TYCOM LTD, 10-K405, 2000-12-21

TYCOM LTD
10-K405, 2000-12-21
TELEPHONE & TELEGRAPH APPARATUS

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

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended September 30, 2000

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

001-15765
(Commission File Number)

TyCom Ltd.
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C>
Bermuda Not applicable
(Jurisdiction of Incorporation) (IRS Employer Identification Number)
</TABLE>

The Zurich Centre, Second Floor, Suite 201, 90 Pitts Bay Road, Pembroke, HM 08,
Bermuda
(Address of registrant's principal executive office)

441-298-9770
(Registrant's telephone number)
----------------

Securities registered pursuant to Section 12(b) of the Act:

<TABLE>
<S> <C>
Title of each class Name of each exchange on which registered
Common Shares, Par Value $0.25 New York Stock Exchange, Inc.
Bermuda Stock Exchange
</TABLE>

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_] .

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III or this Form 10-K or any
amendment to this Form 10-K. [X].

The aggregate market value of voting and nonvoting common shares held by
nonaffiliates of registrant was $1,889,973,000 as of November 17, 2000.

The number of common shares outstanding as of November 17, 2000 was
520,390,000

DOCUMENTS INCORPORATED BY REFERENCE

See page 19 for the exhibit index.

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PART I

Item 1. Business

Introduction

TyCom Ltd. ("We" or "TyCom"), a Bermuda company, was incorporated on March
8, 2000 as an indirect wholly-owned subsidiary of Tyco International Ltd.
("Tyco") to serve as the holding company for Tyco's undersea fiber optic cable
communications business. We are designing, building and installing our own
global undersea fiber optic network, known as the TyCom Global Network ("TGN"),
and plan to operate, maintain and sell bandwidth capacity on the TGN. In July
2000, we sold approximately 14% of our common shares in an initial public
offering ("IPO"). Net proceeds from the offering were approximately $2.1
billion. We retained $1.9 billion of the proceeds to be used primarily toward
the deployment of the TGN and paid a $200 million dividend to Tyco at the
closing of the IPO. TyCom's principal operating subsidiaries include TyCom (US)
Inc. (formerly Tyco Submarine Systems Ltd.), TyCom Integrated Cable Systems
Inc. (formerly Simplex Technologies, Inc.) and Telecomunicaciones Marinas, S.A.
("Temasa").

We are a leading independent provider of undersea fiber optic networks and
services and are engaged in the design, engineering, manufacturing,
installation and maintenance of those networks. TyCom's manufacturing
facilities produce undersea cable, optical amplifiers and land-based terminal
transmission equipment. We operate a fleet of eleven cable ships that install
undersea cable systems and service existing cable systems under maintenance
agreements. We have designed, manufactured and installed over 300,000
kilometers of undersea cable and have played a principal role in the deployment
and maintenance of most of the world's major undersea cable networks.

We are applying our capabilities to build and operate the TGN. Through the
TGN, we plan to provide expanded undersea bandwidth capacity, system support
and select value-added services to our targeted customer base, including
traditional and emerging telecommunications providers, Internet and application
service providers, and others requiring significant bandwidth capacity. As we
deploy the TGN, we remain dedicated to meeting the needs of our existing
systems customers by completing our backlog and reserving design,
manufacturing, installation and maintenance capacity to enable us to continue
to supply systems' customers, but on a more limited basis than in the past.

The TyCom Global Network

Our strategy is to become a leading provider of undersea fiber optic
bandwidth capacity by deploying the world's most extensive and technologically
advanced undersea fiber optic network. We plan to deploy the TGN in a number of
phases over the next ten years. Implementation of the transatlantic portion of
the first phase of the network has begun and is scheduled for completion in the
second half of calendar 2001. The remainder of the first phase, consisting of
the transpacific and various European segments, is scheduled for completion in
calendar 2002.

The first phase of the TGN is designed to offer bandwidth capacity
upgradeable to a minimum of 2.56 terabits per second, span approximately 70,000
undersea kilometers and connect 30 major telecommunications centers around the
globe. We plan to design, build, equip and staff the network operating centers
and cable stations necessary to monitor and route bandwidth traffic over the
network. Our construction and maintenance division, including our fleet of
cable ships, will install and maintain the TGN.

The timing and sequence of implementing additional phases of the network
will be based on future requirements of global and regional demand. We expect
that, upon completion of all phases, the TGN will total

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over 250,000 undersea kilometers and link to terrestrial networks on all six
inhabited continents. The following table shows the initial anticipated
characteristics of the first phase of the TGN upon installation:

<TABLE>
<CAPTION>
Western Western Eastern UK-
Atlantic Pacific Mediterranean Europe Mediterranean Baltic Germany
-------- ------- ------------- ------- ------------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Approximate cable length
(in undersea
kilometers)............ 13,000 32,250 5,000 6,250 6,900 3,500 1,350
Number of cable
segments............... 2 7 8 2 12 10 1
Number of fiber pairs... 4 8 2-8 4 1-6 3-4 4
Initial operational
capacity
(in gigabits per
second)................ 200 360 120 240 120 60 140
</TABLE>

Each cable segment will contain between one and eight optical fiber pairs,
and each fiber pair will be capable of carrying a minimum of 640 gigabits per
second of bandwidth capacity. The transatlantic portion will be configured as a
ring consisting of northern and southern cable segments connecting the cable
stations in Brean and Barnstable, United Kingdom and Wall Township, New Jersey.

We plan to provide maintenance for the undersea portion of our network
through our SEAHORSESM maintenance program. In addition to the current SEAHORSE
Atlantic and SEAHORSE South America programs, we intend to add similar programs
in the Pacific, Mediterranean, and Baltic. As SEAHORSE expands to maintain the
TGN, it will service existing, as well as future, customers.

The undersea cable will terminate in specially designed cable stations. We
are building cable stations that feature advanced technical and operational
design elements and allow customers to locate their equipment in designated
areas of these cable stations for access from our undersea network to the
customer's terrestrial network. To provide our customers with increased
terrestrial network-to-network connectivity, we will establish links from our
cable stations to our TelExchangesTM, which are terrestrial gateway facilities
located in close proximity to a point where the terrestrial systems of major
carriers converge. This will allow our customers to interconnect with their own
terrestrial network or the terrestrial carrier of their choice, providing true
one stop network-to-network connectivity for all cities served by the TGN.

Sales and Marketing

Our current sales and marketing organization, which supports both TGN
capacity sales and third party system contracts, consists of over 80
professionals with extensive telecommunication, technical or service
backgrounds. We have sales and marketing offices in Bermuda, France, Singapore,
the United Kingdom and the United States. We anticipate adding a sales and
marketing office in Hong Kong in calendar 2001.

We intend to sell bandwidth capacity on the TGN, primarily in the form of
indefeasible rights of use, or alternatively we will enter into short-term
leases, tailored to the customer's particular needs, in minimum increments of
155 megabits per second.

The integration of all network customer-related activities will be designed
to provide us with the means of addressing the specific needs of our customers.
In coordination with major purchasers of bandwidth capacity on our network, we
will expand the design and development process to include traffic engineering
and demand analysis for the ongoing deployment plans of the TGN.

Technology and Research and Development--TyCom Laboratories

The amounts expended for Company-sponsored research and development during
fiscal 2000, fiscal 1999, and fiscal 1998 were $61.4 million, $52.7 million and
$39.5 million, respectively.

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The scientists and staff of TyCom Laboratories conduct their research in 47
laboratories at a facility located in Eatontown, New Jersey specifically
designed for undersea research and development activities. Advancements are
designed, developed, and tested under simulations of actual field conditions,
and adapted for rapid integration into system production. Our staff at TyCom
Laboratories also works closely with fiber optic component suppliers around the
globe to advance critical elements of the systems it designs, including optical
signal amplifiers, fiber optic cable, terminal transmission equipment, network
management systems, and emerging new network technologies. Our TyCom
Laboratories team is comprised of over 330 people, nearly a third of whom hold
Ph.D. degrees.

Components of TyCom's Undersea Fiber Optic Cable Systems

We design and manufacture each of the primary components that make up an
undersea fiber optic cable system. In the land-based dry plant portion of the
network, voice, video and data signals coming from terrestrial networks are
converted to a proprietary long distance optical format that is more capable of
being transmitted over transoceanic distances. These voice, video and data
signals, which exist as pulses of light travelling on an optical fiber, would
degrade over these distances if they were not amplified and converted into this
special format. Repeaters that amplify voice, video and data signals as they
travel across the cable are positioned at various points along the undersea
portion of the fiber optic cable. The undersea portion of the cable and the
repeaters are the main components of the wet plant portion of the network. Each
system includes at least two cables for redundancy purposes in the event of a
cable break or other malfunction. Upon the arrival of the optical signal at the
receiving dry plant, the signal is again converted to allow transmission of the
voice, video and data signals to a terrestrial network. The integral system
components that we design and manufacture and their role in the transmission of
information are further discussed below.

Dry Plant

The dry plant consists of the equipment and facilities that enable the
undersea system's transmission capacity to connect to terrestrial networks.
These components are housed in cable stations located on shore near each
landing point of the undersea cable. The dry plant equipment converts the
terrestrial transmission signals into formats that are suitable for long
distance undersea transmission and converts these signals back to standard
terrestrial transmission signals. The dry plant equipment also monitors,
controls and powers the undersea wet plant equipment and provides the
maintenance features necessary to allow the identification and location of
faults that affect transmission performance. The primary components of the dry
plant housed within the cable station are described below.

Line Termination Equipment. Line termination equipment is a general term
that includes three distinct components: high performance optical equipment,
wavelength termination equipment and transmission line amplifiers.

High Performance Optical Equipment. TyCom's proprietary high performance
optical equipment consists primarily of optical transceivers, which
transmit and receive terrestrial optical signals representing voice, video
and data. The high performance optical equipment receives voice, video and
data signals from various types of terrestrial networks and converts these
signals to a proprietary long distance transmission format that provides
the high power, high fidelity and precise wavelengths necessary for
transoceanic transmission distances of up to 12,000 kilometers. On the
receiving side, the high performance optical equipment converts the long
distance transmission signals back to a format for terrestrial
transmission.

Wavelength Termination Equipment. TyCom's wavelength termination
equipment performs dense wavelength division multiplexing, which is the
combining of transmitted signals of different wavelengths received from the
high performance optical equipment onto a single fiber. On the receiving
end, the wavelength termination equipment then separates the signals back
into different wavelengths.

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Transmission Line Amplifiers. Before launching the long distance optical
transmission signal onto the undersea cable, the transmission line
amplifiers increase the signals to the level needed for transmission. On
the receiving side, the terminal line amplifiers increase the received
signal to the level needed to separate the individual wavelengths before
they are processed in the high performance optical equipment.

Power Feed Equipment. Our power feed equipment, specially designed for
undersea data transmission applications, provides a constant current source for
powering the undersea optical signal amplifiers, which are known as repeaters.
This equipment is designed to support a variety of applications, including
point-to-point single cable networks, as well as complex networks that have
multiple segments or branches.

Line Monitoring Equipment. Our line monitoring equipment performs diagnostic
monitoring of the network, providing preventive maintenance and fault detection
and location in the event of a cable fault or break.

Network Management System. The network management system is used to monitor
all of the components of the undersea network. This equipment is the gathering
point for information regarding fault management, performance management,
security management and configuration management across the undersea network.
The network management equipment provides all functions required for the
operations and maintenance staff to track network performance and configure
transmission paths within a network.

Wet Plant

The wet plant consists of the equipment that is installed in the undersea
environment from shore to shore and can be subdivided into two groups of
equipment. The passive equipment is comprised of undersea cables which house
and protect the fibers that propagate the optical signals. The active equipment
is comprised of repeaters, which periodically amplify the optical signal along
the cable route, and undersea branching units, which connect and route fibers,
transmission traffic and power from three or more cable ends.

Undersea Cables. We build our undersea cables to precise specifications. The
various cables utilized for repeatered systems can generally support up to
eight pairs of optical fibers encased in a structure of steel, copper, and
extruded polyethylene with a final outer diameter of up to 21 millimeters. The
copper tube serves as an electrical conductor to feed power from the cable
stations to the submerged amplifiers and to provide resistance to undersea
pressure. Steel wires provide tensile strength, which is especially critical
when the cable is deployed or recovered for repair. The polyethylene screen
acts as an electrical insulator. In shallower waters, the cable typically has
additional steel armor to provide protection from abrasion and damage from
environmental hazards, fishing trawlers, anchors and sharks.

Repeaters. Our repeaters amplify voice, video and data signals as they
travel across the fiber optic cable. Used typically in systems spanning between
300 and 12,000 kilometers, repeaters provide the ability to amplify optical
signals without first converting these signals to their electrical equivalents.
Our repeaters include up to 16 amplifiers, each capable of amplifying optical
signals on each of up to eight fiber pairs. Repeaters are integrated into the
cable at various points during the cable assembly process.

Gain Equalization Units. Gain equalization units are used to compensate for
the uneven gain of optical signal amplifiers so that each transmission signal
is amplified by substantially the same amount. This allows the complete
transmission bandwidth of an optical amplifier to be used, thus maximizing the
capacity of the undersea system.

Undersea Branching Units. Undersea branching units allow for the independent
routing of optical fibers, transmission traffic, and system power along
different segments of an undersea system.

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Manufacturing Capabilities

We have three manufacturing facilities that produce the dry and wet plant
components:

TyCom Integrated Cable Systems Manufacturing Facility. Our manufacturing
facility is one of the world's largest undersea cable factories, situated on an
85-acre facility on the shores of the Piscataqua River in Newington, New
Hampshire, and contains 550,000 square feet of manufacturing space and the
capability to simultaneously load two of the industry's largest cable ships at
our own deep water pier. This facility can also integrate repeaters and other
wet plant components and can store 60,000 kilometers of assembled wet plant
equipment. The facility houses custom designed equipment, including computer
controlled fiber optic cabling production lines, thermoplastic extruders that
produce insulating and jacketing layers, cabling and twisting machines, and
cable armor lines. Each type of our cable is manufactured at this facility.

TyCom Undersea Photonics Manufacturing Facility. We operate an electrical
and optical equipment manufacturing facility located in Clark, New Jersey. This
facility manufactures repeaters, gain equalization units and branching units
for undersea application. We have manufactured over 8,400 repeaters for more
than 75 undersea cable systems in our 124,000 square-foot facility.

TyCom Optical Transmission Systems Manufacturing Facility. Our high
performance optical transmission systems manufacturing facility is located in
Exeter, New Hampshire and began manufacturing operations in 1999 to add
capacity for product lines previously manufactured at our Clark, New Jersey
Manufacturing Center. This facility has 150,000 square feet of manufacturing
floor space. We utilize proprietary technology in the manufacture of our
terminal products, which include optical transceivers, multiplexers and
amplifiers.

Fleet Operations

We operate one of the world's largest and most modern fleets specifically
designed for installing, maintaining and repairing undersea fiber optic cable
systems. We also perform all other aspects of cable installation and
maintenance, including route surveys, installation engineering, land cable
installation and maintenance, installation of terminal equipment and
construction, operation and maintenance of cable stations and metropolitan
gateways.

We currently operate 11 specially designed cable laying and maintenance
ships and recently entered into an agreement to lease six new state-of-the-art
cable ships to be constructed and owned by a third party. Two of the leased
ships are scheduled for completion in 2001 and the remaining four will be
completed in 2002. We have also entered into long-term time charters for four
additional cable ships beginning in 2001 and 2002. Five of our United States
flagged vessels are each owned by limited partnerships of which we are the
managing general partner and Teleglobe Inc., an unaffiliated company, is the
limited partner. Teleglobe Inc. owns a 25% interest in three of the limited
partnerships and a 45% interest in the remaining two. We plan to add additional
ships over the course of the deployment of the TyCom Global Network, primarily
in a maintenance capacity. We have access to deep-water ports in Newington, New
Hampshire; Baltimore, Maryland; Portland, Oregon; Honolulu, Hawaii; Willemstad,
Curacao; and Valencia and Vigo, Spain, as well as various wet plant storage
depots around the world.

Our survey engineers map the ocean floor with sonar and other sophisticated
equipment to determine the best route for the cable with consideration given to
earthquake faults, currents, shipping and deep-sea fishing patterns. Most of
our ships are outfitted with computerized dynamic positioning systems, which
control their propulsion systems to accurately maintain their position to
within a few meters of the desired course. The cable control rooms have sonar
equipment for profiling the sea floor which allow cable engineers to precisely
evaluate pre-surveyed areas of the seabed for optimum installation over the
engineered cable route. The ships carry some of the most advanced cable
machinery, sea plows, and robotic submersible vehicles used to install and
maintain cable systems. Each ship generally carries a crew of 60 to 100 marine
and technical personnel depending on the assigned task.

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Network Operations and Administration

Our network operations team consists of a hierarchy of a network operating
center, regional operations centers, cable stations and TelExchange experts.
The network operations and administration division performs various network
services, including customer care services, network operations planning,
information systems planning, service provisioning, and network fault
management.

Our planned customer care center in Hamilton, Bermuda, will provide a single
point of contact for all customer inquiries. The center will maintain an
enhanced interactive customer Internet site. This site will enable customers to
monitor the performance of their bandwidth capacity, initiate service
activation, report trouble and receive status on work in progress.

The network operating center will provide for control of our network by
continuously monitoring the system to detect faults or breaks in the network
cables and their precise location. The center will manage and coordinate the
location and repair of network faults, network performance and all cable
station and gateway activities. Our network operating center will manage the
engineering and implementation of all service provisioning and the network's
restoration needs. It also will develop and implement cable awareness and
damage prevention programs to minimize the occurrence of external aggression
through educating shipping traffic about the location of the cable.

We will deploy regional network operations centers concurrent with the
implementation of the transpacific and European segments of the TGN. These
centers will be strategically located to provide direct control of the
expanding segments of our network. One or more regional operations centers will
serve as the back-up disaster recovery site for the network operating center.
All regional operations centers will report directly to the network operating
center. Both the network operating center and regional operations centers will
be staffed seven days a week, 24 hours a day.

Dry Plant Maintenance. The cable stations and gateways are normally staffed
five days a week, 12 hours a day when no faults exist. During fault periods the
cable stations are manned continuously as required. The cable station and
gateway personnel are responsible for all on-site repair and provisioning
activities, including those required to address the co-location and
interconnection requirements of our customers. Additionally, our cable station
and gateway staff are responsible for routine, preventive and corrective
maintenance for the terrestrial based cable.

Wet Plant Maintenance. The expanding reach of undersea fiber optic cable
systems worldwide has created a need for undersea maintenance capabilities in
new areas of the world. We offer wet plant maintenance capabilities to serve
these new regions as well as the areas that have traditionally required such
service. Our wet plant maintenance program, SEAHORSE, is intended to respond to
customers' needs for more flexible, responsive and reliable maintenance
services.

