AMC Networks(US:AMCX)2019-05-01 20:13markdown PART I. FINANCIAL INFORMATION [Item 1. Financial Statements (unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(unaudited)) Presents unaudited condensed consolidated financial statements for AMC Networks Inc., including balance sheets, income, comprehensive income, equity, and cash flows for Q1 2019 [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total Assets (in thousands) | Metric | March 31, 2019 | December 31, 2018 | Change | | :----------- | :------------- | :---------------- | :----- | | Total Assets | $5,521,914 | $5,278,563 | $243,351 | - Cash and cash equivalents increased by **$128,796 thousand** from **December 31, 2018**, to **March 31, 2019**[4](index=4&type=chunk) - **Operating lease right-of-use asset** was newly recognized at **$174,563 thousand** as of **March 31, 2019**, due to the **adoption of a new lease standard**[4](index=4&type=chunk) Total Stockholders' Equity (in thousands) | Metric | March 31, 2019 | December 31, 2018 | Change | | :----------------------- | :------------- | :---------------- | :----- | | Total Stockholders' Equity | $484,537 | $345,208 | $139,329 | [Condensed Consolidated Statements of Income](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) Consolidated Income Statement Highlights (Three Months Ended March 31, in thousands) | Metric | 2019 | 2018 | Change | % Change | | :------------------------------------------ | :------- | :------- | :------- | :------- | | Revenues, net | $784,221 | $740,823 | $43,398 | 5.9% | | Operating income | $244,863 | $233,655 | $11,208 | 4.8% | | Income from operations before income taxes | $196,633 | $217,415 | $(20,782) | (9.6)% | | Net income attributable to AMC Networks' stockholders | $143,397 | $156,870 | $(13,473) | (8.6)% | | Basic EPS | $2.53 | $2.57 | $(0.04) | (1.6)% | | Diluted EPS | $2.48 | $2.54 | $(0.06) | (2.4)% | - **Miscellaneous, net**, shifted from a gain of **$16,946 thousand** in **2018** to a loss of **$12,785 thousand** in **2019**, representing a decrease of **$29,731 thousand (175.4%)**[5](index=5&type=chunk) - **Restructuring expense** of **$2,642 thousand** was incurred in **2019**, with **no comparable expense** in **2018**[5](index=5&type=chunk) [Condensed Consolidated Statements of Comprehensive Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) Comprehensive Income Highlights (Three Months Ended March 31, in thousands) | Metric | 2019 | 2018 | Change | | :---------------------------------------------- | :------- | :------- | :------- | | Net income including noncontrolling interests | $150,157 | $160,536 | $(10,379) | | Foreign currency translation adjustment | $(5,762) | $18,805 | $(24,567) | | Unrealized loss on interest rate swaps | $(639) | $0 | $(639) | | Comprehensive income attributable to AMC Networks' stockholders | $137,183 | $174,778 | $(37,595) | [Condensed Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) - **Total stockholders' equity increased** from **$345,208 thousand** at **December 31, 2018**, to **$484,537 thousand** at **March 31, 2019**[4](index=4&type=chunk)[8](index=8&type=chunk) - **Net income attributable to AMC Networks' stockholders contributed** **$143,397 thousand** to equity during the three months ended **March 31, 2019**[8](index=8&type=chunk) - **Share-based compensation expense added** **$19,899 thousand** to paid-in capital during the three months ended **March 31, 2019**[8](index=8&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash Flow Summary (Three Months Ended March 31, in thousands) | Metric | 2019 | 2018 | Change | | :------------------------------------------ | :------- | :------- | :------- | | Net cash provided by operating activities | $171,687 | $116,972 | $54,715 | | Net cash used in investing activities | $(18,145) | $(54,088) | $35,943 | | Net cash used in financing activities | $(26,975) | $(101,832) | $74,857 | | Net increase (decrease) in cash and cash equivalents | $126,567 | $(38,948) | $165,515 | | Cash and cash equivalents at end of period | $683,682 | $529,200 | $154,482 | - **Net cash provided by operating activities increased** by **$54,715 thousand**, primarily due to an **increase in income taxes payable** and **lower payments for program rights**[16](index=16&type=chunk)[195](index=195&type=chunk)[196](index=196&type=chunk) - **Net cash used in investing activities decreased** by **$35,943 thousand**, largely due to **no significant investments in investees** in **2019** compared to **$42,318 thousand** in **2018**[16](index=16&type=chunk)[200](index=200&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Provides detailed disclosures and explanations for the condensed consolidated financial statements, covering business description, accounting policies, and specific financial items [Note 1. Description of Business and Basis of Presentation](index=9&type=section&id=Note%201.