, AFC
Cable, Critchley and Siemens, all acquired during Fiscal 2000. At the beginning
of Fiscal 2001, purchase accounting reserves were $372.6 million as a result of
purchase accounting transactions made in prior years. During Fiscal 2001, we
paid out $894.4 million in cash (including approximately $105.7 million relating
to purchase price adjustments and earn-out liabilities on certain acquisitions
and $51.5 million relating to the acquisition of Tyco Capital) and incurred
$7.2 million in non-cash charges against the reserves established during and
prior to Fiscal 2001. Also, in Fiscal 2001, we determined that $68.9 million of
purchase accounting reserves related primarily to acquisitions prior to Fiscal
2001 were not needed and reversed that amount against goodwill. At
September 30, 2001, there remained $702.1 million in purchase accounting
reserves on Tyco Industrial's Consolidated Balance Sheet, of which
$583.1 million is included in accrued expenses and other current liabilities and
$119.0 million is included in other long-term liabilities.

The following details the Fiscal 2001 capital expenditures and depreciation
by segment for Tyco Industrial ($ in millions):

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

(1) Excludes $2,247.7 million in spending for construction of the TGN.

(2) Includes $427.7 million received in sale-leaseback transactions.

102

We continue to fund capital expenditures to improve the cost structure of
our businesses, to invest in new processes and technology, and to maintain high
quality production standards. The level of capital expenditures for the Fire and
Security Services segment significantly exceeded, and is expected to continue to
significantly exceed, depreciation due to the substantial growth in the number
of new security system installations. The level of capital expenditures in the
other segments is expected to increase moderately in Fiscal 2002. During Fiscal
2001, TyCom spent $2,247.7 million on construction of the TGN. We expect our
expenditures on construction of the TGN to be approximately $1,500.0 million in
Fiscal 2002. The source of funds for capital expenditures and construction of
the TGN is expected to be cash from operating activities.

The provision for income taxes in the Consolidated Statement of Operations
for Fiscal 2001 was $1,284.9 million, but the amount of income taxes paid (net
of refunds) during the year was $722.9 million. The difference is due to timing
differences, as well as the tax benefits related to the exercise of share
options. The current income tax liability at September 30, 2001 was
$1,845.0 million, as compared to $1,650.3 million at September 30, 2000.

The net change in working capital, net of the effects of acquisitions and
divestitures, was an increase of $466.0 million in Fiscal 2001. The components
of this change are set forth in detail in Tyco Industrial's Consolidated
Statement of Cash Flows. The increase in working capital accounts is
attributable to the higher level of business activity in Fiscal 2001 as
reflected in the increased revenue over the prior year. We focus on maximizing
the cash flow from our operating businesses and attempt to keep the working
capital employed in the businesses to the minimum level required for efficient
operations.

During Fiscal 2001, we used $1,326.1 million to repurchase our own common
shares under our ongoing share buyback program. We repurchase our own shares
from time to time in the open market to satisfy certain stock-based compensation
arrangements, such as the exercise of share options, or to use for acquisitions.

During Fiscal 2001, Tyco sold 39 million common shares for approximately
$2,198.0 million in an underwritten public offering. Net proceeds from the
offering were $2,196.6 million and were used to repay debt incurred to finance a
portion of the acquisition of CIT.

During Fiscal 2001, we received proceeds of $545.0 million from the exercise
of common share options. In addition, during Fiscal 2001, we received proceeds
of $904.4 million, net of cash sold, primarily from the sale of our ADT
Automotive business.

The source of the cash used for acquisitions in Fiscal 2001 was primarily
through the issuance of debt, free cash flow, the sale of common shares and
proceeds on the sale of businesses. Goodwill and other intangible assets were
$28,740.9 million at September 30, 2001, compared to $16,332.6 million at
September 30, 2000. At September 30, 2001, Tyco Industrial's total debt was
$21,619.0 million, as compared to $10,999.0 million at September 30, 2000. This
increase resulted principally from net proceeds of approximately
$3,374.0 million and $2,203.4 million from the sale of zero coupon convertible
debentures due 2020 and 2021, respectively; $1,982.1 million from the sale of
notes due 2006 and 2011; $1,787.9 million from the sale of notes due 2003 and
2006; and borrowings under Tyco International Group S.A.'s ("TIG") commercial
paper program. For a full discussion of debt activity, see Note 6 to the
Consolidated Financial Statements.

