[July 30, 2014] |
|
ADT Reports Third Quarter 2014 Results
BOCA RATON, Fla. --(Business Wire)--
The ADT Corporation (NYSE: ADT) today reported its financial results for
the third quarter of 2014. The Company reported diluted earnings per
share of $0.47. Excluding special items for the separation from Tyco,
merger and restructuring costs, 2G radio conversion costs, and discrete
tax items, diluted earnings per share was $0.55(1). This
compares to diluted earnings per share excluding special items of $0.53(1)
in the third quarter of 2013. Using the Company's cash tax rate, diluted
earnings per share before special items was $0.80(1).
The Company reported total revenue of $849 million, an increase of 1.9%,
or 2.2% in constant currency(1), compared to the third
quarter of 2013. Recurring revenue, which made up 92% of total revenue
in the quarter, was $785 million, up 2.7% compared to the same period
last year and up 3.0% in constant currency(1). Recurring
revenue growth was primarily driven by an increase in average revenue
per customer, which rose 3.9% over last year to $41.85. Revenue
attrition for the quarter was down 30 basis points sequentially to 13.9%
and unit attrition for residential and small business was 13.5%, down 20
basis points sequentially. ADT closed the quarter with 6.4 million
customer accounts.
EBITDA before special items increased by $19 million to $452 million(1),
4.4% higher than the prior year and EBITDA margin before special items
was 53.2%(1), a 120 basis point improvement. The
year-over-year increase in margins was primarily attributable to
productivity improvements, cost efficiencies and timing of certain
expenses.
Free cash flow before special items was $98 million(1) in the
quarter, down from $165 million(1) in the same period last
year due to higher interest paid on incremental debt, timing of certain
operating cash payments, and an increase in capital expenditures related
to the success of Pulse. The Company also reported steady-state free
cash flow before special items, calculated on a pre-tax and unlevered
basis, of $934 million(1). Although steady-state free cash
flow was $49 million dollars below the same period last year, it
increased sequentially by $148 million driven by lower subscriber
acquisition costs, higher EBITDA and improved attrition levels.
"Our results in the quarter reflect the progress we are making against
the initiatives we identified at the beginning of the year and provide a
glimpse of where we are driving the business in the future," said Naren
Gursahaney, ADT's chief executive officer. "This quarter, we saw visible
evidence of our efforts to solidify our core leadership position and
reposition the business for growth and greater profitability. We drove
sequential growth in gross additions in both channels and reduced our
attrition consistent with our guidance. Stronger operational performance
and our continued commitment to cost efficiency drove healthy increases
in EBITDA before special items(1) and bottom line results. We
also extended our leadership position in the market, launching the Pulse
voice application, an industry first, driving Pulse take rates to 49%
overall, and closing transactions with Protectron and Life 360. While we
are pleased with our performance in the quarter, we recognize that we
have more to accomplish and we remain focused on executing our plan and
driving value for all of our stakeholders."
PROGRESS ON 2014 PRIORITIES: GROWTH INITIATIVES
-
Growth investments in ADT Pulse - The Company continued to
invest in capturing opportunities in interactive services and home
automation, achieving strong growth in its ADT Pulse platform. ADT
Pulse take rates climbed to 49% of customer additions, up from 28%
last year, and upgrade units increased by 77% from a year ago largely
driven by promotional offers during the quarter. ADT Pulse customers
now make up almost 14% of the total customer base, or approximately
875,000 customers, which generate higher ARPU than the average of the
base and exhibit lower attrition characteristics.
-
Attrition reduction initiatives - The majority of customer
attrition is driven by relocations associated with the housing
recovery and non-pay customers. During the quarter, the Company
continued to take action to improve its ability to reduce customer
attrition, including expanding the roll out of tighter credit
screening policies and other non-pay initiatives, strengthening resale
efforts and customer loyalty programs, and driving increased
penetration of ADT Pulse automation which exhibits better retention
characteristics. These actions, along with a more stable housing
market, drove improvements in attrition resulting in revenue attrition
in the quarter of 13.9% - a 30 basis point improvement sequentially,
and unit attrition in our residential and small business channels of
13.5% - a 20 basis point improvement sequentially.
-
Improving the dealer channel - Aligned with a key priority to
improve productivity in the dealer channel, the Company took steps to
strengthen the quality of this channel.
-
The Company expanded its dealer network and drove a 43% take rate
in ADT Pulse units in the quarter, up from 15% in the comparable
period last year. Total dealer channel sales production for the
quarter was up sequentially and nearly reached the level of
production from the fourth quarter last year, as the Company made
progress on its efforts to resume growth in this channel.
-
The Company signed a 5-year renewal contract with Defender Direct,
ADT's largest dealer, who became the Company's first Authorized
Premier Provider. This designation will strengthen ADT's
relationship with Defender and will allow both companies to work
closely on new initiatives to drive growth.
-
Expanding presence in Small Business - Aligned with the
strategy to capture the opportunity in the Small Business space, the
Company executed on targeted growth initiatives in this channel.
-
ADT Pulse take rate in the small business channel improved to 39%
during the quarter.
-
The Company expanded its video surveillance offering launching
both cloud-based and on-site secure storage solutions, providing
small business owners with enhanced visibility into the security
of their businesses.
-
The Company continues to execute upon its strategic plan to
deliver customized security and automation solutions to address
the most common needs and concerns of business owners within a
particular industry by announcing the Food and Beverage Solutions
Bundle in addition to the previously announced ADT Retail
Solutions Bundle.
-
Leverage M&A to accelerate growth - Subsequent to the close
of the quarter, the Company completed its acquisition of Reliance
Protectron Security Services, expanding and strengthening its presence
in Canada. Protectron is a growing security company based in Canada
with over 400 thousand high quality residential and commercial
accounts (including approximately 30,000 contract monitored accounts),
a strong management team, and recurring monthly revenue of
approximately $11 million.
-
Forging new partnerships to achieve future vision - The Company
continues to build out its strategic partnerships as it looks to
expand beyond its strength in managing and protecting physical assets
to protecting digital assets and protecting its customers outside of
the home.
-
The Company extended its leadership position in the security and
home automation industry by taking a minority stake and entering
into a commercial relationship with Life360 - the premier family
networking and location-based services firm with over 18 million
North American users. The partnership will be a valuable lead
generation source for its traditional security services and a
development vehicle for ADT's personal, on-the-go, security
services.
-
Innovations in ADT Pulse and Product Development - The Company
continues to enhance the customer home automation experience, and is
taking steps to broaden its services in protecting more aspects of
customers lives.
-
The Company launched the ADT Pulse Voice Application, an industry
first, allowing customers to interact with their Pulse system
using voice commands.
"We are executing our strategy of investing in growth while focusing on
initiatives to improve cost efficiency, operating margins, and lower
subscriber acquisition costs in order to maximize returns to
shareholders," said Michael Geltzeiler, ADT's chief financial officer.
