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As filed with the Securities and Exchange Commission on October 18, 2013

Registration No. 333-         

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form S-4

 

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

Monitronics International, Inc.*

(Exact name of registrant as specified in its charter)

 

Texas		7380		74-2719343
(State or other jurisdiction of incorporation or organization)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification Numbers)

 

2350 Valley View Lane, #100

Dallas, Texas 75234

(972) 243-7443

(Address, including zip code, and telephone number,

including area code, of registrants’ principal executive offices)

 

William E. Niles

Executive Vice President, General Counsel and Secretary

Ascent Capital Group, Inc.

5251 DTC Parkway, Suite 1000

Greenwood Village, CO 80111

(303) 628-5603

(Name, address, including zip code, and telephone number,

including area code, of agent for service)

 

Copies to:

Renee Wilm, Esq.

Baker Botts L.L.P.

30 Rockefeller Plaza

New York, New York 10112-4498

(212) 408-2503

 

Approximate date of commencement of proposed sale of the securities to the public:   As soon as practicable following the effectiveness of this Registration Statement.

 

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.   o

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   o

 

Indicate by check mark whether the registrants are large accelerated filers, accelerated filers, non-accelerated filers, or smaller reporting companies. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filers  o		Accelerated filers  o			Non-accelerated filers  x		Smaller reporting companies  o
			(Do not check if a smaller reporting company)

 

If applicable, place an X in the box to designate the appropriate rule provision relied upon conducting this transaction:

 

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer) o

 

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer) o

 

* Includes certain subsidiaries of Monitronics International, Inc. identified on the following page.

 

CALCULATION OF REGISTRATION FEE

 

Title of Each Class of Securities to be Registered		Amount to be Registered			Proposed Maximum Offering Price per Unit		Proposed Maximum Aggregate Offering Price			Amount of Registration Fee(1)
9.125% Senior Notes due 2020		$	175,000,000		100	%	$	175,000,000		$	22,540
Guarantees of 9.125% Senior Notes due 2020(2)		—			—		—			—

(1) Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(f) under the Securities Act of 1933, as amended.

 

(2) No separate consideration will be received for the guarantees, and no separate fee is payable pursuant to Rule 457(n) under the Securities Act of 1933, as amended.

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

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SUBSIDIARY GUARANTORS

 

Exact Name of Registrant as specified in its Charter*		State or Other jurisdiction of Incorporation or Organization		I.R.S. Employer Identification
Monitronics Canada, Inc.		Delaware		20-4729545
Monitronics Funding LP		Delaware		20-8306754
Monitronics Security LP		Delaware		20-8306524
MI Servicer LP, LLC		Delaware		—
MIBU Servicer, Inc.		Delaware		20-8305978
Platinum Security Solutions, Inc.		Delaware		45-1273850
Security Networks LLC		Florida		65-0988893
Security Networks Acceptance LLC		Delaware		26-1399183

 

* The address for each registrant’s principal executive office is 2350 Valley View Lane, #100 Dallas, Texas 75234.

 

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The information in this prospectus is not complete and may be changed. We may not commence the exchange offer or sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities or a solicitation of an offer to buy these securities in any state where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED OCTOBER 18, 2013

 

PROSPECTUS

 

 

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Monitronics International, Inc.

 

Offer to Exchange

up to $175,000,000 Principal Amount of

9.125% Senior Notes due 2020

that have been registered under the Securities Act of 1933

for

a Like Principal Amount of

9.125% Senior Notes due 2020

that have not been registered under the Securities Act of 1933

 

This Exchange Offer will expire at 5:00 P.M.,

New York City time, on [                  ], 2013, unless extended.

 

We are offering to exchange up to $175,000,000 aggregate principal amount of our registered 9.125% Senior Notes due 2020, or the “exchange notes,” for any and all of the unregistered 9.125% Senior Notes due 2020, or the “original notes,” that we issued in a private offering on July 17, 2013. The notes will be governed by the indenture governing our existing $410,000,000 aggregate principal amount of 9.125% Senior Notes due 2020 issued on March 23, 2012 (the “existing notes” and, unless the context requires otherwise, together with the original notes and the exchange notes offered hereby, the “notes”). We refer to this exchange as the “exchange offer.” The exchange notes are substantially identical to the original notes, except the exchange notes are registered under the Securities Act of 1933, as amended, or the “Securities Act,” and the transfer restrictions and registration rights, and related special interest provisions, applicable to the original notes will not apply to the exchange notes. The exchange notes will represent the same debt as the original notes and we will issue the exchange notes under the same indenture used in issuing the original notes. If you fail to tender your original notes, you will continue to hold unregistered notes that you will not be able to transfer freely.

 

No public market currently exists for the original notes or the exchange notes.

 

Terms of the exchange offer:

 

·                   The exchange offer expires at 5:00 p.m., New York City time, on [                    ], 2013, unless we extend it.

 

·                   We will exchange all outstanding original notes that are validly tendered and not withdrawn prior to the expiration of the exchange offer for an equal principal amount of exchange notes. All interest due and payable on the original notes will become due on the same terms under the exchange notes.

 

·                   You may withdraw your tender of original notes at any time prior to the expiration of the exchange offer.

 

·                   The exchange offer is subject to customary conditions, which we may waive.

 

·                   The exchange of exchange notes for original notes will not be a taxable transaction for U.S. federal income tax purposes, but you should see the discussion under the caption “Material United States Federal Income Tax Considerations” on page 136 for more information.

 

See “Risk Factors” beginning on page 21 for a discussion of risks you should consider in connection with the exchange offer and an investment in the exchange notes.

 

We qualify as an “emerging growth company,” as such term is used in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”).  However, we will not be taking advantage of the exemptions afforded to “emerging growth companies” under the JOBS Act.  Please see “Summary—Emerging Growth Company Status” for more information regarding this decision and our qualification as an “emerging growth company.”

