ADT 2014 Annual Report Download

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January 23, 2015
Dear ADT Stockholder,
We closed the 2014 fiscal year making significant progress on each of our key performance measures, and delivered a strong second half
performance after some challenges at the outset of the year. Our steady progress in delivering against our strategic initiatives was evidenced by
a strong fourth fiscal quarter financial performance, driven by an increase in gross customer additions, a reduction in attrition, improvement in
cost efficiencies, and strong margin performance. We enter the new fiscal year with a clear focus on execution and maintaining the positive
momentum in our operating and financial performance to position ADT for continued growth.
Reflecting on our progress against our strategic initiatives, there were several significant achievements that put us on the path to continued
growth as we seek to create long-term shareholder value—
•Installed our 1 Millionth ADT Pulse®customer. To put this milestone in context, if ADT Pulse®were an independent company, it
would be the fourth largest security company in North America. Today, just four years after its initial launch, Pulse take rates are exceeding
50% across all channels, and approximately 70% of all direct new Residential ADT sales are interactive security systems – representing
successful transformations of our technology expertise, product portfolio, and customer engagement.
•Improved the customer experience and drove significant improvements in revenue and unit attrition. We ended the fiscal year
with fourth quarter attrition favorable to both our guidance and prior year. Enhanced customer experience initiatives across the service
value chain, along with non-pay initiatives, enhanced resale efforts and tighter credit screening all contributed to lower attrition in 2014.
Our plan is to drive attrition even lower in 2015.
•Expanded our addressable market with the launch of ADT Business. Upon the expiration of the non-competition agreement with
our former parent company in late September 2014, we expanded our product and service offerings to the mid-size commercial market,
tripling the addressable market for our business services. The newly rebranded “ADT Business” team will continue to serve small business
owners while we begin to build the expertise and product capability to capture growth opportunities in this expanded market, where the
strength of ADT’s trusted brand continues to be a competitive advantage.
•Completed strategic acquisition and forged new partnerships. In July, we successfully closed the acquisition of the second-largest
security company in Canada, Reliance Protectron, that when combined with ADT Canada, creates a strong platform for future growth in
that country. Over the course of 2014, we formed new relationships with technology companies such as Life360, McAfee and IFTTT,
providing opportunities to expand our services and improve the customer experience.
•Continued to optimize our cost structure. In fiscal year 2014, we continued to make progress in driving down customer acquisition
costs and lowering our overall net creation multiple despite higher Pulse take rates, which require a larger upfront investment. In 2015, we
remain focused on driving creation costs even lower, through our cost efficiency programs and a solid pipeline of productivity initiatives
including the launch of electronic contracts, the roll out of our new wireless Pulse panel, and other planned hardware cost efficiencies.
•Added tremendous new talent to the management team. Four executives joined our Executive Leadership Team in the last year:
Chief Financial Officer Michael Geltzeiler; Chief Marketing Officer Jerri DeVard; Chief Human Resources Officer Laura Miller; and President
of ADT Canada Andrea Martin. Each of these leaders brings deep expertise in their field, having led large functions at leading public
companies such as the New York Stock Exchange, Verizon, and Coca-Cola. We also strengthened our sales leadership teams in
Residential and Business.
•Completed all post-separation transition activities with our former parent company. After a three-year change effort that began
pre-separation and touched all 200 of our facilities across North America and nearly every single IT platform, we completed all separation
activities and freed up significant resources to focus on executing against ADT’s strategic and operational priorities.
ADT continues to lead in a market that is creating new opportunities for future growth. Those opportunities are being fueled by innovation, new
services, and the potential demand for monitored security as an integral part of connected homes and businesses. Today only about 20% of
homes in North America have a professionally monitored security system, and home automation services are only in their infancy, leaving 80% of
the market without monitored security or automation. This represents a significant potential growth opportunity for ADT.
This is an exciting time for our industry, and we believe that ADT is in the right place, at the right time, with the right capabilities to capitalize on
these opportunities and deliver meaningful value to our investors. We intend to strengthen our position as the #1 security company in North
America, trusted by millions to meet their needs and provide peace of mind.
Thank you for your continued support and partnership as we forge ahead.
Regards,
Naren Gursahaney
President & Chief Executive Officer
The ADT Corporation

Table of contents

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    ...significant resources to focus on executing against ADT's strategic and operational priorities. ADT continues to lead in a market that is creating new opportunities for future growth. Those opportunities are being fueled by innovation, new services, and the potential demand for monitored security as...

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    The ADT Corporation 1501 Yamato Road Boca Raton, Florida 33431 January 23, 2015 Dear ADT Stockholder: You are cordially invited to attend The ADT Corporation 2015 Annual Meeting of Stockholders (the "Annual Meeting"), which will be held at 8:30 a.m. Eastern Time, on Tuesday, March 17, 2015 at the ...

