ADT 2013 Annual Report Download

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Table of contents

  • Page 1

  • Page 2
    ... ensures the quality, reliability & security of ADT's solutions Our Service 139 YEARS OF EXPERIENCE 90% aided brand awareness among consumers ADT PULSE® INTERACTIVE SOLUTIONS ADT among the first companies to offer home automation 6.5M CUSTOMERS 52,000 alarm signals answered every day THE MOST...

  • Page 3
    ... public company, and a new management team fully aligned to drive our strategy, ADT will continue to lead and redefine security for the next generation. Thank you for your support and partnership as we forge ahead. Regards, Naren Gursahaney President & Chief Executive Officer The ADT Corporation

  • Page 4
    ...: we help save lives for a living. The mota-Clem family was spending a quiet evening at home when Aline began feeling weak and nauseous. Their carbon monoxide detector alerted ADT that the deadly gas was seeping from their faulty water heater. ADT quickly dispatched the fire department and guided...

  • Page 5
    THE ADT CORPORATION 2013 ANNUAL REPORT we are dedicated to earning the lifelong trust of our customers every day by helping them protect and connect to what matters most-their families, homes and businesses. Teen vandals threw a cinder block through a window of the Arizona Animal wellness Clinic ...

  • Page 6
    ...to Serve 3 ) FY 2012 FY 2013 Average new FY 2011 Existing Base FY 2011 FY 2012 FY 2013 12.7% 13.5% 13.9% 1 new represents ARPU for both new and resale gross additions. 2 Direct includes upgrades for existing customers to ADT Pulse. 3 Cost to serve is before special items of $28 million, $18...

  • Page 7
    ... Time, on Thursday, March 13, 2014 at the Embassy Suites Boca Raton, 661 NW 53rd Street, Boca Raton, Florida. Details of the business to be conducted at the Annual Meeting are given in the accompanying Notice of Annual Meeting and Proxy Statement, which provides information required by applicable...

  • Page 8
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  • Page 9
    ... Annual Report on Form 10-K are available online at www.proxyvote.com. By Order of the Board of Directors, Items of Business: • To elect the members of our Board of Directors, each as named in the attached Proxy Statement. N. David Bleisch Senior Vice President, Chief Legal Officer and Corporate...

  • Page 10
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  • Page 11
    ... Summary Fiscal Year 2013 Business Highlights Overview of Compensation Programs Fiscal Year 2013 Compensation and Decisions Pay for Performance Process for Determining Executive Officer Compensation (including NEOs) Components of Compensation Programs 2014 Incentive Plan Design Changes 22 22 22...

  • Page 12
    ... Upon Termination or Change in Control 33 33 34 35 37 39 40 40 COMPENSATION OF NON-MANAGEMENT DIRECTORS 43 AUDIT COMMITTEE REPORT 44 PROPOSAL NUMBER TWO-RATIFICATION OF THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Audit and Non-Audit Fees Policy on Audit Committee Pre...

  • Page 13
    ...PROXY STATEMENT AND THE ANNUAL MEETING INFORMATION ABOUT THIS PROXY STATEMENT AND THE ANNUAL MEETING Questions and Answers about Voting Your Shares Why did I receive these proxy materials? The ADT Corporation ("ADT" or the "Company") has sent a Notice of Internet Availability of Proxy Materials and...

  • Page 14
    ... Annual Meeting and you are a holder of record, we encourage you to complete and mail the enclosed card to vote your shares by proxy or vote by phone or the Internet. Telephone and Internet voting facilities for stockholders will be available 24 hours a day and will close at 11:59 p.m. Eastern Time...

  • Page 15
    ... request to our Corporate Secretary at The ADT Corporation, 1501 Yamato Road, Boca Raton, Florida 33431. wants to present a matter for action at the 2015 Annual Meeting, but chooses not to do so under the Exchange Act Rule 14a-8, must deliver to ADT, at its principal executive offices, on or after...

  • Page 16
    ... for the 2014 Annual Meeting, form of proxy card and 2013 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 27, 2014, we mailed to our...

  • Page 17
    ... with the instructions on it and received at the address set forth below by the times (being local times) and dates specified therein: Vote Processing c/o Broadridge 51 Mercedes Way Edgewood, NY 11717 If your shares are held in street name and you have received hard copies of the proxy materials...

  • Page 18
    ... Secretary at The ADT Corporation, 1501 Yamato Road, Boca Raton, Florida 33431. ADT's Board of Directors is responsible for directing, and providing oversight of, the management of ADT's business in the best interests of the stockholders and consistent with good corporate citizenship. In carrying...

  • Page 19
    ... management discloses appropriate information fairly, fully, timely, and accurately to investors and regulators, and that the Company maintains a two-way communication channel with its investors and regulators. 5. Continuous Improvement: The directors remain abreast of new developments in corporate...

