10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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þ | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended March 31, 2016
or
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¨ | 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)
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Delaware | 27-5403694 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
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11 Penn Plaza, New York, NY | 10001 |
(Address of principal executive offices) | (Zip Code) |
(212) 324-8500
(Registrant’s telephone number, including area code)
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 and posted on its corporate Web site, if any, 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, or a smaller reporting company (as defined in Exchange Act Rule 12b-2).
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Large accelerated filer | þ | Accelerated filer | ¨ |
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Non-accelerated filer | ¨ | Smaller reporting company | ¨ |
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 29, 2016:
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Class A Common Stock par value $0.01 per share | 61,190,329 |
Class B Common Stock par value $0.01 per share | 11,484,408 |
AMC NETWORKS INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
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Item 1. | Financial Statements. |
AMC NETWORKS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
(unaudited) |
| | | | | | | |
| March 31, 2016 | | December 31, 2015 |
ASSETS | | | |
Current Assets: | | | |
Cash and cash equivalents | $ | 702,800 |
| | $ | 316,321 |
|
Accounts receivable, trade (less allowance for doubtful accounts of $4,864 and $4,307) | 685,144 |
| | 674,611 |
|
Amounts due from related parties, net | 2,981 |
| | 4,062 |
|
Current portion of program rights, net | 448,535 |
| | 453,157 |
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Prepaid expenses and other current assets | 62,443 |
| | 72,989 |
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Deferred tax asset, net | 24,059 |
| | 16,198 |
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Total current assets | 1,925,962 |
| | 1,537,338 |
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Property and equipment, net of accumulated depreciation of $220,702 and $209,236 | 173,969 |
| | 163,860 |
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Program rights, net | 1,046,302 |
| | 1,027,394 |
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Deferred carriage fees, net | 47,061 |
| | 50,069 |
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Intangible assets, net | 550,921 |
| | 549,180 |
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Goodwill | 731,993 |
| | 736,275 |
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Other assets | 202,021 |
| | 200,799 |
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Total assets | $ | 4,678,229 |
| | $ | 4,264,915 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIENCY) | | | |
Current Liabilities: | | | |
Accounts payable | $ | 131,408 |
| | $ | 124,441 |
|
Accrued liabilities | 168,301 |
| | 200,793 |
|
Current portion of program rights obligations | 295,087 |
| | 289,897 |
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Deferred revenue | 68,168 |
| | 64,229 |
|
Current portion of long-term debt | 166,500 |
| | 148,000 |
|
Current portion of capital lease obligations | 4,220 |
| | 3,561 |
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Total current liabilities | 833,684 |
| | 830,921 |
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Program rights obligations | 427,442 |
| | 440,591 |
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Long-term debt | 2,801,690 |
| | 2,519,808 |
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Capital lease obligations | 40,022 |
| | 29,779 |
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Deferred tax liability, net | 156,487 |
| | 137,233 |
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Other liabilities | 92,625 |
| | 103,530 |
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Total liabilities | 4,351,950 |
| | 4,061,862 |
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Commitments and contingencies |
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| |
|
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Redeemable noncontrolling interests | 208,513 |
| | 211,691 |
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Stockholders’ equity (deficiency): | | | |
Class A Common Stock, $0.01 par value, 360,000,000 shares authorized, 62,400,600 and 62,120,102 shares issued and 61,190,329 and 60,909,831 shares outstanding, respectively | 624 |
| | 621 |
|
Class B Common Stock, $0.01 par value, 90,000,000 shares authorized, 11,484,408 shares issued and outstanding | 115 |
| | 115 |
|
Preferred stock, $0.01 par value, 45,000,000 shares authorized; none issued | — |
| | — |
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Paid-in capital | 122,964 |
| | 123,157 |
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Accumulated earnings | 138,343 |
| | 24,880 |
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Treasury stock, at cost (1,210,271 shares Class A Common Stock) | (51,993 | ) | | (51,993 | ) |
Accumulated other comprehensive loss | (124,149 | ) | | (136,057 | ) |
Total AMC Networks stockholders’ equity (deficiency) | 85,904 |
| | (39,277 | ) |
Non-redeemable noncontrolling interests | 31,862 |
| | 30,639 |
|
Total stockholders’ equity (deficiency) | 117,766 |
| | (8,638 | ) |
Total liabilities and stockholders’ equity (deficiency) | $ | 4,678,229 |
| | $ | 4,264,915 |
|
See accompanying notes to condensed consolidated financial statements.
AMC NETWORKS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(unaudited)
|
| | | | | | | |
| Three Months Ended March 31, |
| 2016 | | 2015 |
Revenues, net (including revenues, net from related parties of $6,706 and $6,719, respectively) | $ | 706,579 |
| | $ | 668,682 |
|
Operating expenses: | | | |
Technical and operating (excluding depreciation and amortization) | 274,274 |
| | 262,173 |
|
Selling, general and administrative (including charges from related parties of $1,069 and $949, respectively) | 153,901 |
| | 154,579 |
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Restructuring (credit) expense | (35 | ) | | 656 |
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Depreciation and amortization | 19,632 |
| | 20,527 |
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Total operating expenses | 447,772 |
| | 437,935 |
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Operating income | 258,807 |
| | 230,747 |
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Other income (expense): | | | |
Interest expense | (31,751 | ) | | (33,024 | ) |
Interest income | 722 |
| | 437 |
|
Loss on extinguishment of debt | (48,334 | ) | | — |
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Miscellaneous, net | (837 | ) | | (10,230 | ) |
Total other income (expense) | (80,200 | ) | | (42,817 | ) |
Income from operations before income taxes | 178,607 |
| | 187,930 |
|
Income tax expense | (58,543 | ) | | (61,254 | ) |
Net income including noncontrolling interests | 120,064 |
| | 126,676 |
|
Net income attributable to noncontrolling interests | (6,620 | ) | | (5,756 | ) |
Net income attributable to AMC Networks’ stockholders | $ | 113,444 |
| | $ | 120,920 |
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| | | |
Net income per share attributable to AMC Networks’ stockholders: | | | |
Basic | $ | 1.56 |
| | $ | 1.67 |
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Diluted | $ | 1.55 |
| | $ | 1.66 |
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| | | |
Weighted average common shares: | | | |
Basic weighted average common shares | 72,579 |
| | 72,206 |
|
Diluted weighted average common shares | 73,274 |
| | 72,970 |
|
See accompanying notes to condensed consolidated financial statements.
AMC NETWORKS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
(unaudited)
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| | | | | | | |
| Three Months Ended March 31, |
| 2016 | | 2015 |
Net income including noncontrolling interests | $ | 120,064 |
| | $ | 126,676 |
|
Other comprehensive income (loss): | | | |
Foreign currency translation adjustment | 15,385 |
| | (60,825 | ) |
Unrealized (loss) gain on interest rate swaps | (1,578 | ) | | 696 |
|
Other comprehensive income (loss), before income taxes | 13,807 |
| | (60,129 | ) |
Income tax expense | (1,899 | ) | | (2,279 | ) |
Other comprehensive income (loss), net of income taxes | 11,908 |
| | (62,408 | ) |
Comprehensive income | 131,972 |
| | 64,268 |
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Comprehensive income attributable to noncontrolling interests | (7,032 | ) | | (4,332 | ) |
Comprehensive income attributable to AMC Networks’ stockholders | $ | 124,940 |
| | $ | 59,936 |
|
See accompanying notes to condensed consolidated financial statements.
