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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
þ
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2019
or
¨
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: 1-35106
 
AMC Networks Inc.
(Exact name of registrant as specified in its charter)
 
Delaware
27-5403694
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
 
 
11 Penn Plaza,
New York, NY
10001
(Address of principal executive offices)
(Zip Code)
(212) 324-8500
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Class A Common Stock, par value $0.01 per share
AMCX
The NASDAQ Stock Market LLC
 
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  þ    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ    No  ¨
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 (as defined in Exchange Act Rule 12b-2).
Large accelerated filer
þ
Accelerated filer
¨
 
 
 
 
Non-accelerated filer
¨
Smaller reporting company
¨
 
 
 
 
 
 
Emerging growth company
¨
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. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  þ
The number of shares of common stock outstanding as of April 26, 2019:
Class A Common Stock par value $0.01 per share
45,326,464
Class B Common Stock par value $0.01 per share
11,484,408




AMC NETWORKS INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
 
 
Page
 
 
 




PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements.
AMC NETWORKS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
(unaudited)

 
March 31, 2019
 
December 31, 2018
ASSETS
 
 
 
Current Assets:
 
 
 
Cash and cash equivalents
$
683,682

 
$
554,886

Accounts receivable, trade (less allowance for doubtful accounts of $9,267 and $10,788)
829,704

 
835,977

Current portion of program rights, net
433,862

 
440,739

Prepaid expenses and other current assets
157,972

 
131,809

Total current assets
2,105,220

 
1,963,411

Property and equipment, net of accumulated depreciation of $308,699 and $293,918
251,841

 
246,262

Program rights, net
1,154,265

 
1,214,051

Deferred carriage fees, net
14,871

 
16,831

Intangible assets, net
569,527

 
578,907

Goodwill
797,793

 
798,037

Deferred tax asset, net
19,927

 
19,272

Operating lease right-of-use asset
174,563

 

Other assets
433,907

 
441,792

Total assets
$
5,521,914

 
$
5,278,563

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Current Liabilities:
 
 
 
Accounts payable
$
107,392

 
$
107,066

Accrued liabilities
249,950

 
264,918

Current portion of program rights obligations
321,914

 
343,589

Deferred revenue
51,261

 
55,424

Current portion of long-term debt
30,125

 
21,334

Current portion of lease obligations
31,341

 
5,090

Total current liabilities
791,983

 
797,421

Program rights obligations
342,173

 
373,249

Long-term debt
3,080,800

 
3,088,221

Lease obligations
224,684

 
21,427

Deferred tax liability, net
137,567

 
145,443

Other liabilities
160,368

 
208,036

Total liabilities
4,737,575

 
4,633,797

Commitments and contingencies


 


Redeemable noncontrolling interests
299,802

 
299,558

Stockholders' equity:
 
 
 
Class A Common Stock, $0.01 par value, 360,000 shares authorized, 63,851 and 63,255 shares issued and 45,326 and 44,749 shares outstanding, respectively
634

 
633

Class B Common Stock, $0.01 par value, 90,000 shares authorized, 11,484 shares issued and outstanding
115

 
115

Preferred stock, $0.01 par value, 45,000 shares authorized; none issued

 

Paid-in capital
242,322

 
239,767

Accumulated earnings
1,372,339

 
1,228,942

Treasury stock, at cost (18,525 and 18,507 shares Class A Common Stock, respectively)
(993,574
)
 
(992,583
)
Accumulated other comprehensive loss
(166,446
)
 
(160,194
)
Total AMC Networks stockholders' equity
455,390

 
316,680

Non-redeemable noncontrolling interests
29,147

 
28,528

Total stockholders' equity
484,537

 
345,208

Total liabilities and stockholders' equity
$
5,521,914

 
$
5,278,563

See accompanying notes to condensed consolidated financial statements.

1


AMC NETWORKS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)

 
Three Months Ended March 31,
 
2019
 
2018
Revenues, net
$
784,221

 
$
740,823

Operating expenses:
 
 
 
Technical and operating (excluding depreciation and amortization)
340,148

 
320,365

Selling, general and administrative
172,512

 
166,449

Depreciation and amortization
24,056

 
20,354

Restructuring expense
2,642

 

Total operating expenses
539,358

 
507,168

Operating income
244,863

 
233,655

Other income (expense):
 
 
 
Interest expense
(39,645
)
 
(38,205
)
Interest income
4,200

 
5,019

Miscellaneous, net
(12,785
)
 
16,946

Total other income (expense)
(48,230
)
 
(16,240
)
Income from operations before income taxes
196,633

 
217,415

Income tax expense
(46,476
)
 
(56,879
)
Net income including noncontrolling interests
150,157

 
160,536

Net income attributable to noncontrolling interests
(6,760
)
 
(3,666
)
Net income attributable to AMC Networks' stockholders
$
143,397

 
$
156,870

 
 
 
 
Net income per share attributable to AMC Networks' stockholders:
Basic
$
2.53

 
$
2.57

Diluted
$
2.48

 
$
2.54

 
 
 
 
Weighted average common shares:
 
 
 
Basic
56,588

 
60,967

Diluted
57,725

 
61,719

See accompanying notes to condensed consolidated financial statements.

