ADT 2013 Annual Report Download - page 80

FORM 10-K
If we experience significantly higher rates of customer attrition, we may be required to change the
estimated useful lives of assets related to our security monitoring customers, increasing our depreciation
and amortization expense or impairing such assets.
We amortize the costs of our acquired and dealer-generated contracts and related customer relationships
based on the estimated life of the customer relationships. We similarly depreciate the cost of our internally
generated residential and small business monitoring system assets. If attrition rates were to rise significantly, we
may be required to accelerate the amortization of expenses related to such contracts and the depreciation of our
subscriber system assets or to impair such assets, which could cause a material adverse effect on our financial
condition and results of operations.
We are susceptible to downturns in the housing market and consumer discretionary income, which may
inhibit our ability to sustain customer base growth rates.
Demand for alarm monitoring services is affected by the turnover in the housing market. Downturns in the
rate of the sale of new and existing homes, which we believe drives a substantial portion of our new customer
volume in any given year, would reduce opportunities to make sales of new security and home automation
systems and services and reduce opportunities to take over existing security and home automation systems. In
addition, because of personal economic circumstances, current security alarm and home automation customers
may decide to disconnect our services in an effort to reduce their monthly spending and may default on their
remaining contractual obligations to us. Our long-term revenue growth rate depends on installations exceeding
disconnects. If the housing market downturn or the general economic downturn continues, customer disconnects
and defaults could increase and our business, financial condition, results of operations and cash flows could be
materially and adversely affected. See risk factor “We rely on a significant number of our customers remaining
with us as customers for long periods of time.”
Our future growth is largely dependent upon our ability to successfully compete with new and existing
competitors by developing or acquiring new technologies that achieve market acceptance with acceptable
margins.
Our business operates in markets that are characterized by rapidly changing technologies, evolving industry
standards and potential new entrants. For example, a number of cable and other telecommunications companies
are offering interactive security services that are competitive with our products and services. If these services
gain market acceptance, our ability to grow our business, in particular our ADT Pulse offering, could be
materially and adversely affected. Accordingly, our future success depends upon a number of factors, including
our ability to accomplish the following: 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 us from our competitors; and develop or acquire 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.
Moreover, as we introduce new products such as ADT Pulse, we may be unable to detect and correct defects in
the product or in its installation, which could result in loss of sales or delays in market acceptance. New or
enhanced products may not satisfy consumer preferences and potential product failures may cause consumers to
reject our products. As a result, these products may not achieve market acceptance and our brand image could
suffer. In addition, our competitors may introduce superior designs or business strategies, impairing our brand
and the desirability of our products and services, which may cause consumers to defer or forego purchases of our
products and services. In addition, the markets for our products and services may not develop or grow as we
anticipate. The failure of our technology, products or services to gain market acceptance, the potential for
product defects or the obsolescence of our products and services could significantly reduce our revenue, increase
our operating costs or otherwise adversely affect our business, financial condition, results of operations or cash
flows.
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