ADT 2014 Annual Report Download - page 88

FORM 10-K
will increase costs of some security systems which may increase costs to customers. As an alternative to video
cameras, we have offered affected customers the option of receiving response from private guard companies, in
most cases through contracts with us, which increases the overall cost to customers. If more police departments
were to refuse to respond or be prohibited from responding to calls from monitored security service companies,
our ability to attract and retain customers could be negatively impacted and our business, financial condition,
results of operations and cash flows could be adversely affected.
Adoption of statutes and governmental policies purporting to characterize certain of our charges as
unlawful may adversely affect our business.
If a customer cancels their contract with us prior to the end of the initial contract term, other than in
accordance with the contract, we may charge the customer an early cancellation fee. Consumer protection
policies or legal precedents could be proposed or adopted to restrict the charges we can impose upon contract
cancellation. Such initiatives could compel us to increase our prices during the initial term of our contracts and
consequently lead to less demand for our services and increased attrition. Adverse judicial determinations
regarding these matters could cause us to incur legal exposure to customers against whom such charges have
been imposed and expose us to the risk that certain of our customers may seek to recover such charges through
litigation. In addition, the costs of defending such litigation and enforcement actions could have a material
adverse effect on our business, financial condition, results of operations and cash flows.
We depend on third party providers and suppliers for components of our security and home/business
automation systems, and third-party software licenses for our products and services, and any failure or
interruption in products or services provided by these third parties could harm our ability to operate our
business.
The components for the security and home/business automation systems that we install are manufactured by
third parties. We are therefore susceptible to interruptions in supply and to the receipt of components that do not
meet our high standards. Any financial or other difficulties our providers face may have negative effects on our
business. We exercise little control over our suppliers, which increases our vulnerability to problems with the
products and services they provide. While we strive to utilize dual-sourcing methods to allow similar hardware
components for our security systems to be interchangeable in order to minimize the risk of a disruption from a
single supplier, any interruption in supply could cause delays in installations and repairs and the loss of current
and potential customers. Also, if a previously installed component were found to be defective, we might not be
able to recover the costs associated with its repair or replacement across our installed customer base, and the
diversion of technical personnel to address the defect could materially and adversely affect our business,
financial condition, results of operations and cash flows.
We rely on third party software for key home automation features in our ADT Pulse®offering. We could
experience service disruptions if customer usage patterns for our ADT Pulse®offering exceed, or are otherwise
outside of, design parameters for the system and the ability for ADT or our third party provider to make
corrections. Such interruptions in the provision of services could result in our inability to meet customer demand,
damage our reputation and customer relationships and adversely affect our business. We also rely on certain
software technology that we license from third parties and use in our products and services to perform key
functions and provide critical functionality. For example, we license the software platform for our monitoring
operations from third parties. Because a number of our products and services incorporate technology developed
and maintained by third parties, we are, to a certain extent, dependent upon such third parties’ ability to maintain
or enhance their current products and services, to ensure that their products are free of defects or security
vulnerabilities, to develop new products and services on a timely and cost-effective basis and to respond to
emerging industry standards and other technological changes. Further, these third-party technology licenses may
not always be available to us on commercially reasonable terms or at all. If our agreements with third-party
vendors are not renewed or the third-party software becomes obsolete, is incompatible with future versions of our
products or services or otherwise fails to address our needs, we cannot provide assurance that we would be able
22