2


AMC NETWORKS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
 
 
Three Months Ended March 31,
 
2019
 
2018
Net income including noncontrolling interests
$
150,157

 
$
160,536

Other comprehensive income (loss):
 
 
 
Foreign currency translation adjustment
(5,762
)
 
18,805

Unrealized loss on interest rate swaps
(639
)
 

Other comprehensive income, before income taxes
(6,401
)
 
18,805

Income tax expense
149

 

Other comprehensive income, net of income taxes
(6,252
)
 
18,805

Comprehensive income
143,905

 
179,341

Comprehensive income attributable to noncontrolling interests
(6,722
)
 
(4,563
)
Comprehensive income attributable to AMC Networks' stockholders
$
137,183

 
$
174,778

See accompanying notes to condensed consolidated financial statements.

3


AMC NETWORKS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
(unaudited)
 
Class A
Common
Stock
 
Class B
Common
Stock
 
Paid-in
Capital
 
Accumulated Earnings
 
Treasury
Stock
 
Accumulated
Other
Comprehensive
Loss
 
AMC Networks Stockholders’
Equity
 
Noncontrolling Interests
 
Total Stockholders' Equity
Balance, December 31, 2018
$
633

 
$
115

 
$
239,767

 
$
1,228,942

 
$
(992,583
)
 
$
(160,194
)
 
$
316,680

 
$
28,528

 
$
345,208

Net income attributable to AMC Networks’ stockholders

 

 

 
143,397

 

 

 
143,397

 

 
143,397

Net income attributable to non-redeemable noncontrolling interests

 

 

 

 

 

 

 
942

 
942

Distributions to noncontrolling member

 

 

 

 

 

 

 
(361
)
 
(361
)
Settlement of treasury stock

 

 
985

 

 

 

 
985

 

 
985

Other comprehensive income

 

 

 

 

 
(6,252
)
 
(6,252
)
 
38

 
(6,214
)
Share-based compensation expense

 

 
19,899

 

 

 

 
19,899

 

 
19,899

Proceeds from the exercise of stock options

 

 
4,630

 

 

 

 
4,630

 

 
4,630

Treasury stock acquired

 

 

 

 
(991
)
 

 
(991
)
 

 
(991
)
Restricted stock units converted to shares
1

 

 
(22,959
)
 

 

 

 
(22,958
)
 

 
(22,958
)
Balance, March 31, 2019
$
634

 
$
115

 
$
242,322

 
$
1,372,339

 
$
(993,574
)
 
$
(166,446
)
 
$
455,390

 
$
29,147

 
$
484,537


 
Class A
Common
Stock
 
Class B
Common
Stock
 
Paid-in
Capital
 
Accumulated Earnings
 
Treasury
Stock
 
Accumulated
Other
Comprehensive
Loss
 
AMC Networks Stockholders’
Equity
 
Noncontrolling Interests
 
Total Stockholders' Equity
Balance, December 31, 2017
$
627

 
$
115

 
$
191,303

 
$
766,725

 
$
(709,440
)
 
$
(114,386
)
 
$
134,944

 
$
29,001

 
$
163,945

Net income attributable to AMC Networks’ stockholders

 

 

 
156,870

 

 

 
156,870

 

 
156,870

Net income attributable to non-redeemable noncontrolling interests

 

 

 

 

 

 

 
469

 
469

Cumulative effects of adoption of accounting standards

 

 

 
12,784

 
 
 

 
12,784

 

 
12,784

Treasury stock not yet settled

 

 
(9,980
)
 

 

 

 
(9,980
)
 

 
(9,980
)
Settlement of treasury stock

 

 
995

 

 

 

 
995

 

 
995

Other comprehensive income

 

 

 

 

 
18,804

 
18,804

 
897

 
19,701

Share-based compensation expense

 

 
15,319

 

 

 

 
15,319

 

 
15,319

Treasury stock acquired

 

 

 

 
(83,637
)
 

 
(83,637
)
 

 
(83,637
)
Restricted stock units converted to shares
4

 

 
(15,359
)
 

 

 

 
(15,355
)
 

 
(15,355
)
Balance, March 31, 2018
$
631

 
$
115

 
$
182,278

 
$
936,379

 
$
(793,077
)
 
$
(95,582
)
 
$
230,744

 
$
30,367

 
$
261,111


See accompanying notes to consolidated financial statements.

