Attached files

file filename
EX-2.1 - EX-2.1 - Ascent Capital Group, Inc.v58259exv2w1.htm
8-K - FORM 8-K - Ascent Capital Group, Inc.v58259e8vk.htm
EX-2.2 - EX-2.2 - Ascent Capital Group, Inc.v58259exv2w2.htm
EX-99.1 - EX-99.1 - Ascent Capital Group, Inc.v58259exv99w1.htm
Exhibit 99.2
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
     The following unaudited pro forma condensed combined financial statements have been prepared from the historical financial statements of Ascent Media Corporation (“Ascent Media” or the “Company”) and Monitronics International, Inc. and subsidiaries (“Monitronics”) to give effect to the Company’s proposed sale of the Content Distribution business, the proposed sale of the Creative/Media business and the consummated acquisition of Monitronics (together, the “Transactions”). See Note 1 for further information.
     The unaudited pro forma condensed combined financial statements do not purport to represent, and are not necessarily indicative of, what the Company’s financial position or results of operations would have been had the Transactions occurred on the dates indicated.
     The Company’s fiscal year ends on December 31 and Monitronics’ fiscal year ends on June 30. In order to prepare the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2009, Monitronics’ statement of operations for the six months ended June 30, 2009 (the last six months of Monitronics’ 2009 fiscal year) was combined with Monitronics’ statement of operations for the six months ended December 31, 2009 (the first six months of Monitronics’ 2010 fiscal year). In order to prepare the unaudited pro forma condensed combined statement of operations for the nine months ended September 30, 2010, Monitronics’ statement of operations for the six months ended June 30, 2010 (the last six months of Monitronics’ 2010 fiscal year) was combined with Monitronics’ statement of operations for the three months ended September 30, 2010 (the first three months of Monitronics’ 2011 fiscal year). The unaudited pro forma condensed combined statements of income are presented as if the acquisition had occurred on January 1, 2009 and include all adjustments that give effect to events that are directly attributable to the acquisition of Monitronics, are expected to have a continuing impact, and are factually supportable.
     The unaudited pro forma condensed combined balance sheet as of September 30, 2010 combines Ascent Media’s historical unaudited condensed consolidated balance sheet as of September 30, 2010 and Monitronics’ historical unaudited condensed consolidated balance sheet as of September 30, 2010 and is presented as if the acquisition of Monitronics had occurred on September 30, 2010 and includes all adjustments that give effect to events that are directly attributable to the acquisition of Monitronics, and that are factually supportable.
     Although the historical consolidated statements of operations of Monitronics for the fiscal years ended June 30, 2009, and June 30, 2010 have been audited, Monitronics’ historical consolidated statements of operations for the year ended December 31, 2009, and the nine months ended September 30, 2010, that were used in preparing the unaudited pro forma condensed combined statements of operations, have not been audited.
     The unaudited pro forma condensed combined financial statements should be read in conjunction with the Company’s historical consolidated financial statements of Ascent Media, including the related notes, and “Management’s Discussion and Analysis”, and the Monitronics historical consolidated financial statements, including the related notes. The consolidated balance sheets of the Company and its subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of operations and comprehensive loss, cash flows and stockholders’ equity for the years then ended, along with the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are set forth in the Company’s Current Report on Form 8-K filed December 7, 2010, which is incorporated by reference in this Form 8-K/A. The consolidated balance sheets of Monitronics as of June 30, 2010 and 2009, and the related consolidated statements of operations, shareholders’ net capital (deficiency), and cash flows for each of the three years in the period ended June 30, 2010, along with the related notes, are included as Exhibit 99.1 in this Form 8-K/A. The unaudited interim consolidated financial statements of Monitronics for the three months ended September 30, 2010 and 2009 are included as Exhibit 99.2 in this Form 8-K/A.
     The unaudited pro forma condensed combined statements of operations exclude only the revenues and expenses that are directly attributable to Content Distribution and Creative/Media. As such, the unaudited pro forma condensed combined statements of operations do not reflect a reduction of general corporate expenses or other non-direct costs of the Company which are expected to be reduced as a result of the Transactions.

