Edgar Filing: AMC Networks Inc.

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



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

For the quarterly period ended September 30, 2016



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

For the transition period from to

Commission File Number: 1-35106

AMC Networks Inc.

(Exact name of registrant as specified in its charter)



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

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

(212) 324-8500

(Registrant’s telephone number, including area code)

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

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

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



Large accelerated filer	þ	Accelerated filer	¨

Non-accelerated filer	¨	Smaller reporting company	¨

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

The number of shares of common stock outstanding as of October 31, 2016:



Class A Common Stock par value $0.01 per share	58,942,459
Class B Common Stock par value $0.01 per share	11,484,408

AMC NETWORKS INC. AND SUBSIDIARIES

FORM 10-Q

TABLE OF CONTENTS



	Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets	1
Condensed Consolidated Statements of Income	2
Condensed Consolidated Statements of Comprehensive Income	3
Condensed Consolidated Statements of Cash Flows	4
Notes to Condensed Consolidated Financial Statements	5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3. Quantitative and Qualitative Disclosures About Market Risk	47
Item 4. Controls and Procedures	48
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	49
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	49
Item 6. Exhibits	49
SIGNATURES	50

PART I. FINANCIAL INFORMATION


Item 1.	Financial Statements.

AMC NETWORKS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share amounts)

(unaudited)



	September 30, 2016			December 31, 2015
ASSETS
Current Assets:
Cash and cash equivalents	$	682,764		$	316,321
Accounts receivable, trade (less allowance for doubtful accounts of $5,605 and $4,307)	647,233			674,611
Amounts due from related parties, net	384			4,062
Current portion of program rights, net	380,439			453,157
Prepaid expenses and other current assets	95,481			72,989
Deferred tax asset, net	43,037			16,198
Total current assets	1,849,338			1,537,338
Property and equipment, net of accumulated depreciation of $243,434 and $209,236	177,694			163,860
Program rights, net	1,097,708			1,027,394
Deferred carriage fees, net	48,162			50,069
Intangible assets, net	523,574			549,180
Goodwill	706,163			736,275
Other assets	219,426			200,799
Total assets	$	4,622,065		$	4,264,915
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIENCY)
Current Liabilities:
Accounts payable	$	83,432		$	71,148
Accrued liabilities	253,579			254,086
Current portion of program rights obligations	288,023			289,897
Deferred revenue	94,746			64,229
Current portion of long-term debt	203,500			148,000
Current portion of capital lease obligations	4,579			3,561
Total current liabilities	927,859			830,921
Program rights obligations	369,587			440,591
Long-term debt	2,650,418			2,519,808
Capital lease obligations	37,136			29,779
Deferred tax liability, net	183,582			137,233
Other liabilities	98,639			103,530
Total liabilities	4,267,221			4,061,862
Commitments and contingencies
Redeemable noncontrolling interests	215,323			211,691
Stockholders’ equity (deficiency):
Class A Common Stock, $0.01 par value, 360,000,000 shares authorized, 62,408,035 and 62,120,102 shares issued and 59,248,183 and 60,909,831 shares outstanding, respectively	624			621
Class B Common Stock, $0.01 par value, 90,000,000 shares authorized, 11,484,408 shares issued and outstanding	115			115
Preferred stock, $0.01 par value, 45,000,000 shares authorized; none issued	—			—
Paid-in capital	143,183			123,157
Accumulated earnings	280,915			24,880
Treasury stock, at cost (3,159,852 and 1,210,271 shares Class A Common Stock, respectively)	(161,990		)	(51,993		)
Accumulated other comprehensive loss	(152,845		)	(136,057		)
Total AMC Networks stockholders’ equity (deficiency)	110,002			(39,277		)
Non-redeemable noncontrolling interests	29,519			30,639
Total stockholders’ equity (deficiency)	139,521			(8,638		)
Total liabilities and stockholders’ equity (deficiency)	$	4,622,065		$	4,264,915

See accompanying notes to condensed consolidated financial statements.

AMC NETWORKS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

(unaudited)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Revenues, net (including revenues, net from related parties of $1,450, $6,407, $14,356 and $19,619, respectively)	$	634,646		$	632,165		$	2,026,057		$	1,901,985
Operating expenses:
Technical and operating (excluding depreciation and amortization)	338,799			293,096			915,336			814,999
Selling, general and administrative (including charges from related parties of $647, $972, $2,537 and $3,190, respectively)	137,116			156,308			473,760			469,767
Restructuring expense	19,312			2,631			19,666			5,941
Depreciation and amortization	22,282			20,862			63,467			62,429
Total operating expenses	517,509			472,897			1,472,229			1,353,136
Operating income	117,137			159,268			553,828			548,849
Other income (expense):
Interest expense	(29,675		)	(31,927		)	(93,431		)	(97,522		)
Interest income	471			557			2,865			1,786
Loss on extinguishment of debt	(2,295		)	—			(50,638		)	—
Miscellaneous, net	2,988			(7,640		)	(22,610		)	(6,486		)
Total other income (expense)	(28,511		)	(39,010		)	(163,814		)	(102,222		)
Income from operations before income taxes	88,626			120,258			390,014			446,627
Income tax expense	(21,157		)	(43,358		)	(119,090		)	(155,609		)
Net income including noncontrolling interests	67,469			76,900			270,924			291,018
Net income attributable to noncontrolling interests	(2,076		)	(4,130		)	(14,908		)	(14,319		)
Net income attributable to AMC Networks’ stockholders	$	65,393		$	72,770		$	256,016		$	276,699

Net income per share attributable to AMC Networks’ stockholders:
Basic	$	0.91		$	1.00		$	3.54		$	3.82
Diluted	$	0.91		$	0.99		$	3.51		$	3.78

Weighted average common shares:
Basic weighted average common shares	71,507			72,503			72,269			72,386
Diluted weighted average common shares	72,140			73,222			72,902			73,108

See accompanying notes to condensed consolidated financial statements.

AMC NETWORKS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in thousands)

(unaudited)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Net income including noncontrolling interests	$	67,469		$	76,900		$	270,924		$	291,018
Other comprehensive income (loss):
Foreign currency translation adjustment	(763		)	(3,086		)	(3,767		)	(39,792		)
Unrealized gain (loss) on interest rate swaps	896			528			(1,447		)	1,898
Other comprehensive income (loss), before income taxes	133			(2,558		)	(5,214		)	(37,894		)
Income tax expense	(1,363		)	(4,532		)	(11,574		)	(868		)
Other comprehensive (loss), net of income taxes	(1,230		)	(7,090		)	(16,788		)	(38,762		)
Comprehensive income	66,239			69,810			254,136			252,256
Comprehensive income attributable to noncontrolling interests	(2,108		)	(4,130		)	(13,564		)	(14,319		)
Comprehensive income attributable to AMC Networks’ stockholders	$	64,131		$	65,680		$	240,572		$	237,937

See accompanying notes to condensed consolidated financial statements.