We have a long history of providing undersea maintenance services to
consortiums in the Atlantic, Pacific and Mediterranean. In recent years, we
have expanded our customer base to include undersea cable systems not owned by
traditional consortia. In addition, in October 1999, we agreed to provide all
wet plant maintenance services for the Hibernia cable system through our
SEAHORSE Atlantic Wet Maintenance Service Program. We also have agreed to
provide maintenance services for the SAm-1 system through our SEAHORSE South
American Service Program.

Our SEAHORSE maintenance program features all-inclusive fixed fees,
exclusively dedicated cable ships, full maintenance authority functions, spares
management, fault location and cable awareness and damage prevention programs.
Stationing of our cable ships and shore-based storage depots is planned to
provide the optimum coverage and shortest transit times, resulting in minimum
repair times and maximum cable availability.

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The undersea maintenance services we provide are performed exclusively by
our vessels. We charter vessels to augment the installation capabilities of our
fleet. Traditionally, we have utilized our own ships for approximately 50% of
the installation services we perform, relying on chartered vessels to perform
the remaining portion. A typical charter agreement lasts from three to twelve
months, with options to renew. Our management expects our use of chartered
vessels to decrease as new vessels are added to our fleet.

Quality System Overview

We carry corporate-wide ISO 9001 Certifications by the United Kingdom
Accreditation Service (UKAS), the Royal Dutch Accreditation (RvA), and the
United States Accreditation (RAB). Our certifying agent is Det Norske Veritas
(DNV).

Our ISO Certifications require tri-annual re-certification of our quality
system with semi-annual reviews. We were re-certified to ISO 9001 standards in
October 1999 by DNV. This certification includes TyCom's U.S. Headquarters in
Morristown, New Jersey, TyCom Laboratories, TyCom Fleet Operations Center in
Baltimore, Maryland, and the manufacturing centers of TyCom Undersea Photonics
and Tycom Integrated Cable Systems. The TyCom Optical Transmission Systems
facility, our newest manufacturing facility, received its ISO 9001
Certification in February 2000. In addition to the independent accreditation
service reviews, we undergo internal quality audits performed on a regular
basis by our Corporate Quality Office.

Our manufacturing facilities have a well developed quality system which
includes computer controlled product routing and backward and forward
component/product traceability, a procedure for identifying all components of a
product during all stages of production, delivery, and installation. We conduct
manufacturing line reviews to qualify all new products and processes and have a
corrective action system. We utilize failure mode analysis techniques to ensure
the reliability of our products and have comprehensive training plans in place
for all employees.

Intellectual Property

We own or have rights to intellectual property in key technology areas
including long distance optical transmission and receiving technologies and
equipment, network management systems and software, undersea cables and fiber,
optical amplifiers, power feed equipment, component and system manufacturing
technologies, network integration and system installation and repair
technologies. A significant portion of our intellectual property has been
generated by TyCom Laboratories. As of November 2, 2000, we owned 152 patents,
including 65 United States patents and 87 non-United States patents. In
addition, as of November 2, 2000, we had 110 United States patent applications
and 133 non-United States patent applications pending. We vigorously defend our
intellectual property portfolio and enforce our rights if infringement or
misappropriation occurs with respect to any and all of our intellectual
property.

We require our employees and consultants to execute agreements, upon
commencement of employment or consulting relationships, that assign any
intellectual property developed by an individual during the term of his or her
employment to TyCom as well as corollary confidentiality agreements with
respect to proprietary information.

Sources and Availability of Materials and Suppliers

We make significant purchases of electronic components, fiber, optical
components, synchronous digital hierarchy equipment and other materials and
components from many sources. We have been able to obtain sufficient materials
and components from sources around the world to meet our needs. We also develop
and maintain alternative sources for essential materials and components.

Our suppliers are selected based on their ability to consistently meet
quality, reliability, delivery, cost and performance requirements. We purchase
the fiber that we use in manufacturing undersea cable from Lucent Technologies
Inc. and Corning, Incorporated. We purchase certain optical components for use
in the

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manufacture of our repeaters primarily from Lucent, JDS-Uniphase Corp., FDK
America Inc., Agilent Technologies and Corning. In the event that any of these
suppliers were unable to continue as our supplier of optical components,
alternative sources of supply are available. General Dynamics Advanced
Technology Systems ("GDATS") currently supplies our power feed equipment under
an exclusive manufacturing arrangement, which expires in approximately two
years. If GDATS were unable to continue as TyCom's supplier, we have the
capability of manufacturing the power feed equipment ourselves. There are
currently several major suppliers of synchronous digital hierarchy equipment,
as well as a number of small suppliers.

We also purchase undersea cable from Hitachi Cable, Ltd. of Japan on an as-
needed basis to enhance the capabilities of TyCom Integrated Cable Systems. Our
relationship with Hitachi provides us with certain advantages in the supply of
Asian systems, including proximity and the ability to satisfy possible local
content concerns.

Competition

The telecommunications industry is highly competitive. We compete as a
supplier of new undersea fiber optic cable systems and upgrades. We also
compete as a provider of maintenance services for undersea fiber optic cable
systems. We plan to compete as a seller of bandwidth capacity on the TGN.

Competition as a Supplier of Undersea Fiber Optic Cable Systems. As a
supplier of undersea fiber optic cable systems, we compete on a worldwide basis
primarily against two other providers: Alcatel-Alsthom and KDD Submarine Cable
Systems Inc. ("KDD"). Other smaller players compete on a more limited basis,
either as subcontractors to other providers or as suppliers of regional or non-
repeatered systems. Participants in this market compete on the basis of, among
other things, price, technology, time-to-market, the provision of financing and
regional and long-term relationships. In the future, we will be offering less
of our cable system design, manufacturing and installation capacity to our
customers, and our existing competitors and potential new cable system
suppliers will play a more significant role in the undersea cable system
market.

Competition as a Provider of Undersea Cable Maintenance Services. As a
provider of undersea cable maintenance, we compete primarily with Global Marine
Systems Ltd., a subsidiary of Global Crossing Ltd., as well as Alcatel and KDD.

Competition as a Seller of Capacity on the TGN. There are a number of
companies that are pursuing the deployment of global fiber optic networks,
including Global Crossing, FLAG Telecom, Teleglobe, 360networks and
1Cybernetworks. There are other companies that are or will be selling bandwidth
capacity on various shorter distance undersea cable networks. As we deploy the
TGN, we will face competition in the sale of bandwidth capacity from existing
and planned fiber optic cable networks, as well as satellite providers and, on
certain routes, terrestrial networks. In addition, the first phase of the TGN
will compete with certain of our customers, including Global Crossing,
360networks, and various participants in cable system consortia. The planned
expansion of the TGN beyond the first phase will likely also result in
competition with these customers as well as some of our other customers.
Bandwidth customers, such as large telecommunications service providers, often
have ownership interests in networks that may cause them to favor purchasing
capacity on their own networks rather than on the TGN.

Significant new and potentially larger competitors could enter our market as
a result of regulatory changes or the establishment of cooperative
relationships. In addition, the ongoing consolidation of the telecommunications
industry may create new competitors with an interest in entering the business
of manufacturing, owning, operating, maintaining and selling bandwidth capacity
on undersea fiber optic networks.

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Regulation

In connection with the deployment of the TGN, we must obtain and comply with
terms of various permits, licenses and other authorizations in jurisdictions
where our network lands. Specifically, we must obtain cable landing licenses
from the United States Federal Communications Commission ("FCC") and comparable
facilities and services licenses in other jurisdictions. Generally, landing
licenses are granted for a term of years. Such licenses may subject our
business and operations to varying forms of regulation, which may change over
time. Failure to obtain or renew such a license, or a material adverse change
in the nature of the regulation to which our business is subject, could have a
material adverse effect on our business. Additionally, our international
operations may be affected from time to time by political developments and
national and local laws and regulations and may be subject to risks such as the
imposition of governmental controls, license requirements and changes in
tariffs. In August 2000, TyCom was granted cable landing licenses that will
allow the transatlantic segment of the TGN to have landings in the United
States and the United Kingdom.

For private submarine cable systems (i.e., non-common-carrier submarine
cable systems that provide capacity on a wholesale, or carriers' carrier,
basis), such as the TGN, the FCC requires only a cable landing license. For
common carrier submarine cable systems (and for common-carrier customers who
purchase capacity on private submarine cable systems), however, the FCC also
requires a Section 214 authorization, pursuant to the Communications Act of
1934, as amended, to provide international common carrier services. Section 214
authorization subjects a licensee to tariff, contract filing, traffic
reporting, and non-discrimination requirements, as well as the international
settlement rates regime for circuit-switched traffic. Future changes in our
network's offerings could lead to FCC classification of such offerings as
common carrier services. Such a classification would require us to seek an
international services authorization under Section 214 of the Communications
Act of 1934, and subject us to additional regulations.

Continuing Global Deregulation. The World Trade Organization Agreement on
Basic Telecommunications, concluded in 1997, greatly accelerated deregulation
of international telecommunications facilities and services. Commitments under
the WTO Agreement vary by country, but the 76 countries making commitments as
of November 2000 generally agreed to greater market access, relaxed foreign
ownership and investment rules, and pro-competitive regulatory principles. The
WTO Agreement also gives WTO members the right to enforce other countries'
commitments and seek penalties for non-compliance from the WTO's Dispute
Resolution Body. Those 76 countries making telecom commitments must offer such
benefits not just to each other, but to the entire WTO membership. The WTO
continues to conduct negotiations to liberalize further trade in
telecommunications services, particularly as they relate to the Internet.

To implement its commitments under the WTO Agreement, the United States
largely abandoned its long-standing requirement that the destination country
grant reciprocal landing rights to U.S. cables and carriers prior to licensing
in the United States. Instead, it adopted a presumption that submarine cables
landing in WTO-member countries are in the public interest. For non-WTO
destination countries, submarine cable operators must still demonstrate to the
FCC that they lack market power in the destination country, or that the
destination country affords effective competitive opportunities to U.S.
providers of international communications services and capacity. The United
States also continues to exempt private submarine cables from common carrier
regulation by the FCC.

Environmental and Health and Safety Matters

TyCom is subject to various environmental protection and health and safety
laws and regulations. These laws and regulations govern, among other things,
waste management and disposal, air emissions, water discharge, procedures for
the operation of certain vessels, such as our cable laying and maintenance
ships, and employee health and safety. We are also required to obtain permits
from governmental authorities for certain operations. We cannot assure you that
we have been, or will be at all times in full compliance with such laws,
regulations and permits. If we violate or fail to comply with these laws,
regulations or permits, we could be fined or otherwise sanctioned by regulators
or in certain cases, in connection with the operation of our ships, be denied
access to, or be detained at, certain ports. Although we have made, and will
continue to make, capital

9
<PAGE>

and other expenditures to comply with environmental laws and regulations, we do
not expect these expenditures to be material in 2001. However, because
environmental laws change frequently and have become more stringent over time,
we cannot assure you that our costs of complying with current and future
environmental and health and safety laws, and our liabilities arising from past
or future releases of, or exposure to, hazardous substances will not adversely
affect our business, results of operations or financial condition.

We are also subject to environmental laws requiring the investigation and
cleanup of contamination at properties we currently own or operate or formerly
owned or operated, at disposal or treatment facilities to which we sent or
arranged to send hazardous wastes, or in connection with the ships we own or
operate. One of our facilities is the subject of cleanup under the New Jersey
Industrial Site Recovery Act. The prior owner has assumed all responsibility
and costs for the cleanup of contamination at this property and has also agreed
to indemnify us in the event that we incur any costs related to this cleanup.
In addition, we have been named as a potentially responsible party under the
United States Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended, more commonly known as Superfund, at a site in New
Hampshire. TyCom is one of a group of parties that is participating in the
investigation and cleanup of this site. Although our management believes that
any costs or liabilities in connection with this site will not materially
adversely affect our business, results of operations or financial condition, we
cannot guarantee that these costs and liabilities will not exceed the current
amount of our reserves for this site or that any amounts in excess thereof or
other environmental cleanup costs and liabilities will not be material.

Employees

At September 30, 2000, we employed approximately 2,960 full-time and 5 part-
time employees. Approximately 600 of our employees at the TyCom Undersea
Photonics Manufacturing Center located in Clark Township, New Jersey are
covered under a union contract that expires in January 2005. Our manufacturing
facilities in Newington and Exeter, New Hampshire are not unionized. Our
management considers its relationship with its employees to be good and we have
not in the recent past experienced any significant interruptions of operations
due to labor disagreements.

TyCom's fleet officers and crew who work on our ships are provided from
several different maritime sources, although the engineers in charge of the
installation and maintenance operations are our employees. TyCom's United
States flag officers are sourced from the American Maritime Officers union
under a contract that expires in June 2005. Crew on our United States flagged
ships are provided by the Seafarers International Union under a contract that
expires in June 2001. The crew for our ships which fly non-United States flags
are provided by third party ship management companies. We contract all licensed
officers and unlicensed seamen through the identified unions and ship
management companies. In 1999, through these contracting services agreements we
provided full-time employment to approximately 440 personnel and part-time
employment to an additional 1,300 personnel. These personnel are not included
in the employee numbers above. We have not in the recent past experienced
significant interruptions of operations due to labor disagreements involving
any of our maritime crewing contracts.

Undersea Cable System Contracts

In the normal course of business, we enter into system supply, maintenance
and related contracts under which any failure to perform or delay in
performance on our part can result in liability to our customers. These system
supply and maintenance contracts generally provide for resolution of disputes,
differences or claims through a formal negotiation process. The types of issues
that typically arise include liquidated damages for our delay or failure to
perform, force majeure costs claimed by us, items that customers assert must be
completed or rectified prior to final acceptance of an undersea system, breach
of product warranty, termination charges and a variety of other, often
offsetting, obligations owed by us to customers or by customers to us. Failing
amicable resolution, our system supply and maintenance contracts generally
provide for settlement through arbitration. We attempt to resolve our system
supply, maintenance and related contract differences in a commercial manner in
the context of ongoing customer relationships. On occasion, we are involved in
litigation and arbitration. See Item 3--Legal Proceedings on page 11 for a
discussion of litigation and arbitration proceedings with Global Crossing.

10
<PAGE>

Insurance

We have policies of insurance in full force and effect for risks usual to
our business including, but not limited to, protection against property damage
to our assets and third party liability exposures.

Exchange Controls

Under Bermuda law, we have been designated as non-resident for exchange
control purposes. Consequently, there are currently no restrictions imposed by
Bermuda law that apply to us with respect to the export or import of capital,
including foreign exchange controls, or that affect the remittance of
dividends, interest or other payments (other than in local Bermuda currency) to
non-Bermuda resident holders of our common shares.

Backlog

At September 30, 2000, we had a backlog of unfilled orders of approximately
$2,941.7 million, compared to a backlog of approximately $3,535.4 million as of
September 30, 1999. Backlog decreased from the prior year due to us devoting a
substantial portion of our resources to designing and manufacturing the TGN and
therefore taking on less work as a supplier of undersea fiber optic cable
systems for others. We expect that approximately 66% of our backlog at
September 30, 2000 will be filled during the year ending September 30, 2001. We
expect backlog to continue to decline as we continue deployment of the TGN.

Backlog includes maintenance contracts of $632.7 million and $529.7 million
as of September 30, 2000 and 1999, respectively. Maintenance backlog increased
from September 30, 1999 to September 30, 2000 due to booking maintenance
contracts for the Hibernia and SAm-1 systems.

Item 2. Properties

TyCom's operations are conducted in facilities throughout the world
aggregating 1.55 million square feet of floor space, of which about 830,000
square feet are owned and approximately 720,000 square feet are leased.
Manufacturing facilities total approximately 820,000 square feet of owned and
leased floor space in New Hampshire and New Jersey. Wet plant port and storage
depot facilities total approximately 320,000 square feet of floor space and are
located in Maryland and Oregon in North America as well as Hawaii, St. Croix,
Curacao, Guam, and Spain. We also have approximately 100,000 square feet of
warehouse storage in New Jersey and New Hampshire. TyCom's research and
development facility totals about 140,000 square feet located in Eatontown, New
Jersey. Headquarters, sales and administration offices total approximately
170,000 square feet and are located in New Hampshire, New Jersey, Bermuda,
Singapore, Spain, the United Kingdom and France.

Item 3. Legal Proceedings

Tyco Submarine Systems Ltd./Global Crossing Litigation. On May 22, 2000,
Global Crossing Ltd. and its subsidiary, South American Crossing (Subsea) Ltd.,
filed a complaint against TyCom (US) Inc. (formerly known as Tyco Submarine
Systems Ltd.) in the United States District Court for the Southern District of
New York.

The complaint alleges that, in connection with the development of a South
American subsea cable system to be owned by South American Crossing (Subsea)
Ltd., TyCom (US) Inc. misappropriated trade secrets, committed fraud, breached
several alleged agreements, and defamed South American Crossing (Subsea) Ltd.
Plaintiffs seek damages, including punitive damages, in excess of $1 billion,
attorneys' fees and costs, and declarative and injunctive relief.

11
<PAGE>

material allegations therein. On August 31, 2000 TyCom (US) Inc. amended its
answer and counterclaims, adding a defense and eliminating a counterclaim.
Plaintiffs replied to the amended counterclaims on September 14, 2000 denying
the material allegations therein.

The Court has set February 28, 2001, as the date for completion of all
party and third-party fact discovery.

Tyco Submarine Systems Ltd./Global Crossing Arbitration. On May 22, 2000,
Atlantic Crossing Ltd., GT Landing Corp., GT U.K. Ltd., Global Telesystems
GmbH, and GT Netherlands BV (all subsidiaries of Global Crossing Ltd.) filed a
claim against TyCom (US) Inc. (formerly known as Tyco Submarine Systems Ltd.),
under the international rules of the American Arbitration Association. In the
notice of arbitration, claimants assert that TyCom (US) Inc. breached an
alleged duty of loyalty and three agreements between the parties relating to
the Atlantic Crossing-1 subsea cable system. Claimants seek unspecified
monetary damages and declarative and injunctive relief. The parties have since
agreed to terminate one of the agreements at issue (the operations,
administration and maintenance agreement) for a payment of approximately $19
million to TyCom (US) Inc., for mutual releases and a dismissal from the
arbitration of claims arising out of that agreement.

On June 22, 2000, TyCom (US) Inc. responded to claimants' notice of
arbitration, maintaining that the claims therein are baseless, both in law and
fact, and asserting that claimants have breached each of the parties'
agreements by refusing to pay certain costs, expenses, and commissions due and
owing to TyCom (US) Inc. TyCom (US) Inc. seeks the denial of all relief sought
by claimants, full disclosure and an accounting of certain contracts, damages
of more than $188 million, and an award of interest and other costs. On July
24, 2000 claimants replied to TyCom (US) Inc.'s statement of defenses and
arbitration counterclaims, denying the material allegations therein.

