ADT 2008 Annual Report Download - page 148

Net revenue by geographic area for ADT Worldwide for the years ended September 26, 2008,
September 28, 2007 and September 29, 2006 was as follows ($ in millions):
2008 2007 2006
North America ...................................... $4,218 $4,094 $3,985
Europe, Middle East and Africa .......................... 2,641 2,574 2,344
Rest of World ....................................... 1,158 980 876
$8,017 $7,648 $7,205
Net revenue for ADT Worldwide increased $369 million, or 4.8%, during 2008, with product
revenue up 3.2% and service revenue up 5.7%, as compared to 2007. Revenue from product sales
includes sales and installation of electronic security and other systems. Service revenue is comprised of
electronic security services and maintenance, including the monitoring of burglar alarms, fire alarms
and other life safety systems as well as services related to retailer anti-theft systems. Approximately
50% of ADT’s total net revenue is contractual and is considered recurring revenue. Overall, recurring
revenue grew 6.1% during 2008 while systems installation and service revenue grew 3.7%.
Geographically, North America grew 3%, resulting largely from growth in recurring revenue which was
partially offset by weakness in the retailer end market. The North America net revenue increase also
includes the impact of acquisitions, which contributed $53 million. Although we experienced
year-over-year net revenue increase in North America, this was partially offset by the retailer end
market which continued to show signs of weakness during the fourth quarter of 2008. We will continue
to monitor these market conditions as well as the current economic environment as we enter fiscal year
2009. Revenue in the EMEA region increased $67 million, or 2.6%, as a result of foreign currency
exchange rates which had a favorable impact of $151 million. This increase was partially offset by a
decline in systems installation and service revenue due to weakness in the retailer end market as well as
commercial softness primarily in the United Kingdom. The 18.2% revenue growth in the Rest of World
geographies was primarily driven by growth in both recurring revenue and contracting across all
regions. The Rest of the World increase included the favorable impact of changes in foreign currency
exchange rates of $30 million. Overall, the ADT Worldwide net revenue increase included the favorable
impact of changes in foreign currency exchange rates of $213 million. The net impact of acquisitions,
divestitures, and other activity positively affected revenue by $27 million.
Operating margin in ADT Worldwide increased to 11.4% in 2008 from 11.0% in 2007. North
America is one of the most profitable geographic areas for ADT Worldwide with 2008 and 2007
operating margin of 15.8% and 16.9%, respectively. Margins in North America were negatively
impacted by $58 million of restructuring and asset impairments in 2008 compared to $8 million in 2007.
Restructuring charges in 2008 include $58 million relating to the reacquisition of certain franchise
rights that were deemed to be unfavorable to the Company. There were no charges related to the
reacquisition of franchise rights in 2007. In addition, North America incurred $48 million and
$12 million to convert customers from analog to digital signal transmissions in 2008 and 2007,
respectively. North America operating margins benefited from continued growth in recurring revenue
partially offset by declines in the retailer end market. ADT EMEA had 2008 and 2007 operating
margin of 4.6% and 3.1%, respectively. EMEA’s operating income included $52 million of restructuring
and impairments in 2008 compared with $71 million in 2007. EMEA margins benefited from reduced
costs as a result of the restructuring program, which was partially offset by volume decreases as
discussed above.
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. The increased attrition was partially due to the analog to digital conversion project and partially
due to the market conditions in the commercial business, which included customers switching from a
2008 Financials 45