4


AMC NETWORKS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
Three Months Ended March 31,
 
2019
 
2018
Cash flows from operating activities:
 
 
 
Net income including noncontrolling interests
$
150,157

 
$
160,536

Adjustments to reconcile net income to net cash from operating activities:
 
 
 
Depreciation and amortization
24,056

 
20,354

Share-based compensation expense related to equity classified awards
19,899

 
15,319

Non-cash restructuring charges
1,171

 

Amortization and write-off of program rights
205,275

 
218,626

Amortization of deferred carriage fees
2,710

 
4,401

Unrealized foreign currency transaction gain
(4,501
)
 
(4,582
)
Unrealized gain on derivative contracts, net

 
(13,984
)
Amortization of deferred financing costs and discounts on indebtedness
1,954

 
1,881

Bad debt expense
2,353

 
914

Deferred income taxes
(8,858
)
 
31,800

Write-down of non-marketable equity securities and note receivable
17,741

 

Other, net
1,142

 
(2,348
)
Changes in assets and liabilities:
 
 
 
Accounts receivable, trade (including amounts due from related parties, net)
(1,429
)
 
(17,877
)
Prepaid expenses and other assets
(26,233
)
 
(5,512
)
Program rights and obligations, net
(190,651
)
 
(248,642
)
Income taxes payable
40,114

 
15,723

Deferred revenue
(4,200
)
 
4,980

Deferred carriage fees, net
(422
)
 
(1,610
)
Accounts payable, accrued liabilities and other liabilities
(58,591
)
 
(63,007
)
Net cash provided by operating activities
171,687

 
116,972

Cash flows from investing activities:
 
 
 
Capital expenditures
(22,053
)
 
(11,942
)
Return of capital from investees
3,908

 
172

Investment in and loans to investees

 
(42,318
)
Net cash used in investing activities
(18,145
)
 
(54,088
)
Cash flows from financing activities:
 
 
 
Proceeds from the issuance of long-term debt
2,521

 

Principal payments on long-term debt
(3,238
)
 

Deemed repurchases of restricted stock units
(22,959
)
 
(15,354
)
Purchase of treasury stock
(991
)
 
(83,637
)
Proceeds from stock option exercises
4,630

 

Principal payments on finance lease obligations
(1,309
)
 
(1,406
)
Distributions to noncontrolling interests
(5,629
)
 
(1,435
)
Net cash used in financing activities
(26,975
)
 
(101,832
)
Net increase (decrease) in cash and cash equivalents from operations
126,567

 
(38,948
)
Effect of exchange rate changes on cash and cash equivalents
2,229

 
9,365

Cash and cash equivalents at beginning of period
554,886

 
558,783

Cash and cash equivalents at end of period
$
683,682

 
$
529,200


See accompanying notes to condensed consolidated financial statements.

5

AMC NETWORKS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


Note 1. Description of Business and Basis of Presentation
Description of Business
AMC Networks Inc. ("AMC Networks") and its subsidiaries (collectively referred to as the "Company") own and operate entertainment businesses and assets. The Company is comprised of two operating segments:
National Networks: Includes activities of our five national programming networks, AMC Studios operations and AMC Broadcasting & Technology. Our national programming networks are AMC, WE tv, BBC AMERICA, IFC and SundanceTV in the U.S.; and AMC and IFC in Canada. Our AMC Studios operations produces original programming for our programming networks and also licenses such program rights worldwide. AMC Networks Broadcasting & Technology is our technical services business, which primarily services most of the national programming networks.
International and Other: Principally includes AMC Networks International (AMCNI), the Company's international programming businesses consisting of a portfolio of channels around the world; IFC Films, the Company's independent film distribution business; Levity Entertainment Group LLC ("Levity"), acquired April 20, 2018, our production services and comedy venues company; RLJ Entertainment Inc. ("RLJE"), acquired October 1, 2018, a content distribution company that also includes the subscription streaming services Acorn TV and Urban Movie Channel ("UMC") and our subscription streaming services, Sundance Now and Shudder.
Basis of Presentation
Principles of Consolidation
The consolidated financial statements include the accounts of AMC Networks and its subsidiaries in which a controlling voting interest is maintained or variable interest entities ("VIEs") in which the Company has determined it is the primary beneficiary. All intercompany transactions and balances have been eliminated in consolidation.
Investments in business entities in which the Company lacks control but does have the ability to exercise significant influence over operating and financial policies are accounted for using the equity method of accounting.
Unaudited Interim Financial Statements
These condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and Article 10 of Regulation S-X of the Securities and Exchange Commission ("SEC"), and should be read in conjunction with the Company's consolidated financial statements and notes thereto for the year ended December 31, 2018 contained in the Company's Annual Report on Form 10-K ("2018 Form 10-K") filed with the SEC. The condensed consolidated financial statements presented in this Quarterly Report on Form 10-Q are unaudited; however, in the opinion of management, such financial statements reflect all adjustments, consisting solely of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods presented.
The results of operations for interim periods are not necessarily indicative of the results that might be expected for future interim periods or for the full year ending December 31, 2019.
Program Rights
The Company periodically reviews the programming usefulness of its licensed and owned original program rights based on a series of factors, including expected future revenue generation from airings on the Company's networks and other exploitation opportunities, ratings, type and quality of program material, standards and practices, and fitness for exhibition through various forms of distribution. If it is determined that film or other program rights have limited, or no, future programming usefulness, a write-off of the unamortized cost is included in technical and operating expense. Program rights write-offs were $3.3 million and $5.2 million for the three months ended March 31, 2019 and March 31, 2018, respectively.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements; and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. Significant estimates and judgments inherent in the preparation of the consolidated financial statements include the useful lives and methodologies used to amortize and assess recoverability of program rights, the estimated useful lives of intangible assets and the valuation and recoverability of goodwill and intangible assets.

6

AMC NETWORKS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(unaudited)

Adoption of New Lease Standard
The Company adopted ASU No. 2016-02, Leases (Topic 842) on January 1, 2019, using the modified retrospective approach and effective date method. In addition, the Company elected the package of practical expedients, permitted under the transition guidance within the new standard, which among other things, allowed for the carry forward of the historical classification of leases. The adoption of the new standard resulted in additional net lease assets of $180.0 million (which is net of the historical deferred rent liability balance of $57.0 million) and lease liabilities of $237.0 million, respectively, as of January 1, 2019. The new standard did not materially impact our consolidated net income or cash flows. See Note 10 for further discussion regarding leases.
Recently Issued Accounting Pronouncements
In August 2018, the Financial Accounting Standards Board ("FASB") issued ASU No. 2018-13, Fair Value Measurement (Topic 820). ASU 2018-13 changes the disclosure requirements for fair value measurements and is effective for the first quarter of 2020, with early adoption permitted. ASU 2018-13 changes disclosure requirements related to transfers between Level I and II assets, as well as several aspects surrounding the valuation process and unrealized gains and losses related to Level III assets. The Company is currently evaluating the impact the adoption of the modified disclosure requirements will have on its consolidated financial statements.
In March 2019, the FASB issued ASU No. 2019-02, Improvements to Accounting for Costs of Films and License Agreements for Program Materials. ASU 2019-02 aligns the accounting for production costs of episodic television series with the accounting for production costs of films. It also requires an entity to test a film or license agreement within the scope of Subtopic 920-350 for impairment at the film group level, when the film or license agreement is predominantly monetized with other films and/or license agreements. The changes in this standard are effective for the first quarter of 2020, with early adoption permitted. The Company is currently evaluating the impact the adoption of the prospective disclosure requirements will have on its consolidated financial statements.
Note 2. Revenue Recognition
Transaction Price Allocated to Future Performance Obligations
As of March 31, 2019, other than contracts for which the Company has applied the practical expedients, the aggregate amount of transaction price allocated to remaining performance obligations was not material to our consolidated revenues.
Contract Balances from Contracts with Customers
The following table provides information about receivables, contract assets, and contract liabilities from contracts with customers.
(In thousands)
 
March 31, 2019
 
December 31, 2018
Balances from contracts with customers:
 
 
 
 
     Accounts receivable (including long-term, included in Other assets)
 
$
1,029,236

 
$
1,018,105

     Contract assets, short-term (included in Other current assets)
 
14,616

 
9,131

     Contract assets, long-term (included in Other assets)
 
8,696

 
8,136

     Contract liabilities (Deferred revenue)
 
51,261

 
55,424


Revenue recognized for the three months ended March 31, 2019 relating to the contract liability at December 31, 2018 was $7.1 million.

7

AMC NETWORKS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(unaudited)

Note 3. Net Income per Share
The following is a reconciliation between basic and diluted weighted average shares outstanding:
(In thousands)
Three Months Ended March 31,
2019
 
2018
Basic weighted average common shares outstanding
56,588

 
60,967

Effect of dilution:
 
 
 
Stock options
33

 

Restricted stock units
1,104

 
752

Diluted weighted average common shares outstanding
57,725

 
61,719


Approximately 1.5 million and 0.2 million restricted stock units outstanding as of March 31, 2019 and March 31, 2018, respectively, have been excluded from diluted weighted average common shares outstanding since a performance condition for these awards was not met in each of the respective periods. For the three months ended March 31, 2018, there were 0.4 million stock options and 0.2 million restricted stock units that would have been anti-dilutive to the diluted weighted average common shares outstanding.
Stock Repurchase Program
The Company's Board of Directors has authorized a program to repurchase up to $1.5 billion of its outstanding shares of common stock (the "Stock Repurchase Program"). The Stock Repurchase Program has no pre-established closing date and may be suspended or discontinued at any time. For the three months ended March 31, 2019, the Company repurchased 18 thousand shares of its Class A Common Stock at an average purchase price of approximately $53.82 per share. As of March 31, 2019, the Company has $558.4 million available for repurchase under the Stock Repurchase Program.
Note 4. Restructuring
During 2018, management commenced a restructuring initiative designed to reduce the cost structure of the Company. The restructuring was intended to improve organizational design of the Company through the elimination of certain roles, a reduction in the grade of certain roles, an increase in the span of responsibilities of certain senior managers, and the realignment of certain senior leaders to new or additional responsibilities.
Restructuring expense of $2.6 million for the three months ended March 31, 2019 primarily related to charges incurred at AMCNI for costs associated with the termination of distribution in certain territories.
The following table summarizes the accrued restructuring costs:
(In thousands)
Severance and employee-related costs
 
Other exit costs
 
Total
Balance at December 31, 2018
$
33,774

 
$
1,415

 
$
35,189

Charges
1,075

 
1,567

 
2,642

Cash payments
(17,089
)
 
(333
)
 
(17,422
)
Non-cash adjustments
(737
)
 
(2,577
)
 
(3,314
)
Currency translation
45

 
36

 
81

Balance at March 31, 2019
$
17,068

 
$
108

 
$
17,176


Accrued restructuring costs of $11.7 million are included in accrued liabilities and $5.4 million are included in other liabilities (long-term) in the consolidated balance sheet at March 31, 2019.
Note 5. Business Combinations
RLJ Entertainment
In October 2018, the Company acquired a controlling interest in RLJE, a premium subscription streaming services company that operates Acorn TV and UMC. Acorn TV features high-quality British and International mysteries and dramas. UMC showcases quality urban programming including feature films, documentaries, original series, stand-up comedy and other exclusive content

8

AMC NETWORKS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(unaudited)

for African-American and urban audiences. In addition, RLJE owns a majority interest in Agatha Christie Ltd., a popular world-class franchise. 
RLJE also controls, co-produces, and either owns or has long-term distribution rights to a large library of content primarily consisting of British mysteries and dramas, independent feature films and urban content. In addition to supporting its streaming services, the company monetizes its library through distribution operations across virtually all available media platforms and is distributed in the United States, Canada, U.K. and Australia.
The Company accounted for the acquisition of RLJE using the acquisition method of accounting. The acquisition method of accounting requires, among other things, that the assets acquired and liabilities assumed in a business combination be measured at their estimated respective fair values as of the closing date of the acquisition. Goodwill recognized in connection with this transaction represents primarily the potential economic benefits that the Company believes may arise from the acquisition. The goodwill associated with the RLJE acquisition is generally not deductible for tax purposes.
The acquisition accounting for RLJE as reflected in these consolidated financial statements is preliminary and based on current estimates and currently available information, and is subject to revision based on final determinations of fair value and final allocations of purchase price to the identifiable assets and liabilities acquired. The primary estimated fair values that are not yet finalized relate to the valuation of intangible assets, other assets, current and noncurrent liabilities, and redeemable noncontrolling interests.
The following table summarizes the preliminary valuation of the tangible and identifiable intangible assets acquired and liabilities assumed as of October 1, 2018, the date the Company obtained a controlling interest (in thousands).
Fair value of equity consideration transferred
$
41,513

Fair value of previously held equity interest
130,890

Fair value of redeemable noncontrolling interest
103,359

 
$
275,762

Allocation to net assets acquired:
 
Cash
3,360

Accounts receivable
16,316

Prepaid expenses and other current assets
963

Programming rights
69,775

Property and equipment
2,841

Other assets (equity method investments)
36,700

Intangible assets
126,600

Accounts payable
(12,008
)
Accrued liabilities
(41,501
)
Debt
(25,187
)
 
