Tyco Reports First Quarter 2014 Earnings From Continuing Operations Before Special Items Of $0.47 Per Share And GAAP Earnings Of $0.57 Per Share

NEUHAUSEN, Switzerland, Jan. 31, 2014 /PRNewswire/ --

• Revenue of $2.65 billion increases 2%, with 1.5% organic growth
• Before special items, segment operating income increases 9% and operating margin improves 80 basis points to 13.3%
• Diluted EPS from continuing operations before special items increases 15%
• The Company completes the acquisition of Westfire, Inc.
• The Company repurchases 6.6 million shares for $250 million

(Income and EPS amounts are attributable to Tyco common shareholders)
($ millions, except per-share amounts)

Tyco (NYSE: TYC) today reported $0.57 in GAAP diluted earnings per share (EPS) from continuing operations for the fiscal first quarter of 2014 and diluted EPS from continuing operations before special items of $0.47. Revenue in the quarter increased 2% versus the prior year to $2.65 billion. Organic revenue grew 1.5% in the quarter, with 2% growth in service and 2% growth in products. Installation revenue was unchanged from the prior year on an organic basis.  Acquisitions contributed two percentage points of growth, which was mostly offset by the impact of divestitures and changes in foreign currency exchange rates.

Tyco Chief Executive Officer George Oliver said, "We are off to a great start to the fiscal year.  Our results this quarter were driven by strong execution across all three segments, resulting in 15% growth in earnings per share before special items.

"I am very pleased with the progress we are making on our growth initiatives and we are beginning to see some momentum on the front end of the business, with order rates increasing almost 7% year over year. There are also signs of a recovery in non-residential construction markets in North America, stability in Europe, and we continue to capture double-digit growth in our Growth Markets. During the quarter, we also completed the acquisition of Westfire, which builds on our fire protection capabilities and provides a platform for further growth in Latin America, while continuing to return capital to shareholders through share repurchases and dividends. We are well positioned across our businesses and markets to continue to deliver strong results in 2014 and for the longer term."

Organic revenue, free cash flow, operating income, segment operating income, and diluted EPS from continuing operations before special items are non-GAAP financial measures and are described below. For a reconciliation of these non-GAAP measures, see the attached tables. Additional schedules as well as first quarter review slides can be found in the Investor Relations section of Tyco's website at http://investors.tyco.com.  

SEGMENT RESULTS

The financial results presented in the tables below are in accordance with GAAP unless otherwise indicated. All dollar amounts are pre-tax and stated in millions. All comparisons are to the fiscal first quarter of 2013 unless otherwise indicated.

North America Installation & Services

Revenue of $957 million decreased 2% in the quarter, primarily due to the divestiture of the guarding business. A 2% increase in service revenue was offset by a 3% decline in installation, resulting in flat organic revenue growth. Backlog of $2.4 billion was consistent with the prior year. On a quarter sequential basis, backlog declined 1%, excluding the impact of foreign currency.

Operating income for the quarter was $117 million and the operating margin was 12.2%. Special items of $12 million consisted primarily of separation charges. Before special items, operating income was $129 million and the operating margin was 13.5%. The 120 basis point improvement in operating margin before special items resulted from a higher mix of service revenue, improved execution in installation and productivity benefits.

Rest of World Installation & Services

Revenue of $1.1 billion increased 3% in the quarter.  Service revenue increased 2% and installation increased 3% for total organic revenue growth of 2%.  Acquisitions contributed 3.5% to revenue growth, which was mostly offset by the impact of divestitures and changes in foreign currency exchange rates.  Backlog of $2.7 billion increased 11% year over year and 3% on a quarter sequential basis, excluding the impact of foreign currency.

Operating income for the quarter was $125 million and the operating margin was 11.1%. Special items of $8 million resulted primarily from a loss on the sale of an investment. Before special items, operating income was $133 million, and the operating margin was 11.8%. Increased revenue and productivity initiatives drove the 70 basis point expansion in operating margin before special items.

Global Products

Revenue of $565 million increased 6% in the quarter, including a 4% benefit from acquisitions. Organic revenue grew 2%.

Operating income for the quarter was $86 million and the operating margin was 15.2%. Special items of $4 million consisted of restructuring charges. Before special items, operating income was $90 million and the operating margin was 15.9%, a year-over-year increase of 40 basis points. Operating leverage from increased revenue was partially offset by non-cash purchase accounting, which negatively impacted the operating margin by 30 basis points.

