|By Business Wire||
|November 27, 2012 02:00 PM EST||
Fitch Ratings has downgraded the ratings of The ADT Corporation (ADT), including the company's Issuer Default Rating (IDR) to 'BBB' from 'BBB+'. The Rating Outlook remains Stable. A complete list of the rating actions follows at the end of this release.
The downgrade reflects ADT's recently announced $2 billion share repurchase program that will be funded by debt and free cash flow (FCF). The company's board of directors announced today the authorization of a $2 billion share repurchase program over a 3-year period. ADT expects to incur incremental debt to finance these share repurchases and has targeted a leverage ratio as measured by debt to EBITDA of 2x.
ADT expects to incur $650 million - $900 million of incremental debt in 2013 and return approximately $900 million to $1 billion to shareholders in the form of share repurchases and dividends. Based on the projected share repurchases and debt levels, Fitch projects ADT's leverage will increase from approximately 1.6x during fiscal 2012 (ending Sept. 28, 2012) to about 2x for fiscal 2013 and 2014. Interest coverage is projected to range from 13x - 14.5x over the next two years. Fitch had originally expected ADT to maintain leverage at around 1.5x and interest coverage above 15x.
The downgrade also reflects management's willingness to undertake a more aggressive financial strategy soon after becoming an independent company. These actions also provide some uncertainty regarding management's financial policies beyond the near term. Fitch will continually evaluate how management balances demands from its shareholders while maintaining its commitment to an investment grade profile.
ADT's ratings and Outlook reflect the company's strong brand recognition, its national footprint and leading market position, recurring revenue base, sustainable FCF generation and solid liquidity. Concerns include emerging competition from non-traditional security service providers, risk associated with operating as an independent public company, and contingent liabilities, particularly tax liabilities, related to the spin-off.
The ratings incorporate ADT's strong competitive position as the largest residential security provider in the U.S.. ADT currently has over six million customers and a roughly 25% market share based on company estimates. ADT's competitive position is supported by a nationwide network of over 200 branches, 4,500 sales professionals, and more than 3,800 installation and service technicians. Additionally, ADT has nearly 400 certified dealers that generate about 45% of the company's new accounts.
ADT's subscriber-based business requires significant upfront costs to generate new customers. Capital expenditures, including dealer-generated accounts and bulk purchases and subscriber systems, totaled $1.09 billion and $902 million in 2012 and 2011, respectively. Capital expenditures for 2012 represent approximately 33% of annual revenues. Fitch expects capital expenditures to approximate 35% - 40% of annual revenues in the next few years. Fitch estimates that new customers yield an average cash payback of three years.
ADT has shown the ability to generate sustainable FCF in spite of the large capital expenditures that it incurs. ADT's subscriber-based business and recurring revenue stream contribute to steady income and cash flow. Revenues have been relatively stable as approximately 90% of its annual sales are recurring in nature. ADT generated roughly $406 million and $537 million of FCF during 2012 and 2011, respectively. Fitch expects ADT will generate annual FCF (FCF: Cash flow from operations less capital expenditures and dividends) of approximately $275 million - $350 million during the next few years.
Fitch expects ADT will maintain liquidity of approximately $1 billion, consisting of cash and availability under a $750 million revolving credit facility. ADT does not have any debt maturities until 2017, when $750 million of senior notes become due.
Fitch believes that ADT's competitive position will remain strong in the near-to-intermediate term. However, ADT faces competition from non-traditional security service providers. Several cable and telecom companies have introduced interactive security services that compete with ADT. While the customer base of these companies is substantially smaller than ADT at the current time, this emerging trend could provide significant competition for ADT going forward. The penetration rate for cable and internet providers is significantly higher (60%-85% range) compared to traditional security providers (20% range). This gives cable and telecom companies a larger customer base from which to sell additional product offerings and/or bundle services at perhaps more competitive prices.
ADT is run by a well-seasoned management team led by Naren Gursahaney, who served as President of Tyco's ADT North American Residential business segment prior to the spin-off. ADT has other executives with extensive company and industry experience.
As part of the separation, ADT has entered into separation and distribution and other agreements with Tyco and Pentair Ltd. (formerly Flow Control). This will govern the relationship between the post-separation entities and provide for the allocation of various assets (including trademarks) and liabilities and obligations (related to asbestos, pension and tax-related matters).
ADT also entered into a Tax Sharing Agreement with Tyco and Pentair. This agreement will govern the rights, responsibilities and obligations of the three post-separation companies regarding certain tax matters. The Tax Sharing Agreement outlines each company's share of certain tax liabilities. Tyco will be responsible for the first $500 million of shared tax liabilities. ADT and Pentair will share 58% and 42%, respectively, of the next $225 million of shared tax liabilities. Finally, ADT, Tyco and Pentair will share 27.5%, 52.5% and 20%, respectively, of shared tax liabilities above $725 million.
Future ratings and Outlooks will be influenced by broad economic trends, as well as company-specific activity, particularly free cash flow trends and uses, debt levels and liquidity position. Positive rating actions are unlikely in the near to intermediate term as Fitch evaluates ADT's performance and management's financial strategy as a stand-alone company. On the other hand, Fitch may consider taking a negative rating action if there is meaningful deterioration in ADT's financial results or management undertakes a more aggressive financial policy, leading to diminished liquidity and higher debt levels. In particular, negative rating actions could occur if ADT's leverage is consistently above 2.5x.
Fitch has downgraded the following ratings for ADT:
-- IDR to 'BBB' from 'BBB+';
-- Revolving bank credit facility to 'BBB' from 'BBB+';
-- Senior unsecured debt to 'BBB' from 'BBB+'.
Fitch has also affirmed the following ratings for ADT:
--Short term IDR 'F2';
--Commercial Paper 'F2'.
Additional information is available at www.fitchratings.com'. Fitch has conducted a Rating Assessment Service for the ADT Corporation. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 8, 2012)
--'Short-Term Ratings Criteria for Non-Financial Corporates' (Aug. 8, 2012).
Applicable Criteria and Related Research:
Corporate Rating Methodology
Short-Term Ratings Criteria for Non-Financial Corporates
With an estimated 50 billion devices connected to the Internet by 2020, several industries will begin to expand their capabilities for retaining end point data at the edge to better utilize the range of data types and sheer volume of M2M data generated by the Internet of Things. In his session at @ThingsExpo, Don DeLoach, CEO and President of Infobright, will discuss the infrastructures businesses will need to implement to handle this explosion of data by providing specific use cases for filte...
Feb. 5, 2016 03:00 PM EST
SYS-CON Events announced today that Fusion, a leading provider of cloud services, will exhibit at SYS-CON's 18th International Cloud Expo®, which will take place on June 7-9, 2016, at the Javits Center in New York City, NY. Fusion, a leading provider of integrated cloud solutions to small, medium and large businesses, is the industry's single source for the cloud. Fusion's advanced, proprietary cloud service platform enables the integration of leading edge solutions in the cloud, including clou...
Feb. 5, 2016 02:30 PM EST Reads: 684
SYS-CON Events announced today that Commvault, a global leader in enterprise data protection and information management, has been named “Bronze Sponsor” of SYS-CON's 18th International Cloud Expo, which will take place on June 7–9, 2016, at the Javits Center in New York City, NY, and the 19th International Cloud Expo, which will take place on November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. Commvault is a leading provider of data protection and information management...
Feb. 5, 2016 01:30 PM EST Reads: 321
SYS-CON Events announced today that Alert Logic, Inc., the leading provider of Security-as-a-Service solutions for the cloud, will exhibit at SYS-CON's 18th International Cloud Expo®, which will take place on June 7-9, 2016, at the Javits Center in New York City, NY. Alert Logic, Inc., provides Security-as-a-Service for on-premises, cloud, and hybrid infrastructures, delivering deep security insight and continuous protection for customers at a lower cost than traditional security solutions. Ful...
Feb. 5, 2016 01:15 PM EST Reads: 316
SYS-CON Events announced today that VAI, a leading ERP software provider, will exhibit at SYS-CON's 18th International Cloud Expo®, which will take place on June 7-9, 2016, at the Javits Center in New York City, NY. VAI (Vormittag Associates, Inc.) is a leading independent mid-market ERP software developer renowned for its flexible solutions and ability to automate critical business functions for the distribution, manufacturing, specialty retail and service sectors. An IBM Premier Business Part...
Feb. 5, 2016 12:00 PM EST Reads: 509
The cloud promises new levels of agility and cost-savings for Big Data, data warehousing and analytics. But it’s challenging to understand all the options – from IaaS and PaaS to newer services like HaaS (Hadoop as a Service) and BDaaS (Big Data as a Service). In her session at @BigDataExpo at @ThingsExpo, Hannah Smalltree, a director at Cazena, will provide an educational overview of emerging “as-a-service” options for Big Data in the cloud. This is critical background for IT and data profes...
Feb. 5, 2016 12:00 PM EST
Fortunately, meaningful and tangible business cases for IoT are plentiful in a broad array of industries and vertical markets. These range from simple warranty cost reduction for capital intensive assets, to minimizing downtime for vital business tools, to creating feedback loops improving product design, to improving and enhancing enterprise customer experiences. All of these business cases, which will be briefly explored in this session, hinge on cost effectively extracting relevant data from ...
Feb. 5, 2016 10:15 AM EST
As enterprises work to take advantage of Big Data technologies, they frequently become distracted by product-level decisions. In most new Big Data builds this approach is completely counter-productive: it presupposes tools that may not be a fit for development teams, forces IT to take on the burden of evaluating and maintaining unfamiliar technology, and represents a major up-front expense. In his session at @BigDataExpo at @ThingsExpo, Andrew Warfield, CTO and Co-Founder of Coho Data, will dis...
Feb. 5, 2016 10:00 AM EST
With the Apple Watch making its way onto wrists all over the world, it’s only a matter of time before it becomes a staple in the workplace. In fact, Forrester reported that 68 percent of technology and business decision-makers characterize wearables as a top priority for 2015. Recognizing their business value early on, FinancialForce.com was the first to bring ERP to wearables, helping streamline communication across front and back office functions. In his session at @ThingsExpo, Kevin Roberts...
Feb. 5, 2016 09:30 AM EST Reads: 295
SYS-CON Events announced today that Interoute, owner-operator of one of Europe's largest networks and a global cloud services platform, has been named “Bronze Sponsor” of SYS-CON's 18th Cloud Expo, which will take place on June 7-9, 2015 at the Javits Center in New York, New York. Interoute is the owner-operator of one of Europe's largest networks and a global cloud services platform which encompasses 12 data centers, 14 virtual data centers and 31 colocation centers, with connections to 195 ad...
Feb. 5, 2016 12:00 AM EST Reads: 304
Most people haven’t heard the word, “gamification,” even though they probably, and perhaps unwittingly, participate in it every day. Gamification is “the process of adding games or game-like elements to something (as a task) so as to encourage participation.” Further, gamification is about bringing game mechanics – rules, constructs, processes, and methods – into the real world in an effort to engage people. In his session at @ThingsExpo, Robert Endo, owner and engagement manager of Intrepid D...
Feb. 4, 2016 09:15 PM EST Reads: 743
Eighty percent of a data scientist’s time is spent gathering and cleaning up data, and 80% of all data is unstructured and almost never analyzed. Cognitive computing, in combination with Big Data, is changing the equation by creating data reservoirs and using natural language processing to enable analysis of unstructured data sources. This is impacting every aspect of the analytics profession from how data is mined (and by whom) to how it is delivered. This is not some futuristic vision: it's ha...
Feb. 2, 2016 02:00 PM EST Reads: 388
WebRTC has had a real tough three or four years, and so have those working with it. Only a few short years ago, the development world were excited about WebRTC and proclaiming how awesome it was. You might have played with the technology a couple of years ago, only to find the extra infrastructure requirements were painful to implement and poorly documented. This probably left a bitter taste in your mouth, especially when things went wrong.
Feb. 2, 2016 04:30 AM EST Reads: 816
Learn how IoT, cloud, social networks and last but not least, humans, can be integrated into a seamless integration of cooperative organisms both cybernetic and biological. This has been enabled by recent advances in IoT device capabilities, messaging frameworks, presence and collaboration services, where devices can share information and make independent and human assisted decisions based upon social status from other entities. In his session at @ThingsExpo, Michael Heydt, founder of Seamless...
Feb. 1, 2016 05:00 AM EST Reads: 897
The IoT's basic concept of collecting data from as many sources possible to drive better decision making, create process innovation and realize additional revenue has been in use at large enterprises with deep pockets for decades. So what has changed? In his session at @ThingsExpo, Prasanna Sivaramakrishnan, Solutions Architect at Red Hat, discussed the impact commodity hardware, ubiquitous connectivity, and innovations in open source software are having on the connected universe of people, thi...
Jan. 31, 2016 09:00 PM EST Reads: 696
WebRTC: together these advances have created a perfect storm of technologies that are disrupting and transforming classic communications models and ecosystems. In his session at WebRTC Summit, Cary Bran, VP of Innovation and New Ventures at Plantronics and PLT Labs, provided an overview of this technological shift, including associated business and consumer communications impacts, and opportunities it may enable, complement or entirely transform.
Jan. 31, 2016 07:15 PM EST Reads: 1,120
There are so many tools and techniques for data analytics that even for a data scientist the choices, possible systems, and even the types of data can be daunting. In his session at @ThingsExpo, Chris Harrold, Global CTO for Big Data Solutions for EMC Corporation, showed how to perform a simple, but meaningful analysis of social sentiment data using freely available tools that take only minutes to download and install. Participants received the download information, scripts, and complete end-t...
Jan. 31, 2016 10:00 AM EST Reads: 1,177
For manufacturers, the Internet of Things (IoT) represents a jumping-off point for innovation, jobs, and revenue creation. But to adequately seize the opportunity, manufacturers must design devices that are interconnected, can continually sense their environment and process huge amounts of data. As a first step, manufacturers must embrace a new product development ecosystem in order to support these products.
Jan. 31, 2016 10:00 AM EST Reads: 771
Manufacturing connected IoT versions of traditional products requires more than multiple deep technology skills. It also requires a shift in mindset, to realize that connected, sensor-enabled “things” act more like services than what we usually think of as products. In his session at @ThingsExpo, David Friedman, CEO and co-founder of Ayla Networks, discussed how when sensors start generating detailed real-world data about products and how they’re being used, smart manufacturers can use the dat...
Jan. 30, 2016 07:45 PM EST Reads: 736
When it comes to IoT in the enterprise, namely the commercial building and hospitality markets, a benefit not getting the attention it deserves is energy efficiency, and IoT’s direct impact on a cleaner, greener environment when installed in smart buildings. Until now clean technology was offered piecemeal and led with point solutions that require significant systems integration to orchestrate and deploy. There didn't exist a 'top down' approach that can manage and monitor the way a Smart Buildi...
Jan. 30, 2016 03:45 PM EST Reads: 1,239