ADT 2012 Annual Report Download

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Table of contents

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    NAREN GURSAHANEY Chief Executive Officer Dear Shareholders, 2012 was a landmark year in ADT's 138-year history. On September 28, ADT spun off from Tyco International and became an independent public company, trading on the New York Stock Exchange. We enter this new phase for our organization as the...

  • Page 4
    ...costs related to providing monitoring and other services to each customer. As part of our long-term growth strategy, we are committed to giving customers new offerings, such as MyADT.com, a digital resource that lets customers manage their security system online, download equipment manuals or videos...

  • Page 5
    ... technology, backed by service customers know they can trust. Two years ago, we achieved an industry first by integrating home automation features with electronic security systems and bringing them to the mass market nationwide through ADT Pulse. Today, Pulse customers use ADT to monitor and manage...

  • Page 6
    ...for security, control and peace of mind • 24/7 Life Safety Monitoring • Remote System Arm/Disarm • Lighting & Climate Control • Remote Video Monitoring & Video Clips • Custom Notifications & Scheduled Events With ADT Personal Emergency Response System (PERS), living on your own means...

  • Page 7
    ... Serve 2 ) FY 2011 FY 2012 Average New Existing Base FY 2011 FY 2012 13.0% 13.8% 1 New represents ARPU for both new and resale gross additions. 2 Represents fully-loaded cost to serve expenses including corporate expenses. TENURE (T12M Net Attrition) FY 2011 FY 2012 ADT 2012 ANNUAL REPORT 5

  • Page 8
    ... station monitoring; expands protection services 1927 ADT installs first customer-owned proprietary system 1940 ADT develops magnetic door & window burglar alarm contacts 1947 ADT pioneers ultrasonic indoor motion sensors 1969 ADT stock begins trading on the NYSE for the first time; Former ADT...

  • Page 9
    ... acquires Wells Fargo Alarm and Holmes Security; surpasses two million customers 2009 ADT responds to its billionth alarm 2010 ADT launches ADT Pulse; acquires Broadview Security 2012 ADT separates from Tyco International and registers with the NYSE as a publicly traded company ADT 2012 ANNUAL...

  • Page 10
    WHAT MATTERS MOST TRUST "ADT helped save me from carbon monoxide poisoning. I'm so grateful my late husband had our ADT system installed 20 years ago and kept upgrading it." Delores White Residential Customer Jackson, Mississippi 8 ADT 2012 ANNUAL REPORT

  • Page 11
    .... By sharing their satisfaction with ADT's services with new neighbors or fellow small-business owners, customers are often the best ambassadors for ADT. CUSTOMER SATISFACTION TRULY MATTERS MOST That's why we're raising the bar on customer service. Every customer interaction is an opportunity to...

  • Page 12
    WHAT MATTERS MOST SERVICE "What could matter more than being in a position to help save someone's life, home or business?" John McGinnis ADT Emergency Dispatch Operator Knoxville, Tennessee 10 ADT 2012 ANNUAL REPORT

  • Page 13
    ... two years later. Over time, technology has changed his routine. While ADT protect-and-connect services with user-friendly keypads are easy for customers to use, they take more time to install and troubleshoot. Rafael spends plenty of time walking a new customer through how the system works because...

  • Page 14
    WHAT MATTERS MOST INNOVATION HOME VIEW Home View is an ADT Pulse feature that allows customers to create a virtual floor plan of their home from which they can manage door locks, lights, small appliances, thermostats, and arm or disarm their system. 12 ADT 2012 ANNUAL REPORT

  • Page 15
    ... a home ultrasonic burglar alarm. Four decades later, the company introduced security technology for businesses and a computerbased security system. In 2001, ADT broke through with a web-enabled home security system and, three years later, launched a home health security system. ADT PULSE PROTECTS...

  • Page 16
    14 ADT 2012 ANNUAL REPORT

  • Page 17
    ... can monitor health information in real time as part of their single integrated panel on the kitchen counter. More Than Just Security ADT Pulse handles more than just security for your home or business. By using its automation features, customers can save time and money and make their lives easier...

  • Page 18
    ... Meister, Bridgette Heller, Kathleen Hyle and Naren Gursahaney. EXECUTIVE LEADERSHIP TEAM PICTURED FROM LEFT TO RIGHT: Mark Edoff, Anita Graham, Tony Wells, Naren Gursahaney, Kathryn Mikells, David Bleisch, Don Boerema, Stephen Gribbon, Shawn Lucht and Arthur Orduña. 16 ADT 2012 ANNUAL REPORT

  • Page 19
    ... or charges that may mask the underlying operating results and/or business trends of the company. The company utilizes these measures to assess overall operating performance, as well as to provide insight to management in evaluating overall operating plan execution and underlying market conditions...

  • Page 20
    ...FY 2011 NET CASH PROVIDED BY OPERATING ACTIVITIES SUBSCRIBER SYSTEM ASSETS CAPITAL EXPENDITURES DEALER GENERATED CUSTOMER ACCOUNTS REQUIRED TO MAINTAIN RECURRING REVENUE INTEREST PAID INCOME TAXES PAID, NET OF REFUNDS SSFCF RESTRUCTURING, NET INTEGRATION COSTS SEPARATION COSTS SSFCF BEFORE SPECIAL...

  • Page 21
    ...Yamato Road Boca Raton, Florida 33431 Dear ADT Stockholder: You are cordially invited to attend The ADT Corporation 2013 Annual Meeting of Stockholders, which will be held at 8:30 a.m. Eastern Time, on Thursday, March 14, 2013 at the Embassy Suites Boca Raton, 661 NW 53rd Street, Boca Raton, Florida...

  • Page 22
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  • Page 23
    ...named executive officer compensation should occur every one, two or three years. To transact such other business as may properly come before the annual meeting or any adjournment thereof. 5. Who May Vote: Annual Report: Mailing or Availability Date: You can vote if you were a stockholder of record...

  • Page 24
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  • Page 25
    ...Your Shares ...Costs of Solicitation ...Returning Your Proxy or Voting Instruction Card to the Company ...CORPORATE GOVERNANCE OF THE COMPANY ...Our Corporate Governance Principles ...Board of Directors ...Director Independence ...Guidelines for Related Party Transactions ...Director Service ...Code...