AMC NETWORKS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(unaudited)



	Nine Months Ended September 30,
	2016			2015
Cash flows from operating activities:
Net income including noncontrolling interests	$	270,924		$	291,018
Adjustments to reconcile income from operations to net cash from operating activities:
Depreciation and amortization	63,467			62,429
Share-based compensation expense related to equity classified awards	28,869			23,910
Amortization and write-off of program rights	613,060			525,609
Amortization of deferred carriage fees	12,589			12,013
Unrealized foreign currency transaction loss	28,800			5,739
Unrealized (gain) loss derivative contracts, net	(1,549		)	1,355
Amortization of deferred financing costs and discounts on indebtedness	6,997			6,743
Loss on extinguishment of debt	50,638			—
Bad debt expense	1,714			2,151
Deferred income taxes	15,080			(9,849		)
Excess tax benefits from share-based compensation arrangements	(764		)	(4,297		)
Other, net	(4,433		)	(2,073		)
Changes in assets and liabilities:
Accounts receivable, trade (including amounts due from related parties, net)	32,747			6,224
Prepaid expenses and other assets	(43,344		)	(43,665		)
Program rights and obligations, net	(687,888		)	(616,047		)
Income taxes payable	10,414			16,107
Deferred revenue	30,726			15,446
Deferred carriage fees, net	(10,411		)	(18,825		)
Accounts payable, accrued expenses and other liabilities	8,956			26,985
Net cash provided by operating activities	426,592			300,973
Cash flows from investing activities:
Capital expenditures	(44,505		)	(48,810		)
Payments for acquisition of a business, net of cash acquired	(354		)	(6,545		)
Purchases of investments	—			(24,250		)
Net cash used in investing activities	(44,859		)	(79,605		)
Cash flows from financing activities:
Proceeds from the issuance of long-term debt	982,500			—
Principal payments on long-term debt	(811,000		)	(55,500		)
Payment of promissory note	—			(40,000		)
Premium and fees paid on extinguishment of debt	(40,953		)	—
Payments for financing costs	(2,070		)	—
Deemed repurchases of restricted stock/units	(10,821		)	(14,454		)
Purchase of treasury stock	(109,997		)	—
Proceeds from stock option exercises	1,217			1,183
Excess tax benefits from share-based compensation arrangements	764			4,297
Principal payments on capital lease obligations	(3,182		)	(2,392		)
Distributions to noncontrolling interests	(9,010		)	(3,154		)
Contributions from noncontrolling interests	—			1,354
Net cash used in financing activities	(2,552		)	(108,666		)
Net increase in cash and cash equivalents from operations	379,181			112,702
Effect of exchange rate changes on cash and cash equivalents	(12,738		)	(6,514		)
Cash and cash equivalents at beginning of period	316,321			201,367
Cash and cash equivalents at end of period	$	682,764		$	307,555

See accompanying notes to condensed consolidated financial statements.

AMC NETWORKS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

(unaudited)

Note 1. Description of Business and Basis of Presentation

Description of Business

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

•

National Networks: Principally includes activities of our programming businesses which include our five programming networks distributed in the U.S. and Canada. These programming networks include AMC, WE tv, BBC AMERICA, IFC and SundanceTV in the U.S.; and AMC, IFC, and Sundance Channel in Canada. Our programming businesses within the National Networks segment may also sell rights worldwide to their owned original programming. The National Networks operating segment also includes AMC Networks Broadcasting & Technology, the technical services business, which primarily services most of the programming networks included in the National Networks segment.

•

International and Other: Principally includes AMC Networks International (“AMCNI”), the Company’s international programming businesses consisting of a portfolio of channels in Europe, Latin America, the Middle East and parts of Asia and Africa; IFC Films, the Company’s independent film distribution business; AMCNI- DMC, the broadcast solutions unit of certain networks of AMCNI and third-party networks, and various developing on-line content distribution initiatives.

Basis of Presentation

Principles of Consolidation

These unaudited condensed consolidated financial statements include the accounts of AMC Networks and its majority owned or controlled subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

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

Unaudited Interim Financial Statements

These condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and Article 10 of Regulation S-X of the Securities and Exchange Commission (“SEC”), and should be read in conjunction with the Company’s consolidated financial statements and notes thereto for the year ended December 31, 2015 contained in the Company’s Annual Report on Form 10-K (“2015 Form 10-K”) filed with the SEC. The condensed consolidated financial statements presented in this Quarterly Report on Form 10-Q are unaudited; however, in the opinion of management, such financial statements reflect all adjustments, consisting solely of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods presented.

The results of operations for interim periods are not necessarily indicative of the results that might be expected for future interim periods or for the full year ending December 31, 2016.

Program Rights

The Company periodically reviews the programming usefulness of its licensed and owned original program rights based on a series of factors, including expected future revenue generation from airings on the Company’s networks and other exploitation opportunities, ratings, type and quality of program material, standards and practices, and fitness for exhibition through various forms of distribution. If it is determined that film or other program rights have no future programming usefulness, a write-off of the unamortized cost is recorded in technical and operating expense. Program rights write-offs included in technical and operating expense of $19,596 and $13,199 were recorded for the three months ended September 30, 2016 and 2015, respectively. Program rights write-offs included in technical and operating expense of $20,676 and $26,800 were recorded for the nine months ended September 30, 2016 and 2015, respectively.

Use of Estimates

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

AMC NETWORKS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Dollars in thousands, except per share amounts)

(unaudited)

rights, the estimated useful lives of intangible assets, valuation and recoverability of goodwill and intangible assets and income tax assets and liabilities.

Reclassifications

Certain reclassifications were made to the prior period amounts to conform to the current period presentation.

Recently Issued Accounting Pronouncements

In August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments. The guidance clarifies the way in which certain cash receipts and cash payments should be classified on the statement of cash flows and also how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. ASU 2016-15 is effective for the first quarter of 2018 with early adoption permitted. The adoption of ASU 2016-15 is not expected to have a material impact on the Company's consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The updated guidance changes how companies account for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as the classification of related matters in the statement of cash flows. ASU 2016-09 is effective for the first quarter of 2017. The Company is currently assessing the impact the adoption will have on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). ASU 2016-02 requires lessees to record most of their leases on the balance sheet, which will be recognized as a right-of-use asset and a lease liability. The Company will be required to classify each separate lease component as an operating or finance lease at the lease commencement date. Initial measurement of the right-of-use asset and lease liability is the same for operating and finance leases, however expense recognition and amortization of the right-of-use asset differs. Operating leases will reflect lease expense on a straight-line basis similar to current operating leases. The straight-line expense will reflect the interest expense on the lease liability (effective interest method) and amortization of the right-of-use asset, which will be presented as a single line item in the operating expense section of the income statement. Finance leases will reflect a front-loaded expense pattern similar to the pattern for current capital leases. ASU 2016-02 is effective for the first quarter of 2019, with early adoption permitted. The Company is currently determining its implementation approach and assessing the impact the adoption will have on its consolidated financial statements.

