ADT 2014 Annual Report Download - page 104

FORM 10-K
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Introduction
The following discussion should be read in conjunction with our Consolidated and Combined Financial
Statements and the notes thereto. This discussion and analysis contains forward-looking statements that involve
risks, uncertainties and assumptions. Actual results may differ materially from those anticipated in these forward-
looking statements as a result of many factors, including but not limited to those provided in Item 1A. Risk
Factors and under the heading “Cautionary Statement Regarding Forward-Looking Statements” below.
The Consolidated and Combined Financial Statements have been prepared in accordance with generally
accepted accounting principles in the United States of America (“GAAP”). Unless otherwise indicated,
references to 2014, 2013 and 2012 are to our fiscal years ended September 26, 2014, September 27, 2013 and
September 28, 2012, respectively.
As part of a plan to separate into three independent companies, on or prior to September 28, 2012, Tyco
transferred the equity interests of the entities that held all of the assets and liabilities of its residential and small
business security business in the United States and Canada to ADT. Effective on September 28, 2012 (the
“Distribution Date”), Tyco distributed all of its shares of ADT to Tyco’s stockholders of record as of the close of
business on September 17, 2012 (the “Separation”). On the Distribution Date, each of the stockholders of Tyco
received one share of ADT common stock for every two shares of common stock of Tyco held on September 17,
2012. Our Consolidated Balance Sheets as of September 26, 2014 and September 27, 2013 reflect the
consolidated financial position of ADT and its subsidiaries as an independent publicly-traded company.
Additionally, our Consolidated Statements of Operations, Comprehensive Income and Cash Flows for fiscal
years 2014 and 2013 reflect ADT’s operations and cash flows as a standalone company. Prior to September 28,
2012, our financial position, results of operations and cash flows consisted of Tyco’s residential and small
business security business in the United States, Canada and certain U.S. territories and were derived from Tyco’s
historical accounting records and presented on a carve-out basis. As such, our Statements of Operations,
Comprehensive Income and Cash Flows for fiscal year 2012 consist of the combined results of operations and
cash flows of the ADT North American Residential Security Business of Tyco.
We conduct business through our operating entities and report financial and operating information in one
reportable operating segment. We have a 52- or 53-week fiscal year that ends on the last Friday in September.
Fiscal years 2014, 2013 and 2012 are 52-week years. Our next 53-week year will occur in fiscal year 2016.
Business Overview
ADT is a leading provider of monitored security, interactive home and business automation and related
monitoring services. We currently serve approximately 6.7 million customers, making us the largest company of
our kind in both the United States and Canada. With a 140-year history, the ADT®brand is one of the most
respected, trusted and well-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 the broadest
in the industry, and includes independent authorized dealers, affinity organizations like USAA and AARP and
third-party referral companies. ADT delivers an integrated customer experience by maintaining the industry’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 and about 200 sales and service offices.
For fiscal year 2014, our revenue was $3.4 billion and our operating income was $659 million. The majority
of the monitoring services and a large portion of the maintenance services we provide to our customers are
governed by multi-year contracts with automatic renewal provisions. This provides us with significant recurring
revenue, which for fiscal year 2014 was approximately 92% of our revenue. We believe that the recurring nature
of the majority of our revenue enables us to continuously invest in growing our business. This includes
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