AMC NETWORKS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited) |
| | | | | | | |
| Three Months Ended March 31, |
| 2016 | | 2015 |
Cash flows from operating activities: | | | |
Net income including noncontrolling interests | $ | 120,064 |
| | $ | 126,676 |
|
Adjustments to reconcile income from operations to net cash from operating activities: | | | |
Depreciation and amortization | 19,632 |
| | 20,527 |
|
Share-based compensation expense related to equity classified awards | 8,165 |
| | 7,288 |
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Amortization and write-off of program rights | 170,821 |
| | 170,038 |
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Amortization of deferred carriage fees | 3,940 |
| | 4,004 |
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Unrealized foreign currency transaction loss | 3,530 |
| | 8,807 |
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Unrealized (gain) loss on derivative contracts, net | 164 |
| | (306 | ) |
Amortization of deferred financing costs and discounts on indebtedness | 2,247 |
| | 2,230 |
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Loss on extinguishment of debt | 48,334 |
| | — |
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Bad debt expense (credit) | 528 |
| | (114 | ) |
Deferred income taxes | 12,139 |
| | 7,350 |
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Excess tax benefits from share-based compensation arrangements | (852 | ) | | (3,672 | ) |
Other, net | 46 |
| | 2,427 |
|
Changes in assets and liabilities: | | | |
Accounts receivable, trade | (9,442 | ) | | (98,392 | ) |
Amounts due from related parties, net | 1,081 |
| | 411 |
|
Prepaid expenses and other assets | 7,850 |
| | (1,528 | ) |
Program rights and obligations, net | (192,194 | ) | | (178,203 | ) |
Income taxes payable | 37,398 |
| | 38,352 |
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Deferred revenue | 3,952 |
| | 14,562 |
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Deferred carriage fees, net | (1,133 | ) | | (16,817 | ) |
Accounts payable, accrued expenses and other liabilities | (68,886 | ) | | (23,445 | ) |
Net cash provided by operating activities | 167,384 |
| | 80,195 |
|
Cash flows from investing activities: | | | |
Capital expenditures | (12,387 | ) | | (18,248 | ) |
Payments for acquisition of a business, net of cash acquired | — |
| | (6,581 | ) |
Purchases of investments | — |
| | (25,210 | ) |
Net cash used in investing activities | (12,387 | ) | | (50,039 | ) |
Cash flows from financing activities: | | | |
Proceeds from the issuance of long-term debt | 982,500 |
| | — |
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Principal payments on long-term debt | (691,449 | ) | | (18,500 | ) |
Premium and fees paid on extinguishment of debt | (39,179 | ) | | — |
|
Payments for financing costs | (2,070 | ) | | — |
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Deemed repurchases of restricted stock/units | (10,413 | ) | | (12,848 | ) |
Proceeds from stock option exercises | 1,200 |
| | 130 |
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Excess tax benefits from share-based compensation arrangements | 852 |
| | 3,672 |
|
Principal payments on capital lease obligations | (1,086 | ) | | (1,420 | ) |
Distributions to noncontrolling interest | (8,968 | ) | | — |
|
Net cash provided by (used in) financing activities | 231,387 |
| | (28,966 | ) |
Net increase in cash and cash equivalents from operations | 386,384 |
| | 1,190 |
|
Effect of exchange rate changes on cash and cash equivalents | 95 |
| | (8,250 | ) |
Cash and cash equivalents at beginning of period | 316,321 |
| | 201,367 |
|
Cash and cash equivalents at end of period | $ | 702,800 |
| | $ | 194,307 |
|
See accompanying notes to condensed consolidated financial statements.
AMC NETWORKS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(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:
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• | National Networks: Principally includes activities of our programming businesses which include our five programming networks distributed in the U.S. and Canada. These programming networks include AMC, WE tv, BBC AMERICA, IFC and SundanceTV in the U.S.; and AMC, IFC, and Sundance Channel in Canada. Our programming businesses within the National Networks segment may also sell rights worldwide to their owned original programming. The National Networks operating segment also includes AMC Networks Broadcasting & Technology, the technical services business, which primarily services most of the programming networks included in the National Networks segment. |
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• | International and Other: Principally includes AMC Networks International (“AMCNI”), the Company’s international programming businesses consisting of a portfolio of channels in Europe, Latin America, the Middle East and parts of Asia and Africa; IFC Films, the Company’s independent film distribution business; AMCNI- DMC, the broadcast solutions unit of certain networks of AMCNI and third-party networks, and various developing on-line content distribution initiatives. |
Basis of Presentation
Principles of Consolidation
These unaudited condensed consolidated financial statements include the accounts of AMC Networks and its majority owned or controlled subsidiaries. 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, 2015 contained in the Company’s Annual Report on Form 10-K (“2015 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, 2016.
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 no future programming usefulness, a write-off of the unamortized cost is recorded in technical and operating expense. There were no program rights write-offs included in technical and operating expense for the three months ended March 31, 2016. Program rights write-offs included in technical and operating expense of $9,596 were recorded for the three months ended March 31, 2015.
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 valuation of acquisition-related assets and liabilities, the useful lives and methodologies used to amortize and assess recoverability of program rights, the estimated useful lives of intangible assets, valuation and recoverability of goodwill and intangible assets and income tax assets and liabilities.
AMC NETWORKS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands, except per share amounts)
(unaudited)
Recently Issued Accounting Pronouncements
In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The updated guidance changes how companies account for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as the classification of related matters in the statement of cash flows. ASU 2016-09 is effective for the first quarter of 2017. The Company is currently assessing the impact the adoption will have on its consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). ASU 2016-02 requires lessees to put most of their leases on the balance sheet, which will be recognized as a right-of-use asset and a lease liability. The Company will be required to classify each separate lease component as an operating or finance lease at the lease commencement date. Initial measurement of the right-of-use asset and lease liability is the same for operating and finance leases, however expense recognition and amortization of the right-of-use asset differs. Operating leases will reflect lease expense on a straight-line basis similar to current operating leases. The straight-line expense will reflect the interest expense on the lease liability (effective interest method) and amortization of the right-of-use asset, which will be presented as a single line item in the operating expense section of the income statement. Finance leases will reflect a front-loaded expense pattern similar to the pattern for current capital leases. ASU 2016-02 is effective for the first quarter of 2019, with early adoption permitted. The Company is currently determining its implementation approach and assessing the impact the adoption will have on its consolidated financial statements.
In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740) Balance Sheet Classification of Deferred Taxes. ASU 2015-17 requires deferred tax liabilities and assets be classified as noncurrent in the statement of financial position. ASU 2015-17 is effective for the first quarter of 2017 with early adoption permitted. The adoption of ASU 2015-17 is not expected to have a material impact on the Company's consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 provides new guidance related to how an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard requires an evaluation of (i) transfer of control, (ii) variable consideration, (iii) allocation of selling price for multiple elements, (iv) intellectual property licenses, (v) time value of money, and (vi) contract costs. The standard also expands the required disclosures related to revenue and cash flows from contracts with customers to provide greater insight into both revenue that has been recognized, and revenue that is expected to be recognized in the future from existing contracts. In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations. ASU 2016-08 retains the guidance that the principal in an arrangement controls a good or service before it is transferred to a customer and clarifies: (i) that the entity must first identify the good or service being provided, (ii) how an entity should identify the unit of accounting for the principal versus agent evaluation, (iii) how the control principle applies to transactions, such as service arrangements, and (iv) how to assess whether an entity controls services performed by another party. Both ASU 2014-09 and ASU 2016-08 are effective for the first quarter of 2018, with early adoption permitted and retrospective application required. The Company is currently determining its implementation approach and assessing the impact the adoption will have on its consolidated financial statements.