In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740) Balance Sheet Classification of Deferred Taxes. ASU 2015-17 requires deferred tax liabilities and assets be classified as noncurrent in the statement of financial position. ASU 2015-17 is effective for the first quarter of 2017 with early adoption permitted. The adoption of ASU 2015-17 is not expected to have a material impact on the Company's consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 provides new guidance related to how an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard requires an evaluation of (i) transfer of control, (ii) variable consideration, (iii) allocation of selling price for multiple elements, (iv) intellectual property licenses, (v) time value of money, and (vi) contract costs. The standard also expands the required disclosures related to revenue and cash flows from contracts with customers to provide greater insight into both revenue that has been recognized, and revenue that is expected to be recognized in the future from existing contracts. In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations, which provides clarification on the implementation guidance on principal versus agent considerations outlined in ASU No. 2014-09. In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which finalized amendments to identifying performance obligations and accounting for licenses of intellectual property. ASU 2014-09, ASU 2016-08 and ASU 2016-10 are effective for the first quarter of 2018, with early adoption permitted and retrospective application required. The Company is currently determining its implementation approach and assessing the impact the adoption will have on its consolidated financial statements.

AMC NETWORKS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Dollars in thousands, except per share amounts)

(unaudited)

Note 2. Net Income per Share

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



	Three Months Ended September 30,		Nine Months Ended September 30,
	2016	2015	2016	2015
Basic weighted average common shares outstanding	71,507,000	72,503,000	72,269,000	72,386,000
Effect of dilution:
Stock options	1,000	117,000	17,000	162,000
Restricted stock units	632,000	602,000	616,000	560,000
Diluted weighted average common shares outstanding	72,140,000	73,222,000	72,902,000	73,108,000

For the three and nine months ended September 30, 2016 and September 30, 2015, there were no restricted stock units that would have been anti-dilutive to the diluted weighted average common shares outstanding. Approximately 137,000 and 125,000 restricted stock units for the three and nine months ended September 30, 2016 and September 30, 2015, respectively, have been excluded from diluted weighted average common shares outstanding since a performance condition on these awards was not met in each of the respective periods.

Stock Repurchase Program

On March 4, 2016, the Company’s Board of Directors authorized a program to repurchase up to $500,000 of its outstanding shares of common stock (the “2016 Stock Repurchase Program”). For the three months ended September 30, 2016, the Company repurchased 1,138,196 shares of its Class A common stock at an average purchase price of approximately $54.27 per share. For the nine months ended September 30, 2016, the Company repurchased 1,949,581 shares of its Class A common stock at an average purchase price of approximately $56.42 per share. As of September 30, 2016, the Company has $390,003 available for repurchase under the 2016 Stock Repurchase Program.

Note 3. Restructuring

During the three months ended September 30, 2016, the Company launched a restructuring initiative that involved modifications to the organizational structure of the Company and is expected to result in reduced employee costs and operating expenses primarily through a voluntary buyout program offered to certain employees. Additional charges relating to this restructuring initiative may be incurred in future periods.

The Company incurred restructuring expense during the three and nine months ended September 30, 2015 primarily related to severance charges associated with the elimination of certain positions across the Company and the termination of distribution in certain territories.

The following table summarizes the restructuring expense recognized by operating segment:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
National Networks	$	8,103	$	100	$	8,170	$	817
International & Other	11,209		2,531		11,496		5,124
Total restructuring expense	$	19,312	$	2,631	$	19,666	$	5,941

AMC NETWORKS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Dollars in thousands, except per share amounts)

(unaudited)

The following table summarizes the accrued restructuring costs:



	Severance and employee-related costs			Other exit costs			Total
December 31, 2015	$	9,498		$	512		$	10,010
Charges	18,947			719			19,666
Cash payments	(9,501		)	(1,063		)	(10,564		)
Currency translation	(88		)	7			(81		)
September 30, 2016	$	18,856		$	175		$	19,031

Liabilities for restructuring costs are included in accrued liabilities in the condensed consolidated balance sheet at September 30, 2016.

Note 4. Goodwill and Other Intangible Assets

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



	National Networks			International and Other			Total
December 31, 2015	$	244,849		$	491,426		$	736,275
Purchase accounting adjustments	—			(6,224		)	(6,224		)
Amortization of “second component” goodwill	(1,909		)	—			(1,909		)
Foreign currency translation	—			(21,979		)	(21,979		)
September 30, 2016	$	242,940		$	463,223		$	706,163

Purchase accounting adjustments included in the International and Other segment relate to the allocation of fair value for a previous acquisition of a small international channel from goodwill primarily to identifiable intangible assets.

The reduction of $1,909 in the carrying amount of goodwill for the National Networks is due to the realization of a tax benefit for the amortization of “second component” goodwill at SundanceTV. Second component goodwill is the amount of tax deductible goodwill in excess of goodwill for financial reporting purposes. In accordance with the authoritative guidance at the time of the SundanceTV acquisition, the tax benefits associated with this excess are applied to first reduce the amount of goodwill, and then other intangible assets for financial reporting purposes, if and when such tax benefits are realized in the Company’s tax returns.

AMC NETWORKS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Dollars in thousands, except per share amounts)

(unaudited)

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



	September 30, 2016
	Gross		Accumulated Amortization			Net		Estimated Useful Lives
Amortizable intangible assets:
Affiliate and customer relationships	$	538,888	$	(132,517	)	$	406,371	11 to 25 years
Advertiser relationships	46,282		(8,146		)	38,136		11 years
Trade names	55,567		(6,399		)	49,168		20 years
Other amortizable intangible assets	10,662		(663		)	9,999		5 years
Total amortizable intangible assets	651,399		(147,725		)	503,674
Indefinite-lived intangible assets:
Trademarks	19,900		—			19,900
Total intangible assets	$	671,299	$	(147,725	)	$	523,574
	December 31, 2015
	Gross		Accumulated Amortization			Net
Amortizable intangible assets:
Affiliate and customer relationships	$	554,012	$	(110,203	)	$	443,809
Advertiser relationships	46,282		(4,990		)	41,292
Trade names	48,522		(4,353		)	44,169
Other amortizable intangible assets	15		(5		)	10
Total amortizable intangible assets	648,831		(119,551		)	529,280
Indefinite-lived intangible assets:
Trademarks	19,900		—			19,900
Total intangible assets	$	668,731	$	(119,551	)	$	549,180

