Ascent Capital Group, Inc.
Ascent Capital Group, Inc. (Form: 10-Q, Received: 08/09/2012 11:30:06)

Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C.  20549

 

FORM 10-Q

 

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

 

For the quarterly period ended June 30, 2012

 

OR

 

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

 

For the transition period from            to          

 

Commission File Number 001-34176

 

ASCENT CAPITAL GROUP, INC.

(Exact name of Registrant as specified in its charter)

 

State of Delaware

 

26-2735737

(State or other jurisdiction of

 

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

incorporation or organization)

 

 

 

 

 

5251 DTC Parkway, Suite 1000

 

 

Greenwood Village, Colorado

 

80111

(Address of principal executive offices)

 

(Zip Code)

 

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

 

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  Yes x   No  o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  x   No  o

 

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

 

Large accelerated filer  x

 

Accelerated filer  o

 

 

 

Non-accelerated filer  o

 

Smaller reporting company  o

(Do not check if a smaller reporting company)

 

 

 

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

 

The number of outstanding shares of Ascent Capital Group, Inc.’s common stock as of July 27, 2012 was:

 

Series A common stock 13,461,596 shares; and

Series B common stock 738,058 shares.

 

 

 



Table of Contents

 

TABLE OF CONTENTS

 

 

 

 

Page

 

 

 

 

 

Condensed Consolidated Balance Sheets (unaudited)

 

2

 

 

 

 

 

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

 

3

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows (unaudited)

 

4

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

5

 

 

 

 

Item 2.

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

 

14

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosure about Market Risk

 

21

 

 

 

 

Item 4.

Controls and Procedures

 

21

 

 

 

 

PART II - OTHER INFORMATION

 

22

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

22

 

 

 

 

Item 6.

Exhibits

 

23

 

 

 

 

 

SIGNATURES

 

24

 

 

 

 

 

EXHIBIT INDEX

 

25

 



Table of Contents

 

ASCENT CAPITAL GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

Amounts in thousands, except share amounts

(unaudited)

 

 

 

June 30,

 

December 31,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

84,448

 

183,558

 

Restricted cash

 

7,717

 

31,196

 

Marketable securities, at fair value (note 5)

 

140,637

 

40,377

 

Trade receivables, net of allowance for doubtful accounts of $1,698 in 2012 and $1,815 in 2011

 

10,399

 

10,973

 

Deferred income tax assets, net

 

5,881

 

5,881

 

Income taxes receivable

 

161

 

308

 

Prepaid and other current assets

 

13,036

 

17,600

 

Total current assets

 

262,279

 

289,893

 

 

 

 

 

 

 

Restricted cash

 

 

28,000

 

Property and equipment, net of accumulated depreciation of $40,889 in 2012 and $37,537 in 2011

 

68,547

 

74,697

 

Subscriber accounts, net

 

844,199

 

838,441

 

Dealer network, net

 

34,893

 

39,933

 

Goodwill

 

349,227

 

349,227

 

Other assets, net

 

21,501

 

5,706

 

Assets of discontinued operations (note 4)

 

52

 

62

 

Total assets

 

$

1,580,698

 

1,625,959

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

4,485

 

3,987

 

Accrued payroll and related liabilities

 

2,969

 

5,149

 

Other accrued liabilities

 

25,754

 

19,000

 

Deferred revenue

 

7,225

 

6,803

 

Purchase holdbacks

 

11,536

 

12,273

 

Current portion of long-term debt

 

5,500

 

60,000

 

Liabilities of discontinued operations (note 4)

 

16,339

 

16,001

 

Total current liabilities

 

73,808

 

123,213

 

 

 

 

 

 

 

Non-current liabilities:

 

 

 

 

 

Long-term debt (note 10)

 

947,823

 

892,718

 

Derivative financial instruments

 

11,240

 

36,279

 

Deferred income tax liability, net

 

10,012

 

9,793

 

Other liabilities

 

7,946

 

12,529

 

Total liabilities

 

1,050,829

 

1,074,532

 

 

 

 

 

 

 

Commitments and contingencies (note 15)

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

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

 

 

 

Series A common stock, $.01 par value. Authorized 45,000,000 shares; issued and outstanding 13,475,245 and 13,471,594 shares at June 30, 2012 and December 31, 2011, respectively

 

135

 

135

 

Series B common stock, $.01 par value. Authorized 5,000,000 shares; issued and outstanding 738,058 and 739,894 shares at June 30, 2012 and December 31, 2011, respectively

 

7

 

7

 

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

 

 

 

Additional paid-in capital

 

1,463,106

 

1,461,671

 

Accumulated deficit

 

(918,017

)

(905,610

)

Accumulated other comprehensive loss

 

(15,362

)

(4,776

)

Total stockholders’ equity

 

529,869

 

551,427

 

Total liabilities and stockholders’ equity

 

$

1,580,698

 

1,625,959

 

 

See accompanying notes to condensed consolidated financial statements.

 

2



Table of Contents

 

ASCENT CAPITAL GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

Amounts in thousands, except share amounts

(unaudited)

 

 

 

Three months ended
June 30,

 

Six months ended
June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

Net revenue

 

$

83,315

 

$

77,577

 

165,196

 

151,447

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Cost of services

 

11,391

 

9,597

 

22,450

 

18,727

 

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

 

18,030

 

18,466

 

35,837

 

38,423

 

Amortization of subscriber accounts and dealer network

 

39,349

 

39,025

 

77,430

 

76,741

 

Depreciation

 

2,696

 

1,997

 

4,602

 

3,650

 

Restructuring charges

 

 

407

 

 

4,186

 

Loss (gain) on sale of operating assets, net

 

(576

)

 

(1,313

)

459

 

 

 

70,890

 

69,492

 

139,006

 

142,186

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

12,425

 

8,085

 

26,190

 

9,261

 

 

 

 

 

 

 

 

 

 

 

Other income:

 

 

 

 

 

 

 

 

 

Interest income

 

1,075

 

47

 

1,966

 

237

 

Interest expense

 

(19,319

)

(10,397

)

(30,959

)

(20,798

)

Realized and unrealized loss on derivative financial instruments

 

 

(5,833

)

(2,044

)

(6,307

)

Refinancing expense

 

(4

)

 

(6,245

)

 

Other income (expense), net

 

827

 

1,386

 

1,849

 

2,335

 

 

 

(17,421

)

(14,797

)

(35,433

)

(24,533

)

 

 

 

 

 

 

 

 

 

 

Loss from continuing operations before income taxes

 

(4,996

)

(6,712

)

(9,243

)

(15,272

)

Income tax benefit (expense) from continuing operations

 

(765

)

1,783

 

(1,448

)

3,289

 

 

 

 

 

 

 

 

 

 

 

Net loss from continuing operations

 

(5,761

)

(4,929

)

(10,691

)

(11,983

)

 

 

 

 

 

 

 

 

 

 

Discontinued operations (note 4):

 

 

 

 

 

 

 

 

 

Earnings (loss) from discontinued operations

 

(1,506

)

(11,134

)

(1,790

)

53,175

 

Income tax benefit (expense)

 

74

 

(2,219

)

74

 

(4,287

)

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

 

(1,432

)

(13,353

)

(1,716

)

48,888

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

(7,193

)

(18,282

)

(12,407

)

36,905

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

(160

)

11,211

 

61

 

(2,739

)

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

 

(1,366

)

133

 

593

 

133

 

Unrealized loss on derivative contracts

 

(8,835

)

 

(11,240

)

 

Other comprehensive income (loss)

 

(10,361

)

11,344

 

(10,586

)

(2,606

)

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss)

 

$

(17,554

)

$

(6,938

)

(22,993

)

34,299

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted earnings (loss) per share (note 10)

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

(0.41

)

$

(0.35

)

(0.76

)

(0.84

)

Discontinued operations

 

(0.10

)

(0.93

)

(0.12

)

3.43

 

Net Income (loss)

 

$

(0.51

)

$

(1.28

)

(0.88

)

2.59

 

 

See accompanying notes to condensed consolidated financial statements.