On August 11, 2000, the American Arbitration Association confirmed the
appointment of three arbitrators to hear this matter (the "Panel"). Hearings
in the arbitration commenced on December 18, 2000. Pursuant to the parties'
sales agency and commission sharing agreements, the Panel also directed the
parties to agree on an independent auditor and specified the scope of access
to be afforded to the auditor. On September 19, 2000, the parties informed the
Panel that they had selected an independent auditor who is examining the
amount of sales commissions owing to TyCom (US) Inc. under the parties'
agreements.

Tyco International Ltd., TyCom (US) Inc.'s ultimate parent company, has
agreed to indemnify TyCom (US) Inc. for certain losses and expenses with
respect to the claims brought in these litigation and arbitration proceedings,
excluding losses and expenses arising out of any award of injunctive relief.
Tyco and TyCom (US) Inc. are vigorously defending against the claims brought
by Global Crossing Ltd. and its affiliates, and TyCom is prosecuting its
counterclaims aggressively in both the litigation and arbitration proceedings.

Tyco Submarine Systems Ltd./IDT. On January 31, 2000, IDT Europe B.V.B.A.
filed a complaint in the United States District Court for the District of New
Jersey asserting claims against TyCom (US) Inc. (formerly known as Tyco
Submarine Systems Ltd.) and Tyco Group S.a.r.l., a Luxembourg subsidiary of
Tyco International Ltd. The claims arose out of negotiations conducted by Tyco
Group S.a.r.l. with IDT Europe B.V.B.A., a Belgian corporation, concerning the
possible formation of a joint venture for the development of an undersea fiber
optic telecommunications system to be supplied by TyCom (US) Inc., which the
complaint alleged was to be substantially similar to the proposed TyCom Global
Network. The plaintiff, IDT Europe B.V.B.A., alleged that Tyco Group S.a.r.l.
breached a Memorandum of Understanding dated November 9, 1999 (which expired
in December 1999), and alleged implied covenants of good faith and fair
dealing and made various other claims. The plaintiff sought, among other
relief such as attorneys' fees and costs, specific performance of Tyco Group
S.a.r.l.'s alleged obligation to negotiate and execute such agreements, as
well as compensatory and punitive damages. With respect to TyCom (US) Inc.,
the plaintiff alleged breach of an agreement by which the plaintiff reserved
manufacturing capacity for the cable system and authorized the undertaking of
certain long-lead time activities. Plaintiff also alleged that TyCom (US) Inc.
failed to negotiate in good faith a system supply agreement for the cable
system. The plaintiff sought, among other relief such as

12
<PAGE>

attorneys' fees and costs, compensatory damages of $1 billion, punitive damages
of $3 billion and injunctive relief precluding TyCom (US) Inc. from undertaking
any business activity contrary to the terms of the Instruction to Proceed. On
June 5, 2000, the court granted Tyco Group S.a.r.l. and TyCom (US) Inc.'s
motion to dismiss.

On March 24, 2000, Tyco Group S.a.r.l., TyCom (US) Inc., Tyco International
Ltd., Tyco International (US) Inc., and TyCom Ltd. filed a complaint in the
Supreme Court of the State of New York, County of New York, asserting claims
against IDT Europe B.V.B.A. and IDT Corporation (collectively "IDT"). The
complaint alleged that IDT filed a baseless lawsuit in federal court in New
Jersey, improperly disclosed confidential information to the press and
otherwise engaged in a pattern of conduct with the purpose and effect of
obstructing efforts to build the TyCom Global Network and to finance it
principally through the initial public offering of TyCom shares. The complaint
demanded compensatory damages of at least $1 billion, punitive damages and
declaratory and injunctive relief. On June 19, 2000, the court denied IDT
Corporation's motion to dismiss and referred IDT Europe B.V.B.A.'s motion to
dismiss to a referee to hear and report with recommendations.

On June 13, 2000, IDT Europe B.V.B.A. filed a complaint in the Superior
Court of New Jersey, Law Division, Morris County, against Tyco Group
(S.a.r.l.), TyCom (US) Inc., Tyco International Ltd., and Tyco International
(US) Inc. The complaint made factual allegations similar to those previously
asserted in the federal complaint in the United States District Court for the
District of New Jersey, along with additional allegations regarding, among
other things, a purported agreement between TyCom (US) Inc. and Global
Crossing. The complaint asserted claims, similar to those previously asserted
in the complaint in federal court. The plaintiff sought, among other relief
such as attorneys' fees and costs, specific performance, compensatory damages
of $1 billion, punitive damages of $3 billion and injunctive relief. On August
18, 2000, the Court granted the defendants' motion to dismiss without
prejudice, and on the condition that defendants may not defend any subsequent
action by plaintiff upon the grounds of statute of limitations.

On October 10, 2000, Tyco Group (S.a.r.l.), TyCom (US) Inc., Tyco
International Ltd., Tyco International (US) Inc., and TyCom Ltd. entered into a
Settlement Agreement with IDT Europe B.V.B.A. and IDT Corporation which
encompasses all actual and potential claims asserted in the actions before the
United States District Court for the District of New Jersey, the Supreme Court
of the State of New York, County of New York, and the Supreme Court of New
Jersey, Law Division, Morris County. Under the terms of the Settlement
Agreement, TyCom Ltd. granted IDT Europe B.V.B.A. rights to use a certain
limited amount of capacity on the transatlantic and transpacific segments of
the first phase of the TGN free of charge.

Asbestos Litigation. TyCom Integrated Cable Systems Inc. (formerly known as
Simplex Technologies Inc.) has been named as a defendant in nearly one hundred
asbestos personal injury cases involving a total of 3,400 individual
plaintiffs. Two New Jersey cases were tried in October 1996 and December 1997,
respectively, in which juries found TyCom Integrated Cable Systems without any
liability. In defense of these cases, TyCom Integrated Cable Systems
established that, for all periods relevant to the litigation, the wire and
cable products produced by TyCom Integrated Cable Systems did not contain
asbestos. By early 1999, all the remaining litigation had been dismissed
summarily by the court or voluntarily by the plaintiffs. TyCom Integrated Cable
Systems was named in new cases in late 1999 and early 2000. TyCom believes that
these cases will be dismissed and is determined to resist the claims
aggressively and to refuse even nominal settlement demands.

TyCom Integrated Cable Systems has been reimbursed by its insurance carriers
for all defense fees and costs incurred by it in connection with this
litigation, and the carriers are currently paying the defense fees and costs on
the remaining active cases.

13
<PAGE>

fifteen defendants. The complaint alleges infringement of the "016 patent and
asks the Court for damages of not less than a reasonable royalty amount and
injunctive relief. None of the TyCom companies have been formally served with
the complaint and, therefore, none have filed answers responding to the
allegations. TyCom and its two named subsidiaries believe the complaint is
without merit and intend on vigorously defending against the claims.

Other Proceedings. TyCom is a defendant in a number of other pending legal
proceedings incidental to present and former operations, including various
workers' compensation and personal injury claims. TyCom does not expect the
outcome of these proceedings, either individually or in the aggregate, to have
a material adverse effect on its financial position, results of operations or
liquidity.

Item 4. Submission of Matters to a Vote of Security Holders

Not Applicable.

Executive Officers and Key Management of the Registrant

The executive officers of the Company are as follows:

L. Dennis Kozlowski, age 54, Executive Chairman and Director of TyCom Ltd.
Mr. Kozlowski has been Chairman of the Board, President and Chief Executive
Officer of Tyco International Ltd. since July 1997, and served as Chairman of
the Board of Tyco International (US) Inc. from January 1993 until July 1997,
Chief Executive Officer of Tyco US since July 1992, and has been associated
with Tyco US since 1975.

Neil R. Garvey, age 45, President, Chief Executive Officer and Director of
TyCom Ltd. Prior to the incorporation of TyCom Ltd., Mr. Garvey was President
and Chief Executive Officer of Tyco Submarine Systems Ltd. since July 1997 when
the company was acquired by Tyco International Ltd. from AT&T. Previously, Mr.
Garvey was President of Simplex Technologies, Inc. from July 1995. Before
becoming its president, Mr. Garvey held a variety of positions over an 18-year
career at Simplex Technologies, Inc., including Vice President--Finance and
Administration, Vice President--Marketing and Vice President--Marketing and
Subsidiary Operations.

Mark H. Swartz, age 40, Vice President and Director of TyCom Ltd. Mr. Swartz
has been Executive Vice President and Chief Financial Officer of Tyco since
July 1997, Vice President and Chief Financial Officer of Tyco US since
February, 1995; and associated with Tyco US since 1991.

Claire L. Calandra, age 50, Executive Vice President and Chief Operating
Officer of TyCom (US). Prior to the incorporation of TyCom Ltd., Ms. Calandra
was the Executive Vice President and Chief Operating Officer of Tyco Submarine
Systems Ltd. since January 1999. Previously, Ms. Calandra was the Vice
President and General Counsel for Tyco Submarine Systems Ltd. from July 1997
when the company was acquired from AT&T. During 14 years with AT&T, Ms.
Calandra held a variety of legal and business positions, including Chief of
Staff in the Office of the Vice Chairman of AT&T, Director of International at
AT&T and Chief Counsel of AT&T General Business Systems.

David W. Van Rossum, age 38, Vice President and Chief Financial Officer of
TyCom Ltd. Prior to the incorporation of TyCom Ltd., Mr. Van Rossum was Vice
President and Chief Financial Officer for Tyco Submarine Systems Ltd. since
July 1997, when the company was acquired by Tyco International Ltd. Previously,
Mr. Van Rossum was the Director of Finance and Contracts for Simplex
Technologies, Inc. between 1996 and 1997. During a 15-year career at Simplex
Technologies, Inc., Mr. Van Rossum held a number of other positions, including
Director of Business Development and Controller.

Other key management of the Company are as follows:

Peter K. Runge, Ph.D., age 61, Vice President--Research and Development and
Chief Technical Officer for TyCom (US) Inc. Prior to the incorporation of TyCom
Ltd., Dr. Runge was Vice President--Research and Development and Chief
Technical Officer for Tyco Submarine Systems Ltd. since August 1998.
Previously,

14
<PAGE>

Dr. Runge had been Managing Director--System Implementation for Tyco Submarine
Systems Ltd. since July 1997 when the company was acquired by Tyco
International Ltd. from AT&T. While with AT&T and Bell Labs, Dr. Runge held a
variety of positions over a 30-year career in the field of optical undersea
communications networks.

Ronald L. Armstrong, age 44, Vice President--Project Management and Quality
Implementation for TyCom (US) Inc. Prior to the incorporation of TyCom Ltd.,
Mr. Armstrong was Vice President--Project Management and Quality Implementation
for Tyco Submarine Systems Ltd. since 1997 when the company was acquired by
Tyco International Ltd. Previously, Mr. Armstrong had a 16-year career with
Tyco, including positions at Simplex Technologies, Inc. as Contracts Manager,
Director of Quality Assurance and Vice President of Engineering.

Frederick M. Hamilton, age 56, Vice President--Network Construction and
Maintenance for TyCom (US) Inc. Prior to the incorporation of TyCom Ltd., Mr.
Hamilton was Vice President--Network Construction and Maintenance of Tyco
Submarine Systems Ltd. since 1997 when the company was acquired by Tyco
International Ltd. and since 1995 with AT&T. Prior to that, Mr. Hamilton served
for over 25 years as an officer in the U.S. Coast Guard in a wide variety of
responsible leadership assignments.

William S. Jackson, age 47, Vice President--Manufacturing for TyCom (US)
Inc. Prior to the incorporation of TyCom Ltd., Mr. Jackson served as Vice
President--Manufacturing and Business Development for Tyco Submarine Systems
Ltd. since 1997. Previously, Mr. Jackson served at Simplex Technologies, Inc.
as Vice President of Marketing, Sales and Project Management from 1995, Vice
President of Finance and Administration from 1989, and Director of Business
Development from 1987.

Byron S. Kalogerou, age 39, Vice President, General Counsel and Secretary
for TyCom Ltd. Mr. Kalogerou is also Vice President and Assistant Secretary of
Tyco International Ltd. Mr. Kalogerou joined Tyco in 1990 and has held a
variety of positions, including Associate General Counsel and General Counsel
of Tyco's International Operations. Mr. Kalogerou was previously Associate
General Counsel of United Dominion Industries, Inc.

Robert M. Paski, age 45, Vice President--Network Engineering and Operations
for TyCom (US) Inc. Previously, Mr. Paski had been Vice President of Terminal
Products since August 1998 and prior to that, the Managing Director of
Management Services and Atlantic Crossing for Tyco Submarine Systems Ltd. since
July 1997 when the company was acquired from AT&T. While with AT&T and Bell
Labs beginning in 1977, Mr. Paski held a variety of positions including
Director--Management Services and Quality Implementation, District Manager--
Submarine Cable System Installation and Technical Manager--Development of Sub-
System components.

Brian P. Roussell, age 42, Vice President--Sales and Marketing for TyCom
Global Marketing Ltd. since April 2000. Mr. Roussell was Vice President of
Finance of the Tyco Printed Circuit Group from August 1997 to April 2000. Prior
to that, Mr. Roussell spent nine years with Alcatel Submarine Networks as
Director of Sales and Marketing for Alcatel's U.S. operations and thereafter
served as Vice President--Americas for Alcatel. Mr. Roussell also spent six
years with Simplex Technologies Inc. where he held a variety of positions.

John P. Conley, Jr., age 53, Vice President--Human Resources for TyCom (US)
Inc. Prior to the incorporation of TyCom Ltd., Mr. Conley was Vice President of
Human Resources for Tyco Submarine Systems Ltd. since 1997 when the company was
acquired by Tyco International Ltd. Previously, Mr. Conley was Director--
Corporate Industrial Relations with Tyco International Ltd. between November
1995 and July 1997. Mr. Conley also served as Director--Human Resources for
Simplex Technologies, Inc. from 1990 until 1995.

15
<PAGE>

PART II

Item 5. Market for the Registrant's Common Shares and Related Security Holder
Matters

The number of registered holders of our common shares at November 7, 2000
was 112. Most of the shares are held in street name.

Our common shares are listed and traded on the New York Stock Exchange, Inc.
("NYSE") and the Bermuda Stock Exchange. The high and low sales price per share
of TyCom common shares as reported on the NYSE, since the date of our initial
public offering in July 2000 through the end of fiscal year 2000, were $46.25
and $32.75, respectively.

We did not pay any dividends on our common shares in the fourth quarter of
fiscal year 2000. We intend to retain all available funds for use in the
operation and expansion of our business and do not anticipate paying any cash
dividends in the foreseeable future. Any future determination to pay dividends
will be at the discretion of our board of directors and will be dependent upon
then existing conditions, including our financial condition, results of
operations, contractual and other relevant legal and regulatory restrictions,
capital requirements, business prospects, and other factors our board of
directors deems relevant.

In July 2000, we sold 70,300,000 shares pursuant to a final prospectus dated
July 26, 2000. The aggregate offering price was $2,249.6 million, with net
proceeds to us of $2,130.7 million, after deducting the underwriting discount
and commissions of $112.5 million and the offering expenses of $6.4 million. We
used $200.0 million of the net proceeds to pay a dividend to Tyco and we expect
to use the remaining net proceeds toward the deployment of the TyCom Global
Network.

Item 6. Selected Financial Data

The following table sets forth selected consolidated financial information
for the fiscal years ended September 30, 2000, 1999, 1998, 1997 and 1996. We
are an indirect subsidiary of Tyco International Ltd., a company incorporated
in Bermuda. The following financial information presents our consolidated
financial position and results of operations as a subsidiary of Tyco prior to
our initial public offering on July 27, 2000, including adjustments necessary
for a fair presentation of the business, and as a stand-alone entity subsequent
to the IPO. The information as of September 30, 2000 and 1999 and for each of
the three years ended September 30, 2000, 1999 and 1998 was derived from our
audited consolidated financial statements included in Item 8 in this Form 10-K.
The audited information as of September 30, 1998, the unaudited information as
of September 30, 1997 and 1996, the audited information for the year ended
September 30, 1997 and the unaudited information for the year ended 1996 was
derived from our historical books and records and those of our subsidiaries.
The financial information presented may not be indicative of the results that
would have been achieved had we operated as a stand-alone entity. This selected
financial information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our consolidated financial statements and related notes included in Items 7 and
8, respectively, of this Form 10-K.

16
<PAGE>

<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------------------
(Unaudited)
2000(1) 1999 1998 1997(2) 1996
-------- -------- -------- -------- -----------
(in millions, except per
share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Net revenue................ $2,539.7 $1,637.6 $1,281.6 $ 375.5 $162.6
Operating income (loss).... 498.6 323.6 262.3 (265.5) 57.0
Net income (loss).......... 303.3 163.0 152.0 (156.6) 37.0
Basic earnings (loss) per
common share (3).......... 0.66 0.36 0.34 (0.35) 0.08
Diluted earnings (loss) per
common share (3).......... 0.66 0.36 0.34 (0.35) 0.08

Consolidated Balance Sheet
Data:
Total assets............... $4,088.3 $2,392.2 $1,366.8 $1,364.4(4) $ 53.3
Long-term debt............. 653.5 608.2 600.0 -- --
Shareholders' equity....... 2,161.5 498.5 213.7 676.8(4) 38.0

Other Data:
EBITDA (4)(5).............. $ 566.0 $ 370.7 $ 298.8 $ (253.9) $ 61.7
</TABLE>
--------
(1) Results for fiscal year 2000 include certain non-recurring costs of $13.1
million ($10.5 million after-tax) associated with our IPO.
(2) Results for fiscal year 1997 include a charge of $361.0 million ($220.2
million after tax) for the write-off of purchased in-process research and
development related to the acquisition of the submarine systems business of
AT&T Corp.
(3) Basic and diluted earnings per common share for fiscal 2000 have been
computed by dividing net income by the weighted-average number of common
shares outstanding. Basic and diluted earnings per common share prior to
fiscal 2000 have been computed by dividing net income for each period by
450,000,000 common shares, which is the number of common shares owned by
Tyco immediately prior to the IPO.
(4) Unaudited.
(5) The operating results, which are presented in accordance with accounting
principles generally accepted in the United States, are supplemented by a
discussion of earnings before interest, income taxes, depreciation and
amortization ("EBITDA"). As the operations of our business transition to
deploying the TyCom Global Network and selling bandwidth capacity,
management will use EBITDA as one of our key indicators of performance.
EBITDA is commonly used in the communications industry to analyze companies
on the basis of operating performance. EBITDA, however, should not be
considered an alternative to operating or net income as an indicator of the
performance of our business, or as an alternative to cash flows from
operating activities as a measure of liquidity, in each case determined in
accordance with generally accepted accounting principles.

Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations

See Management's Discussion and Analysis of Financial Condition and Results
of Operations which appears on pages 44 to 52 of this Form 10-K.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

See Management's Discussion and Analysis of Financial Condition and Results
of Operations which appears on pages 44 to 52 of this Form 10-K.

