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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C.  20549
 
FORM 10-Q
 
ý           QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020
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 333-110025
 MONITRONICS INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
State of Delaware 74-2719343
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)  

1990 Wittington Place  
Farmers Branch, Texas 75234
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (972) 243-7443 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
NoneNoneNone
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 ý  No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).  Yes ý  No o
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
 
Accelerated filer o
Non-accelerated filer x
 
Smaller reporting company o
 
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o No ý
Indicate by check mark whether the Registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.  Yes ý No o
The number of outstanding shares of Monitronics International, Inc.'s common stock as of August 10, 2020 was 22,500,000 shares.


Table of Contents
TABLE OF CONTENTS
 
  Page
PART I — FINANCIAL INFORMATION
   
   
 
   
 
   
 
   
 
   
 
   
   
   
   
   
   
 

1

Table of Contents
Item 1.  Financial Statements (unaudited)
MONITRONICS INTERNATIONAL, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
Amounts in thousands, except share amounts
(unaudited)
Successor Company
 June 30,
2020
December 31,
2019
Assets  
Current assets:  
Cash and cash equivalents$45,452  $14,763  
Restricted cash180  238  
Trade receivables, net of allowance for doubtful accounts of $2,746 in 2020 and $3,828 in 2019
10,410  12,083  
Prepaid and other current assets25,981  25,195  
Total current assets82,023  52,279  
Property and equipment, net of accumulated depreciation of $10,337 in 2020 and $3,777 in 2019
42,319  42,096  
Subscriber accounts and deferred contract acquisition costs, net of accumulated amortization of $157,526 in 2020 and $61,771 in 2019
1,116,657  1,064,311  
Dealer network and other intangible assets, net of accumulated amortization of $19,806 in 2020 and $7,922 in 2019
125,322  136,778  
Goodwill  81,943  
Deferred income tax asset, net684  684  
Operating lease right-of-use asset18,411  19,277  
Other assets18,753  21,944  
Total assets$1,404,169  $1,419,312  
Liabilities and Stockholders' Equity  
Current liabilities:  
Accounts payable$14,809  $16,869  
Other accrued liabilities41,632  24,954  
Deferred revenue11,138  12,008  
Holdback liability9,837  8,191  
Current portion of long-term debt8,225  8,225  
Total current liabilities85,641  70,247  
Non-current liabilities:  
Long-term debt1,021,606  978,219  
Long-term holdback liability1,475  2,183  
Operating lease liabilities16,021  16,195  
Other liabilities72,426  6,390  
Total liabilities1,197,169  1,073,234  
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value. Authorized 5,000,000 shares; no shares issued
    
Common stock, $0.01 par value. Authorized 45,000,000 shares; issued and outstanding 22,500,000 shares at both June 30, 2020 and December 31, 2019
225  225  
Additional paid-in capital379,175  379,175  
Accumulated deficit(170,615) (33,331) 
Accumulated other comprehensive (loss) income, net(1,785) 9  
Total stockholders' equity207,000  346,078  
Total liabilities and stockholders' equity$1,404,169  $1,419,312  
 
See accompanying notes to condensed consolidated financial statements.

2

Table of Contents
MONITRONICS INTERNATIONAL, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
Amounts in thousands
(unaudited)
Successor CompanyPredecessor Company
 Three Months Ended June 30,Three Months Ended June 30,
 20202019
Net revenue$120,808  $128,091  
Operating expenses:
Cost of services27,624  28,536  
Selling, general and administrative, including stock-based and long-term incentive compensation
32,541  28,163  
Radio conversion costs
3,667    
Amortization of subscriber accounts, deferred contract acquisition costs and other intangible assets
54,368  49,138  
Depreciation3,451  3,121  
 121,651  108,958  
Operating (loss) income(843) 19,133  
Other expense (income):
Restructuring and reorganization expense  33,102  
Interest expense20,207  40,536  
Realized and unrealized gain, net on derivative financial instruments  (969) 
 20,207  72,669  
Loss before income taxes(21,050) (53,536) 
Income tax expense602  666  
Net loss(21,652) (54,202) 
Other comprehensive income (loss):
Unrealized gain (loss) on derivative contracts, net19  (472) 
Total other comprehensive income (loss), net of tax19  (472) 
Comprehensive loss$(21,633) $(54,674) 
Basic and diluted income per share:
Net loss$(0.96) $  
 
See accompanying notes to condensed consolidated financial statements.

