10-Q/A 1 a2113550z10-qa.htm 10-Q/A
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q/A

ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2003
OR
o	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		98-0390500
(Jurisdiction of Incorporation)		(I.R.S. Employer Identification Number)

The Zurich Centre, Second Floor, 90 Pitts Bay Road, Pembroke, HM 08, Bermuda
(Address of Registrant's principal executive office)

441-292-8674
(Registrant's telephone number)

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

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

The number of common shares outstanding as of July 25, 2003 was 1,997,333,756.

INTRODUCTORY NOTE

Form 10-Q/A for the Quarterly Period ended March 31, 2003

This Amendment on Form 10-Q/A is being filed to restate certain amounts (see "Restatement" within Note 1 for discussion of significant changes) and to revise disclosure and presentation of the Company's Consolidated Financial Statements for the quarterly period ended March 31, 2003, in connection with a review of our financial statements and related disclosures by the Staff of the Division of Corporation Finance of the U.S. Securities and Exchange Commission (the "SEC"). This filing should be read in conjunction with the Company's Amendment No. 2 on Form 10-K/A for the fiscal year ended September 30, 2002.

In addition, the Company updated its "Risk Factors" within Management's Discussion and Analysis of Financial Condition and Results of Operations.

This amendment only reflects the changes discussed above. All other information is unchanged and reflects the disclosures made at the time of the original filing on May 15, 2003.

The items amended are as follows:

		Page
Part I —	Financial Information:
Item 1 —	Financial Statements
	Consolidated Statements of Operations (Unaudited) for the quarters and six months ended March 31, 2003 and 2002, as restated	4
	Consolidated Balance Sheets (Unaudited) as of March 31, 2003 and September 30, 2002, as restated	5
	Consolidated Statements of Cash Flows (Unaudited) for the six months ended March 31, 2003 and 2002, as restated	6
	Notes to Consolidated Financial Statements (Unaudited), as restated	7
Item 2 —	Management's Discussion and Analysis of Financial Condition and Results of Operations	50
Item 3 —	Quantitative and Qualitative Disclosures About Market Risk	97
Item 4 —	Controls and Procedures	97
Item 6 —	Exhibits and Reports on Form 8-K	101
Signature		103

Recent Developments

Tyco's wholly-owned subsidiary, Tyco International Group, S.A. ("TIG"), repurchased all of its 6.25% Dealer Remarketable Securities ("Drs.") due 2013 on June 16, 2003. The total Dollar Price paid was $902 million based upon the $750 million par value of the Drs. plus the difference between a Base Rate of 5.55% and the then current ten-year United States Treasury yield-to-maturity. The payment was made from available cash. The portion of the payment in excess of par ($152 million) is recorded as an expense in the third fiscal quarter of 2003, which reduces earnings per share by 7 cents in the quarter.

A class action complaint was filed in the United States District Court for the Southern District of Florida, Ezra Charitable Trust v. Tyco International Ltd. & E. Breen on May 28, 2003, purporting to represent a class of purchasers of Tyco securities between December 30, 2002 to March 12, 2003. Plaintiffs name as defendants Tyco and Edward D. Breen, Tyco's Chairman and Chief Executive Officer. The complaint asserts a cause of action under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder against both defendants. As against defendant Breen, the complaint asserts a cause of action under Section 20(a) of the Securities Exchange Act of 1934. The complaint alleges that defendants violated the securities laws by making materially false and misleading statements and omissions concerning, among other things, Tyco's financial and operating condition and financial prospects for Tyco and its ADT business segment and the results of its investigation of its former management.

Three plaintiffs filed a civil complaint in the Superior Court of the State of California (Los Angeles County) in Hess v. Tyco International, Ltd., et al. on June 2, 2003. Plaintiffs name as defendants Tyco and twelve of our former officers and directors. The complaint asserts four causes of action under the California Corporate Securities Laws of 1968. The complaint alleges that plaintiffs purchased, in exchange for releases of claims against Tyco, Tyco common shares based on Tyco's materially false and misleading statements and omissions about the company's finances, business operations and share value.

Four plaintiffs filed a civil complaint in the United States District Court for the Eastern District of Michigan in Wilson v. Tyco International Ltd. et al on June 3, 2003. Plaintiffs name as defendants Tyco International Ltd., Tyco International (US), Tyco Acquisition Corp. VII and Earth Tech EMS Holdings Inc., d/b/a Earth Tech. The complaint asserts causes of action for breach of contract, negligent misrepresentation, fraudulent misrepresentation and exemplary damages. Plaintiffs allege that during the course of negotiations for the acquisition of two companies by Earth Tech, a division of Tyco, defendants made material misrepresentations to plaintiffs and that after the contracts of sale had been finalized, breached material terms of the contracts. Plaintiffs also allege that defendants engaged in accounting manipulations that caused significant harm to the two companies and that, as a result, plaintiffs were denied fair payment for their companies, which lost fair market value.

Plaintiffs in the pending District of New Hampshire consolidated multidistrict shareholder derivative litigation filed a Verified Stockholders' Second Consolidated and Amended Derivative Complaint, Evans v. Kozlowski et al. on June 12, 2003. This second amended complaint drops as defendants Tyco's auditors, and adds as defendants each of the members of the current Board of Directors of Tyco. The second amended complaint alleges against all defendants causes of action for breach of fiduciary duty and equitable fraud, and for waste of corporate assets and equitable fraud. The second amended complaint alleges that the defendants who are former directors and officers of Tyco engaged in, permitted and/or acquiesced in the following alleged improper conduct: using Tyco funds for personal benefit, including misappropriation of funds from our Key Employee Loan Program and relocation programs; engaging in improper self-dealing real estate transactions; entering into improper undisclosed retention agreements; and filing false and misleading financial statements with the SEC that were based on improper accounting methods. The second amended complaint alleges that the

defendants who are current directors of Tyco engaged in, permitted and/or acquiesced in the following alleged improper conduct: making misstatements and omissions in order to disclose certain accounting issues slowly over time in order to maintain an allegedly artificial inflation of Tyco's stock price; making misstatements and omissions in recommending in the February 2003 proxy statement against reincorporation in Delaware; making misstatements and omissions in recommending in the February 2003 proxy statement against a proposal to separate the positions of CEO and Chairman; and other allegedly improper conduct. Plaintiffs seek money damages and attorneys' fees and expenses.

A class action complaint was filed on July 1, 2003 in the United States District Court for the Southern District of Florida, Chang v. Tyco International Ltd. & Breen purporting to represent a class of purchasers of Tyco Securities between December 30, 2002 to March 12, 2003. Plaintiffs name as defendants Tyco and Edward D. Breen, Tyco's Chairman and Chief Executive Officer. The complaint asserts a cause of action under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder against both defendants. As against defendant Breen, the complaint asserts a cause of action under Section 20(a) of the Securities Exchange Act of 1934. The complaint alleges that defendants violated the securities laws by making materially false and misleading statements and omissions concerning, among other things, Tyco's financial and operating condition and financial prospects for Tyco and its ADT business segment and the results of its investigation of its former management.

PART I—FINANCIAL INFORMATION

Item 1—Financial Statements

TYCO INTERNATIONAL LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in millions, except per share data)

		For the Quarters Ended March 31,						For the Six Months Ended March 31,
		2003			2002			2003			2002
		(restated)						(restated)
Revenue from product sales		$	7,207.9		$	6,995.7		$	14,366.1		$	13,906.0
Service revenue			1,780.6			1,611.4			3,549.8			3,211.6

Net revenues			8,988.5			8,607.1			17,915.9			17,117.6
Cost of product sales			4,890.7			4,840.4			9,684.0			9,239.2
Cost of services			964.8			791.9			1,903.5			1,597.5
Selling, general and administrative expenses			2,470.3			1,955.6			4,618.9			3,783.2
Restructuring and other (credits) charges, net			(59.6	)		348.8			(63.1	)		368.7
Charges for the impairment of long-lived assets			87.2			2,389.2			87.2			2,389.7

Operating (loss) income			635.1			(1,718.8	)		1,685.4			(260.7	)
Interest income			21.8			29.5			47.6			49.1
Interest expense			(299.8	)		(255.1	)		(588.8	)		(463.9	)
Other expense, net			(61.4	)		(143.4	)		(60.0	)		(147.7	)

Income (loss) from continuing operations before income taxes and minority interest			295.7			(2,087.8	)		1,084.2			(823.2	)
Income taxes			(170.4	)		3.5			(392.3	)		(223.9	)
Minority interest			(1.0	)		(1.6	)		(1.7	)		(0.1	)

Income (loss) from continuing operations			124.3			(2,085.9	)		690.2			(1,047.2	)

(Loss) income from discontinued operations of Tyco Capital, net of tax of $0 for the six months ended March 31, 2003 and $65.8 million and $188.2 million for the quarter and six months ended March 31, 2002, respectively			—			(4,323.0	)		20.0			(4,058.3	)

Net income (loss)		$	124.3		$	(6,408.9	)	$	710.2		$	(5,105.5	)

Basic earnings (loss) per common share:
	Income (loss) from continuing operations	$	0.06		$	(1.05	)	$	0.35		$	(0.53	)
	(Loss) income from discontinued operations of Tyco Capital, net of tax		—			(2.17	)		0.01			(2.05	)
	Net income (loss) per common share		0.06			(3.22	)		0.36			(2.57	)
Diluted earnings (loss) per common share:
	Income (loss) from continuing operations	$	0.06		$	(1.05	)	$	0.34		$	(0.53	)
	(Loss) income from discontinued operations of Tyco Capital, net of tax		—			(2.17	)		0.01			(2.05	)
	Net income (loss) per common share		0.06			(3.22	)		0.35			(2.57	)
Weighted-average number of common shares outstanding:
	Basic		1,994.5			1,991.5			1,994.6			1,983.1
	Diluted		2,001.0			1,991.5			2,087.2			1,983.1

See Notes to Consolidated Financial Statements (Unaudited).

TYCO INTERNATIONAL LTD.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in millions, except share data)

				March 31, 2003			September 30, 2002
				(restated)
Assets
Current Assets:
	Cash and cash equivalents			$	3,965.2		$	6,185.7
	Restricted cash				460.3			196.2
	Accounts receivable, less allowance for doubtful accounts ($690.9 at March 31, 2003 and $638.0 at September 30, 2002)				5,827.4			5,831.9
	Inventories				4,660.7			4,607.9
	Deferred income taxes				1,023.0			1,356.0
	Other current assets				1,797.8			1,461.7

		Total current assets			17,734.4			19,639.4
Tyco Global Network, Net					644.5			581.6
Property, Plant and Equipment, Net					9,835.7			9,861.0
Goodwill					26,031.2			26,020.5
Intangible Assets, Net					5,844.6			5,805.8
Other Assets					3,614.2			3,549.2

			Total Assets	$	63,704.6		$	65,457.5

Liabilities and Shareholders' Equity
Current Liabilities:
	Loans payable and current maturities of long-term debt			$	4,386.8		$	7,719.0
	Accounts payable				2,824.2			3,173.8
	Accrued expenses and other current liabilities				4,653.1			5,296.5
	Contracts in process—billings in excess of cost				477.7			523.6
	Deferred revenue				760.2			758.5
	Income taxes payable				2,327.5			2,219.1

		Total current liabilities			15,429.5			19,690.5
Long-Term Debt					17,442.7			16,486.8
Other Long-Term Liabilities					5,384.4			5,156.1

			Total Liabilities		38,256.6			41,333.4

Commitments and Contingencies (Note 11)
Minority Interest					30.1			42.8
Shareholders' Equity:
	Preference shares, $1 par value, 125,000,000 shares authorized, one share outstanding at March 31, 2003 and September 30, 2002				—			—
	Common shares, $0.20 par value, 4,000,000,000 shares authorized; 1,996,784,160 and 1,995,699,758 shares outstanding, net of 22,222,812 and 22,522,250 shares owned by subsidiaries at March 31, 2003 and September 30, 2002, respectively				399.4			399.1
	Capital excess:
		Share premium			8,149.4			8,146.9
		Contributed surplus, net of deferred compensation of $52.9 at March 31, 2003 and $51.2 at September 30, 2002			15,083.0			15,042.7
	Accumulated earnings				2,741.7			2,081.2
	Accumulated other comprehensive loss				(955.6	)		(1,588.6	)

			Total Shareholders' Equity		25,417.9			24,081.3

			Total Liabilities and Shareholders' Equity	$	63,704.6		$	65,457.5

See Notes to Consolidated Financial Statements (Unaudited).

TYCO INTERNATIONAL LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in millions)

				For the Six Months Ended March 31,
				2003			2002
				(restated)
Cash Flows From Operating Activities:
Income (loss) from continuing operations				$	690.2		$	(1,047.2	)
Adjustments to reconcile (loss) income from continuing operations to net cash provided by operating activities:
	Non-cash restructuring and other (credits) charges				(33.7	)		267.0
	Charges for the impairment of long-lived assets				87.2			2,389.7
	Loss on investments				75.6			141.0
	Depreciation				726.8			730.6
	Intangible assets amortization				368.8			279.5
	Deferred income taxes				305.6			(127.9	)
	Debt and refinancing cost amortization				63.4			78.3
	Other non-cash items				111.7			26.4
	Changes in assets and liabilities, net of the effects of acquisitions and divestitures:
		Accounts receivable			291.0			977.4
		Decrease in sale of accounts receivable programs			(96.5	)		(28.0	)
		Contracts in progress			(50.8	)		(175.9	)
		Inventories			57.5			(186.4	)
		Other current assets			(5.3	)		(128.4	)
		Accounts payable			(420.6	)		(610.1	)
		Accrued expenses and other current liabilities			(222.6	)		(131.5	)
		Income taxes			111.2			19.0
		Deferred revenue			(8.8	)		(32.7	)
		Other			55.9			95.4

			Net cash provided by operating activities from continuing operations		2,106.6			2,536.2
			Net cash provided by operating activities from discontinued operations		20.0			924.6

			Net cash provided by operating activities		2,126.6			3,460.8

Cash Flows From Investing Activities:
Purchase of property, plant and equipment, net					(566.1	)		(979.1	)
Construction in progress—Tyco Global Network					(89.0	)		(817.4	)
Acquisition of businesses, net of cash acquired					(34.6	)		(1,664.5	)
Acquisition of customer accounts (ADT dealer program)					(358.3	)		(546.2	)
Cash paid for purchase accounting and holdback/earn-out liabilities					(189.5	)		(376.4	)
Disposal of businesses					5.4			—
Cash invested in short-term investments					(278.1	)		—
Net sale (purchase) of long-term investments					54.5			(11.9	)
Increase in restricted cash					(310.7	)		—
Other					81.4			(178.7	)

			Net cash used in investing activities from continuing operations		(1,685.0	)		(4,574.2	)
			Net cash provided by investing activities from discontinued operations		—			2,251.2

			Net cash used in investing activities		(1,685.0	)		(2,323.0	)

Cash Flows From Financing Activities:
Net (repayments of) proceeds from debt					(2,660.5	)		5,181.7
Proceeds from exercise of options					2.6			181.3
Dividends paid					(50.4	)		(49.7	)
Repurchase of Tyco common shares					(0.4	)		(765.8	)
Capital contribution to Tyco Capital					—			(200.0	)
Other					(5.0	)		15.0

			Net cash (used in) provided by financing activities from continuing operations		(2,713.7	)		4,362.5
			Net cash used in financing activities from discontinued operations		—			(1,762.8	)

			Net cash (used in) provided by financing activities		(2,713.7	)		2,599.7

Effect of currency translation on cash					51.6			(31.0	)
Net (decrease) increase in cash and cash equivalents					(2,220.5	)		3,706.5
Tyco Capital's cash and cash equivalents transferred to discontinued operations					—			(1,451.3	)
Cash and cash equivalents at beginning of period					6,185.7			1,780.1

Cash and cash equivalents at end of period				$	3,965.2		$	4,035.3

See Notes to Consolidated Financial Statements (Unaudited).

TYCO INTERNATIONAL LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Basis of Presentation and Restatement

Basis of Presentation—The unaudited Consolidated Financial Statements include the consolidated accounts of Tyco International Ltd., a company incorporated in Bermuda, and its subsidiaries (hereinafter "we," the "Company" or "Tyco").

The financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all the information and note disclosures required by Generally Accepted Accounting Principles in the United States. These statements should be read in conjunction with the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2002, as amended.

The Consolidated Financial Statements have not been examined by independent accountants in accordance with Generally Accepted Auditing Standards, but in the opinion of management, such financial statements include all adjustments, consisting only of normal recurring adjustments, necessary to summarize fairly the Company's financial position and results of operations. All references in this Form 10-Q/A to "$" are to U.S. dollars.

Investigation—With the arrival of new senior management, the Company has engaged in a number of internal audits aimed at determining what, if any, misconduct may have been committed by prior senior management. An initial review of prior management's transactions with the Company was conducted by the law firm of Boies, Schiller & Flexner LLP. The details of their findings were made public in a Form 8-K filed on September 17, 2002. In July 2002, our new CEO and our Board of Directors ordered a further review of corporate governance practices and the accounting of selected acquisitions. This review has been referred to as the "Phase 2 review."

The Phase 2 review was conducted by the law firm of Boies, Schiller & Flexner LLP and the Boies firm was in turn assisted by forensic accountants. The review received the full cooperation of Tyco's auditors, PricewaterhouseCoopers LLP, as well as Tyco's new senior management team. The review included an examination of Tyco's reported revenues, profits, cash flow, internal auditing and control procedures, accounting for major acquisitions and reserves, the use of non-recurring charges, as well as corporate governance issues such as the personal use of corporate assets and the use of corporate funds to pay personal expenses, employee loan and loan forgiveness programs. Approximately 25 lawyers and 100 accountants worked on the review from August into December 2002. In total, at considerable cost, more than 15,000 lawyer hours and 50,000 accountant hours were dedicated to this review. The review team examined documents and interviewed Tyco personnel at more than 45 operating units in the United States and in 12 foreign countries.

The results of the Phase 2 review were reported by the Company in a Form 8-K furnished to the SEC on December 30, 2002.

Restatement—As previously disclosed, we have been engaged in a dialogue with the staff of the Division of Corporation Finance of the U.S. Securities and Exchange Commission (the "Staff") as part of a review of our periodic filings. We believed that we had resolved the material accounting issues at the time of the original filing of our Form 10-K for the year ended September 30, 2002. Subsequent correspondence and discussions with the Staff, principally regarding the method of amortizing contracts acquired through our ADT dealer program as well as the accounting for amounts reimbursed to us from ADT dealers, coupled with issues related to the prior periods identified during our intensified internal audits and detailed operating reviews in the quarter ended March 31, 2003 have led us to restate our consolidated financial statements for the quarters ended March 31, 2003 and December 31, 2002, and for the fiscal years ended September 30, 2002, 2001, 2000, 1999 and 1998.

The restatement principally relates to (i) recording charges in the prior years and quarters to which they relate, rather than in the period such charges were initially identified, (ii) a revision in the method of amortization used to allocate the costs of contracts acquired through our ADT dealer program so that the amortization of such costs better matches the pattern of revenue related to such contracts, (iii) a revision in the method of accounting for amounts reimbursed to us from ADT dealers as part of the ADT dealer program to effectively treat such amounts as an integral part of the purchase of the underlying contracts, and (iv) certain other adjustments regarding charges or credits so as to record them in earlier accounting periods to which they relate. Each of these matters are described further below:

Charges Relating to Prior Years Initially Recorded in Fiscal 2002

As disclosed in the Company's previously filed Form 10-K for the fiscal year ended September 30, 2002, the Company identified various adjustments during the fourth quarter of fiscal 2002 relating to prior period financial statements. These adjustments, which aggregated $261.6 million on a pre-tax basis or $199.7 million on an after-tax basis, were recorded effective October 1, 2001. The adjustments primarily were related to reimbursements from ADT dealers in years prior to fiscal 2002 in excess of the costs incurred, a lower net gain on the issuance of TyCom shares previously reported for fiscal 2001 and adjustments identified both as a result of the Phase 2 review and the recording of previously unrecorded audit adjustments (which were more appropriately recorded as expenses as opposed to part of acquisition accounting). The restatement includes adjustments to reverse the charges recorded in the first quarter of fiscal 2002 and present those charges in the historical periods to which they relate.

Charges Relating to Prior Years and Quarters Recorded in the Quarter Ended March 31, 2003

As disclosed in the Company's previously filed Form 10-Q for the quarter ended March 31, 2003, the Company conducted intensified internal audits and detailed controls and operating reviews that resulted in the Company identifying and recording pre-tax charges of $434.5 million in that quarter for charges related to prior periods. These charges resulted from capitalizing certain selling expenses to property, plant and equipment and other non-current assets, mostly in the Fire and Security Services segment, and reconciliation items relating to balance sheet accounts where certain account analysis or periodic reconciliations were deficient, resulting in adjustments primarily related to the Engineered Products and Services segment. Additionally, charges related to the correction of balances primarily related to corporate pension and deferred compensation accruals, asset reserve adjustments and other accounting adjustments (i.e., purchase price accounting accruals, deferred commissions, accounting related to leases in the Fire and Security Services and Engineered Products and Services segments). The restatement includes adjustments to reverse the charges recorded in the quarter ended March 31, 2003 and reflect those charges in the historic periods to which they relate.

Method of Amortizing Contracts and Related Customer Relationships

As described elsewhere in Note 1 to the financial statements appearing in the Company's Form 10-K/A for the year ended September 30, 2002, the Company purchases residential security monitoring contracts from an external network of independent dealers who operate under the ADT dealer program. The purchase price of these customer contracts is recorded as an intangible asset (i.e., contracts and related customer relationships), which is amortized over the period of the economic benefit expected to be obtained from the customer relationship. Effective January 1, 2003, and as

disclosed in the Company's previously filed Form 10-Q for the quarter ended March 31, 2003, the Company changed its method of accounting for the amortization of the costs of these purchased contracts from the straight-line method to an accelerated method. In addition, the Company revised its estimate of the life of the customer account pool over which the costs of purchased contracts would be amortized from ten years to twelve years. The change in method of accounting was viewed as inseparable from the change in estimated life, and therefore, the pre-tax cumulative effect of this charge of $315.5 million was recorded as an increase in amortization expense effective January 1, 2003. The restatement reverses this previously recorded charge and reflects the accelerated amortization method for all historical periods.

Amounts Reimbursed from ADT Dealers

As described elsewhere in Note 1 to the financial statements appearing in the Company's Form 10-K/A for the year ended September 30, 2002, the Company incurs costs associated with maintaining and operating its ADT dealer program, including brand advertising costs and due diligence costs relating to contracts offered for sale to the Company under the ADT dealer program. Dealers pay the Company a non-refundable amount for each of the contracts sold to the Company representing their reimbursement of such dealer program costs. Prior to fiscal 2002, the Company recognized as an expense reduction the entire amount of such reimbursements from dealers. Commencing October 1, 2001, to the extent that the amount of dealer reimbursement exceeded the actual costs incurred by the Company, the excess was recorded as a deferred credit and amortized on a straight-line basis over ten years. As disclosed in the Company's previously filed Form 10-Q for the quarter ended March 31, 2003, the Company changed its method of accounting for these reimbursements from dealers. Pursuant to a recently issued consensus of the FASB's Emerging Issues Task Force (EITF 02-16, "Accounting by a Customer (Including a Reseller) for Certain Consideration received from a Vendor"), the consideration received by the Company relating to the non-refundable charge to each dealer for reimbursement of the costs to support the ADT dealer program was presumed to be a reduction in the capitalized intangible asset cost to the Company of acquiring customer contracts. As permitted under EITF 02-16, the Company changed its method of accounting for the amounts received from dealers for reimbursement of the costs to support the ADT dealer program through a cumulative change recorded retroactively to the beginning of the fiscal year. This was reported as a $206.7 million after-tax ($265.5 million pre-tax) charge for the cumulative effect of change in accounting principle in the Consolidated Statement of Operations for the six months ended March 31, 2003, retroactive to October 1, 2002. The impact on the Consolidated Balance Sheets of the cumulative adjustment was a decrease in net intangible assets of $566.8 million and a decrease in liabilities for the previously deferred non-refundable charge to dealers of $301.4 million. The restatement reverses the cumulative effect of the previously recorded change in accounting to report non-refundable dealer reimbursements as a reduction in the capitalized intangible asset cost to the Company of purchasing customer contracts in each prior accounting period to which such purchases relate and changes the classification of the portion of such previous charge that represents an impairment of customer contracts and relationships. This impairment charge ($77.0 million pre-tax) resulted from a further deterioration during the quarter ended March 31, 2003 of future estimated cash flows anticipated from customers primarily in Mexico and certain Latin American countries following the curtailment, and in some instances, the termination of the ADT dealer program in these countries in 2002. This charge is now classified on the fiscal 2003 Consolidated Statement of Operations as an Impairment of Long-Lived Assets.

Other Adjustments

In connection with the decision to reverse the effect of charges relating to prior years and quarters described above, and to record those charges in the fiscal periods to which they relate, the restatement also records the following adjustments, representing timing differences between fiscal periods: (i) reduce the revenue ($90.0 million) and gross margin ($53.0 million) recognized on the sale of capacity on the TyCom network recorded in fiscal 2001 and 2002 and reverse the write-off of $55.0 million of remaining accounts receivable relating to such transaction (ii) reverse $166.8 million of income recognized in connection with the settlement of litigation in fiscal 2001, along with the corresponding value assigned to intangible assets, and reverse the subsequent amount of amortization of the intangible asset as well as the amount of loss attributable to that asset upon disposition in fiscal 2002 of the Healthcare business to which the intangible asset related and (iii) reverse $31.6 million of charges originally recorded during the fourth quarter of fiscal 2002 and reflect this charge in the prior quarters and years to which they relate. These charges relate primarily to intercompany profit, capitalized costs, and account reconciliation issues within the Engineered Products and Services segment. The restatement also includes an adjustment to change the classification of a $20.0 million restitution payment from Other income (expense) in continuing operations to Income from discontinued operations of Tyco Capital in the Statement of Operations for the quarter ended December 31, 2002.

The Company also determined that the pre-tax charges of $434.5 million recorded in the quarter ended March 31, 2003 described above should have been greater by $71.5 million. The $71.5 million (which relates primarily to workers' compensation and product and general liability insurance accruals) was previously included in the $471.4 million of charges recorded during the quarter ended March 31, 2003, described as Charges Related to Current Period Changes in Estimates. This amount has been reversed and is reflected as part of the restatement discussed above.

In addition to the charges and adjustments discussed above, the Company also identified previously unrecorded obligations relating to compensation arrangements with two members of former senior management, which were funded through split dollar life insurance policies. The Company's obligations under these arrangements were entered into in recognition of services rendered by these officers in prior fiscal periods and were not contingent upon continuing employment. The Company previously expensed the insurance premiums funded under these arrangements of $7.7 million, and $3.8 million in the years ended September 30, 2002, and 2001, respectively, as well as a lump-sum payment of $24.6 million paid to one of the officers upon his termination in fiscal 2002. As part of the restatement the Company has accrued $49.3 million and $46.6 million on our consolidated balance sheets as of March 31, 2003 and September 30, 2002, respectively, in connection with these arrangements and reversed the expense for the lump-sum payment recorded in fiscal 2002 related to the terminated executive, as it is now recorded in fiscal years 2001 and 2000.

In addition, it was determined that the cumulative net deferred tax assets associated with the above charges should have been greater by approximately $116 million as of March 31, 2003 and $300 million as of September 30, 2002. The effect of the tax adjustment on previously reported results of operations is to increase net income from continuing operations and net income by $49.6 million, $103.4 million, $75.0 million and $72.0 million for the fiscal years of 2002, 2001, 2000, and fiscal years preceding 2000, respectively.

The Company believes that the restatement addresses all of the significant remaining issues identified as part of the Staff's ongoing review of its periodic reports. We continue to be engaged in a dialogue with the Staff, however, and the review is not yet complete. We are working to resolve the remaining comments that the Staff has made on our periodic filings as expeditiously as possible. We cannot assure you the resolution of the remaining Staff comments will not necessitate further amendments or restatements to our previously-filed periodic reports.

The impact on the Consolidated Statements of Operations, Consolidated Balance Sheets and Consolidated Statements of Cash Flows, as a result of the above adjustments, is as follows (in millions, except per share data). The amounts previously reported are derived from the original Form 10-Q for the quarter ended March 31, 2003 filed on May 15, 2003.

