Tyco Reports First Quarter Earnings From Continuing Operations Of $0.37 Per Share

Tyco Chairman and Chief Executive Officer Ed Breen said, "This was a quarter of good top-line growth and solid operational progress.  We are pleased to have submitted our separation-related filings to the U.S. Securities and Exchange Commission (SEC) and we expect the separation to occur early in the second calendar quarter of this year."

During the first quarter, Tyco used $659 million in cash to buy back 22 million shares, representing slightly more than 1 percent of fully diluted shares outstanding.

In the fourth quarter of 2006, Tyco announced a $600 million Tyco-wide restructuring program, from which the company expects to incur approximately $500 million in charges during fiscal 2007.  During the first quarter, charges related to this program totaled $83 million, including $9 million in Electronics, $37 million at Fire & Security, $16 million at Healthcare, $7 million in Engineered Products & Services and $14 million at corporate.

The company made significant progress in preparing for its separation into three publicly traded companies:

• Tyco International filed documents with the SEC to register equity securities for Tyco Electronics and Tyco Healthcare, as well as debt offerings for all three companies.
• Tyco International issued a proxy statement asking shareholders to approve a proposal giving the company's board of directors authority to effect a reverse stock split to reduce Tyco's overall share count.
• Tyco Electronics and Tyco Healthcare named the members of their senior management teams, as well as the nominees expected to serve on each entity's board of directors once the companies are separated from Tyco International.
• Tyco Healthcare announced that Covidien will be its new name once the segment separates from Tyco International and becomes an independent, publicly traded company.   

Organic revenue growth, free cash flow and operating margin excluding special items are non-GAAP financial measures and are described below.  For a reconciliation of these non-GAAP measures, see the attached tables.  To further assist in understanding the special items included in Tyco's GAAP results, the company has provided a summary schedule attached to this press release.  A set of detailed schedules can be found at www.tyco.com on the Investor Relations portion of Tyco's website. 

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 quarter ended Dec. 30, 2005 unless otherwise indicated.

Electronics

Organic revenue growth was 6 percent, with solid growth in the automotive, industrial machinery, power utility, medical and appliance markets, partially offset by lower growth in the computer market and a revenue decline in the communication service provider market.  Geographically, strong growth in Europe and Asia was partially offset by a slight decline in North America.  The segment's book to bill ratio was 1.11 in the quarter, which included a large project booking in the undersea cable business.  Adjusted for this booking, the book to bill ratio was 0.99.

Operating income increased by $28 million, which included $9 million of restructuring charges.  Income from higher revenue and pricing actions more than offset $73 million in higher materials cost, primarily copper.

Fire & Security

Organic revenue growth was 4 percent, led by growth of 8 percent in Worldwide Fire.  Safety Products grew 4 percent and Worldwide Security grew 3 percent, with continued growth in the recurring revenue base.

Operating income increased by $39 million, and included $37 million in restructuring charges which were largely incurred to improve the cost structure of the segment's European operations.  The profit improvement was driven by higher revenue and better productivity in the segment's North American Security and Fire operations, as well as in Safety Products.

Healthcare

Organic revenue growth in the quarter was 5 percent.  Strong growth in Medical Devices, Pharmaceuticals and Imaging was partially offset by a revenue decline in Retail.  Revenue growth was also stronger in international markets, with solid growth in Europe, Asia Pacific and Latin America.

Operating income decreased by $24 million and reflects $16 million in restructuring charges, $8 million for an in-process R&D charge related to a recent acquisition, and $3 million in separation costs.

Engineered Products & Services

Organic revenue growth was 4 percent, with double-digit growth in Flow Control and Fire & Building Products, partially offset by flat revenue in Electrical & Metal Products and a $40 million revenue decline in Infrastructure Services.  In the Flow Control business, organic revenue growth was 13 percent and backlog grew 45 percent year over year, and 19 percent on a quarter sequential basis.

Operating income increased $10 million and included $7 million of charges related to restructuring.  Operating income in Flow Control increased $34 million due to revenue growth and operating improvements, which was offset by a $36 million decline in Electrical & Metal Products due to lower metal spreads.  The remaining increase in operating income was due to higher revenue in Fire & Building Products.

OTHER ITEMS

• The company generated cash flow from operating activities of $844 million and free cash flow of $103 million in the quarter, which included $280 million in cash payments related to the termination of a lease on the undersea cable ships in Tycom, and also included $85 million in cash payments for separation-related costs.
• The GAAP tax rate of 29.2 percent was unfavorably impacted by 4.0 percentage points primarily due to separation-related tax costs.
• Tyco completed the sale of its Printed Circuit Group business at the end of October, which resulted in gross cash proceeds in the quarter of $227 million.  The sale also generated a gain of $45 million pre-tax, which is included in net income for the quarter.  This business is classified as a discontinued operation and therefore, its results are not reflected in Tyco's revenue and income from continuing operations.

OUTLOOK

Breen added, "We feel good about our first quarter operational performance and the global economic environment overall.  After a period of strong growth, we are seeing some slowing in certain electronics markets, in particular the computer and communication infrastructure equipment markets, which we believe will strengthen as we move further into the year.  In addition, we expect metals spreads in Engineered Products & Services to continue to be weaker than last year in the second quarter, with improvement in the second half of the year."

 For the second fiscal quarter of 2007, Tyco expects to achieve revenue growth of 6 to 7 percent (organic revenue growth of 3.5 to 4.5 percent) and an operating margin excluding special items of 12.5 to 13.0 percent.  Please see the disclosures at the end of this press release for additional information. 

