AMC Global Media Inc. (AMCX) FY 2024 MD&A

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Management's discussion and analysis of financial condition and results of operations, or MD&A, is a supplement to and should be read in conjunction with the accompanying consolidated financial statements and related notes. Our MD&A is provided to enhance the understanding of our financial condition, changes in financial condition and results of our operations and is organized as follows:

Business Overview. This section provides a general description of our business and our operating segments, as well as other matters that we believe are important in understanding our results of operations and financial condition and in anticipating future trends.

Consolidated Results of Operations. This section provides an analysis of our results of operations for the years ended December 31, 2024 and 2023. Our discussion is presented on both a consolidated and segment basis. Our two segments are: (i) Domestic Operations and (ii) International. Analysis of our results of operations, on both a consolidated and segment basis, for the year ended December 31, 2022, including a comparison of 2023 to 2022, is included in our Annual Report on Form 10-K for the year ended December 31, 2023.

Liquidity and Capital Resources. This section provides a discussion of our financial condition as of December 31, 2024 as well as an analysis of our cash flows for the years ended December 31, 2024 and 2023. The discussion of our financial condition and liquidity also includes a summary of our primary sources of liquidity. Analysis of our cash flows for the year ended December 31, 2022 is included in our Annual Report on Form 10-K for the year ended December 31, 2023.

Critical Accounting Policies and Estimates. This section provides a discussion of our accounting policies considered to be important to an understanding of our financial condition and results of operations, and which require significant judgment and estimates on the part of management in their application.

Business Overview

Financial Highlights

The tables presented below set forth our consolidated revenues, net, operating income (loss) and adjusted operating income (loss) ("AOI")(1), for the periods indicated.

Percentage changes in the table above deemed "n/m" are not meaningful.

(1) Adjusted Operating Income (Loss), is a non-GAAP financial measure. See the "Non-GAAP Financial Measures" section on page 58 for additional information, including our definition and our use of this non-GAAP financial measure, and for a reconciliation to its most comparable GAAP financial measure.

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Impairment and other charges

Impairment and other charges of $399.5 million for the year ended December 31, 2024 primarily consisted of a $268.7 million goodwill impairment charge in the Domestic Operations reporting unit, $102.0 million of goodwill impairment charges at AMCNI, and $29.2 million of long-lived asset impairment charges at BBCA.

Impairment and other charges of $96.7 million for the year ended December 31, 2023 primarily consisted of $65.4 million of long-lived asset impairment charges at BBCA and 25/7 Media, and $21.7 million of goodwill impairment charges at 25/7 Media.

Restructuring and other related charges

Restructuring and other related charges were $49.5 million for the year ended December 31, 2024, consisting of $44.2 million of content impairments and $5.3 million of severance and employee-related costs. Following the purchase of the remaining interest in BBCA in November 2024, the Company completed a strategic programming assessment and recorded a restructuring charge of $43.2 million pertaining to certain scripted original programming that no longer aligned with the channel's go-forward strategy. The remaining content impairments were recorded in connection with We TV shifting to a reduced originals strategy.

Restructuring and other related charges were $27.8 million for the year ended December 31, 2023, with the majority of such costs related to a restructuring plan (the "Plan") that commenced in November 2022. During the year ended December 31, 2023, the Company completed the Plan and recorded restructuring and other related charges consisting primarily of charges relating to severance and other personnel costs, and its exit during the third quarter of 2023 of a portion of office space at its corporate headquarters in New York and office space in Silver Spring, Maryland and Woodland Hills, California.

25/7 Media sale

On December 29, 2023, the Company sold its remaining interest in 25/7 Media to the noncontrolling interest holders. The results of operations of 25/7 Media are included in the consolidated financial statements through the date of sale.

Segment Reporting

We manage our business through the following two operating segments:

•Domestic Operations: Consists of our five programming networks, our streaming services, our AMC Studios operation and our film distribution business. Our programming networks are AMC, We TV, BBCA, IFC, and SundanceTV. Our streaming services consist of AMC+ and our targeted subscription streaming services (Acorn TV, Shudder, Sundance Now, ALLBLK, and HIDIVE). Our AMC Studios operation produces original programming for our programming services and third parties and also licenses programming worldwide. Our film distribution business includes IFC Films, RLJ Entertainment Films and Shudder. The operating segment also includes AMC Networks Broadcasting & Technology, our technical services business, which primarily services the programming networks.

•International: Consists of AMCNI, our international programming businesses consisting of a portfolio of channels distributed around the world.

In January 2024, we updated the name of our previously titled "International and Other" operating segment to "International" due to the divestiture of the 25/7 Media production services business on December 29, 2023, which was the sole component of the operating segment that comprised “Other.” This update did not constitute a change in segment reporting, but rather an update in name only. Prior period segment information contained in this report for the "International" operating segment includes the results of the 25/7 Media production services business through the date of divestiture.

Domestic Operations

In our Domestic Operations segment, we earn revenue principally from: (i) subscription revenue in connection with the distribution of our programming through our programming networks and streaming services, (ii) the sale of advertising, and (iii) the licensing of our original programming to distributors, including the distribution of programming of IFC Films.

Subscription revenue includes fees paid by distributors and consumers for our programming networks and streaming services. Substantially all of our subscription revenues for our programming networks are based on a per subscriber fee, commonly referred to as "affiliation agreements." The subscription revenues we earn vary from period to period, distributor to distributor and also vary among our programming services, but are generally based on the impact of renewals of affiliation agreements and upon the number of each distributor's subscribers who receive our programming, referred to as viewing subscribers. Subscription fees for our streaming services are typically based on a per subscriber fee and are generally paid by distributors and consumers on a monthly basis. In negotiating for additional subscribers or extended carriage, we have agreed,

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in some instances, to make upfront payments to a distributor which we record as deferred carriage fees and are amortized as a reduction to revenue over the period of the related affiliation agreement. We also may support the distributors' efforts to market our networks. We believe that these transactions generate a positive return on investment over the contract period.

Under affiliation agreements with our distributors, we have the right to sell a specified amount of national advertising time on our programming networks. Our advertising revenues are more variable than subscription revenues because the majority of our advertising is sold on a short-term basis, not under long-term contracts. Our arrangements with advertisers provide for a set number of advertising units to air over a specific period of time at a negotiated price per unit. Additionally, in these advertising sales arrangements, our programming networks generally guarantee specified viewer ratings for their programming. If these guaranteed viewer ratings are not met, we are generally required to provide additional advertising units to the advertiser at no charge. For these types of arrangements, a portion of the related revenue is deferred if the guaranteed ratings are not met and is subsequently recognized either when we provide the required additional advertising time or the guarantee obligation contractually expires. Most of our advertising revenues vary based on the timing of our original programming series and the popularity of our programming as measured by Nielsen. Our national programming networks have advertisers representing companies in a broad range of sectors, including the automotive, restaurants/food, health, technology and telecommunications industries. We seek to increase our advertising revenues by increasing the rates we charge for such advertising, which is directly related to the overall distribution of our programming, penetration of our services on various digital platforms such as AVOD and FAST services, integration of our advanced advertising products, and the popularity (including within desirable demographic groups) of our services as measured by Nielsen.

