ADT 2014 Annual Report Download - page 114

FORM 10-K
The tables below reconcile EBITDA to net income and FCF to cash flows from operating activities.
EBITDA
(in millions) 2014 2013 2012
Net income ........................................ $ 304 $ 421 $ 394
Interest expense, net ................................. 192 117 92
Income tax expense ................................. 128 221 236
Depreciation and intangible asset amortization ............ 1,040 942 871
Amortization of deferred subscriber acquisition costs ....... 131 123 111
Amortization of deferred subscriber acquisition revenue .... (151) (135) (120)
EBITDA ...................................... $1,644 $1,689 $1,584
For fiscal year 2014, EBITDA decreased $45 million, or 2.7%, as compared with the prior year, despite a
$111 million increase in recurring revenue, due to increased cost to serve expenses, and a $59 million increase in
other expense. The increase in cost to serve expenses includes $44 million of costs associated with our three-year
conversion program to replace 2G radios used in many of our security systems, an $18 million increase in
restructuring and other expenses, $15 million of incremental costs associated with the operations of Protectron
and a $5 million increase in acquisition and integration costs. For further details, refer to the discussion above
under “Results of Operations.” The increase in other expense of $59 million was primarily driven by amounts
recorded pursuant to the 2012 Tax Sharing Agreement.
For fiscal year 2013, EBITDA increased $105 million, or 6.6%, as compared with fiscal year 2012. This
increase was primarily due to the impact of higher recurring customer revenue, partially offset by the impact of
increased cost to serve expenses as discussed above. Additionally other income primarily related to the 2012 Tax
Sharing Agreement increased EBITDA for fiscal year 2013 by $24 million. For further details, refer to the
discussion above under “Results of Operations.”
FCF
(in millions) 2014 2013 2012
Net cash provided by operating activities ................ $1,519 $1,666 $1,493
Dealer generated customer accounts and bulk account
purchases ....................................... (526) (555) (648)
Subscriber system assets ............................. (658) (580) (378)
Capital expenditures ................................. (84) (71) (61)
FCF.......................................... $ 251 $ 460 $ 406
For fiscal year 2014, FCF decreased $209 million compared with fiscal year 2013. This decrease was
primarily due to a $147 million decrease in net cash provided by operating activities, as well as a $78 million
increase in cash outlays for subscriber system assets, partially offset by a $29 million decrease in cash paid for
dealer generated accounts and bulk account purchases. The decrease in net cash provided by operating activities
was driven primarily by a $64 million increase in cash paid for interest, a $63 million increase in taxes paid and
the timing of other operating cash payments. The $78 million increase in cash paid for subscriber system assets
resulted primarily from an increase in 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
dealer account production and lower levels of bulk account purchases discussed above under “Results of
Operations—Revenue.”
48