Notes to Consolidated Financial Statements
(1) Basis of Presentation
Monitronics International, Inc. and its subsidiaries (collectively, "Monitronics" or the "Company", doing business as "Brinks Home SecurityTM") were wholly owned subsidiaries of Ascent Capital Group, Inc. ("Ascent Capital") until August 30, 2019. On December 17, 2010, Ascent Capital acquired 100% of the outstanding capital stock of the Company through the merger of Mono Lake Merger Sub, Inc., a direct wholly owned subsidiary of Ascent Capital established to consummate the merger, with and into the Company, with the Company as the surviving corporation in the merger.
Monitronics provides residential customers and commercial client accounts with monitored home and business security systems, as well as interactive and home automation services, in the United States, Canada and Puerto Rico. Monitronics customers are obtained through our direct-to-consumer sales channel (the "Direct to Consumer Channel"), which offers both Do-It-Yourself and professional installation security solutions and our exclusive authorized dealer network (the "Dealer Channel"), which provides product and installation services, as well as support to customers.
As previously disclosed, on June 30, 2019 (the "Petition Date"), Monitronics and certain of its domestic subsidiaries (collectively, the "Debtors"), filed voluntary petitions for relief (collectively, the "Petitions" and, the cases commenced thereby, the "Chapter 11 Cases") under chapter 11 of title 11 of the United States Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the Southern District of Texas (the "Bankruptcy Court"). The Debtors' Chapter 11 Cases were jointly administered under the caption In re Monitronics International, Inc., et al., Case No. 19-33650. On August 7, 2019, the Bankruptcy Court entered an order, Docket No. 199 (the "Confirmation Order"), confirming and approving the Debtors' Joint Partial Prepackaged Plan of Reorganization (including all exhibits thereto and, as modified by the Confirmation Order, the "Plan") that was previously filed with the Bankruptcy Court on June 30, 2019. On August 30, 2019 (the "Effective Date"), the conditions to the effectiveness of the Plan were satisfied and the Company emerged from Chapter 11 after completing a series of transactions through which the Company and its former parent, Ascent Capital, merged (the "Merger") in accordance with the terms of the Agreement and Plan of Merger, dated as of May 24, 2019 (the "Merger Agreement"). Monitronics was the surviving corporation and, immediately following the Merger, was redomiciled in Delaware in accordance with the terms of the Merger Agreement.
Upon emergence from Chapter 11 on the Effective Date, the Company applied Accounting Standards Codification ("ASC") 852, Reorganizations ("ASC 852"), in preparing its consolidated financial statements (see Note 3, Emergence from Bankruptcy and Note 4, Fresh Start Accounting). The Company selected a convenience date of August 31, 2019 for purposes of applying fresh start accounting as the activity between the convenience date and the Effective Date did not result in a material difference in the financial results. As a result of the application of fresh start accounting and the effects of the implementation of the Plan, a new entity for financial reporting purposes was created. References to "Successor" or "Successor Company" relate to the balance sheet and results of operations of Monitronics on and subsequent to September 1, 2019. References to "Predecessor" or "Predecessor Company" refer to the balance sheet and results of operations of Monitronics prior to September 1, 2019. With the exception of interest and amortization expense, the Company's operating results and key operating performance measures on a consolidated basis were not materially impacted by the reorganization. As such, references to the "Company" could refer to either the Predecessor Company or Successor Company periods, as defined.
Subsequent to the Petition Date and before the Effective Date, all expenses, gains and losses directly associated with the restructuring and reorganization proceedings are reported as Gain on restructuring and reorganization, net in the accompanying consolidated statements of operations and comprehensive income (loss). Additionally, Liabilities subject to compromise during the pendency of the Chapter 11 Cases are distinguished from liabilities of the Company that are not expected to be compromised, including post-petition liabilities, in the accompanying consolidated balance sheets.
The consolidated financial statements contained in this Annual Report have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for all periods presented.
Going Concern
In accordance with the requirements of Accounting Standards Update (“ASU”) 2014-15, Presentation of Financial Statements Going Concern (Subtopic 205-40), and ASC 205-40, the Company has the responsibility to evaluate at each reporting period, including interim periods, whether conditions and events, considered in the aggregate, raise substantial doubt about its ability to meet its future financial obligations. During the pendency of the Chapter 11 Cases, the Company’s ability to continue as a going concern was contingent upon a variety of factors, including the Bankruptcy Court’s approval of the Plan and the Company’s ability to successfully implement the Plan. As a result of the effectiveness of the Plan and the Company’s current financial condition and liquidity sources, the Company believes it has the ability to meet its obligations for at least one year from the date of issuance of this Form 10-K.
(2) Summary of Significant Accounting Policies
Consolidation Principles
The consolidated financial statements include the accounts of the Company and its majority owned subsidiaries over which the Company exercises control. All intercompany accounts and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
The Company considers investments with original purchased maturities of three months or less when acquired to be cash equivalents.
Restricted Cash
Restricted cash is cash that is restricted for a specific purpose and cannot be included in the cash and cash equivalents account.
Trade Receivables
Trade receivables consist primarily of amounts due from subscribers for recurring monthly monitoring services over a wide geographical base. The Company performs extensive credit evaluations on the portfolios of subscriber accounts prior to acquisition and requires no collateral on the accounts that are acquired. The Company has established an allowance for doubtful accounts for estimated losses resulting from the inability of subscribers to make required payments. Factors such as historical-loss experience, recoveries and economic conditions are considered in determining the sufficiency of the allowance to cover potential losses. The allowance for doubtful accounts as of December 31, 2019 and 2018 was $3,828,000 and $3,759,000, respectively.
A summary of activity in the allowance for doubtful accounts is as follows (amounts in thousands):
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Balance
Beginning
of Period
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Charged
to Expense
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Write-Offs
and Other
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Balance
End of
Period
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Period from September 1, 2019 through December 31, 2019 (Successor Company)
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$
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—
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$
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3,828
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$
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—
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|
|
$
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3,828
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|
Period from January 1, 2019 through August 31, 2019 (Predecessor Company)
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$
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3,759
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$
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7,558
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$
|
(11,317
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)
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$
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—
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Year Ended December 31, 2018 (Predecessor Company)
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$
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4,162
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$
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12,300
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$
|
(12,703
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)
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$
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3,759
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Year Ended December 31, 2017 (Predecessor Company)
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$
|
3,043
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|
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$
|
11,014
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|
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$
|
(9,895
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)
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|
$
|
4,162
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|
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of trade accounts receivable. The Company performs extensive credit evaluations on the portfolios of subscriber accounts prior to acquisition and requires no collateral on the subscriber accounts that are acquired. Concentrations of credit risk with respect to trade accounts receivable are generally limited due to the large number of subscribers comprising the Company's customer base.
Fair Value of Financial Instruments
Fair values of cash equivalents, current accounts receivable and current accounts payable approximate their carrying amounts because of their short-term nature. The Company's debt instruments are recorded at amortized cost on the consolidated balance sheet. See Note 10, Derivatives and Note 11, Fair Value Measurements for further fair value information on the Company's debt instruments.
Inventories
Inventories consist of security system components and parts and are stated at the lower of cost (using the weighted average costing method) or net realizable value. Inventory is included in Prepaid and other current assets on the consolidated balance sheets and was $5,242,000 and $4,868,000 at December 31, 2019 and 2018, respectively.
Property and Equipment
Property and equipment are carried at cost and depreciated using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the shorter of their estimated useful lives or the term of the underlying lease. Estimated useful lives by class of asset are as follows:
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Leasehold improvements
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15 years or lease term, if shorter
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Computer systems and software
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3 - 5 years
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Furniture and fixtures
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5 - 7 years
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Management reviews the realizability of its property and equipment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In evaluating the value and future benefits of long-term assets, their carrying value is compared to management’s best estimate of undiscounted future cash flows over the remaining economic life. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying value of the assets exceeds the estimated fair value of the assets. If necessary, the Company would use both the income approach and market approach to estimate fair value.
Subscriber Accounts
Subscriber accounts primarily relate to the cost of acquiring monitoring service contracts from independent dealers. The subscriber accounts balance was adjusted to fair value in connection with the Company's application of fresh start accounting under ASC 852 upon the Company's emergence from Chapter 11 (see Note 4, Fresh Start Accounting for further information). The valuation of subscriber accounts was based on the projected cash flows to be generated by the existing subscribers as of the Effective Date. Subscriber accounts acquired after the Company's emergence from bankruptcy are recorded at cost. All direct and incremental costs, including bonus incentives related to account activation in the Direct to Consumer Channel, associated with the creation of subscriber accounts, are capitalized. Upon adoption of Accounting Standards Update ("ASU") 2014-19, Revenue from Contracts with Customers (Topic 606), as amended ("ASC 606"), all costs on new subscriber contracts obtained in connection with a subscriber move ("Moves Costs") are expensed, whereas prior to adoption, certain Moves Costs were capitalized on the balance sheet.
The fair value of subscriber accounts as of the Company's emergence from Chapter 11, as well as certain accounts acquired in bulk purchases, are amortized using the 14-year 235% declining balance method. The costs of all other subscriber accounts are amortized using the 15-year 220% declining balance method, beginning in the month following the date of acquisition. The amortization methods were selected to provide an approximate matching of the amortization of the subscriber accounts intangible asset to estimated future subscriber revenues based on the projected lives of individual subscriber contracts. Amortization of subscriber accounts for the Successor Company period September 1, 2019 through December 31, 2019, the Predecessor Company period January 1, 2019 through August 31, 2019, the Predecessor Company year ended December 31, 2018 and the Predecessor Company year ended December 31, 2017 was $61,771,000, $130,411,000, $204,130,000 and $226,697,000, respectively.
Based on subscriber accounts held at December 31, 2019, estimated amortization of subscriber accounts in the succeeding five fiscal years ending December 31 is as follows (amounts in thousands):
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2020
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$
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178,117
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2021
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$
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148,323
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2022
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$
|
123,515
|
|
2023
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$
|
102,858
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2024
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$
|
85,657
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|
The Company has processes and controls in place, including the review of key performance indicators, to assist management in identifying events or circumstances that indicate the subscriber accounts asset may not be recoverable. If an indicator that the asset may not be recoverable exists, management tests the subscriber accounts asset for impairment. For purposes of recognition and measurement of an impairment loss, we view subscriber accounts as a single pool because of the assets' homogeneous characteristics, and the pool of subscriber accounts is the lowest level for which identifiable cash flows are largely independent of the cash flows of the other assets and liabilities. If such assets are considered to be impaired, the impairment loss to be recognized is measured as the amount by which the carrying value of the assets exceeds the estimated fair value, as determined using the income approach.
Dealer Network and Other Intangible Assets
Upon the adoption of fresh start accounting on August 31, 2019, the fair value of our dealer network as of that date was determined and recorded as an intangible asset. Furthermore, a fair value adjustment related to the Company's leasehold agreement was recorded as an other intangible asset. See Note 4, Fresh Start Accounting for further information.
The Predecessor Company dealer network was an intangible asset that related to the dealer relationships that were acquired as part of the acquisition of Security Networks, LLC ("Security Networks"). Other Predecessor Company intangible assets consisted of non-compete agreements signed by the seller of Security Networks and certain key Security Networks executives. These Predecessor Company intangible assets were amortized on a straight-line basis over their estimated useful lives of 5 years. These Predecessor Company intangible assets were fully amortized during 2018. The LiveWatch trade mark asset was initially to be amortized over 10 years. Upon the rollout of the Brinks Home Security brand in the second quarter of 2018, it was determined that the LiveWatch trade mark asset had no remaining useful life and the remaining asset balance was amortized.
Amortization of dealer network and other intangible assets for the Successor Company period September 1, 2019 through December 31, 2019, the Predecessor Company period January 1, 2019 through August 31, 2019, the Predecessor Company year ended December 31, 2018 and the Predecessor Company year ended December 31, 2017 was $7,922,000, $0, $6,994,000 and $9,830,000, respectively.
Goodwill
The Company accounts for its goodwill pursuant to the provisions of Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 350, Intangibles-Goodwill and Other ("FASB ASC Topic 350"). In accordance with FASB ASC Topic 350, goodwill is not amortized, but rather tested for impairment at least annually, or earlier if an event occurs, or circumstances change, that indicate the fair value of a reporting unit may be below its carrying amount.
