Edgar Filing: AMC Networks Inc.

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



þ	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2019



¨	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File Number: 1-35106

AMC Networks Inc.

(Exact name of registrant as specified in its charter)



Delaware	27-5403694
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

11 Penn Plaza, New York, NY	10001
(Address of principal executive offices)	(Zip Code)

(212) 324-8500

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, par value $0.01 per share	AMCX	The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company (as defined in Exchange Act Rule 12b-2).



Large accelerated filer	þ	Accelerated filer	¨

Non-accelerated filer	¨	Smaller reporting company	¨

		Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ

The number of shares of common stock outstanding as of April 26, 2019:



Class A Common Stock par value $0.01 per share	45,326,464
Class B Common Stock par value $0.01 per share	11,484,408

AMC NETWORKS INC. AND SUBSIDIARIES

FORM 10-Q

TABLE OF CONTENTS



	Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets	1
Condensed Consolidated Statements of Income	2
Condensed Consolidated Statements of Comprehensive Income	3
Condensed Consolidated Statements of Stockholders' Equity	4
Condensed Consolidated Statements of Cash Flows	5
Notes to Condensed Consolidated Financial Statements	6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3. Quantitative and Qualitative Disclosures About Market Risk	42
Item 4. Controls and Procedures	43
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	44
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	44
Item 6. Exhibits	44
SIGNATURES	45

PART I. FINANCIAL INFORMATION


Item 1.	Financial Statements.

AMC NETWORKS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

(unaudited)



	March 31, 2019			December 31, 2018
ASSETS
Current Assets:
Cash and cash equivalents	$	683,682		$	554,886
Accounts receivable, trade (less allowance for doubtful accounts of $9,267 and $10,788)	829,704			835,977
Current portion of program rights, net	433,862			440,739
Prepaid expenses and other current assets	157,972			131,809
Total current assets	2,105,220			1,963,411
Property and equipment, net of accumulated depreciation of $308,699 and $293,918	251,841			246,262
Program rights, net	1,154,265			1,214,051
Deferred carriage fees, net	14,871			16,831
Intangible assets, net	569,527			578,907
Goodwill	797,793			798,037
Deferred tax asset, net	19,927			19,272
Operating lease right-of-use asset	174,563			—
Other assets	433,907			441,792
Total assets	$	5,521,914		$	5,278,563
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable	$	107,392		$	107,066
Accrued liabilities	249,950			264,918
Current portion of program rights obligations	321,914			343,589
Deferred revenue	51,261			55,424
Current portion of long-term debt	30,125			21,334
Current portion of lease obligations	31,341			5,090
Total current liabilities	791,983			797,421
Program rights obligations	342,173			373,249
Long-term debt	3,080,800			3,088,221
Lease obligations	224,684			21,427
Deferred tax liability, net	137,567			145,443
Other liabilities	160,368			208,036
Total liabilities	4,737,575			4,633,797
Commitments and contingencies
Redeemable noncontrolling interests	299,802			299,558
Stockholders' equity:
Class A Common Stock, $0.01 par value, 360,000 shares authorized, 63,851 and 63,255 shares issued and 45,326 and 44,749 shares outstanding, respectively	634			633
Class B Common Stock, $0.01 par value, 90,000 shares authorized, 11,484 shares issued and outstanding	115			115
Preferred stock, $0.01 par value, 45,000 shares authorized; none issued	—			—
Paid-in capital	242,322			239,767
Accumulated earnings	1,372,339			1,228,942
Treasury stock, at cost (18,525 and 18,507 shares Class A Common Stock, respectively)	(993,574		)	(992,583		)
Accumulated other comprehensive loss	(166,446		)	(160,194		)
Total AMC Networks stockholders' equity	455,390			316,680
Non-redeemable noncontrolling interests	29,147			28,528
Total stockholders' equity	484,537			345,208
Total liabilities and stockholders' equity	$	5,521,914		$	5,278,563

See accompanying notes to condensed consolidated financial statements.