  • Page 26
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  • Page 27
    INFORMATION ABOUT THIS PROXY STATEMENT AND THE ANNUAL MEETING Introduction Separation from Tyco International Ltd. On September 28, 2012 (the "Distribution Date"), The ADT Corporation ("ADT" or the "Company") became an independent, publicly traded company as a result of Tyco International Ltd.'s ("...

  • Page 28
    ... entitled to vote? January 16, 2013 is the record date for the Annual Meeting. On January 16, 2013, there were 232,594,054 shares outstanding and entitled to vote at the Annual Meeting. Stockholders registered in our share register at the close of business on January 16, 2013 are entitled to vote at...

  • Page 29
    ... LLP as our Independent Registered Public Accounting Firm for 2013; "FOR" the approval, in a non-binding vote, of ADT's named executive officer compensation; and "ONE YEAR," in a non-binding vote, on the frequency of nonbinding stockholder vote on ADT's named executive officer compensation. For any...

  • Page 30
    ... a written request to our Corporate Secretary at The ADT Corporation, 1501 Yamato Road, Boca Raton, Florida 33431. What proposals are being presented at the Annual Meeting and what vote is required to approve each proposal? ADT intends to present proposals numbered 1 through 4 for stockholder...

  • Page 31
    ...nomination requirements from our Corporate Secretary.) What constitutes a quorum? In order to conduct business at the Annual Meeting it is necessary to have a quorum. The holders of record of a majority of the voting power of the issued and outstanding shares of capital stock of the Company entitled...

  • Page 32
    ...of proxy card and 2012 Annual Report are available at www.proxyvote.com. As permitted by SEC rules, ADT is making this Proxy Statement and its Annual Report available to its stockholders electronically via the Internet. On January 28, 2013, we mailed to our stockholders of record a Notice containing...

  • Page 33
    ...its governance policies. The Board of Directors, together with management, is responsible for establishing the firm's operating values and code of conduct and for setting strategic direction and priorities. While ADT's strategy and leadership evolve in response to its changing market conditions, the...

  • Page 34
    ... for setting the ethical tenor for management and the Company. That ethical tenor works on the expectation that employees understand where the lines are that they should not cross and stay widely clear of those lines. The Code of Conduct is reviewed periodically by all directors, executive officers...

  • Page 35
    ...of Directors is responsible for Reviewing and approving management's strategic and business plans. Reviewing and approving financial plans, objectives, and actions including significant capital allocations and expenditures. Monitoring management execution of corporate plans and objectives. Advising...

  • Page 36
    ... designed to promote integrity in the audit of the Company's financial statements and operations, and in all financial reporting and disclosure. Designing and assessing the effectiveness of its own governance practices and procedures. Periodically monitoring and reviewing stockholder communications...

  • Page 37
    ... plans, on an annual basis for the Chief Executive Officer; reviewing annually the Chief Executive Officer's performance and proposing to our independent directors Chief Executive Officer compensation (including salary, bonus, equity-based grants and any other long-term cash compensation); reviewing...

  • Page 38
    ... the Company's equity incentive plans, including the review and grant of stock option and other equity incentive grants to executive officers; overseeing the design, participation, adequacy, competitiveness, internal equity and cost effectiveness for the Company's broadly-applicable benefit programs...

  • Page 39
    ...'s Environmental, Health & Safety management program; ensuring the appropriate process is in place to perform and review the Company's enterprise-wide risk assessments; overseeing the Board of Directors' annual self-evaluation; and overseeing and monitoring general governance matters including...

  • Page 40
    ..., the current Chief Executive Officer, is not independent, because of his role as an executive officer of the Company. Material relationships can include commercial, industrial, banking, consulting, legal, accounting, charitable, and familial relationships, among others. The standards, which are set...

  • Page 41
    ...revenue of such entity or the Company. For Type 1, the Guidelines for Related Party Transactions provide that the Nominating and Governance Committee, prior to filing the Company's proxy statement, annually review the Related Party List, including the amount of payments to or from each related party...

  • Page 42
    ...accurate, timely and understandable disclosure in reports and documents that we file with the SEC and other regulators and in our other public communications; compliance with applicable laws, rules and regulations, including insider trading compliance; and accountability for adherence to the Code of...

  • Page 43
    ...English Literature. Mr. Donahue's qualifications to serve on our Board include his extensive experience and demonstrated leadership in the wireless communications industry, his experience in service-oriented industries and as an executive and board member of several publicly traded companies. - 17 -

  • Page 44
    ... Chief Executive Officer of GE Medical Systems - Asia, where he was responsible for the company's $1.6 billion sales and services business in the Asia-Pacific region. During his 10-year career with GE, Mr. Gursahaney held senior leadership roles in services, marketing and information management. His...

  • Page 45
    ... a member of our Board of Directors since the Separation on September 28, 2012. Mr. Paliwal currently serves as Chairman of the Board, Chief Executive Officer and President of Harman International, a company that designs, manufactures and markets a wide range of audio and information solutions for...

  • Page 46
    ... per year and an annual equity award of restricted stock units with a grant date fair value of approximately $120,000 and a one-year vesting term. There are no other related person transactions between the Company and Mr. Meister or any of his immediate family members or the Corvex Group requiring...

  • Page 47
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table provides information regarding the beneficial ownership of our common stock as of December 31, 2012 by (i) each of the individuals who currently serve as our directors; (ii) each of our named executive officers; and (...

  • Page 48
    ... Section 16(a) filing requirements applicable to them during the fiscal year ended September 28, 2012. Executive Officers Naren Gursahaney (age 51)-Mr. Gursahaney, a member of the Board of Directors, is our Chief Executive Officer of the Company and whose biographical information is set forth above...

  • Page 49
    ... including human resources, information technology, corporate communications, procurement, real estate, safety and corporate security. Previously, Ms. Graham held executive leadership roles in several life science companies. She began her career in the insurance and investment management industry...

