NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation and Summary of Significant 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 ("U.S.") and Canada.
Merger
—On February 14, 2016, the Company, as authorized by the Company's Board of Directors, entered into an Agreement and Plan of Merger (the “Merger Agreement”), by and among the Company, Prime Security Services Borrower, LLC, a Delaware limited liability company (“Parent”), Prime Security One MS, Inc., a Delaware corporation and a wholly owned subsidiary of Parent (“Merger Sub”), and solely for the purposes of Article IX thereof, Prime Security Services Parent, Inc., a Delaware corporation (“Parent Inc.”) and Prime Security Services TopCo Parent, L.P., a Delaware limited partnership (“Parent LP”), pursuant to which, on May 2, 2016 (the "Closing Date"), Merger Sub merged with and into the Company, with the Company surviving as a wholly owned subsidiary of Parent (the “Merger”).
At the effective time of the Merger, each share of the Company’s common stock, par value
$0.01
per share, issued and outstanding immediately prior to the effective time of the Merger (other than shares of the Company’s common stock held by Parent, Merger Sub, or any other direct or indirect wholly owned subsidiary of Parent, shares owned by the Company, including shares held in treasury, or any of its direct or indirect wholly owned subsidiaries, and shares owned by stockholders who have properly made and not withdrawn a demand for appraisal rights under Delaware law) was cancelled and converted into the right to receive cash consideration of
$42.00
per share, without interest and subject to applicable withholding taxes.
In connection with the closing of the Merger, on the Closing Date, the Company’s common stock was delisted from the New York Stock Exchange. The Company deregistered under the Securities Exchange Act of 1934 on May 12, 2016.
The completion of the Merger was subject to customary closing conditions including, among others, ADT stockholder approval and regulatory approval. On March 9, 2016, the U.S. Federal Trade Commission granted early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and on March 11, 2016, the Commissioner of Competition issued a no action letter and waiver of the obligations to notify with respect to the Merger under Section 113(c) of the Competition Act (Canada). On April 22, 2016, ADT's stockholders adopted the Merger Agreement.
Refer to the Company’s Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission (the "SEC") on February 16, 2016 for additional information on the Merger and the definitive proxy statement relating to the Merger filed with the SEC on Schedule 14A on March 25, 2016.
Consent Solicitations
On April 1, 2016, in connection with the Merger, the Company commenced consent solicitations (the “Consent Solicitations”) with respect to ADT’s
5.250%
Senior Notes due 2020,
6.250%
Senior Notes due 2021,
3.500%
Notes due 2022,
4.125%
Senior Notes due 2023, and
4.875%
Notes due 2042 (collectively, the “ADT Rollover Notes”), and such consents would (i) waive (with respect to each series of ADT Rollover Notes, the “Waiver” and, collectively, the “Waivers”) any potential “Change of Control Triggering Event,” including any potential obligation of ADT to make a “Change of Control Offer” (each as defined in the indentures governing the ADT Rollover Notes), and (ii) amend the indentures governing each series of ADT Rollover Notes, which would (a) amend the definition of “Change of Control” and (b) limit any required grant of capital stock as collateral with respect to the ADT Rollover Notes to the extent necessary not to be subject to any requirement pursuant to the SEC rules to file separate financial statements with the SEC or any other governmental agency (clauses (a) and (b) together, with respect to each series of ADT Rollover Notes, the “Proposed Amendments”).
In the Consent Solicitations, the Company was seeking consents to the applicable Waiver and the Proposed Amendments for each series of ADT Rollover Notes as a single proposal, which under each ADT Rollover Note Indenture requires the consent of holders of not less than a majority in aggregate principal amount of each such series of ADT Rollover Notes. As of April 25, 2016, the requisite consents for the Waiver and the Proposed Amendments (the “Requisite Consents”) were obtained with respect to each series of ADT Rollover Notes. On the Closing Date, Parent funded the payment of consent fees in connection with the Consent Solicitations.
Following receipt of the Requisite Consents, the Company has executed a supplemental indenture to each series of ADT Rollover Notes (each, a “Supplemental Indenture”) giving effect to (a) the Waiver of any “Change of Control Triggering Event” in connection with the Merger and (b) the Proposed Amendments. The Supplemental Indentures also provide each series of ADT Rollover Notes the benefit of (1) guarantees by Parent and all wholly owned domestic subsidiaries of the combined company and (2) a first-priority security interest in substantially all of the combined company’s existing and future assets. The Supplemental Indenture became operative upon the closing of the Merger.
Tender Offers
On April 1, 2016, in connection with the Merger, Merger Sub commenced tender offers (the “Tender Offers”) to purchase for cash any and all of the Company’s outstanding
$750 million
aggregate principal amount of
2.250%
Notes due 2017 (the “2017 Notes”) and
$500 million
aggregate principal amount of
4.125%
Senior Notes due 2019. On the Closing Date,
$667 million
aggregate principal amount of the 2017 Notes were purchased in the applicable Tender Offer, leaving
$83 million
aggregate principal amount of the 2017 Notes outstanding (the “Remaining 2017 Notes”), and
$453 million
aggregate principal amount of the 2019 Notes were purchased in the applicable Tender Offer, leaving
$47 million
aggregate principal amount of the 2019 Notes outstanding (the “Remaining 2019 Notes” and, together with the Remaining 2017 Notes, the “Remaining Notes”).
On the Closing Date, following the completion of the Merger and the purchase of the tendered 2017 and 2019 Notes in the Tender Offers, the Company delivered a notice of redemption (the “Redemption Notice”) to the holders of the Remaining Short-Term Notes. The Redemption Notice provides for the Company’s redemption of the Remaining Notes on June 1, 2016 (the “Redemption Date”) at a redemption price as specified in the Company's Current Report on Form 8-K filed with the SEC on May 6, 2016.
Exchange Offer
On April 1, 2016, Merger Sub launched an offer to exchange (the “Exchange Offer”) new
4.875%
First-Priority Senior Secured Notes due 2032 (the “Exchange Notes”) for any and all of ADT’s outstanding
4.875%
Notes due 2042 that are held by eligible holders. On the Closing Date, Merger Sub successfully completed the Exchange Offer and issued
$718 million
aggregate principal amount of Exchange Notes pursuant to the Exchange Offer. Following the completion of the Exchange Offer,
$32 million
aggregate principal amount of the Registrant’s
4.875%
Notes due 2042 remained outstanding as of the Closing Date. The Exchange Notes have not been registered under the Securities Act or any state securities laws and may not be offered or sold in the United States absent an effective registration statement or an applicable exemption from registration requirements or a transaction not subject to the registration requirements of the Securities Act or any state securities laws.
Revolving Credit Facility
On the Closing Date, the Company terminated its five-year unsecured senior revolving credit facility, dated as of June 22, 2012. In connection with the termination, the Company repaid all of its outstanding obligations in respect of principal, interest, and fees under its revolving credit facility.
Basis of Presentation
—The Condensed and Consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiaries and have been prepared in United States dollars ("USD") in accordance with generally accepted accounting principles in the United States of America ("GAAP"). The Condensed and Consolidated Financial Statements included herein are unaudited, but in the opinion of management, such financial statements include all adjustments, consisting of normal recurring adjustments, necessary to summarize fairly the Company's financial position, results of operations, and cash flows for the interim periods presented. The interim results reported in these Condensed and Consolidated Financial Statements should not be taken as indicative of results that may be expected for the entire year. For a more comprehensive understanding of ADT and its Condensed and Consolidated Financial Statements, please review these interim financial statements in conjunction with the Company's audited financial statements included in its Annual Report on Form 10-K for the fiscal year ended
September 25, 2015
("2015 Form 10-K"), which was filed with the SEC on
November 12, 2015
.
Historically, the Company had a 52- or 53-week fiscal year that ended on the last Friday in September. Fiscal year 2015 was a
52
-week fiscal year. On October 14, 2015, the Company's Board of Directors approved a change to the Company's fiscal year end from the last Friday in September to September 30 of each year, and thereafter the end of each fiscal quarter will be the last day of the calendar month end. The fiscal year change is effective for the 2016 fiscal year, which began on September 26, 2015, the day after the last day of the 2015 fiscal year, and will end on September 30, 2016. This change better aligns the Company's external reporting with the monthly recurring nature of revenues and expenses associated with its customer base.
The Company conducts business through its operating entities. During the fourth quarter of fiscal year 2015, the Company changed its segment reporting structure in connection with a change in the manner in which the Chief Executive Officer, who is the chief operating decision maker ("CODM"), evaluates performance and makes decisions about how to allocate resources. This change resulted in the reorganization of the Company's single operating segment into
two
operating segments, United States and Canada. These operating segments are also the Company's reportable segments and are identified by the Company based on how resources are allocated and operating decisions are made. Where applicable, presentation of the Company's operating segments and prior period amounts reported herein are based on the new segment structure. Refer to Note 9 for segment data.
All intercompany transactions have been eliminated. The results of companies acquired are included in the Condensed and Consolidated Financial Statements from the effective date of acquisition.
Radio Conversion Costs
—Charges incurred related to a three-year conversion program to replace 2G radios used in many of the Company's security systems are reflected in radio conversion costs in the Company's Condensed and Consolidated Statements of Operations.
Inventories
—Inventories are recorded at the lower of cost (average cost) or market value. Inventories consisted of the following ($ in millions):
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
September 25,
2015
|
Work in progress
|
$
|
3
|
|
|
$
|
3
|
|
Finished goods
|
77
|
|
|
73
|
|
Inventories
|
$
|
80
|
|
|
$
|
76
|
|
Prepaid Expenses and Other Current Assets
—Prepaid expenses and other current assets includes prepaid expenses of
$22 million
and
$15 million
as of March 31, 2016
and
September 25, 2015
, respectively.
Subscriber System Assets
—Subscriber system assets represent capitalized equipment and installation costs incurred in connection with transactions in which the Company retains ownership of the security system. The following table sets forth the gross carrying amount and accumulated depreciation of the Company's subscriber system assets as of
March 31, 2016
and
September 25, 2015
($ in millions):
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
September 25,
2015
|
Gross carrying amount
|
$
|
5,391
|
|
|
$
|
5,124
|
|
Accumulated depreciation
|
(2,781
|
)
|
|
(2,622
|
)
|
Subscriber system assets, net
|
$
|
2,610
|
|
|
$
|
2,502
|
|
Depreciation expense relating to subscriber system assets for the quarters and
six months ended
March 31, 2016
and
March 27, 2015
was as follows ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Quarters Ended
|
|
For the Six Months Ended
|
|
March 31,
2016
|
|
March 27,
2015
|
|
March 31,
2016
|
|
March 27,
2015
|
Subscriber system assets depreciation expense
|
$
|
120
|
|
|
$
|
107
|
|
|
$
|
237
|
|
|
$
|
211
|
|
Financial Instruments
—The Company's financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable, debt, and derivative financial instruments. Due to their short-term nature, the fair value of cash and cash equivalents, accounts receivable, and accounts payable approximated carrying value
as of March 31, 2016
and
September 25, 2015
.
Long-Term Debt Instruments
—The fair value of the Company's unsecured notes was determined using broker-quoted market prices, which are considered Level 2 inputs. The carrying amount of debt outstanding under the Company's revolving credit facility approximates fair value as interest rates on these borrowings approximate current market rates, which are considered Level 2 inputs.
The carrying value and fair value of the Company's debt that is subject to fair value disclosures as of
March 31, 2016
and
September 25, 2015
were as follows ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
September 25, 2015
|
|
Carrying
Value
|
|
Fair
Value
|
|
Carrying
Value
|
|
Fair
Value
|
Long-term debt instruments, excluding capital lease obligations and other
|
$
|
5,321
|
|
|
$
|
4,865
|
|
|
$
|
5,361
|
|
|
$
|
5,044
|
|
Derivative Instruments
—All derivative financial instruments are reported on the Condensed and Consolidated Balance Sheets at fair value. For derivative financial instruments designated as fair value hedges, the changes in fair value of both the derivatives and the hedged items are recognized in the Condensed and Consolidated Statements of Operations. The fair values of the Company's derivative financial instruments are not material.
Accrued Expenses and Other Current Liabilities
—Accrued expenses and other current liabilities as of
March 31, 2016
and
September 25, 2015
consisted of the following ($ in millions):
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
September 25,
2015
|
Payroll-related accruals
|
$
|
44
|
|
|
$
|
79
|
|
Insurance-related accruals
|
36
|
|
|
39
|
|
Accrued interest
|
44
|
|
|
44
|
|
Other accrued liabilities
|
77
|
|
|
69
|
|
Total accrued expenses and other current liabilities
|
$
|
201
|
|
|
$
|
231
|
|
Guarantees
—In the normal course of business, the Company is liable for contract completion and product performance. In the opinion of management, such obligations will not significantly affect the Company's financial position, results of operations, or cash flows. As of
March 31, 2016
and
September 25, 2015
, there were no material guarantees.
Recent Accounting Pronouncements
—In May 2014, the Financial Accounting Standards Board ("FASB") issued authoritative guidance which sets forth a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. Companies may use either a full retrospective or a modified retrospective approach to adopt this guidance. In August 2015, the FASB issued an amendment to defer the effective date of this guidance by one year to December 15, 2017, for annual reporting periods, including interim reporting periods within those periods, beginning after that date. Early adoption is permitted, but not before the original effective date of December 15, 2016. This guidance, including all subsequently issued amendments by the FASB to this guidance, will be effective for the Company in the first quarter of fiscal year 2019. The Company is currently evaluating the impact of this guidance.
In April 2015, the FASB issued authoritative guidance to simplify the presentation of debt issuance costs and require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this guidance. This guidance is to be applied on a retrospective basis and is effective for financial statements issued for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. This guidance will be effective for the Company in the first quarter of fiscal year 2017. Early adoption is permitted for financial statements that have not been previously issued. The adoption of this guidance is not expected to have a material impact on the Company's financial position, results of operations, or cash flows.
In April 2015, the FASB issued authoritative guidance regarding the accounting for fees paid in a cloud computing arrangement. The new standard provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. This guidance will be effective for the Company in the first quarter of fiscal year 2017. Early adoption is permitted. Companies may elect to adopt this guidance using either (1) a prospective approach for all arrangements entered into or materially modified after the effective date, or (2) a retrospective approach. The Company is currently evaluating the impact of this guidance.
In July 2015, the FASB issued authoritative guidance to simplify the subsequent measurement of inventory. Under this new standard, an entity should measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016, and will be effective for the Company in the first quarter of fiscal year 2018. The amendments in this guidance should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The Company is currently evaluating the impact of this guidance.
In November 2015, the FASB issued authoritative guidance to simplify the presentation of deferred income taxes, and require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The current requirement that deferred tax liabilities and assets be offset and presented as a single amount for each jurisdiction is not affected by the amendments in this guidance. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016, and will be effective for the Company in the first quarter of fiscal year 2018. The amendments in this guidance may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. Early adoption is permitted as of the beginning of an interim or annual reporting period. The Company is currently evaluating the impact of this guidance.
In January 2016, the FASB issued authoritative guidance related to the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, this update clarifies the guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from the unrealized losses on available-for-sale debt securities. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, and will be effective for the Company in the first quarter of fiscal year 2019. Entities may early adopt the provision within this guidance to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income. An entity should apply the amendments in the standard by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments in the standard that address equity securities without readily determinable fair values should be applied prospectively to equity investments that exist as of the date of adoption of the standard. The Company is currently evaluating the impact of this guidance.
In February 2016, the FASB issued authoritative guidance on accounting for leases. This new guidance requires lessees to recognize a right-to-use asset and a lease liability for substantially all leases and to disclose key information about leasing arrangements. The recognition, measurement, and presentation of expenses and cash flows for lessees will remain significantly unchanged from current guidance. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, and will be effective for the Company in the first quarter of fiscal year 2020. Early adoption is permitted. The guidance is to be adopted using a modified retrospective approach as of the earliest period presented. The Company is currently evaluating the impact of this guidance.
In March 2016, the FASB issued authoritative guidance to simplify the accounting for employee share-based payment transactions. The new guidance simplifies the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as simplifies the classification of transactions related to share-based payments in the statement of cash flows. The guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods within those annual reporting periods, and will be effective for the Company in the first quarter of fiscal year 2018. Early adoption is permitted, provided that all amendments are adopted in the same period. The guidance also includes the acceptable or required transition methods for each of the various amendments included in the new standard. The Company is currently evaluating the impact of this guidance.
2. Acquisitions
Dealer Generated Customer Accounts and Bulk Account Purchases
During the
six months ended
March 31, 2016
and
March 27, 2015
, the Company paid
$282 million
and
$267 million
, respectively, for customer contracts for electronic security services generated under the ADT authorized dealer program and bulk account purchases.
3. Goodwill and Other Intangible Assets
Goodwill
There were
no
material changes in the carrying amount of goodwill in either of the Company's reportable segments during the
six months ended
March 31, 2016
.
Other Intangible Assets
The following table sets forth the gross carrying amounts and accumulated amortization of the Company's other intangible assets as of
March 31, 2016
and
September 25, 2015
($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
September 25, 2015
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
Amortizable:
|
|
|
|
|
|
|
|
Contracts and related customer relationships
|
$
|
8,223
|
|
|
$
|
(5,274
|
)
|
|
$
|
8,147
|
|
|
$
|
(5,183
|
)
|
Other
|
41
|
|
|
(7
|
)
|
|
41
|
|
|
(6
|
)
|
Total
|
$
|
8,264
|
|
|
$
|
(5,281
|
)
|
|
$
|
8,188
|
|
|
$
|
(5,189
|
)
|
The changes in the net carrying amount of contracts and related customer relationships during the
six months ended
March 31, 2016
were as follows ($ in millions):
|
|
|
|
|
Balance as of September 25, 2015
|
$
|
2,964
|
|
Customer contract additions, net of dealer charge-backs
|
285
|
|
Amortization
|
(308
|
)
|
Currency translation and other
|
8
|
|
Balance as of March 31, 2016
|
$
|
2,949
|
|
The weighted-average amortization period for contracts and related customer relationships acquired during the
six months ended
March 31, 2016
was
15 years
. Intangible asset amortization expense for the quarters and
six months ended
March 31, 2016
and
March 27, 2015
was as follows ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Quarters Ended
|
|
For the Six Months Ended
|
|
March 31,
2016
|
|
March 27,
2015
|
|
March 31,
2016
|
|
March 27,
2015
|
Intangible asset amortization expense
|
$
|
155
|
|
|
$
|
153
|
|
|
$
|
309
|
|
|
$
|
309
|
|
The estimated aggregate amortization expense for intangible assets is expected to be as follows ($ in millions):
|
|
|
|
|
Remainder of fiscal 2016
|
$
|
296
|
|
Fiscal 2017
|
516
|
|
Fiscal 2018
|
430
|
|
Fiscal 2019
|
368
|
|
Fiscal 2020
|
295
|
|
Fiscal 2021
|
214
|
|
Other than goodwill, the Company does not have any other indefinite-lived intangible assets as of
March 31, 2016
.
4. Debt
Revolving Credit Facility
As of
March 31, 2016
, the Company had
$280 million
outstanding borrowings under its
$750 million
revolving credit facility compared with
$335 million
outstanding as of
September 25, 2015
. During the
six months ended
March 31, 2016
, the Company borrowed
$130 million
under the revolving credit facility and repaid
$185 million
. The interest rate for borrowings under the revolving credit facility is based on the London Interbank Offered Rate or an alternative base rate, plus a spread, based upon the Company's credit rating. The revolving credit facility has a maturity date of June 22, 2017.
Other
Refer to Note 1 for information on the fair value of the Company's debt including the Company's unsecured notes as well as information about the Merger's impact on the Company's debt.
5. Equity
Dividends
During the
six months ended
March 31, 2016
, the Company's Board of Directors declared and paid the following dividends on ADT's common stock:
|
|
|
|
|
|
|
|
Declaration Date
|
|
Dividend per Share
|
|
Record Date
|
|
Payment Date
|
|
|
|
|
|
|
|
October 14, 2015
|
|
$0.21
|
|
October 28, 2015
|
|
November 18, 2015
|
January 7, 2016
|
|
$0.22
|
|
January 27, 2016
|
|
February 17, 2016
|
On
December 15, 2015
, the Company's Board of Directors authorized an increase in the Company's quarterly dividend from
$0.21
per share to
$0.22
per share of its common stock.
Pursuant to the terms of the Merger Agreement, the Company was not permitted to declare, authorize, or pay any dividends prior to the consummation of the Merger, other than the quarterly dividend announced on January 7, 2016, or dividends to its wholly owned subsidiaries.
Share Repurchase Programs
On November 18, 2013, the Company's Board of Directors authorized a
$1 billion
increase to the
$2 billion
,
three
-year share repurchase program that was previously approved on November 26, 2012 ("FY2013 Share Repurchase Program"). On November 26, 2015, the FY2013 Share Repurchase Program expired. Prior to the expiration of this share repurchase program, during the
six months ended March 31, 2016
, the Company made open market repurchases of
985 thousand
shares of ADT's common stock at an average price of
$30.01
per share. The total cost of open market repurchases was approximately
$30 million
, all of which was paid during the period. On the expiration date of this share repurchase program, the remaining authorized amount of
$27 million
expired.
The Company's share repurchases for the
six months ended March 31, 2016
were made in accordance with the publicly announced board approved FY2013 Share Repurchase Program. In addition, 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. The Company recorded the excess of the purchase price over the par value of the common stock as a reduction to additional paid-in capital.
On July 17, 2015, the Company's Board of Directors approved a new,
three
-year share repurchase program authorizing the Company to purchase up to
$1 billion
of ADT's common stock ("FY2015 Share Repurchase Program"). Pursuant to this approval, the Company may enter into accelerated share repurchase plans, as well as repurchase shares on the open market pursuant to pre-set trading plans meeting the requirements of Rule 10b5-1 under the Securities Exchange Act of 1934, in private transactions, or otherwise. The FY2015 Share Repurchase Program expires on July 17, 2018, and may be terminated at any time. As of
March 31, 2016
,
no
shares have been repurchased under the approved FY2015 Share Repurchase Program.
The Company may also repurchase shares in connection with tax withholding requirements associated with the vesting of share-based awards, which are separate from the share repurchase programs described above. During the
six months ended March 31, 2016
, shares repurchased to satisfy tax withholding requirements were not material.
Pursuant to the terms of the Merger Agreement, the Company was not permitted to repurchase shares of its common stock prior to the consummation of the Merger, subject to certain exceptions.
Other
During the
six months ended March 31, 2016
, the Company did not record any material reclassifications out of Accumulated Other Comprehensive Loss.
Effective on September 28, 2012,
Tyco International plc ("Tyco")
distributed to its public stockholders the Company's common stock (the "Separation"), and ADT became an independent public company.
During
the second quarter of fiscal year 2016,
the Company
increased its unrecognized tax benefits and
reduced additional paid-in capital by approximately
$58 million
associated with certain pre-Separation intercompany transactions which potentially impact the Company's NOL
carryforwards. Refer to Note 6 and Note 7 for more information regarding the Company's unrecognized tax benefits and the 2012 Tax Sharing Agreement, as defined therein.
6. Income Taxes
Unrecognized Tax Benefits
During the second quarter of fiscal year 2016, the Company increased its unrecognized tax benefits and
reduced additional paid-in capital
by approximately
$58 million
associated with certain pre-Separation intercompany transactions which potentially impact NOL carryforwards.
Refer to Note 5 for a discussion.
The Company's uncertain tax positions relate to tax years that remain subject to audit by the taxing authorities in the U.S. federal, state and local, and foreign jurisdictions. Based on the current status of its income tax audits, the Company does not believe that the balance of its unrecognized tax benefits will be resolved in the next twelve months. The resolution of certain components of the Company's uncertain tax positions may be partially offset by an adjustment to the receivable from Tyco, which was recorded pursuant to the 2012 Tax Sharing Agreement. Refer to Note 7 for more information on the 2012 Tax Sharing Agreement, as defined therein.
Effective Tax Rate
The Company's income tax expense for the quarter and
six months ended
March 31, 2016
totaled
$28 million
and
$56 million
, respectively, resulting in an effective tax rate for the periods of
31.1%
and
30.8%
respectively. The Company's income tax expense for the quarter and
six months ended
March 27, 2015
totaled
$32 million
and
$68 million
, respectively, resulting in an effective tax rate for the periods of
32.0%
and
32.7%
, respectively. The effective tax rates reflect the tax impact of permanent items, state tax expense, changes in tax laws, and non-U.S. net earnings. The effective tax rate can vary from period to period due to permanent tax adjustments, discrete items such as the settlement of income tax audits and changes in tax laws, as well as recurring factors such as changes in the overall effective state tax rate.
7. Commitments and Contingencies
Purchase Obligations
As of
March 31, 2016
, there have been no material changes to the Company’s purchase obligations outside the ordinary course of business as compared to
September 25, 2015
.
Legal Proceedings
The Company is subject to various claims and lawsuits in the ordinary course of business, including from time to time, contractual disputes, employment matters, product and general liability claims, claims that the Company has infringed on the intellectual property rights of others, claims related to alleged security system failures, and consumer and employment class actions. In the ordinary course of business, the Company is also subject to regulatory and governmental examinations, information requests and subpoenas, inquiries, investigations, and threatened legal actions and proceedings. In connection with such formal and informal inquiries, the Company receives numerous requests, subpoenas, and orders for documents, testimony, and information in connection with various aspects of its activities. The Company has recorded accruals for losses that it believes are probable to occur and are reasonably estimable. While the ultimate outcome of these matters cannot be predicted with certainty, the Company believes that the resolution of any such proceedings (other than matters specifically identified below), will not have a material adverse effect on its financial position, results of operations, or cash flows.
Environmental Matter
On October 25, 2013, the Company was notified by subpoena that the Office of the Attorney General of California, in conjunction with the Alameda County District Attorney, is investigating whether certain of the Company's waste disposal policies, procedures, and practices are in violation of the California Business and Professions Code and the California Health and Safety Code. The Company is cooperating fully with the respective authorities. The Company is currently unable to predict the outcome of this investigation or reasonably estimate a range of possible loss.
Securities Litigation
On April 28, 2014, the Company and certain of its current and former officers and directors were named as defendants in a lawsuit filed in the United States District Court for the Southern District of Florida. The plaintiff alleges violations of the Securities Exchange Act of 1934 and SEC Rule 10b-5 and seeks monetary damages, including interest, and class action status on behalf of all plaintiffs who purchased the Company's common stock during the period between November 27, 2012 and January 29, 2014, inclusive. The claims focus primarily on the Company's statements concerning its financial condition and future business prospects for fiscal 2013 and the first quarter of fiscal 2014, its stock repurchase program in 2012 and 2013, and the buyback of stock from Corvex Management LP ("Corvex") in November 2013. On June 27, 2014, another plaintiff filed a similar action in the same court. On July 14, 2014, the Court entered an order consolidating the two actions under the caption
Henningsen v. 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 the action are Naren Gursahaney, Kathryn A. Mikells, Michael S. Geltzeiler, Keith A. Meister, and Corvex. On September 25, 2014, defendants moved to dismiss this action. On November 13, 2014, Mr. Geltzeiler was dismissed as a defendant without prejudice from this action. On June 4, 2015, the Court entered an order granting the motions to dismiss and dismissed plaintiffs' complaint in its entirety. The Court granted plaintiffs leave to file an amended complaint on or before July 1, 2015. That deadline passed, and the Court dismissed the action with prejudice on July 8, 2015. Plaintiffs filed a notice of appeal to the United States Court of Appeals for the Eleventh Circuit on August 7, 2015. On August 21, 2015, defendants filed a motion to dismiss the appeal as untimely, and on December 7, 2015, the Court denied the motion. The appeal is still pending before the United States Court of Appeals for the Eleventh Circuit.
On January 14, 2015, the SEC sent the Company a letter stating that it is investigating the matters at issue in the foregoing litigation and requesting that the Company voluntarily provide the information and documents set forth in the letter concerning the same litigation. On February 16, 2016, the SEC sent the Company a letter stating they have concluded their investigation, and they do not intend to recommend an enforcement action against the Company.
Derivative 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 buyback of stock from Corvex in November 2013, and the Company's statements concerning its financial condition and future business prospects for fiscal 2013 and the first quarter of fiscal 2014. Three of the derivative actions were filed in the United States District Court for the Southern District of Florida. On July 16, 2014, the Court consolidated those three actions under the caption
In re The ADT Corporation Derivative Litigation
, Lead Case No. 14-80570-CIV-DIMITROULEAS/SNOW, and on May 20, 2015, the Florida federal court entered an order of dismissal. The fourth derivative action, entitled
Seidl v. Colligan
, Case No. 2014CA007529, was filed in the Circuit Court of the 15th Judicial Circuit, Palm Beach County, Florida. The action was stayed pending the resolution of the
Ryan
action, described below, and was voluntarily dismissed by the plaintiff on November 19, 2015. A fifth derivative action asserting similar claims, entitled
Ryan v. Gursahaney
, C.A. No. 9992-VCP (the “
Ryan
action”), was filed in the Delaware Court of Chancery on August 1, 2014. The Delaware Court of Chancery dismissed the
Ryan
action on April 28, 2015, and on November 19, 2015, the Delaware Supreme Court affirmed the dismissal. A sixth derivative action asserting similar claims against the same group of past and present officers and directors was filed in the Delaware Court of Chancery on January 27, 2015 under the caption entitled
Binning v. Gursahaney
, C.A. No. 10586-VCP (the “
Binning
action”). Defendants moved to dismiss
Binning's
amended complaint on July 7, 2015, and on December 11, 2015, also forwarded a copy of the Delaware Supreme Court's affirmance of the
Ryan
action
dismissal. On May 6, 2016, the Court granted Defendants' motion and dismissed the complaint.
Merger Litigation
Following the February 16, 2016 announcement of the execution of the Merger Agreement, six purported stockholders of ADT initiated legal actions challenging the Merger. On February 24, 2016, two purported stockholders filed putative class action complaints, entitled
Shannon Seidl v. The ADT Corporation
, et al., C.A. No. 50-2016-CA-1984-XXXX-MBN and
Yun Li v. The ADT Corporation
, et al., C.A. No. 50-2016-CA-1995-XXXX-MB, in the Circuit Court of the Fifteenth Judicial Circuit in and for Palm Beach County, Florida against ADT, the members of the ADT Board, Apollo Global Management, LLC (together with its consolidated subsidiaries and affiliates, "Apollo"), Parent, Merger Sub, Parent Inc., and Parent LP. On March 9, 2016 and March 10, 2016, respectively, two purported stockholders filed putative class action complaints, entitled
Rosenfeld Family Foundation v. The ADT Corporation
, et al., C.A. No. 50-2016-CA-002566-XXXX-MB and
Federico Castro v. The ADT Corporation
, et al., C.A. No. 50-2016-CA-002661-XXXX-MB, also in the Circuit Court of the Fifteenth Judicial Circuit in and for Palm Beach County, Florida against the same defendants (collectively the "Florida Actions"). The complaints in all four of the Florida Actions included claims for breach of fiduciary duty against the individual directors, alleging that the directors violated the duties of loyalty, good faith, due care, and/or disclosure owed to ADT stockholders. The complaints also included claims for aiding and abetting breaches of fiduciary duty against Apollo, Parent, Merger Sub, Parent Inc., and Parent LP.
Plaintiffs Seidl, Rosenfeld, and Castro sought an order, inter alia, permanently enjoining the defendants from consummating the Merger and enjoining the director defendants from initiating any defensive measures that would inhibit their ability to maximize value for ADT stockholders. Plaintiff Li sought an order, inter alia, requiring the director defendants to fulfill their fiduciary duties. All plaintiffs also sought certification of the actions as class actions, an accounting of all damages suffered or to be suffered as a result of the transaction, and attorneys’ fees and costs. On April 8, 2016, the plaintiffs in each of the Florida Actions filed notices voluntarily dismissing each of those actions.
On March 24, 2016 and April 4, 2016, two purported stockholders filed putative class action complaints, respectively entitled
MSS 12-09 Trust v. Thomas Colligan
, et al., Case No. 12133 and
Peter Roy v. The ADT Corporation
, et al., Case No. 12160 (the “Delaware Actions”), in the Court of Chancery of the State of Delaware asserting claims for breach of fiduciary duty against the individual ADT directors. Plaintiffs sought an order finding the directors liable for breaching their fiduciary duties based on the claim that the definitive proxy statement, defined below, failed to disclose certain allegedly material information necessary to permit ADT stockholders to cast a fully informed vote on the Merger transaction. Plaintiff Peter Roy also filed motions seeking expedited discovery and a preliminary injunction.
ADT believes that the Florida Actions and the Delaware Actions were without merit and that no further disclosure was required to supplement the Company's definitive proxy statement that was filed with the SEC on March 25, 2016 (as amended or supplemented from time to time, the “definitive proxy statement”), under applicable laws. However, to eliminate the burden, expense, and uncertainties inherent in such litigation, and without admitting any liability or wrongdoing, ADT determined to make certain supplemental disclosures to the definitive proxy statement, as set forth in the Company's Form 8-K filed on April 11, 2016. Nothing in the supplemental disclosures shall be deemed an admission of the legal necessity or materiality under applicable laws of any of the disclosures. On April 12, 2016 and April 13, 2016, Plaintiff MSS 12-09 Trust and Plaintiff Roy, respectively, filed notices voluntarily dismissing the Delaware Actions.
ADT and the other named defendants have vigorously denied, and continue to vigorously deny, that they have committed any violation of law or engaged in any of the wrongful acts that were alleged in the Florida Actions or the Delaware Actions.
Income Tax Matters
In connection with the Separation from Tyco, the Company entered into a tax sharing agreement with Tyco and Pentair Ltd. (the "2012 Tax Sharing Agreement") that governs the rights and obligations of the Company, Tyco, and Pentair Ltd. for certain pre-Separation tax liabilities, including Tyco's obligations under the tax sharing agreement among Tyco, Covidien plc ("Covidien") now operating as a subsidiary of Medtronic plc ("Medtronic"), and TE Connectivity Ltd. ("TE Connectivity") entered into in 2007 (the "2007 Tax Sharing Agreement"). The Company is responsible for all of its own taxes that are not shared pursuant to the 2012 Tax Sharing Agreement's sharing formulae. Tyco and Pentair Ltd. are likewise responsible for their tax liabilities that are not subject to the 2012 Tax Sharing Agreement's sharing formulae. Tyco has the right to administer, control, and settle all U.S. income tax audits for the periods prior to and including the Separation.
With respect to years prior to and including the 2007 separation of Covidien and TE Connectivity by Tyco, tax authorities have raised issues and proposed tax adjustments that are generally subject to the sharing provisions of the 2007 Tax Sharing Agreement. On July 1, 2013, Tyco announced that the IRS issued Notices of Deficiency to Tyco primarily related to the treatment of certain intercompany debt transactions (the "Tyco IRS Notices"). These notices assert that additional taxes of
$883 million
plus penalties of
$154 million
are owed based on audits of the 1997 through 2000 tax years of Tyco and its subsidiaries, as they existed at that time. Further, Tyco reported receiving Final Partnership Administrative Adjustments (the "Partnership Notices") for certain U.S. partnerships owned by its former U.S. subsidiaries, for which Tyco has indicated that it estimates an additional tax deficiency of approximately
$30 million
will be asserted. The additional tax assessments related to the Tyco IRS Notices and the Partnership Notices exclude interest and do not reflect the impact on subsequent periods if the IRS challenge to Tyco's tax filings is proved correct. Tyco has filed petitions with the U.S. Tax Court to contest the IRS assessments. Consistent with its petitions filed with the U.S. Tax Court, Tyco has advised the Company that it strongly disagrees with the IRS position and believes (i) it has meritorious defenses for the respective tax filings, (ii) the IRS positions with regard to these matters are inconsistent with applicable tax laws and Treasury regulations, and (iii) the previously reported taxes for the years in question are appropriate. No payments with respect to the Tyco IRS Notices would be required until the dispute is resolved in the U.S. Tax Court. At the request of the IRS, the trial start date was postponed and rescheduled for October 2016.
On January 15, 2016, Tyco entered into a Stipulation of Settled Issues with the IRS regarding the Tyco IRS Notices and the Partnership Notices intending to resolve all disputes related to the intercompany debt issues for IRS audits of 1997 through 2000 tax years of Tyco and its subsidiaries, as they existed at the time. On May 17, 2016, the IRS Office of Appeals issued fully-executed Forms 870-AD that effectively settle the matters on appeal on the same terms as those set forth in the Stipulation of Settled Issues, and on May 31, 2016 the U.S. Tax Court entered decisions consistent with the Stipulation of Settled Issues. As a result, Tyco has resolved all aspects of the controversy before the U.S. Tax Court and before the Appeals Division of the IRS for audit cycles 1997 through 2007. The resolution resulted in a total cash payment to the IRS shared among Tyco, Medtronic, and TE Connectivity in accordance with the formula in the 2007 Tax Sharing Agreement. Consequently, the cash payment was split among Tyco, Medtronic, and TE Connectivity
27%
,
42%
, and
31%
, respectively. ADT’s share of the collective liability is determined pursuant to the 2012 Tax Sharing Agreement, and, under such agreement, ADT is not responsible for any cash payments under the resolution. The resolution has no impact on ADT's financial position, results of operations, or cash flows.
During the fiscal year 2015, the IRS concluded its field examination of certain of Tyco's U.S. federal income tax returns for the 2008 and 2009 tax years of Tyco and its subsidiaries. Tyco received anticipated Revenue Agents' Reports (the "2008-2009 RARs") proposing adjustments to certain Tyco entities' previously filed tax return positions, including the predecessor to ADT, relating primarily to certain intercompany debt. In response, Tyco filed a formal, written protest with the IRS Office of Appeals requesting review of the 2008-2009 RARs. Tyco has advised the Company that it strongly disagrees with the IRS position and intends to vigorously defend its prior filed tax return positions and believes the previously reported taxes for the years in question are appropriate. The 2008-2009 RARs are still under administrative review by the IRS, and are not covered by the Stipulation of Settled Issues.
If the IRS should successfully assert its positions with respect to the matters described above, the Company's share of the collective liability, if any, would be determined pursuant to the 2012 Tax Sharing Agreement. In accordance with the 2012 Tax Sharing Agreement, Tyco is responsible for the first
$500 million
of tax, interest, and penalty assessed against pre-2013 tax years including its
27%
share of the tax, interest, and penalty assessed for periods prior to Tyco's 2007 spin-off transaction ("Pre-2007 Spin Periods"). In accordance with the 2012 Tax Sharing Agreement, the amount ultimately assessed against Pre-2007 Spin Periods with respect to the Tyco IRS Notices and the Partnership Notices would have to be in excess of
$1.85 billion
, including other assessments for unrelated historical tax matters Tyco has, or may settle in the future, before the Company would be required to pay any of the amounts assessed. In addition to the Company's share of cash taxes pursuant to the 2012 Tax Sharing Agreement, the Company's net operating loss ("NOL") and credit carryforwards may be significantly reduced or eliminated by audit adjustments to pre-2013 tax periods. NOL and credit carryforwards may be reduced prior to incurring any cash tax liability, and will not be compensated for under the tax sharing agreement. The Company believes that its income tax reserves and the liabilities recorded in the Condensed and Consolidated Balance Sheet for the 2012 Tax Sharing Agreement continue to be appropriate. However, the ultimate resolution of these matters is uncertain, and if the IRS were to prevail, it could have a material adverse impact on the Company's financial position,
results of operations, and cash flows, potentially including a significant reduction in or the elimination of the Company's available
NOL and credit carryforwards generated in pre-Separation periods. Further, to the extent ADT is responsible for any liability under the 2012 Tax Sharing Agreement, there could be a material impact on its financial position, results of operations, cash flows, or its effective tax rate in future reporting periods.
Refer to Note 6 for information regarding a change to the Company's unrecognized tax benefits during the second quarter of fiscal year 2016.
Other liabilities in the Company's Condensed and Consolidated Balance Sheets as of both
March 31, 2016
and
September 25, 2015
include
$19 million
for ADT's obligations under certain tax related agreements entered into in conjunction with the Separation. The maximum amount of potential future payments is not determinable as they relate to unknown conditions and future events that cannot be predicted.
8. Earnings Per Share
Basic earnings per share is computed by dividing net income attributable to common shares by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution of securities that could participate in earnings, but not securities that are anti-dilutive. The computations of basic and diluted earnings per share for the quarters and
six months ended
March 31, 2016
and
March 27, 2015
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Quarters Ended
|
|
For the Six Months Ended
|
(in millions, except per share amounts)
|
March 31,
2016
|
|
March 27,
2015
|
|
March 31,
2016
|
|
March 27,
2015
|
Basic Earnings Per Share
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
Net income
|
$
|
62
|
|
|
$
|
68
|
|
|
$
|
126
|
|
|
$
|
140
|
|
Denominator:
|
|
|
|
|
|
|
|
Basic weighted-average shares outstanding
|
165
|
|
|
171
|
|
|
165
|
|
|
173
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
$
|
0.38
|
|
|
$
|
0.40
|
|
|
$
|
0.76
|
|
|
$
|
0.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Quarters Ended
|
|
For the Six Months Ended
|
(in millions, except per share amounts)
|
March 31,
2016
|
|
March 27,
2015
|
|
March 31,
2016
|
|
March 27,
2015
|
Diluted Earnings Per Share
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
Net income
|
$
|
62
|
|
|
$
|
68
|
|
|
$
|
126
|
|
|
$
|
140
|
|
Denominator:
|
|
|
|
|
|
|
|
Basic weighted-average shares outstanding
|
165
|
|
|
171
|
|
|
165
|
|
|
173
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
Dilutive effect of stock options and restricted stock units
|
1
|
|
|
1
|
|
|
1
|
|
|
—
|
|
Diluted weighted-average shares outstanding
|
166
|
|
|
172
|
|
|
166
|
|
|
173
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
$
|
0.37
|
|
|
$
|
0.40
|
|
|
$
|
0.76
|
|
|
$
|
0.81
|
|
The computation of diluted earnings per share excludes potentially dilutive securities whose effect would have been anti-dilutive in the amount of approximately
2.9 million
shares and
2.2 million
shares for the quarters ended
March 31, 2016
and
March 27, 2015
, respectively, and approximately
2.8 million
shares and
2.2 million
shares for the
six months ended
March 31, 2016
and
March 27, 2015
, respectively.
9. Segment Data
The Company's operating segments are also its reportable segments and are comprised of the following:
|
|
•
|
United States:
Includes sales, installation, and monitoring for residential, business, and health customers in the U.S. and Puerto Rico, as well as corporate and other operating expenses associated with support functions in the U.S.
|
|
|
•
|
Canada:
Includes sales, installation, and monitoring for residential, business, and health customers in Canada, as well as operating expenses associated with certain support functions in Canada.
|
The Company's CODM evaluates segment performance based on several factors, of which the primary financial measures are revenue and adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA"). Revenue is attributed to individual countries based upon the operating entity that records the transaction. Adjusted EBITDA is defined as net income adjusted for interest, taxes, and certain non-cash items including depreciation of subscriber system assets and other fixed assets, amortization of deferred costs and deferred revenue associated with customer acquisitions, and amortization of dealer and other intangible assets. Adjusted EBITDA is also adjusted to exclude charges and gains related to the Merger, acquisitions, integrations, restructurings, impairments, and other income or charges. Such items are excluded to eliminate the impact of items that management does not consider indicative of the Company's core operating performance and/or business trends of the Company.
All discussions and amounts reported below, including the prior year period, are based on the new segment structure. There is no impact on the previously reported condensed and consolidated balance sheet, statement of operations, or statement of cash flows.
Segment results for the quarters and
six months ended
March 31, 2016
and
March 27, 2015
are as follows ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Quarters Ended
|
|
For the Six Months Ended
|
|
March 31,
2016
|
|
March 27,
2015
|
|
March 31,
2016
|
|
March 27,
2015
|
Revenue:
|
|
|
|
|
|
|
|
United States
|
$
|
837
|
|
|
$
|
820
|
|
|
$
|
1,673
|
|
|
$
|
1,631
|
|
Canada
(1)
|
62
|
|
|
70
|
|
|
126
|
|
|
146
|
|
Total
|
$
|
899
|
|
|
$
|
890
|
|
|
$
|
1,799
|
|
|
$
|
1,777
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA:
|
|
|
|
|
|
|
|
United States
|
$
|
442
|
|
|
$
|
412
|
|
|
$
|
871
|
|
|
$
|
834
|
|
Canada
(1)
|
26
|
|
|
32
|
|
|
54
|
|
|
63
|
|
Total
|
$
|
468
|
|
|
$
|
444
|
|
|
$
|
925
|
|
|
$
|
897
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization:
|
|
|
|
|
|
|
|
United States
|
$
|
311
|
|
|
$
|
291
|
|
|
$
|
617
|
|
|
$
|
576
|
|
Canada
(1)
|
21
|
|
|
22
|
|
|
42
|
|
|
46
|
|
Total
|
$
|
332
|
|
|
$
|
313
|
|
|
$
|
659
|
|
|
$
|
622
|
|
|
|
|
|
|
|
|
|
(1)
Results include the impact of fluctuations in foreign currency exchange rates.
|
The Company's CODM does not evaluate the performance of the Company's assets on a segment basis for internal management reporting. Therefore, such information is not presented.
The following table sets forth a reconciliation of segment Adjusted EBITDA to the Company's consolidated income before income taxes for the quarters and
six months ended
March 31, 2016
and
March 27, 2015
($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Quarters Ended
|
|
For the Six Months Ended
|
|
March 31,
2016
|
|
March 27,
2015
|
|
March 31,
2016
|
|
March 27,
2015
|
Income before income taxes
|
$
|
90
|
|
|
$
|
100
|
|
|
$
|
182
|
|
|
$
|
208
|
|
Interest expense, net
|
53
|
|
|
51
|
|
|
106
|
|
|
101
|
|
Depreciation and intangible asset amortization
|
294
|
|
|
278
|
|
|
583
|
|
|
553
|
|
Amortization of deferred subscriber acquisition costs
|
38
|
|
|
35
|
|
|
76
|
|
|
69
|
|
Amortization of deferred subscriber acquisition revenue
|
(43
|
)
|
|
(40
|
)
|
|
(86
|
)
|
|
(80
|
)
|
Restructuring and other
|
2
|
|
|
2
|
|
|
5
|
|
|
4
|
|
Merger, acquisition, and integration costs
|
8
|
|
|
—
|
|
|
9
|
|
|
1
|
|
Radio conversion costs
|
26
|
|
|
19
|
|
|
50
|
|
|
42
|
|
Separation related other income
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
Adjusted EBITDA
|
$
|
468
|
|
|
$
|
444
|
|
|
$
|
925
|
|
|
$
|
897
|
|