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 June 30, 2017



¨	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	¨

		Emerging growth company	¨

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

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

The number of shares of common stock outstanding as of July 31, 2017:



Class A Common Stock par value $0.01 per share	52,080,739
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

(in thousands, except per share amounts)

(unaudited)



	June 30, 2017			December 31, 2016
ASSETS
Current Assets:
Cash and cash equivalents	$	189,479		$	481,389
Accounts receivable, trade (less allowance for doubtful accounts of $6,818 and $6,064)	744,647			700,655
Amounts due from related parties, net	488			508
Current portion of program rights, net	450,090			441,130
Prepaid expenses and other current assets	77,612			72,661
Assets held for sale	16,433			—
Total current assets	1,478,749			1,696,343
Property and equipment, net of accumulated depreciation of $257,099 and $272,148	159,153			166,636
Program rights, net	1,221,916			1,108,586
Deferred carriage fees, net	37,626			43,886
Intangible assets, net	479,179			485,809
Goodwill	680,234			657,708
Deferred tax assets, net	9,079			8,598
Other assets	412,232			313,029
Total assets	$	4,478,168		$	4,480,595
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIENCY)
Current Liabilities:
Accounts payable	$	90,893		$	88,677
Accrued liabilities	234,494			284,429
Current portion of program rights obligations	301,527			300,845
Deferred revenue	47,834			53,643
Current portion of long-term debt	259,000			222,000
Current portion of capital lease obligations	4,253			4,584
Liabilities held for sale	16,433			—
Total current liabilities	954,434			954,178
Program rights obligations	485,883			398,175
Long-term debt	2,453,814			2,597,263
Capital lease obligations	28,341			35,282
Deferred tax liabilites, net	159,996			145,791
Other liabilities	120,890			132,219
Total liabilities	4,203,358			4,262,908
Commitments and contingencies
Redeemable noncontrolling interests	217,149			219,331
Stockholders’ equity (deficiency):
Class A Common Stock, $0.01 par value, 360,000 shares authorized, 62,702 and 62,409 shares issued and 53,007 and 57,079 shares outstanding, respectively	627			624
Class B Common Stock, $0.01 par value, 90,000 shares authorized, 11,484 shares issued and outstanding	115			115
Preferred stock, $0.01 par value, 45,000 shares authorized; none issued	—			—
Paid-in capital	158,485			142,798
Accumulated earnings	534,223			295,409
Treasury stock, at cost (9,696 and 5,330 shares Class A Common Stock, respectively)	(519,604		)	(275,230		)
Accumulated other comprehensive loss	(144,169		)	(193,798		)
Total AMC Networks stockholders’ equity (deficiency)	29,677			(30,082		)
Non-redeemable noncontrolling interests	27,984			28,438
Total stockholders’ equity (deficiency)	57,661			(1,644		)
Total liabilities and stockholders’ equity (deficiency)	$	4,478,168		$	4,480,595

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 June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Revenues, net (including revenues, net from related parties of $1,512, $6,200, $3,079 and $12,906, respectively)	$	710,545		$	684,832		$	1,430,734		$	1,391,411
Operating expenses:
Technical and operating (excluding depreciation and amortization)	334,845			305,492			633,457			576,537
Selling, general and administrative (including charges from related parties of $415, $822, $989 and $1,890, respectively)	162,273			179,366			325,982			336,644
Depreciation and amortization	20,606			21,553			44,099			41,185
Impairment charges	17,112			—			17,112			—
Restructuring (credit) expense	(81		)	389			2,623			354
Total operating expenses	534,755			506,800			1,023,273			954,720
Operating income	175,790			178,032			407,461			436,691
Other income (expense):
Interest expense	(30,718		)	(32,007		)	(61,217		)	(63,757		)
Interest income	3,767			1,671			7,259			2,393
Loss on extinguishment of debt	—			(9		)	—			(48,343		)
Miscellaneous, net	18,980			(24,910		)	30,028			(25,599		)
Total other income (expense)	(7,971		)	(55,255		)	(23,930		)	(135,306		)
Income from operations before income taxes	167,819			122,777			383,531			301,385
Income tax expense	(60,193		)	(39,390		)	(133,275		)	(97,933		)
Net income including noncontrolling interests	107,626			83,387			250,256			203,452
Net income attributable to noncontrolling interests	(5,028		)	(6,212		)	(11,442		)	(12,832		)
Net income attributable to AMC Networks’ stockholders	$	102,598		$	77,175		$	238,814		$	190,620

Net income per share attributable to AMC Networks’ stockholders:
Basic	$	1.55		$	1.06		$	3.56		$	2.62
Diluted	$	1.54		$	1.05		$	3.52		$	2.60

Weighted average common shares:
Basic weighted average common shares	66,224			72,729			67,117			72,654
Diluted weighted average common shares	66,789			73,300			67,771			73,287

See accompanying notes to condensed consolidated financial statements.

AMC NETWORKS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Net income including noncontrolling interests	$	107,626		$	83,387		$	250,256		$	203,452
Other comprehensive income (loss):
Foreign currency translation adjustment	37,820			(18,389		)	47,684			(3,004		)
Unrealized (loss) gain on interest rate swaps	(180		)	(765		)	139			(2,343		)
Unrealized (loss) gain on available for sale securities	(1,083		)	—			2,938			—
Other comprehensive income, before income taxes	36,557			(19,154		)	50,761			(5,347		)
Income tax benefit (expense)	465			(8,312		)	(1,132		)	(10,211		)
Other comprehensive income (loss), net of income taxes	37,022			(27,466		)	49,629			(15,558		)
Comprehensive income	144,648			55,921			299,885			187,894
Comprehensive income attributable to noncontrolling interests	(6,559		)	(4,424		)	(13,364		)	(11,456		)
Comprehensive income attributable to AMC Networks’ stockholders	$	138,089		$	51,497		$	286,521		$	176,438

See accompanying notes to condensed consolidated financial statements.