Shareholders' equity was $31,737.4 million, or $16.40 per share, at
September 30, 2001, compared to $17,033.2 million, or $10.11 per share, at
September 30, 2000. The increase in shareholders' equity was due primarily to
the issuance of approximately 211.2 million common shares valued at
$10,435.3 million for the acquisitions of Mallinckrodt and CIGI in
October 2000, InnerDyne in December 2000, Scott in May 2001 and CIT in
June 2001; net income of $3,970.6 million; and the sale of 39 million common
shares for net proceeds of $2,196.6 million as discussed above. This increase
was partially offset by the repurchase of our common shares for approximately
$1,326.1 million and an unrealized loss on available for sale securities of
$1,267.9 million. Total debt as a percent of total

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capitalization (total debt and shareholders' equity) was 41% at September 30,
2001 and 39% at September 30, 2000. Net debt (total debt less cash and cash
equivalents) as a percent of total capitalization was 37% at September 30, 2001
and 35% at September 30, 2000.

On October 26, 2001, TIG 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.

On November 13, 2001, Tyco completed the acquisition of Sensormatic
Electronics Corporation ("Sensormatic"), a leading supplier of electronic
security solutions to the retail, commercial and industrial market-places. The
acquisition is valued at approximately $2.3 billion, including the assumption of
$116 million of net debt. An aggregate of approximately 48 million common shares
of Tyco were issued in exchange for all the outstanding capital stock of
Sensormatic.

On November 19, 2001, TIG issued E500 million 4.375% notes due 2005, E685
million 5.5% notes due 2009, L200 million 6.5% notes due 2012 and L285 million
6.5% notes due 2032, utilizing the 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 $1,726.6 million
were used to repay borrowings under TIG's commercial paper program.

On December 18, 2001, we completed our amalgamation with TyCom and each of
the approximately 56 million TyCom common shares not owned by Tyco were
converted into the right to receive 0.3133 of a Tyco common share. Upon
completion of the amalgamation, TyCom became a wholly-owned subsidiary of Tyco.

We believe that our cash flow from Tyco Industrial's operations, together
with our existing credit facilities and other credit arrangements, is adequate
to fund Tyco Industrial's operations.

TYCO INDUSTRIAL BACKLOG

At September 30, 2001, Tyco Industrial had a backlog of unfilled orders of
$10,999.1 million, compared to a backlog of $10,418.2 million as of
September 30, 2000. We expect that approximately 76% of our backlog at
September 30, 2001 will be filled during Fiscal 2002. Backlog by reportable
industry segment is as follows ($ in millions):

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

(1) Weighted-average variable interest rates are based on applicable rates at
September 30, 2001 per the terms of the contracts of the related financial
instruments.

(2) The fair value of the cross-currency swap included in the table reflects
the portion of the fair value of the contract that is attributable to the
interest component of the contract.

EXCHANGE RATE SENSITIVITY

The table below provides information about Tyco Industrial's financial
instruments that are sensitive to foreign currency exchange rates. These
instruments include long-term investments, debt obligations, cross-currency
swaps and forward foreign currency exchange contracts. For long-term
investments, the table presents cash flows of principal payments related to a
subordinated, non-collateralized zero coupon loan note, based on the amortized
cost of the investment at September 30, 2001, and the associated fair value
interest rate discount. For debt obligations, the table presents cash flows of
principal repayment and weighted-average interest rates. For cross-currency
swaps and forward foreign currency exchange contracts, the table presents
notional amounts and weighted-average contractual exchange rates. Notional
amounts are used to calculate the contractual payments to be exchanged under the
contract. The amounts included in the table below are in U.S. dollars ($ in
millions).

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

(1) Weighted-average variable interest rates are based on applicable rates at
September 30, 2001 per the terms of the contracts of the related financial
instruments.

(2) The fair value of cross-currency swap included in the table reflects the
portion of the fair value of the contract that is attributable to the
foreign currency component of the contracts.

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COMMODITY PRICE SENSITIVITY

The table below provides information about Tyco Industrial's financial
instruments that are sensitive to changes in commodity prices. Total contract
dollar amounts and notional quantity amounts are presented for forward commodity
contracts. Contract amounts are used to calculate the contractual payments
quantity of the commodity to be exchanged under the contracts ($ in millions).

TYCO CAPITAL RISK MANAGEMENT

Tyco Capital's business activities contain various elements of risk. Tyco
Capital considers the principal types of risk to be credit risk (including
credit, collateral and equipment risk) and market risk (including interest rate,
foreign currency and liquidity risk).

CREDIT RISK MANAGEMENT

Tyco Capital has developed and maintains systems specifically designed to
manage credit risk in each of its business segments. Tyco Capital evaluates
financing and leasing assets for credit and collateral risk during the credit
granting process and periodically after the advancement of funds.

Each of Tyco Capital's strategic business units has developed and maintains
a formal credit management process in accordance with formal uniform guidelines
established by Tyco Capital's corporate credit risk management group. These
guidelines set forth risk acceptance criteria for:

- acceptable maximum credit line;

- selected target markets and products;

- creditworthiness of borrowers, including credit history, financial
condition, adequacy of cash flow and quality of management; and

- the type and value of underlying collateral and guarantees (including
recourse from dealers and manufacturers).