Content licensing revenue is earned from the licensing of original programming for digital, foreign and home video distribution and is recognized upon availability or distribution by the licensee, and, to a lesser extent, is earned through the distribution of AMC Studios produced series to third parties. Content licensing revenues vary based on the timing of availability of programming to distributors.

We continue to contract for and produce high-quality, attractive programming and remain disciplined in our marketing spend in our efforts to acquire and retain higher lifetime value subscribers. As competition for programming increases and alternative distribution technologies continue to emerge and develop in the industry, costs for content acquisition and original programming have increased. There is a concentration of subscribers in the hands of a few distributors, which could create disparate bargaining power between the largest distributors and us by giving those distributors greater leverage in negotiating the price and other terms of affiliation agreements. We also seek to increase our content licensing revenues by expanding the opportunities for licensing our programming through digital distribution platforms, foreign distribution and home video services.

Content expenses, included in technical and operating expenses, represent the largest expenses of the Domestic Operations segment and primarily consist of amortization of program rights, such as those for original programming, feature films and licensed series, as well as participation and residual costs. The other components of technical and operating expenses primarily include distribution and production related costs and program operating costs including cost of delivery, such as origination, transmission, uplink and encryption.

The success of our business depends on original programming, both scripted and unscripted, across all of our programming services. These original series generally result in higher ratings for our networks and higher viewership on our streaming services. Among other things, higher audience ratings drive increased revenues through higher advertising revenues. The timing of exhibition and distribution of original programming varies from period to period, which results in greater variability in our revenues, earnings and cash flows from operating activities. There may be significant changes in the level of our technical and operating expenses due to the level of our content investment spend and the related amortization of content acquisition and/or original programming costs. Program rights that are predominantly monetized as a group are amortized based on projected usage and viewership patterns, typically resulting in an accelerated amortization pattern and, to a lesser extent, program rights that are predominantly monetized individually are amortized based on the individual-film-forecast-computation method.

Most original series require us to make significant up-front investments. Our programming efforts are not always commercially successful, which has in the past resulted and could in the future result in a write-off of program rights. If events or changes in circumstances indicate that the fair value of program rights predominantly monetized individually or a group is less than its unamortized cost, the Company will write off the excess to technical and operating expenses in the consolidated statements of income (loss). Program rights with no future programming usefulness are substantively abandoned resulting in the write-off of remaining unamortized cost. There were program rights write-offs of $20.0 million and $14.5 million included in technical and operating expense for the years ended December 31, 2024 and 2023, respectively, for programming that was substantively abandoned. For the year ended December 31, 2024, there was also $44.2 million of program write-offs recorded to restructuring and other related charges in connection with the Company's strategic programming assessments.

See "Critical Accounting Policies and Estimates" for a discussion of the amortization and write-off of program rights.

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International

In our International segment, we earn revenue principally from subscription revenue in connection with the international distribution of programming and, to a lesser extent, the sale of advertising from our AMCNI programming networks. Subscription revenue consists of the fees paid by distributors to carry our programming networks. Our subscription revenues are generally based on either a per-subscriber fee or a fixed contractual annual fee, under multi-year affiliation agreements. Subscription revenues are derived from the distribution of our programming networks primarily in Europe, and to a lesser extent, Latin America.

Content expenses, programming operating costs and production costs incurred to produce content for third parties primarily comprise technical and operating expenses. Content expenses represent the largest expense of the International segment and primarily consist of amortization of acquired content. Program operating costs include costs such as origination, transmission, uplink and encryption of our linear AMCNI channels as well as content hosting and delivery costs at our various on-line content distribution initiatives. Other components of technical and operating expense include costs of dubbing and sub-titling of programs. Our programming efforts are not all commercially successful, which has in the past resulted and could in the future result in a write-off of program rights. If events or changes in circumstances indicate that the fair value of program rights predominantly monetized individually or a group is less than its unamortized cost, the Company will write off the excess to technical and operating expenses in the consolidated statements of income (loss). Program rights with no future programming usefulness are substantively abandoned, resulting in the write-off of remaining unamortized cost. There were no material programming write-offs included in technical and operating expense for the years ended December 31, 2024 and 2023.

Similar to our Domestic Operations businesses, the most significant business challenges we expect to encounter in our International business include programming competition (from both foreign and domestic programmers), limited channel capacity on distributors' platforms, the number of subscribers on those platforms and economic pressures on subscription fees. Other significant business challenges unique to our international operations include increased programming costs for international rights and translation (i.e., dubbing and subtitling), a lack of availability of international rights for a portion of our domestic programming content, increased distribution costs for cable, satellite or fiber feeds, a limited physical presence in certain territories, and our exposure to foreign currency exchange rate risk. See also the risk factors described under Item 1A, "Risk Factors - We face risks from doing business internationally." in this Annual Report.

Corporate / Inter-segment Eliminations

Corporate operations primarily consist of executive management and administrative support services, such as executive salaries and benefits costs, costs of maintaining corporate headquarters, facilities and common support functions. The segment financial information set forth below, including the discussion related to individual line items, does not reflect inter-segment eliminations unless specifically indicated.

Impact of Economic Conditions

Our future performance is dependent, to a large extent, on general economic conditions, including the impact of direct competition, our ability to manage our businesses effectively, and our relative strength and leverage in the marketplace, both with suppliers and customers. Additionally, changes in macroeconomic factors and circumstances, particularly high inflation and interest rates, and uncertainty regarding changes to inflation rates and interest rates, may adversely impact our results of operations, cash flows and financial position or our ability to refinance our indebtedness on terms favorable to us, or at all.

Capital and credit market disruptions, as well as other events such as pandemics or other health emergencies, inflation, international conflict and recession, have in the past caused and could in the future cause economic downturns, which have led and may lead to lower demand for our products, such as lower demand for television advertising and a decrease in the number of subscribers receiving our programming services. Events such as these have in the past adversely impacted, and may in the future adversely impact, our results of operations, cash flows and financial position.

