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 March 31, 2018



¨	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, a smaller reporting company or an emerging growth 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 May 4, 2018:



Class A Common Stock par value $0.01 per share	45,975,467
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	27
Item 3. Quantitative and Qualitative Disclosures About Market Risk	40
Item 4. Controls and Procedures	41
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	42
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 6. Exhibits	42
SIGNATURES	43

PART I. FINANCIAL INFORMATION


Item 1.	Financial Statements.

AMC NETWORKS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

(unaudited)



	March 31, 2018			December 31, 2017
ASSETS
Current Assets:
Cash and cash equivalents	$	529,200		$	558,783
Accounts receivable, trade (including amounts due from related parties, net, less allowance for doubtful accounts of $9,687 and $9,691)	793,275			775,891
Current portion of program rights, net	464,921			453,450
Prepaid expenses and other current assets	102,058			91,726
Total current assets	1,889,454			1,879,850
Property and equipment, net of accumulated depreciation of $271,443 and $259,919	185,440			183,514
Program rights, net	1,279,589			1,319,279
Deferred carriage fees, net	27,172			29,924
Intangible assets, net	452,395			457,242
Goodwill	707,654			695,158
Deferred tax asset, net	21,731			20,081
Other assets	549,932			447,937
Total assets	$	5,113,367		$	5,032,985
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable	$	96,816		$	102,197
Accrued liabilities	235,301			263,076
Current portion of program rights obligations	326,862			327,549
Deferred revenue	51,916			46,433
Current portion of capital lease obligations	4,771			4,847
Total current liabilities	715,666			744,102
Program rights obligations	491,527			534,980
Long-term debt	3,101,138			3,099,257
Capital lease obligations	25,233			26,277
Deferred tax liability, net	145,159			109,698
Other liabilities	153,167			136,122
Total liabilities	4,631,890			4,650,436
Commitments and contingencies
Redeemable noncontrolling interests	220,366			218,604
Stockholders' equity:
Class A Common Stock, $0.01 par value, 360,000 shares authorized, 63,139 and 62,721 shares issued and 48,372 and 49,601 shares outstanding, respectively	631			627
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	182,278			191,303
Accumulated earnings	936,379			766,725
Treasury stock, at cost (14,767 and 13,120 shares Class A Common Stock, respectively)	(793,078		)	(709,440		)
Accumulated other comprehensive loss	(95,581		)	(114,386		)
Total AMC Networks stockholders' equity	230,744			134,944
Non-redeemable noncontrolling interests	30,367			29,001
Total stockholders' equity	261,111			163,945
Total liabilities and stockholders' equity	$	5,113,367		$	5,032,985

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 March 31,
	2018			2017
Revenues, net (including revenues, net from related parties of $1,627 and $1,567, respectively)	$	740,823		$	720,189
Operating expenses:
Technical and operating (excluding depreciation and amortization)	320,365			298,612
Selling, general and administrative (including charges from related parties of $462 and $575, respectively)	166,449			163,709
Depreciation and amortization	20,354			23,493
Restructuring expense	—			2,704
Total operating expenses	507,168			488,518
Operating income	233,655			231,671
Other income (expense):
Interest expense	(38,205		)	(30,500		)
Interest income	5,019			3,493
Miscellaneous, net	16,946			11,049
Total other income (expense)	(16,240		)	(15,958		)
Income from operations before income taxes	217,415			215,713
Income tax expense	(56,879		)	(73,082		)
Net income including noncontrolling interests	160,536			142,631
Net income attributable to noncontrolling interests	(3,666		)	(6,414		)
Net income attributable to AMC Networks' stockholders	$	156,870		$	136,217

Net income per share attributable to AMC Networks' stockholders:
Basic	$	2.57		$	2.00
Diluted	$	2.54		$	1.98

Weighted average common shares:
Basic weighted average common shares	60,967			68,020
Diluted weighted average common shares	61,719			68,764

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 March 31,
	2018			2017
Net income including noncontrolling interests	$	160,536		$	142,631
Other comprehensive income (loss):
Foreign currency translation adjustment	18,805			9,864
Unrealized gain on interest rate swaps	—			319
Unrealized gain on available for sale securities	—			4,021
Other comprehensive income, before income taxes	18,805			14,204
Income tax expense	—			(1,597		)
Other comprehensive income, net of income taxes	18,805			12,607
Comprehensive income	179,341			155,238
Comprehensive income attributable to noncontrolling interests	(4,563		)	(6,805		)
Comprehensive income attributable to AMC Networks' stockholders	$	174,778		$	148,433

See accompanying notes to condensed consolidated financial statements.