			For the Quarter Ended March 31, 2003						For the Quarter Ended March 31, 2002						For the Six Months Ended March 31, 2003						For the Six Months Ended March 31, 2002
			Amounts Previously Reported			As Restated			Amounts Previously Reported			As Restated			Amounts Previously Reported			As Restated			Amounts Previously Reported			As Restated
Statements of Operations:
	Revenues from product sales		$	7,199.7		$	7,207.9		$	7,000.0		$	6,995.7		$	14,369.9		$	14,366.1		$	13,977.6		$	13,906.0
	Service revenue			1,780.6			1,780.6			1,611.4			1,611.4			3,549.8			3,549.8			3,212.5			3,211.6

	Net revenues			8,980.3			8,988.5			8,611.4			8,607.1			17,919.7			17,915.9			17,190.1			17,117.6
	Cost of product sales			4,922.4			4,890.7			4,838.1			4,840.4			9,713.9			9,684.0			9,266.9			9,239.2
	Cost of services			964.8			964.8			791.9			791.9			1,903.5			1,903.5			1,597.5			1,597.5
	Selling, general and administrative expenses			3,234.1			2,470.3			1,887.1			1,955.6			5,334.2			4,618.9			3,852.4			3,783.2
	Restructuring and other charges (credits), net			(59.6	)		(59.6	)		403.8			348.8			(63.1	)		(63.1	)		423.7			368.7
	Charges for impairment of long-lived assets			23.3			87.2			2,351.7			2,389.2			23.3			87.2			2,351.7			2,389.7

		Operating (loss) income		(104.7	)		635.1			(1,661.2	)		(1,718.8	)		1,007.9			1,685.4			(302.1	)		(260.7	)
	Interest income			21.8			21.8			29.5			29.5			47.6			47.6			49.1			49.1
	Interest expense			(299.8	)		(299.8	)		(255.1	)		(255.1	)		(588.8	)		(588.8	)		(463.9	)		(463.9	)
	Other (expense) income, net			(61.4	)		(61.4	)		(143.4	)		(143.4	)		(40.0	)		(60.0	)		(147.7	)		(147.7	)
	Sale of common shares of a subsidiary			—			—			—			—			—			—			(39.6	)		—

	(Loss) income before taxes and minority interest			(444.1	)		295.7			(2,030.2	)		(2,087.8	)		426.7			1,084.2			(904.2	)		(823.2	)
	Income taxes			(22.8	)		(170.4	)		(23.2	)		3.5			(267.4	)		(392.3	)		(216.0	)		(223.9	)
	Minority interest			(1.0	)		(1.0	)		(1.6	)		(1.6	)		(1.7	)		(1.7	)		(0.1	)		(0.1	)

	(Loss) income from continuing operations			(467.9	)		124.3			(2,055.0	)		(2,085.9	)		157.6			690.2			(1,120.3	)		(1,047.2	)

	(Loss) income from discontinued operations, net of tax			—			—			(4,323.0	)		(4,323.0	)		—			20.0			(4,058.3	)		(4,058.3	)

	(Loss) income before cumulative effect of accounting change			(467.9	)		124.3			(6,378.0	)		(6,408.9	)		157.6			710.2			(5,178.6	)		(5,105.5	)
	Cumulative effect of accounting change			—			—			—			—			(206.7	)		—			—			—

	Net (loss) income		$	(467.9	)	$	124.3		$	(6,378.0	)	$	(6,408.9	)	$	(49.1	)	$	710.2		$	(5,178.6	)	$	(5,105.5	)

	Basic net (loss) income per common share		$	(0.23	)	$	0.06		$	(3.20	)	$	(3.22	)	$	(0.02	)	$	0.36		$	(2.61	)	$	(2.57	)
	Diluted net (loss) income per common share			(0.23	)		0.06			(3.20	)		(3.22	)		(0.02	)		0.35			(2.61	)		(2.57	)

					March 31, 2003						September 30, 2002
					Amounts Previously Reported			As Restated			Amounts Previously Reported			As Restated
Balance Sheets:
	Current Assets:
		Cash and cash equivalents			$	3,965.2		$	3,965.2		$	6,186.8		$	6,185.7
		Restricted cash				460.3			460.3			196.2			196.2
		Accounts receivable				5,828.2			5,827.4			5,848.6			5,831.9
		Inventories				4,660.7			4,660.7			4,716.0			4,607.9
		Other current assets				2,802.9			2,820.8			2,802.2			2,817.7

				Total current assets		17,717.3			17,734.4			19,749.8			19,639.4
	Tyco Global Network, Net					644.5			644.5			581.6			581.6
	Property, Plant and Equipment, Net					9,835.7			9,835.7			9,969.5			9,861.0
	Goodwill					26,031.2			26,031.2			26,093.2			26,020.5
	Intangible Assets, Net					5,844.5			5,844.6			6,562.6			5,805.8
	Other Assets					3,425.2			3,614.2			3,457.7			3,549.2

				Total Assets	$	63,498.4		$	63,704.6		$	66,414.4		$	65,457.5

	Liabilities and Shareholders' Equity
	Current Liabilities:
		Loans payable and current maturities of long-term debt			$	4,386.8		$	4,386.8		$	7,719.0		$	7,719.0
		Accounts payable				2,824.2			2,824.2			3,170.0			3,173.8
		Accrued expenses and other current liabilities				4,655.8			4,653.1			5,270.8			5,296.5
		Contracts in process — billings in excess of cost				477.7			477.7			522.1			523.6
		Deferred revenue				723.4			760.2			731.3			758.5
		Income taxes payable				2,327.5			2,327.5			2,218.9			2,219.1

				Total current liabilities		15,395.4			15,429.5			19,632.1			19,690.5
	Long-Term Debt					17,442.7			17,442.7			16,486.8			16,486.8
	Other Long-Term Liabilities					5,244.3			5,384.4			5,462.1			5,156.1

				Total Liabilities		38,082.4			38,256.6			41,581.0			41,333.4

	Minority Interest					30.1			30.1			42.8			42.8
	Shareholders' Equity:
		Common shares				399.4			399.4			399.1			399.1
		Capital excess:
			Share premium			8,149.4			8,149.4			8,146.9			8,146.9
			Contributed surplus			15,083.0			15,083.0			15,042.7			15,042.7
		Accumulated earnings				2,695.3			2,741.7			2,794.1			2,081.2
		Accumulated other comprehensive loss				(941.2	)		(955.6	)		(1,592.2	)		(1,588.6	)

				Total Shareholders' Equity		25,385.9			25,417.9			24,790.6			24,081.3

				Total Liabilities and Shareholders' Equity	$	63,498.4		$	63,704.6		$	66,414.4		$	65,457.5

		For Six Months Ended March 31, 2003						For the Six Months Ended March 31, 2002
		Amounts Previously Reported			As Restated			Amounts Previously Reported			As Restated
Statements of Cash Flows:
	Income from continuing operations	$	157.6		$	690.2		$	(1,120.3	)	$	(1,047.2	)
	Net cash provided by operating activities		2,154.4			2,126.6			3,602.0			3,460.8
	Purchase of property, plant and equipment		(595.0	)		(566.1	)		(988.3	)		(979.1	)
	Construction in progress—Tyco Global Network		(89.0	)		(89.0	)		(817.4	)		(817.4	)
	Acquisition of businesses, net of cash acquired		(34.6	)		(34.6	)		(1,664.5	)		(1,664.5	)
	Acquisition of customer accounts (ADT dealer program)		(358.3	)		(358.3	)		(678.2	)		(546.2	)
	Other investing activities		(637.0	)		(637.0	)		1,684.2			1,684.2

	Net cash used in investing activities		(1,713.9	)		(1,685.0	)		(2,464.2	)		(2,323.0	)
	Net cash (used in) provided by financing activities		(2,713.7	)		(2,713.7	)		2,599.7			2,599.7
	Effect of currency translation on cash		51.6			51.6			(31.0	)		(31.0	)
	Net (decrease) increase in cash and cash equivalents		(2,221.6	)		(2,220.5	)		3,706.5			3,706.5
	Tyco capital's cash and cash equivalents transferred to discontinued operations		—			—			(1,451.3	)		(1,451.3	)
	Cash and cash equivalents at beginning of period		6,186.8			6,185.7			1,779.2			1,780.1

	Cash and cash equivalents at end of period	$	3,965.2		$	3,965.2		$	4,034.4		$	4,035.3

The following table reflects the impact of the aforementioned adjustments on net revenues ($ in millions):

		For the Quarters Ended March 31,						For the Six Months Ended March 31,
		2003			2002			2003			2002
Net revenues, as previously reported		$	8,980.3		$	8,611.4		$	17,919.7		$	17,190.1
Adjustments:
	Capitalized Costs		(9.8	)		0.4			(9.9	)		0.8
	Asset Reserve Adjustments		11.1			—			—			—
	Other Accounting Adjustments		6.9			(4.7	)		6.1			(9.4	)
	TyCom Network Transaction		—			—			—			(63.9	)

Increase (decrease) in net revenues			8.2			(4.3	)		(3.8	)		(72.5	)

Net revenues, as restated		$	8,988.5		$	8,607.1		$	17,915.9		$	17,117.6

The following table reflects the impact of the aforementioned adjustments on operating (loss) income and operating margins ($ in millions):

		For the Quarters Ended March 31,						For the Six Months Ended March 31,
		2003			2002			2003			2002
Operating (loss) income, as previously reported		$	(104.7	)	$	(1,661.2	)	$	1,007.9		$	(302.1	)
Adjustments:
	Phase 2 Adjustments		—			—			—			36.1
	Capitalized and Deferred Costs		179.5			(7.5	)		173.2			(16.1	)
	Reconciliation Items		134.1			(1.6	)		131.5			(4.6	)
	Adjustments to Accrual Balances		15.0			(0.3	)		13.9			(0.7	)
	Asset Reserve Adjustments		18.5			(0.6	)		7.4			(1.2	)
	Other Accounting Adjustments		102.4			(9.6	)		97.7			(22.1	)
	Customer Contract Amortization Method		315.5			(25.5	)		288.5			(49.2	)
	ADT Dealer Reimbursements		(81.7	)		(25.4	)		(84.8	)		131.6
	TyCom Network Transaction		—			18.0			—			(21.4	)
	Healthcare Divestiture Transaction		—			4.2			—			8.4
	Insurance and Compensation Accrual Adjustments		56.5			(9.3	)		50.1			(19.4	)

Increase (decrease) in operating income (loss)			739.8			(57.6	)		677.5			41.4

Operating income (loss), as restated		$	635.1		$	(1,718.8	)	$	1,685.4		$	(260.7	)

Operating Margins:
	As previously reported		(1.2)	%		(19.3)	%		5.6	%		(1.8)	%
	As restated		7.1			(20.0	)		9.4			(1.5	)

The following table reflects the impact of the aforementioned adjustments on (loss) income from continuing operations before income taxes and minority interest ($ in millions):

		For the Quarters Ended March 31,						For the Six Months Ended March 31,
		2003			2002			2003			2002
(Loss) income from continuing operations before income taxes and minority interest, as previously reported		$	(444.1	)	$	(2,030.2	)	$	426.7		$	(904.2	)
Adjustments:
	Gain on Issuance of TyCom Shares		—			—			—			39.6
	Phase 2 Adjustments		—			—			—			36.1
	Capitalized and Deferred Costs		179.5			(7.5	)		173.2			(16.1	)
	Reconciliation Items		134.1			(1.6	)		131.5			(4.6	)
	Adjustments to Accrual Balances		15.0			(0.3	)		13.9			(0.7	)
	Asset Reserve Adjustments		18.5			(0.6	)		7.4			(1.2	)
	Other Accounting Adjustments		102.4			(9.6	)		97.7			(22.1	)
	Restitution Payment		—			—			(20.0	)		—
	Customer Contract Amortization Method		315.5			(25.5	)		288.5			(49.2	)
	ADT Dealer Reimbursements		(81.7	)		(25.4	)		(84.8	)		131.6
	TyCom Network Transaction		—			18.0			—			(21.4	)
	Healthcare Divestiture Transaction		—			4.2			—			8.4
	Insurance and Compensation Accrual Adjustments		56.5			(9.3	)		50.1			(19.4	)

Increase (decrease)			739.8			(57.6	)		657.5			81.0

Income (loss) from continuing operations before income taxes and minority interest, as restated		$	295.7		$	(2,087.8	)	$	1,084.2		$	(823.2	)

Charges Related to Current Period Changes in Estimates—The preparation of consolidated financial statements in conformity with Generally Accepted Accounting Principles requires management to make extensive use of estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. Significant estimates in the Company's Consolidated Financial Statements include restructuring and other charges (credits), purchase accounting reserves, allowances for doubtful accounts receivable, 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. Changes in estimates are recorded in the results of operations in the period that the events and circumstances giving rise to such changes occur.

During the quarter ended March 31, 2003, the Company intensified a process whereby internal audits and detailed controls and operating reviews were conducted. As a result of this process, the Company previously recorded $471.4 million of pre-tax charges relating to new information and changes in facts and circumstances occurring during the quarter. The process included assessing the continued recoverability of assets, including accounts receivable, inventory and installed security systems and equity investments, and the estimated costs of settling legal, environmental and insurance obligations. The assessments were based on an analysis of the impact of circumstances that occurred during the quarter and on our assessment of the recoverability of certain assets and costs to settle certain liabilities. The assessments include changes in judgments relative to the adequacy of reserves and contingent liabilities. Concurrent with this review process and resulting assessments by management during the quarter, we decided to discontinue existing product lines and terminate information technology systems implementation project. As a result of these decisions, inventory and other asset balances were written down to their net realizable value.

The Company has subsequently determined that the pre-tax charges of $471.4 million described above included charges of $71.5 million related to periods prior to the quarter ended March 31, 2003. These charges have been reversed from the quarter ended March 31, 2003 and are reflected as part of the restatement discussed above. In addition, it was subsequently determined that the $471.4 million was overstated by $11.2 million, which represents an appropriate item for the quarter ended March 31, 2003 that should not have been classified as part of the change in estimate. The impact of these items is to reduce the $471.4 million charge to a $388.7 million charge.

The impact of the $388.7 million of charges on the Consolidated Statement of Operations is as follows:


Cost of sales	$	(110.5	)
Selling, general and administrative expense		(243.1	)
Restructuring and other (credits) charges, net		59.6
Charges for the impairment of long-lived assets		(10.2	)

Operating income		(304.2	)
Other expense, net		(84.5	)

Income from continuing operations before taxes and minority interest	$	(388.7	)

The charges of $388.7 million include $139.6 million related to asset reserve valuations, $95.4 million of increased cost estimates for insurance accruals ($49.3 million for workers' compensation accruals and $46.1 million for product and general liability insurance accruals), $84.1 million related to an other than temporary decline in the value of investments, $62.3 million for other accounting estimate changes described below, environmental accruals of $18.0 million, legal accruals of $20.0 million, other various accruals of $15.2 million, $16.4 million for account write-offs included primarily in selling, general and administrative expenses, where we concluded that the recoverability of various asset balances had become doubtful and $10.2 million write-off representing capitalized external costs of a European financial computer system based on the Company's decision in the quarter to discontinue the new system under development and continue to use the existing system. We do not expect this change in strategy to negatively impact future business operations.

The $139.6 million of adjustments for asset valuations includes a $76.4 million write down of inventories, $51.9 million increase for allowance for doubtful accounts and $11.3 million write-off of subscriber systems. The inventory charge of $76.4 million was primarily due to the finalization of plans regarding the disposition of inventory in connection with curtailed programs and product lines and the Company's decision during the quarter to exit certain product lines in our fire and security services business. The increase in the allowance for doubtful accounts of $51.9 million and the write-off of subscriber systems of $11.3 million was primarily due to the further deterioration in the accounts receivable aging and increased customer cancellations in certain non-strategic European security businesses during the second quarter. The inventory charge and subscriber systems adjustments are included in cost of sales and the allowance for doubtful accounts is included in selling, general and administrative expenses. We do not expect these changes to have an adverse impact on future operations.

The workers' compensation and product and general liability changes in estimate are based on third party actuarial reviews of insurance liabilities. The charge of $95.4 million is included in selling, general and administrative expenses ($65.2 million), and cost of product sales ($30.2 million). This adjustment relates to changes in facts and circumstances occurring during the quarter ended March 31, 2003 which necessitate a change in assumptions and estimates. In particular, the Company identified trend data which required the Company to revise its assumptions as a result of an unanticipated increase in the number and changes in the nature of claims incurred and the rate of increase of medical costs, as well as the emergence of previously unanticipated new claims. In addition, the Company experienced an increase in workers' compensation expense, particularly in California, as a result of adverse legal developments toward employers.

The $84.1 million investment write-down, included in other expense, net, primarily consists of a $75.6 million loss on various equity investments. It became evident in the quarter ended March 31, 2003 that the declines in the fair values of the investments were other than temporary, primarily due to depressed economic conditions. Factors that management considered in making their assessment included investees' inability to raise funds during the quarter, bankruptcy, continued losses by the investees, lack of sufficient future expected cash flows, and lower entity valuations based on recent private financing activity. The Company also recognized other expense of $8.5 million in connection with a bank guarantee on behalf of an equity investee (see Note 16). It is possible that the Company may have additional write-downs on other investments if market conditions continue recent negative trends.

The $62.3 million for other accounting estimates includes a charge to selling, general and administrative expenses of $17.3 million resulting from the Company's revision in the second quarter of deferred commissions related to long-term contracts, $12.1 million to write down company owned properties based on real estate assessments and purchase offers received in the current quarter for assets held for sale, $11.5 million of additional severance related to terminated executives, and $21.4 million of other accounting estimate changes, none of which are individually significant, that were included primarily in selling, general and administrative expenses.

An increase of $18.0 million due to increased environmental accruals resulting from the finalization of the Company's plan to remediate one of its manufacturing sites in the second quarter, $20.0 million to establish an accrual related to the estimated settlement amount for contractual disputes and other legal matters based on our determination that such amounts became both probable and estimable in the second quarter, and $15.2 million of other miscellaneous increased accrual estimates are primarily included in selling, general and administrative expenses.

The above charges are partially offset by credits of $72.5 million, of which $59.6 million is included in cost of sales, related to restructuring charge reversals (discussed in Note 4) that arose during the second quarter of fiscal 2003.

In addition to the $388.7 million noted above, the Company also recorded an expense of $91.5 million for a retroactive, incremental premium on prior period directors and officers insurance coverage negotiated with its third party insurance carriers during the quarter (see Note 11).

Short-term Investments—Short-term investments consist of fixed income securities with maturities of greater than three months and less than one year. The Company's short-term investments are restricted as they are currently being used as collateral.

Accounting Pronouncements—Effective October 1, 2002, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 addresses accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The adoption of this new standard did not have a material impact on our results of operations or financial position.

Effective October 1, 2002, the Company adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which is effective for fiscal years beginning after December 15, 2001. The provisions of this statement provide a single accounting model for impairment of long-lived assets. The adoption of this new standard did not have a material impact on our results of operations or financial position.

During the quarter ended December 31, 2002, the Company adopted the disclosure provisions of FASB Interpretation No. ("FIN") 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees." FIN 45 requires increased disclosure of guarantees, including those for which likelihood of payment is remote, and product warranty information (see Note 16). FIN 45 also requires that guarantors recognize a liability for certain types of guarantees equal to the fair value of the guarantee upon its issuance, effective for the quarter ending March 31, 2003. The adoption of FIN 45 did not have a material impact on our results of operations or financial position.

Effective January 1, 2003, the Company adopted SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," which is effective for exit or disposal activities that are initiated after

December 31, 2002. This statement nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." This statement requires that liabilities associated with exit or disposal activities be recognized and measured at fair value when incurred as opposed to at the date an entity commits to the exit or disposal plans. The adoption of this new standard did not have a material impact on our results of operations or financial position.

Effective January 1, 2003, the Company adopted SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure," which amends SFAS No. 123, "Accounting for Stock-Based Compensation" to provide transition methods for a voluntary change to measuring compensation cost in connection with employee share option plans using a fair value based method. The Statement also amends the disclosure requirements of SFAS No. 123 to require prominent disclosures about the method of accounting for compensation cost associated with employee share option plans, as well as the effect of the method used on reported results. The Company adopted the disclosure requirements of SFAS No. 148 and has not changed its method for measuring the compensation cost of share options.

Tyco continues to use the intrinsic value based method and does 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. As a result, the adoption of SFAS No. 148 had no impact on our results of operations or financial position. Had the fair value based provisions of SFAS No. 123 been adopted by Tyco, the effect on net income and earnings per common share for quarter and six months ended March 31, 2003 and 2002 would have been as follows ($ in millions):

		For the Quarters Ended March 31,					For the Six Months Ended March 31,
		2003		2002			2003		2002
		(restated)					(restated)
Net income (loss)—as reported		$	124.3	$	(6,408.9	)	$	710.2	$	(5,105.5	)
Less: Total stock-based employee compensation expense determined under fair value based method for all awards, net of tax⁽¹⁾			77.0		152.5			138.4		288.7

Net income (loss)—pro forma		$	47.3	$	(6,561.4	)	$	571.8	$	(5,394.2	)

Income (loss) per share:
	Basic—as reported	$	0.06	$	(3.22	)	$	0.36	$	(2.57	)
	Basic—pro forma		0.02		(3.29	)		0.29		(2.72	)
	Diluted—as reported		0.06		(3.22	)		0.35		(2.57	)
	Diluted—pro forma		0.04		(3.29	)		0.29		(2.72	)

⁽¹⁾: The fair value was calculated using the Black-Scholes option pricing model with a volatity of 64% for the quarter and six months ended March 31, 2003. All other assumptions are consistent with those disclosed in the Company's Annual Report on Form 10-K/A for the fiscal year ended September 30, 2002.

In January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest Entities." This interpretation clarifies the application of Accounting Research Bulletin No. 51, "Consolidated Financial Statements," relating to consolidation of certain entities. FIN 46 requires identification of the Company's participation in variable interest entities (VIE), which are defined as entities with a level of

invested equity that is not sufficient to fund future activities to permit them to operate on a stand alone basis, or whose equity holders lack certain characteristics of a controlling financial interest. For entities identified as VIE, FIN 46 sets forth a model to evaluate potential consolidation based on an assessment of which party to the VIE, if any, bears a majority of the risk to its expected losses, or stands to gain from a majority of its expected returns. FIN 46 applies immediately to variable interest entities created or acquired after January 31, 2003. We have not created any variable interest in any variable interest entities subsequent to January 31, 2003. FIN 46 also sets forth certain disclosures regarding interests in VIE's that are deemed significant, even if consolidation is not required. For variable interest entities in which the Company holds a variable interest acquired on or before January 31, 2003, the Company will adopt FIN 46's accounting provisions on July 1, 2003. See Note 15 for further discussion of the impact of FIN 46.

2. Acquisitions and Divestitures

During the first six months of fiscal 2003, the Company purchased five businesses within the Healthcare, Engineered Products and Services, and Electronics segments for an aggregate cost of $34.6 million in cash, net of $1.3 million of cash acquired. During the first six months of fiscal 2003, the Company paid $113.2 million of cash for utilization of purchase accounting liabilities related to prior years' acquisitions. In addition, the Company paid cash of approximately $76.3 million relating to holdback and earn-out liabilities related to certain prior period acquisitions. Holdback liabilities represent a portion of the purchase price withheld from the seller pending finalization of the acquisition balance sheet. Certain acquisitions have provisions that would require Tyco to make additional "earn-out" payments to the sellers if the acquired company achieves certain milestones subsequent to its acquisition by Tyco. These earn-out payments are tied to certain performance measures, such as revenue, gross margin or earnings growth and are generally treated as additional purchase price. In addition, the Company paid $358.3 million of cash during the six months ended March 31, 2003, to acquire approximately 377,500 customer contracts for electronic security services through the ADT dealer program. The cash portions of acquisition costs for the business and customer contracts were funded utilizing cash from operations. The results of operations of the acquired companies have been included in Tyco's consolidated results from their respective acquisition dates.

The Company purchased all of the voting equity interests in each of the businesses acquired. At the time each purchase acquisition is made, the Company records each asset acquired and each liability assumed at its estimated fair value, which amount is subject to future adjustment when appraisals or other valuation data are obtained. The excess of (i) the total consideration paid for the acquired company over (ii) the fair value of tangible and intangible assets acquired less liabilities assumed and purchase accounting liabilities established is recorded as goodwill. As a result of acquisitions completed during the first six months of fiscal 2003, and adjustments to the fair values of assets and liabilities and purchase accounting liabilities recorded for acquisitions completed prior to fiscal 2003, Tyco recorded a net decrease of $300.6 million in goodwill and an additional $35.5 million in intangible assets during the six months ended March 31, 2003. The net decrease in goodwill includes $310.9 million associated with prior years' acquisitions, primarily Sensormatic Electronics Corporation ("Sensormatic"), acquired in November 2001, Mallinckrodt, Inc. ("Mallinckrodt"), acquired in October 2000, and Lucent Technologies' Power Systems ("LPS"), acquired in December 2000, slightly offset by an increase of $10.3 million due to current year acquisitions. Adjustments for Sensormatic primarily relate to fair value adjustments as well as the finalization of deferred tax adjustments related to previously recorded

purchase accounting liabilities. Adjustments for LPS and Mallinckrodt primarily relate to reductions in purchase accounting liabilities due to actual costs being less than originally estimated. See roll forward of purchase accounting accruals below. The increase in intangible assets is due to adjustments associated with prior years' acquisitions.

Acquisitions were an important part of Tyco's growth during the past few years. When Tyco made acquisitions it sought to complement existing products and services, enhance the Company's product lines and/or expand its customer base. Tyco determined what it was willing to pay for an acquisition partially based on its expectation that it could cost effectively integrate the products and services of an acquired company into Tyco's existing infrastructure and improve earnings by removing overhead costs in areas where there are duplicate sales, administrative or other facilities and functions. In addition, the Company utilized existing infrastructure (e.g., established sales force, distribution channels, customer relations, etc.) of acquired companies to cost effectively introduce Tyco's products to new geographic areas. The Company also targeted companies that were perceived to be experiencing depressed financial performance. All these factors contributed to acquisition prices in excess of the fair value of net assets acquired and the resultant goodwill. However, the Company expects to complete significantly fewer acquisitions as compared to the past few years due to its focus on enhancing internal growth within its existing businesses.

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

	(restated)
Accounts receivable	$	27.3
Inventories		18.9
Prepaid expenses and other current assets		10.3
Deferred income taxes		(91.4	)
Property, plant and equipment, net		37.6
Goodwill		(300.6	)
Intangible assets		35.5
Other assets		11.4

		(251.0	)

Accounts payable		0.8
Accrued expenses and other current liabilities		(242.3	)
Holdback/earn-out liabilities		8.5
Deferred income taxes		(73.9	)
Other long-term liabilities		12.7
Fair value of debt assumed		8.6

		(285.6	)

Cash consideration paid (net of $1.3 million of cash acquired)	$	34.6

Purchase accounting liabilities recorded during the first six months of fiscal 2003 in connection with fiscal 2003 purchase acquisitions were immaterial.

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

	Severance					Facilities-Related
	Severance					Facilities-Related					Distributor & Supplier Cancellation Fees
	Number of Employees		Accrual			Number of Facilities		Accrual			Distributor & Supplier Cancellation Fees			Other Accrual			Total
Balance at September 30, 2002	1,453		$	39.1		82		$	51.8		$	3.1		$	7.4		$	101.4
Additions to fiscal 2002 acquisition reserves	549			15.0		17			3.3			0.3			3.1			21.7
Fiscal 2003 utilization	(325	)		(16.2	)	(12	)		(5.8	)		(0.9	)		(3.4	)		(26.3	)
Foreign currency translation adjustment	—			0.8		—			0.5			0.2			0.1			1.6
Reclassifications	—			(0.2	)	—			0.1			(1.2	)		0.9			(0.4	)
Reductions of estimates of fiscal 2002 acquisition reserves	(497	)		(4.4	)	(32	)		(2.3	)		—			(2.3	)		(9.0	)

Balance at March 31, 2003	1,180		$	34.1		55		$	47.6		$	1.5		$	5.8		$	89.0

During the six months of fiscal 2003, the Company recorded additions to purchase accounting liabilities as it continued to formulate the integration plans of fiscal 2002 acquisitions, such as Paragon (integrated within the Healthcare segment) and Eberle (integrated within the Electronics segment). Finalization of components of integration plans associated with acquisitions resulted in additional purchase accounting liabilities of $21.7 million and a corresponding increase to goodwill and deferred tax assets. These additions reflect the termination of an additional 549 employees, the closure of an additional 17 facilities, additional distributor and supplier cancellation fees and other acquisition related costs consisting primarily of professional fees and other costs.

During the first six months ended March 31, 2003, the Company reduced its estimate of purchase accounting liabilities relating to fiscal 2002 acquisitions by $9.0 million primarily because actual costs were less than originally estimated since the Company severed 497 fewer employees and closed 32 fewer facilities than originally anticipated due to revisions to integration plans. Goodwill and related deferred tax assets were reduced by an equivalent amount.

Tyco has not yet finalized all of its business integration plans for fiscal 2002 acquisitions. Accordingly, purchase accounting liabilities are subject to revision in future quarters. However, we do not expect any resulting adjustments to be significant.

The following table summarizes the purchase accounting liabilities recorded in connection with the fiscal 2001 purchase acquisitions ($ in millions):

	Severance					Facilities-Related
	Number of Employees		Accrual			Number of Facilities		Accrual			Distributor & Supplier Cancellation Fees			Other Accrual			Total
Balance at September 30, 2002	2,196		$	129.7		100		$	207.5		$	28.7		$	29.1		$	395.0
Fiscal 2003 utilization	(741	)		(38.2	)	(37	)		(26.7	)		(9.3	)		(6.4	)		(80.6	)
Foreign currency translation adjustment	—			6.0		—			(0.2	)		0.3			0.5			6.6
Reclassifications	—			(0.7	)	—			0.7			(0.3	)		(0.4	)		(0.7	)
Reductions of estimates of fiscal 2001 acquisition reserves	(518	)		(49.3	)	(21	)		(76.8	)		(13.3	)		(6.3	)		(145.7	)

Balance at March 31, 2003	937		$	47.5		42		$	104.5		$	6.1		$	16.5		$	174.6

During the first six months of fiscal 2003, the Company reduced its estimate of purchase accounting liabilities relating to fiscal 2001 acquisitions by $145.7 million primarily because actual costs were less than originally estimated since the Company severed 518 fewer employees and closed 21 fewer facilities than originally anticipated due to revisions to integration plans. Goodwill and related deferred tax assets were reduced by an equivalent amount.

At March 31, 2003, there remained a total of $24.5 million in reserves related to fiscal 2000 and prior acquisitions. These liabilities primarily relate to facility-related costs (principally for rents under non-cancelable leases for vacated premises), employee severance (principally for payments to employees already terminated with severance paid out over time), and other costs. Tyco expects that the termination of employees and consolidation of facilities related to all acquisitions will be substantially complete within two years of the related dates of acquisition, except for certain long-term contractual obligations.

At March 31, 2003, holdback/earn-out liabilities of $216.9 million remained on the Consolidated Balance Sheet, of which $100.8 million are included in accrued expenses and other current liabilities and $116.1 million are included in other long-term liabilities. In addition, a total of $288.1 million of purchase accounting liabilities related to all acquisitions remained on the Consolidated Balance Sheet, of which $158.6 million are included in accrued expenses and other current liabilities and $129.5 million are included in other long-term liabilities. At March 31, 2003, the Company had a contingent liability of $80 million related to the fiscal 2001 acquisition of Com-Net by the Electronics segment. The $80 million is the maximum amount payable to the former shareholders of Com-Net only after the construction and installation of a communications system for the State of Florida is finished and the State has approved the system based on the guidelines set forth in the contract. The $80 million is not accrued at March 31, 2003, as the outcome of this contingency cannot be reasonably determined.

During the six months ended March 31, 2003, the Company sold certain of its businesses within the Healthcare segment for net proceeds of approximately $5.4 million in cash.

In accordance with SFAS No. 141, "Business Combinations," the following unaudited pro forma data summarizes the results of operations for the periods indicated as if fiscal 2003 acquisitions, fiscal 2002 acquisitions and the amalgamation with TyCom had been completed as of the beginning of the periods presented. The pro forma data give effect to actual operating results prior to the acquisitions

and adjustments to interest expense and income taxes. No effect has been given to cost reductions or operating synergies in this presentation. These pro forma amounts do not purport to be indicative of the results that would have actually been achieved if the acquisitions and amalgamation had occurred as of the beginning of the periods presented or that may be achieved in the future.

		For the Six Months Ended March 31,
		2003⁽¹⁾					2002⁽²⁾
		(in millions, except per share data)
		As Previously Reported			As Restated⁽³⁾		As Previously Reported			As Restated⁽³⁾
Net revenues		$	17,919.7		$	17,915.9	$	17,671.4		$	17,598.9
Income (loss) from continuing operations			157.5			690.1		(1,138.0	)		(1,064.9	)
Net (loss) income			(49.2	)		710.1		(5,196.3	)		(5,123.2	)
Basic earnings (loss) per common share:
	Income (loss) from continuing operations		0.08			0.35		(0.57	)		(0.53	)
	Net (loss) income		(0.02	)		0.36		(2.60	)		(2.56	)
Diluted earnings (loss) per common share:
	Income (loss) from continuing operations		0.08			0.34		(0.57	)		(0.53	)
	Net (loss) income		(0.02	)		0.35		(2.60	)		(2.56	)

⁽¹⁾: Includes restructuring and other credits of $76.2 million, of which $13.1 million is included in cost of sales and charges for the impairment of long-lived assets of $87.2 million.
⁽²⁾: Includes restructuring and other charges of $625.8 million, of which $257.1 million is included in cost of sales, charges for the impairment of long-lived assets of $2,389.7 million primarily related to the write-down of the Tyco Global Network ("TGN").
⁽³⁾: Restated for adjustments discussed in Note 1.

3. Consolidated Segment Data

During fiscal 2003, a change was made to the Company's internal reporting structure such that the operations of Tyco's plastics and adhesives businesses (previously reported within the Healthcare and Specialty Products segment) now comprise the Company's new Plastics and Adhesives reportable segment. The Company has conformed its segment reporting accordingly and has reclassified comparative prior period information to reflect this change. In addition, during the quarter ended March 31, 2003, management began evaluating segment performance based upon operating results inclusive of restructuring, impairments, and certain other charges that had previously been characterized by management as unusual. Previously, such charges had been excluded from management's evaluation of segment performance. Accordingly, operating (loss) income by segment has been shown to reflect these charges. Prior year amounts have been conformed accordingly, and as such, include the charges for amounts previously excluded from management's internal reporting. These items are footnoted in the table below.

Selected information for the Company's five segments is presented in the following table.

			Previously Reported For the Quarter Ended March 31,						As Restated for the Adjustments Described in Note 1 For the Quarter Ended March 31,						Previously Reported For the Six Months Ended March 31,						As Restated for the Adjustments Described in Note 1 and Segment Measurement as Described Above For the Six Months Ended March 31,
($ in millions)			2003			2002			2003			2002			2003			2002			2003			2002
Net Revenues:
	Fire and Security Services		$	2,778.9		$	2,569.5		$	2,769.6		$	2,569.9		$	5,538.3		$	5,049.8		$	5,528.9		$	5,050.6
	Electronics			2,502.0			2,493.9			2,502.0			2,493.9			5,030.3			5,311.2			5,030.3			5,247.3
	Healthcare			2,137.3			1,968.3			2,137.3			1,968.3			4,142.7			3,738.7			4,142.7			3,738.7
	Engineered Products and Services			1,073.6			1,101.2			1,091.1			1,096.5			2,269.3			2,172.9			2,274.9			2,163.5
	Plastics and Adhesives			488.5			478.5			488.5			478.5			939.1			917.5			939.1			917.5

		Net revenues from external customers	$	8,980.3		$	8,611.4		$	8,988.5		$	8,607.1		$	17,919.7		$	17,190.1		$	17,915.9		$	17,117.6

Operating income (loss):
	Fire and Security Services		$	(702.6	)	$	337.6		$	(178.4)	⁽¹⁾	$	271.8	⁽⁶⁾	$	(443.3	)	$	739.7		$	38.8	⁽¹⁾	$	605.0	⁽¹³⁾
	Electronics			348.6			(2,588.4	)		357.3	⁽²⁾		(2,570.8)	⁽⁷⁾		641.2			(2,062.7	)		649.2	⁽¹¹⁾		(2,085.0)	⁽⁷⁾
	Healthcare			520.7			448.7			520.7	⁽³⁾		452.9	⁽⁸⁾		968.1			917.9			968.1	⁽¹²⁾		926.3	⁽⁸⁾
	Engineered Products and Services			(73.0	)		152.7			72.1			142.5	⁽⁹⁾		64.3			296.5			193.1			272.0	⁽¹⁴⁾
	Plastics and Adhesives			20.4			47.9			41.9	⁽⁴⁾		47.4	⁽¹⁰⁾		64.6			141.5			85.3	⁽⁴⁾		140.5	⁽¹⁰⁾

				114.1			(1,601.5	)		813.6			(1,656.2	)		1,294.9			32.9			1,934.5			(141.2	)
Less: Corporate expenses				(218.8	)		(59.7	)		(178.5)	⁽⁵⁾		(62.6	)		(287.0	)		(335.0	)		(249.1)	⁽⁵⁾		(119.5	)

Operating (loss) income			$	(104.7	)	$	(1,661.2	)	$	635.1		$	(1,718.8	)	$	1,007.9		$	(302.1	)	$	1,685.4		$	(260.7	)

⁽¹⁾: Includes a charge of $87.2 million for the impairment of property, plant and equipment, and a restructuring credit of $2.0 million due to costs being less than anticipated.
⁽²⁾: Includes a restructuring credit of $54.8 million, of which $12.9 million is included in cost of sales.
⁽³⁾: Includes a restructuring credit of $4.7 million.
⁽⁴⁾: Includes a restructuring credit of $0.4 million due to costs being less than anticipated.
⁽⁵⁾: Includes a restructuring credit of $10.6 million due to costs being less than anticipated.
⁽⁶⁾: Includes restructuring charges of $14.3 million primarily related to severance associated with the closure of existing facilities that had become redundant due to acquisitions, a charge of $13.8 million related to the write-up of inventory under purchase accounting, which is included in cost of revenue and a charge of $0.5 million related to the impairment of property, plant and equipment.
⁽⁷⁾: Includes charges for the impairment of property, plant and equipment of $2,383.0 million primarily related to the write-down of the TGN (See Note 5) and the closure of certain facilities. Also includes restructuring charges of $556.5 million, of which $237.5 million is included in cost of revenue, related to the write-down of inventory and certain facility closures.
⁽⁸⁾: Includes a charge of $7.8 million related to the write-off of legal fees and other deal costs associated with an acquisition that was not completed.
⁽⁹⁾: Includes restructuring and other charges of $6.8 million primarily related to the closure of facilities and charges of $5.7 million for the impairment of property, plant and equipment primarily related to the termination of employees and the write-down of inventory associated with exiting a product line.

⁽¹⁰⁾: Includes a restructuring charge of $0.9 million related to the write-off of legal fees and other deal costs associated with an acquisition that was not completed.
⁽¹¹⁾: Includes a restructuring credit of $56.5 million, of which $12.9 million is included in cost of sales.
⁽¹²⁾: Includes a restructuring credit of $6.7 million, of which $0.2 million is included in cost of sales.
⁽¹³⁾: Includes restructuring charges of $35.9 million primarily related to $22.1 million of severance associated with the closure of existing facilities that had become redundant due to acquisitions, and a charge of $13.8 million related to the write-up of inventory under purchase accounting, which is included in cost of revenue. Also includes a charge of $1.0 million related to the impairment of property, plant and equipment.
⁽¹⁴⁾: Includes restructuring and other charges of $24.7 million, of which $5.8 million is included in cost of sales and charges of $5.7 million for the impairment of property, plant and equipment primarily related to the termination of employees and the write-down of inventory associated with exiting a product line.

4. Restructuring and Other (Credits) Charges, Net

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

	For the Quarters Ended March 31,						For the Six Months Ended March 31,
	2003			2002			2003			2002
	(restated)						(restated)
Fire and Security Services	$	(2.0	)	$	28.1		$	(2.0	)	$	35.9
Electronics		(54.8	)		556.5			(56.5	)		556.5
Healthcare		(4.7	)		7.8			(6.7	)		7.8
Engineered Products and Services		—			6.8			—			24.7
Plastics and Adhesives		(0.4	)		0.9			(0.4	)		0.9
Corporate		(10.6	)		—			(10.6	)		—

		(72.5	)		600.1			(76.2	)		625.8
Inventory related amounts charged to cost of sales		12.9			(251.3	)		13.1			(257.1	)

Restructuring and other (credits) charges, net	$	(59.6	)	$	348.8		$	(63.1	)	$	368.7

2003 Credits

During the first six months of fiscal 2003, the Electronics segment recorded restructuring credits of $56.5 million, of which $12.9 million is included in cost of sales, the Healthcare segment recorded restructuring credits of $6.7 million, of which $0.2 million is included in cost of sales, the Fire and Security Services segment recorded restructuring credits of $2.0 million and the Plastics and Adhesives segment recorded restructuring credits of $0.4 million, related to a revision of estimates of prior years' restructuring charges. Additionally, credits of $10.6 million were recorded due to costs being less than anticipated.

2002 Charges and Credits

The disclosures in the Company's fiscal 2002 Annual Report on Form 10-K, as amended, discuss net restructuring and other charges of $1,899.3 million recorded during fiscal 2002 and the related activity with respect to these charges through September 30, 2002. The following tables provide a summary by segment of the remaining balances as of September 30, 2002 related to these charges and the activity with respect to these charges during the six months ended March 31, 2003 ($ in millions):

	Severance					Facilities-Related
Fire and Security Services Segment	Number of Employees		Accrual			Number of Facilities		Accrual			Supplier Contract Fees			Other Accrual			Total
Remaining balance at September 30, 2002	1,346		$	19.4		103		$	12.1		$	0.5		$	31.4		$	63.4
Fiscal 2003 reversals	—			(0.6	)	—			—			—			—			(0.6	)
Fiscal 2003 utilization	(539	)		(10.1	)	(4	)		(2.4	)		(0.4	)		(5.9	)		(18.8	)
Foreign currency translation adjustments	—			0.9		—			0.3			—			0.5			1.7
Balance sheet reclassifications	—			0.2		—			(0.2	)		—			(25.6	)		(25.6	)

Balance at March 31, 2003	807		$	9.8		99		$	9.8		$	0.1		$	0.4		$	20.1

	Severance					Facilities-Related
Electronics Segment	Number of Employees		Accrual			Number of Facilities		Accrual			Supplier Contract Fees			Other Accrual			Total
Remaining balance at September 30, 2002	4,304		$	116.0		17		$	154.3		$	325.8		$	137.2		$	733.3
Fiscal 2003 reversals	(815	)		(5.8	)	(3	)		2.8			(20.5	)		—			(23.5	)
Fiscal 2003 utilization	(1,607	)		(52.9	)	(10	)		(25.4	)		(98.2	)		(0.3	)		(176.8	)
Foreign currency translation adjustments	—			2.5		—			0.1			—			(0.1	)		2.5
Balance sheet reclassifications	—			—		—			—			—			(115.0	)		(115.0	)

Balance at March 31, 2003	1,882		$	59.8		4		$	131.8		$	207.1		$	21.8		$	420.5

During fiscal 2003, $10.1 million of supplier contract fees were reclassified out of facilities-related into supplier contract fees. During fiscal 2002, the Electronics segment incurred charges of $608.2 million for inventory write-downs, of which $143.1 million was scrapped as of September 30, 2002. The remaining $465.1 million is comprised of a lower of cost or market write-down of $166.1 million and a write-down related to inventory to be scrapped of $299.0 million. Of the

$299.0 million, $204.7 million of inventory was scrapped during the six months ended March 31, 2003. We expect the remaining $94.3 million to be scrapped over the next three months.

	Severance					Facilities-Related
Healthcare Segment	Number of Employees		Accrual			Number of Facilities		Accrual			Total
Remaining balance at September 30, 2002	274		$	13.8		4		$	12.0		$	25.8
Fiscal 2003 reversals	(41	)		(1.2	)	—			(4.9	)		(6.1	)
Fiscal 2003 utilization	(225	)		(10.5	)	(4	)		(5.1	)		(15.6	)
Foreign currency translation adjustments	—			0.1		—			1.0			1.1

Balance at March 31, 2003	8		$	2.2		—		$	3.0		$	5.2

	Severance					Facilities-Related
Engineered Products and Services Segment	Number of Employees		Accrual			Number of Facilities		Accrual			Other Accrual			Total
Remaining balance at September 30, 2002	505		$	8.0		21		$	2.6		$	0.8		$	11.4
Fiscal 2003 reversals	(62	)		—		—			—			—			—
Fiscal 2003 utilization	(166	)		(6.9	)	(13	)		(1.1	)		(0.6	)		(8.6	)
Foreign currency translation adjustments	—			0.4		—			0.8			0.1			1.3

Balance at March 31, 2003	277		$	1.5		8		$	2.3		$	0.3		$	4.1

	Severance					Facilities-Related
Plastics and Adhesives Segment	Number of Employees		Accrual			Number of Facilities		Accrual			Total
Remaining balance at September 30, 2002	274		$	4.0		4		$	2.9		$	6.9
Fiscal 2003 reversals	(33	)		—		—			(0.2	)		(0.2	)
Fiscal 2003 utilization	(222	)		(2.3	)	(1	)		(0.7	)		(3.0	)
Foreign currency translation adjustments	—			—		—			0.1			0.1

Balance at March 31, 2003	19		$	1.7		3		$	2.1		$	3.8

In addition to the above segment liabilities, a total of $7.4 million remained on the balance sheet at March 31, 2003 related to 2002 corporate restructuring and other charges. These liabilities primarily relate to severance and other items associated with the termination of employees at the corporate headquarters.

At March 31, 2003, there remained a total of $461.1 million in reserves related to fiscal 2002 restructuring and other charges on the Consolidated Balance Sheet, of which $309.8 million is included in accrued expenses and other current liabilities and $151.3 million is included in other long-term liabilities. The Company currently anticipates that the restructuring activities related to the fiscal 2002 total charges will be substantially completed within fiscal 2003, except for certain long-term contractual obligations.

2001 Charges and Credits

The disclosures in the Company's fiscal 2002 Annual Report on Form 10-K, as amended, discuss net restructuring and other charges of $585.3 million recorded during fiscal 2001 and the related activity with respect to these charges through September 30, 2002. The following tables provide a

summary by segment of the remaining balances as of September 30, 2002 related to these charges and the activity with respect to these charges during the quarter ended March 31, 2003 ($ in millions):

	Severance					Facilities-Related
Fire and Security Services Segment	Number of Employees		Accrual			Number of Facilities		Accrual			Supplier Contract Fees		Other Accrual			Total
Remaining balance at September 30, 2002	211		$	2.3		23		$	24.2		$	0.2	$	8.4		$	35.1
Fiscal 2003 reversals	—			(1.3	)	—			(0.1	)		—		—			(1.4	)
Fiscal 2003 utilization	(202	)		(0.2	)	(4	)		(4.0	)		—		(0.9	)		(5.1	)
Foreign currency translation adjustments	—			0.1		—			0.1			—		(0.1	)		0.1
Balance sheet reclassifications	—			—		—			—			—		(7.2	)		(7.2	)

Balance at March 31, 2003	9		$	0.9		19		$	20.2		$	0.2	$	0.2		$	21.5

	Severance					Facilities-Related
Electronics Segment	Number of Employees		Accrual			Number of Facilities		Accrual			Other Accrual			Total
Remaining balance at September 30, 2002	258		$	9.6		2		$	15.5		$	7.1		$	32.2
Fiscal 2003 reversals	(153	)		(1.3	)	(2	)		(0.6	)		(0.8	)		(2.7	)
Fiscal 2003 utilization	(57	)		(5.1	)	—			(5.7	)		(3.2	)		(14.0	)
Foreign currency translation adjustments	—			0.2		—			0.1			—			0.3
Balance sheet reclassifications	—			—		—			0.6			—			0.6

Balance at March 31, 2003	48		$	3.4		—		$	9.9		$	3.1		$	16.4

	Severance				Facilities-Related
Healthcare Segment	Number of Employees	Accrual			Number of Facilities	Accrual			Total
Remaining balance at September 30, 2002	—	$	0.5		—	$	0.2		$	0.7
Fiscal 2003 reversals	—		—		—		(0.3	)		(0.3	)
Fiscal 2003 utilization	—		(0.4	)	—		0.1			(0.3	)

Balance at March 31, 2003	—	$	0.1		—	$	—		$	0.1

	Severance				Facilities-Related
Engineered Products and Services Segment	Number of Employees		Accrual		Number of Facilities	Accrual			Other Accrual			Total
Remaining balance at September 30, 2002	13		$	0.4	—	$	0.1		$	19.1		$	19.6
Fiscal 2003 reversals	(11	)		—	—		—			—			—
Fiscal 2003 utilization	(2	)		—	—		(0.1	)		(3.3	)		(3.4	)
Balance sheet reclassifications	—			—	—		—			(15.0	)		(15.0	)

Balance at March 31, 2003	—		$	0.4	—	$	—		$	0.8		$	1.2

At March 31, 2003, there remained a total of $39.2 million in liabilities related to fiscal 2001 restructuring and other charges on the Consolidated Balance Sheet, of which $23.4 million is included in accrued expenses and other current liabilities and $15.8 million is included in other long-term liabilities. These remaining liabilities primarily relate to future payments on certain long-term contractual obligations.

2000 and Prior Years' Charges and Credits

At March 31, 2003, there remained a total of $6.8 million in liabilities related to fiscal 2000 and prior years' restructuring and other charges on the Consolidated Balance Sheet, of which $4.5 million is included in accrued expenses and other current liabilities and $2.3 million is included in other long-term liabilities. These liabilities primarily relate to certain long-term obligations.

5. Charges for the Impairment of Long-Lived Assets

The Company reviews the recoverability of the carrying value of long-lived assets, including property, plant and equipment, intangible assets as well as the TGN, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. The Company evaluates the recoverability of long-lived assets relying on a number of factors including operating results, business plans, economic projections and anticipated future cash flows. An impairment in the carrying value of an asset is recognized whenever anticipated future cash flows (undiscounted) from an asset are estimated to be less than its 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 an asset is adjusted to fair value if its expected future undiscounted cash flows is less than book value. Fair values are based on assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates, reflecting varying degrees of perceived risk.

During the six months ended March 31, 2003, the Company recorded total charges for the impairment of long-lived assets in continuing operations of $87.2 million. These charges include $77.0 million related primarily to the impairment of intangible assets in two geographic regions associated with the ADT dealer program and $10.2 million related to the impairment of property, plant and equipment associated with the termination of a software development project both within the Fire and Security Services segment.

During the six months ended March 31, 2002, the Company recorded total charges for the impairment of long-lived assets in continuing operations of $2,389.7 million, of this charge, $2,383.0 million was recorded by the Electronic segment related to the impairment of the TGN ($2,218.4 million), as well as the impairment of property, plant and equipment ($164.6 million) associated with restructuring activities and the related closure of facilities. The entire TGN placed in service and a portion of construction in progress of the TGN was written off. The remaining charge consisted of $5.7 million recorded within the Engineered Products and Services segment related to the write-off of property, plant and equipment associated with acquisitions and $1.0 million recorded within the Fire and Security Segment.

6. Other Expense, Net

Other expense, net is as follows ($ in millions):

	For the Quarters Ended March 31,						For the Six Months Ended March 31,
	2003			2002			2003			2002
	(restated)						(restated)
Income (loss) from early retirement of debt	$	22.7		$	(2.4	)	$	24.1		$	(6.7	)
Loss on investments		(75.6	)		(141.0	)		(75.6	)		(141.0	)
Equity investee guarantee		(8.5	)		—			(8.5	)		—

	$	(61.4	)	$	(143.4	)	$	(60.0	)	$	(147.7	)

Tyco has repurchased some debt prior to scheduled maturities. During the quarter and six months ended March 31, 2003, the Company recorded other income from the early retirement of debt totaling $22.7 million and $24.1 million, respectively, as compared to expense of $2.4 million and $6.7 million during the quarter and six months ended March 31, 2002, respectively.

During the quarter and six months ended March 31, 2003, the Company recognized a $75.6 million loss on various equity investments when it became evident that the declines in the fair value of the investments were other than temporary, primarily due to the continuing depressed economic conditions specifically within the telecommunications industry. During the quarter and six months ended March 31, 2002, the Company recognized a $141.0 million loss on equity investments, primarily related to its investments in FLAG Telecom Holdings when it became evident that the declines in the fair value of FLAG and other investments were other than temporary.

During the quarter and six months ended March 31, 2003, the Company recognized other expense of $8.5 million in connection with a bank guarantee on behalf of an equity investee (see Note 16).

7. Discontinued Operations of Tyco Capital (CIT Group Inc.)

On July 8, 2002, the Company completed the sale of 100% of the common shares of CIT Group Inc., a wholly-owned subsidiary, through an initial public offering. During the quarter ended December 31, 2002, the Company recorded income from discontinued operations of $20.0 million related to the return of an unauthorized payment to a former director of the Company in connection

with the acquisition of CIT Group, Inc. Operating results from the discontinued operations of Tyco Capital for the quarter and six months ended March 31, 2002 were as follows ($ in millions):

	For the Quarter Ended March 31, 2002			For the Six Months Ended March 31, 2002
Finance income	$	1,106.7		$	2,304.7
Interest expense		352.0			725.0

Net finance income		754.7			1,579.7
Depreciation on operating lease equipment		310.2			648.7

Net finance margin		444.5			931.0
Provision for credit losses		195.0			307.9

Net finance margin, after provision for credit losses		249.5			623.1
Other income		232.0			477.1

Operating margin		481.5			1,100.2
Selling, general, administrative and other costs and expenses		234.2			472.8
Goodwill impairment		4,512.7			4,512.7

Loss before income taxes and minority interest		(4,265.4	)		(3,885.3	)
Income taxes		(65.8	)		(188.2	)
Minority interest		(2.7	)		(5.0	)

Loss as previously reported		(4,333.9	)		(4,078.5	)
Corporate overhead costs allocated		7.2			15.4
Intercompany interest expense		3.7			4.8

Loss from discontinued operations	$	(4,323.0	)	$	(4,058.3	)

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

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

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

8. Earnings (Loss) Per Common Share

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

		For the Quarter Ended March 31, 2003 (restated)					For the Quarter Ended March 31, 2002 (restated)
		Income		Shares	Per Share Amount		Loss			Shares	Per Share Amount
Basic earnings (loss) per common share:
	Income (loss) from continuing operations	$	124.3	1,994.5	$	0.06	$	(2,085.9	)	1,991.5	$	(1.05	)
	Stock options, restricted shares and deferred stock units		—	4.1				—		—
	Exchange of convertible debt due 2010		0.1	2.4				—		—

Diluted earnings (loss) per common share:
	Income (loss) from continuing operations, giving effect to dilutive adjustments	$	124.4	2,001.0	$	0.06	$	(2,085.9	)	1,991.5	$	(1.05	)

		For the Six Months Ended March 31, 2003 (restated)					For the Six Months Ended March 31, 2002 (restated)
		Income		Shares	Per Share Amount		Loss			Shares	Per Share Amount
Basic earnings (loss) per common share:
	Income (loss) from continuing operations	$	690.2	1,994.6	$	0.35	$	(1,047.2	)	1,983.1	$	(0.53	)
	Stock options, restricted shares and deferred stock units		—	4.3				—		—
	Exchange of convertible debt due 2010, 2018 and 2023		23.5	88.3				—		—

Diluted earnings (loss) per common share:
	Income (loss) from continuing operations, giving effect to dilutive adjustments	$	713.7	2,087.2	$	0.34	$	(1,047.2	)	1,983.1	$	(0.53	)

The computation of diluted earnings per common share in the quarter and six months ended March 31, 2003 excludes the effect of the potential exercise of options to purchase approximately 131.2 million shares, because the effect would be anti-dilutive. Diluted earnings per common share for both the quarter and six months ended March 31, 2003 excludes 33.0 million shares related to the Company's zero coupon convertible debentures due 2020 because conversion conditions have not been met.

Diluted earnings per common share for the quarter ended March 31, 2003 excludes 114.1 million shares and 59.8 million shares related to the Company's convertible senior debentures due 2018 and 2023, respectively, because the effect would be anti-dilutive.

The computation of diluted earnings per common shares in the quarter and six months ended March 31, 2002 excludes the potential exercise of options to purchase approximately 108.2 million and 112.5 million shares, respectively, because the effect would be anti-dilutive. Dilutive earnings per common share for both the quarter and six months ended March 31, 2002 excludes 48.0 million and 26.4 million shares respectively, related to the Company's zero coupon convertible debentures due 2020 and 2021, respectively, because conversion conditions had not been met.

9. Goodwill and Intangible Assets

The changes in the carrying amount of goodwill for the six months ended March 31, 2003 are as follows ($ in millions):

	Fire and Security Services			Electronics			Healthcare			Engineered Products and Services			Plastics and Adhesives			Total Tyco
Balance at September 30, 2002 (restated)	$	8,003.7		$	7,840.9		$	6,549.1		$	2,914.1		$	712.7		$	26,020.5
Reversals of purchase accounting liabilities and fair value adjustments related to prior year acquisitions		(111.5	)		(34.8	)		(134.7	)		(28.7	)		(1.2	)		(310.9	)
Goodwill related to fiscal 2003 acquisitions		—			0.2			0.8			9.3			—			10.3
Divestitures		—			—			(3.6	)		—			—			(3.6	)
Currency translation adjustments and other		165.9			50.5			8.4			88.0			2.1			314.9

Balance at March 31, 2003	$	8,058.1		$	7,856.8		$	6,420.0		$	2,982.7		$	713.6		$	26,031.2

The following table sets forth the gross carrying amount and accumulated amortization of the Company's intangible assets, as restated for the adjustments described in Note 1($ in millions):

		At March 31, 2003					At September, 30, 2002 (restated)
		Gross Carrying Amount		Accumulated Amortization		Weighted Average Amortization Period⁽¹⁾	Gross Carrying Amount		Accumulated Amortization		Weighted Average Amortization Period⁽¹⁾
Contracts and related customer relationships		$	4,137.5	$	1,468.8	12 years	$	3,780.0	$	1,191.3	12 years
Intellectual property			3,532.2		544.4	22 years		3,470.8		443.0	21 years
Other			241.2		53.1	28 years		210.1		20.8	28 years

	Total	$	7,910.9	$	2,066.3	18 years	$	7,460.9	$	1,655.1	17 years

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

As of March 31, 2003 and September 30, 2002 the Company had $140.2 million and $140.1 million, respectively, of intellectual property, consisting primarily of trademarks acquired from Sensormatic, that are not subject to amortization. As of March 31, 2003 and September 30, 2002, the Company had $25.8 million and $26.2 million, respectively, of other intangible assets that are not subject to amortization but will be tested at least annually for impairment.

Intangible asset amortization expense for the quarters ended March 31, 2003 and 2002 was $199.9 million and $145.6 million, respectively. Intangible asset amortization expense for the six months ended March 31, 2003 and 2002 was $368.8 million and $279.5 million, respectively. The estimated aggregate amortization expense on intangible assets currently owned by the Company is expected to be approximately $650 million for fiscal 2004, $600 million for fiscal 2005, $500 million for fiscal 2006, $450 million for fiscal 2007, and $400 million for fiscal 2008.

10. Debt

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

	March 31, 2003		September 30, 2002
Bank credit agreement⁽²⁾	$	—	$	—
Variable-rate unsecured term loan from banks due 2003⁽³⁾		—		3,855.0
6.25% public Dealer Remarketable Securities with a 2003 put option⁽⁴⁾⁽⁸⁾		750.6		751.9
Floating rate private placement notes due 2003⁽⁸⁾		487.7		493.8
4.95% notes due 2003⁽⁸⁾		534.1		565.1
6.0% notes due 2003⁽⁸⁾		72.8		72.7
Zero coupon convertible senior debentures with a November 2003 put option⁽⁵⁾⁽⁸⁾		2,457.9		3,519.1
5.875% public notes due 2004		399.3		399.1
4.375% Euro denominated notes due 2004		533.3		486.5
6.375% public notes due 2005		747.5		747.0
6.75% notes due 2005		76.7		76.7
6.375% public notes due 2006		994.7		993.7
Variable rate unsecured revolving credit facility due 2006		2,000.0		2,000.0
5.8% public notes due 2006		696.2		695.7
6.125% Euro denominated public notes due 2007		638.1		582.4
6.5% notes due 2007		99.4		99.3
6.125% public notes due 2008		396.9		396.6
8.2% notes due 2008		388.4		388.4
5.50% Euro denominated notes due 2008		728.3		664.4
6.125% public notes due 2009		396.3		393.1
Zero coupon convertible subordinated debentures due 2010		26.6		26.3
6.75% public notes due 2011		993.2		992.8
6.375% public notes due 2011		1,491.2		1,490.7
6.50% British pound denominated public notes due 2011		285.4		285.3
7.0% debentures due 2013		86.3		86.2
2.75% convertible senior debentures due 2018⁽⁶⁾		2,928.2		—
Zero coupon convertible senior debentures due 2021⁽⁷⁾		0.7		1,944.6
3.125% convertible senior debentures due 2023⁽⁶⁾		1,463.2		—
7.0% public notes due 2028		493.3		493.2
6.875% public notes due 2029		782.8		782.5
6.50% British pound denominated public notes due 2031		441.3		438.9
Other⁽⁸⁾		439.1		484.8

Total debt		21,829.5		24,205.8
Less current portion		4,386.8		7,719.0

Long-term debt	$	17,442.7	$	16,486.8

⁽¹⁾: Debt maturity dates are presented on a calendar basis, consistent with the respective offering documents.
⁽²⁾: In January 2003, Tyco International Group S.A. ("TIG"), a wholly-owned subsidiary of the Company, entered into a $1.5 billion 364-day unsecured revolving credit facility which also provides for issuance of unsecured letters of credit. The facility, which is fully and unconditionally guaranteed by Tyco and certain of its subsidiaries and is guaranteed in part by various subsidiaries of TIG, has a variable interest rate based on LIBOR. The margin over LIBOR payable by TIG can vary depending upon changes in its credit rating and in the market price of one of its outstanding debt securities. TIG also pays a commitment fee of 0.50% annually on any unused portion of the line of credit.
⁽³⁾: In January 2003, TIG repaid its $3.855 billion unsecured term loan from banks scheduled to expire on February 6, 2003.

⁽⁴⁾: In June 1998, TIG issued $750,000,000 of 6.25% Dealer Remarketable Securities ("Drs.") due 2013. Under the terms of the Drs., the Remarketing Dealer has an option to remarket the Drs. in June 2003. If this option is exercised it would subject the Drs. to mandatory tender to the Remarketing Dealer and reset the interest rate to an adjusted fixed rate until June 2013. However, TIG may elect to repurchase the securities for a Dollar Price based upon the $750,000,000 par value of the Drs. plus the difference between the Base Rate of 5.55% and the ten-year United States Treasury yield-to-maturity as of June 2003, estimated to be approximately $110 million based upon the March 31, 2003 ten-year treasury yield-to-maturity (approximately $120 million as of May 13, 2003). If the Remarketing Dealer does not exercise its option, then all Drs. are required to be tendered to the Company in June 2003 and TIG would be required to repurchase the Drs. from the holders for cash at par value of $750,000,000 and pay the Remarketing Dealer the difference between the Dollar Price and the par value of the Drs. In either case, the payment above the par value would be recorded as a loss to income.
: TIG has been contemplating an exchange of a new debt security for the Drs. The exchange would be for the par value of the Drs. and the excess of the Dollar Price over par value with the latter being amortized over the life of the new bonds under exchange accounting. The final decision will depend on the prevailing interest rate environment, the Company's overall liquidity and its future maturity profile.
⁽⁵⁾: In November 2000, Tyco issued $4,657,500,000 principal amount at maturity of zero coupon convertible debentures due 2020 for aggregate net proceeds of approximately $3,374,000,000. The debentures accrete interest at a rate of 1.5% per annum. During the six months ended March 31, 2003, Tyco purchased $1,085.7 million (par value $1,415.2 million) of its outstanding zero coupon convertible debentures with a November 2003 put option for cash of approximately $1,062.8 million. Tyco may be required to repurchase these securities for cash at the option of the holder at the accreted value of approximately $2.5 billion in November 2003.
⁽⁶⁾: In January 2003, TIG issued $3.0 billion of 2.75% Series A convertible senior debentures due January 2018 and $1.5 billion of 3.125% Series B convertible senior debentures due January 2023. These debentures are fully and unconditionally guaranteed by Tyco, and at any time, holders may convert each of their debentures into Tyco common shares prior to the stated maturity at a rate of $22.7832 and $21.7476 respectively, per share. Additionally, holders of the Series A debentures may require the Company to purchase all or a portion of their debentures on January 15, 2008 and January 15, 2013, and holders of the Series B debentures may require the Company to purchase all or a portion of their debentures on January 15, 2015. If the option is exercised at any one of the aforementioned dates, TIG must repurchase the debentures at par plus accrued interest, and may elect to repurchase the securities for cash, Tyco common shares, or some combination thereof. TIG may redeem for cash some or all of the Series A debentures and Series B debentures at any time on or after January 20, 2006 and January 20, 2008, respectively. Net proceeds of approximately $4,387.5 million, before out of pocket expenses, from these debentures were used primarily to repay debt.
⁽⁷⁾: At February 12, 2003, the accreted value of TIG's zero coupon convertible debentures with a February 2003 put option was $1,850.8 million. On February 13, 2003, TIG purchased $1,850.1 million of these debentures for cash at the accreted value. This purchase resulted from the exercise of investors' option under the indenture to require TIG to purchase debentures validly surrendered by February 12, 2003.
⁽⁸⁾: These instruments, plus $83.7 million of the amount shown as other, comprise the current portion of long-term debt as of March 31, 2003.

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

11. Commitments and Contingencies

being prosecuted by the District Attorney of New York County; and some members of our former senior corporate management are subject to an investigation by, or are named as a defendant in a criminal case being prosecuted by, the U.S. Attorney for the District of New Hampshire. The findings and outcomes of the prosecutions and the SEC civil action may affect the course of the purported class actions, derivative actions and ERISA claims pending against Tyco. We are generally obliged to indemnify our directors and our former directors and officers who are also named as defendants in some or all of these matters to the extent permitted by Bermuda law. In addition, our insurance carriers may decline coverage, or our coverage may be insufficient to cover our expenses and liability in some or all of these matters. On February 13, 2003, one of Tyco's insurance carriers filed an action in the Supreme Court of the State of New York seeking to rescind certain directors and officers liability and fiduciary liability insurance policies issued to Tyco and its directors, officers and fiduciaries on the basis of alleged misrepresentations made by our former senior corporate management. On May 8, 2003 Tyco's negotiations with the Company's directors and officers liability insurance carriers and fiduciary carriers concluded with the filing of a notice of dismissal of this action. In exchange for a payment of additional policy premiums, Tyco maintained, at reduced overall limits of coverage, its available directors and officers liability insurance coverage and fiduciary insurance coverage for claims made during the 2001-2003 policy period. We are unable at this time to estimate what our ultimate liability in these matters may be, and we may be required to pay judgments or settlements and incur expenses in aggregate amounts that would have a material adverse effect on our financial position, results of operations and liquidity.

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

Tyco is involved in various stages of investigation and cleanup related to environmental remediation matters at a number of sites. See "Risk Factors" and Part II, Item 1. "Legal Proceedings" in our Form 10-Q for the quarterly period ended March 31, 2003 filed on May 15, 2003. The ultimate cost of site cleanup is difficult to predict given the uncertainties regarding the extent of the required cleanup, the interpretation of applicable laws and regulations and alternative cleanup methods. We have concluded that it is probable that we will incur remedial costs in the range of approximately $145 million to $440 million. As of March 31, 2003, we concluded that the best estimate within this range is approximately $269 million, of which $32 million is included in accrued expenses and other current liabilities and $237 million is included in other long-term liabilities on the accompanying Consolidated Balance Sheet. Environmental laws are complex, change frequently and have tended to become more stringent over time. While we have budgeted for future capital and operating expenditures to maintain compliance with such laws, we cannot assure you that our costs of complying with current or future environmental protection and health and safety laws, or our liabilities arising

from past or future releases of, or exposures to, hazardous substances will not exceed our estimates or adversely affect our financial condition and results of operations or that we will not be subject to additional environmental claims for personal injury or cleanup in the future based on our past, present or future business activities.

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

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

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

When appropriate, we settle claims. However, the total amount paid to date to settle and defend all asbestos claims has been immaterial. As of March 31, 2003, there were approximately 12,000 asbestos liability cases pending against us and our subsidiaries.

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

12. Shareholders' Equity

Dividends—Tyco paid a quarterly cash dividend of $0.0125 per common share in each of the first two quarters of fiscal 2003 and fiscal 2002.

13. Comprehensive (Loss) Income

Total comprehensive (loss) income and its components are as follows, as restated for the adjustments described in Note 1 ($ in millions):

		For the Quarters Ended March 31,						For the Six Months Ended March 31,
		2003			2002			2003			2002
		(restated)						(restated)
Net income (loss)		$	124.3		$	(6,408.9	)	$	710.2		$	(5,105.5	)
	Unrealized (loss) gain on securities, net of tax		(1.4	)		80.7			(2.8	)		81.6
	Changes in fair values of derivatives qualifying as cash flow hedges		(0.3	)		1.1			(2.1	)		1.9
	Foreign currency translation adjustment		187.6			(170.3	)		637.9			(420.8	)
	Activity of discontinued operations		—			3.2			—			18.4

Total comprehensive income (loss)		$	310.2		$	(6,494.2	)	$	1,343.2		$	(5,424.4	)

14. Supplementary Balance Sheet Information

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

		March 31, 2003						September 30, 2002
		Amounts Previously Reported			As Restated			Amounts Previously Reported			As Restated
Purchased materials and manufactured parts		$	1,269.5		$	1,269.5		$	1,235.0		$	1,234.6
Work in process			975.4			975.4			976.0			975.4
Finished goods			2,415.8			2,415.8			2,505.0			2,397.9

	Inventories	$	4,660.7		$	4,660.7		$	4,716.0		$	4,607.9

Short-term investments		$	371.6		$	371.6		$	93.5		$	93.5
Contracts in process			453.3			453.3			409.6			408.5
Prepaid expenses and other			972.9			972.9			961.0			959.7

	Other current assets	$	1,797.8		$	1,797.8		$	1,464.1		$	1,461.7

Construction in progress — TGN		$	—		$	—		$	372.9		$	372.9
TGN — placed in service			662.7			662.7			214.3			214.3
Accumulated depreciation TGN — placed in service			(18.2	)		(18.2	)		(5.6	)		(5.6	)

	Tyco Global Network	$	644.5		$	644.5		$	581.6		$	581.6

Land		$	548.7		$	548.7		$	548.0		$	548.0
Buildings			2,732.1			2,732.1			2,708.8			2,708.8
Subscriber systems			4,851.1			4,851.1			4,711.6			4,614.6
Machinery and equipment			8,690.3			8,690.3			8,479.5			8,467.9
Leasehold improvements			364.8			364.8			363.9			363.9
Construction in progress			727.9			727.9			775.2			773.0
Accumulated depreciation			(8,079.2	)		(8,079.2	)		(7,617.5	)		(7,615.2	)

	Property, plant and equipment, net	$	9,835.7		$	9,835.7		$	9,969.5		$	9,861.0

Long-term investments		$	173.3		$	173.3		$	297.8		$	297.8
Non-current portion of deferred income taxes			1,788.0			1,977.0			1,611.3			1,800.3
Non-current restricted cash			46.6			46.6			—			—
Other			1,417.3			1,417.3			1,548.6			1,451.1

	Other assets	$	3,425.2		$	3,614.2		$	3,457.7		$	3,549.2

Deferred revenue—non-current portion		$	1,197.6		$	1,197.6		$	1,195.8		$	1,195.8
Deferred income taxes			1,060.7			1,151.5			1,078.7			985.6
Other			2,986.0			3,035.3			3,187.6			2,974.7

	Other long-term liabilities	$	5,244.3		$	5,384.4		$	5,462.1		$	5,156.1

15. Non-Controlled Entities

The Company has programs under which it sells machinery and equipment and/or accounts receivable to investors (or affiliated companies) who, in turn, purchase and receive ownership and security interests in those assets. As such, the Company may have certain investments in those affiliated companies whereby it provides varying degrees of financial support and is entitled to a share in the results of those entities but do not consolidate these entities. While these entities may be substantive operating companies, they are being evaluated for potential consolidation under FIN 46.

Synthetic lease programs are utilized, to some extent, by all of the Company's segments to finance capital expenditures for manufacturing machinery and equipment and for ships used by Tyco Telecommunications. The Company is currently in discussions with financial institutions to restructure the synthetic lease arrangements in order to have a third party be the majority equity owner. If the Company is unable to restructure these arrangements, the resulting accounting would be an increase to net property, plant and equipment and total debt of approximately $840 million and a decrease to pre-tax income of approximately $60 million annually resulting from the difference between lease expense and estimated depreciation and interest expense.

The Company's accounts receivable securitization programs do not meet the consolidation requirements of FIN 46. Potential exposure to the Company is an increase in the discount rate/fee

charged to Tyco. The incremental increase to general and administrative expense would be approximately $5.0 million annually, based on our current utilization.

16. Guarantees

TIG has issued a guarantee to a bank on behalf of an equity investee for a reducing revolving line of credit, due November 30, 2005. The maximum borrowing permitted under the facility is $8.5 million, all of which is outstanding. The maximum borrowing permitted under the facility will be further reduced by $0.75 million on both December 20, 2003 and 2004. In the event that the equity investee defaults on its payment obligations, the bank may demand that the Company pay the outstanding principal on the loan. During the quarter ended March 31, 2003, the Company recorded a liability for the guarantee of $8.5 million as a result of the equity investee experiencing financial constraints. This amount has been included in other expense, net, in the Consolidated Statements of Operations (see Note 6). In the instance that the Company would be required to pay the bank, the Company has no recourse from a third-party other than ultimate reimbursement from the equity investee in cash or common shares.

The Company's Healthcare business may, from time to time, enter into sales contracts whereby it will buy back (at a discount) a transaction from a customer's third-party financier in the event of a customer's default. For such transactions that include "shared risk," the Company accrues a liability based on historical loss data. As of March 31, 2003, $3.2 million was accrued related to these contracts. In the event the Company must pay for this shared risk, the Company's recourse is as follows: place the lease with a financially viable third-party financier; repossess the purchased products or equipment; seek payment through a personal guarantee issued by the customer; or, alternatively, sue the customer.

The Company's Fire and Security Services business has guaranteed the performance of a third-party contractor. The performance guarantee arose from contract negotiations, because the contractor could provide cost-effective service on a telecommunications contract. In the event the contractor does not perform its contractual obligations, Tyco Fire and Security would perform the service itself. Therefore, the Company's exposure would be the cost on any services performed, which would not have a material effect to the Company's financial position or results of operations. However, because it is not probable that the Company will have to make any payments or perform any services pursuant to the guarantee, it is not accrued. The contract was entered into in July 2002 and the performance guarantee expires in August 2003. If the third-party sub-contractor does not perform its obligations, Tyco may consider withholding any future payment for work performed by the contractor.

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

environmental matters, we believe that any potential payment of such estimated amounts or additional monetary sanctions will not have a material adverse effect on the Company's financial position, results of operations or liquidity.

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

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, results of operations or liquidity.

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

Following is a roll forward of the Company's warranty accrual for the quarter and six months ended March 31, 2003 ($ in millions).

	For the Quarter Ended March 31, 2003			For the Six Months Ended March 31, 2003
Balance at beginning of period	$	477.3		$	493.6
Accruals for warranties issued during the period		10.0			17.0
Changes in estimates related to pre-existing warranties		(3.8	)		10.2
Settlements made		(45.0	)		(82.5	)
Additions due to acquisitions		—			0.2

Balance at end of period	$	438.5		$	438.5

17. Tyco International Group S.A.

TIG has issued public and private debt securities, which are fully and unconditionally guaranteed by Tyco. In accordance with SEC rules, the following presents condensed consolidating financial information for Tyco, TIG and all other subsidiaries. Condensed financial information for Tyco and TIG on a stand-alone basis are presented using the equity method of accounting for subsidiaries in which they own or control twenty percent or more of the voting shares. All periods have been restated for the adjustments as described in Note 1.

CONSOLIDATING STATEMENT OF OPERATIONS (RESTATED)
Quarter Ended March 31, 2003
($ in millions)

	Tyco International Ltd.			Tyco International Group S.A.			Other Subsidiaries			Consolidating Adjustments			Total
Net revenues	$	—		$	—		$	8,988.5		$	—		$	8,988.5
Cost of product sales		—			—			4,890.7			—			4,890.7
Cost of services		—			—			964.8			—			964.8
Selling, general and administrative expenses		101.3			0.3			2,368.7			—			2,470.3
Restructuring and other credits, net		—			(0.1	)		(59.5	)		—			(59.6	)
Charges for the impairment of long-lived assets		—			—			87.2			—			87.2

Operating (loss) income		(101.3	)		(0.2	)		736.6			—			635.1
Interest income		0.4			8.6			12.8			—			21.8
Interest expense		(11.2	)		(255.9	)		(32.7	)		—			(299.8	)
Other income (expense), net		22.9			(8.7	)		(75.6	)		—			(61.4	)
Equity in net income of subsidiaries		349.4			89.2			—			(438.6	)		—
Intercompany interest and fees		(135.9	)		256.4			(120.5	)		—			—

Income before income taxes and minority interest		124.3			89.4			520.6			(438.6	)		295.7
Income taxes		—			(0.1	)		(170.3	)		—			(170.4	)
Minority interest		—			—			(1.0	)		—			(1.0	)

Net income	$	124.3		$	89.3		$	349.3		$	(438.6	)	$	124.3

CONSOLIDATING STATEMENT OF OPERATIONS (RESTATED)
Quarter Ended March 31, 2002
($ in millions)

	Tyco International Ltd.			Tyco International Group S.A.			Other Subsidiaries			Consolidating Adjustments		Total
Net revenues	$	—		$	—		$	8,607.1		$	—	$	8,607.1
Cost of product sales		—			—			4,840.4			—		4,840.4
Cost of services		—			—			791.9			—		791.9
Selling, general and administrative expenses		7.0			(1.7	)		1,950.3			—		1,955.6
Restructuring and other charges, net		—			—			348.8			—		348.8
Charges for the impairment of long-lived assets		—			—			2,389.2			—		2,389.2

Operating (loss) income		(7.0	)		1.7			(1,713.5	)		—		(1,718.8	)
Interest income		—			10.5			19.0			—		29.5
Interest expense		(19.7	)		(223.8	)		(11.6	)		—		(255.1	)
Other expense		(1.2	)		—			(142.2	)		—		(143.4	)
Equity in net (loss) income of subsidiaries		(6,265.6	)		499.1			—			5,766.5		—
Intercompany interest and fees		(115.4	)		211.7			(96.3	)		—		—

(Loss) income from continuing operations before income taxes and minority interest		(6,408.9	)		499.2			(1,944.6	)		5,766.5		(2,087.8	)
Income taxes		—			—			3.5			—		3.5
Minority interest		—			—			(1.6	)		—		(1.6	)

(Loss) income from continuing operations		(6,408.9	)		499.2			(1,942.7	)		5,766.5		(2,085.9	)
Loss from discontinued operations of Tyco Capital, net of tax		—			—			(4,323.0	)		—		(4,323.0	)

Net (loss) income	$	(6,408.9	)	$	499.2		$	(6,265.7	)	$	5,766.5	$	(6,408.9	)

CONSOLIDATING STATEMENT OF OPERATIONS (RESTATED)
Six Months Ended March 31, 2003
($ in millions)

	Tyco International Ltd.			Tyco International Group S.A.			Other Subsidiaries			Consolidating Adjustments			Total
Net revenues	$	—		$	—		$	17,915.9		$	—		$	17,915.9
Cost of product sales		—			—			9,684.0			—			9,684.0
Cost of services		—			—			1,903.5			—			1,903.5
Selling, general and administrative expenses		124.8			1.0			4,493.1			—			4,618.9
Restructuring and other credits, net		—			(0.1	)		(63.0	)		—			(63.1	)
Charges for the impairment of long-lived assets		—			—			87.2			—			87.2

Operating (loss) income		(124.8	)		(0.9	)		1,811.1			—			1,685.4
Interest income		0.5			20.4			26.7			—			47.6
Interest expense		(24.4	)		(521.3	)		(43.1	)		—			(588.8	)
Other income (expense), net		22.9			(7.3	)		(75.6	)		—			(60.0	)
Equity in net income of subsidiaries		1,107.1			398.3			—			(1,505.4	)		—
Intercompany interest and fees		(271.1	)		509.3			(238.2	)		—			—

Income from continuing operations before income taxes and minority interest		710.2			398.5			1,480.9			(1,505.4	)		1,084.2
Income taxes		—			(0.1	)		(392.2	)		—			(392.3	)
Minority interest		—			—			(1.7	)		—			(1.7	)

Income from continuing operations		710.2			398.4			1,087.0			(1,505.4	)		690.2
Income from discontinued operations of Tyco Capital, net of tax		—			—			20.0			—			20.0

Net income	$	710.2		$	398.4		$	1,107.0		$	(1,505.4	)	$	710.2

CONSOLIDATING STATEMENT OF OPERATIONS (RESTATED)
Six Months Ended March 31, 2002
($ in millions)

	Tyco International Ltd.			Tyco International Group S.A.			Other Subsidiaries			Consolidating Adjustments		Total
Net revenues	$	—		$	—		$	17,117.6		$	—	$	17,117.6
Cost of product sales		—			—			9,239.2			—		9,239.2
Cost of services		—			—			1,597.5			—		1,597.5
Selling, general and administrative expenses		13.5			(1.5	)		3,771.2			—		3,783.2
Restructuring and other charges, net		—			—			368.7			—		368.7
Charges for the impairment of long-lived assets		—			—			2,389.7			—		2,389.7

Operating (loss) income		(13.5	)		1.5			(248.7	)		—		(260.7	)
Interest income		0.2			15.2			33.7			—		49.1
Interest expense		(39.5	)		(415.0	)		(9.4	)		—		(463.9	)
Other expense		(1.2	)		—			(146.5	)		—		(147.7	)
Equity in net (loss) income of subsidiaries		(4,791.8	)		1,334.9			—			3,456.9		—
Intercompany interest and fees		(259.7	)		398.5			(138.8	)		—		—

(Loss) income from continuing operations before income taxes and minority interest		(5,105.5	)		1,335.1			(509.7	)		3,456.9		(823.2	)
Income taxes		—			(0.2	)		(223.7	)		—		(223.9	)
Minority interest		—			—			(0.1	)		—		(0.1	)

(Loss) income from continuing operations		(5,105.5	)		1,334.9			(733.5	)		3,456.9		(1,047.2	)
Loss from discontinued operations of Tyco Capital, net of tax		—			—			(4,058.3	)		—		(4,058.3	)

Net (loss) income	$	(5,105.5	)	$	1,334.9		$	(4,791.8	)	$	3,456.9	$	(5,105.5	)

CONSOLIDATING BALANCE SHEET (RESTATED)
March 31, 2003
($ in millions)

				Tyco International Ltd.		Tyco International Group S.A.		Other Subsidiaries			Consolidating Adjustments			Total
Assets
Current Assets:
	Cash and cash equivalents			$	225.6	$	967.8	$	2,771.8		$	—		$	3,965.2
	Restricted cash				—		445.5		14.8			—			460.3
	Accounts receivable, net				0.1		0.1		5,827.2			—			5,827.4
	Inventories				—		—		4,660.7			—			4,660.7
	Intercompany receivables				177.3		214.5		5,424.5			(5,816.3	)		—
	Other current assets				—		372.1		2,448.7			—			2,820.8

		Total current assets			403.0		2,000.0		21,147.7			(5,816.3	)		17,734.4
Tyco Global Network, Net					—		—		644.5			—			644.5
Property, Plant and Equipment, Net					4.3		0.2		9,831.2			—			9,835.7
Goodwill					—		0.7		26,030.5			—			26,031.2
Intangible Assets, Net					—		—		5,844.6			—			5,844.6
Investment In Subsidiaries					41,641.5		32,721.7		—			(74,363.2	)		—
Intercompany Loans Receivable					218.3		20,745.2		13,065.5			(34,029.0	)		—
Other Assets					23.1		34.7		3,556.4			—			3,614.2

			Total Assets	$	42,290.2	$	55,502.5	$	80,120.4		$	(114,208.5	)	$	63,704.6

Liabilities and Shareholder's Equity
Current Liabilities:
	Loans payable and current maturities of long-term debt			$	2,457.9	$	1,772.4	$	156.5		$	—		$	4,386.8
	Accounts payable				3.5		—		2,820.7			—			2,824.2
	Accrued expenses and other current liabilities				90.5		273.4		4,289.2			—			4,653.1
	Intercompany payables				4,956.1		468.4		391.8			(5,816.3	)		—
	Other				—		0.6		3,564.8			—			3,565.4

		Total current liabilities			7,508.0		2,514.8		11,223.0			(5,816.3	)		15,429.5
Long-Term Debt					—		16,487.0		955.7			—			17,442.7
Intercompany Loans Payable					9,315.0		3,750.5		20,963.5			(34,029.0	)		—
Other Long-Term Liabilities					49.3		—		5,335.1			—			5,384.4

			Total Liabilities		16,872.3		22,752.3		38,477.3			(39,845.3	)		38,256.6
Minority Interest					—		—		30.1			—			30.1
Shareholders' Equity:
	Preference shares				—		—		4,680.0			(4,680.0	)		—
	Common shares				403.8		—		(4.4	)		—			399.4
	Other shareholders' equity				25,014.1		32,750.2		36,937.4			(69,683.2	)		25,018.5

			Total Shareholders' Equity		25,417.9		32,750.2		41,613.0			(74,363.2	)		25,417.9

			Total Liabilities and Shareholders' Equity	$	42,290.2	$	55,502.5	$	80,120.4		$	(114,208.5	)	$	63,704.6

CONSOLIDATING BALANCE SHEET (RESTATED)
September 30, 2002
($ in millions)

				Tyco International Ltd.		Tyco International Group S.A.		Other Subsidiaries			Consolidating Adjustments			Total
Assets
Current Assets:
	Cash and cash equivalents			$	37.6	$	2,970.7	$	3,177.4		$	—		$	6,185.7
	Restricted cash				—		181.4		14.8			—			196.2
	Accounts receivable, net				—		0.1		5,831.8			—			5,831.9
	Inventories				—		—		4,607.9			—			4,607.9
	Intercompany receivables				277.3		101.2		3,949.5			(4,328.0	)		—
	Other current assets				—		93.9		2,723.8			—			2,817.7

		Total current assets			314.9		3,347.3		20,305.2			(4,328.0	)		19,639.4
Tyco Global Network, Net					—		—		581.6			—			581.6
Property, Plant and Equipment, Net					5.2		0.2		9,855.6			—			9,861.0
Goodwill					—		0.7		26,019.8			—			26,020.5
Intangible Assets, Net					—		—		5,805.8			—			5,805.8
Investment In Subsidiaries					39,871.4		32,005.4		—			(71,876.8	)		—
Intercompany Loans Receivable					218.3		21,000.6		13,334.8			(34,553.7	)		—
Other Assets					23.1		21.4		3,504.7			—			3,549.2

			Total Assets	$	40,432.9	$	56,375.6	$	79,407.5		$	(110,758.5	)	$	65,457.5

Liabilities and Shareholder's Equity
Current Liabilities:
	Loans payable and current maturities of long-term debt			$	—	$	7,610.4	$	108.6		$	—		$	7,719.0
	Accounts payable				0.2		0.2		3,173.4			—			3,173.8
	Accrued expenses and other current liabilities				35.8		267.2		4,993.5			—			5,296.5
	Intercompany payables				3,434.9		514.6		378.5			(4,328.0	)		—
	Other				—		0.7		3,500.5			—			3,501.2

		Total current liabilities			3,470.9		8,393.1		12,154.5			(4,328.0	)		19,690.5
Long-Term Debt					3,519.1		11,876.5		1,091.2			—			16,486.8
Intercompany Loans Payable					9,315.0		4,019.8		21,218.9			(34,553.7	)		—
Other Long-Term Liabilities					46.6		52.4		5,057.1			—			5,156.1

			Total Liabilities		16,351.6		24,341.8		39,521.7			(38,881.7	)		41,333.4
Minority Interest					—		—		42.8			—			42.8
Shareholders' Equity:
	Preference shares				—		—		4,680.0			(4,680.0	)		—
	Common shares				403.6		—		(4.5	)		—			399.1
	Other shareholders' equity				23,677.7		32,033.8		35,167.5			(67,196.8	)		23,682.2

			Total Shareholders' Equity		24,081.3		32,033.8		39,843.0			(71,876.8	)		24,081.3

			Total Liabilities and Shareholders' Equity	$	40,432.9	$	56,375.6	$	79,407.5		$	(110,758.5	)	$	65,457.5

CONSOLIDATING STATEMENT OF CASH FLOWS (RESTATED)
Six Months Ended March 31, 2003
($ in millions)

		Tyco International Ltd.			Tyco International Group S.A.			Other Subsidiaries			Consolidating Adjustments			Total
Cash Flows From Operating Activities:
	Net cash (used in) provided by operating activities from continuing operations	$	1,303.5		$	41.6		$	761.5			—		$	2,106.6
	Net cash provided by operating activities from discontinued operations		—			—			20.0			—			20.0

	Net cash provided by operating activities	$	1,303.5		$	41.6		$	781.5		$	—			2,126.6

Cash Flows From Investing Activities:
Purchase of property, plant and equipment, net			—			—			(566.1	)		—			(566.1	)
Construction in progress—Tyco Global Network			—			—			(89.0	)		—			(89.0	)
Acquisition of businesses			—			—			(34.6	)		—			(34.6	)
Acquisition of customer accounts (ADT dealer program)			—			—			(358.3	)		—			(358.3	)
Cash paid for purchase accounting and holdback/earn-out liabilities			—			—			(189.5	)		—			(189.5	)
Disposal of businesses			—			—			5.4			—			5.4
Cash invested in short-term investments			—			(278.1	)		—			—			(278.1	)
Net sale of long-term investments			0.1			—			54.4			—			54.5
Net increase in intercompany loans			—			(13.9	)		—			13.9			—
Net increase in investment in subsidiaries			(2.4	)		—			—			2.4			—
Increase in restricted cash			—			(264.1	)		(46.6	)		—			(310.7	)
Other			—			—			81.4			—			81.4

	Net cash used in investing activities		(2.3	)		(556.1	)		(1,142.9	)		16.3			(1,685.0	)

Cash Flows From Financing Activities:
Net repayments of debt			(1,062.8	)		(1,488.4	)		(109.3	)					(2,660.5	)
Proceeds from exercise of options			—			—			2.6			—			2.6
Dividends paid			(50.4	)		—			—			—			(50.4	)
Repurchase of Tyco common shares			—			—			(0.4	)		—			(0.4	)
Net financing from parent			—			—			13.9			(13.9	)		—
Net capital contributions from parent			—			—			2.4			(2.4	)		—
Other			—			—			(5.0	)		—			(5.0	)

	Net cash used in financing activities		(1,113.2	)		(1,488.4	)		(95.8	)		(16.3	)		(2,713.7	)

Effect of currency translation on cash			—			—			51.6			—			51.6
Net increase (decrease) in cash and cash equivalents			188.0			(2,002.9	)		(405.6	)		—			(2,220.5	)
Cash and cash equivalents at beginning of period			37.6			2,970.7			3,177.4			—			6,185.7

Cash and cash equivalents at end of period		$	225.6		$	967.8		$	2,771.8		$	—		$	3,965.2

CONSOLIDATING STATEMENT OF CASH FLOWS (RESTATED)
Six Months Ended March 31, 2002
($ in millions)

		Tyco International Ltd.			Tyco International Group S.A.			Other Subsidiaries			Consolidating Adjustments			Total
Cash Flows From Operating Activities:
	Net cash (used in) provided by operating activities from continuing operations	$	(161.8	)	$	414.4		$	2,283.6		$	—		$	2,536.2
	Net cash provided by operating activities from discontinued operations		—			—			924.6			—			924.6

	Net cash (used in) provided by operating activities		(161.8	)		414.4			3,208.2			—			3,460.8

Cash Flows From Investing Activities:
Purchase of property, plant and equipment, net			—			—			(979.1	)		—			(979.1	)
Construction in progress—Tyco Global Network			—			—			(817.4	)		—			(817.4	)
Acquisition of businesses, net of cash acquired			—			—			(1,664.5	)		—			(1,664.5	)
Acquisition of customer accounts (ADT dealer program)			—			—			(546.2	)		—			(546.2	)
Cash paid for purchase accounting and holdback/earn-out liabilities			—			—			(376.4	)		—			(376.4	)
Net sale (purchase) of long-term investments			1.8			—			(13.7	)		—			(11.9	)
Net increase in intercompany loans			—			(5,496.7	)		—			5,496.7			—
Net increase in investment in subsidiaries			(10.0	)		—			—			10.0			—
Other			—			—			(178.7	)		—			(178.7	)

	Net cash used in investing activities from continued operations		(8.2	)		(5,496.7	)		(4,576.0	)		5,506.7			(4,574.2	)
	Net cash provided by investing activities from discontinued operations		—			—			2,251.2			—			2,251.2

	Net cash used in investing activities		(8.2	)		(5,496.7	)		(2,324.8	)		5,506.7			(2,323.0	)

Cash Flows From Financing Activities:
Net (repayments of) proceeds from debt			(10.1	)		6,457.2			(1,265.4	)		—			5,181.7
Proceeds from sale of common shares for acquisitions			501.6			—			(501.6	)		—			—
Proceeds from exercise of options			58.2			—			123.1			—			181.3
Dividends paid			(49.7	)		—			—			—			(49.7	)
Repurchase of Tyco common shares			—			—			(765.8	)		—			(765.8	)
Net financing from parent			—			—			5,496.7			(5,496.7	)		—
Repayment of intercompany note payable			(295.1	)		—			295.1			—			—
Net capital contributions from parent.			—			—			10.0			(10.0	)		—
Capital contribution to Tyco Capital.			—			—			(200.0	)		—			(200.0	)
Other			—			—			15.0			—			15.0

	Net cash provided by financing activities from continuing operations		204.9			6,457.2			3,207.1			(5,506.7	)		4,362.5
	Net cash used in financing activities from discontinued operations		—			—			(1,762.8	)		—			(1,762.8	)

	Net cash provided by financing activities		204.9			6,457.2			1,444.3			(5,506.7	)		2,599.7

Effect of currency translation on cash			—			—			(31.0	)		—			(31.0	)
Net increase in cash and cash equivalents			34.9			1,374.9			2,296.7			—			3,706.5
Tyco Capital's cash and cash equivalents transferred to discontinued operations			—			—			(1,451.3	)		—			(1,451.3	)
Cash and cash equivalents at beginning of period			1.4			37.0			1,741.7			—			1,780.1

Cash and cash equivalents at end of period		$	36.3		$	1,411.9		$	2,587.1		$	—		$	4,035.3

Item 2—Management's Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

Introduction

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

The results of the Phase 2 review were reported by the Company in a Form 8-K furnished to the SEC on December 30, 2002. Among other findings, the report noted that during at least the five years preceding our prior Chief Executive Officer's resignation in June 2002, the Company's prior management engaged in a pattern of aggressive accounting which, even when in accordance with Generally Accepted Accounting Principles, was intended to increase reported earnings above what they would have been if more conservative accounting had been employed. The report also noted that this pattern may have had the effect of reducing the clarity and effectiveness of the financial statements in conveying to investors the most accurate picture of our operations and may affect the comparability of our historical financial results to our current and future results of operations. While most of the matters identified by the investigation as "aggressive accounting" were determined by the Company, in consultation with its auditors, to be in accordance with Generally Accepted Accounting Principles, there were certain adjustments identified as relating to years preceding fiscal 2002. Such adjustments were initially recorded in the first quarter of fiscal 2002, and have now been included as part of the current restatements discussed below. See also Item 4. "Controls and Procedures."

Restatement—As previously disclosed, we have been engaged in a dialogue with the staff of the Division of Corporation Finance of the U.S. Securities and Exchange Commission (the "Staff") as part of a review of our periodic filings. We believed that we had resolved the material accounting issues at the time of the original filing of our Form 10-K for the year ended September 30, 2002. Subsequent correspondence and discussions with the Staff, principally regarding the method of amortizing contracts acquired through our ADT dealer program as well as the accounting for amounts reimbursed to us from ADT dealers, coupled with issues related to prior periods identified during our intensified internal audits and detailed operating reviews in the quarter ended March 31, 2003 have led us to restate our

consolidated financial statements for the quarters ended March 31, 2003 and December 31, 2002, and for the fiscal years ended September 30, 2002, 2001, 2000, 1999 and 1998.

Charges Relating to Prior Years Initially Recorded in Fiscal 2002

Charges Relating to Prior Years and Quarters Recorded in the Quarter Ended March 31, 2003

As disclosed in the Company's previously filed Form 10-Q for the quarter ended March 31, 2003, the Company conducted intensified internal audits and detailed controls and operating reviews that resulted in the Company identifying and recording pre-tax charges of $434.5 million in that quarter for charges related to prior periods. These charges resulted from capitalizing certain selling expenses to property, plant and equipment and other non-current assets, mostly in Fire and Security Services segment, and reconciliation items relating to balance sheet accounts where certain account analysis or periodic reconciliations were deficient, resulting in adjustments primarily related to the Engineered Products and Services segment. Additionally, charges related to the correction of balances primarily related to corporate pension and deferred compensation accruals, asset reserve adjustments and other accounting adjustments (i.e., purchase price accounting accruals, deferred commissions, accounting related to leases in the Fire and Security Services and Engineered Products and Services segments). The restatement includes adjustments to reverse the charges recorded in the quarter ended March 31, 2003 and reflect those charges in the historic periods to which they relate.

Method of Amortizing Contracts and Related Customer Relationships

As described in Note 1 to the financial statements appearing in the Company's Form 10-K/A for the year ended September 30, 2002, the Company purchases residential security monitoring contracts from an external network of independent dealers who operate under the ADT dealer program. The purchase price of these customer contracts is recorded as an intangible asset (i.e., contracts and related customer relationships), which is amortized over the period of the economic benefit expected to be obtained from the customer relationship. Effective January 1, 2003, and as disclosed in the Company's previously filed Form 10-Q for the quarter ended March 31, 2003, the Company changed its method of accounting for the amortization of the costs of these purchased contracts from the straight-line method to an accelerated method. In addition, the Company revised its estimate of the life of the customer

account pool over which the costs of purchased contracts would be amortized from ten years to twelve years. The change in method of accounting was viewed as inseparable from the change in estimated life, and therefore, the pre-tax cumulative effect of this charge of $315.5 million was recorded as an increase in amortization expense effective January 1, 2003. The restatement reverses this previously recorded charge and reflects the accelerated amortization method for all historical periods.

Amounts Reimbursed from ADT Dealers

As described in Note 1 to the financial statements appearing in the Company's Form 10-K/A for the year ended September 30, 2002, the Company incurs costs associated with maintaining and operating its ADT dealer program, including brand advertising costs and due diligence costs relating to contracts offered for sale to the Company under the ADT dealer program. Dealers pay the Company a non-refundable amount for each of the contracts sold to the Company representing their reimbursement of such dealer program costs. Prior to fiscal 2002, the Company recognized as an expense reduction the entire amount of such reimbursements from dealers. Commencing October 1, 2001, to the extent that the amount of dealer reimbursement exceeded the actual costs incurred by the Company, the excess was recorded as a deferred credit and amortized on a straight-line basis over ten years. As disclosed in the Company's previously filed Form 10-Q for the quarter ended March 31, 2003, the Company changed its method of accounting for these reimbursements from dealers. Pursuant to a recently issued consensus of the FASB's Emerging issues Task Force (EITF 02-16, "Accounting by a Customer (Including a Reseller) for Certain Consideration received from a Vendor"), the consideration received by the Company relating to the non-refundable charge to each dealer for reimbursement of the costs to support the ADT dealer program was presumed to be a reduction in the capitalized intangible asset cost to the Company of acquiring customer contracts. As permitted under EITF 02-16, the Company changed its method of accounting for the amounts received from dealers for reimbursement of the costs to support the ADT dealer program through a cumulative change recorded retroactively to the beginning of the fiscal year. This was reported as a $206.7 million after-tax ($265.5 million pre-tax) charge for the cumulative effect of change in accounting principle in the Consolidated Statement of Operations for the six months ended March 31, 2003, retroactive to October 1, 2002. The impact on the Consolidated Balance Sheets of the cumulative adjustment was a decrease in net intangible assets of $566.8 million and a decrease in liabilities for the previously deferred non-refundable charge to dealers of $301.4 million. The restatement reverses the cumulative effect of the previously recorded change in accounting to report non-refundable dealer reimbursements as a reduction in the capitalized intangible asset cost to the Company of purchasing customer contracts in each prior accounting period to which such purchases relate, and changes the classification of the portion of such previous charge that represents an impairment of customer contracts and relationships. This impairment charge ($77.0 million pre-tax) resulted from a further deterioration during the quarter ended March 31, 2003 of future estimated cash flows anticipated from customers primarily in Mexico and certain Latin American countries following the curtailment, and in some instances, the termination of the ADT dealer program in these countries in 2002. This charge is now classified on the fiscal 2003 Consolidated Statement of Operations as an Impairment of Long-Lived Assets.

Other Adjustments

of the intangible asset as well as the amount of loss attributable to that asset upon disposition in fiscal 2002 of the Healthcare business to which the intangible asset related and (iii) reverse $31.6 million of charges originally recorded during the fourth quarter of fiscal 2002, and reflect this charge in the prior quarters and years to which they relate. These charges relate primarily to intercompany profit, capitalized costs, and account reconciliation issues within the Engineered Products and Services segment. The restatement also includes an adjustment to change the classification of a $20.0 million restitution payment from Other income (expense) in continuing operations to Income from discontinued operations of Tyco Capital in the Statement of Operations for the quarter ended December 31, 2002.

The impact on the Consolidated Statements of Operations, Consolidated Balance Sheets and Consolidated Statements of Cash Flows, as a result of the above adjustments, is as follows (in millions,

except per share data). The amounts previously reported are derived from the original Form 10-Q for the quarter ended March 31, 2003 filed on May 15, 2003.

			For the Quarter Ended March 31, 2003						For the Quarter Ended March 31, 2002						For the Six Months Ended March 31, 2003						For the Six Months Ended March 31, 2002
			Amounts Previously Reported			As Restated			Amounts Previously Reported			As Restated			Amounts Previously Reported			As Restated			Amounts Previously Reported			As Restated
Statements of Operations:
	Revenues from product sales		$	7,199.7		$	7,207.9		$	7,000.0		$	6,995.7		$	14,369.9		$	14,366.1		$	13,977.6		$	13,906.0
	Service revenue			1,780.6			1,780.6			1,611.4			1,611.4			3,549.8			3,549.8			3,212.5			3,211.6

	Net revenues			8,980.3			8,988.5			8,611.4			8,607.1			17,919.7			17,915.9			17,190.1			17,117.6
	Cost of product sales			4,922.4			4,890.7			4,838.1			4,840.4			9,713.9			9,684.0			9,266.9			9,239.2
	Cost of services			964.8			964.8			791.9			791.9			1,903.5			1,903.5			1,597.5			1,597.5
	Selling, general and administrative expenses			3,234.1			2,470.3			1,887.1			1,955.6			5,334.2			4,618.9			3,852.4			3,783.2
	Restructuring and other charges (credits), net			(59.6	)		(59.6	)		403.8			348.8			(63.1	)		(63.1	)		423.7			368.7
	Charges for impairment of long-lived assets			23.3			87.2			2,351.7			2,389.2			23.3			87.2			2,351.7			2,389.7

		Operating (loss) income		(104.7	)		635.1			(1,661.2	)		(1,718.8	)		1,007.9			1,685.4			(302.1	)		(260.7	)
	Interest income			21.8			21.8			29.5			29.5			47.6			47.6			49.1			49.1
	Interest expense			(299.8	)		(299.8	)		(255.1	)		(255.1	)		(588.8	)		(588.8	)		(463.9	)		(463.9	)
	Other (expense) income, net			(61.4	)		(61.4	)		(143.4	)		(143.4	)		(40.0	)		(60.0	)		(147.7	)		(147.7	)
	Sale of common shares of a subsidiary			—			—			—			—			—			—			(39.6	)		—

	(Loss) income before taxes and minority interest			(444.1	)		295.7			(2,030.2	)		(2,087.8	)		426.7			1,084.2			(904.2	)		(823.2	)
	Income taxes			(22.8	)		(170.4	)		(23.2	)		3.5			(267.4	)		(392.3	)		(216.0	)		(223.9	)
	Minority interest			(1.0	)		(1.0	)		(1.6	)		(1.6	)		(1.7	)		(1.7	)		(0.1	)		(0.1	)

	(Loss) income from continuing operations			(467.9	)		124.3			(2,055.0	)		(2,085.9	)		157.6			690.2			(1,120.3	)		(1,047.2	)

	(Loss) income from discontinued operations, net of tax			—			—			(4,323.0	)		(4,323.0	)		—			20.0			(4,058.3	)		(4,058.3	)

	(Loss) income before cumulative effect of accounting change			(467.9	)		124.3			(6,378.0	)		(6,408.9	)		157.6			710.2			(5,178.6	)		(5,105.5	)
	Cumulative effect of accounting change			—			—			—			—			(206.7	)		—			—			—

	Net (loss) income		$	(467.9	)	$	124.3		$	(6,378.0	)	$	(6,408.9	)	$	(49.1	)	$	710.2		$	(5,178.6	)	$	(5,105.5	)

	Basic net (loss) income per common share		$	(0.23	)	$	0.06		$	(3.20	)	$	(3.22	)	$	(0.02	)	$	0.36		$	(2.61	)	$	(2.57	)
	Diluted net (loss) income per common share			(0.23	)		0.06			(3.20	)		(3.22	)		(0.02	)		0.35			(2.61	)		(2.57	)

					March 31, 2003						September 30, 2002
					Amounts Previously Reported			As Restated			Amounts Previously Reported			As Restated
Balance Sheets:
	Current Assets:
		Cash and cash equivalents			$	3,965.2		$	3,965.2		$	6,186.8		$	6,185.7
		Restricted cash				460.3			460.3			196.2			196.2
		Accounts receivable				5,828.2			5,827.4			5,848.6			5,831.9
		Inventories				4,660.7			4,660.7			4,716.0			4,607.9
		Other current assets				2,802.9			2,820.8			2,802.2			2,817.7

				Total current assets		17,717.3			17,734.4			19,749.8			19,639.4
	Tyco Global Network, Net					644.5			644.5			581.6			581.6
	Property, Plant and Equipment, Net					9,835.7			9,835.7			9,969.5			9,861.0
	Goodwill					26,031.2			26,031.2			26,093.2			26,020.5
	Intangible Assets, Net					5,844.5			5,844.6			6,562.6			5,805.8
	Other Assets					3,425.2			3,614.2			3,457.7			3,549.2

				Total Assets	$	63,498.4		$	63,704.6		$	66,414.4		$	65,457.5

	Liabilities and Shareholders' Equity
	Current Liabilities:
		Loans payable and current maturities of long-term debt			$	4,386.8		$	4,386.8		$	7,719.0		$	7,719.0
		Accounts payable				2,824.2			2,824.2			3,170.0			3,173.8
		Accrued expenses and other current liabilities				4,655.8			4,653.1			5,270.8			5,296.5
		Contracts in process — billings in excess of cost				477.7			477.7			522.1			523.6
		Deferred revenue				723.4			760.2			731.3			758.5
		Income taxes payable				2,327.5			2,327.5			2,218.9			2,219.1

				Total current liabilities		15,395.4			15,429.5			19,632.1			19,690.5
	Long-Term Debt					17,442.7			17,442.7			16,486.8			16,486.8
	Other Long-Term Liabilities					5,244.3			5,384.4			5,462.1			5,156.1

				Total Liabilities		38,082.4			38,256.6			41,581.0			41,333.4

	Minority Interest					30.1			30.1			42.8			42.8
	Shareholders' Equity:
		Common shares				399.4			399.4			399.1			399.1
		Capital excess:
			Share premium			8,149.4			8,149.4			8,146.9			8,146.9
			Contributed surplus			15,083.0			15,083.0			15,042.7			15,042.7
		Accumulated earnings				2,695.3			2,741.7			2,794.1			2,081.2
		Accumulated other comprehensive loss				(941.2	)		(955.6	)		(1,592.2	)		(1,588.6	)

				Total Shareholders' Equity		25,385.9			25,417.9			24,790.6			24,081.3

				Total Liabilities and Shareholders' Equity	$	63,498.4		$	63,704.6		$	66,414.4		$	65,457.5

		For Six Months Ended March 31, 2003						For the Six Months Ended March 31, 2002
		Amounts Previously Reported			As Restated			Amounts Previously Reported			As Restated
Statements of Cash Flows:
	Income from continuing operations	$	157.6		$	690.2		$	(1,120.3	)	$	(1,047.2	)
	Net cash provided by operating activities		2,154.4			2,126.6			3,602.0			3,460.8
	Purchase of property, plant and equipment		(595.0	)		(566.1	)		(988.3	)		(979.1	)
	Construction in progress—Tyco Global Network		(89.0	)		(89.0	)		(817.4	)		(817.4	)
	Acquisition of businesses, net of cash acquired		(34.6	)		(34.6	)		(1,664.5	)		(1,664.5	)
	Acquisition of customer accounts (ADT dealer program)		(358.3	)		(358.3	)		(678.2	)		(546.2	)
	Other investing activities		(637.0	)		(637.0	)		1,684.2			1,684.2

	Net cash used in investing activities		(1,713.9	)		(1,685.0	)		(2,464.2	)		(2,323.0	)
	Net cash (used in) provided by financing activities		(2,713.7	)		(2,713.7	)		2,599.7			2,599.7
	Effect of currency translation on cash		51.6			51.6			(31.0	)		(31.0	)
	Net (decrease) increase in cash and cash equivalents		(2,221.6	)		(2,220.5	)		3,706.5			3,706.5
	Tyco capital's cash and cash equivalents transferred to discontinued operations		—			—			(1,451.3	)		(1,451.3	)
	Cash and cash equivalents at beginning of period		6,186.8			6,185.7			1,779.2			1,780.1

	Cash and cash equivalents at end of period	$	3,965.2		$	3,965.2		$	4,034.4		$	4,035.3

The following table reflects the impact of the aforementioned adjustments on net revenues ($ in millions):

		For the Quarters Ended March 31,						For the Six Months Ended March 31,
		2003			2002			2003			2002
Net revenues, as previously reported		$	8,980.3		$	8,611.4		$	17,919.7		$	17,190.1
Adjustments:
	Capitalized Costs		(9.8	)		0.4			(9.9	)		0.8
	Asset Reserve Adjustments		11.1			—			—			—
	Other Accounting Adjustments		6.9			(4.7	)		6.1			(9.4	)
	TyCom Network Transaction		—			—			—			(63.9	)

Increase (decrease) in net revenues			8.2			(4.3	)		(3.8	)		(72.5	)

Net revenues, as restated		$	8,988.5		$	8,607.1		$	17,915.9		$	17,117.6

The following table reflects the impact of the aforementioned adjustments on operating income (loss) and operating margins ($ in millions):

		For the Quarters Ended March 31,						For the Six Months Ended March 31,
		2003			2002			2003			2002
Operating (loss) income, as previously reported		$	(104.7	)	$	(1,661.2	)	$	1,007.9		$	(302.1	)
Adjustments:
	Phase 2 Adjustments		—			—			—			36.1
	Capitalized and Deferred Costs		179.5			(7.5	)		173.2			(16.1	)
	Reconciliation Items		134.1			(1.6	)		131.5			(4.6	)
	Adjustments to Accrual Balances		15.0			(0.3	)		13.9			(0.7	)
	Asset Reserve Adjustments		18.5			(0.6	)		7.4			(1.2	)
	Other Accounting Adjustments		102.4			(9.6	)		97.7			(22.1	)
	Customer Contract Amortization Method		315.5			(25.5	)		288.5			(49.2	)
	ADT Dealer Reimbursements		(81.7	)		(25.4	)		(84.8	)		131.6
	TyCom Network Transaction		—			18.0			—			(21.4	)
	Healthcare Divestiture Transaction		—			4.2			—			8.4
	Insurance and Compensation Accrual Adjustments		56.5			(9.3	)		50.1			(19.4	)

Increase (decrease) in operating income (loss)			739.8			(57.6	)		677.5			41.4

Operating income (loss), as restated		$	635.1		$	(1,718.8	)	$	1,685.4		$	(260.7	)

Operating Margins:
	As previously reported		(1.2	)%		(19.3	)%		5.6	%		(1.8	)%
	As restated		7.1			(20.0	)		9.4			(1.5	)

The following table reflects the impact of the aforementioned adjustments on (loss) income from continuing operations before income taxes and minority interest ($ in millions):

		For the Quarters Ended March 31,						For the Six Months Ended March 31,
		2003			2002			2003			2002
(Loss) income from continuing operations before income taxes and minority interest, as previously reported		$	(444.1	)	$	(2,030.2	)	$	426.7		$	(904.2	)
Adjustments:
	Gain on Issuance of TyCom Shares		—			—			—			39.6
	Phase 2 Adjustments		—			—			—			36.1
	Capitalized and Deferred Costs		179.5			(7.5	)		173.2			(16.1	)
	Reconciliation Items		134.1			(1.6	)		131.5			(4.6	)
	Adjustments to Accrual Balances		15.0			(0.3	)		13.9			(0.7	)
	Asset Reserve Adjustments		18.5			(0.6	)		7.4			(1.2	)
	Other Accounting Adjustments		102.4			(9.6	)		97.7			(22.1	)
	Restitution Payment		—			—			(20.0	)		—
	Customer Contract Amortization Method		315.5			(25.5	)		288.5			(49.2	)
	ADT Dealer Reimbursements		(81.7	)		(25.4	)		(84.8	)		131.6
	TyCom Network Transaction		—			18.0			—			(21.4	)
	Healthcare Divestiture Transaction		—			4.2			—			8.4
	Insurance and Compensation Accrual Adjustments		56.5			(9.3	)		50.1			(19.4	)

Increase (decrease)			739.8			(57.6	)		657.5			81.0

Income (loss) from continuing operations before income taxes and minority interest, as restated		$	295.7		$	(2,087.8	)	$	1,084.2		$	(823.2	)

Charges Related to Current Period Changes in Estimates—The preparation of consolidated financial statements in conformity with Generally Accepted Accounting Principles requires management to make extensive use of estimates and assumptions that affect the reported amount of assets and liabilities and

disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. Significant estimates in the Company's Consolidated Financial Statements include restructuring and other charges (credits), purchase accounting reserves, allowances for doubtful accounts receivable, 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. Changes in estimates are recorded in the results of operations in the period that the events and circumstances giving rise to such changes occur.

The impact of the $388.7 million of charges on the Consolidated Statement of Operations is as follows:

Cost of sales	$	(110.5	)
Selling, general and administrative expense		(243.1	)
Restructuring and other (credits) charges, net		59.6
Charges for the impairment of long-lived assets		(10.2	)

Operating income		(304.2	)
Other expense, net		(84.5	)

Income from continuing operations before taxes and minority interest	$	(388.7	)

capitalized external costs of a European financial computer system based on the Company's decision in the quarter to discontinue the new system under development and continue to use the existing system. We do not expect this change in strategy to negatively impact future business operations.

The $139.6 million of adjustments for asset valuations includes $76.4 million write-down of inventories, $51.9 million increase for allowance for doubtful accounts and $11.3 million write-off of subscriber systems. The inventory charge of $76.4 million was primarily due to the finalization of plans regarding the disposition of inventory in connection with curtailed programs and product lines and the Company's decision during the quarter to exit certain product lines in our fire and security services business. The increase in the allowance for doubtful accounts of $51.9 million and the write-off of subscriber systems of $11.3 million was primarily due to the further deterioration in the accounts receivable aging and increased customer cancellations in certain non-strategic European security businesses during the second quarter. The inventory charge and subscriber systems adjustments are included in cost of sales and the allowance for doubtful accounts is included in selling, general and administrative expenses. We do not expect these changes to have an adverse impact on future operations.

The workers compensation and product and general liability changes in estimate are based on third party actuarial reviews of insurance liabilities. The charge of $95.4 million is included in selling, general and administrative expenses ($65.2 million) and cost of product sales ($30.2 million). This adjustment relates to changes in facts and circumstances occurring during the quarter ended March 31, 2003 which necessitate a change in assumptions and estimates. In particular, the Company identified trend data which required the Company to revise its assumptions as a result of an unanticipated increase in the number and changes in the nature of claims incurred and the rate of increase of medical costs, as well as the emergence of previously unanticipated new claims. In addition, the Company experienced an increase in workers' compensation expense, particularly in California, as a result of adverse legal developments toward employers.

The $84.1 million investment write-down, included in other expense, net, primarily consists of a $75.6 million loss on various equity investments. It became evident in the quarter ended March 31, 2003 that the declines in the fair value of the investments were other than temporary, primarily due to depressed economic conditions. Factors that management considered in making their assessment included investees' inability to raise funds during the quarter, bankruptcy, continued losses by the investees, lack of sufficient future expected cash flows, and lower entity valuations based on recent private financing activity. The Company also recognized other expense of $8.5 million in connection with a bank guarantee on behalf of an equity investee (see Note 16). It is possible that the Company may have additional write-downs on other investments if market conditions continue recent negative trends.

The $62.3 million for other accounting estimates includes a charge to selling, general and administrative expenses of $17.3 million resulting from the Company's revision in the second quarter of deferred commissions related to long-term contracts, $12.1 million to write down company owned properties based on real estate assestments and purchase offers received in the current quarter for assets held for sale, $11.5 million of additional severance related to terminated executives, and $21.4 million of other accounting estimate changes, none of which are individually significant, that were included primarily in selling, general and administrative expenses.

The above charges are partially offset by credits of $72.5 million, of which $59.6 million is included in costs of sales, related to restructuring charge reversals (discussed in Note 4) that arose during the second quarter of fiscal 2003.

Overview

Revenues increased 4.4% during the quarter ended March 31, 2003 to $8,988.5 million from $8,607.1 million in the quarter ended March 31, 2002. Tyco had income from continuing operations of $124.3 million for the quarter ended March 31, 2003, as compared to a loss from continuing operations of $2,085.9 million in the quarter ended March 31, 2002. Income from continuing operations for the quarter ended March 31, 2003 included charges totaling $534.5 million ($457.1 million after-tax) consisting of the following: (i) charges related to current period changes in estimates of $388.7 million, which arose from the Company's ongoing program of intensified internal audits and detailed controls and operating reviews (includes restructuring credits of $72.5 million, of which $12.9 million is included in cost of sales, impairment charges of $10.2 million, a loss on investments of $75.6 million, and expense of $8.5 million related to a guarantee of an equity investee, both of which are included in other expense, net); (ii) a charge of $91.5 million for a retroactive, incremental premium on prior period directors and officers insurance; (iii) impairment charges of $77.0 million; and (iv) other income of $22.7 million from the early extinguishment of debt. Loss from continuing operations for the quarter ended March 31, 2002 included charges totaling $3,132.7 million ($3,031.9 million after-tax) consisting of the following: (i) impairment charges of $2,389.2 million primarily related to the write-down of the Tyco Global Network ("TGN"); (ii) restructuring and other charges of $600.1 million, of which $251.3 million is included in cost of sales, primarily related to the write-down of inventory and facility closures within our Electronics segment; (iii) a loss on the write-off of investments of $141.0 million; and (iv) other expense of $2.4 million from the early extinguishment of debt.

Revenues increased 4.7% during the six months ended March 31, 2003 to $17,915.9 million from $17,117.6 million in the six months ended March 31, 2002. Tyco had income from continuing operations of $690.2 million in the six months ended March 31, 2003, as compared to a loss from continuing operations of $(1,047.2) million in the six months ended March 31, 2002. Income from continuing operations for the six months ended March 31, 2003 included charges totaling $529.4 million ($453.5 million after-tax) consisting of the following: (i) charges related to current period changes in estimates of $388.7 million, which arose from the Company's ongoing program of intensified internal audits and detailed controls and operating reviews (includes restructuring credits of $72.5 million, of which $12.9 million is included in cost of sales, impairment charges of $10.2 million, a loss on investments of $75.6 million, and expense of $8.5 million related to a guarantee of an equity investee, both of which are included in other expense, net); (ii) a charge of $91.5 million for a retroactive, incremental premium on prior period directors and officers insurance; (iii) impairment charges of $77.0 million; (iv) restructuring credits of $3.7 million, of which $0.2 million is included in cost of sales; and (v) other income of $24.1 million from the early extinguishment of debt. Loss from continuing operations for the six months ended March 31, 2002 included charges totaling $3,163.2 million

($3,053.6 million after-tax) consisting of the following: (i) impairment charges of $2,389.7 million primarily related to the write-down of the TGN; (ii) restructuring and other charges of $625.8 million, of which $257.1 million is included in cost of sales, primarily related to the write-down of inventory and facility closures within our Electronics segment; (iii) a loss on the write-off of investments of $141.0 million; (iv) and other expense of $6.7 million from the early extinguishment of debt.

We are currently assessing the potential impact of various legislative proposals that would deny U.S. federal government contracts to U.S. companies that move their corporate location abroad. Tyco's evolution to becoming a Bermuda-based company was a result of the 1997 business combination of Tyco International Ltd., a Massachusetts corporation, and ADT Limited (a public company that had been located in Bermuda since the 1980's with origins dating back to the United Kingdom since the early 1900's). Tyco's revenues related to U.S. federal government contracts account for less than 3% of the net revenues for the six months ended March 31, 2003. In addition, various state and other municipalities in the U.S. have proposed similar legislation. There is also other similar proposed tax legislation which could substantially increase our corporate income taxes and, consequently, decrease future net income and increase our future cash outlay for taxes. We are unable to predict, with any level of certainty, the likelihood or final form in which any proposed legislation might become law, or the nature of regulations that may be promulgated under any such future legislative enactments. In addition, in the normal course of business the Company is subject to government audits as a result of its contracts with the U.S. federal government.

The following table details net revenues and earnings for the quarters and six months ended March 31, 2003 and 2002 ($ in millions):

	For the Quarters Ended March 31,						For the Six Months Ended March 31,
	2003			2002			2003			2002
	(restated)						(restated)
Revenue from product sales	$	7,207.9		$	6,995.7		$	14,366.1		$	13,906.0
Service revenue		1,780.6			1,611.4			3,549.8			3,211.6

Net revenues	$	8,988.5		$	8,607.1		$	17,915.9		$	17,117.6

Total operating income (loss)	$	635.1		$	(1,718.8	)	$	1,685.4		$	(260.7	)
Interest income		21.8			29.5			47.6			49.1
Interest expense		(299.8	)		(255.1	)		(588.8	)		(463.9	)
Other expense, net		(61.4	)		(143.4	)		(60.0	)		(147.7	)

Income (loss) from continuing operations before income taxes and minority interest		295.7			(2,087.8	)		1,084.2			(823.2	)
Income taxes		(170.4	)		3.5			(392.3	)		(223.9	)
Minority interest		(1.0	)		(1.6	)		(1.7	)		(0.1	)

Income (loss) from continuing operations		124.3			(2,085.9	)		690.2			(1,047.2	)
Income (loss) from discontinued operations of Tyco Capital, net of tax income		—			(4,323.0	)		20.0			(4,058.3	)

Net income (loss)	$	124.3		$	(6,408.9	)	$	710.2		$	(5,105.5	)

Net revenues increased $381.4 million, or 4.4%, to $8,988.5 million in the second quarter of fiscal 2003, and increased $798.3 million, or 4.7%, to $17,915.9 million in the six months ended March 31, 2003. For the quarter ended March 31, 2003, the increase in revenue at Fire and Security Services, Healthcare, and Plastics and Adhesives in the aggregate exceeded the decrease in revenue in the Engineered Products and Services segment, resulting in an overall increase in revenues. Revenue at our Electronics segment remained level quarter over quarter. For the six months ended March 31, 2003, the increases in revenue at Fire and Security Services, Healthcare, Engineered Products and Services, and Plastics and Adhesives in the aggregate exceeded the decrease in revenue in the Electronics segment, resulting in an overall increase in revenues. Operating income for the quarter ended March 31, 2003 increased $2,353.9 million to income of $635.1 million as compared to a loss of $1,718.8 million in the prior year's quarter. Operating income for the six months ended March 31, 2003 increased $1,946.1 million to $1,685.4 million from a loss of $260.7 million. Operating income and margins declined in each of our business segments, most notably in Fire and Security Services and Engineered Products and Services. We expect total revenues and operating income to increase during the next quarter primarily as a result of our continued focus on increasing organic growth, the timing of backlog executions, seasonal trends, and cost-cutting initiatives implemented in prior periods.

Historically, in acquisitions, the acquired company has been immediately integrated with our existing operations. As part of our integration process, we often eliminate duplicate functions by closing corporate and administrative offices, and we attempt to make the combined companies more cost efficient by combining manufacturing processes, product lines, sales offices and marketing efforts. As a result of our integration processes, most acquired companies become no longer separately identifiable. Consequently, we do not separately track the post-acquisition financial results of acquired companies, and therefore, are not able to quantify the actual impact of our acquisitions on revenues, expenses or operating results. The discussions following the tables below include percentages for revenue growth or decline that exclude increased revenue attributable to specified acquisitions and that eliminate the effects of period to period currency fluctuations. Revenue growth or decline percentages excluding the specified acquisitions are estimates calculated by assuming the acquisitions were made at the beginning of the relevant fiscal periods by adding back pre-acquisition results of the specified acquired companies for both periods in the comparison. We calculate segment growth using this methodology because we generally do not have the ability to capture post-acquisition revenues related to individual acquisitions since most companies are immediately integrated upon acquisition. The calculations of the growth analysis, excluding acquisitions discussed in the segment narratives below, include all acquisitions with a purchase price of $10 million or more in the calculation and do not include acquisitions with a purchase price of less than $10 million, due to the relative size of these smaller acquisitions compared to Tyco's operating results and the large number of acquisitions during the periods presented. These smaller acquisitions represent approximately 6% of the aggregate purchase price for all acquisitions during the six months ended March 31, 2003 and the fiscal year ended September 30, 2002. Since these estimates are based on pre-acquisition revenues, they are not necessarily indicative of post-acquisition results. Further, the amount provided inherently assumes that the acquired companies have a comparable organic growth percentage and earn revenues in the same proportion throughout the year as the segments that acquired the companies. In cases where the organic growth percentages or the proportion of revenue earned during the year are different, the amount could vary significantly from the actual organic growth of the segment. This calculation is similar to the method used in calculating the acquisition-related results of operations in Note 2 to the Consolidated Financial Statements, pursuant to Statement of Financial Accounting Standards No. 141.

Quarter Ended March 31, 2003 Compared to Quarter Ended March 31, 2002

Sales and Operating Income and Margins

Fire and Security Services

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

		For the Quarters Ended March 31,
		2003			2002
		(restated)
Revenue from product sales		$	1,242.5		$	1,195.8
Service revenue			1,527.1			1,374.1

	Net revenues	$	2,769.6		$	2,569.9

Operating (loss) income		$	(178.4	)	$	271.8
Operating margins			(6.4	)%		10.6	%

Net revenues in the Fire and Security Services segment increased 7.8% in the quarter ended March 31, 2003 over the quarter ended March 31, 2002, including a 3.9% increase in product revenue and an 11.1% increase in service revenue. The increase in net revenues was due to favorable changes in foreign currency exchange rates and, to a lesser extent, security account growth related to the ADT dealer program. Excluding a $150.4 million increase from foreign currency fluctuations, revenue from customer accounts acquired through the ADT dealer program (the Company purchases residential monitoring contracts from an external network of dealers) and all acquisitions with a purchase price of $10 million or more, revenues (calculated in the manner described above in "Overview") for the segment decreased 2.7% from $2,540.5 million for the quarter ended March 31, 2002 to $2,472.8 million for the quarter ended March 31, 2003. Although, our net revenue growth has historically been due to acquisitions (including the ADT dealer program), our current strategy is to grow our existing business. We plan to do this by gaining and maintaining high quality security monitoring accounts through our internal sales force supplemented by the ADT dealer program in key geographic areas as well as by growth in our fire prevention and suppression contracting businesses worldwide.

Operating income and margins significantly decreased in the quarter ended March 31, 2003 over the quarter ended March 31, 2002 due to charges of $294.9 million related to current period changes in estimates, which includes $167.1 million (also includes impairment of property, plant and equipment of $10.2 million) primarily related to the adjustments of accrual balances such as workers compensation, professional fees, and environmental exposure (includes $2.0 million restructuring credit due to costs being less than anticipated), $89.4 million primarily due to adjusting reserves for doubtful accounts and slow and non-moving inventory, and $38.4 million of other accounting adjustments primarily related to deferred commissions. These charges were recorded in connection with the Company's ongoing program of intensified internal audits, and as a result of applying management's judgments and estimates and detailed controls and operating reviews. Operating income for the quarter ended March 31, 2003 also includes a $77.0 million charge related primarily to the impairment of intangible assets in two geographic regions associated with the ADT dealer program. The decrease in operating income was also caused by an incremental increase in depreciation and amortization expense in our security business amounting to $48 million, reflecting the impact of growth in the subscriber asset and dealer asset base during the past year as well as increased amortization related to acquisitions. In addition, the decline resulted from a year over year decline in operating income of $42 million in the European security business primarily reflecting allowance for doubtful accounts and other expenses related to higher than expected attrition rates; a weaker worldwide fire and contracting environment, particularly in the retail sector; and decreased capacity utilization in our manufacturing business.

Attrition rates for customers in our global electronic security services business averaged 14.4% on a trailing twelve-month basis for the quarter ended March 31, 2003, as compared to 13.2% for the full year of fiscal 2002. This increase primarily relates to customer accounts acquired through the ADT dealer program.

Operating income and margins for the quarter ended March 31, 2002 include restructuring charges of $14.3 million primarily related to severance associated with the closure of existing facilities that had become redundant due to acquisitions and a charge of $13.8 million related to the write-up of inventory under purchase accounting, which is included in cost of revenue, and a charge of $0.5 million related to the impairment of property, plant and equipment.

Electronics

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

		For the Quarters Ended March 31,
		2003			2002
		(restated)
Revenue from product sales		$	2,390.6		$	2,393.4
Service revenue			111.4			100.5

	Net revenues	$	2,502.0		$	2,493.9

Operating income (loss)		$	357.3		$	(2,570.8	)
Operating margins			14.3	%		(103.1	)%

Net revenues for the Electronics segment remained relatively level in the quarter ended March 31, 2003 compared with the quarter ended March 31, 2002, including a 0.1% decrease in product revenue and a 10.8% increase in service revenue, as a result of favorable changes in foreign currency exchange rates, offset by further softening in customer demand in the markets we serve and completion of third-party undersea fiber optic system installations. Revenues at the electronics components group increased $141.6 million, or 6.1% due primarily to the impact of changes in foreign currency exchange rates. Revenues at the segment's Telecommunications business declined $133.5 million, or 82.2%, due to the completion of third-party undersea fiber optic system installations in the prior year and a lack of demand in the current year for third-party system builds. Excluding a $161.0 million increase from foreign currency fluctuations, the acquisition of Communications Instruments, Inc. ("CII") in January 2002, and all other acquisitions with a purchase price of $10 million or more, sales (calculated in the manner described above in "Overview") for the segment decreased 6.4% from $2,502.3 million for the quarter ended March 31, 2002 to $2,341.0 million for the quarter ended March 31, 2003.

The significant increase in operating income and margins for the quarter ended March 31, 2003 compared with the quarter ended March 31, 2002 was primarily due to charges totaling $2,939.5 million (discussed below) that were included in the prior year's quarter. Operating income for the quarter ended March 31, 2003 includes a net credit of $17.3 million related to changes in estimates, consisting of restructuring credits of $54.8 million to accruals primarily relating to the completion of certain restructuring actions for less than the original estimates, of which $12.9 million is included in cost of sales, $14.9 million related to the adjustments of accrual balances, $12.7 million related to reconciliation items in the current period, and $9.9 million of other accounting adjustments related to M/A-COM. These charges were recorded in connection with the Company's ongoing program of intensified internal audits, and as a result of applying management's judgments and estimates and detailed controls and operating reviews.

Operating income and margins for the quarter ended March 31, 2002 include charges for the impairment of property, plant and equipment of $2,383.0 million primarily related to the write-down of the TGN and the closure of certain facilities. The results also include restructuring charges of $556.5 million, of which $237.5 million is included in cost of revenue, related to the write-down of inventory and certain facility closures.

Healthcare

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

		For the Quarters Ended March 31,
		2003			2002
		(restated)
Revenue from product sales		$	2,120.6		$	1,947.0
Service revenue			16.7			21.3

	Net revenues	$	2,137.3		$	1,968.3

Operating income		$	520.7		$	452.9
Operating margins			24.4	%		23.0	%

Net revenues for the Healthcare segment increased 8.6% in the quarter ended March 31, 2003 over the quarter ended March 31, 2002, including an 8.9% increase in product revenue and a 21.6% decrease in service revenue. The increase in net revenues resulted primarily from organic growth and, to a lesser extent, favorable foreign currency exchange rates. Strong organic growth was due to the following: increases in the surgical sector concurrent with the award of the Consorta contract and continued organic growth within certain surgical stapling lines; increases in the International division as a result of favorable sales to European governments, strong respiratory and medical sales in Japan, and increased sales in other Asia-Pacific countries, and; increases in the pharmaceutical, medical, and respiratory businesses. These sales increases were partially offset by a decrease in the retail business' diaper product line due to the adverse impact of new package down-counts, which were implemented on an industry-wide basis. Excluding a $86.5 million increase from foreign currency exchange fluctuations, the acquisition of Paragon Trade Brands ("Paragon") in January 2002 and the divestiture of Surgical Dynamics, Inc. in July 2002, revenue for the Healthcare segment increased an estimated 6.0% from $1,802.3 million for the quarter ended March 31, 2002 to $1,911.2 million for the quarter ended March 31, 2003.

The 15.0% increase in operating income and increase in margins in the quarter ended March 31, 2003 compared to the quarter ended March 31, 2002 was due primarily to the favorable sales impacts noted above, favorable manufacturing variances as a result of increased production volumes, favorable foreign currency exchange rates, and our continued focus on maximizing operating efficiencies. Operating income for the quarter ended March 31, 2003 also includes a net charge of $7.7 million related to current period changes in estimates, which includes a restructuring reversal of $4.7 million to accruals due to costs being less than anticipated, $8.2 million related to asset reserves for inventory, $3.5 million of reconciliation items related to the current period, and $0.7 million for the adjustments to accrual balances related to workers compensation in the current period. These charges were recorded in connection with the Company's ongoing program of intensified internal audits, and as a result of applying management's judgments and estimates and detailed controls and operating reviews.

Operating income and margins for the quarter ended March 31, 2002 include charges of $7.8 million, related to the write-off of legal and other deal costs associated with an acquisition that was not completed.

Engineered Products and Services

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

		For the Quarters Ended March 31,
		2003			2002
		(restated)
Revenue from product sales		$	965.7		$	981.0
Service revenue			125.4			115.5

	Net revenues	$	1,091.1		$	1,096.5

Operating (loss) income		$	72.1		$	142.5
Operating margins			6.6	%		13.0	%

Net revenues for the Engineered Products and Services segment decreased 0.5% in the quarter ended March 31, 2003 over the quarter ended March 31, 2002, including a 1.6% decrease in product revenue and a 8.6% increase in service revenue. The decrease in net revenue was primarily due to weak conditions in Tyco Flow Control's and Tyco Electrical and Metal Products' major markets, most notably in non-residential construction, in addition to lower levels of capital expenditures for environmental, construction, and telecommunications projects by our customers. Excluding a $60.6 million increase from foreign currency exchange fluctuations, the acquisition of Clean Air Systems in February 2002, and all other acquisitions with a purchase price of $10 million or more, revenue (calculated in the manner described above in "Overview") for the segment decreased 6.9% from $1,106.4 million for the quarter ended March 31, 2002 to $1,030.5 million for the quarter ended March 31, 2003.

The significant decrease in operating income and margins in the quarter ended March 31, 2003 compared to the quarter ended March 31, 2002 was due primarily to charges of $48.0 million related to current period changes in estimates, which includes $33.9 million related to the adjustments to workers compensation and health insurance accruals, $7.5 million associated with asset reserves and $6.6 million primarily related to reconciling items in the current period. These charges were recorded in connection with the Company's ongoing program of intensified internal audits, and as a result of applying management's judgments and estimates and detailed controls and operating reviews. The decrease is also due to the effects of lower revenue as described above; competitive conditions in major markets for valves and controls, thermal controls, and electrical and metal products; and increased raw material costs.

Operating income and margins for the quarter ended March 31, 2002 includes restructuring and other charges of $6.8 million, and charges of $5.7 million for the impairment of property, plant and equipment, primarily related to the termination of employees and the shut down of facilities associated with a restructuring plan.

Plastics and Adhesives

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

	For the Quarters Ended March 31,
	2003			2002
	(restated)
Revenue from product sales	$	488.5		$	478.5
Operating income	$	41.9		$	47.4
Operating margins		8.6	%		9.9	%

Net revenues at Tyco Plastics and Adhesives increased 2.1% in the quarter ended March 31, 2003 over the quarter ended March 31, 2002 primarily due to sales price increases as a result of higher raw material costs, increased sales volume of plastic sheeting and duct tape products as a result of the heightened level of security related to the potential likelihood of terrorist attacks, and favorable foreign currency exchange rates. These increases were offset by the generally weak economy, most notably to the retail, food service, automotive, and industrial markets we serve. Excluding a $9.2 million increase from foreign currency exchange fluctuations and all acquisitions with a purchase price of $10 million or more, revenues (calculated in the manner described above in "Overview") for the Plastics and Adhesives segment remained level from $478.5 million for the quarter ended March 31, 2002 to $479.3 million for the quarter ended March 31, 2003.

The 11.6% decrease in operating income and decrease in operating margins in the quarter ended March 31, 2003 over the quarter ended March 31, 2002 was primarily due to charges of $6.0 million related to current period changes in estimates, which includes $4.0 million for the adjustments to accrual balances, $2.4 million related to reconciliation items, and a restructuring credit of $0.4 million to asset reserves due to costs being less than anticipated. These charges were recorded in connection with the Company's ongoing program of intensified internal audits, and as a result of applying management's judgments and estimates and detailed controls and operating reviews. The results also include higher raw material costs, increased pricing competition, a less favorable sales mix, and negative manufacturing variances. These costs were partially offset by favorable selling, general and administrative costs as our business implements various cost saving initiatives and decreased sales commission expense due to volume shortfalls.

Operating income and margins for the quarter ended March 31, 2002 includes restructuring and other charges of $0.9 million for legal and other deal fees that were written-off.

Foreign Currency

The effect of changes in foreign exchange rates for the quarter ended March 31, 2003 compared to the quarter ended March 31, 2002 was an increase in revenues and operating income of approximately $467.7 million and $62.7 million, respectively.

Corporate Expenses

Corporate expenses were $178.5 million and $62.6 million in the quarters ended March 31, 2003 and 2002, respectively. Corporate expenses for the current period include charges of $100.8 million, which includes a $91.5 million incremental increase in directors and officers insurance (see Note 1—"Basis of Presentation and Restatement" and Note 11—"Committments and Contingencies" to the Consolidated Financial Statements), and $19.9 million of charges related to changes in estimates primarily related to a severance accrual for corporate employees. Also included within the $100.8 million is a restructuring credit of $10.6 million ($8.7 million to accruals and $1.9 million to

asset reserves) due to costs being less than anticipated, which is also a change in estimates. In addition, the increase in the quarter ended March 31, 2003 as compared to the quarter ended March 31, 2002 was partially due to increased insurance costs and professional fees.

Other Expense, Net

Tyco has repurchased some debt prior to scheduled maturities. During the quarters ended March 31, 2003, the Company recorded other income from the early retirement of debt totaling $22.7 million, as compared to expense of $2.4 million during the quarter ended March 31, 2002. Also, during the quarter ended March 31, 2003, the Company recorded a loss of $75.6 million related to the write-down of various equity investments and $8.5 million of other expense related to a bank guarantee on behalf of an equity investee. These charges were recorded in connection with the Company's ongoing program of intensified internal audits, and as a result of applying management's judgments and estimates and detailed controls and operating reviews, and are considered to be changes in estimates. During the quarter ended March 31, 2002, the Company recorded a $141.0 million loss on equity investments, primarily related to its investment in FLAG Telecom Holdings.

Interest Income and Expense

Interest income was $21.8 million in the quarter ended March 31, 2003, as compared to $29.5 million in the quarter ended March 31, 2002. Interest expense was $299.8 million in the quarter ended March 31, 2003, as compared to $255.1 million in the quarter ended March 31, 2002. Interest expense also includes $0.4 million related to changes in estimates related to other accounting adjustments. The increase in interest expense is primarily the result of a decrease in capitalized interest due to the completion of the TGN. We expect both interest income and expense to remain relatively level next quarter.

Income Tax Expense

Income tax expense was $170.4 million on pre-tax income of $295.7 million for the quarter ended March 31, 2003 as compared to an income tax credit of $3.5 million on pre-tax loss of $2,087.8 million for the quarter ended March 31, 2002. The difference in the rate is primarily the result of a decrease in losses in low tax jurisdictions partially offset by an increase in the valuation allowance for deferred tax assets of approximately $150.0 million due to the uncertainty of the utilization of certain non-U.S. deferred tax assets.

The valuation allowance was calculated in accordance with the provisions of Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109) which requires a valuation allowance be established or maintained when it is "more likely than not" that all or a portion of deferred tax assets will not be realized. It further states that it is difficult to conclude that a valuation allowance is not needed when there is negative evidence such as cumulative losses in recent years.

As a result of the charges related to the current period changes in estimates which arose from the Company's ongoing program of intensified internal audits and detail controls and operating reviews ("charges"), as well as charges related to prior years initially recorded in the year ending September 30, 2002, certain non-U.S. subsidiaries now have cumulative losses in the most recent years. Hence, the Company concluded that an additional valuation allowance was needed and recorded a non cash charge to increase the valuation allowance to offset certain deferred tax assets relating to these charges.

The tax benefit on restructuring and other charges was $77.4 million and $100.8 million in the quarters ended March 31, 2003 and 2002, respectively.

Six Months Ended March 31, 2003 Compared to Six Months Ended March 31, 2002

Sales and Operating Income and Margins

Fire and Security Services

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

		For the Six Months Ended March 31,
		2003		2002
		(restated)
Revenue from product sales		$	2,511.7	$	2,326.1
Service revenue			3,017.2		2,724.5

	Net revenues	$	5,528.9	$	5,050.6

Operating (loss) income		$	38.8	$	605.0
Operating margins			0.7%		12.0	%

Net revenues in the Fire and Security Services segment increased 9.5% in the six months ended March 31, 2003 over the six months ended March 31, 2002, including an 8.0% increase in product revenue and a 10.7% increase in service revenue. The increase in net revenues was due to fiscal 2002 acquisitions and customer contracts purchased through the ADT dealer program, in addition to favorable foreign currency exchange rates. Significant acquisitions included SBC/Smith Alarm Systems in October 2001, and DSC Group and Sensormatic in November 2001. Excluding a $220.0 million increase from foreign currency fluctuations, revenue from customer accounts acquired through the ADT dealer program, the acquisitions listed above and all other acquisitions with a purchase price of $10 million or more, revenues (calculated in the manner described above in "Overview") for the segment decreased 3.3% from $5,206.1 million for the six months ended March 31, 2002 to $5,034.1 million for the six months ended March 31, 2003. Although, our net revenue growth has historically been due to acquisitions (including the ADT dealer program), our current strategy is to grow our existing business. We plan to do this by gaining and maintaining high quality security monitoring accounts through our internal sales force supplemented by the ADT dealer program in key geographic areas as well as by growth in our fire prevention and suppression contracting businesses worldwide.

Operating income and margins decreased significantly in the six months ended March 31, 2003 over the six months ended March 31, 2002 due to charges of $294.9 million related to current period changes in estimates, which includes $167.1 million (also includes impairment of property, plant and equipment of $10.2 million) primarily related to the adjustments to accrual balances such as dismantlement provision, workers compensation, professional fees, and environmental exposure (includes $2.0 million restructuring credit due to costs being less than anticipated), $89.4 million primarily due to adjusting reserves for doubtful accounts and slow and non-moving inventory, and $38.4 million of other accounting adjustments primarily related to deferred commissions. These charges were recorded in connection with the Company's ongoing program of intensified internal audits, and as a result of applying management's judgments and estimates and detailed controls and operating reviews. Operating income for the six months ended March 31, 2003 also includes a $77.0 million charge primarily related to the impairment of intangible assets in two geographic regions associated with the ADT dealer program. The decrease was also due to increased depreciation and amortization expense in the security business due to growth in the subscriber asset and dealer asset base as well as the impact of the acquisitions of Sensormatic and DSC in fiscal 2002; decline in operating income in the European security business; and a weaker worldwide fire and contracting environment.

Operating income and margins for the six months ended March 31, 2002 include restructuring charges of $22.1 million primarily related to severance associated with the closure of existing facilities that had become redundant due to acquisitions, a charge of $13.8 million related to the write-up of inventory under purchase accounting, which is included in cost of revenue and a charge of $1.0 million related to impairment of property, plant and equipment.

Electronics

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

	For the Six Months Ended March 31,
	2003			2002
	(restated)
Revenue from product sales	$	4,816.6		$	5,016.7
Service revenue		213.7			230.6

Net revenues	$	5,030.3		$	5,247.3

Operating income (loss)	$	649.2		$	(2,085.0	)
Operating margins		12.9	%		(39.7	)%

Net revenues for the Electronics segment decreased 4.1% in the six months ended March 31, 2003 compared with the six months ended March 31, 2002, including a 4.0% decrease in product revenue and a 7.3% decrease in service revenue, as a result of further softening in customer demand in the markets we serve and completion of third-party undersea fiber optic system installations. Revenues at the electronics components group increased $231.8 million, or 4.9% due primarily to the favorable impact of foreign currency exchange rates. Revenues at the segment's Telecommunications business declined $448.8 million, or 89.1%, due to completion of third-party undersea fiber optic system installations in the prior year and a lack of demand in the current year for third-party system builds. Excluding a $233.3 million increase from foreign currency fluctuations and the acquisitions of Transpower Technologies in November 2001, CII in January 2002, and all other acquisitions with a purchase price of $10 million or more, revenue (calculated in the manner described above in "Overview") for the segment decreased 9.8% from $5,316.2 million for the six months ended March 31, 2002 to $4,797.0 million for the six months ended March 31, 2003.

The increase in operating income and margins for the six months ended March 31, 2003 as compared to the six months ended March 31, 2002 was due to unusually low operating income in the prior year, primarily as a result of charges totaling $2,939.5 million (discussed below) that were recorded in the six months ended March 31, 2002. Operating income and margins decreased year over year also as a result of the decrease in net revenue noted above. Additionally, we recorded net restructuring credits of $56.5 million, of which $12.9 million has been included in cost of sales, in the six months ended March 31, 2003 due to completion of restructuring actions for less than originally anticipated, and charges of $37.5 million related to current period changes in estimates, which includes $14.9 million related to the adjustments to accrual balances, $12.7 million of reconciliation items related to the current period, and $9.9 million of other accounting adjustments related to M/A-COM. These charges were recorded in connection with the Company's ongoing program of intensified internal audits, and as a result of applying management's judgments and estimates and detailed controls and operating reviews.

Operating income and margins for the six months ended March 31, 2002 include charges for the impairment of property, plant and equipment of $2,383.0 million primarily related to the write-down of the TGN and the closure of certain facilities. Also includes restructuring charges of $556.5 million, of which $237.5 million is included in cost of revenue, related to the write-down of inventory and certain facility closures.

Healthcare

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

		For the Six Months Ended March 31,
		2003			2002
		(restated)
Revenue from product sales		$	4,108.6		$	3,703.7
Service revenue			34.1			35.0

	Net revenues	$	4,142.7		$	3,738.7

Operating income		$	968.1		$	926.3
Operating margins			23.4	%		24.8	%

Net revenues for the Healthcare segment increased 10.8% in the six months ended March 31, 2003 over the six months ended March 31, 2002, including a 10.9% increase in product revenue and a 2.6% decrease in service revenue. The increase in net revenues resulted primarily from organic growth and, to a lesser extent, favorable foreign currency exchange rates. Strong organic growth was due to the following: increases in the surgical sector concurrent with the award of the Consorta contract and continued organic growth within certain surgical stapling lines; increases in the medical sector; new product launches in sharps; higher demand in the ultrasound market; increases in imaging and pharmaceuticals; increases in the International division as a result of favorable sales to European governments, and; strong respiratory and medical sales in Japan, and increased sales in other Asia-Pacific countries. These sales increases were partially offset by a decrease in the retail business' diaper product line due to the adverse impact of new package down-counts, which were implemented on an industry-wide basis. Excluding a $118.8 million increase from foreign currency exchange fluctuations, the acquisition of Paragon Trade Brands ("Paragon") in January 2002 and the divestiture of Surgical Dynamics, Inc. in July 2002, revenue (calculated in the manner described above in the "Overview") for the Healthcare segment increased an estimated 5.9% from $3,542.3 million for the six months ended March 31, 2002 to $3,751.2 million for the six months ended March 31, 2003.

The 4.5% increase in operating income in the six months ended March 31, 2003 compared to the six months ended March 31, 2002 was due primarily to acquisitions completed in fiscal 2002, favorable foreign currency exchange rates and, to a lesser extent, favorable sales performance and manufacturing variances and our continued focus on optimizing operating expenses. Offsetting the effect of those items and contributing to the decrease in operating margins were increased legal fees, higher sales and marketing expense as a result of program development aimed at supporting organic growth initiatives. Additionally, during the six months ended March 31, 2003, we recorded restructuring credits of $6.7 million, of which $0.2 million has been included in cost of sales, and $12.4 million of charges related to current period changes in estimates, which includes $8.2 million related to asset reserves for inventory, $3.5 million of reconciliation items related to the current period, and $0.7 million for the adjustments to accrual balances related to workers compensation in the current period. These charges were recorded in connection with the Company's ongoing program of intensified internal audits, and as a result of applying management's judgments and estimates and detailed controls and operating reviews.

Operating income and margins for the six months ended March 31, 2002 include charges of $7.8 million, related to the write-off of legal and other deal costs associated with an acquisition that was not completed.

Engineered Products and Services

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

		For the Six Months Ended March 31,
		2003			2002
		(restated)
Revenue from product sales		$	1,990.1		$	1,942.0
Service revenue			284.8			221.5

	Net revenues	$	2,274.9		$	2,163.5

Operating income		$	193.1		$	272.0
Operating margins			8.5	%		12.6	%

Net revenues for the Engineered Products and Services segment increased 5.1% in the six months ended March 31, 2003 over the six months ended March 31, 2002, including a 2.5% increase in product revenue and a 28.6% increase in service revenue. The increase in net revenue was primarily due to the favorable impact of foreign currency exchange rates and, to a lesser extent, the effect of acquisitions. Acquisitions included Century Tube Corporation ("Century") in October 2001, Water & Power Technologies ("Water & Power") in November 2001, and Clean Air Systems in February 2002. Excluding a $88.4 million increase from foreign currency exchange fluctuations, the acquisitions listed above, and all other acquisitions with a purchase price of $10 million or more, revenues (calculated in the manner described above in "Overview") for the segment decreased 0.8% from $2,204.7 million for the six months ended March 31, 2002 to $2,186.5 million for the six months ended March 31, 2002.

The 29.0% decrease in operating income and the decrease in margins in the six months ended March 31, 2003 compared to the six months ended March 31, 2002 was due primarily to charges of $48.0 million related to current period changes in estimates, which includes $33.9 million related to the adjustments to workers compensation and health insurance accruals, $7.5 million associated with asset reserves and $6.6 million primarily related to reconciling items in the current period. These charges were recorded in connection with the Company's ongoing program of intensified internal audits, and as a result of applying management's judgments and estimates and detailed controls and operating reviews; lower volume; competitive conditions in major markets for valves and controls, thermal controls, and electrical and metal products; and increased raw material costs.

Operating income and margins for the six months ended March 31, 2002 includes restructuring and other charges of $24.7 million, of which $5.8 million is included in cost of sales, and charges of $5.7 million for the impairment of long-lived assets, primarily related to the termination of employees and the write-down of inventory associated with exiting a product line.

Plastics and Adhesives

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

	For the Six Months Ended March 31,
	2003			2002
	(restated)
Revenue from product sales	$	939.1		$	917.5
Operating income	$	85.3		$	140.5
Operating margins		9.1	%		15.3	%

Net revenues at Tyco Plastics and Adhesives increased 2.4% in the six months ended March 31, 2003 over the six months ended March 31, 2002 due to the effect of acquisitions and favorable foreign currency exchange rates. Sales increases were achieved by higher selling prices as a result of higher raw material costs, increased sales volume of plastic sheeting and duct tape products as a result of the heightened level of security related to the potential likelihood of terrorist attacks. These increases were offset by increased competition and decreases in our Corrosion Protection business, which has been negatively impacted by a slow down in the oil and gas pipeline construction markets created by uncertainty in the Middle East and Venezuela. Excluding a $14.0 million increase from foreign currency exchange fluctuations and the acquisition of Linq Industrial Fabrics, Inc. in December 2001, and all other acquisitions with a purchase price of $10 million or more, revenues (calculated in the manner described above in "Overview") for the Plastics and Adhesives segment decreased an estimated 1.4% from $938.5 million for the six months ended March 31, 2002 to $925.1 million for the six months ended March 31, 2003.

The 39.3% decrease in operating income and decrease in operating margins in the six months ended March 31, 2003 over the six months ended March 31, 2002 was primarily due to increased raw material costs, increased pricing competition, a less favorable sales mix, and negative manufacturing variances, in addition to charges of $6.0 million related to current period changes in estimates, which includes $4.0 million for the adjustments to accrual balances, $2.4 million related to reconciliation items, and a restructuring credit of $0.4 million due to costs being less than anticipated. These charges were recorded in connection with the Company's ongoing program of intensified internal audits, charges as a result of applying management's judgments and estimates and detailed controls and operating reviews. These costs were partially offset by favorable selling, general and administrative costs as our business implements various cost saving initiatives and decreased sales commission expense due to volume shortfalls.

Operating income and margins in the six months ended March 31, 2002 includes restructuring and other charges of $0.9 million for legal and other deal fees that were written-off.

Foreign Currency

The effect of changes in foreign exchange rates for the six months ended March 31, 2003 compared to the six months ended March 31, 2002 was an increase in revenues and operating income of approximately $674.5 million and $83.2 million, respectively.

Corporate Expenses

Corporate expenses were $249.1 million and $119.5 million in the six months ended March 31, 2003 and 2002, respectively. Corporate expenses for the current period include charges of $100.8 million, which includes a $91.5 million incremental increase in directors and officers insurance (see Note 1—"Basis of Presentation and Restatement" and Note 11—"Committments and Contingencies" to the Consolidated Financial Statements), and $19.9 million of charges related to

changes in estimates primarily related to a severance accrual for corporate employees. Also included within the $100.8 million is a restructuring credit of $10.6 million due to costs being less than anticipated, which is also a change in estimate. Current period corporate expenses also include charges of $38.5 million related to internal investigation fees, and charges associated with the severance of corporate employees. In addition, the increase in the six months ended March 31, 2003 as compared to the six months ended March 31, 2002 was partially due to increased insurance costs and professional fees.

Other Expense, Net

Tyco has repurchased some debt prior to scheduled maturities. During the six months ended March 31, 2003, the Company recorded other income from the early retirement of debt totaling $24.1 million, as compared to expense of $6.7 million during the six months ended March 31, 2002. During the six months ended March 31, 2003, the Company recorded a loss of $75.6 million related to the write-down of various equity investments and $8.5 million of other expense related to a bank guarantee on behalf of an equity investee. These charges were recorded in connection with the Company's ongoing program of intensified internal audits, and as a result of applying management's judgments and estimates and detailed controls and operating reviews, and are considered to be changes in estimates. During the six months ended March 31, 2002, the Company recorded a loss on equity investments of $141.0 million, primarily related to its investment in FLAG Telecom Holdings.

Interest Income and Expense

Interest income was $47.6 million in the six months ended March 31, 2003, as compared to $49.1 million in the six months ended March 31, 2002. Interest expense was $588.8 million in the six months ended March 31, 2003, as compared to $463.9 million in the six months ended March 31, 2002. Interest expense also includes $0.4 million related to changes in estimates related to other accounting adjustments. The increase in interest expense is primarily the result of a decrease in capitalized interest due to the completion of TGN and a higher average interest rate in the current period. We expect both interest income and expense to remain relatively level next quarter.

Income Tax Expense

Income tax expense was $392.3 million on pre-tax income of $1,084.2 million for the six months ended March 31, 2003 as compared to income tax expense of $223.9 million on pre-tax loss of $823.2 million for the six months ended March 31, 2002. The difference in the rate is primarily the result of a decrease in losses in low tax jurisdictions partially offset by an increase in valuation allowance for deferred tax assets of approximately $160 million due to the uncertainty of the utilization of certain non-U.S. deferred tax assets.

The tax benefit on restructuring and other charges was $75.9 million and $109.6 million in the six months ended March 31, 2003 and 2002, respectively.

Critical Accounting Policies

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

Long-Lived Assets—Management periodically evaluates the net realizable value of long-lived assets, including property, plant and equipment, the TGN and intangible assets, relying on a number of factors including operating results, business plans, economic projections and anticipated future cash flows. We carry long-lived assets at the lower of cost or fair value. Since judgment is involved in determining the fair value of long-lived assets, there is risk that the carrying value of our long-lived assets may be overstated or understated.

We wrote off a significant portion of the TGN during fiscal 2002, and management continues to monitor developments in the fiber optic capacity markets. It is possible that the assumptions underlying an impairment analysis will change in such a manner that a further impairment in value may occur in the future. In addition, we may experience TGN impairments if the downturn in the telecommunications industry continues.

The Company generally divides its electronic security assets into various asset pools: internally generated residential systems, internally generated commercial systems and accounts acquired through the ADT dealer program (discussed below in Amortization Method for Customer Contracts).

With respect to the Company's depreciation policy for security monitoring systems installed in residential and commercial customer premises, the costs of these systems are combined in separate pools for internally generated residential and commercial account customers, and generally depreciated over ten years. The Company concluded that for residential and commercial account pools the straight-line method of amortization over a ten-year period continues to be appropriate given the observed actual attrition data for these pools.

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

Goodwill—Management assesses goodwill for impairment at least as often as annually and as triggering events occur. In making this assessment, management relies on a number of factors including operating results, business plans, economic projections, anticipated future cash flows, and transactions and market place data. There are inherent uncertainties related to these factors and management's judgment in applying them to the analysis of goodwill impairment. Since management's judgment is involved in performing goodwill valuation analyses, there is risk that the carrying value of our goodwill may be overstated or understated.

Disruptions to our business such as end market conditions and protracted economic weakness, unexpected significant declines in operating results of reporting units, continued downgrades in our credit ratings, and additional market capitalization declines may result in our having to perform an SFAS 142 first step valuation analysis for all of our reporting units prior to the required annual

assessment. These types of events and the resulting analysis could result in additional charges for goodwill and other asset impairments in the future.

We elected to make July 1 the annual assessment date for all reporting units. Goodwill valuations have historically been calculated using an income approach based on the present value of future cash flows of each reporting unit. This approach includes many assumptions related to future growth rates, discount factors, future tax rates, etc. Changes in economic and operating conditions impacting these assumptions could result in a goodwill impairment in future periods.

Amortization Method for Customer Contracts—As discussed in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2002, as amended, the Company purchases residential security monitoring contracts from an external network of independent dealers who operate under the ADT dealer program. The purchase price of these customer contracts is recorded as an intangible asset (i.e., contracts and related customer relationships).

As discussed above in Long-Lived Assets, the Company generally divides its electronic security assets into various asset pools: internally generated residential systems, internally generated commercial systems and accounts acquired through the ADT dealer program. Intangible assets arising from the ADT dealer program described above are amortized in pools determined by the month of contract acquisition on an accelerated basis over the period and pattern of economic benefit which is expected to be obtained from the customer relationship. The Company believes that the accelerated method that presently best achieves the matching objective described above is the double-declining balance method based on a ten-year life for the first eight years of the estimated life of the customer relationships, converting to the straight-line method of amortization to completely amortize the asset pool by the end of the twelfth year. Actual attrition data is regularly reviewed in order to assess the continued applicability of the accelerated method of amortization described above.

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

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

Discontinued Operations of Tyco Capital (CIT Group Inc.)

with the acquisition of CIT Group, Inc. Operating results from the discontinued operations of Tyco Capital for the quarter and six months ended March 31, 2002 were as follows ($ in millions):

	For the Quarter Ended March 31, 2002			For the Six Months Ended March 31, 2002
Finance income	$	1,106.7		$	2,304.7
Interest expense		352.0			725.0

Net finance income		754.7			1,579.7
Depreciation on operating lease equipment		310.2			648.7

Net finance margin		444.5			931.0
Provision for credit losses		195.0			307.9

Net finance margin, after provision for credit losses		249.5			623.1
Other income		232.0			477.1

Operating margin		481.5			1,100.2
Selling, general, administrative and other costs and expenses		234.2			472.8
Goodwill impairment		4,512.7			4,512.7

Loss before income taxes and minority interest		(4,265.4	)		(3,885.3	)
Income taxes		(65.8	)		(188.2	)
Minority interest		(2.7	)		(5.0	)

Loss as previously reported		(4,333.9	)		(4,078.5	)
Corporate overhead costs allocated		7.2			15.4
Inter-company interest expense		3.7			4.8

Loss from discontinued operations	$	(4,323.0	)	$	(4,058.3	)

Liquidity and Capital Resources

The following table summarizes the sources of our cash flow from operating activities from our continuing operations and the use of a portion of that cash in our operations for the quarters and six months ended March 31, 2003 and 2002.

		For the Quarters Ended March 31,						For the Six Months Ended March 31,
		2003			2002			2003			2002
		(restated)						(restated)
($ in millions)
Operating (loss) income from continuing operations		$	635.1		$	(1,718.8	)	$	1,685.4		$	(260.7	)
Non-cash restructuring and other (credits) charges			(33.7	)		261.2			(33.7	)		267.0
Charges for the impairment of long-lived assets			87.2			2,389.2			87.2			2,389.7
Depreciation and amortization⁽¹⁾			566.3			517.1			1,095.6			1,010.1
Net (decrease) increase in deferred income taxes			53.0			(28.8	)		305.6			(127.9	)
Less:
	Net decrease (increase) in working capital, excluding current maturities of debt⁽²⁾		355.2			443.1			(248.4	)		(268.6	)
	Decreases in the sale of accounts receivable programs		(16.1	)		(28.0	)		(96.5	)		(28.0	)
	Interest income		21.8			29.5			47.6			49.1
	Interest expense		(299.8	)		(255.1	)		(588.8	)		(463.9	)
	Income tax expense		(170.4	)		3.5			(392.3	)		(223.9	)
	Other, net		131.7			27.8			244.9			193.3

Cash flow from operating activities from continuing operations			1,330.3			1,640.7			2,106.6			2,536.2
Cash flow from operating activities from discontinued operations			20.0			690.3			20.0			924.6

Cash provided by operating activities		$	1,350.3		$	2,331.0		$	2,126.6		$	3,460.8

Other cash flow items:
	Capital expenditures⁽³⁾	$	(261.3	)	$	(413.4	)	$	(566.1	)	$	(979.1	)
	Dividends paid		(25.2	)		(25.3	)		(50.4	)		(49.7	)
	Decreases in the sale of accounts receivable programs		16.1			28.0			96.5			28.0
	Construction of Tyco Global Network		(2.5	)		(255.7	)		(89.0	)		(817.4	)
	Acquisition of customer accounts		(163.7	)		(248.7	)		(358.3	)		(546.2	)
	Cash paid for purchase accounting and holdback/earn-out liabilities		(77.7	)		(157.7	)		(189.5	)		(376.4	)

⁽¹⁾: This amount is the sum of depreciation of tangible property ($366.4 million and $371.5 million for the quarters ended March 31, 2003 and 2002, and $726.8 million and $730.6 million for the six months ended March 31, 2003 and 2002, respectively) and amortization of intangible assets ($199.9 million and $145.6 million for the quarters ended March 31, 2003 and 2002, and $368.8 million and $279.5 million for the six months ended March 31, 2003 and 2002, respectively).
⁽²⁾: This amount includes cash paid out for restructuring and other charges of $131.1 million and $91.1 million for the quarters ended March 31, 2003 and 2002, and $290.1 million and $182.0 million for the six months ended March 31, 2003 and 2002, respectively.
⁽³⁾: This amount is net of proceeds of $29.5 million received in sale-leaseback transactions during the six months ended March 31, 2002. It is also net of proceeds of $37.1 million and $42.8 million for the quarters ended March 31, 2003 and 2002, and $66.0 million and $58.2 million for the six months ended March 31, 2003 and 2002, respectively, received in sale/disposition of property, plant and equipment.

The following table shows cash flow from operating activities and other cash flow items by segment, as restated, for the six months ended March 31, 2003.

	Fire and Security Services			Electronics			Healthcare			Engineered Products and Services			Plastics and Adhesives			Corporate			Total
Operating (loss) income from continuing operations	$	38.8		$	649.2		$	968.1		$	193.1		$	85.3		$	(249.1	)	$	1,685.4
Non-cash restructuring credits		—			(31.6	)		(0.2	)		—			—			(1.9	)		(33.7	)
Charges for the impairment of long-lived assets		87.2			—			—			—			—			—			87.2
Depreciation		310.6			213.4			124.8			52.3			20.1			5.6			726.8
Intangible assets amortization		301.7			32.3			32.4			2.1			0.3			—			368.8

Depreciation and amortization		612.3			245.7			157.2			54.4			20.4			5.6			1,095.6
Deferred income taxes		—			—			—			—			—			305.6			305.6
Net decrease (increase) in working capital and other⁽¹⁾		26.0			(75.8	)		(51.8	)		(195.3	)		19.3			274.1			(3.5	)
Decreases in sale of accounts receivable programs		7.1			(1.6	)		(27.0	)		—			—			(75.0	)		(96.5	)
Interest income		—			—			—			—			—			47.6			47.6
Interest expense		—			—			—			—			—			(588.8	)		(588.8	)
Income tax expense		—			—			—			—			—			(392.3	)		(392.3	)

Cash flow from operating activities from continuing operations	$	771.4		$	785.9		$	1,046.3		$	52.2		$	125.0		$	(674.2	)	$	2,106.6
Cash flow from operating activities from discontinued operations		—			—			—			—			—			20.0			20.0

Cash provided by operating activities	$	771.4		$	785.9		$	1,046.3		$	52.2		$	125.0		$	(654.2	)	$	2,126.6

Other cash flow items:
Capital expenditures	$	(262.1	)	$	(182.3	)	$	(81.1	)	$	(27.2	)	$	(10.2	)	$	(3.2	)	$	(566.1	)
Dividends paid		—			—			—			—			—			(50.4	)		(50.4	)
Decreases in sale of accounts receivable programs		(7.1	)		1.6			27.0			—			—			75.0			96.5
Construction of Tyco Global Network		—			(89.0	)		—			—			—			—			(89.0	)
Acquisition of customer accounts		(358.3	)		—			—			—			—			—			(358.3	)
Cash paid for purchase accounting and holdback/earn-out liabilities		(50.2	)		(45.3	)		(40.4	)		(51.9	)		(1.7	)		—			(189.5	)

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

The net change in working capital, net of the effects of acquisitions and divestitures, was a decrease of $289.0 million in the six months ended March 31, 2003, including cash paid out for restructuring and other charges of $290.1 million. The components of this change are set forth in detail in our Consolidated Statement of Cash Flows. The significant changes in working capital included a $420.6 million decrease in accounts payable, a $291.0 million decrease in accounts receivable, and a $222.6 million decrease in accrued expenses and other current liabilities.

During the six months ended March 31, 2003, we paid out $189.5 million in cash that was charged against reserves established in connection with acquisitions. This amount is included in "Cash paid for purchase accounting and holdback/earn-out liabilities" under Cash Flows From Investing Activities in the Consolidated Statement of Cash Flows.

During the six months ended March 31, 2003, we recorded restructuring credits of $72.5 million, of which $13.1 million is included in cost of sales, related to a revision of estimates of prior years'

restructuring charges. At September 30, 2002, there were liabilities for restructuring and other charges of $1,021.6 million on the Consolidated Balance Sheet. During the six months ended March 31, 2003, we paid out $290.1 million in cash and incurred $0.3 million in non-cash uses that were charged against these liabilities. We also reclassified $197.7 million of restructuring accruals to the appropriate balance sheet accounts. We also recorded $7.9 million in foreign currency translation adjustments and non-cash adjustments of $28.8 million. At March 31, 2003, there were $507.1 million of reserves remaining for restructuring and other charges on our Consolidated Balance Sheet, of which $337.7 million is included in accrued expenses and other current liabilities and $169.4 million is included in other long-term liabilities.

During the six months ended March 31, 2003, we purchased businesses for cash of $34.6 million, net of $1.3 million of cash acquired, and customer contracts for electronic security services for cash of $358.3 million.

At the beginning of fiscal 2003, our purchase accounting reserves were $539.0 million as a result of purchase accounting transactions in prior years. Purchase accounting liabilities of $21.9 million and a corresponding increase to goodwill and deferred tax assets were recorded during the six months ended March 31, 2003 relating to fiscal 2003 and 2002 acquisitions. These reserves related primarily to revisions associated with finalizing the exit plans of Paragon and Eberle, both acquired during fiscal 2002. Also, during fiscal 2003, we reclassified $0.9 million of fair value adjustments related to the write-down of assets for fiscal 2002 acquisitions out of purchase accounting accruals into the appropriate asset or liability account. We also recorded $9.3 million in cumulative translation adjustments. During the six months ended March 31, 2003, we paid out $113.2 million in cash for utilization of purchase accounting liabilities related to prior years' acquisitions. In addition, we paid out $76.3 million relating to holdback/earn-out liabilities related to certain prior period acquisitions. Holdback liabilities represent a portion of the purchase price that is withheld from the seller pending finalization of the acquisition balance sheet. Certain acquisitions have provisions which require Tyco to make additional "earn-out" payments to the sellers if the acquired company achieves certain milestones subsequent to its acquisition by Tyco. These earn-out payments are tied to certain performance measures, such as revenue, gross margin or earnings growth. Also, in the six months ended March 31, 2003, we determined that $168.0 million of purchase accounting reserves related to acquisitions prior to fiscal 2003 were not needed and reversed that amount against goodwill. At March 31, 2003, there remained $288.1 million in purchase accounting reserves on our Consolidated Balance Sheet, of which $158.6 million is included in accrued expenses and other current liabilities and $129.5 million is included in other long-term liabilities. In addition, $216.9 million of holdback/earn-out liabilities remained on our Consolidated Balance Sheet, of which $100.8 million are included in accrued expenses and other current liabilities and $116.1 million are included in other long-term liabilities at March 31, 2003.

Guarantees, Commitments and Contingencies

TIG has issued a guarantee to a bank on behalf of an equity investee for a reducing revolving line of credit, due November 30, 2005. The maximum borrowing permitted under the facility is now $8.5 million, all of which is outstanding. The maximum borrowing permitted under the facility will be further reduced by $0.75 million on both December 20, 2003 and 2004. In the event that the equity investee defaults on its payment obligations, the bank may demand that the Company pay the outstanding principal on the loan. During the quarter ended March 31, 2003, the Company recorded a liability for the guarantee of $8.5 million as a result of the equity investee experiencing financial constraints. This amount has been included in other expense, net, in the accompanying Consolidated Financial Statements. In the instance that the Company would be required to pay the bank, the Company has no recourse from a third-party other than ultimate reimbursement from the equity investee in cash or common shares.

The Company's Fire and Security Services business has guaranteed the performance of a third-party contractor. The performance guarantee arose from contract negotiations, because the contractor could provide cost-effective service on a telecommunications contract. In the event the contractor does not perform its contractual obligations, Tyco Fire and Security would perform the services itself. Therefore, the Company's exposure would be the cost on any services performed, which would not have a material effect to the Company's financial position or results of operations. However, because it is not probable that the Company will have to make any payments pursuant to the guarantee, it is not accrued. The contract was entered into in July 2002 and the performance guarantee expires in August 2003. If the third-party sub-contractor does not perform its obligations, Tyco may consider withholding any future payment for work performed by the contractor.

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

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

system batteries.) The amount of the accrued warranty liability is determined based on historical information such as past experience, product failure rates or number of units repaired, estimated cost of material and labor, and in certain instances estimated property damage. The liability which is $438.5 million as of March 31, 2003, is reviewed for reasonableness at least as often as quarterly.

Except as disclosed elsewhere in this document, our contractual obligations, contingencies and commitments for minimum lease payment obligations under non-cancelable operating leases have not changed materially from September 30, 2002.

As a result of actions taken by our former senior corporate management, Tyco, some members of our former senior corporate management, and former members of our board of directors are named defendants in a number of purported class actions alleging violations of the disclosure provisions of the federal securities laws, as well as in a number of derivative actions. Tyco, certain of our current and former employees, some members of our former senior corporate management, and some former members of our board of directors also are named as defendants in several ERISA actions. In addition, Tyco and some members of our former senior corporate management are subject to an SEC inquiry; some members of our former senior corporate management are named as defendants in criminal cases being prosecuted by the District Attorney of New York County; and some members of our former senior corporate management are subject to an investigation by, or named as a defendant in a criminal case being prosecuted by, the U.S. Attorney for the District of New Hampshire. The findings and outcomes of the prosecutions and the SEC civil action may affect the course of the purported class actions, derivative actions and ERISA claims pending against Tyco. We are generally obliged to indemnify our directors and our former directors and officers who are also named as defendants in some or all of these matters to the extent permitted by Bermuda law. In addition, our insurance carriers may decline coverage, or our coverage may be insufficient to cover our expenses and liability in some or all of these matters. On February 13, 2003, one of Tyco's insurance carriers filed an action in the Supreme Court of the State of New York seeking to rescind certain directors and officers liability and fiduciary liability insurance policies issued to Tyco and its directors, officers and fiduciaries on the basis of alleged misrepresentations made by our former senior corporate management. On May 8, 2003, Tyco's negotiations with the Company's directors and officers liability insurance carriers and fiduciary carriers concluded with the filing of a notice of dismissal of this action. In exchange for a payment of additional policy premiums, Tyco maintained, at reduced overall limits of coverage, its available directors and officers liability insurance coverage and fiduciary insurance coverage for claims made during the 2001-2003 policy period. We are unable at this time to estimate what our ultimate liability in these matters may be, and it is possible that we will be required to pay judgments or settlements and incur expenses in aggregate amounts that would have a material adverse effect on our financial position, results of operations and liquidity. See "Risk Factors" and Part II, Item 1. "Legal Proceedings" included in our Form 10-Q for the quarterly period ended March 31, 2003 filed on May 15, 2003.

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

"Risk Factors" and Part II, Item 1. "Legal Proceedings" included in our Form 10-Q for the quarterly period ended March 31, 2003 filed on May 15, 2003.

Tyco is involved in various stages of investigation and cleanup related to environmental remediation matters at a number if sites. See "Risk Factors" and Part II, Item 1. "Legal Proceedings" included in our Form 10-Q for the quarterly period ended March 31, 2003 filed on May 15, 2003. The ultimate cost of site cleanup is difficult to predict given the uncertainties regarding the extent of the required cleanup, the interpretation of applicable laws and regulations and alternative cleanup methods. We have concluded that it is probable that we will incur remedial costs in the range of approximately $145 million to $440 million. As of March 31, 2003, we concluded that the best estimate within this range is approximately $269 million, of which $32 million is included in accrued expenses and other current liabilities and $237 million is included in other long-term liabilities on the accompanying Consolidated Balance Sheet. Environmental laws are complex, change frequently and have tended to become more stringent over time. While we have budgeted for future capital and operating expenditures to maintain compliance with such laws, we cannot assure you that our costs of complying with current or future environmental protection and health and safety laws, or our liabilities arising from past or future releases of, or exposures to, hazardous substances will not exceed our estimates or adversely affect our financial condition and results of operations or that we will not be subject to additional environmental claims for personal injury or cleanup in the future based on our past, present or future business activities.

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

When appropriate, we settle claims. However, the total amount paid to date to settle and defend all asbestos claims has been immaterial. As of March 31, 2003 there were approximately 12,000 asbestos liability cases pending against us and our subsidiaries.

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

Capitalization

Shareholders' equity was $25,417.9 million, or $12.73 per share, at March 31, 2003, compared to $24,081.3 million, or $12.07 per share, at September 30, 2002. The increase in shareholders' equity was due primarily to currency translation adjustments of $637.9 million and a net income of $710.2 million for the six months ended March 31, 2003.

Tangible shareholders' deficit was $6,457.9 million at March 31, 2003, as compared to $7,745.0 million at September 30, 2002. Goodwill and other intangible assets were $31,875.8 million at March 31, 2003, compared to $31,826.3 million at September 30, 2002. Acquisitions have been an important part of Tyco's growth in recent years. While we may continue to make selected complementary acquisitions, the amount of acquisition activity has been and will continue to be significantly reduced and, therefore, our growth rate from acquisitions will continue to be reduced as compared to prior quarters.

Total debt as a percentage of total capitalization (total debt and shareholders' equity) was 46% at March 31, 2003 and 50% at September 30, 2002. Tyco International Group S.A. ("TIG"), a wholly-owned subsidiary of Tyco, is party to a $2.0 billion revolving credit facility due 2006 containing a covenant that would result in a default if our total debt as a percentage of total capitalization exceeds 52.5%. A significant decline in our shareholders' equity, including a decline due to a significant impairment of goodwill or other assets, could cause a default under this covenant. We had approximately $4.0 billion of cash and cash equivalents as of March 31, 2003. Net debt (total debt less cash and cash equivalents) as a percent of net capitalization (net debt and shareholders' equity) was 41% and 43% at March 31, 2003 and September 30, 2002, respectively. Management believes net debt is an important measure of liquidity which it uses to measure its ability to meet its future debt obligations.

At March 31, 2003, total debt was $21,829.5 million, as compared to $24,205.8 million at September 30, 2002. Our cash balance decreased to $3,965.2 million at March 31, 2003, as compared to $6,185.7 million at September 30, 2002.

The following summarizes Tyco's change in net debt, as restated, for the six months ended March 31, 2003 ($ in millions):

Total debt at September 30, 2002			$	24,205.8
Less: cash and cash equivalents at September 30, 2002				(6,185.7	)

Net debt balance at September 30, 2002				18,020.1
Less the following:
Operating cash flow from continuing operations	2,106.6
Purchase of property, plant and equipment, net	(566.1	)
Dividends paid	(50.4	)
Decreases in sale of accounts receivable programs	96.5
Construction in progress—TGN	(89.0	)
Acquisition of customer accounts	(358.3	)
Cash paid for purchase accounting and holdback/earn-out liabilities	(189.5	)
Acquisition of business, net of cash acquired	(34.6	)
Increase in restricted cash	(310.7	)
Cash invested in short-term investments	(278.1	)
Other items	(170.6	)

				155.8

Net debt balance at March 31, 2003				17,864.3
Plus: cash and cash equivalents at March 31, 2003				3,965.2

Total debt at March 31, 2003			$	21,829.5

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

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

Also in January 2003, TIG entered into a $1.5 billion 364-day unsecured revolving credit facility which also provides for issuance of unsecured letters of credit. The facility, which is fully and unconditionally guaranteed by Tyco and certain of its subsidiaries and is guaranteed in part by various subsidiaries of TIG, has a variable interest rate based on LIBOR. The margin over LIBOR payable by TIG can vary depending upon changes in its credit rating and in the market price of one of its outstanding debt securities. TIG also pays a commitment fee of 0.50% annually on any unused portion of the line of credit.

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

During the six months ended March 31, 2003, Tyco purchased $1,085.7 million (par value $1,415.2 million) of its outstanding zero coupon convertible debentures with a November 2003 put option for cash of approximately $1,062.8 million. In November 2000, Tyco issued $4,657,500,000 principal amount at maturity of zero coupon convertible debentures due 2020 for aggregate net proceeds of approximately $3,374,000,000. The debentures accrete interest at a rate of 1.5% per annum. Tyco may be required to repurchase these securities for cash at the option of the holder at the accreted value of approximately $2.5 billion in November 2003.

As a result of the rating agencies' downgrade of Tyco's debt to below investment grade status in fiscal 2002, investors in one of our accounts receivable programs have the option to discontinue reinvestment in new receivables. The amount outstanding under this program was $139.1 million at March 31, 2003.

As of May 1, 2003, Moody's debt rating on Tyco's convertible debentures was upgraded to a Ba2 rating from Ba3 as a result of a newly issued guarantee from TIG.

In June 1998, TIG issued $750,000,000 of 6.25% Dealer Remarketable Securities ("Drs.") due 2013. Under the terms of the Drs., the Remarketing Dealer has an option to remarket the Drs. in June 2003. If this option is exercised it would subject the Drs. to mandatory tender to the Remarketing Dealer and reset the interest rate to an adjusted fixed rate until June 2013. However, TIG may elect to repurchase the securities for a Dollar Price based upon the $750,000,000 par value of the Drs. plus the difference between the Base Rate of 5.55% and the ten-year United State Treasury yield-to-maturity as of June 2003, estimated to be approximately $110 million based upon the March 31, 2003 ten-year treasury yield-to-maturity (approximately $120 million as of May 13, 2003). If the Remarketing Dealer does not exercise its option, then all Drs. are required to be tendered to the Compay in June 2003 and TIG would be required to repurchase the Drs. from the holders for cash at par value of $750,000,000 and pay the Remarketing Dealer the difference between the Dollar Price and the par value of the Drs. In either case, the payment above the par value would be recorded as a loss to income.

TIG has been contemplating an exchange of a new debt security for the Drs. The exchange would be for the par value of the Drs. and the excess of the Dollar Price over par value with the latter being amortized over the life of the new bonds under exchange accounting. The final decision will depend on the prevailing interest rate environment, the Company's overall liquidity and its future maturity profile.

We have significant amounts of debt which matures in the remainder of calendar 2003. Beyond calendar 2003, there are no substantial amounts of debt maturing until calendar 2006. In addition, our accounts receivable program with amounts outstanding, and available capacity of $350 million expires during this fiscal year. We anticipate however, that this program will be renewed. As previously discussed, in January 2003, we received net proceeds of approximately $4.4 billion from the issuance of

convertible debt. We used the proceeds and cash on hand to repay our $3.9 billion then existing credit facility and $1.8 billion outstanding under our zero coupon convertible senior debentures due February 2021 (with a February 2003 put option.). In addition, in January 2003 we entered into a new $1.5 billion 364-day unsecured revolving credit facility, none of which has been drawn down. We believe that our cash flow from our operations, together with proceeds from the convertible debt offering and our new credit facility, is adequate to fund our operations and service our debt through March 31, 2004. However, events beyond our control such as the result of ongoing litigation and governmental investigations, a decrease in demand for our products and services, further debt rating downgrades or deterioration in our financial ratios could negatively impact our access to financing and increase our cost of funds.

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

•: if the closing sale price of Tyco common shares for at least 20 trading days in the 30 trading day period ending on the trading day prior to the date of surrender is more than 110% of the accreted conversion price per common share of the relevant debentures on that preceding day;
•: if the Company has called the relevant debentures for redemption after a certain date; and
•: upon the occurrence of specified corporate transactions, such as if Tyco makes a significant distribution to its shareholders or if it is a party to specific consolidations, mergers or binding share exchanges.

The conversion feature of the zero coupon convertible debentures due 2020 was not available to the debt holders at March 31, 2003 as shown in the following table:

		Zero Coupon Convertible Debentures Due 2020
Stock price at March 31, 2003		$	12.86
Accreted conversion price per common share at March 31, 2003⁽¹⁾		$	74.46

⁽¹⁾: Accreted conversion price per common share is equal to the accreted value of the debentures at March 31, 2003 divided by the conversion rate. The conversion price increases as interest on the notes accretes.

Non-Controlled Entities

In January 2003, the FASB issued FASB Interpretation No. ("FIN") 46, "Consolidation of Variable Interest Entities." This interpretation clarifies the application of Accounting Research Bulletin No. 51, "Consolidated Financial Statements," relating to consolidation of certain entities. FIN 46 requires identification of the Company's participation in variable interest entities (VIE), which are defined as entities with a level of invested equity that is not sufficient to fund future activities to permit them to operate on a stand alone basis, or whose equity holders lack certain characteristics of a controlling financial interest. For entities identified as VIE, FIN 46 sets forth a model to evaluate potential consolidation based on an assessment of which party to the VIE, if any, bears a majority of the risk to its expected losses, or stands to gain from a majority of its expected returns. FIN 46 applies immediately to variable interest entities created or acquired after January 31, 2003. We have not created any variable interest in any variable interest entities subsequent to January 31, 2003. FIN 46 also sets forth certain disclosures regarding interests in VIE's that are deemed significant, even if consolidation is not required (see Note 15). For variable interest entities in which the Company holds a

variable interest acquired on or before January 31, 2003, the Company will adopt FIN 46's accounting provisions on July 1, 2003.

The Company has programs under which it sells machinery and equipment and/or accounts receivable to investors (or affiliated companies) who, in turn, purchase and receive ownership and security interests in those assets. As such, the Company may have certain investments in those affiliated companies whereby it provides varying degrees of financial support and are entitled to a share in the results of those entities but do not consolidate these entities. While these entities may be substantive operating companies, they are being evaluated for potential consolidation under FIN 46.

The Company's accounts receivable securitization programs do not meet the consolidation requirements of FIN 46. Potential exposure to the Company is an increase in the discount rate/fee charged to Tyco. The incremental increase to general and administrative expense would be approximately $5.0 million annually, based on our current utilization.

Backlog

At March 31, 2003, Tyco had a backlog of unfilled orders, including annual recurring revenue in the Fire and Security Services segment, of $11,237.8 million. Total backlog decreased, as compared to a backlog of $11,267.4 million at December 31, 2002 and $11,015.5 million at September 30, 2002. Backlog by industry segment is as follows ($ in millions):

	March 31, 2003		September 30, 2002
Fire and Security Services	$	6,829.6	$	6,691.5
Engineered Products and Services		1,880.7		1,873.4
Electronics		2,067.0		2,076.5
Healthcare		327.8		239.7
Plastics and Adhesives		132.7		134.4

	$	11,237.8	$	11,015.5

Within the Fire and Security Services segment, backlog increased due primarily to an increase in recurring revenue in force resulting from net growth in the ADT dealer program and price increases in various markets. Within the Engineering Products and Services and Electronics segments, backlog remained relatively flat. Backlog in the Healthcare segment represents unfilled orders, which, in the nature of the business, are normally shipped shortly after purchase orders are received. We do not view backlog in the Healthcare and Plastics and Adhesives segments to be a significant indicator of the level of future sales activity.

Accounting Pronouncements

In November 2002, the EITF reached a consensus on EITF Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables." EITF No. 00-21 provides guidance on how to determine when an arrangement that involves multiple revenue-generating activities or deliverables should be divided into separate units of accounting for revenue recognition purposes. It further states, that if this division is required, the arrangement consideration should be allocated among the separate units of accounting. The guidance in the consensus is effective for revenue arrangements entered into in fiscal periods that begin after June 15, 2003. We are currently assessing the impact of this new standard.

In April 2003, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities," which amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 149, which is to be applied prospectively, is effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. We are currently assessing the impact of this new standard.

Risk Factors

You should carefully consider the risks described below before investing in our publicly traded securities. The risks described below are not the only ones facing us. Our business is also subject to the risks that affect many other companies, such as competition, technological obsolescence, labor relations, general economic conditions, geopolitical events and international operations. Additional risks not currently known to us or that we currently believe are immaterial also may impair our business operations and our liquidity.

Risks Relating to Recent Developments at Tyco

Continuing negative publicity may adversely affect our business.

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

Pending litigation could have a material adverse effect on our liquidity and financial condition.

As a result of actions taken by our former senior corporate management, Tyco, some members of our former senior corporate management, former members of our board of directors, and our current Chief Executive Officer are named defendants in a number of purported class actions alleging violations of the disclosure provisions of the federal securities laws, as well as in a number of derivative actions. In the consolidated derivative action, the plaintiffs have filed a motion which seeks to add certain members of our current board of directors and management as defendants. Tyco, certain of our current and former employees, some members of our former senior corporate management, and some

former members of our board of directors also are named as defendants in several Employee Retirement Income Security Act ("ERISA") actions. In addition, Tyco and some members of our former senior corporate management are subject to a SEC inquiry and some members of our former senior corporate management are named as defendants in criminal cases being prosecuted by the District Attorney of New York County. The findings and outcomes of the prosecutions and the SEC civil action may affect the course of the purported class actions, derivative actions and ERISA claims pending against Tyco. In May and July 2003, complaints were filed against Tyco and our current Chairman and Chief Executive Officer purporting to represent a class of purchasers of Tyco securities alleging violations of the disclosure provisions of the federal securities laws. We are generally obliged to indemnify our directors and officers and our former directors and officers who are also named as defendants in some or all of these matters to the extent permitted by Bermuda law. In addition, our insurance carriers may decline coverage, or our coverage may be insufficient to cover our expenses and liability in some or all of these matters. We are unable at this time to estimate what our ultimate liability in these matters may be, and it is possible that we will be required to pay judgments or settlements and incur expenses in aggregate amounts that would have a material adverse effect on our financial condition, results of operations and liquidity.

Our senior corporate management team is new to Tyco and is required to devote significant attention to matters arising from actions of prior management.

In the past year, we replaced our senior corporate executives with an entirely new team, and our entire board of directors determined not to stand for reelection. A new board of directors was elected at our annual general meeting of shareholders in March 2003. It will take some time for our new management team and our new board of directors to learn about our various businesses and to develop strong working relationships with our cadre of operating managers at our various subsidiary companies. Our new senior corporate management team's ability to complete this process has been and continues to be hindered by their need to spend significant time and effort dealing with internal and external investigations, developing effective corporate governance procedures, strengthening reporting lines and reviewing internal controls. During this period and in order to complete this process, our new executives will depend in part on advisors, including certain former directors. We cannot assure you that this major restructuring of our board of directors and senior management team and the accompanying distractions, in this environment, will not adversely affect our results of operations.

Continued scrutiny resulting from ongoing investigations may have an adverse effect on our business.

these tax deficiencies and contingencies will not have a material adverse effect on our financial condition, results of operations and liquidity.

An ongoing SEC review of our public filings may require us to further amend or restate our public disclosures.

We continue to be engaged in a dialogue with the Staff of the SEC's Division of Corporation Finance as part of their review of our periodic filings with the SEC and are subject to an investigation by the SEC's Division of Enforcement. In connection with such review, we have agreed to restate our Consolidated Financial Statements for the quarters ended March 31, 2003 and December 31, 2002 and the fiscal years ended September 30, 2002, 2001, 2000, 1999 and 1998. We are working to resolve the remaining comments that the Staff of the SEC's Division of Corporation Finance has made on our periodic filings as expeditiously as possible. We cannot assure you the resolution of the Staff's remaining comments or the resolution of the Division of Enforcement's investigation will not necessitate further amendments or restatements to our previously-filed periodic reports or lead to some enforcement proceedings against Tyco.

The Phase 2 review was not an exhaustive review of our accounting and governance.

In December 2002, we released a report summarizing the findings of the Phase 2 review. The Phase 2 review covered a variety of aspects of our accounting, including a review of many specific accounting policies and 15 of our most significant acquisitions. You should be aware that the review did have limitations, as it did not seek to go back and identify every accounting decision and every corporate act that was wrong or questionable over a multi-year period. Moreover, in part because of the passage of time, documentation was not always available; the documentation that was available was often dispersed; and the review did not have the benefit of information from prior senior corporate management. In addition, the conclusions reached by the review required the exercise of judgment, and others could disagree with its conclusions. Neither the SEC Division of Enforcement nor its Division of Corporation Finance has completed its review of our accounting, including the matters covered by the Phase 2 review.

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

Further instances of breakdowns in our internal controls and procedures could have an adverse effect on us.

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

The price of Tyco common shares has declined considerably in the last year and may fluctuate widely in the future.

The market price of the Tyco common shares has declined considerably since January 2002, due in part to disclosures regarding alleged breaches of fiduciary duties, fraud and other wrongful conduct on the part of certain former officers and directors of Tyco. In addition, our publicly traded securities, and the global stock markets generally, have experienced significant price and volume fluctuations over the past year. We cannot assure you that the price of our publicly traded securities will not decline further or will not continue to experience significant price and volume fluctuations. In addition, we believe that factors such as quarterly fluctuations in financial results, earnings below analysts' estimates and financial performance and other activities of other publicly traded companies in our industries could cause the price of our publicly traded securities to fluctuate substantially.

Risks Relating to Our Substantial Debt and Our Liquidity

We have substantial cash needs and will need to obtain additional funding to satisfy those needs.

As of March 31, 2003, we have approximately $4.4 billion of debt payable at maturity or upon the option of the holders thereof through March 31, 2004. In addition, we have other substantial capital commitments in fiscal 2003, including the following:

•: approximately $650-$700 million of cash to acquire ADT accounts from dealers, of which approximately $360 million has been spent through March 31, 2003;
•: approximately $500 million of cash restructuring expenses relating to restructuring charges we have previously recorded, of which approximately $290 million has been spent through March 31, 2003;
•: approximately $350 million of cash purchase accounting spending, including earn-out payments, holdbacks of purchase price and the cost of exit plans, of which approximately $190 million has been spent through March 31, 2003; and
•: minimum operating lease payments of $808.4 million.

We estimate that our available cash and our cash flow from operations will be adequate to fund our operations and service our debt through March 31, 2004. In making this estimate, we have not assumed the need to make any material payments in connection with our pending litigation during that period and have assumed that we will be able to extend one of our receivables facilities that expires in fiscal 2003. At March 31, 2003, there was approximately $350 million outstanding under this facility. Any material adverse legal judgments, fines, penalties or settlements arising from our pending investigations and litigations could require additional funding. We have also assumed a certain level of operating performance in making these estimates. Our future operating performance will be affected by general economic, financial, competitive, legislative, regulatory, geopolitical, business and other factors beyond our control. If our future operating performance is less than anticipated, our need for additional funding would increase.

If our estimates are incorrect and we need to obtain additional funding, we cannot assure you that we will be able to obtain the additional funding that we need on commercially reasonably terms or at all, which would have a material adverse effect on our results of operations and liquidity.

Our substantial indebtedness could adversely affect our financial health and prevent us from fulfilling our obligations under our outstanding indebtedness.

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

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

•: increase our vulnerability to general adverse economic and industry conditions;
•: limit our flexibility in planning for, or reacting to, changes in our businesses and the industries in which we operate;
•: restrict our ability to introduce new technologies or exploit business opportunities;
•: make it more difficult for us to satisfy our payment obligations with respect to our outstanding indebtedness; and
•: increase the difficulty and/or cost to us of refinancing our indebtedness.

Restrictive covenants in our debt instruments may adversely affect us.

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

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

Downgrades of our ratings would adversely affect us.

Certain downgrades by Moody's and S&P would permit the providers of our receivables facilities to cease further purchases under the facilities and would increase the interest cost of our credit facility borrowings. It may also increase our cost of capital and make it harder for us to obtain new financing.

Risks Relating to Our Businesses

Cyclical industry and economic conditions have affected and may continue to adversely affect our financial condition and results of operations.

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

products, due to lower new residential or office construction or other factors, can cause a drop in demand for certain of our products sold by our Engineered Products and Services segment.

We will not be able to grow our business at the same rate as we have in the past due to reduced acquisition activity and capital constraints.

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

Our operations expose us to the risk of material environmental liabilities, litigation and violations.

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

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

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

The ultimate cost of site cleanup is difficult to predict given the uncertainties regarding the extent of the required cleanup, the interpretation of applicable laws and regulations and alternative cleanup methods. We have concluded that it is probable that we will incur remedial costs in the range of

approximately $145 million to $440 million. As of March 31, 2003, we concluded that the best estimate within this range is approximately $269 million, of which $32 million is included in accrued expenses and other current liabilities and $237 million is included in other long-term liabilities on the Consolidated Balance Sheet as of March 31, 2003. Environmental laws are complex, change frequently and have tended to become more stringent over time. While we have budgeted for future capital and operating expenditures to maintain compliance with such laws, we cannot assure you that our costs of complying with current or future environmental protection and health and safety laws, or our liabilities arising from past or future releases of, or exposures to, hazardous substances will not exceed our estimates or adversely affect our financial condition and results of operations or that we will not be subject to additional environmental claims for personal injury or cleanup in the future based on our past, present or future business activities.

We may be required to recognize additional impairment charges.

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

We are subject to a variety of litigation in the course of our business that could cause an adverse effect on our results of operations and financial condition.

In the ordinary course of business, we are subject to a significant amount of litigation, including litigation alleging the infringement of intellectual property rights, litigation alleging anti-competitive behavior and product liability litigation. Patent infringement and anti-trust laws permit successful plaintiffs to recover treble damages. In addition, our Healthcare business is subject to regulation and potential litigation. The defense of these lawsuits may divert our management's attention, and we may incur significant expenses in defending these lawsuits. In addition, we may be required to pay awards or settlements that could cause a material adverse effect on our financial condition and results of operations.

Our ADT business has recently experienced higher rates of customer attrition, which may reduce our future revenues and has caused us to change the useful life of accounts, increasing our depreciation and amortization expense.

Attrition rates for customers in our global electronic security services business have increased to 14.4% on a trailing 12-month basis for the quarter ended March 31, 2003, compared to 13.2%, 12.3% and 13.0% for the full fiscal years ended September 30, 2002, 2001 and 2000, respectively. If attrition rates continue to rise, ADT's recurring revenues and results of operations will be adversely affected. In the second quarter of fiscal 2003, the Company retroactively changed the amortization of costs of ADT's contracts and related customer relationships purchased through the ADT dealer program from a straight-line method generally over a ten-year period to a double-declining balance method based on a ten-year life for the first eight years of the estimated life of the customer relationships, converting to the straight-line method of amortization to completely amortize the asset pool by the end of the twelfth year. No change was made in the method used for the internally generated residential and commercial account pools, since the Company concluded that the straight-line method was most appropriate given the most recently observed attrition data for those account pools. If the attrition rates were to rise for these account pools, then the Company may be required to accelerate the amortization of the costs related to these pools.

Risks Relating to Our Jurisdictions of Incorporation

Proposed legislation and negative publicity regarding Bermuda companies could increase our tax burden and affect our operating results.

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

Bermuda law differs from the laws in effect in the United States and may afford less protection to holders of our securities.

Holders of Tyco securities may have more difficulty protecting their interests than would holders of securities of a corporation incorporated in a jurisdiction of the United States. See "Enforcement of Civil Liabilities."

As a Bermuda company, Tyco is governed by the Companies Act 1981 of Bermuda, which differs in some material respects from laws generally applicable to United States corporations and shareholders, including, among others, differences relating to interested director and officer transactions, shareholder lawsuits and indemnification. Under Bermuda law, directors and officers may have a personal interest in contracts or arrangements with a company or its subsidiaries transactions so long as such personal interest is first disclosed to the company. Likewise, the duties of directors and officers of a Bermuda company are generally owed to the company only. Shareholders of Bermuda companies do not generally have a personal right of action against directors or officers of the company and may only do so on behalf of the company in limited circumstances. Under Bermuda law, a company may also agree to indemnify directors and officers for any personal liability, not involving fraud or dishonesty, incurred in relation to the company.

Available Information

Our Internet website is http://investors.tycoint.com/edgar.cfm. We make available free of charge on our website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports as soon as reasonably practicable after we electronically file or furnish such materials to the SEC.

Forward-Looking Information

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

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

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

Item 3—Quantitative and Qualitative Disclosures About Market Risk

The Company's exposure to market risk from changes in interest rates, foreign currency exchange rates and commodity prices has not changed materially from our exposure during the year ended September 30, 2002.

Item 4—Controls and Procedures

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

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

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

It was concluded that:

•: There was no significant or systemic fraud affecting Tyco's prior financial statements;
•: There were a number of accounting entries and treatments that were incorrect and required correction;

•: The incorrect accounting entries and treatments are not individually or in the aggregate material to the overall financial statements of Tyco;
•: Our prior senior management engaged in a pattern of aggressive accounting which, even when in accordance with Generally Accepted Accounting Principles, was intended to increase reported earnings above what they would have been if more conservative accounting had been employed; and
•: Reversal or restatement of prior accounting entries and treatments resulting from the aggressive accounting pursued by prior senior management would not materially adversely affect our reported revenue, earnings and cash flow for 2003 and thereafter.

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

While most of the matters identified by the review as "aggressive accounting" were determined by Tyco, in consultation with its auditors, to be in accordance with Generally Accepted Accounting Principles, there were, as indicated above, certain adjustments (19 in total) identified as relating to years preceding fiscal 2002. As part of the restatements these adjustments have been recorded in the periods to which they relate as described in Note 1 to the financial statments included elsewhere herein.

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

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

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

•: Replaced the Board of Directors;
•: Created new Board charters;
•: Created a new employee guide to ethical conduct and conducted worldwide employee meetings to train employees;
•: Created new mission, values and goals statements;
•: Conducted the Phase 2 review;

•: Instituted detailed operating reviews with the Chief Executive Officer and Chief Financial Officer and each business segment;
•: Realigned reporting such that the business segment chief financial officers and general counsels report directly to our Chief Financial Officer and our General Counsel, respectively, and instituted similar reporting within each business segment;
•: Reviewed total incentive compensation spending with the Compensation Committee of the Board of Directors;
•: Issued a new delegation of authority to govern, among other business processes, the expenditure or commitment of funds;
•: Initiated a controllership assessment process to identify the status of key routines and controls;
•: Conducted a thorough review of internal audit processes and procedures;
•: Required internal representation letters, similar to the certifications by our Chief Executive Officer and Chief Financial Officer, for key financial and legal executives;
•: Instituted a code of conduct for all financial executives;
•: Developed a corporate policy manual to provide broadly applicable and consistent direction on authority, procedures and accountability with respect to business operations;
•: Instituted an account reconciliation process to improve controls over core accounting records;
•: Created an Ombudsman network;
•: Continued to initiate a process of conducting intensified internal audits, detailed controls and operating reviews, and reported the results of such audits and reviews;
•: Development of an accounting policy and procedures manual to ensure conformity with GAAP;
•: Development of a treasury department policies and procedures manual to ensure appropriate utilization of funds;
•: Expanded the resources and responsibilities of the internal audit function, with a senior internal audit officer who reports directly to the Audit Committee of the Board of Directors; and
•: Created disclosure committees that include senior personnel from the legal, finance and human resources departments throughout our businesses, and which are responsible for reviewing results of operations, evaluating compliance with policies and procedures and communicating material findings to the Company's CEO and CFO.

Although the framework has been put in place to materially improve the control structure of Tyco, it will take some time to realize all of the benefits from our initiatives. Our Board of Directors and new senior management are committed not only to a sound internal control environment but also to be recognized as a leader in corporate governance. We have committed considerable resources to date on the aforementioned reviews and remedies. A review of controls of a company the size of Tyco, which includes approximately 2,300 subsidiaries, is not a one-time event. We are committed to ongoing periodic reviews of our controls and their effectiveness, the results of which will be reported to our shareholders.

non-current assets, mostly in the Fire and Security segment, and reconciliation items relating to balance sheet accounts where certain account analysis or periodic reconciliations were deficient, resulting in adjustments primarily related to the Engineered Products and Services segment. Additionally, charges related to the correction of balances primarily related to corporate pension and deferred compensation accruals, asset reserve adjustments and other accounting adjustment (i.e., purchase price accounting accruals, deferred commissions, accounting related to leases in the Fire and Security Services and Engineered Products and Services segments). The restatement includes adjustments to reverse the charges recorded in the quarter ended March 31, 2003 and reflect those charges in the historic periods in which they relate.

Our controls are improving and new senior management has no reason to believe that the financial statements included in this report are not fairly stated in all material respects. There can be no assurances, however, that new problems will not be found in the future. We expect to continue to improve our controls with each passing quarter. It will take some time, however, before we have in place the rigorous controls that our Board of Directors and new senior management desires and our shareholders deserve.

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

100

Item 6—Exhibits and Reports on Form 8-K

(a): Exhibits

3.1		Memorandum of Association (as altered) (Incorporating all amendments to July 2, 1997) (Incorporated by reference to the Exhibit to the Registrant's Form 10-Q for the quarter ended March 31, 2003 filed on May 15, 2003).
3.2		Certificate of Incorporation (Incorporating all amendments to July 2, 1997) (Incorporated by reference to the Exhibit to the Registrant's Form 10-Q for the quarter ended March 31, 2003 filed on May 15, 2003).
3.3		Bye-Laws of Tyco International Ltd. (incorporating all amendments as of March 6, 2003). (Incorporating all amendments to July 2, 1997) (Incorporated by reference to the Exhibit to the Registrant's Form 10-Q for the quarter ended March 31, 2003 filed on May 15, 2003).
10.1		Eric M. Pillmore Employment Agreement effective August 12, 2002 and executed on January 29, 2003. (Incorporating all amendments to July 2, 1997) (Incorporated by reference to the Exhibit to the Registrant's Form 10-Q for the quarter ended March 31, 2003 filed on May 15, 2003).
10.2		364-Day Revolving Credit Agreement dated as of January 31, 2003 among Tyco International Group S.A., Tyco International Ltd., Sensormatic Electronics Corporation, Scott Technologies Inc., Innerdyne, Inc., the banks named therein and Bank of America, N.A., as Administrative Agent. (Incorporating all amendments to July 2, 1997) (Incorporated by reference to the Exhibit to the Registrant's Form 10-Q for the quarter ended March 31, 2003 filed on May 15, 2003).
10.3		Tyco International (US) Inc. Deferred Compensation Plan as amended through June 2002. (Incorporating all amendments to July 2, 1997) (Incorporated by reference to the Exhibit to the Registrant's Form 10-Q for the quarter ended March 31, 2003 filed on May 15, 2003).
18.1		Preferability Letter (Incorporating all amendments to July 2, 1997) (Incorporated by reference to the Exhibit to the Registrant's Form 10-Q for the quarter ended March 31, 2003 filed on May 15, 2003).
99.1		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

(b): Reports on Form 8-K

Current Report on Form 8-K furnished pursuant to Item 9 on January 6, 2003 to include, as an exhibit, the press release of Tyco International Ltd. dated January 6, 2003 announcing that Tyco obtained commitment letters from various banks for a new $1.5 billion credit facility, reaffirmingguidance for the first quarter of fiscal 2003 and announcing the addition of intercompany guarantees tosupport its credit rating.

Current Report on Form 8-K filed pursuant to Item 5 on January 9, 2003 to include, as an exhibit, the press release of Tyco International Ltd. dated January 9, 2003 announcing its intent to purchase, through its wholly-owned subsidiary, Tyco International Group S.A., Tyco International Group's Zero Coupon Convertible Debentures due February 12, 2021 with cash.

Current Report on Form 8-K filed pursuant to Item 5 on January 14, 2003 to include, as an exhibit, the press release of Tyco International Ltd. dated January 14, 2003 announcing that holders of Zero Coupon Convertible Debentures due February 12, 2021 issued by its wholly-owned subsidiary, Tyco International Group S.A., have the right to surrender their debentures for repurchase as of this date.

101

Current Report on Form 8-K furnished pursuant to Item 9 on January 22, 2003 to include, as an exhibit, the press release of Tyco International Ltd. dated January 22, 2003 announcing the Company's results for the first fiscal quarter.

Current Report on Form 8-K furnished pursuant to Item 9 on January 31, 2003 to include, as an exhibit, the press release of Tyco International Ltd. dated January 31, 2003 announcing that Tyco International Group S.A., its wholly-owned subsidiary, entered into a new 364-day unsecured revolving bank credit facility.

Current Report on Form 8-K filed pursuant to Item 5 on February 13, 2003 to include, as an exhibit, the press release of Tyco International Ltd. dated February 13, 2003 announcing the results of its offer to repurchase Zero Coupon Convertible Debentures due February 12, 2021 issued by its wholly-owned subsidiary, Tyco International Group S.A.

Current Report on Form 8-K filed pursuant to Item 5 on March 13, 2003 to include, as an exhibit, the press release of Tyco International Ltd. dated March 12, 2003 announcing that Tyco expects to take non-cash pre-tax charges that are estimated to be between $265 million to $325 million, confirming the Company's prior cash flow guidance and announcing a top management change at its Fire and Security segment.

102

SIGNATURES

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


	TYCO INTERNATIONAL LTD.
	By:
		/s/ DAVID J. FITZPATRICK David J. FitzPatrick Executive Vice President and Chief Financial Officer (Principal Accounting and Financial Officer)
Date: July 29, 2003

103

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Edward D. Breen, certify that:

1.

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

2.

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

3.

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

4.

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

a): Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b): Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
c): Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

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

a): All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b): Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.

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

Date: July 29, 2003


		/s/ EDWARD D. BREEN Edward D. Breen Chief Executive Officer

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, David J. FitzPatrick, certify that:

1.

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

2.

3.

4.

a): Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b): Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
c): Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

a): All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b): Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.

Date: July 29, 2003


		/s/ DAVID J. FITZPATRICK David J. FitzPatrick Chief Financial Officer

QuickLinks

INTRODUCTORY NOTE
PART I—FINANCIAL INFORMATION
TYCO INTERNATIONAL LTD. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (in millions, except per share data)
TYCO INTERNATIONAL LTD. CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in millions, except share data)
TYCO INTERNATIONAL LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in millions)
TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATING STATEMENT OF OPERATIONS (RESTATED) Quarter Ended March 31, 2003 ($ in millions)
CONSOLIDATING STATEMENT OF OPERATIONS (RESTATED) Quarter Ended March 31, 2002 ($ in millions)
CONSOLIDATING STATEMENT OF OPERATIONS (RESTATED) Six Months Ended March 31, 2003 ($ in millions)
CONSOLIDATING STATEMENT OF OPERATIONS (RESTATED) Six Months Ended March 31, 2002 ($ in millions)
CONSOLIDATING BALANCE SHEET (RESTATED) March 31, 2003 ($ in millions)
CONSOLIDATING BALANCE SHEET (RESTATED) September 30, 2002 ($ in millions)
CONSOLIDATING STATEMENT OF CASH FLOWS (RESTATED) Six Months Ended March 31, 2003 ($ in millions)
CONSOLIDATING STATEMENT OF CASH FLOWS (RESTATED) Six Months Ended March 31, 2002 ($ in millions)
Results of Operations
Liquidity and Capital Resources
Risk Factors
Forward-Looking Information
SIGNATURES
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
CERTIFICATION OF CHIEF FINANCIAL OFFICER