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    ...Deloitte & Touche LLP as our Independent Registered Public Accounting Firm for fiscal year 2015. • To approve, in a non-binding vote, the compensation of the Company's named executive officers. • To transact such other business as may properly come before the annual meeting or any adjournment or...

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    ...The ADT Corporation Table of Contents INFORMATION ABOUT THIS PROXY STATEMENT AND THE ANNUAL MEETING Questions and Answers about Voting Your Shares Costs of Solicitation Returning Your Proxy or Voting Instruction Form 1 1 4 4 CORPORATE GOVERNANCE OF THE COMPANY Overview Board of Directors Director...

  • Page 8
    ...Table Potential Payments Upon Termination or Change in Control 34 34 35 35 36 37 39 42 42 42 COMPENSATION OF NON-MANAGEMENT DIRECTORS AUDIT COMMITTEE REPORT PROPOSAL NUMBER TWO-RATIFICATION OF THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Audit and Non-Audit Fees Policy on Audit...

  • Page 9
    ... 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...

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    ... of Deloitte & Touche LLP as our Independent Registered Public Accounting Firm for fiscal year 2015 and "FOR" the approval, in a non-binding vote, of the compensation of ADT's named executive officers. If other matters are properly presented at the Annual Meeting and any adjournment or postponement...

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    ..., 1501 Yamato Road, Boca Raton, Florida 33431. chooses not to do so under Exchange Act Rule 14a-8 (i.e., is not requesting that the proposal be included in ADT's proxy materials), must deliver to the Corporate Secretary of ADT, at its principal executive offices, on or after November 18, 2015 and...

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    ... Partners, Inc. as the proxy solicitor for the Annual Meeting for an approximate fee of $10,000, plus reasonable out-of-pocket expenses. In addition to the use of the mails, certain directors, officers or employees of ADT may solicit proxies by telephone, electronic communication or personal contact...

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    ... at http://investors.adt.com. We will also provide a copy of the ADT Board Governance Principles to stockholders upon written request to our Corporate Secretary at The ADT Corporation, 1501 Yamato Road, Boca Raton, Florida 33431. Board of Directors The business of the Company is managed under the...

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    ... Board of Directors 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...

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    ... directors are, or have been, affiliated. Specifically, the Board's independence determinations included reviewing the following transactions: On August 5, 2013, ADT Security Services Canada, Inc., a subsidiary of the Company ("ADTSS Canada") entered into a service contract for equipment, materials...

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    ... that is posted to our website at http://investors.adt.com. We will also provide a printed copy of the committee charters to stockholders upon written request to our Corporate Secretary at The ADT Corporation, 1501 Yamato Road, Boca Raton, Florida 33431. 8 The ADT Corporation 2015 Proxy Statement

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    ... 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...

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    CORPORATE GOVERNANCE OF THE COMPANY-CONTINUED • reviewing the Company's human resources strategy and controls, including Sarbanes-Oxley Section 404 compliance; • assessing annually the performance of the Compensation Committee and its members and the adequacy of the Committee charter and ...

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    ... Presiding Director, the non-management directors will designate another director to preside over such executive sessions. The ADT Corporation 2015 Proxy Statement 11 PROXY STATEMENT Substantial experience with building brand and product awareness and with business-to-consumer brand marketing...

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    ..., prior to filing the Company's proxy statement, annually reviews the Related Party List, including the amount of payments to or from each related party, in comparison to the 1% threshold to ensure that the directors meet the director independence requirement. Any proposed related party transaction...

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    ...website at http:// investors.adt.com. We will also provide a copy of our Code of Conduct to stockholders upon written request to our Corporate Secretary at The ADT Corporation, 1501 Yamato Road, Boca Raton, Florida 33431. Director Nomination Process In accordance with our governance principles, the...

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    ...and Governance Committee 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. PROXY STATEMENT 14 The ADT Corporation 2015...

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    ... The ADT Corporation 2015 Proxy Statement 15 PROXY STATEMENT Director Qualifications: Mr. Daly's qualifications include his experience as the chief executive officer of the largest independent processor of corporate governance related activities, his significant leadership experience and...

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    ... a large non-profit, his in-depth experience as an executive in the service-oriented communications industry and his corporate governance experience as a director of several publicly traded companies. Naren Gursahaney (age 53)-Mr. Gursahaney is the Company's President and Chief Executive Officer. He...

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    .... Director Qualifications: Ms. Hyle's qualifications include her extensive experience as a leader in developing the business and financial strategy of retail divisions in various companies, as a Certified Public Accountant and service as chief financial officer in public companies. Christopher...

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    ... 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, 2014 by (i) all directors and nominees, (ii) each of our named executive officers, and (iii) our directors and executive...