AMC NETWORKS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

(unaudited)



	Three Months Ended March 31,
	2019			2018
Revenues, net	$	784,221		$	740,823
Operating expenses:
Technical and operating (excluding depreciation and amortization)	340,148			320,365
Selling, general and administrative	172,512			166,449
Depreciation and amortization	24,056			20,354
Restructuring expense	2,642			—
Total operating expenses	539,358			507,168
Operating income	244,863			233,655
Other income (expense):
Interest expense	(39,645		)	(38,205		)
Interest income	4,200			5,019
Miscellaneous, net	(12,785		)	16,946
Total other income (expense)	(48,230		)	(16,240		)
Income from operations before income taxes	196,633			217,415
Income tax expense	(46,476		)	(56,879		)
Net income including noncontrolling interests	150,157			160,536
Net income attributable to noncontrolling interests	(6,760		)	(3,666		)
Net income attributable to AMC Networks' stockholders	$	143,397		$	156,870

Net income per share attributable to AMC Networks' stockholders:
Basic	$	2.53		$	2.57
Diluted	$	2.48		$	2.54

Weighted average common shares:
Basic	56,588			60,967
Diluted	57,725			61,719

See accompanying notes to condensed consolidated financial statements.

AMC NETWORKS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)



	Three Months Ended March 31,
	2019			2018
Net income including noncontrolling interests	$	150,157		$	160,536
Other comprehensive income (loss):
Foreign currency translation adjustment	(5,762		)	18,805
Unrealized loss on interest rate swaps	(639		)	—
Other comprehensive income, before income taxes	(6,401		)	18,805
Income tax expense	149			—
Other comprehensive income, net of income taxes	(6,252		)	18,805
Comprehensive income	143,905			179,341
Comprehensive income attributable to noncontrolling interests	(6,722		)	(4,563		)
Comprehensive income attributable to AMC Networks' stockholders	$	137,183		$	174,778

See accompanying notes to condensed consolidated financial statements.

AMC NETWORKS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in thousands)

(unaudited)



	Class A Common Stock		Class B Common Stock		Paid-in Capital			Accumulated Earnings		Treasury Stock			Accumulated Other Comprehensive Loss			AMC Networks Stockholders’ Equity			Noncontrolling Interests			Total Stockholders' Equity
Balance, December 31, 2018	$	633	$	115	$	239,767		$	1,228,942	$	(992,583	)	$	(160,194	)	$	316,680		$	28,528		$	345,208
Net income attributable to AMC Networks’ stockholders	—		—		—			143,397		—			—			143,397			—			143,397
Net income attributable to non-redeemable noncontrolling interests	—		—		—			—		—			—			—			942			942
Distributions to noncontrolling member	—		—		—			—		—			—			—			(361		)	(361		)
Settlement of treasury stock	—		—		985			—		—			—			985			—			985
Other comprehensive income	—		—		—			—		—			(6,252		)	(6,252		)	38			(6,214		)
Share-based compensation expense	—		—		19,899			—		—			—			19,899			—			19,899
Proceeds from the exercise of stock options	—		—		4,630			—		—			—			4,630			—			4,630
Treasury stock acquired	—		—		—			—		(991		)	—			(991		)	—			(991		)
Restricted stock units converted to shares	1		—		(22,959		)	—		—			—			(22,958		)	—			(22,958		)
Balance, March 31, 2019	$	634	$	115	$	242,322		$	1,372,339	$	(993,574	)	$	(166,446	)	$	455,390		$	29,147		$	484,537



	Class A Common Stock		Class B Common Stock		Paid-in Capital			Accumulated Earnings		Treasury Stock			Accumulated Other Comprehensive Loss			AMC Networks Stockholders’ Equity			Noncontrolling Interests		Total Stockholders' Equity
Balance, December 31, 2017	$	627	$	115	$	191,303		$	766,725	$	(709,440	)	$	(114,386	)	$	134,944		$	29,001	$	163,945
Net income attributable to AMC Networks’ stockholders	—		—		—			156,870		—			—			156,870			—		156,870
Net income attributable to non-redeemable noncontrolling interests	—		—		—			—		—			—			—			469		469
Cumulative effects of adoption of accounting standards	—		—		—			12,784					—			12,784			—		12,784
Treasury stock not yet settled	—		—		(9,980		)	—		—			—			(9,980		)	—		(9,980		)
Settlement of treasury stock	—		—		995			—		—			—			995			—		995
Other comprehensive income	—		—		—			—		—			18,804			18,804			897		19,701
Share-based compensation expense	—		—		15,319			—		—			—			15,319			—		15,319
Treasury stock acquired	—		—		—			—		(83,637		)	—			(83,637		)	—		(83,637		)
Restricted stock units converted to shares	4		—		(15,359		)	—		—			—			(15,355		)	—		(15,355		)
Balance, March 31, 2018	$	631	$	115	$	182,278		$	936,379	$	(793,077	)	$	(95,582	)	$	230,744		$	30,367	$	261,111

See accompanying notes to consolidated financial statements.

