Adt Security Services, Inc. Business Information, Profile, and History

Company Perspectives:

When you're protected by ADT, you're protected by the largest, oldest, and one of the best security companies in the nation. Throughout its 127 year history, ADT has lead the way in the innovation of security services, from the simple Call Boxes of the early 1900s to the interactive video surveillance of the year 2000. And this expertise is recognized. A significant number of Fortune 500 companies rely on ADT for their security needs, as does the largest residential base in the electronic security industry. Today, and in the future, ADT remains committed to providing peace of mind and unsurpassed customer service in the protection of your home, your business, and the government.

History of Adt Security Services, Inc.

ADT Security Services, Inc. became part of Tyco International Ltd. in 1998 to ward off a hostile bid made by shareowner Western Resources. Operating as a unit within Tyco's Fire and Security Services division--a division that secured over $6 billion in sales in 2000--ADT is the largest provider of security services to over five million customers, including those in the residential, commercial, and federal sectors. The company provides products and services related to intrusion, fire protection, closed circuit television, access control, critical condition monitoring, and integrated systems. Under the leadership of Tyco, a globally diverse manufacturing and service company with sales of nearly $30 billion, ADT averaged 75,000 new accounts per month in North America during 2000.

Early History: Late 1800s

ADT's beginnings reach back to 1874, when the American District Telegraph Company (ADTC) was founded in Baltimore to deliver telegraph messages. The telegraph was the speediest means of communication known at the time. When a customer wanted to send a message by telegraph, he would write the communiqué and carry it to a local district telegraph agency. (Other customers had call boxes installed in their homes or places of business, which they could use to electronically summon a courier to come and get their message.) At the district telegraph agency, the message was reformatted for swift transmission over the telegraph lines to another agency, which would decode the memorandum and dispatch one of its uniformed messenger boys to deliver it.

The ADTC messenger boy system epitomized the intriguing slice of Americana that was the telegraph system. ADTC maintained rigid standards for its messengers, who attained nearly legendary status in some cities. Paramount among requirements were speed and dependability. According to company annals, one rule stated that "messengers on foot may not take more than one-and-one-half minutes per block." ADTC also required the boys to be in and out of a building in less than two minutes. Some superintendents kept the boys in line by writing regularly to their parents, informing them of their offspring's performance. Worse yet, the racing messengers would reportedly be chased by children on occasion, who jeered "ADT. ... all day trotters."

ADTC was created by merging 57 district telegraph agencies from different cities into a single, consolidated operation. The resultant organization made it possible for the different agencies to benefit from various economies of scale. Importantly, an improved call box allowed customers in some cities to send different signals that would let the agency know their specific need before the messenger was even dispatched. The result of the new system was that customers were suddenly able to signal their need for the police, a doctor, the fire department, or even a wagon or coach.

Thus, the seeds of ADT security had been planted. By the late 1800s, in fact, a jingle had been written to promote ADTC's services: "A trusty guardian of property ... day or night protection constantly ... that's the system, value, and service of ADT." "Way back, they used to have runners," explained ADT Operations Supervisor Dave Roersma in the April 28, 1986 Grand Rapids Business Journal. Roersma related: "They'd get signals from different buildings. If somebody had a fire, they'd send a signal down and a runner would grab the message and run down to the fire department. They even used bicycles for a while."

Focus on Security Services: Early to Mid-1900s

ADT's advanced call boxes were installed only in ADT's more populous districts, while traditional messenger services continued to account for about three-quarters of the company's sales through the end of the nineteenth century. By the early 1900s, however, local telephone systems were rapidly displacing the labor-intensive messenger services. To combat telephone competition, ADT scrambled to convert the majority of its messenger systems to electronic signaling in a span of only ten years. The successful transition was partly a result of ADT becoming a subsidiary of Western Union in 1901. Western Union dominated the telegraph industry and was able to help finance ADT's widespread conversion to electronic signaling.

