ADT Inc. 10-K

ITEM 9A. CONTROLS AND PROCEDURES. Evaluation of Disclosure Controls and Procedures Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Annual Report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of December 31, 2021, our disclosure controls and procedures were effective at a reasonable assurance level in ensuring information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Management’s Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined under Exchange Act Rules 13a-15(f) and 15d-15(f)). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Our management performed an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2021 based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on our assessment and those criteria, our management determined that our internal control over financial reporting was effective at the reasonable assurance level as of December 31, 2021. We excluded Compass Solar Group, LLC from our assessment of internal control over financial reporting as of December 31, 2021, because it was acquired by the Company in a purchase business combination during December 2021. The total assets and total revenues of Compass Solar Group, LLC, a wholly-owned subsidiary, represented approximately 5% and less than 1% respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2021. The effectiveness of the Company's internal control over financial reporting as of December 31, 2021 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears in Part IV of this Annual Report. Changes in Internal Control over Financial Reporting There were no changes in our internal control over financial reporting identified in our management’s evaluation pursuant to Rules 13a-15(d) and 15d-15(d) of the Exchange Act during the three months ended December 31, 2021 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. OTHER INFORMATION. None. ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS. Not Applicable. 69 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. The information required by this Item 10 “Directors, Executive Officers and Corporate Governance” is incorporated herein by reference from our Proxy Statement for the 2022 Annual Meeting of Stockholders (the “Proxy Statement”) to be filed with the SEC within 120 days after our fiscal year end of December 31, 2021. ITEM 11. EXECUTIVE COMPENSATION. The information required by this Item 11 “Executive Compensation” is incorporated herein by reference from our Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. The information required by this Item 12 “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters,” other than as set forth below as required by Item 201(d) and Item 403(c) of Regulation S-K, is incorporated herein by reference from our Proxy Statement. Securities Authorized for Issuance Under Equity Compensation Plans The following table provides information as of December 31, 2021 with respect to shares of Common Stock issuable under our equity compensation plans. There are no shares of Class B Common Stock issuable under our equity compensation plans. Equity Compensation Plans (1) Plan Category Number of securities to be issued upon exercise of outstanding options, warrants, and rights (a) Weighted-average exercise price of outstanding options, warrants, and rights (b) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) Equity compensation plans approved by stockholders: 2016 Equity Incentive Plan (2) 2,872,890 $ 6.07 1,930,247 2018 Omnibus Incentive Plan (3) 48,835,582 $ 6.14 27,932,373 Equity compensation plans not approved by stockholders — — Total 51,708,472 29,862,620 _________________ (1) All numbers in the table above are presented after giving effect to the 1.681-for-1 stock split of Common Stock effective January 4, 2018. In addition, the exercise prices of outstanding stock options granted prior to the payment of a special dividend on December 23, 2019, were reduced by $0.70 in accordance with the provisions of both compensation plans. (2) The 2016 Equity Incentive Plan (the “2016 Plan”) provides for the award of stock options, restricted stock units (“RSUs”), restricted stock awards (“RSAs”), and other equity and equity-based awards to our board of directors, officers, and non-officer employees. Amount shown in the column denoted by (a) includes 1,402,010 of shares of Common Stock that may be issued upon the exercise of service-based stock options and 1,470,880 of shares of Common Stock that may be issued upon the exercise of performance-based stock options. We do not expect to issue additional share-based compensation awards under the 2016 Plan. (3) The 2018 Omnibus Incentive Plan (the “2018 Plan”) provides for the award of stock options, RSUs, RSAs, and other equity and equity-based awards to our board of directors, officers, and non-officer employees. Amount shown in the column denoted by (a) includes shares of common stock that may be issued upon the exercise of service-based and performance-based stock options totaling 24.7 million and 8.6 million shares, respectively, as well as shares of common stock that may be issued upon the vesting of service-based and performance-based RSUs totaling 14.9 million and 0.6 million shares, respectively. The weighted-average exercise price in column (b) is inclusive of the outstanding RSUs and RSAs, both of which can result in the issuance of shares for no consideration. Excluding the RSUs and RSAs, the weighted-average exercise price is equal to $9.00. 70 Apollo Margin Loan Agreement As of October 3, 2019, certain investment funds directly or indirectly managed by Apollo (the “Apollo Funds”), the Company’s controlling stockholder, informed the Company that they have pledged all of their shares of the Company’s Common Stock, which as of the date of this Annual Report amounted to 608,927,822 shares, pursuant to a margin loan agreement and related documentation, as thereafter amended from time to time, on a non-recourse basis. Apollo has informed the Company that the loan to value ratio of the margin loan on February 16, 2022 was equal to approximately 23.90%. Apollo has also informed the Company that the margin loan agreement contains customary default provisions and that in the event of a default under the margin loan agreement the secured parties may foreclose upon any and all shares of the Company’s Common Stock pledged to them. Certain members of the Company’s executive team and certain employees of the Company were entitled to receive their share of the margin loan proceeds (based on their share ownership of the Apollo Funds) at such times as Apollo received its proceeds. Such persons had the option to either (a) receive such proceeds as distributed or (b) to defer receipt of such proceeds until their attributable share of the obligations under the margin loan have been satisfied in full. In the case of elections to receive such proceeds as distributed, such proceeds remain subject to recall until such time as all obligations under the margin loan agreement and related documentation are satisfied in full. The Company has not independently verified the foregoing disclosure. When the margin loan agreement was entered into, and as requested when amended, the Company delivered customary letter agreements to the secured parties in which it has, among other things, agreed, subject to applicable law and stock exchange rules, not to take any actions that are intended to hinder or delay the exercise of any remedies by the secured parties under the margin loan agreement and related documentation, as amended. Except for the foregoing, the Company is not a party to the margin loan agreement and related documentation and does not have, and will not have, any obligations thereunder. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE. The information required by this Item 13 “Certain Relationships and Related Transactions and Director Independence” is incorporated herein by reference from our Proxy Statement. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES. The information required by this Item 14 “Principal Accountant Fees and Services” is incorporated herein by reference from our Proxy Statement. 71 PART IV ITEM 15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES. 1. Financial Statements See Index to Consolidated Financial Statements appearing on page F-1. 2. Financial Statement Schedules All financial statement schedules called for under Regulation S‑X are omitted because either they are not required under the related instructions, are included in the consolidated financial statements or notes thereto included elsewhere in this Annual Report on Form 10‑K, or are not material. 3. Exhibits The exhibits listed on the accompanying Exhibit Index are filed or incorporated by reference as part of this report. Exhibits Index The information required by this Item is set forth on the exhibit index. Exhibit Number Incorporated by Reference Exhibit Description Form Exhibit Filing Date 2.1^ Share Purchase Agreement, dated September 30, 2019, among ADT Security Holdings Canada Ltd., ADT Inc., and TELUS Communications Inc. 8-K 2.1 10/1/2019 2.2* Purchase Agreement, dated November 8, 2021, by and among The ADT Security Corporation, Compass Solar Group, LLC, MGG SPV VIII LLC, MGG SPV VII LLC, Compass Group Management, LLC, the Company Members party thereto, the Blocker Members party thereto, and ADT Inc. 3.1 Amended and Restated Certificate of Incorporation of ADT Inc. 8-K 3.1 9/17/2020 3.2 Amended and Restated Bylaws of ADT Inc. 10-K 3.2 3/15/2018 4.1 Indenture, dated as of July 5, 2012, by and between The ADT Corporation and Wells Fargo Bank, National Association S-1 4.1 12/21/2017 4.2 Third Supplemental Indenture, dated as of July 5, 2012, by and among The ADT Corporation, Tyco International Ltd. and Wells Fargo Bank, National Association S-1 4.4 12/21/2017 4.3 Fourth Supplemental Indenture, dated as of January 14, 2013, by and between The ADT Corporation and Wells Fargo Bank, National Association S-1 4.5 12/21/2017 4.4 Sixth Supplemental Indenture, dated as of April 8, 2016, under 2012 Base Indenture, by and among The ADT Corporation, the guarantors party thereto and the Wells Fargo Bank, National Association S-1 4.7 12/21/2017 4.5 Seventh Supplemental Indenture, dated as of April 22, 2016, under 2012 Base Indenture, by and among The ADT Corporation, the guarantors party thereto and the Wells Fargo Bank, National Association S-1 4.8 12/21/2017 4.6 Eighth Supplemental Indenture, dated as of May 2, 2016, under 2012 Base Indenture, by and among Prime Finance, Inc., The ADT Corporation and the Wells Fargo Bank, National Association S-1 4.9 12/21/2017 4.7 Ninth Supplemental Indenture, dated as of November 15, 2017, under 2012 Base Indenture, by and among The ADT Security Corporation, DataShield, LLC and Wells Fargo Bank, National Association 10-K 4.10 3/11/2019 4.8 Twelfth Supplemental Indenture, dated as of January 7, 2019, under 2012 Base Indenture, by and among The ADT Security Corporation, the guarantors party thereto and Wells Fargo Bank, National Association 10-K 4.13 3/11/2019 4.9 Fifteenth Supplemental Indenture, dated as of November 14, 2019, under 2012 Base Indenture, by and among The ADT Security Corporation, I-View Now LLC and Wells Fargo Bank, National Association 10-K 4.16 3/10/2020 4.10 Indenture, dated as of May 2, 2016, by and between Prime Security One MS, Inc. and the Wells Fargo Bank, National Association S-1 4.14 12/21/2017 4.11 First Supplemental Indenture, dated as of May 2, 2016, by and among The ADT Corporation, the guarantors party thereto and the Wells Fargo Bank, National Association S-1 4.15 12/21/2017 72 Exhibit Number Incorporated by Reference Exhibit Description Form Exhibit Filing Date 4.12 Second Supplemental Indenture, dated as of August 9, 2016, by and between The ADT Corporation, the Notes Guarantors and Wells Fargo Bank, National Association S-1 4.18 12/21/2017 4.13 Third Supplemental Indenture, dated as of November 15, 2017, by and among The ADT Security Corporation, DataShield, LLC and Wells Fargo Bank, National Association 10-K 4.27 3/11/2019 4.14 Sixth Supplemental Indenture, dated as of January 7, 2019, by and among The ADT Security Corporation, the guarantors party thereto and Wells Fargo Bank, National Association 10-K 4.30 3/11/2019 4.15 Ninth Supplemental Indenture, dated as of November 14, 2019, by and among The ADT Security Corporation, I-View Now LLC and Wells Fargo Bank, National Association 10-K 4.37 3/10/2020 4.16 Indenture, dated as of April 4, 2019, by and among Prime Security Services Borrower, LLC, Prime Finance Inc., the guarantors party thereto from time to time, and Wells Fargo Bank, National Association, as trustee, relating to the $750 million aggregate principal amount of 5.250% first-priority senior secured notes due 2024. 8-K 4.1 4/4/2019 4.17 First Supplemental Indenture, dated as of November 14, 2019, by and among Prime Security Services Borrower, LLC, Prime Finance, Inc., I-View Now LLC and Wells Fargo Bank, National Association 10-K 4.49 3/10/2020 4.18 Indenture, dated as of April 4, 2019, by and among Prime Security Services Borrower, LLC, Prime Finance Inc., the guarantors party thereto from time to time, and Wells Fargo Bank, National Association, as trustee, relating to the $750 million aggregate principal amount of 5.750% first-priority senior secured notes due 2026. 8-K 4.20 4/4/2019 4.19 First Supplemental Indenture, dated as of September 23, 2019, by and among Prime Security Services Borrower, LLC, Prime Finance Inc., the guarantors party thereto, and Wells Fargo Bank, National Association, as trustee, relating to the $600 million aggregate principal amount of 5.750% first-priority senior secured notes due 2026 8-K 4.1 9/24/2019 4.20 Second Supplemental Indenture, dated as of November 14, 2019, by and among Prime Security Services Borrower, LLC, Prime Finance, Inc., I-View Now LLC and Wells Fargo Bank, National Association 10-K 4.53 3/10/2020 4.21 Indenture, dated as of January 28, 2020, by and among Prime Security Services Borrower, LLC, Prime Finance Inc., the guarantors party thereto from time to time and Wells Fargo Bank, National Association, as trustee, relating to the $1,300 6.250% Second-Priority Senior Secured Notes due 2028 8-K 4.1 1/28/2020 4.22 Indenture, dated as of August 20, 2020, by and among Prime Security Services Borrower, LLC, Prime Finance Inc., the guarantors party hereto from time to time, and Wells Fargo Bank, National Association, as trustee, relating to $1,000 million aggregate principle amount of 3.375% first-priority senior secured notes due 2027 8-K 4.1 8/20/2020 4.23 First-Priority Senior Secured Notes Indenture, dated as of July 29, 2021, by and among The ADT Security Corporation, Prime Security Services Borrower, LLC, the guarantors party thereto, and Wells Fargo Bank, National Association, as trustee and collateral agent 8-K 4.1 7/29/2021 4.24* Description of Securities 10.1 Incremental Assumption and Amendment Agreement No. 11, dated as of July 2, 2021, by and among Prime Security Services Holdings, LLC, Prime Security Services Borrower, LLC, The ADT Security Corporation, the subsidiary loan parties party thereto, the lenders and issuing banks party thereto and Barclays Bank PLC, as administrative agent 8-K 10.1 7/6/2021 10.2 Subsidiary Guarantee Agreement (First Lien), dated July 1, 2015, among the Subsidiaries of Prime Security Services Borrower, LLC named therein and Credit Suisse AG, Cayman Islands Branch, as Collateral Agent S-1 10.2 12/21/2017 10.3 Supplement No. 1, dated as of May 2, 2016, to the Subsidiary Guarantee Agreement (First Lien) dated as of July 1, 2015, by each subsidiary of Prime Securities Services Borrower, LLC and Barclays Bank PLC, as Collateral Agent S-1 10.6 12/21/2017 10.4 Supplement No. 2, dated as of October 31, 2017, to the Subsidiary Guarantee Agreement (First Lien) dated as of July 1, 2015, by each subsidiary of Prime Security Services Borrower, LLC party thereto and Barclays Bank PLC, as Collateral Agent 10-K 10.55 3/11/2019 10.5 Supplement No. 3, dated as of January 22, 2018, to the Subsidiary Guarantee Agreement (First Lien) dated as of July 1, 2015, by each subsidiary of Prime Security Services Borrower, LLC party thereto and Barclays Bank PLC, as Collateral Agent 10-K 10.56 3/11/2019 10.6 Supplement No. 4, dated as of February 28, 2018, to the Subsidiary Guarantee Agreement (First Lien) dated as of July 1, 2015, by each subsidiary of Prime Security Services Borrower, LLC party thereto and Barclays Bank PLC, as Collateral Agent 10-K 10.57 3/11/2019 10.7 Supplement No. 5, dated as of August 17, 2018, to the Subsidiary Guarantee Agreement (First Lien) dated as of July 1, 2015, by each subsidiary of Prime Security Services Borrower, LLC party thereto and Barclays Bank PLC, as Collateral Agent 10-K 10.58 3/11/2019 10.8 Supplement No. 6, dated as of January 2, 2019, to the Subsidiary Guarantee Agreement (First Lien) dated as of July 1, 2015, by each subsidiary of Prime Security Services Borrower, LLC party thereto and Barclays Bank PLC, as Collateral Agent 10-K 10.59 3/11/2019 73 Exhibit Number Incorporated by Reference Exhibit Description Form Exhibit Filing Date 10.9 Supplement No. 7, dated as of January 30, 2019, to the Subsidiary Guarantee Agreement (First Lien) dated as of July 1, 2015, by each subsidiary of Prime Security Services Borrower, LLC party thereto and Barclays Bank PLC, as Collateral Agent 10-K 10.60 3/11/2019 10.10 Supplement No. 8, dated as of March 11, 2019, to the Subsidiary Guarantee Agreement (First Lien) dated as of July 1, 2015, by each subsidiary of Prime Security Services Borrower, LLC party thereto and Barclays Bank PLC, as Collateral Agent 10-Q 10.13 5/7/2019 10.11 Holdings Guarantee and Pledge Agreement (First Lien), dated and effective as of July 1, 2015, between Prime Security Services Holdings, LLC, as Holdings, and Credit Suisse AG, Cayman Islands Branch, as Collateral Agent S-1 10.4 12/21/2017 10.12 Collateral Agreement (First Lien), dated as of July 1, 2015 among Prime Security Services Borrower, LLC, each Subsidiary of Prime Security Services Borrower, LLC from time to time identified therein as a party and Barclays Bank PLC, as collateral agent S-1 10.5 12/21/2017 10.13 Collateral Agreement (Second Lien), dated as of January 28, 2020, among Prime Security Services Borrower LLC, as Issuer, Prime Finance, Inc., as Co-Issuer, each Subsidiary Guarantor party thereto and Wells Fargo Bank, National Association, as Collateral Agent 8-K 10.1 1/28/2020 10.14 First Lien/First Lien Intercreditor Agreement, dated as of May 2, 2016 among Barclays Bank PLC, as Collateral Agent, Barclays Bank PLC, as Authorized Representative under the Credit Agreement, Wells Fargo Bank, National Association, as the Initial Other Authorized Representative, and each additional Authorized Representative from time to time party hereto relating to Prime Security Services Borrower, LLC S-1 10.8 12/21/2017 10.15 First Lien/Second Lien Intercreditor Agreement, dated as of July 1, 2015, between Credit Suisse AG, Cayman Islands Branch, as First Lien Facility Agent and Applicable First Lien Agent, and Credit Suisse AG, Cayman Islands Branch, as Second Lien Facility Agent and Applicable Second Lien Agent relating to Prime Security Services Borrower, LLC S-1 10.9 12/21/2017 10.16 Receivables Purchase Agreement, dated as of March 5, 2020, among ADT LLC, individually and as servicer, ADT Finance LLC, as seller, various purchasers and purchaser agents from time to time party thereto, and Mizuho Bank, LTD., as Administrative Agent, Arranger, Collateral Agent and Structuring Agent 10-K 10.21 3/10/2020 10.17 Agreement of Amendment to Receivables Purchase Agreement, dated as of April 17, 2020, among ADT LLC, individually and as servicer, ADT Finance LLC, as seller, various purchasers and purchaser agents from time to time party thereto, and Mizuho Bank, LTD., as Administrative Agent, Arranger, Collateral Agent and Structuring Agent 10-Q 10.22 5/7/2020 10.18 Second Agreement of Amendment to Receivables Purchase Agreement, dated September 17, 2020, among ADT LLC, individually and as servicer, ADT Finance LLC, as seller, various purchasers and purchaser agents from time to time party thereto, and Mizuho Bank, LTD., as Administrative Agent, Arranger, Collateral Agent and Structuring Agent 10-Q 10.23 11/5/2020 10.19 Third Agreement of Amendment to Receivables Purchase Agreement, dated January 29, 2021, among ADT LLC, individually and as servicer, ADT Finance LLC, as seller, various purchasers and purchaser agents from time to time party thereto, and Mizuho Bank, LTD., as Administrative Agent, Arranger, Collateral Agent and Structuring Agent 10-K 10.25 2/25/2021 10.20 Fourth Agreement of Amendment to Receivables Purchase Agreement, dated March 5, 2021, among ADT LLC, individually and as servicer, ADT Finance LLC, as seller, various purchasers and purchaser agents from time to time party thereto, and Mizuho Bank, LTD., as Administrative Agent, Arranger, Collateral Agent and Structuring Agent 10-Q 10.26 5/5/2021 10.21 Receivables Sale and Contribution Agreement, dated as of April 17, 2020, between ADT LLC, as Originator and Servicer and ADT Finance Inc., as Buyer 10-Q 10.23 5/7/2020 10.22^ Receivables Financing Agreement, among ADT LLC, ADT Finance LLC and Mizuho Bank, Ltd., dated as of July 16, 2021 8-K 10.1 7/19/2021 10.23^ First Amendment and Joinder to the Receivables Financing Agreement and the Receivables Sale and Contribution Agreement, among ADT LLC, ADT Finance LLC, Mizuho Bank, Ltd., MUFG Bank, Ltd., BNP Paribas, and Starbird Funding Corporation, dated as of October 29, 2021 8-K 10.1 10/29/2021 10.24* Second Amendment to the Receivables Financing Agreement, among ADT LLC, ADT Finance LLC and Mizuho Bank, LTD., dated as of December 10, 2021 10.25 Trademark Agreement, dated as of September 25, 2012, by and among ADT Services GmbH, ADT US Holdings, Inc., Tyco International Ltd. and The ADT Corporation S-1 10.19 12/21/2017 10.26 Patent Agreement, dated as of September 26, 2012, by and between Tyco International Ltd. and The ADT Corporation S-1 10.20 12/21/2017 10.27 Separation and Distribution Agreement, dated September 26, 2012 by and among Tyco International Ltd., Tyco International Finance S.A., The ADT Corporation and ADT LLC S-1 10.21 12/21/2017 10.28 ADT LLC Supplemental Savings and Retirement Plan, effective as of April 1, 2017 S-1 10.22 12/21/2017 10.29 Amendment to the ADT LLC Supplemental Savings and Retirement Plan, effective as of December 18, 2017 10-K 10.31 2/25/2021 74 Exhibit Number Incorporated by Reference Exhibit Description Form Exhibit Filing Date 10.30 Amendment to the ADT LLC Supplemental Savings and Retirement Plan, effective as of December 24, 2018 10-K 10.32 2/25/2021 10.31 Amendment to the ADT LLC Supplemental Savings and Retirement Plan, effective as of December 31, 2018 10-K 10.33 2/25/2021 10.32 Amendment to the ADT LLC Supplemental Savings and Retirement Plan, effective as of February 8, 2019 10-K 10.34 2/25/2021 10.33 Amendment to the ADT LLC Supplemental Savings and Retirement Plan, effective as of July 29, 2019 10-K 10.35 2/25/2021 10.34* Stockholders Agreement, dated as of December 14, 2018, by and between the ADT Inc. and Prime Security Services TopCo Parent, L.P. 10.35 Registration Rights Agreement by and between the ADT Inc. and Prime Securities Services TopCo, LP 10-K 10.24 3/15/2018 10.36 Amendment to the Registration Rights Agreement between ADT Inc. and Prime Security Services TopCo Parent, L.P. 10-Q 10.1 8/9/2018 10.37 Securities Purchase Agreement, dated as of July 31, 2020, by and between ADT Inc. and Google LLC 8-K 10.1 8/3/2020 10.38 Investor Rights Agreement, dated as of September 17, 2020 , by and between ADT Inc. and Google LLC 8-K 10.1 