AMC Networks Inc. — 2017 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2017. The filing is by AMC Networks Inc.; the request metadata’s company name, AMC Global Media Inc., does not match the registrant named in the filing. The company operates U.S. and international television networks, studios, film distribution, and subscription streaming services.
Financial performance and position
| Metric | 2017 | 2016 |
|---|---|---|
| Revenue | $2.806 billion | $2.756 billion |
| Operating income / margin | $722.4 million / 25.7% | $657.6 million / 23.9% |
| Adjusted operating income (AOI, non-GAAP) | $904.8 million | $878.5 million |
| Net income attributable to AMC Networks shareholders | $471.3 million | $270.5 million |
| Diluted earnings per share | $7.18 | $3.74 |
| Cash from operating activities | $385.7 million | $514.3 million |
| Cash and cash equivalents at year-end | $558.8 million | $481.4 million |
| Long-term debt, net, at year-end | $3.099 billion | $2.819 billion |
- Distribution accounted for 63% of 2017 revenue and advertising for 37%. National Networks generated $2.368 billion of revenue and $894.9 million of AOI; International and Other generated $457.2 million of revenue and $16.2 million of AOI.
- National Networks operating income rose 4.3%; its AOI margin was 37.8%, compared with 37.0% in 2016. Consolidated operating margin improved, while operating costs excluding depreciation and amortization rose 4.8% to $1.341 billion.
- Investing activities used $130.6 million, including $80.0 million of capital expenditures. Financing activities used $204.2 million. Operating cash flow less capital expenditures was approximately $305.7 million.
- The $500 million revolving credit facility was undrawn at year-end. Cash, operating cash generation, and revolver availability were identified as expected sources of liquidity; the company said it did not expect operating cash alone to repay all debt at maturity and would depend on capital-market access to refinance or repay it.
Material changes versus 2016
- Revenue increased 1.8%, as distribution revenue grew 6.6% while advertising revenue declined. National Networks distribution revenue benefited from higher subscription rates and increased content licensing; advertising fell $31.0 million, primarily due to ratings.
- Net income attributable to shareholders increased 74.2%. In addition to higher operating income, results benefited from lower debt-extinguishment losses, a favorable year-over-year change in miscellaneous income (including foreign-exchange and derivative impacts), and a lower effective tax rate.
- Operating cash flow decreased 25.0%, to $385.7 million, while program-rights payments increased to $996.8 million from $973.2 million.
- The International and Other segment remained loss-making at the operating-income level. Its 2017 operating loss narrowed to $88.9 million from $120.9 million, largely because 2016 included a $67.8 million impairment of AMCNI-DMC. AOI for the segment declined to $16.2 million from $28.6 million.
- The company sold AMCNI-DMC in July 2017, recording a $17.1 million impairment charge and an $11.0 million pretax loss on sale. It issued $800 million of 4.75% notes due 2025 and amended its credit facility; year-end debt principal was $3.150 billion.
- 2017 share repurchases totaled 7.8 million Class A shares for $434.2 million in cash, at an average price of $55.74 per share. The company paid no cash dividend and said it did not expect one in the foreseeable future.
Outlook, risks and unusual items
- Management expected increased investment in original programming to continue in 2018, with funding generally occurring six to nine months before airing. It cautioned that advertising, content-licensing revenue, expenses, and AOI can vary materially by quarter. No quantified revenue, earnings, or cash-flow guidance was provided.
- The fourth quarter and full-year tax results were affected by the Tax Cuts and Jobs Act. The company recorded a $67.9 million benefit from the lower corporate tax rate on deferred taxes and an $11.0 million transition-tax expense. The fourth-quarter tax benefit was reported as $56.9 million. The company described tax calculations as provisional and subject to further analysis.
- The company cited audience and ratings uncertainty, including declining ratings for The Walking Dead; traditional pay-TV subscriber declines and changing viewing habits; competition for programming and talent; advertising-market weakness; distributor negotiations; international and currency exposure; cybersecurity and content piracy; and substantial leverage.
- At December 31, the company reported $3.150 billion of debt principal, variable-rate exposure, and debt covenants restricting actions including additional borrowing, dividends, and share repurchases. It reported compliance with its financial covenants. Approximately 83% of debt excluding capital leases was effectively fixed-rate after swaps.
- Litigation over compensation and accounting for The Walking Dead included a Darabont action seeking at least $280 million and a separate action seeking at least $20 million, as well as claims by other series creators. The company denied the claims; outcomes and potential liability were undetermined.
- In February 2018, AMC Networks proposed acquiring the remaining RLJ Entertainment shares for $4.25 per share; the proposal was under review and no transaction was assured. The filing also estimated that the Bipartisan Budget Act of 2018 would reduce current tax liability and net deferred tax assets by approximately $28 million and $19 million, respectively.
Most important facts for investors to verify
- Whether ratings and subscriber trends—particularly for AMC and The Walking Dead—continue to pressure advertising and distribution economics.
- Whether higher original-programming spending produces sustainable licensing revenue and returns, and whether further program-rights write-offs or impairment charges arise.
- Cash conversion and liquidity: operating cash flow fell despite higher net income, while programming payments approached $1.0 billion; assess revolver availability and refinancing needs against debt maturities.
- The final tax effects of the 2017 tax-law changes, including the transition-tax calculation and subsequent adjustments to provisional balances.
- Developments and potential financial exposure from The Walking Dead-related litigation, and the status and terms, if any, of the proposed RLJ Entertainment acquisition.
- The company reported unqualified audit opinions on its financial statements and internal controls; verify subsequent filings for changes in control assessments, covenant compliance, or reported results.