AMC NETWORKS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)



	Three Months Ended March 31,
	2019			2018
Cash flows from operating activities:
Net income including noncontrolling interests	$	150,157		$	160,536
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization	24,056			20,354
Share-based compensation expense related to equity classified awards	19,899			15,319
Non-cash restructuring charges	1,171			—
Amortization and write-off of program rights	205,275			218,626
Amortization of deferred carriage fees	2,710			4,401
Unrealized foreign currency transaction gain	(4,501		)	(4,582		)
Unrealized gain on derivative contracts, net	—			(13,984		)
Amortization of deferred financing costs and discounts on indebtedness	1,954			1,881
Bad debt expense	2,353			914
Deferred income taxes	(8,858		)	31,800
Write-down of non-marketable equity securities and note receivable	17,741			—
Other, net	1,142			(2,348		)
Changes in assets and liabilities:
Accounts receivable, trade (including amounts due from related parties, net)	(1,429		)	(17,877		)
Prepaid expenses and other assets	(26,233		)	(5,512		)
Program rights and obligations, net	(190,651		)	(248,642		)
Income taxes payable	40,114			15,723
Deferred revenue	(4,200		)	4,980
Deferred carriage fees, net	(422		)	(1,610		)
Accounts payable, accrued liabilities and other liabilities	(58,591		)	(63,007		)
Net cash provided by operating activities	171,687			116,972
Cash flows from investing activities:
Capital expenditures	(22,053		)	(11,942		)
Return of capital from investees	3,908			172
Investment in and loans to investees	—			(42,318		)
Net cash used in investing activities	(18,145		)	(54,088		)
Cash flows from financing activities:
Proceeds from the issuance of long-term debt	2,521			—
Principal payments on long-term debt	(3,238		)	—
Deemed repurchases of restricted stock units	(22,959		)	(15,354		)
Purchase of treasury stock	(991		)	(83,637		)
Proceeds from stock option exercises	4,630			—
Principal payments on finance lease obligations	(1,309		)	(1,406		)
Distributions to noncontrolling interests	(5,629		)	(1,435		)
Net cash used in financing activities	(26,975		)	(101,832		)
Net increase (decrease) in cash and cash equivalents from operations	126,567			(38,948		)
Effect of exchange rate changes on cash and cash equivalents	2,229			9,365
Cash and cash equivalents at beginning of period	554,886			558,783
Cash and cash equivalents at end of period	$	683,682		$	529,200

See accompanying notes to condensed consolidated financial statements.

AMC NETWORKS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1. Description of Business and Basis of Presentation

Description of Business

AMC Networks Inc. ("AMC Networks") and its subsidiaries (collectively referred to as the "Company") own and operate entertainment businesses and assets. The Company is comprised of two operating segments:

•

National Networks: Includes activities of our five national programming networks, AMC Studios operations and AMC Broadcasting & Technology. Our national programming networks are AMC, WE tv, BBC AMERICA, IFC and SundanceTV in the U.S.; and AMC and IFC in Canada. Our AMC Studios operations produces original programming for our programming networks and also licenses such program rights worldwide. AMC Networks Broadcasting & Technology is our technical services business, which primarily services most of the national programming networks.

•

International and Other: Principally includes AMC Networks International (AMCNI), the Company's international programming businesses consisting of a portfolio of channels around the world; IFC Films, the Company's independent film distribution business; Levity Entertainment Group LLC ("Levity"), acquired April 20, 2018, our production services and comedy venues company; RLJ Entertainment Inc. ("RLJE"), acquired October 1, 2018, a content distribution company that also includes the subscription streaming services Acorn TV and Urban Movie Channel ("UMC") and our subscription streaming services, Sundance Now and Shudder.

Basis of Presentation

Principles of Consolidation

The consolidated financial statements include the accounts of AMC Networks and its subsidiaries in which a controlling voting interest is maintained or variable interest entities ("VIEs") in which the Company has determined it is the primary beneficiary. All intercompany transactions and balances have been eliminated in consolidation.