AMC NETWORKS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)



	Six Months Ended June 30,
	2017			2016
Cash flows from operating activities:
Net income including noncontrolling interests	$	250,256		$	203,452
Adjustments to reconcile income from operations to net cash from operating activities:
Depreciation and amortization	44,099			41,185
Impairment charges	17,112			—
Share-based compensation expense related to equity classified awards	27,595			19,488
Amortization and write-off of program rights	433,023			373,491
Amortization of deferred carriage fees	8,803			8,187
Unrealized foreign currency transaction (gain) loss	(8,118		)	28,366
Unrealized (gain) loss on derivative contracts, net	(21,790		)	1,064
Amortization of deferred financing costs and discounts on indebtedness	4,551			4,638
Loss on extinguishment of debt	—			48,343
Bad debt expense	2,208			1,449
Deferred income taxes	11,914			4,225
Excess tax benefits from share-based compensation arrangements	—			(781		)
Other, net	(3,642		)	(1,930		)
Changes in assets and liabilities:
Accounts receivable, trade (including amounts due from related parties, net)	(43,503		)	(45,536		)
Prepaid expenses and other assets	(31,141		)	(17,090		)
Program rights and obligations, net	(458,480		)	(466,288		)
Income taxes payable	(10,094		)	13,636
Deferred revenue	(9,908		)	29,308
Deferred carriage fees, net	(3,313		)	(9,910		)
Accounts payable, accrued expenses and other liabilities	(43,595		)	(5,733		)
Net cash provided by operating activities	165,977			229,564
Cash flows from investing activities:
Capital expenditures	(39,936		)	(24,186		)
Investments in and loans to investees	(43,000		)	—
Payments for acquisition of a business, net of cash acquired	—			(354		)
Net cash used in investing activities	(82,936		)	(24,540		)
Cash flows from financing activities:
Proceeds from the issuance of long-term debt	—			982,500
Principal payments on long-term debt	(110,965		)	(728,449		)
Premium and fees paid on extinguishment of debt	—			(39,188		)
Payments for financing costs	—			(2,070		)
Deemed repurchases of restricted stock units	(13,373		)	(10,834		)
Purchase of treasury stock	(244,374		)	(48,227		)
Proceeds from stock option exercises	—			1,216
Excess tax benefits from share-based compensation arrangements	—			781
Principal payments on capital lease obligations	(2,526		)	(2,075		)
Distributions to noncontrolling interests	(12,930		)	(8,977		)
Net cash (used in) provided by financing activities	(384,168		)	144,677
Net (decrease) increase in cash and cash equivalents from operations	(301,127		)	349,701
Effect of exchange rate changes on cash and cash equivalents	9,217			(22,552		)
Cash and cash equivalents at beginning of period	481,389			316,321
Cash and cash equivalents at end of period	$	189,479		$	643,470

See accompanying notes to condensed consolidated financial statements.

AMC NETWORKS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1. Description of Business and Basis of Presentation

Description of Business

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

•

National Networks: Includes activities of our 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 AMC Studios operations within the National Networks segment sells rights worldwide to its 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. The AMCNI – DMC business was sold on July 12, 2017.

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, unless the fair value option is elected.

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, 2016 contained in the Company’s Annual Report on Form 10-K (“2016 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, 2017.

Program Rights

The Company periodically reviews the programming usefulness of its licensed and owned original program rights based on a series of factors, including expected future revenue generation from airings on the Company’s networks and other exploitation opportunities, ratings, type and quality of program material, standards and practices, and fitness for exhibition through various forms of distribution. If it is determined that film or other program rights have limited, or no future programming usefulness, a write-off of the unamortized cost is recorded in technical and operating expense. Program rights write-offs included in technical and operating expense of $1.4 million and $1.1 million were recorded for the three months ended June 30, 2017 and June 30, 2016, respectively. Program rights write-offs included in technical and operating expense of $1.8 million and $1.1 million were recorded for the six months ended June 30, 2017 and June 30, 2016, respectively.

Assets and Liabilities Held for Sale

In June 2017, we classified the assets and liabilities of AMCNI – DMC as held for sale. Assets held for sale are required to be presented at fair value less estimated sale costs, and as a result, the Company recognized a pre-tax impairment charge of $17.1 million for the three months ended June 30, 2017. Additionally, the Company expects to recognize a pre-tax loss of approximately $12.1 million in the third quarter of 2017 in conjunction with the sale of AMCNI – DMC, completed on July 12, 2017. The loss on sale may vary due to the finalization of certain purchase price adjustments.

AMC NETWORKS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(unaudited)

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, derivative assets and liabilities, certain stock compensation awards, the useful lives and methodologies used to amortize and assess recoverability of program rights, the estimated useful lives of intangible assets, valuation and recoverability of goodwill and intangible assets and income tax assets and liabilities.

Recently Adopted and Recently Issued Accounting Pronouncements

Recently Adopted Accounting Pronouncements

The Company adopted Accounting Standards Update (“ASU”) 2016-09, Improvements to Employee Share-Based Payment Accounting, which became effective for the Company as of January 1, 2017. ASU 2016-09 amends Accounting Standards Codification ("ASC") Topic 718, Compensation – Stock Compensation and simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification in the statement of cash flows. Under the new standard, all excess tax benefits and tax deficiencies are recorded as a component of the provision for income taxes in the reporting period in which they occur. Additionally, ASU 2016-09 requires that the Company present excess tax benefits in the statement of cash flows as an operating activity. The Company elected to apply this adoption prospectively; accordingly, prior periods have not been adjusted. The adoption of this standard did not have a material impact on the Company's consolidated financial statements.