%20Description%20of%20Business%20and%20Basis%20of%20Presentation) - The Company operates two segments: **National Networks** (U.S. and Canadian programming, AMC Studios, Broadcasting & Technology) and **International and Other** (international channels, IFC Films, Levity, RLJ Entertainment, subscription streaming services)[17](index=17&type=chunk)[18](index=18&type=chunk) - The Company adopted **ASU No. 2016-02, Leases (Topic 842)** on **January 1, 2019**, resulting in additional net lease assets of **$180.0 million** and lease liabilities of **$237.0 million**, with **no material impact** on net income or cash flows[26](index=26&type=chunk) - **Program rights write-offs were** **$3.3 million** for the three months ended **March 31, 2019**, compared to **$5.2 million** for the same period in **2018**[23](index=23&type=chunk) [Note 2. Revenue Recognition](index=12&type=section&id=Note%202.%20Revenue%20Recognition) Contract Balances with Customers (in thousands) | Metric | March 31, 2019 | December 31, 2018 | | :------------------------------------------ | :------------- | :---------------- | | Accounts receivable (including long-term) | $1,029,236 | $1,018,105 | | Contract assets, short-term | $14,616 | $9,131 | | Contract assets, long-term | $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**[31](index=31&type=chunk) [Note 3. Net Income per Share](index=13&type=section&id=Note%203.%20Net%20Income%20per%20Share) Weighted Average Common Shares Outstanding (in thousands, Three Months Ended March 31) | Metric | 2019 | 2018 | | :----------------------------------- | :----- | :----- | | Basic weighted average common shares | 56,588 | 60,967 | | Diluted weighted average common shares | 57,725 | 61,719 | - The Company repurchased **18 thousand shares** of its **Class A Common Stock** at an **average price of approximately $53.82 per share** during the three months ended **March 31, 2019**[34](index=34&type=chunk) - As of **March 31, 2019**, **$558.4 million** remained available for repurchase under the **$1.5 billion Stock Repurchase Program**[34](index=34&type=chunk) [Note 4. Restructuring](index=13&type=section&id=Note%204.%20Restructuring) - **Restructuring expense** for the three months ended **March 31, 2019**, was **$2.6 million**, primarily related to **AMCNI's termination of distribution in certain territories**[36](index=36&type=chunk) - The **restructuring initiative, commenced in 2018**, aims to **reduce the Company's cost structure and improve organizational design**[35](index=35&type=chunk) - **Accrued restructuring costs totaled** **$17.18 million** at **March 31, 2019**, with **$11.7 million** classified as current and **$5.4 million** as long-term[36](index=36&type=chunk) [Note 5. Business Combinations](index=13&type=section&id=Note%205.%20Business%20Combinations) - In **October 2018**, the Company acquired a **controlling interest** in **RLJ Entertainment Inc. (RLJE)**, a **premium subscription streaming services company (Acorn TV, UMC)**[37](index=37&type=chunk) - In **April 2018**, the Company acquired a **57% controlling interest** in **Levity Entertainment Group LLC**, a **production services and comedy venues company**, for **$48.4 million**[43](index=43&type=chunk) Unaudited Pro Forma Financial Information (Three Months Ended March 31, 2018, in thousands) | Metric | Pro Forma | | :----------------------------------- | :-------- | | 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](index=17&type=section&id=Note%206.%20Investments) - **Equity method investments were** **$85.8 million** at **March 31, 2019**, a decrease from **$90.9 million** at **December 31, 2018**[50](index=50&type=chunk) - **Investments in non-marketable equity securities decreased** to **$61.8 million** at **March 31, 2019**, from **$71.8 million** at **December 31, 2018**[53](index=53&type=chunk) - The Company **recognized impairment charges of $17.7 million** for the three months ended **March 31, 2019**, related to the **partial write-down of certain non-marketable equity securities and a note receivable**[53](index=53&type=chunk) [Note 7. Goodwill and Other Intangible Assets](index=19&type=section&id=Note%207.