UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C.  20549
 
FORM 10-Q
 
ý           QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2018
OR
o              TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to
 
Commission File Number 333-110025
 MONITRONICS INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
State of Texas
 
74-2719343
(State or other jurisdiction of
 
(I.R.S. Employer Identification No.)
incorporation or organization)
 
 
1990 Wittington Place
 
 
Farmers Branch, Texas
 
75234
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (972) 243-7443 

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  Yes ý  No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ý  No o
 
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
 
Accelerated filer o
Non-accelerated filer x
 
Smaller reporting company o
(Do not check if a smaller reporting company)
 
Emerging growth company o
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o No ý

As of May 10, 2018, Monitronics International, Inc. is a wholly owned subsidiary of Ascent Capital Group, Inc.



Table of Contents

TABLE OF CONTENTS
 
 
 
Page
 
 
 
PART I — FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


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Item 1.  Financial Statements (unaudited)
MONITRONICS INTERNATIONAL, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
Amounts in thousands, except share amounts
(unaudited)
 
March 31,
2018
 
December 31,
2017
Assets
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
27,901

 
3,302

Restricted cash
93

 

Trade receivables, net of allowance for doubtful accounts of $3,632 in 2018 and $4,162 in 2017
12,300

 
12,645

Prepaid and other current assets
23,193

 
10,668

Total current assets
63,487

 
26,615

Property and equipment, net of accumulated depreciation of $40,257 in 2018 and $37,643 in 2017
34,043

 
32,789

Subscriber accounts and deferred contract acquisition costs, net of accumulated amortization of $1,468,359 in 2018 and $1,439,164 in 2017
1,224,937

 
1,302,028

Dealer network and other intangible assets, net of accumulated amortization of $45,859 in 2018 and $42,806 in 2017
3,941

 
6,994

Goodwill
563,549

 
563,549

Other assets
27,627

 
9,340

Total assets
$
1,917,584

 
1,941,315

Liabilities and Stockholder's Equity
 

 
 

Current liabilities:
 

 
 

Accounts payable
$
12,858

 
11,073

Accrued payroll and related liabilities
5,556

 
3,458

Other accrued liabilities
61,728

 
50,026

Deferred revenue
13,477

 
13,871

Holdback liability
7,601

 
9,309

Current portion of long-term debt
11,000

 
11,000

Total current liabilities
112,220

 
98,737

Non-current liabilities:
 

 
 

Long-term debt
1,711,336

 
1,707,297

Long-term holdback liability
2,191

 
2,658

Derivative financial instruments
6,553

 
13,491

Deferred income tax liability, net
13,966

 
13,304

Other liabilities
3,098

 
3,092

Total liabilities
1,849,364

 
1,838,579

Commitments and contingencies


 


Stockholder's equity:
 
 
 
Common stock, $.01 par value. 1,000 shares authorized, issued and outstanding both at March 31, 2018 and December 31, 2017

 

Additional paid-in capital
444,335

 
444,330

Accumulated deficit
(383,751
)
 
(334,219
)
Accumulated other comprehensive income (loss), net
7,636

 
(7,375
)
Total stockholder's equity
68,220

 
102,736

Total liabilities and stockholder's equity
$
1,917,584

 
1,941,315

 

See accompanying notes to condensed consolidated financial statements.

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Table of Contents

MONITRONICS INTERNATIONAL, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
Amounts in thousands
(unaudited)
 
 
Three Months Ended 
 March 31,
 
2018
 
2017
Net revenue
$
133,753

 
141,200

Operating expenses:
 
 
 
Cost of services
32,701

 
29,969

Selling, general and administrative, including stock-based and long-term incentive compensation
32,014

 
32,723

Radio conversion costs

 
232

Amortization of subscriber accounts, deferred contract acquisition costs and other intangible assets
54,411

 
59,547

Depreciation
2,615

 
2,120

 
121,741

 
124,591

Operating income
12,012

 
16,609

Other expense:
 
 
 
Interest expense
36,873

 
35,838

 
36,873

 
35,838

Loss before income taxes
(24,861
)
 
(19,229
)
Income tax expense
1,346

 
1,784

Net loss
(26,207
)
 
(21,013
)
Other comprehensive income (loss):
 
 
 
Unrealized gain on derivative contracts, net
14,406

 
1,049

Total other comprehensive income, net of tax
14,406

 
1,049

Comprehensive loss
$
(11,801
)
 
(19,964
)
 
See accompanying notes to condensed consolidated financial statements.


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MONITRONICS INTERNATIONAL, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Amounts in thousands
(unaudited)
 
Three Months Ended 
 March 31,
 
2018
 
2017
Cash flows from operating activities:
 
 
 
Net loss
$
(26,207
)
 
(21,013
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Amortization of subscriber accounts, deferred contract acquisition costs and other intangible assets
54,411

 
59,547

Depreciation
2,615

 
2,120

Stock-based and long-term incentive compensation
(12
)
 
518

Deferred income tax expense
662

 
1,052

Amortization of debt discount and deferred debt costs
1,789

 
1,656

Bad debt expense
3,017

 
2,557

Other non-cash activity, net
(852
)
 
1,875

Changes in assets and liabilities:
 
 
 
Trade receivables
(2,672
)
 
(1,659
)
Prepaid expenses and other assets
650

 
1,079

Contract asset, net
(70
)
 

Subscriber accounts - deferred contract acquisition costs
(898
)
 
(754
)
Payables and other liabilities
17,921

 
5,222

Net cash provided by operating activities
50,354

 
52,200

Cash flows from investing activities:
 

 
 

Capital expenditures
(3,310
)
 
(1,694
)
Cost of subscriber accounts acquired
(24,560
)
 
(46,708
)
Increase in restricted cash
(93
)
 

Net cash used in investing activities
(27,963
)
 
(48,402
)
Cash flows from financing activities:
 
 
 
Proceeds from long-term debt
50,000

 
64,750

Payments on long-term debt
(47,750
)
 
(42,600
)
Value of shares withheld for share-based compensation
(42
)
 
(136
)
Net cash provided by financing activities
2,208

 
22,014

Net increase in cash and cash equivalents
24,599

 
25,812

Cash and cash equivalents at beginning of period
3,302

 
3,177

Cash and cash equivalents at end of period
$
27,901

 
28,989

Supplemental cash flow information:
 
 
 
State taxes paid, net
$

 
3

Interest paid
21,735

 
21,462

Accrued capital expenditures
830

 
780

 

See accompanying notes to condensed consolidated financial statements.