Note 2. Net Income per Share
The following is a reconciliation between basic and diluted weighted average shares outstanding: |
| | | | | |
| Three Months Ended March 31, |
| 2016 | | 2015 |
Basic weighted average common shares outstanding | 72,579,000 |
| | 72,206,000 |
|
Effect of dilution: | | | |
Stock options | 51,000 |
| | 204,000 |
|
Restricted stock units | 644,000 |
| | 560,000 |
|
Diluted weighted average common shares outstanding | 73,274,000 |
| | 72,970,000 |
|
For the three months ended March 31, 2016, there were no restricted stock units that would have been anti-dilutive to the diluted weighted average common shares outstanding. For the three months ended March 31, 2015, there were 312,252 restricted stock units that would have been anti-dilutive to the diluted weighted average common shares outstanding. Approximately 137,000 and 125,000 restricted stock units for the three months ended March 31, 2016 and March 31, 2015, respectively, have been excluded
AMC NETWORKS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands, except per share amounts)
(unaudited)
from diluted weighted average common shares outstanding since a performance condition on these awards was not met in each of the respective periods.
Stock Repurchase Program
On March 4, 2016. the Company’s Board of Directors authorized a program to repurchase up to $500,000 of its outstanding shares of common stock. There were no repurchases of common stock for the three months ended March 31, 2016.
Note 3. Restructuring
The Company incurred restructuring expense primarily related to severance charges associated with the elimination of certain positions across the Company.
The following table summarizes the restructuring expense (credit) recognized by operating segment:
|
| | | | | | | |
| Three Months Ended March 31, |
| 2016 | | 2015 |
National Networks | $ | 30 |
| | $ | 66 |
|
International & Other | (65 | ) | | 590 |
|
Total restructuring expense (credit) | $ | (35 | ) | | $ | 656 |
|
The following table summarizes the accrued restructuring costs:
|
| | | | | | | | | | | |
| Severance and employee-related costs | | Other exit costs | | Total |
December 31, 2015 | $ | 9,498 |
| | $ | 512 |
| | $ | 10,010 |
|
Credits | (35 | ) | | — |
| | (35 | ) |
Cash payments | (7,174 | ) | | (95 | ) | | (7,269 | ) |
Currency translation | (84 | ) | | 19 |
| | (65 | ) |
March 31, 2016 | $ | 2,205 |
| | $ | 436 |
| | $ | 2,641 |
|
Liabilities for restructuring costs of $2,571 and $70 are included in accrued liabilities and other liabilities, respectively, in the condensed consolidated balance sheet at March 31, 2016.
Note 4. Goodwill and Other Intangible Assets
The carrying amount of goodwill, by operating segment is as follows:
|
| | | | | | | | | | | |
| National Networks | | International and Other | | Total |
December 31, 2015 | $ | 244,849 |
| | $ | 491,426 |
| | $ | 736,275 |
|
Purchase accounting adjustments | — |
| | (6,965 | ) | | (6,965 | ) |
Amortization of “second component” goodwill | (631 | ) | | — |
| | (631 | ) |
Foreign currency translation | — |
| | 3,314 |
| | 3,314 |
|
March 31, 2016 | $ | 244,218 |
| | $ | 487,775 |
| | $ | 731,993 |
|
Purchase accounting adjustments included in the International and Other segment relate to the allocation of fair value for a previous acquisition of a small international channel from goodwill primarily to identifiable intangible assets.
The reduction of $631 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.
AMC NETWORKS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands, except per share amounts)
(unaudited)
The following tables summarize information relating to the Company’s identifiable intangible assets:
|
| | | | | | | | | | | | | |
| March 31, 2016 | | |
| Gross | | Accumulated Amortization | | Net | | Estimated Useful Lives |
Amortizable intangible assets: | | | | | | | |
Affiliate and customer relationships | $ | 546,308 |
| | $ | (118,551 | ) | | $ | 427,757 |
| | 11 to 25 years |
Advertiser relationships | 46,282 |
| | (6,042 | ) | | 40,240 |
| | 11 years |
Trade names | 57,756 |
| | (5,229 | ) | | 52,527 |
| | 20 years |
Other amortizable intangible assets | 10,807 |
| | (310 | ) | | 10,497 |
| | 5 years |
Total amortizable intangible assets | 661,153 |
| | (130,132 | ) | | 531,021 |
| | |
Indefinite-lived intangible assets: | | | | | | | |
Trademarks | 19,900 |
| | — |
| | 19,900 |
| | |
Total intangible assets | $ | 681,053 |
| | $ | (130,132 | ) | | $ | 550,921 |
| | |
| December 31, 2015 | | |
| Gross | | Accumulated Amortization | | Net | | |
Amortizable intangible assets: | | | | | | | |
Affiliate and customer relationships | $ | 554,012 |
| | $ | (110,203 | ) | | $ | 443,809 |
| | |
Advertiser relationships | 46,282 |
| | (4,990 | ) | | 41,292 |
| | |
Trade names | 48,522 |
| | (4,353 | ) | | 44,169 |
| | |
Other amortizable intangible assets | 15 |
| | (5 | ) | | 10 |
| | |
Total amortizable intangible assets | 648,831 |
| | (119,551 | ) | | 529,280 |
| | |
Indefinite-lived intangible assets: | | | | | | | |
Trademarks | 19,900 |
| | — |
| | 19,900 |
| | |
Total intangible assets | $ | 668,731 |
| | $ | (119,551 | ) | | $ | 549,180 |
| | |
Aggregate amortization expense for amortizable intangible assets for the three months ended March 31, 2016 and 2015 was $9,900 and $10,773, respectively. Estimated aggregate amortization expense for intangible assets subject to amortization for each of the following five years is:
|
| | | |
Years Ending December 31, | |
2016 | $ | 39,106 |
|
2017 | 38,968 |
|
2018 | 38,968 |
|
2019 | 38,965 |
|
2020 | 38,961 |
|
Note 5. Accrued Liabilities
Accrued liabilities consist of the following:
|
| | | | | | | |
| March 31, 2016 | | December 31, 2015 |
Interest | $ | 11,473 |
| | $ | 28,246 |
|
Employee related costs | 73,093 |
| | 119,931 |
|
Income taxes payable | 37,899 |
| | 2,112 |
|
Other accrued expenses | 45,836 |
| | 50,504 |
|
Total accrued liabilities | $ | 168,301 |
| | $ | 200,793 |
|
AMC NETWORKS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands, except per share amounts)
(unaudited)
Note 6. Long-term Debt
The Company’s long-term debt consists of the following:
|
| | | | | | | |
| March 31, 2016 | | December 31, 2015 |
Senior Secured Credit Facility: (a) | | | |
Term Loan A Facility | $ | 1,369,000 |
| | $ | 1,406,000 |
|
Senior Notes: | | | |
5.00% Notes due April 2024 | 1,000,000 |
| | — |
|
7.75% Notes due July 2021 | 45,551 |
| | 700,000 |
|
4.75% Notes due December 2022 | 600,000 |
| | 600,000 |
|
Total long-term debt | 3,014,551 |
| | 2,706,000 |
|
Unamortized discount | (26,577 | ) | | (17,911 | ) |
Unamortized deferred financing costs | (19,784 | ) | | (20,281 | ) |
Long-term debt, net | 2,968,190 |
| | 2,667,808 |
|
Current portion of long-term debt | 166,500 |
| | 148,000 |
|
Noncurrent portion of long-term debt | $ | 2,801,690 |
| | $ | 2,519,808 |
|
| |
(a) | The Company’s $500,000 revolving credit facility remains undrawn at March 31, 2016. Total undrawn revolver commitments are available to be drawn for general corporate purposes of the Company. |
5.00% Notes due 2024
On March 30, 2016, the Company issued $1,000,000 in aggregate principal amount of 5.00% senior notes, net of an issuance discount of $17,500, due 2024 (the “5.00% Notes”). AMC Networks used a portion of the net proceeds of this offering to make a cash tender (“Tender Offer”) for its outstanding 7.75% Senior Notes due 2021 (the "7.75% Notes") with the remaining proceeds to be used for general corporate purposes, which may include the redemption of any of the 7.75% Notes not tendered. The 5.00% Notes were issued pursuant to an indenture dated as of March 30, 2016 (the “5.00% Notes Indenture”).