  • Page 27
    ... of the Exchange Act requires that the Company's directors, certain of its officers and any persons beneficially owning more than 10% of a registered class 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...

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    ... for ADT customers. Previously, Mr. Ferber served as Chief Strategy and Brand Officer at U.S. Cellular. During his 11-year career with U.S. Cellular, he held various senior leadership roles in sales, marketing and operations, including Executive Vice President of Operations, Chief Marketing Officer...

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    ... Officer in May 2014. She oversees all strategic human resources operations including human resources business partners, shared services, compensation and benefits, talent acquisition and management, and labor and employee relations. She also develops and directs ADT's change management strategy...

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    ...Vice President and Chief Innovation Officer, leading the Company's vision for innovation and product development. He is responsible for building the strategic roadmap for new and existing solutions, defining product architecture and positioning ADT as a partner of choice for key technology companies...

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    ...'s largest sales, installation and service field force as well as a robust monitoring network, all backed by approximately 17,500 employees. Our broad and pioneering set of products and services, including ADT Pulse ® interactive home and business solutions and home health services, meet a range...

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    ... support long-term focus and retention • Equity-based LTI assists executives in meeting ownership guidelines • Promotes the health, wellness and financial well-being of our executives Annual Incentive Compensation Long-Term Incentive Compensation • Performance Share Units • Stock Options...

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    ...of pay and performance. The Compensation Committee continued to set aggressive targets for fiscal year 2015 to ensure the relationship with performance continues. Long-Term Incentives. The fiscal year 2014 long-term incentive program was designed to reward management for performance directly related...

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    ...other "senior officers" subject to the filing requirements of Section 16 of the Securities Exchange Act of 1934, as amended, and "senior executives" (those executives who are not senior officers, but who have a base salary of $350,000 or greater). The Compensation 26 The ADT Corporation 2015 Proxy...

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    ... as home security, and EarthLink provides network, communication and IT services. T-Mobile US was included as a reference peer due to its acquisition of a former member of the Company's peer group (MetroPCS), as well as its subscriber-based recurring revenue business model. Its revenue size, however...

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    ... other change in job responsibilities. These reviews and the associated compensation decisions are based upon market data, the criticality of the role, internal pay equity and the individual executive's performance, level of experience and level of responsibility. 28 The ADT Corporation 2015 Proxy...

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    ... metrics reported by key industry competitors Focuses efforts on reducing customer attrition, which is a key value driver and significantly impacts our operations Provide individual line-of-sight to employees in supporting the strategic goals of the Company Fiscal 2014 Annual Incentive Compensation...

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    ... the growth in revenue generated by monthly recurring fees related to electronic security, interactive home and business automation and related monitoring services. Revenues associated with the installation of our security and automation systems, along with other one-time revenues, are excluded from...

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    ... CEO, the independent members of the Board of Directors agreed not to increase the CEO's base salary. The Compensation Committee will review Executive Officer compensation during fiscal year 2015 and will determine whether to make any changes at such time. The ADT Corporation 2015 Proxy Statement...

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    ... under either The ADT Corporation Severance Plan for U.S. Officers and Executives (the "Severance 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...

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    ... 2014 meeting. Insider Trading Policy The Company maintains an insider trading policy, applicable to all employees and directors, which prohibits the Company's personnel from: (1) buying, selling or engaging in transactions in the Company's securities at any time while aware of material non-public...

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    ...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 34 The ADT Corporation 2015 Proxy...

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    ... (as determined under the Black-Scholes option pricing model) by the total number of options granted. For RSUs, fair value is computed by multiplying the total number of shares subject to the award by the closing market price of the Company's common stock on the date of grant. For PSUs, fair value...

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    ... 2013 2012 Jerri DeVard (a) 2014 (b) (c) (d) (e) Cash Perquisites under Tyco programs reflect an annual cash perquisite payment equal to the lesser of 10% of the executive's base salary and $70,000. Payments were made quarterly and were adjusted to reflect changes in salary. This benefit was...

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    ...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 46
    ... of PSUs, RSUs and Stock Options. For Stock Options (including those granted to Ms. DeVard), the exercise price equals the closing price of the Company's common stock on the date of grant. Stock Options granted as part of the annual award process generally vest in equal installments over a period of...

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    ...or unearned equity awards outstanding is calculated based on a market value of $35.61, which was the NYSE closing price per share of the Company's common stock on September 26, 2014. Option Awards (1) Stock Awards Equity Equity Incentive Plan Incentive Plan Awards: Awards: Market Number of or Payout...

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    FISCAL YEAR 2014 NEO COMPENSATION-CONTINUED Vesting dates for each outstanding stock option award, as of September 26, 2014, for the NEOs are as follows: Year 2014 10/12/2014 10/12/2014 11/22/2014 11/30/2014 2015 5/7/2015 5/8/2015 10/12/2015 11/22/2015 11/30/2015 2016 5/7/2016 5/8/2016 11/22/2016 ...

