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Description of Business and Summary of Significant Accounting Policies | 12 Months Ended
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Dec. 31, 2021
Accounting Policies [Abstract] |
Description of Business and Summary of Significant Accounting Policies | Description of Business and Summary of Significant Accounting Policies Organization and Business ADT Inc., together with its wholly-owned subsidiaries (collectively, the “Company”), is a leading provider of security, interactive, and smart home solutions serving consumer, small business, and commercial customers in the United States (“U.S.”). With the acquisition of Compass Solar Group, LLC (“Sunpro Solar”) (the “Sunpro Solar Acquisition”) in December 2021, the Company is now also a leading provider of residential solar and energy storage solutions. ADT Inc. was incorporated in the State of Delaware in May 2015 as a holding company with no assets or liabilities. In July 2015, the Company acquired Protection One, Inc. and ASG Intermediate Holding Corp. (collectively, the “Formation Transactions”), which were instrumental in the commencement of the Company’s operations. In May 2016, the Company acquired The ADT Security Corporation (formerly named The ADT Corporation) (“The ADT Corporation”) (the “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 (“Common Stock”) began trading on the New York Stock Exchange under the symbol “ADT.” In September 2020, the Company issued and sold 54,744,525 shares of Class B common stock, par value of $0.01 per share (“Class B Common Stock”), for an aggregate purchase price of $450 million to Google LLC (“Google”) in a private placement pursuant to a securities purchase agreement dated July 31, 2020 (the “Securities Purchase Agreement”). The Company is majority-owned by Prime Security Services TopCo (ML), L.P., which is majority owned by Prime Security Services TopCo Parent, L.P. (“Ultimate Parent”). Ultimate Parent is majority-owned by Apollo Investment Fund VIII, L.P. and its related funds that are directly or indirectly managed by affiliates of Apollo Global Management, Inc. (together with its subsidiaries and affiliates, “Apollo” or the “Sponsor”). Basis of Presentation and Significant Accounting Policies The preparation of the consolidated financial statements in accordance with generally accepted accounting principles in the United States of America (“GAAP”) requires the Company to select accounting policies and make estimates that affect amounts reported in the 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. Information on accounting policies and methods related to revenue, segments, acquisitions and dispositions, goodwill and other intangible assets, debt, derivatives, income taxes, equity, share-based compensation, net income (loss) per share, loss contingencies, leases, and retirement plans is included in the respective footnotes that follow. Below is a discussion of accounting policies and methods used in the consolidated financial statements that are not presented in other footnotes. COVID-19 Pandemic During March 2020, the World Health Organization declared the outbreak of a novel coronavirus as a pandemic (the “COVID-19 Pandemic”). While responses have varied by individuals, businesses, and state and local municipalities, the COVID-19 Pandemic has had notable adverse impacts on general economic conditions, including the temporary and permanent closures of many businesses, increased governmental regulations, supply chain disruptions, and changes in consumer spending due to significant unemployment and other effects attributable to the COVID-19 Pandemic. To protect its employees and serve its customers, the Company implemented and is continuously evolving measures, such as (i) detailed protocols for infectious disease safety for employees, (ii) employee daily wellness checks, and (iii) certain work from home actions, including for the majority of the Company’s call center professionals. As such, the Company considered the on-going and pervasive economic impact of the COVID-19 Pandemic in the assessment of its financial position, results of operations, cash flows, and certain accounting estimates as of and for the years ended December 31, 2021 and 2020. However, the evolving and uncertain nature of the COVID-19 Pandemic, as well as the evolving nature of the regulatory environment which may require vaccine mandates or other actions that could impact the Company’s employee base or impose additional costs on the business, could materially impact the Company’s estimates and financial results in future reporting periods. Basis of Presentation and Consolidation The consolidated financial statements include the accounts of ADT Inc. and its wholly-owned subsidiaries, and have been prepared in U.S. dollars in accordance with GAAP. All intercompany transactions have been eliminated. Certain prior period amounts have been reclassified to conform with the current period presentation. Segment Changes As of December 31, 2020, the Company had a single operating and reportable segment. Effective in the first quarter of 2021, the manner in which the Company’s Chief Executive Officer, who is the chief operating decision maker (the “CODM”), evaluates performance and makes decisions about how to allocate resources changed, and the Company reported results in two operating and reportable segments, Consumer and Small Business (“CSB”) and Commercial. In connection with the Sunpro Solar Acquisition in the fourth quarter of 2021, the Company began reporting results for a third operating and reportable segment, Solar, related to the ADT Solar business. There were no further changes to the Company’s CSB and Commercial segmen ts. Where applicable, prior periods have been retrospectively adjusted to reflect the Company’s current operating and reportable segment structure. The accounting policies of the Company’s reportable segments are the same as those of the Company. The Company organizes its segments based on customer type and offering as follows: •CSB - The CSB segment primarily includes (i) revenue and operating costs from the sale, installation, servicing, and monitoring of integrated security and automation systems, as well as other offerings such as mobile security and home health solutions; (ii) other operating costs associated with support functions related to these operations; and (iii) general corporate costs and other income and expense items not included in the Commercial or Solar segments. Customers in the CSB segment are comprised of residential homeowners, small business operators, and other individual consumers of security and automation systems. Where applicable, results for the Company’s Canadian operations prior to its sale in the fourth quarter of 2019 are included in the CSB segment based on the primary customer market served in Canada. •Commercial - The Commercial segment primarily includes (i) revenue and operating costs from the sale, installation, servicing, and monitoring of integrated security and automation systems, fire detection and suppression systems, and other related offerings; (ii) other operating costs associated with support functions related to these operations; and (iii) dedicated corporate and other costs. Customers in the Commercial segment are comprised of larger businesses with more expansive facilities (typically larger than 10,000 square feet) and multi-site operations, which often require more sophisticated integrated solutions. •Solar - The Solar segment primarily includes (i) revenue and operating costs from the design and installation of solar and related solutions and services; (ii) other operating costs associated with support functions related to these operations; and (iii) dedicated corporate and other costs. Customers in the Solar segment are comprised of residential homeowners who purchase solar and energy storage solutions, energy efficiency upgrades, and roofing services. Refer to Note 3 “Segment Information” for additional information on the Company’s segments. Foreign Currency Translation and Transaction Gains and Losses The Company’s reporting currency is the U.S. dollar. As such, the financial statements of a foreign subsidiary are translated into U.S. dollars using the foreign exchange rates applicable to the dates of the financial statements. Assets and liabilities are translated using the end-of-period spot foreign exchange rate. Revenue, expenses, and cash flows are translated at the average foreign exchange rate for each period. Equity accounts are translated at historical foreign exchange rates. The effects of these translation adjustments are reported as a component of accumulated other comprehensive income (loss) (“AOCI”) in the Consolidated Balance Sheets. In addition, translation adjustments related to intercompany loans denominated in a foreign currency that are determined to be of a long-term investment nature are reported as a component of AOCI in the Consolidated Balance Sheets. For transactions denominated in a currency different from the entity’s functional currency, gains or losses are recognized in the Consolidated Statements of Operations based on the difference between the foreign exchange rate at each transaction date and the foreign exchange rate at the transaction settlement date (or rate at period end, if unsettled). Cash and Cash Equivalents and Restricted Cash and Restricted Cash Equivalents All highly liquid investments with original maturities of three months or less from the time of purchase are considered to be cash equivalents. Restricted cash and restricted cash equivalents are cash and cash equivalents, which are restricted for a specific purpose and cannot be included in the general cash and cash equivalents account. Restricted cash and restricted cash equivalents are reflected in prepaid expenses and other current assets in the Consolidated Balance Sheets. The amount of cash and cash equivalents and restricted cash and restricted cash equivalents reported in the Consolidated Balance Sheets as reconciled to the amounts shown in the Consolidated Statements of Cash Flows is as follows:
| Years Ended December 31,
(in thousands) | 2021 |  | 2020 |  | 2019
Cash and cash equivalents | $ | 24,453 |  |  | $ | 204,998 |  |  | $ | 48,736 |
Restricted cash and restricted cash equivalents | 8,824 |  |  | 2,749 |  |  | — |
Ending balance | $ | 33,277 |  |  | $ | 207,747 |  |  | $ | 48,736 |
Supplementary Cash Flow Information The following table summarizes supplementary cash flow information and material non-cash investing and financing transactions, excluding leases:
| Years Ended December 31,
(in thousands) | 2021 |  | 2020 |  | 2019
Interest paid, net of interest income | $ | 456,509 |  |  | $ | 510,185 |  |  | $ | 545,206 |
Payments (refunds) on income taxes, net | $ | 1,877 |  |  | $ | 25,802 |  |  | $ | (1,001) |
Issuance of shares in lieu of cash dividends | $ | 4 |  |  | $ | 15 |  |  | $ | 67,767 |
Issuance of shares for acquisition of business | $ | 528,503 |  |  | $ | 113,841 |  |  | $ | — |
As discussed in Note 4 “Acquisitions and Disposition,” in addition to the issuance of shares for acquisition of business above for 2021, total consideration related to the Sunpro Solar Acquisition included approximately $40 million related to 5 million shares of the Company’s Common Stock to be issued in various increments over the twelve-month period subsequent to the acquisition date. Refer to Note 13 “Leases” for cash flows and supplemental information associated with the Company’s leases. Inventories, net Inventories are primarily comprised of components and parts for the Company’s security and solar systems. The Company records inventory at the lower of cost and net realizable value. Inventories are presented net of an obsolescence reserve. Work-in-Progress Work-in-progress is primarily comprised of certain costs incurred for installations of security system equipment sold outright to customers that have not yet been completed. Property and Equipment, net Property and equipment, net, is recorded at historical cost less accumulated depreciation, which is calculated using the straight-line method over the estimated useful lives of the related assets as follows:
Buildings and related improvements | Up to 40 years
Leasehold improvements | Lesser of remaining term of the lease or economic useful life
Capitalized software | 3 to 10 years
Machinery, equipment, and other | Up to 10 years
The gross carrying amount, accumulated depreciation, and net carrying amount of property and equipment were as follows:
| December 31,
(in thousands) | 2021 |  | 2020
Land | $ | 13,120 |  |  | $ | 13,120 |
Buildings and leasehold improvements | 112,475 |  |  | 100,654 |
Capitalized software | 491,184 |  |  | 585,251 |
Machinery, equipment, and other | 205,696 |  |  | 189,768 |
Construction in progress | 26,335 |  |  | 35,971 |
Finance leases | 166,925 |  |  | 121,061 |
Accumulated depreciation | (651,627) |  |  | (720,109) |
Property and equipment, net | $ | 364,108 |  |  | $ | 325,716 |
Depreciation expense is reflected in depreciation and intangible asset amortization in the Consolidated Statements of Operations as follows:
| Years Ended December 31,
(in thousands) | 2021 |  | 2020 |  | 2019
Depreciation expense | $ | 197,202 |  |  | $ | 187,386 |  |  | $ | 187,397 |
Repairs and maintenance expenditures are expensed when incurred. Subscriber System Assets, net and Deferred Subscriber Acquisition Costs, net Subscriber system assets represent capitalized equipment and installation costs incurred in connection with transactions in which the Company retains ownership of the security system. Deferred subscriber acquisition costs represent selling expenses (primarily commissions) that are incremental to acquiring customers. The Company records subscriber system assets and deferred subscriber acquisition costs in the Consolidated Balance Sheets as these assets embody a probable future economic benefit for the Company through the generation of future monitoring and related services revenue. Upon customer termination, the Company may retrieve such assets. Subscriber system assets, net reflected in the Consolidated Balance Sheets was as follows:
| December 31,
(in thousands) | 2021 |  | 2020
Gross carrying amount | $ | 5,499,703 |  |  | $ | 4,815,286 |
Accumulated depreciation | (2,632,175) |  |  | (2,152,058) |
Subscriber system assets, net | $ | 2,867,528 |  |  | $ | 2,663,228 |
Subscriber system assets and any related deferred subscriber acquisition costs are accounted for on a pooled basis based on the month and year of customer acquisition. The Company depreciates and amortizes these pooled costs using an accelerated method over the estimated life of the customer relationship, which is 15 years. In order to align the depreciation and amortization of these pooled costs to the pattern in which their economic benefits are consumed, the accelerated method utilizes an average declining balance rate of approximately 250% and converts to straight-line methodology when the resulting charge is greater than that from the accelerated method, resulting in an average charge of approximately 55% of the pool within the first five years, 25% within the second five years, and 20% within the final five years. Depreciation and amortization of subscriber system assets and deferred subscriber acquisition costs are reflected in depreciation and intangible asset amortization and selling, general, and administrative expenses, respectively, in the Consolidated Statements of Operations as follows:
| Years Ended December 31,
(in thousands) | 2021 |  | 2020 |  | 2019
Depreciation of subscriber system assets | $ | 506,568 |  |  | $ | 501,669 |  |  | $ | 558,111 |
Amortization of deferred subscriber acquisition costs | $ | 126,089 |  |  | $ | 96,823 |  |  | $ | 80,128 |
Long-Lived Asset Impairments The Company reviews long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of an asset or asset group may not be fully recoverable. The Company groups assets at the lowest level for which cash flows are separately identified. Recoverability is measured by a comparison of the carrying amount of the asset group to its expected future undiscounted cash flows. If the expected future undiscounted cash flows of the asset group are less than its carrying amount, an impairment loss is recognized based on the amount by which the carrying amount exceeds the fair value less costs to sell. The calculation of the fair value less costs to sell of an asset group is based on assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates, reflecting varying degrees of perceived risk. There were no material long-lived asset impairments during 2021, 2020, or 2019. Refer to Note 5 “Goodwill and Other Intangible Assets” for discussion of intangible asset impairments. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consisted of the following as of the periods presented:
| December 31,
(in thousands) | 2021 |  | 2020
Accrued interest | $ | 124,579 |  |  | $ | 123,935 |
Payroll-related accruals | 196,165 |  |  | 99,771 |
Operating lease liabilities | 37,359 |  |  | 30,689 |
Fair value of interest rate swaps | 50,360 |  |  | 65,462 |
Other accrued liabilities | 328,782 |  |  | 264,294 |
Accrued expenses and other current liabilities | $ | 737,245 |  |  | $ | 584,151 |
Advertising Advertising costs are expensed when incurred and are included in selling, general, and administrative expenses in the Consolidated Statements of Operations and were $239 million, $264 million, and $160 million during 2021, 2020, and 2019, respectively. Radio Conversion Costs During 2019, the Company commenced a program to replace the 3G and Code-Division Multiple Access (“CDMA”) cellular equipment used in many of its security systems as a result of the cellular network providers notifying the Company they will be retiring their 3G and CDMA networks during 2022. From inception of this program through December 31, 2021, the Company incurred $288 million of net radio conversion costs. The estimated remaining radio conversion costs and related incremental revenue are not expected to be material. Radio conversion costs and radio conversion revenue are reflected in selling, general, and administrative expenses and monitoring and related services revenue, respectively, in the Consolidated Statements of Operations as follows:
| Years Ended December 31,
(in thousands) | 2021 |  | 2020 |  | 2019
Radio conversion costs | $ | 250,490 |  |  | $ | 88,709 |  |  | $ | 30,038 |
Radio conversion revenue | $ | 39,127 |  |  | $ | 36,820 |  |  | $ | 5,055 |
Merger, Restructuring, Integration, and Other Merger, restructuring, integration, and other represents certain direct and incremental costs resulting from acquisitions made by the Company, integration costs as a result of those acquisitions, costs related to the Company’s restructuring efforts, as well as fair value remeasurements and impairment charges on certain strategic investments. Concentration of Credit Risks The majority of the Company’s cash and cash equivalents and restricted cash and restricted cash equivalents are held at major financial institutions. There is a concentration of credit risk related to certain account balances in excess of the Federal Deposit Insurance Corporation insurance limit of $250,000 per account. The Company regularly monitors the financial stability of these financial institutions and believes there is no exposure to any significant credit risk for its cash and cash equivalents and restricted cash and restricted cash equivalents. Concentration of credit risk associated with the Company’s accounts receivable is limited due to the significant size of the customer base. Fair Value of Financial Instruments The Company’s financial instruments primarily consist of cash and cash equivalents, restricted cash and restricted cash equivalents, accounts receivable, retail installment contract receivables, 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 amounts. Cash Equivalents - Included in cash and cash equivalents are investments in money market mutual funds. The Company had no material investments in money market mutual funds as of December 31, 2021 and $143 million of such investments as of December 31, 2020. These investments are classified as Level 1 fair value measurements, which represent unadjusted quoted prices in active markets for identical assets or liabilities. Retail Installment Contract Receivables, net - The fair value of the Company’s retail installment contract receivables was determined using a discounted cash flow model. The resulting fair value is classified as a Level 3 fair value measurement. The total carrying amount and fair value of retail installment contract receivables were as follows:
| December 31,
| 2021 |  | 2020
(in thousands) | Carrying Amount |  | Fair Value |  | Carrying Amount |  | Fair Value
Retail installment contract receivables, net | $ | 330,605 |  |  | $ | 255,147 |  |  | $ | 141,591 |  |  | $ | 112,676 |
Long-Term Debt Instruments - The fair values of the Company’s debt instruments were determined using broker-quoted market prices, which represent quoted prices for similar assets or liabilities as well as other observable market data. The carrying amounts of debt outstanding, if any, under the Company’s revolving credit facility and receivables facility approximate fair values as interest rates on these borrowings approximate current market rates. The resulting fair values are classified as Level 2 fair value measurements. The total carrying amount and fair value of long-term debt instruments subject to fair value disclosures were as follows:
| December 31,
| 2021 |  | 2020
(in thousands) | Carrying Amount |  | Fair Value |  | Carrying Amount |  | Fair Value
Long-term debt instruments, excluding finance lease obligations | $ | 9,599,610 |  |  | $ | 10,043,877 |  |  | $ | 9,431,216 |  |  | $ | 10,127,291 |
Derivative Financial Instruments - Derivative financial instruments are reported at fair value as either assets or liabilities in the Consolidated Balance Sheets. These fair values are primarily calculated using discounted cash flow models utilizing 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. Guarantees In the normal course of business, the Company is liable for contract completion and product performance. The Company’s guarantees primarily relate to standby letters of credit related to its insurance programs and totaled $76 million and $83 million as of December 31, 2021 and 2020, respectively. The Company does not believe such obligations will materially affect its financial position, results of operations, or cash flows. Recently Adopted Accounting Pronouncements Financial Accounting Standards Board Accounting Standards Update (“ASU”) 2020-06, Debt with Conversion and Other Options and Derivatives and Hedging - Contracts in Entity’s Own Equity, provides guidance to ease the potential burden of accounting for convertible instruments, derivatives related to an entity’s own equity, and the related earnings per share considerations. The Company early adopted the guidance as of January 1, 2021. The impact from adoption was not material. ASU 2021-01, Reference Rate Reform (Topic 848) amends ASU 2020-04 and clarifies the scope and guidance of Topic 848 to allow derivatives impacted by the reference rate reform to qualify for certain optional expedients and exceptions for contract modifications and hedge accounting. The guidance is optional and is effective for a limited period of time through December 31, 2022. As of December 31, 2021, this guidance had no impact on the consolidated financial statements. However, the Company will continue to evaluate this guidance. ASU 2021-08, Business Combinations: Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, requires entities to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, as if the acquiring entity had originated the related revenue contracts. Early adoption is permitted, including interim periods within those fiscal years. An entity that early adopts this guidance in an interim period should apply the amendments (1) retrospectively to all business combinations for which the acquisition date occurs on or after the beginning of the fiscal year that includes the interim period of early application and (2) prospectively to all business combinations that occur on or after the date of initial application. This guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company early adopted the guidance during the fourth quarter of 2021. As of December 31, 2021, this guidance did not have a material impact on the consolidated financial statements. Other Subsequent Events In January 2022, the Company announced that together with Ford Motor Company (“Ford”), the Company will be forming a new entity, Canopy, which will combine ADT’s professional security monitoring and Ford’s AI-driven video camera technology to help customers strengthen security of new and existing vehicles across automotive brands. Ford and ADT’s investment in Canopy is subject to certain conditions, including regulatory approvals, and initial funding is expected to close in the second quarter of 2022. ADT and Ford expect to invest approximately $100 million collectively during the next three years, of which ADT will contribute 40%.

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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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