"In the third quarter, we invested in our product portfolio, announced a
significant acquisition to strengthen our business in Canada and entered
into strategic partnerships to enhance our business for the future. We
also drove improvements in our cost structure and margins, highlighted
by a sequential improvement in cost to serve(3) and a 120
basis points increase in EBITDA margins before items(1). The
creation multiple in our direct channel, excluding the impact of Pulse
upgrades, improved 2.8x sequentially, despite an increase in Pulse
traction and promotional activities. We are pleased with our progress to
date, and we have a strong pipeline of opportunities to drive future
improvements."
PROGRESS ON 2014 PRIORITIES: COST EFFICIENCIES
-
The Company made progress on its cost efficiency initiatives,
improving its recurring revenue margin(4) and creation
multiple on a sequential basis. Total operating expenses before
special items(3) were up only 2% over last year despite the
acquisition of Devcon and higher depreciation and amortization
expenses of 8%. EBITDA margin before special items rose to 53.2%(1),
up 120 basis points versus prior year and 170 basis points versus Q2
2014.
-
Cost to serve / G&A - Cost to serve before special items(3)
was up slightly to the comparable period last year and lower by 3%
sequentially, despite higher product related costs associated with the
increase in ADT Pulse accounts and support costs related to the Devcon
acquisition. Sequential improvements were driven by a number of
factors including lower maintenance and bad debt expense, Devcon
synergies and lower G&A costs related to ongoing restructuring efforts.
-
Subscriber acquisition cost (SAC) / Creation multiple - Net
creation multiple for both the direct and dealer channels combined,
excluding the impact of Pulse upgrades, was 31.0x, 3% lower on a
quarter sequential basis. Sequential improvements in the net creation
multiple were driven by SAC improvements, partially due to the higher
level of gross additions, rationalization in the installation area and
higher ARPU from our new customers. We expect to benefit more from
these and other initiatives, including the launch of electronic
contracts and planned hardware efficiencies in the future.
PROGRESS ON 2014 PRIORITIES: CAPITAL STRUCTURE OPTIMIZATION
-
M&A - The Company closed the acquisition of Reliance
Protectron Security Services on July 8th for approximately CAD $555
million and was funded from cash on hand and additional borrowings
under its revolver.
-
Share repurchase - The Company continued to return cash to
shareholders under its previously announced three-year, $3 billion
share repurchase program, repurchasing 2.6 million of its shares for
$79 million during the third quarter as previously announced. Since
the beginning of this fiscal year, the Company has repurchased 35
million shares for $1.4 billion, at an average price of $38.49.
-
Debt/Capital Structure - Long-term debt totaled $4.7 billion at
the end of the quarter, bringing the Company's leverage ratio, based
off of a trailing twelve month EBITDA before special items, to 2.7(1).
Subsequent to the close of the third quarter, the Company borrowed
$375 million from the revolving credit facility, largely to help fund
the Reliance Protectron acquisition.
-
Quarterly dividend - The Company paid a quarterly dividend of
$0.20 per share on May 21st, an increase of 60% versus last year.
FISCAL 2014 RESULTS HIGHLIGHTS
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|
|
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($ in millions, except per share amounts)
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|
Q3 2014
|
|
Q3 2013
|
|
Change
|
Recurring revenue
|
|
$
|
785
|
|
|
$
|
764
|
|
|
2.7
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%
|
Other revenue
|
|
$
|
64
|
|
|
$
|
69
|
|
|
(7.2
|
)%
|
Total revenue
|
|
$
|
849
|
|
|
$
|
833
|
|
|
1.9
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%
|
EBITDA before special items(1)
|
|
$
|
452
|
|
|
$
|
433
|
|
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4.4
|
%
|
EBITDA margin before special items(1)
|
|
|
53.2
|
%
|
|
|
52.0
|
%
|
|
120 bps
|
Net income
|
|
$
|
82
|
|
|
$
|
113
|
|
|
(27.4
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)%
|
Diluted earnings per share
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|
$
|
0.47
|
|
|
$
|
0.52
|
|
|
(9.6
|
)%
|
Diluted earnings per share before special items(1)
|
|
$
|
0.55
|
|
|
$
|
0.53
|
|
|
3.8
|
%
|
Diluted weighted-average shares outstanding
|
|
|
175
|
|
|
|
219
|
|
|
(20.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Reconciliations from GAAP to non-GAAP financial
measures can be found in the attached tables.
(2) All variances are year-over-year unless
otherwise noted.
(3) Operating expenses in Q3 2014 include special
items totaling $30 million, which is comprised of $29 million in cost to
serve and $1 million in separation costs; Q2 2014 operating expenses
include special items totaling $19 million, comprised of $7 million in
cost to serve, $8 million in depreciation and amortization and $4
million in separation costs; Q3 2013 operating expenses include special
items totaling $6 million of separation costs.
(4) Recurring revenue margin equals recurring
revenue minus cost to serve before special items divided by recurring
revenue.
CONFERENCE CALL AND WEBCAST
Management will discuss the Company's third quarter 2014 results during
a conference call and webcast today beginning at 8:30 a.m. (ET). During
the conference call and webcast management will refer to a slide
presentation hosted on and accessible at http://investors.adt.com.
Today's conference call for investors can be accessed in the following
ways:
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At ADT's website: http://investors.adt.com
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By telephone: For both "listen-only" participants and those
participants who wish to take part in the question-and-answer portion
of the call, the telephone dial-in number in the United States is
(866) 318-8615, pass code 82513397 when prompted. The telephone
dial-in number for participants outside the United States is (617)
399-5134, pass code 82513397 when prompted.
-
An audio replay of the conference call will be available at 12:30 p.m.
(ET) on July 30, 2014 and ending at 11:59 p.m. (ET) on August 20,
2014. The dial-in number for participants in the United States is
(888) 286-8010, pass code 90966067 when prompted. For participants
outside the United States, the replay dial-in number is (617)
801-6888, pass code 90966067 when prompted.
ABOUT ADT
The ADT Corporation (NYSE: ADT) is a leading provider of electronic
security, interactive home and business automation and monitoring
services for residences and small businesses in the United States and
Canada. ADT's broad and pioneering set of products and services,
including ADT Pulse® interactive home and business solutions, and home
health services, meet a range of customer needs for today's active and
increasingly mobile lifestyles. Headquartered in Boca Raton, Florida,
ADT helps provide peace of mind to approximately 6.4 million customers
and it employs approximately 16,000 people at 200 locations. More
information is available at www.adt.com
or by downloading the ADT IR app for iPhone, iPad and Android Devices.
From time to time, ADT may use its website as a channel of distribution
of material Company information. Financial and other material
information regarding the Company is routinely posted on and accessible
at http://investors.adt.com.
In addition, you may automatically receive email alerts and other
information about ADT by enrolling your email by visiting the "Investor
Relations" section at http://investors.adt.com.
NON-GAAP MEASURES
Revenue in constant currency, recurring revenue in constant currency,
leverage ratio, earnings before interest, taxes, depreciation and
amortization (EBITDA), EBITDA margin, EBITDA (pre-SAC), EBITDA margin
(pre-SAC), free cash flow (FCF), steady-state free cash flow (SSFCF),
diluted earnings per share (EPS) and diluted EPS at cash tax rates, in
each case "before special items," are non-GAAP measures that may be used
from time to time and should not be considered replacements for GAAP
results.
Revenue and recurring revenue, each in constant currency, are useful
measures because they provide transparency to the underlying performance
in markets outside the United States by excluding the effect that
foreign currency exchange rate fluctuations have on comparability. Revenue
and recurring revenue in constant currency as presented herein may not
be comparable to similarly titled measures reported by other companies.
The difference between revenue (the most comparable GAAP measure),
revenue in constant currency (non-GAAP measure), and recurring revenue
in constant currency (non-GAAP measure) is the exclusion of the impact
of foreign currency exchange fluctuations. This is also the
primary limitation of this measure, which is best addressed by using
revenue and recurring revenue in constant currency in combination with
GAAP revenue.
The leverage ratio is defined as the ratio of EBITDA before special
items to total debt. The leverage ratio is a useful measure of
the Company's credit position and progress towards leverage targets. Refer
to the discussion on EBITDA before special items for a description of
the differences between the most comparable GAAP measure. The
calculation is limited in that the Company may not always be able to use
cash to repay debt on a dollar-for-dollar basis.
EBITDA is a useful measure of the Company's success in acquiring,
retaining and servicing our customer base and ability to generate and
grow recurring revenue while providing a high level of customer service
in a cost-effective manner. The difference between Net Income
(the most comparable GAAP measure) and EBITDA (the non-GAAP measure) is
the exclusion of interest expense, the provision for income taxes,
depreciation and amortization expense. Excluding these items
eliminates the impact of expenses associated with our capitalization and
tax structure as well as the impact of non-cash charges related to
capital investments.
EBITDA (pre-SAC) is a useful measure of the Company's success in
retaining and servicing our customer base while providing a high level
of customer service in a cost-effective manner. The difference
between Net Income (the most comparable GAAP measure) and EBITDA
(pre-SAC) (the non-GAAP measure) is the exclusion of interest expense,
the provision for income taxes, depreciation expense, amortization
expense, and subscriber acquisition related revenue and expenses. Excluding
these items eliminates the impact of expenses associated with our
capitalization 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, which are the respective
measures, adjusted to exclude the impact of the special items
highlighted below. This number provides information to investors
regarding the impact of certain items management believes are useful to
identify, as described below.
There are material limitations to using EBITDA and EBITDA (pre-SAC).
EBITDA and EBITDA (pre-SAC) may not be comparable to similarly titled
measures reported by other companies. Furthermore, EBITDA and
EBITDA (pre-SAC) do not take into account certain significant items,
including depreciation and amortization, interest expense and tax
expense, which directly affect our net income. Additionally,
EBITDA (pre-SAC) does not take into account expenses related to
acquiring new customers. These limitations are best addressed by
considering the economic effects of the excluded items independently,
and by considering EBITDA and EBITDA (pre-SAC) in conjunction with net
income as calculated in accordance with GAAP. The EBITDA and
EBITDA (pre-SAC) discussion above is also applicable to the respective
margin measures.
FCF is a useful measure of our ability to service debt, make other
investments and return capital to shareholders through dividends and
share repurchases. The difference between Cash Flows from
Operating Activities (the most comparable GAAP measure) and FCF (the
non-GAAP measure) consists of the impact of capital expenditures,
subscriber system assets, dealer generated customer accounts and bulk
account purchases. Dealer generated accounts are accounts that
are generated through the network of authorized dealers. Bulk
account purchases represent accounts acquired from third parties outside
of the authorized dealer network, such as other security service
providers, on a selective basis. These items are subtracted from
cash flows from operating activities because they represent long-term
investments that are required for normal business activities.
SSFCF is a useful measure of pre-levered cash that is generated by
the Company after the cost of replacing recurring revenue lost to
attrition, but before the cost of new subscribers that drive recurring
revenue growth. The difference between Net Income (the most
comparable GAAP measure) and SSFCF (the non-GAAP measure) consists of
the factors discussed above regarding EBITDA (pre-SAC), on a
quarter-to-date basis. EBITDA (pre-SAC) is then annualized and adjusted
for additional factors, described in the reconciliation below, required
to maintain the steady-state. Certain components of these inputs
are determined using trailing twelve month information or information
from the most recent quarter.
In addition, from time to time the Company may present FCF and SSFCF
before special items, which is FCF or SSFCF, adjusted to exclude the
impact of the special items highlighted below. These numbers
provide information to investors regarding the impact of certain items
management believes are useful to identify, as described below.
The limitation associated with using FCF and SSFCF is that they
adjust for certain items that are ultimately within management's and the
Board of Directors' discretion to direct and therefore may imply that
there is less or more cash that is available than the most comparable
GAAP measure. FCF is not intended to represent residual cash flow
for discretionary expenditures since debt service requirements and other
non-discretionary expenditures are not reduced. This limitation
is best addressed by using FCF and SSFCF in combination with other GAAP
financial measures.
FCF and SSFCF as presented herein may not be comparable to similarly
titled measures reported by other companies. These measures
should be used in conjunction with other GAAP financial measures. Investors
are urged to read the Company's financial statements as filed with the
Securities and Exchange Commission, as well as the accompanying tables
to this press release that show all the elements of the GAAP measure.
Diluted EPS at cash tax rates is a useful measure of the Company's
diluted earnings per share after considering the difference between the
effective tax rate and cash tax rate. The difference between
diluted EPS (the most comparable GAAP measure) and diluted EPS at cash
tax rates (the non-GAAP measure) is the exclusion of the impact of
income tax expense and the inclusion of the impact of income taxes paid,
net of refunds. Adjusting for these items provides information on
the impact of our net operating loss carryforwards on our diluted EPS.
The Company has presented its diluted EPS, diluted EPS at cash tax
rates, EBITDA, EBITDA margin, EBITDA (pre-SAC), EBITDA margin (pre-SAC),
FCF, SSFCF and other measures before special items. Special items
include charges and gains related to acquisitions, restructurings,
impairments, and other income or charges that may mask the underlying
operating results and/or business trends of the Company. The
Company utilizes these measures to assess overall operating performance,
as well as to provide insight to management in evaluating overall
operating plan execution and underlying market conditions. The
Company may also present its effective tax rate as adjusted for special
items for consistency. One or more of 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 the Company's underlying operating results and
business trends between periods. The difference between net
income and diluted EPS before special items and net income and diluted
EPS (the most comparable GAAP measures) consists of the impact of the
special items noted above on the applicable GAAP measure. EBITDA,
EBITDA margin, EBITDA (pre-SAC) and EBITDA margin (pre-SAC) before
special items do not reflect any additional adjustments, other than
taxes, that are not reflected in net income before special items. The
limitation of these measures is that they exclude the impact (which may
be material) of items that increase or decrease the Company's reported
operating income and operating margin and net income and EPS. This
limitation is best addressed by using the non-GAAP measures in
combination with the most comparable GAAP measures in order to better
understand the amounts, character and impact of any increase or decrease
on reported results.
FORWARD-LOOKING STATEMENTS
Our reports, filings, and other public announcements may include
"forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. These forward-looking
statements relate to anticipated financial performance, management's
plans and objectives for future operations, business prospects, outcome
of regulatory proceedings, market conditions and other matters. We
make these forward-looking statements in reliance on the safe harbor
protections provided under the Private Securities Litigation Reform Act
of 1995. All statements, other than statements of historical
facts, included in this press release or report that address activities,
events or developments that we expect, believe or anticipate will exist
or may occur in the future, are forward-looking statements. Forward-looking
statements can be identified by various words such as "expects,"
"intends," "will," "anticipates," "believes," "confident," "continue,"
"propose," "seeks," "could," "may," "should," "estimates," "forecasts,"
"might," "goals," "objectives," "targets," "planned," "projects," and
similar expressions. These forward-looking statements are based
on management's current beliefs and assumptions and on information
currently available to management that are subject to risks and
uncertainties, many of which are outside of our control, and could cause
future events or results to be materially different from those stated or
implied in this press release or report. Specific factors that
could cause actual results to differ from results contemplated by
forward-looking statements include, among others, the following:
-
competition in the markets we serve, including new entrants in
these markets;
-
entry of potential competitors upon the expiration of
non-competition agreements;
-
unauthorized use of our brand name;
-
risks associated with ownership of the ADT® brand name outside of
the United States and Canada by Tyco International Ltd., our former
parent company ("Tyco");
-
failure to enforce our intellectual property rights;
-
allegations that we have infringed the intellectual property rights
of third parties;
-
failure to maintain the security of our information and technology
networks;
-
interruption to our monitoring facilities;
-
an increase in the rate of customer attrition;
-
downturns in the housing market and consumer discretionary income;
-
our ability to develop or acquire new technology;
-
changes in U.S. and non-U.S. governmental laws and regulations;
-
increase in government regulation of telemarketing, e-mail
marketing and other marketing upon cost and growth of our business;
-
risks associated with our non-compete and non-solicit arrangements
with Tyco;
-
shifts in consumers' choice of, or telecommunication providers'
support for, telecommunication services and equipment;
-
our dependence on certain software technology that we license from
third parties;
-
failure or interruption in products or services of third-party
providers;
-
our greater exposure to liability for employee acts or omissions or
system failures;
-
interference with our customers' access to some of our products and
services through the Internet by broadband service providers;
-
potential impairment of our deferred tax assets;
-
risks associated with acquiring and integrating customer accounts;
-
potential loss of authorized dealers and affinity marketing
relationships;
-
failure to realize expected benefits from acquisitions;
-
risks associated with pursuing business opportunities that diverge
from our current business model;
-
adverse developments in our relationship with our employees;
-
potential liabilities for obligations of The Brink's Company under
the Coal Act;
-
changes in our credit ratings;
-
risks related to our increased indebtedness;
-
capital market conditions, including availability of funding
sources;
-
potential liabilities for legacy obligations relating to the
separation from Tyco;
-
failure to fully realize expected benefits from the separation from
Tyco; and
-
difficulty in operating as an independent public company separate
from Tyco.
Given the risk factors and uncertainties that could cause our actual
results to differ materially from those contained in any forward-looking
statement, we caution investors not to unduly rely on our
forward-looking statements. These risk factors should not be
construed as exhaustive. We disclaim any obligations to and do
not intend to update the above list or to announce publicly the result
of any revisions to any of the forward-looking statements to reflect
future events or developments. If one or more of these risks or
uncertainties materialize or if our underlying assumptions prove to be
incorrect, actual results may vary materially from what we projected.
Consequently, actual events and results may vary significantly from
those included in or contemplated or implied by our forward-looking
statements. More detailed information about these and other
factors is set forth in ADT's most recent annual report on Form 10-K,
our quarterly reports on Form 10-Q and in other subsequent filings with
the U.S. Securities and Exchange Commission.
|
THE ADT CORPORATION
CONDENSED AND CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
(Unaudited)
|
|
|
|
For the Quarters Ended
|
|
|
|
For the Nine Months Ended
|
|
|
|
|
June 27, 2014
|
|
|
June 28, 2013
|
|
|
% Change
|
|
|
June 27, 2014
|
|
|
June 28, 2013
|
|
|
% Change
|
|
Revenue
|
|
$
|
849
|
|
|
$
|
833
|
|
|
1.9
|
%
|
|
$
|
2,525
|
|
|
$
|
2,463
|
|
|
2.5
|
%
|
Cost of revenue
|
|
354
|
|
|
343
|
|
|
3.2
|
%
|
|
1,072
|
|
|
1,020
|
|
|
5.1
|
%
|
Selling, general and administrative expenses
|
|
307
|
|
|
292
|
|
|
5.1
|
%
|
|
918
|
|
|
874
|
|
|
5.0
|
%
|
Radio conversion costs
|
|
18
|
|
|
-
|
|
|
N/M
|
|
|
27
|
|
|
-
|
|
|
N/M
|
|
Separation costs
|
|
1
|
|
|
6
|
|
|
(83.3
|
)%
|
|
10
|
|
|
17
|
|
|
(41.2
|
)%
|
Operating income
|
|
169
|
|
|
192
|
|
|
(12.0
|
)%
|
|
498
|
|
|
552
|
|
|
(9.8
|
)%
|
Interest income
|
|
1
|
|
|
1
|
|
|
-
|
%
|
|
1
|
|
|
1
|
|
|
-
|
%
|
Interest expense
|
|
(50
|
)
|
|
(32
|
)
|
|
56.3
|
%
|
|
(143
|
)
|
|
(86
|
)
|
|
66.3
|
%
|
Other (expense) income
|
|
(35
|
)
|
|
1
|
|
|
N/M
|
|
|
(33
|
)
|
|
23
|
|
|
(243.5
|
)%
|
Income before income taxes
|
|
85
|
|
|
162
|
|
|
(47.5