Aggregate amortization expense for amortizable intangible assets for the nine months ended September 30, 2016 and 2015 was $29,199 and $32,482, respectively. Estimated aggregate amortization expense for intangible assets subject to amortization for each of the following five years is:



Years Ending December 31,
2016	$	37,984
2017	37,762
2018	37,762
2019	37,750
2020	37,748

Note 5. Accrued Liabilities

Accrued liabilities consist of the following:



	September 30, 2016		December 31, 2015
Interest	$	35,406	$	28,246
Employee related costs	98,101		119,931
Other accrued expenses	120,072		105,909
Total accrued liabilities	$	253,579	$	254,086

AMC NETWORKS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Dollars in thousands, except per share amounts)

(unaudited)

Note 6. Long-term Debt

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



	September 30, 2016			December 31, 2015
Senior Secured Credit Facility: ^(a)
Term Loan A Facility	$	1,295,000		$	1,406,000
Senior Notes:
5.00% Notes due April 2024	1,000,000			—
7.75% Notes due July 2021	—			700,000
4.75% Notes due December 2022	600,000			600,000
Total long-term debt	2,895,000			2,706,000
Unamortized discount	(24,466		)	(17,911		)
Unamortized deferred financing costs	(16,616		)	(20,281		)
Long-term debt, net	2,853,918			2,667,808
Current portion of long-term debt	203,500			148,000
Noncurrent portion of long-term debt	$	2,650,418		$	2,519,808


(a)	The Company’s $500,000 revolving credit facility remains undrawn at September 30, 2016. Total undrawn revolver commitments are available to be drawn for general corporate purposes of the Company.

5.00% Notes due 2024

On March 30, 2016, the Company issued $1,000,000 in aggregate principal amount of 5.00% senior notes, net of an issuance discount of $17,500, due 2024 (the “5.00% Notes”). AMC Networks used a portion of the net proceeds of this offering to make a cash tender (“Tender Offer”) for its outstanding 7.75% Senior Notes due 2021 (the "7.75% Notes") with the remaining proceeds to be used for general corporate purposes, which may include the redemption of any of the 7.75% Notes not tendered. The 5.00% Notes were issued pursuant to an indenture dated as of March 30, 2016 (the “5.00% Notes Indenture”).

In connection with the issuance of the 5.00% Notes, AMC Networks incurred deferred financing costs of $2,070, which are being amortized, using the effective interest method, to interest expense over the term of the 5.00% Notes.

Interest on the 5.00% Notes is payable semi-annually in arrears on April 1 and October 1 of each year.

The 5.00% Notes may be redeemed, in whole or in part, at any time on or after April 1, 2020, at a redemption price equal to 102.5% of the principal amount thereof (plus accrued and unpaid interest thereon, if any, to the date of such redemption), declining annually to 100% of the principal amount thereof (plus accrued and unpaid interest thereon, if any, to the date of such redemption) beginning on April 1, 2022.

The 5.00% Notes are guaranteed on a senior unsecured basis by certain of AMC Networks’ existing and future domestic restricted subsidiaries, in accordance with the 5.00% Notes Indenture. The guarantees under the 5.00% Notes are full and unconditional and joint and several.

The 5.00% Notes Indenture contains certain affirmative and negative covenants applicable to AMC Networks and its restricted subsidiaries including restrictions on their ability to incur additional indebtedness, consummate certain assets sales, make investments in entities that are not restricted subsidiaries, create liens on their assets, enter into certain affiliate transactions and make certain restricted payments, including restrictions on AMC Networks’ ability to pay dividends on, or repurchase, its common stock.

7.75% Notes due 2021

In March 2016, the Company used a portion of the net proceeds of the 5.00% Notes to make a Tender Offer for the 7.75% Notes at a price of $1,058.57 per $1,000 principal amount of notes plus accrued and unpaid interest. Pursuant to the Tender Offer, the Company purchased approximately $654,000 principal amount of the 7.75% Notes for a purchase price of approximately $703,000 including accrued and unpaid interest of $10,567 and related fees. On June 9, 2016, the Company gave notice to the remaining holders of its 7.75% Notes of its intent to redeem all outstanding 7.75% Notes on July 15, 2016, (the “Redemption Date”) and on July 15, 2016, the Company redeemed the remaining $45,551 of the 7.75% notes then outstanding at a redemption price equal to 103.875% of the principal amount thereof (plus accrued and unpaid interest thereon to the Redemption Date). As of September 30, 2016, none of the 7.75% Notes remain outstanding.

AMC NETWORKS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Dollars in thousands, except per share amounts)

(unaudited)

In connection with the Tender Offer in March 2016 and subsequent redemption of the remaining 7.75% Notes in July 2016, the Company recorded a loss on extinguishment of debt of $50,638 for the nine months ended September 30, 2016 which includes $40,953 related to the excess of the redemption price, premium paid and related fees, and the write-off of unamortized issuance discount and deferred financing fees related to the 7.75% Notes of $8,715 and $970, respectively.

Note 7. Fair Value Measurement

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


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


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


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

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



	Level I		Level II		Total
At September 30, 2016:
Assets:
Cash equivalents	$	131,385	$	—	$	131,385
Interest rate swap contracts	—		165		165
Foreign currency derivatives	—		6,211		6,211
Liabilities:
Interest rate swap contracts	$	—	$	1,295	$	1,295
Foreign currency derivatives	—		3,651		3,651
At December 31, 2015:
Assets:
Cash equivalents	$	2,027	$	—	$	2,027
Interest rate swap contracts	—		1,449		1,449
Foreign currency derivatives	—		4,421		4,421
Liabilities:
Interest rate swap contracts	$	—	$	2,682	$	2,682
Foreign currency derivatives	—		3,107		3,107

The Company’s cash equivalents are classified within Level I of the fair value hierarchy because they are valued using quoted market prices.

The Company’s interest rate swap contracts and foreign currency derivatives (see Note 8) are classified within Level II of the fair value hierarchy and their fair values are determined based on a market approach valuation technique that uses readily observable market parameters and the consideration of counterparty risk.

The Company does not have any recurring assets or liabilities measured at fair value that would be considered Level III.

Fair value measurements are also used in nonrecurring valuations performed in connection with acquisition accounting. These nonrecurring valuations primarily include the valuation of affiliate and customer relationships intangible assets, advertiser relationship intangible assets and property and equipment. All of our nonrecurring valuations use significant unobservable inputs and therefore fall under Level III of the fair value hierarchy.

Credit Facility Debt and Senior Notes

The fair values of each of the Company’s debt instruments are based on quoted market prices for the same or similar issues or on the current rates offered to the Company for instruments of the same remaining maturities.