Investments in business entities in which the Company lacks control but does have the ability to exercise significant influence over operating and financial policies are accounted for using the equity method of accounting.

Unaudited Interim Financial Statements

These condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and Article 10 of Regulation S-X of the Securities and Exchange Commission ("SEC"), and should be read in conjunction with the Company's consolidated financial statements and notes thereto for the year ended December 31, 2018 contained in the Company's Annual Report on Form 10-K ("2018 Form 10-K") filed with the SEC. The condensed consolidated financial statements presented in this Quarterly Report on Form 10-Q are unaudited; however, in the opinion of management, such financial statements reflect all adjustments, consisting solely of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods presented.

The results of operations for interim periods are not necessarily indicative of the results that might be expected for future interim periods or for the full year ending December 31, 2019.

Program Rights

The Company periodically reviews the programming usefulness of its licensed and owned original program rights based on a series of factors, including expected future revenue generation from airings on the Company's networks and other exploitation opportunities, ratings, type and quality of program material, standards and practices, and fitness for exhibition through various forms of distribution. If it is determined that film or other program rights have limited, or no, future programming usefulness, a write-off of the unamortized cost is included in technical and operating expense. Program rights write-offs were $3.3 million and $5.2 million for the three months ended March 31, 2019 and March 31, 2018, respectively.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements; and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. Significant estimates and judgments inherent in the preparation of the consolidated financial statements include the useful lives and methodologies used to amortize and assess recoverability of program rights, the estimated useful lives of intangible assets and the valuation and recoverability of goodwill and intangible assets.

AMC NETWORKS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(unaudited)

Adoption of New Lease Standard

The Company adopted ASU No. 2016-02, Leases (Topic 842) on January 1, 2019, using the modified retrospective approach and effective date method. In addition, the Company elected the package of practical expedients, permitted under the transition guidance within the new standard, which among other things, allowed for the carry forward of the historical classification of leases. The adoption of the new standard resulted in additional net lease assets of $180.0 million (which is net of the historical deferred rent liability balance of $57.0 million) and lease liabilities of $237.0 million, respectively, as of January 1, 2019. The new standard did not materially impact our consolidated net income or cash flows. See Note 10 for further discussion regarding leases.

Recently Issued Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board ("FASB") issued ASU No. 2018-13, Fair Value Measurement (Topic 820). ASU 2018-13 changes the disclosure requirements for fair value measurements and is effective for the first quarter of 2020, with early adoption permitted. ASU 2018-13 changes disclosure requirements related to transfers between Level I and II assets, as well as several aspects surrounding the valuation process and unrealized gains and losses related to Level III assets. The Company is currently evaluating the impact the adoption of the modified disclosure requirements will have on its consolidated financial statements.

In March 2019, the FASB issued ASU No. 2019-02, Improvements to Accounting for Costs of Films and License Agreements for Program Materials. ASU 2019-02 aligns the accounting for production costs of episodic television series with the accounting for production costs of films. It also requires an entity to test a film or license agreement within the scope of Subtopic 920-350 for impairment at the film group level, when the film or license agreement is predominantly monetized with other films and/or license agreements. The changes in this standard are effective for the first quarter of 2020, with early adoption permitted. The Company is currently evaluating the impact the adoption of the prospective disclosure requirements will have on its consolidated financial statements.

Note 2. Revenue Recognition

Transaction Price Allocated to Future Performance Obligations

As of March 31, 2019, other than contracts for which the Company has applied the practical expedients, the aggregate amount of transaction price allocated to remaining performance obligations was not material to our consolidated revenues.

Contract Balances from Contracts with Customers

The following table provides information about receivables, contract assets, and contract liabilities from contracts with customers.