3

Table of Contents
MONITRONICS INTERNATIONAL, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
Amounts in thousands
(unaudited)
Successor CompanyPredecessor Company
 Six Months Ended June 30,Six Months Ended June 30,
 20202019
Net revenue$243,383  $257,697  
Operating expenses:
Cost of services55,634  55,300  
Selling, general and administrative, including stock-based and long-term incentive compensation
76,994  59,385  
Radio conversion costs
8,491    
Amortization of subscriber accounts, deferred contract acquisition costs and other intangible assets
107,649  98,283  
Depreciation6,560  6,275  
Goodwill impairment81,943    
 337,271  219,243  
Operating (loss) income(93,888) 38,454  
Other expense:
Restructuring and reorganization expense  33,102  
Interest expense40,549  77,969  
Realized and unrealized loss, net on derivative financial instruments
  6,804  
Refinancing expense  5,214  
 40,549  123,089  
Loss before income taxes(134,437) (84,635) 
Income tax expense1,220  1,337  
Net loss(135,657) (85,972) 
Other comprehensive loss:
Unrealized loss on derivative contracts, net(1,794) (940) 
Total other comprehensive loss, net of tax(1,794) (940) 
Comprehensive loss$(137,451) $(86,912) 
Basic and diluted income per share:
Net loss$(6.03) $  
 
See accompanying notes to condensed consolidated financial statements.
4

Table of Contents
MONITRONICS INTERNATIONAL, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Amounts in thousands
(unaudited)
Successor CompanyPredecessor Company
Six Months Ended June 30,Six Months Ended June 30,
20202019
Cash flows from operating activities:
Net loss$(135,657) $(85,972) 
Adjustments to reconcile net loss to net cash provided by operating activities:
Amortization of subscriber accounts, deferred contract acquisition costs and other intangible assets107,649  98,283  
Depreciation6,560  6,275  
Stock-based and long-term incentive compensation536  466  
Restructuring and reorganization expense  6,951  
Unrealized loss on derivative financial instruments, net  4,577  
Refinancing expense  5,214  
Trade bad debt expense4,720  5,903  
Goodwill impairment81,943    
Other non-cash activity, net2,091  (545) 
Changes in assets and liabilities:
Trade receivables(3,047) (5,327) 
Prepaid expenses and other assets(4,822) 869  
Subscriber accounts - deferred contract acquisition costs(1,223) (1,781) 
Payables and other liabilities(3,139) 39,308  
Net cash provided by operating activities55,611  74,221  
Cash flows from investing activities: 
Capital expenditures(7,781) (6,767) 
Cost of subscriber accounts acquired(60,586) (61,335) 
Net cash used in investing activities(68,367) (68,102) 
Cash flows from financing activities:
Proceeds from long-term debt65,000  43,100  
Payments on long-term debt(21,613) (18,400) 
Payments of restructuring and reorganization costs  (9,201) 
Payments of refinancing costs  (7,404) 
Value of shares withheld for share-based compensation  (3) 
Dividend to Ascent Capital  (5,000) 
Net cash provided by financing activities43,387  3,092  
Net increase in cash, cash equivalents and restricted cash30,631  9,211  
Cash, cash equivalents and restricted cash at beginning of period15,001  2,377  
Cash, cash equivalents and restricted cash at end of period$45,632  $11,588  
Supplemental cash flow information:
State taxes paid, net$2,532  $2,637  
Interest paid39,973  36,848  
Accrued capital expenditures806  461  
Earnout Payments liability85,852    
 See accompanying notes to condensed consolidated financial statements.
5

Table of Contents
MONITRONICS INTERNATIONAL, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Stockholders' Equity (Deficit)
Amounts in thousands, except share amounts
(unaudited)
Common StockAdditional Paid-in CapitalAccumulated DeficitAccumulated Other Comprehensive Income (Loss)Total Stockholders' Equity
SharesAmount
Balance at December 31, 2019 (Successor)
22,500,000  $225  $379,175  $(33,331) $9  $346,078  
Adoption of ASU 2016-13
—  —  —  (1,627) —  (1,627) 
Adjusted balance at January 1, 2020 (Successor)
22,500,000  $225  $379,175  $(34,958) $9  $344,451  
Net loss—  —  —  (114,005) —  (114,005) 
Other comprehensive loss—  —  —  —  (1,813) (1,813) 
Balance at March 31, 2020 (Successor)
22,500,000  $225  $379,175  $(148,963) $(1,804) $228,633  
Net loss—  —  —  (21,652) —  (21,652) 
Other comprehensive income—  —  —  —  19  19  
Balance at June 30, 2020 (Successor)
22,500,000  $225  $379,175  $(170,615) $(1,785) $207,000  