  • Page 50
    ...Marketing and Customer Officer of Tyco's ADT North American Residential business segment. Before joining ADT in May 2012, Mr. Wells served as Executive Vice President and Chief Marketing Officer for 24 Hour Fitness, overseeing all marketing communications, public relations, 24hourfitness.com, member...

  • Page 51
    ... Financial Officer of Tyco Security Solutions Vice President of Human Resources of Tyco Security Solutions On September 28, 2012, the Company became an independent, publicly-traded company as a result of Tyco's distribution, on a pro rata basis, of all of the shares of ADT to Tyco stockholders...

  • Page 52
    ... Programs. As a newly independent public company, ADT has designed and will continue to refine and further develop its executive compensation objectives, policies, practices and programs to support its strategic mission and business objectives. The objectives of the compensation plans of the Company...

  • Page 53
    ... September 28, 2012, included the levels of compensation of our named executive officers following the Separation, including base salary, target annual incentive award and target long-term incentive award values, as well as the target value of one-time equity awards granted in fiscal year 2013 (the...

  • Page 54
    ... independent members of the Board of Directors. With respect to our other named executive officers and senior officers, the Chief Executive Officer and the Chief Human Resources and Administrative Officer develop the pay strategies and recommendations, which our Compensation Committee then reviews...

  • Page 55
    ... the end of fiscal year 2012, Tyco management determined that fiscal year 2012 compensation for our named executive officers (other than Ms. Mikells) should be equal to the compensation levels for fiscal year 2011, and any adjustments to compensation resulting from anticipated changes to their roles...

  • Page 56
    ... a significant portion of the executive's total pay opportunity to share price, provide long-term accountability for executives, and offer the incentive of performance-based opportunities for capital accumulation in lieu of a pension plan for our executive management. We provide limited perquisites...

  • Page 57
    ... Award Total Donald Boerema (Chief Corporate Development Officer): Base Salary Target Bonus Target Annual Long-Term Incentive Award Total Mark Edoff (SVP, Business Operations Optimization): Base Salary Target Bonus Target Annual Long-Term Incentive Award Total Anita Graham (Chief Human Resources and...

  • Page 58
    ... the Officer Short-Term Bonus Plan but may not increase awards. Long-Term Incentive Awards In fiscal year 2013, our Compensation Committee granted long-term equity incentive awards to certain employees including our named executive officers. These awards were in the form of stock options, restricted...

  • Page 59
    ... date value or the target value, as applicable, for each form of award for both the annual equity grants and the Founders' Grants for each of our named executive officers: Fiscal Year 2013 Long-Term Equity Incentive Awards Annual Equity Award Grants Options RSUs PSUs One-Time Founders Grants Options...

  • Page 60
    ... the key terms and provisions of the severance plans that are currently in effect. Severance Arrangements for Named Executive Officers Description Change-in-Control Other Terminations (not Change-inControl) Governing document: CIC Severance Plan. For equity awards, individual award agreements...

  • Page 61
    ... and stock options are forfeited unless the executive is retirement eligible, in which case awards vest pro rata based on the number of full months of service completed from the grant date through the termination date. Executive receives one additional year of option vesting. Performance share units...

  • Page 62
    ... the cap results in greater after tax payments to executive, otherwise benefits are not capped. Subject to confidentiality and nondisparagement covenants. At the Company's discretion for up to 12 months. N/A N/A Restrictive covenants: • Prohibited from soliciting customers and employees of the...

  • Page 63
    ... a salary increase for fiscal year 2012. Instead, the Tyco Compensation Committee determined that any salary increase should go into effect at the time of the Separation to account for the increased level of responsibility of our named executive officers in their new roles with ADT. Annual Incentive...

  • Page 64
    ... Income of ADT NA Residential & Small Business before special items ("Adjusted Operating Income") • Free Cash Flow ("Adjusted FCF") of ADT NA Residential/& Small Business and ADT Commercial (now known as Tyco Integrated Security) • Net Revenue of ADT NA Residential & Small Business (in constant...

  • Page 65
    ... dating back to fiscal 2008. For purposes of the annual incentive plan, the Tyco Compensation Committee treated all charges related to this matter as though they were incurred in fiscal 2012, effectively eliminating any benefit that the named executive officers had received in prior years. Long-Term...

  • Page 66
    ... the "Grants of Plan Based Awards" table. No equity awards held by our named executive officers vested as a result of the Separation. Due to the pending Separation, the performance period for the fiscal 2012 PSU awards was originally the one year period ending on the expected closing date of the...

  • Page 67
    ...to outstanding Tyco equity awards in the event of certain transactions, including the distribution of our common stock in connection with the Separation on September 28, 2012. Accordingly, in October 2011 the Tyco Compensation Committee authorized that various adjustments be made to outstanding Tyco...

  • Page 68
    ... options changed as a result of these conversions. Executive Benefit Plans and Other Elements of Compensation While employed by Tyco, our named executive officers participated in the benefit plans that were available to substantially all of Tyco's U.S. employees. Our named executive officers...

  • Page 69
    ... of Company stock are aligned with long-term shareholder interests. The current stock ownership requirement for our executive officers is six times base salary for Mr. Gursahaney and three times base salary for each other executive officer, including each of our named executive officers. ADT shares...

  • Page 70
    ...the Company's securities, other than the exercise of any Company-issued stock option. The policy also restricts trading for a limited group of Company employees (including named executive officers and directors) to defined window periods that follow our quarterly earnings releases. Tax Deductibility...

  • Page 71
    ...that employed any member of the ADT Compensation Committee or Board of Directors. EXECUTIVE COMPENSATION AND OTHER INFORMATION Historical Compensation Information The information set forth in the following table reflects compensation earned during fiscal year 2012 by our named executive officers (Mr...

  • Page 72
    ...Supplemental Long-Term Tax Gross- Retirement Plan Total All Other Year Perquisite Universal Life Disability Care Ups Contributions Miscellaneous Compensation Named Executive Current Officers Naren Gursahaney Kathryn Mikells Donald Boerema Mark Edoff Anita Graham (a) 2012 $15,250 2011 $59,750 2012...

