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Basis of Presentation and Summary of Significant Accounting Policies | 6 Months Ended
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Jun. 30, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract] |
Basis of Presentation and Summary of Significant Accounting Policies | Description of Business and Summary of Significant Accounting Policies Organization and Business ADT Inc. (formerly named Prime Security Services Parent Inc.) (“the Company” or “ADT Inc.”), a company incorporated in the State of Delaware, and its wholly owned subsidiaries, is a leading provider of monitored security and interactive home and business automation solutions in the United States (“U.S.”) and Canada. The Company is majority-owned by Prime Security Services TopCo Parent, L.P. (“Ultimate Parent”). Ultimate Parent is owned by Apollo Investment Fund VIII, L.P. and related funds that are directly or indirectly managed by Apollo Global Management, LLC, its subsidiaries, and its affiliates (“Apollo” or the “Sponsor”), and management investors. On July 1, 2015, the Company acquired Protection One, Inc. and ASG Intermediate Holding Corp. (collectively, the “Formation Transactions”), which were instrumental in the formation of the Company. Prior to the Formation Transactions, the Company was a holding company with no assets or liabilities. On May 2, 2016, the Company acquired The ADT Security Corporation (formerly named The ADT Corporation) (“The ADT Corporation”) (“ADT Acquisition”). The Company primarily conducts business under the ADT brand name. In January 2018, the Company completed an initial public offering (“IPO”) and its common stock began trading on the New York Stock Exchange under the symbol “ADT.” Significant Accounting Policies The condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”), which require the Company to select accounting policies and make estimates that affect amounts reported in the condensed consolidated financial statements and the accompanying notes. The Company’s estimates are based on the relevant information available at the end of each period. Actual results could differ materially from these estimates under different assumptions or market conditions. Basis of Presentation and Consolidation The condensed consolidated financial statements included herein are unaudited, but in the opinion of management, such financial statements include all adjustments, consisting of normal recurring adjustments, necessary to summarize fairly the Company’s financial position, results of operations, and cash flows for the interim periods presented. The interim results reported in these condensed consolidated financial statements should not be taken as indicative of results that may be expected for future interim periods or the full year. For a more comprehensive understanding of the Company and its interim results, these condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2018 (“2018 Annual Report”), which was filed with the U.S. Securities and Exchange Commission (“SEC”) on March 11, 2019. The Company’s accounting policies used in the preparation of these condensed consolidated financial statements do not differ from those used for the annual consolidated financial statements, unless otherwise noted. The Condensed Consolidated Balance Sheet as of December 31, 2018 included herein was derived from the audited consolidated financial statements as of that date but does not include all the footnote disclosures from the annual consolidated financial statements. The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions have been eliminated. Certain prior period amounts have been reclassified to conform with the current period presentation. The Company has one operating and reportable segment, which is based on the manner in which the Chief Executive Officer, who is the chief operating decision maker, evaluates performance and makes decisions about how to allocate resources. Cash and Cash Equivalents and Restricted Cash and Cash Equivalents The following table provides a reconciliation of the amount of cash and cash equivalents and restricted cash and cash equivalents reported within the Condensed Consolidated Balance Sheets to the total of the same such amounts shown in the Condensed Consolidated Statements of Cash Flows:
(in thousands) | June 30, 2019 |  | December 31, 2018
Cash and cash equivalents | $ | 43,052 |  |  | $ | 363,177 |
Restricted cash and cash equivalents in prepaid expenses and other current assets | 1,000 |  |  | 3,985 |
Cash and cash equivalents and restricted cash and cash equivalents at end of period | $ | 44,052 |  |  | $ | 367,162 |