Recently Issued Accounting Pronouncements

In May 2017, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2017-09 Compensation-Stock Compensation (Topic 718). ASU 2017-09 addresses changes to the terms or conditions of a share-based payment award, specifically regarding which changes to the terms or conditions of a share-based payment award would require an entity to apply modification accounting. The guidance does not change the accounting for modifications but clarifies that an entity should account for the effects of a modification unless the fair value, vesting conditions, and classification of the modified award are the same immediately before the original award is modified. ASU 2017-09 is effective for the first quarter of 2018, with early adoption permitted. The adoption of ASU 2017-09 is not expected to have a material impact on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04 Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. ASU 2017-04 removes Step 2 of the current goodwill impairment test under ASC Topic 350 and replaces it with a simplified model. Under the simplified model, a goodwill impairment is calculated as the difference between the carrying amount of a reporting unit and its fair value, but not to exceed the carrying amount of goodwill. The amount of any impairment under the simplified model may differ from what would have been recognized under the two-step test. The ASU is effective for the Company in the first quarter of 2020, with early adoption permitted for any impairment tests performed after a testing date of January 1, 2017. The adoption of ASU 2017-04 is not expected to have a material impact on the Company's consolidated financial statements.

In October 2016, the FASB issued ASU No. 2016-16, Income Taxes – Intra-Entity Transfers of Assets Other Than Inventory. ASU 2016-16 simplifies the accounting for the income tax consequences of intra-entity transfers of assets other than inventory and includes requirements to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs; therefore, eliminating the exception for an intra-entity transfer of an asset other than inventory. ASU 2016-16 is effective for the Company in first quarter of 2018, with early adoption permitted. Any adjustments as a result of adoption are to be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The adoption of ASU 2016-16 is not expected to have a material impact on the Company’s consolidated financial statements.

In August 2016, the FASB issued ASU 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 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

AMC NETWORKS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(unaudited)

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 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 also expands the required disclosures to include the disaggregation of revenue from contracts with customers into categories that depict how the nature, timing and uncertainty of revenue and cash flows are affected by economic factors. During 2016, the FASB issued additional interpretive guidance relating to the standard which covered the topics of principal versus agent considerations and identifying performance obligations and licensing. The standard is effective for the Company in the first quarter of 2018. The two permitted transition methods under the standard are the full retrospective method, in which case the standard would be applied to each prior reporting period presented and the cumulative effect of applying the standard would be recognized at the earliest period shown, or the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date of initial application.

The Company established an implementation team and performed an analysis of each of our revenue streams to assess the impact of the standard on our various revenue contracts, and analyze our current accounting policies and practices to identify potential differences that would result from the implementation of the standard. To date, the Company has made significant progress toward completing its evaluation of the potential changes from adopting the standard on its financial reporting and disclosures. The Company has completed an initial assessment of each of its revenue streams and has begun drafting its revenue recognition policy under the new standard. However, there are a few areas that remain subject to further clarification with respect to the implementation of the new standard on certain of our revenue streams. The Company has been closely monitoring FASB activity related to the new standard, as well as working with various non-authoritative groups to conclude on industry specific interpretative issues.

While significant progress has been made, our final evaluation of the impact of the new revenue standard is ongoing and will continue throughout 2017, including making a final determination about our implementation approach.

Note 2. Net Income per Share

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



(In thousands)	Three Months Ended June 30,		Six Months Ended June 30,
(In thousands)	2017	2016	2017	2016
Basic weighted average common shares outstanding	66,224	72,729	67,117	72,654
Effect of dilution:
Stock options	—	1	—	26
Restricted stock units	565	570	654	607
Diluted weighted average common shares outstanding	66,789	73,300	67,771	73,287

For the three and six months ended June 30, 2017, there were approximately 388,000 stock options that would have been anti-dilutive to the diluted weighted average common shares outstanding. For the three and six months ended June 30, 2016, there were no stock options or restricted stock units that would have been anti-dilutive to the diluted weighted average common shares outstanding. Approximately 962,000 and 505,000 restricted stock units with performance conditions have been excluded from diluted weighted average common shares outstanding for the three and six months ended June 30, 2017 and June 30, 2016, respectively, since performance conditions on these awards were 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 million of its outstanding shares of Class A common stock (the “Stock Repurchase Program”). On June 6, 2017, the Board of Directors approved an increase of $500 million in the amount authorized for a total of $1.0 billion authorized under the Stock Repurchase Program. The Stock Repurchase Program has no pre-established closing date and may be suspended or discontinued at any time. For the six months ended June 30, 2017, the Company repurchased 4.4 million shares of its Class A common stock at an average purchase price of approximately $55.97 per share. As of June 30, 2017, the Company had $532.4 million available for repurchase under the Stock Repurchase Program.

AMC NETWORKS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(unaudited)

Note 3. Restructuring

The Company incurred restructuring expense primarily related to severance charges associated with the elimination of certain positions across the Company.

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



(In thousands)	Three Months Ended June 30,					Six Months Ended June 30,
(In thousands)	2017			2016		2017			2016
National Networks	$	(97	)	$	37	$	(43	)	$	67
International & Other	16			352		2,666			287
Total restructuring expense (credit)	$	(81	)	$	389	$	2,623		$	354

Restructuring expense in the International and Other segment includes corporate headquarter related charges.

The following table summarizes the accrued restructuring costs:



(In thousands)	Severance and employee-related costs			Other exit costs			Total
Balance at December 31, 2016	$	12,106		$	205		$	12,311
Charges (credits)	2,636			(13		)	2,623
Cash payments	(13,396		)	(151		)	(13,547		)
Non-cash adjustments	(52		)	68			16
Currency translation	1			9			10
Balance at June 30, 2017	$	1,295		$	118		$	1,413

Accrued liabilities for restructuring costs are included in accrued liabilities in the condensed consolidated balance sheet at June 30, 2017.

Note 4. Investments

RLJE

On October 14, 2016, Digital Entertainment Holdings LLC (“DEH”), a wholly owned subsidiary of the Company, and RLJ Entertainment, Inc. (“RLJE”) entered into a Credit and Guaranty agreement (the “RLJE Credit Agreement”) pursuant to which DEH provided senior secured term loans totaling $65 million to RLJE, consisting of a $5 million Tranche A term loan (the “Tranche A Loan”) and a $60 million Tranche B term loan (the “Tranche B Loan”), and DEH received warrants to purchase at least 20 million shares of RLJE’s common stock, at a price of $3.00 per share (the “RLJE Warrants”). On January 30, 2017, the Company and RLJE amended the terms of the Tranche A Loan to increase the principal amount by $8 million to $13 million and to extend the maturity date of that tranche from October 14, 2017 to June 30, 2019.

On June 16, 2017, DEH and RLJE entered into a second amendment to the RLJE Credit Agreement (the “Second Amendment”) pursuant to which DEH provided an additional tranche of the term loan debt to RLJE in the principal amount of $10 million (the “Tranche A-2 Loan”) with a maturity date of June 30, 2021. In addition, the Second Amendment also (i) extended the maturity date of the Tranche A Loan to June 30, 2020, (ii) provided that, commencing with the interest payment to be made on June 30, 2017, all interest under the RLJE Credit Agreement will be paid in shares of RLJE’s common stock, and (iii) increased the maximum senior leverage ratio, as defined in the terms of the RLJE Credit Agreement. For purposes of calculating the interest to be paid in shares of RLJE common stock, the value of such shares is based on a fixed $3.00 per share.

On June 20, 2017, in connection with the Second Amendment, DEH exercised a portion of its RLJE Class A warrants at $3.00 per share to acquire 1,667,000 shares of RLJE common stock in exchange for the cancellation of $5 million of the Tranche B Loan. Following the cancellation, the outstanding balance of the Tranche B Loan is approximately $55 million.

The increased ownership interest from the warrant exercise, as well as the existing representation on RLJE’s board of directors and the terms of the RLJE Credit Agreement were deemed, for accounting purposes, to provide DEH with the ability to exert significant influence over RLJE. As a result, the RLJE common stock investment held by the Company qualified for the use of the equity method of accounting. The Company has elected the fair value option for its investment in RLJE common stock based on the availability of a quoted market price. For the three months ended June 30, 2017, the Company recognized a gain of $1.3

AMC NETWORKS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(unaudited)

million in the fair value of its investment in RLJE common stock, which is included in Miscellaneous, net in the condensed consolidated income statement.

The RLJE term loans are included in Other assets in the condensed consolidated balance sheet. The Company accounts for the portion of interest on the RLJE term loans payable in RLJE common stock as an embedded derivative. In addition, the RLJE Warrants are accounted for as derivatives. Both the RLJE Warrants and the embedded derivative for the interest payable in RLJE common stock are remeasured at the end of each period with changes in fair value included in Miscellaneous, net in the condensed consolidated statement of income.

Note 5. Goodwill and Other Intangible Assets

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



(In thousands)	National Networks			International and Other		Total
December 31, 2016	$	242,303		$	415,405	$	657,708
Amortization of “second component” goodwill	(1,272		)	—		(1,272		)
Foreign currency translation	—			23,798		23,798
June 30, 2017	$	241,031		$	439,203	$	680,234

The reduction of $1.3 million in the carrying amount of goodwill for the National Networks is due to the realization of a tax benefit for the amortization of “second component” goodwill at SundanceTV. Second component goodwill is the amount of tax deductible goodwill in excess of goodwill for financial reporting purposes. In accordance with the authoritative guidance at the time of the SundanceTV acquisition, the tax benefits associated with this excess are applied to first reduce the amount of goodwill, and then other intangible assets for financial reporting purposes, if and when such tax benefits are realized in the Company’s tax returns.

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



(In thousands)	June 30, 2017
(In thousands)	Gross		Accumulated Amortization			Net		Estimated Useful Lives
Amortizable intangible assets:
Affiliate and customer relationships	$	520,722	$	(151,059	)	$	369,663	10 to 25 years
Advertiser relationships	46,282		(11,302		)	34,980		11 years
Trade names	53,055		(8,046		)	45,009		12 to 20 years
Other amortizable intangible assets	10,851		(1,224		)	9,627		15 years
Total amortizable intangible assets	630,910		(171,631		)	459,279
Indefinite-lived intangible assets:
Trademarks	19,900		—			19,900
Total intangible assets	$	650,810	$	(171,631	)	$	479,179
(In thousands)	December 31, 2016
(In thousands)	Gross		Accumulated Amortization			Net
Amortizable intangible assets:
Affiliate and customer relationships	$	509,992	$	(133,932	)	$	376,060
Advertiser relationships	46,282		(9,198		)	37,084
Trade names	49,720		(6,307		)	43,413
Other amortizable intangible assets	10,002		(791		)	9,211
Total amortizable intangible assets	615,996		(150,228		)	465,768
Indefinite-lived intangible assets:
Trademarks	20,041		—			20,041
Total intangible assets	$	636,037	$	(150,228	)	$	485,809

AMC NETWORKS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(unaudited)

Aggregate amortization expense for amortizable intangible assets for the six months ended June 30, 2017 and 2016 was $18.1 million and $19.6 million, respectively. Estimated aggregate amortization expense for intangible assets subject to amortization for each of the following five years is:



(In thousands)
Years Ending December 31,
2017	$	36,375
2018	36,531
2019	36,517
2020	36,502
2021	36,152

Note 6. Accrued Liabilities

Accrued liabilities consist of the following:



(In thousands)	June 30, 2017		December 31, 2016
Interest	$	15,794	$	15,770
Employee related costs	87,305		122,590
Income taxes payable	32,208		43,083
Other accrued expenses	99,187		102,986
Total accrued liabilities	$	234,494	$	284,429

Note 7. Long-term Debt

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



(In thousands)	June 30, 2017			December 31, 2016
Senior Secured Credit Facility: ^(a)
Term Loan A Facility	$	1,147,000		$	1,258,000
Senior Notes:
5.00% Notes due April 2024	1,000,000			1,000,000
4.75% Notes due December 2022	600,000			600,000
Total long-term debt	2,747,000			2,858,000
Unamortized discount	(22,106		)	(23,675		)
Unamortized deferred financing costs	(12,080		)	(15,062		)
Long-term debt, net	2,712,814			2,819,263
Current portion of long-term debt	259,000			222,000
Noncurrent portion of long-term debt	$	2,453,814		$	2,597,263


(a)	The Company’s $500 million revolving credit facility remains undrawn at June 30, 2017. Total undrawn revolver commitments are available to be drawn for general corporate purposes of the Company.

Issuance of 4.75% Notes due 2025

On July 28, 2017, AMC Networks issued, and certain of AMC Networks’ subsidiaries (hereinafter, the “Guarantors”) guaranteed, $800 million aggregate principal amount of senior notes due August 1, 2025 (the “4.75% Notes due 2025”) in a registered public offering. AMC Networks used approximately $400 million of the net proceeds to repay loans under the Term Loan A Facility under AMC Networks’ senior secured credit facility and to pay fees and expenses related to the issuance. The remaining proceeds will be used for general corporate purposes. The 4.75% Notes due 2025 were issued pursuant to an indenture, dated as of March 30, 2016, as amended by the Second Supplemental Indenture, dated as of July 28, 2017. The 4.75% Notes due 2025 bear interest at a rate of 4.75% per annum and mature on August 1, 2025.

AMC NETWORKS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(unaudited)

Amendment and Restatement of the Credit Facility

On July 28, 2017, AMC Networks entered into a Second Amended and Restated Credit Agreement (the “Credit Agreement”) among AMC Networks and its subsidiary, AMC Network Entertainment LLC, as the Initial Borrowers, certain of AMC Networks’ subsidiaries, as restricted subsidiaries, JPMorgan Chase Bank, N.A., as Administrative Agent, Collateral Agent and an L/C Issuer, the lenders party thereto. The Credit Agreement amends and restates AMC Networks’ prior credit agreement dated December 16, 2013 in its entirety. The Credit Agreement provides the Initial Borrowers with senior secured credit facilities consisting of (a) a $750 million Term Loan A (the “Term Loan A Facility”) after giving effect to the approximate $400 million payment from the proceeds of the 4.75% Notes due 2025 described above and (b) a $500 million revolving credit facility (the “Revolving Facility”) that was not drawn upon initially. Under the Credit Agreement, the maturity date of the Term Loan A Facility was extended to July 28, 2023 and the maturity date of the Revolving Facility was extended to July 28, 2022.

In connection with the issuance of the 4.75% Notes due 2025 and the Credit Agreement, AMC Networks incurred deferred financing costs of approximately $1.8 million, which will be amortized, using the effective interest method, to interest expense over the term of the related borrowing. In connection with the amendment to the Credit Agreement, the Company incurred financing costs of approximately $1.9 million, which were expensed when incurred.

Note 8. 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 at June 30, 2017 and December 31, 2016, including investments for which the fair value option has been elected:



(In thousands)	Level I		Level II		Level III		Total
At June 30, 2017:
Assets:
Cash equivalents	$	129	$	—	$	—	$	129
Available for sale securities	8,249		—		—		8,249
Interest rate swap contracts	—		1,611		—		1,611
Investments	7,533		—		—		7,533
Foreign currency derivatives	—		4,555		—		4,555
Other derivatives	—		6,061		27,844		33,905
Liabilities:
Interest rate swap contracts	$	—	$	34	$	—	$	34
Foreign currency derivatives	—		3,638		—		3,638
At December 31, 2016:
Assets:
Cash equivalents	$	65,384	$	—	$	—	$	65,384
Interest rate swap contracts	—		1,471		—		1,471
Foreign currency derivatives	—		6,096		—		6,096
Other derivatives	—		—		12,308		12,308
Liabilities:
Interest rate swap contracts	$	—	$	762	$	—	$	762
Foreign currency derivatives	—		3,147		—		3,147

AMC NETWORKS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(unaudited)

The Company’s cash equivalents and available for sale securities 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, foreign currency derivatives and the embedded derivative for the interest on the RLJE Term Loans to be paid in shares of RLJE common stock (see Note 9) 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 RLJE Warrants held by the Company are classified within Level III of the fair value hierarchy and the Company determines the value of the RLJE Warrants using a Black Scholes option pricing model. Inputs to the model are stock price volatility, contractual warrant terms (remaining life of the warrants), exercise price, risk-free interest rate, and the RLJE stock price. The equity volatility used is based on the equity volatility of RLJE with an adjustment for the changes in the capital structure of RLJE. In arriving at the concluded value of the warrants, a discount for the lack of marketability (DLOM) of 32% was applied. The DLOM, which is unobservable, is determined using the Finnerty Average-Strike Put Option Marketability Discount Model (Finnerty Model), which was applied with a security-specific volatility for the warrants. For the six months ended June 30, 2017, the Company recorded a gain of $17.2 million related to the RLJE Warrants which is included in Miscellaneous, net in the condensed consolidated statement of income.

At June 30, 2017, the Company does not have any other assets or liabilities measured at fair value on a recurring basis 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.

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:



(In thousands)	June 30, 2017
(In thousands)	Carrying Amount		Estimated Fair Value
Debt instruments:
Term Loan A Facility	$	1,137,123	$	1,147,000
5.00% Notes due April 2024	982,980		1,025,000
4.75% Notes due December 2022	592,711		618,750
	$	2,712,814	$	2,790,750



(In thousands)	December 31, 2016
(In thousands)	Carrying Amount		Estimated Fair Value
Debt instruments:
Term Loan A Facility	$	1,245,175	$	1,254,855
5.00% Notes due April 2024	981,949		1,002,500
4.75% Notes due December 2022	592,139		606,000
	$	2,819,263	$	2,863,355

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.

AMC NETWORKS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(unaudited)

Note 9. 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 June 30, 2017, the Company had interest rate swap contracts outstanding with notional amounts aggregating $300.0 million, which consist of interest rate swap contracts with notional amounts of $200.0 million that are designated as cash flow hedges and interest rate swap contracts with notional amounts of $100.0 million 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 June 30, 2017, the Company’s interest rate swap contracts designated as cash flow hedges were highly effective.

Foreign Currency Exchange Rate Risk

We are exposed to foreign currency risk to the extent that we enter into transactions denominated in currencies other than our or our subsidiaries’ respective functional currencies (non-functional currency risk), such as affiliation agreements, programming contracts, certain accounts payable and trade receivables (including intercompany amounts) that are denominated in a currency other than the applicable functional currency.

Other Derivatives

The RLJE Warrants held by the Company meet the definition of a derivative and are included in Other assets in the condensed consolidated balance sheet. In addition, the interest on the RLJE Term Loans to be paid in shares of RLJE common stock is an embedded derivative. Both the RLJE Warrants and the embedded derivative for the future interest to be paid in shares of RLJE common stock are remeasured at the end of each period with changes in fair value recorded in the condensed consolidated statement of income. For the three and six months ended June 30, 2017, the Company recorded a gain of $9.9 million and $21.1 million, respectively, related to these derivatives, which is included in Miscellaneous, net in the condensed consolidated statements of income.

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



(In thousands)	Balance Sheet Location	June 30, 2017		December 31, 2016
Derivatives designated as hedging instruments:
Assets:
Interest rate swap contracts	Other assets	$	1,611	$	1,471
Derivatives not designated as hedging instruments:
Assets:
Foreign currency derivatives	Prepaid expenses and other current assets	$	1,191	$	1,684
Foreign currency derivatives	Other assets	3,364		4,412
Other derivatives	Other assets	33,905		12,308
Liabilities:
Interest rate swap contracts	Accrued liabilities	$	34	$	762
Foreign currency derivatives	Accrued liabilities	858		952
Foreign currency derivatives	Other liabilities	2,780		2,195

AMC NETWORKS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(unaudited)

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



(In thousands)	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 June 30,							Three Months Ended June 30,
	2017			2016				2017		2016
Derivatives in cash flow hedging relationships:
Interest rate swap contracts	$	(65	)	$	(934	)	Interest expense	$	115	$	(169	)


(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 June 30, 2017 and 2016.



(In thousands)	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)
	Six Months Ended June 30,						Six Months Ended June 30,
	2017		2016				2017		2016
Derivatives in cash flow hedging relationships:
Interest rate swap contracts	$	256	$	(2,675	)	Interest expense	$	117	$	(332	)


(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 six months ended June 30, 2017 and 2016.

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



(In thousands)	Location of Gain or (Loss) Recognized in Earnings on Derivatives	Amount of Gain or (Loss) Recognized in Earnings on Derivatives
		Three Months Ended June 30,						Six Months Ended June 30,
		2017			2016			2017			2016
Derivatives not designated as hedging relationships:
Interest rate swap contracts	Interest expense	$	(7	)	$	(49	)	$	(5	)	$	(229	)
Foreign currency derivatives	Miscellaneous, net	(1,236		)	2,158			(1,503		)	2,210
Other derivatives	Miscellaneous, net	9,946			—			21,063			—
Total		$	8,703		$	2,109		$	19,555		$	1,981

Note 10. Income Taxes

For the three and six months ended June 30, 2017, income tax expense was $60.2 million and $133.3 million, 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 the tax benefit from the domestic production activities deduction of $4.4 million and $10.3 million, the tax benefit from foreign subsidiary earnings indefinitely reinvested outside the U.S. of $2.6 million and $6.7 million, the tax expense of $5.2 million and $7.5 million resulting from an increase in the valuation allowances for foreign and local taxes and state and local income tax expense of $2.6 million and $6.0 million for the three and six months ended June 30, 2017, respectively.

For the three and six months ended June 30, 2016, income tax expense was $39.4 million and $97.9 million, respectively, representing an effective tax rate of 32% for both periods. The effective tax rate differs from the federal statutory rate of 35% due primarily to the tax benefit from the domestic production activities deduction of $4.4 million and $9.7 million, the tax benefit from foreign subsidiary earnings indefinitely reinvested outside the U.S. of $5.5 million and $8.9 million, the tax expense of $2.7 million and $4.7 million resulting from an increase in the valuation allowances for foreign and local taxes and state and local income tax expense of $2.1 million and $5.3 million for the three and six months ended June 30, 2016, respectively.

AMC NETWORKS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(unaudited)

At June 30, 2017, the Company had foreign tax credit carry forwards of approximately $34 million, expiring on various dates from 2017 through 2027. For the six months ended June 30, 2017, $0.8 million relating to amortization of tax deductible second component goodwill was realized as a reduction in tax liability (as determined on a ‘with-and-without’ approach).

Note 11. Commitments and Contingencies

Commitments

As of June 30, 2017, the Company’s contractual obligations not reflected on the Company’s condensed consolidated balance sheet increased $46.3 million to $1.4 billion. The increase relates primarily to payment guarantees to a production service company for certain production related costs

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, which included a claim for damages of $280 million or more and indicated that the parties have completed fact and expert discovery. The parties each filed motions for summary judgment. The Court set August 24, 2017 as the date for oral argument of the summary judgment motions. 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 12. Equity Plans

On June 6, 2017, AMC Networks granted 32,825 restricted stock units (“RSU’s”) 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 9, 2017, AMC Networks granted 578,901 RSUs and 458,962 performance restricted stock units (“PRSUs”) to certain executive officers and employees under the AMC Networks Inc. 2016 Employee Stock Plan. The RSUs vest ratably over a three-year period and the vesting criteria for 175,299 RSUs include the achievement of certain performance targets by the Company. The PRSUs vest on the third anniversary of the grant date.

The target number of PRSUs granted represents the right to receive a corresponding number of shares, subject to adjustment based on the performance of the Company against target performance criteria for a three-year period. The number of shares issuable at the end of the applicable measurement period ranges from 0% to 200% of the target PRSU award.

During the six months ended June 30, 2017, 518,968 RSUs of AMC Networks Class A Common Stock previously issued to employees of the Company vested. On the vesting date, 225,398 RSUs were surrendered to the Company to cover the required statutory tax withholding obligations and 293,570 new shares of AMC Networks Class A Common Stock were issued in respect of the remaining 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 $13.4 million, which has been reflected as a financing activity in the condensed consolidated statement of cash flows for the six months ended June 30, 2017.

Share-based compensation expense included in selling, general and administrative expense, for the three and six months ended June 30, 2017 was $15.1 million and $27.6 million, respectively, and $11.3 million and $19.5 million for the three and six months ended June 30, 2016, respectively.

As of June 30, 2017, there was $116.5 million 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 2.6 years.

AMC NETWORKS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(unaudited)

Note 13. Redeemable Noncontrolling Interests

The following table summarizes activity related to redeemable noncontrolling interest for the six months ended June 30, 2017.



(In thousands)	Six Months Ended June 30, 2017
December 31, 2016	$	219,331
Net earnings	10,748
Distributions	(12,930		)
June 30, 2017	$	217,149

Note 14. 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 approximately 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 69% 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 amount to $1.5 million and $6.2 million for the three months ended June 30, 2017 and 2016, respectively, and $3.1 million and $12.9 million for the six months ended June 30, 2017 and 2016, respectively. Amounts charged to the Company, included in selling, general and administrative expenses, pursuant to transactions with its related parties amounted to $0.4 million and $0.8 million for the three months ended June 30, 2017 and 2016, respectively, and $1.0 million and $1.9 million for the six months ended June 30, 2017 and 2016, 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 office expenses is not material.

Note 15. Cash Flows

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



(In thousands)	Six Months Ended June 30,
(In thousands)	2017	2016
Non-Cash Investing and Financing Activities:
Increase in capital lease obligations	—	10,983
Treasury stock not yet settled	8,987	—
Exercise of RLJE Warrants	5,001	—
Capital expenditures incurred but not yet paid	2,412	2,101
Supplemental Data:
Cash interest paid	56,832	69,449
Income taxes paid, net	124,474	75,450

AMC NETWORKS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(unaudited)

Note 16. Accumulated Other Comprehensive Loss

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



(In thousands)	Six Months Ended June 30, 2017
(In thousands)	Currency Translation Adjustment			Gains (Losses) on Cash Flow Hedges			Gains (Losses) on Available for Sale Investments			Accumulated Other Comprehensive Income (Loss)
Beginning balance	$	(194,189	)	$	391		$	—		$	(193,798	)
Other comprehensive income before reclassifications	47,684			256			2,938			50,878
Amounts reclassified from accumulated other comprehensive loss	—			(117		)	—			(117		)
Net current-period other comprehensive income, before income taxes	47,684			139			2,938			50,761
Income tax expense	—			(51		)	(1,081		)	(1,132		)
Net current-period other comprehensive income, net of income taxes	47,684			88			1,857			49,629
Ending balance	$	(146,505	)	$	479		$	1,857		$	(144,169	)



(In thousands)	Six Months Ended June 30, 2016
(In thousands)	Currency Translation Adjustment			Gains (Losses) on Cash Flow Hedges			Gains (Losses) on Available for Sale Investments		Accumulated Other Comprehensive Income (Loss)
Beginning balance	$	(136,434	)	$	377		$	—	$	(136,057	)
Other comprehensive loss before reclassifications	(3,004		)	(2,675		)	—		(5,679		)
Amounts reclassified from accumulated other comprehensive loss	—			332			—		332
Net current-period other comprehensive loss, before income taxes	(3,004		)	(2,343		)	—		(5,347		)
Income tax (expense) benefit	(11,069		)	858			—		(10,211		)
Net current-period other comprehensive loss, net of income taxes	(14,073		)	(1,485		)	—		(15,558		)
Ending balance	$	(150,507	)	$	(1,108	)	$	—	$	(151,615	)

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 17. 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 within operating expenses 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, 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 (“AOI”), a non-GAAP measure, defined as operating income (loss) before depreciation and amortization, share-based compensation expense or benefit, impairment charges, and restructuring expense or credit. 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)

(unaudited)



(In thousands)	Three Months Ended June 30, 2017
(In thousands)	National Networks			International and Other			Inter-segment eliminations			Consolidated
Revenues, net
Advertising	$	245,472		$	21,373		$	—		$	266,845
Distribution	359,451			89,471			(5,222		)	443,700
Consolidated revenues, net	$	604,923		$	110,844		$	(5,222	)	$	710,545
Operating income (loss)	$	211,623		$	(31,222	)	$	(4,611	)	$	175,790
Share-based compensation expense	12,211			2,921			—			15,132
Restructuring (credit) expense	(97		)	16			—			(81		)
Impairment charges	—			17,112			—			17,112
Depreciation and amortization	8,430			12,176			—			20,606
Adjusted operating income	$	232,167		$	1,003		$	(4,611	)	$	228,559



(In thousands)	Three Months Ended June 30, 2016
(In thousands)	National Networks		International and Other			Inter-segment eliminations			Consolidated
Revenues, net
Advertising	$	239,331	$	25,564		$	—		$	264,895
Distribution	333,302		92,716			(6,081		)	419,937
Consolidated revenues, net	$	572,633	$	118,280		$	(6,081	)	$	684,832
Operating income (loss)	$	189,090	$	(7,819	)	$	(3,239	)	$	178,032
Share-based compensation expense	9,148		2,174			—			11,322
Restructuring expense	37		352			—			389
Depreciation and amortization	8,053		13,500			—			21,553
Adjusted operating income	$	206,328	$	8,207		$	(3,239	)	$	211,296



(In thousands)	Six Months Ended June 30, 2017
(In thousands)	National Networks			International and Other			Inter-segment eliminations			Consolidated
Revenues, net
Advertising	$	493,014		$	41,443		$	—		$	534,457
Distribution	727,056			176,198			(6,977		)	896,277
Consolidated revenues, net	$	1,220,070		$	217,641		$	(6,977	)	$	1,430,734
Operating income (loss)	$	461,230		$	(50,439	)	$	(3,330	)	$	407,461
Share-based compensation expense	22,119			5,476			—			27,595
Restructuring (credit) expense	(43		)	2,666			—			2,623
Impairment charges	—			17,112			—			17,112
Depreciation and amortization	16,834			27,265			—			44,099
Adjusted operating income	$	500,140		$	2,080		$	(3,330	)	$	498,890
Capital expenditures	$	8,294		$	31,642		$	—		$	39,936

AMC NETWORKS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(unaudited)



(In thousands)	Six Months Ended June 30, 2016
(In thousands)	National Networks		International and Other			Inter-segment eliminations			Consolidated
Revenues, net
Advertising	$	503,183	$	48,413		$	—		$	551,596
Distribution	668,086		178,915			(7,186		)	839,815
Consolidated revenues, net	$	1,171,269	$	227,328		$	(7,186	)	$	1,391,411
Operating income (loss)	$	455,823	$	(16,403	)	$	(2,729	)	$	436,691
Share-based compensation expense	15,370		4,118			—			19,488
Restructuring expense	67		287			—			354
Depreciation and amortization	16,022		25,163			—			41,185
Adjusted operating income	$	487,282	$	13,165		$	(2,729	)	$	497,718
Capital expenditures	$	4,414	$	19,772		$	—		$	24,186

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.



(In thousands)	Three Months Ended June 30,						Six Months Ended June 30,
(In thousands)	2017			2016			2017			2016
Inter-segment revenues
National Networks	$	(5,142	)	$	(5,991	)	$	(6,866	)	$	(6,936	)
International and Other	(80		)	(90		)	(111		)	(250		)
	$	(5,222	)	$	(6,081	)	$	(6,977	)	$	(7,186	)

The table below summarizes revenues based on customer location:



(In thousands)	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2017		2016		2017		2016
Revenues
United States	$	548,555	$	542,803	$	1,148,610	$	1,117,137
Europe	108,076		103,560		186,750		197,522
Other	53,914		38,469		95,374		76,752
	$	710,545	$	684,832	$	1,430,734	$	1,391,411

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



(In thousands)	June 30, 2017		December 31, 2016
Property and equipment, net
United States	$	112,640	$	104,939
Europe	26,329		39,976
Other	20,184		21,721
	$	159,153	$	166,636

AMC NETWORKS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(unaudited)

Note 18. Condensed Consolidating Financial Statements

Debt of AMC Networks includes $600.0 million of 4.75% senior notes due December 2022 and $1.0 billion 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)

(unaudited)



Condensed Consolidating Balance Sheet
June 30, 2017
(In thousands)	Parent Company		Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	116	$	42,368	$	146,995	$	—		$	189,479
Accounts receivable, trade (less allowance for doubtful accounts)	—		559,893		184,754		—			744,647
Amounts due from related parties, net	—		488		—		—			488
Current portion of program rights, net	—		301,511		148,579		—			450,090
Prepaid expenses, other current assets and intercompany receivable	501		170,958		13,235		(107,082		)	77,612
Assets held for sale	—		—		16,433		—			16,433
Total current assets	617		1,075,218		509,996		(107,082		)	1,478,749
Property and equipment, net of accumulated depreciation	—		112,189		46,964		—			159,153
Investment in affiliates	2,998,053		882,052		—		(3,880,105		)	—
Program rights, net	—		1,046,405		175,511		—			1,221,916
Long-term intercompany notes receivable	—		463,048		564		(463,612		)	—
Deferred carriage fees, net	—		35,972		1,654		—			37,626
Intangible assets, net	—		175,425		303,754		—			479,179
Goodwill	—		67,881		612,353		—			680,234
Deferred tax asset, net	—		—		9,079		—			9,079
Other assets	1,610		129,289		281,333		—			412,232
Total assets	$	3,000,280	$	3,987,479	$	1,941,208	$	(4,450,799	)	$	4,478,168
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	16	$	45,877	$	45,000	$	—		$	90,893
Accrued liabilities and intercompany payable	53,622		149,307		138,647		(107,082		)	234,494
Current portion of program rights obligations	—		228,419		73,108		—			301,527
Deferred revenue	—		32,787		15,047		—			47,834
Current portion of long-term debt	259,000		—		—		—			259,000
Current portion of capital lease obligations	—		2,703		1,550		—			4,253
Liabilities held for sale	—		—		16,433		—			16,433
Total current liabilities	312,638		459,093		289,785		(107,082		)	954,434
Program rights obligations	—		457,105		28,778		—			485,883
Long-term debt, net	2,453,814		—		—		—			2,453,814
Capital lease obligations	—		5,325