  • Page 73
    ... table summarizes cash-based and equity-based awards for each of the Company's named executive officers that were granted during fiscal year 2012 under the 2004 Tyco Stock and Incentive Plan. Name (a) Award Type $305,000 $610,000 $1,220,000 8,100 18,000 36,000 Grant Date (b) 9,000 2,649 All Other...

  • Page 74
    ... (6) Amounts reported in columns (d) through (f) represent potential annual performance bonuses that the named executive officers could have earned under the Company's annual incentive plan for fiscal year 2012. The Board approved a maximum bonus payout of 0.25% of net income before special items...

  • Page 75
    ... fiscal year 2012 in October 2011. The award for each of our named executive officers (excluding Ms. Mikells, whose grant of equity was not made as part of the annual grant) consisted of a mix of stock options, PSUs and RSUs. For stock options, the exercise price equals the fair market value of Tyco...

  • Page 76
    ... the conversion of Tyco equity awards into ADT equity awards. Dollar amounts are based on the NYSE closing price of $36.00 for the Company's common stock (on a "when-issued" basis) on September 28, 2012. Option Awards Stock Awards Equity Incentive Number of Market Plan Awards: Shares or Value of...

  • Page 77
    ... dates for each outstanding option award, as of September 28, 2012, for the named executive officers are as follows: Exercise Price Naren Kathryn Donald Mark Anita Gursahaney Mikells Boerema Edoff Graham Number of Shares Underlying Vesting Awards 2012 10/1/2012 10/7/2012 10/12/2012 10/12/2012...

  • Page 78
    ... Analysis-Elements of Compensation-Tyco Programs-Long-Term Incentive Awards-Treatment of Outstanding Equity Awards Upon Separation," the equity awards held by our named executive officers were converted in the Separation into ADT equity awards, or equity awards with respect to Tyco, ADT and Pentair...

  • Page 79
    ... Other Compensation." Under the terms of the Tyco SSRP, an eligible executive may choose to defer up to 50% of his or her base salary and up to 100% of his or her performance bonus. Amounts in column (d) include earnings or (losses) on the named executive officer's notional account in the Tyco SSRP...

  • Page 80
    ...-way closing share price of $56.26 on the NYSE on September 28, 2012. For each of ADT's named executive officers, the Tyco Severance Plan or the Tyco CIC Severance Plan governed termination benefits for the triggering events specified below. In addition, individual equity award agreements govern...

  • Page 81
    ... following a Change in Control under the terms of the Tyco Severance Plan. In addition to the amounts included in this table, our named executive officers would have been entitled to the annual performance bonus for the year in which employment was terminated. The bonus payments are included in the...

  • Page 82
    ... following table sets forth information concerning the fiscal year 2012 compensation paid by Tyco to our non-employee directors, a portion of which for Messrs. Donahue, Gordon and Paliwal relates to their service on the Tyco Board of Directors. Director Compensation for FY 2012 Fees Earned or Paid...

  • Page 83
    ... of the discount on security monitoring services. For Messrs. Colligan and Dutkowsky and Mses. Heller and Hyle, all other compensation includes $20,000 of fees paid in fiscal year 2012 prior to their election to our Board of Directors upon Separation. These fees were related to their attendance at...

  • Page 84
    ... ADT's internal controls and the overall quality of ADT's financial reporting; based on the foregoing reviews and discussions, recommended to the Board of Directors that the audited financial statements be included in the Annual Report on Form 10-K for the fiscal year ended September 28, 2012 filed...

  • Page 85
    ...Directors will consider the voting results and evaluate whether to select a different independent auditor. Audit and Non-Audit Fees For the fiscal year ended September 28, 2012 (the date of our Separation from Tyco), we did not pay any fees for professional services to Deloitte AG (Zurich), Deloitte...

  • Page 86
    ... performance in implementing our strategy to grow our business and create long-term stockholder value. We believe our programs effectively link executive pay to the financial performance of the Company while also aligning our named executive officers' interests with the interests of our stockholders...

  • Page 87
    ...other periodic reports and registration statements that have been filed by the Company with the SEC. Registered and Principal Executive Offices The registered and principal executive offices of The ADT Corporation are located at 1501 Yamato Road, Boca Raton, Florida 33431. The telephone number there...

  • Page 88
    ... on these websites is not part of this Proxy Statement. WEBSITE ACCESS TO REPORTS AND OTHER INFORMATION We file our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, Proxy Statements, and other documents electronically with the SEC under the Exchange Act. You...

  • Page 89
    ... Number) 1501 Yamato Road Boca Raton, Florida, 33431 (Address of Principal Executive Offices, including Zip Code) (561) 988-3600 (Registrant's Telephone Number, including Area Code) Title of each class Securities registered pursuant to Section 12(b) of the Act: Name of each exchange...

  • Page 90
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  • Page 91
    ... Information ...Directors, Executive Officers and Corporate Governance ...Executive Compensation ...Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ...Certain Relationships and Related Transactions, and Director Independence ...Principal Accounting Fees...

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  • Page 93
    ... 28, 2012, Tyco distributed all of the shares of ADT to its shareholders on a pro rata basis, thereby completing its spin-off of ADT (the "Separation") as an independent, publicly traded company. We conduct business through our operating entities and report financial and operating information in one...

  • Page 94
    ... current channels and the development of new ones, by continuing to improve sales force effectiveness and by strengthening our strategic marketing and promotional tactics. We will continue to manage the costs associated with adding new customers by optimizing lead generation and conversion, working...

  • Page 95
    ... become increasingly important. We currently offer a variety of alternate and back-up alarm transmission methods including cellular, digital radio and broadband Internet. Under our Companion Services brand, we provide monitoring center supported personal emergency response system ("PERS") products...

  • Page 96
    ...of our customer base is enrolled in a service plan which generates incremental recurring monthly revenue. Purchasers of our electronic security and home/business automation systems typically contract for ongoing system monitoring and maintenance at the time of initial equipment installation. Most of...

  • Page 97
    ... internal sales force, including our phone and field teams, supported by our direct response marketing efforts. We generated our remaining new customers in fiscal year 2012 through our authorized dealer program and, to a small extent, through agreements with leading homebuilders and related partners...