AMC NETWORKS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)



	Three Months Ended March 31,
	2018			2017
Cash flows from operating activities:
Net income including noncontrolling interests	$	160,536		$	142,631
Adjustments to reconcile income from operations to net cash from operating activities:
Depreciation and amortization	20,354			23,493
Share-based compensation expense related to equity classified awards	15,319			12,464
Amortization and write-off of program rights	218,626			199,517
Amortization of deferred carriage fees	4,401			4,401
Unrealized foreign currency transaction gain	(4,582		)	(754		)
Unrealized gain on derivative contracts, net	(13,984		)	(11,486		)
Amortization of deferred financing costs and discounts on indebtedness	1,881			2,282
Bad debt expense	914			961
Deferred income taxes	31,800			4,061
Other, net	(2,348		)	278
Changes in assets and liabilities:
Accounts receivable, trade (including amounts due from related parties, net)	(17,877		)	(15,980		)
Prepaid expenses and other assets	(5,512		)	(18,160		)
Program rights and obligations, net	(248,642		)	(211,280		)
Income taxes payable	15,723			57,627
Deferred revenue	4,980			(11,104		)
Deferred carriage fees, net	(1,610		)	(430		)
Accounts payable, accrued liabilities and other liabilities	(63,007		)	(33,651		)
Net cash provided by operating activities	116,972			144,870
Cash flows from investing activities:
Capital expenditures	(11,942		)	(20,206		)
Return of capital from investees	172			—
Investment in and loans to investees	(42,318		)	(28,000		)
Net cash used in investing activities	(54,088		)	(48,206		)
Cash flows from financing activities:
Principal payments on long-term debt	—			(55,500		)
Deemed repurchases of restricted stock units	(15,354		)	(12,796		)
Purchase of treasury stock	(83,637		)	(91,423		)
Principal payments on capital lease obligations	(1,406		)	(1,401		)
Distributions to noncontrolling interests	(1,435		)	(11,712		)
Net cash used in financing activities	(101,832		)	(172,832		)
Net decrease in cash and cash equivalents from operations	(38,948		)	(76,168		)
Effect of exchange rate changes on cash and cash equivalents	9,365			(1,573		)
Cash and cash equivalents at beginning of period	558,783			481,389
Cash and cash equivalents at end of period	$	529,200		$	403,648

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 five national programming networks, AMC Studios operations and AMC Broadcasting & Technology. Our national programming networks are AMC, WE tv, BBC AMERICA, IFC and SundanceTV in the U.S.; and AMC and IFC in Canada. Our AMC Studios operations produces original programming for our programming networks and also licenses such program rights worldwide. AMC Networks Broadcasting & Technology is our technical services business, which primarily services most of the national programming networks.

•

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; and our subscription streaming services, Sundance Now and Shudder. AMCNI – DMC, the broadcast solutions unit of certain networks of AMCNI and third-party networks is included through the date sold, 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.

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, 2017 contained in the Company's Annual Report on Form 10-K ("2017 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, 2018.

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 included in technical and operating expense. Program rights write-offs were $5.2 million and $0.4 million for the three months ended March 31, 2018 and March 31, 2017, 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 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.

Financial Assets and Liabilities

The Company adopted Accounting Standards Update ("ASU") No. 2016-01 Financial Instruments-Recognition and Measurement of Financial Assets and Financial Liabilities on January 1, 2018, which requires that investments in equity securities

AMC NETWORKS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(unaudited)

(excluding equity method investments) be measured at fair value with changes in fair value recognized in net earnings. Under prior accounting guidance, changes in fair value of available-for-sale equity securities were recorded in other comprehensive income. The adoption did not have a significant impact to these condensed consolidated financial statements.

Adoption of New Revenue Recognition Standard

The Company adopted ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) on January 1, 2018, using the modified retrospective method for all contracts not completed as of the date of adoption. The reported results as of and for the three-month period ended March 31, 2018 reflect the application of the new standard, while the reported results for 2017 have not been adjusted to reflect the new standard and were prepared under prior revenue recognition accounting guidance.

The adoption of the new standard did not result in significant changes in the way the Company records distribution and advertising revenues. However, as a result of applying the new standard, there are certain components of the Company’s distribution revenues where the new standard generally results in earlier recognition of revenue compared to its historical policies due to: (i) the requirement to estimate and recognize variable consideration prior to such amounts becoming fixed and determinable, (ii) recognition of royalties in the period of usage, and (iii) recognition of certain arrangements with minimum guarantees on a time-based (straight-line) basis. See Note 2 for more information. As a result of adopting Topic 606, the Company recorded an increase to opening retained earnings of approximately $12.8 million, net of tax, as of January 1, 2018.