Subscriber System Assets, net and Deferred Subscriber Acquisition Costs, net The Company capitalizes certain costs associated with transactions in which the Company retains ownership of the security system as well as incremental selling expenses related to acquiring customers. These costs include equipment, installation costs, and other incremental costs and are recorded in subscriber system assets, net and deferred subscriber acquisition costs, net in the Condensed Consolidated Balance Sheets. These assets embody a probable future economic benefit as they contribute to the generation of future monitoring and related services revenue for the Company. Subscriber system assets, net represent capitalized equipment and installation costs incurred in connection with transactions in which the Company retains ownership of the security system. Upon customer termination, the Company may retrieve such assets. Depreciation expense relating to subscriber system assets is included in depreciation and intangible asset amortization in the Condensed Consolidated Statements of Operations and was $141 million and $137 million for the quarters ended June 30, 2019 and 2018, respectively, and was $281 million and $273 million for the six months ended June 30, 2019 and 2018, respectively. The gross carrying amount, accumulated depreciation, and net carrying amount of the Company’s subscriber system assets as of June 30, 2019 and December 31, 2018 were as follows:
(in thousands) | June 30, 2019 |  | December 31, 2018
Gross carrying amount | $ | 4,599,997 |  |  | $ | 4,304,279 |
Accumulated depreciation | (1,670,485 | ) |  | (1,396,578 | )
Subscriber system assets, net | $ | 2,929,512 |  |  | $ | 2,907,701 |
Deferred subscriber acquisition costs, net represent incremental selling expenses (primarily commissions) related to acquiring customers. Amortization expense relating to deferred subscriber acquisition costs included in selling, general and administrative expenses in the Condensed Consolidated Statements of Operations was $20 million and $14 million for the quarters ended June 30, 2019 and 2018, respectively, and $38 million and $27 million for the six months ended June 30, 2019 and 2018, respectively. Subscriber system assets and any related deferred subscriber acquisition costs resulting from customer acquisitions are accounted for on a pooled basis based on the month and year of acquisition. The Company amortizes its pooled subscriber system assets and related deferred subscriber acquisition costs using an accelerated method over the estimated life of the customer relationship, which is 15 years. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities as of June 30, 2019 and December 31, 2018 consisted of the following:
(in thousands) | June 30, 2019 |  | December 31, 2018
Accrued interest | $ | 89,651 |  |  | $ | 85,046 |
Payroll-related accruals | 92,679 |  |  | 105,089 |
Other accrued liabilities | 263,583 |  |  | 207,944 |
Accrued expenses and other current liabilities | $ | 445,913 |  |  | $ | 398,079 |
Radio Conversion Costs In February 2019, the Company received notice from AT&T, the Company’s largest wireless network provider, that it will be retiring its 3G network by the first quarter of 2022, which is also the year the Code-Division Multiple Access (“CDMA”) network used to provide services to some of the Company’s customers is being retired. The Company currently provides services to approximately 3.6 million customer sites that use 3G or CDMA cellular equipment, which number is decreasing on a monthly basis in the ordinary course of business due to attrition, upgrades, and repairs. The Company’s plans to address this three-year transition are not yet finalized, and the impact involves numerous estimates and variables. Among other factors, the Company will look to reduce any applicable costs to the Company, such as hardware costs currently estimated to be less than $90 per site, by exploring cost-sharing opportunities and working with suppliers, carriers, and customers and to increase revenue by using the transition as an opportunity to sell new products and services in conjunction with replacing the radio and to more rapidly transition customers to the Company’s new Command and Control technology. The Company currently estimates that aggregate net expenditures could be between $200 million to $325 million over the course of the next three years. For 2019, the Company expects to incur net costs of approximately $25 million to $35 million associated with radio conversion costs. Fair Value of Financial Instruments The Company’s financial instruments primarily consist of cash and cash equivalents, restricted cash and cash equivalents, accounts receivable, accounts payable, debt, and derivative financial instruments. Due to their short-term and/or liquid nature, the fair values of cash, restricted cash, accounts receivable, and accounts payable approximate their respective carrying values. Cash Equivalents - Included in cash and cash equivalents are investments in money market mutual funds, which were immaterial as of June 30, 2019 and $221 million as of December 31, 2018. These investments are classified as Level 1 fair value measurements. Long-Term Debt Instruments - The fair values of the Company’s debt instruments are determined using broker-quoted market prices, which are classified as Level 2 fair value measurements. The carrying value and fair value of the Company’s long-term debt instruments that are subject to fair value disclosures as of June 30, 2019 and December 31, 2018 were as follows:
| June 30, 2019 |  | December 31, 2018
(in thousands) | Carrying Value |  | Fair Value |  | Carrying Value |  | Fair Value
Debt instruments, excluding capital lease obligations | $ | 9,729,534 |  |  | $ | 10,055,474 |  |  | $ | 9,952,385 |  |  | $ | 9,828,274 |
Derivative Financial Instruments - Derivative financial instruments are reported at fair value as either assets or liabilities in the Condensed Consolidated Balance Sheets. These fair values are primarily calculated using discounted cash flow valuation techniques that incorporate observable inputs, such as quoted forward interest rates, and incorporate credit risk adjustments to reflect the risk of default by the counterparty or the Company. The resulting fair values are classified as Level 2 fair value measurements. Refer to Note 8 “Derivative Financial Instruments” for further discussion. Guarantees In the normal course of business, the Company is liable for contract completion and product performance. The Company does not believe such obligations will significantly affect its financial position, results of operations, or cash flows. The Company had no material guarantees other than in standby letters of credit related to its insurance programs. The Company’s guarantees totaled $57 million and $54 million as of June 30, 2019 and December 31, 2018, respectively. Recently Adopted Accounting Pronouncements Financial Accounting Standards Board Accounting Standards Update (“ASU”) 2016-02, Leases, and related amendments, require lessees to recognize a right-of-use asset and a lease liability for substantially all leases and to disclose key information about leasing arrangements and aligns certain underlying principles of the lessor model with the revenue standard. The Company adopted this guidance in the first quarter of 2019 using the optional transition method, which allows entities to apply the guidance at the adoption date and recognize a cumulative effect adjustment to the opening balance of retained earnings, if any, in the period of adoption with no restatement of comparative periods. As part of the adoption, the Company elected to apply the package of transitional practical expedients under which the Company did not reassess prior conclusions about lease identification, lease classification, and initial direct costs of existing leases as of the date of adoption. Additionally, the Company elected lessee and lessor practical expedients to not separate non-lease components from lease components. The Company did not elect to apply the hindsight transitional practical expedient to reassess the lease terms of existing lease arrangements as of the date of adoption or the short-term lease recognition exemption. Upon transition to the guidance as of the date of adoption, the Company recognized operating lease liabilities in the Condensed Consolidated Balance Sheet, with a corresponding amount of right-of-use assets, net of amounts reclassified from other assets and liabilities that are required to be presented as a component of operating lease liabilities or right-of-use assets. Refer to Note 13 “Leases” for further discussion regarding the amount of operating lease liabilities and right-of-use assets recognized as of the date of adoption. Further, the adoption did not have a material effect on the Condensed Consolidated Statements of Operations or Cash Flows. The net impact of the adoption to the line items in the Condensed Consolidated Balance Sheet was as follows:
(in thousands) |  | December 31, 2018 |  | Lease Standard Adoption Adjustment |  | January 1, 2019
Assets |  |  |  |  |  |
Prepaid expenses and other current assets |  | $ | 129,811 |  |  | $ | (885 | ) |  | $ | 128,926 |
Intangible assets, net |  | 7,488,194 |  |  | (658 | ) |  | 7,487,536 |
Other assets |  | 120,279 |  |  | 125,170 |  |  | 245,449 |
Liabilities |  |  |  |  |  |
Accrued expenses and other current liabilities |  | 398,079 |  |  | 29,460 |  |  | 427,539 |
Other liabilities |  | 140,604 |  |  | 94,167 |  |  | 234,771 |
Recently Issued Accounting Pronouncements There are no recently issued accounting pronouncements that the Company expects to have a material effect on the condensed consolidated financial statements, except as otherwise noted in our 2018 Annual Report.

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- Definition The entire disclosure for the basis of presentation and significant accounting policies concepts. Basis of presentation describes the underlying basis used to prepare the financial statements (for example, US Generally Accepted Accounting Principles, Other Comprehensive Basis of Accounting, IFRS). Accounting policies describe all significant accounting policies of the reporting entity. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -URI http://asc.fasb.org/topic&trid=2122369 + Details
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