 

3



Table of Contents

 

ASCENT CAPITAL GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

Amounts in thousands

(unaudited)

 

 

 

Six months ended

 

 

 

June 30,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

Net income (loss)

 

$

(12,407

)

36,905

 

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

 

 

 

 

 

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

 

1,716

 

(48,888

)

Amortization of subscriber accounts and dealer network

 

77,430

 

76,741

 

Depreciation

 

4,602

 

3,650

 

Stock based compensation

 

2,563

 

1,813

 

Deferred income tax expense

 

219

 

(80

)

Unrealized gain on derivative financial instruments

 

(6,793

)

(12,759

)

Refinancing expense

 

6,245

 

 

Loss (gain) on the sale of assets

 

(1,313

)

459

 

Long-term debt amortization

 

4,101

 

8,331

 

Other non-cash activity, net

 

4,314

 

2,846

 

Changes in assets and liabilities:

 

 

 

 

 

Trade receivables

 

(2,165

)

(2,140

)

Prepaid expenses and other assets

 

1,025

 

(6,233

)

Payables and other liabilities

 

938

 

2,960

 

Operating activities from discontinued operations, net

 

(1,368

)

(3,782

)

 

 

 

 

 

 

Net cash provided by operating activities

 

79,107

 

59,823

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Capital expenditures

 

(2,657

)

(1,779

)

Purchases of subscriber accounts

 

(78,885

)

(76,336

)

Purchases of marketable securities

 

(99,667

)

 

Net proceeds from sale of discontinued operations

 

 

99,488

 

Decrease in restricted cash

 

51,479

 

3,080

 

Proceeds from the sale of operating assets

 

6,486

 

 

Investing activities from discontinued operations, net

 

 

(3,196

)

 

 

 

 

 

 

Net cash provided by (used in) investing activities

 

(123,244

)

21,257

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Proceeds from long-term debt

 

967,200

 

28,000

 

Payments to long-term debt

 

(977,375

)

(27,800

)

Refinancing costs

 

(44,114

)

 

Stock option exercises

 

 

1,291

 

Purchases (and retirement) of common stock

 

(684

)

 

Financing activities from discontinued operations, net

 

 

(142

)

 

 

 

 

 

 

Net cash provided by (used in) financing activities

 

(54,973

)

1,349

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

(99,110

)

82,429

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

183,558

 

149,857

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

84,448

 

232,286

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

State taxes paid

 

$

2,064

 

1,797

 

Interest paid

 

15,332

 

12,057

 

 

See accompanying notes to condensed consolidated financial statements.

 

4



Table of Contents

 

ASCENT CAPITAL GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

 

(1)                                  Basis of Presentation

 

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

 

The unaudited interim financial information of the Company has been prepared in accordance with Article 10 of the Securities and Exchange Commission’s, or the SEC, Regulation S-X. Accordingly, it does not include all of the information required by generally accepted accounting principles in the U.S., or U.S. GAAP, for complete financial statements. The Company’s unaudited condensed consolidated financial statements as of June 30, 2012, and for the three and six months ended June 30, 2012 and 2011, include Ascent Capital and all of its direct and indirect subsidiaries.  The accompanying interim condensed consolidated financial statements are unaudited but, in the opinion of management, reflect all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the results for such periods.  The results of operations for any interim period are not necessarily indicative of results for the full year.  These condensed consolidated financial statements should be read in conjunction with the Ascent Capital Annual Report on Form 10-K for the year ended December 31, 2011 (the “2011 Form 10-K”).

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of revenue and expenses for each reporting period.  The significant estimates made in preparation of the Company’s condensed consolidated financial statements primarily relate to valuation of goodwill, other intangible assets, long-lived assets, deferred tax assets, derivative financial instruments, and the amount of the allowance for doubtful accounts. These estimates are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts them when facts and circumstances change. As the effects of future events cannot be determined with any certainty, actual results could differ from the estimates upon which the carrying values were based.

 

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

 

(2)                                  Recent Accounting Pronouncements

 

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

 

(3)                                  Correction of Immaterial Error

 

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

 

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

 

 

 

For the year ended December 31, 2011

 

 

 

As Reported

 

As Revised

 

 

 

 

 

 

 

Liabilities related to discontinued operations

 

$

7,101

 

16,001

 

Total current liabilities

 

114,313

 

123,213

 

Total liabilities

 

1,065,632

 

1,074,532

 

Accumulated deficit

 

(896,710

)

(905,610

)

Total stockholders’ equity

 

560,327

 

551,427

 

 

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

 

(4)                                  Discontinued Operations

 

During the three and six months ended June 30, 2012, the Company recorded additional costs of approximately $1,506,000 and $1,790,000, respectively, related to contract termination and other loss contingencies associated with discontinued operations.

 

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

 

On February 28, 2011, Ascent Capital completed the sale of 100% of the Content Distribution business to Encompass Digital Media, Inc.  Ascent Capital received cash proceeds of approximately $104,000,000.  Ascent Capital recorded a gain on the sale of $66,136,000 and the related income tax expense of $2,906,000 for the quarter ended March 31, 2011.  As part of the sale, Ascent Capital removed $14,751,000 from the foreign currency translation amount in accumulated other comprehensive income (loss), which related to the foreign operations that were included in the sale.  The Content Distribution business has been treated as a discontinued operation in the condensed consolidated financial statements for all applicable periods presented.

 

5



Table of Contents

 

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

 

 

 

Three months ended June 30,

 

Six months ended June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

Net revenue

 

$

 

2,365

 

$

 

24,186

 

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

 

(1,506

)

(11,134

)

(1,790

)

53,175

 

 


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

 

(5)                                  Investments in Marketable Securities

 

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

 

 

 

Six months ended June 30,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

Beginning Balance

 

$

40,377

 

 

Purchases

 

99,667

 

 

Sales (at cost)

 

 

 

Unrealized gain

 

593

 

 

Ending Balance

 

$

140,637

 

 

 

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

 

 

 

Three months ended June 30,

 

Six months ended June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

Accumulated other comprehensive loss

 

 

 

 

 

 

 

 

 

Beginning Balance

 

$

2,083

 

 

$

124

 

 

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

 

(1,366

)

 

593

 

 

Losses (gains) recognized into earnings, net of tax

 

 

 

 

 

Ending Balance

 

$

717

 

 

$

717

 

 

 

(6)                                Other Accrued Liabilities

 

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

 

 

 

June 30,
2012

 

December 31,
2011

 

 

 

 

 

 

 

Interest payable

 

$

10,418

 

$

2,847

 

Taxes payable

 

1,475

 

2,215

 

Legal accrual

 

9,220

 

9,316

 

Other

 

4,641

 

4,622

 

Total Other accrued liabilities

 

$

25,754

 

$

19,000

 

 

(7)                                  Restructuring Charges

 

There were no restructuring charges in continuing operations recorded for the three and six months ended June 30, 2012.  The Company recorded restructuring charges in continuing operations of $407,000 and $4,186,000 during the three and six months ended June 30, 2011.

 

6



Table of Contents

 

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

 

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

 

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

 

 

 

December 31, 2010

 

Additions

 

Deductions (a)

 

June 30, 2011

 

 

 

 

 

 

 

 

 

 

 

2010 Restructuring Plan

 

 

 

 

 

 

 

 

 

Severance and retention

 

$

3,590

 

4,186

 

(3,701

)

4,075

 

 

 

 

 

 

 

 

 

 

 

2008 Restructuring Plan

 

 

 

 

 

 

 

 

 

Severance

 

$

9

 

 

(9

)

 

Excess facility costs

 

211

 

 

(16

)

195

 

Total

 

$

220

 

 

(25

)

195

 

 

 

 

December 31, 2011

 

Additions

 

Deductions (a)

 

June 30, 2012

 

 

 

 

 

 

 

 

 

 

 

2010 Restructuring Plan

 

 

 

 

 

 

 

 

 

Severance and retention

 

$

1,886

 

 

(1,886

)

 

 

 

 

 

 

 

 

 

 

 

2008 Restructuring Plan

 

 

 

 

 

 

 

 

 

Excess facility costs

 

$

236

 

 

(64

)

172

 

 


(a) Primarily represents cash payments.

 

(8)                                  Accumulated Other Comprehensive Income (Loss)

 

The following table provides a summary of the changes in accumulated other comprehensive income (loss) for the period presented (amounts in thousands):

 

 

 

Foreign
currency
translation
adjustments

 

Unrealized
holding gain
(loss)

 

Pension
adjustments

 

Unrealized gain
(loss) on
derivatives

 

Accumulated
other
comprehensive
income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2011

 

$

(210

)

124

 

(4,690

)

 

(4,776

)

Current period change

 

61

 

593

 

 

(11,240

)

(10,586

)

As of June 30, 2012

 

$

(149

)

717

 

(4,690

)

(11,240

)

(15,362

)

 

(9)                                  Stock Compensation

 

In the second quarter of 2012, certain employees were granted awards for a total of 25,500 shares of restricted stock, vesting over a period of four years.  The fair values for the restricted stock awards were the closing prices of Ascent Capital Series A

 

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common stock on the applicable dates of grant.  The weighted average fair value of the restricted stock on an aggregate basis for all such grants was $50.47 per share.

 

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

 

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

 

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

 

However, since the Company recorded a loss from continuing operations for all periods presented, diluted EPS is computed the same as basic EPS. Diluted shares outstanding excluded 967,904 stock options and unvested restricted stock units for the three and six months ended June 30, 2012, respectively, because their inclusion would have been anti-dilutive.  Diluted shares outstanding excluded 773,983 stock options and unvested restricted stock units for the three and six months ended June 30, 2011, because their inclusion would have been anti-dilutive.

