Tyco International plc (TYC)

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Tyco International (TYC)

Q4 2012 Earnings Call

November 14, 2012 8:00 am ET

Executives

Antonella Franzen

George R. Oliver - Chief Executive Officer and Director

Arun Nayar - Chief Financial Officer and Executive Vice President

Analysts

Jeffrey T. Sprague - Vertical Research Partners, LLC

Steven E. Winoker - Sanford C. Bernstein & Co., LLC., Research Division

Nigel Coe - Morgan Stanley, Research Division

Ajay Kejriwal - FBR Capital Markets & Co., Research Division

Deane M. Dray - Citigroup Inc, Research Division

Shannon O'Callaghan - Nomura Securities Co. Ltd., Research Division

Presentation

Operator

Welcome to the Tyco Fourth Quarter Earnings Conference Call. [Operator Instructions] Today's call is being recorded. If you have any objections, please disconnect at this time. I will now turn the call over to Antonella Franzen, Vice President of Investor Relations. You may begin.

Antonella Franzen

Good morning, and thank you for joining our conference call to discuss Tyco's fourth quarter results for fiscal year 2012 and the press release issued earlier this morning.

With me today are Tyco's Chief Executive Officer, George Oliver; and our Chief Financial Officer, Arun Nayar.

I would like to remind you that during the course of today's call, we will be providing certain forward-looking information. We ask that you look at today's press release and read through the forward-looking cautionary informational statements that we've included there.

In addition, we will use certain non-GAAP measures in our discussions and we ask that you read through the sections of our press release that address the use of these items.

The press release issued this morning and all related tables, as well as the conference call slides, can be found on the Investor Relations portion of our website at tyco.com.

Please also note that we'll be filing our annual SEC Form 10-K in the next several days.

In discussing our segment operations, when we refer to changes in backlog and order activity, these figures exclude the impact of foreign currency. Additionally, references to our operating margins during the call exclude special items and these metrics are non-GAAP measures. Again, these non-GAAP measures are reconciled in the schedules attached to our press release.

As we discussed in our third quarter earnings call, our full year and fourth quarter of fiscal 2011 included an extra week of results compared to fiscal 2012. In order to more accurately reflect the underlying organic growth of the businesses, we have adjusted both organic revenue and orders growth to exclude the estimated impact of this additional week as we did in the prior year. All references to organic revenue and orders growth discussed in today's call exclude the estimated impact of the extra week.

As we completed the separation and subsequent merger of Flow Control with Pentair on September 28, our results reflect the operations of ADT and Flow Control as discontinued operations. As such, this earnings call will be focused on our continuing operations, which we now report under the following 3 segments: North America Installation & Services; Rest of World Installation & Services, which when combined, represent our direct sales channel; and Global Products, which drives our innovation and technology, as well as the manufacturing of our fire protection, security and life safety products for both our internal and indirect sales channel.

Now, let me quickly recap this quarter's results. Revenue in the quarter of $2.7 billion decreased 2.5% year-over-year. The decline in revenue includes a 3 percentage point negative impact related to foreign currency. Additionally, the comparison was negatively impacted by the extra week of revenue in 2011, which offset the additional revenue related to acquisitions. Organic revenue grew 1% in the quarter.

Our reported segment operating income of $358 million includes a charge of $9 million or 40 basis points for adjustments recorded related to China, which Arun will address in a few minutes. The segment operating margin before special items was 13.1%. The segment operating margin, adjusted for the China impact, was 13.5%, which was in line with our guidance.

The loss per share from continuing operations attributable to Tyco common shareholders was $1.36 and included charges of $1.69 related to special items. These charges primarily relate to the redemption of debt in anticipation of the separation, other separation-related charges and restructuring charges. Earnings per share from continuing operations before special items was $0.33.

Now, let me turn the call over to George.

George R. Oliver

Thanks, Antonella, and good morning, everyone. It is my pleasure to be speaking to you today as the Chief Executive Officer of the new Tyco. Overall, this has been a very good year for the fire and security businesses as we continued to grow the top line both organically and through strategic acquisitions, as well as expand segment operating margins while successfully completing the separation of Tyco into 3 companies.

The separation marks a key strategic milestone for the new Tyco. As a focused Fire & Security company, we can now leverage our portfolio of fire and security products and service solutions in our global scale of operations to enhance our position in the industry and drive operational results to outperform the market.

Before we get into the results for the quarter, I would like to quickly recap the 3-year strategy we laid out at our Investor Day back in September. It is helpful to keep these priorities in context as we go through our fiscal 2013 guidance, which we will cover later on in the call.

Our strategic focus is centered on 3 main areas. The first 2 are really the underpinning of our growth strategy. First, we plan to accelerate our organic revenue growth, which will be driven by continued strong growth in products, accelerated service growth and further building upon our presence in high-growth markets.

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