Quarterly report pursuant to Section 13 or 15(d)

Security Networks Acquisition

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Security Networks Acquisition
6 Months Ended
Jun. 30, 2014
Business Combinations [Abstract]  
Security Networks Acquisition
Security Networks Acquisition
 
On August 16, 2013 (the “Closing Date”), the Company acquired all of the equity interests of Security Networks and certain affiliated entities.  The purchase price (the “Security Networks Purchase Price”) of $500,557,000 consisted of $481,834,000 in cash and 253,333 shares of Ascent Capital’s Series A common stock, par value $0.01 per share, with a Closing Date fair value of $18,723,000.  The Security Networks Purchase Price includes post-closing adjustments of $1,057,000.
 
The cash portion of the Security Networks Purchase Price was funded by cash contributions from Ascent Capital, the proceeds of the Company’s issuance of $175,000,000 in aggregate principal amount of 9.125% Senior Notes due 2020, the proceeds of incremental term loans of $225,000,000 issued under the Company’s existing credit facility and the proceeds of a $100,000,000 intercompany loan from Ascent Capital.

The Security Networks Acquisition was accounted for as a business combination utilizing the acquisition method in accordance with FASB Accounting Standards Codification Topic 805, Business Combinations ("FASB ASC Topic 805").  Under the acquisition method of accounting, the Security Networks Purchase Price has been allocated to Security Networks’ tangible and identifiable intangible assets acquired and liabilities assumed based on their estimates of fair value as follows (amounts in thousands):
 
Cash
$
3,096

Trade receivables
1,305

Other current assets
1,677

Property and equipment
1,404

Subscriber accounts
307,800

Dealer network and other intangible assets
48,500

Goodwill
177,289

Holdback liability, current and non-current
(9,620
)
Deferred income tax liabilities
(5,097
)
Other current and non-current liabilities
(25,797
)
Fair value of consideration
$
500,557


 
The Company’s 2013 Form 10-K included an initial allocation of the purchase price based on preliminary data. Subsequent to filing the Company’s 2013 Form 10-K, an adjustment was made to increase goodwill by $989,000, which is reflected in the revised December 31, 2013 consolidated balance sheet in accordance with FASB ASC Topic 805. The increase to goodwill is related to adjustments to the deferred income tax liabilities acquired as a result of obtaining Security Networks' final short period federal and state income tax returns for 2013, which were filed in the second quarter of 2014. The increase to the acquired deferred income tax liabilities resulted in a $936,000 reduction in the Company's valuation allowance. The corresponding decrease in income tax expense related to the reduction in valuation allowance has been retrospectively applied to the revised December 31, 2013 consolidated balance sheet in accordance with FASB ASC Topic 805.
 
The following table includes unaudited pro-forma information for the Company, which includes the historical operating results of Security Networks prior to ownership by the Company. This pro-forma information gives effect to certain adjustments, including increased amortization to reflect the fair value assigned to the subscriber accounts and dealer network and other intangible assets acquired and increased interest expense relating to the debt transactions entered into to fund the Security Networks Acquisition. The pro-forma results assume that the Security Networks Acquisition and the debt transactions had occurred on January 1, 2012 for all periods presented. They are not necessarily indicative of the results of operations that would have occurred if the acquisition had been made at the beginning of the periods presented or that may be obtained in the future.
 
 
Three Months Ended 
 June 30, 2013
 
Six Months Ended 
 June 30, 2013
 
(amounts in thousands)
As reported:
 

 
 

Net revenue
$
102,273

 
$
202,431

Net income
592

 
1,941

 
 

 
 

Supplemental pro-forma:
 

 
 

Net revenue
$
127,424

 
$
250,838

Net loss
(8,304
)
 
(14,109
)