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

 

The date of this prospectus is [                      ], 2013.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS	iv
SUMMARY	6
RISK FACTORS	21
USE OF PROCEEDS	36
EXCHANGE OFFER	36
SELECTED HISTORICAL CONSOLIDATED	46
FINANCIAL DATA AND OPERATING DATA	46
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	53
BUSINESS	66
MANAGEMENT AND CORPORATE GOVERNANCE	75
EXECUTIVE COMPENSATION	77
SECURITY OWNERSHIP	91
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS	93
DESCRIPTION OF OTHER INDEBTEDNESS	94
DESCRIPTION OF NOTES	96
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS	136
PLAN OF DISTRIBUTION	141
LEGAL MATTERS	142
EXPERTS	142
WHERE YOU CAN FIND MORE INFORMATION	142
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS	F-1

 

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS AND IN THE LETTER OF TRANSMITTAL ACCOMPANYING THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH ANY INFORMATION OR REPRESENT ANYTHING ABOUT US, OUR PARENT ASCENT CAPITAL GROUP, INC. OR THIS PROSPECTUS THAT IS NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS. IF GIVEN OR MADE, ANY SUCH OTHER INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY US.  WE TAKE NO RESPONSIBILITY FOR, AND CAN PROVIDE NO ASSURANCE AS TO THE ACCURACY OF, ANY OTHER INFORMATION THAT OTHERS MAY GIVE YOU. WE ARE NOT MAKING AN OFFER TO EXCHANGE THESE NOTES IN ANY JURISDICTION WHERE SUCH OFFER IS NOT PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THIS PROSPECTUS (OR, IN THE CASE OF DOCUMENTS INCORPORATED BY REFERENCE HEREIN, THE DATE OF THE FILING OF ANY SUCH DOCUMENT). OUR BUSINESS, FINANCIAL CONDITIONS, RESULTS OF OPERATIONS AND PROSPECTUS MAY HAVE CHANGED SINCE SUCH DATE(S).

 

Each broker-dealer that receives exchange notes in exchange for original notes acquired for its own account as a result of market making or other trading activities must acknowledge that it will deliver a prospectus in connection with any resale of such exchange notes. By so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an underwriter within the meaning of the Securities Act. This prospectus, as it may be amended or supplemented from time to time, may be used by broker-dealers in connection with such resales. We have agreed to make this prospectus available for a period ending on the earlier of 120 days from the effective date of the registration statement of which this prospectus forms a part and the date on which a broker-dealer is no longer required to deliver a prospectus in connection with market-making or other trading activities. In addition, until [                    ], 2013 (90 days after the date of this prospectus), all dealers effecting transactions in the exchange notes may be required to deliver a prospectus. See “Plan of Distribution.”

 

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INDUSTRY AND MARKET DATA AND FORECASTS

 

Market and industry data used throughout this prospectus is based on the good faith estimates of management, which in turn are based upon management’s review of internal surveys, independent industry surveys and publications and other publicly available information. Although we believe that these third-party sources are reliable, we do not guarantee the accuracy or completeness of this information, and we have not independently verified this information. Similarly, internal company surveys, while believed by us to be reliable, have not been verified by any independent sources.

 

NON-GAAP FINANCIAL MEASURES

 

Adjusted EBITDA, as presented in this prospectus, is a supplemental measure of our performance that is not required by, or presented in accordance with, accounting principles generally accepted in the United States (“GAAP”). It is not a measurement of our financial performance under GAAP and should not be considered as an alternative to net income or any other performance measures derived in accordance with GAAP or as an alternative to cash flows from operating activities as measures of our liquidity. The Securities and Exchange Commission (the “SEC”) has adopted rules to regulate the use, in filings with the SEC and in other public disclosures, of “non-GAAP financial measures.”

 

For purposes of this prospectus, Adjusted EBITDA is defined as net income (loss) 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. See “Summary—Monitronics Summary Historical Consolidated Financial Data and Operating Data,” “—Security Networks Summary Historical Consolidated Financial Data,” and “—Summary Unaudited Pro Forma Consolidated Financial Data.”

 

We believe that Adjusted EBITDA is an important indicator of the operational strength and performance of our business, including our business’ ability to fund our ongoing acquisition of subscriber accounts, our capital expenditures and to service our 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 our covenants are calculated under the agreements governing certain of our debt obligations. The covenants in the indenture governing the notes are based upon an Adjusted EBITDA calculation (which may differ from the one described above and elsewhere herein) for our most recently completed fiscal quarter, annualized, at the time of determination. Adjusted EBITDA does not represent cash flow from operations as defined by GAAP, should not be construed as an alternative to net income or loss and is indicative neither of the results of our operations nor of cash flows available to fund all of our cash needs. It is, however, a measurement that we believe is useful to investors in analyzing our 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 us should not be compared to any similarly titled measures reported by other companies.

 

Our presentation of Adjusted EBITDA should not be construed as an indication that our future results will be unaffected by unusual or nonrecurring items. Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

 

·                   it does not reflect every cash expenditure, future requirements for capital expenditures or contractual commitments;

 

·                   it does not reflect the significant interest expense or the cash requirements necessary to service interest or principal payments on our debt;

 

·                   it does not reflect income tax expense, and, because the payment of taxes is part of our operations, tax expense is a necessary element of our costs and ability to operate;

 

·                   although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced or require improvements in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements or improvements;

 

·                   it is not adjusted for all non-cash income or expense items that are reflected in our statements of cash flows;

 

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·                   it does not measure our liquidity; and

 

·                   it does not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our ongoing operations.

 

Because of these limitations, Adjusted EBITDA should not be considered as a measure of discretionary cash available to our company to invest in the growth of our business or as a measure of cash that will be available to us to meet our obligations, including those under the indenture governing the notes and our senior secured credit facility (the “Credit Facility”). Rather, Adjusted EBITDA should be considered together with other comparative tools, including GAAP measures, to assist in an evaluation of our operating performance. Such GAAP measures include operating income (loss), net income (loss), cash flows from operating activities and cash flow data. Investors should not place undue reliance on Adjusted EBITDA or ratios calculated using Adjusted EBITDA. Our GAAP-based measures can be found in the consolidated financial statements and the related notes thereto included elsewhere in this prospectus and incorporated by reference herein. In addition, please see “Summary—Monitronics Summary Historical Consolidated Financial Data and Operating Data,” “—Security Networks Summary Historical Consolidated Financial Data,” “—Summary Unaudited Pro Forma Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” for a reconciliation of Adjusted EBITDA to net income (loss), which management believes to be the most closely comparable financial measure calculated in accordance with GAAP.

 

TRADEMARKS

 

We own all United States rights in the “MONITRONICS” trademark and other United States trademarks related thereto. Security Networks LLC owns all United States rights in the “SECURITY NETWORKS” trademark and other United States trademarks related thereto.