 

 

 

Three Months ended June 30,

 

Six Months ended June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

Weighted average Series A and Series B shares

 

14,077,562

 

14,277,199

 

14,072,331

 

14,251,833

 

 

 

 

 

 

 

 

 

 

 

 

(11)                           Long-Term Debt

 

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

 

 

 

June 30,
2012

 

December 31,
2011

 

 

 

 

 

 

 

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

 

$

 

$

345,577

 

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

 

 

98,676

 

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

 

 

98,978

 

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

 

 

256,558

 

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

 

 

27,629

 

Term Loan due June 30, 2012 (a, b)

 

 

60,000

 

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

 

 

65,300

 

9.125% Senior Notes due April 1, 2020

 

410,000

 

 

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

 

543,323

 

 

 

 

953,323

 

952,718

 

Less current portion of long-term debt

 

(5,500

)

(60,000

)

Long-term debt

 

$

947,823

 

$

892,718

 

 


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

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

 

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On March 23, 2012, Monitronics closed on a $410,000,000 privately placed debt offering of 9.125% Senior Notes due 2020 (the “Senior Notes”) and entered into a credit agreement which provides for a term loan with an aggregate principal amount of $550,000,000 and a revolving credit facility with an available principal amount of up to $150,000,000 (together, the “Credit Facility”).  The Senior Notes and Credit Facility are guaranteed by all of Monitronics’ existing subsidiaries, and the Credit Facility is secured by a pledge of all of the outstanding stock of Monitronics and all of its existing subsidiaries.  Ascent Capital has not guaranteed any of Monitronics’ obligations under the Senior Notes or the Credit Facility.

 

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

 

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

 

 

 

For the Six
Months Ended

 

 

 

June 30, 2012

 

 

 

 

 

Accelerated amortization of deferred financing costs

 

$

389

 

Accelerated amortization of securitization debt discount

 

6,679

 

Other refinancing costs

 

7,628

 

Gain on early termination of derivative instruments

 

(8,451

)

Total refinancing expenses

 

$

6,245

 

 

In connection with the March 2012 refinancing, the Company recorded deferred financing costs of $19,843,000 related to the Senior Notes and Credit Facility, which are included in Other assets on the accompanying condensed consolidated balance sheet as of June 30, 2012, and will be amortized over the term of the new respective debt instrument using the effective-interest method.

 

On the closing date of the Credit Facility, Monitronics also entered into an interest rate swap agreement, with terms similar to the Credit Facility term loan, in an aggregate notional amount of $550,000,000 in order to reduce the financial risk related to changes in interest rates associated with the floating rate term loan under the Credit Facility (the “Swap”).  The Swap has a maturity date of March 23, 2018 to match the term of the Credit Facility term loan.  The notional amount of the Swap will decrease over time matching the scheduled minimum principal payments of the term loan.  The Swap has been designated as an effective hedge of the Company’s variable rate debt and qualifies for hedge accounting.  See note 12 for further disclosures related to derivative instruments.  As a result of the Swap, the interest rate on the borrowings under the Credit Facility term loan has been effectively converted from variable to fixed at a rate of 6.3%.  On March 23, 2012, in connection with the refinancing, Monitronics terminated its previously outstanding interest rate agreements, which did not qualify for hedge accounting, resulting in a gain of $8,451,000.

 

Senior Notes

 

The Senior Notes, in the principal amount of $410,000,000, mature on April 1, 2020 and bear interest at 9.125% per annum.  Interest payments are due semi-annually on April 1 and October 1 of each year, beginning on October 1, 2012.  Monitronics has offered to exchange the Senior Notes for identical securities in a registered offering under the Securities Act of 1933, as amended.  The exchange offer expired on August 6, 2012.  See note 16 for further disclosure related to the exchange offer.

 

Credit Facility

 

In connection with the March 2012 refinancing, Monitronics entered into a new senior secured credit facility with the lenders party thereto and Bank of America, N.A., as administrative agent.  The Credit Facility provides a $550,000,000 term loan, at a 1% discount, and a $150,000,000 revolving credit facility.  The Credit Facility term loan bears interest at LIBOR, subject to a floor of 1.25%, plus 4.25% and matures on March 23, 2018.  Principal payments of $1,375,000 and interest on the term loan are due quarterly, beginning on June 30, 2012.  The Credit Facility revolver bears interest at LIBOR plus 4.25%, subject to a floor of 1.25%, and matures on March 23, 2017.  There is an annual commitment fee of 0.50% on unused portions of the revolving credit facility.  At any time after the occurrence of an event of default under the Credit Facility, the lenders may,

 

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among other options, declare any amounts outstanding under the Credit Facility immediately due and payable and terminate any commitment to make further loans under the Credit Facility.  In addition, failure to comply with restrictions contained in the Senior Notes indebtedness could lead to an event of default under the Credit Facility.  The obligations under the Credit Facility are secured by a pledge of the stock of Monitronics and all of its existing subsidiaries.

 

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

 

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

 

Remainder of 2012

 

$

2,750

 

2013

 

5,500

 

2014

 

5,500

 

2015

 

5,500

 

2016

 

5,500

 

2017

 

5,500

 

Thereafter

 

928,375

 

Total

 

$

958,625

 

 

(12)        Derivatives

 

The Company utilizes an interest rate swap to reduce the interest rate risk inherent in Monitronics’ variable rate Credit Facility term loan.  The valuation of this instrument is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatility. The Company incorporates credit valuation adjustments to appropriately reflect the respective counterparty’s nonperformance risk in the fair value measurements.

 

In March 2012, Monitronics entered into an interest rate swap agreement with an original notional amount of $550,000,000 in order to hedge changes in the variable rate interest expense of the Credit Facility term loan that matures on March 23, 2018.  Under the Swap, Monitronics receives interest at a rate based on the maximum of either three-month LIBOR or 1.25% (to mirror variable rate interest provisions of the underlying hedged debt), and pays interest at a fixed rate of 2.055%, effective March 23, 2012 through March 23, 2018.  The Swap is designated and qualifies as a cash flow hedging instrument, with the effective portion of the Swap’s change in fair value recorded in Other Comprehensive Income (OCI).  The Swap of the variable rate interest is deemed to be a highly effective hedge, and resulted in no gain or loss recorded for hedge ineffectiveness in the consolidated condensed statement of operations and comprehensive income (loss) for the three and six months ended June 30, 2012.  Amounts in OCI are reported in interest expense when the hedged interest payments on the underlying debt are recognized.  The fair value of the Swap was determined using a model with Level 2 inputs including quoted market prices for contracts with similar terms and maturity dates. Amounts of OCI relating to the Swap expected to be recognized in interest expense in the coming 12 months total $4,400,000.

 

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

 

 

 

Three months ended
June 30, 2012

 

Six months ended
June 30, 2012

 

 

 

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

 

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

 

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

 

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

 

 

 

 

 

 

 

 

 

 

 

Derivative designated as cash flow hedge:

 

 

 

 

 

 

 

 

 

Interest rate swap

 

(9,954,000

)

(1,119,000

)

(12,457,000

)

(1,217,000

)

 


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

 

On March 23, 2012, in connection with the refinancing, Monitronics terminated all of its previously outstanding derivative financial instruments and recorded a gain of $8,451,000.  These derivative financial instruments were not designated as

 

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hedges.  For the six months ended June 30, 2012, the realized and unrealized loss on derivative financial instruments includes settlement payments of $8,837,000 partially offset by a $6,793,000 unrealized gain related to the change in the fair value of these derivatives prior to their termination in March 2012.  For the three months ended June 30, 2011, the realized and unrealized loss on derivative financial instruments includes settlement payments of $9,431,000 partially offset by a $3,598,000 unrealized gain related to the change in the fair value of these derivatives.  For the six months ended June 30, 2011, the realized and unrealized loss on derivative financial instruments includes settlement payments of $19,066,000 partially offset by a $12,759,000 unrealized gain related to the change in the fair value of these derivatives.

 

See note 13, Fair Value Measurements, for additional information regarding the fair value of the Company’s derivative arrangements.

 

(13)          Fair Value Measurements

 

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

 

·       Level 1 - Quoted prices for identical instruments in active markets.

·       Level 2 - Quoted prices for similar instruments in active or inactive markets and valuations derived from models where all significant inputs are observable in active markets.

·       Level 3 - Valuations derived from valuation techniques in which one or more significant inputs are unobservable in any market.

 

The following summarizes the fair value level of assets and liabilities that are measured on a recurring basis at June 30, 2012 and December 31, 2011 (amounts in thousands):

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

 

 

 

 

 

 

 

 

 

 

June 30, 2012

 

 

 

 

 

 

 

 

 

Money market funds (a)

 

$

78,927

 

 

 

78,927

 

Investments in marketable securities (b)

 

140,637

 

 

 

140,637

 

Derivative financial instruments - liabilities

 

 

(11,240

)

 

(11,240

)

Total

 

$

219,564

 

(11,240

)

 

208,324

 

 

 

 

 

 

 

 

 

 

 

December 31, 2011

 

 

 

 

 

 

 

 

 

Money market funds (a)

 

$

168,622

 

 

 

168,622

 

Investments in marketable securities (b)

 

40,377

 

 

 

40,377

 

Derivative financial instruments - assets

 

$

 

25

 

 

25

 

Derivative financial instruments - liabilities

 

 

(19,320

)

(16,959

)

(36,279

)

Total

 

$

208,999

 

(19,295

)

(16,959

)

172,745

 

 


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

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

 

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

 

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

 

 

 

Six months ended June 30,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

Beginning balance

 

$

(16,959

)

(42,935

)

Unrealized gain recognized

 

16,959

 

11,926

 

Ending balance

 

$

 

(31,009

)

 

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

 

(14)          Income Taxes

 

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

 

(15)          Commitments, Contingencies and Other Liabilities

 

The Company is involved in litigation and similar claims incidental to the conduct of its business. Matters that are probable of unfavorable outcome to the Company and which can be reasonably estimated are accrued. Such accruals are based on information known about the matters, management’s estimate of the outcomes of such matters and experience in contesting, litigating and settling similar matters.  In management’s opinion, none of the pending actions is likely to have a material adverse impact on the Company’s financial position or results of operations.