The following table provides changes to the opening balances of current assets, total assets, current liabilities and total liabilities resulting from the adoption of the new guidance.



(In thousands)	December 31, 2017		Impact of Adoption		January 1, 2018
Current assets	$	1,879,850	$	3,658	$	1,883,508
Total assets	5,032,985		19,899		5,052,884
Current liabilities	744,102		835		744,937
Total liabilities	4,650,436		7,115		4,657,551

The amount by which each financial statement line item has been affected in the current reporting period by the application of Topic 606 compared to historical policies is not material, therefore, comparative disclosures have been omitted.

Recently Issued Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board ("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.

Note 2. Revenue Recognition

Revenue is recognized when, or as, performance obligations under the terms of a contract are satisfied, which generally occurs when, or as, control of the promised products or services is transferred to customers. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products or services to a customer ("transaction price"). To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing the most likely amount to which the Company expects to be entitled. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. Estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of the Company’s anticipated performance and all information that is reasonably available. Amounts collected on behalf of others (including taxes), where the Company is an agent, are excluded from revenue.

AMC NETWORKS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(unaudited)

When determining the transaction price of a contract, an adjustment is made if payment from a customer occurs either significantly before or significantly after performance, resulting in a significant financing component. Applying a practical expedient in the new standard, the Company does not assess whether a significant financing component exists if the period between when the Company performs its obligations under the contract and when the customer pays is one year or less.

Contracts with customers may contain multiple performance obligations. For such arrangements, the transaction price is allocated to each performance obligation based on the estimated relative standalone selling prices of the promised products or services underlying each performance obligation. The Company determines standalone selling prices based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price considering available information such as market conditions and internal pricing guidelines related to the performance obligations.

Contracts may be modified to account for changes in contract specifications and requirements. Contract modifications exist when the modification either creates new or changes existing enforceable rights and obligations. The effect of a contract modification on the transaction price and measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue (either as an increase in or a reduction of revenue) on a cumulative catch-up basis.

The Company primarily earns revenue from the distribution of its programming services, including licensing of its programming and other content, and advertising. The Company’s revenue recognition policies that summarize the nature, amount, timing and uncertainty associated with each major source of revenue from contracts with customers is described below.

Distribution

The majority of the Company’s distribution revenues relate to sales-based and usage-based royalties which are recognized the later of (i) when the subsequent sale or usage occurs and (ii) the performance obligation to which some or all of the sales-based or usage-based royalty has been allocated has been satisfied or partially satisfied. Occasionally, the Company incurs costs to obtain a distribution contract and these costs are amortized over the period of the related distribution contract as a reduction of revenue.

Subscription fee revenue: Subscription fees are earned from cable and other multichannel video programming distribution platforms, including direct broadcast satellite ("DBS"), platforms operated by telecommunications providers and virtual multichannel video programming distributors (collectively "distributors"), for the rights to use the Company's network programming under multi-year contracts, commonly referred to as "affiliation agreements." The Company's performance obligations under affiliation agreements are satisfied as the Company provides its programming over the term of the agreement. The transaction price is represented by subscription fees that are generally based upon (i) contractual rates applied to the number of the distributor's subscribers who receive or can receive our programming ("rate-per-subscriber"), or (ii) fixed contractual monthly fees ("fixed fee").

For rate-per-subscriber agreements, the Company applies the sales-based or usage-based royalty guidance, and accordingly, recognizes revenue in the period of the distributor’s usage, based on the subscription fee earned during the period.

Fixed fee affiliation agreements are generally billed in monthly installments, and such amounts may vary over the term of the contract. In cases where the invoice amount corresponds directly with the value to the affiliate of the performance to-date, the Company recognizes revenue based on the invoiced amount. In cases where changes in fees during the contract term do not correspond directly to the value of the performance to-date (for example, if the fees vary over the contract term due to a significant financing or credit risk component), the Company recognizes the total amount of fixed transaction price over the contract period using a time-based (e.g., straight-line) measure of progress.

Certain of the Company’s fixed fee affiliation agreements contain guaranteed minimum fees that are recoupable during the term of the agreement, and variable fees based on rates-per-subscriber after the guaranteed minimum is recouped. The Company recognizes revenue for the fixed consideration over the minimum guarantee period and recognizes variable fees only when cumulative consideration exceeds the minimum guarantee.

Subscription revenue from the Company's direct-to-consumer subscription streaming services is recognized as the streaming service is provided to customers.

Content licensing revenue: The Company licenses its original programming content to certain distributors under subscription video on-demand ("SVOD"), pay-per-view ("PPV") and electronic sell-through ("EST") arrangements. Under these arrangements, our performance obligation is to provide the distributor the right to use our programming as it exists at a point in time.