Tyco Capital also employs a risk adjusted pricing process where the
perceived credit risk is a factor in determining the interest rate and/or fees
charged for its financing and leasing products. As economic and market
conditions change, credit risk management practices are reviewed and modified,
if necessary, to seek to minimize the risk of credit loss.

EQUIPMENT/RESIDUAL RISK MANAGEMENT

Tyco Capital has developed systems, processes and expertise to manage the
equipment and residual risk in its commercial businesses. The Tyco Capital
process consists of the following: (i) residual setting

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and valuation at deal inception, (ii) systematic residual reviews, and
(iii) monitoring of residual realizations. Reviews for impairment are performed
at least annually. Residual realizations, by business unit and product, are
reviewed as part of Tyco Capital's ongoing financial and asset quality review,
both within the business units and by corporate management.

COMMERCIAL

Tyco Capital has developed systems specifically designed to effectively
manage credit risk in its commercial businesses. The process starts with the
initial evaluation of credit risk and underlying collateral at the time of
origination and continues over the life of the finance receivable or operating
lease, including collecting past due balances and liquidating underlying
collateral.

CONSUMER AND SMALL-TICKET LEASING

Tyco Capital has developed proprietary automated credit scoring models by
loan type that include both customer demographics and credit bureau
characteristics. The profiles emphasize, among other things, occupancy status,
length of residence, length of employment, debt to income ratio (ratio of total
installment debt and housing expenses to gross monthly income), bank account
references, credit bureau information and combined loan to value ratio. The
models are used to assess a potential borrower's credit standing and repayment
ability considering the value or adequacy of property offered as collateral.
Tyco Capital's credit criteria include reliance on credit scores, including
those based upon both its proprietary internal credit scoring model and external
credit bureau scoring, combined with judgment.

MARKET RISK MANAGEMENT

Market risk is the risk of loss arising from changes in values of financial
instruments, including interest rate risk, foreign exchange risk, derivative
credit risk and liquidity risk. Tyco Capital engages in transactions in the
normal course of business that expose it to market risks, and maintains what it
believes are conservative management practices and policies designed to
effectively mitigate such risks. The objectives of Tyco Capital's market risk
management efforts are to preserve company value by hedging changes in future
expected net cash flows and to decrease the cost of capital. Strategies for
managing market risks associated with changes in interest rates and foreign
exchange rates are an integral part of the process, because those strategies
affect Tyco Capital's future expected cash flows, as well as its cost of
capital.

INTEREST RATE AND FOREIGN EXCHANGE RISK MANAGEMENT

Tyco Capital offers a variety of financing products to its customers
including fixed and floating-rate loans of various maturities and currency
denominations, and a variety of leases, including operating leases. Changes in
market interest rates, or in the relationships between short-term and long-term
market interest rates, or in the relationships between different interest rate
indices (I.E., basis risk) can affect the interest rates charged on
interest-earning assets differently than the interest rates paid on
interest-bearing liabilities, which can result in an increase in interest
expense relative to finance income. Tyco Capital measures its asset/liability
position in economic terms through duration measures and value at risk analysis,
and measures its periodic effect on earnings using maturity gap analysis.

A substantially matched asset/liability position is generally achieved
through a combination of financial instruments, including issuing commercial
paper, medium-term notes, long-term debt, interest rate and currency swaps,
foreign exchange contracts, and through asset syndication and securitization.
Tyco Capital does not speculate on interest rates or foreign exchange rates, but
rather seeks to mitigate the possible impact of such rate fluctuations
encountered in the normal course of business. This process is ongoing due to
prepayments, refinancings and actual payments varying from contractual terms, as
well as other portfolio dynamics.

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Tyco Capital periodically enters into structured financings (involving both
the issuance of debt and an interest rate swap with corresponding notional
principal amount and maturity) to manage liquidity and reduce interest rate risk
at a lower overall funding cost than could be achieved by solely issuing debt.

Interest rate swaps with notional principal amounts of $6.9 billion at
September 30, 2001 were designated as hedges against outstanding debt and were
principally used to convert the interest rate on variable-rate debt to a
fixed-rate, establishing a fixed-rate term debt borrowing cost for the life of
the swap. These hedges reduce Tyco Capital's exposure to rising interest rates,
but also reduce the benefits from lower interest rates.

Tyco Capital's foreign operations include Canada, Latin America, Europe,
Asia and Australia and are funded through both local currency borrowings and
U.S. dollar borrowings which are converted to local currency through the use of
foreign exchange forward contracts or cross-currency swaps. At September 30,
2001, $2.5 billion in notional principal amount of foreign exchange forwards and
$1.7 billion in notional principal amount of cross-currency swaps were
designated as currency-related debt hedges.