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Consolidated Results of Operations

The amounts presented and discussed below represent 100% of each operating segment's revenues, net and expenses. Where we have management control of an entity, we consolidate 100% of such entity in our consolidated statements of income (loss) notwithstanding that a third-party owns an interest, which may be significant, in such entity. The noncontrolling owner's interest in the operating results of consolidated subsidiaries are reflected in net income or loss attributable to noncontrolling interests in our consolidated statements of income (loss).

Years Ended December 31, 2024 and 2023

The following table sets forth our consolidated results of operations for the periods indicated.

Percentage changes in the table above deemed "n/m" are not meaningful.

Revenues

Subscription revenues decreased 4.9% in our Domestic Operations segment primarily due to a decline in affiliate revenues, partially offset by an increase in streaming revenues. Subscription revenues decreased 10.8% in our International segment primarily due to the non-renewal of an AMCNI distribution agreement in the United Kingdom ("U.K.") in the fourth quarter of 2023. We expect the linear subscriber declines to continue, consistent with the declines across the cable ecosystem.

Advertising revenues decreased 11.4% in our Domestic Operations segment primarily due to linear ratings declines and continued lower demand in the entertainment advertising marketplace, partially offset by digital and advanced advertising revenue growth. Advertising revenues increased 41.0% in our International segment primarily due to the recognition of retroactive adjustments reported by a third party of $20.8 million, digital and advanced advertising growth in the U.K. and increased ratings and growth across Central and Northern European advertising markets. We expect advertising revenue to continue to decline as the advertising market gravitates toward other distribution platforms.

Content licensing and other revenues decreased 19.3% in our Domestic Operations segment primarily due to the availability of deliveries in the period. Content licensing and other revenues decreased 87.5% in our International segment due

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to the divestiture of the 25/7 Media production services business on December 29, 2023. In 2023, we recognized $91.5 million of revenue from 25/7 Media. We expect content licensing revenues to vary in 2025 based on the timing and availability of our programming to distributors.

Technical and operating expenses (excluding depreciation and amortization)

The components of technical and operating expenses are primarily content expenses, which include the amortization of program rights, such as those for original programming, feature films and licensed series, and participation and residual costs. Technical and operating expenses also include other direct programming costs, such as, distribution and production related costs and program delivery costs, such as transmission, encryption, hosting, and formatting.

Technical and operating expenses (excluding depreciation and amortization) decreased 11.2% in our Domestic Operations segment primarily due to lower participation and residual costs and the impact in 2023 associated with the delivery of the remaining episodes of Silo, an AMC Studios produced series. Technical and operating expenses (excluding depreciation and amortization) decreased 33.3% in our International segment primarily due to the divestiture of the 25/7 Media production services business on December 29, 2023.

There may be significant changes in the level of our technical and operating expenses due to original programming costs and/or content acquisition costs. As competition for programming increases, costs for content acquisition and original programming are expected to increase.

Selling, general and administrative expenses

The components of selling, general and administrative expenses primarily include sales, marketing, research and advertising expenses, employee related costs and costs of non-production facilities.

Selling, general and administrative expenses increased 3.4% in our Domestic Operations segment primarily due to higher marketing and subscriber acquisition expenses partially offset by lower employee related costs. Selling, general and administrative expenses decreased 7.9% in our International segment primarily due to the divestiture of the 25/7 Media production services business on December 29, 2023.

There have been and may continue to be significant changes in the level of our selling, general and administrative expenses due to the timing of promotions and marketing of original programming series.

Impairment and other charges

Impairment and other charges of $399.5 million for the year ended December 31, 2024 primarily consisted of a $268.7 million goodwill impairment charge in the Domestic Operations reporting unit, $102.0 million of goodwill impairment charges at AMCNI, and $29.2 million of long-lived asset impairment charges at BBCA.

In December 2024, in connection with the preparation of our fourth quarter financial information, we performed our annual goodwill impairment test and concluded that the estimated fair values of the Domestic Operations and AMCNI reporting units declined to less than their carrying amounts. The decrease in the estimated fair values reflected current and expected trends across the media industry, including continued softness in the domestic linear marketplace and across the international television broadcasting markets, resulting in lower expected future cash flows, as well as a decrease in the valuation multiples used to estimate fair values using the market approach for the Domestic Operations reporting unit. As a result, we recognized impairment charges of $268.7 million related to the Domestic Operations reporting unit and $34.0 million related to the AMCNI reporting unit, included in Impairment and other charges in the consolidated statements of income (loss).

During the second quarter of 2024, we determined that a triggering event had occurred with respect to our decline in stock price, which required an interim goodwill impairment test to be performed. Accordingly, we performed quantitative assessments for all reporting units. Based on the valuations performed, we concluded that the estimated fair value of the AMCNI reporting unit declined to less than its carrying amount. As a result, we recognized an impairment charge of $68.0 million related to the AMCNI reporting unit, included in Impairment and other charges in the consolidated statements of income (loss).

Additionally during the second quarter of 2024, given continued market challenges and linear declines, we determined that sufficient indicators of potential impairment of long-lived assets existed at BBCA, and concluded that the carrying amount of the BBCA asset group was not recoverable. The carrying value of the BBCA asset group exceeded its fair value, and accordingly an impairment charge of $15.7 million was recorded for identifiable intangible assets and $13.5 million for other long-lived assets, which is included in Impairment and other charges in the consolidated statements of income (loss) within the Domestic Operations operating segment.

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Impairment and other charges of $96.7 million for the year ended December 31, 2023 primarily consisted of $65.4 million of long-lived assets impairment charges at BBCA and 25/7 Media, and $21.7 million of goodwill impairment charges at 25/7 Media.

In June 2023, given the impact of market challenges at 25/7 Media, specifically relating to reduced demand for new content and series cancellations from third parties, we revised our outlook for the 25/7 Media production services business, resulting in lower expected future cash flows. As a result, we determined that sufficient indicators of potential impairment of long-lived assets and goodwill existed at 25/7 Media. We performed a recoverability test and determined that the carrying amount of the 25/7 Media asset group was not recoverable. The carrying value of the asset group exceeded its fair value, therefore an impairment charge of $24.9 million was recorded ($23.0 million for identifiable intangible assets and $1.9 million for goodwill), which is included in Impairment and other charges in the consolidated statements of income (loss) within the International operating segment.

In December 2023, in connection with the preparation of our fourth quarter financial information, we performed our annual goodwill impairment test and concluded that the estimated fair value of the 25/7 Media reporting unit further declined from the interim assessment performed. The decrease in the estimated fair value reflected the continued decline in market conditions and business outlook and contemplation of concurrent negotiations with the noncontrolling interest holders for the sale of our remaining interest. As a result, we recognized an impairment charge of $19.8 million, reflecting a write-down of substantially all of the goodwill associated with the 25/7 Media reporting unit.

