ADT 2015 Annual Report Download - page 91

FORM 10-K
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, and on the
interoperation of that software with our own, such as ADT’s mobile applications and related platform. 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
to replace the functionality provided by the third-party software with technology from alternative providers.
Furthermore, even if we obtain licenses to alternative software products or services that provide the functionality
we need, we may be required to replace hardware installed at our monitoring centers and at our customers’ sites,
including security system control panels and peripherals, in order to affect our integration of or migration to
alternative software products. Any of these factors could materially and adversely affect our business, financial
condition, results of operations and cash flows.
An event causing a disruption in the ability of our monitoring facilities to operate could adversely affect
our business.
A disruption in our ability to provide security monitoring services, including monitoring services for our
PERS products through our monitoring facilities, and otherwise serve our customers could have a material
adverse effect on our business. A disruption could occur for many reasons, including fire, natural disasters,
weather, disease, transportation interruption, extended power outages, human or other error, terrorism or
sabotage or as a result of disruptions to third-party transmission lines. Monitoring could also be disrupted by
information systems and network-related events or cyber security attacks, such as computer hacking, computer
viruses, worms or other malicious software, denial of service attacks, malicious social engineering or other
destructive or disruptive activities that could also cause damage to our properties, equipment and data. While our
monitoring systems are redundant, a failure of our back-up procedures or a disruption affecting multiple
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