  • Page 98
    ... of installation and security and related services in the jurisdictions in which we operate. Monitoring Facilities and Support Services We operate six fully redundant monitoring facilities located across the United States and Canada. We employ approximately 3,800 monitoring center customer care...

  • Page 99
    ... that the market for residential and small business electronic security system sales, installation, monitoring and service in the United States and Canada is expected to be approximately $13 billion in 2012 and that it has grown at a compound annual growth rate of approximately 1% - 2% per year over...

  • Page 100
    ... no response to residential system alarms. The alarm industry is also subject to requirements, codes and standards imposed by various insurance, approval and listing and standards organizations. Depending upon the type of customer, security service provided and requirements of the applicable local...

  • Page 101
    ...16, 2012, we employed nearly 16,000 people. Approximately 10% of our field employees are covered by collective bargaining agreements. We believe that our relations with our employees and labor unions are good. Available Information ADT is required to file annual, quarterly and special reports, proxy...

  • Page 102
    ... including human resources, information technology, corporate communications, procurement, real estate, safety and corporate security. Previously, Ms. Graham held executive leadership roles in several life science companies. She began her career in the insurance and investment management industry...

  • Page 103
    ...Chief Executive Officer of GE Medical Systems - Asia, where he was responsible for the company's $1.6 billion sales and services business in the Asia- Pacific region. During his 10-year career with GE, Mr. Gursahaney held senior leadership roles in services, marketing and information management. His...

  • Page 104
    ... Risks Relating to Our Business We sell our products in highly competitive markets, which results in pressure on our profit margins and limits our ability to maintain or increase the market share of our products. The monitored security alarm industry is subject to significant competition and pricing...

  • Page 105
    ...our businesses, and they may not lead to the development of new technologies, products or services on a timely basis. Moreover, as we introduce new products such as ADT Pulse, we may be unable to detect and correct defects in the product or in its installation, which could result in loss of sales or...

  • Page 106
    ...-party use of our brand name. In particular, in recent years various third parties have used the ADT® brand name to engage in fraudulent activities, including inducing customers to switch monitoring service providers, generating leads for competitors and obtaining personal financial information...

  • Page 107
    ...to develop new products and services on a timely and cost-effective basis and to respond to emerging industry standards and other technological changes. Further, these third-party technology licenses may not always be available to us on commercially reasonable terms or at all. If our agreements with...

  • Page 108
    ...long period of time, our business, financial condition, results of operations and cash flows could be materially and adversely affected. If we experience higher rates of customer attrition, we may be required to change the estimated useful lives of assets related to our security monitoring customers...

  • Page 109
    ... increase our customer attrition rates and slow our new customer additions. In order to maintain our customer base that uses security and home/ business automation system components that are or could become obsolete, we may be required to upgrade or implement new technologies, including offering...

  • Page 110
    ... our services or charge their customers more for using our services, which could adversely affect our revenue and growth. Our interactive and home automation services are accessed through the Internet and our security monitoring services are increasingly delivered using Internet technologies. Some...

  • Page 111
    ..., certain security systems must meet fire and building codes in order to be installed, and it is possible that our current or future products and service offerings will fail to meet such codes, which could require us to make costly modifications to our products and services or to forgo marketing in...

  • Page 112
    ... from monitored security service companies, either as a matter of policy or by local ordinance. In certain cases, we have offered affected customers the option of receiving response from private guard companies, in most cases through contracts with us, which increases the overall cost to customers...

  • Page 113
    ... the generation of new customer accounts through our authorized dealer program, which accounted for approximately 45% of our new customer accounts for our 2012 fiscal year. Our future operating results will depend in large part on our ability to manage this generation strategy effectively. Although...

  • Page 114
    ... We may pursue business opportunities that diverge from our current business model, including expanding our products or service offerings, investing in new and unproven technologies, adding customer acquisition channels and forming new alliances with companies to market our services. We can offer no...

  • Page 115
    .... At the time of the Broadview Spin-Off, Broadview Security entered into an agreement pursuant to which The Brink's Company agreed to indemnify it for any and all liabilities and expenses related to The Brink's Company's former coal operations, including any health care coverage obligations...

  • Page 116
    ...and other corporate purposes, including dividend payments; increase our vulnerability to adverse economic and industry conditions; limit our flexibility in planning for, or reacting to, changes in our business and the markets in which we operate; restrict our ability to introduce new technologies or...

  • Page 117
    ... timing, declaration and payment of future dividends to holders of our common stock fall within the discretion of our board of directors and will depend on many factors, including our financial condition and results of operations, the capital requirements of our business, covenants associated with...

  • Page 118
    ... trading price of our common stock could decrease. Risks Relating to our Separation from Tyco We share responsibility for certain income tax liabilities of ADT, Tyco and Pentair Ltd., formerly Tyco Flow Control International Ltd. ("Pentair") for tax periods prior to and including September 28, 2012...

  • Page 119
    ...May 2010, including any liability of Broadview Security under the tax sharing agreement between Broadview Security and The Brink's Company dated October 31, 2008 (collectively, the "Broadview Tax Liabilities"). Costs and expenses associated with the management of Shared Tax Liabilities and Broadview...

  • Page 120
    ... make a payment to another party in respect of such other party's taxes. To the extent we are responsible for any liability under the 2012 Tax Sharing Agreement, there could be a material adverse impact on our financial condition, results of operations, cash flows or our effective tax rate in future...

  • Page 121
    ... and operational resources, including accounting systems and resources. The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition. Under the Sarbanes-Oxley Act, we are required to maintain effective disclosure controls and...

  • Page 122
    ... controls could have a material adverse effect on our business, financial condition, results of operations or cash flows. We may be unable to make, on a timely or cost-effective basis, the changes necessary to operate as an independent publicly-traded company, and we may experience increased costs...

  • Page 123
    ... the current Tyco organizational structure. As part of Tyco, we enjoyed certain benefits from Tyco's operating diversity, purchasing power, available capital for investments and opportunities to pursue integrated strategies with Tyco's other businesses. As an independent, publicly-traded company, we...