 Common StockAdditional Paid-in CapitalAccumulated DeficitAccumulated Other Comprehensive
Income (Loss)
Total Stockholder's Deficit
 SharesAmount
Balance at December 31, 2018 (Predecessor)
1,000  $  $439,711  $(1,036,294) $7,608  $(588,975) 
Net loss—  —  —  (31,770) —  (31,770) 
Other comprehensive loss—  —  —  —  (468) (468) 
Dividend paid to Ascent Capital
—  —  (5,000) —  —  (5,000) 
Contribution from Ascent Capital
—  —  2,250  —  —  2,250  
Stock-based compensation—  —  189  —  —  189  
Value of shares withheld for minimum tax liability
—  —  (1) —  —  (1) 
Balance at March 31, 2019 (Predecessor)
1,000  $  $437,149  $(1,068,064) $7,140  $(623,775) 
Net loss—  —  —  (54,202) —  (54,202) 
Other comprehensive loss—  —  —  —  (472) (472) 
Stock-based compensation—  —  (413) —  —  (413) 
Value of shares withheld for minimum tax liability
—  —  (2) —  —  (2) 
Balance at June 30, 2019 (Predecessor)
1,000  $  $436,734  $(1,122,266) $6,668  $(678,864) 

See accompanying notes to condensed consolidated financial statements.
6

Table of Contents
MONITRONICS INTERNATIONAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
 
(1)          Basis of Presentation
 
Monitronics International, Inc. and its subsidiaries (collectively, "Monitronics" or the "Company", doing business as Brinks Home SecurityTM) provide residential customers and commercial client accounts with monitored home and business security systems, as well as interactive and home automation services, in the United States, Canada and Puerto Rico.  Monitronics customers are obtained through our direct-to-consumer sales channel (the "Direct to Consumer Channel"), which offers both Do-It-Yourself and professional installation security solutions and our exclusive authorized dealer network (the "Dealer Channel"), which provides product and installation services, as well as support to customers.

As previously disclosed, on June 30, 2019, Monitronics and certain of its domestic subsidiaries (collectively, the "Debtors"), filed voluntary petitions for relief (collectively, the "Petitions" and, the cases commenced thereby, the "Chapter 11 Cases") under chapter 11 of title 11 of the United States Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the Southern District of Texas (the "Bankruptcy Court"). The Debtors' Chapter 11 Cases were jointly administered under the caption In re Monitronics International, Inc., et al., Case No. 19-33650. On August 7, 2019, the Bankruptcy Court entered an order, Docket No. 199 (the "Confirmation Order"), confirming and approving the Debtors' Joint Partial Prepackaged Plan of Reorganization (including all exhibits thereto and, as modified by the Confirmation Order, the "Plan") that was previously filed with the Bankruptcy Court on June 30, 2019. On August 30, 2019 (the "Effective Date"), the conditions to the effectiveness of the Plan were satisfied and the Company emerged from Chapter 11 after completing a series of transactions through which the Company and its former parent, Ascent Capital Group, Inc. ("Ascent Capital"), merged (the "Merger") in accordance with the terms of the Agreement and Plan of Merger, dated as of May 24, 2019 (the "Merger Agreement"). Monitronics was the surviving corporation and, immediately following the Merger, was redomiciled in Delaware in accordance with the terms of the Merger Agreement.

Upon emergence from Chapter 11 on the Effective Date, the Company has applied Accounting Standards Codification ("ASC") 852, Reorganizations, in preparing its condensed consolidated financial statements. As a result of the application of fresh start accounting and the effects of the implementation of the Plan, a new entity for financial reporting purposes was created. The Company selected a convenience date of August 31, 2019 for purposes of applying fresh start accounting as the activity between the convenience date and the Effective Date did not result in a material difference in the financial results. References to "Successor" or "Successor Company" relate to the balance sheet and results of operations of Monitronics on and subsequent to September 1, 2019. References to "Predecessor" or "Predecessor Company" refer to the balance sheet and results of operations of Monitronics prior to September 1, 2019. With the exception of interest and amortization expense, the Company's operating results and key operating performance measures on a consolidated basis were not materially impacted by the reorganization. As such, references to the "Company" could refer to either the Predecessor or Successor periods, as defined.