%20Goodwill%20and%20Other%20Intangible%20Assets) Goodwill by Operating Segment (in thousands) | Segment | March 31, 2019 | December 31, 2018 | | :------------------ | :------------- | :---------------- | | National Networks | $238,099 | $238,431 | | International and Other | $559,694 | $559,606 | | Total | $797,793 | $798,037 | Total Intangible Assets, Net (in thousands) | Metric | March 31, 2019 | December 31, 2018 | | :---------------------- | :------------- | :---------------- | | Total intangible assets | $569,527 | $578,907 | - **Aggregate amortization expense for amortizable intangible assets was** **$10.3 million** for the three months ended **March 31, 2019**, up from **$9.3 million** in the prior year[57](index=57&type=chunk) [Note 8. Accrued Liabilities](index=21&type=section&id=Note%208.%20Accrued%20Liabilities) Accrued Liabilities (in thousands) | Metric | 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 | - **Total accrued liabilities decreased** by **$14,968 thousand** from **December 31, 2018**, to **March 31, 2019**, primarily due to a **reduction in employee-related costs and other accrued expenses**[59](index=59&type=chunk) [Note 9. Long-term Debt](index=22&type=section&id=Note%209.%20Long-term%20Debt) Long-term Debt (in thousands) | Metric | March 31, 2019 | December 31, 2018 | | :----------------------------------- | :------------- | :---------------- | | Term Loan A Facility | $750,000 | $750,000 | | 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 | | Long-term debt, net | $3,110,925 | $3,109,555 | - The Company's **$500 million revolving credit facility** remained **undrawn** as of **March 31, 2019**[61](index=61&type=chunk) [Note 10. Leases](index=22&type=section&id=Note%2010.%20Leases) Lease Assets (March 31, 2019, in thousands) | Type | Amount | | :-------- | :------- | | Operating | $174,563 | | Finance | $18,502 | | Total | $193,065 | Lease Liabilities (March 31, 2019, in thousands) | Type | Current | Noncurrent | Total | | :---------- | :------- | :--------- | :------- | | Operating | $26,633 | $204,336 | $230,969 | | Finance | $4,708 | $20,348 | $25,056 | | Total | $31,341 | $224,684 | $256,025 | - **Total net lease cost** for the three months ended **March 31, 2019**, was **$11.46 million**[66](index=66&type=chunk) [Note 11. Fair Value Measurement](index=25&type=section&id=Note%2011.%20Fair%20Value%20Measurement) Fair Value of Financial Instruments (March 31, 2019, in thousands) | Asset/Liability | Level I | Level II | Level III | Total | | :-------------------------- | :------- | :------- | :-------- | :------- | | Cash equivalents | $120,119 | $0 | $0 | $120,119 | | Marketable securities | $1,405 | $0 | $0 | $1,405 | | Foreign currency derivatives (assets) | $0 | $2,957 | $0 | $2,957 | | Interest rate swap contracts (liabilities) | $0 | $995 | $0 | $995 | | Foreign currency derivatives (liabilities) | $0 | $2,247 | $0 | $2,247 | Fair Value of Debt Instruments (March 31, 2019, in thousands) | Debt Instrument | Carrying Amount | Estimated Fair Value | | :-------------------------- | :-------------- | :------------------- | | Term loan A facility | $740,352 | $736,875 | | 4.75% Notes due August 2025 | $786,894 | $794,000 | | 5.00% Notes due April 2024 | $986,838 | $1,004,900 | | 4.75% Notes due December 2022 | $594,841 | $606,750 | | Other debt | $2,000 | $2,000 | | Total | $3,110,925 | $3,142,525 | - The Company had **no assets or liabilities measured at fair value on a recurring basis that would be considered Level III** as of **March 31, 2019**[75](index=75&type=chunk) [Note 12. Derivative Financial Instruments](index=27&type=section&id=Note%2012.%20Derivative%20Financial%20Instruments) - As of **March 31, 2019**, the Company had **interest rate swap contracts outstanding with notional amounts aggregating** **$100.0 million**, **designated as hedging instruments and maturing in** **December 2021**[81](index=81&type=chunk) Fair Values of Derivative Financial Instruments (March 31, 2019, in thousands) | Derivative Type | Balance Sheet Location | Amount | | :------------------------------ | :---------------------------------- | :----- | | Interest rate swap contracts (liabilities) | Accrued liabilities | $995 | | Foreign currency derivatives (assets) | Prepaid expenses and other current assets | $1,270 | | Foreign currency derivatives (assets) | Other assets | $1,687 | | Foreign currency derivatives (liabilities) | Accrued liabilities | $597 | | Foreign currency derivatives (liabilities) | Other liabilities | $1,650 | - The Company recognized **$5.8 million** of **foreign currency transaction losses, net**, for the three months ended **March 31, 2019**[212](index=212&type=chunk) [Note 13. Income Taxes](index=28&type=section&id=Note%2013.%20Income%20Taxes) Income Tax Expense and Effective Tax Rate (Three Months Ended March 31) | Metric | 2019 | 2018 | | :---------------------- | :------- | :------- | | Income tax expense | $46,476 | $56,879 | | Effective tax rate | 24% | 26% | - The **effective tax rate** for **Q1 2019 (24%)** differed from the **federal statutory rate** of **21%** primarily due to **state income tax expense** of **$3.2 million**[87](index=87&type=chunk) - The **effective tax rate** for **Q1 2018 (26%)** was impacted by a **$16.4 million tax expense for increased valuation allowances and an $8.3 million tax benefit from a one-time rate change on deferred tax assets and liabilities**[88](index=88&type=chunk) [Note 14. Commitments and Contingencies](index=30&type=section&id=Note%2014.%20Commitments%20and%20Contingencies) - **Contractual obligations not reflected on the balance sheet decreased** by **$200.7 million** to **$923.1 million** as of **March 31, 2019**, due to the **adoption of the new lease standard**[91](index=91&type=chunk)[203](index=203&type=chunk) - The Company is **involved in ongoing legal proceedings related to 'The Walking Dead' television series**, including **two actions filed by Frank Darabont and related parties**, and claims by other writers and producers[92](index=92&type=chunk)[93](index=93&type=chunk)[94](index=94&type=chunk) - A **joint trial** for the Darabont lawsuits is scheduled to begin on **May 4, 2020**. **Management believes the asserted claims are without merit and will vigorously defend against them**[93](index=93&type=chunk)[95](index=95&type=chunk) [Note 15. Equity Plans](index=31&type=section&id=Note%2015.%20Equity%20Plans) - In **March 2019**, AMC Networks **granted** **498,320 restricted stock units (RSUs)** and **390,566 performance restricted stock units (PRSUs)** to **executive officers and employees**[97](index=97&type=chunk) Share-based Compensation Expense (Three Months Ended March 31, in thousands) | Metric | 2019 | 2018 | | :--------------------------- | :------ | :------ | | Share-based compensation expense | $19,900 | $15,300 | - As of **March 31, 2019**, there was **$120.1 million** of **total unrecognized share-based compensation cost**, expected to be recognized over **approximately 2.5 years**[100](index=100&type=chunk) [Note 16. Redeemable Noncontrolling Interests](index=31&type=section&id=Note%2016.%20Redeemable%20Noncontrolling%20Interests) Redeemable Noncontrolling Interests (in thousands) | Metric | March 31, 2019 | December 31, 2018 | | :--------------------------- | :------------- | :---------------- | | Balance | $299,802 | $299,558 | | Net earnings | $5,819 | | | Distributions | $(5,268) | | [Note 17. Related Party Transactions](index=31&type=section&id=Note%2017.%20Related%20Party%20Transactions) Revenues from Related Parties (Three Months Ended March 31, in millions) | Metric | 2019 | 2018 | | :------------ | :--- | :--- | | Revenues, net | $1.2 | $1.6 | Charges from Related Parties (Three Months Ended March 31, in millions) | Metric | 2019 | 2018 | | :----------------------------------------- | :--- | :--- | | Selling, general and administrative expenses | $0.7 | $0.5 | [Note 18. Cash Flows](index=32&type=section&id=Note%2018.%20Cash%20Flows) Supplemental Cash Flow Data (Three Months Ended March 31, in thousands) | Metric | 2019 | 2018 | | :----------------------------------- | :------ | :------ | | Capital expenditures incurred but not yet paid | $2,216 | $6,070 | | Treasury stock not yet settled | $0 | $9,980 | | Cash interest paid | $28,235 | $25,634 | | Income taxes paid, net | $6,426 | $6,243 | [Note 19. Segment Information](index=33&type=section&id=Note%2019.%20Segment%20Information) Segment Revenues, Net (Three Months Ended March 31, in thousands) | Segment | 2019 | 2018 | % Change | | :--------------------------- | :------- | :------- | :------- | | National Networks | $616,118 | $633,028 | (2.7)% | | International and Other | $171,088 | $111,390 | 53.6% | | Inter-segment eliminations | $(2,985) | $(3,595) | (17.0)% | | Consolidated revenues, net | $784,221 | $740,823 | 5.9% | Segment Adjusted Operating Income (AOI) (Three Months Ended March 31, in thousands) | Segment | 2019 | 2018 | % Change | | :--------------------------- | :------- | :------- | :------- | | National Networks | $276,686 | $270,874 | 2.1% | | International and Other | $9,941 | $(2,163) | (559.6)% | | Inter-segment eliminations | $6,413 | $617 | 939.4% | | Consolidated AOI | $293,040 | $269,328 | 8.8% | Revenues by Customer Location (Three Months Ended March 31, in thousands) | Region | 2019 | 2018 | | :------------ | :------- | :------- | | United States | $662,464 | $586,568 | | Europe | $79,434 | $86,264 | | Other | $42,323 | $67,991 | | Total | $784,221 | $740,823 | [Note 20. Condensed Consolidating Financial Statements](index=34&type=section&id=Note%2020.%20Condensed%20Consolidating%20Financial%20Statements) - AMC Networks' **senior notes** (**$600 million due 2022, $1 billion due 2024, and $800 million due 2025**) are **fully and unconditionally guaranteed** by certain **100% owned domestic restricted subsidiaries** on a **joint and several basis**[114](index=114&type=chunk) - The **condensed consolidating financial statements present the financial position, results of operations, comprehensive income, and cash flows of the Parent Company, Guarantor Subsidiaries, and Non-Guarantor Subsidiaries**[115](index=115&type=chunk) - The **equity method of accounting** is applied to intercompany interests for this consolidating presentation, even though subsidiaries meet GAAP consolidation requirements[116](index=116&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=46&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management's perspective on financial condition and results for Q1 2019, including business overview, consolidated and segment results, liquidity, and accounting policies [Business Overview](index=48&type=section&id=Business%20Overview) - The Company manages its business through two operating segments: **National Networks** and **International and Other**[136](index=136&type=chunk)[137](index=137&type=chunk) - **Revenues, net** and **Adjusted Operating Income (AOI)** are the primary financial measures used to evaluate segment performance and management's effectiveness[140](index=140&type=chunk)[142](index=142&type=chunk) - The operating results of **RLJ Entertainment** (acquired **October 2018**) and **Levity Entertainment Group** (acquired **April 2018**) are included in the **International and Other** segment[144](index=144&type=chunk) [Consolidated Results of Operations](index=53&type=section&id=Consolidated%20Results%20of%20Operations) Consolidated Financial Performance (Three Months Ended March 31, in thousands) | Metric | 2019 | 2018 | $ Change | % Change | | :------------------------------------------ | :------- | :------- | :-------- | :------- | | Revenues, net | $784,221 | $740,823 | $43,398 | 5.9% | | Operating income | $244,863 | $233,655 | $11,208 | 4.8% | | Net income attributable to AMC Networks' stockholders | $143,397 | $156,870 | $(13,473) | (8.6)% | - **Net income attributable to stockholders decreased** by **8.6%** due to a **significant decrease in miscellaneous income** and **higher interest expense**[159](index=159&type=chunk) - **Total operating expenses increased** by **$32,190 thousand (6.3%)**, driven by **higher technical and operating expenses, depreciation and amortization**, and the **recognition of restructuring expense**[159](index=159&type=chunk) [Segment Results](index=54&type=section&id=Segment%20Results) National Networks Segment Performance (Three Months Ended March 31, in thousands) | Metric | 2019 | 2018 | $ Change | % Change | | :--------------- | :------- | :------- | :-------- | :------- | | Revenues, net | $616,118 | $633,028 | $(16,910) | (2.7)% | | Operating income | $251,502 | $249,852 | $1,650 | 0.7% | International and Other Segment Performance (Three Months Ended March 31, in thousands) | Metric | 2019 | 2018 | $ Change | % Change | | :--------------- | :------- | :------- | :------- | :------- | | Revenues, net | $171,088 | $111,390 | $59,698 | 53.6% | | Operating loss | $(13,748) | $(16,814) | $3,066 | (18.2)% | [Revenues, net](index=55&type=section&id=Revenues%2C%20net) Consolidated Revenues, net by Segment (Three Months Ended March 31, in thousands) | Segment | 2019 | 2018 | $ Change | % Change | | :--------------------------- | :------- | :------- | :-------- | :------- | | National Networks | $616,118 | $633,028 | $(16,910) | (2.7)% | | International and Other | $171,088 | $111,390 | $59,698 | 53.6% | | Inter-segment eliminations | $(2,985) | $(3,595) | $610 | (17.0)% | | Consolidated revenues, net | $784,221 | $740,823 | $43,398 | 5.9% | - **National Networks advertising revenues increased** by **$13.4 million (5.9%)** due to **timing of