The Company assesses the recoverability of the carrying value of goodwill during the fourth quarter of its fiscal year, based on October 31 financial information, or whenever events or changes in circumstances indicate that the carrying amount of the goodwill of a reporting unit may not be fully recoverable. In early June 2018, the reportable segments known as MONI and LiveWatch were combined and presented as Brinks Home Security. As a result of the change in reportable segments, goodwill assigned to these former reporting units was reallocated and combined under the Brinks Home Security reporting unit. Recoverability is measured at the reporting unit level based on the provisions of FASB ASC Topic 350.
To the extent necessary, recoverability of goodwill at a reporting unit level is measured using a discounted cash flow model incorporating discount rates commensurate with the risks involved, which is classified as a Level 3 measurement under FASB ASC Topic 820, Fair Value Measurements and Disclosures. The key assumptions used in the discounted cash flow valuation model include discount rates, growth rates, cash flow projections and terminal value rates. Discount rates, growth rates and cash flow projections are the most sensitive and susceptible to change as they require significant management
judgment. An impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit's fair value.
Holdback Liability
The Company typically withholds payment of a designated percentage of the acquisition cost when it acquires subscriber accounts from dealers. The withheld funds are recorded as a liability until the guarantee period provided by the dealer has expired. The holdback is used as a reserve to cover any terminated subscriber accounts that are not replaced by the dealer during the guarantee period. At the end of the guarantee period, the dealer is responsible for any deficit or is paid the balance of the holdback.
Derivative Financial Instruments
The Company uses derivative financial instruments to manage exposure to movement in interest rates. The use of these financial instruments modifies the exposure of these risks with the intention of reducing the risk or cost. The Company does not use derivatives for speculative or trading purposes. The Company recognizes the fair value of all derivative instruments as either assets or liabilities at fair value on the consolidated balance sheets. Fair value is based on market quotes for similar instruments with the same duration. For derivative instruments that qualify for hedge accounting under the provisions of FASB ASC Topic 815, Derivatives and Hedging, unrealized gains and losses on the derivative instruments are reported in Accumulated other comprehensive income (loss), to the extent the hedges are effective, until the underlying transactions are recognized in earnings. Derivative instruments that do not qualify for hedge accounting are marked to market at the end of each accounting period with the change in fair value recorded in earnings.
Revenue Recognition - for Periods Commencing January 1, 2018
The Company offers its subscribers professional alarm monitoring services, as well as interactive and home automation services, through equipment at the subscriber's site that communicates with the Company’s alarm monitoring station and interfaces with other equipment at the site and third-party technology companies for interactive and home automation services. These services are typically provided under alarm monitoring agreements ("AMAs") between the Company and the subscriber. The equipment at the site is either obtained independently from our Dealer Channel or from our Direct to Consumer Channel. The Company also offers equipment sales and installation services and, to our existing subscribers, maintenance services on existing alarm equipment. Additionally, the Company collects fees for contract monitoring, which are services provided to other security alarm companies for monitoring their accounts on a wholesale basis and other fees from subscribers for late fee or insufficient fund charges.
Revenue under subscriber AMAs is allocated to alarm monitoring revenue and, if applicable, product and installation revenue based on the stand alone selling prices ("SSP") of each performance obligation as a percentage of the total SSP of all performance obligations. Allocated alarm monitoring revenue is recognized as the monthly service is provided. Allocated product and installation revenue is recognized when the product sale is complete or shipped and the installation service is provided, typically at inception of the AMA. Product and installation revenue is not applicable to AMA's acquired from the Dealer Channel in their initial term. Any cash not received from the subscriber at the time of product sale and installation is recognized as a contract asset at inception of the AMA and is subsequently amortized over the subscriber contract term as a reduction of the amounts billed for professional alarm monitoring, interactive and home automation services. If a subscriber cancels the AMA within the negotiated term, any existing contract asset is determined to be impaired and is immediately expensed in full to Selling, general and administrative expense on the consolidated statements of operations and comprehensive income (loss).
Maintenance services are billed and recognized as revenue when the services are completed in the home and agreed to by the subscriber under the subscriber AMA. Contract monitoring fees are recognized as alarm monitoring revenue as the monitoring service is provided. Other fees are recognized as other revenue when billed to the subscriber which coincides with the timing of when the services are provided.
Revenue Recognition - for Periods Prior to January 1, 2018
The Company adopted ASC 606, effective January 1, 2018, using the modified retrospective transition method. Under the modified retrospective transition method, the Company evaluated active AMAs on the adoption date as if each AMA had been accounted for under ASC 606 from its inception. Some revenue related to AMAs originated through our Direct to Consumer Channel or through extensions that would have been recognized in future periods under FASB ASC Topic 605, Revenue Recognition ("ASC 605") were recast under ASC 606 as if revenue had been accelerated and recognized in prior periods, as it
was allocated to product and installation performance obligations. A contract asset was recorded as of the adoption date for any cash that has yet to be collected on the accelerated revenue. As this transition method requires that the Company not adjust historical reported revenue amounts, the accelerated revenue that would have been recognized under this method prior to the adoption date was recorded as an adjustment to opening retained earnings and, thus, will not be recognized as revenue in future periods as previously required under ASC 605. Therefore, the comparative information has not been adjusted and continues to be reported under ASC 605.
Under ASC 605, revenue provided under the AMA was recognized as the services were provided, based on the recurring monthly revenue amount billed for each month under contract. Product, installation and service revenue generally was recognized as billed and incurred. Under ASC 606, the Company concluded that certain product and installation services sold or provided to our customers at AMA inception are capable of being distinct and are distinct within the context of the contract. As such, when the Company initiates an AMA with a customer directly and provides equipment and installation services, each component is considered a performance obligation that must have revenue allocated accordingly. The allocation is based on the SSP of each performance obligation as a percentage of the total SSP of all performance obligations multiplied by the total consideration, or cash, expected to be received over the contract term. These AMAs may relate to new customers originated by the Company through our Direct to Consumer Channel or existing customers who agree to new contract terms through customer service offerings. For AMAs with multiple performance obligations, management notes that a certain amount of the revenue billed on a recurring monthly basis is recognized earlier under Topic 606 than it was recognized under ASC 605, as a portion of that revenue is allocated to the equipment sale and installation, which is satisfied upon delivery of the product and performance of the installation services at AMA inception.
Revenue on AMAs originated through the Authorized Dealer program are not impacted by ASC 606 in their initial term, as the customer contracts for the equipment sale and installation separately with the Authorized Dealer prior to the Company purchasing the AMA from the Authorized Dealer. Revenue on these customers is recognized as the service is provided based on the recurring monthly revenue amount billed for each month of the AMA. Maintenance service revenue for repair of existing alarm equipment at the subscribers' premises will continue to be billed and recognized based on their SSP at the time the Company performs the services.
ASC 606 also requires the deferral of incremental costs of obtaining a contract with a customer. Certain direct and incremental costs were capitalized under Topic 605, including on new AMAs obtained in connection with Moves Costs. Under ASC 606, Moves Costs are expensed as incurred to accompany the allocated revenue recognized upon product and installation performance obligations recognized at the AMA inception. There are no other significant changes in contract costs that are capitalized or the period over which they are expensed.
Income Taxes
The Company accounts for income taxes under FASB ASC Topic 740, Income Taxes ("FASB ASC Topic 740"), which prescribes an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's consolidated financial statements or tax returns. In estimating future tax consequences, the Company generally considers all expected future events other than proposed changes in the tax law or rates. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.
FASB ASC Topic 740 specifies the accounting for uncertainty in income taxes recognized in a company's consolidated financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In instances where the Company has taken or expects to take a tax position in its tax return and the Company believes it is more likely than not that such tax position will be upheld by the relevant taxing authority, the Company records the benefits of such tax position in its consolidated financial statements.
Stock-Based Compensation
The Company accounts for stock-based awards pursuant to FASB ASC Topic 718, Compensation-Stock Compensation ("FASB ASC Topic 718"), which requires companies to measure the cost of employee services received in exchange for an award of equity instruments (such as stock options and restricted stock) based on the grant-date fair value of the award, and to recognize that cost over the period during which the employee is required to provide service (usually the vesting period of the award). Forfeitures of awards are recognized as they occur. There are no outstanding or unvested stock-based compensation awards as of December 31, 2019.
Successor Company Basic and Diluted Earnings (Loss) Per Common Share
Basic earnings (loss) per common share ("EPS") is computed by dividing net income (loss) by the weighted average number of shares of Common Stock outstanding for the period. Diluted EPS is computed by dividing net income (loss) by the sum of the weighted average number shares of Common Stock outstanding and the effect of dilutive securities. For the period from September 1, 2019 through December 31, 2019, there were no anti-dilutive securities outstanding. The weighted average number of basic and diluted shares of Common Stock was 22,500,000 for the period from September 1, 2019 through December 31, 2019. There were no public shares of Common Stock outstanding prior to September 1, 2019.
Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, assumptions and judgments that affect the reported amounts of revenue and expenses for each reporting period. The significant estimates made in preparation of the Company's consolidated financial statements primarily relate to valuation of subscriber accounts, deferred tax assets and goodwill. These estimates are based on management's best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts them when facts and circumstances change. As the effects of future events cannot be determined with any certainty, actual results could differ from the estimates upon which the carrying values were based.
Supplemental Cash Flow Information
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Successor Company
|
|
|
Predecessor Company
|
|
Period from September 1, 2019 through December 31, 2019
|
|
|
Period from January 1, 2019 through August 31, 2019
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Year Ended December 31, 2018
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Year Ended December 31, 2017
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State taxes paid, net
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$
|
—
|
|
|
|
$
|
2,637
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|
|
$
|
2,569
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|
|
$
|
2,713
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|
Interest paid
|
$
|
28,467
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|
|
|
$
|
72,710
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|
|
$
|
147,632
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|
|
$
|
138,339
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|
Accrued capital expenditures
|
$
|
1,804
|
|
|
|
$
|
1,405
|
|
|
$
|
552
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|
|
$
|
272
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|
(3) Emergence from Bankruptcy
On August 7, 2019, the Bankruptcy Court entered the Confirmation Order confirming the Plan. On the Effective Date, the conditions to the effectiveness of the Plan were satisfied and the Company emerged from Chapter 11 after completing a series of transactions through with the Company and its former parent, Ascent Capital, merged in accordance with the terms of the Merger Agreement. Monitronics was the surviving corporation and, immediately following the Merger, was redomiciled in Delaware in accordance with the terms of the Merger Agreement.
Cancellation of Certain Prepetition Obligations
On the Effective Date, by operation of the Plan, all outstanding obligations under (i) the 9.125% Senior Notes due April 2020 (the "Predecessor Senior Notes") and the indenture governing the Predecessor Senior Notes and (ii) the Company’s prepetition credit facility (the "Predecessor Credit Facility") were terminated, as described in further detail below.
Additional Matters Contemplated by the Plan
On the Effective Date, the Company also completed a series of transactions through which the Company’s debt was restructured as follows:
(i) terminating the Company’s $245,000,000 secured debtor-in-possession revolving credit facility (the "Predecessor DIP Facility") and replacing it with a $145,000,000 senior secured revolving credit facility (the "Successor Revolving Credit Facility") and $150,000,000 in senior secured term loans (the "Successor Term Loan Facility" and together with the Successor Revolving Credit Facility the "Successor Credit Facilities"),
(ii) exchanging $1,072,500,000 of outstanding term loans under the Company's Predecessor Credit Facility for (A) $150,000,000 in cash received from the equity rights offering described below, (B) $100,000,000 in shares of Common Stock (as defined below), and (C) term loans under an $822,500,000 takeback term loan facility (the "Successor Takeback Loan Facility"), and
(iii) cancelling the Company’s $585,000,000 outstanding Predecessor Senior Notes and exchanging the Predecessor Senior Notes for, at the option of each holder of the Predecessor Senior Notes (the "Noteholders"), (A) cash in an amount equal to 2.5% of the principal and accrued but unpaid interest due under the Senior Notes held by such Noteholder or (B) to the extent that such Noteholder elects not to receive cash, its pro rata share of 18.0% of the Common Stock (as defined below) issued and outstanding as of the Effective Date.
