Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C.  20549

 

FORM 10-Q

 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2012

 

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 001-34176

 

ASCENT CAPITAL GROUP, INC.

(Exact name of Registrant as specified in its charter)

 

State of Delaware

 

26-2735737

(State or other jurisdiction of

 

(I.R.S. Employer Identification No.)

incorporation or organization)

 

 

 

5251 DTC Parkway, Suite 1000

 

 

Greenwood Village, Colorado

 

80111

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (303) 628-5600

 

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 x  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 x  No o

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, as defined in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer x

 

Accelerated filer o

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

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

 

The number of outstanding shares of Ascent Capital Group, Inc.’s common stock as of October 26, 2012 was:

 

Series A common stock 13,288,523 shares; and

Series B common stock 737,166 shares.

 

 

 



Table of Contents

 

TABLE OF CONTENTS

 

 

 

Page

PART I — FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

2

 

 

 

 

Condensed Consolidated Balance Sheets (unaudited)

2

 

 

 

 

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (unaudited)

3

 

 

 

 

Condensed Consolidated Statements of Cash Flows (unaudited)

4

 

 

 

 

Notes to Condensed Consolidated Financial Statements

5

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

14

 

 

 

Item 3.

Quantitative and Qualitative Disclosure about Market Risk

22

 

 

 

Item 4.

Controls and Procedures

22

 

 

 

PART II - OTHER INFORMATION

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

23

 

 

 

Item 6.

Exhibits

24

 

 

 

 

SIGNATURES

25

 

 

 

 

EXHIBIT INDEX

26

 



Table of Contents

 

Item 1.  Financial Statements.

 

ASCENT CAPITAL GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

Amounts in thousands, except share amounts

(unaudited)

 

 

 

September 30,

 

December 31,

 

 

 

2012

 

2011

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

106,336

 

$

183,558

 

Restricted cash

 

7,000

 

31,196

 

Marketable securities, at fair value (note 5)

 

142,668

 

40,377

 

Trade receivables, net of allowance for doubtful accounts of $1,779 in 2012 and $1,815 in 2011

 

11,204

 

10,973

 

Deferred income tax assets, net

 

5,881

 

5,881

 

Income taxes receivable

 

161

 

308

 

Prepaid and other current assets

 

13,297

 

17,600

 

Assets held for sale (note 6)

 

11,892

 

 

Total current assets

 

298,439

 

289,893

 

 

 

 

 

 

 

Restricted cash

 

 

28,000

 

Property and equipment, net of accumulated depreciation of $28,864 in 2012 and $37,537 in 2011

 

55,726

 

74,697

 

Subscriber accounts, net

 

855,606

 

838,441

 

Dealer network, net

 

32,373

 

39,933

 

Goodwill

 

349,227

 

349,227

 

Other assets, net

 

20,684

 

5,706

 

Assets of discontinued operations (note 4)

 

54

 

62

 

Total assets

 

$

1,612,109

 

$

1,625,959

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

5,595

 

$

3,987

 

Accrued payroll and related liabilities

 

2,835

 

5,149

 

Other accrued liabilities (note 7)

 

38,345

 

19,000

 

Deferred revenue

 

6,962

 

6,803

 

Purchase holdbacks

 

11,912

 

12,273

 

Current portion of long-term debt

 

5,500

 

60,000

 

Liabilities of discontinued operations (note 4)

 

18,110

 

16,001

 

Total current liabilities

 

89,259

 

123,213

 

 

 

 

 

 

 

Non-current liabilities:

 

 

 

 

 

Long-term debt (note 12)

 

976,632

 

892,718

 

Derivative financial instruments

 

13,779

 

36,279

 

Deferred income tax liability, net

 

10,154

 

9,793

 

Other liabilities

 

6,099

 

12,529

 

Total liabilities

 

1,095,923

 

1,074,532

 

 

 

 

 

 

 

Commitments and contingencies (note 17)

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Preferred stock, $.01 par value. Authorized 5,000,000 shares; no shares issued

 

 

 

Series A common stock, $.01 par value. Authorized 45,000,000 shares; issued and outstanding 13,405,825 and 13,471,594 shares at September 30, 2012 and December 31, 2011, respectively

 

134

 

135

 

Series B common stock, $.01 par value. Authorized 5,000,000 shares; issued and outstanding 737,391 and 739,894 shares at September 30, 2012 and December 31, 2011, respectively

 

7

 

7

 

Series C common stock, $.01 par value. Authorized 45,000,000 shares; no shares issued

 

 

 

Additional paid-in capital

 

1,460,627

 

1,461,671

 

Accumulated deficit

 

(933,624

)

(905,610

)

Accumulated other comprehensive loss

 

(10,958

)

(4,776

)

Total stockholders’ equity

 

516,186

 

551,427

 

Total liabilities and stockholders’ equity

 

$

1,612,109

 

$

1,625,959

 

 

See accompanying notes to condensed consolidated financial statements.

 

2



Table of Contents

 

ASCENT CAPITAL GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

Amounts in thousands, except share amounts

(unaudited)

 

 

 

Three months ended
September 30,

 

Nine months ended
September 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

Net revenue

 

$

84,667

 

79,515

 

$

249,863

 

230,962

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Cost of services

 

12,881

 

10,692

 

35,331

 

29,419

 

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

 

18,256

 

17,554

 

54,093

 

55,977

 

Amortization of subscriber accounts and dealer network

 

40,815

 

41,203

 

118,245

 

117,944

 

Depreciation

 

2,084

 

2,173

 

6,686

 

5,823

 

Restructuring charges

 

 

72

 

 

4,258

 

Loss (gain) on sale of operating assets, net

 

15

 

106

 

(1,298

)

565

 

Loss on pension plan settlements

 

6,571

 

 

6,571

 

 

 

 

80,622

 

71,800

 

219,628

 

213,986

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

4,045

 

7,715

 

30,235

 

16,976

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

Interest income

 

1,042

 

48

 

3,008

 

285

 

Interest expense

 

(19,299

)

(11,357

)

(50,258

)

(32,155

)

Realized and unrealized loss on derivative financial instruments

 

 

(3,807

)

(2,044

)

(10,114

)

Refinancing expense

 

 

 

(6,245

)

 

Other income (expense), net

 

1,091

 

2,041

 

2,940

 

4,376

 

 

 

(17,166

)

(13,075

)

(52,599

)

(37,608

)

 

 

 

 

 

 

 

 

 

 

Loss from continuing operations before income taxes

 

(13,121

)

(5,360

)

(22,364

)

(20,632

)

Income tax benefit (expense) from continuing operations

 

(604

)

208

 

(2,052

)

3,497

 

Net loss from continuing operations

 

(13,725

)

(5,152

)

(24,416

)

(17,135

)

 

 

 

 

 

 

 

 

 

 

Discontinued operations (note 4):

 

 

 

 

 

 

 

 

 

Earnings (loss) from discontinued operations

 

(1,202

)

(4,138

)

(2,992

)

49,037

 

Income tax expense

 

(680

)

(577

)

(606

)

(4,864

)

Earnings (loss) from discontinued operations, net of income tax

 

(1,882

)

(4,715

)

(3,598

)

44,173

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

(15,607

)

(9,867

)

(28,014

)

27,038

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

222

 

(159

)

283

 

(2,898

)

Unrealized holding gains (losses) arising during the period, net of income tax

 

2,031

 

(255

)

2,624

 

(255

)

Unrealized loss on derivative contracts

 

(2,539

)

 

(13,779

)

 

Pension liability adjustments

 

4,690

 

 

4,690

 

133

 

Total other comprehensive income (loss), net of tax

 

4,404

 

(414

)

(6,182

)

(3,020

)

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss)

 

$

(11,203

)

(10,281

)

$

(34,196

)

24,018

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted earnings (loss) per share (note 11):

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

(0.98

)

(0.36

)

$

(1.74

)

(1.20

)

Discontinued operations

 

(0.13

)

(0.33

)

(0.25

)

3.10

 

Net Income (loss)

 

$

(1.11

)

(0.69

)

$

(1.99

)

1.90

 

 

See accompanying notes to condensed consolidated financial statements.