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MONITRONICS INTERNATIONAL, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Stockholder’s Equity
Amounts in thousands, except share amounts
(unaudited)
 
 
Common Stock
 
Additional Paid-in Capital
 
Accumulated Deficit
 
Accumulated Other Comprehensive
Income (Loss)
 
Total Stockholder’s Equity
 
Shares
 
Amount
 
 
 
 
Balance at December 31, 2017
1,000

 
$

 
444,330

 
(334,219
)
 
(7,375
)
 
$
102,736

Impact of adoption of Topic 606

 

 

 
(22,720
)
 

 
(22,720
)
Impact of adoption of ASU 2017-12

 

 

 
(605
)
 
605

 

Adjusted balance at January 1, 2018
1,000

 

 
444,330

 
(357,544
)
 
(6,770
)
 
80,016

Net loss

 

 

 
(26,207
)
 

 
(26,207
)
Other comprehensive income

 

 

 

 
14,406

 
14,406

Stock-based compensation

 

 
47

 

 

 
47

Value of shares withheld for minimum tax liability

 

 
(42
)
 

 

 
(42
)
Balance at March 31, 2018
1,000

 
$

 
444,335

 
(383,751
)
 
7,636

 
$
68,220

 
See accompanying notes to condensed consolidated financial statements.


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Table of Contents

MONITRONICS INTERNATIONAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
 
(1)    Basis of Presentation
 
Monitronics International, Inc. and its subsidiaries (collectively, the "Company" or "MONI") are wholly owned subsidiaries of Ascent Capital Group, Inc. ("Ascent Capital").  MONI provides residential customers and commercial client accounts with monitored home and business security systems, as well as interactive and home automation services.  MONI is supported by a network of independent Authorized Dealers providing products and support to customers in the United States, Canada and Puerto Rico.  MONI’s wholly owned subsidiary, LiveWatch Security LLC (“LiveWatch”) is a Do-It-Yourself home security firm, offering professionally monitored security services through a direct-to-consumer sales channel.

On February 26, 2018, we entered into an exclusive, long-term, trademark licensing agreement with The Brink’s Company ("Brink's"), which will result in a complete rebranding of MONI and LiveWatch as Brinks Home SecurityTM. Under the terms of the agreement, we will have exclusive use of the BRINKS and Brinks Home Security trademarks related to the residential smart home and home security categories in the U.S. and Canada. Effective April 1, 2018, we will pay Brink’s customary licensing fees and minimum and growth-based royalties that will increase over time as the Brinks Home Security brand is reintroduced. The agreement provides for an initial term of seven years and, subject to certain conditions, allows for subsequent renewal periods whereby MONI can extend the agreement beyond 20 years. The Company is currently completing rebranding tasks, as well as integration tasks, such that the MONI and LiveWatch sales channels will be combined under the Brinks Home Security brand. The brand rollout is expected to occur in the second quarter of 2018.

The unaudited interim financial information of the Company has been prepared in accordance with Article 10 of the Securities and Exchange Commission’s (the "SEC") Regulation S-X. Accordingly, it does not include all of the information required by generally accepted accounting principles in the United States ("GAAP") for complete financial statements. The Company’s unaudited condensed consolidated financial statements as of March 31, 2018, and for the three months ended March 31, 2018 and 2017, include MONI and all of its direct and indirect subsidiaries.  The accompanying interim condensed consolidated financial statements are unaudited but, in the opinion of management, reflect all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the results for such periods. The results of operations for any interim period are not necessarily indicative of results for the full year.  These condensed consolidated financial statements should be read in conjunction with the MONI Annual Report on Form 10-K for the year ended December 31, 2017, filed with the SEC on March 7, 2018.

The Company adopted Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers (Topic 606) ("Topic 606") using the modified retrospective approach on January 1, 2018, at which time it became effective for the Company. The Company recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of retained earnings. The Company also adopted ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities ("ASU 2017-12") which simplifies the application of hedge accounting guidance. The standard was early adopted effective January 1, 2018, and the Company recognized an opening equity adjustment to reduce Accumulated deficit, offset by a gain in Accumulated other comprehensive income (loss). The comparative information has not been restated and continues to be reported under the accounting standards in effect during those periods. See note 2, Recent Accounting Pronouncements, and note 3, Revenue Recognition, in the notes to the condensed consolidated financial statements for further discussion.
 
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of revenue and expenses for each reporting period.  The significant estimates made in preparation of the Company’s condensed consolidated financial statements primarily relate to valuation of subscriber accounts, valuation of deferred tax assets and valuation of goodwill. These estimates are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts them when facts and circumstances change. As the effects of future events cannot be determined with any certainty, actual results could differ from the estimates upon which the carrying values were based.

(2)    Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (the "FASB") issued ASU 2016-02, Leases (Topic 842) ("ASU 2016-02"). ASU 2016-02 requires the lessee to recognize assets and liabilities for leases with lease terms of more than twelve months. For leases with a term of twelve months or less, the Company is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. Further, ASU 2016-02 requires a finance lease to be recognized as both an interest expense and an amortization of the associated asset. Operating leases generally recognize the

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Table of Contents

associated expense on a straight line basis. ASU 2016-02 requires the Company to adopt the standard using a modified retrospective approach and becomes effective on January 1, 2019. The Company is currently evaluating the impact that ASU 2016-02 will have on its financial position, results of operations and cash flows.

In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment ("ASU 2017-04"). Currently, the fair value of the reporting unit is compared with the carrying value of the reporting unit (identified as "Step 1"). If the fair value of the reporting unit is lower than its carrying amount, then the implied fair value of goodwill is calculated. If the implied fair value of goodwill is lower than the carrying value of goodwill an impairment is recognized (identified as "Step 2"). ASU 2017-04 eliminates Step 2 from the impairment test; therefore, a goodwill impairment will be recognized as the difference of the fair value and the carrying value. ASU 2017-04 becomes effective on January 1, 2020 with early adoption permitted. The Company is currently evaluating when to adopt the standard.

In August 2017, the FASB issued ASU 2017-12 to amend the hedge accounting rules to align risk management activities and financial reporting by simplifying the application of hedge accounting guidance. The guidance expands the ability to hedge nonfinancial and financial risk components and eliminates the requirement to separately measure and report hedge ineffectiveness. Additionally, certain hedge effectiveness assessment requirements may be accomplished qualitatively instead of quantitatively. ASU 2017-12 is effective for annual and interim periods beginning after December 15, 2018 with early adoption permitted. The Company early adopted ASU 2017-12 effective January 1, 2018, and as such, an opening equity adjustment of $605,000 was recognized that reduced Accumulated deficit, offset by a gain in Accumulated other comprehensive income (loss). This adjustment primarily relates to the derecognition of the cumulative ineffectiveness recorded on the Company's interest rate swap derivative instruments, as well as adjustments to cumulative dedesignation adjustments. The Company does not expect this adoption to have a material impact on its financial position, results of operations or cash flows on an ongoing basis.