See Note 9, Debt for further information regarding these debt transactions.
The Company also received $200,000,000 in cash from a combination of an equity rights offering to the Noteholders and $23,000,000 of a deemed contribution of cash on hand through a merger with Ascent Capital (as discussed below). This cash was used to repay Predecessor Term Loan debt.
The foregoing description of certain matters effected pursuant to the Plan, and the transactions related to and contemplated thereunder, is not intended to be a complete description of, or a substitute for, a full and complete reading of the Plan.
Ascent Capital Merger
As previously announced, on May 24, 2019, the Company and Ascent Capital entered into the Merger Agreement. On August 21, 2019, in connection with, and prior to the completion of the Merger, the stockholders of Ascent Capital approved the Merger Agreement at a special meeting of the stockholders. On August 30, 2019, the Company completed the Merger with Ascent Capital in accordance with the Merger Agreement. The Company was the surviving corporation and, immediately following the Merger, was redomiciled in Delaware. The Company’s certificate of incorporation adopted in accordance with the Plan authorized the issuance of 45,000,000 shares of Common Stock, par value $0.01 per share ("Common Stock"), and 5,000,000 shares of Preferred Stock, par value $0.01 per share ("Preferred Stock"). For more information, see Note 14, Stockholders' Equity.
Under the terms of the Merger Agreement, the Company issued and reserved a total of 1,309,757 shares of common stock, par value $0.01 per share ("Common Stock"), to Ascent Capital's stockholders at a ratio of 0.1043086 shares of Common Stock for each share of Ascent Capital common stock (the "Exchange Ratio"). The Exchange Ratio was determined through negotiations between the Company and Ascent Capital.
Immediately after the Merger, there were approximately 22,500,000 shares of Common Stock issued and outstanding.
Immediately after the Merger, the former stockholders of Ascent Capital owned approximately 5.82% of the outstanding Common Stock. No fractional shares of Common Stock were issued in connection with the Merger. The Common Stock commenced trading on the OTCQX Best Market under the ticker symbol "SCTY" on September 4, 2019.
(4) Fresh Start Accounting
In connection with the Company’s emergence from Chapter 11 on the Effective Date, the Company qualified for fresh start accounting under ASC 852 as (1) the holders of voting shares of the Predecessor Company received less than 50% of the voting shares of the Successor Company and (2) the reorganization value of the Company’s assets immediately prior to confirmation of the Plan was less than the post-petition liabilities and allowed claims. ASC 852 requires that fresh start accounting be applied when the Bankruptcy Court enters a confirmation order confirming a plan of reorganization, or as of a later date when all material conditions precedent to the effectiveness of a plan of reorganization are resolved, which for Monitronics was August 30, 2019. The Company selected a convenience date of August 31, 2019 for purposes of applying fresh start accounting as the activity between the convenience date and the Effective Date did not result in a material difference in the financial results.
Upon the application of fresh start accounting, Monitronics allocated the reorganization value to its individual assets based on their estimated fair values in conformity with ASC 805, Business Combinations (“ASC 805”). Reorganization value represents the fair value of the Successor Company’s assets before considering liabilities. Liabilities existing as of the Effective Date, other than deferred taxes, were recorded at the value of amounts expected to be paid. Deferred taxes were determined in conformity with applicable accounting standards. Predecessor Company accumulated depreciation, accumulated amortization, and accumulated deficit were eliminated. As a result of the application of fresh start accounting and the effects of the implementation of the Plan, the Company’s consolidated financial statements after August 31, 2019 are not comparable to the Company’s consolidated financial statements as of or prior to that date.
Reorganization Value
As set forth in the Plan, the enterprise value of the Successor Company was estimated to be between $1,350,000,000 and $1,550,000,000, which was confirmed by the Bankruptcy Court. Based on the estimates and assumptions discussed below, Monitronics estimated the enterprise value to be $1,373,400,000.
We estimated the enterprise value of the Successor Company by applying the discounted cash flow method. To estimate enterprise value applying the discounted cash flow method, we established an estimate of future cash flows for the period 2019 to 2026 with a terminal value and discounted the estimated future cash flows to present value. The expected cash flows for the period 2019 to 2026 with a terminal value were based upon certain financial projections and assumptions provided to the Bankruptcy Court. The expected cash flows for the period 2019 to 2026 were derived from revenue projections and assumptions regarding growth and profit margin, as applicable. We calculated a terminal value using an exit multiple based on subscriber monthly RMR in the terminal period.
The Company’s enterprise value represents the fair value of its interest-bearing debt and equity capital, while the reorganization value is derived from the enterprise value by adding back non-interest bearing liabilities. The following table reconciles the enterprise value to the estimated reorganization value as of the Effective Date (dollars in thousands):
|
|
|
|
|
Enterprise value
|
$
|
1,373,400
|
|
Plus: Fair value of non-interest bearing current liabilities
|
61,188
|
|
Plus: Fair value of non-interest bearing long-term liabilities
|
26,060
|
|
Reorganization value
|
$
|
1,460,648
|
|
Consolidated Balance Sheet
The adjustments set forth in the following consolidated balance sheet as of August 31, 2019 reflect the consummation of the transactions contemplated by the Plan (reflected in the column "Reorganization Adjustments"), transactions recorded to complete the merger with Ascent Capital (reflected in the column "Ascent Capital Merger") as well as fair value adjustments as a result of the adoption of fresh start accounting (reflected in the column "Fresh Start Adjustments"). The explanatory notes highlight methods used to determine fair values or other amounts of the assets and liabilities as well as significant assumptions or inputs (dollars in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of August 31, 2019
|
|
|
Predecessor
Company
|
|
Reorganization
Adjustments
|
|
Ascent Capital
Merger
|
|
Fresh Start
Adjustments
|
|
Successor
Company
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
19,862
|
|
|
$
|
3,604
|
|
(1)
|
$
|
1,139
|
|
(9)
|
$
|
—
|
|
|
$
|
24,605
|
|
Restricted cash
|
|
35
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
35
|
|
Trade receivables, net
|
|
11,834
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
11,834
|
|
Prepaid and other current assets
|
|
23,825
|
|
|
—
|
|
|
27
|
|
(9)
|
—
|
|
|
23,852
|
|
Total current assets
|
|
55,556
|
|
|
3,604
|
|
|
1,166
|
|
|
—
|
|
|
60,326
|
|
Property and equipment, net
|
|
37,143
|
|
|
—
|
|
|
—
|
|
|
3,808
|
|
(10)
|
40,951
|
|
Subscriber accounts and deferred contract acquisition costs, net
|
|
1,151,322
|
|
|
—
|
|
|
—
|
|
|
(55,936
|
)
|
(11)
|
1,095,386
|
|
Dealer network and other intangible assets
|
|
—
|
|
|
—
|
|
|
—
|
|
|
144,700
|
|
(12)
|
144,700
|
|
Goodwill
|
|
—
|
|
|
—
|
|
|
—
|
|
|
81,943
|
|
(13)
|
81,943
|
|
Deferred income tax asset, net
|
|
783
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
783
|
|
Operating lease right-of-use asset
|
|
19,222
|
|
|
—
|
|
|
90
|
|
(9)
|
—
|
|
|
19,312
|
|
Other assets
|
|
17,932
|
|
|
—
|
|
|
—
|
|
|
(685
|
)
|
(14)
|
17,247
|
|
Total assets
|
|
$
|
1,281,958
|
|
|
$
|
3,604
|
|
|
$
|
1,256
|
|
|
$
|
173,830
|
|
|
$
|
1,460,648
|
|
Liabilities and Stockholder's Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
13,713
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
13,713
|
|
Other accrued liabilities
|
|
30,571
|
|
|
(1,070
|
)
|
(2)
|
241
|
|
(9)
|
4,427
|
|
(15)
|
34,169
|
|
Deferred revenue
|
|
12,646
|
|
|
—
|
|
|
—
|
|
|
(5,331
|
)
|
(16)
|
7,315
|
|
Holdback liability
|
|
12,516
|
|
|
—
|
|
|
—
|
|
|
(6,525
|
)
|
(17)
|
5,991
|
|
Current portion of long-term debt
|
|
—
|
|
|
8,225
|
|
(3)
|
—
|
|
|
—
|
|
|
8,225
|
|
Total current liabilities
|
|
69,446
|
|
|
7,155
|
|
|
241
|
|
|
(7,429
|
)
|
|
69,413
|
|
Non-current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
199,000
|
|
|
786,775
|
|
(4)
|
—
|
|
|
—
|
|
|
985,775
|
|
Long-term holdback liability
|
|
1,817
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,817
|
|
Operating lease liabilities
|
|
16,055
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
16,055
|
|
Other liabilities
|
|
2,175
|
|
|
—
|
|
|
—
|
|
|
6,013
|
|
(15)
|
8,188
|
|
Total non-current liabilities
|
|
219,047
|
|
|
786,775
|
|
|
—
|
|
|
6,013
|
|
|
1,011,835
|
|
Liabilities subject to compromise
|
|
1,722,052
|
|
|
(1,722,052
|
)
|
(5)
|
—
|
|
|
—
|
|
|
—
|
|
Total liabilities
|
|
2,010,545
|
|
|
(928,122
|
)
|
|
241
|
|
|
(1,416
|
)
|
|
1,081,248
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
Stockholder's equity (deficit):
|
|
|
|
|
|
|
|
|
|
|
Predecessor additional paid-in capital
|
|
436,986
|
|
|
(436,986
|
)
|
(6)
|
—
|
|
|
—
|
|
|
—
|
|
Predecessor accumulated other comprehensive income, net
|
|
6,668
|
|
|
—
|
|
|
—
|
|
|
(6,668
|
)
|
(18)
|
—
|
|
Successor common stock
|
|
—
|
|
|
225
|
|
(7)
|
—
|
|
|
—
|
|
|
225
|
|
Successor additional paid-in capital
|
|
—
|
|
|
379,175
|
|
(7)
|
—
|
|
|
—
|
|
|
379,175
|
|
(Accumulated deficit) retained earnings
|
|
(1,172,241
|
)
|
|
989,312
|
|
(8)
|
1,015
|
|
(9)
|
181,914
|
|
(18)
|
—
|
|
Total stockholder's equity (deficit)
|
|
(728,587
|
)
|
|
931,726
|
|
|
1,015
|
|
|
175,246
|
|
|
379,400
|
|
Total liabilities and stockholder's equity (deficit)
|
|
$
|
1,281,958
|
|
|
$
|
3,604
|
|
|
$
|
1,256
|
|
|
$
|
173,830
|
|
|
$
|
1,460,648
|
|
Reorganization adjustments
1. Reflects cash contributions and debt principal and interest payments from the implementation to the Plan as follows (dollars in thousands):
|
|
|
|
|
Equity rights offering proceeds from Noteholders
|
$
|
177,000
|
|
Equity rights offering proceeds from Ascent Capital
|
23,000
|
|
Payment of Predecessor Credit Facility principal and interest
|
(165,619
|
)
|
Payment of Predecessor DIP Facility principal and interest
|
(28,570
|
)
|
Payment of Predecessor Senior Notes principal and interest
|
(2,207
|
)
|
Net cash contribution
|
$
|
3,604
|
|
2. Represents payment of Predecessor DIP Facility accrued interest.
3. Represents the Current portion of long-term debt based on the repayment terms of the Successor Takeback Loan Facility.
4. Represents the net increase in Long-term debt as follows (dollars in thousands):
|
|
|
|
|
Long-term portion of Successor Takeback Term Loan
|
$
|
814,275
|
|
Payment of Predecessor DIP Facility principal
|
(27,500
|
)
|
Net increase in Long-term Debt
|
$
|
786,775
|
|
5. Liabilities subject to compromise immediately prior to the Effective Date consisted of the following (dollars in thousands):
|
|
|
|
|
Predecessor Term Loan
|
$
|
1,072,500
|
|
Predecessor Senior Notes
|
585,000
|
|
Predecessor Term Loan accrued interest
|
15,619
|
|
Predecessor Senior Notes accrued interest
|
48,933
|
|
Total Liabilities subject to compromise
|
$
|
1,722,052
|
|
Liabilities subject to compromise have been settled as follows in accordance with the Plan (dollars in thousands):
|
|
|
|
|
Liabilities subject to compromise
|
$
|
1,722,052
|
|
Payment of Predecessor Term Loan principal and interest
|
(165,619
|
)
|
Payment of Predecessor Senior Notes principal and interest
|
(2,207
|
)
|
Issue Successor Takeback Term Loan
|
(822,500
|
)
|
Fair value of common stock issued to Predecessor Term Loan and Predecessor Senior Notes holders
|
(171,989
|
)
|
Gain on settlement of Liabilities subject to compromise
|
$
|
559,737
|
|
6. Pursuant to the Plan, all equity interests of the Predecessor that were issuable or issued and outstanding immediately prior to the Effective Date were cancelled. The elimination of the carrying value of the cancelled equity interests was recorded as an offset to retained earnings (accumulated deficit).
7. Pursuant to the Plan, the Company issued new common stock through an equity rights offering to the Noteholders, the exchange of Ascent Capital common shares for Monitronics common shares pursuant to the Merger, the partial equitization of the Predecessor Term Loan and the cancellation of the outstanding Predecessor Senior Notes, to the extent each Noteholder elected not to receive cash. See Note 3, Emergence from Bankruptcy for further information regarding these transactions. As of the Effective Date, there were 22,500,000 common shares issued and outstanding that have a par value of $0.01 per share.
8. Adjustment made to Retained earnings (accumulated deficit) consisted of the following (dollars in thousands):
|
|
|
|
|
Cancellation of Predecessor additional paid-in capital
|
$
|
436,986
|
|
Loss on equity rights offering discount, net
|
(7,411
|
)
|
Gain on settlement of Liabilities subject to compromise
|
559,737
|
|
Total adjustment to Retained earnings (accumulated deficit)
|
$
|
989,312
|
|
Ascent Capital Merger
9. Represents the transfer of the Ascent Capital final balances to Monitronics to complete the Merger.
Fresh Start Adjustments
10. Reflects the increase in net book value of property and equipment to the estimated fair value as of the Effective Date. The following table summarizes the components of Property and equipment, net as of August 31, 2019, and the fair value as of the Effective Date (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Useful Life
|
|
Successor Company
|
|
|
Predecessor Company
|
Leasehold improvements
|
9 years
|
|
$
|
353
|
|
|
|
$
|
771
|
|
Computer systems and software
|
2 to 4 years
|
|
39,320
|
|
|
|
83,238
|
|
Furniture and fixtures
|
5 years
|
|
1,278
|
|
|
|
2,009
|
|
|
|
|
40,951
|
|
|
|
86,018
|
|
Accumulated depreciation
|
|
|
—
|
|
|
|
(48,875
|
)
|
Property and equipment, net
|
|
|
$
|
40,951
|
|
|
|
$
|
37,143
|
|
To estimate the fair value of property and equipment, the Company utilized an cost approach by applying the reproduction cost method. The Successor property and equipment will be depreciated using the straight-line method over the estimated useful lives of the assets.
11. Represents the fair value adjustment of the subscriber accounts. The fair value of the subscriber accounts was determined based on the excess earnings method, a derivation of the income approach, that considers cash flows to the subscriber accounts after accounting for a fair return to the other supporting assets of the business. The valuation of the subscriber accounts is based on the projected cash flows to be generated by the existing subscribers as of the Effective Date. The Successor subscriber accounts will be amortized using the 14-year 235% double-declining balance method. The amortization methods were selected to provide an approximate matching of the amortization of the subscriber accounts intangible asset to estimated future subscriber revenues based on the projected lives of individual subscriber contracts.
12. The Company recorded an adjustment to dealer network and other intangible assets as follows (dollars in thousands):
|
|
|
|
|
Dealer network
|
$
|
140,000
|
|
Leasehold interest
|
4,700
|
|
Total Dealer network and other intangible assets
|
$
|
144,700
|
|
The fair values of dealer network and other intangible assets were determined as follows:
a. The fair value of the dealer network was determined based on the excess earnings method, a derivation of the income approach, that considers cash flows related to the dealer network after accounting for a fair return to the other supporting assets of the business. The valuation of the dealer network is based on the cash flow, net of purchase price, to be earned from subscribers purchased in the future from the current dealer network. The Successor dealer network will be amortized on a straight-line basis over the estimated useful life of six years.
b. The leasehold interest was valued using an income approach by applying the discount cash flow method based on the contractual lease rate and market lease rates. The Successor leasehold interest will be amortized on a straight-line basis over the remaining life of the lease.
13. The amount recognized for goodwill represents the amount of the reorganization value, after the fresh start accounting adjustments, left over after allocating to the fair value of acquired assets and liabilities.
14. Represents the elimination of the carrying value of dealer assets. The fair value adjustment of these assets is included in the valuation of the dealer network.
15. Represents the fair value adjustment of the bonus purchase price and revenue sharing liabilities based on estimated future cash payments.
16. Represents the fair value adjustment of deferred revenue to remove gross margin costs from the balance sheet.
17. Represents the fair value adjustment of the holdback liability based on estimated future cash payments.
18. Reflects the cumulative impact of the fresh start accounting adjustments discussed above on retained earnings (accumulated deficit) as follows (dollars in thousands):
|
|
|
|
|
Property and equipment fair value adjustment
|
$
|
3,808
|
|
Subscriber accounts fair value adjustment
|
(55,936
|
)
|
Dealer network and other intangible assets fair value adjustment
|
144,700
|
|
Goodwill
|
81,943
|
|
Other assets and liabilities fair value adjustments
|
731
|
|
Predecessor accumulated other comprehensive income, net
|
6,668
|
|
Net gain on fresh start adjustments
|
$
|
181,914
|
|
Gain on restructuring and reorganization, net
Gain on restructuring and reorganization recognized as a result of the Chapter 11 Cases is presented separately in the accompanying consolidated statements of operations and comprehensive income (loss) as follows (dollars in thousands):
|
|
|
|
|
|
|
Period from January 1, 2019 through
August 31, 2019
|
Gain on settlement of Liabilities subject to compromise (a)
|
559,737
|
|
Gain on fresh start adjustments (b)
|
181,914
|
|
Loss on equity rights offering discount (c)
|
(8,325
|
)
|
Restructuring and reorganization expense (d)
|
(63,604
|
)
|
Gain on restructuring and reorganization, net
|
669,722
|
|
(a) Gain recognized primarily on Predecessor Senior Notes converted from debt to equity and Predecessor Senior Notes settled at a discount in accordance with the Plan.
(b) Revaluation of certain assets and liabilities upon the adoption of fresh start accounting.
(c) In accordance with the Plan, Noteholders that participated in the equity rights offering purchased Monitronics common stock at a discount.
(d) Legal, financial advisory and other professional costs directly associated with the restructuring and reorganization process.
(5) Recent Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (the "FASB") issued ASU 2016-02, Leases (Topic 842) ("ASU 2016-02"). ASU 2016-02 requires the lessee to recognize assets and liabilities for leases with lease terms of more than twelve months. The Company adopted ASU 2016-02 using a modified retrospective approach at January 1, 2019, as outlined in ASU 2018-11, Leases (Topic 842): Targeted Improvements. Under this method of adoption, there is no impact to the comparative consolidated statements of operations and comprehensive income (loss) and consolidated balance sheets. The Company determined that there was no cumulative effect adjustment to beginning Accumulated deficit on the consolidated balance sheets. The Company will continue to report periods prior to January 1, 2019 in its financial statements under prior guidance as outlined in Accounting Standards Codification Topic 840, "Leases". In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed carry forward of historical lease classifications.
Adoption of this standard had no impact on the Company's Loss before income taxes and the consolidated statements of cash flows. Upon adoption as of January 1, 2019, the Company recognized an Operating lease right-of-use asset of $20,240,000 and a total Operating lease liability of $20,761,000. The difference between the two amounts were due to decreases in prepaid rent and deferred rent recorded under prior lease accounting in Prepaid and other current assets and Other accrued liabilities, respectively, on the consolidated balance sheets. See Note 18, Leases for further information.
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes ("ASU 2019-12"). ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principles in FASB ASC Topic 740 and becomes effective on January 1, 2021. The adoption of the new guidance is not expected to have a material impact on the Company's consolidated financial statements.
(6) Property and Equipment
Property and equipment consist of the following (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
Successor Company
|
|
|
Predecessor Company
|
|
December 31,
2019
|
|
|
December 31,
2018
|
Property and equipment, net:
|
|
|
|
|
|
|
Leasehold improvements
|
$
|
397
|
|
|
|
$
|
771
|
|
Computer systems and software
|
43,915
|
|
|
|
73,283
|
|
Furniture and fixtures
|
1,561
|
|
|
|
3,016
|
|
|
45,873
|
|
|
|
77,070
|
|
Accumulated depreciation
|
(3,777
|
)
|
|
|
(40,531
|
)
|
|
$
|
42,096
|
|
|
|
$
|
36,539
|
|
Depreciation expense for the Successor Company period September 1, 2019 through December 31, 2019, the Predecessor Company period January 1, 2019 through August 31, 2019, the Predecessor Company year ended December 31, 2018 and the Predecessor Company year ended December 31, 2017 was $3,777,000, $7,348,000, $11,434,000 and $8,818,000, respectively.
In connection with the application of fresh start accounting on August 31, 2019, the Company recorded fair value adjustments disclosed in Note 4, Fresh Start Accounting. Accumulated depreciation was therefore eliminated as of that date.
(7) Goodwill
The following table provides the activity and balances of goodwill by reporting unit (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MONI
|
|
LiveWatch
|
|
Brinks Home Security
|
|
Total
|
Balance at December 31, 2017 (Predecessor Company)
|
|
$
|
527,502
|
|
|
$
|
36,047
|
|
|
$
|
—
|
|
|
$
|
563,549
|
|
Goodwill impairment
|
|
(214,400
|
)
|
|
—
|
|
|
—
|
|
|
(214,400
|
)
|
Reporting unit reallocation
|
|
(313,102
|
)
|
|
(36,047
|
)
|
|
349,149
|
|
|
—
|
|
Goodwill impairment
|
|
—
|
|
|
—
|
|
|
(349,149
|
)
|
|
(349,149
|
)
|
Balance at December 31, 2018 (Predecessor Company)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Period activity
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Balance at August 31, 2019 (Predecessor Company)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Impact of fresh start accounting
|
|
—
|
|
|
—
|
|
|
81,943
|
|
|
81,943
|
|
Balance at August 31, 2019 (Successor Company)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
81,943
|
|
|
$
|
81,943
|
|
Period activity
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Balance at December 31, 2019 (Successor Company)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
81,943
|
|
|
$
|
81,943
|
|
The Company accounts for its goodwill pursuant to the provisions of FASB ASC Topic 350, Intangibles - Goodwill and Other ("FASB ASC Topic 350"). In accordance with FASB ASC Topic 350, goodwill is not amortized, but rather tested for impairment annually, or earlier if an event occurs, or circumstances change, that indicate the fair value of a reporting unit may be below its carrying amount.
As of May 31, 2018, the Company determined that a triggering event had occurred due to a sustained decrease in Ascent Capital's share price. In response to the triggering event, the Company performed a quantitative impairment test for both the MONI and LiveWatch reporting units. Fair value was determined using a combination of an income-based approach (using a discount rate of 8.50%) and a market-based approach for the MONI reporting unit and an income-based approach (using a discount rate of 8.50%) for the LiveWatch reporting unit. Based on the analysis, the fair value of the LiveWatch reporting unit substantially exceeded its carrying value, while the carrying amount of the MONI reporting unit exceeded its estimated fair value, which indicated an impairment at the MONI reporting unit.
The Company early adopted ASU 2017-04, which eliminated Step 2 from the goodwill impairment test, and as such, an impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit's fair value. Applying this methodology, we recorded an impairment charge of $214,400,000 for the MONI reporting unit during the three months ended June 30, 2018. Factors leading to this impairment are primarily the experience of overall lower account acquisition in recent periods. Using this information, we adjusted the growth outlook for this reporting unit, which resulted in reductions in future cash flows and a lower fair value calculation under the income-based approach. Additionally, decreases in observable market share prices for comparable companies in the quarter reduced the fair value calculated under the market-based approach.