 

NON-RELIANCE ON ASCENT PUBLIC FILINGS

 

We are a direct wholly-owned subsidiary of Ascent Capital Group, Inc. (formerly known as Ascent Media Corporation) (“Ascent”). Ascent is a company whose securities are registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and is therefore required to file periodic and current reports and other materials with the SEC. While such information is available, investors are cautioned that Ascent is not the issuer of the notes and is not otherwise a guarantor or obligor (contingent or otherwise) with respect to the notes, and no assets of Ascent and its direct and indirect subsidiaries other than our assets and the assets of the guarantors will be available to satisfy our obligations under the notes. Therefore, you are directed to rely solely on this prospectus in making your decision with respect to the exchange offer.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

Any statements made in this prospectus and in the documents incorporated by reference herein that are not statements of historical fact, including statements about our beliefs of future events and of our future financial performance, are forward-looking statements and should be evaluated as such. In some cases, you can identify these forward-looking statements by words such as “anticipates,” “believes,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should” or “will,” or the negative of those and other comparable words. These forward-looking statements are no guarantees of future performance or results, and are subject to risks and uncertainties that could cause actual results to differ materially from historical results or those we anticipate, many of which are beyond our control. Factors that may cause such differences to occur include, but are not limited to:

 

·                   general business conditions and industry trends;

 

·                   macroeconomic conditions and their effect on the general economy and on the U.S. housing market, in particular single family homes which represent our 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 new market entrants, including telecommunications and cable companies;

 

·                   integration of acquired assets and businesses, including a resultant increase in subscriber attrition and the possible loss of dealer relationships;

 

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

 

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

 

·                   our high degree of leverage and the restrictive covenants governing our 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;

 

·                   our anticipated growth strategies;

 

·                   our 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 our network, including the potential for service disruptions due to acts of nature or technology deficiencies;

 

·                   changes in the nature of strategic relationships with original equipment manufacturers, dealers and other business partners;

 

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

 

·                   changes in our expected rate of subscriber attrition;

 

·                   changes in technology that may make our service less attractive or obsolete, or require significant expenditures to update, including the phase-out of 2G networks by cellular carriers;

 

·                   the development of new services or service innovations by competitors;

 

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

 

·                   other risks referenced in this prospectus, including the section titled “Risk Factors,” or in the documents incorporated by reference herein.

 

The list of factors above is illustrative, but by no means exhaustive and should be read with other cautionary statements included in this prospectus and in the documents incorporated by reference herein. Should one or more of the risks and uncertainties described or incorporated by reference in this prospectus actually occur, including the risks described under “Risk Factors,” or should one or more of the underlying assumptions prove incorrect, actual results may vary materially from those described or incorporated by reference in this prospectus.

 

The forward-looking statements set forth or incorporated by reference in this prospectus and such risks, uncertainties and other factors speak only as of the date of this prospectus or the date of such incorporated documents. We expressly disclaim any obligation or undertaking to provide any updates or revisions to any forward looking statement set forth or incorporated by reference in this prospectus to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

 

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SUMMARY

 

This summary highlights significant aspects of our business and this exchange offer, but it is not complete and does not contain all of the information that you should consider before making your decision regarding the exchange offer. You should carefully read the entire prospectus, including the information presented under the section entitled “Risk Factors” and our consolidated financial statements included in this prospectus and incorporated herein by reference to our Annual Report on Form 10-K for the year ended December 31, 2012 and our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2013 and June 30, 2013 and our Current Reports on Form 8-K filed on August 22, 2013 and September 19, 2013.

 

Unless otherwise indicated or required by the context, as used in this prospectus, “Monitronics,” the “Company,” the “Issuer,” “we,” “us,” and “our” for periods after December 16, 2010 refer to Monitronics International, Inc. and its consolidated subsidiaries (the “Successor”), following the consummation of the acquisition (the “Ascent Acquisition”) of all of the capital stock of Monitronics International, Inc. by Ascent Capital Group, Inc. (“Ascent”) on December 17, 2010 (the “Ascent Acquisition Date”), and for periods prior to the Ascent Acquisition Date refer to the historical operations of Monitronics International, Inc. and its consolidated subsidiaries (the “Predecessor”). The Predecessor reported using a fiscal year ending June 30. After the Ascent Acquisition, we changed our fiscal year to a calendar year. Therefore, all references in this prospectus to “fiscal year 2008,” “fiscal year 2009” and “fiscal year 2010” are to the twelve months ended June 30 of the year referenced and all references in this prospectus to “fiscal year 2011” are to the twelve months ending December 31, 2011. See “—Monitronics Summary Historical Consolidated Financial Data and Operating Data” and “Monitronics Selected Historical Consolidated Financial Data and Operating Data.” Unless otherwise indicated or required by the context, as used in this prospectus, “Security Networks” refers to Security Networks LLC and certain affiliated entities acquired in the acquisition, direct and indirect, of all of the equity interests of Security Networks and certain affiliated entities in the Security Networks Acquisition (as defined below).

 

Our Business

 

Overview

 

We are engaged in the business of providing security alarm monitoring services: monitoring signals arising from burglaries, fires, medical alerts and other events through security systems at subscribers’ premises, as well as providing customer service and technical support. We are one of the largest alarm monitoring companies in the United States, with over 810,000 subscribers under contract in all 50 states, the District of Columbia, Puerto Rico and Canada. In addition, we provide a wide range of mainly residential security services, including hands-free two-way interactive voice communication with the monitoring center, remote arming and disarming, activity notification and remote access to live and stored video camera streams. We also offer a full suite of home automation services, including smart phone remote monitoring and control of lights, thermostats and electronic door locks. We were incorporated in 1994 and are headquartered in Dallas, Texas.

 

Unlike many of our national competitors, we outsource the sales, installation and field service functions to our dealers. By outsourcing the low margin, high fixed-cost elements of our business to a large network of independent service providers, we are able to allocate capital to growing our revenue-generating account base rather than to local offices or depreciating hard assets. During 2012, we purchased alarm monitoring contracts from more than 370 dealers. We generally enter into alarm monitoring purchase agreements (“AMPAs”) with dealers only after a review of the dealer’s qualifications, licensing and financial situation. Each AMPA generally gives us a right of first refusal to purchase all alarm monitoring contracts sold by that dealer during the term of the AMPA, which is generally three years. It also establishes criteria for accounts to qualify for purchase and criteria for the purchase price calculation.

 

Our authorized independent dealers are typically small businesses that sell and install alarm systems. These dealers focus on the sale and installation of security systems and generally do not retain the alarm monitoring contracts for their customers and do not have their own facilities to monitor such systems due to the large upfront investment required to create the account and build a monitoring station. They also do not have the scale required to operate a monitoring station efficiently. These dealers typically sell the alarm monitoring contracts to companies

 

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who have monitoring stations and outsource the monitoring function for any accounts they retain. We have the ability to monitor signals from nearly all types of residential security systems.