The unaudited interim financial information of the Company has been prepared in accordance with Article 10 of the Securities and Exchange Commission’s (the "SEC") Regulation S-X. Accordingly, it does not include all of the information required by generally accepted accounting principles in the United States ("GAAP") for complete financial statements. The Company’s unaudited condensed consolidated balance sheet as of June 30, 2020, and the unaudited condensed statements of operations and cash flows of the Successor Company for the three and six months ended June 30, 2020 and of the Predecessor Company for the three and six months ended June 30, 2019, include the results of Monitronics 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, particularly when considering the risks and uncertainties associated with the COVID-19 pandemic and the impacts it may have on our financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the Monitronics Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 30, 2020.

The preparation of financial statements in conformity with 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 subscriber accounts, deferred tax assets, goodwill and other indefinite-lived intangible assets. 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, including consideration of the potential impacts of the COVID-19 pandemic, and adjusts them when facts and circumstances change. Given the severity and the duration the COVID-19 pandemic is unknown, the potential impacts of the pandemic on Management's estimates is uncertain. Furthermore, as the effects of any future events cannot be determined with any certainty, actual results could differ from the estimates upon which the carrying values were based.
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Asset Purchase Agreement

On June 17, 2020, the Company, as buyer, entered into an Asset Purchase Agreement (the "Asset Purchase Agreement") with Protect America, Inc. ("Protect America"), as seller. Pursuant to the Asset Purchase Agreement, the Company acquired (the "Acquisition") certain contracts for the provision of alarm monitoring and related services (the "Accounts") as well as the related accounts receivable, intellectual property and equipment inventory of Protect America. The Asset Purchase Agreement provides for an up-front cash payment of approximately $16,600,000 at closing and provides for 50 subsequent monthly payments ("Earnout Payments") consisting of a portion of the revenue attributable to the Accounts, subject to adjustment for Accounts that are no longer active. The transaction was accounted for as an asset acquisition with the cost of the assets acquired recorded as of June 17, 2020 and an estimated liability for the Earnout Payments of approximately $86,000,000. The Earnout Payments liability was estimated based on forecasted attrition of the Protect America subscriber base. The current portion of the Earnout Payments liability is included in current Other accrued liabilities on the condensed consolidated balance sheets and the long-term portion of the Earnout Payments is included in non-current Other liabilities on the condensed consolidated balance sheets.

(2)          Recent Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") 2016-13, Financial Instruments-Credit Losses (Topic 326) ("ASU 2016-13"), and related amendments, which replaces the incurred loss impairment methodology under prior GAAP with an expected credit loss model. ASU 2016-13 affects trade receivables, loans, contract assets, certain beneficial interests, off-balance sheet credit exposures not accounted for as insurance and other financial assets that are not subject to fair value through net income, as defined by the standard. Under the expected credit loss model, we are required to consider future economic trends to estimate expected credit losses over the lifetime of the asset. We adopted ASU 2016-13 as of January 1, 2020 using the modified retrospective approach and recorded a $1,627,000 increase in Accumulated deficit and a reduction in Contract assets, net - current portion, which is included in Prepaid and other current assets in the unaudited condensed consolidated balance sheets, as an opening adjustment.

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes ("ASU 2019-12"). ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC 740, Income Taxes, and becomes effective on January 1, 2021. The adoption of the new guidance is not expected to have a material impact on our condensed consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) ("ASU 2020-04"). ASU 2020-04 provides optional guidance for a limited period of time to ease potential accounting impact associated with transitioning away from reference rates that are expected to be discontinued, such as the London Interbank Offered Rate ("LIBOR"). The amendments in this ASU apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued. The amendments in ASU 2020-04 can be adopted as of March 12, 2020 and are effective through December 31, 2022. The guidance is optional and may be elected over time as reference rate reform activities occur. During the second quarter of 2020, the Company elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.

(3)          Goodwill

The following table provides the activity and balances of goodwill by reporting unit (amounts in thousands):
Brinks Home
Security
Balance at 12/31/2019$81,943  
Goodwill impairment(81,943) 
Balance at 6/30/2020$  

The Company accounts for its goodwill pursuant to the provisions of FASB ASC Topic 350, Intangibles - Goodwill and Other ("ASC 350"). In accordance with ASC 350, goodwill is not amortized, but rather tested for impairment annually, or earlier if an event occurs, or circumstances change, that indicate the fair value of a reporting unit may be below its carrying amount.