The supremacy of the telegraph system quickly waned after the turn of the century. Emerging communications giant American Telephone and Telegraph Company (AT&T) bought out Western Union, along with ADT, in 1909. Under the auspices of AT&T, ADT's messenger operations were jettisoned, and the company became focused entirely on the signaling business. AT&T took a particular interest in ADT, placing it under the direct leadership of former AT&T President Theodore N. Vail. Vail steered ADT toward an emphasis on security services. Benefiting from AT&T's renowned research and development labs, ADT leapfrogged its potential competitors throughout the 1920s and 1930s with ongoing advancements in theft and fire alarm systems.

A manpower shortage during World War II generated a need for automated alarm systems that were less dependent on humans to signal for help. In response, ADT developed several landmark systems that were considered extremely advanced at the time. Chief among its breakthroughs were the ADT Teletherm (an automatic fire detection system) and ADT Telewave (and automated intrusion detection system). ADT experienced strong growth during the postwar U.S. economic expansion of the 1950s and 1960s. In addition to assuming a leadership role in the U.S. security systems industry, ADT began expanding internationally, particularly in the United Kingdom.

Technology Advances and Rapid Growth: 1970s-80s

ADT broke away from AT&T in 1969 and became a publicly traded company on the New York Stock Exchange. By that time, computer technology was already emerging that would radically change the complexion of communication and security related industries within a few decades. Specifically, semiconductor components began to be incorporated in security and communications equipment, a development that allowed ADT to begin building components and systems that were smaller, less expensive, and more capable. ADT introduced its first solid-state device in the early 1970s and subsequently developed the first multiplex detection and alarm system, which could simultaneously send multiple messages, or signals, on the same radio frequency or wire.

The advanced semiconductor equipment during the 1970s was significant in that it vastly broadened the potential market for all types of security systems. Prior to the 1970s, security and fire detection systems were purchased almost entirely by businesses or only very wealthy individuals. As the cost of new technology began to fall during the 1970s, though, it became clear to ADT that small businesses and middle-income homeowners would soon be added to the industry's expanding target market. By the late 1970s, in fact, many insurance companies were offering discounted premiums to homeowners who installed security systems.

To take advantage of surging demand, ADT continued to innovate throughout the 1970s and early 1980s. Importantly, ADT launched the first "central station" in the mid-1970s. Central station monitoring represented a major improvement over traditional, locally based fire and intruder systems. From a central station, ADT was able to monitor a large base of customers' premises electronically, round-the-clock, every day of the year. A single monitoring station would eventually be used to protect thousands of homes in a multi-state area. Integrated into ADT's central monitoring systems during the early 1980s were a variety of new components and services, including: Unimode, a fire detection system; CentraScan, a patented computer-based comprehensive security system; and in 1981, SafeWatch, an advanced residential surveillance system.

ADT continued to benefit from improved technology during the 1980s as its base of both commercial and residential customers expanded. The company also prospered as a result of rising crime rates, particularly in major metropolitan areas. By the late 1980s, ADT was serving virtually every Fortune 500 company in some capacity. Furthermore, even though the industry was highly fragmented, ADT's five-plus percent market share was estimated to be at least as great as the combined share of its next three largest North American competitors.

Much of ADT's growth during the 1980s was attributable to residential markets. As consumers became more concerned about crime, and as technology costs dropped, sales of home security systems surged. Instead of tailoring commercial equipment to residential applications, ADT began developing entire product lines specifically for home use. The systems were designed to perform a variety of functions, such as tracking an intruder's movements inside the home, monitoring the home through the telephone, detecting broken pipes, and even noting whether a customer's freezer had stopped operating. A typical basic residential ADT system in the mid-1980s could be installed for under $1,000, with monitoring fees usually running less than $250 annually.

In 1987, ADT, Inc. was acquired by Hawley Group Limited of the United Kingdom. Hawley was a group of diversified companies active in service and other industries, including the electronic security industry. It had begun building its North American security company holdings in 1981 with the purchase of Electro-Protective Corporation of America in 1981. Between 1982 and 1985, Hawley purchased an assemblage of small security service businesses throughout North America. Its crowning acquisition was ADT. In fact, after the buyout, Hawley changed its name to ADT Limited, and broke its operations into two divisions, the largest of which became ADT Security Systems, Inc.

