EX-99.4 2 a13-20907_1ex99d4.htm EX-99.4

Exhibit 99.4

 

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

The following unaudited pro forma condensed consolidated financial statements have been prepared from the historical financial statements of Monitronics International, Inc. (“Monitronics” or the “Company”), the wholly-owned operating subsidiary of Ascent Capital Group, Inc. (“Ascent”) and Security Networks, LLC (“Security Networks”) to give effect to the Company’s acquisition of Security Networks and certain affiliated entities (the “Acquisition”).  The unaudited pro forma condensed consolidated financial statements also give effect to the following financing transactions which were entered into to fund the Acquisition (these financing transactions, together with the Acquisition, are collectively referred to as the “Transactions”):

 

·                  Monitronics’ July issuance of $150 million of additional 9.125% Senior Notes (“New Senior Notes”) due 2020 (in connection with the merger of Monitronics with Monitronics Escrow Corporation on August 16, 2013, as described in more detail in Ascent’s July 17, 2013 8-K);

·                  Monitronics’ Incremental Term Loan of $225 million issued under Monitronics’ existing credit facility; and

·                  Monitronics intercompany loan of $100 million from Ascent.

 

The unaudited pro forma condensed statements of operations for the fiscal year ended December 31, 2012 and for the six months ended June 30, 2013 give effect to the Transactions as if they were consummated on January 1, 2012.  The unaudited pro forma condensed balance sheet as of June 30, 2013 gives effect to the Transactions as if they were consummated on June 30, 2013.  The unaudited pro forma consolidated information has been derived from (i) the audited consolidated financial statements of each of Security Networks and the Company for the year ended December 31, 2012 and (ii) the unaudited consolidated financial statements of each of Security Networks and the Company as of and for the three and six months ended June 30, 2013 incorporated by reference herein.

 

The unaudited pro forma consolidated financial information has been presented for informational purposes only and does not purport to represent, and is not necessarily indicative of, what our financial position or results of operations would have been had the Transactions been completed as of January 1, 2012 and June 30, 2013, as applicable, and should not be taken as representative of our future consolidated financial position or results of operations.  This information is only a summary and should be read in conjunction with the accompanying notes to the unaudited pro forma condensed consolidated financial statements and our historical consolidated financial statements and related notes thereto and Security Networks’ historical consolidated financial statements and related notes thereto incorporated by reference herein.

 

The Acquisition will be accounted for as a business combination utilizing the purchase accounting method in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, Business Combinations.  The pro forma information presented below, including the purchase price and allocation of purchase price, is based on estimates of the fair values of assets acquired and liabilities assumed, available information as of the date of this report and management assumptions, and may be revised as additional information becomes available.  The final purchase price and purchase price allocation is dependent upon, among other things, the finalization of the asset and liability valuations by our independent appraisal firm.  Any post-closing adjustments may change the purchase price or the allocation of the purchase price, which could affect the fair value assigned to the assets and liabilities and could result in a change to the unaudited pro forma condensed consolidated financial information, including a change to goodwill. The unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2012 has been revised from the preliminary pro forma financial information included in previous filings due to changes in estimates associated with the allocation of purchase price.

 

The historical consolidated financial information has been adjusted to give effect to pro forma events that are (a) directly attributable to the Transactions, (b) factually supportable, and (c) with respect to the statements of income, expected to have a continuing impact on the combined results.

 



 

MONITRONICS INTERNATIONAL, INC. AND SUBSIDIARIES
Unaudited Pro Forma Condensed Consolidated Balance Sheet
As of June 30, 2013
(Amounts in thousands)

 

 

 

Monitronics

 

Security Networks

 

Pro Forma
Adjustments

 

 

Pro Forma
Condensed
Consolidated
Monitronics and
Security Networks

 

Assets

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,537

 

1,886

 

784

 

(1)

4,207

 

Restricted cash

 

2,640

 

 

 

 

2,640

 

Trade Receivable, net of allowance for doubtful accounts

 

12,114

 

1,636

 

 

 

13,750

 

Parts inventory

 

 

477

 

 

 

477

 

Deferred income tax assets, net

 

5,100

 

 

 

 

5,100

 

Prepaid and other current assets

 

11,256

 

704

 

250

 

(7)

12,210

 

Total current assets

 

32,647

 

4,703

 

1,034

 

 

38,384

 

 

 

 

 

 

 

 

 

 

 

 

Property and equipment, net of accumulated depreciation

 

21,327

 

2,104

 

(700

)

(2)

22,731

 

Subscriber accounts, net of accumulated amortization

 

1,020,664

 

239,651

 

68,049

 

(3)

1,328,364

 

Dealer network and other intangible assets, net of accumulated amortization

 

24,813

 

 

48,500

 

(3)

73,313

 

Goodwill

 

349,227

 

54,629

 

119,095

 

(4)

522,951

 

Other assets, net

 

24,844

 

8,457

 

(2,155

)

(5)

31,146

 

Total assets

 

$

1,473,522

 

309,544

 

233,823

 

 

2,016,889

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholder’s Equity

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

5,393

 

1,645

 

3,528

 

(6)

10,566

 

Accrued payroll and related liabilities

 

3,038

 

513

 

 

 

3,551

 

Other accrued liabilities

 

23,844

 

4,107

 

5,173

 

(7)

33,124

 

Deferred revenue

 

9,704

 

3,778

 

(2,569

)

(8)

10,913

 

Purchase holdbacks, including amounts due on acquired contracts — short-term

 

15,725

 

2,681

 

 

 

18,406

 

Current portion of long-term debt

 

6,905

 

 

 

 

6,905

 

Total current liabilities

 

64,609

 

12,724

 

6,132

 

 

83,465

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

1,119,201

 

237,972

 

227,303

 

(9)

1,584,476

 

Derivative financial instruments

 

2,663

 

 

 

 

2,663

 

Deferred income tax liability, net

 

9,067

 

 

 

 

9,067

 

Due on acquired contracts — long-term

 

 

6,552

 

 

 

6,552

 

Other liabilities

 

3,995

 

 

13,097

 

(6)

17,092

 

Total liabilities

 

1,199,535

 

257,248

 

246,532

 

 

1,703,315

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

Stockholder’s equity

 

273,987

 

52,296

 

(12,709

)

(10)

313,574

 

Total liabilities and stockholder’s equity

 

$

1,473,522

 

309,544

 

233,823

 

 

2,016,889

 

 

See accompanying notes to the condensed consolidated financial statements.

 



 

MONITRONICS INTERNATIONAL, INC. AND SUBSIDIARIES
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the Six Months Ended June 30, 2013
(Amounts in thousands)

 

 

 

Monitronics

 

Security
Networks

 

Pro Forma
Adjustments

 

 

Pro Forma Condensed
Consolidated
Monitronics and
Security Networks

 

 

 

 

 

 

 

 

 

 

 

 

Net Revenue

 

$

202,431

 

48,407

 

 

 

250,838

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

Cost of Services

 

30,796

 

7,747

 

 

 

38,543

 

Selling, general, and administrative

 

34,016

 

14,612

 

(1,493

)

(6)

47,135

 

Amortization of subscriber accounts, dealer network and other intangible assets

 

90,313

 

15,013

 

11,327

 

(3)

116,653

 

Depreciation

 

3,209

 

621

 

(621

)

(2)

3,209

 

Loss (gain) on sale of operating assets, net

 

(2

)

28

 

 

 

26

 

 

 

158,332

 

38,021

 

9,213

 

 

205,566

 

Operating income (loss)

 

44,099

 

10,386

 

(9,213

)

 

45,272

 

Other expense:

 

 

 

 

 

 

 

 

 

 

Interest expense

 

40,593

 

10,010

 

7,052

 

(9)

57,655

 

 

 

40,593

 

10,010

 

7,052

 

 

57,655

 

Income (loss) before income taxes

 

3,506

 

376

 

(16,265

)

 

(12,383

)

Income tax expense

 

1,565

 

161

 

 

 

1,726

 

Net income (loss)

 

$

1,941

 

215

 

(16,265

)

 

(14,109

)

 

See accompanying notes to the condensed consolidated financial statements.

 



 

MONITRONICS INTERNATIONAL, INC. AND SUBSIDIARIES
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the Year Ended December 31, 2012

(Amounts in thousands)

 

 

 

Monitronics

 

Security
Networks

 

Pro Forma
Adjustments

 

 

Pro Forma
Condensed
Consolidated
Monitronics and
Security Networks

 

 

 

 

 

 

 

 

 

 

 

 

Net Revenue

 

$

344,953

 

78,478

 

(2,569

)

(8)

420,862

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

Cost of Services

 

49,791

 

12,262

 

 

 

62,053

 

Selling, general, and administrative

 

59,575

 

20,134

 

(1,829

)

(6)

77,880

 

Amortization of subscriber accounts, dealer network, and other intangible assets

 

163,468

 

24,470

 

36,880

 

(3)

224,818

 

Depreciation

 

5,286

 

1,138

 

266

 

(2)

6,690

 

Contingent consideration expense

 

 

982

 

 

 

982

 

 

 

278,120

 

58,986

 

35,317

 

 

372,423

 

Operating income (loss)

 

66,833

 

19,492

 

(37,886

)

 

48,439

 

Other expense:

 

 

 

 

 

 

 

 

 

 

Interest expense

 

71,328

 

15,816

 

18,309

 

(9)

105,453

 

Realized and unrealized loss on derivative instruments

 

2,044

 

 

 

 

2,044

 

Refinancing expense

 

6,245

 

 

 

 

6,245

 

Other expense

 

630

 

 

 

 

630

 

 

 

80,247

 

15,816

 

18,309

 

 

114,372

 

Income (loss) before income taxes

 

(13,414

)

3,676

 

(56,195

)

 

(65,933

)

Income tax expense

 

2,616

 

100

 

 

 

2,716

 

Net income (loss)

 

$

(16,030

)

3,576

 

(56,195

)

 

(68,649

)

 

See accompanying notes to the condensed consolidated financial statements.

 



 

MONITRONICS INTERNATIONAL, INC. AND SUBSIDIARIES
Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements

 

(1)                     Reflects cash received from incremental debt and cash contributions from Ascent to finance the Acquisition, in excess of purchase price paid, payment of deferred financing costs, and the repayment of $33.6 million of the revolving portion of the Company’s Credit Facility outstanding as of June 30, 2013.

 

(2)                     Reflects fair value adjustments and pro forma depreciation expense adjustments for the acquisition of Security Networks’ property and equipment.

 

(3)                     Reflects fair value adjustments and pro forma amortization expense adjustments for the acquisition of Security Networks’ identifiable intangible assets, which are comprised of subscriber accounts, its dealer network and non-compete agreements.  Subscriber accounts are amortized using the 14-year 235% declining balance method.  Dealer network and non-compete agreements are amortized over their estimated remaining useful lives of 5 years on a straight-line basis.

 

(4)                     Reflects the elimination of Security Networks’ historical goodwill balance of $54.6 million and the origination of goodwill arising from the Company’s purchase of Security Networks.  Adjusted goodwill reflects the preliminary estimated excess of purchase price over the fair value of assets acquired and liabilities assumed.  The purchase price of Security Networks consisted of $482.9 million of cash and 253,333 shares of Ascent Series A common stock and has been allocated on a preliminary basis as follows (amounts in thousands):

 

Estimated fair value of assets acquired and liabilities assumed:

 

 

 

Subscriber accounts

 

$

307,700

 

Dealer network and other intangible assets

 

48,500

 

Property and equipment

 

1,404

 

Other assets acquired

 

4,953

 

Goodwill

 

173,724

 

Estimated fair value of liabilities assumed

 

(33,803

)

 

 

 

 

 

Fair value of consideration

 

$

502,478

 

 

(5)                     Reflects the elimination of Security Networks deferred financing costs not acquired and other fair value adjustments, net of additional deferred financing costs incurred by the Company on incremental debt obtained.

 

(6)                     Reflects fair value adjustments related to Security Networks revenue sharing program and elimination of historical revenue sharing expenses.

 

(7)                     Reflects accrued liabilities recognized in connection with the issuance the of the New Senior Notes and other purchase accounting adjustments, net of the elimination of Security Networks accrued interest that was paid off as of the closing date of the Acquisition.

 

(8)                     Represents estimated purchase accounting adjustments related to Security Networks’ deferred revenues.

 

(9)                    Reflects incremental debt obtained to finance the Acquisition, net of the elimination of Security Networks debt not assumed.  The statement of operations adjustments are to record pro forma interest expense on these incremental borrowings.  Pro forma interest expense adjustments were calculated based on the weighted effective interest rate on incremental debt in connection with the Acquisition, including amortization costs of debt discount and deferred financing costs.

 

(10)              Reflects the elimination of Security Networks historical stockholder’s equity, net of the effect of Ascent’s contribution of $20.0 million in cash to the Company and the transfer of 253,333 shares of Ascent Series A common stock as consideration paid for the Acquisition.