Welcome to the Tyco First Quarter 2015 Earnings Conference Call. All participants have been placed on a listen-only mode until the question-and-answer session. [Operator Instructions]. Today’s conference 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.

Good morning and thank you for joining our conference call to discuss Tyco’s first quarter results for fiscal year 2015 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, which George and Arun will refer to can be found on the Investor Relations portion of our website at tyco.com. Please also note that we will be filing our quarterly SEC Form 10-Q later today. 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 operating margins during the call exclude special items and these metrics is a non-GAAP measure and is reconciled in the schedules attached to our press release. Now let me quickly recap this quarter's results. Revenue in the quarter of $2.48 billion declined 1% year-over-year on the reported basis. Organic revenue growth of 2% and a 1% benefit from acquisitions was more than offset by a 4% negative impact related to changes in foreign currency exchange rates. Earnings per share from continuing operations attributable to Tyco ordinary shareholders was $0.38 and included net charges of $0.11 related to special items. These special items related primarily to restructuring and repositioning charges. Earnings per share from continuing operations before special items was $0.49. Now let me turn the call over to George.

Thanks, Antonella. And good morning, everyone. We are off to a solid start as we enter the final year of our initial three-year plan as a new Tyco. Although the economic environment in certain regions is shaping up to be a bit more challenging than we had initially expected, the execution of our growth strategy and our disciplined capital allocation position us to accelerate top line growth, expand operating margins, and deliver a strong earnings growth in 2015. Our growth strategy is supported by internal initiatives within our control, driven by our transformation into an integrated fire and security operating company. We have a proven track record of delivering productivity and are beginning to change how we do business by leveraging technology within our direct channel to deliver a sustained growth over the long-term. Over the last two years, we have taken the holding company structure of multiple segments with multiple businesses operating independently with a lot of variation across work streams and processes and have streamlined into an operating company structure. This has allowed us to leverage our depth and expertise across fire and security so that we could simplify our structure, create speed in how we support our customers, free up resources to reinvest in the businesses, and deliver strong margin improvement. We have made significant progress and the Tyco business system has enabled this transformation. As a result, we have a coordinated and aligned strategy that is deployed by business and by region. As we enter 2015, we now have all of our leaders across the company accountable for their total type of performance, not just their individual business units, embracing a one Tyco mindset driven by top line growth supported by continuous operational improvements. We've had a very productive start to 2015 with lots of progress…

Thank you, George. And good morning, everyone. You can follow my comments on our financial performance starting with slide 5. Let me start with an overview of our results for the first quarter. Revenue of $2.48 billion declined 1% year over year. As George mentioned, organic revenue grew 2%, led by 10% growth in global products. Within our installation and service businesses, service revenue resumed growth in both North America and rest of world, for a total organic service growth of 1%. Installation revenue was relatively flat year-over-year. Acquisition growth of 1% was more than offset by a 4% headwind related to changes in foreign currency exchange rates. Before special items segment operating income was $326 million, including an $11 million headwind related to changes in foreign currency exchange rates and the operating margin was 13.2%. Higher product revenues and the benefits from sourcing, productivity, and restructuring initiatives were partially offset by a legal charge resulting in net operating margin expansion of 30 basis points. Earnings per share before special items increased $0.07 or 17% year over year. Operationally, we delivered an incremental $0.04 of earnings, driven by strong revenue growth in products, along with continued productivity initiatives. The remaining $0.03 of incremental earnings was primarily driven by the benefit of share repurchases during the quarter, offset by $0.02 related to changes in foreign currency exchange rates and the $0.01 legal charge. Turning to orders, on slide 6, as I've often mentioned in previous quarterly calls, it is important to keep in mind that order growth, particularly in our installation business, is lumpy and can be impacted by the timing of large projects. Orders in the quarter grew 2% year-over-year, with 6% growth in North America and 7% growth in products. Rest of world declined 5% due to pressure in…

Thanks, Arun. Let's turn now to slide 12 for our earnings guidance for the second quarter starting with the top line. As we move into the second quarter we expect organic growth to accelerate from the 2% we saw this quarter to approximately 3%. Additionally, recent acquisition activity is expected to add an additional 1 point of revenue growth. Given current exchange rates, we expect growth in revenue to be offset by a 6 percentage point or $150 million year-over-year headwind related to changes in foreign currency. Taking these factors into account, we expect revenue in the second quarter to decline approximately 2% year over year on a reported basis. I also want to remind you that the second quarter of last year included a $21 million insurance recovery which was reported within our rest of world install and services segment. If you refer to slide 13, you can see that the insurance recovery benefited the rest of world operating margin by 220 basis points, and benefited total segment margin by 90 basis points. Additionally, this recovery contributed a $0.04 of earnings per share. Looking at the second quarter of fiscal 2015, on a normalized basis, we expect the segment operating margin before special items to expand 50 basis points to approximately 13.5%. Turning to slide 14, we expect operations in the second quarter to contribute approximately $0.05 of incremental earnings year-over-year. Additionally, our expected weighted average share count of 428 million shares in the second quarter is also expected to contribute an additional $0.05 of incremental earnings. This earnings growth is expected to be partially offset by the $0.04 benefit in the prior year related to the insurance recovery and a $0.03 headwind related to foreign currency exchange rates. Taking all of these assumptions into account, we expect earnings…

Thank you. [Operator Instructions] The first question is from Deane Dray with RBC Capital Markets.

Thank you. Good morning everyone.

Good morning, Deane.

Good morning, Deane.

Good morning, Deane.

First question, just for George, right where you left off on the 2015 guidance update. And really appreciate all the detail you've given here on the currency exposures on slide 11. That's going to be a great reference. But my question is, on that $0.04 offset, the benefit of acquisitions and productivity, just give us a sense that I would hope you haven't burned all your contingency or potential upside for that offset there. But where else that might direct you to the higher end of your guidance, that $2.40, what has to work well and go in your favor to be at the high end?

Deane, we've been working, when we provided the initial guidance back in November, we've been working on contingency because at that time we saw a lot of headwind coming at us from an FX standpoint. So, we've been accelerating our restructuring, accelerating some of the productivity initiatives that has given us some benefit in the second half of the year. Arun talked about it in his prepared remarks, that we accelerated some of the planned restructuring in the first quarter and we're going to see some benefits from that. We also have been executing very well on our growth strategy, continuing to execute not only organic growth but also working on the acquisitions. And the benefits now from the acquisitions that we've been able to complete, we now see $0.03 of benefit in the second half of the year. And so we're going to continue to work. As we laid out our plan, we get about $150 million of productivity on an annualized basis that supports the significant reinvestment in growth, while we're continuing to expand our margins 80 to 100 basis points. And I can assure you that we're continuing to work every opportunity to make sure that we'll be positioned to deliver on the updated guidance that we provided.

Thank you. And then for my follow-up, and this is for Arun, just as a follow-up on that slide 11, I'd be interested in hearing what types of hedging Tyco can or cannot do. I would presume for global products you've got some transactional hedging with forward contracts but not translational hedging? And then in your answer, maybe how does Tyco's foreign domicile structure play into here in terms of what hedging you can or can't do? And then just remind me, I believe your structure also -- you don't get faced with that cash repatriation issue, and just maybe give us that update as well?

Deane, let me just talk start by saying that 75% of our business is install and service where our cost structure and the currency of our cost structure is the same as the currency in which we drive our revenues. So, there is a natural hedge in place there and there is no exposure from a currency perspective. The global products, as you rightly pointed out, is where we manufacture in a few locations and ship our products around the world in different currencies. And that's where we have the transactional exposure. And we do hedge that transactional exposure pretty close to 100% across the world in all the currencies. So, we have no de minimis P&L impact from that transactional exposure on our global products businesses. Now, the headwinds that you are seeing relate to translational exposure as we translate the earnings that we have in different currencies into the US dollar for reporting purposes. That translation exposure we do not hedge. If you were to do that, it would actually create an economic risk to the enterprise. Now, one benefit that we have, keep in mind, is our Irish domicile. As an Irish domicile company we have complete access to our cash across the world on a daily basis, unlike a US domicile company which would have to give it in the cash back. So, we do not have to worry about the repatriation of cash which the US domicile companies have to. Now also, just to keep on the subject of FX hedging and exposure, there are obviously other operational things that we take into account as we look at the exposure, the translationary [ph] exposure. Basically, I look at three things. One is pricing. And particularly in high inflation countries, we make sure that our pricing stays ahead of the inflation rate so that the fundamentals of the business remain intact. The second is our supply chain network. We have a very sophisticated supply chain network, led by a big leader in Andrea Greco, and he is constantly optimizing that supply chain to make sure that we are getting the benefits of the currency movements. And the third that George and I had referred to earlier is the cost rationalization. Clearly that's another lever. You saw us pull that lever pretty strongly in the first quarter ahead of the $0.07 headwind that we had initially expected. And that lever stays in place.

That was great color. Thank you.

Thanks, Deane.

Thank you. The next question is from Julian Mitchell with Credit Suisse.

Thanks a lot. In the rest of world installation and service business, I think excluding currency your EBIT was down around 5% year on year. Maybe just talk about how much of that was Australia. And also what you expect the full-year rest of world margins to do versus last year now? Thank you.

Well, Julian, if you look at our year-on-year compare for rest of world, we had a $8 million headwind from foreign currency exchange rates. So, if you look at it, the $90 million that we reported for Q1, that adds up to $98 million, and that's a pretty comparable in dollar terms to what we had last year. As we think about our rest of world business, basically Europe, which is about 50% of rest of world, is, like George mentioned in his prepared remarks, pretty stable. And the fundamentals of the business, the margins are expanding in a very low-growth environment. Australia is where we are seeing deterioration, and a large part of what you see here is really driven by Australia. And the second piece is our growth markets, which is where the growth is coming from. So, growth markets are delivering the growth that we expected but, as you know, our growth markets, the service component in our growth markets is lower than the install component, and therefore the margins in the growth markets tend to be lower. And as they're growing, we expect the service platforms to build over a period of time. But in the meanwhile, it is creating a headwind in terms of the overall results we are seeing for rest of world.

Thanks. Should the rest of world margins expand this year versus last year for the year as a whole?

Given the deterioration that George referred to in the Australian market, we expect the rest of world margins to stay more or less flat to prior year.

Thanks. And then my follow-up would be on the overall service business, I think you'd guided for 2% to 3% service sales growth this year Company-wide. I think first quarter was up about 1%. So, based on Australia, do you also think that global number of 2% to 3% for the year will be difficult to hit now?

Yes. We've taken that into account. As we look at our service growth of the 2% to 3%, if you look at it sequentially we're down 2% in the fourth quarter, first quarter we're up 1%. It is absolutely core to our growth strategy. We're making lots of investment in technology, we're embedding that technology in new solutions. And then with that base, that's given us the opportunity to be able to build new services on top of that. And, so, in spite of the headwind in the first quarter we had 50 basis points of service growth headwind because of the Australian decline. Even with that, we are positioned to be able to deliver the 2% to 3% service growth. And that's also helped by some of the acquisitions that we've been able to be successful in completing.

Great. Thank you.

Thank you. The next question is from Jeff Sprague with Vertical Research.

Thank you. Good morning.

Good morning, Jeff.

Morning. I was wondering if you could just elaborate a little bit more on the nature of what's going on in Australia. And what I mean by that is, I think about sluggish economy I would think that would be hitting install harder than service. But clearly you are intimating or saying outright that it's really the service business that's taking a hit. So, what is actually causing that? Is there new competition? Is there some other change in competitive dynamics?

Yes. Jeff, I'll take that one. It is a big market so let me just give you the fundamentals. About 17% of our rest of world is split somewhat equally between fire and security. The difference here is we've got about 70% service revenue. And, now, as we saw the decline in mining well over a year ago, and that started last year and continued through the year, we saw a continued decline in that space, which was a big vertical segment for us. And then with the impact that that has had on the economy, it's had a more broad-based impact on the other end markets that we support. Now, I thought in the latter part of last year we started to see some green shoots with some of the new projects coming to market that we've been successful in being able to win, but the continued downturn in the overall service segment has been what has hit us here early this year. Now, what I would say is that, when you get into this situation, we do have some undisciplined competitors. And what we do is make sure that we stay focused on how we create value in getting the return for the value that we create. And as we've gone through these cycles in the past, whether it be in Europe and other distressed markets, we come out the other end better, and positioned to be able to accelerate the growth with the investments we continue to make. And so we're seeing now, we're projecting that it's going to be down kind of mid to upper single digits here in Australia. But I can assure you that the work that we're doing locally, in maintaining the fundamentals and the investments we continue to make that will support that business longer-term, it'll be well-positioned to be able to deliver profitable growth.

And then kind of shifting gears maybe to the other side of the coin, the strength in North America, can you provide a little bit more color on anything that jumps out on vertical markets driving that? And maybe a little bit of elaboration on the transition to some strength now or more strength on the security side?

Sure. As you've seen in our orders over the last three quarters, we've seen nice pickup in installation orders in North America. And it's been not just fire. It's been also across security. So, that has been what's been building the backlog and gives us tremendous confidence in being able to now generate the revenue in the second half of the year. When you look at what's driving it, some of the key verticals for us are the commercial space, the institutional space, healthcare, as well as retail. And it's been more broad-based across the end markets that we serve. We see the order rates continuing, which gives us a lot of confidence not only in delivering the revenue. The 3% organic growth in North America for the year, but also continuing to build the backlog that will position to continue to accelerate that growth as we go into 2016.

Is price positive in North America?

We're very disciplined on price across all of what we do. And we're making sure that as we're building fundamentals that we continue to get price for the value that we create with the type of solutions that we deploy.

And then just finally, and I'll move on, on share repurchase, George or Arun, you've got $1 billion left. You're active on M&A but it sounds like near term the pipeline's partially exhausted anyhow. Should we expect you to do something in the neighborhood of $1 billion in 2015 utilizing the balance sheet a little bit?

Jeff, the pipeline is by no means exhaustive. We are still looking at a very robust pipeline of M&A activity. You saw the three deals we closed already in Q2. There are others that are near the end point of that process of completing the due diligence, et cetera. So, we are looking at a few other transactions, Jeff. And like I've said in the past, as well, this remains our highest priority. We're going to allocate capital to that. You can see the benefits we're getting even in the back half of this year. But M&A can be lumpy and if these transactions don't come through, we will use the cash that we have to buy back. Now, keep in mind, Jeff, any buybacks that we do in the balance of the year is going to have very little impact on the share count because of the way the calculation works.

Yes. Got it. Thank you.

Thank you. The next question is from Gautam Khanna with Cowen and Company.

Yes. Thanks. Good morning.

Good morning, Gautam.

I was going to ask, at ROW what are your expectations now for backlog progression through the year and just orders by the various offerings, installation versus service? Was this just a tough compare period? But when you look forward does it get better? If you could just comment on what you are seeing.

Yes, we're projecting to continue to build backlog in rest of world. We did have the tough compare from the first quarter of last year where we had 16% install growth and then this year we showed that it was down 12%. We're continuing to build backlog. It supports overall growth of roughly -- originally we said without the downturn in Australia we'd be 3% to 4% growth. We've got backlog that we're building that supports now getting to 2% to 3% organic growth.

Yes. And also, Gautam, I'd just like to reinforce the fact that you saw the negative numbers for rest of world here for Q1. But in absolute dollars, our orders have actually increased from Q4 to Q1. So, sequentially, actually, if you look at it, rest of world install orders went up 6.5% and total orders went up 3%.

Okay. That's helpful. And you mentioned you're seeing some undisciplined competition in Australia and you're trying to stick to your own discipline. I just wondered, in that backlog build, are you anticipating any net price erosion or any erosion in the margin that's implied within that? Or should it continue to trend upwards this year?

It starts with staying disciplined to the fundamentals that we've built across the enterprise. And this has been over a number of years. If you look at the work that we did in Europe, as an example, over the last five years, we have taken businesses that were low single-digit profitability. We've got now profitability in the teens. And a lot of that is making sure that we're focused on the right projects, we're pricing those projects accordingly, we're building an install base that then presents the opportunity to be able to accelerate services. When you look at our performance in Europe today, we're gaining share while we're continuing to grow in a tough economy, and expand margins. When we look at the fundamentals in Australia, we're going through a similar cycle, that as the market turns down and there's more pressure around the current business that we have, we stay disciplined in making sure that we create the most amount of value for the customer that we serve; and that through the cycle we come out in a position that we're going to be able to accelerate the progress going forward. And the backlog, the key thing to look at when you look at margin and backlog across the board, we continue to improve the margin backlog. And across the enterprise, we're up roughly 50 basis points year on year in spite of the current environment.

Okay. And one last one and I'll turn it over. At global products, you've had fairly substantial order growth and sales growth for a number of years now. If you look forward, are there any product transitions like we had last year with the Air-Paks or anything else that would slow that product growth or accelerate it as we move forward? Because we are obviously on tougher comps as we move forward.

Gautam, so if you look at our performance in the quarter, what I would say is across the board our three product businesses are executing phenomenally. And even with the pickup of the volume in the life safety business and the Scott business, that only equates to 1% or 2% of the overall volume in the first quarter on the growth. So, across the board we're getting a nice growth and it's across every one of our product segments. And the investments that we continue to make, we're getting good traction with those investments, we're getting good pricing, which then in turn has given us good margins and good acceleration of growth.

So, cCould you quantify what you anticipate the organic to be in this segment through fiscal 2015?

Yes, we're still projecting that we're going to be mid to upper single digits. We're off to a great start. Like I said, the investments we're making we're getting good traction. I think what we're going to see is we've been very successful also completing product acquisitions. With these product acquisitions, when you put these within our portfolio, leveraging our brands and our distribution, we get a natural lift in how we then get additional volume not only on the new product but also the existing product. And, so, we're very excited with the progress we made with acquisitions, what that will do to extend our footprint and extend our portfolio that we'll be able to leverage organically going forward.

Okay. Thanks a lot, guys.

Thanks.

Thank you. The next question is from Scott Davis with Barclays Capital

Hi. Good morning, guys.

Morning, Scott.

Morning, Scott.

The labor wage claim line item, the 60 basis points, was that expected? I don't recall seeing that before, to that magnitude. And I don't think you really fully answered Jeff's question earlier on whether you're actually getting price or not, because I would assume that there be some natural inflation that you'd have in your pricing that would help offset that labor on an annual basis.

This was a legacy labor issue that went back past the previous couple of years that's been resolved. As far as pricing, we get on an annual basis about 0.5 points net price across the enterprise. We're seeing that accelerate within the current environment. And that'll be 0.5% to 1% over the year. We're very disciplined in making sure that we are getting the traction on the price, and very sensitive to what's happening with the volatility across the globe.

Okay. Fair enough. And then the Tyco On, I don't think we've spent much time talking about -- I know you went through it a bit on the investor day, but what does it really mean for you guys and how do we measure it? What I'm asking is, does it mean better pricing, higher margin? Is there a way to measure take rates or is there some other way we can think about your penetration and how your customers are willing to pay more for this service?

What it does, Scott, is we build enterprise software that can be embedded in all of the solutions that we deploy, that gives us tremendous opportunity to expand the type of service that we provide. And I'll use a couple of examples. In the retail space, with our TrueVue software, now with the enterprise software that we're deploying, the capabilities that we're creating, our new release with our store performance solution software is going to enable our TrueVue suite to operate mobile devices with our customers, at the retail customers. This will now enable them to improve productivity of their store personnel with that type of solution. It's the enablement of that that is creating additional service and then, with that, additional productivity for the customers that we serve. Another good example is ExacTech which we talked about. Not only does it enable us to be much more efficient with how we perform the service, but the capabilities that we create with the data that we extract, and then the analytics that we apply to that data, gives us a new service that we can offer to our customers to be able to grow the top line. And then on the integrated solutions, when you look at fire and security equipment that's deployed across any one of our customer base, the ability to be able to integrate that in an efficient manner, collecting data and then being able to again apply analytics, that it gives us additional services to offer, is what enables that. And, so, it's not a standalone product that you would see revenue on but it's supporting our ability to be able to accelerate the deployment of our technology and then build new services on that technology that will accelerate our growth. And that is why, when you look at our growth, when we project growth in service, we're in the early stages of deploying this technology, but the capability that it creates for us to be able to build new services is pretty significant longer term.

Okay. Sounds promising. Good luck, guys. I'll pass it on.

Thanks.

Thanks.

Thank you. The next question is from Nigel Coe with Morgan Stanley.

Thanks. Good morning.

Morning, Nigel.

Morning, Nigel.

Yes, thanks. A couple things. Just want to clarify a couple details on the margin guides. You mentioned flat rest of world margins. Is that flat reported or is that flat ex the insurance recovery in 2Q 2014?