original programming** and **pricing increases**, partially offset by **lower ratings**[166](index=166&type=chunk) - **International and Other distribution revenues increased** by **$61.0 million (68.6%)**, primarily driven by a **$64.7 million impact** from the acquisitions of **Levity** and **RLJE**[168](index=168&type=chunk) [Technical and operating expense (excluding depreciation and amortization)](index=55&type=section&id=Technical%20and%20operating%20expense%20(excluding%20depreciation%20and%20amortization)) Technical and Operating Expense by Segment (Three Months Ended March 31, in thousands) | Segment | 2019 | 2018 | $ Change | % Change | | :--------------------------- | :------- | :------- | :-------- | :------- | | National Networks | $241,260 | $249,786 | $(8,526) | (3.4)% | | International and Other | $108,272 | $74,763 | $33,509 | 44.8% | | Inter-segment eliminations | $(9,384) | $(4,184) | $(5,200) | 124.3% | | Total | $340,148 | $320,365 | $19,783 | 6.2% | - The **increase in International and Other segment's technical and operating expense was primarily due to a** **$40.1 million impact** from the acquisitions of **Levity** and **RLJE**[172](index=172&type=chunk) - **National Networks experienced an** **$8.5 million decrease** in technical and operating expense, mainly from a **$10.0 million decrease in other direct programming costs**[170](index=170&type=chunk) [Selling, general and administrative expense](index=56&type=section&id=Selling%2C%20general%20and%20administrative%20expense) Selling, General and Administrative Expense by Segment (Three Months Ended March 31, in thousands) | Segment | 2019 | 2018 | $ Change | % Change | | :--------------------------- | :------- | :------- | :-------- | :------- | | National Networks | $114,441 | $124,895 | $(10,454) | (8.4)% | | International and Other | $58,085 | $41,582 | $16,503 | 39.7% | | Inter-segment eliminations | $(14) | $(28) | $14 | (50.0)% | | Total | $172,512 | $166,449 | $6,063 | 3.6% | - The **increase in International and Other segment's SG&A expense was primarily due to a** **$22.8 million impact** from the acquisitions of **Levity** and **RLJE**[175](index=175&type=chunk) - **National Networks' SG&A expense decreased** by **$10.5 million**, principally due to **lower sales and marketing costs** related to the **timing of original programming promotion**[173](index=173&type=chunk) [Depreciation and amortization](index=58&type=section&id=Depreciation%20and%20amortization) Depreciation and Amortization Expense by Segment (Three Months Ended March 31, in thousands) | Segment | 2019 | 2018 | $ Change | % Change | | :--------------------------- | :------ | :------ | :------- | :------- | | National Networks | $8,612 | $8,495 | $117 | 1.4% | | International and Other | $15,444 | $11,859 | $3,585 | 30.2% | | Total | $24,056 | $20,354 | $3,702 | 18.2% | - The **increase in depreciation and amortization expense in the International and Other segment was primarily due to a** **$2.3 million impact** from the acquisitions of **Levity** and **RLJE**, and a **$1.7 million increase related to leasehold additions**[176](index=176&type=chunk) [Restructuring expense](index=58&type=section&id=Restructuring%20expense) - **Restructuring expense** of **$2.6 million** was recorded for the three months ended **March 31, 2019**, primarily from charges incurred at **AMCNI related to the termination of distribution in certain territories**[177](index=177&type=chunk) - **No restructuring expense** was recorded for the three months ended **March 31, 2018**[159](index=159&type=chunk) [Operating Income](index=58&type=section&id=Operating%20Income) Consolidated Operating Income by Segment (Three Months Ended March 31, in thousands) | Segment | 2019 | 2018 | $ Change | % Change | | :--------------------------- | :-------- | :-------- | :------- | :------- | | National Networks | $251,502 | $249,852 | $1,650 | 0.7% | | International and Other | $(13,748) | $(16,814) | $3,066 | (18.2)% | | Inter-segment Eliminations | $7,109 | $617 | $6,492 | n/m | | Total | $244,863 | $233,655 | $11,208 | 4.8% | - **National Networks' operating income increased** due to **lower technical and operating expenses** and **selling, general and administrative expenses**, partially offset by **decreased revenues**[178](index=178&type=chunk) - **International and Other's operating loss decreased** due to a **$59.7 million increase in revenues**, partially offset by **increased expenses from acquisitions and restructuring**[179](index=179&type=chunk) [AOI (Adjusted Operating Income)](index=58&type=section&id=AOI%20(Adjusted%20Operating%20Income)) Consolidated AOI by Segment (Three Months Ended March 31, in thousands) | Segment | 2019 | 2018 | $ Change | % Change | | :--------------------------- | :------- | :------- | :-------- | :------- | | National Networks | $276,686 | $270,874 | $5,812 | 2.1% | | International and Other | $9,941 | $(2,163) | $12,104 | (559.6)% | | Inter-segment eliminations | $6,413 | $617 | $5,796 | 939.4% | | Consolidated AOI | $293,040 | $269,328 | $23,712 | 8.8% | - **International and Other AOI increased significantly** by **$12.1 million**, driven by a **decrease in operating loss** and the **impact of acquisitions on depreciation and amortization and restructuring expense**[182](index=182&type=chunk) - **National Networks AOI increased** by **$5.8 million**, primarily due to an **increase in operating income** and the **impact of increased share-based compensation expense**[181](index=181&type=chunk) [Interest expense, net](index=59&type=section&id=Interest%20expense%2C%20net) Interest Expense, Net (Three Months Ended March 31, in thousands) | Metric | 2019 | 2018 | $ Change | % Change | | :------------------ | :-------- | :-------- | :-------- | :------- | | Interest expense, net | $(35,445) | $(33,186) | $(2,259) | 6.8% | - The **increase in net interest expense was driven by a** **$1.4 million increase in interest expense** due to a **higher variable interest rate on the term loan**, and an **$0.8 million decrease in interest income**[184](index=184&type=chunk) [Miscellaneous, net](index=59&type=section&id=Miscellaneous%2C%20net) Miscellaneous, net (Three Months Ended March 31, in thousands) | Metric | 2019 | 2018 | $ Change | % Change | | :---------------- | :-------- | :-------- | :-------- | :------- | | Miscellaneous, net | $(12,785) | $16,946 | $(29,731) | (175.4)% | - The decrease was primarily due to **$17.7 million in impairment charges** on **non-marketable equity securities and a note receivable** in **Q1 2019**[185](index=185&type=chunk) - The prior year included a **$10.9 million gain** related to the **increase in fair value of the investment in RLJE**, which **did not recur** in **Q1 2019**[185](index=185&type=chunk) [Income tax expense](index=59&type=section&id=Income%20tax%20expense) Income Tax Expense and Effective Tax Rate (Three Months Ended March 31) | Metric | 2019 | 2018 | $ Change | % Change | | :---------------------- | :------- | :------- | :-------- | :------- | | Income tax expense | $46,476 | $56,879 | $10,403 | (18.3)% | | Effective tax rate | 24% | 26% | | | - The **Q1 2019 effective tax rate** of **24%** differed from the **federal statutory rate** of **21%** primarily due to **state income tax expense** of **$3.2 million**[186](index=186&type=chunk) - The **Q1 2018 effective tax rate** of **26%** was influenced by a **$16.4 million tax expense for increased valuation allowances and an $8.3 million tax benefit from a one-time rate change on deferred tax assets and liabilities**[186](index=186&type=chunk) [Liquidity and Capital Resources](index=59&type=section&id=Liquidity%20and%20Capital%20Resources) - The Company relies on **cash flow from operations**, its **$500 million undrawn revolving credit facility**, and **access to capital markets for liquidity**[188](index=188&type=chunk)[194](index=194&type=chunk) - As of **March 31, 2019**, **$558.4 million** remained available under the **$1.5 billion Stock Repurchase Program**[189](index=189&type=chunk) Cash Flow Summary (Three Months Ended March 31, in thousands) | Metric | 2019 | 2018 | | :------------------------------------------ | :------- | :------- | | Net cash provided by operating activities | $171,687 | $116,972 | | Net cash used in investing activities | $(18,145) | $(54,088) | | Net cash used in financing activities | $(26,975) | $(101,832) | | Net increase (decrease) in cash and cash equivalents | $126,567 | $(38,948) | - **Net cash provided by operating activities increased** to **$171.7 million** in **Q1 2019** from **$117.0 million** in **Q1 2018**, driven by **higher net income before non-cash items** and an **increase in income taxes payable**[195](index=195&type=chunk) - **Net cash used in financing activities decreased** to **$27.0 million** in **Q1 2019** from **$101.8 million** in **Q1 2018**, primarily due to **lower purchases of treasury stock**[201](index=201&type=chunk)[202](index=202&type=chunk) [Critical Accounting Policies and Estimates](index=63&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) - **No significant changes** in **critical accounting policies or estimates** since **December 31, 2018**, other than the **adoption of the new lease standard (ASC Topic 842)**[204](index=204&type=chunk)[205](index=205&type=chunk) [Recently Issued Accounting Pronouncements](index=63&type=section&id=Recently%20Issued%20Accounting%20Pronouncements) - The Company is evaluating the impact of **ASU No. 2018-13, Fair Value Measurement (Topic 820)**, effective for the **first quarter of 2020**[27](index=27&type=chunk) - The Company is evaluating the impact of **ASU No. 2019-02, Improvements to Accounting for Costs of Films and License Agreements for Program Materials**, effective for the **first quarter of 2020**[28](index=28&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=63&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Details market risks related to interest rates and foreign currency exchange rates, and the company's hedging strategies - As of **March 31, 2019**, the fair value of the Company's **fixed rate debt** (**$2.41 billion**) exceeded its **carrying value** (**$2.37 billion**) by approximately **$37 million**[207](index=207&type=chunk) - The Company uses **interest rate swap contracts** to manage interest rate risk, with **$100.0 million** **notional amount outstanding** as of **March 31, 2019**, **effectively fixing the interest rate on approximately 79%** of its debt[208](index=208&type=chunk)[210](index=210&type=chunk) - The Company recognized **$5.8 million** of **foreign currency transaction losses, net**, for the three months ended **March 31, 2019**, due to **exposure to foreign currency exchange rate risk**[212](index=212&type=chunk) [Item 4. Controls and Procedures](index=65&type=section&id=Item%204.%20Controls%20and%20Procedures) As of March 31, 2019, the Company's management, including the CEO and CFO, concluded that its disclosure controls and procedures were effective. There were no material changes in internal control over financial reporting during the quarter - The Company's **disclosure controls and procedures** were **deemed effective** as of **March 31, 2019**, following an **evaluation by management, including the CEO and CFO**[215](index=215&type=chunk) - **No material changes** in **internal control over financial reporting** during the three months ended **March 31, 2019**[216](index=216&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=66&type=section&id=Item%201.%20Legal%20Proceedings) Reports no material developments in legal proceedings since the 2018 Form 10-K, with further details in Note 14 - **No material developments** in legal proceedings have occurred since the Company's **2018 Form 10-K filing**[218](index=218&type=chunk) - Further details on legal proceedings are provided in **Note 14, Commitments and Contingencies**, within the condensed consolidated financial statements[218](index=218&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=66&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Details the $1.5 billion stock repurchase program, including shares repurchased in January 2019 and remaining authorization - The Company's **Board of Directors has authorized a Stock Repurchase Program totaling** **$1.5 billion**[219](index=219&type=chunk) Class A Common Stock Repurchases (January 2019) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :------------------------- | :------------------------------- | :--------------------------- | | January 1, 2019 to January 31, 2019 | 18,411 | $53.82 | - As of **March 31, 2019**, **$558,419,334** remained available for repurchase under the **Stock Repurchase Program**[221](index=221&type=chunk) [Item 6. Exhibits](index=66&type=section&id=Item%206.%20Exhibits) Lists exhibits filed with the Form 10-Q, including agreements, CEO/CFO certifications, and XBRL taxonomy documents - **Exhibits include** a **Master Services Agreement**, an **Employment Agreement**, **Certifications of the Chief Executive Officer and Chief Financial Officer** (pursuant to **Sections 302 and 906 of the Sarbanes-Oxley Act of 2002**), and various **XBRL taxonomy documents**[222](index=222&type=chunk) [SIGNATURES](index=67&type=section&id=SIGNATURES) Signed by Sean S. Sullivan, EVP and CFO of AMC Networks Inc., on May 1, 2019, certifying submission - The report was **signed by Sean S. Sullivan, Executive Vice President and Chief Financial Officer of AMC Networks Inc.**[224](index=224&type=chunk) - The signing date for the report was **May 1, 2019**[224](index=224&type=chunk)