AMC NETWORKS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Dollars in thousands, except per share amounts)

(unaudited)

The carrying values and estimated fair values of the Company’s financial instruments, excluding those that are carried at fair value in the condensed consolidated balance sheets, are summarized as follows:



	September 30, 2016
	Carrying Amount		Estimated Fair Value
Debt instruments:
Term Loan A Facility	$	1,280,633	$	1,288,525
5.00% Notes due April 2024	981,430		1,008,750
4.75% Notes due December 2022	591,855		610,500
	$	2,853,918	$	2,907,775



	December 31, 2015
	Carrying Amount		Estimated Fair Value
Debt instruments:
Term Loan A Facility	$	1,386,869	$	1,370,850
7.75% Notes due July 2021	689,910		737,625
4.75% Notes due December 2022	591,029		600,000
	$	2,667,808	$	2,708,475

Fair value estimates related to the Company’s debt instruments presented above are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgments and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Note 8. Derivative Financial Instruments

Interest Rate Risk

To manage interest rate risk, the Company enters into interest rate swap contracts to adjust the amount of total debt that is subject to variable interest rates.

As of September 30, 2016, the Company had interest rate swap contracts outstanding with notional amounts aggregating $300,000, which consists of interest rate swap contracts with notional amounts of $200,000 that are designated as cash flow hedges and interest rate swap contracts with notional amounts of $100,000 that are not designated as hedging instruments. The Company’s outstanding interest rate swap contracts have varying maturities ranging from July 2017 to October 2018. At September 30, 2016, the Company’s interest rate swap contracts designated as cash flow hedges were highly effective.

Foreign Currency Exchange Rate Risk

The Company is exposed to foreign currency risk to the extent that the Company enters into transactions denominated in currencies other than its subsidiaries’ respective functional currencies (non-functional currency risk), such as affiliation agreements, programming contracts, certain trade receivables, accounts payable and intercompany amounts that are denominated in a currency other than the applicable functional currency of a subsidiary.

AMC NETWORKS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Dollars in thousands, except per share amounts)

(unaudited)

The fair values of the Company’s derivative financial instruments included in the condensed consolidated balance sheets are as follows:



	Balance Sheet Location	September 30, 2016		December 31, 2015
Derivatives designated as hedging instruments:
Assets:
Interest rate swap contracts	Other assets	$	165	$	1,449
Liabilities:
Interest rate swap contracts	Other liabilities	163		—
Derivatives not designated as hedging instruments:
Assets:
Foreign currency derivatives	Prepaid expenses and other current assets	1,617		1,331
Foreign currency derivatives	Other assets	4,594		3,090
Liabilities:
Interest rate swap contracts	Accrued liabilities	1,132		660
Interest rate swap contracts	Other liabilities	—		2,022
Foreign currency derivatives	Accrued liabilities	1,017		1,429
Foreign currency derivatives	Other liabilities	2,634		1,678

The amounts of gains and losses related to the Company’s derivative financial instruments designated as hedging instruments are as follows:



	Gain or (Loss) on Derivatives Recognized in OCI					Location of Gain or (Loss) in Earnings	Gain or (Loss) Reclassified from Accumulated OCI into Earnings (a)
	Three Months Ended September 30,						Three Months Ended September 30,
	2016		2015				2016			2015
Derivatives in cash flow hedging relationships:
Interest rate swap contracts	$	750	$	(126	)	Interest expense	$	(146	)	$	(654	)


(a)	There were no gains or losses recognized in earnings related to any ineffective portion of hedging relationships or related to any amount excluded from the assessment of hedge effectiveness for the three months ended September 30, 2016 and 2015.



	Gain or (Loss) on Derivatives Recognized in OCI						Location of Gain or (Loss) in Earnings	Gain or (Loss) Reclassified from Accumulated OCI into Earnings (a)
	Nine Months Ended September 30,							Nine Months Ended September 30,
	2016			2015				2016			2015
Derivatives in cash flow hedging relationships:
Interest rate swap contracts	$	(1,925	)	$	(595	)	Interest expense	$	(478	)	$	(2,493	)


(a)	There were no gains or losses recognized in earnings related to any ineffective portion of hedging relationships or related to any amount excluded from the assessment of hedge effectiveness for the nine months ended September 30, 2016 and 2015.

AMC NETWORKS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Dollars in thousands, except per share amounts)

(unaudited)

The amounts of gains and losses related to the Company’s derivative financial instruments not designated as hedging instruments are as follows:



	Location of Gain or (Loss) Recognized in Earnings on Derivatives	Amount of Gain or (Loss) Recognized in Earnings on Derivatives						Amount of Gain or (Loss) Recognized in Earnings on Derivatives
		Three Months Ended September 30,						Nine Months Ended September 30,
		2016			2015			2016			2015
Derivatives not designated as hedging relationships:
Interest rate swap contracts	Interest expense	$	(4	)	$	(89	)	$	(233	)	$	(584	)
Foreign currency derivatives	Miscellaneous, net	66			1,501			2,276			—
Total		$	62		$	1,412		$	2,043		$	(584	)

Note 9. Income Taxes

For the three and nine months ended September 30, 2016, income tax expense was $21,157 and $119,090, respectively, representing an effective tax rate of 24% and 31%, respectively. The effective tax rate differs from the federal statutory rate of 35% due primarily to state and local income tax expense of $788 and $6,123, tax benefit of $3,443 and $12,364 from foreign subsidiary earnings indefinitely reinvested outside the U.S., tax benefit of $6,651 and $3,939 relating to uncertain tax positions (including accrued interest), tax benefit from the domestic production activities deduction of $2,784 and $12,519 and tax expense of $2,320 and $7,021 resulting from an increase in the valuation allowances for foreign and local taxes for the three and nine months ended September 30, 2016, respectively. The tax benefit relating to a reduction in uncertain tax positions is primarily due to a lapse of the applicable statute of limitations.

For the three and nine months ended September 30, 2015, income tax expense was $43,358 and $155,609, respectively, representing an effective tax rate of 36% and 35%, respectively. The effective tax rate differs from the federal statutory rate of 35% due primarily to state and local income tax expense of $2,775 and $9,335, tax benefit of $409 and $6,610 from foreign subsidiary earnings indefinitely reinvested outside the U.S., tax benefit from the domestic production activities deduction of $4,332 and $14,515 and tax expense of $3,261 and $10,049 resulting from an increase in the valuation allowances for foreign and local taxes for the three and nine months ended September 30, 2015, respectively.