For the full year, it was intended to be for the full year it'll be flat as reported.

Okay. So 50 bps ex the insurance comp.

Yes.

Okay. Great. And then you're talking about the margin expansion same as before but excluding the impact of acquisitions, which makes perfect sense. But what sort of impact do you expect from the acquisitions?

What we talked about is the $0.03 of accretion for this year. And obviously, because it's partial year and there are purchase price accounting pieces that go into it, for the run rate we expect it to be more like, it will give us $0.10 to $0.12.

$0.10 to $0.12. So, the impact to margins would be about 20 bps or so?

Yes, we'll clearly have some impact on the overall segment margin related to the amortization related to the step-up of intangibles on the stock. And we're currently going through all the valuations. But the biggest significance would be in global products because that's where a majority of the acquisitions are, including the largest one, IST. So, I mean, rough estimate it could have about a 50 basis point impact on margin there, really being driven by the non-cash amortization expense.

Right. So 50 bps in products. Okay. That's really helpful. And then just want to go into next level detail on the service orders and the distinction between contractual and non-contractual services. Do we only see the orders for the non-contractual services?

The service order number is all in.

That’s all in.

Contractual as well as non-contractual.

Okay. So, I'm wondering, what is the lag between installation growth and the service order growth, because I'm assuming that a good portion of these installations come with attached service?

It varies, Nigel, depending on the type of installation that we perform, whether it be a security installation that requires monitoring. It's immediate, we get immediate traction. If it's a fire solution that we install, and then after a warranty period then we pick up a preventative maintenance agreement. It could be two years out. So it varies, it's hard to say. And, so, what we're obviously working to do is making sure that we can embed technology up front within the installations that we perform that then gives us the opportunity to be able to create more value right out of the gate with the customers that we serve. And, so, with the new technology that we've been developing, that's going to help us be able to pick up a higher percentage right after the immediate installation of the solution.

Okay. And then just a quick one on the acquisition pipeline. It's been really fertile and it sounds like there's a few more in the hopper. But what's changed? We've clearly seen a big pickup in activity. Are we seeing more active sellers? Are we seeing more associates [ph] to come to the table? Are you being more aggressive internally? Are we seeing bid off spreads narrowing? What's driving that pickup?

So, when you look at our strategy, M&A has been a core part of our overall strategy since we launched the new Tyco. We've been very aggressive in building a pipeline. As you know it does take time to build that pipeline. And, so, over the last two-and-a-half years, a lot of what is coming to fruition now are things that we've been working on, in some cases, multiple years. So, as we are building the pipeline we're obviously in the current environment, we're playing offense. And we think that from a discipline standpoint we're staying disciplined. But these have been very strategic in expanding our technology, expanding our product portfolio, enhancing the services that we can offer, and then helping us accelerate the deployment of our footprint in the growth markets. And if you look at these eight that we completed so far this year, not only do we get a pick up in the second half but it positions us well to be able to deliver on the commitments that we had made in 2016 and then beyond. We're building that base and we're very pleased with the progress we've made. We've got a very robust pipeline. With our Irish domicile we use that as a position of strength and go on offense in making sure that we can get the returns that we need with these types of acquisitions.

Okay, so it's more of a timing issue than anything fundamental in the market.

Truly timing, Nigel. We've been very active. When we launched the new company as the industry leader, with the position that we have, we have a tremendous position to continue to consolidate and differentiate with technology. So, it's a combination of consolidate, and differentiate with technology that's positioning us to be able to accelerate growth.

Okay. I'll leave it there. Thanks a lot.

Thank you. Our next question is from Shannon O'Callaghan, UBS.

Good morning.

Good morning, Shannon.

By the way, the earnings release and the slides are significantly improved and really helpful, so thanks for that.

Thank you.

On the North American install orders, obviously we've seen this sharp improvement. Arun, I think you mentioned there were a few large security orders in there, and obviously these things can be lumpy. But what do you think the underlying rate is if you adjust for some lumpiness in large orders? What do you think we are really running at there?

I think, Shannon, the way I've talked about it in the past, as well, is a good metric is the backlog. We're saying that the backlog in North America increased 5% year over year. That is probably a best reflection of what the underlying growth is.