9/17/2020 10.39 Form of Indemnification Agreement by and between the Company and each of its Directors and Executive Officers 10-Q 10.34 8/5/2020 10.40 + Amended and Restated Employment Agreement, dated December 19, 2017, between The ADT Security Corporation (together with any of its subsidiaries and Affiliates) and Donald Young S-1 10.25 12/21/2017 10.41+ Amendment to Amended and Restated Employment Agreement, dated May 3, 2019, between The ADT Security Corporation (together with any of its subsidiaries and Affiliates) and Donald Young 10-Q 10.29 5/7/2019 10.42+ Amended and Restated Employment Agreement, dated December 19, 2017, between The ADT Security Corporation (together with any of its subsidiaries and Affiliates) and Jamie Haenggi S-1 10.26 12/21/2017 10.43+ Amended and Restated Employment Agreement, dated December 19, 2017, between The ADT Security Corporation (together with any of its subsidiaries and Affiliates) and Daniel M. Bresingham S-1 10.28 12/21/2017 10.44+ Amended and Restated Employment Agreement, dated December 19, 2017, between ADT LLC, (together with any of its subsidiaries and Affiliates) and Jeffrey Likosar S-1 10.31 12/21/2017 10.45+ ADT Inc. 2018 Omnibus Incentive Plan S-1/A 10.32 1/8/2018 10.46+ First Amendment to ADT Inc. 2018 Omnibus Incentive Plan dated April 25, 2019 10-Q 10.33 8/6/2019 10.47+ Form of Restricted Stock Unit Award Agreement for use under the ADT Inc. 2018 Omnibus Incentive Plan S-1/A 10.33 1/8/2018 10.48+ Form of Non-Qualified Option Award Agreement for use under the ADT Inc. 2018 Omnibus Incentive Plan S-1/A 10.34 1/8/2018 10.49+ Form of Non-Qualified Option Award Agreement for use under the ADT Inc. 2018 Omnibus Incentive Plan (Class B Unit Redemption) S-1/A 10.35 1/8/2018 10.50+ Form of Amendment to Non-Qualified Award Agreement for use under ADT Inc. 2018 Omnibus Incentive Plan (Class B Unit Redemption) 10-Q 10.37 8/6/2019 10.51+ Form of Common Stock Award Agreement for use under the ADT Inc. 2018 Omnibus Incentive Plan S-1/A 10.36 1/8/2018 10.52+ ADT Inc. 2018 Omnibus Incentive Plan Restricted Stock Unit Non-Employee Director Award Agreement 10-Q 10.9 8/9/2018 10.53+ Form of Restricted Stock Unit Special Equity Award Agreement for use under the ADT Inc. 2018 Omnibus Incentive Plan 10-Q 10.47 5/7/2020 10.54+ Form of Non-Qualified Option Special Equity Award Agreement for use under the ADT Inc. 2018 Omnibus Incentive Plan 10-Q 10.48 5/7/2020 10.55+ Form of Restricted Stock Unit Award Agreement for use under the ADT Inc. 2018 Omnibus Incentive Plan effective as of January 1, 2022 10-Q 10.5 11/9/2021 10.56+ Form of Non-Qualified Option Award Agreement for use under the ADT Inc. 2018 Omnibus Incentive Plan effective as of January 1, 2022 10-Q 10.6 11/9/2021 10.57+ Second Amended & Restated Employment Agreement with James D. DeVries 10-Q 10.12 11/8/2018 75 Exhibit Number Incorporated by Reference Exhibit Description Form Exhibit Filing Date 10.58+ Amendment to Second Amended & Restated Employment Agreement of James D. DeVries 8-K 10.2 12/3/2018 10.59+ Defenders, Inc. Executive Change in Control Severance Plan with James Boyce, dated April 24, 2017 10-Q 10.60 5/5/2021 10.60+ Amendment to Executive Change in Control Severance Plan with James Boyce, dated January 29, 2020 10-Q 10.61 5/5/2021 10.61+ Offer Letter dated February 3, 2020 by and between James Boyce and ADT Inc. 10-Q 10.62 5/5/2021 10.62+ ADT Inc. Annual Incentive Plan 8-K 10.1 7/29/2021 10.63* Investor Rights Agreement, dated December 8, 2021, by and among ADT Inc. and the Holders party thereto 21* Subsidiaries of ADT Inc. 23* Consent of Independent Registered Public Accounting Firm 31.1* Certification of CEO, pursuant to SEC Rule 13a-14(a) and 15d-14(a) 31.2* Certification of CFO, pursuant to SEC Rule 13a-14(a) and 15d-14(a) 32.1** Certification by the CEO, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2** Certification by the CFO, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 101 XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. 104 Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document _________________________ ^ Confidential treatment requested. Confidential portions of this exhibit have been removed. * Filed herewith. ** Furnished herewith + Management contract or compensatory plan or arrangement. ITEM 16. FORM 10-K SUMMARY. None. 76 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ADT Inc. Date: March 1, 2022 By: /s/ James D. DeVries Name: James D. DeVries Title: President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 1, 2022. Name Title /s/ James D. DeVries President, Chief Executive Officer and Director (Principal Executive Officer) James D. DeVries /s/ Jeffrey Likosar Chief Financial Officer and President, Corporate Development (Principal Financial Officer) Jeffrey Likosar /s/ Zachary Susil Senior Vice President, Chief Accounting Officer, Controller, and Chief Financial Officer, ADT Solar (Principal Accounting Officer) Zachary Susil /s/ Marc E. Becker Director (Chairman) Marc E. Becker /s/ Andrew D. Africk Director Andrew D. Africk /s/ Stephanie Drescher Director Stephanie Drescher /s/ Tracey Griffin Director Tracey Griffin /s/ Matthew H. Nord Director Matthew H. Nord /s/ Eric L. Press Director Eric L. Press /s/ Reed B. Rayman Director Reed B. Rayman /s/ David Ryan Director David Ryan /s/ Lee J. Solomon Director Lee J. Solomon /s/ Matthew E. Winter Director Matthew E. Winter /s/ Sigal Zarmi Director Sigal Zarmi 77 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm (PCAOB ID 238 ) F- 2 Consolidated Balance Sheets as of December 31, 2021 a nd 2020 F- 5 Consolidated Statements of Operations for the years ended December 31, 2021, 2020, and 2019 F- 6 Consolidated Statements of Comprehensive Loss for the years ended December 31, 2021, 2020, and 2019 F- 7 Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2021, 2020, and 2019 F- 8 Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020, and 2019 F- 9 Notes to Consolidated Financial Statements F- 10 1. Description of Business and Summary of Significant Accounting Policies F- 10 2. Revenue and Receivables F- 16 3. Segment Information F- 20 4. Acquisitions and Disposition F- 22 5. Goodwill and Other Intangible Assets F- 24 6. Debt F- 28 7. Derivative Financial Instruments F- 34 8. Income Taxes F- 35 9. Equity F- 39 10. Share-Based Compensation F- 41 11. Net Income (Loss) per Share F- 44 12. Commitments and Contingencies F- 45 13. Leases F- 48 14. Retirement Plans F- 50 15. Related Party Transactions F- 51 16. Condensed Financial Information of Registrant F- 52 F-1 Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of ADT Inc. Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of ADT Inc. and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2021, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. Basis for Opinions The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. As described in Management’s Report on Internal Control over Financial Reporting, management has excluded Compass Solar Group, LLC from its assessment of internal control over financial reporting as of December 31, 2021, because it was acquired by the Company in a purchase business combination during 2021. We have also excluded Compass Solar Group, LLC from our audit of internal control over financial reporting. Compass Solar Group, LLC is a wholly-owned subsidiary whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting represent approximately 5% and less than 1%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2021. F-2 Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Goodwill Impairment Assessment -- Commercial Reporting Unit As described in Note 5 to the consolidated financial statements, the Company’s consolidated goodwill balance was $ 5.9 billion as of December 31, 2021, of which $332.8 million relates to the commercial reporting unit. Management tests goodwill for impairment at least annually as of the first day of the fourth quarter of each year and more often if an event occurs or circumstances change which indicate it is more-likely-than-not that fair value is less than its carrying amount. Under a qualitative approach, the Company assesses whether it is more-likely-than-not that a reporting unit’s fair value is less than its carrying amount. If the Company elects to bypass the qualitative assessment for any reporting unit, or if a qualitative assessment indicates it is more-likely-than-not that the estimated fair value of a reporting unit is less than its carrying amount, the Company proceeds to a quantitative approach. Under a quantitative approach, the Company estimates the fair value of a reporting unit and compares it to its carrying amount. If the carrying amount of a reporting unit exceeds fair value, an impairment loss is recognized in an amount equal to that excess. The Company estimates the fair values of its reporting units using the income approach, which discounts projected cash flows using market participant assumptions. The income approach includes significant assumptions including, but not limited to, forecasted revenue, operating profit margins, operating expenses, cash flows, perpetual growth rates, and discount rates. The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment of the Commercial reporting unit is a critical audit matter are (i) the significant judgment by management when estimating the fair value of the reporting unit; (ii) a high degree of auditor judgment, subjectivity, and audit effort in performing procedures and evaluating management’s significant assumptions related to forecasted revenue, operating profit margins, operating expenses, and discount rate; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessment, including controls over the fair value estimate of the Company’s Commercial reporting unit. These procedures also included, among others, (i) testing management’s process for estimating the fair value of the reporting unit; (ii) evaluating the appropriateness of the income approach; (iii) testing the completeness and accuracy of the underlying data used in the discounted cash flow model; and (iv) evaluating the significant assumptions used by management related to forecasted revenue, operating profit margins, operating expenses, and discount rate. Evaluating management’s assumptions related to forecasted revenue, operating profit margins, operating expenses, and discount rate involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the reporting units (ii) the consistency with external market and industry data, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s discounted cash flow model. F-3 /s/ PricewaterhouseCoopers LLP Hallandale Beach, Florida March 1, 2022 We have served as the Company’s auditor since 2010. F-4 ADT INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data) December 31, 2021 2020 Assets Current assets: Cash and cash equivalents $ 24,453 $ 204,998 Accounts receivable, net of allowance for credit losses of $ 54,032 and $ 68,342 , respectively 442,158 336,033 Inventories, net 277,323 174,839 Work-in-progress 70,528 41,312 Prepaid expenses and other current assets 178,069 210,212 Total current assets 992,531 967,394 Property and equipment, net 364,108 325,716 Subscriber system assets, net 2,867,528 2,663,228 Intangible assets, net 5,413,351 5,906,690 Goodwill 5,943,403 5,236,302 Deferred subscriber acquisition costs, net 850,489 654,019 Other assets 462,941 363,587 Total assets $ 16,894,351 $ 16,116,936 Liabilities and stockholders' equity Current liabilities: Current maturities of long-term debt $ 117,592 $ 44,764 Accounts payable 474,976 321,595 Deferred revenue 373,532 345,582 Accrued expenses and other current liabilities 737,245 584,151 Total current liabilities 1,703,345 1,296,092 Long-term debt 9,575,098 9,447,780 Deferred subscriber acquisition revenue 1,199,293 832,166 Deferred tax liabilities 867,203 990,899 Other liabilities 300,693 510,663 Total liabilities 13,645,632 13,077,600 Commitments and contingencies (See Note 12) Stockholders' equity: Preferred stock—authorized 1,000,000 shares of $ 0.01 par value; zero issued and outstanding as of December 31, 2021 and 2020. — — Common stock—authorized 3,999,000,000 shares of $ 0.01 par value; issued and outstanding shares of 846,825,868 and 771,013,638 as of December 31, 2021 and 2020, respectively. 8,468 7,710 Class B common stock—authorized 100,000,000 shares of $ 0.01 par value; issued and outstanding shares of 54,744,525 as of December 31, 2021 and 2020. 547 547 Additional paid-in capital 7,261,267 6,640,763 Accumulated deficit ( 3,952,590 ) ( 3,491,069 ) Accumulated other comprehensive income (loss) ( 68,973 ) ( 118,615 ) Total stockholders' equity 3,248,719 3,039,336 Total liabilities and stockholders' equity $ 16,894,351 $ 16,116,936 See Notes to Consolidated Financial Statements F-5 ADT INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) Years Ended December 31, 2021 2020 2019 Monitoring and related services $ 4,347,713 $ 4,186,987 $ 4,307,582 Installation and other 959,398 1,127,800 818,075 Total revenue 5,307,111 5,314,787 5,125,657 Cost of revenue (exclusive of depreciation and amortization shown separately below) 1,550,173 1,516,528 1,390,284 Selling, general, and administrative expenses 1,789,009 1,722,906 1,406,532 Depreciation and intangible asset amortization 1,914,779 1,913,767 1,989,082 Merger, restructuring, integration, and other 37,872 120,208 35,882 Goodwill impairment — — 45,482 Loss on sale of business — 738 61,951 Operating income (loss) 15,278 40,640 196,444 Interest expense, net ( 457,667 ) ( 708,189 ) ( 619,573 ) Loss on extinguishment of debt ( 37,113 ) ( 119,663 ) ( 104,075 ) Other income (expense) 8,313 8,293 5,012 Income (loss) before income taxes ( 471,189 ) ( 778,919 ) ( 522,192 ) Income tax benefit 130,369 146,726 98,042 Net income (loss) $ ( 340,820 ) $ ( 632,193 ) $ ( 424,150 ) Net income (loss) per share - basic: Common stock $ ( 0.41 ) $ ( 0.82 ) $ ( 0.57 ) Class B common stock $ ( 0.41 ) $ ( 0.72 ) $ — Weighted-average shares outstanding - basic: Common stock 770,620 760,483 747,238 Class B common stock 54,745 15,855 — Net income (loss) per share - diluted: Common stock $ ( 0.41 ) $ ( 0.82 ) $ ( 0.57 ) Class B common stock $ ( 0.41 ) $ ( 0.74 ) $ — Weighted-average shares outstanding - diluted: Common stock 770,620 760,483 747,238 Class B common stock 54,745 17,944 — See Notes to Consolidated Financial Statements F-6 ADT INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (in thousands) Years Ended December 31, 2021 2020 2019 Net income (loss) $ ( 340,820 ) $ ( 632,193 ) $ ( 424,150 ) Other comprehensive income (loss), net of tax: Cash flow hedges 46,234 ( 58,114 ) ( 38,103 ) Foreign currency translation — — 51,599 Defined benefit pension plans 3,408 ( 2,125 ) ( 93 ) Total other comprehensive income (loss), net of tax 49,642 ( 60,239 ) 13,403 Comprehensive income (loss) $ ( 291,178 ) $ ( 692,432 ) $ ( 410,747 ) See Notes to Consolidated Financial Statements F-7 ADT INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands) Number of Common Shares Number of Class B Common Shares Common Stock Class B Common Stock Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Total Stockholders' Equity Balance as of December 31, 2018 766,881 — $ 7,669 $ — $ 5,969,347 $ ( 1,680,432 ) $ ( 71,779 ) $ 4,224,805 Net income (loss) — — — — — ( 424,150 ) — ( 424,150 ) Other comprehensive income (loss), net of tax — — — — — — 13,403 13,403 Repurchases of common stock ( 23,883 ) — ( 239 ) — ( 149,629 ) — — ( 149,868 ) Dividends, including dividends reinvested in common stock 10,744 — 107 — 67,660 ( 633,223 ) — ( 565,456 ) Share-based compensation expense — — — — 85,626 — — 85,626 Transactions related to employee share-based compensation plans and other ( 120 ) — ( 1 ) — 4,398 ( 4,388 ) — 9 Balance as of December 31, 2019 753,622 — $ 7,536 $ — $ 5,977,402 $ ( 2,742,193 ) $ ( 58,376 ) $ 3,184,369 Adoption of accounting standard, net of tax — — — — — ( 2,341 ) — ( 2,341 ) Net income (loss) — — — — — ( 632,193 ) — ( 632,193 ) Other comprehensive income (loss), net of tax — — — — — — ( 60,239 ) ( 60,239 ) Issuance of common stock, net of expenses 16,279 54,745 163 547 560,871 — — 561,581 Repurchases of common stock ( 1 ) — — — ( 4 ) — — ( 4 ) Dividends, including dividends reinvested in common stock 2 — — — 15 ( 111,868 ) — ( 111,853 ) Share-based compensation expense — — — — 96,013 — — 96,013 Transactions related to employee share-based compensation plans and other 1,112 — 11 — 6,466 ( 2,474 ) — 4,003 Balance as of December 31, 2020 771,014 54,745 $ 7,710 $ 547 $ 6,640,763 $ ( 3,491,069 ) $ ( 118,615 ) $ 3,039,336 Net income (loss) — — — — — ( 340,820 ) — ( 340,820 ) Other comprehensive income (loss), net of tax — — — — — — 49,642 49,642 Issuance of common stock, net of expenses 69,667 — 697 — 567,912 — — 568,609 Dividends, including dividends reinvested in common stock — — — — 4 ( 119,154 ) — ( 119,150 ) Share-based compensation expense — — — — 61,237 — — 61,237 Transactions related to employee share-based compensation plans and other 6,145 — 61 — ( 8,649 ) ( 1,547 ) — ( 10,135 ) Balance as of December 31, 2021 846,826 54,745 $ 8,468 $ 547 $ 7,261,267 $ ( 3,952,590 ) $ ( 68,973 ) $ 3,248,719 See Notes to Consolidated Financial Statements F-8 ADT INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Years Ended December 31, 2021 2020 2019 Cash flows from operating activities: Net income (loss) $ ( 340,820 ) $ ( 632,193 ) $ ( 424,150 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and intangible asset amortization 1,914,779 1,913,767 1,989,082 Amortization of deferred subscriber acquisition costs 126,089 96,823 80,128 Amortization of deferred subscriber acquisition revenue ( 172,061 ) ( 124,804 ) ( 107,284 ) Share-based compensation expense 61,237 96,013 85,626 Deferred income taxes ( 139,480 ) ( 173,415 ) ( 117,889 ) Provision for losses on receivables and inventory 38,213 119,677 55,452 Loss on extinguishment of debt 37,113 119,663 104,075 Intangible and other asset impairments 19,161 — — Goodwill impairment — — 45,482 Loss on sale of business — 738 61,951 Unrealized (gain) loss on interest rate swap contracts ( 157,505 ) 60,363 8,501 Other non-cash items, net 149,024 144,534 129,275 Changes in operating assets and liabilities, net of effects of acquisitions and dispositions: Accounts receivable, net ( 50,214 ) ( 84,050 ) ( 94,449 ) Contract assets, net 46,788 ( 140,920 ) ( 18,683 ) Inventories and work-in-progress ( 84,020 ) ( 60,797 ) ( 14,711 ) Accounts payable 98,123 65,317 19,325 Deferred subscriber acquisition costs ( 323,602 ) ( 239,838 ) ( 189,988 ) Deferred subscriber acquisition revenue 276,841 179,874 259,844 Other, net 150,057 25,997 1,530 Net cash provided by (used in) operating activities 1,649,723 1,366,749 1,873,117 Cash flows from investing activities: Dealer generated customer accounts and bulk account purchases ( 675,118 ) ( 380,716 ) ( 669,683 ) Subscriber system asset expenditures ( 694,684 ) ( 418,355 ) ( 542,305 ) Purchases of property and equipment ( 168,238 ) ( 157,191 ) ( 158,846 ) Acquisition of businesses, net of cash acquired ( 163,503 ) ( 224,617 ) ( 108,716 ) Sale of business, net of cash sold 1,807 ( 2,448 ) 496,398 Other investing, net 3,991 45,850 4,975 Net cash provided by (used in) investing activities ( 1,695,745 ) ( 1,137,477 ) ( 978,177 ) Cash flows from financing activities: Proceeds from issuance of common stock, net of expenses — 447,811 — Proceeds from long-term borrowings 1,195,729 2,640,000 3,403,022 Proceeds from receivables facility 253,546 82,517 — Repayment of long-term borrowings, including call premiums ( 1,251,193 ) ( 3,054,798 ) ( 3,845,195 ) Repayment of receivables facility ( 130,345 ) ( 6,742 ) — Dividends on common stock ( 116,348 ) ( 109,328 ) ( 564,767 ) Repurchases of common stock — ( 4 ) ( 149,868 ) Deferred financing costs ( 14,316 ) ( 29,496 ) ( 54,382 ) Other financing, net ( 65,521 ) ( 40,221 ) ( 3,014 ) Net cash provided by (used in) financing activities ( 128,448 ) ( 70,261 ) ( 1,214,204 ) Effect of currency translation on cash — — 838 Cash and cash equivalents and restricted cash and restricted cash equivalents: Net increase (decrease) during the period ( 174,470 ) 159,011 ( 318,426 ) Beginning balance 207,747 48,736 367,162 Ending balance $ 33,277 $ 207,747 $ 48,736 See Notes to Consolidated Financial Statements F-9 ADT INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. 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. F-10 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). F-11 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 F-12 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 F-13 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 F-14 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 F-15 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 %. 