17
<PAGE>

Item 8. Financial Statements and Supplementary Data

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

Financial Statements:

Report of Independent Accountants

Consolidated Balance Sheets--September 30, 2000 and September 30,
1999

Consolidated Statements of Operations for the fiscal years ended
September 30, 2000, 1999 and 1998

Consolidated Statements of Shareholders' Equity for the fiscal years
ended September 30, 2000, 1999 and 1998

Consolidated Statements of Cash Flows for the fiscal years ended
September 30, 2000, 1999, and 1998

Notes to Consolidated Financial Statements

Financial Statement Schedule:

Schedule II--Valuation and Qualifying Accounts

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

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

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

None.

PART III

Item 10. Directors and Executive Officers of the Registrant

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

Item 11. Executive Compensation

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

Item 12. Security Ownership of Certain Beneficial Owners and Management

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

Item 13. Certain Relationships and Related Transactions

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

18
<PAGE>

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

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

(b) Exhibits

<TABLE>
<C> <S>
3.1 Memorandum of Association. (1)

3.2 Bye-Laws. (1)

4.1 Master Loan Agreement dated as of March 23, 2000, between Tyco Submarine
Systems Ltd. and Tyco Group S.A.R.L. (Filed herewith)

4.2 Note dated March 23, 2000, between Tyco Submarine Systems Ltd. and Tyco
Group S.A.R.L. (Filed herewith)

4.3 Note dated March 24, 2000, between Tyco Submarine Systems Ltd. and Tyco
Group S.A.R.L. (Filed herewith)

4.4 Master Loan Agreement dated as of March 27, 2000, between Simplex
Technologies Inc. and Tyco Group S.A.R.L. (Filed herewith)

4.5 Note dated March 27, 2000, between Simplex Technologies Inc. and Tyco
Group S.A.R.L. (Filed herewith)

10.1 Services Agreement between TyCom Ltd. and Tyco International Ltd. (1)

10.2 Tax Indemnification Agreement between Tyco International Ltd. and TyCom
Ltd. (1)

10.3 Revolving Credit Agreement among TyCom Ltd. and the eligible
subsidiaries referred to therein, as borrowers and Tyco International
Ltd. as Lender. (1)

10.4 TyCom Ltd. Founders' Share Option Program. (1)

10.5 Registration Rights Agreement between TyCom Ltd. and TGN Holdings Ltd.
(1)

10.6 TyCom Ltd. Long Term Incentive Plan. (1)

10.7 TyCom Ltd. Employee Share Purchase Plan. (1)

10.8 TyCom Deferred Compensation Plan. (1)

10.9 TyCom Ltd. Supplemental Executive Retirement Plan. (1)

10.10 Indemnification Agreement between TyCom Ltd. and Tyco International Ltd.
(1)

10.11 Form of Employee Confidentiality, Invention Assignment and Non-
competition agreement (incorporated by reference to an Exhibit to the
Registrant's Form 10-Q for the quarterly period ended June 30, 2000).

21.1 Subsidiaries of the Registrant. (Filed herewith)

23.1 Consent of PricewaterhouseCoopers. (Filed herewith)

27 Financial Data Schedule. (Filed herewith)
</TABLE>
--------
(1) Incorporated by reference to an Exhibit to the Registrant's Registration
Statement on Form S-1 (File No. 333-32134).

None.

19
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized on the 21st day of
December, 2000.

<TABLE>
<S> <C>
TyCom Ltd.

/s/ Mark H. Swartz
By: _______________________________________
Mark H. Swartz
Vice President
(Duly Authorized Officer)

</TABLE>

<TABLE>
<S> <C>
/s/ David W. Van Rossum
By: _______________________________________
David W. Van Rossum
Vice President and
Chief Financial Officer
(Principal Financial and Accounting
Officer)
</TABLE>

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on December 21, 2000 on
behalf of the registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
Name Title
---- -----

<S> <C> <C>
/s/ L. Dennis Kozlowski Executive Chairman and
___________________________________________ Director
L. Dennis Kozlowski

/s/ Neil R. Garvey President, Chief
___________________________________________ Executive Officer and
Neil R. Garvey Director (Principal
Executive Officer)

/s/ David W. Van Rossum Vice President and Chief
___________________________________________ Financial Officer
David W. Van Rossum (Principal Financial
and Accounting Officer)

/s/ Brenda C. Barnes Director
___________________________________________
Brenda C. Barnes

/s/ Frank P. Doyle Director
___________________________________________
Frank P. Doyle

/s/ Warren V. Musser Director
___________________________________________
Warren V. Musser

/s/ Mark H. Swartz Vice President and
___________________________________________ Director
Mark H. Swartz

</TABLE>

20
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
and Shareholders of TyCom Ltd.

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, shareholders' equity and cash flows
present fairly, in all material respects, the financial position of TyCom Ltd.
(the "Company") at September 30, 2000 and 1999, and the results of its
operations and its cash flows for the years ended September 30, 2000, 1999 and
1998, in conformity with accounting principles generally accepted in the United
States of America. These consolidated financial statements and financial
statement schedule are the responsibility of the Company's management; our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits. We conducted
our audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.

As discussed in Note 1, the Company is an operating subsidiary of Tyco
International Ltd. Certain costs and expenses presented in the financial
statements represent allocations and management's estimates of the costs of
services provided to the Company by Tyco International Ltd. As a result, the
financial statements presented may not be indicative of the financial position
or results of operations that would have been achieved had the Company operated
as a nonaffiliated entity.

/s/ PricewaterhouseCoopers

Hamilton, Bermuda
October 24, 2000, except for Note 19,
as to which the date is December 8, 2000

21
<PAGE>

TYCOM LTD.

CONSOLIDATED BALANCE SHEETS
(in millions, except share data)

<TABLE>
<CAPTION>
September 30,
------------------
2000 1999
-------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................... $ 91.0 $ 12.1
Short-term advances to Parent........................... 2,047.1 505.5
Receivables, less allowance for doubtful accounts of
$47.8 in 2000 and
$19.8 in 1999.......................................... 325.8 278.7
Contracts in process.................................... 222.2 432.9
Inventories............................................. 129.5 108.7
Deferred income taxes................................... 63.4 36.9
Other current assets.................................... 12.5 18.1
-------- --------
Total current assets.................................... 2,891.5 1,392.9
Construction in Progress--TyCom Global Network............ 111.1 --
Property, Plant and Equipment, Net........................ 593.1 464.4
Goodwill and Other Intangible Assets, Net................. 307.8 348.6
Deferred Income Taxes..................................... 112.8 112.5
Other Assets.............................................. 72.0 73.8
-------- --------
Total Assets.......................................... $4,088.3 $2,392.2
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Loans payable and current maturities of long-term debt.. $ 2.2 $ 2.3
Accounts payable........................................ 253.2 175.3
Accrued expenses and other current liabilities.......... 257.3 176.0
Income taxes payable.................................... 60.5 --
Contracts in process--billings in excess of costs....... 593.1 849.1
Deferred revenue........................................ 34.3 12.4
-------- --------
Total current liabilities............................... 1,200.6 1,215.1
Long-Term Debt............................................ 653.5 608.2
Other Long-Term Liabilities............................... 21.3 14.7
-------- --------
Total Liabilities..................................... 1,875.4 1,838.0
Commitments and Contingencies (Note 10)
Minority Interest......................................... 51.4 55.7
Shareholders' Equity:
Preference shares, $1.00 par value, 600,000,000 shares
authorized; none issued.................................. -- --
Common shares, $0.25 par value, 3,000,000,000 shares
authorized;
520,300,000 issued and outstanding as of September 30,
2000..................................................... 130.1 --
Share premium............................................. 2,113.1 --
Contributed surplus, net of deferred compensation of $1.3
in 2000.................................................. 13.4 --
Parent company investment................................. -- 501.3
Accumulated deficit....................................... (38.8) --
Accumulated comprehensive loss............................ (56.3) (2.8)
-------- --------
Total Shareholders' Equity............................ 2,161.5 498.5
-------- --------
Total Liabilities and Shareholders' Equity............ $4,088.3 $2,392.2
======== ========
</TABLE>

See Notes to Consolidated Financial Statements.

22
<PAGE>

TYCOM LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)

<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Revenue from product sales...................... $2,376.4 $1,450.0 $1,187.0
Service revenue................................. 163.3 187.6 94.6
-------- -------- --------
Net revenue..................................... 2,539.7 1,637.6 1,281.6
Cost of product sales........................... 1,756.1 1,093.2 821.7
Cost of services................................ 84.6 86.5 69.7
Sales and marketing............................. 15.6 17.6 23.4
Research and development........................ 61.4 52.7 39.5
General and administrative...................... 110.3 64.0 65.0
Non-recurring charges........................... 13.1 -- --
-------- -------- --------
Operating income................................ 498.6 323.6 262.3
Interest expense, net........................... (2.9) (39.3) (9.9)
-------- -------- --------
Income before income taxes and minority
interest....................................... 495.7 284.3 252.4
Income tax provision............................ (182.9) (111.4) (91.2)
Minority interest............................... (9.5) (9.9) (9.2)
-------- -------- --------
Net income...................................... $ 303.3 $ 163.0 $ 152.0
======== ======== ========
Earnings per common share (Note 11):
Basic......................................... $ 0.66 $ 0.36 $ 0.34
Diluted....................................... $ 0.66 $ 0.36 $ 0.34
Average common shares used in computing earnings
per share
(Note 11):
Basic......................................... 462.4 450.0 450.0
Diluted....................................... 463.0 450.0 450.0
</TABLE>

See Notes to Consolidated Financial Statements.

23
<PAGE>

TYCOM LTD.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in millions, except per share data)

<TABLE>
<CAPTION>
Common
Shares Contributed Parent Accumulated
$0.25 Share Surplus-- Company Accumulated Comprehensive Comprehensive
Par Value Premium Common Investment Deficit Loss Income
--------- -------- ----------- ---------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30,
1997................... $ -- $ -- $ -- $676.8 $ -- $ --
Comprehensive income:
Net income............. 152.0 $152.0
------
Total comprehensive
income............... $152.0
======
Net transfers to
Parent................. (615.1)
------
Balance at September 30,
1998................... -- -- -- 213.7 --
Comprehensive income:
Net income............. 163.0 $163.0
Currency translation
adjustment............. (2.8) (2.8)
------ ------
Total comprehensive
income............... $160.2
======
Net transfers from
Parent................. 124.6
------ ------
Balance at September 30,
1999................... -- -- -- 501.3 -- (2.8)
Comprehensive income:
Net income............. 244.4 58.9 $303.3
Currency translation
adjustment............. (53.5) (53.5)
------
Total comprehensive
income............... $249.8
======
Net transfers from
Parent................. 19.1
Dividend to Parent...... (550.0)
Recapitalization from
Parent company at
initial public
offering............... 112.5 102.3 (214.8)
Net proceeds from
initial public
offering............... 17.6 2,113.1
Dividend to Parent at
initial public
offering............... (102.3) (97.7)
Capital contribution
from Parent............ 13.1
Amortization of deferred
compensation........... 0.3
------ -------- ------ ------ ------ ------
Balance at September 30,
2000................... $130.1 $2,113.1 $ 13.4 $ -- $(38.8) $(56.3)
====== ======== ====== ====== ====== ======
</TABLE>

See Notes to Consolidated Financial Statements.

24
<PAGE>

TYCOM LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)

<TABLE>
<CAPTION>
Year Ended
September 30,
------------------------
2000 1999 1998
-------- ------ ------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income........................................... $ 303.3 $163.0 $152.0
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation....................................... 57.4 39.6 31.9
Goodwill and other intangible amortization......... 10.0 7.5 4.6
Deferred income taxes.............................. (26.7) 41.8 (8.4)
Provisions for losses on receivables and
inventory......................................... 59.2 4.6 19.0
Minority interest ................................. 14.6 15.2 14.1
Other non-cash items............................... 3.0 -- --
Changes in assets and liabilities, net of the
effects of acquisitions:
Receivables....................................... (83.7) (183.6) 76.1
Contracts in process.............................. (45.4) 725.5 (146.5)
Inventories....................................... (44.4) (23.4) 10.7
Other current assets.............................. 5.2 (8.2) (6.0)
Accounts payable.................................. 79.2 57.5 (41.9)
Accrued expenses and other current liabilities.... 84.0 (55.9) (54.2)
Income taxes payable.............................. 60.5 -- --
Deferred revenue.................................. 22.4 (10.1) (4.5)
-------- ------ ------
Net cash provided by operating activities....... 498.6 773.5 46.9
-------- ------ ------
Cash Flows From Investing Activities:
Construction in progress--TyCom Global Network....... (111.1) -- --
Purchase of property, plant and equipment............ (204.9) (97.4) (28.2)
Acquisition related costs, net of cash acquired...... (1.1) (8.5) (80.2)
Increase in investments.............................. (19.9) (9.3) (2.0)
Decrease (increase) in long-term receivables......... 17.0 (56.0) (0.3)
Other................................................ 1.6 (0.9) 0.4
-------- ------ ------
Net cash used in investing activities........... (318.4) (172.1) (110.3)
-------- ------ ------
Cash Flows From Financing Activities:
Short-term advances (to) from Parent................. (1,548.6) (459.6) 138.4
Repayments of long-term debt......................... (2.3) (1.2) --
Net proceeds on long-term loans from Parent.......... 48.7 1.3 --
Net proceeds from initial public offering............ 2,130.7 -- --
Dividend to Parent at initial public offering........ (200.0) -- --
Change in Parent company investment.................. (530.9) (155.4) (15.1)
Capital contribution from Parent..................... 13.1 -- --
Distributions to minority interest................... (18.9) (23.4) (18.0)
Other................................................ 6.9 (0.7) 7.8
-------- ------ ------
Net cash (used in) provided by financing
activities..................................... (101.3) (639.0) 113.1
-------- ------ ------
Net increase (decrease) in cash and cash
equivalents......................................... 78.9 (37.6) 49.7
Cash and cash equivalents at beginning of period..... 12.1 49.7 --
-------- ------ ------
Cash and cash equivalents at end of period........... $ 91.0 $ 12.1 $ 49.7
======== ====== ======
Supplementary Cash Flow Disclosure:
Interest paid........................................ $ 43.9 $ 37.3 $ 25.5
-------- ------ ------
Income taxes paid (net of refunds)................... $ 132.4 $ 64.3 $ 94.7
======== ====== ======
Supplemental Schedule of Noncash Investing and
Financing Activities:
Net assets of acquired business contributed by parent
(Note 2)............................................ $ -- $280.0 $ --
======== ====== ======
</TABLE>

See Notes to Consolidated Financial Statements.

25
<PAGE>

TYCOM LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Business--TyCom Ltd. (the "Company" or "TyCom"), a Bermuda company, is an
independent provider of undersea fiber optic networks and services, engaged in
the design, engineering, manufacture, installation and maintenance of undersea
fiber optic networks. The Company currently is deploying its own global
undersea fiber optic network, known as the TyCom Global Network ("TGN"), and
will sell bandwidth capacity on the TGN to others.

TyCom's principal operating subsidiaries include TyCom (US) Inc. (formerly
Tyco Submarine Systems Ltd.), TyCom Integrated Cable Systems Inc. (formerly
Simplex Technologies, Inc.) and Telecomunicaciones Marinas, S.A. ("Temasa").

Background--TyCom was incorporated on March 8, 2000 as a wholly-owned
indirect subsidiary of Tyco International Ltd. ("Tyco" or "Parent") to serve as
the holding company for Tyco's undersea fiber optic cable communications
business.

In connection with the establishment of the Company's capital structure, the
assets and liabilities of the Company and its subsidiaries, which were
previously owned by Tyco, were transferred from Tyco to TyCom, and TyCom issued
to Tyco 450,000,000 of its common shares. In July 2000, TyCom sold 70,300,000
of its common shares to the public in an initial public offering ("IPO"). Net
proceeds to TyCom from the IPO, after deducting the underwriting discount,
commissions and offering expenses, were approximately $2.1 billion. Of that
amount, $200 million was paid as a dividend to Tyco, and the remaining amount
is expected to be used in the deployment of the TGN.

Basis of Presentation--The consolidated financial statements have been
prepared in United States dollars in accordance with generally accepted
accounting principles in the United States. The consolidated financial
statements include the accounts of TyCom and its subsidiaries.

The consolidated financial statements present TyCom's consolidated financial
position and results of operations as a subsidiary of Tyco prior to TyCom's
initial public offering in July 2000, including adjustments necessary for a
fair presentation of the business, and as a stand-alone entity subsequent to
the IPO. The consolidated financial statements presented may not be indicative
of the results that would have been achieved had the Company operated as a
separate, stand-alone entity prior to its IPO.

Certain services are provided to the Company by Parent, primarily related to
financial, treasury, tax, legal, audit, human resource and risk management
functions. Under the terms of the services agreement between the Company and
Parent, the Company is charged an annual fee equal to 1.0% on the first $2.0
billion of net revenue, 0.75% on net revenue over $2.0 billion up to $5.0
billion and 0.50% on net revenue in excess of $5.0 billion. The financial
statements reflect this annual fee, which is included in general and
administrative expenses in the Consolidated Statements of Operations. The
annual fee is reviewed and adjusted annually by mutual agreement of the Company
and Parent. Management believes these fees are reasonable and approximate the
estimated cost of services that would have been incurred on a stand-alone basis
for each period presented. Additional items, such as employee benefit plans,
insurance coverage, and other identifiable costs, are charged to the Company by
Parent based upon direct costs attributable to TyCom and its subsidiaries.

Principles of Consolidation--TyCom is a holding company whose assets consist
of its investments in its subsidiaries, intercompany balances and holdings of
cash and cash equivalents. The businesses of the consolidated group are
conducted through the Company's subsidiaries. The Company consolidates
companies in which it owns or controls more than fifty percent of the voting
shares unless control is likely to be temporary. All significant intercompany
balances and transactions have been eliminated in consolidation.

Cash Equivalents--All highly liquid investments purchased with a maturity of
three months or less are considered to be cash equivalents.

26
<PAGE>

TYCOM LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Summary of Significant Accounting Policies (Continued)

Short-Term Advances to Parent--Short-term advances to Parent, which reflect
cash balances generated from the IPO and operating activities, were transferred
to Tyco under numerous agreements as part of Tyco's consolidated cash
management system. Advances are subject to the terms of various cash management
and loan agreements between the Company and Parent. Under the terms of these
agreements, the funds are available to the Company on an as needed basis.
Interest rates on amounts advanced to Parent are based on the 3 month U.S.
Treasury Bill plus 0.3%, the 1 month U.S. Treasury Bill plus 3.0% or the 3
month U.S. LIBOR plus 1.25%. Interest rates on amounts advanced to Parent
ranged from 6.3% to 8.5% at September 30, 2000. The weighted average interest
rate on amounts advanced to Parent as of September 30, 2000 was 6.4%. Interest
rates approximate the cost of borrowings that would be incurred on a stand-
alone basis.

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

Construction in Progress--TyCom Global Network--The Company is deploying its
own global undersea fiber optic network, known as the TyCom Global Network
("TGN"), and will sell its bandwidth capacity on the TGN to others. Costs
incurred prior to the completion of a cable segment of the TGN are stated at
cost and reflected as construction in progress in the accompanying consolidated
balance sheets. Capitalized costs to date include components such as cable and
repeaters, land and construction costs for cable stations, backhaul costs,
marine survey costs, interest and other costs related to the deployment of the
TGN. For the year ended September 30, 2000, the Company capitalized interest of
$1.4 million, and none was capitalized in the years ended September 30, 1999
and 1998.

Property, Plant and Equipment--Property, plant and equipment is recorded
principally at cost less accumulated depreciation. Maintenance and repair
expenditures are charged to expense when incurred. The straight-line method of
depreciation is used over the estimated useful lives of the related assets as
follows:

<TABLE>
<S> <C>
Buildings and related improvements............ 10 to 40 years
Ships and submersibles........................ 5 to 20 years
Leasehold improvements........................ Remaining term of the lease
Machinery and equipment....................... 5 to 7 years
</TABLE>

Gains or losses arising on the disposal of property, plant and equipment are
included in the Consolidated Statements of Operations.

Goodwill and Other Intangible Assets--Goodwill, which is being amortized on
a straight-line basis over 40 years, was $272.9 million and $311.3 million,
net, at September 30, 2000 and 1999, respectively. Accumulated amortization
amounted to $16.7 million at September 30, 2000 and $9.1 million at September
30, 1999.

Other intangible assets were $34.9 million and $37.3 million, net, at
September 30, 2000 and 1999, respectively. These amounts include patents and
technology, which are being amortized primarily on a straight-line basis over
17 years. At September 30, 2000 and 1999, accumulated amortization amounted to
$6.1 million and $3.7 million, respectively.

Long-Lived Assets--The Company periodically evaluates the net realizable
value of long-lived assets, including property, plant and equipment, goodwill
and other intangible assets, long-term investments and long-term receivables,
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 recorded when the undiscounted, expected future
operating cash flows derived from the asset are less than its carrying value.
Fair values are based on quoted market prices and assumptions concerning the
amount and timing of estimated future cash flows and assumed discount rates,
reflecting varying degrees of perceived risks.

27
<PAGE>

TYCOM LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Summary of Significant Accounting Policies (Continued)

Investments--The Company accounts for its marketable securities that
represent less than twenty percent ownership using Statement of Financial
Accounting Standard ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." This standard requires that certain debt and
equity securities be adjusted to market value at the end of each accounting
period. Unrealized market gains and losses are charged or credited to earnings
if the securities are traded for short-term profit. Otherwise, such unrealized
gains and losses are charged or credited to shareholders' equity. Management
determines the proper classification of investments in debt and equity
securities at the time of purchase and reevaluates such designations as of each
balance sheet date.

Investments for which the Company does not have the ability to exercise
significant influence and for which there is not a readily determinable market
value are accounted for under the cost method of accounting. The Company
periodically evaluates the carrying value of its investments accounted for
under the cost method of accounting. Such investments were recorded at the
lower of cost or estimated net realizable value as of September 30, 2000 and
any declines in value judged to be other than temporary are expensed in the
Consolidated Statement of Operations.

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

Warranties--Estimated warranty costs for each contract are determined based
on the contract terms and technology specific issues. These costs are included
in total estimated contract costs accrued over the construction period of the
respective contract.

Minority Interest--Five of the Company's ships, used to install and maintain
the undersea cable systems, are owned by partnerships. The partnerships consist
of a majority-owner general partner, Transoceanic Cable Ship Co. Inc., a
wholly-owned subsidiary of the Company, and a limited partner unaffiliated with
the Company, Teleglobe Marine Inc., a wholly-owned subsidiary of Teleglobe
Holding Corp. The limited partner's equity interest is either 25% or 45% for
each vessel, and the partnership terms continue for the useful life of each
vessel. The Company charters the vessels from the partnerships and operates
them in the conduct of its business. The Company monitors and allocates the
utilization of these vessels between construction and maintenance activities.

The Company reflects the limited partner equity interest in the partnerships
as minority interest in the consolidated financial statements. Distributions to
the limited partner are based on its pro rata share of earnings, as defined in
the partnership agreements, during the prior quarter, adjusted for certain
noncash items and capital requirements.

Share Premium and Contributed Surplus--In accordance with the Bermuda
Companies Act of 1981, when the Company issues shares for cash at a premium to
their par value, the resulting premium is credited to a share premium account,
a non-distributable reserve. When the Company issues shares in exchange for
shares of another company, the excess of the fair value of the shares acquired
over the par value of the shares issued by the Company is credited, where
applicable, to contributed surplus, which is, subject to certain conditions, a
distributable reserve.

Revenue Recognition--Product sales relate to the installation of undersea
cable systems and are recorded on the percentage-of-completion method, whereby
sales and profits are recognized as work is performed based on the relationship
between actual costs incurred and total estimated costs to complete. Contracts
in process, included in current assets, are valued at cost plus accrued profits
not yet billed. Billings on uncompleted contracts in excess of incurred costs
and accrued profits are included in current liabilities. 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. Bid and proposal costs are
expensed as incurred.

28
<PAGE>

TYCOM LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Summary of Significant Accounting Policies (Continued)

Maintenance and service revenue is recognized over the period the service is
provided. Billings to customers before the relevant criteria for revenue
recognition are satisfied are included in deferred revenue.

Income Taxes--Deferred tax liabilities and assets are recognized for the
expected future tax consequences of events that have been included in the
consolidated financial statements. Deferred tax liabilities and assets are
determined based on the differences between the consolidated financial
statements and the tax basis of assets and liabilities, using tax rates in
effect for the years in which the differences are expected to reverse.

Research and Development--Research and development costs are expensed when
incurred.

Advertising--Advertising costs are expensed when incurred.

Translation of Foreign Currency--Assets and liabilities of the Company's
subsidiaries operating outside the United States which account in a functional
currency other than U.S. dollars are translated into U.S. dollars using year-
end exchange rates. Revenues and expenses are translated at the average
exchange rates effective during the year. Foreign currency translation gains
and losses are included within shareholders' equity.

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

Financial Instruments--From time to time the Company enters into a variety
of foreign exchange contracts, forward commodity contracts and interest rate
swaps in its management of foreign currency, commodity and interest rate
exposures. The Company enters into letters of credit as required by its
contracts.

Realized gains or losses on foreign exchange contracts, acquired for the
purpose of reducing exposure to currency fluctuations associated with expected
cash flows denominated in currencies other than the functional currencies, are
reflected in general and administrative expenses. Foreign exchange contracts
are marked to market with the unrealized gain or loss reflected in general and
administrative expenses.

Under forward commodity contracts, which hedge anticipated purchases of
copper used in manufacturing operations, payments are received or paid based on
the differential between the contract price and the actual price of the
underlying commodity. Gains or losses on forward commodity contracts are
recorded as adjustments to the value of the purchased commodity.

Interest rate swaps hedge interest rates on certain indebtedness and involve
the exchange of fixed and floating rate interest payment obligations over the
life of the related agreement without the exchange of the notional amount. The
interest differentials to be paid or received under interest rate swaps are
recognized on an accrual basis over the life of the underlying agreement or
indebtedness as an adjustment to interest expense.

Use of Estimates--The preparation of consolidated financial statements in
conformity with generally accepted accounting principles in the United States
requires management to make extensive use of certain estimates and assumptions
that affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the
reported periods. Actual results could differ from these estimates.

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

29
<PAGE>

TYCOM LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Summary of Significant Accounting Policies (Continued)

Accounting Pronouncements--In June 1998 and June 2000, the FASB issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities" and
SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities." These statements establish accounting and reporting
standards requiring that every derivative instrument be recorded on the balance
sheet as either an asset or liability measured at its fair value. SFAS Nos. 133
and 138 also require that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. In
June 1999, the FASB issued SFAS No. 137, which defers the effective date of
SFAS Nos. 133 and 138 to fiscal years beginning after June 15, 2000. The
adoption of these new standards is not anticipated to have a material impact on
the Company's earnings or financial position.

2. Acquisitions

Fiscal 1999

On May 18, 1999, Tyco acquired Temasa, a wholly-owned subsidiary of
Telefonica S.A., for an aggregate cost of $290.4 million, consisting of cash of
$280.0 million and the assumption of $10.4 million in debt. Temasa installs and
maintains undersea cable systems. This business was contributed by Parent to
the Company subsequent to its acquisition. The acquisition was accounted for as
a purchase, and the results of operations of Temasa have been included in the
consolidated results of the Company from its acquisition date. As a result of
the acquisition, approximately $188.9 million in goodwill was recorded by the
Company, which reflects the adjustments necessary to allocate the purchase
price to the fair value of assets acquired, liabilities assumed and purchase
accounting liabilities recorded. In addition, $8.5 million of cash was paid
during fiscal 1999 for purchase accounting liabilities related to prior years'
acquisitions.

Purchase accounting liabilities recorded for Temasa during fiscal 1999
included $12.0 million for transaction and other direct costs and $0.2 million
for severance costs. Transaction and other direct costs include legal,
accounting, financial advisory services and other direct expenses related to
the acquisition. Liabilities of approximately $1.3 million for transaction and
other direct costs remained on the balance sheet at September 30, 2000. No
severance costs remained on the balance sheet at September 30, 2000. The
Company expects that the payout of all costs related to this acquisition will
be completed by the end of fiscal 2001.

Fiscal 1998

During fiscal 1998, the Company paid $67.0 million to AT&T Corp. as a result
of finalizing the adjusted balance sheet related to the acquisition of AT&T
Corp.'s submarine systems business. In addition, the Company paid cash of $13.2
million during fiscal 1998 for purchase accounting liabilities that were
previously established in connection with this acquisition.

3. Investment

In July 2000, TyCom entered into an agreement with C2C Pte. Limited ("C2C"),
a private cable development company led by Singapore Telecommunications
Limited, for the supply of a 17,000-kilometer undersea fiber optic system
connecting major cities in Asia, for approximately $1.1 billion. In connection
with the supply agreement, TyCom Asia Networks Ltd., a wholly-owned subsidiary
of the Company, entered into a joint venture with a subsidiary of Singapore
Telecommunications, and committed to fund approximately $140 million for a 15%
equity ownership in C2C.

30
<PAGE>

TYCOM LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. Long-Term Debt

Long-term debt is as follows ($ in millions):

<TABLE>
<CAPTION>
September 30,
--------------
2000 1999
------ ------
<S> <C> <C>
7.20% loan from Parent due 2001(ii)(iii).................. $ -- $398.8
8.00% Peseta denominated note due 2003(i)................. 5.7 9.2
6.70% loan from Parent due 2008(ii)(iii).................. -- 202.5
7.25% loan from Parent due 2010(iii)...................... 200.0 --
7.50% loan from Parent due 2012(iii)...................... 250.0 --
7.50% loan from Parent due 2015(iii)...................... 200.0 --
------ ------
Total debt.............................................. 655.7 610.5
Less current portion...................................... (2.2) (2.3)
------ ------
Long-term debt............................................ $653.5 $608.2
====== ======
</TABLE>
--------
(i) In 1991, Temasa issued a 3.1 billion Pesetas (approximately $19.6
million) 8.0% amortizing note due March 2003. In connection with this
note, Temasa entered into an interest rate swap agreement to hedge the
fixed rate interest terms. Under the agreement, which expires in March
2003, Temasa hedged the fixed rate terms of the note and will make
floating rate payments based on a variable rate of the three-month Madrid
Interbank Offered Rate less 0.1%.

(ii) In February and March 1998, the Company entered into $500.0 million and
$100.0 million loan agreements with Parent, with fixed rates of 7.2% and
7.1%, respectively. These notes were scheduled to mature in March 2001
and April 2001, respectively. During fiscal 1999, the Company paid off
$101.2 million of the $500.0 million loan and the entire $100.0 million
loan.

In December 1998, the Company entered into a $202.5 million loan
agreement with Parent, with a fixed interest rate of 6.7%, which was
scheduled to mature in December 2008.

(iii) In March 2000, the Company refinanced its long-term debt from Parent and
increased its borrowings by issuing $200.0 million, $250.0 million and
$200.0 million notes payable, which bear interest at fixed rates of
7.25%, 7.5% and 7.5% and are due in March 2010, March 2012 and March
2015, respectively.

In fiscal 2000, TyCom entered into a revolving credit facility with Tyco,
under which TyCom may borrow up to $1.25 billion. The credit facility will be
available to TyCom for a period of not less than three years. Amounts
outstanding accrue interest at a rate ranging from 1.25% to 3.00% above the
three-month United States Dollar LIBOR in effect on the last day of the prior
calendar quarter. There was no amount outstanding on this credit facility at
September 30, 2000.

The weighted-average rate of interest on all long-term debt was 7.4% and
7.1% during fiscal 2000 and fiscal 1999, respectively.

At September 30, 2000, long-term debt matures as follows (in millions):
$2.2 in fiscal 2001, $2.3 in fiscal 2002, $1.2 in fiscal 2003 and the remaining
balance of $650.0 in fiscal years 2010 through 2015. Loans from Parent are pre-
payable without penalty at par value at any time after March 2005. Prepayment
of amounts outstanding prior to March 2005 requires a redemption premium of up
to 5%.

31
<PAGE>

TYCOM LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. Interest Expense, net

Interest expense, net, is comprised of the following ($ in millions):

<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Third party interest income.................. $ 3.5 $ 1.3 $ --
Third party interest expense................. (0.8) (0.3) --
Interest income--short-term advances to
Parent...................................... 39.5 2.3 15.6
Interest expense--short-term loans from
Parent...................................... (0.9) (0.1) --
Interest expense--long-term loans from
Parent...................................... (44.2) (42.5) (25.5)
-------- -------- --------
Interest expense, net........................ $ (2.9) $ (39.3) $ (9.9)
======== ======== ========
</TABLE>

Interest expense associated with Parent's general corporate debt has not
been allocated to TyCom in the Consolidated Financial Statements. Interest
expense approximates the estimated cost of borrowings that would have been
incurred on a stand-alone basis.

6. Financial Instruments

The company's financial instruments consist primarily of cash and cash
equivalents, short-term advances to Parent, accounts receivable, long-term
investments, accounts payable, debt, letters of credit and derivative financial
instruments.

The notional amounts of the derivative financial instruments were as follows
($ in millions):

<TABLE>
<CAPTION>
September 30,
-------------
2000 1999
------ ------
<S> <C> <C>
Foreign currency exchange contracts......................... $ -- $ 16.2
Forward commodity contracts................................. 17.7 20.7
Interest rate swaps......................................... 5.7 9.2
</TABLE>

While it is not the Company's intention to terminate the above derivative
financial instruments, fair values were estimated, based on quotes from brokers
and market rates, which represented the amounts that the Company would receive
or pay if the instruments were terminated at the balance sheet dates. These
fair values indicated that the termination of foreign currency exchange
contracts, forward commodity contracts and interest rate swaps at September 30,
2000 and 1999 would have resulted in a $1.9 million gain and $2.7 million gain,
respectively.

The fair value of cash and cash equivalents, short-term advances to Parent,
accounts receivable, long-term investments and accounts payable approximated
book value at September 30, 2000 and 1999. The fair value of debt was
approximately $639.9 million (book value of $655.7 million) and $610.0 million
(book value of $610.5 million) at September 30, 2000 and 1999, respectively,
based on discounted cash flow analyses using then current interest rates.
Letters of credit are posted by the Company in accordance with the performance
provisions of contracts, and include both performance bonds and advance payment
bonds. The Company pays the commissions on the letters of credit and records
these payments as contract costs. At September 30, 2000,
the Company's total available letters of credit amounted to approximately $569
million, of which none has been drawn upon.

32
<PAGE>

TYCOM LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. Financial Instruments (Continued)

Certain other financial instruments may present market and credit risks. At
September 30, 2000, three customers comprised approximately 78% of total
accounts receivable of the Company, and at September 30, 1999, one customer
comprised approximately 52% of total accounts receivable. The Company mitigates
such concentrations of credit risk through a review of a customer's credit
history before extending credit and evaluating the customer's ability to
perform obligations under its agreement. The Company does not expect its
customers to fail to meet their obligations under contracts given their credit
rating or the financing in place for the applicable contracts. In addition, the
Company establishes an allowance for doubtful accounts based upon factors
surrounding the credit risk of specific customers, historical trends, and other
information. The Company does not require collateral or other security to be
furnished by the counterparties to its financial instruments.

7. Income Taxes

The Company's consolidated financial statements reflect a provision for
income taxes based on income as if the Company had been subject to income tax
on a stand-alone basis prior to its IPO. The income tax provision was computed
in accordance with SFAS No. 109, "Accounting for Income Taxes," and is based on
current tax rates.

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

<TABLE>
<CAPTION>
Year Ended
September 30,
--------------------
2000 1999 1998
------ ----- -----
<S> <C> <C> <C>
U.S. federal income taxes at the statutory rate.... $173.5 $99.5 $88.3
Adjustments to reconcile to the Company's income
tax provision:
U.S. state income tax provision, net............... 22.3 14.9 11.6
Non U.S. net earnings.............................. (16.5) (1.9) (0.8)
Nondeductible charges.............................. 5.6 1.2 1.1
Foreign sales corporation benefit.................. (10.0) (1.8) (8.3)
Research and development benefit................... (0.5) (0.5) (0.7)
Other.............................................. 8.5 -- --
------ ----- -----
Provision for income taxes......................... 182.9 111.4 91.2
Deferred provision (benefit)....................... (17.8) 41.8 (8.4)
------ ----- -----
Current provision.................................. $200.7 $69.6 $99.6
====== ===== =====
</TABLE>

The provisions for fiscal 2000, fiscal 1999 and fiscal 1998 included $13.9
million, $0.3 million, and $0 million for non-U.S. income taxes, and the non-
U.S. component of income before income taxes was $87.1 million, $6.1 million
and $2.2 million, respectively.

33
<PAGE>

TYCOM LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. Income Taxes (Continued)

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

<TABLE>
<CAPTION>
September 30,
-------------
2000 1999
------ ------
<S> <C> <C>
Deferred tax assets:
Inventories............................................... $ 5.3 $ 6.9
Accrued liabilities and reserves.......................... 60.5 32.5
Accrued postretirement benefit obligation................. 2.6 2.4
In-process research and development....................... 99.0 107.4
Other..................................................... 9.3 0.3
------ ------
176.7 149.5
====== ======
Deferred tax liabilities:
Property, plant and equipment............................. -- (1.4)
Amortization.............................................. 0.5 1.5
------ ------
0.5 0.1
------ ------
Net deferred income tax asset............................... $176.2 $149.4
====== ======
</TABLE>

The Company entered into a tax indemnification agreement with Parent in
which Parent has agreed to indemnify the Company against all of its U.S. and
non-U.S. income tax liabilities for periods prior to the IPO to the extent
these liabilities are in excess of the income taxes previously paid or accrued
as an expense with respect to such periods. Pursuant to this agreement, Parent
will have the right to control all audits and contests relating to the
indemnified taxes. Although Parent agreed to indemnify the Company against
these tax liabilities, the Company will nonetheless be liable for such taxes in
the event that they are not discharged by Parent. Parent has not indemnified
the Company against, and the Company will remain responsible for, all of its
non-income tax liabilities for periods prior to the IPO as well as all of its
income and non-income tax liabilities for periods after the IPO.

8. Preference Shares

The Company has authorized 600,000,000 preference shares of $1 par value,
none of which was outstanding at September 30, 2000 or 1999. Rights as to
dividends, return of capital, redemption, conversion and voting, among others,
may be determined by the Board of Directors of the Company on or before the
time of issuance. In the event of the liquidation of the Company, the holders
of any preference shares then outstanding would be entitled to payment to them
of the amount for which the preference shares were subscribed and any unpaid
dividends, prior to any payment to the common shareholders.

9. Stock-Based Compensation Plans

Stock Options--In August 2000, the Company established the TyCom Ltd. Long
Term Incentive Plan ("the Plan"), under which 51,113,043 common shares have
been reserved for issuance. The Plan is administered by the Compensation
Committee of the Board of Directors of the Company, which consists of
independent directors of the Company. Options are generally granted to purchase
common shares at prices which are equal to or greater than the market price of
the common shares on the date the option is granted. Conditions of vesting are
determined at the time of grant. Options granted under the Plan generally vest
over a three-year period from the date of grant and have a maximum term of ten
years.

34
<PAGE>

TYCOM LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9. Stock-Based Compensation Plans (Continued)

During fiscal 2000, the Company established the TyCom Ltd. Founders Share
Option Program, which provided grants of options to certain employees at a
price equal to or greater than the offering price in the Company's IPO. A total
of 800,000 shares have been reserved for issuance pursuant to options that have
been or may be granted under the Founders Share Option Program. At September
30, 2000 there were approximately 30 million shares available for future option
grants under these plans.

Prior to its incorporation in March 2000, the Company had no employee stock
option plan; however, certain employees of the Company were granted stock
options under the Tyco International Ltd. Long Term Incentive Plan. Options
were granted under this plan to purchase common shares of Tyco at prices which
were equal to or greater than the market price of the common shares on the date
the options were granted. Conditions of vesting were determined at the time of
grant. Options granted to employees of the Company under the Tyco Long Term
Incentive Plan generally vest and become exercisable over periods of up to five
years from the date of grant and have a maximum term of ten years. At September
30, 2000, approximately 2.4 million Tyco options held by employees of the
Company were outstanding, approximately 1.1 million of which were exercisable.

Option activity for TyCom's stock option plans since they were established
is as follows:

<TABLE>
<CAPTION>
Weighted
Average
Outstanding Exercise Price
----------- --------------
<S> <C> <C>
At September 30, 1999......................... -- $ --
Granted....................................... 21,671,150 32.01
Exercised..................................... -- --
Canceled...................................... (64,100) 32.01
---------- ------
At September 30, 2000......................... 21,607,050 $32.01
========== ======
</TABLE>

The following table summarizes information about outstanding options at
September 30, 2000:

<TABLE>
<CAPTION>
Options Outstanding
--------------------------------------------------------
Weighted
Weighted Average
Average Remaining
Range of Number Exercise Contractual
Exercise Prices Outstanding Price Life-Years
--------------- ----------- -------- -----------
<S> <C> <C> <C>
$32.00 21,580,250 $32.00 9.7
32.01 to 44.62 26,800 42.10 9.7
----------
Total 21,607,050
==========
</TABLE>

There were no options exercisable as of September 30, 2000.

SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), allows
companies to measure compensation cost in connection with executive share
option plans using a fair value based method, or to continue to use an
intrinsic value based method which generally does not result in a compensation
cost. TyCom has decided to continue to use the intrinsic value based method
and, accordingly, no compensation cost has been recorded in these consolidated
financial statements. Had the fair value based method been adopted for the
stock options awarded to the Company's employees under both the Company's and
the Parent's stock

35
<PAGE>

TYCOM LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9. Stock-Based Compensation Plans (Continued)

option plans pursuant to the provisions of SFAS 123, the Company's pro forma
net income would have been as follows:

<TABLE>
<CAPTION>
Year ended September 30,
--------------------------
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Net income--pro forma (in millions)............ $ 277.2 $ 155.4 $ 148.8
Earnings per common share--pro forma:
Basic........................................ 0.60 0.35 0.33
Diluted...................................... 0.60 0.35 0.33
</TABLE>

The estimated weighted-average fair value of options granted to the
Company's employees during fiscal 2000 under the TyCom plan was $17.47 on the
date of grant. The estimated weighted-average fair value of options granted to
the Company's employees during fiscal 2000, fiscal 1999 and fiscal 1998 under
the Tyco plan was $15.88, $11.08 and $7.68, respectively, on the date of grant.
The weighted-average fair values were calculated using the Black-Scholes
option-pricing model and the following weighted-average assumptions:

<TABLE>
<CAPTION>
TyCom Tyco
--------- -------------------------------
2000 2000 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Expected stock price
volatility.................. 60% 36% 30% 22%
Risk free interest rate...... 6.19% 6.53% 4.8% 5.6%
Expected annual dividend
yield per share............. -- $0.05 $0.05 $0.05
Expected life of options..... 4.5 years 5.0 years 4.9 years 5.0 years
</TABLE>

The effects of applying SFAS 123 in this pro forma calculation are not
necessarily indicative of what the effects may be in future years.

Employee Share Purchase Plan--During fiscal 2000, TyCom established an
employee share purchase plan for TyCom common shares, which is available to
substantially all full-time employees of the Company. The Company matches a
portion of the employee contribution by contributing an additional 15% of the
amount paid by the employee. All shares purchased under the plan are purchased
on the open market by a designated broker.

Substantially all full-time employees of the Company are also eligible to
participate in Tyco's employee stock purchase plan. Eligible employees
authorize payroll deductions to be made for the purchase of shares. TyCom
matches a portion of the employee contribution by contributing an additional
15% of the amount paid by the employee. All shares purchased under the plan are
purchased on the open market by a designated broker.

Restricted Stock--Certain executives of the Company participate in Tyco's
restricted stock ownership plan. Common shares are awarded subject to certain
performance-based criteria with vesting varying over periods of up to ten
years.

The total compensation cost expensed for all stock-based compensation awards
was $1.4 million, $2.8 million and $1.3 million for fiscal 2000, fiscal 1999,
and fiscal 1998, respectively.

10. Commitments and Contingencies

The Company occupies certain facilities under leases that expire at various
dates through 2025. Rental expense under these leases and a lease for a ship
was $15.7 million, $13.5 million and $12.0 million for fiscal 2000, fiscal 1999
and fiscal 1998, respectively. At September 30, 2000, the minimum lease payment
obligations under noncancelable operating leases were as follows: $39.5 million
in fiscal 2001, $48.2 million in fiscal 2002, $43.9 million in fiscal 2003,
$43.2 million in fiscal 2004, $43.2 million in fiscal 2005 and an aggregate of
$123.4 million in fiscal years 2006 through 2025.

36
<PAGE>

TYCOM LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. Commitments and Contingencies (Continued)

In July 2000, the Company entered into a joint venture with, among other
investors, C2C AsiaPac Pte. Ltd. and committed to fund approximately $140
million for a 15% ownership interest in C2C Pte. Ltd. See Note 3.

In the normal course of business, the Company is liable for contract
completion and product performance. In the opinion of management, such
obligations will not significantly affect the Company's financial position or
results of operations. Also, in the normal course of business, the Company
enters into construction contracts providing for assessment of damages for
nonperformance or delays in completion. Claims may be brought against the
Company by customers alleging such deficiencies. At September 30, 2000, $16.0
million for liquidated damages is included in accrued expenses and other
current liabilities in the Consolidated Balance Sheet.

The Company is aware of contamination at certain of its properties. In
particular, one of its facilities is the subject of cleanup under the New
Jersey Industrial Site Recovery Act. In connection with the sale of its
submarine system business to Tyco, AT&T assumed all responsibility and costs
for the cleanup of contamination at this property and has also agreed to
indemnify the Company in the event that the Company incurs any other costs
related to this cleanup. In addition, the Company has been named as a
potentially responsible party under the United States Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended,
more commonly known as Superfund, at a site in New Hampshire. The Company is
one of a group of parties that is participating in the investigation and
cleanup of this site. The Company believes that any costs or liabilities in
connection with these or any other sites will not materially adversely affect
its business, results of operations or financial condition.

Tyco Submarine Systems Ltd./Global Crossing Litigation. On May 22, 2000,
Global Crossing Ltd. and its subsidiary, South American Crossing (Subsea)
Ltd., filed a complaint against TyCom (US) Inc. (formerly known as Tyco
Submarine Systems Ltd.) in the United States District Court for the Southern
District of New York.

On June 13, 2000, TyCom (US) Inc. answered the complaint, denying its
material allegations and raising various defenses to plaintiffs' claims.
Additionally, TyCom (US) Inc. has asserted counterclaims that South American
Crossing (Subsea) Ltd., at the instance of plaintiff Global Crossing Ltd.,
breached the parties' construction contract. TyCom (US) Inc. seeks damages of
not less than $150 million and attorneys' fees and costs, as well as
declarative relief. On July 5, 2000 plaintiffs replied to the counterclaims
and denied the material allegations therein. On August 31, 2000, TyCom (US)
Inc. amended its answer and counterclaims, adding a defense and eliminating a
counterclaim. Plaintiffs replied to the amended counterclaims on September 14,
2000, denying the material allegations therein.

The Court has set February 28, 2001, as the date for completion of all
party and third-party fact discovery.

37
<PAGE>

TYCOM LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. Commitments and Contingencies (Continued)

parties relating to the Atlantic Crossing-1 subsea cable system. Claimants seek
unspecified monetary damages and declarative and injunctive relief. The parties
have since agreed to terminate one of the agreements at issue (the operations,
administration and maintenance agreement) for a payment of approximately $19
million to TyCom (US) Inc., for mutual releases and a dismissal from the
arbitration of claims arising out of that agreement, which has been reflected
in the Consolidated Statement of Operations for the year ended September 30,
2000.

On August 11, 2000, the American Arbitration Association confirmed the
appointment of three arbitrators to hear this matter (the "Panel"). Hearings in
the arbitration commenced on December 18, 2000. Pursuant to the parties' sales
agency and commission sharing agreement, the Panel also directed the parties to
agree on an independent auditor and specified the scope of access to be
afforded to the auditor. On September 19, 2000, the parties informed the Panel
that they had selected an independent auditor who is examining the amount of
sales commissions owing to TyCom (US) Inc. under the parties' agreements.

Tyco International Ltd., TyCom (US) Inc.'s ultimate parent company, has
agreed to indemnify TyCom (US) Inc. for certain losses and expenses with
respect to the claims brought in these litigation and arbitration proceedings,
excluding losses and expenses arising out of any award of injunctive relief.
Tyco and TyCom (US) Inc. are vigorously defending against the claims brought by
Global Crossing Ltd. and its affiliates, and TyCom is prosecuting its
counterclaims aggressively in both the litigation and arbitration proceedings.

Tyco Submarine Systems Ltd./IDT.

Asbestos litigation. TyCom Integrated Cable Systems Inc. (formerly known as
Simplex Technologies Inc.), has been named as a defendant in nearly one hundred
asbestos personal injury cases involving a total of 3,400 individual
plaintiffs. Two New Jersey cases were tried in October 1996 and December 1997,
respectively, in which juries found TyCom Integrated Cable Systems, Inc.
without any liability. In defense of these cases, TyCom Integrated Cable
Systems, Inc. established that, for all periods relevant to the litigation, the
wire and cable products produced by TyCom Integrated Cable Systems, Inc. did
not contain asbestos. By early 1999, all the remaining litigation had been
dismissed summarily by the court or voluntarily by the plaintiffs. TyCom
Integrated Cable Systems, Inc. was named in several new cases in late 1999 and
early 2000. TyCom believes that these cases will be dismissed and is determined
to resist the claims aggressively and to refuse even nominal settlement
demands.

38
<PAGE>

TYCOM LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. Commitments and Contingencies (Continued)

TyCom Integrated Cable Systems, Inc. has been reimbursed by its insurance
carriers for all defense fees and costs incurred by it in connection with this
litigation, and the carriers are currently paying the defense fees and costs on
the remaining active cases.

Patent Infringement Claim. On October 3, 2000, The Board of Trustees of the
Leland Stanford Junior University and Litton Systems, Inc. ("Plaintiffs") filed
a complaint for infringement of United States Patent No. 4,859,016 ("the "016
patent") in the United States District Court for the Central District of
California Western Division (Case No. 00-10584) in which TyCom Ltd. and two of
its subsidiaries are amongst the named fifteen defendants. The complaint
alleges infringement of the "016 patent and asks the Court for damages of not
less than a reasonable royalty amount and injunctive relief. None of the TyCom
companies have been formally served with the complaint and, therefore, none
have filed answers responding to the allegations. TyCom and its two named
subsidiaries believe the complaint is without merit and intend on vigorously
defending against the claims.

Other Proceedings. TyCom is a defendant in a number of other pending legal
proceedings incidental to present and former operations, including various
workers' compensation and personal injury claims. The Company does not expect
the outcome of these proceedings, either individually or in the aggregate, to
have a material adverse effect on its financial position, results of operations
or liquidity.

11. Earnings Per Common Share

TyCom's capital structure was established immediately prior to the initial
public offering of its common shares in July 2000. In accordance with
Securities and Exchange Commission Staff Accounting Bulletin No. 98, the
capitalization of common shares has been retroactively reflected for the
purposes of presenting earnings per share for the years ended September 30,
1999 and 1998.

The following table presents the calculation of basic and diluted earnings
per common share ($ in millions, except per share data):

<TABLE>
<CAPTION>
Year Ended September
30,
--------------------
2000 1999 1998
------ ------ ------
<S> <C> <C> <C>
Net income........................................... $303.3 $163.0 $152.0
====== ====== ======
Weighted-average shares--basic....................... 462.4 450.0 450.0
Effect of dilutive securities:
Employee share options.............................. 0.6 -- --
------ ------ ------
Weighted-average shares--diluted..................... 463.0 450.0 450.0
====== ====== ======
Earnings per common share--basic..................... $ 0.66 $ 0.36 $ 0.34
====== ====== ======
Earnings per common share--diluted................... $ 0.66 $ 0.36 $ 0.34
====== ====== ======
</TABLE>

The computation of diluted earnings per common share in fiscal 2000 excludes
the effect of the assumed exercise of 19,600 stock options that were
outstanding as of September 30, 2000 because the effect would be anti-dilutive.

39
<PAGE>

TYCOM LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12. Parent Company Investment

Transactions and activity between the Company and Parent that related to
shareholders' equity accounts prior to the IPO were recorded on the balance
sheet as Parent company investment. Concurrent with the IPO on July 27, 2000,
the Parent company investment was recapitalized. The changes in the Parent
company investment account are as follows ($ in millions):

<TABLE>
<CAPTION>
Year Ended
September 30,
------------------
2000 1999
------- -------
<S> <C> <C>
Balance at beginning of period....................... $ 501.3 $ 213.7
Net income........................................... 244.4(i) 163.0
Business acquisition contributed by Parent........... -- 280.0
Dividend to Parent for payment of contributed
business............................................ -- (280.0)
Dividend to Parent for accumulated investment balance
prior to IPO........................................ (550.0) --
Net transfers from Parent for business operations.... 19.1 124.6
Recapitalization from Parent at initial public
offering............................................ (214.8) --
------- -------
Balance at end of period............................. $ -- $ 501.3
======= =======
</TABLE>
--------
(i) Net income is for the period from October 1, 1999 through July 27, 2000,
the IPO date.

13. Related Party Transactions

The Company purchases various operational services, such as fire protection
and engineering, and certain of the components for its manufactured products,
such as wire and circuit boards, from subsidiaries of Tyco at prices which
approximate market. Purchases from related parties were $37.1 million, $16.4
million, and $2.7 million during fiscal 2000, fiscal 1999 and fiscal 1998,
respectively. Amounts due under these trade activities were $1.5 million and
$2.1 million as of September 30, 2000 and 1999, respectively, and are included
in accounts payable in the Consolidated Balance Sheets.

Short-term loans have been provided by the Parent to fund the purchase of
significant expenditures related to construction contracts. These expenditures
are generally expensed to cost of product sales in accordance with the
Company's revenue recognition policy. The short-term loans are repaid when the
Company receives payment for customer contracts. Amounts outstanding under
these types of short-term loans were $10.4 and $6.7 million at September 30,
2000 and 1999, respectively, and are included in accrued expenses and other
current liabilities in the Consolidated Balance Sheets. The weighted-average
interest rate on short-term loans from Parent as of September 30, 2000 was
10.9%. See Notes 4 and 5 for a discussion of loans from Parent included in
long-term debt and interest expense, respectively. See Note 1 for a description
of the services agreement between TyCom and Parent and fees payable by TyCom
thereunder and information with respect to short-term advances to and from
Parent.

The Company recorded a non-recurring charge of $13.1 million related to
certain costs in connection with the IPO, which has been paid as a capital
contribution from Parent.

14. Retirement Plans

The Company adopted SFAS No. 132, "Employers' Disclosures about Pensions and
other Postretirement Benefits," which revises financial statement disclosure
requirements for pension and other postretirement benefit plans but does not
change the measurement or recognition of those plans.

Defined Benefit Pension Plans--The Company participates in a noncontributory
defined benefit retirement plan covering certain of its unionized U.S.
employees. Company contributions are based on periodic actuarial valuations
which use the projected unit credit method of calculation and are charged to
the consolidated statements of operations on a systematic basis over the
expected average remaining service lives of current

40
<PAGE>

TYCOM LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

14. Retirement Plans (Continued)

employees. The net pension expense is assessed in accordance with the advice of
professionally qualified actuaries or is based on subsequent formal reviews for
that purpose. The Company's funding policy is to make annual contributions to
the extent such contributions are tax deductible as actuarially determined. The
benefits under the defined benefit plan are based on years of service and
compensation.

The net periodic pension cost for the Company's defined benefit pension plan
includes the following components ($ in millions):

<TABLE>
<CAPTION>
Year Ended
September 30,
----------------
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Service cost............................................ $0.2 $0.6 $0.5
Interest cost........................................... 0.1 0.1 0.1
Expected return on plan assets.......................... (0.1) (0.1) --
---- ---- ----
Net periodic pension cost............................... $0.2 $0.6 $0.6
==== ==== ====
</TABLE>

The net pension cost recognized at September 30, 2000 and 1999 for the
Company's defined benefit pension plan is as follows ($ in millions):

<TABLE>
<CAPTION>
September 30,
--------------
2000 1999
------ ------
<S> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of year.................. $ 2.2 $ 1.8
Service cost............................................. 0.1 0.6
Interest cost............................................ 0.1 0.1
Actuarial loss (gain).................................... 0.3 (0.3)
------ ------
Benefit obligation at end of year........................ $ 2.7 $ 2.2
====== ======
Change in plan assets
Fair value of plan assets at beginning of year........... $ 1.0 $ 0.5
Actual return on plan assets............................. 0.1 0.1
Employer contributions................................... 0.4 0.4
Administrative expenses paid............................. (0.1) --
------ ------
Fair value of plan assets at end of year................. $ 1.4 $ 1.0
------ ------
Funded status............................................ $ (1.3) $ (1.2)
Unrecognized net actuarial loss (gain)................... 0.2 (0.1)
------ ------
Net amount recognized.................................... $ (1.1) $ (1.3)
====== ======
Amounts recognized in statement of financial position
Accrued benefit liability................................ $ (1.3) $ (1.3)
Accumulated other comprehensive income................... 0.2 --
------ ------
Net amount recognized.................................... $ (1.1) $ (1.3)
====== ======
Weighted average assumptions as of September 30, 2000 1999
------ ------
Discount rate............................................ 8.00% 7.75%
Expected return on plan assets........................... 9.75% 8.50%
Rate of compensation increase............................ 4.40% 4.50%
</TABLE>

The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for pension plans with accumulated benefit obligations in
excess of plan assets were $2.7 million, $2.7 million and $1.4 million,
respectively, as of September 30, 2000 and $2.2 million, $2.1 million and $1.0
million, respectively, as of September 30, 1999.

41
<PAGE>

TYCOM LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

14. Retirement Plans (Continued)

Defined Contribution Retirement Plans--Certain employees of the Company
participate in TyCom's defined contribution 401(k) matching plan and defined
contribution supplemental pension plan. Contributions by the Company for these
defined contribution plans are computed based on a percentage of participants'
compensation, and the combined expense recorded for these plans was $10.1
million, $6.3 million and $4.7 million for fiscal 2000, fiscal 1999 and fiscal
1998, respectively.

Post-retirement Benefit Plans--The Company provides post-retirement medical
and life insurance coverage to certain of its employees.

Net periodic post-retirement benefit cost reflects the following components
($ in millions):

<TABLE>
<CAPTION>
Year Ended
September 30,
-------------------
2000 1999 1998
----- ----- -----
<S> <C> <C> <C>
Service cost (with interest)......................... $ 0.2 $ 0.2 $ 0.3
Interest cost........................................ 0.4 0.4 0.3
Amortization of prior service cost................... (0.1) (0.1) (0.1)
----- ----- -----
Net periodic post-retirement benefit cost............ $ 0.5 $ 0.5 $ 0.5
===== ===== =====
</TABLE>

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

<TABLE>
<CAPTION>
September 30,
--------------
2000 1999
------ ------
<S> <C> <C>
Benefit obligation at beginning of year.................. $ 5.1 $ 5.6
Service cost............................................. 0.2 0.2
Interest cost............................................ 0.4 0.4
Actuarial gain........................................... -- (0.9)
Expected net benefits paid............................... (0.2) (0.2)
------ ------
Benefit obligation at end of year........................ $ 5.5 $ 5.1
------ ------
Funded status............................................ $ (5.5) $ (5.1)
Unrecognized net gain.................................... (0.8) (0.7)
Unrecognized prior service cost.......................... (0.8) (0.9)
------ ------
Accrued post-retirement benefit liability................ $ (7.1) $ (6.7)
====== ======
</TABLE>

For measurement purposes, in fiscal 2000, an 8.15% composite annual rate of
increase in the per capita cost of covered health care benefits was assumed.
The rate was assumed to decrease gradually to 5.00% by the year 2008 and remain
at that level thereafter. The health care cost trend rate assumption may have a
significant effect on the amounts reported. A one-percentage-point change in
assumed healthcare cost trend rates would have the following effects ($ in
millions):

<TABLE>
<CAPTION>
1-Percentage- 1-Percentage-
Point Increase Point Decrease
-------------- --------------
<S> <C> <C>
Effect on total of service and interest
cost components......................... -- --
Effect on post-retirement benefit
obligation.............................. $0.1 $(0.1)
</TABLE>

The weighted average discount rate used in determining the accumulated post-
retirement benefit obligation was 8.00% and 7.75% at September 30, 2000 and
1999, respectively.

42
<PAGE>

TYCOM LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

15. Consolidated Geographic Data

Selected information by geographic area is presented below. Net revenue,
including work performed in international waters, is presented based on the
jurisdiction of incorporation of the Company's customers. For consortium
projects, net revenue is attributed on the basis of the jurisdiction of
incorporation of the lead customer ($ in millions).

<TABLE>
<CAPTION>
Year Ended
September 30,
--------------------------
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Net revenue:
United States................................ $ 225.3 $ 442.3 $ 315.6
Bermuda...................................... 1,416.9 807.9 618.5
Other Americas............................... 723.9 100.1 87.0
Europe--Africa--Middle East.................. 82.5 145.5 131.9
Asia--Pacific................................ 91.1 141.8 128.6
-------- -------- --------
$2,539.7 $1,637.6 $1,281.6
======== ======== ========
</TABLE>

As of September 30, 2000 and 1999, approximately $268 million and $300
million, respectively, of total long-lived assets were located in Spain.
Substantially all of the remaining assets of the Company were located in the
United States. In fiscal 1998, substantially all of the Company's assets were
located in the United States.

16. Supplementary Balance Sheet Information

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

<TABLE>
<CAPTION>
September 30,
2000 1999
------- ------
<S> <C> <C>
Inventories:
Purchased materials and manufactured parts............. $ 106.2 $ 66.9
Work in process........................................ 17.3 40.3
Finished goods......................................... 6.0 1.5
------- ------
$ 129.5 $108.7
======= ======
Property, Plant and Equipment
Land................................................... $ 7.5 $ 2.9
Buildings.............................................. 57.6 40.3
Machinery and equipment................................ 290.2 197.1
Ships and submersibles................................. 310.4 326.5
Leasehold improvements................................. 11.7 7.5
Construction in process................................ 119.5 38.8
Accumulated depreciation............................... (203.8) (148.7)
------- ------
$ 593.1 $464.4
======= ======
</TABLE>

Accrued expenses and other current liabilities include the following:

<TABLE>
<S> <C> <C>
Accrued warranties and liquidated damages................. $123.2 $84.1
====== =====
</TABLE>

43
<PAGE>

TYCOM LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

17. Supplementary Income Statement Information

In fiscal 2000, four projects comprised 72% of total net revenue of the
Company. In fiscal 1999, four projects comprised 60% of total net revenue of
the Company, and in fiscal 1998, one project comprised 40% of total net
revenue.

18. Summarized Quarterly Financial Data (Unaudited)

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

<TABLE>
<CAPTION>
Year Ended September 30, 2000
-------------------------------
1st 2nd 3rd 4th
Qtr. Qtr. Qtr. Qtr.
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net revenue.................................. $629.2 $646.6 $676.4 $587.5
Operating income............................. 102.7 117.5 151.9 126.5
Net income................................... 63.0 72.2 88.7 79.4
Basic earnings per common share.............. $ 0.14 $ 0.16 $ 0.20 $ 0.16
Diluted earnings per common share............ 0.14 0.16 0.20 0.16
<CAPTION>
Year Ended September 30, 1999
-------------------------------
1st 2nd 3rd 4th
Qtr. Qtr. Qtr. Qtr.
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net revenue.................................. $335.8 $363.5 $431.6 $506.7
Operating income............................. 81.2 81.3 87.4 73.7
Net income................................... 40.7 36.7 44.6 41.0
Basic earnings per common share.............. $ 0.09 $ 0.08 $ 0.10 $ 0.09
Diluted earnings per common share............ 0.09 0.08 0.10 0.09
</TABLE>

19. Subsequent Event

On October 31, 2000, TyCom entered into an agreement that enables it to
lease six vessels to be constructed and owned by a third party. The Company
entered into operating lease agreements for the use of the vessels to install
and maintain submarine cable systems, beginning on the delivery date of each
vessel and ending on or before October 2006. The Company may, at its option,
purchase each vessel during or at the end of the lease term for 100% of the
then outstanding amounts expended by the lessor. If the Company does not
exercise the purchase option, the Company has guaranteed to pay the lessor the
difference between approximately 84% of each ship's cost of construction and
the value it would receive by selling each ship to another third party. The
total minimum rental commitment under the non-cancelable leases is
approximately $126.5 million for the period fiscal 2002 through 2006.

On December 8, 2000, TyCom entered into an agreement with C2C to purchase
one dark fiber pair on the C2C cable system for $410 million. In addition, C2C
agreed to purchase from TyCom a half-fiber pair and related equipment on the
Pacific segment of the TGN for $320 million. Initial down payments on both
agreements are scheduled to be made in December 2000 with subsequent payments
in 2001 and 2002.

44
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction

We were incorporated on March 8, 2000 as a Bermuda company and a wholly-
owned indirect subsidiary of Tyco International Ltd. to serve as the holding
company for its undersea fiber optic cable communications business.

Our consolidated financial statements included elsewhere in this Form 10-K
include TyCom Integrated Cable Systems Inc. (formerly Simplex Technologies,
Inc.), acquired by Tyco in 1974, for all periods presented. Our consolidated
financial statements also include TyCom (US) Inc. (formerly Tyco Submarine
Systems Ltd., formerly AT&T's submarine systems business, acquired by Tyco on
July 1, 1997) and Telecomunicaciones Marinas, S.A., known as Temasa, acquired
by Tyco on May 18, 1999. Tyco Submarine Systems Ltd. and Telecommunicaciones
Marinas, S.A. ("Temasa") are included in the consolidated financial statements
from their respective dates of acquisition.

Overview

We are a leading independent provider of undersea fiber optic networks and
services, engaged in the design, engineering, manufacture, installation and
maintenance of those networks. We are applying our capabilities to construct
our own global undersea fiber optic network, known as the TyCom Global Network
("TGN"), and to sell our bandwidth capacity to others.

We expect revenue through fiscal 2001 to be derived principally from
designing, building and installing systems and providing maintenance and
service to customers. Following the completion of the transatlantic portion of
the first phase of the TGN in the second half of calendar 2001, we expect our
primary revenue source to be the sale of bandwidth capacity on the TGN. We plan
to continue to provide our products and services to others while deploying the
TGN. During construction of the transatlantic portion of the TGN, which began
in the fourth quarter of fiscal 2000, revenues and operating income may
decrease. During the same period, operating expenses are expected to increase
due to building our infrastructure, including network operations, sales and
marketing, research and development and administration.

For information regarding certain accounting pronouncements and
interpretations that could impact revenue recognition, see Accounting and
Technical Pronouncements on page 53.

Results of Operations

Net income before non-recurring charges was $313.8 million in fiscal 2000,
compared to $163.0 million in fiscal 1999. After giving effect to non-recurring
charges, net income for fiscal 2000 was $303.3 million. Net income for fiscal
2000 included an after-tax charge of $10.5 million ($13.1 million pretax)
consisting of certain non-recurring costs associated with the initial public
offering ("IPO"). The operating results, which are presented in accordance with
Generally Accepted Accounting Principles in the United States ("GAAP"), are
supplemented by a discussion of earnings before interest, income taxes,
depreciation and amortization ("EBITDA"). As the operations of our business
transition to deploying the TGN and selling bandwidth capacity, we will use
EBITDA as one of our key indicators of performance. EBITDA is commonly used in
the communications industry to analyze companies on the basis of operating
performance. EBITDA, however, should not be considered an alternative to
operating or net income as an indicator of the performance of our business, or
as an alternative to cash flows from operating activities as a measure of
liquidity, in each case determined in accordance with GAAP.

When we make an acquisition, the acquired company is immediately integrated
with our existing operations. Consequently, we do not separately track the
operating results of acquired companies. The discussion below includes
estimated revenue comparisons that exclude the effects of acquisitions.

45
<PAGE>

Cost of product sales and services include all direct project and
maintenance costs, including manufacturing, marine installation, cable station
equipment and related installation costs, project management and engineering
support costs. Operating expenses include costs associated with sales and
marketing, research and development, and general and administrative expenses.
General and administrative expenses include executive, legal, finance, human
resources, information technology and service charges from Tyco. See Note 1 to
the Consolidated Financial Statements for further discussion of the service
charges from Tyco.

Fiscal 2000 Compared to Fiscal 1999

Revenues

Net revenue increased 55.1% during fiscal 2000 to $2.54 billion from $1.64
billion in fiscal 1999. Revenue from product sales increased $926.4 million to
$2.38 billion in fiscal 2000. The primary reasons for revenue growth in product
sales were increases in the revenues recognized on SAm-1 (an increase of $689
million), Hibernia (an increase of $488 million) and Yellow (an increase of
$242 million), partially offset by China-US (a decrease of $168 million),
Americas II (a decrease of $128 million) and other smaller decreases relating
to various contracts. The SAm-1 system was contracted in July 1999 and connects
major telecommunications centers around South America. The Hibernia system was
contracted in June 1999 and consists of a 12,300 kilometer four fiber pair ring
between the United States, Canada, the United Kingdom and Ireland. The Yellow
system was contracted in June 1999 and consists of a 6,150 kilometer point-to-
point transatlantic system connecting the United States and the United Kingdom.
China-US was contracted in December 1997 and connects the United States and
China. The Americas II system was contracted in February 1998 and connects
South America, the Caribbean and the United States.

Service revenue was $163.3 million for the year ended September 30, 2000
compared to $187.6 million in fiscal 1999. Service revenue decreased from the
prior year primarily due to a decline of $53.0 million in capacity sales
commissions related to the Atlantic Crossing-1 project. Excluding sales
commissions, service revenue increased $28.7 million or 21.3%, including $9.7
million associated with the acquisition of Temasa.

Total net revenue increased in part due to the acquisition of Temasa in May
1999. Excluding the impact of Temasa, net revenue increased approximately 54.0%
in the year ended September 30, 2000.

Operating Results

Operating income before non-recurring charges increased $188.1 million, or
58.1%, to $511.7 million in fiscal 2000. Operating income after non-recurring
charges increased $175.0 million, or 54.1%, to $498.6 million. These increases
were primarily driven by an increase in product revenue associated with the
SAm-1, Hibernia and Yellow cable systems. Also contributing to the year-over-
year increase of operating income was the effect of both sales and marketing
and research and development expenses decreasing as a percentage of revenue.
Fiscal year 2000 included a full year of results of the May 1999 Temasa
acquisition. These positive contributions were partially offset by a 72.3%
increase in general and administrative expenses, discussed below. Additionally
in fiscal 2000 operating income compared to fiscal 1999 was negatively impacted
by an increase of $35.7 million in receivable allowances and bad debt
provisions, and an increase of $18.9 million in inventory provisions for
potential excess and obsolete inventory due to technology changes on terminal
equipment, an increase of $33.9 million in liquidated damages related to the
Americas II and Yellow cable systems and an increase of $14.6 million in
product warranty expense.

Sales and Marketing expenses were $15.6 million and $17.6 million for the
years ended September 30, 2000 and 1999, respectively. The decrease in sales
and marketing costs from the prior year was primarily due to lower personnel
costs during the transition from being solely a supplier to also being an owner
of undersea cable. Sales and marketing expenses were 0.6% and 1.1% of net
revenue during fiscal 2000 and 1999, respectively. We expect these costs to
increase both in absolute dollars and as a percentage of net revenue as we
build the sales and marketing staff and begin to sell bandwidth capacity on the
TGN.

46
<PAGE>

Research and Development costs increased to $61.4 million in fiscal 2000
compared to $52.7 million in fiscal 1999. Research and development expenses
increased due to higher personnel and equipment depreciation costs. Research
and development expenses were 2.4% and 3.2% of net revenue during the years
ended September 30, 2000 and 1999, respectively. The decrease in research and
development costs as a percentage of net revenue reflects higher project
revenue in fiscal 2000.

During fiscal 2000, general and administrative costs increased to $110.3
million from $64.0 million in fiscal 1999. This increase was due primarily to
an increase in incentive bonus expense of $22.8 million as a result of
increased operating income. Also contributing to the increase in general and
administrative expenses was an increase in the Tyco management fee, which
mirrors changes in net revenue, and an increase in goodwill and other
intangible amortization of $2.5 million. General and administrative expenses
were 4.3% and 3.9% of net revenue during the years ended September 30, 2000 and
1999, respectively. The increase as a percentage of net revenue was primarily a
result of the increase in incentive bonus expense.

EBITDA before non-recurring charges increased 56.2% to $579.1 million
compared to last year's $370.7 million. EBITDA after non-recurring charges
increased 52.7% to $566.0 million in fiscal 2000. Depreciation and amortization
in fiscal 2000 was $67.4 million compared to $47.1 million in fiscal 1999. The
increase of $17.8 million in depreciation expense was due to the opening of a
new manufacturing facility, an increase in machinery and equipment placed in
service and the effect of a full year of Temasa's depreciation included in
fiscal 2000. In addition, goodwill and other intangible amortization increased
by $2.5 million due to the acquisition of Temasa in May 1999.

Interest Expense, net

Interest expense, net was $2.9 million in the year ended September 30, 2000
compared to $39.3 million in the prior year. This net decrease of $36.4 million
was principally due to an increase in interest income of $37.2 million, related
to an increase in advances to Tyco under our cash management programs.

Income Tax Expense

The effective income tax rate was 36.5% for the year ended September 30,
2000, as compared to 39.2% in fiscal 1999. The decrease was due to higher
earnings in tax jurisdictions with lower income tax rates. We believe that we
will generate sufficient future income to realize the tax benefits related to
our deferred tax assets.

Fiscal 1999 Compared to Fiscal 1998

Revenues

Net revenue increased 27.8% during fiscal 1999 to $1,637.6 million from
$1,281.6 million in fiscal 1998. Revenue from product sales increased 22.2% to
$1,450.0 million from $1,187.0 million. This increase was due primarily to
higher industry demand driving backlog and project activity. Fiscal 1999
product revenues were favorably impacted by several large projects, including
Pacific Crossing-1 (an increase of $364 million), Pan American Crossing (an
increase of $191 million), and China-US (an increase of $128 million). Pacific
Crossing-1 was contracted in April 1998 and connects the United States and
Japan. The Pan American Crossing system connects California, Mexico, Panama,
Venezuela and St. Croix.

Service revenue was $187.6 million for the year ended September 30, 1999
compared to $94.6 million in fiscal 1998. The increase in service revenue was
primarily due to the inclusion of $53.0 million in commissions recognized by
TyCom for assisting a customer in selling capacity on the Atlantic Crossing-1
project in 1999, as compared to $7.6 million in fiscal 1998. Operations and
maintenance revenue of $20.4 million in fiscal 1999 relating to the Atlantic
Crossing-1 project also contributed to the increase.

Additionally, net revenue increased in part due to the acquisition of Temasa
in May 1999. Excluding the impact of Temasa, net revenue increased an estimated
26.2%.

47
<PAGE>

Operating Results

Operating income increased $61.3 million, or 23.4%, to $323.6 million in
fiscal 1999. Operating income was 19.8% of net revenue in fiscal 1999, as
compared to 20.5% in fiscal 1998. Operating income increased due to higher
project revenues, offset in part by several lower margin projects and costs
associated with completing one project. In addition, service revenue was higher
due to operations and maintenance revenue for the Atlantic Crossing-1 project.
Also, operating income was approximately $45 million higher due to bandwidth
capacity sales commissions on the Atlantic Crossing-1 project. Operating income
as a percentage of revenue decreased primarily as a result of several lower
margin projects and costs associated with completing one project, partially
offset by capacity sales commissions. In addition, the inclusion of Temasa
favorably impacted operating income for the period.

During fiscal 1999, TyCom incurred $17.6 million in sales and marketing
costs compared to $23.4 million during fiscal 1998. Sales and marketing
expenses were 1.1% and 1.8% of net revenue during fiscal 1999 and fiscal 1998,
respectively. The decrease in sales and marketing costs was primarily
attributable to a reduction in sales personnel, who were previously selling
bandwidth capacity for Atlantic Crossing-1, and related expenditures.

Research and development costs were $52.7 million and $39.5 million in
fiscal 1999 and fiscal 1998, respectively. The $13.2 million increase was due
to additional personnel and related costs of $9.9 million and higher overhead
costs of $3.3 million related to the new TyCom Laboratories research and
development facility. Research and development expenses were 3.2% and 3.1% of
net revenue during fiscal 1999 and fiscal 1998, respectively. Research and
development costs as a percentage of revenue remained substantially the same
due to total research and development expenses increasing at a rate constant
with the increase in net revenue.

During fiscal 1999, general and administrative costs of $64.0 million
remained relatively constant as compared to $65.0 million incurred during
fiscal 1998. General and administrative expenses were 3.9% and 5.1% of net
revenue during fiscal 1999 and fiscal 1998, respectively. General and
administrative expenses as a percentage of net revenue decreased due to higher
revenues.

EBITDA increased $71.9 million, or 24.1%, to $370.7 million. Depreciation
and amortization expense in fiscal 1999 was $47.1 million compared to $36.5
million in fiscal 1998. The increase of $10.6 million was principally due to an
increase in depreciation of $7.7 million related to the purchase of a cable
ship, the C.S. Tyco Provider, during fiscal 1999 and additional research and
development equipment. In addition, amortization of goodwill of $2.9 million
associated with the Temasa acquisition contributed to this increase.

Interest Expense, net

Interest expense, net, was $39.3 million for fiscal 1999 as compared to $9.9
million for fiscal 1998. Interest expense, net, increased due primarily to
incurring $600.0 million of long-term indebtedness to Tyco in February and
March 1998. The weighted average rate of interest on all long-term debt during
fiscal 1999 and 1998 was 7.1% and 7.2%, respectively.

Income Tax Expense

The effective income tax rate was 39.2% during fiscal 1999, as compared to
36.1% in fiscal 1998. The increase in the effective income tax rate was
primarily due to the generation of fewer tax credits, partially offset by
higher earnings in tax jurisdictions with lower income tax rates.

Liquidity and Capital Resources

As previously discussed, we are applying our capabilities to construct our
own global undersea fiber optic network and sell its bandwidth capacity to
others. We expect the transatlantic portion of the first phase to be
operational in the second half of calendar 2001 and the remainder of the first
phase, consisting of the

48
<PAGE>

transpacific and various European portions, by the end of 2002. We estimate
that the cost to implement the first phase of the TGN, as currently
contemplated, will be approximately $2.4 billion in fiscal 2001 and $3.2
billion in fiscal 2002, primarily for network construction. Cash flows from
operations, including bandwidth capacity sales on our new network and current
contracts, and the net proceeds from our IPO are expected to provide the
majority of capital needed to fund the deployment of the first phase of the TGN
through the end of 2002. In addition, under the credit agreement with Tyco, we
have the capacity to borrow up to $1.25 billion to fund deployment costs, if
and as needed. The timing and sequence of implementing additional phases of the
network will be based on future requirements of global and regional demand.

Prior to the IPO, we paid approximately $530.9 million, net, as cash
dividends to Tyco, an amount approximately equal to its accumulated investment
balance in TyCom.

In July 2000, we sold 70,300,000 of our common shares in an IPO. Our net
proceeds from the offering were approximately $2.1 billion. Of that amount, we
paid $200.0 million as a dividend to Tyco, and the remaining amount is expected
to be used in the deployment of the TGN.

As presented in the consolidated statement of cash flows, net cash provided
by operating activities was $498.6 million in the year ended September 30,
2000. The significant changes in working capital in fiscal 2000 were an
increase in accrued expenses and other current liabilities of $84.0 million, an
increase in accounts receivable of $83.7 million and an increase in accounts
payable of $79.2 million. The significant changes in working capital in fiscal
1999 were a $725.5 million decrease in contracts in process and a $183.6
million increase in accounts receivable.

For fiscal year 2000 the increase in accounts receivable was principally the
result of an increase of $133 million in accounts receivable related to the
SAm-1 project and an increase of $57 million related to the Hibernia project.
These projects were contracted in July 1999 and June 1999, respectively. These
increases were partially offset by a decrease of $46 million related to the
Pacific Crossing-1 project.

Our accounts receivable are largely comprised of accounts of a few major
customers. At September 30, 2000, three customers comprised approximately 78%
of total accounts receivable. One customer comprised approximately 52% of total
accounts receivable as of September 30, 1999. We mitigate concentrations of
credit risk through a review of a customer's credit history before extending
credit and evaluating customers' ability to perform obligations under its
agreements. We do not expect our customers to fail to meet their obligations
under contracts given their credit rating or the financing in place for the
applicable contracts. In addition, we establish an allowance for doubtful
accounts based upon factors surrounding the credit risk of specific customers,
historical trends, and other information. As we expand our undersea cable
business to become a provider of bandwidth services, we believe the
concentrations of credit risk will decrease due to an increased number of
customers.

During the fiscal year ended September 30, 2000 we used cash of $111.1
million for construction in progress on the TGN. We also incurred additional
costs related to the TGN for capital expenditures, included in property, plant
and equipment, and certain working capital items. Our cash outlay related to
the construction of the TGN is expected to increase to approximately $2.4
billion in fiscal year 2001. Total capital expenditures for property, plant and
equipment were $204.9 in fiscal 2000. Our level of capital expenditures,
excluding those relating to the TGN, is expected to decrease moderately during
fiscal 2001. The increase in cash used in fiscal 2000 for property, plant and
equipment was primarily due to an increase of machinery and equipment related
to the expansion of our manufacturing facilities.

In July 2000, we entered into an agreement with C2C Pte. Ltd. ("C2C"), a
private cable development company led by Singapore Telecommunications Limited,
for the supply of a 17,000-kilometer undersea fiber optic system connecting
major cities in Asia, for approximately $1.1 billion. In connection with the
supply agreement, TyCom Asia Networks Ltd., a wholly-owned subsidiary of TyCom,
entered into a joint venture with a subsidiary of Singapore Telecommunications,
and committed to fund approximately $140 million for a 15% equity ownership in
C2C.

49
<PAGE>

Short-term advances to Tyco reflect cash balances generated from our initial
public offering and operating activities that we transferred to Tyco to be
included in Tyco's consolidated cash management system. These advances are
subject to the terms of various cash management and loan agreements between
TyCom and Tyco. Under the terms of these agreements, the funds are available to
us on an as needed basis. Short-term advances increased in fiscal year 2000 due
primarily to the transfer of the IPO proceeds and positive operating cash flow
for the period, partially offset by a $550 million cash dividend paid to Tyco
in March 2000. Short-term advances increased in fiscal 1999 due to positive
cash flow for the period.

Tyco has provided short-term and long-term borrowings to us to finance our
cash flow needs. Short-term loans have been provided by Tyco to fund the
purchase of significant expenditures related to projects. At September 30,
2000, short-term loans of $10.4 million were outstanding and are included in
accrued expenses and other current liabilities on our consolidated balance
sheet.

At September 30, 2000, our total debt was $655.7 million, primarily
consisting of long-term loans from Tyco. In connection with the formation of
TyCom and related organizational restructuring of Tyco which occurred in March
2000, all of our long-term loans from Tyco were refinanced with new long-term
loans from Tyco, which have maturities of at least 10 years. We believe
interest rates on these loans are no less favorable than those available to us
from a third party commercial lender. These new loans are prepayable without
penalty at par value at any time after March 2005. Prepayment of amounts
outstanding prior to March 2005 require a redemption premium of up to 5%.

At September 30, 2000, long-term debt matures as follows: $2.2 million in
fiscal 2001, $2.3 million in fiscal 2002, $1.2 million in fiscal 2003 and the
remaining balance of $650.0 million in fiscal years 2010 through 2015.

On October 31, 2000, we entered into an agreement that enables us to lease
six vessels to be constructed and owned by a third party. We entered into
operating lease agreements for the use of the vessels to install and maintain
submarine cable systems, beginning on the delivery date of each vessel and
ending on or before October 2006. We may, at our option, purchase each vessel
during or at the end of the lease term for 100% of the then outstanding amounts
expended by the lessor. If we do not exercise the purchase option, we have
guaranteed to pay the lessor the difference between approximately 84% of each
ship's cost of construction and the value it would receive by selling each ship
to another third party. The total minimum rental commitment under the non-
cancelable leases is approximately $126.5 million for the period fiscal 2002
through 2006.

On December 8, 2000, we entered into an agreement with C2C to purchase one
dark fiber pair on the C2C cable system for $410 million. In addition, C2C
agreed to purchase from TyCom a half-fiber pair and related equipment on the
Pacific segment of the TGN for $320 million. Initial down payments on both
agreements are scheduled to be made in December 2000 with subsequent payments
in 2001 and 2002.

Backlog

At September 30, 2000, we had a backlog of unfilled orders of approximately
$2,941.7 million, compared to a backlog of approximately $3,535.4 million at
September 30, 1999. Backlog decreased from the prior year due to us devoting a
substantial portion of our resources to designing and manufacturing the TGN and
therefore taking on less work as a supplier of undersea fiber optic cable
systems for others. We expect that approximately 66% of our backlog at
September 30, 2000 will be filled during the year ending September 30, 2001. We
expect backlog to continue to decline as we continue deployment of the TGN.

50
<PAGE>

Quantitative and Qualitative Disclosures About Market Risk

We are subject to market risk associated with changes in interest rates,
currency exchange rates and certain commodity prices. In order to manage the
volatility relating to our more significant market risks, we enter into
interest rate swaps and commodity swaps. We do not anticipate any material
changes in our primary market risk exposures in fiscal 2001.

We utilize risk management procedures and controls in executing derivative
financial instrument transactions. We do not execute transactions or hold
derivative financial instruments for trading purposes. Derivative financial
instruments related to interest rate, forward currency exchange contracts and
exchange rate sensitivity of debt obligations as well as commodity price
exposures are used with the goal of mitigating a significant portion of these
exposures when it is cost-effective to do so. Counter-parties to derivative
financial instruments are limited to financial institutions with at least an AA
long-term credit rating.

Interest Rate Sensitivity

The table below provides information about our financial instruments as of
September 30, 2000 that are sensitive to changes in interest rates, including
debt obligations and interest rate swaps. For debt obligations, the table
presents cash flows of principal repayment (in millions) and weighted average
interest rates. For interest rate swaps, the table presents notional amounts
(in millions) and weighted average interest rates. Notional amounts are used to
calculate the contractual payments to be exchanged under the contract. The
amounts included in the table below are in U.S. dollars ($ in millions).

<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal Fiscal Fiscal Fair
2001 2002 2003 2004 2005 Thereafter Total Value
------ ------ ------ ------ ------ ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total debt:
Fixed rate (Spanish
Peseta
denominated)......... 2.2 2.3 1.2 -- -- -- 5.7 5.6
Average interest
rate............... 8.0% 8.0% 8.0% -- -- --
Fixed rate (US$) (1).. -- -- -- -- -- 650.0 650.0 634.3
Average interest
rate............... -- -- -- -- -- 7.4%
Interest rate swap:
Fixed to variable
(Spanish Peseta
Denominated)......... 2.2 2.3 1.2 -- -- -- 5.7 0.1
Average pay rate
(2)................ 4.4% 4.4% 4.4% -- -- --
Average receive
rate............... 8.0% 8.0% 8.0% -- -- --
</TABLE>
--------
(1) In March 2000, we refinanced our U.S. dollar denominated debt and increased
our borrowings by issuing $200.0 million, $250.0 million and $200.0 million
notes payable to Tyco, which bear interest at fixed rates of 7.25%, 7.5%
and 7.5% and are due in March 2010, March 2012 and March 2015,
respectively.
(2) Weighted average variable interest rates are based on applicable rates as
of September 30, 2000 per the terms of the contracts of the related
financial instruments.

51
<PAGE>

Exchange Rate Sensitivity

The table below provides information about our financial instruments as of
September 30, 2000 that are sensitive to currency exchange rates. These
instruments include debt obligations and interest rate swaps. For debt
obligations, the table presents cash flows of principal repayment and weighted
average interest rates. For interest rate swaps, the table presents notional
amounts and weighted average interest rates. Notional amounts are used to
calculate the contractual payments to be exchanged under the contract. The
amounts included in the table below are in U.S. dollars ($ in millions).

Commodity Price Sensitivity

The table below provides information about our financial instruments as of
September 30, 2000 that are sensitive to changes in commodities prices. Total
contract dollar amounts and notional quantity amounts are presented for forward
commodity contracts. Contract amounts are used to calculate the contractual
payments to be exchanged under the contract. The amounts included in the table
below are in U.S. dollars ($ in millions).

<CAPTION>
Fiscal Fiscal Fiscal Fiscal Fiscal Fair
2001 2002 2003 2004 2005 Thereafter Total Value
------ ------ ------ ------ ------ ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Forward contracts:
Copper
Contract amount
(US$).............. 15.4 2.3 -- -- -- -- 17.7 1.8
Contract quantity
(in thousands of
Metric tons)....... 8.6 1.4 -- -- -- -- 10.0
</TABLE>

Year 2000 Compliance

Our Year 2000 compliance programs and systems modifications were completed
on time, and the conversion process was successful. Our business has not been
adversely affected due to the failure of key third parties to successfully
complete the Year 2000 conversion. Although there can be no assurance that all
of our material third-party relationships had successful conversion programs,
we do not expect that any such failure would have a material adverse effect on
our financial position, results of operations or liquidity. The costs of our
Year 2000 program to date have not been material, and we know of no further
required modifications to our information technology or embedded technology
systems that would have a material impact on our financial position, results of
operations or liquidity.

52
<PAGE>

Accounting and Technical Pronouncements

In June 1999, the Financial Accounting Standards Board issued Interpretation
No. 43, "Real Estate Sales, an interpretation of FASB Statement No. 66." This
interpretation clarifies that sales of real estate with property improvements
or integral equipment that cannot be removed and used separately from the real
estate without incurring significant costs should be accounted for under FASB
Statement No. 66, "Accounting for Sales of Real Estate." The interpretation and
application of FASB Interpretation No. 43 as it relates to the
telecommunications industry and the sale of capacity on undersea communications
systems is still evolving and is currently under discussion with the accounting
standard setting boards. The application of this interpretation may result in
our delaying the recognition of revenue for cash received for certain capacity
sales contracts on undersea communications systems that do not satisfy the
requirements of FASB Statement No. 66. To the extent that contracts satisfy the
requirements for sales type lease accounting, revenue may be recognized without
deferral.

Further clarification of FASB Interpretation No. 43 may result in the
deferral of future revenue and earnings related to the sale of bandwidth
capacity. However, we do not believe that deferring the recognition would have
any impact on our future business operations or the reporting of our future
cash flows.

In June 1998 and June 2000, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," and SFAS No. 138, "Accounting
for Certain Derivative Instruments and Certain Hedging Activities." These
statements establish accounting and reporting standards requiring that every
derivative instrument be recorded on the balance sheet as either an asset or
liability measured at its fair value. SFAS Nos. 133 and 138 also require that
changes in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. In June 1999, the FASB
issued SFAS No. 137, which defers the effective date of SFAS Nos. 133 and 138
to fiscal years beginning after June 15, 2000. The adoption of these new
standards is not anticipated to have a material impact on our earnings or
financial position.

Forward Looking Information

Certain statements in this report are "forward looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. All
forward looking statements involve risks and uncertainties. In particular, any
statement contained herein, in press releases, written statements or other
documents filed with the Securities and Exchange Commission, or in our
communications and discussions with investors and analysts in the normal course
of business through meetings, phone calls and conference calls, regarding the
consummation and benefits of future acquisitions, as well as expectations with
respect to future sales, earnings, cash flows, operating efficiencies, product
expansion, backlog and financings, are subject to known and unknown risks,
uncertainties and contingencies, many of which are beyond our control, which
may cause actual results, performance or achievements to differ materially from
anticipated results, performances or achievements.

Factors that might affect such forward looking statements include, among
other things, overall economic and business conditions; the timing of
construction and the successful operation of the TGN; changes in
telecommunications technology; changes in demand for bandwidth capacity;
receipt of necessary licenses and regulatory approvals; competitive factors in
the undersea fiber optics cable industry and in the telecommunications industry
generally; the demand for our goods and services; changes in tax requirements
(including tax rate changes, new tax laws and revised tax law interpretations);
results of litigation; interest rate fluctuations and other capital market
conditions, including foreign currency rate fluctuations; economic and
political conditions in international markets, including governmental changes
and restrictions on the ability to transfer capital across borders; the ability
to achieve anticipated synergies and other cost savings in connection with
acquisitions; and the timing, impact and other uncertainties of future
acquisitions.

53
<PAGE>

TYCOM LTD.

SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(in millions)

<TABLE>
<CAPTION>
Balance Additions
at Charged Acquisitions, Balance at
Beginning To Disposals, End of
of Year Income and Other Deductions Year
--------- --------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Allowances for Doubtful
Accounts:
Fiscal Year Ended
September 30, 2000... $19.8 $35.7 $ -- $ (7.7) $ 47.8
Fiscal Year Ended
September 30, 1999... 27.8 -- 0.5 (8.5) 19.8
Fiscal Year Ended
September 30, 1998... 9.6 5.2 13.0 -- 27.8

Accrued Warranties and
Liquidated Damages:
Fiscal Year Ended
September 30, 2000... $84.1 $84.2 $(0.5) $(44.6) $123.2
Fiscal Year Ended
September 30, 1999... 69.1 14.2 1.3 (0.5) 84.1
Fiscal Year Ended
September 30, 1998... 40.7 28.6 -- (0.2) 69.1
</TABLE>