In connection with the issuance of the 5.00% Notes, AMC Networks incurred deferred financing costs of $2,070, which are being amortized, using the effective interest method, to interest expense over the term of the 5.00% Notes.
Interest on the 5.00% Notes is payable semi-annually in arrears on April 1 and October 1 of each year.
The 5.00% Notes may be redeemed, in whole or in part, at any time on or after April 1, 2020, at a redemption price equal to 102.5% of the principal amount thereof (plus accrued and unpaid interest thereon, if any, to the date of such redemption), declining annually to 100% of the principal amount thereof (plus accrued and unpaid interest thereon, if any, to the date of such redemption) beginning on April 1, 2022.
The 5.00% Notes are guaranteed on a senior unsecured basis by certain of AMC Networks’ existing and future domestic restricted subsidiaries, in accordance with the 5.00% Notes Indenture. The guarantees under the 5.00% Notes are full and unconditional and joint and several.
The 5.00% Notes Indenture contains certain affirmative and negative covenants applicable to AMC Networks and its restricted subsidiaries including restrictions on their ability to incur additional indebtedness, consummate certain assets sales, make investments in entities that are not restricted subsidiaries, create liens on their assets, enter into certain affiliate transactions and make certain restricted payments, including restrictions on AMC Networks’ ability to pay dividends on, or repurchase, its common stock.
7.75% Notes due 2021 Tender Offer
The Company used a portion of the net proceeds of the 5.00% Notes to make a Tender Offer for the 7.75% Notes at a price of $1,058.57 per $1,000 principal amounts of notes plus accrued and unpaid interest. Pursuant to the Tender Offer, the Company purchased approximately $654,000 principal amount of the 7.75% Notes for a purchase price of approximately $703,000 including accrued and unpaid interest of $10,567 and related fees. Approximately $46,000 of the 7.75% Notes remain outstanding.
In connection with the Tender Offer, the Company recorded a loss on extinguishment of debt of $48,334 for the three months ended March 31, 2016 which includes $39,179 related to the excess of the redemption price, premium paid and related fees
AMC NETWORKS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands, except per share amounts)
(unaudited)
associated with the closing of the Tender Offer and unamortized issuance discount and deferred financing fees related to the 7.75% Notes of $8,185 and $970, respectively.
Note 7. 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. |
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:
|
| | | | | | | | | | | | |
| | Level I | | Level II | | Total |
At March 31, 2016: | | | | | | |
Assets: | | | | | | |
Cash equivalents | | $ | 22,116 |
| | $ | — |
| | $ | 22,116 |
|
Interest rate swap contracts | | — |
| | 172 |
| | 172 |
|
Foreign currency derivatives | | — |
| | 4,932 |
| | 4,932 |
|
Liabilities: | | | | | | |
Interest rate swap contracts | | — |
| | 2,518 |
| | 2,518 |
|
Foreign currency derivatives | | $ | — |
| | $ | 3,455 |
| | $ | 3,455 |
|
At December 31, 2015: | | | | | | |
Assets: | | | | | | |
Cash equivalents | | $ | 2,027 |
| | $ | — |
| | $ | 2,027 |
|
Interest rate swap contracts | | — |
| | 1,449 |
| | 1,449 |
|
Foreign currency derivatives | | — |
| | 4,421 |
| | 4,421 |
|
Liabilities: | | | | | | |
Interest rate swap contracts | | — |
| | 2,682 |
| | 2,682 |
|
Foreign currency derivatives | | $ | — |
| | $ | 3,107 |
| | $ | 3,107 |
|
The Company’s cash equivalents are classified within Level I of the fair value hierarchy because they are valued using quoted market prices.
The Company’s interest rate swap contracts and foreign currency derivatives (see Note 8) are classified within Level II of the fair value hierarchy and their fair values are determined based on a market approach valuation technique that uses readily observable market parameters and the consideration of counterparty risk.
The Company does not have any recurring assets or liabilities measured at fair value that would be considered Level III.
Fair value measurements are also used in nonrecurring valuations performed in connection with acquisition accounting. These nonrecurring valuations primarily include the valuation of affiliate and customer relationships intangible assets, advertiser relationship intangible assets and property and equipment. All of our nonrecurring valuations use significant unobservable inputs and therefore fall under Level III of the fair value hierarchy.
Credit Facility Debt and Senior Notes
The fair values of each of the Company’s debt instruments are based on quoted market prices for the same or similar issues or on the current rates offered to the Company for instruments of the same remaining maturities.
AMC NETWORKS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands, except per share amounts)
(unaudited)
The carrying values and estimated fair values of the Company’s financial instruments, excluding those that are carried at fair value in the condensed consolidated balance sheets, are summarized as follows:
|
| | | | | | | |
| March 31, 2016 |
| Carrying Amount | | Estimated Fair Value |
Debt instruments: | | | |
Term Loan A Facility | $ | 1,351,480 |
| | $ | 1,341,620 |
|
5.00% Notes due April 2024 | 980,430 |
| | 1,006,250 |
|
7.75% Notes due July 2021 | 44,981 |
| | 48,193 |
|
4.75% Notes due December 2022 | 591,299 |
| | 601,500 |
|
| $ | 2,968,190 |
| | $ | 2,997,563 |
|
|
| | | | | | | |
| December 31, 2015 |
| Carrying Amount | | Estimated Fair Value |
Debt instruments: | | | |
Term Loan A Facility | $ | 1,386,869 |
| | $ | 1,370,850 |
|
7.75% Notes due July 2021 | 689,910 |
| | 737,625 |
|
4.75% Notes due December 2022 | 591,029 |
| | 600,000 |
|
| $ | 2,667,808 |
| | $ | 2,708,475 |
|
Fair value estimates related to the Company’s debt instruments presented above are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgments and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
Note 8. Derivative Financial Instruments
Interest Rate Risk
To manage interest rate risk, the Company enters into interest rate swap contracts to adjust the amount of total debt that is subject to variable interest rates.
As of March 31, 2016, the Company had interest rate swap contracts outstanding with notional amounts aggregating $400,000, which consists of interest rate swap contracts with notional amounts of $200,000 that are designated as cash flow hedges and interest rate swap contracts with notional amounts of $200,000 that are not designated as hedging instruments. The Company’s outstanding interest rate swap contracts have varying maturities ranging from August 2016 to October 2018. At March 31, 2016, the Company’s interest rate swap contracts designated as cash flow hedges were highly effective.
Foreign Currency Exchange Rate Risk
We are exposed to foreign currency risk to the extent that we enter into transactions denominated in currencies other than our or our subsidiaries’ respective functional currencies (non-functional currency risk), such as affiliation agreements, programming contracts, certain accounts payable and trade receivables (including intercompany amounts) that are denominated in a currency other than the applicable functional currency.