For SVOD arrangements, the Company adjusts the transaction price for the time value of money in cases where license fees are paid over several years. SVOD licensing revenue is recognized at the later of the beginning of the license period, or when we provide the programming to the distributor. The Company recognizes a contract asset for the difference between the revenue recognized and the amount we are permitted to invoice.

AMC NETWORKS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(unaudited)

For PPV and EST license fee arrangements, the Company applies the sales-based or usage-based royalty guidance and recognizes revenue in the period of end-customer purchases, based on the fees earned during the period.

The Company also licenses trademarks, logos, brands, derivative character copyrights, etc. under multi-year arrangements. Under these arrangements, the Company may receive a non-refundable minimum guarantee that is recoupable against a volume-based royalty throughout the term of the agreement. The Company adjusts the transaction price for the time value of money in cases where license fees are paid over several years. The Company recognizes revenue for the minimum guarantee on a straight-line basis over the term of the agreement, and recognizes variable fees only when cumulative consideration exceeds the minimum guarantee.

The Company’s payment terms vary by the type and location of customer. Generally, payment terms are 30-45 days after revenue is earned. In certain limited circumstances, agreements with customers have payment terms in excess of one-year after satisfaction of the performance obligation.

Advertising

The Company generates revenues from the sale of advertising time on its networks. In such arrangements, the Company generally promises to air a certain number of commercials (spots) and to generate guaranteed viewer ratings for an audience demographic (impressions) over a period that generally does not exceed one year. The promise to deliver impressions by airing spots represents the Company’s performance obligation. Advertising revenues are recognized, net of agency commissions, as commercials are aired, to the extent that guaranteed viewer ratings are achieved. A contract liability is recognized to the extent the guaranteed viewer ratings are not met, and is subsequently recognized as revenue either when the Company provides the required additional advertising or the guarantee obligation contractually expires, which is generally within one year. Generally, payment terms are 30 days after revenue is earned.

Transaction Price Allocated to Future Performance Obligations

The new standard requires disclosure of the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied as of March 31, 2018. However, the guidance does not apply to sales-based or usage-based royalty arrangements and also provides certain practical expedients that allow companies to omit this disclosure requirement for (i) contracts with an original expected length of one year or less, (ii) contracts for which revenue is recognized at the amount to which the Company has the right to invoice for services performed and (iii) variable consideration related to a wholly unsatisfied performance obligation.

As of March 31, 2018, other than contracts for which the Company has applied the practical expedients, the aggregate amount of transaction price allocated to remaining performance obligations was not material to our consolidated revenues.

Contract Balances from Contracts with Customers

The timing of revenue recognition, billings and cash collections results in billed receivables, contract assets and contract liabilities on the Consolidated Balance Sheet.

For certain types of contracts with customers, the Company may recognize revenue in advance of the contractual right to invoice the customer, resulting in an amount recorded to contract assets. Once the Company has an unconditional right to consideration under a contract, the contract assets are reclassified to account receivables.

When consideration is received, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a contract, a contract liability is recorded. Contract liabilities are recognized as revenue when, or as, control of the products or services is transferred to the customer and all revenue recognition criteria have been met. The primary source of the Company’s contract liabilities relates to advertising sales arrangements and content licensing arrangements. As noted above, the Company’s programming networks generally guarantee viewer ratings for its programming. If these guaranteed viewer ratings are not met, the Company is required to provide additional advertising units to the advertiser. For these types of arrangements, a portion of the related revenue is deferred if the guaranteed ratings are not met, representing a contract liability, and is subsequently recognized either when the Company provides the required additional advertising time or the guarantee obligation contractually expires. In certain content licensing arrangements, payment may be received in advance of a distributor's ability to exhibit a program. Such payments are recorded as a contract liability and subsequently recognized when the program becomes available for exhibition.

AMC NETWORKS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(unaudited)

The following table provides information about receivables, contract assets, and contract liabilities from contracts with customers.



(In thousands)	March 31, 2018		December 31, 2017^(a)
Balances from contracts with customers:
Accounts receivable (including long-term, included in Other assets)	$	981,266	$	926,089
Contract assets, short-term (included in Other current assets)	1,891		—
Contract assets, long-term (included in Other assets)	14,646		—
Contract liabilities (Deferred revenue)	51,916		46,433


(a)	As noted above, prior period amounts have not been adjusted under the modified retrospective method.

Revenue recognized for the three months ended March 31, 2018 relating to the contract liability at December 31, 2017 was $12.2 million.

