FY12 Performance Share Plan. February 9, :30-9:30 a.m. (EST)

Transcription

1 FY12 Performance Share Plan February 9, :30-9:30 a.m. (EST)

2 FY12 Long-Term Incentive Plan As a senior leader at Tyco, you play a unique role in creating long-term value for our shareholders. Your vision, leadership and performance have a significant impact on the return our shareholders receive from their investment in Tyco. Long-term incentives (LTI) are granted to align management s compensation with shareholder interests. You benefit directly when you deliver the results that create value for our shareholders over time. Your FY12 LTI award consists of three components: Stock options vesting 25% per year for 4 years Restricted Stock Units (RSUs) vesting 25% per year for 4 years Performance Share Units (PSUs) cliff vesting (100%) after 3 years and adjusted for performance results. 2

3 FY12 Performance Share Units (PSUs) PSUs are units based on the value of Tyco common stock. Your award value can increase or decrease in two ways: The number of PSUs you actually earn can increase or decrease based on achievement of the performance goals. The value of the PSUs can increase or decrease based on Tyco s stock price. The Performance Measures for FY12 are: Tyco s relative Total Shareholder Return (TSR) as compared to the S&P Industrials. Tyco s Return on Invested Capital (ROIC). Each measure is equally weighted when determining awards; 50% of the award is based on TSR and 50% of the award is based on ROIC. These measures are calculated independently of one another. The performance cycle for this award is one-year, commencing on October 01, 2011 and ending September 28, The vesting period remains 3 years. Oct-12 Oct-13 Oct-14 1 Year 2 Years Performance Continued Cycle Vesting 3

4 TSR Measure at Tyco Peer Group TSR S&P Industrials Index Constant companies. Market practice methodology begin with companies in the Index on the grant date; bankruptcies remain; acquisitions are dropped. New companies are not added. Performance Cycle Fiscal year commencing on October 1, 2011 through September 28, 2012 Averaging Period Calculation 60-day average Closing Price (business days) from the beginning and end of the cycle TSR = (Ending Price x Total Return Factor) / Starting Price Total Return Factor (S&P Standard Methodology) recognizes the value of dividends credited during the Performance Cycle as re-invested Payout Schedule Threshold: 35 th Percentile = 40% Payout Target: 50 th Percentile = 100% Payout Maximum: 75 th Percentile = 200% Payout Capped at 125% if TSR is negative 4

5 Why ROIC as a Performance Metric? Helps assess how management allocates capital towards investments that create the greatest value Good measure of economic profit Key measure used by the investment community to gauge value creation, ultimately driving stock performance A company with ROIC that exceeds the cost of capital is creating value Companies with higher ROIC have more financial flexibility during economic downturns 5

6 ROIC Measure at Tyco Calculation ROIC ROIC is measured by dividing net after-tax income excluding interest expense by average net assets. Net after-tax income excluding interest expense is calculated for the performance cycle and is defined as GAAP net income plus interest expense (before tax), adjusted further for certain extraordinary & other items. Average net assets is defined as a 5 quarter average, starting with the beginning of the period. This gives credit for asset efficiencies gained during the period. Performance Cycle Fiscal year commencing on October 1, 2011 through September 28, 2012 Target 50 basis point improvement over FY11 Payout Schedule Threshold: 10 basis point improvement = 50% Payout Target: 50 basis point improvement = 100% Payout Maximum: 90 basis point improvement = 200% Payout (cap) 6

7 ROIC Measure at Tyco FY11 ROIC = 9.7% Achievement Payout Threshold 10 basis point improvement 9.8% 50% Target 50 basis point improvement 10.2% 100% Maximum 90 basis point improvement 10.6% 200% 200% 190% 180% 170% 160% 150% 140% 130% 120% 110% 100% 90% 80% 70% 60% 50% Payout Curve 9.80% 9.90% 10.00% 10.10% 10.20% 10.30% 10.40% 10.50% 10.60% 7

8 Keys to Increasing ROIC New Products New Markets Market Share Gains Pricing/Mix Productivity/Six Sigma Sourcing Sales Return Improving Return Increase Sales Decrease Costs Invest in value creating R&D, Sales & Marketing Low Cost Country Sales/Marketing & Cost Advertising R&D Investment G&A Costs ROIC Cash Receivables Inventory Payables Net PP&E Goodwill Intangibles Working Capital Other Assets Invested Capital Improving Invested Capital Efficient Capital Spending Reduce Past Due Receivables Improve Inventory Turns Improve Payable Cycle 8

9 How can you help improve ROIC? Increase profits while managing deployed capital Manage your product mix - continue to drive higher margin revenue Maintain a fresh, market driven, product portfolio Optimize capacity utilization and supply chain Focus on structural cost reductions, including purchasing activity Minimize G&A costs Decrease invested capital Reduce past due receivables Lower inventory levels Strict enforcement of payable policy Scrutinize all capital spending to ensure deployment against projects exceeding cost of capital Growing Lean 9

10 % Return Cumulative EVA $ ROIC/EVA Illustration Value Creation Value Deterioration 60% 50% 40% 30% 20% EVA (Economic Value Added) 7,000 6,000 5,000 4,000 3,000 2,000 10% 0% WACC (Weighted Average Cost of Capital) ROIC - 5,000 10,000 15,000 Invested 20,000 Capital 25,000 30,000 35,000 40,000 1,000-10

11 How will the PSUs convert at Separation? Equity Type Grant Year Corporate Business Unit Performance Share Units Pre-FY12 FY12 Convert to 3 Companies (as RSUs) Concentrate into employer Company (as RSUs) Concentrate into employer Company (as RSUs) Concentrate into employer Company (as RSUs) Performance will be calculated for each outstanding cycle at Separation. PSUs will be adjusted by the performance results and converted into RSUs. Vesting will continue for the rest of the applicable performance cycle. 11

12 Track PSU Performance Track Current Performance of the PSU plans 12

13 13 Questions?