AMC NETWORKS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands, except per share amounts)
(unaudited)
The fair values of the Company’s derivative financial instruments included in the condensed consolidated balance sheets are as follows:
|
| | | | | | | | | |
| Balance Sheet Location | | March 31, 2016 | | December 31, 2015 |
Derivatives designated as hedging instruments: | | | | | |
Assets: | | | | | |
Interest rate swap contracts | Other assets | | $ | 172 |
| | $ | 1,449 |
|
Liabilities: | | | | | |
Interest rate swap contracts | Other liabilities | | 301 |
| | — |
|
Derivatives not designated as hedging instruments: | | | | | |
Assets: | | | | | |
Foreign currency derivatives | Prepaid expenses and other current assets | | 1,226 |
| | 1,331 |
|
Foreign currency derivatives | Other assets | | 3,706 |
| | 3,090 |
|
Liabilities: | | | | | |
Interest rate swap contracts | Accrued liabilities | | 390 |
| | 660 |
|
Interest rate swap contracts | Other liabilities | | 1,827 |
| | 2,022 |
|
Foreign currency derivatives | Accrued liabilities | | 1,184 |
| | 1,429 |
|
Foreign currency derivatives | Other liabilities | | 2,271 |
| | 1,678 |
|
The amounts of gains and losses related to the Company’s derivative financial instruments designated as hedging instruments are as follows:
|
| | | | | | | | | | | | | | | | | |
| Gain or (Loss) on Derivatives Recognized in OCI | | Location of Gain or (Loss) in Earnings | | Gain or (Loss) Reclassified from Accumulated OCI into Earnings (a) |
| Three Months Ended March 31, | | | | Three Months Ended March 31, |
| 2016 | | 2015 | | | | 2016 | | 2015 |
Derivatives in cash flow hedging relationships: | | | | | | | | | |
Interest rate swap contracts | $ | (1,741 | ) | | $ | (272 | ) | | Interest expense | | $ | (163 | ) | | $ | (968 | ) |
| |
(a) | There were no gains or losses recognized in earnings related to any ineffective portion of hedging relationships or related to any amount excluded from the assessment of hedge effectiveness for the three months ended March 31, 2016 and 2015. |
The amounts of gains and losses related to the Company’s derivative financial instruments not designated as hedging instruments are as follows:
|
| | | | | | | | | |
| Location of Gain or (Loss) Recognized in Earnings on Derivatives | | Amount of Gain or (Loss) Recognized in Earnings on Derivatives |
| | | Three Months Ended March 31, |
| | | 2016 | | 2015 |
Derivatives not designated as hedging relationships: | | | | | |
Interest rate swap contracts | Interest expense | | $ | (181 | ) | | $ | (421 | ) |
Foreign currency derivatives | Miscellaneous, net | | 52 |
| | 493 |
|
Total | | | $ | (129 | ) | | $ | 72 |
|
Note 9. Income Taxes
For the three months ended March 31, 2016, income tax expense attributable to continuing operations was $58,543, representing an effective tax rate of 33%. The items resulting in variances from the federal statutory rate of 35% include state
AMC NETWORKS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands, except per share amounts)
(unaudited)
income tax expense of $3,215, tax benefit from foreign subsidiary earnings indefinitely reinvested outside the U.S. of $3,465, tax benefit from the domestic production activities deduction of $5,322 and tax expense of $2,000 for an increase in valuation allowances for foreign taxes.
For the three months ended March 31, 2015, income tax expense attributable to continuing operations was $61,254, representing an effective tax rate of 33%. The items resulting in variances from the federal statutory rate of 35% include state income tax expense of $3,834, tax benefit from foreign subsidiary earnings indefinitely reinvested outside the U.S. of $5,262, tax benefit from the domestic production activities deduction of $5,168 and tax expense of $2,831 for an increase in valuation allowances for foreign taxes.
At March 31, 2016, the Company had foreign tax credit carry forwards of approximately $43,000, expiring on various dates from 2016 through 2026. For the three months ended March 31, 2016, excess tax benefits of $852 relating to share-based compensation awards and $400 relating to amortization of tax deductible second component goodwill were realized as a reduction in tax liability (as determined on a ‘with-and-without’ approach).
Note 10. Commitments and Contingencies
Commitments
As of March 31, 2016, the Company’s contractual obligations not reflected on the Company’s condensed consolidated balance sheet increased $28,970 to $1,545,033 as compared to $1,516,063 at December 31, 2015. The increase relates primarily to program rights obligations.
Legal Matters
The Company is party to various lawsuits and claims in the ordinary course of business. Although the outcome of these matters cannot be predicted with certainty and while the impact of these matters on the Company’s results of operations in any particular subsequent reporting period could be material, management does not believe that the resolution of these matters will have a material adverse effect on the financial position of the Company or the ability of the Company to meet its financial obligations as they become due.
Note 11. Equity Plans
On March 4, 2016, AMC Networks granted 486,758 restricted stock units (“RSU’s”) and 371,109 performance restricted stock units (“PRSU’s”) to certain executive officers and employees under the AMC Networks Inc. Amended and Restated 2011 Employee Stock Plan. The RSU’s vest in equal annual installments over a three year period and the vesting criteria for 137,527 RSU’s include the achievement of certain performance targets by the Company. The PRSU’s vest on the third anniversary of the grant date and include the achievement of certain performance targets by the Company.
During the three months ended March 31, 2016, 323,402 RSU’s of AMC Networks Class A Common Stock previously issued to employees of the Company vested. On the vesting date, 133,306 RSU’s were surrendered to the Company to cover the required statutory tax withholding obligations and 190,096 new shares of the AMC Networks Class A Common Stock were issued in respect of the remaining RSU’s. The units surrendered to satisfy the employees’ statutory minimum tax withholding obligations for the applicable income and other employment tax had an aggregate value of $10,413, which has been reflected as a financing activity in the condensed consolidated statement of cash flows for the three months ended March 31, 2016.
Share-based compensation expense included in selling, general and administrative expense, for the three months ended March 31, 2016 and March 31, 2015 was $8,165 and $7,288, respectively.
As of March 31, 2016, there was $102,438 of total unrecognized share-based compensation cost related to outstanding unvested share-based awards. The unrecognized compensation cost is expected to be recognized over a weighted-average remaining period of approximately 2.9 years.
Note 12. Redeemable Noncontrolling Interests
In connection with a membership interest purchase agreement entered into with BBC Worldwide Americas, Inc. (“BBCWA”), the Company acquired a 49.9% limited liability interest in New Video Channel America L.L.C. (“New Video”). New Video owns the cable channel BBC AMERICA. The terms of the agreement provide BBCWA with a right to put all of its 50.1% noncontrolling interest to the Company at the greater of the then fair value or the fair value of the initial equity interest at inception. The put option is exercisable on the fifteenth and twenty-fifth year anniversary of the Joint Venture agreement.
AMC NETWORKS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands, except per share amounts)
(unaudited)
In connection with the creation of another joint venture entity in 2013, the terms of the agreement provide the noncontrolling member with a right to put all of its interest to the Company at the then fair value.
Because exercise of these put rights is outside the Company's control, the noncontrolling interest in each entity is presented as redeemable noncontrolling interest outside of stockholders' equity (deficiency) on the Company's consolidated balance sheet.
The following table summarizes activity related to redeemable noncontrolling interest for the three months ended March 31, 2016.
|
| | | |
| Three Months Ended March 31, 2016 |
December 31, 2015 | $ | 211,691 |
|
Net earnings | 5,809 |
|
Distributions | (8,968 | ) |
Other | (19 | ) |
March 31, 2016 | $ | 208,513 |
|
Note 13. Related Party Transactions
Members of the Dolan Family, for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended, including trusts for the benefit of the Dolan Family, collectively beneficially own all of the AMC Networks outstanding Class B Common Stock and own less than 2% of the AMC Networks’ outstanding Class A Common Stock. Such shares of the AMC Networks Class A Common Stock and Class B Common Stock, collectively, represent approximately 66% of the aggregate voting power of AMC Networks’ outstanding common stock. Members of the Dolan Family are also the controlling stockholders of Cablevision Systems Corporation and its subsidiaries (“Cablevision”), The Madison Square Garden Company (“MSG”) and MSG Networks Inc. (“MSG Networks”).