177,859

Goodwill
97,903

 
$
275,762


Levity Entertainment Group LLC
On April 20, 2018, the Company acquired a 57% controlling interest in Levity, a production services and comedy venues company, for a total purchase price of $48.4 million. The purchase price consisted of a $35.0 million payment for the outstanding Class B Common Units of Levity and the acquisition of Series L Preferred Units for $13.4 million. The Company has entered into arrangements with the noncontrolling members related to the governance of Levity following the acquisition. The Company views this acquisition as complementary to its business and programming content strategy.
The Company accounted for the acquisition of Levity using the acquisition method of accounting. The acquisition method of accounting requires, among other things, that the assets acquired and liabilities assumed in a business combination be measured at their estimated respective fair values as of the closing date of the acquisition. Goodwill recognized in connection with this transaction represents primarily the potential economic benefits that the Company believes may arise from the acquisition. The goodwill associated with the Levity acquisition is generally deductible for tax purposes.

9

AMC NETWORKS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(unaudited)

The following table summarizes the valuation of the tangible and identifiable intangible assets acquired and liabilities assumed (in thousands).
Cash paid for controlling interest
$
48,350

Redeemable noncontrolling interest
30,573

 
$
78,923

Allocation to net assets acquired:
 
Cash
13,471

Other current assets
17,251

Property and equipment
20,663

Intangible assets
46,413

Other noncurrent assets
3,306

Current liabilities
(23,647
)
Noncurrent liabilities
(21,394
)
Noncontrolling interests acquired
(1,354
)
Fair value of net assets acquired
54,709

Goodwill
24,214

 
$
78,923


Unaudited Pro forma financial information
The following unaudited pro forma financial information is based on (i) the historical financial statements of AMC Networks, (ii) the historical financial statements of RLJE and (iii) the historical financial statements of Levity and is intended to provide information about how the acquisitions may have affected the Company's historical consolidated financial statements if they had occurred as of January 1, 2018. The unaudited pro forma information has been prepared for comparative purposes only and includes adjustments for estimated additional depreciation and amortization expense as a result of tangible and identifiable intangible assets acquired. The pro forma information is not necessarily indicative of the results of operations that would have been achieved had the acquisition taken place on the date indicated or that may result in the future.
 
(In thousands, except per share data)
Pro Forma Financial Information
 For the Three Months Ended March 31, 2018
 
 
Revenues, net
$
799,137

 
 
Income from operations before income taxes
$
148,210

 
 
Net income per share, basic
$
2.43

 
 
Net income per share, diluted
$
2.40

 

Note 6. Investments
The Company holds several investments and loans in non-consolidated entities which are included in Other assets in the condensed consolidated balance sheet. Equity method investments were $85.8 million at March 31, 2019 and $90.9 million at December 31, 2018.
Marketable Equity Securities
The Company classifies publicly traded investments with readily determinable fair values that are not accounted for under the equity method as marketable equity securities. Marketable equity securities are recorded at cost and adjusted to fair value at each reporting period. The changes in fair value between measurement dates are recorded in realized and unrealized gains (losses) on equity securities, included in Miscellaneous, net in the condensed consolidated statement of income. Investments in marketable equity securities were $1.4 million at March 31, 2019 and $1.2 million at December 31, 2018.
Non-marketable Equity Securities
The Company classifies investments without readily determinable fair values that are not accounted for under the equity method as non-marketable equity securities. The accounting guidance requires non-marketable equity securities to be recorded at

10

AMC NETWORKS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(unaudited)

cost and adjusted to fair value at each reporting period. However, the guidance allows for a measurement alternative, which is to record the investments at cost, less impairment, if any, and subsequently adjust for observable price changes of identical or similar investments of the same issuer. The Company applies this measurement alternative to its non-marketable equity securities. When an observable event occurs, the Company estimates the fair values of its non-marketable equity securities based on Level 2 inputs that are derived from observable price changes of similar securities adjusted for insignificant differences in rights and obligations. The changes in value are recorded in realized and unrealized gains (losses) on equity securities, included in Miscellaneous, net in the condensed consolidated statement of income.
Investments in non-marketable equity securities were $61.8 million at March 31, 2019 and $71.8 million at December 31, 2018.
For the three months ended March 31, 2019, the Company recognized impairment charges of $17.7 million related to the partial write-down of certain non-marketable equity securities and a note receivable, included in Miscellaneous, net in the condensed consolidated statement of income.
Note 7. Goodwill and Other Intangible Assets
The carrying amount of goodwill, by operating segment is as follows:
(In thousands)
National Networks
 