 

3



Table of Contents

 

ASCENT CAPITAL GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

Amounts in thousands

(unaudited)

 

 

 

Nine months ended

 

 

 

September 30,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

Net income (loss)

 

$

(28,014

)

27,038

 

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

Loss (earnings) from discontinued operations, net of income tax

 

3,598

 

(44,173

)

Amortization of subscriber accounts and dealer network

 

118,245

 

117,944

 

Depreciation

 

6,686

 

5,823

 

Stock based compensation

 

3,928

 

2,956

 

Deferred income tax expense

 

361

 

(1,339

)

Unrealized gain on derivative financial instruments

 

(6,793

)

(18,936

)

Refinancing expense

 

6,245

 

 

Loss (gain) on the sale of operating assets, net

 

(1,298

)

565

 

Long-term debt amortization

 

4,285

 

12,640

 

Loss on pension plan settlements

 

6,571

 

 

Other non-cash activity, net

 

6,595

 

4,694

 

Changes in assets and liabilities:

 

 

 

 

 

Trade receivables

 

(4,464

)

(3,831

)

Prepaid expenses and other assets

 

(377

)

(5,499

)

Payables and other liabilities

 

12,358

 

(13,309

)

Operating activities from discontinued operations, net

 

(1,481

)

694

 

 

 

 

 

 

 

Net cash provided by operating activities

 

126,445

 

85,267

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Capital expenditures

 

(3,591

)

(2,860

)

Purchases of subscriber accounts

 

(128,407

)

(126,807

)

Purchases of marketable securities

 

(99,667

)

(28,359

)

Net proceeds from sale of discontinued operations

 

 

99,488

 

Decrease in restricted cash

 

51,603

 

4,564

 

Proceeds from the sale of operating assets

 

6,515

 

 

Investing activities from discontinued operations, net

 

 

(3,196

)

 

 

 

 

 

 

Net cash used in investing activities

 

(173,547

)

(57,170

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Proceeds from long-term debt

 

998,100

 

69,200

 

Repayments of long-term debt

 

(979,650

)

(49,300

)

Refinancing costs

 

(44,239

)

 

Stock option exercises

 

327

 

1,291

 

Purchases and retirement of common stock

 

(4,658

)

(10,913

)

Financing activities from discontinued operations, net

 

 

(142

)

 

 

 

 

 

 

Net cash provided by (used in) financing activities

 

(30,120

)

10,136

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

(77,222

)

38,233

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

183,558

 

149,857

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

106,336

 

188,090

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

State taxes paid

 

$

2,072

 

2,895

 

Interest paid

 

23,149

 

17,881

 

 

See accompanying notes to condensed consolidated financial statements.

 

4



Table of Contents

 

ASCENT CAPITAL GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

 

(1)                                 Basis of Presentation

 

On July 7, 2011, Ascent Media Corporation merged with its direct wholly owned subsidiary, Ascent Capital Group, Inc., for the purpose of changing its name to Ascent Capital Group, Inc. The accompanying Ascent Capital Group, Inc. (“Ascent Capital” or the “Company”) condensed consolidated financial statements represent the financial position and results of operations of Ascent Capital and its consolidated subsidiaries.  Monitronics International, Inc. (“Monitronics”) is the primary, wholly owned, operating subsidiary of the Company.  Monitronics provides security alarm monitoring and related services to residential and business subscribers throughout the United States and parts of Canada.  Monitronics monitors signals arising from burglaries, fires and other events through security systems installed by independent dealers at subscribers’ premises.

 

The unaudited interim financial information of the Company has been prepared in accordance with Article 10 of the Securities and Exchange Commission’s (“SEC”), Regulation S-X. Accordingly, it does not include all of the information required by generally accepted accounting principles in the United States (“U.S. GAAP”) for complete financial statements. The Company’s unaudited condensed consolidated financial statements as of September 30, 2012, and for the three and nine months ended September 30, 2012 and 2011, include Ascent Capital 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 Ascent Capital Annual Report on Form 10-K for the year ended December 31, 2011 (the “2011 Form 10-K”).

 

The preparation of financial statements in conformity with U.S. 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 goodwill, other intangible assets, long-lived assets, deferred tax assets, derivative financial instruments, and the amount of the allowance for doubtful accounts. 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.

 

The Company has reclassified certain prior period amounts to conform to the current period’s presentation.

 

(2)                                 Recent Accounting Pronouncements

 

There were no new accounting pronouncements issued during the three months ended September 30, 2012 that had a material impact on the Company.

 

(3)                                 Correction of Immaterial Error

 

During the second quarter of 2012, the Company identified an error related to uncertain tax positions resulting in an understatement of income tax expense from discontinued operations and liabilities related to discontinued operations for the quarter ended December 31, 2010.  Management considered both the quantitative and qualitative factors within the provisions of SEC Staff Accounting Bulletin No. 99, Materiality, and Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.  Based on evaluation of the error, management has concluded that the prior period error was immaterial to the previously issued financial statements. As such, management has elected to correct the identified error in the prior period.  In doing so, balances in these condensed consolidated financial statements in the Company’s Form 10-Q for the quarterly period ended September 30, 2012 have been adjusted to reflect the correction in the proper period.  Future filings that include prior periods will be corrected, as needed, when filed, including in the Company’s Form 10-K for the year ended December 31, 2012.

 

5



Table of Contents

 

The effect of recording the immaterial correction in the consolidated financial statements as of December 31, 2011, is as follows (in thousands):

 

 

 

For the year ended December 31, 2011

 

 

 

As Reported

 

As Revised

 

 

 

 

 

 

 

Liabilities related to discontinued operations

 

$

7,101

 

16,001

 

Total current liabilities

 

114,313

 

123,213

 

Total liabilities

 

1,065,632

 

1,074,532

 

Accumulated deficit

 

(896,710

)

(905,610

)

Total stockholders’ equity

 

560,327

 

551,427

 

 

The statement of operations for the year ended December 31, 2011, or any periods within that year, are not impacted by the correction of this error.

 

(4)                                 Discontinued Operations

 

During the three and nine months ended September 30, 2012, the Company recorded costs of approximately $1,202,000 and $2,992,000, respectively, related to contract termination and other loss contingencies associated with discontinued operations.

 

As of June 30, 2011, Ascent Capital shut down the operations of the Systems Integration business.  In connection with ceasing its operations, the Company recorded exit costs of $1,119,000 related to employee severance.  The operations of the Systems Integration business have been treated as a discontinued operation in the condensed consolidated financial statements for all periods presented.

 

On February 28, 2011, Ascent Capital completed the sale of 100% of the Content Distribution business to Encompass Digital Media, Inc.  Ascent Capital received cash proceeds of approximately $104,000,000.  Ascent Capital recorded a gain on the sale of $66,136,000 and the related income tax expense of $6,716,000 for the nine months ended September 30, 2011.  As part of the sale, Ascent Capital removed $14,751,000 from the foreign currency translation amount in Accumulated other comprehensive income (loss), which related to the foreign operations that were included in the sale.  The Content Distribution business has been treated as a discontinued operation in the condensed consolidated financial statements for all applicable periods presented.

 

The following table presents the results of discontinued operations that are included in earnings (loss) from discontinued operations in the condensed consolidated statements of operations (amounts in thousands):

 

 

 

Three months ended September 30,

 

Nine months ended September 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

Net revenue

 

$

 

 

$

 

24,186

 

Earnings (loss) from discontinued operations before income taxes (a)

 

(1,202

)

(4,138

)

(2,992

)

49,037

 

 


(a)         The amount for the nine months ended September 30, 2011 includes a $66,136,000 gain on the sale of the Content Distribution business.

 

(5)                                 Investments in Marketable Securities

 

Ascent Capital owns marketable securities consisting of diversified corporate bond funds. The following table presents the activity of these investments, which have all been classified as available-for-sale securities (amounts in thousands):

 

 

 

Nine months ended September 30,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

Beginning balance

 

$

40,377

 

 

Purchases

 

99,667

 

28,359

 

Sales (at cost)

 

 

 

Unrealized gain

 

2,624

 

(255

)

Ending balance

 

$

142,668

 

28,104

 

 

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Table of Contents

 

The following table presents the net after-tax unrealized and realized gains on the investment in marketable securities that were recorded into Accumulated other comprehensive loss in the condensed consolidated balance sheets and in Other comprehensive income (loss) on the condensed consolidated statements of operations and comprehensive income (loss) (amounts in thousands):

 

 

 

Three months ended September 30,

 

Nine months ended September 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

Accumulated other comprehensive loss

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

717

 

 

$

124

 

 

Gains (losses), net of income tax of $0

 

2,031

 

(255

)

2,624

 

(255

)

Losses (gains) recognized into earnings, net of tax

 

 

 

 

 

Ending balance

 

$

2,748

 

(255

)

$

2,748

 

(255

)

 

(6)          Assets Held for Sale

 

In the third quarter of 2012, the Company reclassified assets related to four real estate properties (including land and buildings) as Assets held for sale on the condensed consolidated balance sheet.  Such assets were previously reported in Property and equipment, net of accumulated depreciation on the condensed consolidated balance sheet.  The Company currently expects to complete the sale of these real estate properties during the next twelve months.  At September 30, 2012 the Company has $11,892,000 classified as assets held for sale on the condensed consolidated balance sheet.  See note 18, Subsequent Events, for further disclosure related to the sale of one of these real estate properties.

 

(7)          Other Accrued Liabilities

 

Other accrued liabilities consisted of the following (amounts in thousands):

 

 

 

September 30,
2012

 

December 31,
2011

 

 

 

 

 

 

 

Interest payable

 

$

19,811

 

$

2,847

 

Income taxes payable

 

1,932

 

2,215

 

Legal accrual

 

9,615

 

9,316

 

Other

 

6,987

 

4,622

 

Total Other accrued liabilities

 

$

38,345

 

$

19,000

 

 

(8)           Restructuring Charges

 

There were no restructuring charges in continuing operations recorded for the three and nine months ended September 30, 2012.  The Company recorded restructuring charges in continuing operations of $72,000 and $4,258,000 during the three and nine months ended September 30, 2011.