 

Recent Developments

 

Security Networks Acquisition

 

On July 10, 2013, we entered into a securities purchase agreement with certain funds affiliated with Oak Hill Capital Partners, certain other holders and, for the limited purposes set forth therein, Ascent (the “Security Networks Acquisition Agreement”), pursuant to which we directly and indirectly acquired all of the equity interests of Security Networks LLC and certain affiliated entities (the “Security Networks Acquisition”) on August 16, 2013 (the “Security Networks Closing Date”). The purchase price (the “Security Networks Purchase Price”) consisted of $482.9 million in cash (based on the estimated amount of Security Networks’ recurring monthly revenue (as defined in the Security Networks Acquisition Agreement) delivered on the Security Networks Closing Date (“Acquisition RMR”)) plus 253,333 shares of Ascent’s Series A common stock with an agreed value of $20 million (the “Ascent Shares”). In addition to other customary post-closing adjustments, the Security Networks Purchase Price will be adjusted based on the actual amount of Security Networks’ Acquisition RMR delivered as of the Security Networks Closing Date. The sellers have agreed to a 90 day lock-up of the Ascent Shares following the Security Networks Closing Date, subject to limited exceptions.

 

Security Networks is the 14th largest alarm monitoring company in the United States. Based out of West Palm Beach, Florida, the company provides security alarm monitoring services, including monitoring signals arising from burglaries, fires, medical alerts and other events through security systems at subscribers’ premises, as well as providing customer service and technical support. Security Networks provides its monitoring services through its central monitoring operations, which have been recognized as “Five Diamond Certified” by the Central Station Alarm Association (the “CSAA”). Security Networks works with its rapidly growing network of exclusive dealers, who provide sales and installation support on behalf of the company to its customers.

 

Security Networks’ business model is very similar to that of Monitronics. Security Networks outsources its sales and installation functions to its nationwide network of dealers. Security Networks enters into agreements with dealers on an exclusive basis only after a review of the dealer’s qualifications, licensing and financial health. Through this program, the dealers receive origination fees for qualified accounts based on a multiple of RMR affected by credit score, billing method, contract term and volume. As of June 30, 2013, Security Networks had over 225 active dealers nationwide generating accounts in 33 states. Also as of June 30, 2013, Security Networks reported RMR of $8.4 million (including approximately $0.1 million of wholesale monitoring revenue) and approximately 195,000 subscribers. Unlike Monitronics, Security Networks includes wholesale monitoring revenue in its RMR consistent with the definition used in the Security Networks Acquisition Agreement. Also, as of June 30, 3013, Security Networks reported an average subscriber credit score of 720. For additional information about Security Networks, please see “—Security Networks Summary Historical Consolidated Financial Data” and “Security Networks Selected Historical Consolidated Financial Data.”

 

Substantially all of Security Networks’ revenue is derived from recurring monthly revenues under security alarm monitoring contracts originated through its dealer network. The financial success of their accounts is largely dependent on the underwriting standards of these accounts and their corresponding attrition rates. Like Monitronics, Security Networks has a rigorous due diligence process to assure the quality of alarm monitoring contracts. This process typically includes verification of credit score, homeownership and the alarm system’s ability to communicate with the monitoring center. Following an initial 90-day service period, in addition to accessing its dealer network, Security Networks employs its own field service technicians to service the subscriber’s premises (unlike Monitronics, which continues to only access our dealer network to provide field service to our subscribers). Consistent with our low cost philosophy, the Security Networks team operates without a local office and only in the most densely populated markets. Security Networks’ alarm monitoring contracts include a minimum term of three years, with many including a five-year term. These strict underwriting standards and contract terms have resulted in a large volume of high-quality accounts with statistically predictable subscriber behavior. Security Networks reports life cycle attrition levels in line with Monitronics’ current portfolio.

 

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Security Networks Transactions

 

The Security Networks Acquisition was effected through the following financing events, which we collectively refer to as the “Security Networks Transactions”:

 

·                   The issuance of the original notes, that we issued in a private offering on July 17, 2013.

 

·                   On the Security Networks Closing Date, we entered into an amendment to our Credit Facility (the “Credit Facility Amendment”) to, among other things, increase the amount of our revolving credit facility under our Credit Facility by an amount equal to $75.0 million (except that no amounts were drawn to finance the Security Networks Acquisition) and increase the amount of our term facility by an amount equal to $225.0 million (the “New Term Loan”).

 

·                   On the Security Networks Closing Date, we entered into an intercompany loan with Ascent, pursuant to which we borrowed $100.0 million at an interest rate equal to 9.868% per annum, payable semi-annually in cash in arrears (the “Ascent Intercompany Loan”). The Ascent Intercompany Loan matures on October 1, 2020 and is not guaranteed by any of our subsidiaries. Ascent funded the amounts we borrow under the Ascent Intercompany Loan in part from cash on hand. In addition, concurrently with the offering of the original notes, our direct parent company Ascent offered and sold $103.5 million of convertible unsecured senior notes due 2020 (the “Ascent Convertible Notes”) in a public offering registered under the Securities Act (the “Ascent Convertible Notes Offering”). The foregoing description and any other information regarding the Ascent Convertible Notes Offering or the Ascent Intercompany Loan are included herein solely for informational purposes and do not purport to be complete. See “Description of Other Indebtedness—Ascent Intercompany Loan.”

 

·                   On the Security Networks Closing Date, Ascent made a contribution to us of approximately $20 million in cash and the Ascent Shares in connection with the Security Networks Acquisition.

 

·                   On the Security Networks Closing Date, we paid the Security Networks Purchase Price to the seller parties in the Security Networks Acquisition.

 

The foregoing description of the Security Networks Transactions is included herein for informational purposes and does not purport to be complete. Please see “Use of Proceeds”.

 

Corporate Information

 

Our principal executive offices are located at 2350 Valley View Lane, #100, Dallas, Texas 75234, telephone number (972) 243-7443, and our website is www.monitronics.com . The information on our website is not part of, or incorporated by reference into, this prospectus.

 

Each of the wholly-owned subsidiaries of Monitronics listed in the table below is a guarantor of the notes. None of these subsidiaries operate any business outside of the business of Monitronics. The address of each of these subsidiaries is c/o Monitronics International, Inc., 2350 Valley View Lane, #100, Dallas, Texas 75234, telephone number (972) 243-7443. The principal executive offices of each subsidiary are those of Monitronics.