2. Revenue and Receivables Revenue The Company generates revenue primarily through contractual monthly recurring fees received for monitoring and related services provided to customers. For CSB and Commercial, the Company’s performance obligations generally include monitoring, related services (such as maintenance agreements), and the sale and installation of a security system or a material right in transactions in which the Company retains ownership of the security system (as discussed below). For Solar, the Company’s performance obligations generally include the sale and installation of a solar system, and may include additional performance obligations such as roofing services or the sale and installation of additional products such as batteries. The transaction price is allocated to each performance obligation based on relative standalone selling price, which is determined using observable internal and external pricing, profitability, and operational metrics. F-16 The following table presents the Company’s disaggregated revenue: Years Ended December 31, (in thousands) 2021 2020 2019 CSB: Monitoring and related services $ 3,873,285 $ 3,760,614 $ 3,891,075 Installation and other 272,743 564,575 189,272 Total CSB 4,146,028 4,325,189 4,080,347 Commercial: Monitoring and related services 474,428 426,373 416,507 Installation and other 639,304 563,225 628,803 Total Commercial 1,113,732 989,598 1,045,310 Solar: Installation and other 47,351 — — Total Solar 47,351 — — Total revenue $ 5,307,111 $ 5,314,787 $ 5,125,657 Revenue is recognized in the Consolidated Statements of Operations, net of sales and other taxes. Amounts collected from customers for sales and other taxes are reported as a liability net of the related amounts remitted. Termination charges are assessed in accordance with the terms of the contract when customers terminate a contract early. Contract termination charges are recognized in revenue when collectability is probable and are reflected in monitoring and related services revenue in the Consolidated Statements of Operations. Company-Owned - In transactions in which the Company provides monitoring and related services but retains ownership of the security system (referred to as Company-owned transactions), the Company’s performance obligations primarily include monitoring and related services, as well as a material right associated with the one-time non-refundable fees in connection with the initiation of a monitoring contract which the customer will not be required to pay again upon a renewal of the contract (referred to as deferred subscriber acquisition revenue). The portion of the transaction price associated with monitoring and related services is recognized when the services are provided to the customer and is reflected in monitoring and related services revenue in the Consolidated Statements of Operations. The portion of the transaction price associated with the material right is deferred upon initiation of a monitoring contract and reflected as deferred subscriber acquisition revenue in the Consolidated Balance Sheets. Deferred subscriber acquisition revenue is amortized on a pooled basis over the estimated life of the customer relationship using an accelerated method consistent with the treatment of subscriber system assets and deferred subscriber acquisition costs. Amortization of deferred subscriber acquisition revenue is reflected in installation and other revenue in the Consolidated Statements of Operations as follows: Years Ended December 31, ( in thousands ) 2021 2020 2019 Amortization of deferred subscriber acquisition revenue $ 172,061 $ 124,804 $ 107,284 Customer-Owned - In transactions involving security systems sold outright to the customer (referred to as outright sales), the Company’s performance obligations generally include the sale and installation of the system as well as any monitoring and related services. The portion of the transaction price associated with the sale and installation of a system is recognized either at a point in time or over time based upon the nature of the transaction and contractual terms and is reflected in installation and other revenue in the Consolidated Statements of Operations. For revenue recognized over time, progress toward complete satisfaction of the performance obligation is primarily measured using a cost-to-cost measure of progress method. The cost input driving revenue recognition for contracts where revenue is recognized over time is based primarily on contract cost incurred to date compared to total estimated contract cost. This measure of progress method includes forecasts based on the best information available and reflects the Company’s judgment to faithfully depict the value of the services transferred to the customer. Approximately half of installation and other revenue generated by the Commercial segment is recognized over time. F-17 The portion of the transaction price associated with monitoring and related services is recognized when services are provided to the customer and is reflected in monitoring and related services revenue in the Consolidated Statements of Operations. Solar - In transactions within our Solar business, the Company’s performance obligations generally include the sale and installation of a solar system, and may include additional performance obligations such as roofing services or the sale and installation of additional products such as batteries. Revenue is recognized when control over the products and services are transferred to the customer and is reflected in installation and other revenue in the Consolidated Statements of Operations. The Company also enters into agreements with third-party lenders in order to access loan products for the Company’s Solar customers. The lender has the exclusive right to determine if a loan application will be accepted or rejected, and the Company is not a party to the loan agreement. There are no guarantees related to the repayment of the loan, and as such, there is no liability associated with these arrangements. Once a loan is approved, the lender will pay the Company the loan amount upfront or upon installation, net of fees. These fees are recorded as a reduction of installation and other revenue and were not material during 2021. Product Sales Revenue and cost of revenue from products in outright sales were as follows: Years Ended December 31, ( in thousands ) 2021 2020 2019 Revenue from product sales $ 777,611 $ 997,876 $ 709,242 Cost of revenue from product sales $ 635,518 $ 726,622 $ 573,691 Deferred Revenue Deferred revenue represents customer billings for services not yet rendered and is primarily related to recurring monitoring and related services. In addition, payments received for the installation of a solar system after the agreement is signed but before performance obligations are satisfied are recorded as deferred revenue. These fees are recorded as current deferred revenue in the Consolidated Balance Sheets, as the Company expects to satisfy any remaining performance obligations, as well as recognize the related revenue, within the next twelve months when performance obligations are satisfied. Accordingly, the Company has applied the practical expedient regarding deferred revenue to exclude the value of remaining performance obligations if (i) the contract has an original expected term of one year or less or (ii) the Company recognizes revenue in proportion to the amount it has the right to invoice for services performed. Revenue Model Initiative and Equipment Ownership Model Change In February 2020, the Company launched a new revenue model initiative for certain residential customers, which (i) revised the amount and nature of fees due at installation, (ii) introduced a 60-month monitoring contract option, and (iii) introduced a new retail installment contract option (as discussed below). Due to the requirements of the Company’s initial third-party consumer financing program, the Company transitioned its security system ownership model from a predominately Company-owned model to a predominately customer-owned model in February 2020. In March 2020, the Company entered into an uncommitted receivables securitization financing agreement (the “Receivables Facility”), which allowed the Company to receive financing secured by its retail installment contract receivables from transactions under a customer-owned model. In April 2020, the Company further amended the Receivables Facility to also permit financing secured by retail installment contract receivables from transactions occurring under a Company-owned model, and as a result, the Company began transitioning to a predominately Company-owned model in May 2020. Substantially all new CSB transactions since March 2021 take place under a Company-owned model. Refer to Note 6 “Debt” for further discussion regarding the Receivables Facility. Receivables and Contract Assets The Company’s accounts receivable, retail installment contract receivables, and contract assets are recorded at amortized cost less an allowance for credit losses not expected to be recovered. The allowance for credit losses is recognized at inception and reassessed each reporting period. F-18 Accounts Receivable Accounts receivable represent unconditional rights to consideration from customers in the ordinary course of business and are generally due in one year or less. The Company evaluates its allowance for credit losses on accounts receivable in pools based on customer type. For each customer pool, the allowance for credit losses is estimated based on the delinquency status of the underlying receivables and the related historical loss experience, as adjusted for current and expected future conditions, if applicable. The allowance for credit losses is not material for the individual pools of customers. Changes in the allowance for credit losses on accounts receivable were as follows: Years Ended December 31, (in thousands) 2021 2020 (1) 2019 Beginning balance $ 68,342 $ 42,960 $ 39,765 Provision for credit losses (2) 51,877 81,713 56,060 Write-offs, net of recoveries (3) ( 66,187 ) ( 56,331 ) ( 51,488 ) Ending balance $ 54,032 $ 68,342 $ 44,337 ________________ (1) Beginning balance reflected is subsequent to the adoption of ASU 2016-13, Measurement of Credit Losses on Financial Instruments, and related amendments on January 1, 2020. The impact of adoption was not material. (2) The provision for credit losses during 2020 includes an increase related to the COVID-19 Pandemic. (3) The amount of recoveries was not material for the periods presented. As such, the Company presented write-offs, net of recoveries. Retail Installment Contract Receivables, net The Company’s retail installment contract option allows qualifying residential customers to pay the fees due at installation over a 24-, 36-, or 60-month interest-free period and is available for transactions occurring under both Company-owned and customer-owned models. The financing component of retail installment contract receivables is not significant. Upon origination of a retail installment contract, the Company utilizes external credit scores to assess customer credit quality and determine eligibility. Subsequent to origination, the Company monitors the delinquency status of retail installment contract receivables as the key credit quality indicator. In addition, customers are required to enroll in the Company’s automated payment process in order to enter into a retail installment contract. As of December 31, 2021, the current and delinquent billed retail installment contract receivables were not material. Unbilled retail installment contract receivables reflected in the Consolidated Balance Sheets were as follows: December 31, (in thousands) 2021 2020 Retail installment contract receivables, gross $ 331,512 $ 145,957 Allowance for credit losses ( 907 ) ( 4,366 ) Retail installment contract receivables, net $ 330,605 $ 141,591 Classification: Accounts receivable, net $ 100,385 $ 47,023 Other assets 230,220 94,568 Retail installment contract receivables, net $ 330,605 $ 141,591 As of December 31, 2021, and 2020, retail installment contract receivables, net, used as collateral for borrowings under the Receivables Facility were $ 299 million and $ 109 million, respectively. The allowance for credit losses relates to retail installment contract receivables from outright sales transactions and is not material. Contract Assets, net Contract assets represent the Company’s right to consideration in exchange for goods or services transferred to the customer. The contract asset is reclassified to accounts receivable when the Company has an unconditional right to the consideration as additional services are performed and billed. The Company has the right to bill customers as services are provided over time, which generally occurs over the course of a 24-, 36-, or 60-month period. The financing component of contract assets is not significant. F-19 Contract assets for residential transactions reflected in the Consolidated Balance Sheets were as follows: December 31, (in thousands) 2021 2020 Contract assets, gross $ 106,810 $ 161,563 Allowance for credit losses ( 12,300 ) ( 29,558 ) Contract assets, net $ 94,510 $ 132,005 Classification: Prepaid expenses and other current assets $ 58,452 $ 59,382 Other assets 36,058 72,623 Contract assets, net $ 94,510 $ 132,005 The Company recognized approximately $ 26 million, $ 183 million, and $ 27 million of gross contract assets during 2021, 2020, and 2019, respectively. The allowance for credit losses on contract assets is not material. 3. Segment Information As discussed in Note 1 “Description of Business and Summary of Significant Accounting Policies,” the Company reports results in three operating and reportable segments, CSB, Commercial, and Solar based on the manner in which the CODM evaluates performance and makes decisions about how to allocate resources. The CODM uses Adjusted EBITDA, which is the segment profit measure, to evaluate segment performance. Adjusted EBITDA is defined as net income or loss adjusted for (i) interest; (ii) taxes; (iii) depreciation and amortization, including depreciation of subscriber system assets and other fixed assets and amortization of dealer and other intangible assets; (iv) amortization of deferred costs and deferred revenue associated with subscriber acquisitions; (v) share-based compensation expense; (vi) merger, restructuring, integration, and other; (vii) losses on extinguishment of debt; (viii) radio conversion costs, net; and (ix) other income/gain or expense/loss items such as impairment charges, financing and consent fees, or acquisition-related adjustments. The CODM does not review the Company's assets by segment; therefore, such information is not presented. The following table presents total revenue by segment and a reconciliation to consolidated total revenue: Years Ended December 31, (in thousands) 2021 2020 2019 CSB $ 4,146,028 $ 4,325,189 $ 4,080,347 Commercial 1,113,732 989,598 1,045,310 Solar 47,351 — — Total Revenue $ 5,307,111 $ 5,314,787 $ 5,125,657 F-20 The following table presents Adjusted EBITDA by segment and a reconciliation to consolidated net income (loss) before taxes: Years Ended December 31, (in thousands) 2021 2020 2019 Adjusted EBITDA by segment: CSB $ 2,110,879 $ 2,153,899 $ 2,374,165 Commercial 96,112 45,338 109,045 Solar 5,588 — — Total $ 2,212,579 $ 2,199,237 $ 2,483,210 Reconciliation to consolidated net income (loss) before taxes: Total segment Adjusted EBITDA $ 2,212,579 $ 2,199,237 $ 2,483,210 Less: Interest expense, net 457,667 708,189 619,573 Depreciation and intangible asset amortization 1,914,779 1,913,767 1,989,082 Amortization of deferred subscriber acquisition costs 126,089 96,823 80,128 Amortization of deferred subscriber acquisition revenue ( 172,061 ) ( 124,804 ) ( 107,284 ) Share-based compensation expense 61,237 96,013 85,626 Merger, restructuring, integration, and other 37,872 120,208 35,882 Goodwill impairment — — 45,482 Loss on sale of business — 738 61,951 Loss on extinguishment of debt 37,113 119,663 104,075 Radio conversion costs, net (1) 211,363 51,889 24,983 Financing and consent fees (2) 3,672 5,263 23,250 Acquisition related adjustments (3) 12,945 438 22,285 Other (4) ( 6,908 ) ( 10,031 ) 20,369 Net income (loss) before taxes $ ( 471,189 ) $ ( 778,919 ) $ ( 522,192 ) ___________________ (1) Refer to Note 1 “Description of Business and Summary of Significant Accounting Policies” for further details. (2) Represents fees expensed associated with financing transactions. (3) Represents amortization of purchase accounting adjustments and compensation arrangements related to acquisitions. During 2021, primarily related to the Sunpro Solar Acquisition. During 2019, primarily related to compensation arrangements as a result of Commercial acquisitions. (4) Represents other charges and non-cash items. During 2020, included recoveries of $ 10 million associated with notes receivable from a former strategic investment. During 2019, included losses of $ 10 million associated with notes receivable from a former strategic investment and $ 6 million associated with an estimated legal settlement, net of insurance. Entity-Wide Disclosure Revenue by geographic area for the periods presented was follows: Years Ended December 31, (in thousands) 2021 2020 2019 United States $ 5,307,111 $ 5,314,787 $ 4,936,121 Canada — — 189,536 Total revenue $ 5,307,111 $ 5,314,787 $ 5,125,657 Revenue is attributed to individual countries based upon the operating entity that records the transaction. Since the sale of ADT Canada in 2019, revenue outside of the U.S. is not material. As a result of the sale of ADT Canada in 2019, substantially all of the Company’s assets are located in the U.S. as of December 31, 2021 and 2020. F-21 4. Acquisitions and Disposition From time to time, the Company may pursue business acquisitions that either strategically fit with the Company’s existing core business or expand the Company’s products and services in new and attractive adjacent markets. The Company accounts for business acquisitions under the acquisition method of accounting. The assets acquired and liabilities assumed in connection with business acquisitions are recorded at the date of acquisition at their estimated fair values, with any excess of the purchase price over the estimated fair values of the net assets acquired recorded as goodwill. Significant judgment is required in estimating the fair value of assets acquired and liabilities assumed and in assigning useful lives to certain definite-lived intangible and tangible assets. Accordingly, the Company may engage third-party valuation specialists to assist in these determinations. The fair value estimates are based on available information as of the acquisition date and on future expectations and assumptions deemed reasonable by management, but are inherently uncertain. The consolidated financial statements reflect the results of operations of an acquired business starting from the effective date of the acquisition. Acquisition-related expenses are recognized as incurred and are included in merger, restructuring, integration, and other in the Consolidated Statements of Operations and were not material during 2021, 2020, and 2019. Sunpro Solar Acquisition In December 2021, the Company acquired Sunpro Solar, a leading solar installer in the U.S. The acquisition is intended to expand the Company’s offerings by entering the residential solar market. Upon the consummation of the Sunpro Solar Acquisition, Sunpro Solar became an indirect wholly-owned subsidiary of the Company. Total consideration was approximately $ 750 million, which consisted of cash paid of $ 142 million, net of cash acquired, and approximately 75 million unregistered shares of the Company’s Common Stock, par value of $ 0.01 per share, with a fair value of $ 569 million, of which approximately 5 million shares will be issued throughout 2022. The total fair value of $ 569 million was based on the closing stock price of the Company’s Common Stock on December 8, 2021, the acquisition date, adjusted for the impact of contractual restrictions on the ability for the holders to sell their shares. The following table summarizes the purchase price allocation of the estimated fair values as of the date of acquisition of the assets acquired and liabilities assumed: Fair value of assets acquired and liabilities assumed (in thousands) : Cash $ 38,493 Accounts receivable 35,998 Inventories 49,480 Prepaid expenses and other current assets 17,388 Property and equipment 12,826 Goodwill 694,726 Other definite-lived intangible assets 42,100 Other assets 27,201 Accounts payable ( 53,753 ) Deferred revenue ( 39,227 ) Accrued expenses and other current liabilities ( 44,088 ) Current maturities of long-term debt ( 7,643 ) Other liabilities ( 7,960 ) Long-term debt ( 15,112 ) Total consideration transferred $ 750,429 The purchase price allocation reflects preliminary fair value estimates based on management analysis, including work performed by third-party valuation specialists. Other definite-lived intangible assets is primarily comprised of a customer backlog intangible asset, which will be recognized as a reduction of installation and other revenue over a useful life of three months from the date of acquisition. The Company recorded $ 695 million of goodwill as a result of the Sunpro Solar Acquisition, the majority of which is deductible for tax purposes, and allocated the goodwill to the Solar reporting unit at the time of acquisition. The goodwill recognized as a result of the Sunpro Solar Acquisition reflects the strategic value and expected synergies of Sunpro Solar to the Company. F-22 Pro Forma Results The following summary, prepared on a pro forma basis, presents the Company’s unaudited consolidated results of operations for 2021 and 2020 as if the Sunpro Solar Acquisition had been completed as of January 1, 2020. The pro forma results below include the impact of certain adjustments related to the amortization of intangible assets, acquisition-related costs incurred as of the acquisition date, and in each case, the related income tax effects, as well as certain other post-acquisition adjustments directly attributable to the acquisition. This pro forma presentation does not include any impact of transaction synergies. The pro forma results are not necessarily indicative of the results of operations that actually would have been achieved had the Sunpro Solar Acquisition been consummated as of that date: Years Ended December 31, ( in thousands ) 2021 2020 Total revenue $ 5,905,148 $ 5,590,880 Net income (loss) $ ( 328,099 ) $ ( 680,992 ) Revenue and net loss attributable to ADT Solar of $ 47 million and $ 7 million, respectively, are included in the Consolidated Statements of Operations from the acquisition date, December 8, 2021 through December 31, 2021. Defenders Acquisition In January 2020, the Company acquired its largest independent dealer, Defender Holdings, Inc. (“Defenders”) (the “Defenders Acquisition”), for total consideration of approximately $ 290 million, which consisted of cash paid of $ 173 million, net of cash acquired, and the issuance of approximately 16 million shares of the Company’s Common Stock, par value of $ 0.01 per share, with a fair value of $ 114 million. The following table summarizes the purchase price allocation of the estimated fair values as of the date of acquisition of the assets acquired and liabilities assumed: Fair value of assets acquired and liabilities assumed (in thousands) : Cash $ 3,437 Accounts receivable 15,269 Inventories 17,950 Prepaid expenses and other current assets 17,807 Property and equipment 16,486 Goodwill 252,239 Contracts and related customer relationships 17,400 Other assets 18,520 Accounts payable ( 14,937 ) Deferred revenue ( 1,170 ) Accrued expenses and other current liabilities ( 29,223 ) Deferred tax liabilities ( 7,655 ) Other liabilities ( 15,760 ) Total consideration transferred $ 290,363 The purchase price allocation reflects fair value estimates based on management analysis, including work performed by third-party valuation specialists. The acquired contracts and related customer relationships are amortized over 14 years. The Company recorded $ 252 million of goodwill as a result of the Defenders Acquisition, none of which is deductible for tax purposes, and allocated the goodwill to the CSB reporting unit at the time of acquisition. The goodwill recognized as a result of the Defenders Acquisition reflects the strategic value and expected synergies of Defenders to the Company. In connection with the Defenders Acquisition, the Company recorded a loss in the amount of $ 81 million during the first quarter of 2020 from the settlement of a pre-existing relationship with Defenders related to customer accounts purchased from Defenders prior to the Defenders Acquisition. The Company included the loss in merger, restructuring, integration, and other in the Consolidated Statements of Operations, and the associated cash payment is reflected as cash flows from operating activities in the Consolidated Statements of Cash Flows during 2020. F-23 Other Acquisitions During 2021, total consideration related to business acquisitions (excluding the Sunpro Solar Acquisition) was approximately $ 21 million. During 2020, total consideration related to business acquisitions (excluding the Defenders Acquisition) was approximately $ 80 million, including $ 52 million of cash, net of cash acquired. This resulted in the recognition of $ 24 million of goodwill, $ 13 million of contracts and related customer relationships, and $ 43 million of other intangible assets related to developed technology. During 2019, total consideration related to business acquisitions was approximately $ 114 million, including $ 109 million of cash, net of cash acquired. This resulted in the recognition of $ 47 million of goodwill and $ 39 million of contracts and related customer relationships. Disposition of Canadian Operations In November 2019, the Company sold ADT Security Services Canada, Inc. (“ADT Canada”) to TELUS Corporation (“TELUS”) for a selling price of $ 514 million (CAD $ 676 million). The sale of ADT Canada did not represent a strategic shift that will have a major effect on the Company’s operations and financial results, and therefore, did not meet the criteria to be reported as discontinued operations. In connection with the sale, the Company and TELUS entered into a transition services agreement whereby the Company provides certain post-closing services to TELUS related to the business of ADT Canada. Additionally, the Company and TELUS entered into a non-competition and non-solicitation agreement pursuant to which the Company will not have any operations in Canada, subject to limited exceptions for cross-border commercial customers and mobile safety applications, for a period of seven years. Finally, the Company and TELUS entered into a patent and trademark license agreement granting (i) the use of the Company’s patents in Canada to TELUS for a period of seven years, and (ii) exclusive use of the Company’s trademarks in Canada for a period of five years and non-exclusive use for an additional two years thereafter. During 2019, the Company recorded a loss on sale of business of $ 62 million, which included the reclassification of foreign currency translation from AOCI of approximately $ 39 million. Additionally, the Company received $ 496 million of proceeds, net of cash sold, of approximately $ 6 million, related to the sale of ADT Canada, which is reflected in cash flows from investing activities in the Consolidated Statement of Cash Flows. The Company allocated approximately $ 10 million of proceeds to the patent and trademark license agreement, which is reflected in cash flows from operating activities in the Consolidated Statement of Cash Flows. The impact in connection with the sale of ADT Canada was not material during 2021 or 2020. ADT Canada’s loss before income taxes for the year ended December 31, 2019 was $ 39 million. 