  • Page 20
    ...believes that the current leadership structure enables the Chief Executive Officer to focus on the operations of the Company's business, while the independent Chairman focuses on leading the Board in its responsibilities and helping the Board ensure that management is acting in the best interests of...

  • Page 21
    ... of Directors, effective at the end of his current term, which expires at the 2014 Annual Meeting. • Assignments to, and chairs of, the Audit and Compensation Committees are recommended by the Nominating and Governance Committee and selected by the Board of Directors. The independent directors as...

  • Page 22
    ... reviewing annually talent development and succession plans for executive officers other than the Chief Executive Officer and making recommendations to our Board of Directors; • reviewing and approving benefit and perquisite programs for executive officers; • administering the Company's equity...

  • Page 23
    ... our annual report on Form 10-K; and • reviewing and approving employment, retirement, severance and change-in-control agreements/arrangements for our executive officers. The Board of Directors has determined that all of the members of the Compensation Committee meet the independence requirements...

  • Page 24
    ...Gordon B. Heller R. Daly Management Experience Experience as a CEO, COO, President or Senior Vice President of a company or significant subsidiary, operating division or business unit. Independence Satisfy the independence requirements of the New York Stock Exchange. Financial Expertise Possess...

  • Page 25
    ... Dutkowsky is the Chief Executive Officer and a member of the board of directors of Tech Data Corporation. The Contract, including the payment for services, was analyzed under the Independence Standards and ADT's Guidelines for Related Party Transactions and determined to be a Type 1 matter since it...

  • Page 26
    ... and experience with respect to vision and strategy, management and leadership, business operations, business judgment, crisis management, risk assessment, industry knowledge, accounting and finance, corporate governance and global markets. Our Board of Directors does not have a specific policy...

  • Page 27
    ... after discussion with the Chairman of the Board of Directors and the Chief Executive Officer and agreement by the other members of the Board of Directors. The Board of Directors will consider nominations submitted by stockholders. The ADT Corporation 2014 P roxy S t a t ement 15 PROXY STATEMENT

  • Page 28
    ... experience with audit and financial issues and his past service on public company audit committees. Richard Daly (age 60)-Mr. Daly has been a member of our Board of Directors since January 2014. Mr. Daly currently serves as Chief Executive Officer and President of Broadridge Financial Solutions...

  • Page 29
    ... in the service-oriented communications industry and his corporate governance experience as a director of several publicly traded companies. Naren Gursahaney (age 52)-Mr. Gursahaney is the Company's President and Chief Executive Officer. He also serves as a member of the Company's Board of Directors...

  • Page 30
    ...AND MANAGEMENT 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, 2013 by (i) each of the individuals who currently serve as our directors; (ii) each of our named executive...

  • Page 31
    ... of the Company's equity securities, to file reports of their ownership of ADT common stock and of changes in such ownership with the SEC and the NYSE within specified time periods. Regulations also require ADT to identify in this Proxy Statement any person subject to this requirement who failed...

  • Page 32
    ... of Management. Donald Boerema Age 56 Mr. Boerema is the Company's Senior Vice President and Chief Corporate Development Officer. He leads the Health Business and is responsible for driving growth and enhancing customer experience for ADT's health services. He also directs ADT's corporate strategy...

  • Page 33
    ...Vice President and Chief Information Officer in June 2013. She is responsible for developing and executing ADT's information technology strategy in support of its product development and business operations. Ms. McLean has more than 30 years of business and strategic technology leadership experience...

  • Page 34
    ...in the evolving market for integrated security, home health monitoring, lifestyle and business productivity solutions. Overview of Compensation Programs The Company's compensation programs are designed to promote long-term value creation for stockholders and support the overall Company strategy and...

  • Page 35
    ... separation from Tyco to reflect our focus as a subscriber-based business with significant recurring monthly revenue. Among the changes we made were: • The introduction of a Recurring Revenue Growth measure to the Company's Annual Incentive Plan ("AIP") to support our strategy to increase revenues...

  • Page 36
    ... year 2013 long-term incentive programs were also designed to reward management for performance directly related to increasing stockholder value. Our CEO received 50%, and the other executives 40%, of long-term incentive value in stock options, which deliver value only when long-term stock price...

  • Page 37
    ... Committee's review. Farient regularly attends Compensation Committee meetings and in fiscal year 2013 advised the Committee on matters including, among others, incentive plan design, peer group composition and the compensation offered to our new Chief Financial Officer. Peer Group Development In...

  • Page 38
    ...also reviews base salaries periodically in situations of promotion or other change in job responsibilities. These reviews are based upon market data, internal pay equity and the individual executive's performance, level of experience and level of responsibility. 26 The ADT Corporation 2 0 1 4 P ro...

  • Page 39
    ... customer attrition, which is a key value driver and significantly impacts our operations. Provides individual line-of-sight to employees in supporting the strategic goals of the Company. Focuses on growing revenues in our Small Business unit, which currently accounts for 8% of our Recurring Monthly...

  • Page 40
    ... accounts purchased from the ADT dealer network), and then adding back the special items that increased or decreased cash flows, including, for fiscal year 2013, capital expenditures associated with Pulse Take Rates and Pulse upgrades (existing customers upgrading from a traditional security...

  • Page 41
    ... was equal to 50% of an employee's fiscal year 2013 annual equity award. Mr. Ferber was not employed by the company at the time the Founders' Awards were granted. Awards of equity under the annual LTIP process are delivered to employees utilizing a mix of Stock Options, RSUs and PSUs. The weighting...

  • Page 42
    ... Plan") or The ADT Corporation Change in Control Severance Plan (the "CIC Severance Plan"), depending upon the circumstances leading to their termination of service of employment with the Company. In the case of the CIC Severance Plan, a "double trigger" is required before benefits become available...

  • Page 43
    ... stock option. The policy also restricts trading for a limited number of Company employees (including the Executive Officers) and the members of the Company's Board of Directors to defined window periods that follow the timing of the filing of the Company's periodic reports with the SEC. The ADT...

  • Page 44
    ... Company served as an executive officer, director or member of a compensation committee of any other entity of which an executive officer or director of such entity is a member of the Compensation Committee of the Company or the Company's Board of Directors. PROXY STATEMENT 32 The ADT Corporation...

  • Page 45
    ... Plan and Supplemental Savings and Retirement Plan, taxable relocation benefits and associated tax gross-ups, and the value of the executive physical, as applicable. The amounts reported for fiscal years 2012 and 2011 were paid and/or earned with respect to similar programs administered by Tyco...

  • Page 46
    ...,000. Payments were made quarterly and were adjusted to reflect changes in salary. This benefit was discontinued by Tyco as of January 1, 2012. Supplemental Executive Insurance Benefits reflect premiums paid by Tyco for insurance benefits for the executive and, in the case of long-term care, for the...

  • Page 47
    ...Officer Short-Term Bonus Plan are reported in the Summary Compensation Table under the heading "Non-Equity Incentive Plan Awards." All numbers have been rounded to the nearest whole dollar, share or unit, with the exception of the exercise price of Stock Option awards. All Other Stock Awards: Number...

  • Page 48
    ...and/or Stock Options with respect to our annual long-term incentive plan. Amounts represent grants of RSUs and Stock Options with respect to a one-time Founders' Award. During fiscal year 2013, the Compensation Committee elected not to renew the Supplemental Executive Insurance Benefit policies that...

  • Page 49
    ...with the treatment of equity upon termination of employment as defined in The ADT Corporation 2012 Stock and Incentive Plan, and in the terms and conditions of her individual equity awards, all outstanding RSUs, PSUs and unvested Stock Options were cancelled upon her date of termination. Ms. Mikells...

  • Page 50
    ...YEAR 2013 NEO COMPENSATION-CONTINUED Vesting dates for each outstanding stock option award, as of September 27, 2013, for the NEOs are as follows: Exercise Price 2013 10/1/2013 10/12/2013 10/12/2013 11/30/2013 2014 5/4/2014 5/8/2014 10/12/2014 10/12/2014 11/30/2014 2015 5/4/2015 5/8/2015 10/12/2015...

  • Page 51
    ...sale price of the shares acquired via the exercise of the options and the exercise price of the options. The amounts shown in this column reflect the value of stock awards that vested based on the NYSE closing price per share of the Company's Common Stock on the date of vesting. The ADT Corporation...

  • Page 52
    ... or her base salary and 1.5 times his or her target annual bonus (2 times base salary and 2 times target annual bonus for Mr. Gursahaney). • Continued participation in the Company's medical, dental and health care reimbursement account coverage for 12 months following termination of employment (or...

  • Page 53
    ... employment. Each NEO must execute a general release of claims in favor of the Company in order to receive these benefits. The Company will not reimburse an NEO with respect to any excise tax triggered by Section 280G or 4999 of the Code, but any Change in Control payments will be capped at 3 times...

  • Page 54
    ... termination of employment or upon a qualifying termination in connection with a change in control, assuming that the triggering event or events occurred on September 27, 2013. Equity award amounts are calculated using a price of $41.26, which was the closing price of the Company's common stock on...

  • Page 55
    ... Board Accounting Standards Codification ("FASB ASC") Topic 718, excluding estimated forfeitures. The fair value of RSUs is computed by multiplying the total number of shares subject to the award by the closing price of the Company's common stock on the date of grant. RSUs granted to board members...

  • Page 56
    ... & Touche LLP required by applicable requirements of the Public Company Accounting Oversight Board regarding Deloitte & Touche LLP's communications with the Audit Committee concerning independence; • discussed with Deloitte & Touche LLP its independence from management and ADT and considered...

  • Page 57
    ... of ADT into a stand-alone public company from Tyco. Audit Related Fees: Audit-related fees consist of fees billed for services performed by D&T that are reasonably related to the performance of the audit or review of the Company's financial statements. Tax Fees: Tax fees consist of fees billed for...

  • Page 58
    ... execution of our business strategy. Our compensation programs and practices are intended to reward our named executive officers for their performance in implementing our strategy to grow our business and create long-term stockholder value. We believe our programs effectively link executive pay...

  • Page 59
    ...November 20, 2013 and 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...

  • Page 60
    ..., free of charge, a copy of any of our corporate documents listed above upon written request to our Corporate Secretary at The ADT Corporation, 1501 Yamato Road, Boca Raton, Florida 33431. By order of the Board of Directors, N. David Bleisch Senior Vice President, Chief Legal Officer and Corporate...

  • Page 61
    ... File Number: 001-35502 The ADT Corporation (Exact Name of Registrant as Specified in its Charter) Delaware (State or Other Jurisdiction of Incorporation or Organization) 45-4517261 (IRS Employer Identification Number) 1501 Yamato Road Boca Raton, Florida, 33431 (Address of Principal Executive...

  • Page 62
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  • Page 63
    ... Data ...Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...Controls and Procedures ...Other Information ...Directors, Executive Officers and Corporate Governance ...Executive Compensation ...Security Ownership of Certain Beneficial Owners and Management...

  • Page 64
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  • Page 65
    ... market for integrated security, home health monitoring, lifestyle and business productivity solutions. We originated in 1874 as the American District Telegraph Company, a consortium of 57 telegraph operators. During the early part of the 20th century, we began offering fire and burglar alarm...

  • Page 66
    ... of ADT Pulse in 2010, we pioneered interactive technologies that allow our customers to remotely monitor and manage their homes and small business environments through their electronic security systems. Depending on the service plan that they purchase and the type and level of product installation...

  • Page 67
    ... 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 the monitoring services and...

  • Page 68
    ...% of our new customers through our 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 2013 through our authorized dealer program and, to a small extent, through agreements with leading...

  • Page 69
    ... payment for their services for generating the account. Additions to our customer base typically require an upfront investment, consisting primarily of direct materials and labor to install the security and home/business automation systems, direct sales costs, indirect sales costs, marketing costs...

  • Page 70
    ...and Vivint, Inc. Success in acquiring new customers in the residential and small business security and home/business automation markets is dependent on a variety of factors, including company brand and reputation, market visibility, service and product capabilities, quality, price and the ability to...

  • Page 71
    ... in new subscribers; however, other factors, such as the level of marketing expense, can offset any seasonality effects. In addition, due to weather related incidences during the summer months, we may see increased servicing costs related to higher alarm signals and customer service requests...

  • Page 72
    ... Annual Meeting of Stockholders. David Bleisch-54 Mr. Bleisch is the Company's Senior Vice President, Chief Legal Officer and Corporate Secretary. Prior to the separation from Tyco in September 2012, he served as Vice President and General Counsel of Tyco's ADT North American Residential business...

  • Page 73
    ... Business in October 2013. He is responsible for driving growth in the residential market through marketing, sales and exceptional customer service. He joined ADT in April 2013 as Senior Vice President and Chief Customer Officer, responsible for developing strategies and executing programs...

  • Page 74
    ... Chief Customer Officer in October 2013. He is responsible for the organization's strategy and programs to deliver a superior customer experience, including customer care, monitoring, centralized field support and e-services. He previously served as the Company's Senior Vice President of Operations...

  • Page 75
    ...Vice President and Chief Information Officer in June 2013. She is responsible for developing and executing ADT's information technology strategy in support of its product development and business operations. Ms. McLean has more than 30 years of business and strategic technology leadership experience...

  • Page 76
    ... Chief Marketing and Customer Officer of Tyco's ADT North American Residential business segment. Before joining ADT in May 2012, he served as Executive Vice President and Chief Marketing Officer for 24 Hour Fitness, overseeing all marketing communications, public relations, 24hourfitness.com, member...

  • Page 77
    ... Puerto Rico and Canada with respect to the security alarm systems or personal emergency response systems businesses for a period of five years from the date of the Broadview Spin-Off. Following the expiration of the non-competition and non-solicitation agreement in October 2013, The Brink's Company...

  • Page 78
    ... the trade of our products and services and may have a material adverse effect on our business, financial condition, results of operations and cash flows. Failure to maintain the security of our information and technology networks, including personally identifiable and other information could...

  • Page 79
    ...shutdowns that could result in disruptions to our operations. Increasingly, our security and home/business automation products and services are accessed through the Internet, and security breaches in connection with the delivery of our services via the Internet may affect us and could be detrimental...

  • Page 80
    ...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 81
    ... effect on us. Furthermore, in certain jurisdictions, 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...

  • Page 82
    ... preventing us from soliciting Tyco's existing security customers in the United States and Canada for two years after the distribution date. This effectively prevents us from expanding our business into the commercial security market, other than the small business market, in these jurisdictions...

  • Page 83
    ...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 84
    ... services or charge their customers more for using our services, or government regulations relating to the Internet could change, which could adversely affect our revenue and growth. Our interactive and home automation services are accessed through the Internet and our security monitoring services...

  • Page 85
    ... adverse effect on our financial condition, results of operations or cash flows. We face risks in acquiring and integrating customer accounts. An element of our business strategy involves the bulk acquisition of customer accounts. Acquisitions of customer accounts involve a number of special risks...

  • Page 86
    ... customer accounts through our authorized dealer program, which accounted for approximately 40% of our new customer accounts for our 2013 fiscal year. Our future operating results will depend in large part on our ability to manage this generation strategy effectively. Although we currently generate...

  • Page 87
    ... 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 88
    ... legal entities acquired in the Broadview Security acquisition) are jointly and severally liable with certain of The Brink's Company's other current and former subsidiaries for health care coverage obligations provided for by the Coal Act. A Voluntary Employees' Beneficiary Associate ("VEBA") trust...

  • Page 89
    ... our stock may cause the distribution of ADT common shares by Tyco to its shareholders (the "Distribution") to be a taxable event for Tyco under Section 355(e) of the Code, and under the tax sharing agreement entered into in conjunction with the Separation, we could be required to indemnify Tyco for...

  • Page 90
    ..., changes in our business and the markets in which we operate; restrict our ability to introduce new technologies or exploit business opportunities; make it more difficult for us to satisfy our payment obligations with respect to our outstanding indebtedness; and increase the difficulty and/or cost...

  • Page 91
    ...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 Tax Liabilities are generally shared 20% by Pentair, 27.5% by ADT...

  • Page 92
    ... which could have a material adverse impact on our financial condition, results of operations, cash flows or our effective tax rate in future reporting periods. If the distribution of ADT or Pentair common shares by Tyco to its shareholders or certain internal transactions undertaken in anticipation...

  • Page 93
    ... from Tyco. As an independent, publicly-traded company, we believe that our business benefits from, among other things, allowing us to better focus our financial and operational resources on our specific business, allowing our management to design and implement corporate strategies and policies that...

  • Page 94
    ... timely or cost-effective basis, the continued changes necessary to operate as an independent publicly-traded company, and we may experience increased costs after the Separation. We may be unable to replace in a timely manner or on comparable terms the services or other benefits that Tyco previously...

  • Page 95
    ... businesses. As an independent, publicly-traded company, we do not have similar diversity or integration opportunities and may not have similar purchasing power or access to capital markets. The ownership by our executive officers and some of our directors of common shares, options or other equity...

  • Page 96
    ... which 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. In connection with the Separation, we have agreed to share the facility with Tyco until May 2014. However, we...

  • Page 97
    ... Health and Safety Code. We are currently unable to predict the outcome of this investigation or reasonably estimate a range of possible loss. In addition, we are subject to various claims and lawsuits in the ordinary course of our business, including from time to time contractual disputes, product...

  • Page 98
    PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. As of the close of business on November 13, 2013, there were 20,178 holders of record of our common stock. Our common stock is listed on the New York Stock Exchange ("NYSE")...

  • Page 99
    ... of our common stock. This graph is not being filed with the SEC as part of this Annual Report on Form 10-K and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934 (whether made before or after the date of the...

  • Page 100
    ... - 7,287,888 The ADT Corporation 2012 Stock and Incentive Plan (the "Plan") provides for the award of stock options, restricted stock units, performance share units and other equity and equity-based awards to officers and non-officer employees as well as members of our board of directors. Amounts...

  • Page 101
    ... and related Notes included in Item 8 of this Annual Report on Form 10-K and Management's Discussion and Analysis of Financial Condition and Results of Operations, included in Item 7 of this Annual Report on Form 10-K. (in millions, except per share data) 2013 2012 2011 2010 2009 Consolidated...

  • Page 102
    ...and business solutions, and our home health services, meet a range of customer needs for modern lifestyles. Our partner network is the broadest in the industry, and includes dealers, affinity organizations like USAA and AARP and technology providers. ADT delivers an integrated customer experience by...

  • Page 103
    ...'s level of service. We offer a wide range of services at various price points, from basic burglar alarm monitoring to our full suite of ADT Pulse interactive services. Our ability to increase monthly average revenue per customer depends on a number of factors, including our ability to effectively...

  • Page 104
    ... as well as to leverage costs of operations. To grow our customer base, we market our electronic security and home/business automation systems and services through national television advertisements, Internet advertising and also through a direct sales force and an authorized dealer network. The key...

  • Page 105
    ... cost expenses represent the cost of acquiring new customers reflected in our Consolidated and Combined Statements of Operations and include advertising, marketing, and both direct and indirect selling costs for all new accounts as well as sales commissions and installation equipment and labor costs...

  • Page 106
    As mentioned above, we manage our business to optimize a number of factors including: customer additions, costs associated with adding new customers, average revenue per customer, costs related to providing services to customers and customer tenure. In order to understand how these key factors ...

  • Page 107
    ... for fiscal year 2013 as compared to fiscal year 2012. This increase was primarily a result of higher corporate costs and dis-synergies associated with the separation of our business from the commercial security business of Tyco and increased customer service and maintenance expenses driven by...

  • Page 108
    ... 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. Gross customer additions were approximately...

  • Page 109
    ... independently, and by considering EBITDA in conjunction with net income as calculated in accordance with GAAP. FCF is defined as cash from operations less cash outlays related to capital expenditures, subscriber system assets, dealer generated customer accounts and bulk account purchases. Dealer...

  • Page 110
    ... accounts that we acquire from third 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...

  • Page 111
    ... in internally generated 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 provide services to our customers, including general...

  • Page 112
    ... our common stock for $600 million at an average price of $47.60 per share. This accelerated share repurchase program, which was funded with proceeds from the January 2013 Debt Offering, was completed on April 2, 2013. On November 18, 2013, our board of directors authorized a $1 billion increase to...

  • Page 113
    ... by our operating activities into our business. These investments are intended to enhance the overall customer experience, improve productivity of our field workforce and support greater efficiency of our back office systems and our customer care centers. For fiscal years 2013, 2012 and 2011, our...

  • Page 114
    ... 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-term liabilities, as appropriate. Revenue associated with the sale of equipment and related...

  • Page 115
    ...a separate unit of accounting. For contracts that have multiple elements, including equipment, installation, monitoring services and maintenance agreements, consideration is allocated to the units of accounting based on their relative selling price, subject to the requirement that revenue recognized...

  • Page 116
    ...in the business environment (i.e. sales volumes and prices); an economic recovery that significantly differs from our assumptions in timing or degree; volatility in equity and debt markets resulting in higher discount rates; and unexpected regulatory changes. Long-Lived Assets We review asset groups...

  • Page 117
    ... are not clearly historical in nature, including statements regarding business strategies, market potential, future financial performance, the effects of the separation of ADT from Tyco and other matters, are forward-looking. Without limiting the generality of the preceding sentence, any time we use...

  • Page 118
    ... States 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...

  • Page 119
    ... forms and that such information is accumulated and communicated to management, including the principal executive officer and principal financial officer, or persons performing similar functions, to allow timely decisions regarding required disclosure. Changes in Internal Controls There have been no...

  • Page 120
    ... Control-Integrated Framework. In accordance with the SEC's published guidance, management excluded an assessment of the internal control over financial reporting of Devcon Security Holdings, Inc. ("Devcon Security"), which was acquired on August 2, 2013. Devcon Security's total assets represent...

  • Page 121
    ... 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 Exchange, Inc. Our Code of Conduct is posted on the "Investor Relations" section of our website at www.adt.com under the heading "Corporate Governance." We...

  • Page 122
    ... the Company-Board Committees," "Corporate Governance of the Company-Director Independence," "Guidelines for Related Party Transactions" and "Certain Relationships and Related Party Transactions" is incorporated herein by reference. Item 14. Principal Accountant Fees and Services. The information in...

  • Page 123
    ... and Financial Statement Schedules. (a) The following documents are filed as part of this report: 1. 2. 3. The financial statements listed in the "Index to Consolidated and Combined Financial Statements" The financial statement schedules listed in the "Index to Consolidated and Combined Financial...

  • Page 124
    ... November 2013. THE ADT CORPORATION By: /s/ Michael Geltzeiler Michael Geltzeiler Senior Vice President and Chief Financial Officer (Principal Financial Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf...

  • Page 125
    THE ADT CORPORATION INDEX TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS Page Reports of Independent Registered Public Accounting Firm ...Consolidated Balance Sheets ...Consolidated and Combined Statements of Operations ...Consolidated and Combined Statements of Comprehensive Income ......

  • Page 126
    ... OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of The ADT Corporation Boca Raton, Florida We have audited the accompanying consolidated balance sheets of The ADT Corporation and subsidiaries (previously the North American Residential Security Business of...

  • Page 127
    REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of The ADT Corporation Boca Raton, Florida We have audited the internal control over financial reporting of The ADT Corporation and subsidiaries (the "Company") as of September 27, 2013, based on ...

  • Page 128
    THE ADT CORPORATION CONSOLIDATED BALANCE SHEETS As of September 27, 2013 and September 28, 2012 (in millions, except share and per share data) 2013 2012 Assets Current Assets: Cash and cash equivalents ...Accounts receivable trade, less allowance for doubtful accounts of $27 and $25, respectively ...

  • Page 129
    THE ADT CORPORATION CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS Fiscal Years Ended September 27, 2013, September 28, 2012 and September 30, 2011 (in millions, except per share data) 2013 2012 2011 Revenue ...Cost of revenue ...Selling, general and administrative expenses ...Separation costs ...

  • Page 130
    ...CORPORATION CONSOLIDATED AND COMBINED STATEMENTS OF COMPREHENSIVE INCOME Fiscal Years Ended September 27, 2013, September 28, 2012 and September 30, 2011 (in millions) 2013 2012 2011 Net income ...Other comprehensive income (loss): Foreign currency translation ...Retirement plans, net of tax effect...

  • Page 131
    ..., 2013, September 28, 2012 and September 30, 2011 (in millions) Number of Common Shares Additional Paid-In Capital Parent Company Investment Accumulated Other Comprehensive Income Total Stockholders' Equity Common Stock Balance as of September 24, 2010 ...Comprehensive income: Net income ...Change...

  • Page 132
    ...: Dealer generated customer accounts and bulk account purchases ...Subscriber system assets ...Capital expenditures ...Acquisition of businesses, net of cash acquired ...Other ...Net cash used in investing activities ...Cash Flows from Financing Activities: Proceeds from exercise of stock options...

  • Page 133
    ... and related monitoring services in the United States and Canada. Separation from Tyco International Ltd.-On September 19, 2011, Tyco International Ltd. ("Tyco" or "Parent") announced that its board of directors had approved a plan to separate Tyco into three separate, publicly traded companies...

  • Page 134
    ... 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-term liabilities, as appropriate. Revenue associated with the sale of equipment and related...

  • Page 135
    ... 2013, 2012 and 2011 was $48 million, $38 million and $35 million, respectively. Maintenance and repair expenditures are charged to expense when incurred. Depreciation is calculated using the straight-line method over the estimated useful lives of the related assets as follows: Buildings and related...

  • Page 136
    ...generated from an external network of independent dealers who operate under 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...

  • Page 137
    ... operating results, business plans, economic projections, anticipated future cash flows and other market data. There are inherent uncertainties related to these factors which require judgment in applying them to the testing of goodwill for impairment. The Company performs its annual impairment...

  • Page 138
    ..., deferred tax balances and tax carryforwards have been recorded as if ADT filed tax returns on a standalone basis separate from Tyco ("Separate Return Method"). The Separate Return Method applies the accounting guidance for income taxes to the standalone financial statements as if the Company was...

  • Page 139
    ... $187 million, respectively, of available-for sale securities, representing cash invested in money market mutual funds. These investments are classified as "Level 1" for purposes of fair value measurement, which is performed each reporting period. Any unrealized holding gains or losses are excluded...

  • Page 140
    ... approximate current market rates, which is considered a Level 2 input. Guarantees-In the normal course of business, the Company is liable for contract completion and product performance. In the opinion of management, such obligations will not significantly affect the Company's financial position...

  • Page 141
    ..., net of cash acquired. Devcon Security provides alarm monitoring services and related equipment to residential homes, businesses and homeowners associations in the United States. As part of this acquisition, the Company recognized intangible assets of $84 million in customer relationships and $60...

  • Page 142
    ... related costs and the line item presentation of these amounts in the Company's Consolidated and Combined Statements of Operations is as follows ($ in millions): 2012 2011 Cost of revenue ...Selling, general and administrative expenses ...Total integration related costs ...3. Property and Equipment...

  • Page 143
    ...Devcon Security) ...Customer contract additions, net of dealer charge-backs ...Amortization ...Currency translation ...Balance as of September 27, 2013 ...Balance as of September 30, 2011 ...Customer contract additions, net of dealer charge-backs ...Amortization ...Currency translation ...Balance as...

  • Page 144
    ... used for the repurchase of outstanding shares of ADT's common stock. Interest is payable on June 15 and December 15 of each year, commencing on June 15, 2013. The Company may redeem the notes, in whole or in part, at any time prior to the maturity date at a redemption price equal to the greater of...

  • Page 145
    As part of the Company's issuances of long-term notes in July 2012 and January 2013, the Company entered into exchange and registration rights agreements with the initial purchasers of the notes. Under each of these agreements, the Company is obligated to file a registration statement for an offer ...

  • Page 146
    ... information on the Company's NOL carryforwards. The reconciliation between the actual effective tax rate on continuing operations and the statutory U.S. federal income tax rate for fiscal years 2013, 2012 and 2011 is as follows: 2013 2012 2011 FORM 10-K Federal statutory tax rate ...Increases...

  • Page 147
    ... for intangible assets related to dealer generated customer accounts (excluding bulk account purchases) for U.S. tax purposes. This change permitted an immediate deduction of the existing tax basis of the dealer generated customer contracts pursuant to Internal Revenue Code (the "Code") Section 162...

  • Page 148
    ... to $40 million in unrecognized tax benefits may be resolved in the next twelve months. The resolution of certain components of the Company's uncertain tax positions will be offset by an adjustment to the receivable from Tyco, which was recorded pursuant to the tax sharing agreement entered into in...

  • Page 149
    ... 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 Broadview Tax Liabilities...

  • Page 150
    ... awards is to be claimed by the employee's current employer. The 2012 Tax Sharing Agreement requires the employer claiming a tax deduction for shares issued by the other companies to pay a percentage of the allowable tax deduction to the company issuing the equity. As a result, during the year ended...

  • Page 151
    ... time of its spin-off from The Brink's Company, Broadview Security entered into an agreement in 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. The Brink...

  • Page 152
    ...the extent ADT is responsible for any liability under the 2012 Tax Sharing Agreement, there could be a material impact on its financial position, results of operations, cash flows or its effective tax rate in future reporting periods. Other liabilities in the Company's Consolidated Balance Sheets as...

  • Page 153
    ...): 2013 2012 2011 Service cost ...Interest cost ...Expected return on plan assets ...Amortization of net actuarial loss ...Net periodic benefit cost ...Weighted-average assumptions used to determine net periodic pension cost during the year: Discount rate ...Expected return on plan assets ...Rate...

  • Page 154
    ... 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 155
    ... 10 10 1 $52 Equity securities consist primarily of publicly traded U.S. and non-U.S. equities. Publicly traded securities are valued at the last trade or closing price reported in the active market in which the individual securities are traded. Certain equity securities are held within commingled...

  • Page 156
    ... reported in the active market in which the individual security 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. When quotes are not available...

  • Page 157
    ... years 2013, 2012 and 2011. Postretirement Benefit Plans-The Company generally does not provide postretirement benefits other than pensions for its employees. However, certain acquired operations provide these benefits to employees who were eligible at the date of acquisition, and a small number of...

  • Page 158
    ... of Operations. The tax benefit associated with the Company's stock-based compensation arrangements during fiscal years 2013, 2012 and 2011 was $7 million, $3 million and $3 million, respectively. Stock Options-Options are granted to purchase common shares at prices that are equal to the fair market...

  • Page 159
    ... value of all restricted stock units is determined based on the closing market price of the underlying stock on the grant date. The number of performance share awards included in the total restricted stock units granted during fiscal year 2013 is immaterial. No performance share awards vested during...

  • Page 160
    ... stock are entitled to receive dividends when, as and if declared by its board of directors out of funds legally available for that purpose. Future dividends are dependent on the Company's financial condition and results of operations, the capital requirements of its business, covenants associated...

  • Page 161
    ...'s repurchases were treated as effective retirements of the purchased shares and therefore reduced reported shares issued and outstanding by the number of shares repurchased. In addition, the Company recorded the excess of the purchase price over the par value of the common stock as a reduction to...

  • Page 162
    ... excludes the effect of the potential exercise of options to purchase approximately 0.8 million shares of stock for fiscal years 2013, 2012 and 2011, as the effect would have been anti-dilutive. 12. Geographic Data Revenues are attributed to individual countries based upon the operating entity that...

  • Page 163
    ...on November 19, 2013, the Company entered into an accelerated share repurchase agreement under which it will repurchase approximately $400 million of ADT's common stock. This accelerated share repurchase program will be funded with available cash on hand. The actual number of shares repurchased will...

  • Page 164
    ...to, but excluding, the redemption date. As part of the notes issuance, the Company entered into an exchange and registration rights agreement with the initial purchasers of the notes and is obligated to file a registration statement for an offer to exchange the notes for a new issue of substantially...

  • Page 165
    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 30, 2011 ...Year Ended September 28, 2012 ...Year ...

  • Page 166
    ... ADT Corporation and the purchasers identified therein Form of Transition Services Agreement between Tyco International Ltd. and The ADT Corporation Form of Transition Services Agreement between Tyco Integrated Security Canada, Inc. and ADT Security Services Canada, Inc. Tax Sharing Agreement, dated...

  • Page 167
    ... Securities LLC, as bookrunners and lead arrangers The ADT Corporation 2012 Stock and Incentive Plan The ADT Corporation Severance Plan for U.S. Officers and Executives The ADT Corporation Change in Control Severance Plan ADT LLC Supplemental Savings and Retirement Plan Agreement, dated December...

  • Page 168
    ... ADT Corporation's Current Report on Form 8-K filed on December 18, 2012 (9) Incorporated by reference from the respective exhibit to The ADT Corporation's Current Report on Form 8-K filed on January 14, 2013 (10) Incorporated by reference from the respective exhibit to The ADT Corporation's Current...

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  • Page 171
    ...directed to ADT Shareholder Services at the company's corporate headquarters. Stock Exchange The company's common stock is traded on the new York Stock Exchange under the ticker symbol "ADT". ADT on the Internet The ADT Corporation 2013 Annual Report is available online at www.adt.com. ADT's website...

  • Page 172
    THE ADT CORPORATION 1501 Yamato Road Boca Raton, Florida 33431 www.ADT.com