Okay. That's great. And then just on the service growth, Australia obviously continues to be -- just when you thought it was down, it's down more. This 2% to 3% service in 2015, is that an organic number or is the Australia pressure offset by the acquisitions?

Yes. We're still targeting 2% to 3% organic. Certainly as we get additional service capability from the acquisitions that helps us because we might not have the capabilities that we need in particular regions to be able to accelerate. We look at it combined but we're still targeting to be in that range from a service growth standpoint.

Okay. And the acquisitions will kick into your organic service growth the next year because you think they'll benefit your service.

Right. It'll be more like next year. Short-term it could incrementally help us here offsetting some of the pressure that we're getting in Australia. But longer term it'll position us very well to be able to accelerate.

Okay. Great. Thanks a lot, guys.

Operator, we'll take one more question.

Thank you The final question today is from Steve Winoker with Bernstein.

Thanks for fitting me in. I appreciate it. Good morning. Just to clarify again, the organic growth for the whole Company going from 2% to 3%, and then implied 5%-plus for the back half of the year, is that all North America? Or how much of that is North America versus the other two units?

North America we expect for the full year to be around the 3% range on an organic basis. Rest of world is around the 2% to 3%, and then products would be in the mid to high single digits.

But the acceleration I'm talking about. Most of that sounds still like North America in products.

North America and rest of the world.

Okay.

Yes. When you look at North American we pick up, Steve, on the first half of the year it's relatively low on the system, and so it was actually down a bit in the first quarter. We pick it up in the second quarter and then it continues to accelerate in the third and fourth quarter. That's the big impact on the year to deliver on the 3%.

Okay. And then if you think about that in terms of the service acceleration that you used to talk about, George, obviously Australia, we've talked about that a lot on the call, is a challenge. But more broadly speaking, are you actually seeing metrics showing traction and acceleration in the service business in pockets of the world that you think you are going to be able to extrapolate to a broader part of the business? What's your sense for that?

Yes, when you look at service historically, it's a segment of the business that we've never had high growth. On the other hand, it hasn't decreased significantly. The investments that we have been focusing on, not only in our product business but now with the enterprise software, is what's going to change the profile longer term. If you look at the investments we're making, so when you look at the R&D increase year on year, it's up about 10%, or it's roughly $35 million, $40 million. There's a high mix of that investment that's building capability so that when we install a system we're going to be much better positioned to be able to create services on top of that system with the enterprise software. So, we don't get the traction, there's not an immediate pickup in short term, but longer term, with the systems that are being deployed, it gives us a much better base to be able to solve customer problems, create value in solving those problems, and then we ultimately get paid through service. The traditional service continues to track with GDP. The acceleration of service will come through the new offerings.

Okay. And then just one last one, you've used the UK as a great example of cost saves and other, and customer service benefits, of integrating across the two businesses broadly, fire and security. And that's obviously -- and we're seeing the benefits much more broadly now in this margin expansion. But are there other examples that you could point to that we could understand that are showing that you're getting that kind of benefit elsewhere in the world now?

Sure. I'll give you a couple of examples that are close to home here. If you go to the TIS business in North America, the security business, when you look at the last two years, separating the business from ADT, standing up a separate structure, and then improving margins, we've improved that business by over 400 basis points. And positioned now to be able to be very strategic in how we go to market and build the install base that allows us to be able to then build services. Another good example would be Canada. We have a new leader in Canada. We combined our fire business with our security business, put that together into one structure, and had significantly improved the margin rate as a result. And as a business, that is actually growing as fast as any of our businesses in North America as a result of the work that we've done. We've upgraded the leadership. We put in one structure. We've developed the competencies that are required. And now we are positioned to accelerate as a result Those are two good examples in North America and we have similar examples across the rest of the world.

Okay. I'll leave it there. Thanks. That was helpful color.

Thanks, Steve.

I'd like to pass it over to George for some closing comments.

So, just to wrap up, I want to thank everyone again for joining our call this morning. I want to reiterate that we're off to a solid start in 2015. Despite the macro concerns, I've never felt better about how well we are positioned and how our leaders are executing on our fundamentals. This, along with our growth strategy, gives me confidence that we are well-positioned for long-term growth and continued strong returns for our shareholders. On that, operator, that concludes our call.