5. Goodwill and Other Intangible Assets Goodwill During the fourth quarter of 2020, the Company changed its reporting units, which included the reassignment of assets, liabilities, and financial operating results related to the Company’s commercial customers, as well as an applicable portion of goodwill based on a relative fair value approach, from the U.S. reporting unit (now referred to as CSB) to the Red Hawk reporting unit (now referred to as Commercial). As discussed in Note 1 “Description of Business and Summary of Significant Accounting Policies,” beginning in the first quarter of 2021, the Company’s operating and reportable segments were CSB, which is comprised of the CSB reporting unit, and Commercial, which is comprised of the Commercial reporting unit. The change in reportable segments did not further impact the Company’s reporting units. Upon consummation of the Sunpro Solar Acquisition in the fourth quarter of 2021, the Company began reporting results for a third operating and reportable segment related to the ADT Solar business, which is comprised of the Solar reporting unit. F-24 Changes in the carrying amount of goodwill during the periods presented were as follows: (in thousands) As Previously Reported CSB Commercial Solar Total Balance as of December 31, 2019 $ 4,959,658 $ — $ — $ — $ 4,959,658 Acquisitions 276,340 — — — 276,340 Other 304 — — — 304 Balance as of December 31, 2020 $ 5,236,302 $ — $ — $ — $ 5,236,302 Reallocation (1) ( 5,236,302 ) 4,915,857 320,445 — — Acquisitions — — 10,420 694,726 705,146 Other — ( 25 ) 1,980 — 1,955 Balance as of December 31, 2021 $ — $ 4,915,832 $ 332,845 $ 694,726 $ 5,943,403 ________________ (1) Relates to the change in the Company’s reportable segments in the first quarter of 2021. The Company had no accumulated goodwill impairment losses as of December 31, 2021 and 2020. There were no material measurement period adjustments to purchase price allocations during 2021, 2020, and 2019. Other Intangible Assets Other intangible assets reflected in the Consolidated Balance Sheets consisted of the following: December 31, 2021 December 31, 2020 (in thousands) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Definite-lived intangible assets: Contracts and related customer relationships $ 8,719,363 $ ( 5,753,345 ) $ 2,966,018 $ 8,306,746 $ ( 4,932,590 ) $ 3,374,156 Dealer relationships 1,518,020 ( 459,248 ) 1,058,772 1,518,020 ( 379,475 ) 1,138,545 Other 263,133 ( 207,572 ) 55,561 247,536 ( 186,547 ) 60,989 Total definite-lived intangible assets 10,500,516 ( 6,420,165 ) 4,080,351 10,072,302 ( 5,498,612 ) 4,573,690 Indefinite-lived intangible assets: Trade name 1,333,000 — 1,333,000 1,333,000 — 1,333,000 Total Intangible assets $ 11,833,516 $ ( 6,420,165 ) $ 5,413,351 $ 11,405,302 $ ( 5,498,612 ) $ 5,906,690 Definite-Lived Intangible Assets Definite-lived intangible assets relate to customer relationships, dealer relationships, and other definite-lived intangible assets that originated from business acquisitions as well as contracts with customers purchased under the ADT Authorized Dealer Program or from other third parties. Customer relationships acquired as part of business acquisitions, which primarily originated from the Formation Transactions and the ADT Acquisition, are amortized over a period of up to 20 years based on management estimates about the amounts and timing of estimated future revenue from customer accounts and average customer account life that existed at the time of the related business acquisition. Dealer relationships originated from the Formation Transactions and the ADT Acquisition and are primarily amortized over 19 years based on management estimates about the longevity of the underlying dealer network and the attrition of those respective dealers that existed at the time of the related business acquisition. Other definite-lived intangible assets are amortized over a period of up to 10 years on a straight-line basis. The Company maintains a network of agreements with third-party independent alarm dealers who sell alarm equipment and ADT Authorized Dealer-branded monitoring and interactive services to end users (the “ADT Authorized Dealer Program”). The dealers in this program generate new end-user contracts with customers which the Company has the right, but not the obligation, to purchase from the dealer. Purchases of contracts with customers under the ADT Authorized Dealer Program, or from other third parties, are considered asset acquisitions and are recorded at their contractually determined purchase price. The Company may charge back the purchase price of any end-user contract if the contract is canceled during the charge-back period, which is generally thirteen months from the date of purchase. The Company records the amount of the charge back as a reduction to the purchase price. F-25 The Company paid $ 675 million, $ 381 million, and $ 670 million for contracts with customers under the ADT Authorized Dealer Program and from other third parties during 2021, 2020, and 2019, respectively. In connection with the Defenders Acquisition, the Company received an advance payment of $ 39 million in January 2020 for the estimated future dealer charge-backs related to accounts purchased from Defenders prior to the Defenders Acquisition. This amount is included in dealer gener ated customer accounts and bulk account purchases in the Consolidated Statement of Cash Flows, and it was materially realized in 2020 as a reduction to contracts and related customer relationships over the course of a 13 -month charge-back period. In addition, contracts and related customer relationships includes customer accounts purchased from third parties in 2021 for an aggregate contractual purchase price of $ 163 million subject to reduction based on customer retention. The Company paid cash at closings of $ 132 million. Purchases of contracts with customers under the ADT Authorized Dealer Program, or from other third parties, are accounted for on a pooled basis based on the month and year of acquisition. The Company amortizes its pooled contracts with customers using an accelerated method over the estimated life of the customer relationship, which is 15 years. The accelerated method for amortizing these contracts utilizes an average declining balance rate of approximately 300 % and converts to straight-line methodology when the resulting amortization charge is greater than that from the accelerated method, resulting in an average amortization of approximately 65 % of the pool within the first five years, 25 % within the second five years, and 10 % within the final five years. Changes in the net carrying amount of contracts and related customer relationships were as follows: Years Ended December 31, (in thousands) 2021 2020 Beginning balance $ 3,374,156 $ 4,091,545 Acquisition of customer relationships 5,333 29,986 Customer contract additions, net of dealer charge-backs 696,316 386,696 Amortization ( 1,109,787 ) ( 1,134,271 ) Other adjustments — 200 Ending balance $ 2,966,018 $ 3,374,156 The weighted-average amortization period for contracts and related customer relationships purchased under the ADT Authorized Dealer Program and from other third parties was 14 years and 15 years in 2021 and 2020, respectively. Amortization expense reflected in the Consolidated Statements of Operations was as follows: Years Ended December 31, (in thousands) 2021 2020 2019 Definite-lived intangible asset amortization expense $ 1,209,966 $ 1,222,398 $ 1,238,064 As of December 31, 2021, the estimated aggregate amortization expense over the next five years is expected to be as follows: (in thousands) 2022 2023 2024 2025 2026 Estimated definite-lived intangible asset amortization expense $ 903,235 $ 489,587 $ 393,938 $ 347,482 $ 309,846 Indefinite-Lived Intangible Assets The Company’s indefinite-lived intangible assets as of December 31, 2021 and 2020 are solely comprised of $ 1.3 billion related to the ADT trade name acquired as part of the ADT Acquisition. Goodwill and Indefinite-Lived Intangible Assets Impairment Goodwill and indefinite-lived intangible assets are not amortized and are tested for impairment at least annually as of the first day of the fourth quarter of each year and more often if an event occurs or circumstances change which indicate it is more-likely-than-not that fair value is less than carrying amount. The Company may perform its impairment test for any reporting unit or indefinite-lived intangible asset through a qualitative assessment or elect to proceed directly to a quantitative impairment test, however, the Company may resume a qualitative assessment in any subsequent period. F-26 Goodwill Under a qualitative approach, the Company assesses whether it is more-likely-than-not that a reporting unit’s fair value is less than its carrying amount. If the Company elects to bypass the qualitative assessment for any reporting unit, or if a qualitative assessment indicates it is more-likely-than-not that the estimated fair value of a reporting unit is less than its carrying amount, the Company proceeds to a quantitative approach. Under a quantitative approach, the Company estimates the fair value of a reporting unit and compares it to its carrying amount. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. The Company estimates the fair values of its reporting units using the income approach, which discounts projected cash flows using market participant assumptions. The income approach includes significant assumptions including, but not limited to, forecasted revenue, operating profit margins, operating expenses, cash flows, perpetual growth rates, and discount rates. The estimated fair value of a reporting unit calculated using the income approach is sensitive to changes in the underlying assumptions. In developing these assumptions, the Company relies on various factors including operating results, business plans, economic projections, anticipated future cash flows, and other market data. Examples of events or circumstances that could reasonably be expected to negatively affect the underlying judgments and factors and ultimately impact the estimated fair value determinations may include such items as a prolonged downturn in the business environment, changes in economic conditions that significantly differ from management assumptions in timing or degree, volatility in equity and debt markets resulting in higher discount rates, and unexpected regulatory changes. As a result, there are inherent uncertainties related to these judgments and factors in applying them to the goodwill impairment tests. On October 1, 2021, the Company completed its annual goodwill impairment tests by qualitatively testing the goodwill associated with the CSB reporting unit and quantitatively testing the goodwill associated with the Commercial reporting unit. Based on the results of the qualitative testing for the CSB reporting unit, the Company concluded it is more likely than not that the fair value of the CSB reporting unit exceeds its carrying value. Based on the results of the quantitative testing for the Commercial reporting unit, the Company concluded the fair value of the Commercial reporting unit exceeds its carrying value by approximately 20 %. The Commercial reporting unit continues to deal with the impact of the COVID-19 pandemic, and should certain pandemic-related issues continue, the reporting unit fair value could be adversely impacted and may decline below its carrying value. The Company did not record any impairment losses associated with its reporting units. Additionally, the Company did not test the goodwill associated with the Solar reporting unit due to the recency of the Sunpro Solar Acquisition. During 2020, the Company did not record any goodwill impairment losses associated with its reporting units. During 2019, the Company recorded a goodwill impairment loss of $ 45 million related to the Canada reporting unit in connection with the sale of ADT Canada. Indefinite-Lived Intangible Assets Under a qualitative approach, the impairment test for an indefinite-lived intangible asset consists of an assessment of whether it is more-likely-than-not that an asset’s fair value is less than its carrying amount. If the Company elects to bypass the qualitative assessment for any indefinite-lived intangible asset, or if a qualitative assessment indicates it is more-likely-than-not that the estimated carrying amount of such asset exceeds its fair value, the Company proceeds to a quantitative approach. Under a quantitative approach, the Company estimates the fair value of an asset and compares it to its carrying amount. If the carrying amount exceeds fair value, an impairment loss is recognized in an amount equal to that excess. The fair value of an indefinite-lived intangible asset is determined based on the nature of the underlying asset. The Company’s only indefinite-lived intangible asset is the ADT trade name. The fair value of the ADT trade name is determined under a relief from royalty method, which is an income approach that estimates the cost savings that accrue to the Company that it would otherwise have to pay in the form of royalties or license fees on revenue earned through the use of the asset. The utilization of the relief from royalty method requires the Company to make significant assumptions including revenue growth rates, the implied royalty rate, and the discount rate. As of October 1, 2021 and 2020, the Company quantitatively tested the ADT trade name for impairment. Based on the results of the tests, the Company did not record any impairment losses associated with the ADT trade name, and the estimated fair value of the trade name significantly exceeded its carrying amount. F-27 Intangible Asset Impairments During the first quarter of 2021, the Company recognized $ 18 million in impairment losses on its other definite-lived intangible assets primarily due to lower than expected benefits from the Cell Bounce developed technology intangible asset, which is included in the CSB segment, as a result of the worldwide shortages for certain electronic components. The fair value was determined using an income-based approach, and the loss is reflected in merger, restructuring, integration, and other in the Consolidated Statements of Operations. During 2020 and 2019, the Company did not record any impairment losses on its other definite-lived intangible assets. 6. Debt As of December 31, 2021 and 2020, the Company’s debt was comprised of the following (in thousands, except as otherwise indicated): Interest Payable Balance as of December 31, Debt Description Issued Maturity Interest Rate 2021 2020 First Lien Term Loan due 2026 9/23/2019 9/23/2026 Adj. LIBOR + 2.75% Quarterly $ 2,758,058 $ 2,778,900 First Lien Revolving Credit Facility (1) 3/16/2018 6/23/2026 Adj. LIBOR + 2.75% Quarterly 25,000 — Second Lien Notes due 2028 1/28/2020 1/15/2028 6.250 % 1/15 and 7/15 1,300,000 1,300,000 First Lien Notes due 2024 4/4/2019 4/15/2024 5.250 % 2/15 and 8/15 750,000 750,000 First Lien Notes due 2026 4/4/2019 4/15/2026 5.750 % 3/15 and 9/15 1,350,000 1,350,000 First Lien Notes due 2027 8/20/2020 8/31/2027 3.375 % 6/15 and 12/15 1,000,000 1,000,000 First Lien Notes due 2029 7/29/2021 8/1/2029 4.125 % 2/1 and 8/1 1,000,000 — ADT Notes due 2022 7/5/2012 7/15/2022 3.500 % 1/15 and 7/15 — 1,000,000 ADT Notes due 2023 1/14/2013 6/15/2023 4.125 % 6/15 and 12/15 700,000 700,000 ADT Notes due 2032 5/2/2016 7/15/2032 4.875 % 1/15 and 7/15 728,016 728,016 ADT Notes due 2042 7/5/2012 7/15/2042 4.875 % 1/15 and 7/15 21,896 21,896 Receivables Facility 3/5/2020 11/20/2026 LIBOR + 0.85% Monthly 199,056 75,775 Other debt (2) 4,732 — Total debt principal, excluding finance leases 9,836,758 9,704,587 Plus: Finance lease obligations (3) 93,080 61,328 Less: Unamortized debt discount, net ( 16,678 ) ( 19,993 ) Less: Unamortized deferred financing costs ( 64,014 ) ( 64,638 ) Less: Unamortized purchase accounting fair value adjustment and other ( 156,456 ) ( 188,740 ) Total debt 9,692,690 9,492,544 Less: Current maturities of long-term debt ( 117,592 ) ( 44,764 ) Long-term debt $ 9,575,098 $ 9,447,780 __________________ (1) As of December 31, 2021 and 2020, the Company had $ 550 million and $ 400 million, respectively, in available borrowing capacity under the First Lien Revolving Credit Facility. (2) Other debt includes vehicle loans acquired in the Sunpro Solar Acquisition. (3) Refer to Note 13 “Leases” for additional information regarding the Company’s finance leases. First Lien Credit Agreement Concurrently with the consummation of the Formation Transactions, the Company entered into a first lien credit agreement dated as of July 1, 2015 (together with subsequent amendments and restatements, the “First Lien Credit Agreement”), which includes a term loan facility (the “First Lien Term Loan due 2026”) and a first lien revolving credit facility (the “First Lien Revolving Credit Facility”). As a result of the January 2021 amendment to the First Lien Credit Agreement as discussed below, beginning in the second quarter of 2021, the Company is required to make scheduled quarterly principal payments equal to 0.25 % of the then-outstanding aggregate principal amount of the First Lien Term Loan due 2026, with the remaining balance payable at maturity. The Company may make voluntary prepayments on the First Lien Term Loan due 2026 at any time prior to maturity at par. Additionally, the Company is required to make annual prepayments on the outstanding First Lien Term Loan due 2026 with a percentage of the Company’s excess cash flow, as defined in the First Lien Credit Agreement, if the excess cash flow exceeds a F-28 certain specified threshold. As of December 31, 2021, the Company was not required to make an annual prepayment based on the Company’s excess cash flow. The First Lien Term Loan due 2026 has an interest rate calculated as, at the Company’s option, either (a) London Interbank Offered Rate (“LIBOR”) determined by reference to the costs of funds for Eurodollar deposits for the interest period relevant to such borrowing, adjusted for certain additional costs (“Adjusted LIBOR”) with a floor of 0.75 % or (b) a base rate determined by reference to the highest of (i) the federal funds rate plus 0.50 % per annum, (ii) the prime rate published by The Wall Street Journal, and (iii) one-month adjusted LIBOR plus 1.00 % per annum (“Base Rate”), in each case, plus the applicable margin of 2.75 % for Adjusted LIBOR loans and 1.75 % fo r Base Rate loans and is payable on each interest payment date, at least quarterly, in arrears. The applicable margin for borrowings under the First Lien Revolving Credit Facility is 2.75 % for Adjusted LIBOR loans and 1.75 % for Base Rate loans, in each case, subject to adjustment pursuant to a leverage-based pricing grid. In addition, the Company is required to pay a commitment fee between 0.375 % and 0.50 % (determined based on a net first lien leverage ratio) with respect to the unused commitments under the First Lien Revolving Credit Facility. The Company’s obligations relating to the First Lien Credit Agreement are gu aranteed, jointly and severally, on a senior secured first-priority basis, by substantially all of the Company’s domestic subsidiaries and are secured by first-priority security interests in substantially all of the assets of the Company’s domestic subsidiaries, subject to certain permitted liens and exceptions. Significant activity related to the First Lien Credit Agreement during the presented periods were as follows: Amendment and Restatement dated as of March 15, 2019 (effective April 4, 2019) In April 2019, and in connection with a $ 500 million repaymen t of the First Lien Term B-1 Loan , the Company amended and restated the First Lien Credit Agreement to, among other things, (a) authorize the redemption of the outstanding principal amount of Prime Notes (as defined below), (b) authorize the incurrence of the First Lien Notes due 2024 (as defined below) and First Lien Notes due 2026 (as defined below) by amending the Net First Lien Leverage Ratio for the incurrence of pari passu indebtedness to 3.20 to 1.00 (from 2.35 to 1.00 ), (c) provide for $ 300 million of additional incremental pari passu debt capacity, and (d) increase the borrowing capacity under the First Lien Revolving Credit Facility by an additional $ 50 million, which replaced the Mizuho Bank Revolving Credit Facility (as defined below). The Company incurred approximately $ 17 million in deferred financing costs in connection with this amendment and restatement. Amendment and Restatement dated as of September 23, 2019 In September 2019, and in connection with an approximately $ 300 million repay ment of the First Lien Term B-1 Loan , the Company amended and restated the First Lien Credit Agreement to refinance and replace the $ 3.4 billion aggregate principal amount of the First Lien Term B-1 Loan with $ 3.1 billion aggregate principal amount of the First Lien Term Loan due 2026, which was issued at a 1.00 % discount, and make other changes to, among other things, provide the Company with additional flexibility to incur additional indebtedness and fund future distributions to stockholders. Deferred financing costs in connection with this amendment and restatement were not material. In December 2020, the Company made a $ 300 million prepayment on the First Lien Term Loan due 2026, which was applied to the remaining required quarterly principal payments at the time. Amendment and Restatement dated as of January 27, 2021 In January 2021, the Company amended and restated the First Lien Credit Agreement to refinance the First Lien Term Loan due 2026, which reduced the applicable margin for Adjusted LIBOR loans from 3.25 % to 2.75 % and reduced the floor from 1.00 % to 0.75 %. This amendment also reinstated the quarterly principal payments. Amendment and Restatement dated as of July 29, 2021 In July 2021, the Company amended and restated the First Lien Credit Agreement with respect to the First Lien Revolving Credit Facility, which extended the maturity date to June 23, 2026, subject to certain conditions, and obtained an additional $ 175 million of commitments. After giving effect to this amendment and restatement, aggregate commitments under the First Lien Revolving Credit Facility were $ 575 million. Additionally, in December 2021, the Company borrowed $ 185 million and repaid $ 160 million under the First Lien Revolving Credit Facility in connection with the Sunpro Solar Acquisition. F-29 Second Lien Notes due 2028 In January 2020, the Company issued $ 1.3 billion aggregate principal amount of 6.250 % second-priority senior secured notes due 2028 (the “Second Lien Notes due 2028”). The proceeds from the Second Lien Notes due 2028, along with cash on hand and borrowings under the First Lien Revolving Credit Facility, were used to redeem the outstanding $ 1.2 billion aggregate principal amount of Prime Notes (as defined below) and pay any related fees and expenses, including the call premium. The Second Lien Notes due 2028 will mature on January 15, 2028 with semi-annual interest payment dates of January 15 and July 15, and may be redeemed at the Company’s option as follows: • Prior to January 15, 2023, in whole at any time or in part from time to time, (a) at a redemption price equal to 100 % of the principal amount of the Second Lien Notes due 2028 redeemed, plus a make-whole premium and accrued and unpaid interest as of, but excluding, the redemption date or (b) for up to 40 % of the original aggregate principal amount of the Second Lien Notes due 2028 and in an aggregate amount equal to the net cash proceeds of any equity offerings, at a redemption price equal to 106.250 %, plus accrued and unpaid interest, so long as at least 50 % of the original aggregate principal amount of the Second Lien Notes due 2028 shall remain outstanding after each such redemption. • On or after January 15, 2023, in whole at any time or in part from time to time, at a redemption price equal to 103.125 % of the principal amount of the Second Lien Notes due 2028 redeemed and accrued and unpaid interest as of, but excluding, the redemption date. The redemption price decreases to 101.563 % on or after January 15, 2024 and decreases to 100 % on or after January 15, 2025. The Company’s obligations relating to the Second Lien Notes due 2028 are guaranteed, jointly and severally, on a senior secured second-priority basis, by substantially all of the Company’s domestic subsidiaries and are secured by second-priority security interests in substantially all of the assets of the Company’s domestic subsidiaries, subject to certain permitted liens and exceptions. Additionally, upon the occurrence of specified change of control events, the Company must offer to repurchase the Second Lien Notes due 2028 at 101 % of the principal amount, plus accrued and unpaid interest, if any, to, but not including, the purchase date. The Second Lien Notes due 2028 also provide for customary events of default. Prime Notes In connection with the ADT Acquisition, the Company completed the offering of $ 3.1 billion aggregate principal amount of second-priority secured notes (the “Prime Notes”). The Prime Notes were due at maturity, however, could be redeemed prior to maturity at the Company’s option, subject to certain call premiums. In February 2018, the Company used approximately $ 649 million of the net proceeds from the IPO to voluntarily redeem $ 594 million aggregate principal amount of the Prime Notes and pay the related call premium. In February 2019, the Company redeemed $ 300 million aggregate principal amount of the outstanding Prime Notes for a total redemption price of approximately $ 319 million, which included the related call premium. In April 2019, the Company repurchased and cancelled an additional $ 1.0 billion aggregate principal amount of the outstanding Prime Notes for a total repurchase price of approximately $ 1.1 billion, which included the related call premium. In January 2020, the indenture underlying the Prime Notes was discharged, and in February 2020, the outstanding $ 1.2 billion aggregate principal amount was redeemed for a total redemption price of approximately $ 1.3 billion, which included the related call premium. First Lien Notes due 2024 and First Lien Notes due 2026 In April 2019, the Company issued $ 750 million aggregate principal amount of 5.250 % first-priority senior secured notes due 2024 (the “First Lien Notes due 2024”) and $ 750 million aggregate principal amount of 5.750 % first-priority senior secured notes due 2026 (the “First Lien Notes due 2026”). The proceeds from the First Lien Notes due 2024 and the First Lien Notes due 2026, along with cash on hand and borrowings under the First Lien Revolving Credit Facility, were used to (a) repurchase $ 1.0 billion aggregate principal amount of the Prime Notes, (b) repay $ 500 million aggregate principal amount of the First Lien Term B-1 Loan, and (c) pay fees and expenses associated with the foregoing, including call premiums on the Prime Notes as well as accrued and unpaid interest on the repurchased Prime Notes and repaid borrowings under the First Lien Term B-1 Loan. The Company incurred approximately $ 25 million in deferred financing costs in connection with the issuance of the First Lien Notes due 2024 and the First Lien Notes due 2026. In September 2019, the Company issued an additional $ 600 million aggregate principal amount of the First Lien Notes due 2026 at a 2 % premium pursuant to and with the same terms as the underlying indenture of the First Lien Notes due 2026. The proceeds from the additional First Lien Notes due 2026, along with cash on hand, were used to (a) repay approximately $ 300 million aggregate principal amount of the First Lien Term B-1 Loan, (b) repurchase or redeem the outstanding $ 300 million aggregate principal amount of the 5.250 % notes due 2020 issued by The ADT Corporation (the “ADT Notes due 2020”), and (c) pay fees and expenses associated with the foregoing, including call premiums on the ADT Notes due 2020 as well as F-30 accrued and unpaid interest on the First Lien Term B-1 Loan and the ADT Notes due 2020. The Company incurred approximately $ 8 million in deferred financing costs in connection with the additional borrowings. The First Lien Notes due 2024 and the First Lien Notes due 2026 are due at maturity, and may be redeemed, in whole or in part, at any time at a make-whole premium plus accrued and unpaid interest to, but excluding, the redemption date. Additionally, upon the occurrence of specified change of control events, the Company must offer to repurchase the notes at 101 % of the principal amount, plus accrued and unpaid interest, if any, to, but not including, the purchase date. The First Lien Notes due 2024 and the First Lien Notes due 2026 are guaranteed, jointly and severally, on a senior secured first-priority basis, by each of the Company’s existing and future direct or indirect wholly-owned material domestic subsidiaries that guarantee the First Lien Credit Agreement. First Lien Notes due 2027 In August 2020, the Company issued $ 1.0 billion aggregate principal amount of 3.375 % first-priority senior secured notes due 2027 (the “First Lien Notes due 2027”). The proceeds from the First Lien Notes due 2027, along with cash on hand, were used to redeem the outstanding $ 1.0 billion aggregate principal amount of the 6.250 % notes due 2021 issued by The ADT Corporation (the “ADT Notes due 2021”), pay accrued and unpaid interest on the ADT Notes due 2021, and pay any related fees and expenses, including the call premium on the ADT Notes due 2021. The deferred financing costs incurred in connection with the issuance of the First Lien Notes due 2027 were not material. The First Lien Notes due 2027 are due at maturity and may be redeemed at the Company’s option as follows: • Prior to August 31, 2026, in whole at any time or in part from time to time, at a make-whole premium plus accrued and unpaid interest, if any, thereon to the redemption date. • On or after August 31, 2026, in whole at any time or in part from time to time, at a redemption price equal to 100 % of the principal amount of the First Lien Notes due 2027 redeemed plus accrued and unpaid interest, if any, thereon to the redemption date. The Company’s obligations relating to the First Lien Notes due 2027 are guaranteed, jointly and severally, on a senior secured first-priority basis, by each of the Company’s domestic subsidiaries that guarantees its First Lien Credit Agreement and by each of the Company’s future domestic subsidiaries that guarantees certain of the Company’s debt. The First Lien Notes due 2027 and the related guarantees are secured by first-priority security interests in substantially all of the tangible and intangible assets owned by the issuers and each guarantor, subject to certain permitted liens and exceptions. Additionally, upon the occurrence of specified change of control events, the Company must offer to repurchase the First Lien Notes due 2027 at 101 % of the principal amount, plus accrued and unpaid interest, if any, to, but not including, the purchase date. The indenture governing the First Lien Notes due 2027 also provides for customary events of default. First Lien Notes due 2029 In July 2021, the Company issued $ 1.0 billion aggregate principal amount of 4.125 % first-priority senior secured notes due 2029 (the “First Lien Notes due 2029”). The related deferred financing costs were not material. The First Lien Notes due 2029 will mature on August 1, 2029, with semi-annual interest payment dates of February 1 and August 1 of each year, beginning February 1, 2022, and may be redeemed at the Company’s option as follows: • Prior to August 1, 2028, in whole at any time or in part from time to time, at a redemption price equal to the greater of (i) 100 % of the principal amount of the First Lien Notes due 2029 to be redeemed and (ii) the sum of the present values of the aggregate principal amount of the First Lien Notes due 2029 to be redeemed and the remaining scheduled interest payments due on any date after the redemption date, to and including August 1, 2028, discounted at an adjusted treasury rate plus 50 basis points, plus, in either case accrued and unpaid interest as of, but excluding, the redemption date. • On or after August 1, 2028, in whole at any time or in part from time to time, at a redemption price equal to 100 % of the principal amount of the First Lien Notes due 2029 to be redeemed and accrued and unpaid interest as of, but excluding, the redemption date. The Company’s obligations relating to the First Lien Notes due 2029 are guaranteed, jointly and severally, on a senior secured first-priority basis, by substantially all of the Company’s subsidiaries and are secured by first-priority security interests in substantially all of the assets of the Company’s domestic subsidiaries, subject to certain permitted liens and exceptions. In addition, upon the occurrence of specified change of control events, the Company may be required to purchase the First Lien F-31 Notes due 2029 at 101 % of the principal amount, plus accrued and unpaid interest, if any, to, but not including, the purchase date. The indenture also provides for customary events of default. ADT Notes In connection with the ADT Acquisition, the Company entered into supplemental indentures to notes originally issued by The ADT Corporation (collectively, the “ADT Notes”) providing for each series of ADT Notes to benefit from (i) guarantees by substantially all of the Company’s domestic subsidiaries and (ii) first-priority senior security interests, subject to permitted liens, in substantially all of the existing and future assets of the Company’s domestic subsidiaries. As a result, these notes remained outstanding and became obligations of the Company. ADT Notes due 2020 In September 2019, the Company repurchased and cancelled $ 147 million aggregate principal amount of the outstanding ADT Notes due 2020 for a total repurchase price of approximately $ 149 million, which included the related call premium. In October 2019, the Company redeemed the remaining $ 153 million principal amount of the outstanding ADT Notes due 2020 for a total redemption price of approximately $ 155 million, which included the related call premium. ADT Notes due 2021 In September 2020, the Company redeemed $ 1.0 billion aggregate principal amount of the ADT Notes due 2021 for a total redemption price of approximately $ 1.1 billion, which included the related call premium. ADT Notes due 2022 In August 2021, the Company used the proceeds from the First Lien Notes due 2029, along with cash on hand, to (i) redeem all of the $ 1.0 billion outstanding aggregate principal amount of the Company’s 3.50 % notes due 2022 (the “ADT Notes due 2022”) for approximately $ 1.0 billion, including the related call premium of $ 28 million, plus accrued and unpaid interest, and (ii) pay related fees and expenses (the “ADT Notes due 2022 Redemption”). Other The remaining outstanding ADT Notes are due at maturity, and may be redeemed, in whole at any time or in part from time to time, at a redemption price equal to the principal amount of the notes to be redeemed, plus a make-whole premium, plus accrued and unpaid interest as of, but excluding, the redemption date. Additionally, upon the occurrence of specified change of control events, the Company must offer to repurchase the ADT Notes at 101 % of the principal amount, plus accrued and unpaid interest, if any, to, but not including, the purchase date. Receivables Facility During March 2020, the Company entered into the Receivables Facility, as amended, whereby the Company obtains financing by selling or contributing certain retail installment contract receivables to the Company’s wholly-owned consolidated bankruptcy-remote special purpose entity (“SPE”). The SPE grants a security interest in those retail installment contract receivables as collateral for cash borrowings under the Receivables Facility. The SPE borrower under the Receivables Facility is a separate legal entity with its own creditors who will be entitled, prior to and upon the liquidation of the SPE, to be satisfied out of the SPE’s assets prior to any assets of the SPE becoming available to the Company (other than the SPE). Accordingly, the assets of the SPE are not available to pay creditors of the Company (other than the SPE), although collections from the transferred retail installment contract receivables in excess of amounts required to repay amounts then due and payable to the SPE’s creditors may be released to the Company and subsequently used by the Company (including to pay other creditors). The SPE’s creditors under the Receivables Facility have legal recourse to the transferred retail installment contract receivables owned by the SPE, and to the Company for certain performance and operational obligations relating to the Receivables Facility, but do not have any recourse to the Company (other than the SPE) for the payment of principal and interest on the advances under the Receivables Facility. Significant amendments to the Receivables Facility were as follows: • In March 2021, the Receivables Facility was amended to, among other things, extend the scheduled termination date for the uncommitted revolving period to March 4, 2022, and reduce the spread over LIBOR payable in respect of borrowings thereunder from 1.00 % to 0.85 %. F-32 • In July 2021, the Receivables Facility was amended into the form of a Receivables Financing Agreement, which continued the uncommitted secured lending arrangement contemplated among the parties and, among other things, provided for certain revisions to funding, prepayment, reporting, and other provisions in preparation for a potential future syndication of the advances made under the Receivables Facility. • In October 2021, the Company further amended the documentation governing the Receivables Facility in connection with the syndication of the advances thereunder to two additional lenders: MUFG Bank, Ltd. and Starbird Funding Corporation (a conduit lender related to BNP Paribas). As part of the amendment, the Receivables Facility’s uncommitted lending limit was increased from $ 200 million to $ 400 million, and the scheduled termination date for the Receivable Facility’s uncommitted revolving period was extended to October 28, 2022. The Company services the transferred retail installment contract receivables and is responsible for ensuring the related collections are remitted to a segregated bank account in the SPE’s name. On a monthly basis, the segregated account is utilized to make required principal, interest, and other payments due under the Receivables Facility. The segregated account is considered restricted cash and is reflected in prepaid expenses and other current assets in the Company’s Consolidated Balance Sheets. As of December 31, 2021 and 2020, the Company had an uncommitted available borrowing capacity of $ 201 million and $ 124 million, respectively, under the Receivables Facility. During 2021 and 2020, proceeds from the Receivables Facility were $ 254 million and $ 83 million, respectively, and repayments were $ 130 million and $ 7 million, respectively, which are reflected as cash flows from financing activities in the Consolidated Statements of Cash Flows. Both the proceeds and repayments during 2021 include the non-cash impact of approximately $ 88 million from the Receivables Facility amendment in October 2021. The Receivables Facility did not have a material impact to the Consolidated Statements of Operations. Variable Interest Entity The SPE, as described above, meets the definition of a variable interest entity (“VIE”) for which the Company is the primary beneficiary as it has the power to direct the SPE’s activities and the obligation to absorb losses or the right to receive benefits of the SPE. As such, the SPE’s assets, liabilities, and financial results of operations are consolidated in the Company’s consolidated financial statements. As of December 31, 2021 and 2020, the SPE’s assets and liabilities primarily consisted of unbilled retail installment contract receivables, net, of $ 299 million and $ 109 million, respectively, and borrowings under the Receivables Facility as presented above. Debt Covenants The First Lien Credit Agreement and indentures associated with the borrowings above contain certain covenants and restrictions that limit the Company’s ability to, among other things: (a) incur additional debt or issue certain preferred equity interests; (b) create liens on certain assets; (c) make certain loans or investments (including acquisitions); (d) pay dividends on or make distributions in respect of the capital stock or make other restricted payments; (e) consolidate, merge, sell, or otherwise dispose of all or substantially all of the Company’s assets; (f) sell assets; (g) enter into certain transactions with affiliates; (h) enter into sale-leaseback transactions; (i) restrict dividends from the Company’s subsidiaries or restrict liens; (j) change the Company’s fiscal year; and (k) modify the terms of certain debt or organizational agreements. In addition, the First Lien Credit Agreement and indentures associated with the borrowings above also provide for customary events of default. The Company is also subject to a springing financial maintenance covenant under the First Lien Credit Agreement, which requires the Company to not exceed a specified first lien leverage ratio at the end of each fiscal quarter if the testing conditions are satisfied. The covenant is tested if the outstanding loans under the First Lien Revolving Credit Facility, subject to certain exceptions, exceed 30 % of the total commitments under the First Lien Revolving Credit Facility at the testing date (i.e., the last day of any fiscal quarter). Loss on Extinguishment of Debt Loss on extinguishment of debt includes the payment of call and redemption premiums, the write-off of unamortized deferred financing costs and discounts, and certain other expenses associated with extinguishment of debt. During 2021, loss on extinguishment of debt totaled $ 37 million and was primarily due to the call premium and write-off of unamortized fair value adjustments in connection with the ADT Notes due 2022 Redemption. During 2020, loss on extinguishment of debt totaled $ 120 million and included (i) $ 66 million associated with the call premium and write-off of unamortized deferred financing costs in connection with the $ 1.2 billion redemption of the Prime Notes in F-33 February 2020, (ii) $ 49 million associated with the call premium and write-off of unamortized fair value adjustments in connection with the $ 1.0 billion redemption of the ADT Notes due 2021 in September 2020, and (iii) $ 5 million associated with the partial write-off of unamortized deferred financing costs and discount in connection with the $ 300 million repayment of the First Lien Term Loan due 2026 in December 2020. During 2019, loss on extinguishment of debt totaled $ 104 million and included (i) $ 22 million associated with the call premium and partial write-off of unamortized deferred financing costs in connection with the $ 300 million partial redemption of the Prime Notes in February 2019, (ii) $ 61 million associated with the call premium and partial write-off of unamortized deferred financing costs in connection with the $ 1.0 billion partial redemption of the Prime Notes in April 2019, (iii) $ 6 million associated with the partial write-off of unamortized deferred financing costs and discount in connection with the $ 500 million repayment of the First Lien Term B-1 Loan in April 2019, and (iv) $ 13 million associated with the partial write-off of unamortized deferred financing costs and discount in connection with the amendment and restatement to the First Lien Credit Agreement in September 2019. Additional fees and costs associated with financing transactions were not material during 2021 and 2020. During 2019, the Company incurred $ 23 million primarily related to the September 2019 amendment and restatement of the Company’s First Lien Credit Agreement. Other As of December 31, 2021, the aggregate annual maturities of debt, excluding finance leases, were as follows: (in thousands) 2022 2023 2024 2025 2026 Thereafter Total Debt principal $ 78,863 $ 783,298 $ 825,006 $ 63,115 $ 4,036,565 $ 4,049,911 $ 9,836,758 Interest expense on the Company’s debt, including finance leases, and interest rate swap contracts was $ 458 million, $ 710 million, and $ 623 million during 2021, 2020, and 2019, respectively. 7. Derivative Financial Instruments The Company's derivative financial instruments primarily consist of LIBOR-based interest rate swap contracts, which were entered into with the objective of managing exposure to variability in interest rates on the Company's debt. All interest rate swap contracts are reported in the Consolidated Balance Sheets at fair value. For interest rate swap contracts not designated as cash flow hedges, unrealized gains and losses are recognized in interest expense, net, in the Consolidated Statements of Operations. For interest rate swap contracts designated as cash flow hedges, unrealized gains and losses are recognized as a component of AOCI in the Consolidated Balance Sheets and are reclassified into interest expense, net, in the same period in which the related interest on debt affects earnings. For interest rate swap contracts that have been de-designated as cash flow hedges and for which the forecasted cash flows are probable or reasonably possible of occurring, unrealized gains and losses previously recognized as a component of AOCI are reclassified into interest expense, net, in the same period in which the related interest on variable-rate debt affects earnings through the original maturity date of the related interest rate swap contracts. For interest rate swap contracts that have been de-designated as cash flow hedges and for which the forecasted cash flows are probable of not occurring, unrealized gains and losses previously recognized as a component of AOCI are immediately reclassified into interest expense, net. The cash flows associated with interest rate swap contracts that included an other-than-insignificant financing element at inception are reflected as cash flows from financing activities in the Consolidated Statements of Cash Flows. As of December 31, 2018, the Company had interest rate swap contracts with an aggregate notional amount of $ 3.5 billion, of which $ 2.5 billion were designated as cash flow hedges, with maturities through April 2020 and April 2022. During January and February 2019, the Company entered into additional interest rate swap contracts, which were designated as cash flow hedges, with an aggregate notional amount of $ 725 million and a maturity of April 2022. In October 2019, and in connection with the refinancing of variable-rate debt under the First Lien Credit Agreement in September 2019, the Company terminated interest rate swap contracts with an aggregate notional amount of $ 3.8 billion, of which $ 2.8 billion were designated as cash flow hedges, and concurrently entered into new LIBOR-based interest rate swap contracts, which were designated as cash flow hedges, with an aggregate notional amount of $ 2.8 billion and maturity of September 2026. As a result, the amount of the unfavorable positions recognized as a component of AOCI related to the terminated cash flow hedges are reclassified into interest expense, net, in the same period in which the related interest on variable-rate debt affects earnings through the original maturity date of the cash flow hedges of April 2022, as the forecasted cash flows are probable or reasonably possible of occurring. Additionally, the new interest rate swap terms represented a blend of the current interest rate environment and the F-34 unfavorable positions of the terminated interest rate swap contracts, which resulted in an other-than-insignificant financing element at inception of the new cash flow hedges due to off-market terms. Beginning in March 2020, the Company's interest rate swap contracts designated as cash flow hedges with an aggregate notional amount of $ 3.0 billion were no longer highly effective as a result of changes in the interest rate environment. Accordingly, the Company de-designated the cash flow hedges, and the unrealized gains and losses for the period in which these cash flow hedges were no longer highly effective were recognized in interest expense, net. Unrealized losses previously recognized as a component of AOCI prior to de-designation will be reclassified into interest expense, net, in the same period in which the related interest on variable-rate debt affects earnings through the maturity dates of the interest rate swap contracts, as the forecasted cash flows are probable or reasonably possible of occurring. The impact associated with the interest rate swap contracts de-designated as cash flow hedges and for which the forecasted cash flows are no longer probable of occurring was not material during 2021, 2020, and 2019. The Company’s interest rate swaps as of December 31, 2021 and 2020 consisted of the following (in thousands): Execution Maturity Designation Notional Amount January 2019 April 2022 Not designated $ 125,000 February 2019 April 2022 Not designated 300,000 October 2019 September 2026 Not designated 2,800,000 Total notional amount $ 3,225,000 The unrealized impact of interest rate swaps recognized in interest expense, net, in the Consolidated Statements of Operations was as follows: Years Ended December 31, (in thousands) 2021 2020 2019 Unrealized gain (loss) on interest rate swaps $ 157,505 $ ( 60,363 ) $ ( 8,501 ) During 2021 and 2020, the Company paid $ 56 million and $ 38 million, respectively, related to settlements on interest rate swap contracts that included an other-than-insignificant financing element at inception, which is reflected in cash flows from financing activities in the Consolidated Statement of Cash Flows. The interest rate swap contracts did not have a material impact to the Consolidated Statements of Cash Flows during 2019. The classification and fair value of interest rate swaps recognized in the Consolidated Balance Sheets were as follows: December 31, (in thousands) 2021 2020 Accrued expenses and other current liabilities $ 50,360 $ 65,462 Other liabilities 67,976 210,378 Fair value of interest rate swaps $ 118,336 $ 275,840 8. Income Taxes The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the temporary differences between the recognition of revenue and expenses for income tax and financial reporting purposes and between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements. The Company records the effect of a tax rate or law change on the Company’s deferred tax assets and liabilities in the period of enactment. Significant components of income (loss) before income taxes for the periods presented were as follows: Years Ended December 31, (in thousands) 2021 2020 2019 United States $ ( 473,504 ) $ ( 782,256 ) $ ( 422,674 ) Foreign 2,315 3,337 ( 99,518 ) Income (loss) before income taxes $ ( 471,189 ) $ ( 778,919 ) $ ( 522,192 ) F-35 Significant components of income tax benefit for the periods presented were as follows: Years Ended December 31, (in thousands) 2021 2020 2019 Current: Federal $ ( 174 ) $ 370 $ ( 2,503 ) State ( 8,367 ) ( 27,059 ) ( 14,501 ) Foreign ( 570 ) — ( 2,843 ) Current income tax expense ( 9,111 ) ( 26,689 ) ( 19,847 ) Deferred: Federal 97,805 133,646 89,495 State 41,901 39,842 24,924 Foreign ( 226 ) ( 73 ) 3,470 Deferred income tax benefit 139,480 173,415 117,889 Income tax benefit $ 130,369 $ 146,726 $ 98,042 The reconciliation between the actual effective tax rate on continuing operations and the statutory U.S. federal income tax rate for the periods presented were as follows: Years Ended December 31, 2021 2020 2019 Statutory federal tax rate 21.0 % 21.0 % 21.0 % Statutory state tax rate, net of federal benefits 2.7 % 2.9 % 1.4 % Non-deductible and non-taxable charges 0.3 % ( 3.1 ) % 0.5 % Valuation allowance 0.5 % ( 1.5 ) % ( 9.4 ) % Acquisitions 1.3 % 0.2 % — % Legislative changes 0.8 % — % ( 1.2 ) % Non-deductible goodwill impairment — % — % ( 2.3 ) % Amended returns — % 0.1 % 1.9 % Net capital losses from sale of business — % 0.4 % 6.8 % Other 1.1 % ( 1.2 ) % 0.1 % Effective tax rate 27.7 % 18.8 % 18.8 % F-36 The components of the Company's net deferred tax liabilities as of December 31, 2021 and 2020 were as follows: (in thousands) December 31, 2021 December 31, 2020 Deferred tax assets: Accrued liabilities and reserves $ 113,085 $ 114,950 Tax loss and credit carryforwards 594,821 652,690 Disallowed interest carryforward 140,974 57,043 Postretirement benefits 9,273 10,221 Deferred revenue 140,604 104,791 Other 92,613 113,586 Total deferred tax assets 1,091,370 1,053,281 Valuation allowance ( 60,157 ) ( 68,013 ) Deferred tax assets, net of valuation allowance $ 1,031,213 $ 985,268 Deferred tax liabilities: Subscriber system assets $ ( 729,548 ) $ ( 684,110 ) Intangible assets ( 1,139,927 ) ( 1,271,722 ) Other ( 27,442 ) ( 18,610 ) Total deferred tax liabilities ( 1,896,917 ) ( 1,974,442 ) Net deferred tax liabilities $ ( 865,704 ) $ ( 989,174 ) The valuation allowance for deferred tax assets relates to the uncertainty of the utilization of certain U.S. federal and state deferred tax assets. In evaluating the Company’s ability to recover its deferred tax assets, the Company considers all available positive and negative evidence, which include its past operating results, the existence of cumulative losses in the most recent years, and its forecast of future taxable income. In estimating future taxable income, the Company develops assumptions related to the amount of future pre-tax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates the Company is using to manage its underlying businesses. The Company believes that it is more-likely-than-not that it will generate sufficient future taxable income to realize its deferred tax assets, net of valuation allowance. The changes in the valuation allowance for deferred tax assets for the periods presented were as follows: Years Ended December 31, (in thousands) 2021 2020 2019 Beginning balance $ ( 68,013 ) $ ( 56,841 ) $ ( 9,558 ) Income tax benefit (expense) 2,378 ( 11,999 ) ( 49,291 ) Write-offs and other (1) 5,478 827 2,008 Ending balance $ ( 60,157 ) $ ( 68,013 ) $ ( 56,841 ) __________________ (1) Includes the removal of valuation allowances associated with certain tax attributes that expired during the current year. Both the expired attributes and related valuation allowances were removed concurrently. As of December 31, 2021, the Company had approximately $ 2.2 billion of U.S. federal net operating loss (“NOL”) carryforwards with expiration periods between 2026 and 2041. Although future utilization will depend on the Company’s actual profitability and the result of income tax audits, the Company anticipates that the majority of its U.S federal NOL carryforwards will be fully utilized prior to expiration. Most of the Company’s U.S. federal NOL carryforwards are subject to limitation due to “ownership changes,” which have occurred under Internal Revenue Code (“IRC”) Section 382. The Company does not, however, expect that this limitation will impact its ability to utilize the U.S. federal NOL carryforwards. As of December 31, 2021, the Company’s valuation allowance for deferred tax assets was primarily related to capital loss carryforwards in both the U.S. and Canada primarily generated in connection with the sale of ADT Canada during 2019. The remainder of the Company’s valuation allowance related to other tax attributes not expected to be realized prior to expiration or due to limitations. The Tax Cuts and Jobs Act of 2017 introduced IRC Section 163(j), which limits the deductibility of interest expense and allows for the excess to be carried forward indefinitely. As of December 31, 2021, the Company has not recorded a valuation F-37 allowance against the disallowed interest carryforward as the Company believes it has sufficient sources of future taxable income to realize the related tax benefit. Unrecognized Tax Benefits The Company recognizes positions taken or expected to be taken in a tax return in the consolidated financial statements when it is more-likely-than-not (i.e., a likelihood of more than 50%) that the position would be sustained upon examination by tax authorities. A recognized tax position is then measured at the largest amount of benefit with greater than 50% likelihood of being realized upon ultimate settlement. The Company records liabilities for positions that have been taken but do not meet the more-likely-than-not recognition threshold. The Company adjusts the liabilities for unrecognized tax benefits in light of changing facts and circumstances; however, due to the complexity of some of these uncertainties, the ultimate resolution may result in a change to the estimated liabilities. The Company includes interest and penalties associated with unrecognized tax benefits as income tax expense and as a component of the recorded balance of unrecognized tax benefits, which is reflected in other liabilities or net of related tax loss carryforwards in the Consolidated Balance Sheets. Interest and penalties associated with unrecognized tax benefits were not material to the Company's consolidated financial statements for the periods presented. The following is a rollforward of unrecognized tax benefits for the periods presented: Years Ended December 31, (in thousands) 2021 2020 2019 Beginning balance $ 65,990 $ 65,117 $ 80,201 Gross increase related to prior year tax positions 373 1,348 5,666 Gross decrease related to prior year tax positions — ( 732 ) ( 5,237 ) Increases related to current year tax positions — — 1,000 Increases related to acquisitions — 400 1,145 Decreases related to dispositions — — ( 14,043 ) Decrease related to settlements with taxing authorities — — ( 3,717 ) Decreases related to lapse of statute of limitation ( 142 ) ( 143 ) ( 460 ) Other changes not impacting the statement of operations — — 562 Ending balance $ 66,221 $ 65,990 $ 65,117 The Company’s unrecognized tax benefits relate to tax years that are subject to audit by the taxing authorities in the U.S. federal, state and local, and foreign jurisdictions. Based on the current tax statutes and status of its income tax audits, the Company does not expect any significant portion of its unrecognized tax benefits to be resolved in the next twelve months. The Company files a consolidated return for its U.S. entities and separate returns for each Canadian entity. The income tax returns are subject to audit by the taxing authorities. These audits may culminate in proposed assessments which may ultimately result in a change to the estimated income taxes. The following is a summary of open tax years by jurisdiction: Jurisdiction Years Open to Audit Federal 2018 - 2020 State 2015 - 2020 Canada 2017 - 2020 COVID-19 Pandemic In response to the COVID-19 Pandemic, the American Rescue Plan Act of 2021 (the “2021 Rescue Act”) and the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) were signed into law in March 2021 and March 2020, respectively, and included significant corporate income tax and payroll tax provisions intended to provide economic relief to address the impact of the COVID-19 Pandemic. During 2020, the Company recognized favorable cash flow impacts related to the accelerated refund of previously generated alternative minimum tax credits, as well as from the deferral of remittance of certain 2020 payroll taxes, of which 50 % of the deferred amount was paid during the fourth quarter of 2021, and the remainder is due by the end of 2022. The Company also recognized a benefit from an increase in the interest expense limitation from 30 % to 50 % for tax years 2019 and 2020. F-38 9. Equity During September 2020, the Company amended its articles of incorporation to authorize the issuance of 100,000,000 shares of Class B common stock, par value of $ 0.01 per share, as well as to increase the number of authorized shares of preferred stock, par value of $ 0.01 per share, to 1,000,000 . Accordingly, the Company has two classes of common stock, Common Stock and Class B Common Stock, both of which entitle stockholders to one vote for each share of common stock. Each share of Class B Common Stock has equal status and rights to dividends with a share of Common Stock. The holders of Class B Common Stock have one vote for each share of Class B Common Stock held of record by such holder on all matters on which stockholders are entitled to vote generally; provided, however, that holders of Class B Common Stock, as such, are not entitled to vote on the election, appointment, or removal of directors of the Company. Additionally, each share of Class B Common Stock will immediately become convertible into one share of Common Stock, at the option of the holder thereof, at any time following the earlier of (i) the expiration or early termination of applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (“HSR Clearance”), required prior to such holder’s conversion of all such shares of Class B Common Stock, and (ii) to the extent HSR Clearance is not required prior to such holder’s conversion of such shares of Class B Common Stock, the date that such holder owns such shares of Class B Common Stock. Issuances of Common Stock In December 2021, the Company issued approximately 70 million shares of Common Stock with a fair value of $ 529 million in connection with the Sunpro Solar Acquisition. In January 2020, the Company issued approximately 16 million shares of Common Stock with a fair value of $ 114 million in connection with the Defenders Acquisition. Issuance of Class B Common Stock As described in Note 1 “Description of Business and Summary of Significant Accounting Policies”, in September 2020, the Company issued and sold 54,744,525 shares of Class B Common Stock to Google for an aggregate purchase price of $ 450 million. In connection with the issuance of the Class B Common Stock, the Company and Google entered into an Investor Rights Agreement (the “Investor Rights Agreement”), pursuant to which Google agreed to be bound by customary transfer restrictions and drag-along rights, and be afforded customary registration rights with respect to shares of Class B Common Stock held directly by Google. Under the terms of the Investor Rights Agreement, Google is prohibited, subject to certain exceptions, from transferring any shares of Class B Common Stock or any shares of Common Stock issuable upon conversion of the Class B Common Stock beneficially owned by Google until the earlier of (i) the three-year anniversary of issuance, (ii) the date on which the Google Commercial Agreement (as defined in Note 12 “Commitments and Contingencies”) has been terminated under certain specified circumstances, and (iii) June 30, 2022 if the Company breaches certain of its obligations under the Google Commercial Agreement. The Company estimated the fair value of the issued Class B Common Stock to be approximately $ 450 million, which represents a Level 3 fair value measurement. The estimation of the fair value included the following inputs: (i) the price per share of Common Stock, (ii) the length of the holding period restriction, (iii) an expected dividend-yield of 1.5 % during the holding period restriction, which was based on the projected dividend run-rate and dividing by the stock price, and (iv) an expected share price volatility of 30 % during the holding period restriction period, which was implied based upon an average of historical volatility of publicly traded companies in industries similar to the Company, as the Company did not have sufficient trading history to use as a basis for actual stock price volatility, as well as consideration for the Company’s debt to equity ratio. The intrinsic value of the contingently exercisable beneficial conversion feature related to the ability to convert Class B Common Stock to Common Stock as well as the fair value of Google’s option to purchase additional shares of Class B Common Stock were not material. Dividends Stockholders are entitled to receive dividends when, as, and if declared by the Company’s board of directors out of funds legally available for that purpose. In February 2019, the Company approved a dividend reinvestment plan (the “DRIP”), which allowed stockholders to designate all or a portion of the cash dividends on their shares of common stock for reinvestment in additional shares of the Company’s Common Stock. The Company recorded a liability for the full amount of the dividends when declared, and then upon settlement, the Company reduced the liability and recorded an increase in Common Stock par value and additional paid-in F-39 capital for the portion of dividends settled in shares of common stock under the DRIP. The DRIP terminated in accordance with its terms on February 27, 2021. Dividends declared on common stock during the periods presented were as follows: (in thousands, except per share data) Common Stock Class B Common Stock Declaration Date Record Date Payment Date Per Share Aggregate Per Share Aggregate February 25, 2021 March 18, 2021 April 1, 2021 $ 0.035 $ 27,220 $ 0.035 $ 1,916 May 5, 2021 June 17, 2018 July 1, 2021 0.035 27,268 0.035 1,916 August 4, 2021 September 16, 2021 October 5, 2021 0.035 27,270 0.035 1,916 November 9, 2021 December 16, 2021 January 4, 2022 0.035 29,732 0.035 1,916 Total for Year Ended December 31, 2021 $ 0.140 $ 111,490 $ 0.140 $ 7,664 March 5, 2020 March 19, 2020 April 2, 2020 $ 0.035 $ 27,117 $ — $ — May 7, 2020 June 18, 2020 July 2, 2020 0.035 26,767 — — August 5, 2020 September 18, 2020 October 2, 2020 0.035 27,047 0.035 1,916 November 5, 2020 December 21, 2020 January 4, 2021 0.035 27,105 0.035 1,916 Total for Year Ended December 31, 2020 $ 0.140 $ 108,036 $ 0.070 $ 3,832 During 2019, the Company declared aggregate dividends of $ 0.84 per share on Common Stock ($ 633 million), which included quarterly dividends of $ 0.035 per share and a special dividend of $ 0.70 per share of Common Stock (“2019 Special Dividend”). The amount of dividends settled in shares of Common Stock was approximately $ 68 million, which resulted in the issuance of 11 million shares of Common Stock. On March 1, 2022, the Company announced a dividend of $ 0.035 per share to holders of Common Stock and Class B Common Stock of record on March 17, 2022, which will be distributed on April 4, 2022. Share Repurchase Program In February 2019, the Company approved a share repurchase program (the “Share Repurchase Program”), which authorized the Company to repurchase shares of the Company’s Common Stock (up to a certain amount). The Share Repurchase Program terminated in accordance with its terms on March 23, 2021. During 2021 and 2020, there were no material repurchases of shares of Common Stock under the Share Repurchase Program. During 2019, the Company repurchased 24 million shares of Common Stock for approximately $ 150 million under the Share Repurchase Program. All of the shares repurchased were treated as retirements and reduced the number of shares issued and outstanding. In addition, the Company recorded the excess of the purchase price over the par value per share as a reduction to additional paid-in capital. Accumulated Other Comprehensive Income (Loss) The changes in AOCI during the periods presented were as follows: (in thousands) Cash Flow Hedges Foreign Currency Translation Defined Benefit Pension Plans Total AOCI Balance as of December 31, 2018 $ ( 21,284 ) $ ( 51,599 ) $ 1,104 $ ( 71,779 ) Pre-tax current period change ( 52,093 ) 59,541 ( 247 ) 7,201 Income tax benefit (expense) 13,990 ( 7,942 ) 154 6,202 Balance as of December 31, 2019 ( 59,387 ) — 1,011 ( 58,376 ) Pre-tax current period change ( 76,807 ) — ( 2,844 ) ( 79,651 ) Income tax benefit (expense) 18,693 — 719 19,412 Balance as of December 31, 2020 ( 117,501 ) — ( 1,114 ) ( 118,615 ) Pre-tax current period change 60,948 — 4,552 65,500 Income tax benefit (expense) ( 14,714 ) — ( 1,144 ) ( 15,858 ) Balance as of December 31, 2021 $ ( 71,267 ) $ — $ 2,294 $ ( 68,973 ) F-40 Amounts reclassified out of AOCI associated with cash flow hedges were as follows: Years Ended December 31, (in thousands) 2021 2020 2019 Reclassifications to interest expense, net $ 60,948 $ 54,452 $ 2,777 Reclassifications to income tax benefit $ ( 14,714 ) $ ( 13,254 ) $ ( 746 ) Additionally, during 2019, the Company reclassified $ 39 million and $ 4 million of AOCI related to foreign currency translation to loss on sale of business and income tax benefit, respectively, as a result of the sale of ADT Canada. There were no other material reclassifications of AOCI during 2021, 2020, and 2019. As of December 31, 2021, approximately $ 34 million of AOCI related to accumulated unrealized losses of interest rate swap contracts that have been de-designated as cash flow hedges is estimated to be reclassified to interest expense, net, within the next twelve months. 