Tyco Capital also utilizes foreign exchange forward contracts to hedge its
net investments in foreign operations. Translation gains and losses of the
underlying foreign net investment, as well as offsetting derivative gains or
losses on designated hedges, are reflected in other comprehensive income. At
September 30, 2001, $0.8 billion in notional principal of foreign exchange
forwards were designated as hedges of net investments in foreign operations.

DERIVATIVE RISK MANAGEMENT

Tyco Capital enters into interest rate and currency swaps and foreign
exchange forward contracts as part of its overall market risk management
practices.

The primary external risk of derivative instruments is counterparty credit
exposure, which is defined as the ability of a counterparty to perform its
financial obligations under a derivative contract. Tyco Capital controls the
credit risk of its derivative agreements through counterparty credit approvals,
pre-established exposure limits and monitoring procedures.

LIQUIDITY RISK MANAGEMENT

Liquidity risk refers to the risk of Tyco Capital being unable to meet
potential cash outflows promptly and cost effectively. Factors that could cause
such a risk to arise might be a disruption of a securities market or the
unavailability of funds. Tyco Capital actively manages and mitigates liquidity
risk by maintaining diversified sources of funding. The primary funding sources
are commercial paper (U.S., Canada and Australia), medium-term notes (U.S.,
Canada and Europe) and asset-backed securities (U.S. and Canada). Included as
part of Tyco Capital's securitization programs are committed asset-backed
commercial paper programs in the U.S. and Canada. Tyco Capital also maintains
committed bank lines of credit to provide back-stop support of commercial paper
borrowings and local bank lines to support our international operations.
Additional sources of liquidity are loan and lease payments from customers,
whole loan asset sales and loan syndications.

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The following tables provide information regarding Tyco Capital's financial
instruments which are sensitive to interest rates and foreign currency exchange
rates, and is based upon the contractual rates of Tyco Capital's financial
instruments at September 30, 2001. The amounts included in the table below are
in U.S. dollars ($ in millions).

INTEREST RATE SENSITIVITY

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EXCHANGE RATE SENSITIVITY

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ACCOUNTING AND TECHNICAL PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 141 requires all business combinations initiated
after June 30, 2001 to be accounted for using the purchase method. In addition,
companies are required to review goodwill and intangible assets reported in
connection with prior acquisitions, possibly disaggregate and report separately
previously identified intangible assets and possibly reclassify certain
intangible assets into goodwill. SFAS No. 142 establishes new guidelines for
accounting for goodwill and other intangible assets. In accordance with SFAS
No. 142, goodwill associated with acquisitions consummated after June 30, 2001
is not amortized. The Company implemented the remaining provisions of SFAS
No. 142 on October 1, 2001. Since adoption, existing goodwill is no longer
amortized but instead will be assessed for impairment at least annually. We are
currently determining the impact of adopting this standard under the transition
provisions of SFAS No. 142. Goodwill amortization expense for Fiscal 2001 was
$597.2 million.

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143, addresses accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. This statement is effective for fiscal years beginning
after June 15, 2002. We are currently assessing the impact of this new standard.

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

FORWARD-LOOKING INFORMATION

Certain statements in this report are "forward-looking statements" within
the meaning of the U.S. Private Securities Litigation Reform Act of 1995. All
forward-looking statements involve risks and uncertainties. All statements
contained herein that are not clearly historical in nature are forward-looking,
and the words "anticipate," "believe," "expect," "estimate" and similar
expressions are generally intended to identify forward-looking statements. Any
forward-looking statement contained herein, in press releases, written
statements or other documents filed with the Securities and Exchange Commission,
or in Tyco's communications and discussions with investors and analysts in the
normal course of business through meetings, webcasts, phone calls and conference
calls, regarding the consummation and benefits of future acquisitions, as well
as expectations with respect to future sales, earnings, cash flows, operating
efficiencies, product expansion, backlog, financings and share repurchases, are
subject to known and unknown risks, uncertainties and contingencies, many of
which are beyond our control, which may cause actual results, performance or
achievements to differ materially from anticipated results, performances or
achievements. Factors that might affect such forward-looking statements include,
among other things, overall economic and business conditions; the demand for
Tyco's goods and services; competitive factors in the industries in which Tyco
competes; changes in government regulations; changes in tax requirements
(including tax rate changes, new tax laws and revised tax law interpretations);
results of litigation; interest rate fluctuations and other capital market
conditions, including foreign currency rate fluctuations; economic and political
conditions in international markets, including governmental changes and
restrictions on the ability to transfer capital across borders; Tyco Capital's
ability to access funding sources on a cost-effective basis, its credit loss
experience and the adequacy of its credit loss reserve; the timing of
construction and the successful operation of the TyCom Global Network; the
ability to achieve anticipated synergies and other cost savings in connection
with acquisitions; and the timing, impact and other uncertainties of future
acquisitions.

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TYCO INTERNATIONAL LTD.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(IN MILLIONS)

114