Note 3. Net Income per Share

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



(In thousands)	Three Months Ended March 31,
(In thousands)	2018	2017
Basic weighted average common shares outstanding	60,967	68,020
Effect of dilution:
Restricted stock units	752	744
Diluted weighted average common shares outstanding	61,719	68,764

For the three months ended March 31, 2018, there were 388,000 stock options and 170,000 restricted stock units that would have been anti-dilutive to the diluted weighted average common shares outstanding. Approximately 195,000 and 175,000 restricted stock units for the three months ended March 31, 2018 and March 31, 2017, respectively, have been excluded from diluted weighted average common shares outstanding since a performance condition for these awards was not met in each of the respective periods. The Company did not include performance restricted stock units in the calculation of diluted EPS, since the performance conditions for these awards were not met.

Stock Repurchase Program

On March 7, 2016, the Company announced that its Board of Directors authorized a program to repurchase up to $500 million of its outstanding shares of common stock (the "2016 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 2016 Stock Repurchase Program. The 2016 Stock Repurchase Program has no pre-established closing date and may be suspended or discontinued at any time. For the three months ended March 31, 2018, the Company repurchased 1.6 million shares of its Class A common stock at an average purchase price of approximately $50.77 per share. As of March 31, 2018, the Company has $258.9 million available for repurchase under the 2016 Stock Repurchase Program.

Note 4. Investments

The Company holds several investments and loans in non-consolidated entities. Equity method investments were $81.4 million at March 31, 2018 and $61.3 million at December 31, 2017. Cost method investments were $71.8 million at March 31, 2018 and $46.8 million at December 31, 2017. Equity and cost method investments are included in Other assets in the condensed consolidated balance sheet.

RLJE

On January 5, 2018, a subsidiary of the Company entered into a Stock Purchase Agreement (the "Stock Purchase Agreement") with JH Partners Evergreen Fund, L.P., Forrestal, LLC, JH Investment Partners III, L.P., and JH Investment Partners GP Fund III, LLC (collectively, "JH Partners"). Under the terms of the Stock Purchase Agreement, the Company purchased (i) 678,095 shares of common stock of RLJ Entertainment, Inc., ("RLJE"), (ii) 747,945 warrants to purchase shares of common stock of RLJE with an adjusted exercise price of $1.50 per share issued, and (iii) 7,479.432 shares of Series D-1 preferred stock of RLJE. The total purchase price was $17.2 million.

AMC NETWORKS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(unaudited)

On February 26, 2018, the Company delivered a letter to RLJE pursuant to which the Company proposed to acquire all of the outstanding shares of RLJE not currently owned by the Company or entities affiliated with Robert L. Johnson for a purchase price of $4.25 per share in cash. Through this offer, the Company intends for RLJE to become a majority-owned subsidiary of the Company, with a minority stake held by Mr. Johnson. The board of directors of RLJE has formed a special committee of independent directors to consider the proposal. There can be no assurance that the proposal made by the Company to RLJE will result in a transaction or the terms upon which any transaction may occur.

Other Investments

On March 5, 2018, the Company made an investment in fuboTV Inc. of $25.0 million, which is accounted for as a cost method investment.

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, 2017	$	239,759		$	455,399	$	695,158
Amortization of "second component" goodwill	(328		)	—		(328		)
Foreign currency translation	—			12,824		12,824
March 31, 2018	$	239,431		$	468,223	$	707,654

The reduction of $0.3 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.

AMC NETWORKS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(unaudited)

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



(In thousands)	March 31, 2018
(In thousands)	Gross		Accumulated Amortization			Net		Estimated Useful Lives
Amortizable intangible assets:
Affiliate and customer relationships	$	532,555	$	(177,019	)	$	355,536	6 to 25 years
Advertiser relationships	46,282		(14,457		)	31,825		11 years
Trade names	55,201		(15,422		)	39,779		20 years
Other amortizable intangible assets	11,704		(6,349		)	5,355		2 to 15 years
Total amortizable intangible assets	645,742		(213,247		)	432,495
Indefinite-lived intangible assets:
Trademarks	19,900		—			19,900
Total intangible assets	$	665,642	$	(213,247	)	$	452,395
(In thousands)	December 31, 2017
(In thousands)	Gross		Accumulated Amortization			Net
Amortizable intangible assets:
Affiliate and customer relationships	$	527,713	$	(167,911	)	$	359,802
Advertiser relationships	46,282		(13,405		)	32,877
Trade names	53,761		(14,420		)	39,341
Other amortizable intangible assets	11,401		(6,079		)	5,322
Total amortizable intangible assets	639,157		(201,815		)	437,342
Indefinite-lived intangible assets:
Trademarks	19,900		—			19,900
Total intangible assets	$	659,057	$	(201,815	)	$	457,242

Aggregate amortization expense for amortizable intangible assets for the three months ended March 31, 2018 and 2017 was $9.3 million and $9.1 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,
2018	$	36,491
2019	36,488
2020	36,102
2021	36,099
2022	36,087