In connection with the spin off from Cablevision in 2011, the Company entered into various agreements with Cablevision that govern certain of the Company’s relationships with Cablevision subsequent to the spin off. These agreements include arrangements with respect to transition services and a number of on-going commercial relationships. The distribution agreement includes an agreement that the Company and Cablevision agree to provide each other with indemnities with respect to liabilities arising out of the businesses Cablevision transferred to the Company. In addition, the Company provides services to and receives services from Cablevision, MSG and MSG Networks.
The Company records revenues, net from subsidiaries of Cablevision, MSG and MSG Networks. Revenues, net from related parties amounted to $6,706 and $6,719 for the three months ended March 31, 2016 and 2015, respectively.
In addition, the Company and its related parties routinely enter into transactions with each other in the ordinary course of business. Amounts charged to the Company, included in selling, general and administrative expenses, pursuant to transactions with its related parties amounted to $1,069 and $949 for the three months ended March 31, 2016 and 2015, respectively.
Note 14. Cash Flows
The Company’s non-cash investing and financing activities and other supplemental data are as follows:
|
| | | | | |
| Three Months Ended March 31, |
| 2016 | | 2015 |
Non-Cash Investing and Financing Activities: | | | |
Increase in capital lease obligations | 10,983 |
| | — |
|
Capital expenditures incurred but not yet paid | 2,722 |
| | 2,399 |
|
Supplemental Data: | | | |
Cash interest paid | 46,436 |
| | 37,132 |
|
Income taxes paid, net | 5,600 |
| | 13,005 |
|
AMC NETWORKS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands, except per share amounts)
(unaudited)
Note 15. Accumulated Other Comprehensive Loss
The following table details the components of accumulated other comprehensive loss:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2016 | | Three Months Ended March 31, 2015 |
| Currency Translation Adjustment | | Gains (Losses) on Cash Flow Hedges | | Accumulated Other Comprehensive Income (Loss) | | Currency Translation Adjustment | | Gains (Losses) on Cash Flow Hedges | | Accumulated Other Comprehensive Income (Loss) |
Beginning balance | $ | (136,434 | ) | | $ | 377 |
| | $ | (136,057 | ) | | $ | (77,492 | ) | | $ | (1,756 | ) | | $ | (79,248 | ) |
Other comprehensive income (loss) before reclassifications | 15,385 |
| | (1,741 | ) | | 13,644 |
| | (60,825 | ) | | (272 | ) | | (61,097 | ) |
Amounts reclassified from accumulated other comprehensive loss | — |
| | 163 |
| | 163 |
| | — |
| | 968 |
| | 968 |
|
Net current-period other comprehensive income (loss), before income taxes | 15,385 |
| | (1,578 | ) | | 13,807 |
| | (60,825 | ) | | 696 |
| | (60,129 | ) |
Income tax expense | (2,477 | ) | | 578 |
| | (1,899 | ) | | (2,024 | ) | | (255 | ) | | (2,279 | ) |
Net current-period other comprehensive income (loss), net of income taxes | 12,908 |
| | (1,000 | ) | | 11,908 |
| | (62,849 | ) | | 441 |
| | (62,408 | ) |
Ending balance | $ | (123,526 | ) | | $ | (623 | ) | | $ | (124,149 | ) | | $ | (140,341 | ) | | $ | (1,315 | ) | | $ | (141,656 | ) |
Amounts reclassified to net earnings for gains and losses on cash flow hedges designated as hedging instruments are included in interest expense in the condensed consolidated statements of income.
Note 16. Segment Information
The Company classifies its operations into two operating segments: National Networks and International and Other. These reportable segments represent strategic business units that are managed separately.
The Company generally allocates all corporate overhead costs to the Company’s two operating segments based upon their proportionate estimated usage of services, including such costs as executive salaries and benefits, costs of maintaining corporate headquarters, facilities and common support functions (such as human resources, legal, finance, tax, accounting, audit, treasury, risk management, strategic planning and information technology) as well as sales support functions and creative and production services.
The Company evaluates segment performance based on several factors, of which the primary financial measure is operating segment adjusted operating cash flow (defined as operating income (loss) before depreciation and amortization, share-based compensation expense or benefit, and restructuring expense or credit). The Company has presented the components that reconcile adjusted operating cash flow to operating income, an accepted GAAP measure, and other information as to the continuing operations of the Company’s reportable segments below.
AMC NETWORKS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands, except per share amounts)
(unaudited)
|
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2016 |
| National Networks | | International and Other | | Inter-segment eliminations | | Consolidated |
Revenues, net | | | | | | | |
Advertising | $ | 263,852 |
| | $ | 22,825 |
| | $ | — |
| | $ | 286,677 |
|
Distribution | 334,783 |
| | 86,223 |
| | (1,104 | ) | | 419,902 |
|
Consolidated revenues, net | $ | 598,635 |
| | $ | 109,048 |
| | $ | (1,104 | ) | | $ | 706,579 |
|
Adjusted operating cash flow | $ | 280,952 |
| | $ | 5,106 |
| | $ | 511 |
| | $ | 286,569 |
|
Depreciation and amortization | (7,969 | ) | | (11,663 | ) | | — |
| | (19,632 | ) |
Share-based compensation expense | (6,221 | ) | | (1,944 | ) | | — |
| | (8,165 | ) |
Restructuring (expense) credit | (30 | ) | | 65 |
| | — |
| | 35 |
|
Operating income (loss) | $ | 266,732 |
| | $ | (8,436 | ) | | $ | 511 |
| | $ | 258,807 |
|
Capital expenditures | $ | 1,980 |
| | $ | 10,407 |
| | $ | — |
| | $ | 12,387 |
|
| Three Months Ended March 31, 2015 |
| National Networks | | International and Other | | Inter-segment eliminations | | Consolidated |
Revenues, net | | | | | | | |
Advertising | $ | 260,439 |
| | $ | 18,803 |
| | $ | — |
| | $ | 279,242 |
|
Distribution | 302,409 |
| | 87,552 |
| | (521 | ) | | 389,440 |
|
Consolidated revenues, net | $ | 562,848 |
| | $ | 106,355 |
| | $ | (521 | ) | | $ | 668,682 |
|
Adjusted operating cash flow | $ | 253,258 |
| | $ | 5,679 |
| | $ | 281 |
| | $ | 259,218 |
|
Depreciation and amortization | (7,361 | ) | | (13,166 | ) | | — |
| | (20,527 | ) |
Share-based compensation expense | (5,410 | ) | | (1,878 | ) | | — |
| | (7,288 | ) |
Restructuring expense | (66 | ) | | (590 | ) | | — |
| | (656 | ) |
Operating income (loss) | $ | 240,421 |
| | $ | (9,955 | ) | | $ | 281 |
| | $ | 230,747 |
|
Capital expenditures | $ | 7,135 |
| | $ | 11,113 |
| | $ | — |
| | $ | 18,248 |
|
Inter-segment eliminations are primarily revenues recognized by AMC Networks Broadcasting & Technology for transmission revenues recognized from the International and Other operating segment as well as licensing revenues recognized between the National Networks and International and Other segments.
|
| | | | | | | |
| Three Months Ended March 31, |
| 2016 | | 2015 |
Inter-segment revenues | | | |
National Networks | $ | (944 | ) | | $ | (452 | ) |
International and Other | (160 | ) | | (69 | ) |
| $ | (1,104 | ) | | $ | (521 | ) |
The table below summarizes revenues based on customer location:
|
| | | | | | | |
| Three Months Ended March 31, |
| 2016 | | 2015 |
Revenues | | | |
United States | $ | 574,334 |
| | $ | 563,825 |
|
Europe | 93,962 |
| | 75,886 |
|
Other | 38,283 |
| | 28,971 |
|
| $ | 706,579 |
| | $ | 668,682 |
|
AMC NETWORKS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands, except per share amounts)
(unaudited)
The table below summarizes property and equipment based on asset location:
|
| | | | | | | |
| March 31, 2016 | | December 31, 2015 |
Property and equipment, net | | | |
United States | $ | 90,592 |
| | $ | 93,951 |
|
Europe | 61,996 |
| | 48,043 |
|
Other | 21,381 |
| | 21,866 |
|
| $ | 173,969 |
| | $ | 163,860 |
|
Note 17. Condensed Consolidating Financial Statements
Long-term debt of AMC Networks includes $45,551 of 7.75% senior notes due July 2021, $600,000 of 4.75% senior notes due December 2022 and $1,000,000 of 5.00% senior notes due April 2024. All outstanding senior notes issued by AMC Networks are guaranteed on a senior unsecured basis by certain of its existing and future domestic restricted subsidiaries (the “Guarantor Subsidiaries”). All Guarantor Subsidiaries are owned 100% by AMC Networks. The outstanding notes are fully and unconditionally guaranteed by the Guarantor Subsidiaries on a joint and several basis.