  • Page 124
    ... are used in the installation and service activities of our business. Our corporate headquarters is located in Boca Raton, FL. We are currently co-located in the same facility as Tyco. We have entered into a Separation and Distribution Agreement with Tyco, pursuant to which, we have agreed to share...

  • Page 125
    ...TX Customer Monitoring Center and Field Support Center ...Irving, TX National Sales Center ...Knoxville, TN Customer Monitoring Center ...Aurora, CO Field Support Center ...Calgary, Alberta Customer Monitoring Center ...Montreal, Quebec Customer Monitoring Center ...Corporate Headquarters Boca Raton...

  • Page 126
    ...common stock. High and low sales prices per share of our common stock as reported by the NYSE for each full quarterly period of fiscal years 2012 and 2011 are not provided as ADT common shares did not begin "regular way" trading on the NYSE until October 1, 2012. Dividends We intend to pay an annual...

  • Page 127
    ... on Rule 144A under the Securities Act and outside the United States to non-U.S. persons in offshore transactions in reliance on Regulation S under the Securities Act. We have agreed to file a registration statement pursuant to which we will either offer to exchange the notes for substantially...

  • Page 128
    ... this Annual Report and Management's Discussion and Analysis of Financial Condition and Results of Operations, included in Item 7 of this Annual Report. (in millions, except per share data) 2012 2011 2010 2009 2008 Consolidated and Combined Statements of Operations Data: Revenue ...Operating income...

  • Page 129
    ... of The ADT Corporation and its subsidiaries as an independent publicly-traded company. Prior to the Separation on September 28, 2012, our financial position, results of operations and cash flows consisted of Tyco's residential and small business security business in the United States, Canada and...

  • Page 130
    ...revenue generated from monthly monitoring fees. In any period, our business results will be impacted by the following factors: customer additions, costs associated with adding new customers, average revenue per customer, costs related to providing services to customers and customer tenure. We manage...

  • Page 131
    ...revenue, which represented the remaining 10% of total revenue in fiscal year 2012, consists of revenue associated with sale of equipment, deferred revenue related to upfront installations fees, non-routine repair and maintenance services and customer termination charges. Average Revenue per Customer...

  • Page 132
    ... 28, 2012 compared with September 30, 2011 primarily due to planned price escalations to certain existing customers and the addition of new customers at higher monthly rates. Increased take rates on new service offerings, including ADT Pulse, contributed to the higher average revenue per customer...

  • Page 133
    ...increase in operating income for fiscal year 2012 was partially offset by higher selling related expenses of approximately $36 million, which resulted from investments to grow our business, including expansion of our internal sales force and other lead generating activities. We also incurred charges...

  • Page 134
    ...to planned price escalations to certain existing customers. The increase in average revenue per customer was also driven by the addition of new customers at higher monthly rates as well as increased take rates on new service offerings. Such offerings included the launch of ADT Pulse, which generates...

  • Page 135
    ...parties outside of our authorized dealer network, such as other security service providers, on a selective basis. These items are subtracted from cash from operating activities because they represent long-term investments that are required for normal business activities. As a result, FCF is a useful...

  • Page 136
    ...new service offerings, including ADT Pulse, which we launched in fiscal year 2011, and incremental revenue and synergies achieved related to the acquisition and integration of Broadview Security. FCF (in millions) 2012 2011 2010 Net cash provided by operating activities ...Dealer generated customer...

  • Page 137
    ... subscriber systems and dealer generated customer accounts. Our cash flows from operations includes cash received from monthly recurring revenue and upfront installation fees received from customers, less cash costs to monitor customers and certain costs, principally marketing and indirect selling...

  • Page 138
    ... September 28, 2012, we had no commercial paper outstanding and had no borrowings under our revolving credit facility. In accordance with the Separation and Distribution Agreement between Tyco and ADT, additional cash may be transferred between the companies after the Separation related to the final...

  • Page 139
    ... contractual monitoring and maintenance service revenue, non-refundable installation fees related to subscriber system assets, sales of equipment and other services. We follow the authoritative literature on revenue recognition, which requires us to defer certain revenue associated with customer...

  • Page 140
    ...fees for monitoring and maintenance services are recognized on a straight-line basis over the contract term. Customer billings for services not yet rendered are deferred and recognized as revenue as the services are rendered. The balance of deferred revenue is included in current liabilities or long...

  • Page 141
    ... in equity and debt markets resulting in higher discount rates; and unexpected regulatory changes. Long-Lived Assets We review asset groups held and used by us, including property and equipment and amortizable intangible assets, for impairment whenever events or changes in business circumstances...

  • Page 142
    ... and liabilities in the future. Management records the effect of a tax rate or law change on our deferred tax assets and liabilities in the period of enactment. Future tax rate or law changes could have a material effect on our results of operations, financial condition or cash flows. In addition...

  • Page 143
    ... and Canada. These operations expose us to a variety of market risks, including the effects of changes in interest rates and foreign currency exchange rates. We monitor and manage these financial exposures as an integral part of our overall risk management program. Our policies allow for the use of...

  • Page 144
    ... and Canadian operations. We may from time to time use financial derivatives, which may include forward foreign currency exchange contracts and foreign currency options, to hedge this risk. We generally do not hedge investments in foreign subsidiaries since such investments are long-term in nature...

  • Page 145
    ... Control Over Financial Reporting Before the Separation, we relied on certain financial information and resources of Tyco to manage specific aspects of our business and report results. These included investor relations, corporate communications, accounting, tax, legal, human resources, benefit plan...

  • Page 146
    ... Accounting Officer, as well as all other employees and directors of ADT, meets the requirements of a "code of ethics" as defined by Item 406 of Regulation S-K. Our Code of Conduct also meets the requirements of a code of business conduct and ethics under the listing standards of the New York Stock...

  • Page 147
    ... Services Agreement between Tyco Integrated Security Canada, Inc. and ADT Security Services Canada, Inc. Tax Sharing Agreement, dated September 28, 2012 by and among Pentair Ltd., Tyco International Ltd., Tyco International Finance S.A., and The ADT Corporation Non-Income Tax Sharing Agreement dated...