ABOUT TYCO INTERNATIONAL

Tyco International Ltd. is a global, diversified company that provides vital products and services to customers in four business segments: Electronics, Fire & Security, Healthcare and Engineered Products & Services.  With 2006 revenue of $41 billion, Tyco employs approximately 240,000 people worldwide.  More information on Tyco can be found at www.tyco.com.

CONFERENCE CALL AND WEBCAST

The company will hold a conference call for investors today beginning at 8:30 a.m. ET.  The call can be accessed in three ways:

• Web -- Go to Tyco's website at http://investors.tyco.com.  A replay of the call will be available through Feb. 28, 2007 at the same website.
  
• Telephone -- The telephone dial-in number in the United States is (800) 288-8968. The telephone dial-in number for participants outside the United States is (612) 332-0335. 
  
• Audio replay -- The conference call will be available for replay beginning at 12:00 p.m. on Feb. 6, 2007 and ending at 11:59 p.m. on Feb. 13, 2007. The dial-in number for participants in the United States is (800) 475-6701. For participants outside the United States, the replay dial-in number is (320) 365-3844. The replay access code for all callers is 857821.

NON-GAAP MEASURES

"Organic revenue growth," "free cash flow" (FCF), and "operating margin excluding special items" are non-GAAP measures and should not be considered replacements for GAAP results.

Organic revenue growth is a useful measure used by the company to measure the underlying results and trends in the business.  The difference between reported net revenue growth (the most comparable GAAP measure) and organic revenue growth (the non-GAAP measure) consists of the impact from foreign currency, acquisitions and divestitures, and other changes that do not reflect the underlying results and trends (for example, revenue reclassifications and changes to the fiscal year).  Organic revenue growth is a useful measure of the company's performance because it excludes items that:  i) are not completely under management's control, such as the impact of foreign currency exchange; or ii) do not reflect the underlying growth of the company, such as acquisition and divestiture activity.  It is also a component of the company's compensation programs. The limitation of this measure is that it excludes items that have an impact on the company's revenue.  This limitation is best addressed by using organic revenue growth in combination with the GAAP numbers. See the accompanying tables to this press release for the reconciliation presenting the components of organic revenue growth.

FCF is a useful measure of the company's cash which is free from any significant existing obligation.  The difference between cash flows from operating activities (the most comparable GAAP measure) and FCF (the non-GAAP measure) consists mainly of significant cash outflows that the company believes are useful to identify.  FCF permits management and investors to gain insight into the number that management employs to measure cash that is free from any significant existing obligation. It is also a significant component in the company's incentive compensation plans.  The difference reflects the impact from:

• the sale of accounts receivable programs,
• net capital expenditures,
• acquisition of customer accounts (ADT dealer program),
• cash paid for purchase accounting and holdback liabilities, and
• voluntary pension contributions.

The impact from the sale of accounts receivable programs and voluntary pension contributions is added or subtracted from the GAAP measure because this activity is driven by economic financing decisions rather than operating activity.  Capital expenditures and the ADT dealer program are subtracted because they represent long-term commitments. Cash paid for purchase accounting and holdback liabilities is subtracted from Cash Flow from Operating Activities because these cash outflows are not available for general corporate uses. 

The limitation associated with using FCF is that it subtracts cash items that are ultimately within management's and the Board of Directors' discretion to direct and that therefore may imply that there is less or more cash that is available for the company's programs than the most comparable GAAP measure.  This limitation is best addressed by using FCF in combination with the GAAP cash flow numbers.

FCF as presented herein may not be comparable to similarly titled measures reported by other companies.  The measure should be used in conjunction with other GAAP financial measures.  Investors are urged to read the company's financial statements as filed with the Securities and Exchange Commission, as well as the accompanying tables to this press release that show all the elements of the GAAP measures of Cash Flows from Operating Activities, Cash Flows from Investing Activities, Cash Flows from Financing Activities and a reconciliation of the company's total cash and cash equivalents for the period.  See the accompanying tables to this press release for a cash flow statement presented in accordance with GAAP and a reconciliation presenting the components of FCF.

The company has forecast its operating margin excluding special items related to divestitures, acquisitions, restructuring charges, transaction costs related to the separations, and other income or charges that may mask the underlying results and trends and make it difficult to give investors perspective on underlying business results.  Because the company cannot predict the amount and timing of such items and the associated charges or gains that will be taken, it is difficult to include the impact of those items in the forecast.  The company has forecast its cash flow results excluding any voluntary pension contributions because it has not yet made a determination about the amount and timing of any future such contributions.  In addition, the company's forecast excludes the impact of special items because the company cannot predict the amount and timing of such items.

 FORWARD-LOOKING STATEMENTS

This release may contain certain "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and are subject to risks, uncertainty and changes in circumstances, which may cause actual results, performance or achievements to differ materially from anticipated results, performance or achievements. All statements contained herein that are not clearly historical in nature are forward-looking and the words "anticipate," "believe," "expect," "estimate," "plan," and similar expressions are generally intended to identify forward-looking statements. The forward-looking statements in this release include statements addressing the following subjects: future financial condition and operating results. Economic, business, competitive and/or regulatory factors affecting Tyco's businesses are examples of factors, among others, that could cause actual results to differ materially from those described in the forward-looking statements. Tyco is under no obligation to (and expressly disclaims any such obligation to) update or alter its forward-looking statements whether as a result of new information, future events or otherwise. 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. 29, 2006.

Click here to view the Condensed Consolidated Statement of Income.