OTHER ITEMS

• Cash from operating activities was $123 million and free cash flow was $24 million, which included a net cash outflow of $25 million primarily related to environmental, restructuring and separation activities partially offset by the settlement of a legacy matter. Adjusted free cash flow for the quarter was $49 million. The Company completed the quarter with $479 million in cash and cash equivalents.
• Corporate expense before special items was $55 million for the quarter. On a GAAP basis, there was a net benefit of $46 million in Corporate and Other, which included a non-cash benefit of $92 million related to the settlement of legacy litigation with former management and a net benefit of $16 million from the settlement of a legacy tax-related dispute with CIT, a former subsidiary of the Company.
• The tax rate before special items was 17.7% for the quarter.
• The Company repurchased 6.6 million shares for $250 million during the quarter under the existing share repurchase authority, of which $250 million remains.
• As previously disclosed, during the quarter the company closed its acquisition of Westfire, Inc., a leading fire installation and services business in the mining and special hazard verticals in the United States, Chile and Peru, which is expected to generate approximately $80 million in revenue in fiscal 2014.
• As previously disclosed, during the quarter the Company completed the sale of its Armourguard business in New Zealand and its fire and security business in Fiji, which together generated $80 million of revenue in fiscal 2013.

ABOUT TYCO

Tyco (NYSE: TYC) is the world's largest pure-play fire protection and security company. Tyco provides more than three million customers around the globe with the latest fire protection and security products and services. A company with $10+ billion in annual revenue, Tyco has over 65,000 employees in more than 1,000 locations across 50 countries serving various end markets, including commercial, institutional, governmental, retail, industrial, energy, residential and small business. For more information, visit www.tyco.com.

CONFERENCE CALL AND WEBCAST CONFERENCE CALL AND WEBCAST

Management will discuss the company's first quarter results for 2014 during a conference call and webcast today beginning at 8:00 a.m. ET. Today's conference call for investors can be accessed in the following ways: 

• At Tyco's website: http://investors.tyco.com.
• By telephone: For both "listen-only" participants and those participants who wish to take part in the question-and-answer portion of the call, the telephone dial-in number in the United States is (800) 857-9797. The telephone dial-in number for participants outside the United States is (517) 308-9262, passcode "Tyco".
• An audio replay of the conference call will be available at 10:00 a.m. (EST) on January 31, 2014 and ending at 11:59 p.m. (EST) on February 7, 2014. The replay dial-in number for participants in the United States is (866) 357-4208. For participants outside the United States, the replay dial-in number is (203) 369-0124, passcode 3410.
• A webcast replay of the conference call will be available on the "Presentations & Webcasts" section of Tyco's website: http://investors.tyco.com.

NON-GAAP MEASURES

Organic revenue, free cash flow (outflow) (FCF), and income from continuing operations, earnings per share (EPS) from continuing operations, operating income and segment operating income, in each case "before special items," are non-GAAP measures and should not be considered replacements for GAAP results.

Organic revenue is a useful measure used by the company to measure the underlying results and trends in the business. The difference between reported net revenue (the most comparable GAAP measure) and organic revenue (the non-GAAP measure) consists of the impact from foreign currency, acquisitions and divestitures, and other changes that either do not reflect the underlying results and trends of the Company's businesses or are not completely under management's control. There are limitations associated with organic revenue, such as the fact that, as presented herein, the metric may not be comparable to similarly titled measures reported by other companies. These limitations are best addressed by using organic revenue in combination with the GAAP numbers. Organic revenue may be used as a component in the company's incentive compensation plans.

FCF is a useful measure of the company's cash that permits management and investors to gain insight into the number that management employs to measure cash that is free from any significant existing obligation and is available to service debt and make investments. The difference between Cash Flows from Operating Activities (the most comparable GAAP measure) and FCF (the non-GAAP measure) consists mainly of significant cash flows that the company believes are useful to identify. It, or a measure that is based on it, may be used as a component in the company's incentive compensation plans. The difference reflects the impact from:

• net capital expenditures,
• dealer generated accounts and bulk accounts purchased,
• cash paid for purchase accounting and holdback liabilities, and
• voluntary pension contributions.

