ADT 2008 Annual Report Download - page 115

We face intense competition in each of our businesses, and competitive challenges from lower cost
manufacturers in overseas markets. If we cannot successfully compete in an increasingly global market-
place, our operating results may be adversely affected.
We operate in competitive domestic and international markets and compete with many highly
competitive manufacturers and service providers, both domestically and on a global basis. Our
manufacturing businesses face competition from lower cost manufacturers in Asia and elsewhere and
our service businesses face competition from alternative service providers around the world. Key
components of our competitive position are our ability to adapt to changing competitive environments
and to manage expenses successfully. This requires continuous management focus on reducing costs,
maintaining our competitive position and improving efficiency through cost controls, productivity
enhancements and regular appraisal of our asset portfolio. If we are unable to achieve appropriate
levels of scalability or cost-effectiveness, or if we are otherwise unable to manage and react to changes
in the global marketplace, our operating results may be adversely affected.
Our future growth is largely dependent upon our ability to develop or acquire new technologies that
achieve market acceptance with acceptable margins.
Our businesses operate in global markets that are characterized by rapidly changing technologies
and evolving industry standards. Accordingly, our future growth rate depends upon a number of factors,
including our ability to: identify emerging technological trends in our target end-markets; develop,
acquire and maintain competitive products and services; enhance our products and services by adding
innovative features that differentiate our products and services from those of our competitors; and
develop or acquire, manufacture and bring products and services to market quickly and cost-effectively.
Our ability to develop or acquire new products and services based on technological innovation can
affect our competitive position and requires the investment of significant resources. These acquisitions
and development efforts divert resources from other potential investments in our businesses, and they
may not lead to the development of new technologies, products or services on a timely basis or that
meet the needs of our customers as fully as competitive offerings. In addition, the markets for our
products and services may not develop or grow as we anticipate. As a result, the failure of our
technology, products or services to gain market acceptance or their obsolescence could significantly
reduce our revenues, increase our operating costs or otherwise adversely affect our financial condition,
results of operations or cash flows.
Our ADT business may experience higher rates of customer attrition, which may reduce our future
revenue and cause us to change the estimated useful lives of assets related to our security monitoring
customers, increasing our depreciation and amortization expense.
Attrition rates for customers in our ADT Worldwide business increased over the prior year to an
average of 12.9% on a trailing 12-month basis for 2008, as compared to 12.3% for 2007, and 14.2% in
2006. Although rates have not increased significantly in the last fiscal year, if attrition rates continue to
trend upward, ADT’s recurring revenue and results of operations will be adversely affected. The risk is
more pronounced in times of economic uncertainty. Tyco amortizes the costs of ADT’s contracts and
related customer relationships purchased through the ADT dealer program based on the estimated life
of the customer relationships. Internally generated residential and commercial pools are similarly
depreciated. If the attrition rates were to rise Tyco may be required to accelerate the depreciation and
amortization of subscriber system assets and intangible assets, which could cause a material adverse
effect on our financial condition or results of operations.
12 2008 Financials