  • Page 148
    ... Global Markets Inc. and J.P. Morgan Securities LLC, as bookrunners and lead arrangers (2) (2) (2) (2) (2) (2) (2) (2) 10.15* The ADT Corporation 2012 Stock and Incentive Plan 10.16* The ADT Corporation Severance Plan for U.S. Officers and Executives 10.17* The ADT Corporation Change in Control...

  • Page 149
    ... of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities indicated on November 27, 2012. Name Capacity /s/ Naren Gursahaney Naren Gursahaney Kathryn A. Mikells Kathryn A. Mikells Chief Executive Officer and...

  • Page 150
    THE ADT CORPORATION INDEX TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm ...Consolidated and Combined Statements of Operations ...Consolidated and Combined Balance Sheets ...Consolidated and Combined Statements of Cash Flows ......

  • Page 151
    ... also include allocations from Tyco. These allocations may not be reflective of the actual level of assets, liabilities, or costs which would have been incurred had the Company operated as a separate entity apart from Tyco. /s/ DELOITTE & TOUCHE LLP Certified Public Accountants Boca Raton, Florida...

  • Page 152
    THE ADT CORPORATION CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS Fiscal Years Ended September 28, 2012, September 30, 2011 and September 24, 2010 (in millions, except per share data) 2012 2011 2010 Revenue ...Cost of revenue ...Selling, general and administrative expenses ...Separation costs ...

  • Page 153
    THE ADT CORPORATION CONSOLIDATED AND COMBINED BALANCE SHEETS As of September 28, 2012 and September 30, 2011 (in millions, except share and per share data) 2012 2011 Assets Current Assets: Cash and cash equivalents ...Accounts receivable trade, less allowance for doubtful accounts of $25 and $23, ...

  • Page 154
    ... Proceeds from issuance of long-term debt ...Repayment of long-term debt ...Debt issuance costs ...Allocated debt activity ...Change in due to (from) Tyco and affiliates ...Change in parent company investment ...Net cash (used in) provided by financing activities ...Effect of currency translation on...

  • Page 155
    ... EQUITY Fiscal Years Ended September 28, 2012, September 30, 2011 and September 24, 2010 (in millions) Number of Common Shares Additional Paid-In Capital Parent Company Investment Accumulated Other Comprehensive Income (Loss) Total Stockholders' Equity Common Stock Balance as of September 25, 2009...

  • Page 156
    ... The ADT Corporation and its subsidiaries as an independent publicly-traded company. Prior to the Separation on September 28, 2012, the Company's financial position, results of operations and cash flows consisted of Tyco's residential and small business security business in the United States, Canada...

  • Page 157
    ...fees for monitoring and maintenance services are recognized on a straight-line basis over the contract term. Customer billings for services not yet rendered are deferred and recognized as revenue as the services are rendered. The balance of deferred revenue is included in current liabilities or long...

  • Page 158
    ...liabilities are translated into U.S. dollars using rates of exchange at the balance sheet date and translation adjustments are recorded in accumulated other comprehensive income. Revenue and expenses are translated at average rates of exchange in effect during the year. Cash and Cash Equivalents-All...

  • Page 159
    ... the ADT dealer program. These contracts and related customer relationships are recorded at their contractually determined purchase price. During the initial period of the customer contract, generally twelve to fifteen months, any cancellation of monitoring service, including those that result from...

  • Page 160
    ...revision to the amortization method or remaining useful lives. Long-Lived Asset Impairments-The Company reviews long-lived assets, including property and equipment and amortizable intangible assets, for impairment whenever events or changes in business circumstances indicate that the carrying amount...

  • Page 161
    ... in the future. Management records the effect of a tax rate or law change on the Company's deferred tax assets and liabilities in the period of enactment. Future tax rate or law changes could have a material effect on the Company's results of operations, financial condition or cash flows. In...

  • Page 162
    ... benefit plans. The guidance became effective for the Company in the fourth fiscal quarter of 2012. The adoption of the guidance did not have a material impact on the Company's financial position, results of operations or cash flows. Recently Issued Accounting Pronouncements-In June 2011...

  • Page 163
    ... Account Purchases During fiscal years 2012, 2011 and 2010, the Company paid $648 million, $581 million and $532 million, respectively, for customer contracts for electronic security services. Customer contracts generated under the ADT dealer program during 2012, 2011 and 2010 totaled approximately...

  • Page 164
    ... outstanding as of May 14, 2010 electing mixed consideration or not making an election ...Exchange ratio ...Tyco shares issued to BHS shareholders making a mixed election or not making an election ...Total Tyco common shares issued ...Tyco's average common share price on May 14, 2010 ...Total stock...

  • Page 165
    ...The fair value was determined using the Black-Scholes model for stock option awards and Tyco's closing stock price for the restricted and deferred stock unit awards. The fair value of outstanding BHS stock-based compensation awards that immediately vested at the effective time of the acquisition was...

  • Page 166
    ...advisory and legal fees and integration costs; and Restructuring charges primarily related to employee severance and one-time benefit arrangements The supplemental pro forma financial information gives effect to the acquisition, but should not be considered indicative of the results that would have...

  • Page 167
    ...fair value, management relies on and considers a number of factors, including operating results, business plans, economic projections, anticipated future cash flows and other market data. There were no goodwill impairments as a result of performing the Company's 2012, 2011 and 2010 annual impairment...

  • Page 168
    ...945 Changes in the net carrying amount of contracts and related customer relationships for the years ended 2012 and 2011 are as follows ($ in millions): Balance as of September 30, 2011 ...Customer contract additions, net of dealer charge-backs ...Amortization ...Currency translation ...Balance as...

  • Page 169
    ... indenture in July 2012, the Company's working capital requirements and capital for general corporate purposes, including acquisitions and capital expenditures, were satisfied as part of Tyco's company-wide cash management practices. Accordingly, Tyco's consolidated debt and related interest expense...