International
and Other
 
Total
December 31, 2018
$
238,431

 
$
559,606

 
$
798,037

Puchase accounting adjustments

 
(1,748
)
 
(1,748
)
Amortization of "second component" goodwill
(332
)
 

 
(332
)
Foreign currency translation

 
1,836

 
1,836

March 31, 2019
$
238,099

 
$
559,694

 
$
797,793


Purchase accounting adjustments relate to the acquisition of RLJE (see Note 5).
The reduction of $0.3 million in the carrying amount of goodwill for the National Networks is due to the realization of a tax benefit for the amortization of "second component" goodwill at SundanceTV. Second component goodwill is the amount of tax deductible goodwill in excess of goodwill for financial reporting purposes. In accordance with the authoritative guidance at the time of the SundanceTV acquisition, the tax benefits associated with this excess are applied to first reduce the amount of goodwill, and then other intangible assets for financial reporting purposes, if and when such tax benefits are realized in the Company's tax returns.

11

AMC NETWORKS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(unaudited)

The following tables summarize information relating to the Company's identifiable intangible assets:
(In thousands)
March 31, 2019
 
 
Gross
 
Accumulated Amortization
 
Net
 
Estimated Useful Lives
Amortizable intangible assets:
 
 
 
 
 
 
 
Affiliate and customer relationships
$
615,628

 
$
(205,195
)
 
$
410,433

 
6 to 25 years
Advertiser relationships
46,282

 
(18,665
)
 
27,617

 
11 years
Trade names
124,453

 
(19,756
)
 
104,697

 
3 to 20 years
Other amortizable intangible assets
13,428

 
(6,548
)
 
6,880

 
5 to 15 years
Total amortizable intangible assets
799,791

 
(250,164
)
 
549,627

 
 
Indefinite-lived intangible assets:
 
 
 
 
 
 
 
Trademarks
19,900

 

 
19,900

 
 
Total intangible assets
$
819,691

 
$
(250,164
)
 
$
569,527

 
 
(In thousands)
December 31, 2018
 
 
Gross
 
Accumulated Amortization
 
Net
 
 
Amortizable intangible assets:
 
 
 
 
 
 
 
Affiliate and customer relationships
$
620,771

 
$
(198,500
)
 
$
422,271

 
 
Advertiser relationships
46,282

 
(17,613
)
 
28,669

 
 
Trade names
118,772

 
(17,971
)
 
100,801

 
 
Other amortizable intangible assets
13,643

 
(6,377
)
 
7,266

 
 
Total amortizable intangible assets
799,468

 
(240,461
)
 
559,007

 
 
Indefinite-lived intangible assets:
 
 
 
 
 
 
 
Trademarks
19,900

 

 
19,900

 
 
Total intangible assets
$
819,368

 
$
(240,461
)
 
$
578,907

 
 

Aggregate amortization expense for amortizable intangible assets for the three months ended March 31, 2019 and 2018 was $10.3 million and $9.3 million, respectively. Estimated aggregate amortization expense for intangible assets subject to amortization for each of the following five years is:
(In thousands)
 
Years Ending December 31,
 
2019
$
44,784

2020
47,216

2021
46,422

2022
46,159

2023
46,076


Note 8. Accrued Liabilities
Accrued liabilities consist of the following:
(In thousands)
March 31, 2019
 
December 31, 2018
Interest
$
40,066

 
$
30,018

Employee related costs
58,202

 
100,729

Income taxes payable
41,425

 
1,527

Other accrued expenses
110,257

 
132,644

Total accrued liabilities
$
249,950

 
$
264,918



12

AMC NETWORKS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(unaudited)

Note 9. Long-term Debt
The Company's long-term debt consists of the following:
(In thousands)
March 31, 2019
 
December 31, 2018
Senior Secured Credit Facility: (a)
 
 
 
Term Loan A Facility
$
750,000

 
$
750,000

Senior Notes:
 
 
 
4.75% Notes due August 2025
800,000

 
800,000

5.00% Notes due April 2024
1,000,000

 
1,000,000

4.75% Notes due December 2022
600,000

 
600,000

Other debt
2,000

 
2,584

Total long-term debt
3,152,000

 
3,152,584

Unamortized discount
(28,010
)
 
(29,181
)
Unamortized deferred financing costs
(13,065
)
 
(13,848
)
Long-term debt, net
3,110,925

 
3,109,555

Current portion of long-term debt
30,125

 
21,334

Noncurrent portion of long-term debt
$
3,080,800

 
$
3,088,221

(a)
The Company's $500 million revolving credit facility remains undrawn at March 31, 2019. Total undrawn revolver commitments are available to be drawn for general corporate purposes of the Company.
Note 10. Leases
Certain subsidiaries of the Company lease office space and equipment under long-term non-cancelable lease agreements which expire at various dates through 2034. Leases with an initial term of 12 months or less are not recorded on the balance sheet, instead the lease expense is recorded on a straight-line basis over the lease term. For lease agreements entered into, we combine lease and non-lease components. Some leases include options to extend the lease term or terminate the lease prior to the end of the lease term. The exercise of lease renewal options is at the Company's sole discretion, as such, these options are generally not recognized as part of our right-of-use asset or lease liabilities. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.
The leases generally provide for fixed annual rentals plus certain other costs or credits. Some leases include rental payments based on a percentage of revenue over contractual levels or based on an index or rate. Our lease agreements do not include any material residual value guarantees or material restrictive covenants. We rent or sublease one real estate property to a third party, which constitutes an immaterial portion of our lease portfolio.

13

AMC NETWORKS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(unaudited)

The following table summarizes the leases included in the consolidated balance sheets as follows:
(In thousands)
Balance Sheet 
Location
 
March 31, 2019
Assets
 
 
 
Operating
Operating lease right-of-use asset
 
$
174,563

Finance
Property and equipment, net
 
18,502

Total lease assets
 
 
$
193,065

Liabilities
 
 
 
Current:
 
 
 
Operating
Current portion of lease obligations
 
$
26,633

Finance
Current portion of lease obligations
 
4,708

 
 
 
$
31,341

Noncurrent:
 
 
 
Operating
Lease obligations
 
$
204,336

Finance
Lease obligations
 
20,348

 
 
 
224,684

 
 
 
 
Total lease liabilities
 
 
$
256,025


As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the lease commencement date. Upon transition to ASC Topic 842, the Company used the incremental borrowing rate on January 1, 2019 for all operating leases that commenced prior to that date.
The following table summarizes the lease costs included in the condensed consolidated statement of income:
(In thousands)
Income Statement Location
 
March 31, 2019
Operating lease costs
SG&A expenses
 
$
8,206

Finance lease costs:
 
 
 
Amortization of leased assets
Depreciation and amortization
 
673

Interest on lease liabilities
Net interest expense
 
678

Short term lease costs
SG&A expenses
 
1,590

Variable lease costs
SG&A expenses
 
308

Total net lease cost
 
 
$
11,455

The following table summarizes the maturity of lease liabilities for operating and finance leases:
(In thousands)
Operating Leases
 
Finance Leases
 
Total
2019
$
27,419

 
$
5,627

 
$
33,046

2020
35,909

 
5,862

 
41,771

2021
31,248

 
4,388

 
35,636

2022
33,309

 
4,414

 
37,723

2023
33,766

 
4,441

 
38,207

Thereafter
118,885

 
9,673

 
128,558

Total lease payments
280,536

 
34,405

 
314,941

Less: Interest
49,568

 
9,348

 
58,916

Present value of lease liabilities
$
230,968

 
$
25,057

 
$
256,025





14

AMC NETWORKS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(unaudited)



The following table summarizes the weighted average remaining lease term and discount rate for operating and finance leases:
 
March 31, 2019
Weighted average remaining lease term (years):
 
Operating leases
8.31

Finance leases
6.08

Weighted average discount rate:
 
Operating leases
4.75
%
Finance leases
10.21
%

The following table summarizes the supplemental cash paid for amounts in the measurement of lease liabilities:
 
March 31, 2019
Operating cash flows from operating leases
$
8,240

Financing cash flows from finance leases
$
1,309


Note 11. Fair Value Measurement
The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity's pricing based upon their own market assumptions. The fair value hierarchy consists of the following three levels:
Level I - Quoted prices for identical instruments in active markets.
Level II - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level III - Instruments whose significant value drivers are unobservable.

15

AMC NETWORKS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(unaudited)

The following table presents for each of these hierarchy levels, the Company's financial assets and liabilities that are measured at fair value on a recurring basis at March 31, 2019 and December 31, 2018:
(In thousands)
 
Level I
 
Level II
 
Level III
 
Total
At March 31, 2019:
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
Cash equivalents
 
$
120,119

 
$

 
$

 
$
120,119

Marketable securities
 
1,405

 

 

 
1,405

Foreign currency derivatives
 

 
2,957

 

 
2,957

Liabilities
 
 
 
 
 
 
 
 
Interest rate swap contracts
 
$

 
$
995

 
$

 
$
995

Foreign currency derivatives
 

 
$
2,247

 
$

 
2,247

At December 31, 2018:
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
Cash equivalents
 
$
68,498

 
$

 
$

 
$
68,498