Capital expenditures and dealer generated and bulk accounts purchased are subtracted because they represent long-term investments that are required for normal business activities. Cash paid for purchase accounting and holdback liabilities is subtracted because these cash outflows are not available for general corporate uses. Voluntary pension contributions are added because this activity is driven by economic financing decisions rather than operating activity. In addition, from time to time the company may present adjusted free cash flow, which is free cash flow, adjusted to exclude the cash impact of the special items highlighted below. This number provides information to investors regarding the cash impact of certain items management believes are useful to identify, as described below.

The limitation associated with using these cash flow metrics is that they adjust for cash items that are ultimately within management's and the Board of Directors' discretion to direct and therefore may imply that there is less or more cash that is available for the company's programs than the most comparable GAAP measure. Furthermore, these non-GAAP metrics may not be comparable to similarly titled measures reported by other companies. These limitations are best addressed by using FCF in combination with the GAAP cash flow numbers.

The company has presented its income and EPS from continuing operations, operating income and segment operating income before special items. Special items include charges and gains related to divestitures, acquisitions, restructurings, impairments, certain changes to accounting methodologies, legacy legal and tax charges and other income or charges that may mask the underlying operating results and/or business trends of the company or business segment, as applicable. The company utilizes these measures to assess overall operating performance and segment level core operating performance, as well as to provide insight to management in evaluating overall and segment operating plan execution and underlying market conditions. The Company also presents its effective tax rate as adjusted for special items for consistency, and presents corporate expense excluding special items. One or more of these measures may be used as components in the company's incentive compensation plans. These measures are useful for investors because they may permit more meaningful comparisons of the company's underlying operating results and business trends between periods. The difference between income and EPS from continuing operations before special items and income and EPS from continuing operations (the most comparable GAAP measures) consists of the impact of the special items noted above on the applicable GAAP measure. The limitation of these measures is that they exclude the impact (which may be material) of items that increase or decrease the company's reported GAAP metrics, and these non-GAAP metrics may not be comparable to similarly titled measures reported by other companies. These limitations are best addressed by using the non-GAAP measures in combination with the most comparable GAAP measures in order to better understand the amounts, character and impact of any increase or decrease on reported results.

The company provides general corporate services to its segments and those costs are reported in the "Corporate and Other" segment. This segment's operating income (loss) is presented as "Corporate Expense." Segment Operating Income represents Tyco's operating income excluding the Corporate and Other segment, and reflects the results of Tyco's three operating segments. Segment Operating Income before special items reflects GAAP operating income adjusted for the special items noted in the paragraph above.

FORWARD-LOOKING STATEMENTS

This press release contains a number of forward-looking statements. In many cases forward-looking statements are identified by words, and variations of words, such as "anticipate", "estimate", "believe", "continue", "could", "intend", "may", "plan", "potential", "predict", "positioned", "should", "will", "expect", "objective", "projection", "forecast", "goal", "guidance", "outlook", "effort", "target", and other similar words. However, the absence of these words does not mean the statements are not forward-looking. Examples of forward-looking statements include, but are not limited to, revenue, operating income and other financial projections, statements regarding the health and growth prospects of the industries and end markets in which Tyco operates, the leadership, resources, potential, priorities, and opportunities for Tyco in the future, statements regarding Tyco's credit profile, capital allocation priorities and other capital market related activities, and statements regarding Tyco's acquisition, divestiture, restructuring and other productivity initiatives. The forward-looking statements in this press release are based on current expectations and assumptions that are subject to risks and uncertainties, many of which are outside of our control, and could cause results to materially differ from expectations. Such risks and uncertainties include, but are not limited to: economic, business, competitive, technological or regulatory factors that adversely impact Tyco or the markets and industries in which it competes; unanticipated expenses such as litigation or legal settlement expenses; tax law changes; and industry specific events or conditions that may adversely impact revenue or other financial projections. Actual results could differ materially from anticipated results. Tyco is under no obligation (and expressly disclaims any obligation) to update its forward-looking statements. More detailed information about these and other factors is set forth in Tyco's Annual Report on Form 10-K for the fiscal year ended Sept. 27, 2013 and in subsequent filings with the Securities and Exchange Commission.

Note: These financial statements should be read in conjunction with the Consolidated Financial Statements and accompanying notes contained in the Company's Annual Report on Form 10-K for the fiscal year ended September 27, 2013.

Note: These financial statements should be read in conjunction with the Consolidated Financial Statements and accompanying notes contained in the Company's Annual Report on Form 10-K for the fiscal year ended September 27, 2013.

NOTE: Free cash flow is a non-GAAP measure.  See description of non-GAAP measures contained in this release.

SOURCE Tyco