Set forth below are condensed consolidating financial statements presenting the financial position, results of operations, comprehensive income, and cash flows of (i) the Parent Company, (ii) the Guarantor Subsidiaries on a combined basis (as such guarantees are joint and several), (iii) the direct and indirect non-guarantor subsidiaries of the Parent Company (the “Non-Guarantor Subsidiaries”) on a combined basis and (iv) reclassifications and eliminations necessary to arrive at the information for the Company on a consolidated basis.
Basis of Presentation
In presenting the condensed consolidating financial statements, the equity method of accounting has been applied to (i) the Parent Company’s interests in the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries, and (ii) the Guarantor Subsidiaries’ interests in the Non-Guarantor Subsidiaries, even though all such subsidiaries meet the requirements to be consolidated under GAAP. All intercompany balances and transactions between the Parent Company, the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries have been eliminated, as shown in the column “Eliminations.”
The accounting basis in all subsidiaries, including goodwill and identified intangible assets, have been allocated to the applicable subsidiaries.
AMC NETWORKS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands, except per share amounts)
(unaudited)
|
| | | | | | | | | | | | | | | | | | | |
Condensed Consolidating Balance Sheet |
March 31, 2016 |
| Parent Company | | Guarantor Subsidiaries | | Non- Guarantor Subsidiaries | | Eliminations | | Consolidated |
ASSETS | | | | | | | | | |
Current Assets: | | | | | | | | | |
Cash and cash equivalents | $ | 279,468 |
| | $ | 257,259 |
| | $ | 166,073 |
| | $ | — |
| | $ | 702,800 |
|
Accounts receivable, trade (less allowance for doubtful accounts) | — |
| | 519,912 |
| | 165,232 |
| | — |
| | 685,144 |
|
Amounts due from related parties, net | — |
| | 2,743 |
| | 238 |
| | — |
| | 2,981 |
|
Current portion of program rights, net | — |
| | 335,169 |
| | 113,366 |
| | — |
| | 448,535 |
|
Prepaid expenses, other current assets and intercompany receivable | 89 |
| | 136,839 |
| | 15,073 |
| | (89,558 | ) | | 62,443 |
|
Deferred tax asset, net | 18,881 |
| | — |
| | 5,178 |
| | — |
| | 24,059 |
|
Total current assets | 298,438 |
| | 1,251,922 |
| | 465,160 |
| | (89,558 | ) | | 1,925,962 |
|
Property and equipment, net of accumulated depreciation | — |
| | 89,929 |
| | 84,040 |
| | — |
| | 173,969 |
|
Investment in affiliates | 2,986,397 |
| | 852,545 |
| | — |
| | (3,838,942 | ) | | — |
|
Program rights, net | — |
| | 907,952 |
| | 138,350 |
| | — |
| | 1,046,302 |
|
Long-term intercompany notes receivable | — |
| | 400,109 |
| | 603 |
| | (400,712 | ) | | — |
|
Deferred carriage fees, net | — |
| | 44,592 |
| | 2,469 |
| | — |
| | 47,061 |
|
Intangible assets, net | — |
| | 187,605 |
| | 363,316 |
| | — |
| | 550,921 |
|
Goodwill | — |
| | 71,069 |
| | 660,924 |
| | — |
| | 731,993 |
|
Other assets | 172 |
| | 101,426 |
| | 100,423 |
| | — |
| | 202,021 |
|
Total assets | $ | 3,285,007 |
| | $ | 3,907,149 |
| | $ | 1,815,285 |
| | $ | (4,329,212 | ) | | $ | 4,678,229 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | |
Current Liabilities: | | | | | | | | | |
Accounts payable | $ | 301 |
| | $ | 98,580 |
| | $ | 32,527 |
| | $ | — |
| | $ | 131,408 |
|
Accrued liabilities and intercompany payable | 51,586 |
| | 74,889 |
| | 131,384 |
| | (89,558 | ) | | 168,301 |
|
Current portion of program rights obligations | — |
| | 223,834 |
| | 71,253 |
| | — |
| | 295,087 |
|
Deferred revenue | — |
| | 56,404 |
| | 11,764 |
| | — |
| | 68,168 |
|
Current portion of long-term debt | 166,500 |
| | — |
| | — |
| | — |
| | 166,500 |
|
Current portion of capital lease obligations | — |
| | 2,300 |
| | 1,920 |
| | — |
| | 4,220 |
|
Total current liabilities | 218,387 |
| | 456,007 |
| | 248,848 |
| | (89,558 | ) | | 833,684 |
|
Program rights obligations | — |
| | 405,338 |
| | 22,104 |
| | — |
| | 427,442 |
|
Long-term debt | 2,801,690 |
| | — |
| | — |
| | — |
| | 2,801,690 |
|
Capital lease obligations | — |
| | 8,857 |
| | 31,165 |
| | — |
| | 40,022 |
|
Deferred tax liability, net | 144,968 |
| | — |
| | 11,519 |
| | — |
| | 156,487 |
|
Other liabilities and intercompany notes payable | 34,058 |
| | 50,550 |
| | 408,729 |
| | (400,712 | ) | | 92,625 |
|
Total liabilities | 3,199,103 |
| | 920,752 |
| | 722,365 |
| | (490,270 | ) | | 4,351,950 |
|
Commitments and contingencies |
| |
| |
| |
| |
|
Redeemable noncontrolling interests | — |
| | — |
| | 208,513 |
| | — |
| | 208,513 |
|
Stockholders’ equity: | | | | | | | | | |
AMC Networks stockholders’ equity | 85,904 |
| | 2,986,397 |
| | 852,545 |
| | (3,838,942 | ) | | 85,904 |
|
Non-redeemable noncontrolling interests | — |
| | — |
| | 31,862 |
| | — |
| | 31,862 |
|
Total stockholders’ equity | 85,904 |
| | 2,986,397 |
| | 884,407 |
| | (3,838,942 | ) | | 117,766 |
|
Total liabilities and stockholders’ equity | $ | 3,285,007 |
| | $ | 3,907,149 |
| | $ | 1,815,285 |
| | $ | (4,329,212 | ) | | $ | 4,678,229 |
|
AMC NETWORKS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands, except per share amounts)
(unaudited)
|
| | | | | | | | | | | | | | | | | | | |
Condensed Consolidating Balance Sheet |
December 31, 2015 |
| Parent Company | | Guarantor Subsidiaries | | Non- Guarantor Subsidiaries | | Eliminations | | Consolidated |
ASSETS | | | | | | | | | |
Current Assets: | | | | | | | | | |
Cash and cash equivalents | $ | 434 |
| | $ | 148,260 |
| | $ | 167,627 |
| | $ | — |
| | $ | 316,321 |
|
Accounts receivable, trade (less allowance for doubtful accounts) | — |
| | 538,657 |
| | 135,954 |
| | — |
| | 674,611 |
|
Amounts due from related parties, net | — |
| | 3,818 |
| | 244 |
| | — |
| | 4,062 |
|
Current portion of program rights, net | — |
| | 352,664 |
| | 100,493 |
| | — |
| | 453,157 |
|
Prepaid expenses, other current assets and intercompany receivable | 4,158 |
| | 112,456 |
| | 12,322 |
| | (55,947 | ) | | 72,989 |
|
Deferred tax asset, net | 14,039 |
| | — |
| | 2,159 |
| | — |
| | 16,198 |
|
Total current assets | 18,631 |
| | 1,155,855 |
| | 418,799 |
| | (55,947 | ) | | 1,537,338 |
|
Property and equipment, net | — |
| | 93,007 |
| | 70,853 |
| | — |
| | 163,860 |
|
Investment in affiliates | 2,797,938 |
| | 845,069 |
| | — |
| | (3,643,007 | ) | | — |
|
Program rights, net | — |
| | 889,756 |
| | 137,638 |
| | — |
| | 1,027,394 |
|
Long-term intercompany notes receivable | — |
| | 400,163 |
| | 676 |
| | (400,839 | ) | | — |
|
Deferred carriage fees, net | — |
| | 47,437 |
| | 2,632 |
| | — |
| | 50,069 |
|
Intangible assets, net | — |
| | 190,041 |
| | 359,139 |
| | — |
| | 549,180 |
|
Goodwill | — |
| | 71,700 |
| | 664,575 |
| | — |
| | 736,275 |
|
Other assets | 1,449 |
| | 100,620 |
| | 98,730 |
| | — |
| | 200,799 |
|
Total assets | $ | 2,818,018 |
| | $ | 3,793,648 |
| | $ | 1,753,042 |
| | $ | (4,099,793 | ) | | $ | 4,264,915 |
|
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY | | | | | | | | | |
Current Liabilities: | | | | | | | | | |
Accounts payable | $ | 6 |
| | $ | 97,445 |
| | $ | 26,990 |
| | $ | — |
| | $ | 124,441 |
|
Accrued liabilities and intercompany payable | 30,857 |
| | 128,084 |
| | 97,799 |
| | (55,947 | ) | | 200,793 |
|
Current portion of program rights obligations | — |
| | 225,375 |
| | 64,522 |
| | — |
| | 289,897 |
|
Deferred revenue | — |
| | 54,921 |
| | 9,308 |
| | — |
| | 64,229 |
|
Current portion of long-term debt | 148,000 |
| | — |
| | — |
| | — |
| | 148,000 |
|
Current portion of capital lease obligations | — |
| | 2,393 |
| | 1,168 |
| | — |
| | 3,561 |
|
Total current liabilities | 178,863 |
| | 508,218 |
| | 199,787 |
| | (55,947 | ) | | 830,921 |
|
Program rights obligations | — |
| | 415,419 |
| | 25,172 |
| | — |
| | 440,591 |
|
Long-term debt | 2,519,808 |
| | — |
| | — |
| | — |
| | 2,519,808 |
|
Capital lease obligations | — |
| | 9,268 |
| | 20,511 |
| | — |
| | 29,779 |
|
Deferred tax liability, net | 126,415 |
| | — |
| | 10,818 |
| | — |
| | 137,233 |
|
Other liabilities and intercompany notes payable | 32,209 |
| | 62,805 |
| | 409,355 |
| | (400,839 | ) | | 103,530 |
|
Total liabilities | 2,857,295 |
| | 995,710 |
| | 665,643 |
| | (456,786 | ) | | 4,061,862 |
|
Commitments and contingencies | | | | | | | | | |
Redeemable noncontrolling interests | — |
| | — |
| | 211,691 |
| | — |
| | 211,691 |
|
Stockholders’ deficiency: | | | | | | | | | |
AMC Networks stockholders’ (deficiency) equity | (39,277 | ) | | 2,797,938 |
| | 845,069 |
| | (3,643,007 | ) | | (39,277 | ) |
Non-redeemable noncontrolling interests | — |
| | — |
| | 30,639 |
| | — |
| | 30,639 |
|
Total stockholders’ (deficiency) equity | (39,277 | ) | | 2,797,938 |
| | 875,708 |
| | (3,643,007 | ) | | (8,638 | ) |
Total liabilities and stockholders’ (deficiency) equity | $ | 2,818,018 |
| | $ | 3,793,648 |
| | $ | 1,753,042 |
| | $ | (4,099,793 | ) | | $ | 4,264,915 |
|
AMC NETWORKS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands, except per share amounts)
(unaudited)
|
| | | | | | | | | | | | | | | | | | | |
Condensed Consolidating Statement of Income |
Three Months Ended March 31, 2016 |
| Parent Company | | Guarantor Subsidiaries | | Non- Guarantor Subsidiaries | | Eliminations | | Consolidated |
Revenues, net | $ | — |
| | $ | 554,326 |
| | $ | 154,737 |
| | $ | (2,484 | ) | | $ | 706,579 |
|
Operating expenses: | | | | | | | | | |
Technical and operating (excluding depreciation and amortization) | — |
| | 190,110 |
| | 84,847 |
| | (683 | ) | | 274,274 |
|
Selling, general and administrative | — |
| | 114,357 |
| | 41,348 |
| | (1,804 | ) | | 153,901 |
|
Restructuring expense (credit) | — |
| | (70 | ) | | 35 |
| | — |
| | (35 | ) |
Depreciation and amortization | — |
| | 10,075 |
| | 9,557 |
| | — |
| | 19,632 |
|
Total operating expenses | — |
| | 314,472 |
| | 135,787 |
| | (2,487 | ) | | 447,772 |
|
Operating income | — |
| | 239,854 |
| | 18,950 |
| | 3 |
| | 258,807 |
|
Other income (expense): | | | | | | | | | |
Interest expense, net | (30,572 | ) | | 9,293 |
| | (9,750 | ) | | — |
| | (31,029 | ) |
Share of affiliates’ income (loss) | 246,047 |
| | (770 | ) | | — |
| | (245,277 | ) | | — |
|
Loss on extinguishment of debt | (48,334 | ) | | — |
| | — |
| | — |
| | (48,334 | ) |
Miscellaneous, net | (79 | ) | | (21 | ) | | (734 | ) | | (3 | ) | | (837 | ) |
Total other income (expense) | 167,062 |
| | 8,502 |
| | (10,484 | ) | | (245,280 | ) | | (80,200 | ) |
Income from operations before income taxes | 167,062 |
| | 248,356 |
| | 8,466 |
| | (245,277 | ) | | 178,607 |
|
Income tax expense | (53,618 | ) | | (2,309 | ) | | (2,616 | ) | | — |
| | (58,543 | ) |
Net income including noncontrolling interests | 113,444 |
| | 246,047 |
| | 5,850 |
| | (245,277 | ) | | 120,064 |
|
Net income attributable to noncontrolling interests | — |
| | — |
| | (6,620 | ) | | — |
| | (6,620 | ) |
Net income (loss) attributable to AMC Networks’ stockholders | $ | 113,444 |
| | $ | 246,047 |
| | $ | (770 | ) | | $ | (245,277 | ) | | $ | 113,444 |
|
|
| | | | | | | | | | | | | | | | | | | |
Condensed Consolidating Statement of Income |
Three Months Ended March 31, 2015 |
| Parent Company | | Guarantor Subsidiaries | | Non- Guarantor Subsidiaries | | Eliminations | | |