 

Subsidiary		Jurisdiction of Formation
Monitronics Canada, Inc.		Delaware
MIBU Servicer Inc.		Delaware
Monitronics Security LP		Delaware
Monitronics Funding LP		Delaware
MI Servicer LP, LLC		Delaware
Platinum Security Solutions, Inc.		Delaware

 

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Security Networks LLC		Florida
Security Networks Acceptance LLC		Delaware

 

Emerging Growth Company Status

 

We qualify as an “emerging growth company,” as defined in Section 2(a)(19) of the Securities Act, as modified by the JOBS Act. As such, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to public companies that are not “emerging growth companies” including, but not limited to: an exemption from the provisions of Section 404(b) of the Sarbanes-Oxley Act of 2002 requiring that our independent registered public accounting firm provide an attestation report on the effectiveness of our internal control over financial reporting; an exemption from the “say on pay” provisions (requiring a non-binding shareholder vote to approve compensation of certain executive officers) and the “say on golden parachute” provisions (requiring a non-binding shareholder vote to approve golden parachute arrangements for certain executive officers in connection with mergers and certain other business combinations) of the Dodd-Frank Act and certain disclosure requirements of the Dodd-Frank Act relating to compensation of our chief executive officer; permission to omit the detailed compensation discussion and analysis from proxy statements and reports filed under the Securities Exchange Act of 1934 and instead provide a reduced level of disclosure concerning executive compensation; and an exemption from any rules that may be adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotation or a supplement to the auditor’s report on financial statements. Because Monitronics is the primary operating subsidiary of our publicly traded parent company Ascent, and Ascent is already subject to these reporting requirements, we will not be taking advantage of these exemptions.

 

In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. However, we are choosing to opt out of any extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

 

We could continue to qualify as an “emerging growth company” for up to five years, or until the earliest of (a) the last day of the first fiscal year in which our annual gross revenues exceed $1 billion, (b) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common units that are held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (c) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three-year period.

 

The Exchange Offer

 

On July 17, 2013, we completed a private offering of the original notes in reliance on Section 4(2) of the Securities Act, and Rule 144A and Regulation S thereunder. As part of that offering, we entered into an exchange and registration rights agreement with the initial purchasers of the original notes, which we refer to as the “registration rights agreement,” in which we agreed, among other things, to offer to exchange the original notes for the exchange notes. The following is a summary of the principal terms of the exchange offer. A more detailed description is contained in the section of this prospectus entitled “Exchange Offer.”

 

Original notes		$175 million aggregate principal amount of 9.125% Senior Notes due April 1, 2020, which were issued in a private placement on July 17, 2013.
Exchange notes		9.125% Senior Notes due April 1, 2020. The terms of the exchange notes are substantially identical to the terms of the original notes, except that the exchange notes are registered under the Securities Act, and the transfer restrictions and registration rights, and related special interest provisions, applicable to the original notes will not apply to the exchange notes.

 

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Exchange offer		Pursuant to the registration rights agreement, we are offering to exchange up to $175 million principal amount of our exchange notes that have been registered under the Securities Act for an equal principal amount of our original notes.
		The exchange notes will evidence the same debt as the original notes, including principal and interest, and will be issued under and be entitled to the benefits of the same indenture that governs the original notes. Holders of the original notes do not have any appraisal or dissenter’s rights in connection with the exchange offer. Because the exchange notes will be registered, the exchange notes will not be subject to transfer restrictions and holders of original notes that tender and have their original notes accepted in the exchange offer will no longer have registration rights or the right to receive the related special interest under the circumstances described in the registration rights agreement.
Expiration date		The exchange offer will expire at 5:00 p.m., New York City time, on [                    ], 2013, which we refer to as the “Expiration Date,” unless we decide to extend it or terminate it early. We do not currently intend to extend the exchange offer. A tender of original notes pursuant to this exchange offer may be withdrawn at any time on or prior to the Expiration Date if we receive a valid written withdrawal request before the expiration of the exchange offer.
Conditions to the exchange offer		The exchange offer is subject to customary conditions, which we may, but are not required to, waive. We will not be required to accept for exchange, or to issue exchange notes in exchange for, any original notes, and we may terminate or amend the exchange offer if we determine in our reasonable judgment that the exchange offer would violate applicable law or any applicable interpretation of the staff of the SEC. Please see “Exchange Offer—Conditions to the Exchange Offer” for more information regarding the conditions to the exchange offer. We reserve the right, in our sole discretion, to waive any and all conditions to the exchange offer on or prior to the Expiration Date.
Procedures for tendering original notes		To participate in the exchange offer, on or prior to the Expiration Date you must tender your original notes by using the book-entry transfer procedures described in “Exchange Offer—Procedures for Tendering Original,” including transmission or delivery to the exchange agent of an agent’s message or a properly completed and duly executed letter of transmittal, with any required signature guarantee. In order for a book-entry transfer to constitute a valid tender of your original notes in the exchange offer, U.S. Bank National Association, as registrar and exchange agent, must receive a confirmation of book-entry transfer of your original notes into the exchange agent’s account at The Depository Trust Company prior to the Expiration Date. By signing or agreeing to be bound by the letter of transmittal, you will represent to us that, among other things:
		·      you are acquiring exchange notes in the ordinary course of your business;
		·      you are not engaged in, and you do not intend to engage in, and you have no arrangement or understanding with any person or entity to participate in a distribution of the exchange notes;
		·      you are transferring good and marketable title to the original notes free and clear of all liens, security interests, encumbrances, or rights or interests of others except your own;
		·      if you are a broker-dealer that will receive exchange notes for your own account in exchange for original notes that were acquired by you as a result of market-making or other trading activities, that you will deliver a

 

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		prospectus, as required by law, in connection with any resale of your exchange notes; and
		·                   you are not our “affiliate” as defined in Rule 405 of the Securities Act. If you are a broker-dealer, you may not participate in the exchange offer as to any original notes you purchased directly from us.
Withdrawal		You may withdraw any original notes tendered in the exchange offer by sending the exchange agent notice of withdrawal at any time prior to 5:00 p.m., New York City time, on the Expiration Date. If we decide for any reason not to accept any original notes tendered for exchange or to withdraw the exchange offer, the original notes will be returned promptly after the expiration or termination of the exchange offer. For further information regarding the withdrawal of tendered original notes, please see “Exchange Offer—Withdrawal of Tenders.”
Acceptance of original notes and delivery of exchange notes		If you fulfill all conditions required for proper acceptance of the original notes, we will accept any and all original notes that you properly tender in the exchange offer before 5:00 p.m., New York City time, on the Expiration Date. For more information, please read “Exchange Offer —Terms of the Exchange Offer.”
United States federal income tax considerations		The exchange of exchange notes for original notes in the exchange offer will not be a taxable event for U.S. federal income tax purposes. Please see “Material United States Federal Income Tax Considerations” for more information regarding the tax consequences to you of the exchange offer.
Use of proceeds		The issuance of the exchange notes will not provide us with any new proceeds. We are making this exchange offer solely to satisfy our obligations under the registration rights agreement we entered into with the initial purchasers of the original notes.
Fees and expenses		We will pay all expenses incident to the exchange offer.
Exchange agent		We have appointed U.S. Bank National Association as our exchange agent for the exchange offer. You should tender your notes, direct questions and requests for assistance and requests for additional copies of this prospectus (including the letter of transmittal) to the exchange agent as follows:
		Delivery by Registered or Certified Mail:
		U.S. Bank National Association
		[      ]
		Overnight Delivery or Regular Mail:
		[      ]
		To Confirm by Telephone or for Information:
		[      ]
		Facsimile Transmissions:
		[      ]
		You can find more information regarding the exchange agent elsewhere in this prospectus under the caption “Exchange Offer—Exchange Agent.”