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As of March 31, 2020, the Company determined that a triggering event had occurred as a result of the recent economic disruption and uncertainty due to the COVID-19 pandemic. In response to the triggering event, the Company performed a quantitative impairment test at the Brinks Home Security entity level as we operate as a single reporting unit. The fair value of the Company's reporting unit was estimated based on a discounted cash flow model and market-based approach. Assumptions critical to our fair value estimate under the discounted cash flow model include the discount rate, projected average revenue growth and projected long-term growth rates in the determination of terminal values. The results of the quantitative assessment indicated that the carrying value was in excess of the fair value of the reporting unit, including goodwill. An impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit's fair value. Applying this methodology, we recorded a full goodwill impairment charge of $81,943,000 during the six months ended June 30, 2020. The factors leading to the goodwill impairment were lower projected overall account acquisition in future periods due to the estimated impact of COVID-19 on our account acquisition channels and an increase in the discount rate applied in the discounted cash flow model based on current economic conditions. This resulted in reductions in future cash flows and a lower fair value as calculated under the income approach.

(4)          Other Accrued Liabilities
 
Other accrued liabilities consisted of the following (amounts in thousands): 
 June 30,
2020
December 31,
2019
Accrued payroll and related liabilities$8,001  $5,908  
Interest payable245  291  
Income taxes payable1,311  2,603  
Operating lease liabilities3,384  3,725  
Contingent dealer liabilities2,822  3,274  
Earnout Payments liability18,168    
Other7,701  9,153  
Total Other accrued liabilities$41,632  $24,954  

(5)          Debt
 
Debt consisted of the following (amounts in thousands):
 June 30,
2020
December 31,
2019
Takeback Loan Facility, matures March 29, 2024, LIBOR plus 6.5%, subject to a LIBOR floor of 1.25%, with an effective rate of 8.1%
$816,331  $820,444  
Term Loan Facility, matures July 3, 2024, LIBOR plus 5.0%, subject to a LIBOR floor of 1.5%, with an effective rate of 6.7%
150,000  150,000  
Revolving Credit Facility, matures July 3, 2024, LIBOR plus 5.0%, subject to a LIBOR floor of 1.5%, or base rate (with a floor of 4.5%) plus 4.0%, with an effective rate of 9.2%
63,500  16,000  
 $1,029,831  $986,444  
Less: Current portion of long-term debt(8,225) (8,225) 
Long-term debt$1,021,606  $978,219  

Takeback Loan Facility

On the Effective Date, pursuant to the terms of the Plan, the Debtors entered into an $822,500,000 takeback term loan facility (the "Takeback Loan Facility") with the lenders party thereto, and Alter Domus formerly known as Cortland Capital Market Services, LLC. as administrative agent. The Takeback Loan Facility requires quarterly interest payments and quarterly principal payments of $2,056,250, and matures on March 29, 2024. Interest on loans made under the Takeback Loan Facility accrues at an interest rate per year equal to the LIBOR rate (with a floor of 1.25%) plus 6.5% or base rate plus 5.5%. The Takeback Loan Facility, subject to certain exceptions, is guaranteed by each of the Company's existing and future domestic subsidiaries and is secured by substantially all the assets of the Company and such subsidiary guarantors. See note 13, Consolidating Guarantor Financial Information for further information. The Takeback Loan Facility contains customary representations, warranties, covenants and events of default and related remedies.
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Credit Facilities

On the Effective Date, pursuant to the terms of the Plan, the Debtors entered into a $145,000,000 senior secured revolving credit facility (the "Revolving Credit Facility"), including a $10,000,000 swingline loan, and $150,000,000 in senior secured term loans (the "Term Loan Facility" and together with the Revolving Credit Facility, the "Credit Facilities") with the lenders party thereto, KKR Capital Markets LLC as lead arranger and bookrunner, KKR Credit Advisors (US) LLC as Structuring Advisor and Encina Private Credit SPV, LLC as administrative agent, swingline lender and L/C issuer. As of June 30, 2020, the Company had $600,000 available under a standby letter of credit issued. In March 2020, we borrowed $50,000,000 on our Revolving Credit Facility to address any unforeseen liquidity needs during the COVID-19 pandemic. As of June 30, 2020, $80,900,000 is available for borrowing under the Revolving Credit Facility, subject to certain financial covenants.