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    ... Number of Shares Underlying Vesting Awards Michael Geltzeiler Alan Ferber N. David Bleisch Jerri DeVard 39,340 - - 4,440 - 43,366 21,682 11,502 6,922 - The ADT Corporation 2015 Proxy Statement 41 PROXY STATEMENT Vesting dates for each outstanding PSU award, including outstanding...

  • Page 50
    ...-CONTINUED Option Exercises and Stock Vested Table The following table sets forth information regarding option awards exercised and stock awards vested during fiscal year 2014 for the NEOs. Values have been rounded to the nearest dollar, where applicable. Option Awards Number of Shares Acquired on...

  • Page 51
    .... 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 three times the NEO...

  • Page 52
    ... 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 26, 2014. Equity award amounts are calculated using a price of $35.61, which was the closing price of the Company's common stock on...

  • Page 53
    ... discount on security monitoring services provided by the Company, as well as the value of system installation, where applicable. The value of stock awards includes, in addition to the annual grant awarded to all directors in conjunction with the Company's Annual Meeting on March 13, 2014, the value...

  • Page 54
    ... the reporting process, including the systems of internal controls. The Audit Committee meets separately with management, the senior internal auditor, the independent auditors and the Chief Legal Officer. The Audit Committee operates under a written charter approved by the Board of Directors, a copy...

  • Page 55
    ...year. 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, including the audits of employee benefit plans. Tax Fees: Tax fees consist of fees billed for...

  • Page 56
    ...this Proxy Statement under "Compensation of Executive Officers" on pages 23 to 44. The Company currently intends to hold such votes annually. The next such vote will be held at the Company's 2016 Annual Meeting of Stockholders. In considering their vote, stockholders should review with care that our...

  • Page 57
    ...and tax structure, the impact of non-cash charges related to capital investments and the impact of growing our subscriber base. In addition, from time to time, the Company may present EBITDA and EBITDA (pre-SAC) before special items and, when appropriate, excluding the results of recent acquisitions...

  • Page 58
    ... as to provide insight to management in evaluating overall operating plan execution and underlying market conditions. These measures may be used as components in the Company's incentive compensation plans. These measures are useful for investors because they may permit more meaningful comparisons of...

  • Page 59
    ... integration costs Radio conversion costs Non-recurring separation costs Separation related other expense EBITDA before special items EBITDA margin before special items Subscriber acquisition cost expenses net of related revenue EBITDA before special items (pre-SAC) Impact of Reliance Protection on...

  • Page 60
    ... multiple(3) SAC required to maintain recurring revenue (2) (3) $ 264 14.7% 31.9 $ 1,238 Average trailing twelve month recurring revenue disconnected net of price escalations. Disconnects account for dealer chargebacks. Gross creation cost includes amount held back from dealers for chargebacks...

  • Page 61
    ..., 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...

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    ... (IRS Employer Identification 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) Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of...

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    ......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 Accountant Fees and Services...

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    ...'s largest sales, installation and service field force as well as a robust monitoring network, all backed by the support of approximately 17,500 employees. Our broad and pioneering set of products and services, including interactive home and business solutions and home health services, meet a range...

  • Page 68
    ... with dedicated commercial sales professionals, and strengthen our business marketing support. We believe these actions will contribute to building a larger, more robust partner network and to assist in marketing additional value-added services, including ADT Pulse®, our remote monitoring and home...

  • Page 69
    ...Depending on the service plan that customers purchase and the type and level of product installation, they can remotely access information regarding the security of their home or business, arm and disarm their security system, adjust lighting or thermostat levels or view real-time video from cameras...

  • Page 70
    ... approximately 60% 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 2014 through our authorized dealer program, acquisitions and, to a small extent...

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    ... our 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 and indirect sales costs, marketing costs and...

  • Page 72
    ... voice response systems and the Internet, which will provide customers additional choices in managing their services. Suppliers We purchase equipment and components of our products from a limited number of suppliers and distributors. Inventory is held in our regional distribution center at levels...

  • Page 73
    ...employment, tax, licensing and other laws and regulations. Most states and provinces in which we operate have licensing laws directed specifically toward the monitored security industry. In certain jurisdictions, we must obtain licenses or permits in order to comply with standards governing employee...

  • Page 74
    ... Information ADT is required to file annual, quarterly and current reports, proxy statements and other information with the U.S. Securities and Exchange Commission ("SEC"). Investors may read and copy any document that ADT files, including this Annual Report on Form 10-K, at the SEC's Public...

  • Page 75
    ... the Company's Senior Vice President and Chief Marketing Officer in March 2014. She is responsible for all strategic, operational and financial aspects of the Company's integrated marketing programs including brand advertising, digital marketing, communications, lead generation, sponsorships...