At September 30, 2016, the Company had foreign tax credit carry forwards of approximately $42,000, expiring on various dates from 2016 through 2026. For the nine months ended September 30, 2016, excess tax benefits of $764 relating to share-based compensation awards and $1,207 relating to amortization of tax deductible second component goodwill were realized as a reduction in tax liability (as determined on a ‘with-and-without’ approach).

Note 10. Commitments and Contingencies

Commitments

As of September 30, 2016, the Company’s contractual obligations not reflected on the Company’s condensed consolidated balance sheet decreased $168,458 to $1,347,605 as compared to $1,516,063 at December 31, 2015. The decrease relates primarily to program rights obligations.

Legal Matters

On December 17, 2013, Frank Darabont (“Darabont”), Ferenc, Inc., Darkwoods Productions, Inc., and Creative Artists Agency, LLC (together, “Plaintiffs”), filed a complaint in New York Supreme Court in connection with Darabont’s rendering services as a writer, director and producer of the television series entitled The Walking Dead and the agreement between the parties related thereto. The Plaintiffs asserted claims for breach of contract, breach of the covenant of good faith and fair dealing, for an accounting and for declaratory relief. On August 19, 2015, Plaintiffs filed their First Amended Complaint (the “Amended Complaint”), in which they retracted their claims for wrongful termination and failure to apply production tax credits in calculating Plaintiffs’ contingent compensation. Plaintiffs also added a claim that Darabont is entitled to a larger share, on a percentage basis, of contingent compensation than he is currently being accorded. On September 26, 2016, Plaintiffs filed their note of issue and certificate of readiness for trial, indicating that the parties have completed fact and expert discovery. The parties are now briefing summary judgment motions, which papers, according to a stipulated schedule, will be fully submitted to the Court in early January

AMC NETWORKS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Dollars in thousands, except per share amounts)

(unaudited)

2017. The Company has opposed the claims in the Complaint, the Amended Complaint and all subsequent complaints. The Company believes that the asserted claims are without merit, denies the allegations and continues to defend the case vigorously. At this time, no determination can be made as to the ultimate outcome of this litigation or the potential liability, if any, on the part of the Company.

The Company is party to various lawsuits and claims in the ordinary course of business, including the matter described above. Although the outcome of these matters cannot be predicted with certainty and while the impact of these matters on the Company’s results of operations in any particular subsequent reporting period could be material, management does not believe that the resolution of these matters will have a material adverse effect on the financial position of the Company or the ability of the Company to meet its financial obligations as they become due.

Note 11. Equity Plans

On June 8, 2016, AMC Networks granted 27,066 restricted stock units (“RSUs”) under the AMC Networks Inc. Amended and Restated 2011 Non-Employee Directors Plan to non-employee directors that vested on the date of grant.

On March 4, 2016, AMC Networks granted 486,758 RSUs and 371,109 performance restricted stock units (“PRSUs”) to certain executive officers and employees under the AMC Networks Inc. Amended and Restated 2011 Employee Stock Plan. PRSUs were first granted in March 2016 to replace the Company’s long-term cash performance awards. The RSUs vest in equal annual installments over a three-year period and the vesting criteria for 137,527 RSUs include the achievement of certain performance targets by the Company. The PRSUs vest on the third anniversary of the grant date and include the achievement of certain performance targets by the Company.

During the nine months ended September 30, 2016, 336,435 RSUs of AMC Networks Class A Common Stock previously issued to employees of the Company vested. On the vesting dates, 139,904 RSUs were surrendered to the Company to cover the required statutory tax withholding obligations and 196,531 new shares of the AMC Networks Class A Common Stock were issued in respect of the remaining vesting RSUs. The units surrendered to satisfy the employees’ statutory minimum tax withholding obligations for the applicable income and other employment tax had an aggregate value of $10,821, which is reflected as a financing activity in the condensed consolidated statement of cash flows for the nine months ended September 30, 2016.

Share-based compensation expense included in selling, general and administrative expense, for the three and nine months ended September 30, 2016 was $9,382 and $28,869, respectively, and $7,821 and $23,910 for the three and nine months ended September 30, 2015, respectively.

As of September 30, 2016, there was $58,992 of total unrecognized share-based compensation cost related to outstanding unvested share-based awards. The unrecognized compensation cost is expected to be recognized over a weighted-average remaining period of approximately 2.5 years.

Note 12. Redeemable Noncontrolling Interests

In connection with a membership interest purchase agreement entered into with BBC Worldwide Americas, Inc. (“BBCWA”), the Company acquired a 49.9% limited liability interest in New Video Channel America L.L.C. (“New Video”). New Video owns the cable channel BBC AMERICA. The terms of the agreement provide BBCWA with a right to put all of its 50.1% noncontrolling interest to the Company at the greater of the then fair value or the fair value of the initial equity interest at inception. The put option is exercisable on the fifteenth and twenty-fifth year anniversary of the Joint Venture agreement.

In connection with the creation of another joint venture entity in 2013, the terms of the agreement provide the noncontrolling member with a right to put all of its interest to the Company at the then fair value.

Because exercise of these put rights is outside the Company's control, the noncontrolling interest in each entity is presented as redeemable noncontrolling interest outside of stockholders' equity (deficiency) on the Company's condensed consolidated balance sheet.

AMC NETWORKS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Dollars in thousands, except per share amounts)

(unaudited)

The following table summarizes activity related to redeemable noncontrolling interest for the nine months ended September 30, 2016.



	Nine Months Ended September 30, 2016
December 31, 2015	$	211,691
Net earnings	12,661
Distributions	(9,010		)
Other	(19		)
September 30, 2016	$	215,323

Note 13. Related Party Transactions

Members of the Dolan Family, for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended, including trusts for the benefit of the Dolan Family, collectively beneficially own all of the AMC Networks outstanding Class B Common Stock and own less than 2% of the AMC Networks’ outstanding Class A Common Stock. Such shares of the AMC Networks Class A Common Stock and Class B Common Stock, collectively, represent approximately 67% of the aggregate voting power of AMC Networks’ outstanding common stock. Members of the Dolan Family are also the controlling stockholders of The Madison Square Garden Company (“MSG”) and MSG Networks Inc. (“MSG Networks”). Prior to June 21, 2016, members of the Dolan Family were also the controlling stockholders of Cablevision Systems Corporation (“Cablevision”)

On June 21, 2016, Cablevision was acquired by a subsidiary of Altice N.V. and a change in control occurred which resulted in members of the Dolan Family no longer being controlling stockholders of the surviving company, Altice USA. Accordingly, Altice USA is not a related party of AMC Networks.

The Company and its related parties routinely enter into transactions with each other in the ordinary course of business. Revenues, net from related parties amounted to $1,450 and $6,407 for the three months ended September 30, 2016 and 2015, respectively and $14,356 and $19,619 for the nine months ended September 30, 2016 and 2015, respectively. Amounts charged to the Company, included in selling, general and administrative expenses, pursuant to transactions with its related parties amounted to $647 and $972 for the three months ended September 30, 2016 and 2015, respectively and $2,537 and $3,190 for the nine months ended September 30, 2016 and 2015, respectively.

On June 16, 2016, AMC Networks entered into an arrangement with the Dolan Family Office, LLC (“DFO”), MSG and MSG Networks providing for the sharing of certain expenses associated with executive office space which will be available to Charles F. Dolan (the Executive Chairman and a director of the Company and a director of MSG and MSG Networks), James L. Dolan (the Executive Chairman and a director of MSG and MSG Networks and a director of the Company), and the DFO which is controlled by Charles F. Dolan. The Company’s share of initial set-up costs and office expenses is not material.

Note 14. Cash Flows

The Company’s non-cash investing and financing activities and other supplemental data are as follows:



	Nine Months Ended September 30,
	2016		2015
Non-Cash Investing and Financing Activities:
Increase in capital lease obligations	$	11,040	$	—
Capital expenditures incurred but not yet paid	1,421		1,393
Supplemental Data:
Cash interest paid	79,951		98,028
Income taxes paid, net	98,997		146,264

AMC NETWORKS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Dollars in thousands, except per share amounts)

(unaudited)

Note 15. Accumulated Other Comprehensive Loss

The following table details the components of accumulated other comprehensive loss:



	Nine Months Ended September 30, 2016									Nine Months Ended September 30, 2015
	Currency Translation Adjustment			Gains (Losses) on Cash Flow Hedges			Accumulated Other Comprehensive Income (Loss)			Currency Translation Adjustment			Gains (Losses) on Cash Flow Hedges			Accumulated Other Comprehensive Income (Loss)
Beginning balance	$	(136,434	)	$	377		$	(136,057	)	$	(77,492	)	$	(1,756	)	$	(79,248	)
Other comprehensive (loss) before reclassifications	(3,767		)	(1,925		)	(5,692		)	(39,792		)	(595		)	(40,387		)
Amounts reclassified from accumulated other comprehensive loss	—			478			478			—			2,493			2,493
Net current-period other comprehensive (loss) income, before income taxes	(3,767		)	(1,447		)	(5,214		)	(39,792		)	1,898			(37,894		)
Income tax (expense) benefit	(12,106		)	532			(11,574		)	(174		)	(694		)	(868		)
Net current-period other comprehensive (loss) income, net of income taxes	(15,873		)	(915		)	(16,788		)	(39,966		)	1,204			(38,762		)
Ending balance	$	(152,307	)	$	(538	)	$	(152,845	)	$	(117,458	)	$	(552	)	$	(118,010	)

Amounts reclassified to net earnings for gains and losses on cash flow hedges designated as hedging instruments are included in interest expense in the condensed consolidated statements of income.

Note 16. Segment Information

The Company classifies its operations into two operating segments: National Networks and International and Other. These operating segments represent strategic business units that are managed separately.

The Company generally allocates all corporate overhead costs to the Company’s two operating segments based upon their proportionate estimated usage of services, including such costs as executive salaries and benefits, costs of maintaining corporate headquarters, facilities and common support functions (such as human resources, legal, finance, tax, accounting, audit, treasury, risk management, strategic planning and information technology) as well as sales support functions and creative and production services.

The Company evaluates segment performance based on several factors, of which the primary financial measure is operating segment adjusted operating income (a non-GAAP measure) defined as operating income (loss) before depreciation and amortization, share-based compensation expense or benefit, and restructuring expense or credit). We renamed this non-GAAP performance measure to adjusted operating income (“AOI”), formerly referred to as adjusted operating cash flow (“AOCF”). Other than the title, there is no change to the definition of this non-GAAP measure.

The Company has presented the components that reconcile adjusted operating income to operating income, an accepted GAAP measure, and other information as to the continuing operations of the Company’s operating segments below.

AMC NETWORKS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Dollars in thousands, except per share amounts)

(unaudited)



	Three Months Ended September 30, 2016
	National Networks			International and Other			Inter-segment eliminations			Consolidated
Revenues, net
Advertising	$	189,300		$	21,424		$	—		$	210,724
Distribution	336,413			92,596			(5,087		)	423,922
Consolidated revenues, net	$	525,713		$	114,020		$	(5,087	)	$	634,646
Adjusted operating income	$	162,503		$	10,953		$	(5,343	)	$	168,113
Share-based compensation expense	(7,212		)	(2,170		)	—			(9,382		)
Restructuring expense	(8,103		)	(11,209		)	—			(19,312		)
Depreciation and amortization	(8,040		)	(14,242		)	—			(22,282		)
Operating income (loss)	$	139,148		$	(16,668	)	$	(5,343	)	$	117,137
	Three Months Ended September 30, 2015
	National Networks			International and Other			Inter-segment eliminations			Consolidated
Revenues, net
Advertising	$	210,194		$	20,645		$	—		$	230,839
Distribution	311,446			93,458			(3,578		)	401,326
Consolidated revenues, net	$	521,640		$	114,103		$	(3,578	)	$	632,165
Adjusted operating income	$	186,574		$	6,749		$	(2,741	)	$	190,582
Share-based compensation expense	(6,039		)	(1,782		)	—			(7,821		)
Restructuring expense	(100		)	(2,531		)	—			(2,631		)
Depreciation and amortization	(7,337		)	(13,525		)	—			(20,862		)
Operating income (loss)	$	173,098		$	(11,089	)	$	(2,741	)	$	159,268

AMC NETWORKS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Dollars in thousands, except per share amounts)

(unaudited)



	Nine Months Ended September 30, 2016
	National Networks			International and Other			Inter-segment eliminations			Consolidated
Revenues, net
Advertising	$	692,483		$	69,837		$	—		$	762,320
Distribution	1,004,499			271,511			(12,273		)	1,263,737
Consolidated revenues, net	$	1,696,982		$	341,348		$	(12,273	)	$	2,026,057
Adjusted operating income	$	649,782		$	24,118		$	(8,070	)	$	665,830
Share-based compensation expense	(22,581		)	(6,288		)	—			(28,869		)
Restructuring expense	(8,170		)	(11,496		)	—			(19,666		)
Depreciation and amortization	(24,062		)	(39,405		)	—			(63,467		)
Operating income (loss)	$	594,969		$	(33,071	)	$	(8,070	)	$	553,828
Capital expenditures	$	10,165		$	34,340		$	—		$	44,505
	Nine Months Ended September 30, 2015
	National Networks			International and Other			Inter-segment eliminations			Consolidated
Revenues, net
Advertising	$	656,345		$	61,226		$	—		$	717,571
Distribution	916,751			272,115			(4,452		)	1,184,414
Consolidated revenues, net	$	1,573,096		$	333,341		$	(4,452	)	$	1,901,985
Adjusted operating income	$	622,385		$	21,038		$	(2,294	)	$	641,129
Share-based compensation expense	(18,492		)	(5,418		)	—			(23,910		)
Restructuring expense	(817		)	(5,124		)	—			(5,941		)
Depreciation and amortization	(21,911		)	(40,518		)	—			(62,429		)
Operating income (loss)	$	581,165		$	(30,022	)	$	(2,294	)	$	548,849
Capital expenditures	$	17,095		$	31,715		$	—		$	48,810

Inter-segment eliminations are primarily licensing revenues recognized between the National Networks and International and Other segments as well as revenues recognized by AMC Networks Broadcasting & Technology for transmission revenues recognized from the International and Other operating segment.



	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Inter-segment revenues
National Networks	$	(5,079	)	$	(3,563	)	$	(12,015	)	$	(4,351	)
International and Other	(8		)	(15		)	(258		)	(101		)
	$	(5,087	)	$	(3,578	)	$	(12,273	)	$	(4,452	)

The table below summarizes revenues based on customer location:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Revenues
United States	$	499,316	$	512,062	$	1,616,453	$	1,548,145
Europe	93,356		84,415		290,879		238,357
Other	41,974		35,688		118,725		115,483
	$	634,646	$	632,165	$	2,026,057	$	1,901,985

AMC NETWORKS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Dollars in thousands, except per share amounts)

(unaudited)

The table below summarizes property and equipment based on asset location:



	September 30, 2016		December 31, 2015
Property and equipment, net
United States	$	95,589	$	93,951
Europe	61,914		48,043
Other	20,191		21,866
	$	177,694	$	163,860

Note 17. Condensed Consolidating Financial Statements

Long-term debt of AMC Networks includes $600,000 of 4.75% senior notes due December 2022 and $1,000,000 of 5.00% senior notes due April 2024. All outstanding senior notes issued by AMC Networks are guaranteed on a senior unsecured basis by certain of its existing and future domestic restricted subsidiaries (the “Guarantor Subsidiaries”). All Guarantor Subsidiaries are owned 100% by AMC Networks. The outstanding notes are fully and unconditionally guaranteed by the Guarantor Subsidiaries on a joint and several basis.

Set forth below are condensed consolidating financial statements presenting the financial position, results of operations, comprehensive income, and cash flows of (i) the Parent Company, (ii) the Guarantor Subsidiaries on a combined basis (as such guarantees are joint and several), (iii) the direct and indirect non-guarantor subsidiaries of the Parent Company (the “Non-Guarantor Subsidiaries”) on a combined basis and (iv) reclassifications and eliminations necessary to arrive at the information for the Company on a consolidated basis.

Basis of Presentation

In presenting the condensed consolidating financial statements, the equity method of accounting has been applied to (i) the Parent Company’s interests in the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries, and (ii) the Guarantor Subsidiaries’ interests in the Non-Guarantor Subsidiaries, even though all such subsidiaries meet the requirements to be consolidated under GAAP. All intercompany balances and transactions between the Parent Company, the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries have been eliminated, as shown in the column “Eliminations.”

The accounting basis in all subsidiaries, including goodwill and identified intangible assets, have been allocated to the applicable subsidiaries.

AMC NETWORKS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Dollars in thousands, except per share amounts)

(unaudited)



Condensed Consolidating Balance Sheet
September 30, 2016
	Parent Company		Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	860	$	504,724	$	177,180	$	—		$	682,764
Accounts receivable, trade (less allowance for doubtful accounts)	—		478,720		168,513		—			647,233
Amounts due from related parties, net	—		384		—		—			384
Current portion of program rights, net	—		257,630		122,809		—			380,439
Prepaid expenses, other current assets and intercompany receivable	1,033		193,472		13,320		(112,344		)	95,481
Deferred tax asset, net	38,706		—		4,331		—			43,037
Total current assets	40,599		1,434,930		486,153		(112,344		)	1,849,338
Property and equipment, net of accumulated depreciation	—		94,999		82,695		—			177,694
Investment in affiliates	3,168,345		810,598		—		(3,978,943		)	—
Program rights, net	—		947,713		149,995		—			1,097,708
Long-term intercompany notes receivable	—		411,476		727		(412,203		)	—
Deferred carriage fees, net	—		46,019		2,143		—			48,162
Intangible assets, net	—		182,733		340,841		—			523,574
Goodwill	—		69,791		636,372		—			706,163
Other assets	165		106,123		113,138		—			219,426
Total assets	$	3,209,109	$	4,104,382	$	1,812,064	$	(4,503,490	)	$	4,622,065
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	—	$	41,080	$	42,352	$	—		$	83,432
Accrued liabilities and intercompany payable	43,680		175,892		146,351		(112,344		)	253,579
Current portion of program rights obligations	—		226,426		61,597		—			288,023
Deferred revenue	—		79,366		15,380		—			94,746
Current portion of long-term debt	203,500		—		—		—			203,500
Current portion of capital lease obligations	—		2,591		1,988		—			4,579
Total current liabilities	247,180		525,355		267,668		(112,344		)	927,859
Program rights obligations	—		338,911		30,676		—			369,587
Long-term debt	2,650,418		—		—		—			2,650,418
Capital lease obligations	—		7,348		29,788		—			37,136
Deferred tax liability, net	176,113		—		7,469		—			183,582
Other liabilities and intercompany notes payable	25,396		64,423		421,023		(412,203		)	98,639
Total liabilities	3,099,107		936,037		756,624		(524,547		)	4,267,221
Commitments and contingencies
Redeemable noncontrolling interests	—		—		215,323		—			215,323
Stockholders’ equity:
AMC Networks stockholders’ equity	110,002		3,168,345		810,598		(3,978,943		)	110,002
Non-redeemable noncontrolling interests	—		—		29,519		—			29,519
Total stockholders’ equity	110,002		3,168,345		840,117		(3,978,943		)	139,521
Total liabilities and stockholders’ equity	$	3,209,109	$	4,104,382	$	1,812,064	$	(4,503,490	)	$	4,622,065

AMC NETWORKS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Dollars in thousands, except per share amounts)

(unaudited)



Condensed Consolidating Balance Sheet
December 31, 2015
	Parent Company		Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminations		Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	434	$	148,260	$	167,627	$	—	$	316,321
Accounts receivable, trade (less allowance for doubtful accounts)	—		538,657		135,954		—		674,611
Amounts due from related parties, net	—		3,818		244		—		4,062
Current portion of program rights, net	—		352,664		100,493		—		453,157
Prepaid expenses, other current assets and intercompany receivable	4,158		112,456		12,322