As a result of the merger with ADT, Inc. and several of Hawley's complementary subsidiaries, ADT Security Systems' sales bolted to about $800 million by the late 1980s. Furthermore, ADT purchased Britannia Security Group PLC, an industry leader in the United Kingdom, in 1990. That purchase, combined with other security company holdings in England purchased by Hawley during the 1980s, helped to boost ADT's aggregate sales to $880 million. Despite general economic malaise in both the United States and Britain, as well as major financial setbacks related to other of ADT Limited's holdings, ADT Security Systems, Inc. continued to perform admirably during the early 1990s.

New Product Development and the Home Security Market: Early 1990s

New product introductions were an important contributor to ADT's expansion during the early 1990s. ADT introduced its popular FOCUS system, which allowed commercial customers to more specifically designate protection zones that could be independently monitored. For example, a perimeter area could be monitored while offices inside the perimeter were left open to employees. ADT also bolstered its line of video surveillance equipment and introduced a slew of home security devices.

By the early 1990s, ADT was offering a full line of advanced security services and systems for the massive upper-middle and middle-income residential market. In most cases, ADT retained ownership of the installed system. The customer paid a one-time installation fee and also agreed to pay an annual service charge for monitoring and maintenance. As new products and services were introduced, ADT expected to make money through system upgrades. The systems, like those designed for commercial use, were commonly configured to detect movement, break-ins, fire, smoke, flooding, and other hazards. ADT could respond by phoning the police, notifying the homeowner, and/or dispatching ADT security personnel to the home.

Besides new products, ADT's growth during the early 1990s was largely a consequence of its newfound emphasis on the booming residential market. After the 1987 acquisition, ADT implemented an aggressive program of consolidation and growth centered on the home security market. The company cut its number of central monitoring stations from 162 to just 30 in North America and Europe, while at the same time significantly boosting monitoring capacity and geographic coverage. The end result was reduced operating costs and system prices. Lower prices, in turn, translated into a larger base of potential customers, particularly homeowners in lower income, high-crime areas.

During the early 1990s, sales of security services and systems to the commercial sector stagnated, squelching sales and income growth in that segment; ADT's base of business customers (customers to which ADT continued to provide monitoring services) wavered around the 385,000 mark. In contrast, residential sales exploded. As a result of savvy marketing and proliferating homeowner concerns about security, ADT boosted its base of residential customers to a record 265,000 by 1991. By 1993, moreover, that base had multiplied to 477,000, representing a leading four percent share of the North American home security market.

As residential sales surged, ADT Security Systems' revenues rose from $880 million in 1991 to $901 million in 1992, and then to a record $937 million during 1993. Net income jumped similarly, to about $150 million in 1993. Adding to ADT's revenues were sales from its related electronic article surveillance business, which featured systems used to tag articles in inventory, such as retail clothing. The tags had to be removed by a special device to avoid setting off an alarm, which was usually located at the facility's exit. Electronic article surveillance equipment registered five percent, or about $44 million, of ADT's sales in 1993.

From a group of 57 telegraph service companies, ADT Security Systems had blossomed into a nearly $1 billion security systems company with over one million customers by the mid-1990s. The subsidiary employed a work force of more than 12,000 and generated more than 20 percent of its revenues from operations outside North America. Steady gains in residential sales and an uptick in commercial markets suggested continued growth in the short term. Likewise, increasing concern about crime in the United States, combined with decreasing technology costs, suggested a bright long-term future for the industry leader.

Indeed by 1996, ADT controlled ten percent of the electronic security market, a $6 billion industry. With a strict focus on its security-related operations, the company continued its growth by purchasing smaller companies and by securing lucrative contracts. In fact, the firm acquired Alert Centre for $93 million in 1996 and also landed a contract with HFS, a franchiser of hotels and real estate brokerage offices. That year, the company changed its name to ADT Security Services, Inc. and moved its headquarters to Boca Raton, Florida.

The Tyco Purchase: 1997-1998

ADT's favorable market position led to increased industry attention during the latter half of the 1990s. In December 1995, Western Resources, a billion dollar utility firm based in Kansas, purchased a 23.4 percent stake in the firm. At the time of the purchase, Western hoped to use the ADT brand name to market security services to its gas and electricity utility customers.

Just a few months later, Republic Industries, led by Wayne Huizenga, offered $4.9 billion for ADT. Republic wanted to sell ADT alarm-monitoring services to customers of its AutoNation USA used-car dealerships. The attempt was blocked in September 1996 however, by Western Resource shareholders. Western then launched a hostile $3.5 billion bid for the firm in December, eyeballing ADT ownership as crucial to its entrance into the security industry. ADT management shunned the offer, claiming it was a "lowball" proposal--one that undervalued the company.

Tyco International Ltd. entered the fray in March 1997, offering a friendly $5.6 billion bid for the security firm. Working together, ADT and Tyco structured the merger to thwart Western's takeover attempts. The deal, in which ADT would actually acquire Tyco, but then allow Tyco to be the surviving company, was highly complex and left Western virtually powerless in its attempts to block the merger. Western finally backed down in July of that year, taking a $710 million profit on its 38 million shares, whose total worth equaled $1.3 billion.

ADT officially became part of Tyco's Fire and Security Services division in 1998. Under its new ownership structure, ADT thrived and continued expansion and new product development. In 1999, the security firm teamed up with retailer Sears to offer Sears HomeCentral customers a program entitled "Sears Home Security by ADT." The company also launched its Mobile Security Network, a mobile security system used to monitor vehicles using Global Positioning Satellite (GPS) technology along with wireless communication technology.

Continued Growth in the New Millennium

ADT entered the new millennium intent on future growth. By 2000, the company was adding 75,000 new accounts per month in North America as a result of aggressive marketing. That year the QControl airport monitoring system began operation in Miami International Airport. Within a year, 15 other airports had signed up for the system, which videotaped images of customers and their baggage before and after going through the airport's X-ray security checkpoint.

Along with new product development, ADT also grew through acquisition. Mach-7 Security, based in Wisconsin, was purchased for over $3 million in 2000. The firm also acquired SCANA Security in 2001 in a $24.5 million deal. During that year, ADT created a Financial Services and Banking division to take advantage of the growing need for security solutions in the financial services and banking industries.

As demand for security systems throughout the residential, commercial, and government sectors continued to be strong, ADT's future looked promising. As a major contributor to a $6.1 billion division, the company appeared to be well positioned for continued growth in the years to come.

Principal Competitors: Pinkerton's Inc.; Allied-SpectaGuard; Ameritech Corp.

Chronology

• Key Dates:
• 1874: The American District Telegraph company (ADTC) is founded in Baltimore, Maryland, to deliver telegraph messages.
• 1901: The company becomes a subsidiary of Western Union.
• 1909: AT&T purchases control of both Western Union and ADT.
• 1969: ADT becomes a publicly traded company on the New York Stock Exchange.
• 1974: The firm celebrates its 100th anniversary.
• 1981: ADT launches SafeWatch, an advanced residential surveillance system.
• 1987: The company is purchased by Hawley Group Limited of the United Kingdom and renamed ADT Security Systems Inc.
• 1993: ADT residential customer base increases to 477,000; the firm controls a four percent share of the North American home security market.
• 1995: Western Resources purchases a 23 percent stake in ADT.
• 1996: The company changes its name to ADT Security Services, Inc. and moves its headquarters to Boca Raton, Florida.
• 1998: ADT is acquired by Tyco International Ltd.
• 1999: The Mobile Security Network system is launched.
• 2000: QControl, a passenger screening system developed by ADT, is installed in Miami International Airport.
• 2001: ADT creates a Financial Services and Banking division to capture increased sales in the financial industry.