  • Page 76
    ...experience for ADT customers. Previously, Mr. Ferber served as Chief Strategy and Brand Officer at U.S. Cellular. During his 11year career with U.S. Cellular, he held various senior leadership roles in sales, marketing and operations, including Executive Vice President of Operations, Chief Marketing...

  • Page 77
    ... Officer in May 2014. She oversees all strategic human resources operations including human resources business partners, shared services, compensation and benefits, talent acquisition and management, and labor and employee relations. She also develops and directs ADT's change management strategy...

  • Page 78
    ..., including the home automation market, which may result in pressure on our profit margins and limit our ability to maintain or increase the market share of our products and services. We may not be able to continue to develop and execute a competitive yet profitable pricing structure. The monitored...

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    ... our competitors; and develop or acquire and bring products and services to market quickly and cost-effectively. Our ability to develop or acquire new products and services that are technologically innovative requires the investment of significant resources and can affect our competitive position...

  • Page 80
    ... long period of time, our profitability, business, financial condition, results of operations and cash flows could be materially and adversely affected. If we experience significantly higher rates of customer attrition, we may be required to change the estimated useful lives of assets related to our...

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    ... to changing technologies, market conditions or customer preferences, our business, financial condition, results of operations and cash flows could be materially and adversely affected. In addition, we use broadband Internet access service, including video streaming services, to support our product...

  • Page 82
    ...and security breaches in connection with the delivery of our services via the Internet may affect us and could be detrimental to our reputation, business, operating results and financial condition. We continue to invest in technology and other solutions to protect our network and information systems...

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    ... rate than our recurring revenue and fees collected at the time of installation. Additionally, any new alliances or customer acquisition channels could require developmental investments or have higher cost structures than our current arrangements, which could reduce operating margins and require...

  • Page 84
    ... authorized dealer program, which accounted for approximately 40% of our new customer accounts for our 2014 fiscal year. Our future operating results will depend in large part on our ability to continue to manage this business generation strategy effectively. Although we currently generate accounts...

  • Page 85
    ... use of our brand name by third parties may adversely affect our business and reputation, including the perceived quality and reliability of our products and services. We rely on trademark law, company brand name protection policies and agreements with our employees, customers, business partners...

  • Page 86
    ...a third party in South Korea. Therefore, in order to expand our business outside the United States and Canada, we would need to either acquire or otherwise license the ADT® brand name from Tyco (to the extent not already used by Tyco in the applicable jurisdictions) or use an alternative brand name...

  • Page 87
    ..., 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 88
    ... or security vulnerabilities, 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...

  • Page 89
    ... 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, including...

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    ... we file. Changes in current or future laws or regulations, the imposition of new or changed tax laws or regulations or new related interpretations by taxing authorities in the jurisdictions in which we file could materially and adversely affect our financial condition, results of operations and...

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    ... for any reason of key members of our management team and the inability or delay in hiring new key employees including sales force personnel could adversely affect our ability to manage our business and our future operational and financial results. Adverse developments in our relationship with our...

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    ...any time. Rating agencies may review the ratings assigned to us due to developments that are beyond our control, including as a result of new standards requiring the agencies to reassess rating practices and methodologies. If further downgrades in our credit ratings were to occur, it could result in...

  • Page 93
    ...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 94
    ... sell their shares in our company and the trading price of our common stock could decrease. In addition, a merger or acquisition may trigger change in control and severance benefits to certain executive employees under the terms of either our Severance Plan for U.S. Officers and Executives or Change...

  • Page 95
    ... a result of our acquisition of Broadview Security in 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...

  • Page 96
    ... liable, we would incur additional income tax expense, 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...

  • Page 97
    ... public offerings or private placements of debt or equity securities or other arrangements. Other significant changes may occur in our cost structure, management, financing and business operations as a result of our operating as a company separate from Tyco. • • For additional information...

  • Page 98
    ...ten monitoring facilities, four customer and field support locations, two national sales call centers and one regional distribution center, located throughout the United States, Puerto Rico and Canada, the majority of which are leased. Our corporate headquarters is located in Boca Raton, Florida and...

  • Page 99
    ...of our business, including from time to time contractual disputes, employment matters, product and general liability claims, claims that we have infringed the intellectual property rights of others, claims related to alleged security system failures and consumer and employment class actions. We have...

  • Page 100
    ...Purchases of Equity Securities. As of the close of business on November 5, 2014, there were 18,426 holders of record of our common stock. Our common stock is traded on the New York Stock Exchange ("NYSE") under the symbol "ADT." The following table sets forth the high and low sales prices of shares...

  • Page 101
    ... of business on October 1, 2012, in ADT common stock, S&P 500 Index, and the S&P 500 Industrial Index. (2) The cumulative total return assumes reinvestment of dividends. Issuer Purchases of Equity Securities Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum...

  • Page 102
    ..., 2015. During the quarter, the Company did not repurchase any shares as a part of the share repurchase program noted above. Securities Authorized for Issuance Under Equity Compensation Plans The following table provides information as of September 26, 2014 with respect to shares of ADT common stock...

  • Page 103
    ... and related Notes" and Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Annual Report on Form 10-K. (in millions, except per share data) 2014 2013 2012 2011 2010 Consolidated and Combined Statements of Operations Data: Revenue ...Operating...

  • Page 104
    ...-known brands in the monitored security industry today. Our broad and pioneering set of products and services, including interactive home and business solutions and our home health services, meet a range of customer needs for today's active and increasingly mobile lifestyles. Our partner network is...

  • Page 105
    ... 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 introduce and market additional features and services that increase the value of our offerings...

  • Page 106
    ... a direct sales force and an authorized dealer network. The key customer metrics that we use to track customer growth are gross customer additions and ending customers. Gross customer additions are new monitored customers installed or acquired during the period. Customer Unit Attrition Rate. Our...

  • Page 107
    ... capital expenditures, subscriber system assets, dealer generated customer accounts and bulk account purchases. A reconciliation of FCF to net cash provided by operating activities is provided under "Results of Operations-Non-GAAP Measures." As reported in the first quarter of fiscal year 2014, we...

  • Page 108
    ... 373,000 customer accounts acquired in connection with the acquisition of Protectron in July 2014. These accounts are included in the 6.7 million ending number of customers as of September 26, 2014. The ending number of customers, gross customer additions and average revenue per customer for fiscal...

  • Page 109
    ... 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 impact our Consolidated and Combined Statements of Operations...

  • Page 110
    ... channel resulted from lead generation challenges partially due to the impact of the competitive environment, the implementation of more stringent credit policies for new subscribers and increased focus on ADT Pulse® upgrades for existing customers. Our ending number of customers, net of attrition...

  • Page 111
    ... current period installation revenue. Average revenue per customer increased by $1.36, or 3.4%, as of September 27, 2013 compared with September 28, 2012 primarily due to price escalations on our existing customer base and the addition of new customers at higher rates, including increased ADT Pulse...

  • Page 112
    ... 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 investments to improve customer retention. The increase was partially offset by a reduction in legal-related charges...

  • Page 113
    ... 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 114
    ...the average cost of installed systems, partially driven by an increase in new ADT Pulse® customers, higher volume of ADT Pulse® upgrades to existing customers and increased promotional activities. The $29 million decrease in cash paid for dealer generated accounts resulted from the lower levels of...

  • Page 115
    ... subscriber systems and dealer generated customer accounts. Our cash flows from operations include cash received from monthly recurring revenue and upfront fees received from customers, less cash costs to provide services to our customers, including general and administrative costs and certain costs...

  • Page 116
    ... repurchase program expires November 26, 2015. Pursuant to this approval, we may enter into accelerated share repurchase plans as well as repurchase shares on the open market. During fiscal year 2014, we made open market repurchases of 14.0 million shares of our common stock at an average price of...

  • Page 117
    ..., for customer contracts for electronic security services generated under the ADT dealer program and bulk account purchases. See discussion included in FCF under "Results of Operations-Non-GAAP Measures" for further information. During fiscal year 2014, we completed the acquisition of Protectron...

  • Page 118
    ... as the services are rendered. The balance of deferred revenue is included in current liabilities or long-term liabilities, as appropriate. For transactions in which we retain ownership of the security system, non-refundable fees (referred to as deferred subscriber acquisition revenue) received in...

  • Page 119
    ... customer accounts that are generated through the ADT dealer program. Subscriber system assets represent capitalized equipment and installation costs incurred in connection with transactions in which we retain ownership of the security system. Deferred subscriber acquisition costs represent direct...

  • Page 120
    ... business environment (i.e. sales volumes and prices), changes in economic conditions that significantly differ 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 long lived...

  • Page 121
    ... in the forward-looking statements included in this report. We assume no obligation (and specifically disclaim any such obligation) to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. 55 FORM 10...

  • Page 122
    ... 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 123
    ...(e) under the Exchange Act. Based on management's evaluation, our principal executive officer and principal financial officer have concluded that, as of September 26, 2014, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed...

  • Page 124
    Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and that such information is accumulated and communicated to management, including the principal executive officer and principal financial officer, or persons performing similar ...

  • Page 125
    ... Annual Report on Form 10-K under the caption "Securities Authorized for Issuance Under Equity Compensation Plans." Item 13. Certain Relationships and Related Transactions, and Director Independence. Incorporated herein by reference is the text to be included under the captions "Corporate Governance...

  • Page 126
    ... 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 127
    ..., thereunto duly authorized. THE ADT CORPORATION Date: November 12, 2014 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...

  • Page 128
    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 129
    ...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 Tyco International Ltd.) (the "Company") as of September 26, 2014...

  • Page 130
    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 26, 2014, based on ...

  • Page 131
    ... ...Deferred revenue ...Total current liabilities ...Long-term debt ...Deferred subscriber acquisition revenue ...Deferred tax liabilities ...Other liabilities ...Total Liabilities ...Commitments and contingencies (See Note 7) Stockholders' Equity: Common stock - authorized 1,000,000,000 shares of...

  • Page 132
    THE ADT CORPORATION CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS Fiscal Years Ended September 26, 2014, September 27, 2013 and September 28, 2012 (in millions, except per share data) 2014 2013 2012 Revenue ...Cost of revenue ...Selling, general and administrative expenses ...Radio conversion ...

  • Page 133
    THE ADT CORPORATION CONSOLIDATED AND COMBINED STATEMENTS OF COMPREHENSIVE INCOME Fiscal Years Ended September 26, 2014, September 27, 2013 and September 28, 2012 (in millions) 2014 2013 2012 Net income ...Other comprehensive (loss) income: Foreign currency translation and other, net of tax ...Total...

  • Page 134
    THE ADT CORPORATION CONSOLIDATED AND COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY Fiscal Years Ended September 26, 2014, September 27, 2013 and September 28, 2012 (in millions) Number of Common Shares Additional Common Paid-In Stock Capital Parent Company Investment Accumulated Other Comprehensive ...

  • Page 135
    ... acquisition costs ...Deferred subscriber acquisition revenue ...Other ...Net cash provided by operating activities ...Cash Flows from Investing Activities: Dealer generated customer accounts and bulk account purchases ...Subscriber system assets ...Capital expenditures ...Acquisition of businesses...

  • Page 136
    ... Accounting Policies Nature of Business-The ADT Corporation ("ADT" or the "Company"), a company incorporated in the state of Delaware, is a leading provider of monitored security, interactive home and business automation and related monitoring services in the United States and Canada. Separation...

  • Page 137
    ... as revenue as the services are rendered. The balance of deferred revenue is included in current liabilities or long-term liabilities, as appropriate. For transactions in which the Company retains ownership of the security system, non-refundable fees (referred to as deferred subscriber acquisition...

  • Page 138
    ...Deferred Subscriber Acquisition Costs-The Company records certain assets in connection with the acquisition of new customers depending on how the accounts are generated: subscriber system assets and deferred subscriber acquisition costs for customer accounts that are generated internally, and dealer...

  • Page 139
    ... operate under the ADT dealer program. These contracts and related customer relationships are recorded at their contractually determined purchase price. During the charge-back period, generally thirteen months, any cancellation of monitoring service, including those that result from customer payment...

  • Page 140
    ..., including 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...

  • Page 141
    ... rate or law changes could have a material effect on the Company's results of operations, financial condition or cash flows. In addition, the calculation of the Company's tax liabilities involves dealing with uncertainties in the application of complex tax regulations in the United States and Canada...

  • Page 142
    ... services focused on identifying actions to reduce its cost structure and streamline operations. The Company also recognized other charges of $8 million related to accelerated depreciation on certain assets abandoned in connection with the rationalization of its business processes and system...

  • Page 143
    ... model for entities to use in accounting for revenue arising from contracts with customers. The guidance is effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2016 and early adoption is not permitted. Companies may use...

  • Page 144
    ...customer contracts for electronic security services generated under the ADT dealer program and bulk account purchases. Acquisitions On July 8, 2014, the Company acquired all of the issued and outstanding capital stock of Reliance Protectron Inc. ("Protectron"), a leading electronic security services...

  • Page 145
    ... that the fair value of the reporting unit is less than its carrying amount and therefore goodwill was not impaired. Additionally, there were no goodwill impairments as a result of performing the Company's annual impairment tests for fiscal years 2013 and 2012. The changes in the carrying amount of...

  • Page 146
    ...) ...Customer contract additions, net of dealer charge-backs ...Amortization ...Currency translation and other ...Balance as of September 26, 2014 ...Balance as of September 28, 2012 ...Acquisition of customer relationships (Devcon Security) ...Customer contract additions, net of dealer charge-backs...

  • Page 147
    ...net proceeds were used primarily for general corporate purposes and repurchases of outstanding shares of ADT's common stock. Interest is payable on April 15 and October 15 of each year, and commenced on October 15, 2014. The Company may redeem the notes, in whole or in part, at any time prior to the...

  • Page 148
    ... rights agreements with the initial purchasers of the notes. Under each of these agreements, the Company was obligated to file a registration statement for an offer to exchange the notes for a new issue of substantially identical notes registered under the Securities Act of 1933, as amended, or...

  • Page 149
    ...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, exclusive of amounts incurred directly by the Company...

  • Page 150
    ...in millions): September 26, 2014 September 27, 2013 Deferred tax assets: Accrued liabilities and reserves ...Tax loss and credit carryforwards ...Postretirement benefits ...Deferred revenue ...Other ...Deferred tax liabilities: Property and equipment ...Subscriber system assets ...Intangible assets...

  • Page 151
    ... fiscal year 2013, the Company determined that the SRLY limitation was no longer applicable as an "ownership change" is deemed to have occurred upon Separation from Tyco on September 28, 2012 pursuant to Internal Revenue Code (the "Code") Section 382. Therefore, the tax attributes as of the end...

  • Page 152
    ... 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 will generally be shared 20.0% by Pentair, 27.5% by ADT, and...

  • Page 153
    ... all of Tyco's outstanding equity awards were converted into like-kind awards of ADT, Tyco and Pentair. Pursuant to the terms of the 2012 Separation and Distribution Agreement, each of the three companies is responsible for issuing its own shares upon employee exercises of stock option awards or...

  • Page 154
    ... The ADT Corporation, Case No. 14-80566-CIV-DIMITROULEAS, and appointing IBEW Local 595 Pension and Money Purchase Pension Plans, Macomb County Employees' Retirement System and KBC Asset Management NV as Lead Plaintiffs in the consolidated action. In addition to the Company, the defendants named in...

  • Page 155
    ... Litigation In May and June 2014, four derivative actions were filed against a number of past and present officers and directors of the Company. Like the securities actions described above, the derivative actions focus primarily on the Company's stock repurchase program in 2012 and 2013, the...

  • Page 156
    ... impact on its financial position, results of operations, cash flows or its effective tax rate in future reporting periods. During the year ended September 26, 2014, Tyco advised the Company of pending IRS settlements related to certain intercompany corporate expenses deducted on the U.S. income...

  • Page 157
    ...provided under the terms of the Plan. Stock-based compensation expense is included in selling, general and administrative expenses in the Consolidated and Combined Statements of Operations. The stock-based compensation expense recognized and the associated tax benefit for fiscal years 2014, 2013 and...

  • Page 158
    Stock Options-Options are granted to purchase common shares at prices that are equal to the fair market value of the common shares on the date the option is granted. Conditions of vesting are determined at the time of grant under the Plan. Options granted under the Plan generally vest in equal ...

  • Page 159
    ... of total unrecognized compensation cost related to nonvested restricted stock units. This expense, net of forfeitures, is expected to be recognized over a weightedaverage period of approximately 2 years. 10. Equity Common Stock Shares Authorized and Outstanding-As of September 26, 2014, the Company...

  • Page 160
    ... 26, 2012. This repurchase program expires November 26, 2015. During fiscal year 2014, the Company made open market repurchases of 14 million shares of ADT's common stock at an average price of $35.72 per share. The total cost of open market repurchases for fiscal year 2014 was $500 million, all...

  • Page 161
    ... approved repurchase program. All of the Company'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...

  • Page 162
    ...-average shares outstanding ...Effect of vested deferred stock units ...Basic weighted-average shares outstanding ...Basic earnings per share ...Diluted Earnings Per Share Numerator: Net income ...Denominator: Basic weighted-average shares outstanding ...Effect of dilutive securities: Stock options...

  • Page 163
    ... and 2013 is as follows ($ in millions, except per share data): December 27, 2013 2014 March 28, June 27, 2014 2014 September 26, 2014 Revenue ...Operating income ...Net income ...Net income per share: Basic ...Diluted ... $ 839 165 77 $0.39 $0.39 December 28, 2012 $ 837 164 63 $0.35 $0.34 $ 849...

  • Page 164
    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 Deductions Allowance for Doubtful Accounts: Year Ended September 28, 2012 ...Year Ended September 27, 2013 ...Year Ended ...

  • Page 165
    ... Revolving Credit Agreement, dated as of June 22, 2012, by and among The ADT Corporation, Tyco International Ltd., the lender parties thereto and Citigroup Global Markets Inc. and J.P. Morgan Securities LLC, as bookrunners and lead arrangers The ADT Corporation 2012 Stock and Incentive Plan 99...

  • Page 166
    ..., dated as of November 24, 2013, by and among The ADT Corporation, Keith Meister and Corvex Management LP Ratio of Earnings to Fixed Charges List of subsidiaries of The ADT Corporation Consent of Deloitte & Touche LLP Powers of Attorney Certification of CEO required by Securities and Exchange...

  • Page 167
    ... Incorporated by reference from the respective exhibit to The ADT Corporation's Current Report on Form 8-K filed on March 19, 2014 (12) Incorporated by reference from the respective exhibit to The ADT Corporation's Current Report on Form 10-K filed on November 20, 2013 (13) Incorporated by reference...

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