Attached files
| file | filename |
|---|---|
| EX-99.2 - EX-99.2 - Ascent Capital Group, Inc. | a11-27975_1ex99d2.htm |
| 8-K - CURRENT REPORT OF MATERIAL EVENTS OR CORPORATE CHANGES - Ascent Capital Group, Inc. | a11-27975_18k.htm |
Exhibit 99.1
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CONSOLIDATED FINANCIAL STATEMENTS |
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(UNAUDITED) |
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Monitronics International, Inc. and Subsidiaries |
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For the Three Months ended September 30, 2010 and September 30, 2009 |
Monitronics International, Inc. and Subsidiaries
Consolidated Financial Statements
(Unaudited)
For the Three Months Ended September 30, 2010 and September 30, 2009
Contents
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Consolidated Financial Statements (Unaudited) |
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Consolidated Balance Sheet (Unaudited) |
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3 |
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Consolidated Statements of Operations (Unaudited) |
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5 |
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Consolidated Statements of Shareholders’ Net Capital (Deficiency) (Unaudited) |
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6 |
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Consolidated Statements of Cash Flows (Unaudited) |
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7 |
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Notes to Consolidated Financial Statements (Unaudited) |
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8 |
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Monitronics International, Inc. and Subsidiaries
Consolidated Balance Sheet (Unaudited)
(In Thousands, Except Share Data)
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September 30, |
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2010 |
| |
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Assets |
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| |
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Current assets: |
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| |
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Cash and cash equivalents |
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$ |
36,101 |
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|
Restricted cash |
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53,544 |
| |
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Accounts receivable, less allowance for doubtful accounts of $1,778 in 2010 |
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10,624 |
| |
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Prepaid expenses and other current assets |
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3,224 |
| |
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Total current assets |
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103,493 |
| |
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|
|
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| |
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Property and equipment, net |
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14,987 |
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Subscriber accounts, net of accumulated amortization of $653,631 in 2010 |
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639,490 |
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Deferred financing costs, net |
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27,626 |
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Fair value of derivative financial instruments |
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231 |
| |
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Other assets |
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1,544 |
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Goodwill |
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14,795 |
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| |
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Total assets |
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$ |
802,166 |
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September 30, |
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2010 |
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Liabilities and shareholders’ net capital (deficiency) |
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Current liabilities: |
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| |
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Accounts payable |
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$ |
1,788 |
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|
Accrued expenses |
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5,175 |
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Purchase holdbacks |
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12,437 |
| |
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Deferred revenue |
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5,627 |
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Interest payable |
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2,299 |
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Taxes payable |
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2,414 |
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Total current liabilities |
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29,740 |
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Noncurrent liabilities: |
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Long-term debt |
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844,200 |
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Fair value of derivative financial instruments |
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77,978 |
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Long term deferred tax liability |
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2,752 |
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Total noncurrent liabilities |
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924,930 |
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Commitments and contingencies |
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Shareholders’ net capital (deficiency): |
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Preferred stock, Series A: |
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| |
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Authorized shares — 8,247,075 |
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| |
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Issued shares — 0 |
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— |
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Class A common stock, $0.01 par value: |
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| |
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Authorized shares — 80,000,000 |
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| |
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Issued shares — 31,102,347 |
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311 |
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Class B common stock, $0.01 par value: |
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Authorized shares — 700,000; issued shares — none |
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— |
| |
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Additional paid-in capital |
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126,016 |
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Treasury stock, at cost, 1,322,135 shares |
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(12,037 |
) | |
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Accumulated deficit |
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(266,794 |
) | |
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Total shareholders’ net capital (deficiency) |
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(152,504 |
) | |
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Total liabilities and shareholders’ net capital (deficiency) |
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$ |
802,166 |
|
See accompanying notes.
Monitronics International, Inc. and Subsidiaries
Consolidated Statements of Operations (Unaudited)
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Three Months Ended |
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2010 |
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2009 |
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(In Thousands) |
| ||||
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Revenue |
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$ |
71,653 |
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$ |
65,175 |
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Cost of services |
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9,213 |
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8,235 |
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Gross profit |
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62,440 |
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56,940 |
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Operating expenses: |
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Sales, general, and administrative |
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13,023 |
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12,725 |
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Depreciation |
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1,499 |
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1,411 |
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Amortization |
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30,660 |
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28,837 |
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45,182 |
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42,973 |
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Operating income |
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17,258 |
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13,967 |
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Other expenses: |
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|
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Unrealized loss on derivative instruments |
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10,724 |
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13,339 |
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Interest |
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4,916 |
|
4,768 |
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15,640 |
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18,107 |
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Income (loss) before income taxes |
|
1,618 |
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(4,140 |
) | ||
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Provision for income taxes |
|
576 |
|
522 |
| ||
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Net income (loss) |
|
$ |
1,042 |
|
$ |
(4,662 |
) |
See accompanying notes.
Monitronics International, Inc. and Subsidiaries
Consolidated Statement of Shareholders’ Net Capital (Deficiency) (Unaudited)
(In Thousands)
|
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Class A |
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Class B |
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Additional |
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Treasury Stock, |
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Accumulated |
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Total |
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Shares |
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Amount |
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Shares |
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Amount |
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Capital |
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Shares |
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Amount |
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Deficit |
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(Deficiency) |
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Balances at June 30, 2009 |
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31,102,347 |
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$ |
|
311 |
|
— |
|
$ |
|
— |
|
$ |
|
125,633 |
|
1,322,135 |
|
$ |
|
(12,037 |
) |
$ |
|
(267,714 |
) |
$ |
|
(153,807 |
) |
|
Stock-based compensation |
|
— |
|
— |
|
— |
|
— |
|
77 |
|
— |
|
— |
|
— |
|
77 |
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Net loss |
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— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(4,662 |
) |
(4,662 |
) | ||||||||||||
|
Balances at September 30, 2009 |
|
31,102,347 |
|
$ |
|
311 |
|
— |
|
$ |
|
— |
|
$ |
|
125,710 |
|
1,322,135 |
|
$ |
|
(12,037 |
) |
$ |
|
(272,376 |
) |
$ |
|
(158,392 |
) |
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Balances at June 30, 2010 |
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31,102,347 |
|
$ |
|
311 |
|
— |
|
$ |
|
— |
|
$ |
|
125,939 |
|
1,322,135 |
|
$ |
|
(12,037 |
) |
$ |
|
(267,836 |
) |
$ |
|
(153,623 |
) |
|
Stock-based compensation |
|
— |
|
— |
|
— |
|
— |
|
77 |
|
— |
|
— |
|
— |
|
77 |
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Net income |
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— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
1,042 |
|
1,042 |
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|
Balances at September 30, 2010 |
|
31,102,347 |
|
$ |
|
311 |
|
— |
|
$ |
|
— |
|
$ |
|
126,016 |
|
1,322,135 |
|
$ |
|
(12,037 |
) |
$ |
|
(266,794 |
) |
$ |
|
(152,504 |
) |
See accompanying notes.
Monitronics International, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
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Three Months Ended |
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2010 |
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2009 |
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(In Thousands) |
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Operating activities |
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|
|
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Net income (loss) |
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$ |
1,042 |
|
$ |
(4,662 |
) |
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
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|
|
|
| ||
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Depreciation and amortization |
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32,159 |
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30,248 |
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Amortization of deferred financing costs |
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365 |
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365 |
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Provision for uncollectible accounts |
|
1,363 |
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1,556 |
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Change in deferred tax |
|
94 |
|
94 |
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Noncash stock-based compensation |
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77 |
|
77 |
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Unrealized loss on derivative instruments |
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1,169 |
|
3,745 |
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Changes in operating assets and liabilities: |
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|
|
|
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Accounts receivable |
|
(1,341 |
) |
(1,557 |
) | ||
|
Prepaid expenses and other assets |
|
(1,655 |
) |
(1,698 |
) | ||
|
Accounts payable |
|
(620 |
) |
451 |
| ||
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Accrued expenses |
|
(259 |
) |
5 |
| ||
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Interest payable |
|
15 |
|
44 |
| ||
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Deferred revenue |
|
23 |
|
66 |
| ||
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Taxes payable |
|
430 |
|
360 |
| ||
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Net cash provided by operating activities |
|
32,862 |
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29,094 |
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Investing activities |
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|
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(Increase) decrease in restricted cash |
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(1,769 |
) |
10,295 |
| ||
|
Purchases of property and equipment |
|
(768 |
) |
(871 |
) | ||
|
Purchases of subscriber accounts (net of holdbacks) |
|
(35,062 |
) |
(60,884 |
) | ||
|
Net cash used in investing activities |
|
(37,599 |
) |
(51,460 |
) | ||
|
|
|
|
|
|
| ||
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Financing activities |
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|
|
|
| ||
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Proceeds from credit facility |
|
— |
|
42,892 |
| ||
|
Payments on credit facility |
|
— |
|
(13,276 |
) | ||
|
Payment of deferred financing costs |
|
— |
|
2 |
| ||
|
Net cash provided by financing activities |
|
— |
|
29,618 |
| ||
|
|
|
|
|
|
| ||
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Net (decrease) increase in cash and cash equivalents |
|
(4,737 |
) |
7,252 |
| ||
|
Cash and cash equivalents at beginning of period |
|
40,838 |
|
33,267 |
| ||
|
Cash and cash equivalents at end of period |
|
$ |
36,101 |
|
$ |
40,519 |
|
See accompanying notes.
Monitronics International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2010
1. Description of Business and Summary of Significant Accounting Policies
Monitronics International, Inc. (Monitronics) and Subsidiaries (the Company) provide security alarm monitoring and related services to residential and business subscribers throughout the United States and parts of Canada. The Company monitors signals arising from burglaries, fires and other events through security systems installed by independent dealers at subscribers’ premises.
Basis of Presentation
The consolidated balance sheet and related consolidated statements of operations, stockholders’ equity and comprehensive income, and cash flows contained in this report, which are unaudited, include the accounts of Monitronics and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. In the opinion of management, all adjustments, consisting of normal recurring items, necessary for a fair presentation of consolidated financial statements have been included. Operating results for the three months ended September 30, 2010, are not necessarily indicative of the results to be expected for any other interim period or for the fiscal year ending June 30, 2011.
These unaudited interim consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes thereto for the year ended June 30, 2010.
Accounting Estimates
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Monitronics International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2010
1. Description of Business and Summary of Significant Accounting Policies, continued
Risk Concentration
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 purchase 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.
3. Income Taxes
Deferred income taxes are provided for the tax effects of differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company’s deferred tax assets are fully reserved primarily based on experiencing a cumulative loss before income taxes for the three-year period ended September 30, 2010. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income (including reversals of deferred tax liabilities) during the periods in which those temporary differences will become deductible. As of September 30, 2010, the Company had a net deferred tax liability of $2,752 thousand.
The tax expense of $576 thousand and $428 thousand at September 30, 2010 and 2009, respectively, is primarily related to Texas margin tax. The Company has not reported any federal income tax expense due to its ability to utilize net operating loss carry-forwards.
The Company accounts for uncertain tax positions using a two-step approach. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being recognized upon settlement. The Company has evaluated matters such as de-recognition, classification, interest and penalties, accounting in interim periods, disclosures and transition and has determined that there is no impact on the Company’s financial statements for quarter ending September 30, 2010. The only periods still subject to audit for the Company’s federal tax return are the 2007 through 2010 tax years. The Company will classify interest and penalties in the provision for income taxes. The Company has determined that no additional accrual for interest is required in the provision for income taxes during the quarter ended September 30, 2010.
Monitronics International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2010
4. Commitment and Contingencies
On March 22, 2006, a lawsuit was filed by State Farm Fire & Casualty Co., as Subrogee of Edward Streit vs. Monitronics International, Inc., Q.I.S. Incorporated, Protection Associates, Inc., and C&H Electric & Communications, Ltd. in the Circuit Court of the Twenty-First Judicial District for Kankakee County, Illinois. The complaint alleges that the Company and the various other defendants negligently serviced, maintained, installed, tested, repaired and inspected the central fire alarm system located at a multiunit apartment building in Kankakee, Illinois. The complaint alleges that as a result of these actions by the various defendants, the central fire alarm system did not immediately detect and notify the authorities of a fire, resulting in damage to the building premises in excess of what normally would have been caused. The plaintiff seeks compensatory damages from the various defendants. The Company believes that it acted properly and lawfully in its dealings with the customer. As a result, the Company intends to vigorously defend and contest any and all issues or threatened claims in this matter. Management is currently unable to determine the outcome of the claims or to estimate the amount of potential loss. The Company has not established a loss accrual associated with this claim.
On March 13, 2008, a lawsuit was filed by Paradox Security Systems, Ltd., Shmuel Hershkovitz and Pinhas Shpater vs. ADT Security Services, Inc., Digital Security Controls, Ltd., Monitronics International, Inc. and Protection One, Inc. in the United States District Court for the Eastern District of Texas. Judgment was entered as a matter of law in the Company’s favor with no finding of liability. On August 27, 2009, a final judgment was entered and the Company was dismissed from the lawsuit.
On August 18, 2009, a lawsuit was filed by Velma Veasley vs. Monitronics International, Inc. and Tel-Star Alarms, Inc. in the state court of Dekalb County, Georgia. The complaint alleges that the Company and Tel-Star Alarms, Inc. negligently installed and monitored the alarm system located at Plaintiff’s residence, that defendants breached the terms of the alarm monitoring contract with Plaintiff and that defendants fraudulently misrepresented to Plaintiff the capabilities of the alarm monitoring system. The complaint alleges that as a result of these actions, Plaintiff was assaulted in her home. The plaintiff seeks compensatory and punitive damages from the various defendants. The Company believes that it acted properly and lawfully in its dealings with the customer. As a result, the Company intends to vigorously defend and contest any and all issues or threatened claims in this matter. Management is currently unable to determine the outcome of the claims or to estimate the amount of potential loss, therefore, the Company has not established a loss accrual associated with this claim.
The Company is party to various other legal proceedings and claims that have arisen in the ordinary course of its business. In the opinion of management, the amount of ultimate liability
Monitronics International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2010
4. Commitments and contingencies, continued
with respect to these actions will not have a material impact on the Company’s financial position or results of operations.
5. Derivatives
The Company uses interest rate derivatives to manage its interest rate risk. The valuation of these instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The fair values of interest rate caps are determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rise above the strike rate of the caps. The variable interest rates used in the calculation of projected receipts on the cap are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities. The Company incorporates credit valuation adjustments to appropriately reflect the respective counterparty’s nonperformance risk in the fair value measurements.
For purposes of valuation of the interest rate swaps (“the Swaps”), the Company has considered that certain provisions of the Term Notes and VFNs provide for significant adverse changes to interest rates and uses of cash flows if this debt is not repaid by July 2012. In addition, the Swaps can be terminated at this time with no additional costs to the Company. Currently, a make whole payment would be due to the counterparty to the Swaps were the swaps terminated before April 2012. Were the Term Notes and the VFNs not repaid in full by July 2012, the Company would incur additional interest and other costs and be restricted in subscriber account purchases at Funding, until the Term Notes and VFNs were repaid in full. Management believes it is highly likely the Company will be able to refinance and/or repay the Term Notes and VFNs in full by July 2012, and the valuation considers adjustments for termination dates before and after July 2012 on a probability weighted basis. The valuation of the Swaps is based principally on a July 2012 maturity of the Term Notes less a credit valuation adjustment.
Monitronics International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2010
5. Derivatives, continued
Borrowings under the debt bear interest at variable rates. Our objective in entering into the Swaps was to reduce the risk associated with these variable rates. The Swaps, in effect, convert variable rates of interest into fixed rates of interest on $550 million of borrowings. It is our policy to offset fair value amounts recognized for derivative instruments executed with the same counterparty under a master netting agreement. As of June 30, 2010 and 2009, no such amounts were offset.
At September 30, 2010, derivative financial instruments included a purchased interest rate cap, a sold interest rate floor, and three Swaps as summarized in the tables below. The interest rate cap represents a financial asset of the Company, while the interest rate floor and Swaps represent financial liabilities of the Company. Although effective economic hedges of the Company’s floating rate debt, the interest rate cap, floor, and Swaps are not designated as hedges and as such, the periodic changes in value are recorded in current period earnings. For the three months ended September 30, 2010, the realized and unrealized loss on derivative instruments in the consolidated statement of operations included monthly settlement payments of $9,555 thousand and a $1,169 thousand unrealized loss related to the change in fair value of these derivatives. For the three months ended September 30, 2009, the realized and unrealized loss on derivative instruments in the consolidated statement of operations included monthly settlement payments of $9,594 thousand and a $3,745 thousand unrealized loss related to the change in fair value of these derivatives.
Monitronics International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2010
5. Derivatives, continued
The following table summarizes the key economic terms of the Company’s active derivatives as of September 30, 2010 (dollars in thousands):
The Company’s derivative instruments are, as follows (dollars in thousands):
|
|
|
Notional |
|
Rate Paid |
|
Rate Received |
| |
|
Swap |
|
$ |
350,000 |
|
6.56 |
% |
1 mo. USD-LIBOR-BBA |
|
|
|
|
|
|
|
|
|
| |
|
Swap |
|
100,000 |
|
6.06 |
% |
1 mo. USD-LIBOR-BBA |
| |
|
|
|
|
|
|
|
|
| |
|
Swap |
|
100,000 |
|
6.64 |
% |
1 mo. USD-LIBOR-BBA |
| |
|
|
|
|
|
|
|
|
| |
|
Cap |
|
240,000 |
|
6.30 |
% |
1 mo. USD-LIBOR-BBA |
| |
|
|
|
|
|
|
|
|
| |
|
Floor |
|
260,000 |
|
3.80 |
% |
1 mo. USD-LIBOR-BBA |
| |
The fair value of derivative instruments as of September 30, 2010, is as follows (in thousands):
|
|
|
Asset Derivatives |
|
Liability Derivatives |
| ||||||
|
|
|
Balance Sheet |
|
Fair Value |
|
Balance Sheet |
|
Fair Value |
| ||
|
|
|
|
|
|
|
|
|
|
| ||
|
Purchased interest rate swaps |
|
Other assets |
|
$ |
— |
|
Other liabilities |
|
$ |
51,487 |
|
|
|
|
|
|
|
|
|
|
|
| ||
|
Purchased interest rate caps |
|
Other assets |
|
231 |
|
Other liabilities |
|
— |
| ||
|
|
|
|
|
|
|
|
|
|
| ||
|
Sold interest rate floor |
|
Other assets |
|
— |
|
Other liabilities |
|
26,510 |
| ||
|
|
|
|
|
|
|
|
|
|
| ||
|
Total interest rate products |
|
|
|
231 |
|
|
|
77,978 |
| ||
|
|
|
|
|
|
|
|
|
|
| ||
|
Total derivatives |
|
|
|
$ |
231 |
|
|
|
$ |
77,978 |
|
Monitronics International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2010
5. Derivatives, continued
Gains and losses recognized during the three months ended September 30, 2010 and 2009, relating to derivatives are as follows:
|
Three months ended September 30, 2010 |
|
Location of Loss |
|
Amount of Loss |
| |
|
|
|
|
|
|
| |
|
Interest rate products |
|
Unrealized loss on derivative instruments |
|
$ |
1,169 |
|
|
|
|
|
|
|
| |
|
Total |
|
|
|
$ |
1,169 |
|
|
Three months ended September 30, 2009 |
|
Location of Loss |
|
Amount of Loss |
| |
|
|
|
|
|
|
| |
|
Interest rate products |
|
Unrealized loss on derivative instruments |
|
$ |
3,745 |
|
|
|
|
|
|
|
| |
|
Total |
|
|
|
$ |
3,745 |
|
Monitronics International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2010
5. Derivatives, continued
The Company has a single counterparty that it faces for its derivative contracts. The Company’s contractual agreement with its counterparty contains a provision where if the Company defaults on its master debt agreement and liquidates the assets that are encumbered by the debt agreement, then the Company could also be declared in default on its derivative obligations.