 

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(16)          Subsequent Events

 

On July 9, 2012, Monitronics commenced an exchange offer (the “Exchange Offer”) in which up to $410,000,000 aggregate principal amount of exchange notes (the “Exchange Notes”) registered under the Securities Act were offered in exchange for the same principal amount of the outstanding Senior Notes. The terms of the Exchange Notes and the outstanding Senior Notes are substantially identical, except that the transfer restrictions and registration rights relating to the Senior Notes do not apply to the Exchange Notes. The Exchange Offer was commenced in order to satisfy Monitronics’ obligations under the registration rights agreement related to the outstanding Senior Notes. The Exchange Offer expired on August 6, 2012 and all the Senior Notes were tendered for exchange. On August 7, 2012, Monitronics issued $410,000,000 aggregate principal amount of Exchange Notes in exchange for the tendered Notes.

 

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

 

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

 

·       general business conditions and industry trends;

 

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

 

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

 

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

 

·       integration of acquired businesses;

 

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

 

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

 

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

 

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

 

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

 

·       availability of qualified personnel;

 

·       Monitronics’ anticipated growth strategies;

 

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

 

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

 

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

 

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

 

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

 

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

 

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The following discussion and analysis provides information concerning our results of operations and financial condition.  This discussion should be read in conjunction with our accompanying condensed consolidated financial statements and the notes thereto included elsewhere herein and our Annual Report on Form 10-K for the year ended December 31, 2011.

 

Overview

 

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

 

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

 

Attrition

 

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

 

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

 

 

 

Twelve Months Ended
June 30,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

Beginning balance of accounts

 

688,119

 

645,874

 

Accounts purchased (a)

 

108,600

 

124,580

 

Accounts canceled (b)

 

(81,747

)

(74,037

)

Canceled accounts guaranteed to be refunded from holdback

 

(3,140

)

(8,298

)

Ending balance of accounts

 

711,832

 

688,119

 

Monthly weighted average accounts

 

701,515

 

667,865

 

Attrition rate (a)

 

(11.7

)%

(11.1

)%

 


(a)    During the three months ended June 30, 2012 and 2011, Monitronics purchased 26,358 and 28,559 subscriber accounts, respectively.  Monthly recurring revenue purchased during the three months ended June 30, 2012 and 2011 was approximately $1,165,000  and $1,236,000, respectively.  During the six months ended June 30, 2012 and 2011, Monitronics purchased 50,532 and 56,623 subscriber accounts, respectively.  Monthly recurring revenue purchased during the six months ended June 30, 2012 and 2011 was approximately $2,214,000 and $2,449,000, respectively.

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

 

Monitronics also analyzes its attrition by classifying accounts into annual pools based on the year of origination. Monitronics then tracks the number of accounts that cancel as a percentage of the initial number of accounts purchased for each pool for each year subsequent to its purchase.  Based on the average cancellation rate across the pools, in recent years Monitronics has averaged less than 1% attrition within the initial 12-month period after considering the accounts which were replaced or refunded by the dealers at no additional cost to Monitronics.  Over the next three years of the subscriber account life, the number of subscribers that cancel as a percentage of the initial number of subscribers in that pool gradually increases and historically has peaked between the third and fourth years.  The peak between the third and fourth years is primarily a result of the buildup of subscribers that moved or no longer

 

15



Table of Contents

 

had need for the service prior to the third year but did not cancel their service until the end of their three-year contract.  After the fourth year, the number of subscribers that cancel as a percentage of the initial number of subscribers in that pool declines.

 

Adjusted EBITDA

 

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

 

Results of Operations

 

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

 

 

 

Three months ended

 

Six months ended

 

 

 

June 30,

 

June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

Net revenue (a)

 

$

83,315

 

77,577

 

$

165,196

 

151,477

 

Cost of services

 

11,391

 

9,597

 

22,450

 

18,727

 

Selling, general, and administrative

 

18,030

 

18,466

 

35,837

 

38,423

 

Amortization of subscriber accounts and dealer network

 

39,349

 

39,025

 

77,430

 

76,741

 

Restructuring charges

 

 

407

 

 

4,186

 

Loss (gain) on sale of operating assets

 

(576

)

 

(1,313

)

459

 

Interest expense

 

19,319

 

10,397

 

30,959

 

20,798

 

Realized and unrealized loss on derivative financial instruments

 

 

5,833

 

2,044

 

6,307

 

Income tax benefit (expense) from continuing operations

 

(765

)

1,783

 

(1,448

)

3,289

 

Net loss from continuing operations

 

(5,761

)

(4,929

)

(10,691

)

(11,983

)

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

 

(1,432

)

(13,353

)

(1,716

)

48,888

 

Net income (loss)

 

(7,193

)

(18,282

)

(12,407

)

36,905

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA (b)

 

 

 

 

 

 

 

 

 

Monitronics business Adjusted EBITDA

 

$

57,218

 

53,952

 

$

113,703

 

105,605

 

Corporate Adjusted EBITDA

 

(650

)

(1,866

)

(1,069

)

(7,619

)

Total Adjusted EBITDA

 

$

56,568

 

52,086

 

$

112,634

 

97,986

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA as a percentage of Revenue

 

 

 

 

 

 

 

 

 

Monitronics business

 

68.7

%

69.5

%

68.8

%

69.7

%

Corporate

 

(0.8

)%

(2.4

)%

(0.6

)%

(5.0

)%

 

16



Table of Contents

 


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

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

 

Net revenue.   Net revenue increased $5,738,000, or 7.4%, and $13,719,000, or 9.1%, for the three and six months ended June 30, 2012, respectively, as compared to the corresponding prior year periods.  The increase in net revenue is attributable to an increase in the number of subscriber accounts from 688,119 as of June 30, 2011 to 711,832 as of June 30, 2012.  In addition, average monthly revenue per subscriber increased from $36.80 as of June 30, 2011 to $37.97 as of June 30, 2012.  The increase in net revenue for the six months ended June 30, 2012 is also attributable to a $2,295,000 fair value adjustment, associated with deferred revenue acquired in the Monitronics acquisition, which reduced net revenue for the six months ended June 30, 2011.

 

Cost of services .  Cost of services increased $1,794,000, or 18.7%, and $3,723,000, or 19.9%, for the three and six months ended June 30, 2012, respectively, as compared to the corresponding prior year periods.  The increase is primarily attributable to an increased number of accounts monitored across the cellular network, which result in higher telecommunications and service costs.  Cost of services as a percent of net revenue increased to 13.7% and 13.6% for the three and six months ended June 30, 2012, respectively, as compared to 12.4% for the three and six months ended June 30, 2011.

 

Selling, general and administrative.  Selling, general and administrative costs (“SG&A”) decreased $436,000, or 2.4%, and $2,586,000, or 6.7%, for the three and six months ended June 30, 2012, respectively, as compared to the corresponding prior year periods.  The decrease is primarily attributable to decreased administrative and corporate expenses as a result of the sale of the Content Distribution business and shutdown of the Systems Integration business in 2011. The decrease was partially offset by an increase in Monitronics SG&A costs and stock-based compensation expense.  The increased Monitronics SG&A costs are attributable to increased payroll and marketing expenses of $517,000 and $937,000 for the three and six months ended June 30, 2012, respectively, as compared to prior year corresponding periods.  Stock-based compensation expense increased $85,000 to $1,271,000 for the three months ended June 30, 2012 and increased $750,000 to $2,563,000 for the six months ended June 30, 2012.  The increase in stock-based compensation expense is related to restricted stock and stock option awards granted to certain employees and directors during 2011 and 2012. SG&A as a percent of net revenue decreased from 23.8% for the three months ended June 30, 2011 to 21.6% for the three months ended June 30, 2012 and decreased from 25.4% for the six months ended June 30, 2011 to 21.7% for the six months ended June 30, 2012

 

Amortization of subscriber accounts and dealer network.   Amortization of subscriber accounts and dealer networks increased $324,000 and $689,000 for the three and six months ended June 30, 2012, respectively, as compared to the corresponding prior year periods.  The increase in subscriber account amortization is primarily attributable to increased subscribers as compared to the prior year corresponding periods.

 

Restructuring Charges.   The Company recorded restructuring charges from continuing operations of $407,000 and $4,186,000 for the three and six months ended June 30, 2011, respectively.  There were no restructuring charges recorded during the three and six months ended June 30, 2012.

 

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

 

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

 

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Table of Contents

 

The following table provides the activity and balances of the restructuring reserve (amounts in thousands).

 

 

 

December 31, 2010

 

Additions

 

Deductions (a)

 

June 30, 2011

 

 

 

 

 

 

 

 

 

 

 

2010 Restructuring Plan

 

 

 

 

 

 

 

 

 

Severance and retention

 

$

3,590

 

4,186

 

(3,701

)

4,075

 

 

 

 

 

 

 

 

 

 

 

2008 Restructuring Plan

 

 

 

 

 

 

 

 

 

Severance

 

$

9

 

 

(9

)

 

Excess facility costs

 

211

 

 

(16

)

195

 

Total

 

$

220

 

 

(25

)

195

 

 

 

 

December 31, 2011

 

Additions

 

Deductions (a)

 

June 30, 2012

 

 

 

 

 

 

 

 

 

 

 

2010 Restructuring Plan

 

 

 

 

 

 

 

 

 

Severance and retention

 

$

1,886

 

 

(1,886

)

 

 

 

 

 

 

 

 

 

 

 

2008 Restructuring Plan

 

 

 

 

 

 

 

 

 

Excess facility costs

 

$

236

 

 

(64

)

172

 

 


(a) Primarily represents cash payments.

 

Loss (gain) on the sale of assets .  During the six months ended June 30, 2012, the Company sold land and building improvements for $5,066,000 resulting in a pre-tax gain of $1,845,000.  In addition, during the six months ended June 30, 2012, the Company sold its 50% interest in an equity method investment for $1,420,000 resulting in a pre-tax loss of $532,000.  During the six months ended June 30, 2011, the Company disposed of certain property and equipment resulting in a pre-tax loss of $459,000.

 

Interest Expense.   Interest expense increased $8,922,000 and $10,161,000 for the three and six months ended June 30, 2012, respectively, as compared to the corresponding prior year periods.  The increase in 2012 interest expense as compared to the respective prior year period is primarily due to the presentation of interest cost related to the Company’s current derivative instrument. Interest cost related to the Company’s current derivative instrument is presented in Interest expense on the statement of operations as the related derivative instrument is an effective hedge of the Company’s interest rate risk for which hedge accounting is applied.  As the Company did not apply hedge accounting on its prior derivative instruments, the related interest costs incurred prior to March 23, 2012 are presented in Realized and unrealized loss on derivative financial instruments in the condensed consolidated statements of operations and comprehensive income (loss).  In addition, the increase in interest expense is due to the increase in debt and the increase in interest rates associated with the Senior Notes and Credit Facility as compared to the Company’s prior debt obligations.  Interest expense for the three and six months ended June 30, 2012 includes amortization of debt discount of $186,000 and $4,101,000, respectively.  Interest expense for the three and six months ended June 30, 2011 includes amortization of debt discount of $4,228,000 and $8,331,000, respectively.

 

Realized and unrealized loss on derivative financial instruments.  Realized and unrealized loss on derivative financial instruments for the three and six months ended June 30, 2012 was $0 and $2,044,000, respectively .  Realized and unrealized loss on derivative financial instruments for the three and six months ended June 30, 2011 was $5,833,000 and $6,307,000, respectively.  For the three and six months ended June 30, 2012, the realized and unrealized loss on derivative financial instruments includes settlement payments of $8,837,000 partially offset by a $6,793,000 unrealized gain related to the change in the fair value of these derivatives prior to their termination on March 23, 2012.  For the three months ended June 30, 2011, the realized and unrealized loss on derivative financial instruments includes settlement payments of $9,431,000 partially offset by a $3,598,000 unrealized gain related to the change in the fair value of these derivatives.  For the six months ended June 30, 2011, the realized and unrealized loss on derivative financial instruments includes settlement payments of $19,066,000 partially offset by a $12,759,000 unrealized gain related to the change in the fair value of these derivatives.

 

Income tax benefit (expense) from continuing operations.   The Company had a pre-tax loss from continuing operations of $4,996,000 and $9,243,000 for the three months and six months ended June 30, 2012, respectively, and an income tax expense of $765,000 and $1,448,000 for the three and six months ended June 30, 2012, respectively.  The Company had a pre-tax loss from continuing operations of $6,712,000 and $15,272,000 for the three months and six months ended June 30, 2011, respectively, and an income tax benefit of $1,783,000 and $3,289,000 for the three and six months ended June 30, 2012, respectively.  The Company recorded charges of $3,263,000 and $1,943,000 to increase the valuation allowance which reduced our net income tax benefit (expense) from continuing operations for the six months ended June 30, 2012 and 2011, respectively.

 

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Table of Contents

 

Earnings (loss) from discontinued operations, net of income taxes.   Earnings (loss) from discontinued operations, net of income taxes, were $(1,432,000) and $(1,716,000) for the three and six months ended June 30, 2012, respectively, and $(13,353,000) and $48,888,000 for the three and six months ended June 30, 2011, respectively.  These amounts include the results of the Systems Integration business which was shut down in June 2011 and the Content Distribution business which was sold at the end of February 2011.  The 2011 amount also includes the gain on sale of the Content Distribution business of $66,136,000 and the related income tax expense of $2,906,000.

 

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

 

 

 

Three months ended

 

Six months ended

 

 

 

June 30,

 

June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

Total Adjusted EBITDA

 

$

56,568

 

52,086

 

$

112,634

 

97,986

 

Amortization of subscriber accounts and dealer network

 

(39,349

)

(39,025

)

(77,430

)

(76,741

)

Depreciation

 

(2,696

)

(1,997

)

(4,602

)

(3,650

)

Stock-based and long-term incentive compensation

 

(1,271

)

(1,186

)

(2,563

)

(1,813

)

Restructuring charges

 

 

(407

)

 

(4,186

)

Realized and unrealized loss on derivative instruments

 

 

(5,833

)

(2,044

)

(6,307

)

Refinancing costs

 

(4

)

 

(6,245

)

 

Interest income

 

1,075

 

47

 

1,966

 

237

 

Interest expense

 

(19,319

)

(10,397

)

(30,959

)

(20,798

)

Income tax benefit (expense) from continuing operations

 

(765

)

1,783

 

(1,448

)

3,289

 

 

 

 

 

 

 

 

 

 

 

Net loss from continuing operations

 

$

(5,761

)

(4,929

)

$

(10,691

)

(11,983

)

 

Adjusted EBIDTA increased $4,482,000, or 8.6%, and $14,648,000, or 14.9%, for the three and six months ended June 30, 2012 as compared to the respective prior year periods.  The increase in Adjusted EBITDA was primarily due to revenue growth and decreased selling, general and administrative costs.  Monitronics Adjusted EBIDTA was $57,218,000 and $113,703,000 for the three and six months ended June 30, 2012, respectively, as compared to $53,952,000 and $105,605,000 for the three and six months ended June 30, 2011, respectively.

 

Discontinued Operations

 

During the three and six months ended June 30, 2012, the Company recorded additional costs of approximately $1,506,000 and $1,790,000, respectively, related to contract termination and other loss contingencies associated with discontinued operations.

 

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

 

On February 28, 2011, Ascent Capital completed the sale of 100% of the Content Distribution business to Encompass.  Ascent Capital received cash proceeds of approximately $104,000,000.  Ascent Capital recorded a gain on the sale of $66,136,000 and the related income tax expense of $2,906,000 for the quarter ended March 31, 2011.  The Content Distribution business has been treated as a discontinued operation in the condensed consolidated financial statements for all applicable periods presented.

 

Liquidity and Capital Resources

 

At June 30, 2012, we had $84,448,000 of cash and cash equivalents, $7,717,000 of current restricted cash, and $140,637,000 of marketable securities on a consolidated basis.  We may use a portion of these assets to decrease debt obligations, fund stock repurchases, or fund potential strategic acquisitions or investment opportunities.

 

Additionally, our other source of funds is our cash flows from operating activities which are primarily generated from the operations of Monitronics.  During the six months ended June 30, 2012 and 2011, our cash flow from operating activities was

 

19



Table of Contents

 

$79,107,000 and $59,823,000, respectively.  The primary driver of our cash flow from operating activities is Adjusted EBITDA.  Fluctuations in our Adjusted EBITDA and the components of that measure are discussed in “Results of Operations” above.  In addition, our cash flow from operating activities may be significantly impacted by changes in working capital.

 

During the six months ended June 30, 2012 and 2011, the Company used cash of $78,885,000 and $76,336,000, respectively, to fund purchases of subscriber accounts net of holdback and guarantee obligations.  In addition, during the six months ended June 30, 2012 and 2011, the Company used cash of $2,657,000 and $1,779,000, respectively, to fund our capital expenditures.  In order to improve our investment rate of return, the Company purchased marketable securities consisting primarily of diversified corporate bond funds for cash of $99,667,000 during the six months ended June 30, 2012.

 

In considering our liquidity requirements for 2012, we evaluated our known future commitments and obligations.  We will require the availability of funds to finance the strategy of Monitronics, our primary operating subsidiary, which is to grow through subscriber account purchases.  We also considered the expected cash flow from Monitronics, as this business is the driver of our operating cash flows.  In addition, we considered the borrowing capacity under Monitronics’ new Credit Facility, under which Monitronics could borrow $150,000,000.  Based on this analysis, we expect that cash on hand, cash flow generated from operations and borrowings under the Monitronics’ Credit Facility will provide sufficient liquidity to fund our anticipated current requirements.

 

The existing long-term debt of Monitronics at June 30, 2012 includes the principal balance of $958,625,000 under its Senior Notes and Credit Facility.  The Senior Notes have an outstanding principal balance of $410,000,000 as of June 30, 2012 and mature on April 1, 2020.  The Credit Facility term loan has an outstanding principal balance of $548,625,000 as of June 30, 2012 and requires principal payments of $1,375,000 per quarter with the remaining outstanding balance becoming due on March 23, 2018.

 

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

 

20



Table of Contents

 

Item 3.   Quantitative and Qualitative Disclosure about Market Risk

 

Interest Rate Risk

 

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

 

Tabular Presentation of Interest Rate Risk

 

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

 

Year of Maturity

 

Fixed Rate
Derivative
Instrument (a)

 

Variable Rate
Debt

 

Fixed Rate
Debt

 

Total

 

 

 

 

 

 

 

 

 

 

 

2012

 

$

 

2,750

 

 

2,750

 

2013

 

 

5,500

 

 

5,500

 

2014

 

 

5,500

 

 

5,500

 

2015

 

 

5,500

 

 

5,500

 

2016

 

 

5,500

 

 

5,500

 

Thereafter

 

11,240

 

523,875

 

410,000

 

945,115

 

Total

 

$

11,240

 

548,625

 

410,000

 

969,865

 

 


(a)

The derivative financial instrument reflected in this column includes an interest rate swap. The average interest rate paid on the swap is 6.3% and the average interest rate received is the 3-month LIBOR rate, subject to a 1.25% LIBOR floor, plus 4.25%. See notes 11, 12 and 13 to our condensed consolidated financial statements included in this quarterly report for further information.

 

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

 

Item 4.   Controls and Procedures

 

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

 

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

 

21



Table of Contents

 

ASCENT CAPITAL GROUP, INC. AND SUBSIDIARIES

 

PART II - OTHER INFORMATION

 

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

 

(c) Purchases of Equity Securities by the Issuer

 

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

 

Period

 

Total number of
shares
purchased
(surrendered)

 

Average price
paid per share

 

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

 

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

 

04/01/12 - 04/30/12

 

581

(1)

$

48.00

 

 

 

05/01/12 - 05/31/12

 

400

(2)

49.94

 

400

 

 

(2)

06/01/12 - 06/30/12

 

16,471

(2),(3)

$

49.96

 

13,317

 

 

(2)

Total

 

17,452

 

$

49.89

 

13,717

 

 

 

 


(1)

Represents shares withheld in payment of withholding taxes by certain of our executive officers upon vesting of their restricted share awards.

(2)

On June 16, 2011 the Company announced that it received authorization to implement a stock repurchase program, pursuant to which it may purchase up to $25,000,000 of its shares of Series A Common Stock from time to time. As of June 30, 2012, up to $12,827,000 of Series A Common Stock may be purchased under the program.

(3)

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

 

22



Table of Contents

 

Item 6 Exhibits

 

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

 

 

10.1

Form of Long-Term Restricted Stock Award Agreement under the Ascent Capital Group, Inc. 2008 Incentive Plan (the “2008 Plan”) for Non-Executive Officers.*

 

10.2

Form of Long-Term Non-Qualified Stock Option Agreement under the 2008 Plan for Non-Executive Officers. *

 

10.3

Form of Long-Term Restricted Stock Award Agreement under the 2008 Plan for Executive Officers of Ascent Capital Group, Inc. (“Ascent”) and Monitronics International, Inc. (“Monitronics”). *

 

10.4

Form of Long-Term Non-Qualified Stock Option Agreement under the 2008 Plan for Executive Officers of Ascent and Monitronics. *

 

10.5

Form of Short-Term Restricted Stock Award Agreement under the 2008 Plan for Executive Officers. *

 

10.6

Long-Term Restricted Stock Award Agreement under the 2008 Plan for William R. Fitzgerald, dated March 15, 2011. *

 

10.7

Long-Term Restricted Stock Award Agreement under the 2008 Plan for William E. Niles, dated March 15, 2011. *

 

31.1

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

 

31.2

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

 

32

Section 1350 Certification **

 

101.INS

XBRL Instance Document

 

101.SCH

XBRL Taxonomy Extension Schema Document

 

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

 

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

 

101.LAB

XBRL Taxonomy Extension Labels Linkbase Document

 

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

 


*                  Filed herewith.

**           Furnished herewith.

 

23



Table of Contents

 

SIGNATURES

 

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

 

 

 

 

ASCENT CAPITAL GROUP, INC.

 

 

 

 

 

 

Date:

August 9, 2012

By:

/s/ William R. Fitzgerald

 

 

 

     William R. Fitzgerald

 

 

 

     Chairman, President and Chief Executive Officer

 

 

 

 

 

 

Date:

August 9, 2012

By:

/s/ Michael R. Meyers

 

 

 

     Michael R. Meyers

 

 

 

        Senior Vice President and Chief Financial Officer

 

24



Table of Contents

 

EXHIBIT INDEX

 

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

 

 

10.1

Form of Long-Term Restricted Stock Award Agreement under the Ascent Capital Group, Inc. 2008 Incentive Plan (the “2008 Plan”) for Non-Executive Officers. *

 

10.2

Form of Long-Term Non-Qualified Stock Option Agreement under the 2008 Plan for Non-Executive Officers. *

 

10.3

Form of Long-Term Restricted Stock Award Agreement under the 2008 Plan for Executive Officers of Ascent Capital Group, Inc. (“Ascent”) and Monitronics International, Inc. (“Monitronics”). *

 

10.4

Form of Long-Term Non-Qualified Stock Option Agreement under the 2008 Plan for Executive Officers of Ascent and Monitronics. *

 

10.5

Form of Short-Term Restricted Stock Award Agreement under the 2008 Plan for Executive Officers. *

 

10.6

Long-Term Restricted Stock Award Agreement under the 2008 Plan for William R. Fitzgerald, dated March 15, 2011. *

 

10.7

Long-Term Restricted Stock Award Agreement under the 2008 Plan for William E. Niles, dated March 15, 2011. *

 

31.1

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

 

31.2

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

 

32

Section 1350 Certification **

 

101.INS

XBRL Instance Document

 

101.SCH

XBRL Taxonomy Extension Schema Document

 

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

 

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

 

101.LAB

XBRL Taxonomy Extension Labels Linkbase Document

 

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

 


*                  Filed herewith.

**           Furnished herewith.

 

25


Exhibit 10.1

 

FORM OF
ASCENT CAPITAL GROUP, INC.
2008 INCENTIVE PLAN
RESTRICTED STOCK AWARD AGREEMENT

 

THIS AGREEMENT (this “Agreement”) is made as of                         (the “Grant Date”), by and between ASCENT CAPITAL GROUP, INC., a Delaware corporation (the “Company”), and the person signing as “Grantee” on the signature page hereof (“Grantee”).

 

The Company has adopted the Ascent Capital Group, Inc. 2008 Incentive Plan (the “Plan”), a copy of which is attached to this Agreement as Exhibit A and by this reference made a part hereof, for the benefit of eligible employees of the Company and its Subsidiaries.  Capitalized terms used and not otherwise defined in this Agreement will have the meaning ascribed to them in the Plan.

 

Pursuant to the Plan, the Compensation Committee (the “Committee”) has determined that it would be in the interest of the Company and its stockholders to award shares of common stock to Grantee, subject to the conditions and restrictions set forth herein and in the Plan, in order to provide Grantee with additional remuneration for services rendered, to encourage Grantee to remain in the employ of the Company or its Subsidiaries and to increase Grantee’s personal interest in the continued success and progress of the Company.

 

The Company and Grantee therefore agree as follows:

 

1.             Award .  Pursuant to the terms of the Plan and in consideration of the covenants and promises of Grantee herein contained, the Company hereby awards to Grantee as of the Grant Date the number of shares of Ascent Capital Group, Inc. Series A Common Stock, par value $0.01 per share, set forth on Schedule 1 hereto, subject to the conditions and restrictions set forth below and in the Plan (the “Restricted Shares”).

 

2.             Issuance of Restricted Shares at Beginning of the Restriction Period .  Upon issuance of the Restricted Shares, such Restricted Shares will be registered in a book entry account (the “Account”) in the name of Grantee.  During the Restriction Period, each of the Account, any certificates representing the Restricted Shares that may be issued during the Restriction Period, and any securities constituting Retained Distributions will bear a restrictive legend to the effect that ownership of the Restricted Shares (and such Retained Distributions), and the enjoyment of all rights appurtenant thereto, are subject to the restrictions, terms and conditions provided in the Plan and this Agreement.  Any such certificates will remain in the custody of the Company, and upon their issuance Grantee will deposit with the Company stock powers or other instruments of assignment, each endorsed in blank, so as to permit retransfer to the Company of all or any portion of the Restricted Shares and any securities constituting Retained Distributions that will be forfeited or otherwise not become vested in accordance with the Plan and this Agreement.

 

3.             Restrictions .  Restricted Shares will constitute issued and outstanding shares of the Company’s Series A Common Stock for all corporate purposes.  Grantee will have the right

 



 

to vote such Restricted Shares, to receive and retain such dividends and distributions, as the Committee may in its sole discretion designate, paid or distributed on such Restricted Shares and to exercise all other rights, powers and privileges of a holder of Series A Common Stock with respect to such Restricted Shares, except that (a) Grantee will not be entitled to delivery of the stock certificate or certificates representing such Restricted Shares until the Restriction Period shall have expired and unless all other vesting requirements with respect thereto shall have been fulfilled or waived, (b) the Company will retain custody of any stock certificate or certificates representing the Restricted Shares during the Restriction Period as provided in Section 8.2 of the Plan, (c) other than such dividends and distributions as the Committee may in its sole discretion designate, the Company or its designee will retain custody of all Retained Distributions made or declared with respect to the Restricted Shares (and such Retained Distributions will be subject to the same restrictions, terms and vesting and other conditions as are applicable to the Restricted Shares) until such time, if ever, as the Restricted Shares with respect to which such Retained Distributions shall have been made, paid or declared shall have become vested, and such Retained Distributions will not bear interest or be segregated in a separate account, (d) Grantee may not sell, assign, transfer, pledge, exchange, encumber or dispose of the Restricted Shares or any Retained Distributions or Grantee’s interest in any of them during the Restriction Period and (e) a breach of any restrictions, terms or conditions provided in the Plan or established by the Committee with respect to any Restricted Shares or Retained Distributions will cause a forfeiture of such Restricted Shares and any Retained Distributions with respect thereto.

 

4.             Vesting and Forfeiture of Restricted Shares .  Subject to earlier vesting in accordance with the provisions of Paragraph 7(b) below, Grantee will become vested as to (a)      % of the Restricted Shares subject to this Agreement on each of                   (b)      % of the Restricted Shares subject to this Agreement on each of                   and (c)       % of the Restricted Shares subject to this Agreement on each of                  , each such date being a Vesting Date; provided, however, that Grantee will not vest, pursuant to this Paragraph 4, in Restricted Shares as to which Grantee would otherwise vest as of a given date if Grantee has not been continuously employed by the Company or its Subsidiaries from the date of this Agreement through such date (the vesting or forfeiture of such shares in such event to be governed instead by the provisions of Paragraph 5).  Notwithstanding the foregoing, if any date on which vesting would otherwise occur is a Saturday, Sunday or a holiday, such vesting will instead occur on the business day next following such date.

 

5.             Early Termination or Vesting .  Subject to Section 25 hereof:

 

(a)           If Grantee dies while employed by the Company or a Subsidiary of the Company (a “Company Subsidiary”), then the Award, to the extent not theretofore vested, will immediately become fully vested;

 

(b)           If Grantee’s employment with the Company or a Company Subsidiary terminates by reason of Disability, then the Award, to the extent not theretofore vested, will immediately become fully vested;

 

(c)           If the Company or a Company Subsidiary terminates Grantee’s employment without Cause (as defined in clause (f) below), then the portion of the Award not theretofore vested that otherwise would have become vested during the remainder of the

 

2



 

calendar quarter in which Grantee’s employment is terminated will become vested on the date of Grantee’s termination of employment;

 

(d)           If Grantee’s employment with the Company or a Company Subsidiary is terminated by Grantee for Good Reason (as defined in Section 25), then the portion of the Award not theretofore vested that otherwise would have become vested during the remainder of the calendar quarter in which Grantee’s employment is terminated will become vested on the date of Grantee’s termination of employment; and

 

(e)           Unless otherwise determined by the Committee in its sole discretion, if Grantee’s employment with the Company or a Company Subsidiary terminates for any reason other than as described in the immediately preceding clauses (a) through (d), then the Award, to the extent not theretofore vested, will be forfeited immediately.

 

(f)            For purposes of this Section 5, “Cause” means (i) any act or omission that constitutes a breach by Grantee of any of his material obligations under the Employment Agreements; (ii) the continued failure or refusal of Grantee to substantially perform the material duties required of him as an officer and/or employee of the Company; (iii) any material violation by Grantee of any policy, rule or regulation of the Company or any law or regulation applicable to the business of the Company; (iv) any act or omission by Grantee constituting fraud, dishonesty or misrepresentation; (v) Grantee’s gross negligence in the performance of his duties; (vi) Grantee’s conviction of, or plea of guilty or nolo contendere to, any crime (whether or not involving the Company) that constitutes a felony or crime of moral turpitude or is punishable by imprisonment of 30 days or more; or (g) any other misconduct by Grantee that is materially injurious to the financial condition or business reputation of, or is otherwise materially injurious to, the Company.

 

6.             Completion of the Restriction Period .  On each Vesting Date with respect to each award of Restricted Shares, and the satisfaction of any other applicable restrictions, terms and conditions (a) the applicable portion of such Restricted Shares will become vested and (b) any Retained Distributions with respect to such Restricted Shares will become vested to the extent that the Restricted Shares related thereto shall have become vested, all in accordance with the terms of this Agreement.  Any Restricted Shares and Retained Distributions that shall not become vested by the final Vesting Date will be forfeited to the Company, and Grantee will not thereafter have any rights (including dividend and voting rights) with respect to such Restricted Shares or any Retained Distributions that are so forfeited.

 

7.             Adjustments; Early Vesting in Certain Events .

 

(a)           The Restricted Shares will be subject to adjustment (including, without limitation, as to the number of Restricted Shares) in the sole discretion of the Committee and in such manner as the Committee may deem equitable and appropriate in connection with the occurrence of any of the events described in Section 4.2 of the Plan following the Grant Date.

 

(b)           Subject to Section 25 hereof, upon the occurrence of any Approved Transaction, Board Change or Control Purchase, the restrictions in Paragraph 3 will lapse.

 

3



 

Notwithstanding the foregoing, the Committee may, in its sole discretion, determine that the restrictions in Paragraph 3 will not lapse on an accelerated basis in connection with an Approved Transaction if the Board or the surviving or acquiring corporation, as the case may be, makes or causes to be made effective provision for the taking of such action as in the opinion of the Committee is equitable and appropriate to substitute a new Award for the Award evidenced by this Agreement or to assume this Agreement and the Award evidenced hereby and in order to make such new or assumed Award, as nearly as may be practicable equivalent to the Award evidenced by this Agreement as then in effect (but before giving effect to any acceleration of the exercisability hereof unless otherwise determined by the Committee), taking into account, to the extent applicable, the kind and amount of securities, cash or other assets into or for which shares of Series A Common Stock may be changed, converted or exchanged in connection with the Approved Transaction.

 

8.             Mandatory Withholding for Taxes .  Upon the expiration of the Restriction Period, Grantee (or Beneficiary, as defined in Paragraph 10 below) must remit to the Company the amount of all federal, state or other governmental withholding tax requirements imposed upon the Company with respect to the vesting of Restricted Shares, unless provisions to pay such withholding requirements have been made to the satisfaction of the Company.  Upon the payment of any cash dividends with respect to Restricted Shares during the Restriction Period, the amount of such dividends will be reduced to the extent necessary to satisfy any withholding tax requirements applicable thereto prior to payment to Grantee.

 

9.             Delivery by the Company .  As soon as practicable after vesting in Restricted Shares pursuant to Paragraphs 4, 5 or 7, but no later than 30 days after such vesting occurs, and subject to the withholding referred to in Paragraph 8, the Company will (i) cause to be removed from the Account the restriction described in Paragraph 2 or cause to be issued and delivered to Grantee (in certificate or electronic form) Shares equal to the number of Restricted Shares that have vested, and (ii) shall cause to be delivered to Grantee any Retained Distributions with respect to such vested Shares.  If delivery of certificates is by mail, delivery of shares of Series A Common Stock will be deemed effected for all purposes when a stock transfer agent of the Company shall have deposited the certificates in the United States mail, addressed to Grantee.

 

10.           Nontransferability of Restricted Shares Before Vesting .  Before vesting and during Grantee’s lifetime, the Restricted Shares are not transferable (voluntarily or involuntarily) other than pursuant to a Domestic Relations Order.  The Grantee may designate a beneficiary or beneficiaries (each, a “Beneficiary”), to whom the Restricted Shares will pass upon Grantee’s death and may change such designation from time to time by filing a written designation of Beneficiary with the Committee on the form annexed hereto as Exhibit B or such other form as may be prescribed by the Committee, provided that no such designation will be effective unless so filed prior to the death of Grantee.  If no such designation is made or if the designated Beneficiary does not survive the Grantee’s death, the Restricted Shares will pass by will or the laws of descent and distribution.  Following Grantee’s death, the Restricted Shares will pass accordingly to the designated Beneficiary, and such Beneficiary will be deemed the Grantee for purposes of any applicable provisions of this Agreement.

 

4



 

11.           Company’s Rights .  The existence of this Agreement will not affect in any way the right or power of the Company or its stockholders to accomplish any corporate act, including, without limitation, the acts referred to in Section 11.16 of the Plan.

 

12.           Limitation of Rights .  Nothing in this Agreement or the Plan will be construed to:

 

(a)           give Grantee any right to be awarded any further Restricted Shares other than in the sole discretion of the Committee; or

 

(b)           give Grantee or any other person any interest in any fund or in any specified asset or assets of the Company or any Company Subsidiary.

 

13.           Prerequisites to Benefits .  Neither Grantee nor any person claiming through Grantee will have any right or interest in the Restricted Shares awarded hereunder, unless and until there shall have been full compliance with all the terms, conditions and provisions of this Agreement and the Plan which affect the Grantee or such other person.

 

14.           Restrictions Imposed by Law .  Without limiting the generality of Section 11.8 of the Plan, Grantee will not require the Company to deliver any Restricted Shares and the Company will not be obligated to deliver any Restricted Shares if counsel to the Company determines that such delivery or payment would violate any applicable law or any rule or regulation of any governmental authority or any rule or regulation of, or agreement of the Company with, any securities exchange or association upon which the Series A Common Stock is listed or quoted.  The Company will in no event be obligated to take any affirmative action in order to cause the delivery of any Restricted Shares to comply with any such law, rule, regulation or agreement.

 

15.           Notice .  Unless the Company notifies Grantee in writing of a different procedure or address, any notice or other communication to the Company with respect to this Agreement will be in writing and will be delivered personally or sent by first class mail, postage prepaid, to the following address:

 

Ascent Capital Group, Inc.
[Address 1]
[Address 2]

Attn:  General Counsel

 

Any notice or other communication to Grantee with respect to this Agreement will be in writing and will be delivered personally, or will be sent by first class mail, postage prepaid, to Grantee’s home address set forth below his signature on this Agreement, unless the Company has received written notification from Grantee of a change of address.

 

16.           Amendment .  Notwithstanding any other provision hereof, this Agreement may be supplemented or amended from time to time as approved by the Committee as contemplated by Section 11.7(b) of the Plan.  Without limiting the generality of the foregoing, without the consent of Grantee,

 

5



 

(a)           this Agreement may be amended or supplemented from time to time as approved by the Committee (i) to cure any ambiguity or to correct or supplement any provision herein which may be defective or inconsistent with any other provision herein, (ii) to add to the covenants and agreements of the Company for the benefit of Grantee or surrender any right or power reserved to or conferred upon the Company in this Agreement, subject to any required approval of the Company’s stockholders and provided, in each case, that such changes or corrections will not adversely affect the rights of Grantee with respect to the Award evidenced hereby or (iii) to make such other changes as the Company, upon advice of counsel, determines are necessary or advisable because of the adoption or promulgation of, or change in or of the interpretation of, any law or governmental rule or regulation, including any applicable federal or state securities laws; and

 

(b)           subject to any required action by the Board or the Company’s stockholders, the Award evidenced by this Agreement may be canceled by the Committee and a new Award made in substitution therefor, provided that the Award so substituted will satisfy all of the requirements of the Plan as of the date such new Award is made and no such action will adversely affect the Restricted Shares to the extent then vested.

 

17.           Grantee Employment .  Nothing contained in this Agreement, and no action of the Company or the Committee with respect hereto, will confer or be construed to confer on Grantee any right to continue in the employ of the Company or any of its Subsidiaries or interfere in any way with the right of the Company or any employing Company Subsidiary to terminate Grantee’s employment at any time, with or without cause; subject, however, to the provisions of any employment agreement between Grantee and the Company or any Company Subsidiary.

 

18.           Governing Law .  This Agreement will be governed by, and construed in accordance with, the internal laws of the State of Delaware.  Each party irrevocably submits to the general jurisdiction of the state and federal courts located in the State of Delaware in any action to interpret or enforce this Agreement and irrevocably waives any objection to jurisdiction that such party may have based on inconvenience of forum.

 

19.           Construction .  References in this Agreement to “this Agreement” and the words “herein,” “hereof,” “hereunder” and similar terms include all Exhibits and Schedules appended hereto, including the Plan.  This Agreement is entered into, and the Award evidenced hereby is granted, pursuant to the Plan and will be governed by and construed in accordance with the Plan and the administrative interpretations adopted by the Committee thereunder.  All decisions of the Committee upon questions regarding the Plan or this Agreement will be conclusive.  Unless otherwise expressly stated herein, in the event of any inconsistency between the terms of the Plan and this Agreement, the terms of the Plan will control.  The headings of the paragraphs of this Agreement have been included for convenience of reference only, are not to be considered a part hereof and will in no way modify or restrict any of the terms or provisions hereof.

 

20.           Duplicate Originals .  The Company and Grantee may sign any number of copies of this Agreement.  Each signed copy will be deemed to be an original, but all of them together represent the same agreement.

 

6



 

21.           Rules by Committee .  The rights of Grantee and the obligations of the Company hereunder will be subject to such reasonable rules and regulations as the Committee may adopt from time to time hereafter.

 

22.           Entire Agreement .  This Agreement is in satisfaction of and in lieu of all prior discussions and agreements, oral or written, between the Company and Grantee, with respect to the subject matter hereof.  Grantee and the Company hereby declare and represent that no promise or agreement not herein expressed has been made and that this Agreement contains the entire agreement between the parties hereto with respect to the Restricted Shares and replaces and makes null and void any prior agreements between Grantee and the Company regarding the Restricted Shares.

 

23.           Grantee Acceptance .  Grantee shall signify acceptance of the terms and conditions of this Agreement by signing in the space provided at the end hereof and returning a signed copy to the Company.

 

24.           Code Section 409A Compliance.   If any provision of this Agreement would result in the imposition of an excise tax under Section 409A of the Code and related regulations and Treasury pronouncements (“Section 409A”), that provision will be reformed to avoid imposition of the excise tax and no action taken to comply with Section 409A (or to provide that the Restricted Shares are exempt from Section 409A) shall be deemed to impair a benefit under this Agreement.

 

25.           Change in Control.

 

(a)           Upon any termination of Grantee’s employment by the Company or a Company Subsidiary without Cause or by Grantee for Good Reason, which termination occurs within 12 months following a Change in Control, notwithstanding Sections 4 and 5 hereof, all Restricted Shares held by Grantee on the date of termination, to the extent not theretofore vested, will vest fully on the date of such termination.

 

(b)           For purposes of this Section 25, the following terms shall have the following meanings:

 

i.                                           “Annual Salary” means, as applicable, the annual base salary of Grantee as an employee of the Company or a Company Subsidiary.

 

ii.                                        “Cause” means a felony conviction for fraud, misappropriation of the Company’s (or a Company Subsidiary’s) funds or embezzlement.

 

iii.                                     “Change in Control” means any of the following that otherwise meets the definition of a “change in ownership,” a “change in effective control” or a “change in ownership of a substantial portion of the assets” of the Company within the meaning of Code Section 409A:

 

(1)                                   the acquisition by any person or group (excluding John C. Malone and/or any family member(s) of John C. Malone and/or any company, partnership, trust or other entity or investment vehicle controlled by any of the foregoing persons or the holdings

 

7



 

of which are for the primary benefit or any of such persons (collectively, the “Permitted Holders”)) of ownership of stock of the Company that, together with stock already held by such person or group, constitutes more than 50% of the total fair market value or more than 50% of the total voting power of the stock of the Company;

 

(2)                                   the acquisition by any person or group (other than the Permitted Holders), in a single transaction or in multiple transactions all occurring during the 12-month period ending on the date of the most recent acquisition by such person or group, assets from the Company that have a total gross fair market value equal to or exceeding 40% of the total gross fair market value of all of the assets of the Company immediately prior to such acquisition or acquisitions; or

 

(3)                                   the acquisition by any person or group (other than the Permitted Holders), in a single transaction or in multiple transactions all occurring during the 12-month period ending on the date of the most recent acquisition by such person or group, of ownership of stock of the Company possessing 30% or more of the total voting power of the stock of Company or the replacement of a majority of the Company’s Board of Directors during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Company’s Board of Directors before the date of appointment or election.

 

iv.            “Employment Agreements” means this Agreement, any employment agreement between Grantee and the Company or a Company Subsidiary and/or any other agreement between Grantee and the Company or a Company Subsidiary relating to Grantee’s employment and/or compensation, as from time to time may be in effect.

 

v.             “Good Reason” means the occurrence of any of the following without the consent of Grantee: (i) a material diminution in Grantee’s Annual Salary below the level then in effect other than as a result of a reduction in the portion of the time devoted by Grantee to Company activities; (ii) a material diminution in Grantee’s authority, duties or responsibilities with the Company; (iii) a material change in the office or location at which Grantee is required to perform services for the Company or any Company Subsidiary; and (iv) a material breach by the Company of the terms of any Employment Agreement.  Notwithstanding the foregoing, a termination for Good Reason will not be considered to have occurred unless: (x) within 90 days following the initial existence of the circumstances constituting Good Reason, Grantee provides written notice to the Company of such circumstances; (y) the Company fails, within 30 days following such notice, to correct such circumstances to the reasonable satisfaction of Grantee; and (z) Grantee terminates his employment within 30 days following the end of such 30 day correction period.  A termination of Grantee’s employment for Good Reason will be considered an involuntary termination.

 

[Remainder of this page intentionally left blank]

 

8



 

IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement as of the Grant Date.

 

 

 

ASCENT CAPITAL GROUP, INC.

 

 

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

 

 

 

 

ACCEPTED:

 

 

 

 

 

 

 

[                               ], Grantee

 

 

 

Address:

 

 

 

SSN:

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