 

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Resales of exchange notes		Based on interpretations by the staff of the SEC, as set forth in no-action letters issued to third parties, we believe that the exchange notes you receive in the exchange offer may be offered for resale, resold or otherwise transferred by you without compliance with the registration and prospectus delivery provisions of the Securities Act so long as certain conditions are met. See “Exchange Offer—Resale of Exchange Notes” and “Plan of Distribution” for more information regarding resales.
Consequences of not exchanging your original notes		If you do not exchange your original notes in this exchange offer, you will continue to hold unregistered original notes and you will no longer be entitled to registration rights and or the special interest provisions related thereto, except in the limited circumstances set forth in the registration rights agreement. See “Exchange Offer—Consequences of Failure to Exchange.” In addition, you will not be able to resell, offer to resell or otherwise transfer your original notes unless you do so in a transaction exempt from the registration requirements of the Securities Act and applicable state securities laws or unless we register the offer and resale of your original notes under the Securities Act. Following the exchange offer, we will be under no obligation to register your original notes, except under the limited circumstances set forth in the registration rights agreement.
		For information regarding the limited circumstances under which we may be required to file a registration statement after this exchange offer and the consequences of not tendering your original notes in this exchange offer, please see “Exchange Offer—Consequences of Failure to Exchange” and “Description of Exchange Notes.”
Additional documentation; further information; assistance		Any questions or requests for assistance or additional documentation regarding the exchange offer may be directed to the exchange agent at the number set forth above. Beneficial owners of original notes should contact their broker, dealer, commercial bank, trust company or other nominee for assistance in tendering their original notes in the exchange offer.

 

Terms of the Exchange Notes

 

The terms of the exchange notes and those of the outstanding original notes are substantially identical, except that the exchange notes are registered under the Securities Act, and the transfer restrictions and registration rights, and related special interest provisions, applicable to the original notes will not apply to the exchange notes. The exchange notes represent the same debt as the original notes for which they are being exchanged. Both the original notes and the exchange notes are governed by the same indenture.

 

 

Issuer		Monitronics International, Inc.
Exchange notes offered		$175 million aggregate principal amount of 9.125% Senior Notes due 2020.
		The exchange notes offered hereby are an additional issue of Monitronics’ outstanding 9.125% Senior Notes due 2020 (the “existing notes” and, unless the context requires otherwise, together with the original notes and the exchange notes offered hereby, the “notes”). Holders who exchange their notes in the exchange offer will receive registered notes that are expected to share a single CUSIP number with the existing notes, and we expect that the exchange notes will thereafter be fungible with the existing notes.
Maturity Date		The notes will mature on April 1, 2020.

 

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Interest		Interest on the notes will accrue at a rate of 9.125% per annum. Interest on the original notes and exchange notes will be payable semi-annually in cash in arrears on April 1 and October 1 of each year, commencing October 1, 2013. Interest on the original notes and exchange notes will be deemed to have accrued from April 1, 2013.
Guarantees		The notes will initially be guaranteed on a senior unsecured basis by each of our existing restricted subsidiaries. For more details, see “Description of Notes — Guarantees.”
Ranking		The notes and the guarantees will be the Company’s and the guarantors’ senior unsecured obligations and will:
		·                                           rank equally in right of payment to all of the Company’s and the guarantors’ existing and future senior unsecured debt that is not, by its terms, expressly subordinated in right of payment to the notes and the guarantees;
		·                                           rank senior in right of payment to any of the Company’s and the guarantors’ existing and future debt that is, by its terms, expressly subordinated in right of payment to the notes and the guarantees;
		·                                           be effectively subordinated to the Company’s and the guarantors’ secured indebtedness, to the extent of the value of the collateral securing such indebtedness, including indebtedness outstanding under the Credit Facility; and
		·                                           be structurally subordinated to all of the existing and future liabilities, including trade payables, of our subsidiaries that do not guarantee the notes.
Optional redemption		On or after April 1, 2016, we may redeem some or all of the notes at any time at the redemption prices described in the section “Description of Notes—Optional Redemption.” Prior to such date, we may redeem some or all of the notes at a redemption price of 100% of the principal amount plus accrued and unpaid interest, if any, to the redemption date, plus a “make-whole” premium. In addition, we may redeem up to 35% of the aggregate principal amount of the notes and the existing notes, in the aggregate, before April 1, 2016, with the proceeds of certain equity offerings at a redemption price of 109.125% of the principal amount plus accrued and unpaid interest, if any, to the redemption date.
Change of Control		If we experience certain kinds of changes of control, we must offer to purchase the notes at 101% of their principal amount, plus accrued and unpaid interest. For more details, see “Description of Notes—Change of Control.”
Mandatory Offer to Repurchase Following Certain Asset Sales		If we sell certain assets and do not repay certain debt or reinvest the proceeds of such sales within certain time periods, we must offer to repurchase the notes at 100% of their principal amount, plus accrued and unpaid interest. For more details, see “Description of Notes—Certain Covenants—Limitation on Asset Sales.”

 

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Certain Covenants		The indenture governing the notes contains covenants that limit, among other things, our ability and the ability of our restricted subsidiaries to:
		·                                           incur or guarantee additional indebtedness;
		·                                           declare or pay dividends, redeem stock or make other distributions to stockholders;
		·                                           make investments;
		·                                           create liens or use assets as security in other transactions;
		·                                           merge or consolidate, or sell, transfer, lease or dispose of substantially all of our assets;
		·                                           enter into transactions with affiliates; and
		·                                           sell or transfer certain assets.
		These covenants are subject to important qualifications and limitations. See “Description of Notes—Certain Covenants.”
Transfer Restrictions		The exchange notes generally will be freely transferable.
Market for the Notes		The exchange notes will be fungible with our existing notes for which there is currently an established trading market. However, we cannot assure you as to how the exchange notes offered hereby will trade or whether the trading market for our existing notes and exchange notes will continue to be liquid.
Form of New Notes		The exchange notes will be represented initially by one or more global notes. Each global exchange note will be deposited with the trustee, as custodian for DTC.