  • Page 170
    ...annual interest rate) and (ii) to use commercially reasonable efforts to cause the exchange offer registration statement to be declared effective under the Securities Act within 365 days of July 5, 2012. On September 12, 2012 the Company established a $750 million commercial paper program, supported...

  • Page 171
    ... of long-term debt ...Total long-term debt ...6. Income Taxes $ 6 6 6 6 756 1,777 2,557 11 19 2,527 2 $2,525 Prior to the Separation, the Company's operating results were included in Tyco's various consolidated U.S. federal and state income tax returns, as well as non-U.S. tax filings in Canada and...

  • Page 172
    ... 28, 2012 have been recorded on a consolidated return basis and include tax attributes allocated to the Company at the time of the Separation. The inclusion of these tax attributes resulted in tax carryforwards and credits, which generated higher deferred income tax assets for the Company as of...

  • Page 173
    ... that resulted from the Separation. The Company does not anticipate that the total amount of the unrecognized tax benefits will change significantly within the next twelve months. Many of the Company's uncertain tax positions relate to tax years that remain subject to audit by the taxing authorities...

  • Page 174
    ..., including any liability of Broadview Security under the tax sharing agreement between Broadview Security and The Brink's Company dated October 31, 2008 (collectively, "Broadview Tax Liabilities"). Costs and expenses associated with the management of Shared Tax Liabilities, Distribution Taxes, and...

  • Page 175
    ... will not have a material effect on its financial condition, results of operations or cash flows. Broadview Security Contingency On May 14, 2010, the Company acquired Broadview Security, a business formerly owned by The Brink's Company. Under the Coal Industry Retiree Health Benefit Act of 1992, as...

  • Page 176
    ...Tax Sharing Agreement governs the rights and obligations of ADT, Tyco and Pentair for certain tax liabilities with respect to periods or portions thereof ending on or before the date of the Distribution. ADT is responsible for all of its own taxes that are not shared pursuant to the 2012 Tax Sharing...

  • Page 177
    ... position, results of operations, cash flows or its effective tax rate in future reporting periods. Other liabilities in the Company's Consolidated and Combined Balance Sheet as of September 28, 2012 include $19 million for the fair value of ADT's obligations under certain tax related agreements...

  • Page 178
    ... Tyco's consolidated headcount or revenue. Corporate overhead expenses primarily related to centralized corporate functions, including finance, treasury, tax, legal, information technology, internal audit, human resources and risk management functions. During fiscal 2012, 2011 and 2010, the Company...

  • Page 179
    ... cost ...Weighted-average assumptions used to determine net periodic pension cost during the year: Discount rate ...Expected return on plan assets ...Rate of compensation increase ... $- 3 (4) 1 $- $ 1 3 (4) 1 $ 1 $ 1 3 (3) 2 $ 3 4.5% 8.0% N/A 5.0% 8.0% 4.0% 5.5% 8.0% 4.0% During fiscal 2011...

  • Page 180
    ... performance of asset classes over long-term periods, asset class performance expectations as well as current and future economic conditions. The Company's investment strategy for its pension plan is to manage the plan on a going-concern basis. Current investment policy is to maintain an adequate...

  • Page 181
    ..., 2011 are presented in the table below for the Company's defined benefit plan. ($ in millions) September 28, 2012 Level 1 Level 2 Total Equity securities: U.S. equity securities ...Non-U.S. equity securities ...Fixed income securities: Government and government agency securities ...Corporate debt...

  • Page 182
    ... is traded. Government and agency securities and corporate debt securities are valued using the most recent bid prices or occasionally the mean of the latest bid and ask prices when markets are less liquid. Asset-backed securities including mortgage backed securities are valued using broker/dealer...

  • Page 183
    ... benefit plans on behalf of certain employees. Pension expense related to multi-employer plans was not material for 2012, 2011 and 2010. Defined Contribution Retirement Plans-Prior to the Separation, the Company maintained through Tyco several defined contribution retirement plans, which include...

  • Page 184
    ... is included in selling, general and administrative expenses. The tax benefit associated with the Company's share-based compensation arrangements during 2012, 2011 and 2010 was not material. Stock Options-Options are granted to purchase common shares at prices that are equal to the fair market value...

  • Page 185
    ... separation is representative of ADT. The weighted-average assumptions used in the Black-Scholes pricing model for options converted on September 28, 2012 were as follows: Risk-free interest rate ...Expected life of options (years) ...Expected annual dividend yield ...Expected stock price volatility...

  • Page 186
    ... Retirement Plans(1) Balance as of September 25, 2009 Pre-tax current period change ...Balance as of September 24, 2010 Pre-tax current period change ...Income tax benefit ...Balance as of September 30, 2011 Pre-tax current period change ...Income tax benefit ...Balance as of September 28, 2012...

  • Page 187
    ... except per share amounts) 2012 2011 2010 Basic Earnings Per Share Numerator: Net income ...Denominator: Weighted-average shares outstanding ...Effect of vested deferred stock units ...Basic weighted-average shares outstanding ...Basic earnings per share ...Diluted Earnings Per Share Numerator: Net...

  • Page 188
    ...the Separation. These charges are included in selling, general and administrative expenses, for the fiscal years ended in 2012, 2011 and 2010 and are as follows ($ in millions): 2012 2011 2010 Separation Related Actions Employee severance and benefits ...Total ...2011 Program Employee severance and...

  • Page 189
    The Company also incurred restructuring charges of nil, $1 million and nil for the years ended 2012, 2011 and 2010, respectively, for restructuring actions initiated prior to 2009. The reserve for these actions, which primarily relates to facility exit costs for long-term non-cancelable lease ...

  • Page 190
    ... September 28, 2012, and the Company issued 231 million shares of common stock. This initial share amount has been used to calculate earnings per share for all periods presented. See Note 13 for additional information on earnings per share. 17. Subsequent Events The Company has evaluated subsequent...

  • Page 191
    THE ADT CORPORATION SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS ($ in millions) Balance at Beginning of Year Additions Charged to Income Balance at End of Year Description Other Deductions Allowance for Doubtful Accounts: Year Ended September 24, 2010 ...Year Ended September 30, 2011 ...Year ...

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