|
)%
|
|
323
|
|
|
490
|
|
|
(34.1
|
)%
|
Income tax expense
|
|
(3
|
)
|
|
(49
|
)
|
|
(93.9
|
)%
|
|
(101
|
)
|
|
(165
|
)
|
|
(38.8
|
)%
|
Net income
|
|
$
|
82
|
|
|
$
|
113
|
|
|
(27.4
|
)%
|
|
$
|
222
|
|
|
$
|
325
|
|
|
(31.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.47
|
|
|
$
|
0.52
|
|
|
(9.6
|
)%
|
|
$
|
1.21
|
|
|
$
|
1.44
|
|
|
(16.0
|
)%
|
Diluted
|
|
$
|
0.47
|
|
|
$
|
0.52
|
|
|
(9.6
|
)%
|
|
$
|
1.20
|
|
|
$
|
1.43
|
|
|
(16.1
|
)%
|
Weighted-average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
174
|
|
|
217
|
|
|
(19.8
|
)%
|
|
184
|
|
|
225
|
|
|
(18.2
|
)%
|
Diluted
|
|
175
|
|
|
219
|
|
|
(20.1
|
)%
|
|
185
|
|
|
228
|
|
|
(18.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
3.5
|
%
|
|
30.2
|
%
|
|
N/M
|
|
|
31.3
|
%
|
|
33.7
|
%
|
|
(240) bps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N/M - not meaningful
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THE ADT CORPORATION
CONDENSED AND CONSOLIDATED BALANCE SHEETS
(in millions)
(Unaudited)
|
|
|
|
June 27, 2014
|
|
|
September 27, 2014
|
Assets
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
250
|
|
|
$
|
138
|
Accounts receivable trade, net
|
|
87
|
|
|
86
|
Inventories
|
|
75
|
|
|
66
|
Prepaid expenses and other current assets
|
|
71
|
|
|
85
|
Deferred income taxes
|
|
180
|
|
|
205
|
Total current assets
|
|
663
|
|
|
580
|
Property and equipment, net
|
|
238
|
|
|
235
|
Subscriber system assets, net
|
|
2,198
|
|
|
2,002
|
Goodwill
|
|
3,459
|
|
|
3,476
|
Intangible assets, net
|
|
2,832
|
|
|
2,922
|
Deferred subscriber acquisition costs, net
|
|
555
|
|
|
520
|
Other assets
|
|
188
|
|
|
178
|
Total Assets
|
|
$
|
10,133
|
|
|
$
|
9,913
|
Liabilities and Equity
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
Current maturities of long-term debt
|
|
$
|
3
|
|
|
$
|
3
|
Accounts payable
|
|
174
|
|
|
203
|
Accrued and other current liabilities
|
|
228
|
|
|
264
|
Income taxes payable
|
|
39
|
|
|
43
|
Deferred revenue
|
|
239
|
|
|
245
|
Total current liabilities
|
|
683
|
|
|
758
|
Long-term debt
|
|
4,725
|
|
|
3,373
|
Deferred subscriber acquisition revenue
|
|
817
|
|
|
769
|
Deferred tax liabilities
|
|
644
|
|
|
551
|
Other liabilities
|
|
122
|
|
|
140
|
Total Liabilities
|
|
6,991
|
|
|
5,591
|
Total Equity
|
|
3,142
|
|
|
4,322
|
Total Liabilities and Equity
|
|
$
|
10,133
|
|
|
$
|
9,913
|
|
|
|
|
|
|
|
|
|
THE ADT CORPORATION
CONDENSED AND CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(Unaudited)
|
|
|
For the Nine Months Ended
|
|
|
|
June 27, 2014
|
|
June 28, 2013
|
|
% Change
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
Net income
|
$
|
222
|
|
|
$
|
325
|
|
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
Depreciation and intangible asset amortization
|
767
|
|
|
697
|
|
|
|
Amortization of deferred subscriber acquisition costs
|
98
|
|
|
91
|
|
|
|
Amortization of deferred subscriber acquisition revenue
|
(111
|
)
|
|
(99
|
)
|
|
|
Stock-based compensation expense
|
15
|
|
|
14
|
|
|
|
Deferred income taxes
|
102
|
|
|
165
|
|
|
|
Provision for losses on accounts receivable and inventory
|
33
|
|
|
39
|
|
|
|
Changes in operating assets and liabilities and other
|
39
|
|
|
41
|
|
|
|
Net cash provided by operating activities
|
1,165
|
|
|
1,273
|
|
|
(8.5
|
)%
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
Dealer generated customer accounts and bulk account purchases
|
(362
|
)
|
|
(428
|
)
|
|
|
Subscriber system assets
|
(488
|
)
|
|
(415
|
)
|
|
|
Capital expenditures
|
(56
|
)
|
|
(47
|
)
|
|
|
Acquisitions, net of cash acquired
|
-
|
|
|
(16
|
)
|
|
|
Other investing
|
(7
|
)
|
|
(2
|
)
|
|
|
Net cash used in investing activities
|
(913
|
)
|
|
(908
|
)
|
|
0.6
|
%
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options
|
14
|
|
|
77
|
|
|
|
Excess tax benefit from stock-based award activities
|
2
|
|
|
-
|
|
|
|
Repurchases of common stock under approved program
|
(1,384
|
)
|
|
(1,062
|
)
|
|
|
Dividends paid
|
(97
|
)
|
|
(86
|
)
|
|
|
Proceeds received for allocation of funds related to the Separation
|
-
|
|
|
61
|
|
|
|
Proceeds from long-term borrowings
|
1,725
|
|
|
700
|
|
|
|
Repayment of long-term debt
|
(377
|
)
|
|
(2
|
)
|
|
|
Debt issuance costs
|
(20
|
)
|
|
(6
|
)
|
|
|
Other financing
|
(3
|
)
|
|
(6
|
)
|
|
|
Net cash used in financing activities
|
(140
|
)
|
|
(324
|
)
|
|
(56.8
|
)%
|
Effect of currency translation on cash
|
-
|
|
|
(3
|
)
|
|
|
Net increase in cash and cash equivalents
|
112
|
|
|
38
|
|
|
|
Cash and cash equivalents at beginning of period
|
138
|
|
|
234
|
|
|
|
Cash and cash equivalents at end of period
|
$
|
250
|
|
|
$
|
272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THE ADT CORPORATION
GAAP to Non-GAAP Reconciliations
(Unaudited)
|
Net Income Before Special Items
|
|
|
|
For the Quarters Ended
|
|
|
|
For the Quarters Ended
|
|
|
|
For the Nine Months Ended
|
|
|
($ in millions)
|
|
June 27, 2014
|
|
June 28, 2013
|
|
% Change
|
|
|
June 27, 2014
|
|
March 28, 2014
|
|
% Change
|
|
|
June 27, 2014
|
|
June 28, 2013
|
|
% Change
|
|
Net Income (GAAP)
|
|
$
|
82
|
|
|
$
|
113
|
|
|
(27.4
|
)%
|
|
$
|
82
|
|
|
$
|
63
|
|
|
30.2
|
%
|
|
$
|
222
|
|
|
$
|
325
|
|
|
(31.7
|
)%
|
Restructuring and related, net(1)
|
|
6
|
|
|
-
|
|
|
|
|
6
|
|
|
6
|
|
|
|
|
15
|
|
|
-
|
|
|
|
Acquisition and integration costs(1)
|
|
2
|
|
|
-
|
|
|
|
|
2
|
|
|
-
|
|
|
|
|
2
|
|
|
-
|
|
|
|
Conversion costs(1)
|
|
11
|
|
|
-
|
|
|
|
|
11
|
|
|
4
|
|
|
|
|
17
|
|
|
-
|
|
|
|
Non-recurring separation costs(1)
|
|
1
|
|
|
4
|
|
|
|
|
1
|
|
|
3
|
|
|
|
|
7
|
|
|
11
|
|
|
|
Separation related other expense (income)(2)
|
|
34
|
|
|
(1
|
)
|
|
|
|
34
|
|
|
-
|
|
|
|
|
35
|
|
|
(22
|
)
|
|
|
Pre-separation and other discrete tax items
|
|
(39
|
)
|
|
-
|
|
|
|
|
(39
|
)
|
|
13
|
|
|
|
|
(26
|
)
|
|
-
|
|
|
|
Net Income before special items
|
|
$
|
97
|
|
|
$
|
116
|
|
|
(16.4
|
)%
|
|
$
|
97
|
|
|
$
|
89
|
|
|
9.0
|
%
|
|
$
|
272
|
|
|
$
|
314
|
|
|
(13.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Items have been presented net of tax of $10M for
the quarter ended June 27, 2014, $2M for the quarter ended June
28, 2013, $6M for the quarter ended March 28, 2014, $22M for the
nine months ended June 27, 2014 and $6M for the nine months ended
June 28, 2013.
|
(2) Relates to the 2012 Tax Sharing Agreement between
Tyco, ADT and Pentair.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS Before Special Items
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Quarters Ended
|
|
|
|
For the Quarters Ended
|
|
|
|
For the Nine Months Ended
|
|
|
|
|
June 27, 2014
|
|
June 28, 2013
|
|
% Change
|
|
|
June 27, 2014
|
|
March 28, 2014
|
|
% Change
|
|
|
June 27, 2014
|
|
June 28, 2013
|
|
% Change
|
|
Diluted EPS (GAAP)
|
|
$
|
0.47
|
|
|
$
|
0.52
|
|
|
(9.6
|
)%
|
|
$
|
0.47
|
|
|
$
|
0.34
|
|
|
38.2
|
%
|
|
$
|
1.20
|
|
|
$
|
1.43
|
|
|
(16.1
|
)%
|
Impact of special items(1)
|
|
0.08
|
|
|
0.01
|
|
|
|
|
0.08
|
|
|
0.15
|
|
|
|
|
0.27
|
|
|
(0.05
|
)
|
|
|
Diluted EPS before special items
|
|
$
|
0.55
|
|
|
$
|
0.53
|
|
|
3.8
|
%
|
|
$
|
0.55
|
|
|
$
|
0.49
|
|
|
12.2
|
%
|
|
$
|
1.47
|
|
|
$
|
1.38
|
|
|
6.5
|
%
|
|
(1) Items have been presented net of tax where
applicable.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS Before Special Items at Cash Tax Rates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Quarters Ended
|
|
|
|
For the Quarters Ended
|
|
|
|
For the Nine Months Ended
|
|
|
|
June 27, 2014
|
|
June 28, 2013
|
|
% Change
|
|
|
June 27, 2014
|
|
March 28, 2014
|
|
% Change
|
|
|
June 27, 2014
|
|
June 28, 2013
|
|
% Change
|
|
Diluted EPS (GAAP)
|
$
|
0.47
|
|
|
$
|
0.52
|
|
|
(9.6
|
)%
|
|
$
|
0.47
|
|
|
$
|
0.34
|
|
|
38.2
|
%
|
|
$
|
1.20
|
|
|
$
|
1.43
|
|
|
(16.1
|
)%
|
Plus: Impact of income tax expense on diluted EPS
|
0.02
|
|
|
0.22
|
|
|
|
|
0.02
|
|
|
0.30
|
|
|
|
|
0.54
|
|
|
0.72
|
|
|
|
Less: Impact of income taxes paid, net of refunds
|
(0.04
|
)
|
|
0.04
|
|
|
|
|
(0.04
|
)
|
|
(0.05
|
)
|
|
|
|
(0.11
|
)
|
|
-
|
|
|
|
Diluted EPS at cash tax rates
|
$
|
0.45
|
|
|
$
|
0.78
|
|
|
(42.3
|
)%
|
|
$
|
0.45
|
|
|
$
|
0.59
|
|
|
(23.7
|
)%
|
|
$
|
1.63
|
|
|
$
|
2.15
|
|
|
(24.2
|
)%
|
Impact of special items(1)
|
0.35
|
|
|
0.02
|
|
|
|
|
0.35
|
|
|
0.10
|
|
|
|
|
0.51
|
|
|
(0.02
|
)
|
|
|
Diluted EPS before special items at cash tax rates
|
$
|
0.80
|
|
|
$
|
0.80
|
|
|
-
|
%
|
|
$
|
0.80
|
|
|
$
|
0.69
|
|
|
15.9
|
%
|
|
$
|
2.14
|
|
|
$
|
2.13
|
|
|
0.5
|
%
|
|
(1) Items presented at cash tax rates where applicable.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THE ADT CORPORATION
GAAP to Non-GAAP Reconciliations (continued)
(Unaudited)
|
EBITDA Before Special Items
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Quarters Ended
|
|
|
|
For the Quarters Ended
|
|
|
|
For the Nine Months Ended
|
|
|
($ in millions)
|
|
June 27, 2014
|
|
June 28, 2013
|
|
Change
|
|
June 27, 2014
|
|
March 28, 2014
|
|
Change
|
|
June 27, 2014
|
|
June 28, 2013
|
|
Change
|
Net Income (GAAP)
|
|
$
|
82
|
|
|
$
|
113
|
|
|
(27.4
|
)%
|
|
$
|
82
|
|
|
$
|
63
|
|
|
30.2
|
%
|
|
$
|
222
|
|
|
$
|
325
|
|
|
(31.7
|
)%
|
Interest expense, net
|
|
49
|
|
|
31
|
|
|
|
|
49
|
|
|
46
|
|
|
|
|
142
|
|
|
85
|
|
|
|
Income tax expense
|
|
3
|
|
|
49
|
|
|
|
|
3
|
|
|
55
|
|
|
|
|
101
|
|
|
165
|
|
|
|
Depreciation and intangible asset amortization
|
|
258
|
|
|
238
|
|
|
|
|
258
|
|
|
260
|
|
|
|
|
767
|
|
|
697
|
|
|
|
Amortization of deferred subscriber acquisition costs
|
|
33
|
|
|
31
|
|
|
|
|
33
|
|
|
33
|
|
|
|
|
98
|
|
|
91
|
|
|
|
Amortization of deferred subscriber acquisition revenue
|
|
(37
|
)
|
|
(34
|
)
|
|
|
|
(37
|
)
|
|
(37
|
)
|
|
|
|
(111
|
)
|
|
(99
|
)
|
|
|
EBITDA
|
|
$
|
388
|
|
|
$
|
428
|
|
|
(9.3
|
)%
|
|
$
|
388
|
|
|
$
|
420
|
|
|
(7.6
|
)%
|
|
$
|
1,219
|
|
|
$
|
1,264
|
|
|
(3.6
|
)%
|
EBITDA Margin
|
|
45.7
|
%
|
|
51.4
|
%
|
|
-570 bps
|
|
45.7
|
%
|
|
50.2
|
%
|
|
-450 bps
|
|
48.3
|
%
|
|
51.3
|
%
|
|
-300 bps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring, net
|
|
9
|
|
|
-
|
|
|
|
|
9
|
|
|
1
|
|
|
|
|
15
|
|
|
-
|
|
|
|
Acquisition and integration costs
|
|
2
|
|
|
-
|
|
|
|
|
2
|
|
|
-
|
|
|
|
|
3
|
|
|
-
|
|
|
|
Conversion costs
|
|
18
|
|
|
-
|
|
|
|
|
18
|
|
|
6
|
|
|
|
|
27
|
|
|
-
|
|
|
|
Non-recurring separation costs
|
|
1
|
|
|
6
|
|
|
|
|
1
|
|
|
4
|
|
|
|
|
10
|
|
|
17
|
|
|
|
Separation related other expense (income)(1)
|
|
34
|
|
|
(1
|
)
|
|
|
|
34
|
|
|
-
|
|
|
|
|
35
|
|
|
(22
|
)
|
|
|
EBITDA before special items
|
|
$
|
452
|
|
|
$
|
433
|
|
|
4.4
|
%
|
|
$
|
452
|
|
|
$
|
431
|
|
|
4.9
|
%
|
|
$
|
1,309
|
|
|
$
|
1,259
|
|
|
4.0
|
%
|
EBITDA Margin before special items
|
|
53.2
|
%
|
|
52.0
|
%
|
|
120 bps
|
|
53.2
|
%
|
|
51.5
|
%
|
|
170 bps
|
|
51.8
|
%
|
|
51.1
|
%
|
|
70 bps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscriber acquisition cost expenses net of related revenue
|
|
92
|
|
|
95
|
|
|
|
|
92
|
|
|
94
|
|
|
|
|
284
|
|
|
291
|
|
|
|
EBITDA before special items (pre-SAC)
|
|
$
|
544
|
|
|
$
|
528
|
|
|
3.0
|
%
|
|
$
|
544
|
|
|
$
|
525
|
|
|
3.6
|
%
|
|
$
|
1,593
|
|
|
$
|
1,550
|
|
|
2.8
|
%
|
EBITDA Margin before special items (pre-SAC)
|
|
68.2
|
%
|
|
67.3
|
%
|
|
90 bps
|
|
68.2
|
%
|
|
66.7
|
%
|
|
150 bps
|
|
67.2
|
%
|
|
66.8
|
%
|
|
40 bps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue (GAAP)
|
|
$
|
849
|
|
|
$
|
833
|
|
|
1.9
|
%
|
|
$
|
849
|
|
|
$
|
837
|
|
|
1.4
|
%
|
|
$
|
2,525
|
|
|
$
|
2,463
|
|
|
2.5
|
%
|
Subscriber acquisition cost related revenue
|
|
(51
|
)
|
|
(49
|
)
|
|
|
|
(51
|
)
|
|
(50
|
)
|
|
|
|
(153
|
)
|
|
(142
|
)
|
|
|
Revenue (pre-SAC)
|
|
$
|
798
|
|
|
$
|
784
|
|
|
1.8
|
%
|
|
$
|
798
|
|
|
$
|
787
|
|
|
1.4
|
%
|
|
$
|
2,372
|
|
|
$
|
2,321
|
|
|
2.2
|
%
|
|
(1) Relates to the 2012 Tax Sharing Agreement between Tyco, ADT
and Pentair.
|
|
|
THE ADT CORPORATION
GAAP to Non-GAAP Reconciliations (continued)
(Unaudited)
|
SSFCF Before Special Items
|
|
|
|
|
|
For the Quarters Ended
|
($ in millions)
|
|
June 27, 2014
|
|
June 28, 2013
|
|
March 28, 2014
|
Last quarter, annualized EBITDA before special items (pre-SAC)
|
|
$
|
2,176
|
|
|
$
|
2,112
|
|
|
$
|
2,100
|
|
SAC required to maintain recurring revenue(1)
|
|
(1,232
|
)
|
|
(1,119
|
)
|
|
(1,304
|
)
|
Maintenance capital expenditures
|
|
(10
|
)
|
|
(10
|
)
|
|
(10
|
)
|
SSFCF before special items
|
|
$
|
934
|
|
|
$
|
983
|
|
|
$
|
786
|
|
|
(1) SAC required to maintain recurring revenue is calculated as
follows:
|
|
|
|
|
|
|
For the Quarters Ended
|
($ in millions)
|
|
June 27, 2014
|
|
June 28, 2013
|
|
March 28, 2014
|
Last quarter average recurring revenue under contract for the period
|
|
$
|
262
|
|
|
$
|
255
|
|
|
$
|
258
|
|
Trailing twelve month disconnects net of price escalation(2)
|
|
14.6
|
%
|
|
14.2
|
%
|
|
15.0
|
%
|
Last quarter gross recurring revenue creation multiple(3)
|
|
32.2
|
|
|
30.9
|
|
|
33.7
|
|
SAC required to maintain recurring revenue
|
|
$
|
1,232
|
|
|
$
|
1,119
|
|
|
$
|
1,304
|
|
|
(2) Average trailing twelve month recurring revenue disconnected
net of price escalations. Disconnects account for dealer
chargebacks.
|
(3) Gross creation cost includes amount held back from dealers for
chargebacks.
|
|
|
FCF Before Special Items
|
|
|
|
For the Quarters Ended
|
|
|
|
For the Quarters Ended
|
|
|
($ in millions)
|
|
June 27, 2014
|
|
June 28, 2013
|
|
% Change
|
|
|
June 27, 2014
|
|
March 28, 2014
|
|
% Change
|
|
Net cash provided by operating activities
|
|
$
|
408
|
|
|
$
|
461
|
|
|
(11.5
|
)%
|
|
$
|
408
|
|
|
$
|
422
|
|
|
(3.3
|
)%
|
Dealer generated customer accounts and bulk account purchases
|
|
(137
|
)
|
|
(138
|
)
|
|
|
|
(137
|
)
|
|
(115
|
)
|
|
|
Subscriber system assets
|
|
(163
|
)
|
|
(150
|
)
|
|
|
|
(163
|
)
|
|
(168
|
)
|
|
|
Capital expenditures
|
|
(23
|
)
|
|
(20
|
)
|
|
|
|
(23
|
)
|
|
(21
|
)
|
|
|
FCF
|
|
$
|
85
|
|
|
$
|
153
|
|
|
(44.4
|
)%
|
|
$
|
85
|
|
|
$
|
118
|
|
|
(28.0
|
)%
|
Restructuring, net
|
|
3
|
|
|
-
|
|
|
|
|
3
|
|
|
-
|
|
|
|
Acquisition and integration costs
|
|
1
|
|
|
-
|
|
|
|
|
1
|
|
|
1
|
|
|
|
Tax sharing costs
|
|
(19
|
)
|
|
-
|
|
|
|
|
(19
|
)
|
|
(12
|
)
|
|
|
Conversion costs
|
|
14
|
|
|
-
|
|
|
|
|
14
|
|
|
5
|
|
|
|
Non-recurring separation costs including capital expenditures
|
|
14
|
|
|
12
|
|
|
|
|
14
|
|
|
9
|
|
|
|
FCF before special items
|
|
$
|
98
|
|
|
$
|
165
|
|
|
(40.6
|
)%
|
|
$
|
98
|
|
|
$
|
121
|
|
|
(19.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue at Constant Currency
|
|
|
|
|
|
|
|
|
|
|
|
For the Quarters Ended
|
|
|
|
For the Nine Months Ended
|
|
|
($ in millions)
|
|
June 27, 2014
|
|
June 28, 2013
|
|
% Change
|
|
June 27, 2014
|
|
June 28, 2013
|
|
% Change
|
Recurring revenue as reported
|
|
$
|
785
|
|
|
$
|
764
|
|
|
2.7
|
%
|
|
$
|
2,333
|
|
|
$
|
2,264
|
|
|
3.0
|
%
|
Recurring revenue at constant currency (1)
|
|
$
|
787
|
|
|
$
|
764
|
|
|
3.0
|
%
|
|
$
|
2,341
|
|
|
$
|
2,264
|
|
|
3.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue as reported
|
|
$
|
849
|
|
|
$
|
833
|
|
|
1.9
|
%
|
|
$
|
2,525
|
|
|
$
|
2,463
|
|
|
2.5
|
%
|
Total revenue at constant currency (1)
|
|
$
|
851
|
|
|
$
|
833
|
|
|
2.2
|
%
|
|
$
|
2,534
|
|
|
$
|
2,463
|
|
|
2.9
|
%
|
|
(1) Constant currency revenue results are calculated by
translating current period revenue in local currency using the
prior comparable period's currency conversion rate.
|
|
|
|
|
THE ADT CORPORATION
GAAP to Non-GAAP Reconciliations (continued)
(Unaudited)
|
Leverage Ratio
|
|
|
|
|
For the Twelve Months Ended
|
($ in millions)
|
|
June 27, 2014
|
|
September 27, 2013
|
|
September 28, 2012
|
Net Income (GAAP)
|
|
$
|
318
|
|
|
$
|
421
|
|
|
$
|
394
|
|
Interest expense, net
|
|
174
|
|
|
117
|
|
|
92
|
|
Income tax expense
|
|
157
|
|
|
221
|
|
|
236
|
|
Depreciation and intangible asset amortization
|
|
1,012
|
|
|
942
|
|
|
871
|
|
Amortization of deferred subscriber acquisition costs
|
|
130
|
|
|
123
|
|
|
111
|
|
Amortization of deferred subscriber acquisition revenue
|
|
(147
|
)
|
|
(135
|
)
|
|
(120
|
)
|
EBITDA
|
|
$
|
1,644
|
|
|
$
|
1,689
|
|
|
$
|
1,584
|
|
Restructuring, net
|
|
14
|
|
|
(1
|
)
|
|
4
|
|
Acquisition and integration costs
|
|
5
|
|
|
2
|
|
|
14
|
|
Conversion costs
|
|
27
|
|
|
-
|
|
|
-
|
|
Non-recurring separation costs
|
|
16
|
|
|
23
|
|
|
7
|
|
Separation related other income(1)
|
|
34
|
|
|
(23
|
)
|
|
-
|
|
EBITDA before special items
|
|
$
|
1,740
|
|
|
$
|
1,690
|
|
|
$
|
1,609
|
|
EBITDA Margin before special items
|
|
51.6
|
%
|
|
51.1
|
%
|
|
49.8
|
%
|
|
(1) Relates to the 2012 Tax Sharing Agreement between Tyco, ADT
and Pentair.
|
|
|
|
|
|
|
|
|
($ in millions)
|
|
June 27, 2014
|
|
September 27, 2013
|
|
September 28, 2012
|
Current maturities of long-term debt
|
|
$
|
3
|
|
|
$
|
3
|
|
|
$
|
2
|
Long-term debt
|
|
4,725
|
|
|
3,373
|
|
|
2,525
|
Total Debt
|
|
$
|
4,728
|
|
|
$
|
3,376
|
|
|
$
|
2,527
|
|
|
|
|
|
|
|
|
|
Leverage Ratio(2)
|
|
2.7
|
|
|
2.0
|
|
|
1.6
|
|
(2) Leverage ratio is defined as the ratio of debt to trailing
twelve month EBITDA before special items.
|
|
|
THE ADT CORPORATION
SELECTED FINANCIAL AND OPERATING DATA
(Unaudited)
|
|
|
|
|
|
|
|
For the Quarters Ended
|
|
|
|
|
June 27, 2014
|
|
June 28, 2013
|
|
Change
|
Recurring customer revenue (in millions)
|
|
$
|
785
|
|
|
$
|
764
|
|
|
2.7
|
%
|
Other revenue (in millions)
|
|
64
|
|
|
69
|
|
|
(7.2
|
)%
|
Total revenue (in millions)
|
|
$
|
849
|
|
|
$
|
833
|
|
|
1.9
|
%
|
|
|
|
|
|
|
|
|
|
Ending number of customers (in thousands)(1)
|
|
6,377
|
|
|
6,426
|
|
|
(0.8
|
)%
|
Gross customer additions (in thousands)(1)
|
|
250
|
|
|
273
|
|
|
(8.4
|
)%
|
Customer revenue attrition rate(2)
|
|
13.9
|
%
|
|
13.8
|
%
|
|
10 bps
|
Customer unit attrition rate(3)
|
|
13.5
|
%
|
|
13.3
|
%
|
|
20 bps
|
Average revenue per customer (dollars)(1) (4)
|
|
$
|
41.85
|
|
|
$
|
40.28
|
|
|
3.9
|
%
|
|
(1) During the first quarter of fiscal year 2014, the Company
determined that a small number of customer upgrades in Canada were
incorrectly reflected as customer additions in prior periods. As a
result, historical ending number of customers, gross customer
additions and average revenue per customer have been adjusted.
This adjustment had no impact on our financial statements for any
prior periods.
|
(2) The attrition rate is a 52 week trailing ratio, the numerator
of which is the annualized recurring revenue lost during the
period due to attrition, net of dealer charge-backs and re-sales,
and the denominator of which is total annualized recurring revenue
based on an average of recurring revenue under contract at the
beginning of each month during the period.
|
(3) The attrition rate is a 52 week trailing ratio, the numerator
of which is the trailing twelve month units canceled during the
period due to attrition, net of dealer charge-backs and re-sales,
and the denominator of which is the average of the customer base
at the beginning of each month during the trailing twelve month
period.
|
(4) Average revenue per customer measures the average amount of
recurring revenue per customer per month, and is calculated based
on the recurring revenue under contract at the end of the period,
divided by the total number of customers under contract at the end
of the period.
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