Note 6. Accrued Liabilities

Accrued liabilities consist of the following:



(In thousands)	March 31, 2018		December 31, 2017
Interest	$	40,093	$	30,262
Employee related costs	55,181		117,850
Income taxes payable	35,025		19,558
Other accrued expenses	105,002		95,406
Total accrued liabilities	$	235,301	$	263,076

AMC NETWORKS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(unaudited)

Note 7. Long-term Debt

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



(In thousands)	March 31, 2018			December 31, 2017
Senior Secured Credit Facility: ^(a)
Term Loan A Facility	$	750,000		$	750,000
Senior Notes:
4.75% Notes due August 2025	800,000			800,000
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	3,150,000			3,150,000
Unamortized discount	(32,663		)	(33,776		)
Unamortized deferred financing costs	(16,199		)	(16,967		)
Long-term debt, net	$	3,101,138		$	3,099,257


(a)	The Company's $500 million revolving credit facility remains undrawn at March 31, 2018. Total undrawn revolver commitments are available to be drawn for general corporate purposes of the Company.

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.

AMC NETWORKS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(unaudited)

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 March 31, 2018 and December 31, 2017:



(In thousands)	Level I		Level II		Level III		Total
At March 31, 2018:
Assets:
Cash equivalents	$	65,955	$	—	$	—	$	65,955
Marketable securities	8,457		—		—		8,457
Investments	31,632		—		—		31,632
Interest rate swap contracts	—		1,298		—		1,298
Foreign currency derivatives	—		3,027		—		3,027
Other derivatives	—		9,712		41,097		50,809
Liabilities:
Foreign currency derivatives	$	—	$	4,064	$	—	$	4,064
At December 31, 2017:
Assets:
Cash equivalents	$	100,615	$	—	$	—	$	100,615
Marketable securities	10,709		—		—		10,709
Investments	9,948		—		—		9,948
Interest rate swap contracts	—		1,444		—		1,444
Foreign currency derivatives	—		3,801		—		3,801
Other derivatives	—		6,174		30,891		37,065
Liabilities:
Foreign currency derivatives	$	—	$	4,475	$	—	$	4,475

The Company's cash equivalents and marketable 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.

On October 14, 2016, Digital Entertainment Holdings LLC (“DEH”), a wholly-owned subsidiary of the Company, and RLJE entered into a Credit and Guaranty Agreement pursuant to which DEH provided term loans to RLJE (the “RLJE Term Loans”). In connection with the RLJE Credit and Guaranty Agreement, 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”). 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 three months ended March 31, 2018 and 2017, the Company recorded a gain of $8.1 million and $8.9 million, respectively, related to the RLJE Warrants which is included in Miscellaneous, net in the condensed consolidated statement of income.

At March 31, 2018, 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.

AMC NETWORKS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(unaudited)

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)	March 31, 2018
(In thousands)	Carrying Amount		Estimated Fair Value
Debt instruments:
Term Loan A Facility	$	737,774	$	748,125
4.75% Notes due August 2025	785,171		771,000
5.00% Notes due April 2024	984,591		988,750
4.75% Notes due December 2022	593,602		604,500
	$	3,101,138	$	3,112,375



(In thousands)	December 31, 2017
(In thousands)	Carrying Amount		Estimated Fair Value
Debt instruments:
Term Loan A Facility	$	737,140	$	748,125
4.75% Notes due August 2025	784,757		793,000
5.00% Notes due April 2024	984,056		1,012,500
4.75% Notes due December 2022	593,304		612,750
	$	3,099,257	$	3,166,375

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 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 March 31, 2018, the Company had interest rate swap contracts outstanding with notional amounts aggregating $200.0 million that are not designated as hedging instruments. The Company's outstanding interest rate swap contracts mature in October 2018.

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 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 consolidated statements of income. For the three months ended March 31, 2018 and 2017, the Company recorded a gain of $11.7 million and $11.1 million, respectively, related to these derivatives, which is included in Miscellaneous, net in the condensed consolidated statement of income.

AMC NETWORKS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(unaudited)

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	March 31, 2018		December 31, 2017
Derivatives not designated as hedging instruments:
Assets:
Foreign currency derivatives	Prepaid expenses and other current assets	$	785	$	943
Foreign currency derivatives	Other assets	2,241		2,858
Interest rate swap contracts	Prepaid expenses and other current assets	1,298		1,444
Other derivatives	Other assets	50,809		37,065
Liabilities:
Foreign currency derivatives	Accrued liabilities	1,069		1,223
Foreign currency derivatives	Other liabilities	2,995		3,252

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 March 31,					Three Months Ended March 31,
	2018		2017			2018		2017
Derivatives in cash flow hedging relationships:
Interest rate swap contracts	$	—	$	321	Interest expense	$	—	$	2


(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 March 31, 2018 and 2017.

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 March 31,
		2018			2017
Derivatives not designated as hedging relationships:
Interest rate swap contracts	Interest expense	$	(146	)	$	2
Foreign currency derivatives	Miscellaneous, net	(293		)	(267		)
Other derivatives	Miscellaneous, net	11,687			11,117
Total		$	11,248		$	10,852

Note 10. Income Taxes

For the three months ended March 31, 2018, income tax expense was $56.9 million, representing an effective tax rate of 26%. The effective tax rate differs from the federal statutory rate of 21% due primarily to tax expense of $16.4 million for an increase in valuation allowances for foreign taxes and U.S. foreign tax credits, tax benefit of $8.3 million for the one-time rate change on deferred tax assets and liabilities that resulted from the extension of certain television production cost deductions included in the Bipartisan Budget Act of 2018 (enacted February 9, 2018), tax benefit from foreign subsidiary earnings indefinitely reinvested outside the U.S. of $4.9 million and state income tax expense of $3.8 million.

For the three months ended March 31, 2017, income tax expense was $73.1 million, representing an effective tax rate of 34%. The effective tax rate differs from the federal statutory rate of 35% due primarily to tax benefit from domestic production activities deduction of $5.9 million, tax benefit from foreign subsidiary earnings indefinitely reinvested outside the U.S. of $4.1

AMC NETWORKS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(unaudited)

million, state income tax expense of $3.4 million and tax expense of $2.3 million for an increase in valuation allowances for foreign taxes.

At March 31, 2018, the Company had foreign tax credit carry forwards of approximately $15.6 million, expiring on various dates from 2024 through 2025. These carryforwards have been reduced by a valuation allowance of $15.6 million as it is more likely than not that these carry forwards will not be realized. For the three months ended March 31, 2018, $0.3 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 March 31, 2018, the Company's contractual obligations not reflected on the Company's condensed consolidated balance sheet decreased $154.7 million to $1.2 billion. The decrease relates primarily to the expiration of 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, the "2013 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 The parties each filed motions for summary judgment. Oral arguments of the summary judgment motions took place on September 15, 2017. On April 19, the Court granted the Company’s motion for leave to submit supplemental summary judgment briefing, which will be fully submitted by May 21, 2018. A hearing on the supplemental summary judgment submissions will be held on June 13, 2018. The Company has opposed Plaintiffs' claims. 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.

On January 18, 2018, the 2013 Plaintiffs filed a second action in New York Supreme Court in connection with Darabont’s services on The Walking Dead television series and agreements between the parties related thereto. The claims in the action allegedly arise from Plaintiffs' audit of their participation statements covering the accounting period from inception of The Walking Dead through September 30, 2014. Plaintiffs seek no less than $20 million in damages on claims for breach of contract, breach of the covenant of good faith and fair dealing, and declaratory relief. Plaintiffs also seek a judicial determination that their contracts with the Company entitle them to an "actual fair market license fee" in connection with AMC Networks telecasting of The Walking Dead, which they allege is "substantially better than" what they received. The Company file an Answer to the Complaint on April 16, and the parties have agreed to consolidate this action for a joint trial with the action Plaintiffs filed in the New York Supreme Court on December 17, 2013. The Company believes that the asserted claims are without merit, denies the allegations and will 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.

On August 14, 2017, Robert Kirkman, Robert Kirkman, LLC, Glen Mazzara, 44 Strong Productions, Inc., David Alpert, Circle of Confusion Productions, LLC, New Circle of Confusion Productions, Inc., Gale Anne Hurd, and Valhalla Entertainment, Inc. f/k/a Valhalla Motion Pictures, Inc. (together, the "California Plaintiffs") filed a complaint in California Superior Court in connection with California Plaintiffs’ rendering of services as writers and producers of the television series entitled The Walking Dead, as well as Fear the Walking Dead and/or Talking Dead, and the agreements between the parties related thereto (the "California Action"). The California Plaintiffs asserted that the Company has been improperly underpaying the California Plaintiffs under their contracts with the Company and they assert claims for breach of contract, breach of the covenant of good faith and fair dealing, inducing breach of contract, and liability for violation of Cal. Bus. & Prof. Code § 17200. On August 15, 2017, two of the California Plaintiffs, Gale Anne Hurd and David Alpert (and their associated production companies), along with Charles Eglee and his production company, United Bongo Drum, Inc., filed a complaint in New York Supreme Court alleging nearly identical claims as the California Action (the "New York Action"). Hurd, Alpert, and Eglee filed the New York Action in connection with their contract claims involving The Walking Dead because their agreements contained exclusive New York jurisdiction provisions. On October 23, 2017, the parties stipulated to discontinuing the New York Action without prejudice and consolidating all of the claims in the California Action. The California Plaintiffs seek compensatory and punitive damages and restitution. The Company filed an Answer

AMC NETWORKS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(unaudited)

on April 30, 2018 and believes that the asserted claims are without merit and will vigorously defend against them. 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 matters 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

In March 2018, AMC Networks granted 684,737 restricted stock units ("RSUs") and 537,403 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 195,028 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 three months ended March 31, 2018, 707,624 RSUs of AMC Networks Class A Common Stock previously issued to employees of the Company vested. On the vesting date, 289,555 RSUs were surrendered to the Company to cover the required statutory tax withholding obligations and 418,069 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 $15.4 million, which has been reflected as a financing activity in the condensed consolidated statement of cash flows for the three months ended March 31, 2018.

Share-based compensation expense included in selling, general and administrative expense, for the three months ended March 31, 2018 and March 31, 2017 was $15.3 million and $12.5 million, respectively.

As of March 31, 2018, there was $133.8 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 2.7 years.

Note 13. Redeemable Noncontrolling Interests

The following table summarizes activity related to redeemable noncontrolling interest for the three months ended March 31, 2018.



(In thousands)	Three Months Ended March 31, 2018
December 31, 2017	$	218,604
Net earnings	3,197
Distributions	(1,435		)
March 31, 2018	$	220,366

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 71% 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").

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 $1.6 million for the three months ended March 31, 2018 and 2017, respectively. Amounts charged to the Company, included in selling, general and administrative expenses, pursuant to transactions with its related parties amounted to $0.5 million and $0.6 million for the three months ended March 31, 2018 and 2017, respectively.

AMC NETWORKS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(unaudited)

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)	Three Months Ended March 31,
(In thousands)	2018	2017
Non-Cash Investing and Financing Activities:
Treasury stock not yet settled	9,980	5,988
Capital expenditures incurred but not yet paid	6,070	3,362
Supplemental Data:
Cash interest paid	25,634	8,605
Income taxes paid, net	6,243	7,498

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 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 and related charges (including gains or losses on sales or dispositions of businesses), 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.



(In thousands)	Three Months Ended March 31, 2018
(In thousands)	National Networks		International and Other			Inter-segment eliminations			Consolidated
Revenues, net
Advertising	$	225,730	$	22,510		$	—		$	248,240
Distribution	407,298		88,880			(3,595		)	492,583
Consolidated revenues, net	$	633,028	$	111,390		$	(3,595	)	$	740,823
Operating income (loss)	$	249,852	$	(16,814	)	$	617		$	233,655
Share-based compensation expense	12,527		2,792			—			15,319
Depreciation and amortization	8,495		11,859			—			20,354
Adjusted operating income (loss)	$	270,874	$	(2,163	)	$	617		$	269,328
Capital expenditures	$	2,148	$	9,794		$	—		$	11,942

AMC NETWORKS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(unaudited)



(In thousands)	Three Months Ended March 31, 2017
(In thousands)	National Networks		International and Other			Inter-segment eliminations			Consolidated
Revenues, net
Advertising	$	247,542	$	20,070		$	—		$	267,612
Distribution	367,605		86,727			(1,755		)	452,577
Consolidated revenues, net	$	615,147	$	106,797		$	(1,755	)	$	720,189
Operating income (loss)	$	249,607	$	(19,217	)	$	1,281		$	231,671
Share-based compensation expense	9,908		2,556			—			12,464
Restructuring expense	54		2,650			—			2,704
Depreciation and amortization	8,404		15,089			—			23,493
Adjusted operating income	$	267,973	$	1,078		$	1,281		$	270,332
Capital expenditures	$	5,135	$	15,071		$	—		$	20,206

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 March 31,
(In thousands)	2018			2017
Inter-segment revenues
National Networks	$	(2,535	)	$	(1,724	)
International and Other	(1,060		)	(31		)
	$	(3,595	)	$	(1,755	)

The table below summarizes revenues based on customer location:



(In thousands)	Three Months Ended March 31,
(In thousands)	2018		2017
Revenues
United States	$	586,568	$	600,055
Europe	86,264		78,675
Other	67,991		41,459
	$	740,823	$	720,189

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



(In thousands)	March 31, 2018		December 31, 2017
Property and equipment, net
United States	$	138,912	$	136,203
Europe	28,449		28,261
Other	18,079		19,050
	$	185,440	$	183,514

Note 17. