EXHIBIT 6
Excellence in Investing: San Francisco October 24, 2012 CORVEX MANAGEMENT LP | 712 Fifth Avenue, 23rd Floor | New York, New York 10019
Disclaimer This document is not an offer to sell, nor a solicitation of an offer to buy any security of Corvex Management LP or any other investment product. Interests in the Corvex Funds will be offered exclusively to qualified investors pursuant to the confidential private placement memorandum of such funds, which contain material information concerning the terms and risks of an investment. Any conflicting information contained herein will be superseded in its entirety by such confidential offering memorandum. Investors should review the confidential offering memorandum (including, without limitation, the information therein as to the conflicts and risks) prior to making an investment decision. The information and opinions contained in this document are for the purpose of providing background information only, do not purport to be full or complete and do not constitute investment advice. No reliance should be placed, for any purpose, on the information or opinions contained in this document or their accuracy or completeness. No representation, warranty or undertaking, express or implied, is given as to the accuracy or completeness of the information or opinions contained in this document by Corvex or any Corvex fund or by their respective directors, officers, partners, shareholders, employees or affiliates and no liability is accepted by any of the foregoing for the accuracy or completeness of any such information or opinions. Securities or investment ideas are presented to illustrate Corvex’s typical research process and not to suggest or show profitability of any or all transactions. There should be no assumption that any specific portfolio securities identified and described herein were or will be profitable. Corvex may, at any time, reevaluate its holdings in any such positions. Except where otherwise indicated herein,the information provided hereinisbasedon matters astheyexistasofthedateof preparation, andmaynotbe updated or otherwise revisedtoreflect information that subsequently becomes available, or circumstances existing or changes occurring after the date hereof. Figures provided herein are rounded as applicable. Information contained herein is believed to be accurate and/or derived from sources which Corvex believes to be reliable; however Corvex disclaims any and all liability as to the completeness or accuracy ofthe information contained hereinandforany omissions of material facts.Past performance doesnot guarantee futureresults. | 2 CORVEX MANAGEMENT LP
Introduction to Corvex • Value?based investing across the capital structure in situations with clearly identifiable catalysts • Active investing tocreate asymmetric risk/reward opportunities • 13D investments since inception include AboveNet (acquired by Zayo in March ‘12), Corrections Corporation of America (submitted private letter ruling to IRS for REIT conversion in July ‘12), and Ralcorp (Keith Meister joinedBoardin October ‘12) • Corvex owns common shares and share equivalents representing approximately 5% of ADT (13D filed today), making the investment ourlargest position since inception | 3 CORVEX MANAGEMENT LP
Company Overview • ADT is the market leader in home security monitoring in the U.S. and Canada, with approximately 6.5 million subscribers • 90% of ADT’s revenues are recurring monthly service fees ($38 ARPU),withannual attrition of13% • Holds25%marketshare,~6xthenextlargest competitor • $9.0B market cap and $11.2B TEV(1); ~$3.2B of revenue and ~$1.6B ofEBITDA (~49.2% margin(2))forthefiscalyearending 9/30/12E • EV / ‘13E EBITDA of 6.5x and ‘13E levered ‘steady?state’ free cash flowyieldof10%(basedon existing capital structure) (3) • 2007?2012E revenue and EBITDA CAGRs of ~9% and ~13%, respectively (including $2.0B Brinks acquisition) • Spin ?off from Tyco was completed on September 28 (1) Based on a closing price of $38.10 on October 23, 2012. (2) Excluding $15?17 million one?time increase in legal reserves in 4Q12E. (3) Fiscal 2013E figures represent Corvex estimates. | 4 CORVEX MANAGEMENT LP