The maturity date of loans made under the Credit Facilities is July 3, 2024, subject to a springing maturity of March 29, 2024, or earlier, depending on any repayment, refinancing or changes in the maturity date of the Takeback Loan Facility. Interest on loans made under the Credit Facilities accrues at an interest rate per year equal to the LIBOR rate (with a floor of 1.5%) plus 5.0% or base rate (with a floor of 4.5%) plus 4.0%, dependent upon the type of borrowing requested by the Company. There is a commitment fee of 0.75% on unused portions of the Revolving Credit Facility.

The Credit Facilities, subject to certain exceptions, are guaranteed by each of the Company's existing and future domestic subsidiaries and are secured by substantially all the assets of the Company and such subsidiary guarantors. See note 13, Consolidating Guarantor Financial Information for further information. The Credit Facilities contain customary representations, warranties, covenants and events of default and related remedies.

On June 17, 2020, the Company entered into Amendment No. 1 to the Takeback Loan Facility and Amendment No. 1 to the Credit Facilities (collectively, the "Credit Agreements"). The Amendments amended the applicable Credit Agreement to, among other things, (a) exclude earnouts, holdbacks, and similar payments (including the Earnout Payments) from consideration in the determination of the maximum amount of bulk purchases of alarm monitoring contracts permitted annually, (b) limit the recurring monthly revenue attributable to monitoring contracts with an active earnout, holdback or similar payment for the calculation of certain leverage ratios, (c) limit the annual amount permitted to be paid by the Company to buy out, accelerate, or settle any earnout, holdback or similar payments for future acquisitions structured similarly to the Acquisition prior to the original due date of such payments and (d) permit a board observer appointed by a majority of the lenders party to the Takeback Loan Facility to attend meetings of the board of directors of the Company.

The terms of the Takeback Loan Facility and the Credit Facilities provide for certain financial and nonfinancial covenants.  As of June 30, 2020, the Company was in compliance with all required covenants under these financing arrangements.

In order to reduce the financial risk related to changes in interest rates associated with the floating rate term loan under the Takeback Loan Facility, the Company entered into an interest rate cap agreement. The critical terms of the interest rate cap agreement were designed to mirror the terms of the Takeback Loan Facility and are highly effective at offsetting the cash flows being hedged. See note 6, Derivatives for further disclosures related to the settlement of these derivative instruments.

As of June 30, 2020, principal payments scheduled to be made on the Company’s debt obligations are as follows (amounts in thousands):
Remainder of 2020$4,112  
20218,225  
20228,225  
20238,225  
20241,001,044  
2025  
Thereafter  
Total debt principal payments$1,029,831  


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(6)          Derivatives
 
Interest Rate Cap

In November of 2019, the Company entered into an interest rate cap agreement to reduce the interest rate risk inherent in the Company's variable rate Takeback Loan Facility. The interest rate cap agreement provides the right to receive cash if the reference interest rate rises above a contractual rate. The premium paid for the interest rate cap agreement was $3,020,000, which was the initial fair value of the interest rate cap recorded on the condensed consolidated balance sheets.

The critical terms of the interest rate cap were designed to mirror the terms of the Company's variable rate Takeback Loan Facility and are highly effective at offsetting the cash flows being hedged. The Company designated the interest rate cap as a cash flow hedge of the variability of the LIBOR-based interest payments on $750,000,000 of principal of the Takeback Loan Facility. The interest rate cap agreement will expire on December 31, 2023. The effective portion of the interest rate cap's change in fair value is recorded in Accumulated other comprehensive income (loss). Any ineffective portions of the interest rate cap's change in fair value are recognized in current earnings in Interest expense.

During the Successor Company three and six months ended June 30, 2020, interest expense of $184,000 and $368,000, respectively, was reclassified from Accumulated other comprehensive income (loss) to Interest expense on the condensed consolidated statements of operations and comprehensive income (loss). The Company expects to similarly reclassify approximately $737,000 from Accumulated other comprehensive income (loss) to Interest expense on the condensed consolidated statements of operations and comprehensive income (loss) in the next twelve months.

The fair value of the interest rate cap was $797,000 at June 30, 2020, and constituted an asset of the Company. The fair value of the interest rate cap is included in non-current Other assets, net on the condensed consolidated balance sheets based on the maturity date of the derivative instrument. See note 7, Fair Value Measurements for related fair value disclosures.

Interest Rate Swaps

Historically, the Company entered into interest rate swap agreements (all interest rate swap agreements are collectively referred to as the "Swaps") to reduce the interest rate risk inherent in the Company's prior debt agreements.

Prior to December of 2018, all of the Swaps were designated and qualified as cash flow hedging instruments, with the effective portion of the Swaps' change in fair value recorded in Accumulated other comprehensive income (loss). However, in December of 2018, given the potential for changes in the Company's future expected interest payments that these Swaps hedged, all of the Swaps no longer qualified as a cash flow hedge and were de-designated as such. Before the de-designation, changes in the fair value of the Swaps were recognized in Accumulated other comprehensive income (loss) and were reclassified to Interest expense when the hedged interest payments on the underlying debt were recognized. After the de-designation, changes in the fair value of the Swaps are recognized in Unrealized loss on derivative financial instruments on the condensed consolidated statements of operations and comprehensive income (loss). For the Predecessor Company three months ended March 31, 2019, the Company recorded an Unrealized loss on derivative financial instruments of $7,773,000. On April 30, 2019, the various counterparties and the Company agreed to settle and terminate all of the outstanding interest rate swap agreements, which required us to pay $8,767,000 in termination amount to certain counterparties and required a certain counterparty to pay $6,540,000 in termination amount to us, resulting in a Realized net loss on derivative financial instruments of $2,227,000. There are no Swaps outstanding as of June 30, 2020.

The impact of the derivatives on the condensed consolidated financial statements is depicted below (amounts in thousands):
Successor CompanyPredecessor Company
Three Months Ended June 30,Three Months Ended June 30,
20202019
Effective portion of loss recognized in Accumulated other comprehensive income (loss)
$(165) $  
Interest cost of interest rate cap reclassified into Net loss (a)
$184  $  
Effective portion of loss reclassified from Accumulated other comprehensive income (loss) into Net income (loss) (a)
$  $(472) 

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(a)  Amounts are included in Interest expense in the condensed consolidated statements of operations and comprehensive income (loss).

Successor CompanyPredecessor Company
Six Months Ended June 30,Six Months Ended June 30,
20202019
Effective portion of loss recognized in Accumulated other comprehensive income (loss)
$(2,162) $  
Interest cost of interest rate cap reclassified into Net loss (b)
$368  $  
Effective portion of loss reclassified from Accumulated other comprehensive income (loss) into Net income (loss) (b)
$  $(940) 

(b)  Amounts are included in Interest expense in the condensed consolidated statements of operations and comprehensive income (loss).

(7)          Fair Value Measurements
 
According to the FASB ASC Topic 820, Fair Value Measurement, fair value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants and requires that assets and liabilities carried at fair value are classified and disclosed in the following three categories:

Level 1 - Quoted prices for identical instruments in active markets.
Level 2 - Quoted prices for similar instruments in active or inactive markets and valuations derived from models where all significant inputs are observable in active markets.
Level 3 - Valuations derived from valuation techniques in which one or more significant inputs are unobservable in any market.

The following summarizes the fair value level of assets that are measured on a recurring basis at June 30, 2020 and December 31, 2019 (amounts in thousands): 
 Level 1Level 2Level 3Total
June 30, 2020
Interest rate cap agreement - assets (a)$  $797  $  $797  
Total$  $797  $  $797  
December 31, 2019
Interest rate cap agreement - assets (a)$  $2,959  $  $2,959  
Total$  $2,959  $  $2,959  

(a)   Interest rate cap asset value is included in non-current Other assets on the condensed consolidated balance sheets.
 
The Company has determined that the significant inputs used to value the interest rate cap fall within Level 2 of the fair value hierarchy.  As a result, the Company has determined that its interest rate cap valuation is classified in Level 2 of the fair value hierarchy.
 
Carrying values and fair values of financial instruments that are not carried at fair value are as follows (amounts in thousands):
 June 30, 2020December 31, 2019
Long term debt, including current portion:
Carrying value$1,029,831  $986,444  
Fair value (a)$831,871  $857,717  

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(a)  The fair value is based on market quotations from third party financial institutions and is classified as Level 2 in the hierarchy.
 
The Company’s other financial instruments', including cash and cash equivalents, restricted cash, accounts receivable, accounts payable and contingent dealer liabilities, carrying values approximate their fair values because of their nature.

(8)          Stockholders' Equity

Common Stock

The Company had 22,500,000 issued and outstanding shares of Common Stock, par value $0.01 per share ("Common Stock") as of both June 30, 2020 and December 31, 2019.

Accumulated Other Comprehensive Income (Loss)

The following table provides a summary of the changes in Accumulated other comprehensive income (loss) for the six months ended June 30, 2020 (amounts in thousands):
Successor Company
 Accumulated Other Comprehensive Income (Loss)
Balance at December 31, 2019$9  
Unrealized loss on interest rate cap recognized through Accumulated other comprehensive income (loss), net of income tax of $0
(1,997) 
Interest cost of interest rate cap reclassified into Net loss, net of income tax of $0 (a)
184  
Balance at March 31, 2020$(1,804) 
Unrealized loss on interest rate cap recognized through Accumulated other comprehensive income (loss), net of income tax of $0
(165) 
Interest cost of interest rate cap reclassified into Net loss, net of income tax of $0 (a)
184  
Balance at June 30, 2020$(1,785) 

(a)  Amounts reclassified into Net loss are included in Interest expense on the condensed consolidated statements of operations.  See note 6, Derivatives for further information.

The following table provides a summary of the changes in Accumulated other comprehensive income (loss) for the six months ended June 30, 2019 (amounts in thousands):
Predecessor Company
 Accumulated Other Comprehensive Income (Loss)
Balance at December 31, 2018$7,608  
Reclassifications of unrealized loss on derivatives into Net loss, net of income tax of $0 (a)
(468) 
Balance at March 31, 2019$7,140  
Reclassifications of unrealized loss on derivatives into Net loss, net of income tax of $0 (a)
(472) 
Balance at June 30, 2019$6,668  

(a)  Amounts reclassified into Net loss are included in Interest expense on the condensed consolidated statements of operations.  See note 6, Derivatives for further information.

(9)          Basic and Diluted Earnings Per Common Share

Basic earnings per common share ("EPS") is computed by dividing net income by the weighted average number of shares of Common Stock outstanding for the period.  Diluted EPS is computed by dividing net income by the sum of the weighted
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average number of shares of Common Stock outstanding and the effect of dilutive securities. For the Successor Company three and six months ended June 31, 2020, there were no anti-dilutive securities outstanding. The weighted average number of basic and diluted shares of Common Stock was 22,500,000 for the Successor Company three and six months ended June 30, 2020. There were no public shares of Common Stock outstanding during the Predecessor Company three and six months ended June 30, 2019 as Monitronics was wholly-owned by Ascent Capital.

(10)        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 are likely to have a material adverse impact on the Company's financial position or results of operations. The Company accrues and expenses legal fees related to loss contingency matters as incurred.

(11)        Revenue Recognition

Disaggregation of Revenue

Revenue is disaggregated by source of revenue as follows (in thousands):
Successor CompanyPredecessor Company
Three Months Ended June 30,Three Months Ended June 30,
20202019
Alarm monitoring revenue$110,263  $119,085  
Product, installation and service revenue9,512  7,585  
Other revenue1,033  1,421  
Total Net revenue$120,808  $128,091  

Successor CompanyPredecessor Company
Six Months Ended June 30,Six Months Ended June 30,
20202019
Alarm monitoring revenue$221,071  $240,564  
Product, installation and service revenue20,007  14,118  
Other revenue2,305  3,015  
Total Net revenue$243,383  $257,697  

Contract Balances

The following table provides information about receivables, contract assets and contract liabilities from contracts with customers (in thousands):
June 30,
2020
December 31,
2019
Trade receivables, net$10,410  $12,083  
Contract assets, net - current portion (a)$12,734  $12,070  
Contract assets, net - long-term portion (b)$14,186  $14,852  
Deferred revenue$11,138  $12,008  

(a)  Amount is included in Prepaid and other current assets in the unaudited condensed consolidated balance sheets.
(b)  Amount is included in Other assets in the unaudited condensed consolidated balance sheets.

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(12)        Leases

The Company primarily leases buildings and equipment. The Company determines if a contract is a lease at the inception of the arrangement. The Company reviews all options to extend, terminate, or purchase its right of use assets at the inception of the lease and accounts for these options when they are reasonably certain of being exercised. Certain real estate leases contain lease and non-lease components, which are accounted for separately.

Leases with an initial term of 12 months or less are not recorded on the condensed consolidated balance sheet. Lease expense for these leases is recognized on a straight-line basis over the lease term.

All of the Company's leases are currently determined to be operating leases.

Components of Lease Expense

The components of lease expense were as follows (in thousands):
Successor CompanyPredecessor Company
Three Months Ended June 30,Three Months Ended June 30,
20202019
Operating lease cost (a)$173  $120  
Operating lease cost (b)1,175  975  
Total operating lease cost$1,348  $1,095