As of September 30, 2010, the fair value of derivatives in a net liability position, which includes accrued interest and any adjustment for nonperformance risk related to these agreements, was $77.7 million. As of September 30, 2010, the Company has not posted any collateral related to these agreements. If the Company had breached the provision above, it could have been required to settle its obligations under the agreements at the termination value of $77.7 million.
6. Fair Value Accounting
ASC 820, Fair Value Measurement and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date.
ASC 820 establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are, as follows:
Level 1 — Quoted prices in active markets for identical assets or liabilities.
Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
Monitronics International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2010
6. Fair Value Accounting, continued
We have aggregated our financial assets and liabilities that are measured at fair value on a recurring basis (at least annually) into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement dates.
The tables below presents the Company’s assets and liabilities measured at fair value on a recurring basis as of September 30, 2010, aggregated by the level in the fair value hierarchy within which those measurements fall. The tables do not include cash on hand or assets and liabilities that are measured at historical cost or any basis other than fair value (in thousands):
Assets and Liabilities Measured at Fair Value on a Recurring Basis at September 30, 2010
|
|
|
Quoted |
|
Significant |
|
Significant |
|
Balance at |
| ||||
|
Assets |
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Cash equivalents |
|
$ |
86,706 |
|
$ |
— |
|
$ |
— |
|
$ |
86,706 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Derivative financial instruments |
|
— |
|
231 |
|
— |
|
231 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Liabilities |
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Derivative financial instruments |
|
$ |
— |
|
$ |
26,510 |
|
$ |
51,469 |
|
$ |
77,978 |
|
Monitronics International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2010
6. Fair Value Accounting, continued
The Company has determined that the majority of the inputs used to value its interest rate cap and sold floor fall within Level 2 of the fair value hierarchy. The Company has determined that the majority of the inputs used to value its Swaps fall within Level 3 of the fair value hierarchy, as the valuation is based in part on management’s estimates of the refinancing date of the Term Notes, which affects the termination date of the Swaps as the notional amount of the Swaps is directly linked to the outstanding principal balance of the Term Notes. However, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by its counterparties. For counterparties with publicly available credit information, the credit spreads over LIBOR used in the calculations represent implied credit default swap spreads obtained from a third-party credit data provider. However, as of September 30, 2010, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its interest rate caps and floor derivatives, but are significant for the Swaps. As a result, the Company has determined that its derivative valuations on its interest rate caps and floor are classified as Level 2 of the fair value hierarchy and its derivative valuation on its Swaps are classified in Level 3 of the fair-value hierarchy.
The table below sets forth a summary of changes in the fair value of the Company’s Level 3 liabilities for the three months ended September 30, 2010:
|
Fair value at June 30, 2010 |
|
$ |
53,487 |
|
|
Change in unrealized loss related to the Swaps |
|
(2,018 |
) | |
|
|
|
|
| |
|
Fair value at September 30, 2010 |
|
$ |
51,469 |
|
Monitronics International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2010
7. Subsequent Events
The Company has evaluated events and transactions subsequent to September 30, 2010 through December xxx, 2010, the date that the financial statements were available to be issued. Based on requirements of the subsequent event guidance, the Company has not identified any events that require disclosure.
On December xxx, 2010, the Company entered into an agreement to be acquired by Ascent Media, Inc.