In early June 2018, the reportable segments known as MONI and LiveWatch were combined and presented as Brinks Home Security. Refer to Note 2, Summary of Significant Accounting Policies for further discussion on the change in reportable segments. As a result of the change in reportable segments, goodwill assigned to these former reporting units of $313,102,000 and $36,047,000, for MONI and LiveWatch, respectively, have been reallocated and combined as of June 30, 2018 under the Brinks Home Security reporting unit.
In connection with the Company's annual goodwill impairment assessment for the year ended December 31, 2018, in which the Company performed a quantitative test in the fourth quarter of its fiscal year, based on October 31 balances, the carrying amount of the Brinks Home Security reporting unit exceeded its estimated fair value. Fair value was determined using an income-based approach (using a discount rate of 8.50%) for the Brinks Home Security reporting unit. Since the carrying amount exceeded the reporting unit's fair value, we recorded an additional impairment charge of $349,149,000, the amount of the remaining carrying value of goodwill. This impairment is primarily attributable to projected decreasing cash flows resulting from a declining customer base. The Company's projections were revised based on recent historical trends as well as other various outlook considerations, which resulted in reductions in future cash flows and enterprise valuation.
Upon the application of fresh start accounting on August 31, 2019, the Company recorded fair value adjustments disclosed in Note 4, Fresh Start Accounting. The amount recognized for goodwill represented the amount of the reorganization value, after the fresh start accounting adjustments, left over after allocating to the fair value of acquired assets and liabilities.
The Company's annual impairment assessment of goodwill is performed as of October 31st. Assessment of goodwill impairment is at the Brinks Home Security entity level as we operate as a single reporting unit. The fair value of the Company's reporting unit was estimated based on a discounted cash flow model and multiple of earnings. Assumptions critical to our fair value estimates under the discounted cash flow model include the discount rate, projected average revenue growth and projected long-term growth rates in the determination of terminal values. The results of the quantitative assessment in 2019 indicated that the fair value of the reporting unit was in excess of the carrying value, including goodwill. Therefore, goodwill was not impaired as of our annual testing date.
(8) Other Accrued Liabilities
Other accrued liabilities consisted of the following (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
Successor Company
|
|
|
Predecessor Company
|
|
December 31,
2019
|
|
|
December 31,
2018
|
Accrued payroll and related liabilities
|
$
|
5,908
|
|
|
|
$
|
4,459
|
|
Interest payable
|
291
|
|
|
|
14,446
|
|
Income taxes payable
|
2,603
|
|
|
|
2,742
|
|
Operating lease liabilities
|
3,725
|
|
|
|
—
|
|
Contingent dealer liabilities
|
3,274
|
|
|
|
—
|
|
Other
|
9,153
|
|
|
|
9,438
|
|
Total Other accrued liabilities
|
$
|
24,954
|
|
|
|
$
|
31,085
|
|
(9) Debt
Debt consisted of the following (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
Successor Company
|
|
|
Predecessor Company
|
|
December 31,
2019
|
|
|
December 31,
2018
|
Successor Takeback Loan Facility, matures March 29, 2024, LIBOR plus 6.50%, subject to a LIBOR floor of 1.25%, with an effective rate of 8.9%
|
$
|
820,444
|
|
|
|
$
|
—
|
|
Successor Term Loan Facility, matures July 3, 2024, LIBOR plus 5.00%, subject to a LIBOR floor of 1.50%, with an effective rate of 7.3%
|
150,000
|
|
|
|
—
|
|
Successor Revolving Credit Facility, matures July 3, 2024, LIBOR plus 5.00%, subject to a LIBOR floor of 1.50%, or base rate (with a floor of 4.5%) plus 4.0%, with an effective rate of 12.0%
|
16,000
|
|
|
|
—
|
|
9.125% Senior Notes due April 1, 2020 with an effective interest rate of 9.1%
|
—
|
|
|
|
585,000
|
|
Ascent Intercompany Loan due October 1, 2020 with an effective rate of 12.5%
|
—
|
|
|
|
12,000
|
|
Term loan, matures September 30, 2022, LIBOR plus 5.50%, subject to a LIBOR floor of 1.00%, with an effective rate of 8.6%
|
—
|
|
|
|
1,075,250
|
|
$295 million revolving credit facility, matures September 30, 2021, LIBOR plus 4.00%, subject to a LIBOR floor of 1.00%, with an effective rate of 7.5%
|
—
|
|
|
|
144,200
|
|
|
$
|
986,444
|
|
|
|
$
|
1,816,450
|
|
Less: Current portion of long-term debt
|
(8,225
|
)
|
|
|
(1,816,450
|
)
|
Long-term debt
|
$
|
978,219
|
|
|
|
$
|
—
|
|
Successor Takeback Loan Facility
On the Effective Date, pursuant to the terms of the Plan, the Debtors entered into the Successor Takeback Loan Facility with the lenders party thereto, and Cortland Capital Market Services, LLC. as administrative agent. In exchange for its Predecessor Credit Facility term loans under the Company's Predecessor Credit Facility, each term lender thereunder (other than term lenders equitizing their term loans) received, pursuant to the terms of the Plan, its pro rata share of (i) $150,000,000 in cash from the proceeds of a rights offering (which, together with the equitization of $100,000,000 of the Predecessor Credit Facility term loans, resulted in an aggregate reduction of term loans by $250,000,000 in principal amount) and (ii) term loans under the $822,500,000 Successor Takeback Loan Facility.
The maturity date of the Successor Takeback Loan Facility is March 29, 2024 and requires quarterly interest payments and, beginning December 31, 2019, quarterly principal payments of $2,056,250. Interest on loans made under the Successor Takeback Loan Facility accrues at an interest rate per year equal to the LIBOR rate (with a floor of 1.25%) plus 6.5% or base rate plus 5.5%. The Successor Takeback Loan Facility, subject to certain exceptions, is guaranteed by each of the Company's existing and future domestic subsidiaries and is secured by substantially all the assets of the Company and such subsidiary guarantors. See Note 20, Consolidating Guarantor Financial Information for further information. The Successor Takeback Loan Facility contains customary representations, warranties, covenants and events of default and related remedies.
Successor Credit Facilities
On the Effective Date, pursuant to the terms of the Plan, the Debtors entered into Successor Credit Facilities with the lenders party thereto, KKR Capital Markets LLC as lead arranger and bookrunner, KKR Credit Advisors (US) LLC as Structuring Advisor and Encina Private Credit SPV, LLC as administrative agent, swingline lender and L/C issuer. Under the Successor Credit Facilities, the Company has access to $295,000,000 which includes $150,000,000 in term loans under the Successor Term Loan Facility and up to $145,000,000 under the Successor Revolving Credit Facility (including a $10,000,000 swingline loan). As of December 31, 2019, the Company had an aggregate of $1,000,000 available under two standby letters of credit issued. One letter of credit for $400,000 expired as of January 31, 2020 and was not renewed. As of December 31, 2019, $128,000,000 is available for borrowing under the Successor Revolving Credit Facility, subject to certain financial covenants.
The maturity date of loans made under the Successor Credit Facilities is July 3, 2024, subject to a springing maturity of March 29, 2024, or earlier, depending on any repayment, refinancing or changes in the maturity date of the Successor Takeback Loan Facility. Interest on loans made under the Successor Credit Facilities accrues at an interest rate per year equal to the LIBOR rate (with a floor of 1.5%) plus 5.0% or base rate (with a floor of 4.5%) plus 4.0%, dependent upon the type of borrowing requested by the Company. There is a commitment fee of 0.75% on unused portions of the Successor Revolving Credit Facility.
The Successor Credit Facilities, subject to certain exceptions, are guaranteed by each of the Company's existing and future domestic subsidiaries and are secured by substantially all the assets of the Company and such subsidiary guarantors. See Note 20, Consolidating Guarantor Financial Information for further information. The Successor Credit Facilities contain customary representations, warranties, covenants and events of default and related remedies.
The terms of the Successor Takeback Loan Facility and the Successor Credit Facilities provide for certain financial and nonfinancial covenants. As of December 31, 2019, the Company was in compliance with all required covenants under these financing arrangements.
Predecessor Senior Notes
The Predecessor Senior Notes totaled $585,000,000 in principal, were scheduled to mature on April 1, 2020 and bore interest at 9.125% per annum. Interest payments were due semi-annually on April 1 and October 1 of each year. On the Effective Date, by operation of the Plan, the Company cancelled all outstanding obligations under the Predecessor Senior Notes and exchanged the Predecessor Senior Notes, at the option of each Noteholder, (A) cash in an amount equal to 2.5% of the principal and accrued but unpaid interest due under the Senior Notes held by such Noteholder or (B) to the extent that such Noteholder elects not to receive cash, its pro rata share of 18.0% of the Common Stock to be issued and outstanding as of the Effective Date. See Note 3, Emergence from Bankruptcy for further information.
In conjunction with the failed refinancing of the Senior Notes during 2018, Ascent Capital allocated $5,214,000 of refinancing expense to Monitronics in March of 2019.
Predecessor Ascent Intercompany Loan
On February 29, 2016, the Company retired the existing intercompany loan with an outstanding principal amount of $100,000,000 and executed and delivered a Promissory Note to Ascent Capital in a principal amount of $12,000,000 (the "Ascent Intercompany Loan"), with the $88,000,000 remaining principal being treated as a capital contribution. The entire principal amount under the Ascent Intercompany Loan would have been due on October 1, 2020. The Ascent Intercompany Loan bore interest at a rate equal to 12.5% per annum, payable semi-annually in cash in arrears on January 12 and July 12 of each year. Borrowings under the Ascent Intercompany Loan constituted unsecured obligations of the Company and were not guaranteed by any of the Company’s subsidiaries.
In January 2019, the Company repaid $9,750,000 of the Ascent Intercompany Loan and $2,250,000 was contributed to our stated capital.
Predecessor Credit Facility
The Predecessor Credit Facility term loan had an outstanding prepetition principal balance of $1,072,500,000 and was scheduled to mature on September 30, 2022. The Credit Facility term loan required quarterly interest payments and quarterly principal payments of $2,750,000. The Credit Facility term loan bore interest at LIBOR plus 5.5%, subject to a LIBOR floor of 1.0%. On the Effective Date, by operation of the Plan, the Company cancelled all outstanding obligations under the Predecessor Credit Facility and exchanged the outstanding principal balance for (A) $150,000,000 in cash, (B) $100,000,000 in shares of Common Stock and (C) new term loans under an $822,500,000 takeback term loan facility (the Successor Takeback Loan Facility discussed above). See Note 3, Emergence from Bankruptcy and Note 14, Stockholders' Equity for further information.
The Predecessor Credit Facility revolver had a prepetition principal amount outstanding of $181,400,000 and an aggregate of $1,000,000 available under two standby letters of credit issued and was scheduled to mature on September 30, 2021. The Credit Facility revolver typically bore interest at LIBOR plus 4.0%, subject to a LIBOR floor of 1.0%. There was a commitment fee of 0.5% on unused portions of the Predecessor Credit Facility revolver. In conjunction with negotiations around certain defaults under the Predecessor Credit Facility in the first quarter of 2019, the Predecessor Credit Facility revolver lenders allowed us to continue to borrow under the revolving credit facility for up to $195,000,000 at an alternate base rate plus 3.0% and the Predecessor Credit Facility term loan lenders allowed the term loan to renew with interest due on an alternate base rate plus 4.5%. Additionally, for the period of April 24, 2019 through May 20, 2019, an additional 2.0% default interest rate was accrued and paid on the Predecessor Credit Facility term loan and revolver. On July 3, 2019, with approval from the Bankruptcy Court, the Predecessor Credit Facility revolver principal and interest was repaid in full with proceeds from the Predecessor DIP Facility. On the Effective Date, the Predecessor DIP Facility was replaced with the Successor Credit Facilities (as discussed above). See Note 3, Emergence from Bankruptcy for further information.