During the fourth quarter of 2023, given continued market challenges and linear declines, we revised our outlook for our BBCA linear programming network, resulting in lower expected future cash flows. As a result, we determined that sufficient indicators of potential impairment of long-lived assets existed at BBCA. We performed a recoverability test and determined that the carrying amount of the BBCA asset group was not recoverable. The carrying value of the asset group exceeded its fair value, therefore an impairment charge of $42.4 million was recorded for identifiable intangible assets and other long-lived assets.

Restructuring and other related charges

Restructuring and other related charges were $49.5 million for the year ended December 31, 2024, consisting of $44.2 million of content impairments and $5.3 million of severance and employee-related costs. Following the purchase of the remaining interest in BBCA in November 2024, the Company completed a strategic programming assessment and recorded a restructuring charge of $43.2 million pertaining to certain scripted original programming that no longer aligned with the channel's go-forward strategy. The remaining content impairments were recorded in connection with We TV shifting to a reduced originals strategy.

Restructuring and other related charges were $27.8 million for the year ended December 31, 2023, with the majority of such costs related to the Plan that commenced in November 2022 that was designed to achieve significant cost reductions in light of “cord cutting” and the related impacts being felt across the media industry as well as the broader economic outlook. The Plan encompassed initiatives that included, among other things, strategic programming assessments and organizational restructuring costs. The Plan was intended to improve the organizational design of the Company through the elimination of certain roles and centralization of certain functional areas of the Company. The programming assessments pertained to a broad mix of owned and licensed content, including legacy television series and films that are no longer in active rotation on the Company’s linear or streaming platforms.

During the year ended December 31, 2023, we completed the Plan and recorded restructuring and other related charges of $27.8 million, consisting primarily of charges relating to severance and other personnel costs, and our exit during the third quarter of 2023 of a portion of office space at our corporate headquarters in New York and office space in Silver Spring, Maryland and Woodland Hills, California. In connection with exiting a portion of our New York office space, we recorded impairment charges of $11.6 million, consisting of $9.1 million for operating lease right-of use assets and $2.5 million for leasehold improvements.

Operating income

The decrease in operating income was primarily attributable to additional impairment and other charges of $302.8 million, a decrease in revenues of $290.6 million, and additional restructuring charges of $21.7 million, partially offset by a decrease in technical and operating expenses of $194.9 million.

Interest expense

The increase in interest expense was primarily due to an increase in average interest rates associated with the Company's 10.25% Senior Secured Notes due 2029 refinancing the Company's 4.75% Senior Notes due 2025, partially offset by the impact of a lower outstanding debt balance.

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Interest income

The decrease in interest income was primarily attributable to lower interest income from our money market mutual fund accounts and bank deposits, partially offset by interest received in connection with retroactive adjustments reported by a third party.

Loss on extinguishment of debt, net

In August 2024, we voluntarily prepaid $35.0 million of borrowings under the Term Loan A Facility (as defined below), resulting in the recognition of a $0.4 million charge to write off a portion of the associated unamortized discount and deferred financing costs.

In June 2024, we repurchased $15.0 million of our outstanding 4.25% Senior Notes due 2029 through open market repurchases, at a discount of $4.9 million, and retired the repurchased notes. We recorded a $4.7 million gain which reflects the discount, net of $0.2 million to write off a portion of the unamortized discount and deferred financing costs associated with the notes.

In April 2024, we completed a cash tender offer (the "Offer") to purchase any and all outstanding 4.75% Senior Notes due 2025 and redeemed all 4.75% Senior Notes due 2025 that remained outstanding after completion of the Offer at a price of 100.000% of their principal amount, plus accrued and unpaid interest to, but not including, the redemption date. In connection with the Offer and redemption, we recorded a charge of $3.1 million to write off the remaining unamortized discount and deferred financing costs associated with the 4.75% Senior Notes due 2025.

In April 2024, we entered into Amendment No. 3 ("Amendment No. 3") to the Second Amended and Restated Credit Agreement, dated as of July 28, 2017 (as amended to date and by Amendment No. 3, the "Credit Agreement"). In connection with Amendment No. 3, we made a $165.6 million partial prepayment of the Term Loan A facility under the Credit Agreement (the “Term Loan A Facility”), bringing the total principal amount outstanding under the Term Loan A Facility to $425 million, and reduced the revolving credit facility under the Credit Agreement (the “Revolving Credit Facility”) to $175 million. In connection with the partial prepayment of the Term Loan A Facility and reduction of the revolving loan commitments, we recorded a charge of $1.3 million to write off a portion of the unamortized discount and deferred financing costs associated with the Credit Agreement.

Miscellaneous, net

The decrease in miscellaneous, net was primarily related to the impact of foreign currency fluctuations and costs incurred in connection with the second quarter refinancing transactions.

Income tax benefit (expense)

Income tax expense was $43.5 million for 2024 on income (loss) from operations before income taxes of $(174.5) million, representing a negative effective tax rate. The effective tax rate differs from the federal statutory rate of 21% due primarily to tax expense of $33.7 million related to a write-down of a state investment tax credit receivable, tax expense related to foreign operations of $18.9 million and tax expense of $16.0 million resulting from nondeductible goodwill impairment charges. Other items resulting in variances from the federal statutory rate of 21% primarily consist of tax expense of $8.1 million related to the expiration of foreign tax credits, tax expense of $4.5 million related to non-deductible compensation expense, state and local income tax expense of $1.2 million, and a tax benefit of $2.2 million resulting from a net decrease in valuation allowances primarily related to foreign deferred tax assets.

Income tax expense was $94.6 million for 2023, representing an effective tax rate of 32%. The effective tax rate differs from the federal statutory rate of 21% due primarily to state and local income tax expense of $10.5 million, tax expense related to foreign operations of $3.4 million, tax expense of $10.6 million resulting from a net increase in valuation allowances primarily related to foreign deferred tax assets, $3.8 million of tax expense related to nontaxable loss attributable to noncontrolling interests and tax expense of $5.2 million related to non-deductible compensation expense.

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Segment Results of Operations

Our segment operating results are presented based on how we assess operating performance and internally report financial information. We use segment adjusted operating income as the measure of profit or loss for our operating segments. See the "Non-GAAP Financial Measures" section below for our definition of Adjusted Operating Income and a reconciliation from Operating Income to Adjusted Operating Income on a segment and consolidated basis.

Domestic Operations

The following table sets forth our Domestic Operations segment results for the periods indicated.