 

You should refer to the section entitled “Risk Factors” on page 21 for an explanation of certain risks related to the exchange offer and the risks of investing in the exchange notes.

 

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Summary Historical Consolidated Financial and Subscriber Data

 

The following table sets forth Monitronics’ summary historical consolidated financial and other operating data for the periods presented. The data below relating to the 169-day period from July 1, 2010 to December 16, 2010 and the fiscal year ended June 30, 2010 reflects the consolidated financial data of the Predecessor. The (i) summary historical consolidated financial and other operating data (other than subscriber information) for the six months ended June 30, 2013 and 2012 and the fiscal years ended December 31, 2012 and 2011 and June 30, 2010 and for the periods July 1, 2010 to December 16, 2010 and December 17, 2010 to December 31, 2010, and (ii) the summary historical balance sheet data as of June 30, 2013, December 31, 2012 and December 31, 2011, presented in this table have been derived from our consolidated financial statements and related notes included elsewhere and incorporated by reference in this prospectus. The summary historical balance sheet data as of June 30, 2012, December 31, 2010 and June 30, 2010 are derived from our consolidated financial statements and related notes which are not included or incorporated by reference in this prospectus. In connection with the Ascent Acquisition, we changed our fiscal year end from June 30 to December 31.

 

The summary historical consolidated financial and other operating data included below and elsewhere (or incorporated by reference) in this prospectus are not necessarily indicative of future performance. This information is only a summary and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes thereto included elsewhere or incorporated by reference in this prospectus.

 

For a comparison of fiscal year ended December 31, 2011 to calendar year ended December 31, 2010 and a discussion of the derivation and calculation of the information for the twelve months ended December 31, 2010, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview—Change in Fiscal Year and Basis of Presentation” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Year Ended December 31, 2011 Compared to Twelve Months Ended December 31, 2010.”

 

		Successor											Predecessor
											15-Day period		169-Day
											from		period			Fiscal
											December 17,		from			year
		Six months ended					Year ended				to		July 1, to			ended
		June 30,					December 31,				December 31,		December 16,			June 30,
		2013			2012		2012		2011		2010		2010			2010
		(unaudited)			(unaudited)
		(Amounts in thousands)
Results of Operations Data:
Net revenue		$	202,431		165,196		344,953		311,898		9,129		$	133,432		271,951
Operating expenses:
Cost of Services		30,796			22,450		49,791		40,553		1,422		16,647			32,966
Selling, general, and administrative		34,016			29,004		59,575		57,170		2,130		37,454			52,385
Amortization of subscriber accounts and dealer network		90,313			77,430		163,468		159,619		5,980		56,660			118,834
Depreciation		3,209			2,622		5,286		4,704		199		2,796			5,937
Gain on sale of operating assets, net		(2		)	—		—		—		—		—			—
		158,332			131,506		278,120		262,046		9,731		113,557			210,122
Operating income (loss)		44,099			33,690		66,833		49,852		(602	)	19,875			61,829
Other expenses:
Interest expense		40,593			30,969		71,328		42,655		1,837		9,394			19,139
Realized and unrealized loss on derivative instruments		—			2,044		2,044		10,601		1,682		5,330			40,624
Refinancing expense		—			6,245		6,245		—		—		—			—
Other expense		—			619		630		83		—		—			—
		40,593			39,877		80,247		53,339		3,519		14,724			59,763
Income (loss) before income taxes		3,506			(6,187	)	(13,414	)	(3,487	)	(4,121	)	5,151			2,066
Income tax expense		1,565			1,338		2,616		2,523		109		1,070			2,188
Net income (loss)		$	1,941		(7,525	)	(16,030	)	(6,010	)	(4,230	)	$	4,081		(122	)

 

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		Successor											Predecessor
											15-Day
											period		169-Day
											from		period
											December 17,		from			Fiscal year
		Six months ended					Year ended				to		July 1, to			ended
		June 30,					December 31,				December 31,		December 16,			June 30,
		2013			2012		2012		2011		2010		2010			2010
		(unaudited)			(unaudited)
		(Amounts in thousands, other than subscriber data)
Other Operating and Financial Data:
Subscriber accounts owned at period end		838,723			711,832		812,539		700,880		670,450		668,453			645,874
Subscriber accounts purchased		76,193			50,532		202,379		114,691		3,339		64,618			131,323
Purchases of subscriber accounts, net of holdbacks		$	(113,199	)	(78,885	)	(304,665	)	(162,714	)	(3,870	)	$	(88,829	)	(177,009	)
Cash flow from (used in) operating activities		100,714			84,910		167,284		149,705		(8,397	)	64,453			130,109
Cash flow used in investing activities		(117,175		)	(29,944	)	(261,753	)	(166,761	)	(11,735	)	(82,844		)	(153,355	)
Cash flow from (used in) financing activities		14,565			(55,289	)	95,792		19,000		1,044		(3,193		)	30,816
Capital expenditures		(3,978		)	(2,479	)	(5,868	)	(4,003	)	(86	)	(2,194		)	(4,022	)
Adjusted EBITDA and Reconciliation of Net income (loss) to Adjusted EBITDA
Adjusted EBITDA(1)		$	139,822		113,703		236,341		214,485		5,577		$	93,000		186,906
Less:
Acquisition-related professional expenses(2)		(1,438		)	—		—		—		—		(13,275		)	—
Amortization of subscriber accounts and dealer network		(90,313		)	(77,430	)	(163,468	)	(159,619	)	(5,980	)	(56,660		)	(118,834	)
Depreciation		(3,209		)	(2,622	)	(5,286	)	(4,704	)	(199	)	(2,796		)	(5,937	)
Stock-based and long-term incentive compensation expense		(763		)	(580	)	(1,384	)	(393	)	—		(394		)	(306	)
Realized and unrealized loss on derivative instruments		—			(2,044	)	(2,044	)	(10,601	)	(1,682	)	(5,330		)	(40,624	)
Refinancing expense		—			(6,245	)	(6,245	)	—		—		—			—
Interest expense		(40,593		)	(30,969	)	(71,328	)	(42,655	)	(1,837	)	(9,394		)	(19,139	)
Income tax expense		(1,565		)	(1,338	)	(2,616	)	(2,523	)	(109	)	(1,070		)	(2,188	)
Net income (loss)		$	1,941		(7,525	)	(16,030	)	(6,010	)	(4,230	)	$	4,081		(122	)

 

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		Successor										Predecessor
												Transition
		As of					As of					period as of
		June 30,					December 31,					December 31,		As of June 30,
		2013			2012		2012			2011		2010		2010
		(unaudited)			(unaudited)
		(Amounts in thousands)
Balance Sheet Data
Cash and cash equivalents, including restricted cash		$	4,177		1,787		$	6,073		53,530		51,542		$	92,614
Working capital (deficit)		$	(31,962	)	(27,130	)	$	(22,749	)	(47,142	)	(4,389	)	$	71,485
Total assets		$	1,473,522		1,295,410		$	1,445,431		1,332,861		1,319,816		$	803,564
Total debt (current and long-term)		$	1,126,106		953,323		$	1,108,383		952,718		916,733		$	844,200
Stockholder’s equity (deficiency)		$	273,987		270,151		$	260,419		289,373		294,990		$	(153,623	)

(1)                                  Adjusted EBITDA is a non-GAAP financial measure and is defined in this prospectus as net income (loss) 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. See “Non-GAAP Financial Measures” for more information regarding the use of non-GAAP financial measures in this prospectus.

 

(2)                                  For the six months ended June 30, 2013, acquisition-related professional expenses include non-recurring professional and legal expenses related to the Security Networks Acquisition.  For the 169-Day period from July 1 to December 16, 2010, acquisition-related professional expenses include non-recurring professional and legal expenses related to the Ascent Acquisition.

 

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Security Networks Summary Historical Consolidated Financial Data

 

The following table sets forth Security Networks’ summary historical consolidated financial data for the periods presented. The summary historical consolidated financial have been derived from Security Networks’ consolidated financial statements and related notes included elsewhere or incorporated by reference in this prospectus.

 

The summary historical consolidated financial included below are not necessarily indicative of future performance. This information is only a summary and should be read in conjunction with Security Networks’ consolidated financial statements and related notes thereto included elsewhere or incorporated by reference in this prospectus.

 

		Six months ended					Year ended
		June 30,					December 31,
		2013			2012		2012
		(unaudited)			(unaudited)
					(Amounts in thousands)
Results of Operations Data:
Net Revenue		$	48,407		35,415		$	78,478
Operating expenses:
Cost of Services		7,747			5,362		12,262
Selling, general, and administrative		14,612			9,594		20,134
Amortization of subscriber accounts		15,013			10,404		24,470
Depreciation		621			537		1,138
Loss on sale of operating assets, net		28			—		—
Contingent consideration expense		—			—		982
		38,021			25,897		58,986
Operating income		10,386			9,518		19,492
Other expenses:
Interest expense		10,010			6,843		15,816
		10,010			6,843		15,816
Income before taxes		376			2,675		3,676
Income tax expense		161			82		100
Net income		$	215		2,593		$	3,576

 

		Six months ended					Year Ended
		June 30,					December 31,
		2013			2012		2012
		(unaudited)			(unaudited)
					(Amounts in thousands)
Adjusted EBITDA and Reconciliation of Net income (loss) to Adjusted EBITDA
Adjusted EBITDA(1)		$	28,547		20,650		$	46,470
Less:
Amortization of subscriber accounts		(15,013		)	(10,404	)	(24,470		)
Depreciation		(621		)	(537	)	(1,138		)
Stock-based and long-term incentive compensation expense		(197		)	(191	)	(388		)
Acquisition related professional expenses		(2,330		)	—		—
Contingent consideration expense		—			—		(982		)
Interest expense		(10,010		)	(6,843	)	(15,816		)
Income tax expense		(161		)	(82	)	(100		)
Net income		$	215		2,593		$	3,576

 

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		As of June 30, 2013			As of December 31, 2012
		(unaudited) (Amounts in thousands)
Balance Sheet Data
Cash and cash equivalents		$	1,886		$	881
Working capital (deficit)		$	(8,021	)	$	(5,600	)
Total assets		$	309,544		$	274,958
Total debt (current and long-term)		$	237,972		$	208,140
Stockholder’s equity		$	52,296		$	51,884

(1)                                  Adjusted EBITDA is a non-GAAP financial measure and is defined in this prospectus as net income (loss) 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. See “Non-GAAP Financial Measures” for more information regarding the use of non-GAAP financial measures in this prospectus.

 

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Summary Unaudited Pro Forma Consolidated Financial Data

 

The following table sets forth the summary unaudited pro forma consolidated financial data as of and for the fiscal year ended December 31, 2012 and for the six months ended June 30, 2013. The unaudited pro forma consolidated financial data for the fiscal year ended December 31, 2012 and for the six months ended June 30, 2013 give effect to the Security Networks Transactions as if they were consummated on January 1, 2012. The unaudited pro forma consolidated financial data as of June 30, 2013 give effect to the Security Networks Transactions as if they were consummated on June 30, 2013. The unaudited pro forma consolidated financial data presented in this table have been derived from (i) the audited consolidated financial statements of each of Security Networks and the Company for the year ended December 31, 2012 and (ii) the unaudited consolidated financial statements of each of Security Networks and the Company as of and for the six months ended June 30, 2013 included elsewhere or incorporated by reference in this prospectus.

 

The unaudited pro forma consolidated financial information has been presented for informational purposes only and does not purport to represent, and is not necessarily indicative of, what our financial position or results of operations would have been had the Security Networks Acquisition been completed as of the dates indicated, and should not be taken as representative of our future consolidated financial position or results of operations. This information is only a summary and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Unaudited Pro Forma Condensed Financial Statements” our historical consolidated financial statements and related notes thereto and Security Networks’ historical consolidated financial statements included elsewhere or incorporated by reference in this prospectus.

 

		Six months ended June 30, 2013			Year ended December 31, 2012
		(Amounts in thousands)
Results of Operations Data:
Net revenue		$	250,838		$	420,862
Operating expenses:
Cost of Services		38,543			62,053
Selling, general, and administrative		47,135			77,880
Amortization of subscriber accounts, dealer network and other intangible assets		116,653			224,818
Depreciation		3,209			6,690
Loss on sale of operating assets, net		26			—
Contingent consideration expense		—			982
		205,566			372,423
Operating income		45,272			48,439
Other expenses:
Interest expense		57,655			105,453
Realized and unrealized loss on derivative instruments		—			2,044
Refinancing expense		—			6,245
Other expense		—			630
		57,655			114,372
Loss before income taxes		(12,383		)	(65,933		)
Income tax expense		1,726			2,716
Net loss		$	(14,109	)	$	(68,649	)

 

		As of June 30, 2013
		(Amounts in thousands)
Balance Sheet Data:
Cash and cash equivalents, including restricted cash		$	6,847
Working capital (deficit)		$	(45,081	)
Total assets		$	2,016,889
Total debt (current and long-term)		$	1,591,381
Stockholder’s equity		$	313,574

 

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