(3)    Revenue Recognition

Topic 606 amends and supersedes FASB Accounting Standards Codification ("ASC") Topic 605, Revenue Recognition ("Topic 605"). The core principle of Topic 606 is that revenue will be recognized when the transfer of promised goods or services to customers is made in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

Accounting Policy for Periods Commencing January 1, 2018

The Company offers its subscribers professional alarm monitoring services, as well as interactive and home automation services, through equipment at the subscriber's site that communicates with the Company’s central monitoring station and interfaces with other equipment at the site and third party technology companies for interactive and home automation services. These services are typically provided under alarm monitoring agreements (“AMAs”) between the Company and the subscriber. The equipment at the site is either obtained independently from the Company’s network of third party Authorized Dealers or directly from the Company, via its direct-to-consumer sales channel. The Company also offers equipment sales and installation services and, to its existing subscribers, maintenance services on existing alarm equipment. The Company also collects fees for contract monitoring, which are services provided to other security alarm companies for monitoring their accounts on a wholesale basis and other fees from subscribers for late fee or insufficient fund charges.

Revenue under subscriber AMAs is allocated to alarm monitoring revenue and, if applicable, product and installation revenue based on the stand alone selling prices (“SSP”) of each performance obligation as a percentage of the total SSP of all performance obligations. Allocated alarm monitoring revenue is recognized as the monthly service is provided. Allocated product and installation revenue is recognized when the product sale is complete or shipped and the installation service is provided, typically at inception of the AMA. Product and installation revenue is not applicable to AMA's acquired from Authorized Dealers in their initial term. Any cash not received from the subscriber at the time of product sale and installation is recognized as a contract asset at inception of the AMA and is subsequently amortized over the subscriber contract term as a reduction of the amounts billed for professional alarm monitoring, interactive and home automation services. If a subscriber cancels the AMA within the negotiated term, any existing contract asset is determined to be impaired and is immediately expensed in full to Selling, general and administrative expense on the condensed consolidated statement of operations.

Maintenance services are billed and recognized as revenue when the services are completed in the home and agreed to by the subscriber under the subscriber AMA. Contract monitoring fees are recognized as alarm monitoring revenue as the monitoring service is provided. Other fees are recognized as other revenue when billed to the subscriber which coincides with the timing of when the services are provided.


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Disaggregation of Revenue

Revenue is disaggregated by source of revenue as follows (in thousands):
 
Three Months Ended 
 March 31,
 
2018
 
2017
Alarm monitoring revenue
$
124,840

 
136,891

Product and installation revenue
8,147

 
3,294

Other revenue
766

 
1,015

Total Net revenue
$
133,753

 
141,200


Contract Balances

The following table provides information about receivables, contract assets and contract liabilities from contracts with customers (in thousands):
 
March 31, 2018
 
At adoption
Trade receivables, net
$
12,300

 
12,645

Contract assets, net - current portion (a)
13,543

 
14,197

Contract assets, net - long-term portion (b)
11,101

 
10,377

Deferred revenue
13,477

 
12,892

 
(a)        Amount is included in Prepaid and other current assets in the unaudited condensed consolidated balance sheets.
(b)        Amount is included in Other assets in the unaudited condensed consolidated balance sheets.

Changes in Accounting Policies

The Company adopted Topic 606, effective January 1, 2018, using the modified retrospective transition method. Under the modified retrospective transition method, the Company evaluated active AMAs on the adoption date as if each AMA had been accounted for under Topic 606 from its inception. Some revenue related to AMAs originated through our direct-to-consumer channel or through extensions that would have been recognized in future periods under Topic 605 were recast under Topic 606 as if revenue had been accelerated and recognized in prior periods, as it will be allocated to product and installation performance obligations. A contract asset was recorded as of the adoption date for any cash that has yet to be collected on the accelerated revenue. As this transition method requires that the Company not adjust historical reported revenue amounts, the accelerated revenue that would have been recognized under this method prior to the adoption date was recorded as an adjustment to opening retained earnings and, thus, will not be recognized as revenue in future periods as previously required under Topic 605. Therefore, the comparative information has not been adjusted and continues to be reported under Topic 605.

Under Topic 605, revenue provided under the AMA was recognized as the services were provided, based on the recurring monthly revenue amount billed for each month under contract. Product, installation and service revenue generally was recognized as billed and incurred. Under Topic 606, the Company concluded that certain product and installation services sold or provided to our customers at AMA inception are capable of being distinct and are distinct within the context of the contract. As such, when the Company initiates an AMA with a customer directly and provides equipment and installation services, each component is considered a performance obligation that must have revenue allocated accordingly. The allocation is based on the SSP of each performance obligation as a percentage of the total SSP of all performance obligations multiplied by the total consideration, or cash, expected to be received over the contract term. These AMAs may relate to new customers originated by the Company through its direct-to-consumer channel or existing customers who agree to new contract terms through customer service offerings. For AMAs with multiple performance obligations, management notes that a certain amount of the revenue billed on a recurring monthly basis is recognized earlier under Topic 606 than it was recognized under Topic 605, as a portion of that revenue is allocated to the equipment sale and installation, which is satisfied upon delivery of the product and performance of the installation services at AMA inception.

Revenue on AMAs originated through the Authorized Dealer program are not impacted by Topic 606 in their initial term, as the customer contracts for the equipment sale and installation separately with the Authorized Dealer prior to the Company purchasing the AMA from the Authorized Dealer. Revenue on these customers is recognized as the service is provided based

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on the recurring monthly revenue amount billed for each month of the AMA. Maintenance service revenue for repair of existing alarm equipment at the subscribers' premises will continue to be billed and recognized based on their SSP at the time the Company performs the services.

Topic 606 also requires the deferral of incremental costs of obtaining a contract with a customer. Certain direct and incremental costs were capitalized under Topic 605, including on new AMAs obtained in connection with a subscriber move (“Moves Costs”). Under Topic 606, Moves Costs are expensed as incurred to accompany the allocated revenue recognized upon product and installation performance obligations recognized at the AMA inception. There are no other significant changes in contract costs that are capitalized or the period over which they are expensed.

Impacts on Financial Statements

The significant effects of adopting Topic 606 are changes to Prepaid and other current assets, Subscriber accounts, net, Other assets, net, Net revenue, Cost of services, Selling, general and administrative and Amortization of subscriber accounts for the period beginning January 1, 2018 for AMAs initiated by the Company with the customer directly with multiple performance obligations, as a portion of that revenue is allocated to the equipment sale and installation, which is satisfied upon delivery of the product and performance of the installation services at AMA inception.

The following tables summarize the impacts of adopting Topic 606 on the Company’s condensed consolidated financial statements as of and for the three months ended March 31, 2018 (in thousands):


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i. Condensed consolidated balance sheets
 
Impact of changes in accounting policies
 
As reported
March 31, 2018
 
Adjustments
 
Balances without adoption of Topic 606
Assets
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
$
27,901

 

 
27,901

Restricted cash
93

 

 
93

Trade receivables, net of allowance for doubtful accounts
12,300

 

 
12,300

Prepaid and other current assets
23,193

 
(13,543
)
 
9,650

Total current assets
63,487

 
(13,543
)
 
49,944

Property and equipment, net of accumulated depreciation
34,043

 

 
34,043

Subscriber accounts and deferred contract acquisition costs, net of accumulated amortization
1,224,937

 
48,249

 
1,273,186

Dealer network and other intangible assets, net of accumulated amortization
3,941

 

 
3,941

Goodwill
563,549

 

 
563,549

Other assets, net
27,627

 
(11,101
)
 
16,526

Total assets
$
1,917,584

 
23,605

 
1,941,189

Liabilities and Stockholder’s Equity
 

 
 
 
 
Current liabilities:
 
 
 
 
 
Accounts payable
$
12,858

 

 
12,858

Accrued payroll and related liabilities
5,556

 

 
5,556

Other accrued liabilities
61,728

 

 
61,728

Deferred revenue
13,477

 
1,192

 
14,669

Holdback liability
7,601

 

 
7,601

Current portion of long-term debt
11,000

 

 
11,000

Total current liabilities
112,220

 
1,192

 
113,412

Non-current liabilities:
 

 
 
 
 
Long-term debt
1,711,336

 

 
1,711,336

Long-term holdback liability
2,191

 

 
2,191

Derivative financial instruments
6,553

 

 
6,553

Deferred income tax liability, net
13,966

 

 
13,966

Other liabilities
3,098

 

 
3,098

Total liabilities
1,849,364

 
1,192

 
1,850,556

Commitments and contingencies


 

 

Stockholder’s equity:
 
 
 
 
 
Common stock

 

 

Additional paid-in capital
444,335

 

 
444,335

Accumulated deficit
(383,751
)
 
22,413

 
(361,338
)
Accumulated other comprehensive income, net
7,636

 

 
7,636

Total stockholder’s equity
68,220

 
22,413

 
90,633

Total liabilities and stockholder’s equity
$
1,917,584

 
23,605

 
1,941,189



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ii. Condensed consolidated statements of operations and comprehensive income (loss)
 
Impact of changes in accounting policies
 
As reported three months ended
March 31, 2018
 
Adjustments
 
Balances without adoption of Topic 606
Net revenue
$
133,753

 
(325
)
 
133,428

Operating expenses:
 

 
 
 
 
Cost of services
32,701

 
(1,922
)
 
30,779

Selling, general and administrative, including stock-based and long-term incentive compensation
32,014

 
21

 
32,035

Amortization of subscriber accounts, deferred contract acquisition costs and other intangible assets
54,411

 
1,883

 
56,294

Depreciation
2,615

 

 
2,615

 
121,741

 
(18
)
 
121,723

Operating income
12,012

 
(307
)
 
11,705

Other expense:
 

 
 
 
 
Interest expense
36,873

 

 
36,873

 
36,873

 

 
36,873

Loss before income taxes
(24,861
)
 
(307
)
 
(25,168
)
Income tax expense
1,346

 

 
1,346

Net loss
(26,207
)
 
(307
)
 
(26,514
)
Other comprehensive income (loss):
 

 
 
 
 
Unrealized gain on derivative contracts, net
14,406

 

 
14,406

Total other comprehensive income, net of tax
14,406

 

 
14,406

Comprehensive loss
$
(11,801
)
 
(307
)
 
(12,108
)


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iii. Condensed consolidated statements of cash flows
 
Impact of changes in accounting policies
 
As reported three months ended
March 31, 2018
 
Adjustments
 
Balances without adoption of Topic 606
Cash flows from operating activities:
 
 
 
 
 
Net loss
$
(26,207
)
 
(307
)
 
(26,514
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 

 
 
 
 
Amortization of subscriber accounts, deferred contract acquisition costs and other intangible assets
54,411

 
1,883

 
56,294

Depreciation
2,615

 

 
2,615

Stock-based and long-term incentive compensation
(12
)
 

 
(12
)
Deferred income tax expense
662

 

 
662

Amortization of debt discount and deferred debt costs
1,789

 

 
1,789

Bad debt expense
3,017

 

 
3,017

Other non-cash activity, net
(852
)
 

 
(852
)
Changes in assets and liabilities:
 
 
 
 
 
Trade receivables
(2,672
)
 

 
(2,672
)
Prepaid expenses and other assets
650

 

 
650

Contract asset, net
(70
)
 
70

 

Subscriber accounts - deferred contract acquisition costs
(898
)
 
63

 
(835
)
Payables and other liabilities
17,921

 
388

 
18,309

Net cash provided by operating activities
50,354

 
2,097

 
52,451

Cash flows from investing activities:
 

 
 
 
 
Capital expenditures
(3,310
)
 

 
(3,310
)
Cost of subscriber accounts acquired
(24,560
)
 
(2,097
)
 
(26,657
)
Increase in restricted cash
(93
)
 

 
(93
)
Net cash used in investing activities
(27,963
)
 
(2,097
)
 
(30,060
)
Cash flows from financing activities:
 

 
 
 
 
Proceeds from long-term debt
50,000

 

 
50,000

Payments on long-term debt
(47,750
)
 

 
(47,750
)
Value of shares withheld for share-based compensation
(42
)
 

 
(42
)
Net cash provided by financing activities
2,208

 

 
2,208

Net increase in cash and cash equivalents
24,599

 

 
24,599

Cash and cash equivalents at beginning of period
3,302

 

 
3,302

Cash and cash equivalents at end of period
$
27,901

 

 
27,901




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(4)    Goodwill

The following table provides the activity and balances of goodwill by reporting unit (amounts in thousands):
 
 
MONI
 
LiveWatch
 
Total
Balance at 12/31/2017
 
$
527,502

 
$
36,047

 
$
563,549

Period activity
 

 

 

Balance at 3/31/2018
 
$
527,502

 
$
36,047

 
$
563,549


The Company accounts for its goodwill pursuant to the provisions of FASB ASC Topic 350, Intangibles - Goodwill and Other ("FASB ASC Topic 350"). In accordance with FASB ASC Topic 350, goodwill is not amortized, but rather tested for impairment annually, or earlier if an event occurs, or circumstances change, that indicate the fair value of a reporting unit may be below its carrying amount.

In the first quarter of 2018, the Company determined that a triggering event had occurred due to a sustained decrease in the Company's share price. In response to the triggering event, the Company performed a quantitative impairment test noting that the estimated fair value for each of the Company's reporting units exceeded the carrying amount of the underlying assets. Thus no impairment was indicated.

(5)    Other Accrued Liabilities
 
Other accrued liabilities consisted of the following (amounts in thousands): 
 
March 31,
2018
 
December 31,
2017
Interest payable
$
27,789

 
$
14,835

Income taxes payable
3,487

 
2,839

Legal settlement reserve (a)
23,000

 
23,000

Other
7,452

 
9,352

Total Other accrued liabilities
$
61,728

 
$
50,026

 
(a)        See note 10, Commitments, Contingencies and Other Liabilities, for further information.

(6)    Long-Term Debt
 
Long-term debt consisted of the following (amounts in thousands):
 
March 31,
2018
 
December 31,
2017
9.125% Senior Notes due April 1, 2020 with an effective interest rate of 9.5%
$
580,536

 
$
580,026

Ascent Intercompany Loan due October 1, 2020 with an effective rate of 12.5% (a)
12,000

 
12,000

Term loan, matures September 30, 2022, LIBOR plus 5.50%, subject to a LIBOR floor of 1.00%, with an effective rate of 7.7%
1,058,020

 
1,059,598

$295 million revolving credit facility, matures September 30, 2021, LIBOR plus 4.00%, subject to a LIBOR floor of 1.00%, with an effective rate of 6.0%
71,780

 
66,673

 
1,722,336

 
1,718,297

Less current portion of long-term debt
(11,000
)
 
(11,000
)
Long-term debt
$
1,711,336

 
$
1,707,297

 
(a)
The effective rate was 9.868% until February 29, 2016.
 
Senior Notes
 
The senior notes total $585,000,000 in principal, mature on April 1, 2020 and bear interest at 9.125% per annum (the "Senior Notes").  Interest payments are due semi-annually on April 1 and October 1 of each year. Ascent Capital has not guaranteed

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any of the Company's obligations under the Senior Notes. As of March 31, 2018, the Senior Notes had deferred financing costs, net of accumulated amortization of $4,464,000.

The Senior Notes are guaranteed by all of the Company's existing domestic subsidiaries. See note 12, Consolidating Guarantor Financial Information for further information.

Ascent Intercompany Loan
 
On February 29, 2016, the Company retired the existing intercompany loan with an outstanding principal amount of $100,000,000 and executed and delivered a Promissory Note to Ascent Capital in a principal amount of $12,000,000 (the "Ascent Intercompany Loan"), with the $88,000,000 remaining principal being treated as a capital contribution.  The entire principal amount under the Ascent Intercompany Loan is due on October 1, 2020.  The Company may prepay any portion of the balance of the Ascent Intercompany Loan at any time from time to time without fee, premium or penalty (subject to certain financial covenants associated with the Company’s other indebtedness).  Any unpaid balance of the Ascent Intercompany Loan bears interest at a rate equal to 12.5% per annum, payable semi-annually in cash in arrears on January 12 and July 12 of each year.  Borrowings under the Ascent Intercompany Loan constitute unsecured obligations of the Company and are not guaranteed by any of the Company’s subsidiaries.
 
Credit Facility

On September 30, 2016, the Company entered into an amendment ("Amendment No. 6") with the lenders of its existing senior secured credit agreement dated March 23, 2012, and as amended and restated on April 9, 2015, February 17, 2015, August 16, 2013, March 25, 2013, and November 7, 2012 (the "Existing Credit Agreement"). Amendment No. 6 provided for, among other things, the issuance of a $1,100,000,000 senior secured term loan at a 1.5% discount and a new $295,000,000 super priority revolver (the Existing Credit Agreement together with Amendment No. 6, the "Credit Facility").

On March 29, 2018, the Company borrowed an incremental $26,691,000 on its Credit Facility revolver to fund its April 2, 2018 interest payment due under the Senior Notes.

As of March 31, 2018, the Credit Facility term loan has a principal amount of $1,083,500,000, maturing on September 30, 2022. The term loan requires quarterly interest payments and quarterly principal payments of $2,750,000. The term loan bears interest at LIBOR plus 5.5%, subject to a LIBOR floor of 1.0%. The Credit Facility revolver has a principal amount outstanding of $73,500,000 as of March 31, 2018 and matures on September 30, 2021. The Credit Facility revolver bears interest at LIBOR plus 4.0%, subject to a LIBOR floor of 1.0%. There is a commitment fee of 0.5% on unused portions of the Credit Facility revolver. As of March 31, 2018, $221,500,000 is available for borrowing under the Credit Facility revolver subject to certain financial covenants.

The maturity date for both the term loan and the revolving credit facility under the Credit Facility are subject to a springing maturity 181 days prior to the scheduled maturity date of the Senior Notes, or October 3, 2019 (the "Springing Maturity") if we are unable to refinance the Senior Notes by that date. In addition, at any time after the occurrence of an event of default under the Credit Facility, the lenders may, among other options, declare any amounts outstanding under the Credit Facility immediately due and payable and terminate any commitment to make further loans under the Credit Facility. Also, failure to comply with restrictions contained in the Senior Notes could lead to an event of default under the Credit Facility.

The Credit Facility is secured by a pledge of all of the outstanding stock of the Company and all of its existing subsidiaries and is guaranteed by all of the Company’s existing domestic subsidiaries.  Ascent Capital has not guaranteed any of the Company’s obligations under the Credit Facility.

As of March 31, 2018, the Company has deferred financing costs and unamortized discounts, net of accumulated amortization, of $27,200,000 related to the Credit Facility.

In order to reduce the financial risk related to changes in interest rates associated with the floating rate term loan under the Credit Facility term loan, the Company has entered into interest rate swap agreements with terms similar to the Credit Facility term loan (all outstanding interest rate swap agreements are collectively referred to as the “Swaps”). The Swaps have been designated as effective hedges of the Company’s variable rate debt and qualify for hedge accounting.  As a result of these interest rate swaps, the Company's effective weighted average interest rate on the borrowings under the Credit Facility term loan was 7.98% as of March 31, 2018. See note 7, Derivatives, for further disclosures related to these derivative instruments. 


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The terms of the Senior Notes and the Credit Facility provide for certain financial and nonfinancial covenants.  As of March 31, 2018, the Company was in compliance with all required covenants under these financing arrangements.

As of March 31, 2018, principal payments scheduled to be made on the Company’s debt obligations, assuming no Springing Maturity of the Credit Facility, are as follows (amounts in thousands):
Remainder of 2018
$
8,250

2019
11,000

2020
608,000

2021
84,500

2022
1,042,250

2023

Thereafter

Total principal payments
1,754,000

Less:
 
Unamortized deferred debt costs and discounts
31,664

Total debt on condensed consolidated balance sheet
$
1,722,336


(7)    Derivatives
 
The Company utilizes Swaps to reduce the interest rate risk inherent in the Company's variable rate Credit Facility term loan. The valuation of these instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatility. The Company incorporates credit valuation adjustments to appropriately reflect the respective counterparty’s nonperformance risk in the fair value measurements. See note 8, Fair Value Measurements, for additional information about the credit valuation adjustments.

All of the Swaps are designated and qualify as cash flow hedging instruments, with the effective portion of the Swaps' change in fair value recorded in Accumulated other comprehensive income (loss).  Changes in the fair value of the Swaps recognized in Accumulated other comprehensive income (loss) are reclassified to Interest expense when the hedged interest payments on the underlying debt are recognized.  Amounts in Accumulated other comprehensive income (loss) expected to be recognized as Interest expense in the coming 12 months total approximately $1,114,000.

As of March 31, 2018, the Swaps’ outstanding notional balances, effective dates, maturity dates and interest rates paid and received are noted below:
Notional
 
Effective Date
 
Maturity Date
 
Fixed Rate Paid
 
Variable Rate Received
$
190,982,778

 
March 23, 2018
 
April 9, 2022
 
3.110%
 
3 mo. USD-LIBOR-BBA, subject to a 1.00% floor (a)
249,375,000

 
March 23, 2018
 
April 9, 2022
 
3.110%
 
3 mo. USD-LIBOR-BBA, subject to a 1.00% floor (a)
49,875,000

 
March 23, 2018
 
April 9, 2022
 
2.504%
 
3 mo. USD-LIBOR-BBA, subject to a 1.00% floor
376,057,500

 
March 23, 2018
 
September 30, 2022
 
1.833%
 
3 mo. USD-LIBOR-BBA, subject to a 1.00% floor
 
(a) 
On September 30, 2016, the Company negotiated amendments to the terms of these interest rate swap agreements (the "Existing Swap Agreements," as amended, the "Amended Swaps").  The Amended Swaps are held with the same counterparties as the Existing Swap Agreements.  Upon entering into the Amended Swaps, the Company simultaneously dedesignated the Existing Swap Agreements and redesignated the Amended Swaps as cash flow hedges for the underlying change in the swap terms.  The amounts previously recognized in Accumulated other comprehensive income (loss) relating to the dedesignation are recognized in Interest expense over the remaining life of the Amended Swaps.


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The impact of the derivatives designated as cash flow hedges on the condensed consolidated financial statements is depicted below (amounts in thousands):
 
Three Months Ended 
 March 31,
 
2018
 
2017
Effective portion of gain (loss) recognized in Accumulated other comprehensive income (loss)
$
13,668

 
(733
)
Effective portion of loss reclassified from Accumulated other comprehensive income (loss) into Net loss (a)
$
(738
)
 
(1,782
)
Ineffective portion of amount of loss recognized into Net loss (a)
$

 
18

 
(a)        Amounts are included in Interest expense in the unaudited condensed consolidated statements of operations and comprehensive income (loss). Upon the adoption of ASU 2017-12 on January 1, 2018, ineffectiveness is no longer measured or recognized.

(8)    Fair Value Measurements
 
According to the FASB ASC Topic 820, Fair Value Measurement, fair value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants and requires that assets and liabilities carried at fair value are classified and disclosed in the following three categories:

Level 1 - Quoted prices for identical instruments in active markets.
Level 2 - Quoted prices for similar instruments in active or inactive markets and valuations derived from models where all significant inputs are observable in active markets.
Level 3 - Valuations derived from valuation techniques in which one or more significant inputs are unobservable in any market.

The following summarizes the fair value level of assets and liabilities that are measured on a recurring basis at March 31, 2018 and December 31, 2017 (amounts in thousands): 
 
Level 1
 
Level 2
 
Level 3
 
Total
March 31, 2018
 
 
 
 
 
 
 
Interest rate swap agreements - assets (a)
$

 
13,833

 

 
13,833

Interest rate swap agreements - liabilities (b)

 
(6,553
)
 

 
(6,553
)
Total
$

 
7,280

 

 
7,280

December 31, 2017
 
 
 
 
 
 
 
Interest rate swap agreements - assets (a)
$

 
7,058

 

 
7,058

Interest rate swap agreements - liabilities (b)

 
(13,817
)
 

 
(13,817
)
Total
$

 
(6,759
)
 

 
(6,759
)
 
(a)
Included in non-current Other assets on the condensed consolidated balance sheets.
(b)
Included in non-current Derivative financial instruments on the condensed consolidated balance sheets.
 
The Company has determined that the significant inputs used to value the Swaps fall within Level 2 of the fair value hierarchy.  As a result, the Company has determined that its derivative valuations are classified in Level 2 of the fair value hierarchy.
 
Carrying values and fair values of financial instruments that are not carried at fair value are as follows (amounts in thousands):
 
March 31, 2018
 
December 31, 2017
Long term debt, including current portion:
 
 
 
Carrying value
$
1,722,336

 
1,718,297

Fair value (a)
1,581,095

 
1,645,616

 
(a) 
The fair value is based on market quotations from third party financial institutions and is classified as Level 2 in the hierarchy.

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The Company’s other financial instruments, including cash and cash equivalents, accounts receivable and accounts payable are carried at cost, which approximates their fair value because of their short-term maturity.

(9)    Accumulated Other Comprehensive Income (Loss)
 
The following table provides a summary of the changes in Accumulated other comprehensive income (loss) for the period presented (amounts in thousands):
 
Accumulated
Other
Comprehensive
Income (Loss)
Balance at December 31, 2017
$
(7,375
)
Impact of adoption of ASU 2017-12
605

Adjusted balance at January 1, 2018
(6,770
)
Unrealized gain on derivatives recognized through Accumulated other comprehensive income (loss), net of income tax of $0
13,668

Reclassifications of unrealized loss on derivatives into Net loss, net of income tax of $0 (a)
738

Net current period other comprehensive income
14,406

Balance at March 31, 2018
$
7,636

 
(a)
Amounts reclassified into net loss are included in Interest expense on the condensed consolidated statement of operations.  See note 7, Derivatives, for further information.
 
(10)    Commitments, Contingencies and Other Liabilities
 
The Company was named as a defendant in multiple putative class actions consolidated in U.S. District Court (Northern District of West Virginia) on behalf of purported class(es) of persons who claim to have received telemarketing calls in violation of various state and federal laws. The actions were brought by plaintiffs seeking monetary damages on behalf of all plaintiffs who received telemarketing calls made by a Monitronics Authorized Dealer, or any Authorized Dealer’s lead generator or sub-dealer. In the second quarter of 2017, the Company and the plaintiffs agreed to settle this litigation for $28,000,000 ("the Settlement Amount"). The Company is actively seeking to recover the Settlement Amount under its insurance policies. The settlement agreement remains subject to court approval and the court’s entry of a final order dismissing the actions. In the third quarter of 2017, the Company paid $5,000,000 of the Settlement Amount pursuant to the settlement agreement with the plaintiffs.

In addition to the above, the Company is also involved in litigation and similar claims incidental to the conduct of its business, including from time to time, contractual disputes, claims related to alleged security system failures and claims related to alleged violations of the U.S. Telephone Consumer Protection Act. Matters that are probable of unfavorable outcome to the Company and which can be reasonably estimated are accrued. Such accruals are based on information known about the matters, management's estimate of the outcomes of such matters and experience in contesting, litigating and settling similar matters. In management's opinion, none of the pending actions are likely to have a material adverse impact on the Company's financial position or results of operations. The Company accrues and expenses legal fees related to loss contingency matters as incurred.

(11)    Reportable Business Segments

Description of Segments

The Company operates through two reportable business segments according to the nature and economic characteristics of its services as well as the manner in which the information issued internally by the Company's key decision maker, who is the Company's Chief Executive Officer. The Company's business segments are as follows:

MONI

The MONI segment is engaged in the business of providing security alarm monitoring services: monitoring signals arising from burglaries, fires, medical alerts and other events through security systems at subscribers' premises, as well as providing

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Table of Contents

customer service and technical support. MONI primarily outsources the sales, installation and most of its field service functions to its dealers.

LiveWatch

LiveWatch is a Do-It-Yourself home security provider offering professionally monitored security services through a direct-to-consumer sales channel. LiveWatch offers a differentiated go-to-market strategy through direct response TV, internet and radio advertising. When a customer initiates the process to obtain monitoring services, LiveWatch pre-configures the alarm monitoring system based on customer specifications. LiveWatch then packages and ships the equipment directly to the customer. The customer self-installs the equipment on-site and activates the monitoring service over the phone.

As they arise, transactions between segments are recorded on an arm's length basis using relevant market prices. The following table sets forth selected data from the accompanying condensed consolidated statements of operations for the periods indicated (amounts in thousands):
 
 
MONI
 
LiveWatch
 
Consolidated
 
 
Three Months Ended March 31, 2018
Net revenue
 
$
125,773

 
$
7,980

 
$
133,753

Depreciation and amortization
 
$
55,236

 
$
1,790

 
$
57,026

Loss before income taxes
 
$
(17,629
)
 
$
(7,232
)
 
$
(24,861
)
 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2017
Net revenue
 
$
134,408

 
$
6,792

 
$
141,200

Depreciation and amortization
 
$
60,508

 
$
1,159

 
$
61,667

Loss before income taxes
 
$
(13,299
)
 
$
(5,930
)
 
$
(19,229
)

The following table sets forth selected data from the accompanying condensed consolidated balance sheets for the periods indicated (amounts in thousands):
 
 
MONI
 
LiveWatch
 
Eliminations
 
Consolidated
 
 
Balance at March 31, 2018
Subscriber accounts and deferred contract acquisition costs, net of amortization
 
$
1,203,996

 
$
20,941

 
$

 
$
1,224,937

Goodwill
 
$
527,502

 
$
36,047

 
$

 
$
563,549

Total assets
 
$
1,980,081

 
$
62,453

 
$
(124,950
)
 
$
1,917,584

 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2017
Subscriber accounts and deferred contract acquisition costs, net of amortization
 
$
1,280,813

 
$
21,215

 
$

 
$
1,302,028

Goodwill
 
$
527,502

 
$
36,047

 
$

 
$
563,549

Total assets
 
$
1,996,240

 
$
63,233

 
$
(118,158
)
 
$
1,941,315


(12)    Consolidating Guarantor Financial Information

The Senior Notes were issued by MONI (the “Parent Issuer”) and are fully and unconditionally guaranteed, on a joint and several basis, by all of the Company’s existing domestic subsidiaries (“Subsidiary Guarantors”).  Ascent Capital has not guaranteed any of the Company’s obligations under the Senior Notes. The unaudited condensed consolidating financial information for the Parent Issuer, the Subsidiary Guarantors and the non-guarantors are as follows:


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Table of Contents

MONITRONICS INTERNATIONAL, INC. AND SUBSIDIARIES
Condensed Consolidating Balance Sheet
(unaudited)
 
 
As of March 31, 2018
 
Parent Issuer
 
Subsidiary Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
 
(amounts in thousands)
Assets
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
27,547

 
354

 

 

 
27,901

Restricted cash
93

 

 

 

 
93

Trade receivables, net
11,759

 
541

 

 

 
12,300

Prepaid and other current assets
92,568

 
2,739

 

 
(72,114
)
 
23,193

Total current assets
131,967

 
3,634

 

 
(72,114
)
 
63,487

 
 
 
 
 
 
 
 
 
 
Investment in subsidiaries
(2,271
)
 

 

 
2,271

 

Property and equipment, net
31,905

 
2,138

 

 

 
34,043

Subscriber accounts and deferred contract acquisition costs, net
1,189,174

 
35,763

 

 

 
1,224,937

Dealer network and other intangible assets, net
3,638

 
303

 

 

 
3,941

Goodwill
527,191

 
36,358

 

 

 
563,549

Other assets, net
27,597

 
30

 

 

 
27,627

Total assets
$
1,909,201

 
78,226

 

 
(69,843
)
 
1,917,584

 
 
 
 
 
 
 
 
 
 
Liabilities and Stockholder's Equity
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
$
10,298

 
2,560

 

 

 
12,858

Accrued payroll and related liabilities
4,744

 
812

 

 

 
5,556

Other accrued liabilities
61,035

 
72,807

 

 
(72,114
)
 
61,728

Deferred revenue
11,878

 
1,599

 

 

 
13,477

Holdback liability
7,417

 
184

 

 

 
7,601

Current portion of long-term debt
11,000

 

 

 

 
11,000

Total current liabilities
106,372

 
77,962

 

 
(72,114
)
 
112,220

 
 
 
 
 
 
 
 
 
 
Non-current liabilities:
 
 
 
 
 
 
 
 
 
Long-term debt
1,711,336

 

 

 

 
1,711,336

Long-term holdback liability
2,191

 

 

 

 
2,191

Derivative financial instruments
6,553

 

 

 

 
6,553

Deferred income tax liability, net
12,207

 
1,759

 

 

 
13,966

Other liabilities
2,322

 
776

 

 

 
3,098

Total liabilities
1,840,981

 
80,497

 

 
(72,114
)
 
1,849,364

 
 
 
 
 
 
 
 
 
 
Total stockholder's equity
68,220

 
(2,271
)
 

 
2,271

 
68,220

Total liabilities and stockholder's equity
$
1,909,201

 
78,226

 

 
(69,843
)
 
1,917,584


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MONITRONICS INTERNATIONAL, INC. AND SUBSIDIARIES
Condensed Consolidating Balance Sheet
(unaudited)
 
 
As of December 31, 2017
 
Parent Issuer
 
Subsidiary Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
 
(amounts in thousands)
Assets
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
2,705

 
597

 

 

 
3,302

Trade receivables, net
12,082

 
563

 

 

 
12,645

Prepaid and other current assets
74,613

 
2,396

 

 
(66,341
)
 
10,668

Total current assets
89,400

 
3,556

 

 
(66,341
)
 
26,615

 
 
 
 
 
 
 
 
 
 
Investment in subsidiaries
4,554

 

 

 
(4,554
)
 

Property and equipment, net
30,727

 
2,062

 

 

 
32,789

Subscriber accounts and deferred contract acquisition costs, net
1,265,519

 
36,509

 

 

 
1,302,028

Dealer network and other intangible assets, net
6,063

 
931

 

 

 
6,994

Goodwill
527,191

 
36,358

 

 

 
563,549

Other assets, net
9,311

 
29

 

 

 
9,340

Total assets
$
1,932,765

 
79,445

 

 
(70,895
)
 
1,941,315

 
 
 
 
 
 
 
 
 
 
Liabilities and Stockholder's Equity
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
$
9,705

 
1,368

 

 

 
11,073

Accrued payroll and related liabilities
2,648

 
810

 

 

 
3,458

Other accrued liabilities
47,800

 
68,567

 

 
(66,341
)
 
50,026

Deferred revenue
12,332

 
1,539

 

 

 
13,871

Holdback liability
9,035

 
274

 

 

 
9,309

Current portion of long-term debt
11,000

 

 

 

 
11,000

Total current liabilities
92,520

 
72,558

 

 
(66,341
)
 
98,737

 
 
 
 
 
 
 
 
 
 
Non-current liabilities:
 
 
 
 
 
 
 
 
 
Long-term debt
1,707,297

 

 

 

 
1,707,297

Long-term holdback liability
2,658

 

 

 

 
2,658

Derivative financial instruments
13,491

 

 

 

 
13,491

Deferred income tax liability, net
11,684

 
1,620

 

 

 
13,304

Other liabilities
2,379

 
713

 

 

 
3,092

Total liabilities
1,830,029

 
74,891

 

 
(66,341
)
 
1,838,579

 
 
 
 
 
 
 
 
 
 
Total stockholder's equity
102,736

 
4,554

 

 
(4,554
)
 
102,736

Total liabilities and stockholder's equity
$
1,932,765

 
79,445

 

 
(70,895
)
 
1,941,315



20

Table of Contents

MONITRONICS INTERNATIONAL, INC. AND SUBSIDIARIES
Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)
(unaudited)
 
 
Three Months Ended March 31, 2018
 
Parent Issuer
 
Subsidiary Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
 
(amounts in thousands)
Net revenue
$
124,295

 
9,458

 

 

 
133,753

 
 
 
 
 
 
 
 
 
 
Operating expenses:
 

 
 

 
 

 
 

 
 
Cost of services
28,299

 
4,402

 

 

 
32,701

Selling, general, and administrative, including stock-based compensation
22,803

 
9,211

 

 

 
32,014

Amortization of subscriber accounts, deferred contract acquisition costs and other intangible assets
52,237

 
2,174

 

 

 
54,411

Depreciation
2,385

 
230

 

 

 
2,615

 
105,724

 
16,017

 

 

 
121,741

Operating income (loss)
18,571

 
(6,559
)
 

 

 
12,012

Other expense:
 

 
 

 
 

 
 

 
 

Equity in loss of subsidiaries
6,740

 

 

 
(6,740
)
 

Interest expense
36,873

 

 

 

 
36,873

 
43,613

 

 

 
(6,740
)
 
36,873

Loss before income taxes
(25,042
)
 
(6,559
)
 

 
6,740

 
(24,861
)
Income tax expense
1,165

 
181

 

 

 
1,346

Net loss
(26,207
)
 
(6,740
)
 

 
6,740

 
(26,207
)
Other comprehensive income (loss):
 

 
 

 
 

 
 

 
 

Unrealized gain on derivative contracts
14,406

 

 

 

 
14,406

Total other comprehensive income
14,406

 

 

 

 
14,406

Comprehensive loss
$
(11,801
)
 
(6,740
)
 

 
6,740

 
(11,801
)



21

Table of Contents

MONITRONICS INTERNATIONAL, INC. AND SUBSIDIARIES
Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)
(unaudited)
 
 
Three Months Ended March 31, 2017
 
Parent Issuer
 
Subsidiary Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
 
(amounts in thousands)
Net revenue
$
133,118

 
8,082

 

 

 
141,200

 
 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
 
 
Cost of services
26,307

 
3,662

 

 

 
29,969

Selling, general, and administrative, including stock-based compensation
24,717

 
8,006

 

 

 
32,723

Radio conversion costs
187

 
45

 

 

 
232

Amortization of subscriber accounts, deferred contract acquisition costs and other intangible assets
57,903

 
1,644

 

 

 
59,547

Depreciation
1,976

 
144

 

 

 
2,120

 
111,090

 
13,501

 

 

 
124,591

Operating income (loss)
22,028

 
(5,419
)
 

 

 
16,609

Other expense:
 

 
 
 
 
 
 
 
 
Equity in loss of subsidiaries
5,682

 

 

 
(5,682
)
 

Interest expense
35,833

 
5

 

 

 
35,838

 
41,515

 
5

 

 
(5,682
)
 
35,838

Loss before income taxes
(19,487
)
 
(5,424
)
 

 
5,682

 
(19,229
)
Income tax expense
1,526

 
258

 

 

 
1,784

Net loss
(21,013
)
 
(5,682
)
 

 
5,682

 
(21,013
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
Unrealized gain on derivative contracts
1,049

 

 

 

 
1,049

Total other comprehensive income
1,049

 

 

 

 
1,049

Comprehensive loss
$
(19,964
)
 
(5,682
)
 

 
5,682

 
(19,964
)


22

Table of Contents

MONITRONICS INTERNATIONAL, INC. AND SUBSIDIARIES
Condensed Consolidating Statement of Cash Flows
(unaudited)
 
 
Three Months Ended March 31, 2018
 
Parent Issuer
 
Subsidiary Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
 
(amounts in thousands)
Net cash provided by operating activities
$
50,059

 
295

 

 

 
50,354

Investing activities:
 
 
 
 
 
 
 
 
 
Capital expenditures
(3,004
)
 
(306
)
 

 

 
(3,310
)
Cost of subscriber accounts acquired
(24,328
)
 
(232
)
 

 

 
(24,560
)
Increase in restricted cash
(93
)
 

 

 

 
(93
)
Net cash used in investing activities
(27,425
)
 
(538
)
 

 

 
(27,963
)
Financing activities:
 
 
 
 
 
 
 
 
 
Proceeds from long-term debt
50,000

 

 

 

 
50,000

Payments on long-term debt
(47,750
)