Revenues

Subscription revenues decreased primarily due to a 13.2% decline in affiliate revenues, partially offset by a 6.6% increase in streaming revenues. Affiliate revenues decreased primarily due to basic subscriber declines and, to a lesser extent, contractual rate decreases in connection with renewals. Streaming revenues increased due to year-over-year subscriber growth and price increases.

Subscription revenues include revenues related to the Company's streaming services of $603.0 million and $565.6 million for 2024 and 2023, respectively. Aggregate paid subscribers3 to our streaming services increased 8.3% to 12.4 million at December 31, 2024 compared to 11.4 million at December 31, 2023.

Advertising revenues decreased primarily due to linear ratings declines and continued lower demand in the entertainment advertising marketplace, partially offset by digital and advanced advertising revenue growth.

Content licensing and other revenues decreased due to the availability of deliveries in the period, including $56.1 million of revenue associated with the 2023 delivery of the remaining episodes of Silo, an AMC Studios produced series, the delivery of fewer episodes of Fear the Walking Dead in 2024 compared to 2023, and the impact of $20.3 million recognized in 2023 associated with the early termination of an output agreement that resulted in the acceleration of revenue into 2023. These decreases were partially offset by the delivery in 2024 of 15 AMC branded shows in connection with a content licensing agreement with Netflix and the sale of our rights and interests to Killing Eve in 2024.

3 A paid subscription is defined as a subscription to a direct-to-consumer service or a subscription received through distributor arrangements, in which we receive a fee for the distribution of our streaming services.

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The following table presents subscriber information for our national programming networks at December 31, 2024 and 2023:

Technical and operating expenses (excluding depreciation and amortization)

Technical and operating expenses (excluding depreciation and amortization) decreased primarily due to lower participation and residuals costs, the impact in 2023 associated with the delivery of the remaining episodes of Silo, an AMC Studios produced series, and lower program rights amortization. The decrease in program rights amortization is consistent with the decrease in content licensing revenue for Fear the Walking Dead and the early termination of an output agreement, that resulted in the acceleration of program rights amortization into 2023, which were partially offset by the impact of the slate of AMC originals premiering in 2024.

Program rights amortization expense includes write-offs of $20.0 million and $14.5 million for the years ended December 31, 2024 and 2023, respectively, for programming that was substantively abandoned. Programming write-offs are based on management's periodic assessment of programming usefulness.

Selling, general and administrative expenses

Selling, general and administrative expenses increased primarily due to higher marketing and subscriber acquisition expenses related to our streaming services, partially offset by lower employee related costs due to a decrease in allocated corporate overhead costs.

Segment adjusted operating income

The decrease in segment adjusted operating income was primarily attributable to the revenue headwinds in our linear businesses, partially offset by a decrease in technical and operating expenses.

International

The following table sets forth our International segment results for the periods indicated.

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Revenues

Subscription revenues decreased primarily due to the non-renewal of an AMCNI distribution agreement in the U.K. in the fourth quarter of 2023.

Advertising revenues increased primarily due to the recognition of retroactive adjustments reported by a third party for $20.8 million, digital and advanced advertising growth in the U.K, and increased ratings and growth across Central and Northern European advertising markets.

Content licensing and other revenues decreased due to the divestiture of the 25/7 Media production services business on December 29, 2023. 25/7 Media generated $91.5 million of content licensing and other revenue during the year ended December 31, 2023.

Technical and operating expenses (excluding depreciation and amortization)

Technical and operating expenses (excluding depreciation and amortization) decreased primarily due to the divestiture of the 25/7 Media production services business on December 29, 2023. 25/7 Media incurred $72.1 million of technical and operating expenses during the year ended December 31, 2023. The remaining decrease was primarily attributable to $3.1 million of lower content expenses, primarily driven by content cost savings associated with the non-renewal of an AMCNI distribution agreement in the U.K. in the fourth quarter of 2023, partially offset by increased program investment across Central and Northern European markets.

Selling, general and administrative expenses

Selling, general and administrative expenses decreased primarily due to the divestiture of the 25/7 Media production services business on December 29, 2023, partially offset by increased selling expenses at AMCNI, including commissions. 25/7 Media incurred $15.3 million of selling, general and administrative expenses during the year ended December 31, 2023.

Segment adjusted operating income

The increase in segment adjusted operating income was primarily due to the recognition of retroactive adjustments reported by a third party for $20.8 million, partially offset by the impact of the non-renewal of an AMCNI distribution agreement in the U.K. and the divestiture of the 25/7 Media production services business on December 29, 2023. 25/7 Media generated $4.1 million of adjusted operating income during the year ended December 31, 2023.

Corporate / Inter-segment Eliminations

The following table sets forth our Corporate / Inter-segment Eliminations results for the periods indicated.

Revenues, net

Revenue eliminations are primarily related to Domestic Operations revenues recognized for licensing sales to the International segment.

Technical and operating expenses (excluding depreciation and amortization)

Technical and operating expense eliminations are primarily related to AMCNI programming amortization for content acquired from the Domestic Operations segment.

Selling, general and administrative expenses

Selling, general and administrative expenses increased primarily due to higher employee related costs, including higher allocated overhead costs and compensation incurred in connection with an executive officer's separation agreement.

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Liquidity and Capital Resources

Overview

Our operations typically generate positive net cash flow from operating activities. However, each of our programming businesses has substantial programming acquisition and production expenditure requirements.

Our primary source of cash typically includes cash flow from operations. Sources of cash also include amounts available under our Revolving Credit Facility and, subject to market conditions, access to capital and credit markets. Although we currently believe that amounts available under our Revolving Credit Facility will be available when and if needed, we can provide no assurance that access to such funds will not be impacted by adverse conditions in the financial markets. The obligations of the financial institutions under our Revolving Credit Facility are several and not joint and, as a result, a funding default by one or more institutions does not need to be made up by the others. As a public company, we may have access to capital and credit markets, although adverse conditions in the financial markets have in the past impacted, and are expected in the future to impact, access to those markets. See the "Debt Financing Agreements" section below for details of our debt transactions in 2023 and 2024.

In October 2023, we entered into an agreement enabling us to sell certain customer receivables to a financial institution on a recurring basis for cash. The transferred receivables will be fully guaranteed by a bankruptcy-remote entity and the financial institution that purchases the receivables will have no recourse to our other assets in the event of non-payment by the customers. We can sell an indefinite amount of customer receivables under the agreement on a revolving basis, but the outstanding balance of unpaid customer receivables to the financial institution cannot exceed the initial program limit of $125.0 million at any given time. We have not yet sold any customer receivables under this agreement.

Our principal uses of cash include the production, acquisition and promotion of programming, technology investments, debt service and payments for income taxes. We continue to invest in original programming, the funding of which generally occurs at least nine months in advance of a program's airing.

On November 1, 2024, we acquired the remaining 50.1% of the BBC America joint-venture that we had not previously owned for $42.0 million in cash. As a result, the carrying amount of the noncontrolling interest was reduced to zero, reflecting our 100% ownership of the BBC America business. Additionally, in connection with the transaction, we terminated our prior program license agreement with BBC Studios, resulting in a significant reduction of contractual programming commitments. We entered into a new program license agreement with BBC Studios for $40.0 million, all of which was paid at closing.

During 2024, $77.0 million of cash and cash equivalents, previously held by foreign subsidiaries, was repatriated to the United States. Our consolidated cash and cash equivalents balance of $784.6 million, as of December 31, 2024, includes $111.5 million held by foreign subsidiaries. Of this amount, approximately $8.0 million is expected to be repatriated to the United States with the remaining amount continuing to be reinvested in foreign operations. Tax expense related to the repatriated amount, as well as the expected remaining amount to be repatriated, has been accrued in the current period and the Company does not expect to incur any significant, additional taxes related to the remaining balance.

We believe that a combination of cash-on-hand, cash generated from operating activities, availability under our Revolving Credit Facility and our accounts receivable monetization program, borrowings under additional financing facilities and, when we have access to capital and credit markets, proceeds from the issuance of new debt, will provide sufficient liquidity to service the principal and interest payments on our indebtedness, along with our other funding and investment requirements over the next twelve months and over the longer term. However, we do not expect to generate sufficient cash from operations to repay the entirety of the outstanding balances of our debt at the applicable maturity dates. As a result, we will be dependent upon our ability to access the capital and credit markets in order to repay, refinance, repurchase through privately negotiated transactions, open market repurchases, tender offers or otherwise or redeem the outstanding balances of our indebtedness.

Our 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 termination date and may be suspended or discontinued at any time. For the year ended December 31, 2024, we did not repurchase any of our Class A Common Stock. As of December 31, 2024, we had $135.3 million of authorization remaining for repurchase under the Stock Repurchase Program.

Failure to raise significant amounts of funding to repay our outstanding debt obligations at their respective maturity dates would adversely affect our business. In such a circumstance, we would need to take other actions including selling assets, seeking strategic investments from third parties or reducing other discretionary uses of cash. See Item 1A, "Risk Factors – Risks Related to Our Debt" in this Annual Report. In addition, economic or market disruptions could lead to lower demand for our services, such as loss of subscribers and lower levels of advertising. These events would adversely impact our results of operations, cash flows and financial position.

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Cash Flow Discussion

The following table is a summary of cash flows provided by (used in) operating, investing and financing activities for the periods indicated:

Operating Activities

Net cash provided by operating activities for 2024 and 2023 amounted to $375.6 million and $203.9 million, respectively.

In 2024, net cash provided by operating activities primarily resulted from $1,211.2 million of net income before amortization of program rights, impairment charges, depreciation and amortization, and other non-cash items, partially offset by payments for program rights of $932.3 million. Changes in all other assets and liabilities during the year resulted in a net cash inflow of $96.7 million.

In 2023, net cash provided by operating activities primarily resulted from $1,421.5 million of net income before amortization of program rights, depreciation and amortization, and other non-cash items, partially offset by payments for program rights of $1,079.9 million and restructuring initiatives of $112.6 million. Changes in all other assets and liabilities during the year resulted in a net cash outflow of $25.1 million.

Investing Activities

Net cash used in investing activities for 2024 and 2023 was $40.4 million and $24.3 million, respectively.

In 2024, net cash used in investing activities primarily consisted of capital expenditures of $44.8 million.

In 2023, net cash used in investing activities primarily consisted of capital expenditures of $35.2 million, partially offset by proceeds from the sale of investments of $8.6 million and the return of capital from investees of $2.1 million.

Financing Activities

Net cash used in financing activities for 2024 and 2023 was $110.2 million and $544.4 million, respectively.

In 2024, net cash used in financing activities primarily related to long-term debt refinancing transactions, the Convertible Notes issuance, principal payments on the Term Loan A Facility, the purchase of the remaining 50.1% interest of the BBC America joint-venture that we had not previously owned for $42.0 million, and distributions to noncontrolling interests of $24.0 million.

In 2023, net cash used in financing activities primarily consisted of principal payments on long-term debt of $458.4 million (including $400.0 million of 5.00% Notes due April 2024, $24.7 million of 4.75% Notes due August 2025, and $33.7 million on the Term Loan A Facility), distributions to noncontrolling interests of $72.9 million, taxes paid in lieu of shares issued for equity-based compensation of $7.3 million, principal payments on finance leases of $4.2 million, and the purchase of noncontrolling interests of $1.3 million.

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Debt Financing Agreements

The Company's principal amount of long-term debt consists of:

(a)    Represents the aggregate principal amount of the debt, with maturities of Term Loan A (Non-Extended) (as defined below) of $90.0 million due February 2026, Term Loan A (Extended) (as defined below) of $275.6 million due April 2028, and undrawn $175.0 million Revolving Credit Facility due April 2028. Total undrawn revolver commitments are available to be drawn for general corporate purposes of the Company.

On April 9, 2024, AMC Networks entered into Amendment No. 3 to the Credit Agreement, among AMC Networks and its subsidiary, AMC Network Entertainment LLC (“AMC Network Entertainment”), as the initial borrowers, certain of AMC Networks' subsidiaries, as restricted subsidiaries, Bank of America, N.A., as an L/C Issuer, the lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent, Collateral Agent and an L/C Issuer.

In connection with Amendment No. 3, AMC Networks made a $165.6 million partial prepayment of the Term Loan A Facility, bringing the total principal amount outstanding under the Term Loan A Facility to $425 million, and reduced the Revolving Credit Facility to $175 million. In addition, pursuant to Amendment No. 3, the maturity date of $325 million principal amount of loans under the Term Loan A Facility as well as all of the commitments under the Revolving Credit Facility has been extended to April 9, 2028 (referred to as "Term Loan A (Extended)"). The maturity date of the remaining $100 million principal amount of loans under the Term Loan A Facility continues to be February 8, 2026 (referred to as "Term Loan A (Non-Extended)"). Amendment No. 3 also includes certain other modifications to covenants and other provisions of the Credit Agreement. During each of the second, third and fourth quarters of 2024, we repaid $8.1 million of borrowings under the Term Loan A Facility in accordance with the terms of the Credit Agreement. In addition, we also voluntarily prepaid $35.0 million of borrowings under the Term Loan A Facility during the third quarter of 2024. In March 2024, we also repaid $16.9 million of borrowings under the Term Loan A Facility in accordance with the previous agreement.