In order to reduce the financial risk related to changes in interest rates associated with the floating rate term loan under the Predecessor Credit Facility term loan and Successor Takeback Loan Facility, the Company enters into derivative financial instruments. For the Predecessor Credit Facility term loan, the Company had entered into interest rate swap agreements with terms similar to the Predecessor Credit Facility term loan (all outstanding interest rate swap agreements are collectively referred to as the “Swaps”). Prior to December of 2018, all of the Swaps were designated as effective hedges of the Company's variable rate debt and qualified for hedge accounting. However, in December of 2018, given the potential for changes in the Company's future expected interest payments that the Swap hedged, all of the Swaps no longer qualified as a cash flow hedge and were de-designated as such. In April of 2019, all of the outstanding Swaps were settled and terminated with their respective counterparties. For the Successor Takeback Loan Facility, the Company has entered into an interest rate cap agreement. The critical terms of the interest rate cap were designed to mirror the terms of the Successor Takeback Loan Facility and are highly effective at offsetting the cash flows being hedged. See Note 10, Derivatives for further disclosures related to the settlement of these derivative instruments.
As of December 31, 2019, principal payments scheduled to be made on the Company’s debt obligations are as follows (amounts in thousands):
|
|
|
|
|
2020
|
$
|
8,225
|
|
2021
|
8,225
|
|
2022
|
8,225
|
|
2023
|
8,225
|
|
2024
|
953,544
|
|
Thereafter
|
—
|
|
Total debt principal payments
|
$
|
986,444
|
|
(10) Derivatives
Interest Rate Cap
In November of 2019, the Company entered into an interest rate cap agreement to reduce the interest rate risk inherent in the Company's variable rate Successor Takeback Loan Facility. The interest rate cap agreement provides the right to receive cash if the reference interest rate rises above a contractual rate. The premium paid for the interest rate cap agreement was $3,020,000, which was the initial fair value of the interest rate cap recorded on the consolidated balance sheets.
The critical terms of the interest rate cap were designed to mirror the terms of the Company's variable rate Successor Takeback Loan Facility and are highly effective at offsetting the cash flows being hedged. The Company designated the interest rate cap as a cash flow hedge of the variability of the LIBOR-based interest payments on $750,000,000 of principal of the Successor Takeback Loan Facility. The interest rate cap agreement will expire on December 31, 2023. The effective portion of the interest rate cap's change in fair value is recorded in Accumulated other comprehensive income (loss). Any ineffective portions of the interest rate cap's change in fair value are recognized in current earnings in Interest expense.
During the Successor Company period from September 1, 2019 through December 31, 2019, interest expense of $71,000 was reclassified from Accumulated other comprehensive income (loss) to Interest expense on the consolidated statements of operations and comprehensive income (loss). The Company expects to similarly reclassify approximately $739,000 from Accumulated other comprehensive income (loss) to Interest expense on the consolidated statements of operations and comprehensive income (loss) in the next twelve months.
The fair value of the interest rate cap was $2,959,000 at December 31, 2019, and constituted an asset of the Company. The fair value of the interest rate cap is included in non-current Other assets, net on the consolidated balance sheets based on the maturity date of the derivative instrument. See Note 11, Fair Value Measurements for related fair value disclosures.
Interest Rate Swaps
Historically, the Company utilized Swaps to reduce the interest rate risk inherent in the Company's variable rate Credit Facility term loan. The valuation of these instruments was determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflected the contractual terms of the derivatives, including the period to maturity, and used observable market-based inputs, including interest rate curves and implied volatility. The Company incorporated credit valuation adjustments to appropriately reflect the respective counterparty's nonperformance risk in the fair value measurements. See Note 11, Fair Value Measurements for additional information about the credit valuation adjustments.
Prior to December of 2018, all of the Swaps were designated and qualified as cash flow hedging instruments, with the effective portion of the Swaps' change in fair value recorded in Accumulated other comprehensive income (loss). However, in December of 2018, given the potential for changes in the Company's future expected interest payments that these Swaps hedged, all of the Swaps no longer qualified as a cash flow hedge and were de-designated as such. Before the de-designation, changes in the fair value of the Swaps were recognized in Accumulated other comprehensive income (loss) and were reclassified to Interest expense when the hedged interest payments on the underlying debt were recognized. After the de-designation, changes in the fair value of the Swaps are recognized in Unrealized loss on derivative financial instruments on the consolidated statements of operations and comprehensive income (loss). For the period from January 1, 2019 through August 31, 2019, the Company recorded an Unrealized loss on derivative financial instruments of $4,577,000. On April 30, 2019, the various counterparties and the Company agreed to settle and terminate all of the outstanding swap agreements, which required us to pay $8,767,000 in
termination amount to certain counterparties and required a certain counterparty to pay $6,540,000 in termination amount to us, resulting in a Realized net loss on derivative financial instruments of $2,227,000. There are no derivatives outstanding as of December 31, 2019.
Amounts recognized in Accumulated other comprehensive income (loss) as of the de-designation date were to be amortized to Interest expense on the consolidated statements of operations and comprehensive income (loss) over the remaining term of the hedged forecasted transactions of the Swaps which were 3 month LIBOR interest payments. The remaining amount recognized in Accumulated other comprehensive income (loss) was evaluated to have no fair value upon the application of fresh start accounting pursuant to the Plan. The carrying value of this amount was expensed to Gain on restructuring and reorganization, net in the Predecessor period.
The impact of the derivatives designated as cash flow hedges on the consolidated financial statements is depicted below (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor Company
|
|
|
Predecessor Company
|
|
Period from September 1, 2019 through December 31, 2019
|
|
|
Period from January 1, 2019 through August 31, 2019
|
|
Year Ended December 31, 2018
|
|
Year Ended December 31, 2017
|
Effective portion of gain (loss) recognized in Accumulated other comprehensive income (loss)
|
$
|
(62
|
)
|
|
|
$
|
—
|
|
|
$
|
12,882
|
|
|
$
|
(3,842
|
)
|
Effective portion of loss reclassified from Accumulated other comprehensive income (loss) into Net income (loss) (a)
|
$
|
71
|
|
|
|
$
|
(940
|
)
|
|
$
|
(1,496
|
)
|
|
$
|
(5,424
|
)
|
Ineffective portion of amount of gain recognized into Net income (loss) on interest rate swaps (a)
|
$
|
—
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
88
|
|
(a) Amounts are included in Interest expense in the consolidated statements of operations and comprehensive income (loss). Upon the adoption of ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities on January 1, 2018, ineffectiveness is no longer measured or recognized.
(11) Fair Value Measurements
According to the FASB ASC Topic 820, Fair Value Measurement, fair value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants and requires that assets and liabilities carried at fair value are classified and disclosed in the following three categories:
|
|
•
|
Level 1 - Quoted prices for identical instruments in active markets.
|
|
|
•
|
Level 2 - Quoted prices for similar instruments in active or inactive markets and valuations derived from models where all significant inputs are observable in active markets.
|
|
|
•
|
Level 3 - Valuations derived from valuation techniques in which one or more significant inputs are unobservable in any market.
|
The following summarizes the fair value level of assets and liabilities that are measured on a recurring basis at December 31, 2019 and December 31, 2018 (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
December 31, 2019 (Successor Company)
|
|
|
|
|
|
|
|
Interest rate cap agreement - asset (a)
|
$
|
—
|
|
|
$
|
2,959
|
|
|
$
|
—
|
|
|
$
|
2,959
|
|
Interest rate swap agreements - assets (b)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Interest rate swap agreements - liabilities (b)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
$
|
—
|
|
|
$
|
2,959
|
|
|
$
|
—
|
|
|
$
|
2,959
|
|
December 31, 2018 (Predecessor Company)
|
|
|
|
|
|
|
|
Interest rate cap agreement - asset (a)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest rate swap agreements - assets (b)
|
—
|
|
|
10,552
|
|
|
—
|
|
|
10,552
|
|
Interest rate swap agreements - liabilities (b)
|
—
|
|
|
(6,039
|
)
|
|
—
|
|
|
(6,039
|
)
|
Total
|
$
|
—
|
|
|
$
|
4,513
|
|
|
$
|
—
|
|
|
$
|
4,513
|
|
|
|
(a)
|
Interest rate cap asset value is included in non-current Other assets on the consolidated balance sheets.
|
|
|
(b)
|
Swap asset values are included in non-current Other assets and Swap liability values are included in non-current Derivative financial instruments on the consolidated balance sheets.
|
The Company has determined that the significant inputs used to value the Swaps fall within Level 2 of the fair value hierarchy. As a result, the Company has determined that its derivative valuations are classified in Level 2 of the fair value hierarchy.
Carrying values and fair values of financial instruments that are not carried at fair value are as follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
Successor Company
|
|
|
Predecessor Company
|
|
December 31, 2019
|
|
|
December 31, 2018
|
Long term debt, including current portion:
|
|
|
|
|
Carrying value
|
$
|
986,444
|
|
|
|
$
|
1,816,450
|
|
Fair value (a)
|
$
|
857,717
|
|
|
|
$
|
1,218,606
|
|
|
|
(a)
|
The fair value is based on market quotations from third-party financial institutions and is classified as Level 2 in the hierarchy.
|
The Company’s other financial instruments, including cash and cash equivalents, restricted cash, accounts receivable and accounts payable are carried at cost, which approximates their fair value because of their short-term maturity.
(12) Income Taxes
The Company's Income tax expense (benefit) is as follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor Company
|
|
|
Predecessor Company
|
|
Period from September 1, 2019 through December 31, 2019
|
|
|
Period from January 1, 2019 through August 31, 2019
|
|
Year Ended December 31, 2018
|
|
Year Ended December 31, 2017
|
Current:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
$
|
—
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(426
|
)
|
State
|
604
|
|
|
|
1,775
|
|
|
2,535
|
|
|
2,559
|
|
|
$
|
604
|
|
|
|
$
|
1,775
|
|
|
$
|
2,535
|
|
|
$
|
2,133
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
$
|
—
|
|
|
|
$
|
—
|
|
|
$
|
(12,892
|
)
|
|
$
|
(4,593
|
)
|
State
|
100
|
|
|
|
—
|
|
|
(1,195
|
)
|
|
567
|
|
|
$
|
100
|
|
|
|
$
|
—
|
|
|
$
|
(14,087
|
)
|
|
$
|
(4,026
|
)
|
Total Income tax expense (benefit)
|
$
|
704
|
|
|
|
$
|
1,775
|
|
|
$
|
(11,552
|
)
|
|
$
|
(1,893
|
)
|
On December 22, 2017, new tax reform legislation that significantly reforms the Internal Revenue Code of 1986, as amended, was enacted (the "2017 Tax Act"). The 2017 Tax Act includes numerous changes to existing tax law, including a permanent reduction in the federal corporate income tax rate from 35% to 21%. The rate reduction is effective for the Company as of January 1, 2018.
Total Income tax expense (benefit) differs from the amounts computed by applying the U.S. federal income tax rate of 21% for 2019 and 2018 and 35% for 2017 as a result of the following (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor Company
|
|
|
Predecessor Company
|
|
Period from September 1, 2019 through December 31, 2019
|
|
|
Period from January 1, 2019 through August 31, 2019
|
|
Year Ended December 31, 2018
|
|
Year Ended December 31, 2017
|
Computed expected tax expense (benefit)
|
$
|
(6,852
|
)
|
|
|
$
|
126,039
|
|
|
$
|
(144,963
|
)
|
|
$
|
(39,616
|
)
|
Change in valuation allowance affecting income tax expense
|
6,958
|
|
|
|
16,769
|
|
|
52,916
|
|
|
39,499
|
|
Cancellation of debt income not taxable
|
—
|
|
|
|
(117,545
|
)
|
|
—
|
|
|
—
|
|
Other restructuring and reorganization income not resulting in tax impact
|
—
|
|
|
|
(36,453
|
)
|
|
—
|
|
|
—
|
|
Non-deductible bankruptcy costs
|
—
|
|
|
|
8,808
|
|
|
—
|
|
|
—
|
|
Goodwill impairment not resulting in tax impact
|
—
|
|
|
|
—
|
|
|
78,869
|
|
|
—
|
|
Other expense (income) not resulting in tax impact
|
42
|
|
|
|
2,755
|
|
|
568
|
|
|
1,211
|
|
Tax amortization of indefinite-lived assets
|
—
|
|
|
|
—
|
|
|
—
|
|
|
4,001
|
|
2017 Federal tax reform enactment
|
—
|
|
|
|
—
|
|
|
—
|
|
|
(9,020
|
)
|
State and local income taxes, net of federal income taxes
|
556
|
|
|
|
1,402
|
|
|
1,058
|
|
|
2,032
|
|
Total Income tax expense (benefit)
|
$
|
704
|
|
|
|
$
|
1,775
|
|
|
$
|
(11,552
|
)
|
|
$
|
(1,893
|
)
|
Components of deferred tax assets and liabilities as of December 31, 2019 and 2018 are as follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
Successor Company
|
|
|
Predecessor Company
|
|
December 31,
2019
|
|
|
December 31,
2018
|
Accounts receivable reserves
|
$
|
1,008
|
|
|
|
$
|
1,205
|
|
Accrued liabilities
|
4,395
|
|
|
|
3,564
|
|
Net operating loss ("NOL") carryforwards
|
111,512
|
|
|
|
194,976
|
|
Derivative financial instruments
|
—
|
|
|
|
1,770
|
|
Other deferred tax assets
|
7,540
|
|
|
|
1,911
|
|
Valuation allowance
|
(24,457
|
)
|
|
|
(148,419
|
)
|
Total deferred tax assets
|
$
|
99,998
|
|
|
|
$
|
55,007
|
|
Intangible assets
|
(96,204
|
)
|
|
|
(52,161
|
)
|
Property, plant and equipment
|
(3,110
|
)
|
|
|
(2,063
|
)
|
Total deferred tax liabilities
|
$
|
(99,314
|
)
|
|
|
$
|
(54,224
|
)
|
Net deferred tax assets
|
$
|
684
|
|
|
|
$
|
783
|
|
For the year ended December 31, 2019, the valuation allowance decreased by $123,962,000. The change in the valuation allowance is primarily attributable to the impact of the cancellation of debt income on the Company's NOLs, which decreased the valuation allowance by $127,571,000, and other deferred tax impacts that decreased the valuation allowance $40,863,000, primarily related to the fresh start accounting adjustments. These decreases were offset by an increase in valuation allowance of $23,727,000 related to current federal income tax expense and the deferred tax impact of the Ascent downstream merger which increased the valuation allowance $20,745,000.
At December 31, 2019, the Company has $308,257,000 and $215,985,000 in NOLs for federal and state tax purposes, respectively. The federal net operating losses recognized through December 31, 2017 of $250,538,000 expire at various times from 2027 through 2037. The state net operating loss carryforwards will expire through 2039. Approximately $510,000 of the Company’s net operating losses are subject to Internal Revenue Code Section 382 limitations. The Company has $213,000 of alternative minimum tax credits ("AMT") which will be refunded upon filing the 2020 through 2021 federal tax returns. The Company also has $684,000 of state credits that will expire through 2027.
As of December 31, 2019, the 2016 to 2019 tax years remain open to examination by the IRS and the 2015 to 2019 tax years remain open to examination by certain state tax authorities.
A reconciliation of the beginning and ending amount of uncertain tax positions, which is recorded in other long term liabilities, is as follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor Company
|
|
|
Predecessor Company
|
|
Period from September 1, 2019 through December 31, 2019
|
|
|
Period from January 1, 2019 through August 31, 2019
|
|
Year Ended December 31, 2018
|
|
Year Ended December 31, 2017
|
As of the beginning of the year
|
$
|
5,629
|
|
|
|
$
|
205
|
|
|
$
|
204
|
|
|
$
|
208
|
|
Increases for tax positions of current years
|
—
|
|
|
|
—
|
|
|
7
|
|
|
—
|
|
Reductions for tax positions of prior years
|
—
|
|
|
|
—
|
|
|
(6
|
)
|
|
(4
|
)
|
Increase from Ascent downstream merger
|
—
|
|
|
|
5,424
|
|
|
—
|
|
|
—
|
|
As of the end of the year
|
$
|
5,629
|
|
|
|
$
|
5,629
|
|
|
$
|
205
|
|
|
$
|
204
|
|
When the tax law requires interest to be paid on an underpayment of income taxes, the Company recognizes interest expense from the first period the interest would begin accruing according to the relevant tax law. Any accrual of interest and penalties related to underpayment of income taxes on uncertain tax positions is included in Income tax expense in the accompanying consolidated statements of operations and comprehensive income (loss). As of December 31, 2019, accrued interest and penalties related to uncertain tax positions were approximately $143,000. The Company does not expect a significant change in uncertain tax positions in the next twelve months.
(13) Stock-Based and Long-Term Compensation
During the Successor Company period September 1, 2019 through December 31, 2019, there were no stock-based awards granted or outstanding. During the Predecessor Company period January 1, 2019 through August 31, 2019, the Predecessor Company year ended December 31, 2018 and the Predecessor Company year ended December 31, 2017, certain employees of the Company were granted stock-based awards of Ascent Capital Series A Common Stock under Ascent Capital's 2008 Incentive Plan and Ascent Capital's 2015 Omnibus Incentive Plan. All outstanding awards accelerated vesting or were cancelled as of the Effective Date. There are no outstanding or unvested stock-based compensation awards as of December 31, 2019.
Stock Options
Ascent Capital awarded non-qualified stock options for Ascent Capital Series A Common Stock to the Company's executives and certain employees. The exercise price was typically granted as the closing share price for Ascent Capital Series A Common Stock as of the grant date. The awards generally had a life of five to seven years and vested over two to four years. The grant-date fair value of the Ascent Capital stock options granted to Brinks Home Security's employees was calculated using the Black-Scholes model. There were no options granted in 2019, 2018 and 2017.
The following table presents the number and weighted average exercise price ("WAEP") of outstanding options to purchase Ascent Capital Series A Common Stock granted to certain Brinks Home Security employees:
|
|
|
|
|
|
|
|
|
Series A
Common Stock Options
|
|
WAEP
|
Outstanding at January 1, 2019 (Predecessor Company)
|
14,600
|
|
|
$
|
50.47
|
|
Granted
|
—
|
|
|
$
|
—
|
|
Exercised
|
—
|
|
|
$
|
—
|
|
Forfeited
|
(3,000
|
)
|
|
$
|
50.47
|
|
Expired
|
(11,600
|
)
|
|
$
|
50.47
|
|
Outstanding at August 31, 2019 (Predecessor Company)
|
—
|
|
|
$
|
—
|
|
Exercisable at August 31, 2019 (Predecessor Company)
|
—
|
|
|
$
|
—
|
|
As of December 31, 2019, there was no compensation cost related to unvested stock option awards to be recognized in the consolidated statements of operations and comprehensive income (loss) over the next twelve months.
Restricted Stock Awards and Restricted Stock Units
Ascent Capital made awards of restricted stock for its common stock to the Company's executives and certain employees. Substantially all of these awards were for Ascent Capital Series A Common Stock. The fair values for the restricted stock awards and restricted stock units was based on the closing price of Ascent Capital Series A Common Stock on the applicable grant dates.
Upon the grant of a restricted stock award, the recipient received a stock certificate for the number of restricted shares granted. The stock could not be transferred or sold until the vesting criteria was met. Upon the grant of a restricted stock unit award, the recipient received the right to receive a number of shares at vesting and, as such, shares of stock were not issued until the vesting criteria was met. The awards generally vested over two to five years.
The following table presents the number and weighted average fair value ("WAFV") of unvested restricted stock awards granted to certain Brinks Home Security employees:
|
|
|
|
|
|
|
|
|
Series A
Restricted Stock Awards
|
|
WAFV
|
Outstanding at January 1, 2019 (Predecessor Company)
|
15,023
|
|
|
$
|
15.20
|
|
Granted
|
—
|
|
|
$
|
—
|
|
Vested
|
(15,023
|
)
|
|
$
|
15.20
|
|
Cancelled
|
—
|
|
|
$
|
—
|
|
Outstanding at August 31, 2019 (Predecessor Company)
|
—
|
|
|
$
|
—
|
|
There were no outstanding Ascent Capital Series A or Series B restricted stock awards as of December 31, 2019.
The following table presents the number and WAFV of unvested restricted stock units granted to certain Brinks Home Security employees:
|
|
|
|
|
|
|
|
|
Series A
Restricted Stock Units
|
|
WAFV
|
Outstanding at January 1, 2019 (Predecessor Company)
|
487,489
|
|
|
$
|
5.52
|
|
Granted
|
—
|
|
|
$
|
—
|
|
Vested
|
(8,438
|
)
|
|
$
|
22.39
|
|
Cancelled
|
(479,051
|
)
|
|
$
|
5.22
|
|
Outstanding at August 31, 2019 (Predecessor Company)
|
—
|
|
|
$
|
—
|
|
As of December 31, 2019, there was no compensation cost related to unvested restricted stock and stock unit awards to be recognized in the consolidated statements of operations and comprehensive income (loss) over the next twelve months.
Cash Incentive Plan
In 2017 and 2018, the Company made awards to certain employees under its 2017 Cash Incentive Plan (the “2017 Plan”). The 2017 Plan provides the terms and conditions for the grant of, and payment with respect to, phantom units granted to certain officers and other key personnel of the Company. When each award was originally granted, the value of a single phantom unit (“phantom unit value”) was tied to the value of Ascent Capital Series A Common Stock. Upon completion of the Merger, the number of outstanding phantom units was converted using the Exchange Ratio. Following the Merger, the phantom unit value is tied to the value of Common Stock. The 2017 Plan is administered by a committee (the "committee") whose members are designated by the Compensation Committee of Monitronics' Board of Directors. Grants are determined by the committee, with the first grant occurring on January 1, 2017 and a second grant occurring on January 1, 2018. There were 16,977 phantom units outstanding as of December 31, 2019. The phantom units vest annually over a three-year period beginning on the grant date and are payable in cash at each vesting date. The Company records a liability and a charge to expense based on the phantom unit value and percent vested at each reporting period. As of December 31, 2019, $76,000 was accrued for the estimated vested value of the phantom awards.
(14) Stockholders' Equity
Prior to the Merger, the Company had one thousand shares of common stock issued and outstanding to Ascent Capital. Upon completion of the Merger, these shares were cancelled. Pursuant to the Company's certificate of incorporation adopted in accordance with the Plan, the Company is authorized to issue an aggregate of 50,000,000 shares of stock consisting of: (i) 45,000,000 shares of Common Stock and (ii) 5,000,000 shares of Preferred Stock.
Successor Common Stock
Holders of Common Stock are entitled to one vote for each share held. Common Stock will vote as a single class on all matters on which stockholders are entitled to vote, except as otherwise provided in the certificate of incorporation or as required by law. Generally, all matters to be voted on by stockholders, other than the election of directors, must be approved by a majority of the Common Stock, then-issued and outstanding. Subject to the rights of the holders of any series of Preferred Stock to elect directors under certain circumstances, directors shall be elected by a plurality of the voting power present in person or represented by proxy and entitled to vote generally in the election of directors. No stockholder shall be entitled to exercise the right of cumulative voting.
In connection with the Company’s emergence from Chapter 11 and in reliance upon the exemption from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act"), pursuant to Section 1145 of the Bankruptcy Code, the Company issued a total of 22,500,000 shares of Common Stock on August 30, 2019.
As of December 31, 2019, the Company had 22,500,000 issued and outstanding shares of Common Stock.
Successor Preferred Stock
The board of directors of the Company has the authority, without action by its stockholders, to designate and issue preferred stock of the Company in one or more series and to designate the rights, powers, preferences and privileges of each series and any qualifications, limitations or restrictions thereof, which may be greater or less than the rights of the Common Stock. As of December 31, 2019, no shares of preferred stock were issued.
Accumulated Other Comprehensive Income (Loss)
The following table provides a summary of the changes in Accumulated other comprehensive income (loss) for the periods presented (amounts in thousands):
|
|
|
|
|
|
Accumulated Other Comprehensive Income (Loss)
|
Balance at December 31, 2016 (Predecessor Company)
|
$
|
(8,957
|
)
|
Unrealized loss on derivatives recognized through Accumulated other comprehensive income (loss), net of income tax of $0 (a)
|
(3,842
|
)
|
Reclassifications of unrealized loss on derivatives into Net loss, net of income tax of $0 (b)
|
5,424
|
|
Net period other comprehensive income
|
1,582
|
|
Balance at December 31, 2017 (Predecessor Company)
|
$
|
(7,375
|
)
|
Impact of adoption of ASU 2017-12
|
605
|
|
Adjusted balance at January 1, 2018 (Predecessor Company)
|
$
|
(6,770
|
)
|
Unrealized gain on derivatives recognized through Accumulated other comprehensive income (loss), net of income tax of $0 (a)
|
12,882
|
|
Reclassifications of unrealized loss on derivatives into Net loss, net of income tax of $0 (b)
|
1,496
|
|
Net period other comprehensive income
|
14,378
|
|
Balance at December 31, 2018 (Predecessor Company)
|
$
|
7,608
|
|
Reclassifications of unrealized loss on derivatives into Net loss, net of income tax of $0 (b)
|
(940
|
)
|
Balance at August 31, 2019 (Predecessor Company)
|
$
|
6,668
|
|
Impact of fresh start accounting (c)
|
(6,668
|
)
|
Balance at August 31, 2019 (Successor Company)
|
$
|
—
|
|
Unrealized loss on interest rate cap recognized through Accumulated other comprehensive income (loss), net of income tax of $0 (a)
|
(62
|
)
|
Interest cost of interest rate cap reclassified into Net loss, net of income tax of $0 (b)
|
71
|
|
Net period other comprehensive income
|
9
|
|
Balance at December 31, 2019 (Successor Company)
|
$
|
9
|
|
|
|
(a)
|
No income taxes were recorded on the unrealized gain / (loss) on derivative instrument amounts for 2019, 2018 and 2017 because the Company is subject to a full valuation allowance.
|
|
|
(b)
|
Amounts reclassified into Net loss are included in Interest expense on the consolidated statements of operations and comprehensive income (loss). See Note 10, Derivatives for further information.
|
|
|
(c)
|
The remaining amount recognized in Accumulated other comprehensive income (loss) was evaluated to have no fair value upon the application of fresh start accounting pursuant to the Plan. See Note 4, Fresh Start Accounting for further information.
|
(15) Employee Benefit Plans
The Company offers a 401(k) defined contribution plan covering its full-time employees. The plan is funded by employee and employer contributions. Total 401(k) plan expense for the Successor Company period September 1, 2019 through December 31, 2019, the Predecessor Company period January 1, 2019 through August 31, 2019, the Predecessor Company year ended December 31, 2018 and the Predecessor Company year ended December 31, 2017 was $124,000, $204,000, $172,000 and $179,000, respectively.
(16) Commitments, Contingencies and Other Liabilities
The Company was named as a defendant in multiple putative class actions consolidated in U.S. District Court (Northern District of West Virginia) on behalf of purported class(es) for persons who claim to have received telemarketing calls in violation of various state and federal laws. The actions were brought by plaintiffs seeking monetary damages on behalf of all plaintiffs who received telemarketing calls made by a Monitronics Authorized Dealer, or any Authorized Dealer's lead generator or sub-dealer. In the second quarter of 2017, the Company and the plaintiffs agreed to settle this litigation for $28,000,000 ("the Settlement Amount"). In the third quarter of 2017, the Company paid $5,000,000 of the Settlement Amount pursuant to the settlement agreement with the plaintiffs. In the third quarter of 2018, the Company paid the remaining $23,000,000 of the Settlement Amount. The Company recovered a portion of the Settlement Amount under its insurance policies held with multiple carriers. In the fourth quarter of 2018, we settled our claims against two such carriers in which those carriers paid us an aggregate of $12,500,000. In April of 2019, Monitronics settled a claim against one such carrier in which that carrier paid the Company $4,800,000 which is included in Selling, general and administrative, including stock-based and long-term incentive compensation on the consolidated statements of operations and comprehensive income (loss).
In addition to the above, the Company is also involved in litigation and similar claims incidental to the conduct of its business, including from time to time, contractual disputes, claims related to alleged security system failures and claims related to alleged violations of the U.S. Telephone Consumer Protection Act. Matters that are probable of unfavorable outcome to the Company and which can be reasonably estimated are accrued. Such accruals are based on information known about the matters, management's estimate of the outcomes of such matters and experience in contesting, litigating and settling similar matters. In management's opinion, none of the pending actions are likely to have a material adverse impact on the Company's financial position or results of operations. The Company accrues and expenses legal fees related to loss contingency matters as incurred.
(17) Revenue Recognition
Disaggregation of Revenue
Revenue is disaggregated by source of revenue as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor Company
|
|
|
Predecessor Company
|
|
Period from September 1, 2019 through December 31, 2019
|
|
|
Period from January 1, 2019 through August 31, 2019
|
|
Year Ended December 31, 2018
|
|
Year Ended December 31, 2017
|
Alarm monitoring revenue
|
$
|
147,646
|
|
|
|
$
|
319,172
|
|
|
$
|
498,236
|
|
|
$
|
537,399
|
|
Product, installation and service revenue
|
12,671
|
|
|
|
19,111
|
|
|
38,455
|
|
|
12,308
|
|
Other revenue
|
1,902
|
|
|
|
4,003
|
|
|
3,667
|
|
|
3,748
|
|
Total Net revenue
|
$
|
162,219
|
|
|
|
$
|
342,286
|
|
|
$
|
540,358
|
|
|
$
|
553,455
|
|
Contract Balances
The following table provides information about receivables, contract assets and contract liabilities from contracts with customers (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Successor Company
|
|
|
Predecessor Company
|
|
December 31,
2019
|
|
|
December 31,
2018
|
Trade receivables, net
|
$
|
12,083
|
|
|
|
$
|
13,121
|
|
Contract assets, net - current portion (a)
|
$
|
12,070
|
|
|
|
$
|
13,452
|
|
Contract assets, net - long-term portion (b)
|
$
|
14,852
|
|
|
|
$
|
16,154
|
|
Deferred revenue
|
$
|
12,008
|
|
|
|
$
|
13,060
|
|
(a) Amount is included in Prepaid and other current assets in the consolidated balance sheets.
(b) Amount is included in Other assets in the consolidated balance sheets.
(18) Leases
The Company primarily leases buildings and equipment. The Company determines if a contract is a lease at the inception of the arrangement. The Company reviews all options to extend, terminate, or purchase its right of use assets at the inception of the lease and accounts for these options when they are reasonably certain of being exercised. Certain real estate leases contain lease and non-lease components, which are accounted for separately.
Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheet. Lease expense for these leases is recognized on a straight-line basis over the lease term.
All of the Company's leases are currently determined to be operating leases.
Components of Lease Expense
The components of lease expense were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Successor Company
|
|
|
Predecessor Company
|
|
Period from September 1, 2019 through December 31, 2019
|
|
|
Period from January 1, 2019 through August 31, 2019
|
Operating lease cost (a)
|
$
|
160
|
|
|
|
$
|
321
|
|
Operating lease cost (b)
|
1,281
|
|
|
|
2,595
|
|
Total operating lease cost
|
$
|
1,441
|
|
|
|
$
|
2,916
|
|
(a) Amount is included in Cost of services in the consolidated statements of operations and comprehensive income (loss).
(b) Amount is included in Selling, general and administrative, including stock-based and long-term incentive compensation in the consolidated statements of operations and comprehensive (loss).
Remaining Lease Term and Discount Rate
The following table presents the weighted-average remaining lease term and the weighted-average discount rate:
|
|
|
|
|
As of December 31, 2019
|
Weighted-average remaining lease term for operating leases (in years)
|
9.5
|
|
Weighted-average discount rate for operating leases
|
11.7
|
%
|
All of the Company's lease contracts do not provide a readily determinable implicit rate. For these contracts, the Company's estimated incremental borrowing rate is based on information available either upon adoption of ASU 2016-02 or at the inception of the lease.
Supplemental Cash Flow Information
The following is the supplemental cash flow information associated with the Company's leases (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Successor Company
|
|
|
Predecessor Company
|
|
Period from September 1, 2019 through December 31, 2019
|
|
|
Period from January 1, 2019 through August 31, 2019
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
Lease payments included in cash flows from operating activities (a)
|
$
|
1,404
|
|
|
|
$
|
2,804
|
|
Right-of-use assets obtained in exchange for new:
|
|
|
|
|
Operating lease liabilities
|
$
|
543
|
|
|
|
$
|
91
|
|
(a) Cash flow impacts from Operating lease right-of-use assets and Operating lease liabilities are presented net on the cash flow statement in changes in Payables and other liabilities.
Maturities of Lease Liabilities
As of December 31, 2019, maturities of lease liabilities were as follows:
|
|
|
|
|
2020
|
$
|
3,963
|
|
2021
|
3,416
|
|
2022
|
3,277
|
|
2023
|
3,087
|
|
2024
|
3,065
|
|
Thereafter
|
17,264
|
|
Total lease payments
|
$
|
34,072
|
|
Less: Interest
|
(14,152
|
)
|
Total lease obligations
|
$
|
19,920
|
|
Disclosures Related to Periods Prior to Adoption of ASU 2016-02
The Company adopted ASU 2016-02 using a modified retrospective method at January 1, 2019 as described in note 5, Recent Accounting Pronouncements. As required, the following disclosure is provided for periods prior to adoption. Minimum lease commitments as of December 31, 2018 that have initial or remaining noncancelable lease terms in excess of one year are as follows (in thousands):
|
|
|
|
|
2019
|
$
|
4,628
|
|
2020
|
4,207
|
|
2021
|
3,093
|
|
2022
|
3,068
|
|
2023
|
3,087
|
|
Thereafter
|
20,329
|
|
Total lease payments
|
$
|
38,412
|
|
(19) Quarterly Financial Information (Unaudited - see accompanying accountants' report)
The following tables represent the Company's selected unaudited quarterly results for each of the periods and quarters during 2019 and 2018 (amounts in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor Company
|
|
|
Successor Company
|
|
1st Quarter
|
|
2nd Quarter
|
|
Period from July 1, 2019 through August 31, 2019
|
|
|
Period from September 1, 2019 through September 30, 2019
|
|
4th Quarter
|
2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
$
|
129,606
|
|
|
$
|
128,091
|
|
|
$
|
84,589
|
|
|
|
$
|
36,289
|
|
|
$
|
125,930
|
|
Operating income (loss)
|
$
|
19,321
|
|
|
$
|
19,133
|
|
|
$
|
9,111
|
|
|
|
$
|
(3,129
|
)
|
|
$
|
(519
|
)
|
Net loss
|
$
|
(31,770
|
)
|
|
$
|
(54,202
|
)
|
|
$
|
684,385
|
|
|
|
$
|
(10,807
|
)
|
|
$
|
(22,524
|
)
|
Basic and diluted net loss per common share
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
$
|
(0.48
|
)
|
|
$
|
(1.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor Company
|
|
1st Quarter
|
|
2nd Quarter
|
|
3rd Quarter
|
|
4th Quarter
|
2018:
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
$
|
133,753
|
|
|
$
|
135,013
|
|
|
$
|
137,156
|
|
|
$
|
134,436
|
|
Operating income (loss)
|
$
|
12,012
|
|
|
$
|
(201,845
|
)
|
|
$
|
12,280
|
|
|
$
|
(316,590
|
)
|
Net loss
|
$
|
(26,207
|
)
|
|
$
|
(241,792
|
)
|
|
$
|
(33,840
|
)
|
|
$
|
(376,911
|
)
|
Basic and diluted net loss per common share
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
(20) Consolidating Guarantor Financial Information
Monitronics (the "Parent Issuer") entered into the Successor Takeback Loan Facility and the Successor Credit Facilities and both are guaranteed by all of the Company's existing domestic subsidiaries. Consolidating guarantor financial information has not been presented in this Form 10-K as substantially all of the Company's operations are now conducted by the Parent Issuer entity. The Company believes that disclosing such information would not provide investors with any additional information that would be material in evaluating the sufficiency of the guarantees.
(21) Subsequent Events
In March 2020, the COVID-19 pandemic continues to spread throughout the United States. We borrowed $50,000,000 on our Successor Revolving Credit Facility to provide liquidity during this crisis.