1


 

ASCENT MEDIA CORPORATION AND SUBSIDIARIES
Unaudited Pro Forma Condensed Combined Balance Sheet
At September 30, 2010
(Amounts in thousands)
                                                                 
                    Pro Forma before             Pro forma before             Pro forma        
                    Content     Content     Monitronics             Monitronics        
            Creative/Media     Distribution     Distribution     acquisition     Monitronics     acquisition        
    As Reported     adjustments     adjustments     adjustments     adjustments     Historical     adjustments     Pro forma  
ASSETS
                                                               
Current assets:
                                                               
Cash and cash equivalents
  $ 279,023       (51 A     343,715       (461 B     452,274       36,101       96,906   K      269,008  
 
            64,743   C              109,020   C                      105,000   K         
 
                                                    (413,141 K        
 
                                                    (5,003 T        
 
                                                    (2,129 O        
 
                                                    (1,000 U        
Restricted cash
                                  53,544             53,544  
Trade receivables, net
    81,848       (58,614 A     23,234       (13,810 B     9,424       10,624             20,048  
Prepaid expenses
    10,300       (6,113 A     4,187       (2,889 B     1,298       3,224             4,522  
Deferred income tax assets, net
    75       (61 A     14       (14 B                        
Income taxes receivable
    15,945             15,945       229  B     16,174                   16,174  
Other current assets
    1,657       (1,356 A     301       (221 B     80                   80  
 
                                               
Total current assets
    388,848       (1,452 )     387,396       91,854       479,250       103,493       (219,367 )     363,376  
 
                                                               
Investments in marketable securities
    96,906             96,906             96,906             (96,906 K      
Property and equipment, net
    172,903       (53,817 A     119,086       (56,301 B     62,785       14,987       3,513   M     81,285  
Subscriber accounts
                                  639,490       149,110   N      788,600  
Dealer network
                                        42,300   N      42,300  
Deferred financing costs
                                  27,626       (27,626 O     2,129  
 
                                                    2,129   O         
Goodwill
    1,954       (1,954 A                       14,795       (14,795 L     467,801  
 
                                                    467,801   L         
Other assets, net
    9,408       (6,748 A     2,660       (112 B     2,548       2,973             5,521  
 
                                               
Total assets
  $ 670,019       (63,971 )     606,048       35,441       641,489       803,364       306,159       1,751,012  
 
                                               
See accompanying notes to unaudited pro forma condensed combined financial statements.

2


 

                                                                 
                    Pro Forma before           Pro forma before           Pro forma    
                    Content   Content   Monitronics           Monitronics    
            Creative/Media   Distribution   Distribution   acquisition   Monitronics   acquisition    
    As Reported   adjustments   adjustments   adjustments   adjustments   Historical   adjustments   Pro forma
LIABILITIES AND STOCKHOLDERS’ EQUITY
                                                               
Current liabilities:
                                                               
Accounts payable
  $ 19,245     (12,180 A     7,065     (2,457 B     4,608       1,788             6,396  
Accrued payroll and related liabilities
    19,822     (13,003 A     6,819     (2,569 B     4,250                   4,250  
Other accrued liabilities
    24,831     (8,013 A     16,818     (9,027 B     7,791       19,911             27,702  
Deferred revenue
    9,254     (2,352 A     6,902       (6,239 B     663       5,627             6,290  
Income taxes payable
                                  2,414             2,414  
Liabilities related to assets of discontinued operations
    774             774             774                   774  
 
                                                               
Total current liabilities
    73,926       (35,548 )     38,378       (20,292 )     18,086       29,740             47,826  
 
                                                               
Deferred tax liabilities
    1,094     (133 A     961     (961 B               58,608   L      
 
                                                  (58,608 S        
Other liabilities
    26,893     (9,697 A     17,196     (8,486 B     8,710                   8,710  
Long-term debt
                                  844,200     105,000   K     944,197  
 
                                                  (5,003 T        
Fair value of derivative instruments
                                  77,978             77,978  
 
                                                               
Total liabilities
    101,913       (45,378 )     56,535       (29,739 )     26,796       951,918       99,997       1,078,711  
 
                                                               
 
                                                               
Commitments and contingencies
                                                               
Stockholders’ Equity:
                                                               
Series A common stock
    136             136             136       311     (311 R     136  
Series B common stock
    7             7             7                   7  
Treasury stock
                                  (12,037 )   12,037   R        
Additional paid-in capital
    1,467,207             1,467,207             1,467,207       126,016     (126,016 R     1,467,207  
Accumulated deficit
    (894,927 )   (19,819 E     (914,746 )   77,498   E     (837,248 )     (262,844 )   262,844   R     (779,640 )
 
                                                  58,608   S        
 
                                                  (1,000 U        
Accumulated other comprehensive loss
    (4,317 )   1,226   A     (3,091 )   (12,318 B     (15,409 )                 (15,409 )
 
                                                               
Total stockholders’ equity
    568,106       (18,593 )     549,513       65,180       614,693       (148,554 )     206,162       672,301  
 
                                                               
Total liabilities and stockholders’ equity
  $ 670,019       (63,971 )     606,048       35,441       641,489       803,364       306,159       1,751,012  
 
                                                               
See accompanying notes to unaudited pro forma condensed combined financial statements.

3


 

ASCENT MEDIA CORPORATION AND SUBSIDIARIES
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Nine Months Ended September 30, 2010
(Amounts in thousands)
                                                                         
                    Pro Forma                     Pro forma                      
                    before                     before             Pro forma        
                    Content     Content             Monitronics             Monitronics        
            Creative/Media     Distribution     Distribution     Other     acquisition     Monitronics     acquisition        
    As Reported     adjustments     adjustments     adjustments     adjustments     adjustments     Historical     adjustments     Pro forma  
Service revenue
  $ 307,433       (212,305 F     95,128       (78,237 G     937 I     21,625       210,407             232,032  
 
                                    3,797 J                                
Rental revenue
                            3,455 H     3,455                   3,455  
 
                                                     
Net revenue
    307,433       (212,305 )     95,128       (78,237 )     8,189       25,080       210,407             235,487  
 
                                                     
 
Operating expenses:
                                                                       
Cost of services
    223,178       (163,611 F     59,567       (48,774 G     937 I     18,473       25,683             44,156  
 
                                    2,946 H                                
 
                                    3,797 J                                
Selling, general, and administrative
    80,813       (46,474 F     34,339       (9,389 G     509 H     25,459       40,040             65,499  
Restructuring charges
    2,013             2,013                   2,013                   2,013  
Gain on sale of operating assets, net
    (16 )           (16 )                 (16 )                 (16 )
Depreciation and amortization
    38,483       (19,231 F     19,252       (16,618 G           2,634       95,600       527 M     118,190  
 
                                                            19,429 N        
 
                                                     
 
    344,471       (229,316 )     115,155       (74,781 )     8,189       48,563       161,323       19,956       229,842  
Operating income (loss)
    (37,038 )     17,011       (20,027 )     (3,456 )           (23,483 )     49,084       (19,956 )     5,645  
 
Other income:
                                                                       
Interest (expense) income
    2,666             2,666                   2,666       (43,241 )     (3,038 Q     (43,324 )
 
                                                            289 P        
Other (expense) income, net
    (1,770 )     1,285 F     (485 )     441 G           (44 )                 (44 )
Unrealized loss on derivatives
                                        (7,058 )           (7,058 )
 
                                                     
 
    896       1,285       2,181       441             2,622       (50,299 )     (2,749 )     (50,426 )
 
                                                     
Loss from continuing operations before income taxes
    (36,142 )     18,296       (17,846 )     (3,015 )           (20,861 )     (1,215 )     (22,705 )     (44,781 )
Income tax (expense) benefit from continuing operations
    2,331             2,331             (2,331 D           (1,414 )           (1,414 )
 
                                                     
Net loss from continuing operations
  $ (33,811 )     18,296       (15,515 )     (3,015 )     (2,331 )     (20,861 )     (2,629 )     (22,705 )     (46,195 )
 
                                                     
Basic and diluted per share amounts:
                                                                       
Net loss from continuing operations
  $ (2.38 )                                                           $ (3.25 )
 
                                                                   
Weighted average number of common shares
    14,194,973                                                               14,194,973  
     See accompanying notes to unaudited pro forma condensed combined financial statements.

4


 

ASCENT MEDIA CORPORATION AND SUBSIDIARIES
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Year Ended December 31, 2009
(Amounts in thousands)
                                                                         
                    Pro Forma                     Pro forma                      
                    before                     before             Pro forma        
                    Content     Content             Monitronics             Monitronics        
            Creative/Media     Distribution     Distribution     Other     acquisition     Monitronics     acquisition        
    As Reported     adjustments     adjustments     adjustments     adjustments     adjustments     Historical     adjustments     Pro forma  
Service revenue
  $ 453,681       (300,480 F     153,201       (106,050 G     1,308   I     49,462       253,737             303,199  
 
                                    1,003   J                                
Rental revenue
                            4,893   H     4,893                   4,893  
 
                                                     
Net revenue
    453,681       (300,480 )     153,201       (106,050 )     7,204       54,355       253,737             308,092  
 
                                                     
Operating expenses:
                                                                       
Cost of services
    327,713       (223,554 F     104,159       (68,410 G     1,308   I     42,275       30,868             73,143  
 
                                    4,215   H                                
 
                                    1,003   J                                
Selling, general, and administrative
    101,943       (61,970 F     39,973       (11,738 G     678   H     28,913       52,631             81,544  
Restructuring and other charges
    7,273             7,273                   7,273                   7,273  
Gain on sale of operating assets, net
    (467 )           (467 )                 (467 )                 (467 )
Depreciation and amortization
    56,778       (28,144 F     28,634       (24,130 G           4,504       119,553       703   M     153,350  
 
                                                            28,590   N        
 
                                                     
 
    493,240       (313,668 )     179,572       (104,278 )     7,204       82,498       203,052       29,293       314,843  
Operating income (loss)
    (39,559 )     13,188       (26,371 )     (1,772 )           (28,143 )     50,685       (29,293 )     (6,751 )
Other income:
                                                                       
Interest (expense) income
    2,660       18   F     2,678       (4 G           2,674       (56,596 )     (4,050 Q     (57,222 )
 
                                                            750   P        
Other (expense) income, net
    (1,412 )     1,964   F     552       623   G           1,175                   1,175  
Unrealized gain on derivatives
                                        25,346             25,346  
 
                                                     
 
    1,248       1,982       3,230       619             3,849       (31,250 )     (3,300 )     (30,701 )
 
                                                     
Income (loss) from continuing operations before income taxes
    (38,311 )     15,170       (23,141 )     (1,153 )           (24,294 )     19,435       (32,593 )     (37,452 )
Income tax (expense) benefit from continuing operations
    (18,533 )           (18,533 )           18,533   D           (437 )           (437 )
 
                                                     
Net income (loss) from continuing operations
  $ (56,844 )     15,170       (41,674 )     (1,153 )     18,533       (24,294 )     18,998       (32,593 )     (37,889 )
 
                                                     
Basic and diluted per share amounts:
                                                                       
Net loss from continuing operations
  $ (4.04 )                                                           $ (2.69 )
 
                                                                   
Weighted average number of common shares
    14,086,075                                                               14,086,075  
See accompanying notes to unaudited pro forma condensed combined financial statements.

5


 

ASCENT MEDIA CORPORATION AND SUBSIDIARIES
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
1. Description of Transactions and Basis of Pro Forma Presentation
Content Distribution Sale
On December 2, 2010, Ascent Media entered into a definitive agreement (the “Content Distribution Purchase Agreement”) with Encompass Digital Media, Inc. (“Encompass”), pursuant to which it agreed to sell to Encompass, and Encompass agreed to purchase, 100% of its content distribution business unit (which we refer to as “Content Distribution”), for a purchase price of $113,250,000 in cash, subject to adjustment based on net working capital on the closing date and other balance sheet items, plus the assumption of certain liabilities and obligations relating to the Content Distribution business. The sale of the Content Distribution business is subject to stockholder approval. The Company expects to account for the disposition of the Content Distribution business as a discontinued operation in its consolidated financial statements if shareholder approval for the Content Distribution sale is obtained.
Creative/Media Sale
On November 24, 2010, Ascent Media entered into a definitive agreement (the “Creative/Media Purchase Agreement”) with Deluxe Entertainment Services Group Inc. (“Deluxe”), pursuant to which it agreed to sell to Deluxe, and Deluxe agreed to purchase, 100% of its creative services business unit and 100% of its media services business unit (which we refer to collectively as “Creative/Media”), for an aggregate purchase price of $67,823,000 in cash, subject to adjustments based on net working capital on the closing date and other balance sheet items, plus the assumption of certain capital leases in the amount of $2,177,000. The sale of the Creative/Media business is not subject to stockholder approval. The Company will account for the disposition of the Creative/Media business as a discontinued operation in its consolidated financial statements for the year ended December 31, 2010.
Monitronics Acquisition
On December 17, 2010, the Company signed and closed an agreement to acquire 100% of the outstanding capital stock of Monitronics, through the merger of the Company’s wholly owed subsidiary, Mono Lake Merger Sub, Inc., with and into Monitronics, with Monitronics surviving such merger. The cash consideration paid in connection with the merger was $413,141,000. The Company also assumed $778 million in net debt of Monitronics. In connection with the acquisition, Monitronics International, Inc. entered into a Credit Agreement, which provides a $60,000,000 term loan and a $115,000,000 revolving credit facility. The obligations under the credit facility are secured by a security interest on substantially all the assets of Monitronics International, Inc. and its wholly owned subsidiary, Monitronics Canada, Inc., as well as a pledge by Ascent Media Corporation of all outstanding stock of Monitronics. Ascent Media Corporation has guaranteed payment of the term loan up to the first $30,000,000 of obligations thereunder. At closing, Monitronics borrowed the full amount of the term loan and $45,000,000 under the revolving credit facility, for total initial borrowings under the credit facility of $105,000,000. The proceeds of such loans, after repayment of $5,000,000 outstanding under a previously existing credit facility, and payment of certain fees and expenses relating to the credit facility, were used to fund a portion of the aggregate merger consideration payable in connection with the acquisition of Monitronics. The remaining cash consideration paid was funded by cash on hand and proceeds from the sale of marketable securities.
The allocation of the purchase price in the Monitronics acquisition to the assets acquired and liabilities assumed from Monitronics is based on preliminary estimates and assumptions. In addition, the Company is in the process of assessing the useful lives and appropriate amortization methods for the identifiable intangible assets that were acquired from Monitronics. These estimates and assumptions are subject to future adjustments upon completion of the valuation of Monitronic’s assets and liabilities and these valuations could change significantly from those used in the unaudited pro forma condensed combined financial statements.
Basis of Presentation
The unaudited pro forma condensed combined balance sheet as of September 30, 2010 gives effect to the Transactions as if they occurred on that date. The unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2010, and the year ended December 31, 2009, give effect to the Transactions as if they occurred on January 1, 2009.
The accompanying unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2010 and for the year ended December 31, 2009 do not reflect any gain or loss on sale from the Transactions. The estimated

6


 

after tax gain on the sale on the Content Distribution business and the estimated after tax loss on the sale of the Creative / Media business are included as an adjustment to equity in the accompanying unaudited pro forma combined balance sheet as of September 30, 2010.
Pro Forma Footnotes
A   Reflects the adjustments to the Company’s historical combined balance sheet for the Creative/Media assets and liabilities to be sold under the Creative/Media Purchase Agreement.
 
B   Reflects the adjustments to the Company’s historical combined balance sheet for the Content Distribution assets and liabilities to be sold under the Content Distribution Purchase Agreement.
 
C   Reflects the adjustments to cash and cash equivalents related to the adjusted net cash proceeds of the sales of the Creative/Media and Content Distribution businesses as follows (amounts in thousands):
                 
            Content  
    Creative/Media     Distribution  
Base Purchase Price per agreement
  $ 70,000     $ 113,250  
Capital Lease assumed in purchase
    (2,177 )      
 
           
 
    67,823       113,250  
Other purchase price adjustments
    (1,170 )     (1,695 )
 
           
Adjusted purchase price
    66,653       111,555  
Estimated transaction costs
    (1,910 )     (2,535 )
 
           
Adjusted net cash proceeds
  $ 64,743       109,020  
 
           
D   Reflects an adjustment to income taxes. The Company does not anticipate that its remaining results of operations will generate any tax liability or benefit for the periods presented.
 
E     Reflects an estimated loss, net of tax, on the sale of the Creative/Media business and an estimated gain, net of tax, on the sale the Content Distribution business. The Company does not anticipate any income tax liability as a result of these transactions due to the availability of net operating loss carryforwards.
 
    The estimated net loss on the sale of the Creative/Media business is computed as follows (amounts in thousands):
         
    Creative/ Media  
Adjusted net cash proceeds
  $ 64,743  
 
       
Total assets transferred (see Note A)
    128,714  
Total liabilities and accumulated other comprehensive income (“AOCI”) assumed (see Note A)
    (44,152 )
 
     
 
    84,562  
 
       
Pre-tax loss on sale
    (19,819 )
Income taxes on loss
     
 
     
Net loss on sale of Creative/Media business
  $ (19,819 )
 
     

7


 

    The estimated net gain on the sale of the Content Distribution business is computed as follows:
         
    Content Distribution  
Adjusted net cash proceeds
  $ 109,020  
Total assets transferred (see Note B)
    73,579  
Total liabilities and AOCI assumed (see Note B)
    (42,057 )
 
     
 
    31,522  
 
Pre-tax gain on sale
    77,498  
Income taxes on gain
     
 
     
Net gain on sale of Content Distribution business
  $ 77,498  
 
     
F     Reflects adjustments to remove the results of operations directly attributable to the Creative/Media business that is being sold. Such pro forma adjustments do not include general corporate expenses or other non-direct costs incurred by Ascent Media on behalf of the Creative/Media business.
 
G     Reflects adjustments to remove the results of operations directly attributable to the Content Distribution business that is being sold. Such pro forma adjustments do not include general corporate expenses or other non-direct costs incurred by Ascent Media on behalf of the Content Distribution business.
 
H     Reflects adjustments to reclassify rent paid by the Creative/Media and Content Distribution businesses to rental revenue for facilities that are owned by Ascent Media. Both the Creative/Media and Content Distribution businesses have operating leases with Ascent Media to lease facilities to conduct their operations. These facilities are not included in the sale of the Creative/Media or Content Distribution businesses.
 
I     Reflects the elimination of intercompany transactions between the Creative/Media and Content Distribution businesses.
 
J     Reflects adjustments to reclassify intercompany purchases made by the Creative/Media and Content Distribution businesses to service revenue of the remaining Ascent Media businesses.
 
K     Reflects the sources of the $413,141,000 cash consideration paid for the Monitronics acquisition, as follows (amounts in thousands):
         
Proceeds from long-term debt:
       
Term loan
  $ 60,000  
Revolving credit facility
    45,000  
 
     
Total proceeds from long-term debt
    105,000  
 
Proceeds from cash on hand
    211,235  
Proceeds from sale of marketable securities
    96,906  
 
     
 
Cash consideration paid for Monitronics acquisition
  $ 413,141  
 
     

8


 

L     Reflects the elimination of Monitronics’ historical goodwill balance of $14,795,000 and the establishment of goodwill arising from Ascent Media’s purchase of Monitronics. Under the acquisition method of accounting, the purchase price has been allocated to Monitronics’ tangible and identifiable intangible assets acquired and liabilities assumed based on preliminary estimates of fair value. The sum of the purchase price and the estimated fair value of the net liabilities assumed is recorded as goodwill. The purchase price of Monitronics has been allocated on a preliminary basis as follows (amounts in thousands):
         
Cash consideration paid
  $ 413,141  
 
Estimated fair value of assets acquired and liabilities assumed:
       
Subscriber accounts
  $ 788,600  
Property and equipment
    18,500  
Dealer network, net
    42,300  
Other assets acquired, net
    76,726  
Monitronics debt assumed
    (844,200 )
Deferred tax liability
    (58,608 )
Derivative instruments
    (77,978 )
 
     
Subtotal of estimated fair value of net liabilities assumed
  $ (54,660 )
 
     
 
       
Goodwill
  $ 467,801  
 
     
M     Reflects the fair value adjustments for property plant and equipment and adjustments for additional depreciation expense, as follows (amounts in thousands):
                                         
                            Additional pro forma  
                            depreciation expense  
                            For the nine months     For the twelve  
            Fair value     Remaining useful     ended September 30,     months ended  
Historical amounts   Fair value     adjustment     lives     2010     December 31, 2009  
$14,987
  $ 18,500     $ 3,513     5 years     $ 527     $ 703  
N     Reflects the fair value adjustments for identifiable intangible assets and adjustments for additional amortization expense, as follows ($ amounts in thousands):
                                                 
                                    Additional pro forma  
                                    amortization expense  
                                    For the nine months     For the twelve  
                    Fair value     Remaining useful     ended September 30,     months ended  
    Historical amounts     Fair value     adjustment     lives     2010     December 31, 2009  
Subscriber accounts
  $ 639,490     $ 788,600     $ 149,110     10 years *   $ 13,084     $ 20,130  
 
                                               
Dealer network
          42,300       42,300     5 years       6,345       8,460  
 
                                     
 
                                               
Total
  $ 639,490     $ 830,900     $ 191,410             $ 19,429     $ 28,590  
 
                                     
 
*   Subscriber accounts are amortized over a period of 10 years using an accelerated amortization method. The Company’s calculation of pro forma amortization expense is based on accelerated amortization rates applied to the fair value adjustment as follows ($ amounts in thousands):

9


 

                 
    For the nine months     For the twelve  
    ended September 30,     months ended  
    2010     December 31, 2009  
Amortization rate
    11.7 %     13.5 %
 
               
Incremental pro forma amortization expense
  $ 13,084     $ 20,130  
O     Reflects the elimination of Monitronics’ historical unamortized deferred financing costs of $27,626,000 and the payment of debt issuance costs of $2,129,000 incurred in connection with the new Credit Agreement.
 
P     Reflects the elimination of Monitronics’ interest expense related to the amortization of historical deferred financing costs. This adjustment also reflects interest expense related to the amortization of deferred financing costs incurred in connection with the new Term Loan and Revolving Credit Facility over the term of the debt, as follows (amounts in thousands):
                 
    Interest Expense  
    For the nine     For the twelve  
    months ended     months ended  
    September 30, 2010     December 31, 2009  
Monitronics historical amortization of deferred financing costs
  $ (821 )   $ (1,460 )
 
               
Amortization of deferred financing costs related to the Term Loan and Credit Facility
    532       710  
 
           
Pro forma decrease to interest expense
  $ (289 )   $ (750 )
Q     Reflects interest expense on the new term loan and revolving credit facility, as follows (amounts in thousands):
                                 
                    Pro forma interest expense  
                    For the nine months     For the twelve  
                    ended September 30,     months ended  
    Face Amount     Interest Rate     2010     December 31, 2009  
Term Loan
  $ 60,000       3.75 %   $ 1,688     $ 2,250  
Revolving Credit Facility
  $ 45,000       4.00 %   $ 1,350     $ 1,800  
 
                       
Total
  $ 105,000             $ 3,038     $ 4,050  
 
                         
R     Reflects the elimination of Monitronics’ historical shareholders’ net deficiency.
 
S     Reflects an adjustment to the Company’s valuation allowance on its net deferred tax assets which decreased as a result of the $58,608,000 deferred tax liability that was recorded in the preliminary acquisition accounting for the Monitronics acquisition.
 
T     Reflects $5,003,000 of principal and interest on Monitronics’ revolving credit facility repaid in connection with the Monitronics acquisition.
 
U     Reflects the cash impact of Ascent’s estimated transaction costs of $1,000,000 related to the Monitronics acquisition. No pro forma adjustments for transaction costs have been reflected in the unaudited pro forma condensed combined statement of operations since these transaction costs are not expected to have recurring impact.

10