On April 9, 2024, AMC Networks issued $875 million aggregate principal amount of 10.25% Senior Secured Notes due 2029 (the “Secured Notes”). AMC Networks received net proceeds of $863.0 million, after deducting initial purchasers' discounts. The Secured Notes are guaranteed by AMC Network Entertainment and AMC Networks' subsidiaries that guarantee the Credit Agreement.

On April 22, 2024, AMC Networks completed the Offer to purchase any and all outstanding 4.75% Senior Notes due 2025 and redeemed all 4.75% Senior Notes due 2025 that remained outstanding after completion of the Offer at a price of 100.000% of their principal amount, plus accrued and unpaid interest to, but not including, the redemption date.

On June 21, 2024, the Company completed a private unregistered offering of $143.8 million aggregate principal amount of its 4.25% Convertible Senior Notes due 2029 (the “Convertible Notes”), which amount includes the full exercise of the initial purchasers’ option to purchase additional Convertible Notes. The Company received net proceeds of $139.4 million, after deducting initial purchasers' discounts. The Convertible Notes are guaranteed by each of the Company’s existing and future domestic subsidiaries that guarantee the Company’s credit facilities and the Company’s 4.25% Senior Notes due 2029 and the Secured Notes, subject to certain exceptions, on a senior, unsecured basis.

In June 2024, the Company repurchased $15.0 million of its outstanding 4.25% Senior Notes due 2029 through open market repurchases, at a discount of $4.9 million, and retired the repurchased notes.

The Credit Agreement generally requires AMC Networks Inc. and its restricted subsidiaries on a consolidated basis to comply with a maximum total net leverage ratio of 5.75:1.00 from the Amendment No. 3 effective date through March 31, 2026, after which the maximum total net leverage ratio changes to 5.50:1.00. As of December 31, 2024, the total net leverage ratio was approximately 3.85:1.00. In addition, the Credit Agreement requires a minimum interest coverage ratio of 2.00:1.00 for AMC Networks Inc. and its restricted subsidiaries until September 30, 2026, after which the minimum interest coverage ratio changes to 2.25:1.00. As of December 31, 2024, the interest coverage ratio was approximately 3.12:1.00. All borrowings

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under the Credit Agreement are subject to the satisfaction of customary conditions, including the absence of a default and accuracy of representations and warranties.

AMC Networks was in compliance with all of its debt covenants as of December 31, 2024.

Additional information regarding our outstanding indebtedness, including its significant terms and provisions, is discussed in Note 9 to the accompanying consolidated financial statements included in this Annual Report on Form 10-K and is incorporated herein by reference.

Supplemental Guarantor Financial Information

The following is a description of the terms and conditions of the guarantees with respect to the outstanding notes for which AMC Networks is the issuer.

Note Guarantees

Debt of AMC Networks as of December 31, 2024 included $875.0 million of 10.25% Senior Secured Notes due 2029, $985.0 million of 4.25% Senior Notes due 2029, and $143.8 million of 4.25% Convertible Senior Notes due 2029 (collectively, the “notes”). The notes were issued by AMC Networks and are unconditionally guaranteed, jointly and severally, on an unsecured basis, by each of AMC Networks’ existing and future domestic restricted subsidiaries, subject to certain exceptions (each, a “Guarantor Subsidiary,” and collectively, the “Guarantor Subsidiaries”). The obligations of each Guarantor Subsidiary under its note guarantee are limited as necessary to prevent such note guarantee from constituting a fraudulent conveyance under applicable law. A guarantee of the notes by a Guarantor Subsidiary is subject to release in the following circumstances: (i) any sale or other disposition of all of the capital stock of a Guarantor Subsidiary to a person that is not (either before or after giving effect to such transaction) a restricted subsidiary, in compliance with the terms of the applicable indenture; (ii) the designation of a restricted subsidiary as an “Unrestricted Subsidiary” under the applicable indenture; or (iii) the release or discharge of the guarantee (including the guarantee under the AMC Networks’ credit agreement) which resulted in the creation of the note guarantee (provided that such Guarantor Subsidiary does not have any preferred stock outstanding at such time that is not held by AMC Networks or another Guarantor Subsidiary).

Foreign subsidiaries of AMC Networks do not and will not guarantee the notes.

The following tables present the summarized financial information specified in Rule 1-02(bb)(1) of Regulation S-X for AMC Networks and each Guarantor Subsidiary. The summarized financial information has been prepared in accordance with Rule 13-01 of Regulation S-X.

Summarized Financial Information

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Critical Accounting Policies and Estimates

In preparing our consolidated financial statements, we are required to make certain estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. These estimates and assumptions can be subjective and complex and, consequently, actual results could differ materially from our estimates and assumptions. We base our estimates on historical experience, known or expected trends and other assumptions that we believe are reasonable under the circumstances.

We believe the following critical accounting policies comprise the more significant judgments and estimates used in the preparation of our consolidated financial statements:

Program Rights

We amortize and test for impairment of capitalized film and television costs based on whether the content is predominantly monetized individually or as a group.

Program rights that are expected to be predominantly monetized on our networks and streaming services with other programming are considered monetized as a group. Licensed and owned original programming, including feature films and television series are amortized on a straight-line or accelerated basis based on viewership patterns on our streaming services and the projected program usage of the rights on our networks, over a period not to exceed the respective license periods.

The projected program usage is based on the Company's current expectation of future exhibitions taking into account historical usage and viewership patterns of similar content. The determination of the projected program usage requires significant judgment. Accordingly, the Company periodically reviews estimates of its projected program usage and viewership patterns and revises its assumptions if necessary, which could impact the timing of amortization expense. Any adjustments to the assumptions are applied prospectively in the period of the change.

For content that is predominantly monetized as a group, unamortized costs are tested for impairment whenever events or changes in circumstances indicate that the fair value of the group may be less than its unamortized costs. Groups are tested for impairment by comparing the present value of the discounted cash flows of the group to the aggregate unamortized costs of the group. If the unamortized costs exceed the present value of discounted cash flows, an impairment charge is recorded for the excess and allocated to individual titles within the group on a pro rata basis using the relative carrying value of the titles. Program rights with no future programming usefulness are substantially abandoned, resulting in the write-off of remaining unamortized cost.

Program rights that are expected to be predominantly monetized through licensing agreements are considered to be monetized individually and are amortized to technical and operating expense over their estimated useful lives, commencing upon the first usage, based on attributable revenue for airings to date as a percentage of total projected attributable revenue ("ultimate revenue") under the individual-film-forecast-computation method.

Ultimate revenues are estimated based on the levels of revenue generated from similar content in comparable markets, projected program usage, and the levels of historical and expected programming market acceptance. The determination of ultimate revenues requires significant judgment. Accordingly, the Company periodically reviews its ultimate revenue estimates and revises its assumptions if necessary, which could impact the timing of amortization expense. Any adjustments are applied prospectively as of the beginning of the fiscal year of the change.

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For content that is predominantly monetized on an individual basis, a television program or feature film is tested for impairment when events or circumstances indicate that its fair value may be less than its unamortized cost. Individual titles are tested for impairment by comparing the present value of the discounted cash flows of the title to the unamortized costs of the title. If the unamortized costs exceed the present value of discounted cash flows, an impairment charge is recorded for the excess. Program rights with no future programming usefulness are substantially abandoned, resulting in the write-off of remaining unamortized cost.

Program rights write-offs of $20.7 million and $17.3 million were included in technical and operating expense for the years ended December 31, 2024 and 2023, respectively, for programming that was substantively abandoned. Refer to Note 4 for amounts recorded to restructuring expense in connection with the Company’s strategic programming assessments.

Useful Lives of Affiliate Intangible Assets

The carrying amount of our affiliate relationships acquired in business combinations as of December 31, 2024 was $154.0 million. Useful lives of affiliate relationships (ranging from 6 to 25 years) are initially determined based upon weighted average remaining terms of agreements in place with major distributors when purchase accounting is applied, plus an assumption for expected renewals. We periodically update our assumption for expected renewals based on recent experience and known or expected trends. We have historically been successful in renewing our major affiliation agreements and expect to renew such agreements in the future. However, if renewal trends deteriorate in the future (e.g., failure to renew, or renewals with significantly shorter terms), we may revise the remaining useful lives of affiliate intangible assets, resulting in higher amortization expenses in future periods. See Note 7 to the accompanying consolidated financial statements included in this Annual Report on Form 10-K for additional details.

Goodwill

Goodwill is not amortized, but instead is tested for impairment at the reporting unit level annually as of December 1, or more frequently upon the occurrence of certain events or substantive changes in circumstances. The annual goodwill impairment test allows for the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If it is determined, on the basis of qualitative factors, that the fair value of a reporting unit is, more likely than not, less than its carrying value, the quantitative impairment test is required. The quantitative impairment test calculates any goodwill impairment as the difference between the carrying amount of a reporting unit and its fair value, but not to exceed the carrying amount of goodwill.

For our annual impairment test, we performed quantitative impairment tests for all reporting units. The impairment test for goodwill requires judgment related to the identification of reporting units, the assignment of assets and liabilities to reporting units including goodwill, and the determination of fair value of the reporting units. The quantitative impairment test evaluates whether the carrying value of a reporting unit exceeds its estimated fair value. We estimate the fair value of our reporting units based on the present value of future cash flows (“Discounted Cash Flow Method”) and the total enterprise value multiples of publicly traded comparable companies (“Market Comparables Method”). The Discounted Cash Flow Method requires us to make various assumptions regarding the timing and amount of future cash flows, including revenue growth rates, operating margins, and programming and working capital investments for a projection period, plus the terminal value of the business at the end of the projection period. The assumptions about future cash flows are based on internal forecasts, which incorporates our long-term business plans and historical trends and are subject to a greater degree of uncertainty in times of adverse economic conditions. The terminal value is estimated based on a perpetual growth rate, which is based on historical and projected inflation and economic indicators, as well as industry growth projections. A discount rate is determined for the reporting unit based on the risks of achieving the future cash flows, including risks applicable to the industry and market as a whole, as well as the capital structure of comparable entities. The Market Comparables Method incorporates revenue and earnings multiples from publicly traded companies with operations and other characteristics similar to each reporting unit. The selected multiples consider each reporting unit’s relative growth, profitability, size, and risk relative to the selected publicly traded companies.

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

Based on our annual and interim impairment tests for goodwill during 2024, we recorded total impairment charges of $268.7 million related to our Domestic Operations reporting unit and $102.0 million related to our AMCNI reporting unit. See Note 7 to the accompanying consolidated financial statements included in this Annual Report on Form 10-K for additional details.

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Recently Issued Accounting Pronouncements

The information regarding recently issued accounting pronouncements is discussed in Note 2 to the accompanying consolidated financial statements included in this Annual Report on Form 10-K and is incorporated herein by reference.

Non-GAAP Financial Measures

Internally, we use AOI and Free Cash Flow as the most important indicators of our business performance, and evaluate management's effectiveness with specific reference to these indicators.

We evaluate segment performance based on several factors, of which the primary financial measure is operating segment AOI. We define AOI, which is a financial measure that is not calculated in accordance with generally accepted accounting principles ("GAAP"), as operating income (loss) before share-based compensation expenses or benefit, depreciation and amortization, impairment and other charges (including gains or losses on sales or dispositions of businesses), restructuring and other related charges, cloud computing amortization and including the Company’s proportionate share of adjusted operating income (loss) from majority-owned equity method investees. From time to time, we may exclude the impact of certain events, gains, losses or other charges (such as significant legal settlements) from AOI that affect our operating performance.

We believe that AOI is an appropriate measure for evaluating the operating performance on both an operating segment and consolidated basis. AOI and similar measures with similar titles are common performance measures used by investors, analysts and peers to compare performance in the industry. AOI should be viewed as a supplement to and not a substitute for operating income (loss), net income (loss), cash flows from operating activities and other measures of performance and/or liquidity presented in accordance with GAAP. Since AOI is not a measure of performance calculated in accordance with GAAP, this measure may not be comparable to similar measures with similar titles used by other companies.

The following is a reconciliation of operating income (loss) to AOI for the periods indicated:

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We define Free Cash Flow, which is a non-GAAP financial measure, as net cash provided by operating activities less capital expenditures, all of which are reported in our Consolidated Statement of Cash Flows. We believe the most comparable GAAP financial measure of our liquidity is net cash provided by operating activities. We believe that Free Cash Flow is useful as an indicator of our overall liquidity, as the amount of Free Cash Flow generated in any period is representative of cash that is available for debt repayment, investment, and other discretionary and non-discretionary cash uses. We also believe that Free Cash Flow is one of several benchmarks used by analysts and investors who follow the industry for comparison of our liquidity with other companies in our industry, although our measure of Free Cash Flow may not be directly comparable to similar measures reported by other companies.

The following is a reconciliation of net cash provided by operating activities to Free Cash Flow for the periods indicated: