AMC NETWORKS INC. FORM 10-K (Annual Report) Filed 02/26/15 for the Period Ending 12/31/14 Address 11 PENN PLAZA NEW YORK, NY 10001 Telephone (212) 324-8500 CIK 0001514991 Symbol AMCX SIC Code 4841 - Cable and Other Pay Television Services Industry Broadcasting & Cable TV Sector Services Fiscal Year 12/31 http://www.edgar-online.com © Copyright 2015, EDGAR Online, Inc. All Rights Reserved. Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use. UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) (cid:1) Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2014 or (cid:3) 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 (I.R.S. Employer incorporation or organization) 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 Name of each exchange on which registered Class A Common Stock, par value $0.01 per share The NASDAQ Stock Market LLC Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:1) No (cid:3) Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes (cid:3) No (cid:1) 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 (cid:1) No (cid:3) Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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 (cid:1) No (cid:3) Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (cid:1) 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). Large accelerated filer (cid:1) Accelerated filer (cid:3) Non-accelerated filer (cid:3) Smaller reporting company (cid:3) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes (cid:3) No (cid:1) The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant, computed by reference to the closing price of a share of common stock on June 30, 2014 (the last business day of the registrant’s most recently completed second fiscal quarter) was approximately $3,674,000,000 . The number of shares of common stock outstanding as of February 13, 2015 : Class A Common Stock par value $0.01 per share 60,553,173 Class B Common Stock par value $0.01 per share 11,484,408 DOCUMENTS INCORPORATED BY REFERENCE: Certain information required in Item 10 through Item 14 of Part III of this Annual Report on Form 10-K is incorporated herein by reference to the Registrant’s definitive Proxy Statement for its 2015 Annual Meeting of Stockholders, which shall be filed with the Securities and Exchange Commission pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended, within 120 days of the Registrant’s fiscal year end. TABLE OF CONTENTS Page Forward-Looking Statements 4 Part I Item 1. Business 5 Item 1A. Risk Factors 16 Item 1B. Unresolved Staff Comments 26 Item 2. Properties 26 Item 3. Legal Proceedings 26 Item 4. Mine Safety Disclosures 26 Part II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 27 Item 6. Selected Financial Data 29 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 31 Item 7A. Quantitative and Qualitative Disclosure About Market Risk 57 Item 8. Financial Statements and Supplementary Data 58 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 58 Item 9A. Controls and Procedures 59 Item 9B. Other Information 59 Part III Item 10. Directors, Executive Officers and Corporate Governance 59 Item 11. Executive Compensation 60 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 60 Item 13. Certain Relationships and Related Transactions, and Director Independence 60 Item 14. Principal Accounting Fees and Services 60 Part IV Item 15. Exhibits, Financial Statement Schedules 61 SIGNATURES 65 3 Forward-Looking Statements This Annual Report on Form 10-K contains statements that constitute forward-looking information within the meaning of the Private Securities Litigation Reform Act of 1995. In this Annual Report on Form 10-K there are statements concerning our future operating results and future financial performance. Words such as “expects,” “anticipates,” “believes,” “estimates,” “may,” “will,” “should,” “could,” “potential,” “continue,” “intends,” “plans” and similar words and terms used in the discussion of future operating results and future financial performance identify forward-looking statements. You are cautioned that any such forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties and that actual results or developments may differ materially from the forward-looking statements as a result of various factors. Factors that may cause such differences to occur include, but are not limited to: • the level of our revenues; • market demand for our programming networks and our programming; • demand for advertising inventory; • the demand for our programming among cable and other multichannel video programming distributors and our ability to maintain and renew affiliation agreements with multichannel video programming distributors; • the cost of, and our ability to obtain or produce, desirable programming content for our networks and independent film distribution businesses; • market demand for our services internationally and for our independent film distribution business, and our ability to profitably provide those services; • the security of our program rights and other electronic data; • the loss of any of our key personnel and artistic talent; • the highly competitive nature of the cable programming industry; • changes in both domestic and foreign laws or regulations under which we operate; • economic and business conditions and industry trends in the countries in which we operate; • fluctuations in currency exchange rates and interest rates; • changes in laws or treaties relating to taxation, or the interpretation thereof, in the U.S. or in the countries in which we operate; • our substantial debt and high leverage; • reduced access to capital markets or significant increases in costs to borrow; • the level of our expenses; • the level of our capital expenditures; • future acquisitions and dispositions of assets; • our ability to successfully acquire new businesses and, if acquired, to integrate, and implement our plan with respect to businesses we acquire; • problems we may discover post-closing with the operations, including the internal controls and financial reporting process, of businesses we acquire; • changes in the nature of key strategic relationships with partners and joint ventures; • the outcome of litigation and other proceedings; • whether pending uncompleted transactions, if any, are completed on the terms and at the times set forth (if at all); • other risks and uncertainties inherent in our programming businesses; • financial community and rating agency perceptions of our business, operations, financial condition and the industry in which we operate, and the additional factors described herein; • events that are outside our control, such as political unrest in international markets, terrorist attacks, natural disasters and other similar events; and • the factors described under Item 1A, “Risk Factors” in this Annual Report. We disclaim any obligation to update or revise the forward-looking statements contained herein, except as otherwise required by applicable federal securities laws. 4 Part I Item 1. Business. General AMC Networks Inc. is a Delaware corporation with our principal executive offices at 11 Penn Plaza, New York, NY 10001. AMC Networks Inc. is a holding company and conducts substantially all of its operations through its majority owned or controlled subsidiaries. Unless the context otherwise requires, all references to “we,” “our,” “us,” “AMC Networks” or the “Company” refer to AMC Networks Inc., together with its direct and indirect subsidiaries. “AMC Networks Inc.” refers to AMC Networks Inc. individually as a separate entity. Our telephone number is (212) 324-8500. Our corporate website is http://www.amcnetworks.com and the investor relations section of our website is located at http://investor.amcnetworks.com. We make available, free of charge through the investor relations section of our website, our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as well as our proxy statements, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (“SEC”). References to our website in this Annual Report on Form 10-K (this “Annual Report”) are provided as a convenience and the information contained on, or available through, the website is not part of this or any other report we file with or furnish to the SEC. AMC Networks Inc. was incorporated on March 9, 2011 as an indirect, wholly-owned subsidiary of Cablevision Systems Corporation (Cablevision Systems Corporation and its subsidiaries are referred to as “Cablevision”). On June 30, 2011, Cablevision spun off the Company (the “Distribution”), and the Company became an independent public company. In connection with the Distribution, Cablevision contributed all of the membership interests of Rainbow Media Holdings LLC (“RMH”) to the Company. RMH owned, directly or indirectly, the businesses included in Cablevision’s Rainbow Media segment. Both Cablevision and AMC Networks continue to be controlled by Charles F. Dolan, certain members of his immediate family and certain family-related entities (collectively the “Dolan Family”). Our Company AMC Networks owns and operates several of cable television’s most recognized brands, delivering high quality content to audiences and a valuable platform to distributors and advertisers. Since our founding in 1980, we have been a pioneer in the cable television programming industry, having created or developed some of the industry’s leading programming networks, with a focus on programming of film and original productions. AMC, which was created in 1984, features original programming that includes critically-acclaimed original scripted dramatic series such as Mad Men , Breaking Bad, Hell on Wheels, TURN: Washington's Spies, Halt and Catch Fire and The Walking Dead , which, in 2014, set a series record of 17.3 million viewers (live/same day) with the broadcast of the season five premiere. Our dedication to quality programming and storytelling also led to the creation of The Independent Film Channel (today known as IFC) in 1994 and WE tv (which we launched as Romance Classics in 1997), as well as our acquisition of SundanceTV (formerly known as Sundance Channel) in 2008. In January 2014, we expanded our global business with the acquisition of Chellomedia from Liberty Global plc. The acquisition provides AMC Networks with television channels that are distributed to more than 390 million subscribers in over 130 countries and span a wide range of programming genres, most notably movie and entertainment networks. In October 2014, we entered into a joint-venture agreement with BBC Worldwide Americas, Inc., the commercial arm of the British Broadcasting Corporation, acquiring a 49.9% interest in the cable channel BBC AMERICA, home of drama series Doctor Who and Orphan Black . The results of Chellomedia and BBC America are consolidated in the financial results of AMC Networks since their respective acquisition dates. Segments We manage our business through the following two operating segments: • National Networks: Principally includes five nationally distributed programming networks: AMC, WE tv, BBC AMERICA, IFC, and SundanceTV. These programming networks are distributed throughout the United States (“U.S.”) via cable and other multichannel video programming distribution platforms, including direct broadcast satellite (“DBS”) and platforms operated by telecommunications providers (we refer collectively to these cable and other multichannel video programming distributors as “multichannel video programming distributors” or “distributors”). AMC, IFC, and SundanceTV are also distributed in Canada. The National Networks operating segment also includes AMC Networks Broadcasting & Technology, the National Networks' technical services business, which primarily services most of the nationally distributed programming networks of the Company. • International and Other: Principally includes AMC Networks International (formerly Chellomedia and AMC/Sundance Channel Global), 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; AMC Networks International - DMC (formerly Chello DMC), the broadcast 5 solutions unit of certain networks of AMC Networks International and third party networks; and various developing on-line content distribution initiatives. During 2014, the manner in which our President and Chief Executive Officer, who is the chief operating decision maker, evaluates performance and makes decisions about how to allocate resources changed, resulting in the reorganization of the Company's operating segments. As indicated above, the National Networks operating segment now includes the results of AMC and Sundance Channel in Canada and AMC Networks Broadcasting & Technology. Prior to 2014, the results of these operations were included in the International and Other operating segment. Operating segment information for prior periods has been recast to reflect these changes. We earn revenue principally from the distribution of our programming and the sale of advertising. Distribution revenues primarily include affiliation fees paid by distributors to carry our programming networks and the licensing of original programming for digital, foreign and home video distribution. In 2014, distribution revenues and advertising sales accounted for 62% and 38% of our consolidated revenues, net, respectively. No customer accounted for more than 10% of consolidated revenues, net for the year ended December 31, 2014. For financial information of the Company by operating segment, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Consolidated Results of Operations” and Note 22 to the accompanying consolidated financial statements. Our Strengths Our strengths include: Strong Industry Presence and Portfolio of Brands. We have operated in the cable programming industry for more than 30 years, and, over this time, we have continually enhanced the value of our network portfolio. Our programming network brands are well known and well regarded by our key constituents—our viewers, distributors and advertisers—and have developed strong followings within their respective targeted demographics, increasing our value to distributors and advertisers. AMC (which targets adults aged 18 to 49 and 25 to 54), WE tv (which targets women aged 18 to 49 and 25 to 54), BBC AMERICA (which targets adults aged 25 to 54), IFC (which targets adults aged 18 to 49) and SundanceTV (which targets adults aged 25 to 54) have established themselves as important within their respective markets. Our deep and established presence in the industry and the recognition we have received for our brands through industry awards and other honors lend us a high degree of credibility with distributors and content producers, and help provide us with stable affiliate and studio relationships, advantageous channel placements and heightened viewer engagement. Broad Distribution and Penetration of Our National Networks . Our national networks are broadly distributed in the United States. AMC, WE tv, BBC AMERICA, IFC and SundanceTV are each carried by all major multichannel video programming distributors. Our national networks are available to a significant percentage of subscribers in these distributors’ systems. This broad distribution and penetration provides us with a strong national platform on which to maintain, promote and grow our business. Compelling Programming. We continually refine our mix of programming and, in addition to our film content, have increasingly focused on highly-visible, critically-acclaimed original programming, including the award-winning Mad Men , Breaking Bad, Orphan Black, Doctor Who, The Honorable Woman and The Walking Dead , the highest-rated drama series in basic cable history and the number one show on all of television among adults 18-49 in 2014. Other popular series include Top Gear, Broadchurch, TURN: Washington’s Spies, Halt and Catch Fire, Hell on Wheels , Rectify, The Returned, Braxton Family Values , Marriage Boot Camp, SWV Reunited, Mary Mary, Portlandia and Maron . Our focus on quality original programming, targeting specific audiences, has allowed us in recent years to increase our programming networks’ ratings and their viewership within these respective targeted demographics. Recurring Revenue from Affiliation Agreements . Our affiliation agreements with multichannel video programming distributors are a recurring source of revenue. We generally seek to structure these agreements so that they are long-term in nature and to stagger their expiration dates, thereby increasing the predictability and stability of our affiliation fee revenues. Desirable Advertising Platform . Our national networks have a strong connection with each of their respective targeted demographics, which makes our programming networks an attractive platform to advertisers. We have experienced significant growth in our advertising revenues in recent years, which contributes to our ability to develop high-quality original programming. Our Strategy Our strategy is to maintain and improve our position as a leading programming and entertainment company by owning and operating several of the most popular and award-winning brands in cable television that create engagement with audiences globally across multiple media and distribution platforms. The key focuses of our strategy are: 6 Continued Development of High-Quality Original Programming . We intend to continue developing strong original programming across all of our programming networks to enhance our brands, strengthen our relationships with our viewers, distributors and advertisers, and increase distribution and audience ratings. We intend to continue to seek increased distribution of our national networks to grow affiliate and advertising revenues. We believe that our continued investment in original programming supports future growth in distribution and advertising revenue. We also intend to continue to expand the exploitation of our original programming across multiple media and distribution platforms. Increased Global Distribution . We are expanding the distribution of our programming networks around the globe. We first expanded beyond the U.S. market with the launch in Canada of IFC (in 2001) and AMC (in 2006), and Sundance Channel in Europe (in 2010). In 2014, AMC was launched and is now available in over 120 countries, replacing the MGM channel in certain territories. Additionally, Sundance Channel has expanded its distribution to over 70 countries. AMC Networks International's channels are available in over 390 million homes worldwide. Continued Growth of Advertising Revenue . We have a proven track record of significantly increasing revenue by introducing advertising on networks that were previously not advertiser-supported. We first accomplished this in 2002, when we moved AMC and WE tv to an advertiser-supported model, followed by IFC in December 2010, and SundanceTV in September 2013. Prior to September 2013, SundanceTV principally sold sponsorships. We seek to continue to evolve the programming on each of our networks to achieve even stronger viewer engagement within their respective core targeted demographics, thereby increasing the value of our programming to advertisers and allowing us to obtain higher advertising rates. We are continuing to seek additional advertising revenue through higher Nielsen ratings in desirable demographics. Increased Control of Content . We believe that control (including long-term contract arrangements) and ownership of content is becoming increasingly important, and we intend to increase our control position over our programming content. We currently control, own or have long-term license agreements covering significant portions of our content across our programming networks as well as in our independent film distribution business operated by IFC Films. We intend to continue to focus on obtaining the broadest possible control rights (both as to territory and platforms) for our content. Exploitation of Emerging Media Platforms . The technological landscape surrounding the distribution of entertainment content is continuously evolving as new digital platforms emerge. We intend to distribute our content across as many of these new platforms as possible, when it makes business sense to do so, so that our viewers can access our content where, when and how they want it. To that end, our programming networks are allowing many of our distributors to offer our content to subscribers on computers and other digital devices, and on video-on-demand platforms, all of which permit subscribers to access programs at their convenience. We also make our IFC Films library and certain of our other content available on third-party digital platforms such as Netflix and iTunes. In addition to amctv.com, which delivers approximately 5 million unique browsers each month, our networks each host dedicated websites that promote their brands, provide programming information and provide access to content. Key Challenges We face a number of challenges, including: • intense competition in the markets in which we operate; • a limited number of distributors for our programming networks; • unpredictable and volatile viewer preferences; • continuing availability of desirable programming; • regulatory and other risks associated with doing business in international countries and territories; • integration of acquired businesses; and • significant levels of debt and leverage, as a result of the debt financing agreements described under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.” See Item 1A, “Risk Factors” for a discussion of these and other factors that could impact our performance and operating results. National Networks We operate five nationally distributed entertainment programming networks: AMC, WE tv, BBC AMERICA, IFC, and SundanceTV which are available to our distributors in high-definition and/or standard-definition formats. Our programming networks principally generate their revenues from the distribution of programming and the sale of advertising. Affiliation fees paid by multichannel video programming distributors represent the largest component of distribution revenue, which also includes the licensing of original programming for digital, foreign and home video distribution.