10. Share-Based Compensation The Company grants share-based compensation awards to participants under the 2016 Equity Incentive Plan (the “2016 Plan”) and the 2018 Omnibus Incentive Plan (the “2018 Plan”). Share-based compensation expense is included in selling, general, and administrative expenses in the Consolidated Statements of Operations and was as follows: Years Ended December 31, ( in thousands ) 2021 2020 2019 Share-based compensation expense $ 61,237 $ 96,013 $ 85,626 2016 Plan As of December 31, 2021, the Company is authorized to issue no more than approximately 5 million shares of Common Stock by the exercise or vesting of granted awards under the 2016 Plan. The Company does not expect to issue additional awards under the 2016 Plan. Unrecognized share-based compensation expense as of December 31, 2021 and share-based compensation expense during 2021, 2020, and 2019 for awards granted under the 2016 Plan were not material. Distributed Shares and Class B Unit Redemption In connection with the IPO, each holder of Class B awards (“Class B Units”), which were issued to certain participants by Ultimate Parent prior to the IPO, had their entire Class B interest in Ultimate Parent redeemed for the number of shares of the Company’s Common Stock (the “Distributed Shares”) that would have been distributed to such holder under the terms of Ultimate Parent’s operating agreement in a hypothetical liquidation on the date and price of the IPO (the “Class B Unit Redemption”). The Class B Unit Redemption resulted in a modification of the Class B Units, whereby each holder received both vested and unvested Distributed Shares in the same proportion as the holder’s vested and unvested Class B Units held immediately prior to the IPO. As a result of the Class B Unit Redemption, holders of Class B Units received a total of 20.6 million shares of the Company’s Common Stock, of which 50 % were subject to the same vesting conditions under the Class B Unit Service Tranche (the “Distributed Shares Service Tranche”), which were subject to ratable service-based vesting over a five-year period, and 50 % were subject to the same vesting conditions under the Class B Unit Performance Tranche (the “Distributed Shares Performance Tranche”), which were based on the achievement of certain investment return thresholds by Apollo. The Distributed Shares also have certain other restrictions pursuant to the terms and conditions of the Company’s Amended and Restated Management Investor Rights Agreement (the “MIRA”). The IPO triggered an acceleration of vesting of the unvested Distributed Shares Service Tranche causing them to become fully vested six months from the date of the IPO, which occurred in July 2018. The Company recorded share-based compensation expense on the Distributed Shares Performance Tranche on a straight-line basis over the derived service period of app roximately three years from the IPO date, as the vesting conditions were deemed probable following the consummation of the IPO. Share-based compensation expense associated with the Distributed Shares Performance Tranche was not material during 2021 and was $ 32 million and $ 47 million during 2020 and 2019, respectively. F-41 The following table summarizes activity related to the Distributed Shares during 2021: Performance Tranche Number of Distributed Shares Weighted-Average Grant Fair Value Unvested as of December 31, 2020 9,583,754 $ 13.10 Vested — — Forfeited ( 80,086 ) 13.42 Unvested as of December 31, 2021 9,503,668 $ 13.08 2018 Plan In January 2018, the Company approved the 2018 Plan, which became effective upon consummation of the IPO. The 2018 Plan authorizes the issuance of no more than approximately 38 million shares of Common Stock by the exercise or vesting of granted awards, which are generally stock options and restricted stock units (“RSUs”). During 2019, the Company amended the 2018 Plan, which increased the number of authorized shares of Common Stock to be issued to approximately 88 million shares. The Company satisfies the exercise of options and the vesting of RSUs through the issuance of authorized but previously unissued shares of Common Stock. Awards issued under the 2018 Plan include retirement provisions that allow awards to continue to vest in accordance with the granted terms in its entirety or on a pro-rata basis when a participant reaches retirement eligibility, as long as 12 months of service have been provided since the date of grant. Accordingly, share-based compensation expense for service-based awards is recognized on a straight-line basis over the vesting period, or on an accelerated basis for retirement-eligible participants where applicable. The Company accounts for forfeitures as they occur. Additionally, RSUs entitle the holder to dividend equivalent units (“DEUs”), which are granted as additional RSUs and are subject to the same vesting and forfeiture conditions as the underlying RSUs. DEUs are charged against accumulated deficit when dividends are paid. In December 2019, the exercise price of all options granted under the 2018 Plan prior to the payment of the 2019 Special Dividend were adjusted downward by $ 0.70 in accordance with plan provisions, which allow for adjustments to the exercise price of options upon the occurrence of certain events, such as changes in capital or operating structure. Top-up Options In connection with the Class B Unit Redemption in 2018, the Company granted 12.7 million options to holders of Class B Units (the “Top-up Options”). The Top-up Options have an exercise price equal to the initial public offering price per share of the Company’s Common Stock, as adjusted in accordance with 2018 Plan provisions, and a contractual term of ten years from the grant date. Similar to the vesting conditions outlined above for the Distributed Shares, the Top-up Options contain a tranche subject to service-based vesting (the “Top-up Options Service Tranche”) and a tranche subject to vesting based upon the achievement of certain investment return thresholds by Apollo (the “Top-up Options Performance Tranche”). Recipients of the Top-up Options received both vested and unvested Top-up Options in the same proportion as the vested and unvested Class B Units held immediately prior to the IPO and Class B Unit Redemption. The Top-up Options vesting conditions are the same as those attributable to the Distributed Shares, including the condition that accelerated vesting of the unvested options in the Top-up Options Service Tranche causing them to become fully vested six months from the IPO. Any shares of the Company’s Common Stock acquired upon exercise of the Top-up Options will be subject to the terms of the MIRA. The Company recorded share-based compensation expense associated with the Top-up Options Service Tranche on a straight-line basis over the requisite service period of six months from the IPO. Share-based compensation expense associated with the Top-up Options Performance Tranche is recognized on a straight-line basis over the derived service period of approximately three years from the IPO date and was not material during 2021, 2020, and 2019. F-42 The following table summarizes activity related to the 2018 Plan Top-up Options: Service Tranche Performance Tranche Number of Top-up Options Weighted-Average Exercise Price Number of Top-up Options Weighted-Average Exercise Price Aggregate Intrinsic Value (a) (in thousands) Weighted-Average Remaining Contractual Term (Years) Outstanding as of December 31, 2020 5,974,369 $ 13.30 5,923,973 $ 13.30 Exercised — — — — Forfeited — — ( 73,424 ) 13.30 Outstanding as of December 31, 2021 5,974,369 $ 13.30 5,850,549 $ 13.30 — 6.0 Exercisable as of December 31, 2021 5,974,369 $ 13.30 — $ 13.30 — 6.0 ________________________ (a) The intrinsic value represents the amount by which the fair value of the Company’s Common Stock exceeds the option exercise price as of December 31, 2021. Options Options granted under the 2018 Plan are primarily service-based awards that vest over a three-year period from the date of grant, have an exercise price equal to the closing price per share of the Company’s Common Stock on the date of grant, as adjusted in accordance with 2018 Plan provisions, and have a contractual term of ten years from the date of grant. The Company did not grant any options during 2021. During 2020 and 2019, the grant date fair values of options granted under the 2018 Plan were determined using the Black-Scholes valuation approach with the following assumptions: Years Ended December 31, 2020 2019 Risk-free interest rate 0.51% - 1.40% 1.58% - 2.51% Expected exercise term (years) 6 6.0 - 6.5 Expected dividend yield 2.2% - 2.7% 2.0% - 2.7% Expected volatility 45% - 46% 41% - 42% The risk-free interest rate was based on U.S. Treasury bonds with a zero-coupon rate. The Company did not have sufficient historical exercise data, and, as such, the Company estimated the expected exercise term based on factors such as vesting period, contractual period, and other share-based compensation awards with similar terms and conditions. The dividend yield was calculated by taking the annual dividend run-rate and dividing by the stock price at date of grant. The stock price volatility was implied based upon an average of historical volatility of publicly traded companies in industries similar to the Company, as the Company did not have sufficient trading history to use as a basis for actual stock price volatility, as well as consideration for the Company’s debt to equity ratio. The weighted-average grant date fair values of options granted during 2020 and 2019 were $ 1.77 and $ 2.20 , respectively. The following table summarizes activity related to 2018 Plan options during 2021: Number of Options Weighted-Average Exercise Price Aggregate Intrinsic Value (a) (in thousands) Weighted-Average Remaining Contractual Term (Years) Outstanding as of December 31, 2020 24,191,120 $ 6.60 Granted — — Exercised ( 1,951,552 ) 5.55 Forfeited ( 773,750 ) 7.49 Outstanding as of December 31, 2021 21,465,818 $ 6.64 $ 50,657 7.2 Exercisable as of December 31, 2021 10,611,711 $ 8.33 $ 19,089 6.8 ________________________ (a) The intrinsic value represents the amount by which the fair value of the Company’s Common Stock exceeds the option exercise price as of December 31, 2021. F-43 Share-based compensation expense associated with options granted under the 2018 Plan was $ 12 million, $ 16 million, and $ 12 million during 2021, 2020, and 2019, respectively. The cash flow and the intrinsic value of options exercised were not material during 2021, 2020, and 2019. As of December 31, 2021, unrecognized compensation cost related to options was not material. Restricted Stock Units RSUs granted under the 2018 Plan are primarily service-based awards with a three-year graded vesting period from the date of grant. The fair value is equal to the closing price per share of the Company’s Common Stock on the date of grant. The following table summarizes activity related to the 2018 Plan RSUs (including DEUs) during 2021: Number of RSUs Weighted-Average Grant Date Fair Value Unvested as of December 31, 2020 16,763,274 $ 6.56 Granted 6,585,882 8.09 Vested ( 6,481,391 ) 7.14 Forfeited ( 1,322,919 ) 7.32 Unvested as of December 31, 2021 15,544,846 $ 6.90 Share-based compensation expense associated with RSUs granted under the 2018 Plan was $ 46 million, $ 39 million, and $ 14 million during 2021, 2020, and 2019, respectively. The fair value of RSUs (including DEUs) that vested and converted to shares of Common Stock was approximately $ 52 million on the respective vesting dates during 2021 and was not material during 2020 and 2019. As of December 31, 2021, unrecognized compensation cost related to RSUs granted under the 2018 Plan was $ 53 million, which will be recognized over a period of 1.8 years. 11. Net Income (Loss) per Share The Company applies the two-class method for computing and presenting net income (loss) per share for each class of common stock. The two-class method allocates current period net income (loss) to each class of common stock and participating securities based on (i) dividends declared and (ii) participation rights in the remaining undistributed earnings (losses). Basic net income (loss) per share is computed by dividing the net income (loss) allocated to each class of common stock using the two-class method by the related weighted-average number of shares outstanding during the period. Additionally, basic weighted-average shares outstanding for the year ended December 31, 2021 includes approximately 5 million shares of Common Stock to be issued during 2022 in connection with the Sunpro Solar Acquisition. Diluted net loss per share gives effect to all securities representing potential common shares that were dilutive and outstanding during the period for each class of common stock. Potential shares of Common Stock include (i) incremental shares of Common Stock calculated using the treasury stock method for share-based compensation awards, (ii) incremental shares of Common Stock issuable upon the conversion of Class B Common Stock, and (iii) incremental shares of Common Stock calculated using the treasury stock method for warrants to purchase additional shares of Common Stock that were issued in connection with a business combination. Potential shares of Class B Common Stock include (i) incremental shares of Class B Common Stock calculated using the treasury stock method for the period in which the Securities Purchase Agreement was outstanding prior to closing and (ii) incremental shares of Class B Common Stock calculated using the treasury stock method for Google’s option to purchase additional shares of Class B Common Stock prior to closing. For purposes of the diluted net income (loss) per share of Common Stock computation, all potential shares of Common Stock that would be dilutive were excluded because their effect would be anti-dilutive. As a result, basic net income (loss) per share of Common Stock is equal to diluted net income (loss) per share of Common Stock for the periods presented . Accordingly, the potential shares of Common Stock that were excluded from the computation of diluted income (loss) per share of Common Stock were (i) share-based compensation awards of approximately 61 million, 66 million, and 50 million during 2021, 2020, and 2019, respectively; (ii) shares of Class B Common Stock of 55 million during 2020; and (iii) warrants to purchase additional shares of Common Stock of approximately 0.2 million during 2021. F-44 The computations of basic and diluted net income (loss) per share for each class of common stock for the periods presented are as follows: Years Ended December 31, 2021 2020 2019 (in thousands, except per share amounts) Common Stock Class B Common Stock Common Stock Class B Common Stock Common Stock Class B Common Stock Allocation of net income (loss) - basic $ ( 318,062 ) $ ( 22,758 ) $ ( 620,856 ) $ ( 11,337 ) $ ( 424,150 ) $ — Dilutive effect of potential shares of Class B common stock — — — ( 1,952 ) — — Allocation of net income (loss) - diluted $ ( 318,062 ) $ ( 22,758 ) $ ( 620,856 ) $ ( 13,289 ) $ ( 424,150 ) $ — Weighted-average shares outstanding - basic 770,620 54,745 760,483 15,855 747,238 — Dilutive potential shares of Class B common stock — — — 2,089 — — Weighted-average shares outstanding - diluted 770,620 54,745 760,483 17,944 747,238 — Net income (loss) per share - basic $ ( 0.41 ) $ ( 0.41 ) $ ( 0.82 ) $ ( 0.72 ) $ ( 0.57 ) $ — Net income (loss) per share - diluted $ ( 0.41 ) $ ( 0.41 ) $ ( 0.82 ) $ ( 0.74 ) $ ( 0.57 ) $ — 12. Commitments and Contingencies Contractual Obligations The Company’s contractual obligations for goods or services entered into in the ordinary course of business, including agreements that are enforceable and legally binding and have a remaining term in excess of one year, primarily consist of information technology services and equipment, including investments in our information technology infrastructure and telecommunication services. The following table provides the Company’s contractual obligations as of December 31, 2021 (in thousands) : 2022 2023 2024 2025 2026 Thereafter Total $ 120,307 $ 88,637 $ 45,136 $ 36,881 $ 29,463 $ — $ 320,424 Other Obligations In 2021, the Company entered into agreements for potential future customer account purchases from two distinct third parties, assuming certain conditions are met, over the course of those agreements. As of December 31, 2021, remaining commitments for those potential future customer account purchases could total approximately $ 100 million through January 2023. Google Commercial Agreement The Company and Google entered into a Master Supply, Distribution, and Marketing Agreement (the “Google Commercial Agreement”), pursuant to which Google has agreed to supply the Company with certain Google devices as well as certain Google video and analytics services (“Google Services”), for sale to the Company’s customers. Subject to customary termination rights related to breach and change of control, the Google Commercial Agreement has an initial term of seven years from the date that the Google Services are successfully integrated into the Company’s end-user security and automation platform. If the integrated service is not launched by June 30, 2022, then Google has the contractual right to require the Company to offer Google Services without integration for professional installations except for existing customers who already have ADT Pulse or ADT Control interactive services until such integration has been made. Further, subject to certain carve-outs, the Company has agreed to exclusively sell Google Services and smart-home, security, and safety devices to the Company’s customers. The exclusivity restriction does not apply to, among others, sales of Blue by ADT DIY products and services, providing services to customers on certain of the Company’s legacy platforms, sales to large commercial customers, and sales of certain devices that Google does not supply to the Company. The Google Commercial Agreement also contains customary termination rights for both parties. In addition, Google has rights to terminate the Google Commercial Agreement if (i) the Company divests any part of its direct to consumer business and the acquiring entity does not agree to assume all obligations under the Google Commercial Agreement, or (ii) the Company F-45 breaches certain provisions of the Google Commercial Agreement and does not cure such breaches. In the event that the Company breaches the Google Commercial Agreement in a manner reasonably likely to result in a material adverse effect on Google’s business or brand, or the Company breaches certain data security and privacy obligations under the Google Commercial Agreement, the Company must suspend the sale of Google Services and certain devices during the applicable cure period. Upon termination of the Google Commercial Agreement, the Company will no longer have rights to sell the Google Services or devices to new customers, subject to an applicable transition period. In addition, the Google Services may not be accessible by the Company’s customers through its integrated end-user application during any cure period for the Company’s breach of certain data security and privacy provisions of the Google Commercial Agreement or upon termination of the agreement for a breach of such provisions. The Google Commercial Agreement specifies that each party will contribute $ 150 million towards the joint marketing of devices and services; customer acquisition; training of the Company’s employees for the sales, installation, customer service, and maintenance for the product and service offerings; and technology updates for products included in such offerings. Each party is required to contribute such funds in three equal tranches, subject to the attainment of certain milestones. The Company expects to contribute the majority of these amounts by the end of 2024, however, the timing of these contributions is still uncertain. Legal Proceedings The Company is subject to various claims and lawsuits in the ordinary course of business, which include contractual disputes; worker’s compensation; employment matters; product, general, and auto liability claims; claims that the Company has infringed on the intellectual property rights of others; claims related to alleged security system failures; and consumer and employment class actions. The Company is also subject to regulatory and governmental examinations, information requests and subpoenas, inquiries, investigations, and threatened legal actions and proceedings. In connection with such formal and informal inquiries, the Company receives numerous requests, subpoenas, and orders for documents, testimony, and information in connection with various aspects of its activities. The Company records accruals for losses that are probable and reasonably estimable. These accruals are based on a variety of factors such as judgment, probability of loss, opinions of internal and external legal counsel, and actuarially determined estimates of claims incurred but not yet reported based upon historical claims experience. Legal costs in connection with claims and lawsuits in the ordinary course of business are expensed as incurred. Additionally, the Company records insurance recovery receivables from third-party insurers when recovery has been determined to be probable. The Company has not accrued for any losses for which the likelihood of loss cannot be assessed or the range of possible loss cannot be estimated. As of December 31, 2021 and 2020, the Company’s accrual related to ongoing claims and lawsuits not within the scope of an insurance program was not material. As of December 31, 2021 and 2020, the Company’s accrual for ongoing claims and lawsuits within the scope of an insurance program totaled $ 90 million and $ 89 million, respectively. Environmental Matters In October 2013, the Company was notified by subpoena that the Office of the Attorney General of California, in conjunction with the Alameda County District Attorney, is investigating whether the Company’s electronic waste disposal policies, procedures, and practices are in violation of the California Business and Professions Code and the California Health and Safety Code. During 2016, Protection One, Inc. was also notified by the same parties that it was subject to a similar investigation. The investigations have been inactive since December 2016 other than a status conference conducted in May 2019. The Company is coordinating joint handling of both investigations and continues to fully cooperate with the respective authorities. Shareholder Litigation Five substantially similar shareholder class action lawsuits related to the IPO in January 2018 were filed in the Circuit Court of the Fifteenth Judicial Circuit in and for Palm Beach County, Florida in March, April, and May 2018 and were consolidated for discovery and trial and entitled In re ADT Inc. Shareholder Litigation . The consolidated complaint in that action asserts claims on behalf of a putative class of shareholder plaintiffs and sought to represent a class of similarly situated shareholders for alleged violations of the Securities Act of 1933, as amended (the “Securities Act”). The complaint alleges that the Company defendants violated the Securities Act because the registration statement and prospectus used to effectuate the IPO were false and misleading in that they allegedly misled investors with respect to litigation involving the Company, the Company’s efforts to protect its intellectual property, and the competitive pressures faced by the Company. A similar shareholder class action lawsuit entitled Perdomo v ADT Inc., also related to the IPO in January 2018, was filed in the U.S. District Court for the Southern District of Florida in May 2018. In September 2019, the parties reached an agreement in principle to settle both the state court and the federal court actions. In connection with the agreement, the plaintiffs in the Perdomo action voluntarily dismissed the action without prejudice in October 2019. The parties agreed to a Stipulation of Settlement in September 2020. In F-46 January 2021, the State Court entered an order granting final approval of the settlement. The settlement has been administered and the matter is now concluded. California Independent Contractor Litigation In August 2017, Jabra Shuheiber filed civil litigation in Marin County Superior Court on behalf of himself and two other individuals asserting wage and hour violations against the Company. The action is entitled Jabra Shuheiber v. ADT, LLC (Case Number CV 1702912, Superior Court, Marin County). Mr. Shuheiber was the owner/operator of a sub-contractor, Maximum Protection, Inc. (“MPI”), who employed the other two plaintiffs in the litigation. In August 2018, in response to the California Supreme Court’s decision in Dynamex Operations West, Inc. v. Superior Court of Los Angeles County , counsel for Mr. Shuheiber provided the Company with a proposed amended complaint that modified the wage and hour claims such that they were brought on a class basis. The proposed class is not clearly defined but appears to be composed of two groups of individuals: 1) individual owners of sub-contractors who performed services for the sub-contractor; and 2) individuals with no ownership interest in a sub-contractor who were employed by the sub-contractor and provided services pursuant to a contract between the sub-contractor and the Company. In October 2018, the Company answered the plaintiffs’ first amended complaint and filed a cross-complaint against the plaintiffs’ sub-contracting company for indemnification pursuant to the term of ADT’s sub-contract. In November 2019, the parties reached a settlement agreement in principle. The settlement was documented and received preliminary approval from the court in July 2020. The court granted final approval of the settlement in January 2021. The settlement has been administered and the matter is now concluded. Los Angeles Alarm Permit Class Action In June 2013, the Company was served with a class action complaint in California State Court entitled Villegas v. ADT . In this complaint, the plaintiff asserted that the Company violated certain provisions of the California Alarm Act and the Los Angeles Municipal Alarm Ordinance for its alleged failures to obtain alarm permits for its Los Angeles customers and disclose the alarm permit fee in its customer contracts. The plaintiff seeks to recover damages for putative class members who were required to pay enhanced false alarm fines as a result of the Company not obtaining a valid alarm permit at the time of alarm system installation. The case was initially dismissed by the trial court and judgment was entered in the Company’s favor in October 2014, which the plaintiff appealed. In September 2016, the California Appellate Court reversed and remanded the case back to the trial court. In November 2018, the trial court granted the plaintiff’s motion for class certification and certified four subclasses of customers who received fines from the City of Los Angeles. The case settled in January 2020. The settlement received preliminary approval from the court in February 2021 and final approval in August 2021. The settlement has been administered and the court has set a case review for July 8, 2022 and the matter is expected to be concluded at that time. Wage and Hour Class Action In January 2020, the Company acquired Defenders, which was defending against litigation brought by Teddy Archer and seven other security advisors who claim unpaid overtime under the Fair Labor Standards Act (the “FLSA”), breach of contract under state law in all states, and a violation of state wage-hour laws in California, New Jersey, New York, and Washington. The lawsuit was originally filed in March 2018 in the United States District Court for the District of Delaware. During 2018, the court conditionally certified the case as an FLSA collective action. The plaintiffs seek to represent a nationwide class for unpaid wages. During March 2021, Defenders was merged with and into the Company’s ADT LLC subsidiary, which is now defending the suit. In November 2021, the Company moved to decertify the collective action. Plaintiffs moved to certify a class for state law claims. The motions remain pending. Unauthorized Access by a Former Technician In April 2020, after investigating a customer inquiry, the Company self-disclosed that a former technician based in Dallas, Texas had, during service visits, added his personal email address to approximately 200 of the Company’s customers’ accounts, which provided this employee with varying levels of unauthorized personal access to such customers’ in-home security systems. In response, the Company initiated an affirmative outreach effort to notify all customers affected by this activity and to address their concerns. Since the disclosure, seven lawsuits have been filed against the Company, and the Company intervened in an eighth lawsuit filed against the former technician. Four of these lawsuits were originally filed as putative class actions and four as individual claims. One of the individual claims and one of the putative class actions subsequently settled. In May 2020, the Company was served with a class action complaint in a case captioned Shana Doty v. ADT LLC and filed in the U.S. District Court for the Southern District of Florida. By an amended complaint, the plaintiff asserted causes of action on behalf of herself and other Company customers similarly situated, and sought to recover damages for breach of contract, negligence, intrusion upon seclusion, violation of the Computer Fraud and Abuse Act, negligent hiring, supervision and retention, and intentional infliction of emotional distress. The Company moved to dismiss the plaintiff’s amended complaint. F-47 In December 2020, the federal district court dismissed the causes of action for intrusion upon seclusion and violation of the Computer Fraud and Abuse Act, and further ruled that plaintiff may not seek to hold the Company vicariously liable for any intentional torts committed by the former technician. The Company’s motion was denied on plaintiff’s other claims. In January 2022, plaintiff filed a notice withdrawing motion for class certification and dismissing class allegations. The case will now proceed as an individual action and is in discovery. In June 2020, the Company was served with a class action complaint in a case captioned Alexia Preddy v. ADT LLC and filed in the U.S. District Court for the Southern District of Florida. By an amended complaint, the plaintiff asserted causes of action on behalf of herself and others similarly situated as individuals residing in homes of Company customers, and sought to recover damages for negligence, intrusion upon seclusion, violation of the Computer Fraud and Abuse Act, negligent hiring, supervision and retention, and intentional infliction of emotional distress. The Company moved to dismiss the plaintiff’s amended complaint and to compel arbitration. In December 2020, the federal district court granted the Company’s motion to compel arbitration. The case is stayed and administratively closed and is proceeding in arbitration as an individual claim. In April 2021, the Company accepted service of a new class action complaint filed in the U.S. District Court for the Southern District of Florida on behalf of Randy Doty, the husband of the plaintiff in Shana Doty v. ADT LLC. The claims alleged in the new complaint are substantially similar to the claims asserted in Alexa Preddy v. ADT LLC, the case which has been stayed pending arbitration. In July 2021, the federal district court dismissed the claim for intrusion upon seclusion and ruled that the plaintiff cannot proceed on theories of vicarious liability for the technician’s intentional torts. As with the Shana Doty matter, plaintiff filed a notice withdrawing motion for class certification and dismissing class allegations. The case will now proceed as an individual action and is in discovery. Following the November 2021 abandonment of their class action allegations, the lawyers in the Doty and Preddy cases filed a new complaint in the U.S. District Court for the Southern District of Florida on behalf of seven different customers and fourteen members of their respective households. The case is captioned Stefanie Bryant, et al. v. ADT LLC. The claims alleged in the new complaint are substantially similar to the claims asserted in Alexa Preddy v. ADT LLC, Shana Doty v. ADT LLC, and Randy Doty v. ADT LLC. The Company may also be subject to future legal claims. 13. Leases Company as Lessor The Company is a lessor in certain Company-owned transactions as the Company has identified a lease component associated with the right-of-use of the security system and a non-lease component associated with the monitoring and related services. For transactions in which (i) the timing and pattern of transfer is the same for the lease and non-lease components, and (ii) the lease component would be classified as an operating lease if accounted for separately, the Company applies the practical expedient to aggregate the lease and non-lease components and accounts for the combined transaction based upon its predominant characteristic, which is the non-lease component. The Company accounts for the combined component as a single performance obligation under the applicable revenue guidance, and recognizes the underlying assets within subscriber system assets, net, in the Consolidated Balance Sheets. For transactions that do not qualify for the practical expedient as the lease component represents a sales-type lease, the Company accounts for the lease and non-lease components separately. The Company’s sales-type leases are not material. Company as Lessee As part of normal operations, the Company leases real estate, vehicles, and equipment from various counterparties with lease terms and maturities through 2030. For these transactions, the Company applies the practical expedient to not separate the lease and non-lease components and accounts for the combined component as a lease. Additionally, the Company’s right-of-use assets and lease liabilities include leases with initial lease terms of 12 months or less. The Company’s right-of-use assets and lease liabilities primarily represent lease payments fixed at the commencement of a lease and variable lease payments dependent on an index or rate. Lease payments are recognized as lease cost on a straight-line basis over the lease term, which is determined as the non-cancelable period, including periods in which termination options are reasonably certain of not being exercised, and periods in which renewal options are reasonably certain of being exercised. The discount rate is determined using the Company’s incremental borrowing rate coinciding with the lease term at the commencement of a lease. The incremental borrowing rate is estimated based on publicly available data for the Company’s debt instruments and other instruments with similar characteristics. F-48 Lease payments that are neither fixed nor dependent on an index or rate and vary because of changes in usage or other factors are included in variable lease costs. Variable lease costs are recorded in the period in which the obligation is incurred and primarily relate to fuel, repair, and maintenance payments as they vary based on the usage of leased vehicles. The Company’s leases do not contain material residual value guarantees or restrictive covenants. The Company’s subleases are not material. Leases recognized in the Consolidated Balance Sheets were as follows (in thousands): December 31, Presentation Classification 2021 2020 Operating Current Prepaid expenses and other current assets $ 230 $ 684 Operating Non-current Other assets 125,945 138,408 Finance Non-current Property and equipment, net (a) 88,962 54,414 Total right-of-use assets $ 215,137 $ 193,506 Operating Current Accrued expenses and other current liabilities $ 37,359 $ 30,689 Finance Current Current maturities of long-term debt 38,730 26,955 Operating Non-current Other liabilities 99,734 115,694 Finance Non-current Long-term debt 54,350 34,373 Total lease liabilities $ 230,173 $ 207,711 _________________ (a) Finance right-of-use assets are recorded net of accumulated depreciation of approximately $ 78 million and $ 67 million as of December 31, 2021 and 2020, respectively. The components of total lease cost reflected in the Consolidated Statements of Operations were as follows: Years Ended December 31, Lease Cost ( in thousands ) 2021 2020 2019 Operating lease cost: $ 48,078 $ 56,680 $ 58,579 Finance lease cost: Amortization of right-of-use assets 29,269 24,509 22,957 Interest on lease liabilities 2,823 3,122 3,770 Variable lease costs 72,367 47,013 48,325 Total lease cost $ 152,537 $ 131,324 $ 133,631 The following table presents cash flow and supplemental information associated with the Company’s leases: Years Ended December 31, Other information ( in thousands ) 2021 2020 2019 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows - operating leases $ 50,721 $ 56,235 $ 57,212 Operating cash flows - finance leases $ 2,823 $ 3,122 $ 3,770 Financing cash flows - finance leases $ 32,123 $ 27,956 $ 24,918 Right-of-use assets obtained in exchange for lease obligations: Operating leases $ 21,203 $ 47,870 $ 51,909 Finance leases $ 46,920 $ 15,326 $ 52,611 F-49 The following table presents the weighted-average lease term and discount rate for operating and finance leases: December 31, Lease Term and Discount Rate 2021 2020 Weighted-average remaining lease term (years) Operating leases 4.2 4.8 Finance leases 2.8 2.5 Weighted-average discount rate Operating leases 4.8 % 5.4 % Finance leases 3.7 % 4.8 % The following table presents a maturity analysis related to the Company’s operating and finance leases, including interest, as of December 31, 2021: Maturity of Lease Liabilities ( in thousands ) Operating Leases Finance Leases 2022 $ 41,257 $ 42,871 2023 39,743 27,351 2024 26,274 18,852 2025 18,201 8,329 2026 13,149 — Thereafter 13,239 — Total lease payments (including interest) $ 151,863 $ 97,403 Less interest 14,770 4,323 Total $ 137,093 $ 93,080 14. Retirement Plans Defined Contribution Plans The Company maintains qualified defined contribution plans, which include 401(k) matching programs in the U.S., as well as similar matching programs in Canada prior to the sale of ADT Canada in 2019. Expense for the defined contribution plans is computed as a percentage of participants’ compensation and was $ 45 million, $ 40 million, and $ 34 million during 2021, 2020, and 2019, respectively. Multi-employer Plans The Company participates in certain multi-employer union pension plans, which provide benefits for a group of the Company’s unionized employees. The Company does not believe these multi-employer plans, including the Company’s required contributions and any underfunding liabilities under such plans, are material to the Company’s consolidated financial statements. Defined Benefit Plans The Company provides a defined benefit pension plan and certain other postretirement benefits to certain employees. These plans are frozen and are not material to the Company’s consolidated financial statements. As of December 31, 2021 and 2020, the fair values of pension plan assets were $ 71 million and $ 87 million, respectively, and the fair values of projected benefit obligations were $ 75 million and $ 99 million, respectively. As a result, the plans were underfunded by approximately $ 4 million and $ 12 million as of December 31, 2021 and 2020, respectively, and were recorded as a net liability in the Consolidated Balance Sheets. Net periodic benefit cost associated with these plans was not material during 2021, 2020, and 2019. In February 2021, the Company purchased annuity contracts for a certain class of pensioners and beneficiaries which settled a portion of the projected benefit obligation and is not material to the Company’s consolidated financial statements. F-50 Deferred Compensation Plan The Company maintains a non-qualified supplemental savings and retirement plan, which permits eligible employees to defer a portion of their compensation. Deferred compensation liabilities were $ 32 million and $ 28 million as of December 31, 2021 and 2020, respectively, and were recorded in other liabilities in the Consolidated Balance Sheets. Deferred compensation expense was not material during 2021, 2020, and 2019. 15. Related Party Transactions The Company’s related party transactions primarily relate to products and services received from, or monitoring and related services provided to, other entities controlled by Apollo, as well as management, consulting, and transaction advisory services provided by Apollo to the Company. The following discussion is related to the Company’s significant related party transactions. Apollo There were no significant related party transactions with Apollo during 2021 and 2020. During 2019, the Company incurred fees to Apollo of approximately $ 5 million related to the Company’s financing transactions. Rackspace During October 2020, the Company entered into a master services agreement with Rackspace US, Inc., a related party controlled by Apollo, for the provision of cloud storage, equipment, and services to facilitate the implementation of the Company’s cloud migration strategy for certain applications. The master services agreement includes a minimum purchase commitment of $ 50 million over a seven -year term. Purchases under this agreement were approximately $ 6 million and $ 0.5 million during 2021 and 2020, respectively. Sunlight ADT Solar uses Sunlight Financial LLC (“Sunlight”), a related party controlled by Apollo, to provide financing alternatives to certain ADT Solar customers. Amounts paid to Sunlight since the Sunpro Solar Acquisition were not material. F-51 16. Condensed Financial Information of Registrant ADT INC. (PARENT COMPANY ONLY) CONDENSED BALANCE SHEETS (in thousands) December 31, 2021 December 31, 2020 Assets Current assets: Cash and cash equivalents $ 1,947 $ 139,092 Total current assets 1,947 139,092 Investment in subsidiaries and other assets 3,850,198 3,472,397 Total assets $ 3,852,145 $ 3,611,489 Liabilities and stockholders' equity Current liabilities: Dividends payable and other current liabilities $ 47,482 $ 34,084 Total current liabilities 47,482 34,084 Long-term debt 527,098 518,335 Other liabilities 28,846 19,734 Total liabilities 603,426 572,153 Total stockholders' equity 3,248,719 3,039,336 Total liabilities and stockholders' equity $ 3,852,145 $ 3,611,489 The accompanying notes are an integral part of these condensed financial statements F-52 ADT INC. (PARENT COMPANY ONLY) CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (in thousands, except per share data) Years Ended December 31, 2021 2020 2019 Selling, general, and administrative expenses $ 117 $ 807 $ 477 Merger, restructuring, integration, and other ( 1,444 ) 4,532 130 Operating income (loss) ( 1,327 ) 5,339 607 Interest expense, net ( 8,743 ) ( 8,342 ) ( 211 ) Equity in net loss of subsidiaries ( 333,404 ) ( 618,512 ) ( 423,332 ) Net income (loss) ( 340,820 ) ( 632,193 ) ( 424,150 ) Other comprehensive income (loss), net of tax 49,642 ( 60,239 ) 13,403 Comprehensive income (loss) $ ( 291,178 ) $ ( 692,432 ) $ ( 410,747 ) Net income (loss) per share - basic: Common stock $ ( 0.41 ) $ ( 0.82 ) $ ( 0.57 ) Class B common stock $ ( 0.41 ) $ ( 0.72 ) $ — Weighted-average shares outstanding - basic: Common stock 770,620 760,483 747,238 Class B common stock 54,745 15,855 — Net income (loss) per share - diluted: Common stock $ ( 0.41 ) $ ( 0.82 ) $ ( 0.57 ) Class B common stock $ ( 0.41 ) $ ( 0.74 ) $ — Weighted-average shares outstanding - diluted: Common stock 770,620 760,483 747,238 Class B common stock 54,745 17,944 — The accompanying notes are an integral part of these condensed financial statements F-53 ADT INC. (PARENT COMPANY ONLY) CONDENSED STATEMENTS OF CASH FLOWS (in thousands) Years Ended December 31, 2021 2020 2019 Cash flows from operating activities: Net income (loss) $ ( 340,820 ) $ ( 632,193 ) $ ( 424,150 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Equity in net loss of subsidiaries 333,404 618,512 423,332 Other, net 24,391 30,687 39,910 Net cash provided by (used in) operating activities 16,975 17,006 39,092 Cash flows from investing activities: Contributions to subsidiaries ( 40,000 ) ( 275,000 ) — Distributions from subsidiaries 8,700 260,852 167,203 Acquisition of businesses — ( 201,453 ) — Other investing, net — 750 ( 750 ) Net cash provided by (used in) investing activities ( 31,300 ) ( 214,851 ) 166,453 Cash flows from financing activities: Proceeds from issuance of common stock, net of related expenses — 447,811 — Proceeds from long-term borrowings — — 509,460 Dividends on common stock ( 116,348 ) ( 109,328 ) ( 564,767 ) Repurchases of common stock — ( 4 ) ( 149,868 ) Other financing, net ( 6,472 ) ( 1,896 ) ( 24 ) Net cash provided by (used in) financing activities ( 122,820 ) 336,583 ( 205,199 ) Cash and cash equivalents and restricted cash and restricted cash equivalents: Net increase (decrease) during the period ( 137,145 ) 138,738 346 Beginning balance 139,092 354 8 Ending balance $ 1,947 $ 139,092 $ 354 Supplementary cash flow information: Issuance of shares in lieu of cash dividends $ 4 $ 15 $ 67,767 Issuance of shares for acquisition of business $ 528,503 $ 113,841 $ — The accompanying notes are an integral part of these condensed financial statements F-54 Notes to Condensed Financial Statements (Parent Company Only) 1. Basis of Presentation The condensed financial statements of ADT Inc. have been prepared in accordance with Rule 12-04, Schedule I of Regulation S-X, as the restricted net assets of the subsidiaries of ADT Inc. (as defined in Rule 4-08(e)(3) of Regulation S-X) exceed 25% of the consolidated net assets of the Company. The ability of ADT Inc.’s operating subsidiaries to pay dividends may be restricted due to the terms of the subsidiaries’ First Lien Credit Agreement and the indentures governing other borrowings. The condensed financial statements of ADT Inc. have been prepared using the same accounting principles and policies described in Note 1 “Description of Business and Summary of Significant Accounting Policies” with the only exception being that the parent company accounts for its subsidiaries using the equity method of accounting. These condensed financial statements should be read in conjunction with the Company’s consolidated financial statements and related notes thereto. 2. Transactions with Subsidiaries The majority of ADT Inc.’s transactions with its subsidiaries are related to (i) the receipt of distributions from subsidiaries in order to fund equity transactions, such as the payment of dividends and the repurchase of Common Stock, (ii) the contribution to subsidiaries of proceeds received from equity transactions, or (iii) the integration of business acquisitions into the Company’s organizational structure. During 2021, ADT Inc. made non-cash contributions to subsidiaries of approximately $ 630 million related to the transfer of net assets of certain subsidiaries for the acquisition of Sunpro Solar, including $ 529 million in the issuance of shares, as well as, share-based compensation. During 2020, ADT Inc. acquired Defenders and Cell Bounce. In addition, ADT Inc. received a non-cash distribution of $ 43 million related to intangible assets from a subsidiary and made non-cash contributions to subsidiaries of approximately $ 434 million related to the transfer of net assets of certain subsidiaries and share-based compensation. During 2019, ADT Inc. entered into an intercompany loan with a subsidiary in connection with the sale of ADT Canada. ADT Inc. also received non-cash distributions from subsidiaries of $ 891 million primarily related to the distribution of net assets and intercompany loans in connection with the sale of ADT Canada. In addition, ADT Inc. made non-cash contributions to subsidiaries of approximately $ 146 million primarily related to share-based compensation and intercompany loans in connection with the sale of ADT Canada. F-55