(In thousands)	March 31, 2019		December 31, 2018
Balances from contracts with customers:
Accounts receivable (including long-term, included in Other assets)	$	1,029,236	$	1,018,105
Contract assets, short-term (included in Other current assets)	14,616		9,131
Contract assets, long-term (included in Other assets)	8,696		8,136
Contract liabilities (Deferred revenue)	51,261		55,424

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

AMC NETWORKS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(unaudited)

Note 3. Net Income per Share

The following is a reconciliation between basic and diluted weighted average shares outstanding:



(In thousands)	Three Months Ended March 31,
(In thousands)	2019	2018
Basic weighted average common shares outstanding	56,588	60,967
Effect of dilution:
Stock options	33	—
Restricted stock units	1,104	752
Diluted weighted average common shares outstanding	57,725	61,719

Approximately 1.5 million and 0.2 million restricted stock units outstanding as of March 31, 2019 and March 31, 2018, respectively, have been excluded from diluted weighted average common shares outstanding since a performance condition for these awards was not met in each of the respective periods. For the three months ended March 31, 2018, there were 0.4 million stock options and 0.2 million restricted stock units that would have been anti-dilutive to the diluted weighted average common shares outstanding.

Stock Repurchase Program

The Company's Board of Directors has authorized a program to repurchase up to $1.5 billion of its outstanding shares of common stock (the "Stock Repurchase Program"). The Stock Repurchase Program has no pre-established closing date and may be suspended or discontinued at any time. For the three months ended March 31, 2019, the Company repurchased 18 thousand shares of its Class A Common Stock at an average purchase price of approximately $53.82 per share. As of March 31, 2019, the Company has $558.4 million available for repurchase under the Stock Repurchase Program.

Note 4. Restructuring

During 2018, management commenced a restructuring initiative designed to reduce the cost structure of the Company. The restructuring was intended to improve organizational design of the Company through the elimination of certain roles, a reduction in the grade of certain roles, an increase in the span of responsibilities of certain senior managers, and the realignment of certain senior leaders to new or additional responsibilities.

Restructuring expense of $2.6 million for the three months ended March 31, 2019 primarily related to charges incurred at AMCNI for costs associated with the termination of distribution in certain territories.

The following table summarizes the accrued restructuring costs:



(In thousands)	Severance and employee-related costs			Other exit costs			Total
Balance at December 31, 2018	$	33,774		$	1,415		$	35,189
Charges	1,075			1,567			2,642
Cash payments	(17,089		)	(333		)	(17,422		)
Non-cash adjustments	(737		)	(2,577		)	(3,314		)
Currency translation	45			36			81
Balance at March 31, 2019	$	17,068		$	108		$	17,176

Accrued restructuring costs of $11.7 million are included in accrued liabilities and $5.4 million are included in other liabilities (long-term) in the consolidated balance sheet at March 31, 2019.

Note 5. Business Combinations

RLJ Entertainment

In October 2018, the Company acquired a controlling interest in RLJE, a premium subscription streaming services company that operates Acorn TV and UMC. Acorn TV features high-quality British and International mysteries and dramas. UMC showcases quality urban programming including feature films, documentaries, original series, stand-up comedy and other exclusive content

AMC NETWORKS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(unaudited)

for African-American and urban audiences. In addition, RLJE owns a majority interest in Agatha Christie Ltd., a popular world-class franchise.

RLJE also controls, co-produces, and either owns or has long-term distribution rights to a large library of content primarily consisting of British mysteries and dramas, independent feature films and urban content. In addition to supporting its streaming services, the company monetizes its library through distribution operations across virtually all available media platforms and is distributed in the United States, Canada, U.K. and Australia.

The Company accounted for the acquisition of RLJE using the acquisition method of accounting. The acquisition method of accounting requires, among other things, that the assets acquired and liabilities assumed in a business combination be measured at their estimated respective fair values as of the closing date of the acquisition. Goodwill recognized in connection with this transaction represents primarily the potential economic benefits that the Company believes may arise from the acquisition. The goodwill associated with the RLJE acquisition is generally not deductible for tax purposes.

The acquisition accounting for RLJE as reflected in these consolidated financial statements is preliminary and based on current estimates and currently available information, and is subject to revision based on final determinations of fair value and final allocations of purchase price to the identifiable assets and liabilities acquired. The primary estimated fair values that are not yet finalized relate to the valuation of intangible assets, other assets, current and noncurrent liabilities, and redeemable noncontrolling interests.

The following table summarizes the preliminary valuation of the tangible and identifiable intangible assets acquired and liabilities assumed as of October 1, 2018, the date the Company obtained a controlling interest (in thousands).



Fair value of equity consideration transferred	$	41,513
Fair value of previously held equity interest	130,890
Fair value of redeemable noncontrolling interest	103,359
	$	275,762
Allocation to net assets acquired:
Cash	3,360
Accounts receivable	16,316
Prepaid expenses and other current assets	963
Programming rights	69,775
Property and equipment	2,841
Other assets (equity method investments)	36,700
Intangible assets	126,600
Accounts payable	(12,008		)
Accrued liabilities	(41,501		)
Debt	(25,187		)
	177,859
Goodwill	97,903
	$	275,762

Levity Entertainment Group LLC

On April 20, 2018, the Company acquired a 57% controlling interest in Levity, a production services and comedy venues company, for a total purchase price of $48.4 million. The purchase price consisted of a $35.0 million payment for the outstanding Class B Common Units of Levity and the acquisition of Series L Preferred Units for $13.4 million. The Company has entered into arrangements with the noncontrolling members related to the governance of Levity following the acquisition. The Company views this acquisition as complementary to its business and programming content strategy.

The Company accounted for the acquisition of Levity using the acquisition method of accounting. The acquisition method of accounting requires, among other things, that the assets acquired and liabilities assumed in a business combination be measured at their estimated respective fair values as of the closing date of the acquisition. Goodwill recognized in connection with this transaction represents primarily the potential economic benefits that the Company believes may arise from the acquisition. The goodwill associated with the Levity acquisition is generally deductible for tax purposes.

AMC NETWORKS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(unaudited)

The following table summarizes the valuation of the tangible and identifiable intangible assets acquired and liabilities assumed (in thousands).



Cash paid for controlling interest	$	48,350
Redeemable noncontrolling interest	30,573
	$	78,923
Allocation to net assets acquired:
Cash	13,471
Other current assets	17,251
Property and equipment	20,663
Intangible assets	46,413
Other noncurrent assets	3,306
Current liabilities	(23,647		)
Noncurrent liabilities	(21,394		)
Noncontrolling interests acquired	(1,354		)
Fair value of net assets acquired	54,709
Goodwill	24,214
	$	78,923

Unaudited Pro forma financial information

The following unaudited pro forma financial information is based on (i) the historical financial statements of AMC Networks, (ii) the historical financial statements of RLJE and (iii) the historical financial statements of Levity and is intended to provide information about how the acquisitions may have affected the Company's historical consolidated financial statements if they had occurred as of January 1, 2018. The unaudited pro forma information has been prepared for comparative purposes only and includes adjustments for estimated additional depreciation and amortization expense as a result of tangible and identifiable intangible assets acquired. The pro forma information is not necessarily indicative of the results of operations that would have been achieved had the acquisition taken place on the date indicated or that may result in the future.



(In thousands, except per share data)	Pro Forma Financial Information For the Three Months Ended March 31, 2018
(In thousands, except per share data)
Revenues, net	$	799,137
Income from operations before income taxes	$	148,210
Net income per share, basic	$	2.43
Net income per share, diluted	$	2.40

Note 6. Investments

The Company holds several investments and loans in non-consolidated entities which are included in Other assets in the condensed consolidated balance sheet. Equity method investments were $85.8 million at March 31, 2019 and $90.9 million at December 31, 2018.

Marketable Equity Securities

The Company classifies publicly traded investments with readily determinable fair values that are not accounted for under the equity method as marketable equity securities. Marketable equity securities are recorded at cost and adjusted to fair value at each reporting period. The changes in fair value between measurement dates are recorded in realized and unrealized gains (losses) on equity securities, included in Miscellaneous, net in the condensed consolidated statement of income. Investments in marketable equity securities were $1.4 million at March 31, 2019 and $1.2 million at December 31, 2018.

Non-marketable Equity Securities

The Company classifies investments without readily determinable fair values that are not accounted for under the equity method as non-marketable equity securities. The accounting guidance requires non-marketable equity securities to be recorded at

AMC NETWORKS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(unaudited)

cost and adjusted to fair value at each reporting period. However, the guidance allows for a measurement alternative, which is to record the investments at cost, less impairment, if any, and subsequently adjust for observable price changes of identical or similar investments of the same issuer. The Company applies this measurement alternative to its non-marketable equity securities. When an observable event occurs, the Company estimates the fair values of its non-marketable equity securities based on Level 2 inputs that are derived from observable price changes of similar securities adjusted for insignificant differences in rights and obligations. The changes in value are recorded in realized and unrealized gains (losses) on equity securities, included in Miscellaneous, net in the condensed consolidated statement of income.