 

In the fourth quarter of 2010, the Company began a new restructuring plan (the “2010 Restructuring Plan”) in conjunction with the expected sales of the Creative/Media and Content Distribution businesses.  The 2010 Restructuring Plan was implemented to meet the changing strategic needs of the Company, as it sold most of its media and entertainment assets and acquired Monitronics, an alarm monitoring business.  Such changes include retention costs for employees to remain employed until the sales were complete, severance costs for certain employees and costs for facilities that were no longer being used by the Company due to the Creative/Media and Content Distribution sales.

 

Before the Company implemented the 2010 Restructuring Plan, it had just completed a restructuring plan that was implemented in 2008 and concluded in September 2010 (the “2008 Restructuring Plan”).  The 2008 Restructuring Plan was implemented to align the Company’s organization with its strategic goals and how it operated, managed and sold its services.  The 2008 Restructuring Plan charges included severance costs from labor cost mitigation measures undertaken across all of the businesses and facility costs in conjunction with the consolidation of certain facilities in the United Kingdom and the closing of the Company’s Mexico operations.

 

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At September 30, 2012, all restructuring liabilities are included in other accrued liabilities on the condensed consolidated balance sheets.  The following table provides the activity and balances of the 2010 and 2008 Restructuring Plans (amounts in thousands):

 

 

 

December 31, 2010

 

Additions

 

Deductions (a)

 

September 30, 2011

 

 

 

 

 

 

 

 

 

 

 

2010 Restructuring Plan

 

 

 

 

 

 

 

 

 

Severance and retention

 

$

3,590

 

4,186

 

(5,813

)

1,963

 

 

 

 

 

 

 

 

 

 

 

2008 Restructuring Plan

 

 

 

 

 

 

 

 

 

Severance

 

$

9

 

 

(9

)

 

Excess facility costs

 

211

 

72

 

(16

)

267

 

Total

 

$

220

 

72

 

(25

)

267

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2011

 

Additions

 

Deductions (a)

 

September 30, 2012

 

 

 

 

 

 

 

 

 

 

 

2010 Restructuring Plan

 

 

 

 

 

 

 

 

 

Severance and retention

 

$

1,886

 

 

(1,886

)

 

 

 

 

 

 

 

 

 

 

 

2008 Restructuring Plan

 

 

 

 

 

 

 

 

 

Excess facility costs

 

$

236

 

 

(95

)

141

 

 


(a) Primarily represents cash payments.

 

(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):

 

 

 

Foreign
currency
translation
adjustments

 

Unrealized
holding gain
(loss)

 

Pension
adjustments

 

Unrealized gain
(loss) on
derivatives

 

Accumulated
other
comprehensive
income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2011

 

$

(210

)

124

 

(4,690

)

 

(4,776

)

Current period change

 

283

 

2,624

 

4,690

 

(13,779

)

(6,182

)

As of September 30, 2012

 

$

73

 

2,748

 

 

(13,779

)

(10,958

)

 

(10)                          Stock Compensation

 

In the second quarter of 2012, certain employees were granted awards for a total of 25,500 restricted shares of Ascent Capital’s Series A common stock, vesting over a period of four to five years.  The fair values for the restricted stock awards were the closing prices of Ascent Capital Series A common stock on the applicable dates of grant.  The weighted average fair value of the restricted stock on an aggregate basis for all such grants was $50.47 per share.

 

In the second quarter of 2012, certain employees were granted a total of 78,750 options to purchase Ascent Capital Series A common stock at an exercise price of $50.47 per share.  Such options vest over a period of four years, terminate on June 30, 2019, and had a weighted average fair value at the date of grant of $19.96 per option, as determined using the Black-Scholes Model.   The assumptions used in the Black-Scholes Model to determine grant date fair value were a volatility factor of 45%, a risk-free interest rate of 0.76%, an expected life of approximately five years, and a dividend yield of zero.

 

(11)                          Basic and Diluted Earnings (Loss) Per Common Share—Series A and Series B

 

Basic earnings (loss) per common share (“EPS”) is computed by dividing net earnings (loss) by the weighted average number of Ascent Capital Series A and Series B common shares outstanding for the period.  Diluted EPS is computed by dividing net earnings (loss) by the sum of the weighted average number of Ascent Capital Series A and Series B common shares outstanding and the effect of dilutive securities such as outstanding stock options and unvested restricted stock.

 

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However, since the Company recorded a loss from continuing operations for all periods presented, diluted EPS is computed the same as basic EPS. Diluted shares outstanding excluded 1,047,044 stock options and unvested restricted stock units for the three and nine months ended September 30, 2012, respectively, because their inclusion would have been anti-dilutive.  Diluted shares outstanding excluded 756,055 stock options and unvested restricted stock units for the three and nine months ended September 30, 2011, because their inclusion would have been anti-dilutive.

 

 

 

Three Months ended September 30,

 

Nine Months ended September 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

Weighted average Series A and Series B shares

 

14,050,689

 

14,223,532

 

14,064,785

 

14,242,296

 

 

(12)                          Long-Term Debt

 

Long-term debt, which is all issued by Monitronics and its subsidiaries, consisted of the following (amounts in thousands):

 

 

 

September 30,
2012

 

December 31,
2011

 

 

 

 

 

 

 

Class A-1a Term Notes due July, 2027, LIBOR plus 1.8% (a)

 

$

 

$

345,577

 

Class A-1b Term Notes due July, 2027, LIBOR plus 1.7% (a)

 

 

98,676

 

Class A-2 Term Notes due July, 2037, LIBOR plus 2.2% (a)

 

 

98,978

 

Class A-3 Variable Funding Note due July, 2037, LIBOR plus 1.8% (a)

 

 

256,558

 

Class A-4 Variable Funding Note due July, 2037, LIBOR plus 1.8% (a)

 

 

27,629

 

Term Loan due June 30, 2012 (a) (b)

 

 

60,000

 

$115 million revolving credit facility, matures December 17, 2013, LIBOR plus 4.5% (a)

 

 

65,300

 

9.125% Senior Notes due April 1, 2020

 

410,000

 

 

Term loan, matures March 23, 2018, LIBOR plus 4.25%, subject to a LIBOR floor of 1.25%

 

542,132

 

 

$150 million revolving credit facility, matures March 23, 2017, LIBOR plus 4.25%, subject to a LIBOR floor of 1.25%

 

30,000

 

 

 

 

982,132

 

952,718

 

Less current portion of long-term debt

 

(5,500

)

(60,000

)

Long-term debt

 

$

976,632

 

$

892,718

 

 


(a)          These facilities were repaid in full in conjunction with the March 23, 2012 debt refinancing.

(b)         The interest rate on the term loan was LIBOR plus 3.5% until July 1, 2011, then LIBOR plus 4.0% until January 1, 2012, and LIBOR plus 4.5% thereafter.

 

On March 23, 2012, Monitronics closed on a $410,000,000 privately placed debt offering of 9.125% Senior Notes due 2020 (the “Senior Notes”) and entered into a credit agreement which provides for a term loan with an aggregate principal amount of $550,000,000 and a revolving credit facility with an available principal amount of up to $150,000,000 (together, the “Credit Facility”).

 

The Senior Notes and Credit Facility are guaranteed by all of Monitronics’ existing subsidiaries, and the Credit Facility is secured by a pledge of all of the outstanding stock of Monitronics and all of its existing subsidiaries.  Ascent Capital has not guaranteed any of Monitronics’ obligations under the Senior Notes or the Credit Facility.

 

Proceeds from the Credit Facility term loan and the Senior Notes, together with cash on hand, were used to retire all outstanding borrowings under Monitronics’ former credit facility, securitization debt, and to settle all related derivative contracts.

 

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As a result of the refinancing, the Company accelerated amortization of the securitization debt premium and certain deferred financing costs related to the former senior secured credit facility, and expensed certain other refinancing costs.  The components of the refinancing costs, reflected in the condensed consolidated statement of operations and comprehensive income (loss) as a component of Other income (expense), are as follows (amounts in thousands):

 

 

 

For the Nine
Months Ended

 

 

 

September 30, 2012

 

 

 

 

 

Accelerated amortization of deferred financing costs

 

$

389

 

Accelerated amortization of securitization debt discount

 

6,679

 

Other refinancing costs

 

7,628

 

Gain on early termination of derivative instruments

 

(8,451

)

Total refinancing expenses

 

$

6,245

 

 

In connection with the March 2012 refinancing, the Company recorded deferred financing costs of $19,983,000 related to the Senior Notes and Credit Facility, which are included in Other assets on the accompanying condensed consolidated balance sheet as of September 30, 2012, and will be amortized over the term of the new respective debt instrument using the effective-interest method.

 

On the closing date of the Credit Facility, Monitronics also entered into an interest rate swap agreement, with terms similar to the Credit Facility term loan, in an aggregate notional amount of $550,000,000 in order to reduce the financial risk related to changes in interest rates associated with the floating rate term loan under the Credit Facility (the “Swap”).  The Swap has a maturity date of March 23, 2018 to match the term of the Credit Facility term loan.  The notional amount of the Swap will decrease over time matching the scheduled minimum principal payments of the term loan.  The Swap has been designated as an effective hedge of Monitronics’ variable rate debt and qualifies for hedge accounting.  See note 13 for further disclosures related to derivative instruments.  As a result of the Swap, the interest rate on the borrowings under the Credit Facility term loan has been effectively converted from variable to fixed at a rate of 6.3%.  On March 23, 2012, in connection with the refinancing, Monitronics terminated its previously outstanding interest rate agreements, which did not qualify for hedge accounting, resulting in a gain of $8,451,000.

 

Senior Notes

 

The Senior Notes, in the principal amount of $410,000,000, mature on April 1, 2020 and bear interest at 9.125% per annum.  Interest payments are due semi-annually on April 1 and October 1 of each year, beginning on October 1, 2012.  In August 2012, Monitronics completed an exchange of the Senior Notes for identical securities in a registered offering under the Securities Act of 1933, as amended.

 

Credit Facility

 

In connection with the March 2012 refinancing, Monitronics entered into a new senior secured credit facility with the lenders party thereto and Bank of America, N.A., as administrative agent.  The Credit Facility provides a $550,000,000 term loan, at a 1% discount, and a $150,000,000 revolving credit facility.  The Credit Facility term loan bears interest at LIBOR plus 4.25%, subject to a LIBOR floor of 1.25%, and matures on March 23, 2018.  Principal payments of $1,375,000 and interest on the term loan are due quarterly, beginning on June 30, 2012.  The Credit Facility revolver bears interest at LIBOR plus 4.25%, subject to a LIBOR floor of 1.25%, and matures on March 23, 2017.  There is an annual commitment fee of 0.50% on unused portions of the revolving credit facility.  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.  In addition, failure to comply with restrictions contained in the Senior Notes indebtedness could lead to an event of default under the Credit Facility.  The obligations under the Credit Facility are secured by a pledge of the stock of Monitronics and all of its existing subsidiaries.

 

On September 28, 2012, Monitronics borrowed $30,000,000 on the Credit Facility revolver to pay its October 1, 2012 interest payment due under the Senior Notes and fund other business activities.

 

The terms of the Senior Notes and Credit Facility provide for certain financial and nonfinancial covenants.  As of September 30, 2012, Monitronics was in compliance with all required covenants.

 

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Principal payments scheduled to be made on the Company’s debt obligations are as follows:

 

Remainder of 2012

 

$

1,375

 

2013

 

5,500

 

2014

 

5,500

 

2015

 

5,500

 

2016

 

5,500

 

2017

 

35,500

 

Thereafter

 

928,375

 

Total

 

$

987,250

 

 

(13)       Derivatives

 

The Company utilizes an interest rate swap to reduce the interest rate risk inherent in Monitronics’ variable rate Credit Facility term loan.  The valuation of this instrument 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 14, Fair Value Measurements, for additional information about the credit valuation adjustments.

 

In March 2012, Monitronics entered into an interest rate swap agreement with an original notional amount of $550,000,000 in order to hedge changes in the variable rate interest expense of the Credit Facility term loan that matures on March 23, 2018.  Under the Swap, Monitronics receives interest at a rate based on the maximum of either three-month LIBOR or 1.25% (to mirror variable rate interest provisions of the underlying hedged debt), and pays interest at a fixed rate of 2.055%, effective March 23, 2012 through March 23, 2018.  The Swap is designated and qualifies as a cash flow hedging instrument, with the effective portion of the Swap’s change in fair value recorded in Other Comprehensive Income (“OCI”).  The Swap of the variable rate interest is deemed to be a highly effective hedge, and resulted in no gain or loss recorded for hedge ineffectiveness in the consolidated condensed statement of operations and comprehensive income (loss) for the three and nine months ended September 30, 2012.  Amounts in OCI are reported in interest expense when the hedged interest payments on the underlying debt are recognized.  The fair value of the Swap was determined using a model with Level 2 inputs including quoted market prices for contracts with similar terms and maturity dates. Amounts of OCI relating to the Swap expected to be recognized in interest expense in the coming 12 months total $4,389,000.

 

The impact of the Swap on the condensed consolidated financial statements is depicted below:

 

 

 

Three months ended
September 30, 2012

 

Nine months ended
September 30, 2012

 

 

 

Gain (loss)
recognized in
Other
comprehensive
income (loss)

 

Gain (loss)
recognized in
Net income
(loss) (a)

 

Gain (loss)
recognized in
Other
comprehensive
income (loss)

 

Gain (loss)
recognized in
Net income
(loss) (a)

 

 

 

 

 

 

 

 

 

 

 

Derivative designated as cash flow hedge:

 

 

 

 

 

 

 

 

 

Interest rate swap

 

$

(3,668,000

)

(1,129,000

)

$

(16,125,000

)

(2,346,000

)

 


(a)          Amount represents reclassification from Accumulated other comprehensive income (loss) and is included in Interest expense in the unaudited condensed consolidated statements of operations and comprehensive income (loss).

 

On March 23, 2012, in connection with the refinancing, Monitronics terminated all of its previously outstanding derivative financial instruments and recorded a gain of $8,451,000.  These derivative financial instruments were not designated as hedges.  For the nine months ended September 30, 2012, the realized and unrealized loss on derivative financial instruments includes settlement payments of $8,837,000 partially offset by a $6,793,000 unrealized gain related to the change in the fair value of these derivatives prior to their termination in March 2012.  For the three months ended September 30, 2011, the realized and unrealized loss on derivative financial instruments includes settlement payments of $9,984,000 partially offset by a $6,177,000 unrealized gain related to the change in the fair value of these derivatives.  For the nine months ended September 30, 2011, the realized and unrealized loss on derivative financial instruments includes settlement payments of $29,050,000 partially offset by an $18,936,000 unrealized gain related to the change in the fair value of these derivatives.

 

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See note 14, Fair Value Measurements, for additional information regarding the fair value of the Company’s derivative arrangements.

 

(14)                          Fair Value Measurements

 

According to the Fair Value Measurements and Disclosures Topic of the Financial Accounting Standards Board Accounting Standards Codification, 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 September 30, 2012 and December 31, 2011 (amounts in thousands):

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

 

 

 

 

 

 

 

 

 

 

September 30, 2012

 

 

 

 

 

 

 

 

 

Money market funds (a)

 

$

76,458

 

 

 

76,458

 

Investments in marketable securities (b)

 

142,668

 

 

 

142,668

 

Derivative financial instruments - liabilities

 

 

(13,779

)

 

(13,779

)

Total

 

$

219,126

 

(13,779

)

 

205,347

 

 

 

 

 

 

 

 

 

 

 

December 31, 2011

 

 

 

 

 

 

 

 

 

Money market funds (a)

 

$

168,622

 

 

 

168,622

 

Investments in marketable securities (b)

 

40,377

 

 

 

40,377

 

Derivative financial instruments - assets

 

 

25

 

 

25

 

Derivative financial instruments - liabilities

 

 

(19,320

)

(16,959

)

(36,279

)

Total

 

$

208,999

 

(19,295

)

(16,959

)

172,745

 

 


(a)          Included in cash and cash equivalents on the condensed consolidated balance sheets.

(b)         Investments consist primarily of diversified corporate bond funds and are all classified as available-for-sale securities.

 

The Company has determined that the majority of the inputs used to value the Swap fall within Level 2 of the fair value hierarchy.  The credit valuation adjustments associated with the derivative utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by its counterparty.  As the counterparty has publicly available credit information, the credit spreads over LIBOR used in the calculations represent implied credit default swap spreads obtained from a third-party credit data provider.  However, as of September 30, 2012, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of the Swap.  As a result, the Company has determined that its derivative valuation is classified in Level 2 of the fair value hierarchy.

 

The following table presents the activity in the Level 3 balances (amounts in thousands):

 

 

 

Nine months ended September 30,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

Beginning balance

 

$

(16,959

)

(42,935

)

Unrealized gain recognized

 

16,959

 

19,007

 

Ending balance

 

$

 

(23,928

)

 

The carrying value and fair value of Monitronics’ long-term debt is $982,132,000 and $1,009,120,000, respectively, as of September 30, 2012.  The fair value is based on valuations from third party banks.

 

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Table of Contents

 

Ascent Capital’s 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.

 

(15)                          Employee Benefit Plans

 

The Company had two defined benefit plans in the United Kingdom.  Participation in the defined benefit plans was limited to approximately 121 participants, including retired employees.  On September 3, 2012 (the “Settlement Date”), the Company completed the settlement of its outstanding liabilities under the defined benefit plans by means of a buy-out policy.  The Company recognized a settlement loss of $6,571,000 in the condensed consolidated statement of operations for the three and nine months ended September 30, 2012.  The settlement loss was primarily the result of recognition of deferred pension costs included in Accumulated other comprehensive loss, of $4,320,000 as of the Settlement Date.

 

(16)                          Income Taxes

 

The Company’s US tax returns for the periods September 18, 2008 through December 31, 2008, the years ended December 31, 2010 and 2009, as well as the period from July 21, 2005 through September 17, 2008, when the Company was included in the consolidated income tax returns of Discovery Holding Company, are either currently under audit or remain subject to examination by the IRS and state authorities.  It is reasonably possible that a further change in the unrecognized tax benefits may occur within the next twelve months related to the settlement of one or more of the pending audits or the lapse of applicable statutes of limitations; however, an estimated range of the impact on the unrecognized tax benefits cannot be quantified at this time.

 

(17)                          Commitments, Contingencies and Other Liabilities

 

The Company is involved in litigation and similar claims incidental to the conduct of its business. 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 is likely to have a material adverse impact on the Company’s financial position or results of operations.

 

In the third quarter of 2012, Monitronics was named as a defendant in a lawsuit related to a Monitronics’ Authorized Dealer.  The plaintiff is seeking damages of approximately $60,000,000.  The action is in its preliminary stages, therefore, management is unable to assess the probability of loss (if any) potentially resulting from this matter.  Accordingly, the Company has not recognized any related liabilities as of September 30, 2012.  Monitronics intends to vigorously defend this action.

 

(18)                          Subsequent Events

 

On October 3, 2012, the Company completed a sale of owned property consisting of land and a building for a net cash purchase price of $10,772,000, resulting in a gain on disposition of $7,770,000.  The owned property was included in Assets held for sale on the Company’s condensed consolidated balance sheet as of September 30, 2012.

 

On October 25, 2012, Monitronics acquired approximately 93,000 subscriber accounts from Pinnacle Security for a purchase price of approximately $131,000,000, after giving effect to certain purchase price adjustments.  The acquisition was funded by an add-on of $145,000,000 to the existing Credit Facility term loan, which matures March 23, 2018 and bears annual interest at LIBOR plus 4.25%, subject to a LIBOR floor of 1.25%.  The proceeds from the incremental term loan in excess of the purchase price were used to decrease the outstanding balance on the Credit Facility revolver.

 

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Table of Contents

 

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Certain statements in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our business, marketing and operating strategies, integration of acquired businesses, new service offerings, financial prospects, and anticipated sources and uses of capital. Where, in any forward-looking statement, we express an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the expectation or belief will result or be achieved or accomplished. The following include some but not all of the factors that could cause actual results or events to differ materially from those anticipated:

 

·                  general business conditions and industry trends;

 

·                  macroeconomic conditions and their effect on the general economy and on the US housing market, in particular single family homes which represent Monitronics’ largest demographic;

 

·                  uncertainties in the development of our business strategies, including market acceptance of new products and services;

 

·                  the competitive environment in which we operate, in particular increasing competition in the alarm monitoring industry from larger existing competitors and potential new market entrants;

 

·                  integration of acquired assets and businesses;

 

·                  the regulatory environment in which we operate, including the multiplicity of jurisdictions and licensing requirements to which Monitronics is subject and the risk of new regulations, such as the increasing adoption of false alarm ordinances;

 

·                  rapid technological changes which could result in the obsolescence of currently utilized technology and the need for significant upgrade expenditures;

 

·                  the availability and terms of capital, including the ability of Monitronics to obtain additional funds to grow its business;

 

·                  Monitronics’ high degree of leverage and the restrictive covenants governing its indebtedness;

 

·                  the outcome of any pending, threatened, or future litigation, including potential liability for failure to respond adequately to alarm activations;

 

·                  availability of qualified personnel;

 

·                  Monitronics’ anticipated growth strategies;

 

·                  Monitronics’ ability to acquire and integrate additional accounts, including competition for dealers with other alarm monitoring companies which could cause an increase in expected subscriber acquisition costs;

 

·                  the operating performance of Monitronics’ network, including the potential for service disruptions due to acts of nature or technology deficiencies;

 

·                  the reliability and creditworthiness of Monitronics’ independent alarm systems dealers and subscribers;

 

·                  changes in Monitronics’ expected rate of subscriber attrition; and

 

·                  the trend away from the use of public switched telephone network lines and resultant increase in servicing costs associated with alternative methods of communication.

 

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Table of Contents

 

For additional risk factors, please see Part II, Item 1A, Risk Factors, in our Quarterly Report on Form 10-Q for the three months ended March 31, 2012.  These forward-looking statements and such risks, uncertainties and other factors speak only as of the date of this Quarterly Report, and we expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein, to reflect any change in our expectations with regard thereto, or any other change in events, conditions or circumstances on which any such statement is based.

 

The following discussion and analysis provides information concerning our results of operations and financial condition.  This discussion should be read in conjunction with our accompanying condensed consolidated financial statements and the notes thereto included elsewhere herein and our 2011 Form 10-K.

 

Overview

 

Ascent Capital Group, Inc. is a holding company and its assets primarily consist of its wholly-owned subsidiary, Monitronics International, Inc.

 

The Monitronics business provides security alarm monitoring and related services to residential and business subscribers throughout the United States and parts of Canada.  Monitronics monitors signals arising from burglaries, fires and other events through security systems at subscribers’ premises.  Nearly all of its revenues are derived from monthly recurring revenues under security alarm monitoring contracts purchased from independent dealers in its exclusive nationwide network.

 

Attrition

 

Account cancellation, otherwise referred to as subscriber attrition, has a direct impact on the number of subscribers that Monitronics serves and on its financial results, including revenues, operating income and cash flow.  A portion of the subscriber base can be expected to cancel its service every year.  Subscribers may choose not to renew or may terminate their contract for a variety of reasons, including relocation, cost, and switching to a competitors’ service.  The largest category of canceled accounts relate to subscriber relocation or the inability to contact the subscriber.  Monitronics defines its attrition rate as the number of canceled accounts in a given period divided by the weighted average number of subscribers for that period.  Monitronics considers an account canceled if payment from the subscriber is deemed uncollectible or if the subscriber cancels for various reasons.  If a subscriber relocates but continues its service, this is not a cancellation.  If the subscriber relocates, discontinues its service and a new subscriber takes over the original subscriber’s service continuing the revenue stream (a “new owner takeover”), this is also not a cancellation.  Monitronics adjusts the number of canceled accounts by excluding those that are contractually guaranteed by its dealers.  The typical dealer contract provides that if a subscriber cancels in the first year of its contract, the dealer must either replace the canceled account with a new one or refund the purchase price. To help ensure the dealer’s obligation to Monitronics, Monitronics typically holds back a portion of the purchase price for every account purchased, ranging from 5-10%.  In some cases, the amount of the purchase holdback may be less than actual attrition experienced.

 

The table below presents subscriber data for the twelve months ended September 30, 2012 and 2011:

 

 

 

Twelve Months Ended
September 30,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

Beginning balance of accounts

 

697,581

 

646,478

 

Accounts purchased (a)

 

106,582

 

133,091

 

Accounts canceled (b)

 

(84,523

)

(73,828

)

Canceled accounts guaranteed to be refunded from holdback

 

(2,152

)

(8,160

)

Ending balance of accounts

 

717,488

 

697,581

 

Monthly weighted average accounts

 

706,752

 

679,304

 

Attrition rate

 

(12.0

)%

(10.9

)%

 


(a)         During the three months ended September 30, 2012 and 2011, Monitronics purchased 31,187 and 33,205 subscriber accounts, respectively.  Monthly recurring revenue purchased during the three months ended September 30, 2012 and 2011 was approximately $1,387,000 and $1,467,000, respectively.  During the nine months ended September 30, 2012 and 2011, Monitronics purchased 81,719 and 89,828 subscriber accounts, respectively.  Monthly recurring revenue purchased during the nine months ended September 30, 2012 and 2011 was approximately $3,601,000 and $3,916,000, respectively.

(b)         Net of canceled accounts that are contractually guaranteed to be refunded from holdback.

 

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The attrition rate for the twelve months ended September 30, 2012 and September 30, 2011 was 12.0% and 10.9%, respectively.  Increased attrition reflects the current age of accounts in the portfolio and an increase in disconnections due to household relocations.

 

Monitronics also analyzes its attrition by classifying accounts into annual pools based on the year of origination. Monitronics then tracks the number of accounts that cancel as a percentage of the initial number of accounts purchased for each pool for each year subsequent to its purchase.  Based on the average cancellation rate across the pools, in recent years Monitronics has averaged less than 1% attrition within the initial 12-month period after considering the accounts which were replaced or refunded by the dealers at no additional cost to Monitronics.  Over the next three years of the subscriber account life, the number of subscribers that cancel as a percentage of the initial number of subscribers in that pool gradually increases and historically has peaked between the third and fourth years.  The peak between the third and fourth years is primarily a result of the buildup of subscribers that moved or no longer had need for the service prior to the third year but did not cancel their service until the end of their three-year contract.  After the fourth year, the number of subscribers that cancel as a percentage of the initial number of subscribers in that pool declines.

 

Adjusted EBITDA

 

Ascent Capital defines “Adjusted EBITDA” as net income before interest expense, interest income, income taxes, depreciation, amortization (including the amortization of subscriber accounts and dealer network), realized and unrealized gain/(loss) on derivative instruments, restructuring charges, stock-based and other non-cash long-term incentive compensation, and other non-cash or nonrecurring charges.   Ascent Capital believes that Adjusted EBITDA is an important indicator of the operational strength and performance of its businesses, including the businesses’ ability to fund their ongoing acquisition of subscriber accounts, their capital expenditures and to service their debt.  In addition, this measure is used by management to evaluate operating results and perform analytical comparisons and identify strategies to improve performance.   Adjusted EBITDA is also a measure that is customarily used by financial analysts to evaluate the financial performance of companies in the security alarm monitoring industry and is one of the financial measures, subject to certain adjustments, by which Monitronics’ covenants are calculated under the agreements governing their debt obligations.  Adjusted EBITDA does not represent cash flow from operations as defined by generally accepted accounting principles (“GAAP”), should not be construed as an alternative to net income or loss and is indicative neither of our results of operations nor of cash flows available to fund all of our cash needs.  It is, however, a measurement that Ascent Capital believes is useful to investors in analyzing its operating performance.  Accordingly, Adjusted EBITDA should be considered in addition to, but not as a substitute for, net income, cash flow provided by operating activities and other measures of financial performance prepared in accordance with GAAP.  Adjusted EBITDA is a non-GAAP financial measure.  As companies often define non-GAAP financial measures differently, Adjusted EBITDA as calculated by Ascent Capital should not be compared to any similarly titled measures reported by other companies.

 

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Results of Operations

 

The following table sets forth selected data from the accompanying condensed consolidated statements of operations and comprehensive income (loss) for the periods indicated (dollar amounts in thousands).

 

 

 

Three months ended

 

Nine months ended

 

 

 

September 30,

 

September 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

Net revenue

 

$

84,667

 

79,515

 

$

249,863

 

230,962

 (a)

Cost of services

 

12,881

 

10,692

 

35,331

 

29,419

 

Selling, general, and administrative

 

18,256

 

17,554

 

54,093

 

55,977

 

Amortization of subscriber accounts and dealer network

 

40,815

 

41,203

 

118,245

 

117,944

 

Restructuring charges

 

 

72

 

 

4,258

 

Loss (gain) on sale of operating assets

 

15

 

106

 

(1,298

)

565

 

Interest expense

 

19,299

 

11,357

 

50,258

 

32,155

 

Realized and unrealized loss on derivative financial instruments

 

 

3,807

 

2,044

 

10,114

 

Income tax benefit (expense) from continuing operations

 

(604

)

208

 

(2,052

)

3,497

 

Net loss from continuing operations

 

(13,725

)

(5,152

)

(24,416

)

(17,135

)

Earnings (loss) from discontinued operations, net of income tax

 

(1,882

)

(4,715

)

(3,598

)

44,173

 

Net income (loss)

 

(15,607

)

(9,867

)

(28,014

)

27,038

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA (b)

 

 

 

 

 

 

 

 

 

Monitronics business Adjusted EBITDA

 

$

57,420

 

55,706

 

$

171,123

 

161,315

 

Corporate Adjusted EBITDA

 

(1,449

)

(1,359

)

(2,518

)

(8,982

)

Total Adjusted EBITDA

 

$

55,971

 

54,347

 

$

168,605

 

152,333

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA as a percentage of Revenue

 

 

 

 

 

 

 

 

 

Monitronics business

 

67.8

%

70.1

%

68.5

%

69.8

%

Corporate

 

(1.7

)%

(1.7

)%

(1.0

)%

(3.9

)%

 


(a)         Net revenue for the nine months ended September 30, 2011 reflects the negative impact of a $2,295,000 fair value adjustment that reduced deferred revenue acquired in the Monitronics acquisition.

(b)         See reconciliation to net loss from continuing operations below.

 

Net revenue.  Net revenue increased $5,152,000, or 6.5%, and $18,901,000, or 8.2%, for the three and nine months ended September 30, 2012, respectively, as compared to the corresponding prior year periods.  The increase in net revenue is attributable to an increase in the number of subscriber accounts from 697,581 as of September 30, 2011 to 717,488 as of September 30, 2012.  In addition, average monthly revenue per subscriber increased from $37.24 as of September 30, 2011 to $38.28 as of September 30, 2012.  The increase in net revenue for the nine months ended September 30, 2012 is also attributable to a $2,295,000 fair value adjustment, associated with deferred revenue acquired in the Monitronics acquisition, which reduced net revenue for the nine months ended September 30, 2011.

 

Cost of services.  Cost of services increased $2,189,000, or 20.5%, and $5,912,000, or 20.1%, for the three and nine months ended September 30, 2012, respectively, as compared to the corresponding prior year periods.  The increase is primarily attributable to an increased number of accounts monitored across the cellular network and having interactive services, which result in higher telecommunications and service costs.  Cost of services as a percent of net revenue increased from 13.4% for the three months ended September 30, 2011 to 15.2% for the three months ended September 30, 2012.  Cost of services as percent of net revenue increased from 12.7% for the nine months ended September 30, 2011 to 14.1% for the nine months ended September 30, 2012.

 

Selling, general and administrative.  Selling, general and administrative costs (“SG&A”) increased $702,000, or 4.0%, for the three months ended September 30, 2012 as compared to the corresponding prior year period.  The increase is primarily attributable to increases in Monitronics SG&A costs.  The increased Monitronics SG&A costs are primarily attributable to increased payroll, contract service, and stock-based compensation expenses of $832,000 as compared to the corresponding prior year period.  The increase in stock-based compensation expense is related to restricted stock and stock option awards granted to certain employees and directors during 2011 and 2012.  SG&A as a percent of net revenue decreased from 22.1% for the three months ended September 30, 2011 to 21.6% for the three months ended September 30, 2012.

 

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SG&A decreased $1,884,000 or 3.4%, for the nine months ended September 30, 2012 as compared to the corresponding prior year period.  The decrease is primarily attributable to decreased administrative and corporate expenses as a result of the sale of the Content Distribution business and shutdown of the Systems Integration business in the first two quarters of 2011.  The decrease was partially offset by increases in Monitronics SG&A costs.  The increased Monitronics SG&A costs are primarily attributable to increased payroll, marketing, and stock-based compensation expenses of $2,094,000 as compared to the corresponding prior year period.  The increase in stock-based compensation expense is related to restricted stock and stock option awards granted to certain employees and directors during 2011 and 2012.  SG&A as a percent of net revenue decreased from 24.2% for the nine months ended September 30, 2011 to 21.6% for the nine months ended September 30, 2012.

 

Amortization of subscriber accounts and dealer network.  Amortization of subscriber accounts and dealer networks decreased $388,000 and increased $301,000 for the three and nine months ended September 30, 2012, respectively, as compared to the corresponding prior year periods.  The decrease in subscriber account amortization for the three months ended September 30, 2012 is related to the timing of amortization of subscriber accounts acquired prior to the third quarter of 2011, including the subscriber accounts purchased in the December 2010 Monitronics acquisition, which have a lower rate of amortization in 2012 as compared to 2011 based on the applicable double declining balance method.  The decrease is partially offset by increased amortization expense related to 2012 subscriber account purchases.  The increase in subscriber account amortization for the nine months ended, September 30, 2012 is primarily attributable to amortization of subscriber accounts purchased subsequent to September 30, 2011.

 

Restructuring Charges.  The Company recorded restructuring charges from continuing operations of $72,000 and $4,258,000 for the three and nine months ended September 30, 2011, respectively.  There were no restructuring charges recorded during the three and nine months ended September 30, 2012.

 

In the fourth quarter of 2010, we began a new restructuring plan (the “2010 Restructuring Plan”) in conjunction with the expected sales of the Creative/Media and Content Distribution businesses.  The 2010 Restructuring Plan was implemented to meet the changing strategic needs of the Company as we sold most of our media and entertainment services assets and acquired Monitronics, an alarm monitoring business.  Such changes include retention costs for corporate employees to remain employed until the sales were complete, severance costs for certain employees and costs for facilities that were no longer being used by us due to the Creative/Media and Content Distribution sales.

 

Before we implemented the 2010 Restructuring Plan, we had just completed a restructuring plan that was implemented in 2008 and concluded in September 2010 (the “2008 Restructuring Plan”).  The 2008 Restructuring Plan was implemented to align our organization with our strategic goals and how we operated, managed and sold our services.  The 2008 Restructuring Plan charges included severance costs from labor cost mitigation measures undertaken across all of the businesses and facility costs in conjunction with the consolidation of certain facilities in the United Kingdom and the closing of our Mexico operations.  The following table provides the activity and balances of the restructuring reserve (amounts in thousands).

 

 

 

December 31, 2010

 

Additions

 

Deductions (a)

 

September 30, 2011

 

 

 

 

 

 

 

 

 

 

 

2010 Restructuring Plan

 

 

 

 

 

 

 

 

 

Severance and retention

 

$

3,590

 

4,186

 

(5,813

)

1,963

 

 

 

 

 

 

 

 

 

 

 

2008 Restructuring Plan

 

 

 

 

 

 

 

 

 

Severance

 

$

9

 

 

(9

)

 

Excess facility costs

 

211

 

72

 

(16

)

267

 

Total

 

$

220

 

72

 

(25

)

267

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2011

 

Additions

 

Deductions (a)

 

September 30, 2012

 

 

 

 

 

 

 

 

 

 

 

2010 Restructuring Plan

 

 

 

 

 

 

 

 

 

Severance and retention

 

$

1,886

 

 

(1,886

)

 

 

 

 

 

 

 

 

 

 

 

2008 Restructuring Plan

 

 

 

 

 

 

 

 

 

Excess facility costs

 

$

236

 

 

(95

)

141

 

 


(a) Primarily represents cash payments.

 

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Loss (gain) on the sale of assets.  During the nine months ended September 30, 2012, the Company sold land and building improvements for $5,095,000 resulting in a pre-tax gain of $1,847,000.  In addition, during the nine months ended September 30, 2012, the Company sold its 50% interest in an equity method investment for $1,420,000 resulting in a pre-tax loss of $532,000.  During the nine months ended September 30, 2011, the Company disposed of certain property and equipment resulting in a pre-tax loss of $565,000.

 

Interest Expense.  Interest expense increased $7,942,000 and $18,103,000 for the three and nine months ended September 30, 2012, respectively, as compared to the corresponding prior year periods.  The increase in 2012 interest expense as compared to the respective prior year period is primarily due to the presentation of interest cost related to the Company’s current derivative instrument. Interest cost related to the Company’s current derivative instrument is presented in Interest expense on the statement of operations as the related derivative instrument is an effective hedge of the Company’s interest rate risk for which hedge accounting is applied.  As the Company did not apply hedge accounting on its prior derivative instruments, the related interest costs incurred prior to March 23, 2012 are presented in Realized and unrealized loss on derivative financial instruments in the condensed consolidated statements of operations and comprehensive income (loss).  In addition, the increase in interest expense is due to the increase in debt and the increase in interest rates associated with the Senior Notes and Credit Facility as compared to the Company’s prior debt obligations.  Interest expense for the three and nine months ended September 30, 2012 includes amortization of debt discount of $184,000 and $4,285,000, respectively.  Interest expense for the three and nine months ended September 30, 2011 includes amortization of debt discount of $4,309,000 and $12,640,000, respectively.

 

Realized and unrealized loss on derivative financial instruments.  Realized and unrealized loss on derivative financial instruments for the three and nine months ended September 30, 2012 was $0 and $2,044,000, respectively.  Realized and unrealized loss on derivative financial instruments for the three and nine months ended September 30, 2011 was $3,807,000 and $10,114,000, respectively.  For the nine months ended September 30, 2012, the realized and unrealized loss on derivative financial instruments includes settlement payments of $8,837,000 partially offset by a $6,793,000 unrealized gain related to the change in the fair value of these derivatives prior to their termination on March 23, 2012.  For the three months ended September 30, 2011, the realized and unrealized loss on derivative financial instruments includes settlement payments of $9,984,000 partially offset by a $6,177,000 unrealized gain related to the change in the fair value of these derivatives.  For the nine months ended September 30, 2011, the realized and unrealized loss on derivative financial instruments includes settlement payments of $29,050,000 partially offset by an $18,936,000 unrealized gain related to the change in the fair value of these derivatives.

 

Income tax benefit (expense) from continuing operations.  The Company had a pre-tax loss from continuing operations of $13,121,000 and $22,364,000 for the three and nine months ended September 30, 2012, respectively, and an income tax expense of $604,000 and $2,052,000 for the three and nine months ended September 30, 2012, respectively.  Income tax expense for the three and nine months ended September 30, 2012 primarily relates to state taxes recognized on the Monitronics business.  The Company had a pre-tax loss from continuing operations of $5,360,000 and $20,632,000 for the three months and nine months ended September 30, 2011, respectively, and an income tax benefit of $208,000 and $3,497,000 for the three and nine months ended September 30, 2011, respectively.  Income tax benefit for the three and nine months ended September 30, 2011 primarily relates to federal and state benefits from operating losses recognized at Ascent Capital, partially offset by state tax expense recognized on the Monitronics business.  The Company recorded charges of $2,584,000 and $4,198,000 to increase the valuation allowance which reduced our net income tax benefit (expense) from continuing operations for the nine months ended September 30, 2012 and 2011, respectively.

 

Earnings (loss) from discontinued operations, net of income taxes.  Earnings (loss) from discontinued operations, net of income taxes, were $(1,882,000) and $(3,598,000) for the three and nine months ended September 30, 2012, respectively, and $(4,715,000) and $44,173,000 for the three and nine months ended September 30, 2011, respectively.  The 2012 amounts include costs related to contract termination and other loss contingencies associated with discontinued operations.  The 2011 amounts include the results of the Systems Integration business which was shut down in June 2011 and the Content Distribution business which was sold at the end of February 2011.  The 2011 amount also includes the gain on sale of the Content Distribution business of $66,136,000 and the related income tax expense of $6,716,000.

 

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Adjusted EBITDA. The following table provides a reconciliation of total Adjusted EBITDA to net loss from continuing operations (amounts in thousands):

 

 

 

Three months ended

 

Nine months ended

 

 

 

September 30,

 

September 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

Total Adjusted EBITDA

 

$

55,971

 

54,347

 

$

168,605

 

152,333

 

Amortization of subscriber accounts and dealer network

 

(40,815

)

(41,203

)

(118,245

)

(117,944

)

Depreciation

 

(2,084

)

(2,173

)

(6,686

)

(5,823

)

Loss on pension plan settlements

 

(6,571

)

 

(6,571

)

 

Stock-based and long-term incentive compensation

 

(1,365

)

(1,143

)

(3,928

)

(2,956

)

Restructuring charges

 

 

(72

)

 

(4,258

)

Realized and unrealized loss on derivative instruments

 

 

(3,807

)

(2,044

)

(10,114

)

Refinancing costs

 

 

 

(6,245

)

 

Interest income

 

1,042

 

48

 

3,008

 

285

 

Interest expense

 

(19,299

)

(11,357

)

(50,258

)

(32,155

)

Income tax benefit (expense) from continuing operations

 

(604

)

208

 

(2,052

)

3,497

 

 

 

 

 

 

 

 

 

 

 

Net loss from continuing operations

 

$

(13,725

)

(5,152

)

$

(24,416

)

(17,135

)

 

Adjusted EBITDA increased $1,624,000, or 3.0%, and $16,272,000, or 10.7%, for the three and nine months ended September 30, 2012 as compared to the respective prior year periods.  The increase in Adjusted EBITDA was primarily due to revenue growth.  Monitronics Adjusted EBITDA was $57,420,000 and $171,123,000 for the three and nine months ended September 30, 2012, respectively, as compared to $55,706,000 and $161,315,000 for the three and nine months ended September 30, 2011, respectively.

 

Discontinued Operations

 

During the three and nine months ended September 30, 2012, the Company recorded costs of approximately $1,202,000 and $2,992,000, respectively, related to contract termination and other loss contingencies associated with discontinued operations.

 

As of June 30, 2011, Ascent Capital shut down the operations of the Systems Integration business.  In connection with ceasing its operations, the Company recorded exit costs of $1,119,000 related to employee severance.  The operations of the Systems Integration business has been treated as a discontinued operation in the condensed consolidated financial statements for all applicable periods presented.

 

On February 28, 2011, Ascent Capital completed the sale of 100% of the Content Distribution business to Encompass.  Ascent Capital received cash proceeds of approximately $104,000,000.  Ascent Capital recorded a gain on the sale of $66,136,000 and the related income tax expense of $6,716,000 for the nine months ended September 30, 2011.  The Content Distribution business has been treated as a discontinued operation in the condensed consolidated financial statements for all applicable periods presented.

 

Liquidity and Capital Resources

 

At September 30, 2012, we had $106,336,000 of cash and cash equivalents, $7,000,000 of current restricted cash, and $142,668,000 of marketable securities on a consolidated basis.  We may use a portion of these assets to decrease debt obligations, fund stock repurchases, or fund potential strategic acquisitions or investment opportunities.

 

Additionally, our other source of funds is our cash flows from operating activities which are primarily generated from the operations of Monitronics.  During the nine months ended September 30, 2012 and 2011, our cash flow from operating activities was $126,445,000 and $85,267,000, respectively.  The primary driver of our cash flow from operating activities is Adjusted EBITDA.  Fluctuations in our Adjusted EBITDA and the components of that measure are discussed in “Results of Operations” above.  In addition, our cash flow from operating activities may be significantly impacted by changes in working capital.

 

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During the nine months ended September 30, 2012 and 2011, the Company used cash of $128,407,000 and $126,807,000, respectively, to fund purchases of subscriber accounts net of holdback and guarantee obligations.  In addition, during the nine months ended September 30, 2012 and 2011, the Company used cash of $3,591,000 and $2,860,000, respectively, to fund our capital expenditures.  In order to improve our investment rate of return, the Company purchased marketable securities consisting primarily of diversified corporate bond funds for cash of $99,667,000 during the nine months ended September 30, 2012.

 

In considering our liquidity requirements for 2012, we evaluated our known future commitments and obligations.  We will require the availability of funds to finance the strategy of Monitronics, our primary operating subsidiary, which is to grow through subscriber account purchases.  We also considered the expected cash flow from Monitronics, as this business is the driver of our operating cash flows.  In addition, we considered the borrowing capacity under Monitronics’ new Credit Facility revolver, under which Monitronics could borrow an additional $120,000,000 as of September 30, 2012.  Based on this analysis, we expect that cash on hand, cash flow generated from operations and available borrowings under the Monitronics’ Credit Facility will provide sufficient liquidity to fund our anticipated current requirements.

 

The existing long-term debt of Monitronics at September 30, 2012 includes the principal balance of $987,250,000 under its Senior Notes, Credit Facility, and Credit Facility revolver.  The Senior Notes have an outstanding principal balance of $410,000,000 as of September 30, 2012 and mature on April 1, 2020.  The Credit Facility term loan has an outstanding principal balance of $547,250,000 as of September 30, 2012 and requires principal payments of $1,375,000 per quarter with the remaining outstanding balance becoming due on March 23, 2018.  The Credit Facility revolver has an outstanding balance of $30,000,000 as of September 30, 2012 and becomes due on March 23, 2017.

 

On October 25, 2012, Monitronics acquired approximately 93,000 subscriber accounts from Pinnacle Security for a purchase price of approximately $131,000,000, after giving effect to certain purchase price adjustments.  The acquisition was funded by an add-on of $145,000,000 to the existing Credit Facility term loan, which matures March 23, 2018 and bears annual interest at LIBOR plus 4.25%, subject to a LIBOR floor of 1.25%.  The proceeds from the incremental term loan in excess of the purchase price were used to decrease the outstanding balance on the Credit Facility revolver.

 

We may seek external equity or debt financing in the event of any new investment opportunities, additional capital expenditures or our operations requiring additional funds, but there can be no assurance that we will be able to obtain equity or debt financing on terms that would be acceptable to us.  Our ability to seek additional sources of funding depends on our future financial position and results of operations, which are subject to general conditions in or affecting our industry and our customers and to general economic, political, financial, competitive, legislative and regulatory factors beyond our control.

 

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Table of Contents

 

Item 3.  Quantitative and Qualitative Disclosure about Market Risk

 

Interest Rate Risk

 

Due to the terms of our debt obligations, we have exposure to changes in interest rates related to these debt obligations.  Monitronics uses derivative financial instruments to manage the exposure related to the movement in interest rates.  The derivatives are designated as hedges and were entered into with the intention of reducing the risk associated with variable interest rates on the debt obligations.  We do not use derivative financial instruments for trading purposes.

 

Tabular Presentation of Interest Rate Risk

 

The table below provides information about our outstanding debt obligations and derivative financial instruments that are sensitive to changes in interest rates.  Interest rate swaps and other derivative financial instruments are presented at fair value and by maturity date.  Debt amounts represent principal payments by maturity date (amounts in thousands).

 

Year of Maturity

 

Fixed Rate
Derivative
Instrument (a)

 

Variable Rate
Debt

 

Fixed Rate
Debt

 

Total

 

 

 

 

 

 

 

 

 

 

 

2012

 

$

 

1,375

 

 

1,375

 

2013

 

 

5,500

 

 

5,500

 

2014

 

 

5,500

 

 

5,500

 

2015

 

 

5,500

 

 

5,500

 

2016

 

 

5,500

 

 

5,500

 

Thereafter

 

13,779

 

553,875

 

410,000

 

977,654

 

Total

 

$

13,779

 

577,250

 

410,000

 

1,001,029

 

 


(a)           The derivative financial instrument reflected in this column includes an interest rate swap. The interest rate paid on the swap is 2.055% and the average interest rate received is the 3-month LIBOR rate, subject to a 1.25% LIBOR floor. See notes 12, 13 and 14 to our condensed consolidated financial statements included in this quarterly report for further information.

 

If interest rates were to increase 10% on the Credit Facility, there would be no material adverse impact on our results of operations or financial position due to limited exposure resulting from the Company’s fixed rate derivative instruments.

 

Item 4.  Controls and Procedures

 

In accordance with Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company carried out an evaluation, under the supervision and with the participation of management, including its chief executive officer and chief financial officer (the “Executives”), of the effectiveness of its disclosure controls and procedures as of the end of the period covered by this report.  Based on that evaluation, the Executives concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2012 to provide reasonable assurance that information required to be disclosed in its reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

 

There has been no change in the Company’s internal controls over financial reporting that occurred during the three months ended September 30, 2012 that has materially affected, or is reasonably likely to materially affect, its internal controls over financial reporting.

 

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Table of Contents

 

ASCENT CAPITAL GROUP, INC. AND SUBSIDIARIES

 

PART II - OTHER INFORMATION

 

Item 2.           Unregistered Sales of Equity Securities and Use of Proceeds.

 

(c) Purchases of Equity Securities by the Issuer

 

The following table sets forth information concerning our company’s purchase of its own equity securities (all of which were comprised of shares of our Series A common stock) during the three months ended September 30, 2012:

 

Period

 

Total number of
shares
purchased
(surrendered)(1)

 

Average price
paid per share

 

Total Number of
Shares (or Units)
Purchased as Part
of Publicly
Announced Plans
or Programs

 

Maximum Number (or
Approximate Dollar
Value) or Shares (or
Units) that May Yet Be
Purchased Under the
Plans or Programs

 

07/01/12 - 07/31/12

 

15,045

(2)

$

49.93

 

14,465

 

 

(1)

08/01/12 - 08/31/12

 

24,838

 

49.43

 

24,838

 

 

(1)

09/01/12 - 09/30/12

 

40,704

(2)

53.81

 

37,549

 

 

(1)

Total

 

80,587

 

$

51.37

 

76,852

 

 

 

 


(1)            On June 16, 2011 the Company announced that it received authorization to implement a stock repurchase program, pursuant to which it may purchase up to $25,000,000 of its shares of Series A Common Stock from time to time. As of September 30, 2012, up to $8,853,000 of Series A Common Stock may be purchased under the program.

(2)            Includes shares withheld in payment of withholding taxes by certain of our executive officers upon vesting of their restricted share awards.

 

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Table of Contents

 

Item 6Exhibits

 

Listed below are the exhibits which are included as a part of this Report (according to the number assigned to them in Item 601 of Regulation S-K):

 

31.1

 

Rule 13a-14(a)/15d-14(a) Certification *

31.2

 

Rule 13a-14(a)/15d-14(a) Certification *

32

 

Section 1350 Certification **

101.INS

 

XBRL Instance Document **

101.SCH

 

XBRL Taxonomy Extension Schema Document **

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document **

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document **

101.LAB

 

XBRL Taxonomy Extension Labels Linkbase Document **

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document **

 


*                 Filed herewith.

**          Furnished herewith.

 

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Table of Contents

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

ASCENT CAPITAL GROUP, INC.

 

 

 

 

 

Date:      November 9, 2012

By:

/s/ William R. Fitzgerald

 

 

     William R. Fitzgerald

 

 

     Chairman, President and Chief Executive Officer

 

 

 

 

 

 

Date:      November 9, 2012

By:

/s/ Michael R. Meyers

 

 

     Michael R. Meyers

 

 

        Senior Vice President and Chief Financial Officer

 

25



Table of Contents

 

EXHIBIT INDEX

 

Listed below are the exhibits which are included as a part of this Report (according to the number assigned to them in Item 601 of Regulation S-K):

 

 

31.1

Rule 13a-14(a)/15d-14(a) Certification *

 

31.2

Rule 13a-14(a)/15d-14(a) Certification *

 

32

Section 1350 Certification **

 

101.INS

XBRL Instance Document **

 

101.SCH

XBRL Taxonomy Extension Schema Document **

 

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document **

 

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document **

 

101.LAB

XBRL Taxonomy Extension Labels Linkbase Document **

 

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document **

 


*                 Filed herewith.

**          Furnished herewith.

 

26