Investment Thesis • Unique franchise asset • Defensive, predictable business model • Strong financial profile with stable, consistent cash flows • Unappreciated secular growth tailwinds • The right asset for today’s economic and interest rate environment • Massive balance sheet optionality -Ability to increase leverage and improve capital allocation -Equity shrink story waiting to happen -Accelerate growth (organically or inorganically) -Attractive returns on invested capital Maintaining current capital structure is indefensible | 5 CORVEX MANAGEMENT LP
Why is ADT Mispriced? • Investor disappointment over capital structure post?spin • Unclear plans for capital allocation • Lack of true public comps • Market confusion over sustainability of low cash tax rate • Capital intensive but high ROIC growth • Disbelief of market penetration potential • Complicated accounting • Flow?back issues after spin?off • Sellside coverage issues We believe all of these issues are temporary / correctable | 6 CORVEX MANAGEMENT LP
Unique Franchise Asset • #1 market share in the highly fragmented home security industry • 25% market share and ~6x relative market share • Large and stably growing industry, with low penetration relative to other home services (~40% addressable market penetration) • Attractive returns on capital, with ~14?21% unlevered IRRs on new subscribers Charts per ADT Investor Day Presentation (9/18/12) . | 7 CORVEX MANAGEMENT LP
Defensive, Predictable Business Model • Services are valuable to customers: safety and security of family and property represents a non?discretionary expenditure • Recession resilient: total revenues grew 4% in 2008 and 3% in 2009 (organically); overall industry also grew in both of last recessions • Customers are generally middle and upper class homeowners with assets to protect Security Alarm Monitoring and Servicing Chart per Ascent Capital (Monitronics) presentation. Barnes Associates data, February 2012. CORVEX MANAGEMENT LP
Recurring, Contract ?Based Revenues • 90% of revenues are recurring monthly service fees • 3 year initial contract length and ~7?8 year average customer life • Upfront installation fees of several hundred dollars help screen for committed subscribers Annual Attrition 23.0% 2007 2008 2009 2010 2011 2012E ADT Verizon AT&T DirecTV DISH Cable (Industry Estimate) Source: Company filings, Wall Street Research. ADT attrition represents RMR attrition, whereas satellite and wireless attrition represents subscriber attrition. Cable companies have not publicly disclosed attrition and gross adds for a number of years, but are commonly thought to have ~1.7 ?2.0% levels of monthly subscriber attrition (or~20?24% annually) . | 9 CORVEX MANAGEMENT LP
Strong Financial Profile EBITDA Growth (incl. Brinks acquisition) Recurring Revenue Growth (incl. Brinks acquisition) Unlevered FCF Margin % EBITDA Margin % 2007 2008 2009 2010 2011 2012E 2007 2008 2009 2010 2011 2012E Source: Company filingsand presentations, WallStreet Research. ADThasfiscalyearendof September 30. CORVEX MANAGEMENT LP | 10
The Right Asset for Today • ADT is the right asset for today’s economic and interest rate environment • Equity can be thought of as a stable stream of cash flows from the Company’s existing subscriber base, plus a differentiated platform for ongoing growth investment with attractive returnsoncapital • The value of ADT’s existing subscriber base has never been higher giventhecurrentultra?low interest rate environment -Furthermore, lowering Company’s cost of capital by increasing leverage creates immediate equityvalue • In addition, we believe ADT is currently under?earning with “Pulse” (significantly higher ARPU product) at less than 3% of its subscriber base compared to a take rate of 39% for new internally generated subslast quarter -Recovery in new household formation, which appears to be taking hold,shouldalsoliftoverallmarketgrowth | 11 CORVEX MANAGEMENT LP
Returns Summary • ADT represents an attractive risk?adjusted return investment with multiple waystowinandstrong downside protection • Our Base Case assumes: 6.0% and 7.0% recurring revenue growth in FY13 and FY14, respectively; ~200bps of margin expansion over FY13 and FY14; debt proceeds from step?up in leverage to 3.0x, leveraging ongoing EBITDA growth (? in EBITDA x3), and FCF after growthcapexusedtobuybackstock BASE UPSIDE DOWNSIDE CASE CASE CASE TARGET PRICE (ONE YEAR) $55.00 $63.00 $43.00 % Change 44.4% 65.4% 12.9% 2014E EBITDA $1,862 $1,862 $1,802 Net Debt / ‘13E EBITDA 3.0x 3.5x 1.3x Diluted Shares @ 9/30/13 156 136 235 % Change (33.6%) (42.0%) 0.0% TEV / ‘14E EBITDA 7.4x 7.8x 6.6x Levered Steady-State FCF Yield 10.1% 9.3% 9.3% Cash ‘14E P / E 12.4x 14.0x 13.7x GAAP ‘14E P / E 17.8x 20.1x 19.6x ‘14E RMR Multiple 49.9x 53.0x 44.3x CORVEX MANAGEMENT LP | 12
Valuation Summary • ADT’s business modelcreatesan annuitized streamofcashflows • We think about the stability of these cash flows similarly to REITs, utilities, MLPs,andbest?in?class consumer staples companies • Investors have gotten comfortable valuing REITs and other capital intensive industries onthebasisoffreecashflowafter maintenance capex, and then applying a multiple based on growth opportunities andreturnon investment -Steady?state free cash flow concept, which debt investors have become comfortable with,is essentially thesameasAFFO Levered Steady?State Free Cash Flow / AFFO Multiples ADT @ 3.0x ADT Current MLPs Staples REITs 9x 12x 15x 17x 22x Price @ Multiple: $61 $67 $83 | 13 CORVEX MANAGEMENT LP
Steady?State Free Cash Flow Illustration Ending Subscribers 6.624 Full Credit for Tax Benefit: • We refer to calculation 2013E ARPU $40.08 Interest @ 1.3x Leverage $90 Annualized Recurring Revenues $3,186 Taxes @ 1.3x Leverage 51 with no credit for Levered Steady-State FCF $883 User Attrition 16.0% Equity Multiple 10.1x Subscribers Lost (1.060) Equity Yield 9.9% ongoing price Churned Subscriber ARPU $37.00 Share Price @ 7.0% Yield $53.66 Recurring Revenues Lost ($471) increases as AFFO Recurring Revenues after Attrition $2,715 Interest @ 3.0x Leverage $226 Annual Base Price Escalation 1.75% Taxes @ 3.0x Leverage 41 Price Contribution to Recurring Revenues $48 Levered Steady-State FCF $756 methodology (i.e., free Recurring Revenues after Price Increase $2,763 Equity Multiple 8.0x Equity Yield 12.5% Direct Gross Ads 0.632 Share Price @ 7.5% Yield $55.32 cash flow will continue ARPU per Direct Gross Ad $43.00 Direct Channel Recurring Revenues Added $326 NPV of Tax Benefit: to grow by level of Interest @ 1.3x Leverage $90 Beginning Recurring Revenue $3,186 Full Taxes @ 1.3x Leverage 254 RMR Attrition (471) Levered Steady-State FCF $679 price increases), and Base Price Escalation 48 Equity Multiple 11.0x Direct Gross Ads 326 Equity Yield 9.1% calculation which adds Recurring Revenue before Dealer Acquisitions $3,089 Share Price @ 7.0% Yield $47.68 Steady-State Dealer Acq. Revenue Required $97 Interest @ 3.0x Leverage $226 back for price ARPU for New Dealer Purchases $43.00 Full Taxes @ 3.0x Leverage 206 Dealer Purchases Required 0.187 Levered Steady-State FCF $591 Dealer RMR Purchase Multiple 30.0x Equity Multiple 7.9x increases as bond Dealer Acquisitions Spending Required $242 Equity Yield 12.6% Share Price @ 7.5% Yield $51.69 methodology (i.e., true 2013E EBITDA $1,707 Maintenance Corporate / Other CapEx 35 ADT Stock Price $38.10 Subscriber System Assets 406 Diluted Shares Outstanding 235 fixed income yield) Steady-State Dealer Acquisitions 242 Market Capitalization $8,954 Total Steady-State CapEx 683 Current Net Debt 2,200 Unlevered Steady-State FCF $1,023 TEV $11,154 TEV Multiple 10.9x Note: Interest expense increases to 4.5% from current 3.0% YTM TEV Yield 9.2% at3.0x leverage. Debt proceeds inthis example paidoutdirectlyto shareholders (buyback would resultinhighervalues). Total CapEx $1,180 Growth CapEx $497 CORVEX MANAGEMENT LP | 14
Multiple Ways to Create Value • Financial outperformance -ARPU growth tailwind -Secular penetration opportunity -Margin expansion • Capital structure and capital allocation -Company’s existing debt now yields less than 3% (pre?tax) -Use balance sheet to accelerate growth organically or via M&A -3.0x net / EBITDA leverage level would enable ADT to immediately repurchase ~30% of the Company at attractive prices(1) (1)Capitalreturncouldtaketheformofshare repurchases or dividends depending onvarious considerations. | 15 CORVEX MANAGEMENT LP
Pulse and Home Automation • New interactive service offerings have the potential to transform home security product at a higher price point and expand the addressable market beyond traditional burglar alarms • ADT’s advanced “Pulse” offering consists of remote system arm / disarm, lighting and climate control, remote video monitoring and video clips, custom notifications and scheduled events, and other lifestyle features
Pulse Driving ARPU Growth Tailwind • Pulse has a 30%+ higher price point ($50+ monthly ARPU) than the Company’s existing subscriber base • Increased interactivity and higher customer satisfaction should also reduce churn, resulting in higher customer IRRs and cash flow • Less than 3% of ADT’s existing subscriber base has Pulse today; we believe this mix can rise to ~50% over time • Pulse take?rate is accelerating, reaching 39% of internal gross adds in the June quarter, compared to 35% in the prior quarter and 19% in the June quarter of last year • Pulse will begin to be offered through the dealer channel this fall, driving further adoption • ADT’s ARPU growth is accelerating, growing 2.8%, 3.5%, and 3.6% in the last 3 quarters, respectively | 17 CORVEX MANAGEMENT LP
Secular Penetration Opportunity • In addition to driving ARPU growth, home automation has the potential to increase residential penetration and drive market share gains for ADT • Pulse expands the value proposition of ADT’s services beyond the traditional security and life safety platform, increasing the size of the total addressable market -Pulse take?rates have grown more rapidly than expected, indicating strong customer interest in advanced service offerings • We estimate total addressable market penetration of only ~40% today; penetration of home automation nascent at only ~2% • New technologies will also make it more difficult for ‘mom & pops’ to compete in the historically fragmented home security industry, driving market share gains for technology and scale leaders like ADT | 18 CORVEX MANAGEMENT LP
Continued Margin Expansion EBITDA Margin % • We believe ADT’s margins will 50.0% continue to expand over time, 48.0% as they have done steadily over 46.0% the past 5 years, driving EBITDA 44.0% growth in excess of the top?line 42.0% • Management guidance of flat 40.0% ~50% EBITDA margins is 2007 2008 2009 2010 2011 2012E conservative, consistent with historical Tyco practice • Pulse results in increased upfront SAC, followed by increased ARPU flowing through at high incremental margins Chart (Cost to Serve) per ADT • Service margins in excess of 70% Investor Day Presentation (9/18/12). CORVEX MANAGEMENT LP | 19
Cost Structure Opportunity • After normalizing for estimated SAC expensed in SG&A, we estimate ADT’spre?SACSG&A represents over25%of revenues • Based on peers, we conclude that there are potentially material opportunities to improve ADT’s cost structure as a standalone public company, enhancing bothEBITDA margins andfreecashflow ($ in mm) ADT Breakdown Monitronics Breakdown Broadview Breakdown Protection One Breakdown 2009 2010 2011 2009 2010 2011 2007 2008 2009 2007 2008 2009 % Direct Sales / % Direct Dealer ~50% / ~50% 0% / 100% ~80% / ~20% ~90% / ~10% EBITDA $1,000 $1,191 $1,494 $153 $187 $217 $173 $205 $191 $107 $109 $123 Adjusted EBITDA (pre?SAC) 1,223 1,462 1,780 153 187 217 269 307 313 123 127 134 Adjusted EBITDA margin 54.4% 56.4% 57.2% 65.3% 68.8% 69.6% 55.5% 57.6% 55.4% 35.3% 34.1% 36.4% Adjustments: Expensed SAC within SG&A $223 $271 $286 NA NA NA $96 $101 $123 $15 $17 $11 Direct Comparison: SG&A 839 1,022 1,076 52 52 77 144 151 191 125 137 127 SG&A as % of Revenue 37.3% 39.4% 34.6% 22.4% 19.3% 24.6% 29.8% 28.3% 33.8% 36.0% 36.8% 34.6% Adjusted SG&A (pre?SAC) 616 751 790 NA NA NA 48 50 68 110 119 116 Adjusted SG&A as % of Revenue 27.4% 29.0% 25.4% 22.4% 19.3% 24.6% 10.0% 9.3% 12.1% 31.7% 32.1% 31.6% Advertising 76 113 152 NA NA NA 42 42 59 4 5 3 Advertising as % of Revenue 3.4% 4.4% 4.9% NA NA NA 8.6% 7.9% 10.4% 1.0% 1.3% 0.8% Memo: Revenue $2,247 $2,591 $3,110 $234 $272 $312 $484 $532 $565 $348 $372 $368 CORVEX MANAGEMENT LP Note: Protection Oneisonly~30% residential, andsmallbusiness customers typicallyhavehigherchurnandhighercosts. | 20
Financial Outperformance • Street has initially responded to management’s growth plan with skepticism • Analysts projecting ~3?5% revenue growth, compared to management’s goal of 5?7% • We believe management’s plan is achievable, and the ARPU tailwind from Pulse will lead to ADT exceeding revenue and profit estimates over time • Subscriber growth through home automation value proposition is a free call option on additional upside, with potential for both increased residential penetration and market share gains • Additional potential upside drivers include a recovery in new household formation (which appears to be happening), cost savings opportunities, and growth in small business channel | 21 CORVEX MANAGEMENT LP
Ability to Change Balance Sheet not Reflected in Current Valuation • ADT’s defensive business, predictable, contract ?based revenue stream, and high free cash flow conversion create opportunity for significant leveraging ofits balance sheet -ADT capital structure should have been an important consideration inTycospin?off rationale -Company’s existing 5?year debt literally trades at ~1.7% yield to maturity and the Company’s entire debt structure trades at a blended 2.96% yieldto maturity -There is a massive opportunity to lower ADT’s overall cost of capital by prudently increasing leverage that the Company is currently ignoring • Leverage for home security peers and cable companies is generally 2?5x EBITDA in the public markets (and, not surprisingly, often higherintheprivate markets) | 22 CORVEX MANAGEMENT LP
Optimize Capital Structure and Capital Allocation • We believe ADT should immediately increase leverage to 3.0x Net Debt / EBITDA and maintain a fixed leverage target of 3.0x going forward -3.0x level is conservative relative to home security peers, cable companies, andother alternative comps -Wouldenablethe Company to repurchase ~30%ofitsfloattoday(1) • Use debt proceeds to both return capital to shareholders and accelerate growth -Multiple accretive options exist -Changing cost of capital and buying back under?valued stock now creates significant long?termequityvalue • Use ongoing incremental debt proceeds (from leveraging EBITDA growth) and excess free cash flow to return capital to shareholders, andclearly communicate leverage targetandcapital allocation plan (1)Capitalreturncouldtaketheformofshare repurchases or dividends depending onvarious considerations. | 23 CORVEX MANAGEMENT LP
Low Cost of Funding Provides Multiple Accretive Options • We can debate the optimal combination, but we cannot debate or support maintaining thecurrent inefficient capital structure Growth Investment Capital Return Direct Dealer M&A Dutch Special Ongoing Sales Acqs. Tender Dividend Buyback ~16?23% ~12?19% 12?20%+ Annual IRR IRR ROIC Dividend | 24 CORVEX MANAGEMENT LP
Significant Cost of Capital Arbitrage • We believe it is irresponsible for ADT not to capitalize on its current costof funding -ADT’s debt trades well above par only 3 months after issuance; 4.875% notes recently tradedabove110 -5yeardebtnowyieldsonly1.7% pre?tax • By funding itself with 80% equity, we estimate the Company loses approximately $105 million annually or $286,540 per day of shareholders’ money (1) Recent Current YTM @ After-Tax Balance Coupon Price Yield Mkt Px @ 35% Issued Maturity 2.250% Sr. Unsecured due 2017 $750.0 2.25% 102.7 2.19% 1.66% 1.08% 7/5/12 7/15/17 3.500% Sr. Unsecured due 2022 1,000.0 3.50% 104.7 3.34% 2.94% 1.91% 7/5/12 7/15/22 4.875% Sr. Unsecured due 2042 750.0 4.88% 109.9 4.43% 4.28% 2.78% 7/5/12 7/15/42 Total $2,500.0 3.54% 105.6 3.33% 2.96% 1.93% (1) As compared to3.0x leverage, with4.5% pre?taxcostofdebt,35.0% long?termtaxrate,and7.0% equitycostofcapital. (2): Note:Recentpricesper Bloomberg (10/19/12) . | 25 CORVEX MANAGEMENT LP
Leverage Comparison Weighted Total Net Net Debt / (EBITDA EBITDA / Avg. Weighted Debt / Debt / (EBITDA ? CapEx) / Fixed Credit Interest Avg. EBITDA EBITDA ? CapEx) Interest Charges Ratings Rate (1) YTM (2) Protection 1 (3) 3.6x 3.4x 5.8x 1.5x 1.2x N/A 6.5% N/A Monitronics 4.2x 3.8x 19.1x 0.7x 0.9x CCC+ 6.5% 6.0% Vivint 5.5x 5.5x N/A N/A N/A N/A N/A N/A Securitas (4) 7.2x 7.1x 17.0x N/A N/A B 7.2% 6.8% Home Security Average 5.1x 4.9x 13.9x 1.1x 1.1x 6.7% 6.4% Comcast 1.9x 1.8x 2.5x 6.2x 1.8x BBB+ 5.8% 2.8% Time Warner Cable 3.5x 3.1x 5.1x 2.9x 1.4x BBB 6.4% 3.2% Cablevision 5.4x 5.2x 11.1x 1.3x 1.1x BB 7.5% 5.0% Charter 4.8x 4.8x 12.0x 1.2x 1.1x BB? 7.2% 6.6% DTV 2.1x 1.8x 3.4x 5.3x 1.3x BBB 4.6% 2.9% Dish 3.0x 2.2x 3.2x 4.5x 1.5x BB? 6.7% 3.5% Cable / Satellite Average 3.5x 3.2x 6.2x 3.6x 1.4x 6.4% 4.0% Verizon 1.4x 1.1x 1.6x 9.6x 2.2x A? 5.7% 5.5% AT&T 1.5x 1.5x 2.7x 6.4x 1.4x A? 5.2% 4.4% Telco Average 1.5x 1.3x 2.2x 8.0x 1.8x 5.4% 4.9% REIT Average 6.3x 6.0x 7.8x 2.7x 2.0x 5.0% 2.4% Utilities Average 4.3x 4.2x 16.2x 1.4x 0.8x 5.4% 3.0% Staples Average 1.5x 1.2x 1.5x 20.7x 2.2x 3.8% 1.9% Total Mean 3.7x 3.5x 8.0x 6.2x 1.5x 5.5% 3.8% Total Median 3.9x 3.7x 7.0x 3.1x 1.6x 5.4% 3.5% ADT — Current 1.6x 1.4x 3.9x 6.3x 1.4x BBB 3.5% 3.0% ADT@ 3.0x 3.2x 3.0x 8.6x 2.6x 1.2x IG 4.2% 3.9% (1) Weighted average interest rate for total outstanding debt. (2) Weighted average yield to maturity for total corporate debt. (3) Total debt, cash and LTM EBITDA as of March 31, 2010; Full year capex, interest, and taxes as of 12/31/2009. (4) Debt figures excludes shareholder loan. CORVEX MANAGEMENT LP | 26
Leverage Comparison (cont’d) Net Debt / CY 2012E EBITDA Sector Group Median Cable, Satellite, and Telecom ADT Vivint Securitas Monitronics Protection 1 Source: Wall Street Equity Research, Capital IQ, and Green Street Estimates. (1) Total debt, cash and LTM EBITDA as of March 31, 2010. CORVEX MANAGEMENT LP
Optimize Capital Structure and Capital Allocation ~30% ‘12E ?’15E EBITDA Growth ~45% Reduction in Shares Outstanding Significant Equity Appreciation Capitalreturncouldtaketheformofshare repurchases or dividends depending onvarious considerations. | 28 CORVEX MANAGEMENT LP
Power of Levered Share Repurchases • Ongoing equity shrink combined with financial outperformance leadsto significant long?termvalue creation • A discounted cashflow analysis isthemost appropriate waytovalue ADTinour opinion • As shown below, changing the Company’s cost of capital by borrowing at today’s ultra?low interest rates and using debt proceeds to repurchase ADT’s stock results in a significant increase in equity value ADT Discounted Cash Flow Valuation Status Net Debt / EBITDA Quo 3.0x 1.5x 2.0x 2.5x 3.0x 3.5x 4.0x ADT Share Price $44.68 $67.68 $49.06 $53.83 $59.92 $67.68 $78.15 $92.34 % Change to Current 17.3% 77.6% 28.8% 41.3% 57.3% 77.6% 105.1% 142.4% 000000 Cumulative % Change in Shares 0.0% (43.2%) (9.9%) (21.0%) (32.1%) (43.2%) (54.3%) (65.4%) Note: DCF valuation assumes 7.0% discount rate (equity cost of capital) and exit in year 5 at 7.0% equity steady?state free cash flow yield. Analysis assumes interest rate increases with higher leverage. % Change to Current based on ADT Share Price of $38.10, closing price on October 23, 2012. | 29 CORVEX MANAGEMENT LP
“Equity Shrink” Stories Have Significantly Outperformed • Stable growth combined with an appropriate capital structure, ongoing share repurchases, and clear investor communication of leverage target and buyback strategy has led to significant outperformance
Comparable Companies Valuation Analysis TEV / CY 2013E EBITDA Sector Group Median Cable, Satellite, and Telecom ADT Monitronics Source: Wall Street Equity Research, Capital IQ, and Green Street Estimates. Note: Market data as of 10/23/2012. CORVEX MANAGEMENT LP | 31
Comparable Companies Valuation Analysis (cont’d) CY 2013E Levered FCF Yield Leverage) Leverage) Sector Group Median Cable, Satellite, and Telecom ADT Source: Wall Street Equity Research, Capital IQ, and Green Street Estimates. Note: Market data as of 10/23/2012. CORVEX MANAGEMENT LP
Comparable Companies Valuation Analysis (cont’d) 2013E Levered Steady State Free Cash Flow Yield (AFFO methodology / no pricing add?back) Sector Group Median Cable, Satellite, and Telecom ADT Monitronics Source: Wall Street Equity Research, Capital IQ, and Green Street Estimates. Note: ADT and Monitronics methodology assumes no credit for ongoing price increases (i.e. free cash flow should continue to grow~2%). Market data as of 10/23/2012. CORVEX MANAGEMENT LP
Comparable Companies Valuation Analysis (cont’d) 2013E Levered Steady State Free Cash Flow Yield (bond methodology / including pricing add?back) Sector Group Median ADT Monitronics Comparable Interest Rates Source: Barclays Capital and Zillow Mortgage Marketplace. Note: ADT and Monitronics methodology adds back ongoing price increases (i.e. represents fixed, bond?like yield). Market data as of 10/23/2012. CORVEX MANAGEMENT LP | 34
Comparable Companies Valuation Analysis (cont’d) TEV / CY 2013E Unlevered FCF Sector Group Median Cable, Satellite, and Telecom ADT Monitronics Source: Wall Street Equity Research, Capital IQ, and Green Street Estimates. Market data as of 10/23/2012. CORVEX MANAGEMENT LP | 35
Comparable Companies Valuation Analysis (cont’d) TEV / CY 2013E Unlevered Steady?State FCF Sector Group Median Cable, Satellite, and Telecom ADT Monitronics Source: Wall Street Equity Research, Capital IQ, and Green Street Estimates. Note: Market data as of 10/23/2012. CORVEX MANAGEMENT LP
Comparable Companies Valuation Analysis (cont’d) Price / CY 2013E EPS 25.0x 23.2x 21.6x 20.0x 19.7x 20.0x 16.7x 16.0x 15.0x 15.6x 15.7x 13.5x 13.9x 14.0x 14.0x 12.4x 10.0x 9.9x 5.0x Charter REITs ADT CablevisionConsumer Verizon MLPs Utilities Comcast Dish ADT AT&T Time DIRECTV (GAAP EPS) Staples (Cash EPS) Warner Sector Group Median Cable, Satellite, and Telecom ADT Source: Wall Street Equity Research, Capital IQ, and Green Street Estimates. Note: 3?Year CAGRs (2012E –2015E) used for ADT, cable, satellite, and telecom. 2?Year CAGRs (2012E –2014E) used for REITs, Consumer Staples, MLPs, and Utilities. Price / CY 2013E EPS calculated using AFFO for REITs and Distributable Cash Flow per Unit for MLPs. Market data as of 10/23/2012. | 37 CORVEX MANAGEMENT LP
Comparable Companies Operating Performance Revenue CAGR Sector Group Median Cable, Satellite, and Telecom ADT Monitronics Source: Wall Street Equity Research, Capital IQ, and Green Street Estimates. Note: 3?Year CAGRs (2012E –2015E) used for ADT, cable, satellite, and telecom. 2?Year CAGRs (2012E –2014E) used for Monitronics, REITs, Consumer Staples, MLPs, and Utilities. CORVEX MANAGEMENT LP
Comparable Companies Operating Performance EBITDA CAGR Sector Group Median Cable, Satellite, and Telecom ADT Monitronics Source: Wall Street Equity Research, Capital IQ, and Green Street Estimates. ADT per Corvex estimates. Note: 3?Year CAGRs (2012E –2015E) used for ADT, cable, satellite, and telecom. 2?Year CAGRs (2012E –2014E) used for Monitronics, REITs, Consumer Staples, MLPs, and Utilities. CORVEX MANAGEMENT LP
Comparable Companies Operating Performance EPS CAGR Sector Group Median Cable, Satellite, and Telecom ADT Source: Wall Street Equity Research, Capital IQ, and Green Street Estimates. Note: 3?Year CAGRs (2012E –2015E) used for ADT, cable, satellite, and telecom. 2?Year CAGRs (2012E –2014E) used for REITs, Consumer Staples, MLPs, and Utilities. EPS CAGR calculated using AFFO for REITs and Distributable Cash Flow per Unit for MLPs. CORVEX MANAGEMENT LP
Recent Precedent Transactions RMR Purchase Multiples 65.0x Recent Precedent Transactions ADT Source: Company filings, press releases, Wall Street Equity Research, and Capital IQ. | 41 CORVEX MANAGEMENT LP
Bear Arguments • Limited FCF after growth capex • Cash tax shield going away after 2 years • Cable entry / threat | 42 CORVEX MANAGEMENT LP
Limited FCF After Growth Capex • A DCF is the best way to value ADT in our opinion • EBITDA –CapEx or FCF yield at a point in time is not a thoughtful cash flow valuation methodology -Not atypical for home security companies and other capital intensive businesses to have negative FCF -EBITDA –CapEx can be artificially inflated or deflated at any point in time by company’s level of discretionary growth capex • Equity investors should welcome growth investment by businesses with attractive returns on capital -Our analysis and field work supports the Company’s statement of ~14?21% unlevered customer IRRs -ADT should borrow at 3% and invest / re?invest in itself at ~14?21% returns as much as it can | 43 CORVEX MANAGEMENT LP
The Death of ADT’s Single?Digit Cash Tax Rate Has Been Greatly Exaggerated • The post–spin tax carryforwards along with cash tax planning opportunities will allow ADT to sustain a single?digit cash tax rate consistent with pre?spin cash tax rates (The ADT Corporation Form 10 Presentation, 4/10/12) • ADT will have significant deferred tax assets which results in the cash tax rate being significantly below the P&L rate -ADT expects to have $1.0 ?$1.2 billion of federal tax loss carry forwards at the time of the separation -In addition, ADT expects to have the ability to accelerate certain tax deductions that would allow us to minimize our cash tax rate for a period of time beyond the full utilization of the initial deferred tax assets (The ADT Corporation Investor Day Presentation, 9/18/12) | 44 CORVEX MANAGEMENT LP
Cash Taxes (cont’d) • While we will all learn more in November, our work has corroborated the existence of deferred tax assets (in addition to the inherited carry forward) which should enable ADT to preserve a low cashtaxratefor6+years • Additionally, the business should continue to generate an ongoing cash tax shield through continued subscriber growth and the upfront deduction of subscriber acquisition costs • A more appropriate capital structure will also lengthen the duration ofADT’s valuable cashtaxassets • No evidence of significant one?time “bonus depreciation” in deferred tax liabilities onADT’s balance sheet • Conspiracy theorists seem to not understand that companies are only able to make limited commentary during spin?off and while awaiting IRSrulings | 45 CORVEX MANAGEMENT LP
Cash Taxes (cont’d) • No other home security company is a significant cash tax payer • Importantly, we expect to be very efficient from a cash tax rate perspective. That’s going to be driven by two things. First, we expect that we’re going to inherit between $1 billion and $1.2 billion NOL at the time of the spin. In addition to that, we have the opportunity to accelerate certain deductions that will allow us to minimize that cash tax rate for a period of time beyond fully utilizing that initial NOL that we inherit… Overall, we expect our cash tax rate will be driven by federal AMC taxes, state taxes and Canadian income and withholding taxes resulting in an overall cash tax rate of between 6% and 8%. (Kathryn A. Mikells, 9/18/12) | 46 CORVEX MANAGEMENT LP
Cable Entry / Threat • We believe cable threat is manageable, which is not necessarily a contrarian view • Discussion of cable entering home security numerous times over the past 10?15 years, without results to date • Comcast is only cable company with a real home security product today (passes ~40% of homes in the U.S.) -Other cablecos behind Comcast; ‘science project’ stage for some • Home security companies have watched Comcast’s test markets and other test markets historically and not detected any impact • Home automation and advanced service offerings could change the opportunity for cable, but more likely to grow the overall market and threaten ‘mom & pops’ than negatively impact ADT | 47 CORVEX MANAGEMENT LP
Cable Entry / Threat (cont’d) • Cable industry would need to improve its image and devote resources to effectively compete inhome security -Muchmore complicated salesand marketing effort -Home security involves thousands of dollars of installed equipment, requiring more skilled technicians (and limiting synergies with existing truckrolls) -Need to overcome real and perceived poor customer satisfaction andlousy customer service -Cable not historically strong at selling anything other than triple play -When cable began providing landline telephony in the 1990s (a commodity product), achieved only~7?8%shareafter5years • Home security endmarketisnot material tolargecable companies -Mainareaofgrowth outside ofcoretripleplayisSMB | 48 CORVEX MANAGEMENT LP
Cable’s Relevance as Comp Group Overstated • Pay?TV is saturated / fully?penetrated industry • High speed internet still growing, but blended cable revenue growth still lower than home security by ~30?40% • Several well capitalized competitors trying to steal existing subscribers in any given market • Business model based on distributing another company’s content -Industry facing declining margins in video product due to rising content costs • Poor customer satisfaction (negative net promoter scores) • Requires centralized network maintenance capex • FCF benefitting from hiatus in growth capex after industry ?wide rollout of DOCSIS 3.0 | 49 CORVEX MANAGEMENT LP
Conclusion Predictable, Growing Cash Flows Under?levered Capital Structure / Balance Sheet Optionality Equity Shrink Story Multiple Expansion / Equity Appreciation CORVEX MANAGEMENT LP | 50