Investments in non-marketable equity securities were $61.8 million at March 31, 2019 and $71.8 million at December 31, 2018.

For the three months ended March 31, 2019, the Company recognized impairment charges of $17.7 million related to the partial write-down of certain non-marketable equity securities and a note receivable, included in Miscellaneous, net in the condensed consolidated statement of income.

Note 7. Goodwill and Other Intangible Assets

The carrying amount of goodwill, by operating segment is as follows:



(In thousands)	National Networks			International and Other			Total
December 31, 2018	$	238,431		$	559,606		$	798,037
Puchase accounting adjustments	—			(1,748		)	(1,748		)
Amortization of "second component" goodwill	(332		)	—			(332		)
Foreign currency translation	—			1,836			1,836
March 31, 2019	$	238,099		$	559,694		$	797,793

Purchase accounting adjustments relate to the acquisition of RLJE (see Note 5).

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

AMC NETWORKS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(unaudited)

The following tables summarize information relating to the Company's identifiable intangible assets:



(In thousands)	March 31, 2019
(In thousands)	Gross		Accumulated Amortization			Net		Estimated Useful Lives
Amortizable intangible assets:
Affiliate and customer relationships	$	615,628	$	(205,195	)	$	410,433	6 to 25 years
Advertiser relationships	46,282		(18,665		)	27,617		11 years
Trade names	124,453		(19,756		)	104,697		3 to 20 years
Other amortizable intangible assets	13,428		(6,548		)	6,880		5 to 15 years
Total amortizable intangible assets	799,791		(250,164		)	549,627
Indefinite-lived intangible assets:
Trademarks	19,900		—			19,900
Total intangible assets	$	819,691	$	(250,164	)	$	569,527
(In thousands)	December 31, 2018
(In thousands)	Gross		Accumulated Amortization			Net
Amortizable intangible assets:
Affiliate and customer relationships	$	620,771	$	(198,500	)	$	422,271
Advertiser relationships	46,282		(17,613		)	28,669
Trade names	118,772		(17,971		)	100,801
Other amortizable intangible assets	13,643		(6,377		)	7,266
Total amortizable intangible assets	799,468		(240,461		)	559,007
Indefinite-lived intangible assets:
Trademarks	19,900		—			19,900
Total intangible assets	$	819,368	$	(240,461	)	$	578,907

Aggregate amortization expense for amortizable intangible assets for the three months ended March 31, 2019 and 2018 was $10.3 million and $9.3 million, respectively. Estimated aggregate amortization expense for intangible assets subject to amortization for each of the following five years is:



(In thousands)
Years Ending December 31,
2019	$	44,784
2020	47,216
2021	46,422
2022	46,159
2023	46,076

Note 8. Accrued Liabilities

Accrued liabilities consist of the following:



(In thousands)	March 31, 2019		December 31, 2018
Interest	$	40,066	$	30,018
Employee related costs	58,202		100,729
Income taxes payable	41,425		1,527
Other accrued expenses	110,257		132,644
Total accrued liabilities	$	249,950	$	264,918

AMC NETWORKS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(unaudited)

Note 9. Long-term Debt

The Company's long-term debt consists of the following:



(In thousands)	March 31, 2019			December 31, 2018
Senior Secured Credit Facility: ^(a)
Term Loan A Facility	$	750,000		$	750,000
Senior Notes:
4.75% Notes due August 2025	800,000			800,000
5.00% Notes due April 2024	1,000,000			1,000,000
4.75% Notes due December 2022	600,000			600,000
Other debt	2,000			2,584
Total long-term debt	3,152,000			3,152,584
Unamortized discount	(28,010		)	(29,181		)
Unamortized deferred financing costs	(13,065		)	(13,848		)
Long-term debt, net	3,110,925			3,109,555
Current portion of long-term debt	30,125			21,334
Noncurrent portion of long-term debt	$	3,080,800		$	3,088,221


(a)	The Company's $500 million revolving credit facility remains undrawn at March 31, 2019. Total undrawn revolver commitments are available to be drawn for general corporate purposes of the Company.

Note 10. Leases

Certain subsidiaries of the Company lease office space and equipment under long-term non-cancelable lease agreements which expire at various dates through 2034. Leases with an initial term of 12 months or less are not recorded on the balance sheet, instead the lease expense is recorded on a straight-line basis over the lease term. For lease agreements entered into, we combine lease and non-lease components. Some leases include options to extend the lease term or terminate the lease prior to the end of the lease term. The exercise of lease renewal options is at the Company's sole discretion, as such, these options are generally not recognized as part of our right-of-use asset or lease liabilities. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.

The leases generally provide for fixed annual rentals plus certain other costs or credits. Some leases include rental payments based on a percentage of revenue over contractual levels or based on an index or rate. Our lease agreements do not include any material residual value guarantees or material restrictive covenants. We rent or sublease one real estate property to a third party, which constitutes an immaterial portion of our lease portfolio.

AMC NETWORKS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(unaudited)

The following table summarizes the leases included in the consolidated balance sheets as follows:



(In thousands)	Balance Sheet Location	March 31, 2019
Assets
Operating	Operating lease right-of-use asset	$	174,563
Finance	Property and equipment, net	18,502
Total lease assets		$	193,065
Liabilities
Current:
Operating	Current portion of lease obligations	$	26,633
Finance	Current portion of lease obligations	4,708
		$	31,341
Noncurrent:
Operating	Lease obligations	$	204,336
Finance	Lease obligations	20,348
		224,684

Total lease liabilities		$	256,025

As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the lease commencement date. Upon transition to ASC Topic 842, the Company used the incremental borrowing rate on January 1, 2019 for all operating leases that commenced prior to that date.

The following table summarizes the lease costs included in the condensed consolidated statement of income:



(In thousands)	Income Statement Location	March 31, 2019
Operating lease costs	SG&A expenses	$	8,206
Finance lease costs:
Amortization of leased assets	Depreciation and amortization	673
Interest on lease liabilities	Net interest expense	678
Short term lease costs	SG&A expenses	1,590
Variable lease costs	SG&A expenses	308
Total net lease cost		$	11,455

The following table summarizes the maturity of lease liabilities for operating and finance leases:



(In thousands)	Operating Leases		Finance Leases		Total
2019	$	27,419	$	5,627	$	33,046
2020	35,909		5,862		41,771
2021	31,248		4,388		35,636
2022	33,309		4,414		37,723
2023	33,766		4,441		38,207
Thereafter	118,885		9,673		128,558
Total lease payments	280,536		34,405		314,941
Less: Interest	49,568		9,348		58,916
Present value of lease liabilities	$	230,968	$	25,057	$	256,025

AMC NETWORKS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(unaudited)

The following table summarizes the weighted average remaining lease term and discount rate for operating and finance leases:



	March 31, 2019
Weighted average remaining lease term (years):
Operating leases	8.31
Finance leases	6.08
Weighted average discount rate:
Operating leases	4.75	%
Finance leases	10.21	%

The following table summarizes the supplemental cash paid for amounts in the measurement of lease liabilities:



	March 31, 2019
Operating cash flows from operating leases	$	8,240
Financing cash flows from finance leases	$	1,309

Note 11. Fair Value Measurement

The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity's pricing based upon their own market assumptions. The fair value hierarchy consists of the following three levels:


•	Level I - Quoted prices for identical instruments in active markets.


•	Level II - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.


•	Level III - Instruments whose significant value drivers are unobservable.

AMC NETWORKS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(unaudited)

The following table presents for each of these hierarchy levels, the Company's financial assets and liabilities that are measured at fair value on a recurring basis at March 31, 2019 and December 31, 2018:



(In thousands)	Level I		Level II		Level III		Total
At March 31, 2019:
Assets
Cash equivalents	$	120,119	$	—	$	—	$	120,119
Marketable securities	1,405		—		—		1,405
Foreign currency derivatives	—		2,957		—		2,957
Liabilities
Interest rate swap contracts	$	—	$	995	$	—	$	995
Foreign currency derivatives	—		$	2,247	$	—	2,247
At December 31, 2018:
Assets
Cash equivalents	$	68,498	$	—	$	—	$	68,498
Marketable securities	1,173		—		—		1,173
Foreign currency derivatives	—		3,509		—		3,509
Liabilities
Interest rate swap contracts	$	—	$	356	$	<