Playtika Holding Corp. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA PLAYTIKA HOLDING CORP. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm (PCAOB ID# 1281 ) 80 Consolidated Balance Sheets 82 Consolidated Statements of Comprehensive Income 83 Consolidated Statements of Stockholders' Equity (Deficit) 84 Consolidated Statements of Cash Flows 85 Notes to Consolidated Financial Statements 87 - 122 79 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of PLAYTIKA HOLDING CORP. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Playtika Holding Corp. (the “Company“) as of December 31, 2021 and 2020, the related consolidated statements of comprehensive income, stockholders’ equity (deficit) and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at 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 U.S. generally accepted accounting principles. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements 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 audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the 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 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 financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the 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. 80 Valuation of intangible assets acquired and contingent consideration in the acquisition of Reworks Oy. Description of the Matter As describe in Note 2 to the consolidated financial statements, on August 31, 2021, the Company entered into a purchase agreement pursuant to which the Company (i) acquired 80% of the issued and registered share capital of Reworks Oy (the "Reworks Oy acquisition") for a cash consideration of $400 million, and (ii) will acquire the remaining 20% of the share capital for additional cash consideration in an amount to be determined based on 2022 results, up to $200.0 million. The transaction was accounted for as a business combination in accordance with ASC 805 "Business Combinations". The Company recognized developed game and user-based intangible assets in the amount of $143.0 million and recorded contingent consideration liability in the amount of $33.7 million. The intangible assets and contingent consideration liability were recorded at their estimated fair values as of the date of the acquisition. These valuations required management to make significant judgments, estimates, and assumptions. Auditing the Company's accounting for Reworks Oy acquisition was complex due to the significant estimation required by management to determine the fair values of the developed game and user-based intangible assets and contingent consideration liability. The significant estimations were primarily due to the complexity of the valuation models used by management to measure the fair values and the sensitivity of the respective fair values to the significant underlying assumptions such as forecasted results and discount rates. These significant assumptions are forward looking and could be affected by future economic and market conditions. How We Addressed the Matter in Our Audit To test the estimated fair value of the contingent consideration liability, we performed audit procedures that included, among others, assessing the terms of the arrangement, including the conditions that must be met for the contingent consideration to become payable. We also involved our valuation specialists to assist in testing the significant assumptions used in the model, including the completeness and accuracy of the underlying data. For example, we compared the significant assumptions to current industry, market and economic trends and to the Company's budgets and forecasts. To test the estimated fair value of the developed game and user base intangible assets, we performed audit procedures that included, among others, evaluating the Company's use of valuation methodologies, evaluating the prospective financial information and testing the completeness and accuracy of underlying data supporting the significant assumptions and estimates. For example, we compared the significant assumptions to current industry, market and economic trends, historical results of the acquired business and to other relevant factors. We involved our valuation specialists to assist in our evaluation of the significant assumptions and to assist with reconciling the prospective financial information with other prospective financial information prepared by the Company. /s/ KOST FORER GABBAY & KASIERER KOST FORER GABBAY & KASIERER A Member of Ernst & Young Global We have served as the Company’s auditor since 2016. Tel-Aviv, Israel March 1, 2022 81 CONSOLIDATED BALANCE SHEETS (In millions, except for per share data) December 31, 2021 2020 ASSETS Current assets Cash and cash equivalents $ 1,017.0 $ 520.1 Short-term bank deposits 100.1 — Restricted cash 2.0 3.5 Accounts receivable 143.7 129.3 Prepaid expenses and other current assets 72.9 101.6 Total current assets 1,335.7 754.5 Property and equipment, net 103.3 98.5 Operating lease right-of-use assets 89.4 73.4 Intangible assets other than goodwill, net 417.3 327.7 Goodwill 788.1 484.8 Deferred tax assets, net 38.3 28.5 Investment in unconsolidated entities 17.8 1.5 Other non-current assets 13.4 7.3 Total assets $ 2,803.3 $ 1,776.2 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities Current maturities of long-term debt $ 12.2 $ 104.6 Accounts payable 45.7 34.6 Operating lease liabilities, current 17.2 16.4 Accrued expenses and other current liabilities 494.6 484.8 Total current liabilities 569.7 640.4 Long-term debt 2,422.9 2,209.8 Contingent consideration 28.7 — Employee related benefits and other long-term liabilities 23.7 16.1 Operating lease liabilities, long-term 82.3 67.0 Deferred tax liabilities 53.7 86.4 Total liabilities 3,181.0 3,019.7 Commitments and contingencies (Note 13) Stockholders' equity (deficit) Common stock of US $ 0.01 par value: 1,600.0 shares authorized and 411.1 issued and outstanding at December 31, 2021; 400.0 shares authorized and 391.1 shares issued and outstanding as of December 31, 2020 4.1 3.9 Additional paid-in capital 1,032.9 462.3 Accumulated other comprehensive income 3.2 16.7 Accumulated deficit ( 1,417.9 ) ( 1,726.4 ) Total stockholders' deficit ( 377.7 ) ( 1,243.5 ) Total liabilities and stockholders’ deficit $ 2,803.3 $ 1,776.2 The accompanying notes are an integral part of these consolidated financial statements. 82 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In millions, except for per share data) Year ended December 31, 2021 2020 2019 Revenues $ 2,583.0 $ 2,371.5 $ 1,887.6 Costs and expenses Cost of revenue 729.0 712.2 566.3 Research and development 386.7 268.9 210.5 Sales and marketing 581.7 502.0 413.7 General and administrative 323.4 501.2 199.7 Total costs and expenses 2,020.8 1,984.3 1,390.2 Income from operations 562.2 387.2 497.4 Interest expense and other, net 153.8 192.8 61.1 Income before income taxes 408.4 194.4 436.3 Provision for income taxes 99.9 102.3 147.4 Net income 308.5 92.1 288.9 Other comprehensive income (loss) Foreign currency translation ( 18.6 ) 19.6 ( 3.2 ) Change in fair value of derivatives 5.1 — — Total other comprehensive income (loss) ( 13.5 ) 19.6 ( 3.2 ) Comprehensive income $ 295.0 $ 111.7 $ 285.7 Net income per share attributable to common stockholders, basic $ 0.75 $ 0.24 $ 0.76 Net income per share attributable to common stockholders, diluted $ 0.75 $ 0.24 $ 0.76 Weighted-average shares used in computing net income per share attributable to common stockholders, basic 408.9 384.7 378.0 Weighted-average shares used in computing net income per share attributable to common stockholders, diluted 411.0 384.7 378.0 The accompanying notes are an integral part of these consolidated financial statements. 83 CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT) (In millions) Share Capital Shares Amount Additional paid-in capital Accumulated other comprehensive income (loss) Retained earnings (deficit) Total stockholders’ equity (deficit) Balance as of January 1, 2019 378.0 $ 3.8 $ 202.1 $ 0.3 $ 258.5 $ 464.7 Net income — — — — 288.9 288.9 Dividend distribution — — — — ( 2,365.9 ) ( 2,365.9 ) Other comprehensive loss — — — ( 3.2 ) — ( 3.2 ) Balance as of December 31, 2019 378.0 3.8 202.1 ( 2.9 ) ( 1,818.5 ) ( 1,615.5 ) Net income — — — — 92.1 92.1 Stock-based compensation — — 276.0 — — 276.0 Issuance of shares upon vesting of RSUs 13.1 0.1 ( 0.1 ) — — — Shares withheld for tax withholdings — — ( 15.7 ) — — ( 15.7 ) Other comprehensive income — — — 19.6 — 19.6 Balance as of December 31, 2020 391.1 3.9 462.3 16.7 ( 1,726.4 ) ( 1,243.5 ) Net income — — — — 308.5 308.5 Issuance of common stock in the IPO, net of underwriting commission and offering costs 18.5 0.2 467.5 — — 467.7 Stock-based compensation — — 103.1 — — 103.1 Issuance of shares upon vesting of RSUs 1.5 * — — — * Other comprehensive loss — — — ( 13.5 ) — ( 13.5 ) Balance as of December 31, 2021 411.1 $ 4.1 $ 1,032.9 $ 3.2 $ ( 1,417.9 ) $ ( 377.7 ) _________ * Represents an amount less than 0.1 or $0.1 The accompanying notes are an integral part of these consolidated financial statements. 84 CONSOLIDATED STATEMENT OF CASH FLOWS (In millions) Year ended December 31, 2021 2020 2019 Cash flows from operating activities Net income $ 308.5 $ 92.1 $ 288.9 Adjustments to reconcile net income to net cash from operating activities: Depreciation 42.5 37.6 23.6 Amortization of intangible assets 103.0 81.6 49.4 Stock-based compensation 100.4 276.0 — Change in deferred tax, net ( 72.7 ) ( 13.1 ) 40.8 Amortization of loan discount 31.5 15.3 10.3 Change in fair value of contingent consideration ( 5.0 ) 17.4 21.4 Capital gain from sale of investment ( 1.2 ) — — Loss (gain) from foreign currency ( 0.2 ) ( 10.0 ) 1.8 Non-cash lease expenses 0.2 5.1 4.9 Changes in operating assets and liabilities: Accounts receivable ( 7.5 ) ( 1.7 ) ( 15.4 ) Prepaid expenses and other current and non-current assets 28.8 ( 21.7 ) ( 2.4 ) Accounts payable 5.9 ( 20.2 ) 8.0 Accrued expenses and other current and non-current liabilities 17.5 59.3 60.6 Net cash provided by operating activities 551.7 517.7 491.9 Cash flows from investing activities Purchase of property and equipment ( 47.4 ) ( 54.1 ) ( 55.3 ) Capitalization of internal use software costs ( 33.1 ) ( 33.3 ) ( 17.2 ) Purchase of intangible assets ( 19.1 ) ( 10.7 ) ( 19.9 ) Payments for business combination, net of cash acquired ( 394.1 ) — ( 422.7 ) Short-term bank deposits ( 100.0 ) — — Purchase of long-term investments ( 17.8 ) — — Other investing activities 2.1 — ( 1.4 ) Net cash used in investing activities ( 609.4 ) ( 98.1 ) ( 516.5 ) Cash flows from financing activities Proceeds from bank borrowings 887.7 — 4,998.6 Repayments on bank borrowings ( 965.3 ) — ( 2,672.6 ) Proceeds from issuance of unsecured notes, net 178.9 — — Proceeds from issuance of common stock, net 470.4 ( 2.4 ) — Payment of debt issuance costs ( 12.0 ) — — Borrowings under revolving credit facility — 250.0 33.3 Repayment of term loan and revolving credit facility — ( 408.3 ) — Payment of tax withholdings on stock-based payments — ( 15.7 ) — Net cash out flow for business acquisitions and other — ( 4.9 ) — Distribution to the stockholder — — ( 2,365.9 ) Net cash provided by (used in) financing activities 559.7 ( 181.3 ) ( 6.6 ) Effect of exchange rate changes on cash and cash equivalents ( 6.6 ) 13.3 ( 2.4 ) Net change in cash, cash equivalents and restricted cash 495.4 251.6 ( 33.6 ) Cash, cash equivalents and restricted cash at the beginning of the period 523.6 272.0 305.6 Cash, cash equivalents and restricted cash at the end of the period $ 1,019.0 $ 523.6 $ 272.0 85 Year ended December 31, 2021 2020 2019 Supplemental cash flow disclosures Cash paid for income taxes $ 102.3 $ 81.1 $ 62.8 Cash paid for interest $ 93.9 $ 182.4 $ 47.6 Cash received for interest $ 0.5 $ 1.7 $ 1.5 Non-cash financing and investing activities Right-of-use assets acquired under operating leases $ 41.0 $ 30.0 $ 17.7 Contingent consideration related to business acquisition $ 33.7 $ — $ 4.9 Capitalization of stock-based compensation costs $ 2.7 $ — $ — Accrued offering costs $ — $ 2.6 $ — The accompanying notes are an integral part of these consolidated financial statements. 86 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In millions, unless specified otherwise) NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of business and organization Playtika Holding Corporation (“Playtika”) and its subsidiaries (together with Playtika, the “Company”) is one of the world’s leading developers of mobile games creating fun, innovative experiences that entertain and engage its users. It has built best-in-class live game operations services and a proprietary technology platform to support its portfolio of games which enable it to drive strong user engagement and monetization. The Company’s games are free-to-play, and the Company seeks to provide novel, curated in-game content and offers to its users, at optimal points in their game journeys to drive user engagement and monetization. As of December 31, 2021, the Company had operations in Argentina, Australia, Austria, Belarus, Canada, Finland, Germany, India, Israel, Poland, Romania, Switzerland, Ukraine, the United Kingdom and the United States. Playtika Holding Corp.’s initial public offering On January 20, 2021, the Company completed its initial public offering (the “IPO”) of 79,925,000 shares of common stock at a public offering price of $ 27.00 per share, of which the Company sold 18,518,500 shares and Playtika Holding UK II Limited (“Playtika Holding UK”) sold 61,406,500 shares. The Company’s common stock is listed on the Nasdaq Global Select Market under the symbol “PLTK”. The net proceeds to the Company from the initial public offering were approximately $ 468.0 million, after deducting the underwriting discounts and commissions and estimated offering expenses payable by the Company, to be used for general corporate purposes, including working capital, operating expenses, capital expenditures, repayment of borrowing under its Term Loan, and potential future acquisitions. The Company did not receive any proceeds from the sale of shares of common stock in the offering by Playtika Holding UK. Basis of presentation and consolidation The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) and include Playtika and all subsidiaries in which the Company has a controlling financial interest. Control generally equates to ownership percentage, whereby (i) affiliates that are more than 50 % owned are consolidated; (ii) investments in affiliates of 50 % or less but greater than 20 % are generally accounted for using the equity method where the Company has determined that it has significant influence over the entities; and (iii) investments in affiliates of 20 % or less are generally accounted for at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. In the opinion of management, all adjustments considered necessary for a fair presentation have been recorded within the accompanying financial statements, consisting of normal, recurring adjustments, and all intercompany balances and transactions have been eliminated in the consolidation. Investment in unconsolidated entities The Company holds certain equity investments in various unconsolidated entities that, based upon the structure of the investment, are not within the scope of equity method investment accounting that would lead to the consolidation conclusions above. Instead, these investments fall within the scope of ASC 321, Investments - Equity Securities. As permitted within that guidance, the Company has elected to account for these investments at cost less impairment, adjusted for changes in fair value from observable transactions for identical or similar investments of the same issuer as of the respective transaction dates. No change to the carrying amounts were recorded in the year ended December 31, 2021. 87 Use of estimates The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions. The Company's management believes that the estimates, judgments and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Financial statements in United States dollars The currency of the primary economic environment in which the operations of Playtika and certain subsidiaries are conducted is the U.S. dollar ("dollar"); thus, the dollar is the functional currency of Playtika and certain subsidiaries. Playtika and certain subsidiaries' transactions and balances denominated in dollars are presented at their original amounts. Non-dollar transactions and balances have been remeasured to dollars in accordance with ASC 830, Foreign Currency Matters . All transaction gains and losses from remeasurement of monetary balance sheet items denominated in non-dollar currencies are reflected in the statements of comprehensive income as financial income or expenses, as appropriate. For those consolidated subsidiaries whose functional currency has been determined to be a non-dollar currency, assets and liabilities are translated at year-end exchange rates and statement of income items are translated at average exchange rates prevailing during the year. Such translation adjustments are recorded as a separate component of accumulated other comprehensive income in stockholders' equity (deficit). Concentration of credit risk and significant customers Financial instruments, which potentially expose the Company to concentrations of credit risk, consist primarily of cash and cash equivalents, short-term bank deposits, restricted cash, accounts receivable and derivative contracts. A large percentage of the Company's cash is maintained with three financial institutions with high credit standings. The Company performs periodic evaluations of the relative credit standing of these financial institutions. Apple, Facebook and Google are significant distribution, marketing, promotion and payment platforms for the Company's games. A significant portion of the Company’s revenues has been generated from players who accessed the Company's games through these platforms. Therefore, the Company's accounts receivable are derived mainly from sales through these three platforms. Accounts receivable are recorded at their transaction amounts and do not bear interest. The Company performs ongoing credit evaluations of its customers. The following table summarizes the major accounts receivable of the Company as a percentage of the total accounts receivable: December 31, 2021 2020 % Apple 42 38 Google 34 35 Facebook 8 11 Accounts receivable are non-interest bearing and are initially recorded at cost. The Company bases its allowance for doubtful accounts on management's best estimate of the amount of probable credit losses in the Company's existing accounts receivable based on historical collection experience and current and expected future economic and market conditions. 88 Cash and cash equivalents Cash and cash equivalents consist of cash and highly liquid investments with maturities of three months or less from the date of purchase and are stated at the lower of cost or market value. Cash equivalents include investments in money market funds that can be redeemed immediately at the current net asset value. Restricted cash Restricted cash primarily consists of deposits to secure obligations under the Company's operating lease agreements and to secure company-issued credit cards . Short-term bank deposits Bank deposits with maturities of more than three months but less than one year are included in short-term bank deposits. Such short-term bank deposits are stated at cost which approximates fair market value. Property and equipment, net The Company states property and equipment at cost. The Company computes depreciation using the straight-line method over the estimated useful lives of the respective assets or, in the case of leasehold improvements, the lease term of the respective assets, whichever is shorter. The depreciation periods for the Company's property and equipment are as follows: Useful life Computers and peripheral equipment 3 to 5 years Office furniture and equipment 4 to 14 years Vehicles and aircraft 3 to 7 years Leasehold improvements Shorter of the estimated useful life or remaining term of lease Software development costs The Company reviews internal use software development cost associated with infrastructure and new games or updates to existing games to determine if the costs qualify for capitalizing. The development costs incurred during the application development stage that are related to infrastructure are capitalized. Internal use software is included in intangible assets other than goodwill, net in the accompanying consolidated balance sheets. Capitalization of such costs begins when the preliminary project stage is completed and ceases at the point in which the project is substantially complete and is ready for its intended purpose. With respect to new games or updates to existing games, the preliminary project stage remains ongoing until just prior to worldwide launch. The development costs of new games or updates to existing games are expensed as incurred to research and development in the consolidated statements of comprehensive income. Capitalized internal use software costs were approximately $ 35.5 million, $ 33.3 million and $ 17.2 million during the years ending December 31, 2021, 2020 and 2019, respectively. The estimated useful life of costs capitalized is generally three years. During the years ended December 31, 2021, 2020 and 2019, the amortization of capitalized software costs totaled approximately $ 21.8 million, $ 8.9 million and $ 0.3 million, respectively. Business combination The Company applies the provisions of ASC 805, Business Combination and allocates the fair value of purchase consideration to the tangible assets acquired, liabilities assumed, and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is 89 recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to future expected cash flows from acquired technology and acquired trademarks and user base from a market participant perspective, useful lives and discount rates. Management's estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable. Goodwill Goodwill represents the excess of the purchase price in a business combination over the fair value of the net tangible and intangible assets acquired. Under ASC 350, Intangible - Goodwill and Other ("ASC 350"), goodwill is not amortized, but rather is subject to an annual impairment test. The Company tests goodwill for impairment as of October 1st of each year, or more frequently if events or changes in circumstances indicate that this asset may be impaired. For the purposes of impairment testing, the Company has determined that it has one reporting unit. When performing the annual goodwill impairment testing, the Company either conducts a qualitative assessment to determine whether it is more likely than not that the asset is impaired, or elects to bypass this qualitative assessment and perform a quantitative test for impairment. Under the qualitative assessment, the Company considers both positive and negative factors, including macroeconomic conditions, industry events, financial performance and other changes, and makes a determination of whether it is more likely than not that the fair value of goodwill is less than its carrying amount. If, after assessing the qualitative factors, the Company determines it is more likely than not the asset is impaired, it then performs a quantitative test in which the estimated fair value of the reporting unit is compared with its carrying amount, including goodwill. If the carrying amount of the reporting unit exceeds its estimated fair value, an impairment loss is recognized in an amount equal to the excess, limited to the amount of goodwill allocated to the reporting unit. Intangible assets other than goodwill, net Intangible assets other than goodwill are amortized over their estimated useful lives using the straight-line method, using the following ranges of useful lives: Useful life Developed games and acquired technology 1 to 10 years Trademarks and user base 1 to 5 years Internal use software 3 years Impairment of long-lived assets The Company’s long-lived assets to be held or used, including right-of-use (“ROU”) assets, and identifiable intangible assets that are subject to amortization are tested for impairment as of October 1st of each year, or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, in accordance with ASC 360, Accounting for the Impairment or Disposal of Long-Lived Assets. Impairment indicators include any significant changes in the manner of the Company’s use of the assets and significant negative industry or economic trends. The Company recognizes impairment based on the difference between the fair value of the asset and its carrying value. Fair value is generally measured based on either quoted market prices, if available, or a discounted cash flow analysis. Upon determination that the carrying value of a long-lived asset may not be recoverable based upon a comparison of aggregate undiscounted projected future cash flows to the carrying amount of the asset, an impairment charge is recorded for the excess of the carrying amount over fair value. 90 Leases The Company is the lessee under non-cancelable office real estate and data center leases. The Company accounts for its leases under ASU No. 2016-02, Leases (Topic 842) . Operating lease ROU assets and liabilities are recognized at the commencement date and initially measured based on the present value of lease payments and lease incentives received over the defined lease term. The Company’s lease terms may include options to extend or terminate the lease. The Company assesses these options using a threshold of reasonably certain. For leases the Company is reasonably certain to renew, those option periods are included within the lease term and, therefore, the measurement of the right-of-use asset and lease liability. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company’s real estate lease agreements do not contain any material residual value guarantees, restrictions or covenants. The Company’s lease agreements with lease and non-lease components are accounted for separately. As most of the Company’s leases do not provide an implicit rate, the incremental borrowing rate is estimated based upon the capital structure of the Company and upon the other information available at the lease commencement date in determining the present value of lease payments. The implicit rate will be used when readily determinable. The operating lease ROU assets also include any prepaid lease payments made and are net of lease incentives. The Company does not record an asset or liability for operating leases with a term of 12 months or less. Revenue recognition The Company primarily derives revenue from the sale of virtual items associated with online games. The Company distributes its games to the end customer through various web and mobile platforms such as Apple, Facebook, Google, and other web and mobile platforms. Through these platforms, users can download the Company’s free-to-play games and can purchase virtual currency which is redeemed in the game for virtual goods, or players can purchase virtual goods directly (collectively referred to as virtual items) to enhance their game-playing experience. The initial download of the games does not create a contract under ASC 606, Revenue from Contracts with Customers ; however, the separate election by the player to make an in-application purchase satisfies the ASC 606 criterion for creating a contract. Players can pay for their virtual item purchases through various widely accepted payment methods offered in the games. Payments from players for virtual items are required at the time of purchase, are non-refundable and relate to non-cancellable contracts that specify the Company’s obligations and cannot be redeemed for cash nor exchanged for anything other than virtual items within the Company’s games. The purchase price is a fixed amount which reflects the consideration that the Company expects to be entitled to receive in exchange for use of virtual items by its customers. The platform providers collect proceeds from the game players and remit the proceeds to the Company after deducting their respective platform fees. The Company is primarily responsible for providing the virtual items, has control over the content and functionality of games and has the discretion to establish the virtual items’ prices. Therefore, the Company is the principal and, accordingly revenues are recorded on a gross basis. Payment processing fees paid to platform providers are recorded within cost of revenue. The Company’s performance obligation is to display the virtual items within the game over the estimated life of the paying player or until the virtual item is consumed in game play based upon the nature of the virtual item. The Company categorizes its virtual items as either consumable or durable. The substantial majority of the Company’s games sell only consumable virtual items. Consumable virtual items represent items that can be consumed by a specific player action and do not provide the player any continuing benefit following consumption. For the sale of consumable virtual items, the Company recognizes revenue as the items are consumed which is usually over a period of time of up to one month. The Company has determined through a review of game play behavior that players generally do not purchase additional virtual currency until their existing virtual currency balances have been substantially consumed. This review, performed on a game-by-game basis, includes an analysis of game players’ historical play behavior, purchase behavior, and the amount of virtual currency outstanding. Based upon this analysis, the Company has estimated the rate at which virtual currency is consumed during game play. Accordingly, revenue is recognized using a user-based revenue model using these estimated consumption rates. The Company monitors its analysis of customer play behavior on a quarterly basis. 91 Durable virtual items represent items that are accessible to the player over an extended period of time. The Company recognizes revenue from the sale of durable virtual items ratably over the estimated average life of the paying player, which is estimated on a game-by-game basis and generally ranges from three months up to one year. The Company estimates the average life of the paying player based on historical paying player patterns and playing behaviors within each of the specific games that offer durable virtual items. The Company monitors its operational data and player patterns and re-assesses its estimates on a quarterly basis. Deferred revenues, which represent a contract liability, represent mostly unrecognized fees collected for virtual items which are not consumed at the balance sheets date, or for players that are still active in the games. Sales and other taxes collected from customers on behalf of governmental authorities are accounted for on a net basis and are not included in revenues or operating expenses. The Company also has relationships with certain advertising service providers for advertisements within its games and revenue from these advertising providers is generated through impressions, clickthroughs, banner ads and offers. The Company has determined that displaying the advertisements within the mobile games is identified as a single performance obligation. The transaction price in advertising arrangements is established by our advertising service providers and is generally the product of the number of advertising units delivered (e.g. impressions, offers completed, etc.) and the contractually agreed upon price per unit. Revenue from advertisements and offers are recognized at a point-in-time when the advertisements are displayed in the game or the offer has been completed by the user as the customer simultaneously receives and consumes the benefits provided from these services. The Company has determined that it is generally acting as an agent in its advertising arrangements as the advertising service providers maintain the relationship with the customers, control the pricing of the advertising such that the Company does not know the total price paid by the customer to the service providers, and control the advertising product through the time the advertisements are displayed in our games. Therefore, the Company recognizes revenue related to these arrangements on a net basis. Advertising expenses Costs for marketing and advertising of the Company’s games are primarily expensed as incurred and are included in the sales and marketing expenses in the Company’s consolidated statements of comprehensive income. Such costs primarily consist of player acquisition costs. Advertising expense was $ 457.8 million, $ 408.5 million and $ 341.4 million in the years ended December 31, 2021, 2020 and 2019, respectively. Stock-based compensation expense The Company has a stock-based compensation program which provides for equity awards including time-based stock options and restricted stock units (“RSUs”). Stock-based compensation expense is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the requisite service period for the award. The Company records forfeitures as a reduction of stock-based compensation expense as those forfeitures occur. The Company used the Black-Scholes option pricing model to estimate the fair value and compensation cost associated with stock options. As it does not have a long history of market prices for its common stock because the stock was not publicly traded prior to January 2021, the Company used observable data for a group of peer companies that grant options with substantially similar terms to assist in developing its volatility assumption. The expected volatility of the stock was determined using weighted average measures of the implied volatility and the historical volatility for the Company’s peer group of companies for a period equal to the expected life of the option. The weighted-average risk-free interest rate was based on the interest rate for U.S. Treasury bonds. The expected term assumption was derived using the simplified method, which is based on an average between each vesting date and the expiration date of an option. This method was chosen because there was no historical option exercise experience due to the Company being privately held. The Company does not anticipate paying cash dividends on its shares of common stock in the future. The stock options have a contractual term of 10 years. Except as otherwise provided in an option agreement between the Company and the employee, if an employee is terminated (voluntarily or involuntarily), any unvested awards as of the date of termination will be forfeited. 92 If factors change and the Company employs different assumptions, stock-based compensation cost on future awards may differ significantly from what the Company has recorded in the past. Higher volatility and longer expected terms result in an increase to stock-based compensation determined at the date of grant. Future stock-based compensation cost and unrecognized stock-based compensation will increase to the extent that the Company grants additional equity awards to employees or assumes unvested equity awards in connection with acquisitions. If there are any modifications or cancellations of the underlying unvested equity awards, the Company may be required to accelerate any remaining unearned stock-based compensation cost or incur incremental cost. The Company uses the estimated fair value of equity and associated per-share value at the time of grant to determine the compensation cost to be recognized associated with RSUs granted. The Company’s stock-based compensation expense is recorded in the financial statement line item relevant to each of the award recipients. See Note 10, Equity Transactions and Stock Incentive Plan, for additional discussion. Significant factors, assumptions, and methodologies used in estimating fair value of equity prior to the IPO Prior to its initial public offering of equity in January 2021, the Company, with the assistance of third-party valuation experts, used a combination of the income approach (the discounted cash flow method) and the market approach (a combination of the guideline public company method and the guideline transaction method) to estimate its equity value in connection with its stock-based compensation program discussed below. The income approach involves applying an appropriate risk-adjusted discount rate to projected cash flows based on forecasted revenue and costs. The guideline transaction method estimates the value of a company by applying valuation multiples paid in actual transactions for comparable public and private companies. The values derived under the market and income approaches were used to determine an initial estimated fair market value of the Company’s equity. The initial estimated value was then subjected to a discount for the lack of marketability based on the impediments to liquidity as a result of the Company’s previous status as a private company, including the lack of publicly available information and the lack of a trading market. Subsequent to the Company’s initial public offering of equity in January 2021, the Company uses the public trading price of its common stock on the Nasdaq stock exchange as the basis for determining the fair market value for its common stock for purposes of its stock based compensation expense. There is inherent uncertainty in the Company’s forecasts and projections, and if different assumptions and estimates had been made than those described above, the amount of the equity valuation and stock-based compensation expense could have been materially different. Income taxes The Company accounts for income taxes using the asset and liability method whereby deferred tax asset and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences will reverse. The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to the amount that is more likely than not to be realized. Deferred tax assets and deferred tax liabilities are presented under long-term assets and long-term liabilities, respectively. The Company implements a two-step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50 % (cumulative basis) likely to be realized upon ultimate settlement. The Company classifies interest and penalties on income taxes (which includes uncertain tax positions) as taxes on income. See Note 17, Income Taxes, for additional discussion. 93 Employee related benefits Appreciation and retention plan In August 2019, the Company adopted the Playtika Holding Corp. Retention Plan (the “2021-2024 Retention Plan”) in order to retain key employees and reward them for contributing to the success of the Company. Under the 2021-2024 Retention Plan, eligible employees may be granted retention awards that let them receive their pro rata portion of a retention pool of $ 25 million per year for each of the plan years, and may also be granted appreciation units which allow the employee to receive their pro-rata portion of an appreciation pool calculated as a specified percentage of Adjusted EBITDA for each of the plan years as described further in Note 15, Appreciation and Retention Plans . The value of each unit of the 2021-2024 Retention Plan has been amortized into compensation expense using the straight-line method, which will result in the recognition of compensation costs in the same years as the underlying EBITDA used in the plan measurement is earned. In September 2016, the Company adopted the Playtika Holding Corp. Retention Plan (the “2017-2020 Plan”). According to the 2017-2020 Plan, appreciation unit awards were granted to selected eligible employees. These units provided the right to receive cash payments for each of the years 2017 through 2020 as a percentage (between 1.5% - 2%) of the Company's estimated appreciation in value in excess of $4.4 billion. The value of each appreciation unit was calculated based on the Company's adjusted EBITDA (as agreed in the 2017-2020 Plan) multiplied by an agreed multiplier. In addition, an annual retention bonus for each of the four years in the 2017-2020 Plan, in the amount of $ 25 million was distributed to selected eligible employees of the 2017-2020 Plan. The value of each unit of the 2017-2020 Plan was amortized into compensation expense using the graded-vesting method, which resulted in the recognition of compensation costs over the requisite service period for each separately vesting tranche of the units as though the units were, in substance, multiple units awards. Severance pay The liability for the Company’s employees in Israel in respect of severance pay is calculated in accordance with Section 14 of the Severance Pay Law 5723-1963 ("Section 14"). Section 14 states that Company's contributions for severance pay shall be in lieu of severance compensation. Upon deposit of the related obligation for the employee under Section 14, no additional obligations shall be conducted between the parties regarding the matter of severance pay and no additional payments shall be made by the Company to the employee. Expense resulting from contributions in accordance with Section 14 for the years ended December 31, 2021, 2020 and 2019 was $ 7.1 million, $ 5.7 million and $ 4.6 million, respectively. Net income per share attributable to common stockholders For all periods, basic net income per share is calculated by dividing net income by the weighted-average common shares outstanding. Diluted net income per share reflects the effect of all potentially dilutive common shares outstanding by dividing net income by the weighted-average of all common and potentially dilutive shares outstanding. In the event of a loss, diluted shares would not be considered because of their anti-dilutive effect . Derivative Instruments The Company uses interest rate swap contracts to reduce its exposure to fluctuating interest rates associated with the Company’s variable rate debt, and to effectively increase the portion of debt upon which the Company pays a fixed interest rate. The Company’s interest rate swap agreements are designated as cash flow hedges under ASC 815 involving the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreement, without the exchange of the underlying notional amount. These hedges are highly effective in offsetting changes 94 in the Company’s future expected cash flows due to the fluctuation of the one-month LIBOR rate associated with its variable rate debt. The Company monitors the effectiveness of its hedges on a quarterly basis, both qualitatively and quantitatively. The Company performed a regression analysis at inception of the hedging relationship and at period end in which it compared the change in the fair value of the swap transaction and the change in fair value of a hypothetical interest rate swap having terms that identically match the terms of the debt's interest rate payments based on 30 observations that are based on historical swap rates. Based on the regression results, the Company believes that, at inception and at period end, the hedging instrument is expected to be highly effective at offsetting changes in the hedged transactions attributable to the risk being hedged. For each future reporting period, the Company will continue performing retrospective and prospective assessments of hedge effectiveness in a single regression analysis by updating the regression analysis that was prepared at inception of the hedging relationship. The Company uses foreign currency derivative contracts to reduce its exposure to fluctuating exchange rates between the United States dollar (as the Company’s functional currency) and certain revenue or expense lines denominated in Israeli Shekels (“ILS”), Polish Zloty (“PLN”) and Romanian Leu (“RON”). The Company’s derivative contracts are designated as cash flow hedges under ASC 815. The Company monitors the effectiveness of its hedges on a quarterly basis, both qualitatively and quantitatively, and expects these hedges to remain highly effective at offsetting fluctuations in exchange rates through their respective maturity dates. The fair value of derivative financial instruments is recognized as an asset or liability at each balance sheet date, with changes in fair value recorded in other comprehensive income on the consolidated statements of comprehensive income until the future underlying transactions occur. The fair value approximates the amount the Company would pay if these contracts were settled at the respective valuation dates. The inputs used to measure the fair value of the Company’s interest rate swap agreements are categorized as Level 2 in the fair value hierarchy as established by ASC 820. The inputs used to measure the fair value of the Company’s foreign currency derivative contracts are categorized as Level 2 in the fair value hierarchy as established by ASC 820. Fair value of financial instruments The Company accounts for fair value in accordance with ASC 820, Fair Value Measurements and Disclosures ("ASC 820"). Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The Company uses a three tier hierarchy, which prioritizes the inputs used in measuring fair value as follows: Level 1 - Quoted prices in active markets for identical assets or liabilities. Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The first two levels in the hierarchy are considered observable inputs and the last is considered unobservable. The carrying value of accounts receivable and payables and the Company's cash and cash equivalents, short-term bank deposits and restricted cash, approximates fair value due to the short time to expected payment or receipt of cash. Accounting standards recently adopted by the Company In December 2019, the FASB issued ASU 2019-12, S implifying the Accounting for Income Taxes . ASU 2019-12 eliminates certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an 95 interim period and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes. This guidance is effective for public business entities for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company adopted this standard as of January 1, 2021. The adoption of this standard did not have a significant impact on the Company’s consolidated financial statements. In January 2020, the FASB issued ASU 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) . As it applies to the Company, ASU 2020-01 requires entities to remeasure their equity securities in accordance with the measurement alternative in Topic 321 upon the occurrence of an observable transaction. The Company adopted this standard as of January 1, 2021 on a prospective basis. The adoption of this standard did not have a significant impact on the Company’s consolidated financial statements. In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform , which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by the discontinuation of LIBOR or by another reference rate expected to be discontinued. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. During the year ended December 31, 2021, the Company has elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. The Company continues to evaluate the potential impacts of ASU 2020-04 and may apply other elections as applicable as additional changes in the market occur. Recently issued accounting standards not yet adopted by the Company In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805). ASU 2021-21 requires that an acquiring entity recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”) and that at the acquisition date, the acquirer accounts for related revenue contracts in accordance with ASC 606 as if it had originated the contracts. This guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted, including in interim periods. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial statements. NOTE 2. BUSINESS COMBINATIONS Acquisition of Supertreat GmbH On January 16, 2019, the Company completed the acquisition of all of the issued and outstanding shares of Supertreat GmbH ("Supertreat"), an Austrian company which owns and operates a Solitaire game, Solitaire Grand Harvest. The aggregate purchase price consisted of a fixed upfront payment of $ 90 million and an earnout consideration based on the performance in the twelve month-period after the Transition Period ( four months after the closing date) or earlier, at the Company's sole discretion. The earnout consideration has been capped so that the aggregate purchase price shall not exceed $ 200 million in the aggregate. Upon acquisition, Supertreat became a wholly-owned subsidiary of the Company. The acquisition was accounted for as a business combination. The assets acquired and liabilities assumed are recognized at their fair values at the acquisition date. The goodwill, which is non-deductible for tax purposes, is attributable to synergies between the Company's and Supertreat's respective games. 96 The following table summarizes the fair values of the assets acquired and liabilities assumed (in millions): Consideration Total consideration $ 151.2 Less: Cash acquired ( 1.9 ) Total consideration, net of cash acquired 149.3 Less: Acquisition date fair value of contingent consideration ( 3.6 ) Consideration paid as of December 31, 2019 $ 145.7 Identifiable assets acquired and liabilities assumed Accounts receivable $ 2.4 Other current assets 0.1 Property and equipment 0.1 Intangible assets other than goodwill 109.9 Goodwill 66.1 Deferred tax liabilities ( 27.5 ) Contingent consideration ( 3.6 ) Liabilities assumed ( 1.8 ) Total identifiable assets acquired and liabilities assumed $ 145.7 Acquired intangible assets included in the above table are being amortized on a straight-line basis over their estimated useful life of eight years, which approximates the pattern in which the economic benefits of the intangible assets are expected to be realized. Transaction costs incurred by the Company in connection with the Supertreat acquisition were approximately $ 1.0 million for the year ended December 31, 2019 and were recorded within general and administrative expenses in the consolidated statements of comprehensive income. For the years ended December 31, 2020 and 2019, the Company recorded expenses of $ 3.7 million and $ 21.4 million, respectively, with respect to the adjustment of the contingent consideration to estimated fair value. This expense is included within general and administrative expenses in the accompanying consolidated statements of comprehensive income. Acquisition of Seriously Holding Corp On July 30, 2019, the Company completed the acquisition of all the outstanding shares of Seriously Holding Corp. ("Seriously"), a social games company. The upfront consideration is $ 281.2 million, with the potential for the former stockholders to receive up to an additional $ 70 million based upon the results of Seriously during 2020. Upon acquisition, Seriously became a wholly-owned subsidiary of the Company. The acquisition was accounted for as a business combination. The assets acquired and liabilities assumed are recognized at their fair values at the acquisition date. The goodwill, which is non-deductible for tax purposes, is attributable to synergies between the Company's and Seriously's respective games. 97 The following table summarizes the fair values of the assets acquired and liabilities assumed (in millions): Consideration Total consideration $ 281.2 Less: Cash acquired ( 12.2 ) Total consideration, net of cash acquired 269.0 Less: Acquisition date fair value of contingent consideration ( 1.3 ) Consideration paid as of December 31, 2019 $ 267.7 Identifiable assets acquired and liabilities assumed Accounts receivable $ 8.0 Other current assets 2.6 Property and equipment 0.3 Intangible assets other than goodwill 111.3 Goodwill 189.4 Deferred tax assets 3.4 Deferred tax liabilities ( 22.3 ) Contingent consideration ( 1.3 ) Liabilities assumed ( 23.7 ) Total identifiable assets acquired and liabilities assumed $ 267.7 Acquired intangible asset included in the above table are being amortized on a straight-line basis over their estimated useful life of eight years, which approximates the pattern in which the economic benefits of the intangible assets are expected to be realized. The determination of the fair value of the acquired assets and assumed liabilities was completed in March 2020 and there were no measurement adjustments. Transaction costs incurred by the Company in connection with Seriously acquisition, were approximately $ 1.5 million for the year ended December 31, 2020 and were recorded within general and administrative expenses in the consolidated statements of comprehensive income. For the year ended December 31, 2020, the Company recorded expenses of $ 13.7 million with respect to the adjustment of the contingent consideration to estimated fair value. There were no expenses recorded in the year ended December 31, 2019. This expense is included within general and administrative expenses in the accompanying consolidated statements of comprehensive income. Acquisition of Reworks OY On August 31, 2021, the Company entered into a Share Sale and Purchase Agreement (“SPA”) pursuant to which the Company (i) acquired 80 % of all issued and registered shares and options (“Share Capital”) of Reworks Oy, a limited liability company incorporated under the laws of Finland (“Reworks”) in exchange for cash consideration of $ 400 million, subject to customary closing adjustments, and (ii) will acquire the remaining 20 % of the Share Capital for additional cash consideration (“Earnout Payment”) in an amount to be determined based on certain performance metrics during the calendar year 2022. The Earnout Payment will be calculated based on the amount of “Company EBITDA” (as defined in the SPA) in calendar year 2022 in excess of $ 10.3 million multiplied by 6.0, not to exceed $ 200 million, as further described in the SPA. In the event “Company EBITDA” (as defined in the SPA) is $ 10.3 million or less, the Earnout Payment will be $ 1 . The acquisition was accounted for as a business combination with the Company consolidating Reworks subsequent to the August 31, 2021 closing date. The assets acquired and liabilities assumed have been recognized at their estimated fair values at the acquisition date, the determination of which was completed in the fourth quarter of 2021 and there were no material 98 adjustments. The goodwill, which is non-deductible for tax purposes, is generally attributable to synergies between the Company's and Reworks' respective studio operations and apps. The acquisition date fair value of the Earnout Payment was estimated by management, with the assistance of third-party valuation specialists, based upon the probability-weighted fair values of multiple discounted cash flow analyses. The extent to which the actual EBITDA differs from the probability-weighted analysis will result in adjustments to this liability in future periods. In accordance with ASC 480, this liability has been measured at fair value as of the acquisition date and will be remeasured to fair value on each subsequent reporting date until the contingency is resolved. The selling shareholders of Reworks include both third-party investors and certain historical employees of Reworks that will continue as employees of Playtika post-acquisition. The earnout obligation payable to selling employee shareholders that will remain as employees of Playtika had an acquisition date fair value of $ 54.2 million. As the SPA includes certain forfeiture provisions for selling employee shareholders, the earnout obligation payable to these employee will be recorded as compensation expense over the period that such payment is earned. As of December 31, 2021, approximately $ 11 million has been recorded as compensation expense and is classified as an employee-related current liability on the Company’s consolidated balance sheet. The earnout obligation payable to the third-party sellers had an acquisition date fair value of $ 33.7 million. As this represents an unconditional obligation of the Company to purchase the remaining Share Capital of Reworks at an agreed upon future date, this portion of the total Earnout Payment has been classified as a liability on the Company’s consolidated balance sheet rather than non-controlling interest. As of December 31, 2021, the fair value of the earnout obligation payable to third-party sellers was $ 28.7 million and has been recorded as contingent consideration on the Company’s consolidated balance sheet. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed (in millions): Consideration Total Consideration $ 438.7 Less: Cash acquired ( 10.9 ) Total consideration, net of cash acquired 427.8 Less: Acquisition date fair value of contingent consideration ( 33.7 ) Consideration paid as of August 31, 2021 $ 394.1 Identifiable assets acquired and liabilities assumed Accounts receivable $ 9.4 Intangible assets other than goodwill 143.0 Goodwill 312.6 Deferred tax liabilities ( 28.6 ) Contingent consideration ( 33.7 ) Liabilities assumed ( 8.6 ) Total identifiable assets acquired and liabilities assumed $ 394.1 The developed game and user base intangible assets acquired and included in the above table are being amortized on a straight-line basis over their estimated useful life of six years and one year, respectively, which approximates the pattern in which the economic benefits of the intangible assets are expected to be realized. Transaction costs incurred by the Company in connection with Reworks acquisition, were approximately $ 1.0 million for the year ended December 31, 2021, and were recorded within general and administrative expenses in the consolidated statements of comprehensive income. Pro forma results of operations for this acquisition subsequent to the August 31, 2021 acquisition date have not been presented because the incremental results from Reworks are not material to the consolidated statements of comprehensive income presented herein. 99 For the year ended December 31, 2021, the Company recorded other income of $ 5.0 million with respect to the adjustment of the contingent consideration to estimated fair value. The net amount is comprised of a favorable fair value adjustment of $ 6.5 million, partially offset by $ 1.5 million of interest expense included within general and administrative expenses and interest expense, respectively, in the accompanying consolidated statement of comprehensive income. This adjustment is a result of the Company revising its projections for Reworks 2022 performance based upon the Company’s 2022 annual budget. Other development transactions During 2019, the Company acquired certain technology assets and assembled workforces to expand the Company’s game portfolio and in-house expertise. These acquisitions were not individually or in the aggregate significant. Each of these transactions did not meet the definition of business combinations and were therefore accounted for under other appropriate accounting guidance. For the acquired workforce transactions, the Company recorded an aggregate of approximately $ 32.6 million in recruiting expense during the year ended December 31, 2019. These recruiting expenses are included in general and administrative expenses in the consolidated statements of comprehensive income. For the acquisition of the technology assets, the asset purchase agreement was entered into in October 2019. Consideration paid or payable under the asset purchase agreement includes an upfront payment of $ 5.0 million. In February 2020, the Company acquired an assembled workforce to expand the Company’s game portfolio and in-house expertise for approximately $ 12.1 million. This acquisition was recorded as expense during the quarter ended March 31, 2020. NOTE 3. PREPAID EXPENSES AND OTHER CURRENT ASSETS Prepaid expenses and other current assets at December 31, 2021 and 2020 are as follows (in millions): December 31, 2021 2020 Government authorities $ 39.6 $ 72.2 Prepaid expenses 11.3 12.0 Deferred charges 9.4 5.8 Other 12.6 11.6 Total prepaid expenses and other current assets $ 72.9 $ 101.6 NOTE 4. PROPERTY AND EQUIPMENT, NET Property and equipment, net at December 31, 2021 and 2020 are as follow (in millions): December 31, 2021 2020 Computers and peripheral equipment $ 182.1 $ 148.9 Office furniture and equipment 14.0 12.5 Vehicles and aircraft 6.4 6.4 Leasehold improvements 42.4 31.7 Total property and equipment, gross 244.9 199.5 Accumulated depreciation ( 141.6 ) ( 101.0 ) Total property and equipment, net $ 103.3 $ 98.5 100 Depreciation expense was $ 42.5 million, $ 37.6 million and $ 23.6 million in the years ended December 31, 2021, 2020 and 2019, respectively. NOTE 5. GOODWILL Changes in goodwill for the years ended December 31, 2021 and 2020 were as follows (in millions): Year ended December 31, 2021 2020 Balance at beginning of period $ 484.8 $ 474.2 Goodwill acquired during the year 312.6 — Foreign currency translation adjustments ( 9.3 ) 10.6 Balance at end of period $ 788.1 $ 484.8 As of October 1 of each of the years presented, the Company performed a qualitative assessment for its reporting unit and concluded that the qualitative assessment did not result in a more likely than not indication of impairment, and therefore no further impairment testing was required. Accordingly, during the years ended December 31, 2021, 2020 and 2019, no impairment charge was recognized. NOTE 6. INTANGIBLE ASSETS OTHER THAN GOODWILL The carrying amounts and accumulated amortization expenses of the acquired intangible assets other than goodwill, net, including the impact of foreign currency exchange translation, at December 31, 2021 and 2020 were as follows (in millions): December 31, 2021 Weighted average remaining useful life (in years) Balance December 31, 2020 Historical cost basis: Developed games and acquired technology 5.1 $ 591.0 $ 481.5 Trademarks and user base 0.7 31.2 19.1 Internal use software 2.2 97.0 61.5 719.2 562.1 Accumulated amortization Developed games and acquired technology ( 247.9 ) ( 206.2 ) Trademarks and user base ( 23.0 ) ( 19.0 ) Internal use software ( 31.0 ) ( 9.2 ) ( 301.9 ) ( 234.4 ) Intangible assets other than goodwill, net $ 417.3 $ 327.7 Acquisition-related intangibles included in the above table are finite-lived and are being amortized on a straight-line basis over their estimated lives, which approximates the pattern in which the economic benefits of the intangible assets are realized. The Company has included amortization of acquired intangible assets directly attributable to revenue-generating activities in cost of revenue. The Company has included amortization of acquired intangible assets not directly attributable to revenue-generating activities in operating expenses. During the years ended December 31, 2021, 2020 and 2019, the Company recorded amortization expense in the amounts of $ 103.0 million, $ 81.6 million and $ 49.4 million, respectively. There was no impairment of intangible assets in the years ended December 31, 2021, 2020 and 2019. 101 As of December 31, 2021, the total expected future amortization related to intangible assets was as follows (in millions): 2022 $ 109.1 2023 88.5 2024 72.8 2025 64.7 2026 and thereafter 82.2 Total $ 417.3 NOTE 7. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities at December 31, 2021 and 2020 are as follows (in millions): December 31, 2021 2020 Employees and related expenses $ 167.8 $ 173.8 Tax accruals 162.5 130.5 Accrued expenses 132.7 121.6 Deferred revenues 31.6 21.3 Accrued litigation settlement — 37.6 Total accrued expenses and other current liabilities $ 494.6 $ 484.8 NOTE 8. LEASES The Company's leases include office real estate and data center leases for its facilities worldwide, which are all classified as operating leases, and which expire on various dates, the latest of which is April 2031. Certain lease agreements include rental payments that are adjusted periodically for the consumer price index ("CPI"). The ROU asset and lease liability were calculated using the initial CPI and will not be subsequently adjusted. Certain leases include renewal options that are reasonably certain to be exercised. Supplemental balance sheet information related to leases is as follows (in millions): December 31, 2021 Operating lease right-of-use assets, gross $ 133.9 Accumulated amortization ( 44.5 ) Operating lease right-of-use assets, net $ 89.4 The following is a summary of weighted average remaining lease terms and discount rates for all of the Company's operating leases: December 31, 2021 Weighted average remaining lease term (years) 6.1 Weighted average discount rates 3.4 % Total operating lease expense was $ 21.8 million, $ 16.7 million and $ 12.3 million for the years ended December 31, 2021, 2020 and 2019, respectively. Cash paid for amounts included in the measurement of operating lease liabilities was $ 21.5 million, $ 15.4 million and $ 10.2 million for the years ended December 31, 2021, 2020 and 2019, respectively. 102 Maturities of lease liabilities are as follows (in millions): 2022 $ 20.3 2023 22.5 2024 19.7 2025 14.2 2026 and thereafter 32.3 Total undiscounted cash flows 109.0 Less: imputed interest ( 9.5 ) Present value of lease liabilities $ 99.5 The table above excludes approximately $ 25 million in lease obligations associated with leases that are currently under negotiation or that start after January 1, 2022. NOTE 9. DEBT December 31, 2021 December 31, 2020 (in millions, except interest rates) Maturity Interest rate(s) Book value Face value Book value Term Loan 2028 2.850 % $ 1,843.8 $ 1,885.8 $ 2,314.4 Senior Notes 2029 4.250 % 591.3 600.0 — Revolving Credit Facility 2026 n/a — — — Total debt 2,435.1 2,485.8 2,314.4 Less: Current portion of long-term debt ( 12.2 ) ( 19.0 ) ( 104.6 ) Long-term debt $ 2,422.9 $ 2,466.8 $ 2,209.8 Book value of debt in the table above is reported net of deferred financing costs and original issue discount of $ 50.7 million and $ 60.6 million at December 31, 2021 and 2020, respectively. Credit Agreement On December 10, 2019, the Company entered into $ 2,750 million of senior secured credit facilities (the "Credit Facilities"), consisting of a $ 250 million revolving credit facility (the "Revolving Credit Facility"), and a $ 2,500 million first lien term loan (the "Old Term Loan"). The Credit Facilities were provided pursuant to a Credit Agreement, dated as of December 10, 2019 (the "Credit Agreement"), by and among Playtika, the lenders party thereto, and Credit Suisse, AG, Cayman Islands Branch, as administrative agent (in such capacity, the "Administrative Agent") and collateral agent (in such capacity, the "Collateral Agent"). Proceeds borrowed under the Credit Facilities on the closing date were used to pay off the outstanding balance on the Company’s prior debt facility. On June 15, 2020, the Company increased the capacity of the Revolving Credit Facility to $ 350 million. On January 15, 2021, the Company increased the borrowing capacity of the Revolving Credit Facility from $ 350 million to $ 550 million. On March 11, 2021, the Company amended the Credit Agreement pursuant to an Incremental Assumption Agreement No. 3 and Second Amendment to Credit Agreement (the “Second Amendment”). The Second Amendment, among other things, effected a refinancing of the Old Term Loan with a new $ 1.9 billion senior secured first lien term loan borrowed under the Credit Agreement (the “New Term Loan”), increased the Revolving Credit Facility to $ 600 million and extended the maturity of the Revolving Credit Facility to March 11, 2026. The New Term Loan matures on March 11, 2028 and requires scheduled quarterly principal payments in amounts equal to 0.25 % of the original aggregate principal amount of the New Term Loan, with the balance due at maturity. 103 The Credit Agreement allows the Company to request one or more incremental term loan facilities, incremental revolving credit facilities and/or increases to the New Term Loan or the Revolving Credit Facility in an aggregate amount of up to the sum of (x) the greater of (1) $ 800 million and (2) 1.00 times EBITDA (as defined in the Credit Agreement) plus (y) the amount of certain voluntary prepayments of indebtedness plus (z) such additional amount so long as, (i) in the case of loans under additional credit facilities that are secured by liens on the collateral securing the Credit Agreement, the Company's net total secured leverage ratio on a pro forma basis would not exceed 3.50 to 1.00 (or in the case of incremental facilities to fund certain investments and acquisitions, the net total secured leverage ratio immediately prior to such incurrence) and (iii) in the case of any other loans under additional credit facilities, the Company's fixed charge coverage ratio on a pro forma basis would not be less than 2.00 to 1.00 (or in the case of incremental facilities to fund certain investments and acquisitions, the fixed charge coverage ratio immediately prior to such incurrence), in each case, subject to certain conditions and receipt of commitments by existing or additional financial institutions or institutional lenders. All future borrowings under the Credit Agreement are subject to the satisfaction of customary conditions, including the absence of a default and the accuracy of representations and warranties, subject to certain exceptions. Interest and Fees Borrowings under the Credit Agreement bear interest at a rate equal to, at the Company’s option, either (a) LIBOR determined by reference to the cost of funds for Eurodollar deposits for the interest period relevant to such borrowing, adjusted for certain additional costs, subject to a floor of 0% or (b) a base rate determined by reference to the highest of (i) the federal funds rate plus 0.50%, (ii) the prime rate as determined by the administrative agent and (iii) the one-month adjusted LIBOR rate plus 1.00%, in each case plus an applicable margin. Such applicable margin is (x) with respect to the New Term Loan, 2.75% per annum in the case of any LIBOR loan or 1.75% per annum in the case of any base rate loan, subject to one 0.25% step-down based on the Company’s credit ratings and (y) in the case of the Revolving Credit Facility, a range from 2.25% to 3.00% per annum in the case of any LIBOR loan and a range from 1.25% to 2.00% per annum in the case of any base rate loan, based on the Company’s net senior secured leverage ratio. In addition, on a quarterly basis, the Company is required to pay each lender under the Revolving Credit Facility a commitment fee in respect of any unused commitments under the Revolving Credit Facility in the amount of 0.50 % of the principal amount of the daily unused commitments of such lender, subject to step-downs to 0.375% and 0.25% based upon the Company's senior secured leverage ratio. The Company is also required to pay customary agency fees as well as letter of credit participation fees on outstanding letters of credit. The Credit Agreement permits voluntary prepayments and requires mandatory prepayments in certain events including among others, 50 % (subject to step-downs to 25 % and 0% based upon the Company’s net total secured leverage ratio) of the Company’s excess cash flow to the extent such amount exceeds $ 10 million, certain net cash proceeds from non-ordinary asset sale transactions (subject to reinvestment rights), and 100% of net proceeds of any issuance of debt (except for debt permitted to be incurred by the Credit Agreement). If the Company’s total secured leverage ratio remains below 2.0 to 1.0 , consistent with the ratio for the year ended December 31, 2021, the Company’s required excess cash flow percentage for 2022 will step down to 0%. Collateral and Guarantors The borrowings under the Credit Agreement are guaranteed by certain material, wholly-owned restricted subsidiaries of the Company, and are secured by a pledge of substantially all of the existing and future property and assets of the Company and the guarantors (subject to exceptions), including a pledge of the capital stock of the domestic subsidiaries held by the Company and the domestic guarantors and 65 % (or 100 % in the case of certain of the guarantors) of the capital stock of the first-tier foreign subsidiaries held by the Company and the domestic guarantors, in each case subject to exceptions. The Credit Agreement requires that the Company and the guarantors (a) generate at least 80.0 % of the EBITDA of the Company and its restricted subsidiaries for the four fiscal quarters most recently ended prior to the end of each fiscal quarter and (b) own all “Material Intellectual Property” (defined as any intellectual property rights consisting of registered trademarks or copyrights subsisting in the name or logo of any game that generates more than 5 % of the EBITDA of the Company and its restricted subsidiaries for the then most recently ended four fiscal quarters) on the last day of the four fiscal 104 quarters most recently ended prior to the end of each fiscal quarter. If the Company and the guarantors do not satisfy such requirement, then the Company must cause sufficient additional subsidiaries (which, subject to certain limitations, may include guarantors located in jurisdictions other than the United States, England and Wales and the State of Israel) to become guarantors in order to satisfy such requirement. During the year ended December 31, 2021, the Company voluntarily designated certain subsidiaries in Germany, Austria and Finland as additional guarantors. As of December 31, 2021, the Company was in compliance with these requirements. Restrictive Covenants The Revolving Credit Facility includes a maximum first-priority net senior secured leverage ratio financial maintenance covenant of 6.25 to 1.00. At December 31, 2021, the Company’s first-priority net senior secured leverage ratio was 0.91 to 1.00. In addition, the Credit Agreement includes negative covenants, subject to certain exceptions, restricting or limiting the Company's ability and the ability of its restricted subsidiaries to, among other things: (i) make non-ordinary course dispositions of assets; (ii) make certain mergers and acquisitions; (iii) complete dividends and stock repurchases and optional redemptions (and optional prepayments) of subordinated debt; (iv) incur indebtedness; (v) make certain loans and investments; (vi) incur liens and certain fixed charges; (vii) transact with affiliates; (viii) change the business of the Company and its restricted subsidiaries; (ix) enter into sale/leaseback transactions; (x) allow limitations on negative pledges and the ability of restricted subsidiaries to pay dividends or make distributions; (xi) change the fiscal year and (xii) modify subordinated debt documents. Under the Credit Agreement, the Company may be required to meet specified leverage ratios or fixed charge coverage ratios in order to take certain actions, such as incurring certain debt or liens or making certain investments. Expenses Related to Modification of Debt The Company accounts for the restructuring of its debt agreements in accordance with the accounting standards applicable to troubled debt restructuring, debt modification and debt extinguishment. Under the applicable accounting standards, the Company determined that the March 2021 financing transactions qualified for modification accounting. As a result, the Company expensed $ 14.5 million related to the debt modification, wrote off $ 22.9 million of previously deferred financing costs related to the modification of debt related to the Company’s Old Term Loan and carried over $ 34.9 million of deferred financing costs to the New Term Loan. Offering of 4.250% Senior Notes due 2029 Indenture On March 11, 2021, the Company issued $ 600.0 million aggregate principal amount of its 4.250 % senior notes due 2029 (the “Notes”) under an indenture, dated March 11, 2021 (the “Indenture”), among the Company, the subsidiary guarantors party thereto and Wilmington Trust, National Association, as trustee (the “Trustee”). Maturity and Interest The Notes mature on March 15, 2029 . Interest on the Notes will accrue at a rate of 4.250 % per annum. Interest on the Notes payable semi-annually in cash in arrears on March 15 and September 15 of each year, commenced on September 15, 2021. Guarantees The Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by the Company’s existing and future restricted subsidiaries that guarantee the obligations under the Credit Agreement (the “subsidiary guarantors”). 105 Ranking The Notes and the note guarantees rank equally in right of payment to all of the Company’s and the subsidiary guarantors’ existing and future senior indebtedness and senior in right of payment to all of the Company’s and the subsidiary guarantors’ future subordinated indebtedness. The Notes and the note guarantees are effectively subordinated to any of the Company’s and the subsidiary guarantors’ existing and future secured indebtedness to the extent of the value of the assets securing such indebtedness, including indebtedness outstanding under the Credit Agreement. In addition, the Notes and the note guarantees are structurally subordinated to the existing and future liabilities of the Company’s non-guarantor subsidiaries. Redemption The Company may redeem the Notes at any time prior to March 15, 2024 , in whole or in part, at a redemption price equal to 100% of the accrued principal amount thereof plus accrued and unpaid interest, if any, to, but excluding, the redemption date, plus a make-whole premium. The Company may redeem the Notes at any time on or after March 15, 2024 , in whole or in part, at a redemption price equal to (i) 102.125 % of the principal amount thereof, should such redemption occur before March 15, 2025 , (ii) 101.063 % of the principal amount thereof, should such redemption occur before March 15, 2026 , and (iii) 100.000 % of the principal amount thereof, should such redemption occur on or after March 15, 2026, in each case plus accrued and unpaid interest, if any, to, but excluding, the redemption date. In addition, at any time prior to March 15, 2024, the Company may redeem up to 40 % of the original aggregate principal amount of all Notes issued with the net cash proceeds from certain equity offerings at a redemption price of 104.250 % of the principal amount redeemed plus accrued and unpaid interest, if any, to, but excluding, the redemption date, so long as at least 50 % of the aggregate principal amount of the Notes remains outstanding immediately after the occurrence of such redemption, and the redemption date is within 90 days of the consummation of any such equity offering. Covenants The Indenture contains customary covenants that limit the Company’s ability and, in certain instances, the ability of the Company’s subsidiaries, to borrow money, create liens on assets, make distributions and pay dividends on or redeem or repurchase stock, make certain types of investments, sell stock in certain subsidiaries, enter into agreements that restrict dividends or other payments from subsidiaries, enter into transactions with affiliates, issue guarantees of indebtedness, and sell assets or merge with other companies. These limitations are subject to a number of important exceptions and qualifications set forth in the Indenture. Change of Control In the event of a change of control, the Company must offer to repurchase the Notes at a repurchase price equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest, if any, to, but excluding, the repurchase date. Events of Default Events of default under the Indenture include, among others, the following with respect to the Notes: default which continues for 30 days in the payment of interest on the Notes; default in payment of the principal of, or premium, if any, on the Notes; failure to comply with certain covenants in the Indenture for 60 days (or 120 days with respect to the covenant relating to the provision of financial reports) upon the receipt of notice from the Trustee or holders of at least 25% in aggregate principal amount of the Notes; acceleration or payment default of indebtedness of the Company or certain of its subsidiaries in excess of a specified amount that remains uncured following the applicable grace period provided in such indebtedness; final judgments against the Company or certain of its subsidiaries in excess of a specified amount that remains unpaid for 45 days; and certain events of bankruptcy or insolvency with respect to the Company or certain of its subsidiaries. In the case of an event of default arising from certain events of bankruptcy or insolvency with respect to the Company or certain of its subsidiaries, all Notes then outstanding will become due and payable immediately without further action or notice. If any 106 other event of default occurs with respect to the Notes, the Trustee or holders of at least 25% in aggregate principal amount of the Notes may declare all Notes then outstanding to be due and payable immediately. Scheduled Principal Payments of Long-Term Debt The scheduled principal payments due on long-term debt are as follows (in millions): 2022 $ 19.0 2023 19.0 2024 19.0 2025 19.0 2026 and thereafter 2,409.8 Total $ 2,485.8 NOTE 10. EQUITY TRANSACTIONS AND STOCK INCENTIVE PLAN Common Stock The following are the rights and privileges of the Company’s common shares: Dividends - The holders of outstanding shares of the Company’s common stock are entitled to receive dividends out of funds legally available at the times and in the amounts which its board of directors may determine. Voting rights – Holders of the Company’s common shares are entitled to one vote per share. Liquidation – Upon the Company’s liquidation, dissolution or winding-up, the assets legally available for distribution to the Company’s stockholders would be distributable ratably among the holders of the Company’s common shares. Preemptive or similar rights – None of the Company’s common shares is entitled to preemptive rights or subject to redemption. Equity Transactions On May 26, 2020, the Board of Directors of the Company approved an amendment to the Certificate of Incorporation of the Company (the ”Stock Split”) to increase the authorized number of shares of the Company’s common stock from ten (10) shares to one million ( 1,000,000 ) shares, to decrease the par value of each share of common stock of the Company from $ 1.00 per share to $ 0.01 per share, and to reclassify each share of common stock issued and outstanding immediately prior to the Stock Split into 94,500 shares of common stock. On January 5, 2021, the Company’s Board of Directors approved an amended and restated certificate of incorporation of the Company effecting a 400-for-1 stock split of the Company’s issued and outstanding shares of common stock and an increase to the authorized shares of our common stock and preferred stock to 1,600 million shares and 100 million shares, respectively. The split and the increase in authorized shares of the Company’s common stock was effected on January 6, 2021 and without any change in the par value per shares. All information herein related to the Company’s common stock and stock awards has been retroactively adjusted to give effect to both the May 26, 2020 stock split and the January 5, 2021 stock split. In January 2021, promptly following the pricing of the Company’s IPO, the number of shares available for issuance under the Playtika Holding Corp. 2020 Incentive Award Plan (the “Plan”) increased by 14,335,499 shares of common stock, which represented 3.5 % of the total number of shares outstanding immediately after the consummation of the IPO. The number of shares available for grant will increase on January 1st of each year through January 2030 by an amount equal to the lesser of 107 (i) 3.5 % of the total shares of the Company’s outstanding common stock or (ii) such number of shares determined by the Board of Directors. On January 1, 2022, the number of shares available for issuance under the Plan increased by 14,041,929 . In connection with its January 15, 2021 IPO, the Company granted 7,985,297 stock options and 4,299,077 RSUs to certain of its employees. The stock options and RSUs generally vest 25 % on the first anniversary of the grant date, and the remaining 75 % of the options and RSUs vest in equal quarterly installments during the three years following the first anniversary of the grant date. Overview of Stock Incentive Plan On May 26, 2020, the Board of Directors of the Company approved the Playtika Holding Corp. 2020 Incentive Award Plan (the “Plan”). The Plan authorizes the issuance of stock options, restricted stock, RSUs, dividend equivalents, stock appreciation rights, performance bonus awards and other incentive awards. The Plan authorizes the grant of awards to employees, non-employee directors and consultants of the Company. The maximum number of shares of the Company’s common stock for which grants may be made under the Plan was 42,190,299 shares as of December 31, 2021. As of December 31, 2021, a total of 386,104 shares of the Company’s common stock remained available for grants of awards under the Plan. Stock Options The following table summarizes the Company’s stock option activity: Weighted Weighted Stock Average Average Intrinsic Options Remaining Exercise Value Outstanding Term (in years) Price (in millions) Outstanding at January 1, 2021 8,000,000 9.5 $ 18.71 $ 58.1 Granted 8,857,172 $ 26.77 Exercised — Cancelled ( 1,007,479 ) $ 26.86 Expired — Outstanding at December 31, 2021 15,849,693 8.8 $ 22.70 $ — Exercisable at December 31, 2021 2,000,000 8.5 $ 18.71 $ — There were no stock options exercised during the years ended December 31, 2021, 2020 or 2019. The weighted-average grant-date fair value of stock options granted during the years ended December 31, 2021 and 2020 was $ 10.16 per share and $ 8.58 per share, respectively. The Company will issue new shares of common stock upon exercise of stock options. The Company uses the Black-Scholes option pricing model to estimate the fair value and compensation cost associated with employee stock options, which is affected by the following assumptions regarding complex and subjective variables. Any changes in these assumptions may materially affect the estimated fair value of the stock-based award. – Fair value of common stock - Prior to the Company’s initial public offering of equity in January 2021, as the Company’s common stock was not publicly traded, the fair value of common stock was estimated by valuation reports prepared by third-party valuation specialists using multiple methods, as more fully discussed in Note 1, O rganization and Summary of Significant Accounting Policies . Subsequent to the Company’s initial public offering, the Company uses the public trading price of its common stock on the Nasdaq stock market to determine the fair value of its common stock. 108 – Expected volatility – Prior to the Company’s initial public offering of equity in January 2021, as the Company was a private company at the time of valuation, the Company estimated volatility based on the volatilities exhibited by comparable public companies and the Company’s capital structure and utilized the observable data for a group of peer companies that grant options with substantially similar terms to assist in developing its volatility assumption. Subsequent to the Company’s initial public offering, the Company continues to estimate volatility in the same manner as it has not yet established sufficient history to estimate volatility of its own. Expected volatility used in the valuation of options granted in 2021 and 2020 ranged from 38.2 % to 48.0 %. – Risk-free interest rate - The risk-free interest rate was estimated based on the U.S. Treasury yield curve in effect at the time of grant and with maturities consistent with the expected term of the respective equity option award. The risk-free interest rate used in the valuation of options granted in 2021 and 2020 ranged from 0.42 % and 0.98 %. – Expected term - The Company estimated the expected term based on the average time between the vesting date and expiration date, ten years after the grant date, of the respective equity option award. – Expected dividend yield - The Company does not anticipate paying cash dividends on its shares of common stock; therefore, the expected dividend yield was assumed to be zero. The options granted during 2020 vest over four years , with 25 % vesting on each of the four anniversaries of the grant date. For options granted during 2021, 25 % of the options generally vest on the first anniversary of the grant date, and the remaining 75 % of the options vest in equal quarterly installments during the three years following the first anniversary of the grant date. The stock options have a contractual term of ten years . Except as provided in an option agreement between the Company and the employee, if an employee is terminated (voluntarily or involuntarily), any unvested awards as of the date of termination will be forfeited. RSUs The majority of RSUs granted on June 26, 2020 vested immediately, while the remaining RSUs granted on June 26, 2020 vested 25 % immediately, and 25 % vest on each of the first three anniversaries of the grant date. In October 2020, the Company’s board of directors approved the issuance of 5,854,800 RSUs. The RSUs vest over four years , with 25% of the RSUs vesting on each of December 31, 2021, 2022, 2023 and 2024, subject to continued service on the applicable vesting date . For RSUs granted during 2021, 25 % of the RSUs generally vest on the first anniversary of the grant date, and the remaining 75 % of the RSUs vest in equal quarterly installments during the three years following the first anniversary of the grant date. Except as provided in an award agreement between the Company and the employee, if an employee is terminated (voluntarily or involuntarily), any unvested awards as of the date of termination will be forfeited. RSUs settle for outstanding shares of the Company’s common stock upon vesting. 109 The following table summarizes the Company’s RSU activity: Weighted Total Fair Average Value of Grant Date Shares Vested Shares Fair Value (in millions) Outstanding at January 1, 2020 — Granted 19,854,800 $ 19.41 Vested ( 13,910,000 ) $ 18.71 $ 260.1 Cancelled — Outstanding at December 31, 2020 5,944,800 $ 21.04 Granted 7,515,510 $ 28.23 Vested ( 1,512,218 ) $ 21.17 $ 26.6 Cancelled ( 573,008 ) $ 30.62 Outstanding at December 31, 2021 11,375,084 $ 25.29 There was no RSU activity in 2019. Stock-based compensation The following table summarizes stock-based compensation costs by award type (in millions): Year ended December 31, 2021 2020 Stock options $ 35.2 $ 8.9 RSUs 67.9 267.1 Total stock-based compensation costs $ 103.1 $ 276.0 The following table summarizes stock-based compensation costs, net of amounts capitalized, as reported on the Company’s consolidated statements of comprehensive income (in millions): Year ended December 31, 2021 2020 Research and development expenses $ 27.7 $ 0.5 Sales and marketing expenses 8.3 0.4 General and administrative expenses 64.4 275.1 Total stock-based compensation costs, net of amounts capitalized $ 100.4 $ 276.0 During the year ended December 31, 2021, the Company capitalized $ 2.7 million of stock-based compensation cost. There were no stock-based compensation costs in 2019. As of December 31, 2021, the Company’s unrecognized stock-based compensation expenses related to stock options was approximately $ 104.3 million, which are expected to be recognized over a period of 2.9 years. As of December 31, 2021, the Company’s unrecognized stock-based compensation expenses related to unvested restricted stock units was approximately $ 244.8 million, which are expected to be recognized over a period of 2.9 years. 110 NOTE 11. DERIVATIVE INSTRUMENTS Interest Rate Swap Agreements In March 2021, the Company entered into two interest rate swap agreements, each with a notional value of $ 250 million. Each of these swap agreements is with a different financial institution as the counterparty to reduce the Company’s counterparty risk. Each swap requires the Company to pay a fixed interest rate of 0.9275 % in exchange for receiving one-month LIBOR. The interest rate swap agreements settle monthly commencing in April 2021 through their termination dates on April 30, 2026. The estimated fair value of the Company’s interest rate swap agreements is derived from a discounted cash flow analysis. The aggregate fair value of the Company’s interest rate swap agreements was an asset of $ 5.5 million as of December 31, 2021 and was recorded between accrued expenses and other current liabilities and other non-current assets in the accompanying consolidated balance sheets based upon the timing of the underlying expected cash flows. Foreign currency hedge agreements The Company has also entered into multiple derivative contracts for the future purchase of ILS, RON and PLN. At December 31, 2021, we had entered into derivative contracts to purchase certain foreign currencies, including ILS, RON and PLN, at future dates. The approximate amount of hedges was equal to $71.2 million, and all contracts are expected to mature during the upcoming 12 months.. The aggregate fair value of the Company’s derivative contracts was $ 1.3 million as of December 31, 2021 and was recorded in prepaid expenses and other current assets in the accompanying consolidated balance sheets. NOTE 12. FAIR VALUE MEASUREMENTS Our assessment of goodwill and other intangible assets for impairment includes an assessment using various Level 2 (discount rate) and Level 3 (forecasted cash flows) inputs. See Note 5, Goodwill and Note 6, Intangible Assets Other Than Goodwill, for more information on the assessment for impairment of goodwill and of intangible assets other than goodwill, respectively. The following table summarizes the fair value measurement of the Company’s long-term debt at December 31, 2021 (in millions): December 31, 2021 Face Value Fair Value Fair Value Hierarchy Term Loan $ 1,885.8 $ 1,876.4 Level 2 Senior Notes 600.0 585.0 Level 2 Total debt $ 2,485.8 $ 2,461.4 The estimated fair value of the Company’s term loan is based upon the prices at which the Company’s debt traded in the days immediately preceding the balance sheet date. As the trading volume of the Company’s debt is low relative to the overall debt balance, the Company does not believe that the associated transactions represent an active market, and therefore this indication of value represents a level 2 fair value input. 111 The following table sets forth the assets and liabilities measured at fair value on a recurring basis in the Company’s consolidated balance sheets (in millions): Fair Value at Pricing Category December 31, 2021 Cash and cash equivalents Money market funds Level 1 $ 310.2 Prepaid expenses and other current assets Derivative instruments - foreign currency derivative contracts Level 2 $ 1.3 Other non-current assets: Derivative instruments - interest rate swaps Level 2 $ 7.9 Accrued expenses and other current liabilities: Derivative instruments - interest rate swaps Level 2 $ 2.4 Derivative instruments - foreign currency derivative contracts Level 2 — The Company estimates the fair value of interest rate swap contracts by discounting the future cash flows of both the fixed rate and variable rate interest payments based on market yield curves. The inputs used to measure the fair value of the Company’s interest rate swap contracts are categorized as Level 2 in the fair value hierarchy as established by ASC 820. The fair value of the Company’s foreign currency contracts approximates the amount the Company would pay or receive if these contracts were settled at the respective valuation dates. The inputs used to measure the fair value of the Company’s foreign currency contracts are categorized as Level 2 in the fair value hierarchy as established by ASC 820. The change in fair value of contingent consideration payable was valued using significant unobservable inputs (Level 3), was included in the general and administrative expenses in the Company’s consolidated statements of comprehensive income and consisted of the following (in millions): Balance as of January 1, 2020 $ 26.3 Fair value adjustment 17.4 Payments ( 43.7 ) Balance as of December 31, 2020 — Recorded in connection with acquisition transactions 33.7 Fair value adjustments based upon post-acquisition performance ( 5.0 ) Balance as of December 31, 2021 $ 28.7 In April 2020, the Company reached an agreement with the former stockholders of Seriously on the early determination of value and settlement of the contingent consideration payable following the Company’s acquisition of Seriously in July 2019. The impact of this agreement has been recorded within the fair value adjustments for the year ended December 31, 2020. The Company estimated the fair value of the contingent consideration recorded in connection with the acquisition of Reworks using a probability-weighted discounted cash flow model. This fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement as defined in ASC 820. The Company had no financial assets or liabilities measured at fair value as of December 31, 2020. 112 The Company has not elected the fair value measurement option available under U.S. GAAP for any of its assets or liabilities that meet the option for this criteria. NOTE 13. COMMITMENTS AND CONTINGENCIES In December 2016, a copywriter lawsuit was filed against Wooga GmbH (a subsidiary of the Company) in the regional court of Berlin, Germany. The Plaintiff is suing for additional remuneration to his contributions for a storyline provided for one of Wooga's games and alleged reuse of parts of that storyline in one of Wooga’s other games. As of December 31, 2021, the Company has recorded in its financial statements a reserve based upon its best estimate outcome. It is possible that any final amounts payable in connection with this lawsuit could exceed the Company’s currently reserved best estimate. In November 2013, the Company’s subsidiary, Playtika, Ltd., sent an initial demand letter to Enigmatus s.r.o., a game developer in the Czech Republic, which owns various U.S. trademark registrations that resemble the Company’s Sloto-formative trademark names, demanding that it cease use of the trademark Slotopoly. In response, Enigmatus s.r.o. asserted that it was the owner of the Sloto-formative trademarks and denied that its game title infringed the Company’s trademarks. Enigmatus s.r.o. applied to register one of the Company’s trademarks in the United Kingdom and European Union, and the Company successfully opposed its applications. In December 2016, Enigmatus s.r.o., filed a trademark infringement lawsuit, Enigmatus, s.r.o. v. Playtika LTD and Caesars Interactive Entertainment, Inc., against Playtika, Ltd. and Caesars Interactive Entertainment LLC in the Federal Court of Canada asserting that the Company’s use of the Slotomania trademarks violates its proprietary and trademark rights. The plaintiff sought injunctive relief and monetary damages. Pleadings have been exchanged and the lawsuit is in the discovery stage. No trial date has been scheduled. The Company has defended this case vigorously and will continue to do so. As the case is in preliminary stages, the Company cannot estimate what impact, if any, the litigation may have on its results of operations, financial condition or cash flows. On October 26, 2020, a patent infringement claim was filed against Playtika Holding Corp., Playtika Ltd. and Caesars Interactive Entertainment LLC in U.S. District Court, District of Nevada. The Plaintiff alleged that the defendants are infringing certain patents in the field of communication and the transferring of images between the gaming server and the end device on certain of its social casino games. The Plaintiff is seeking monetary damages. On April 7, 2021, following the Company’s preliminary motions for dismissal and stay, the Company’s motion for stay was approved by the court pending ruling on motions to dismiss. On July 7, 2021, the Court issued an order finding each of the Plaintiff’s asserted patents invalid as failing to comply with certain legal requirements and dismissing the lawsuit as to all parties. On July 19, 2021, the Plaintiff filed an appeal. Playtika Holding Corp. and Playtika Ltd. intend to defend the case vigorously. On November 23, 2021, we and our directors and certain of our officers were named in a putative class action lawsuit filed in the United States District Court for the Eastern District of New York (Bar-Asher v. Playtika Holding Corp. et al.). The complaint is allegedly brought on behalf of a class of purchasers of our securities between January 15, 2021 and November 2, 2021, and alleges violations of federal securities laws arising out of alleged misstatements or omissions by the defendants during the alleged class period. The complaint seeks, among other things, damages and attorneys’ fees and costs on behalf of the putative class. As the case is in preliminary stages, the Company cannot estimate what impact, if any, the litigation may have on its results of operations, financial condition or cash flows.” 113 NOTE 14. REVENUE FROM CONTRACTS WITH CUSTOMERS The following table provides information about disaggregated revenue by geographic location of the Company's players and type of platform (in millions): Year ended December 31, 2021 2020 2019 Geographic location USA $ 1,816.7 $ 1,669.0 $ 1,314.8 EMEA 383.8 338.8 263.1 APAC 206.9 200.7 172.0 Other 175.6 163.0 137.7 Total $ 2,583.0 $ 2,371.5 $ 1,887.6 Platform type Mobile $ 2,069.1 $ 1,907.6 $ 1,475.8 Web 513.9 463.9 411.8 Total $ 2,583.0 $ 2,371.5 $ 1,887.6 Revenues through third-party platforms and through the Company’s own Direct-to-Consumer platforms were as follows (in millions): Year ended December 31, 2021 2020 2019 Revenues Third-party platforms $ 2,054.0 $ 2,048.5 $ 1,693.9 Direct-to-Consumer platforms 529.0 323.0 193.7 Total $ 2,583.0 $ 2,371.5 $ 1,887.6 Contract balances Payments from players for virtual items are collected by platform providers or payment processors and remitted to the Company (net of the platform or clearing fees) generally within 45 days after the player transaction. The Company’s right to receive the payments collected by the platform providers or payment processors is recorded as an accounts receivable as the right to receive payment is unconditional. Deferred revenues, which represent a contract liability, represent mostly unrecognized fees billed for virtual items which have not yet been consumed at the balance sheet date. Platform fees paid to platform providers or payment processors and associated with deferred revenues represent a contract asset. 114 Balances of the Company’s contract assets and liabilities are as follows (in millions): December 31, 2021 2020 Accounts receivable $ 143.7 $ 129.3 Contract assets (1) 9.4 5.8 Contract liabilities (2) 31.6 21.3 _______ (1) Contract assets are included within prepaid expenses and other current assets as “deferred charges” in the Company’s consolidated balance sheets. (2) Contract liabilities are included within accrued expenses and other current liabilities as “deferred revenues” in the Company’s consolidated balance sheets. During the year ended December 31, 2021, the Company recognized all of its contract liabilities balance as of December 31, 2020. Unsatisfied performance obligations Substantially all of the Company’s unsatisfied performance obligations relate to contracts with an original expected length of one year or less. NOTE 15. APPRECIATION AND RETENTION PLANS In August 2019, the Board approved the 2021-2024 Retention Plan. Under the 2021-2024 Retention Plan, eligible employees may be granted retention awards that let them receive their pro rata portion of a retention pool of $25 million per year for each of the plan years, and may also be granted appreciation units which allow the employee to receive their pro-rata portion of an appreciation pool calculated as a specified percentage of Adjusted EBITDA in each of the plan years, determined as follows: For 2021, (A) 14 % of the 2021-2024 Retention Plan Adjusted EBITDA for such calendar year, less (B) $ 25,000,000 . For 2022, (A) 14.5 % of the 2021-2024 Retention Plan Adjusted EBITDA for such calendar year, less (B) $ 25,000,000 . For each of 2023 and 2024, (A) 15.0 % of the 2021-2024 Retention Plan Adjusted EBITDA for such calendar year, less (B) $ 25,000,000 . Initial awards were granted under the 2021-2024 Retention Plan in August 2019, with subsequent awards to employees or consultants hired or retained after such date granted at the discretion of the administrator. For certain participants, in the event of the participant’s termination without cause or resignation for good reason, or termination by reason of death or disability, he or she will be eligible to receive a lump sum cash payment equal to his or her proportionate share (based on the number of retention units outstanding and eligible for payment as of such date) of the unpaid portion of the total retention pool for the remaining term of the 2021-2024 Retention Plan as of the date of termination, which amount shall be paid in cash within 60 days following the date of termination. In the event of such a termination, such participant will also remain eligible to receive payments in respect of his or her appreciation units for all vesting dates that have not yet occurred prior to the date of such termination, which payments will be made as and when such payments are made to other appreciation unit holders. For all other participants, in the event of termination due to death or disability on or after January 1, 2021, but prior to December 31, 2024, the participant will receive a payment in respect of his or her proportionate share (based on the number 115 of retention units outstanding and eligible for payment as of such date) of the unpaid portion of the total retention pool for the remaining term of the 2021-2024 Retention Plan as of the date of termination, pro-rated for the portion of the period between January 1, 2021 and December 31, 2024 that has elapsed prior to termination, payable within 60 days following termination. In addition, the participant will retain the right to receive payments for a pro-rated portion of his or her appreciation units for all vesting dates that have not yet occurred prior to the date of such termination, which payments will be made as and when such payments are made to other appreciation unit holders. All payments triggered by a termination of employment or service will be subject to the execution of a general release of claims in favor of the company. If a participant terminates service for any reason other than as described above, the participant will immediately forfeit all unearned benefits related to his or her unvested retention units and appreciation units. In October 2020, 43,000 appreciation units held under the 2021-2024 Retention Plan were cancelled. Pursuant to an amendment to the 2021-2024 Retention Plan adopted in October 2020, these cancelled appreciation units are considered “retired units” for purposes of the plan, and will be deemed to be outstanding and eligible for payment solely for purposes of determining the per unit value to be paid to participants, but no amounts will be paid with respect to such retired units. The Company recognized compensation expenses in respect of retention bonus and appreciation unit awards under the 2021-2024 Plan of $ 112.7 million during the year ended December 31, 2021, and under the 2017-2020 Plan of $ 67.6 million and $ 72.7 million during the years ended December 31, 2020 and 2019, respectively. The Company has also granted retention awards to key individuals associated with acquired companies as an incentive to retain those individuals on a long-term basis. The Company recognized compensation expenses associated with these development-related retention payments of $ 21.3 million, $ 15.1 million and $ 18.4 million for the years ended December 31, 2021, 2020 and 2019, respectively. NOTE 16. INTEREST EXPENSE AND OTHER, NET I nterest expense and other, net for the years ended December 31, 2021 , 2020 and 2019, are as follows (in millions): Year ended December 31, 2021 2020 2019 Interest expense $ 149.2 $ 198.3 $ 61.6 Interest income ( 0.8 ) ( 0.1 ) ( 1.5 ) Foreign currency translation differences, net 5.7 ( 5.7 ) 0.3 Other ( 0.3 ) 0.3 0.7 Total interest expense and other, net $ 153.8 $ 192.8 $ 61.1 NOTE 17. INCOME TAXES Israeli taxation The Company believes that certain of its Israeli subsidiaries qualify as a Preferred Technology Enterprises, entitled to a special tax track, under the Israeli Investment Law, 5719-1959 (the “Investment Law”) and accordingly are eligible for a reduced corporate tax rate of 12 % on their preferred technology income, as defined in the Investment Law, beginning from tax year 2017 and onwards. A Preferred Technology Enterprise becomes a Special Preferred Technology Enterprise and is entitled to a reduced corporate tax rate of 6 % on their preferred technology income when the worldwide revenues reach ILS 10 billion annually. The Company expects that the Israeli subsidiaries qualifying as Preferred Technology Enterprises in the current year will continue to qualify as Preferred Technology Enterprises or become Special Preferred Technology Enterprises in subsequent tax years. Income not eligible for Preferred Technology Enterprise benefits is taxed at the regular corporate tax rate at 23 % since 2018 and after. 116 Other foreign subsidiaries Non-Israeli subsidiaries are taxed according to the tax laws in their respective countries of residence. Net operating loss carry-forwards The Company has net operating loss carryforwards in certain jurisdictions, including Israel, Germany and Finland of $ 78.7 million, $ 5.6 million, and $ 3.4 million, respectively. The net operating losses in Israel and Germany are carried forward indefinitely. The net operating losses in the Finland expire from 2029 through 2031. The Company’s income tax return is subject to examination by federal, state and non-U.S. tax authorities. The 2018-2020 U.S. federal income tax filings are currently open tax years available for examination by the IRS. U.S. state tax jurisdictions have statutes of limitation generally ranging from three to five years, with the earliest open tax year for the Company being 2016. Years still open to examination by tax authorities in Israel, which is the main jurisdiction other than the U.S. are 2017-2020. The Israeli tax authorities are currently examining tax years 2017-2019. Deferred tax assets and liabilities Deferred taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts recorded for tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows (in millions): December 31, 2021 2020 Deferred tax assets Net operating loss carry-forwards $ 15.1 $ 14.0 Accrued employee costs 6.6 7.0 Research and development expenses 30.4 22.3 Operating lease liabilities 16.9 14.7 Stock-based compensation 7.4 3.6 Interest expense 19.9 11.7 Foreign tax credit carryforward 37.2 37.2 Other 9.3 7.1 Deferred tax assets 142.8 117.6 Valuation allowances ( 53.8 ) ( 49.9 ) Net deferred tax assets 89.0 67.7 Deferred tax liabilities Intangible assets ( 67.2 ) ( 53.2 ) Undistributed earnings of subsidiaries — ( 46.2 ) Debt issuance costs ( 7.1 ) — Property and equipment ( 10.3 ) ( 11.5 ) Operating lease right-of-use assets ( 15.3 ) ( 13.0 ) Other ( 4.5 ) ( 1.7 ) Deferred tax liabilities ( 104.4 ) ( 125.6 ) Net deferred tax assets (liabilities) $ ( 15.4 ) $ ( 57.9 ) 117 Deferred taxes are reported in the accompanying consolidated balance sheets as follows (in millions): December 31, 2021 2020 Deferred tax assets, net $ 38.3 $ 28.5 Deferred tax liabilities, net ( 53.7 ) ( 86.4 ) Net deferred tax (liabilities) assets $ ( 15.4 ) $ ( 57.9 ) Based on available evidence, management believes it is not more-likely-than-not that $ 53.8 million U.S. and Israel deferred tax assets will be fully realizable. Accordingly, in those jurisdictions, the Company has recorded a valuation allowance against these assets. The Company regularly reviews the deferred tax assets for recoverability based on all of the available positive and negative evidence, with a focus on historical taxable income, projected future taxable income, the expected timing of the reversals of existing taxable temporary differences and tax planning strategies by jurisdiction. The Company previously considered the earnings of certain of its non-U.S. subsidiaries to not be indefinitely reinvested since the cash generated from some of the foreign subsidiaries would be used to service the long-term debt in the U.S. As a result of this assertion, the impact of a repatriation of the undistributed earnings resulted in recording a deferred tax liability consisting of potential withholding and distribution taxes of $ 41.7 million as of December 31, 2019. For the year ended December 31, 2020, the Company accrued an additional $ 4.5 million of deferred tax liability. Such deferred taxes were recognized as tax expense. As a result of the changes to the Credit Agreement, primarily a reduction in the interest rate, in addition to other considerations, the Company has reevaluated its assertion and now considers the earnings of all its non-U.S. subsidiaries to be indefinitely reinvested. For the year ended December 31, 2021, the Company reversed the previously accrued deferred tax liability and recognized $ 46.2 million of tax benefit. As of December 31, 2021, the Company asserts that the undistributed earnings of its non-U.S. subsidiaries will be indefinitely reinvested, and determination of the amount of any deferred income or withholding tax liability on these earnings is not practicable because of the complexities of the hypothetical calculation. Income before income taxes is comprised as follows (in millions): Year ended December 31, 2021 2020 2019 Domestic (U.S.) $ 52.9 $ ( 48.5 ) $ 91.9 Foreign 355.5 242.9 344.4 Income before taxes on income $ 408.4 $ 194.4 $ 436.3 118 Effective income tax rate reconciliations: Year ended December 31, 2021 2020 2019 US statutory tax rate 21.0 % 21.0 % 21.0 % Foreign tax rate differentials 2.6 % 1.0 % 3.6 % Effect of “Preferred Technology Enterprise” status ( 6.4 ) % ( 6.9 ) % ( 8.5 ) % Nondeductible stock-based compensation 2.0 % 14.2 % — % 162(m) Limitation 1.1 % — % — % GILTI and Foreign adjustments 6.3 % — % — % Permanent items 0.3 % 2.4 % 1.3 % Change in valuation allowance 0.9 % 1.3 % 2.4 % Change in uncertain tax positions 5.8 % 18.5 % 3.2 % Repatriation of undistributed dividends ( 11.3 ) % 2.3 % 9.5 % Return-To-Provision Adjustments 1.7 % ( 1.0 ) % ( 1.4 ) % Other 0.5 % ( 0.2 ) % 2.7 % Effective tax rate 24.5 % 52.6 % 33.8 % The provision for income taxes is comprised as follows (in millions): Year ended December 31, 2021 2020 2019 Current $ 172.3 $ 115.4 $ 106.6 Deferred ( 72.4 ) ( 13.1 ) 40.8 Total $ 99.9 $ 102.3 $ 147.4 Domestic (U.S.) $ ( 19.6 ) $ 7.6 $ 21.1 Foreign 119.5 94.7 126.3 Total $ 99.9 $ 102.3 $ 147.4 Year ended December 31, 2021 2020 2019 U.S. Federal Current $ 24.9 $ 2.4 $ 12.0 Deferred ( 48.5 ) ( 1.1 ) 5.0 Total $ ( 23.6 ) $ 1.3 $ 17.0 U.S. State Current $ 3.5 $ 7.8 $ 3.3 Deferred 0.5 ( 1.5 ) 0.8 Total $ 4.0 $ 6.3 $ 4.1 Foreign Current $ 143.9 $ 105.2 $ 91.3 Deferred ( 24.4 ) ( 10.5 ) 35.0 Total $ 119.5 $ 94.7 $ 126.3 119 Uncertain tax positions A reconciliation of the opening and closing balances of total unrecognized tax benefits is as follows (in millions): Year ended December 31, 2021 2020 Balance as of January 1 $ 91.4 $ 58.6 Increases in respect of tax positions related to the current year 23.4 20.0 Increases in respect of tax positions related to prior years 9.1 9.7 Increases in respect of exchange rate fluctuations 3.9 4.3 Reductions in respect of settlements with authorities ( 12.7 ) — Reductions in respect of expirations of statute of limitations ( 0.9 ) ( 1.2 ) Balance as of December 31 $ 114.2 $ 91.4 The balance of total unrecognized tax benefits at December 31, 2021 is $ 104.9 million which, if recognized, would affect the effective tax rate in the Company's consolidated statements of comprehensive income. The balance of the accrual relating to interest and penalties as of December 31, 2021 is $ 9.2 million. The Company believes that it is reasonably possible that the total amount of unrecognized tax benefits could change significantly within 12 months of the reporting date as a result of the open examination in Israel for the tax years ended 2017 through 2019. The nature of this uncertainty primarily relates to qualification of certain income as qualified income under the Preferred Technology Enterprise tax regimes. However, a reasonable estimate of the range of possible changes cannot be made at this time. NOTE 18. ACCUMULATED OTHER COMPREHENSIVE INCOME The following table shows a summary of changes in accumulated other comprehensive income (loss), net of tax, by component for the year ended December 31, 2021 (in millions): Foreign Currency Translation Interest Rate Swaps Foreign Currency Derivative Contracts Total Balance as of January 1, 2021 $ 16.7 $ — $ — $ 16.7 Other comprehensive income (loss) before reclassifications ( 18.6 ) 2.1 2.0 ( 14.5 ) Amounts reclassified from accumulated other comprehensive income (loss) — 2.1 ( 1.1 ) 1.0 Balance as of December 31, 2021 $ ( 1.9 ) $ 4.2 $ 0.9 $ 3.2 120 NOTE 19. NET INCOME ATTRIBUTABLE TO ORDINARY STOCKHOLDERS The following table sets forth the computation of basic and diluted net income per share attributable to ordinary stockholders (in millions, except per share data): Year ended December 31, 2021 2020 2019 Numerator: Net income $ 308.5 $ 92.1 $ 288.9 Denominator: Weighted-average shares used in computing net income per share attributable to common stockholders, basic 408.9 384.7 378.0 Weighted-average shares used in computing net income per share attributable to common stockholders, diluted 411.0 384.7 378.0 Net income per share, basic $ 0.75 $ 0.24 $ 0.76 Net income per share, diluted $ 0.75 $ 0.24 $ 0.76 The following outstanding employee equity awards were excluded from the calculation of diluted net income per share because their effect would have been anti-dilutive for the periods presented: Year ended December 31, 2021 2020 Stock options 7,849,693 8,000,000 RSUs 4,455,989 — Total 12,305,682 8,000,000 As the Company only had one class of common shares outstanding prior to June 2020 and had no awards granted under any equity plan, there were no equity awards excluded from the computation of earnings per share for the year ended December 31, 2019. NOTE 20. TRANSACTIONS AND BALANCES WITH RELATED PARTIES Name and relationship of related parties Name Relationship Playtika Holding UK Immediate parent company Alpha Ultimate parent company Giant HK Stockholder who has significant influence over the ultimate parent company Transactions with related parties The following transactions occurred with related companies (in millions): Year ended December 31, 2019 Loan due to Alpha offset with loan receivable ( 68.0 ) Loan due from Giant HK offset with loan payable 68.0 There were no transactions with related companies in the years ended December 31, 2021 and 2020. 121 The Company borrowed $ 92 million from Alpha during 2017 and repaid $ 24 million during 2018. The loan bore interest rate of 4 % per annum. The loan was to be repaid up to two years from the agreement date and could be extended upon written agreement. The Company recognized interest expense of $ 1.8 million during the year ended December 31, 2019, related to this loan. Also, the Company lent $ 92 million to Giant HK during 2017, and received $ 24 million during 2018. The loan bore interest rate of 4 % per annum. The loan was to be repaid up to two years from the agreement date and could be extended upon written agreement. The Company recognized interest income of $ 1.8 million during the year ended December 31, 2019, related to this loan. On August 20, 2019, Alpha and Giant HK agreed on the assignment of the agreement described above and accordingly the amount was off-set and the receivable loan balance considered as fully repaid. Also in August 2019, the Company issued a $ 2.4 billion cash dividend to Playtika Holding UK. NOTE 21. SUBSEQUENT EVENTS On February 7, 2022, the Company’s Compensation Committee approved the grant of performance stock units (“PSUs”) to certain of our executive officers, including our named executive officers, pursuant to the Company’s 2020 Incentive Award Plan, as amended. Should all of the performance targets be met and all outstanding PSUs vest, the Company expects to recognize approximately $ 54 million in expense over the next four years . The Company’s Compensation Committee also approved the grant of RSUs and options to certain employees other than our executive officers for which the Company expects to recognize approximately $ 106 million in expense over the next four years . In February 2022, Russia launched a military invasion into Ukraine. The Company has a significant research and development center in Ukraine. At this time, the Company is unable to estimate any specific impact to its business, financial condition or results of operations. 122 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.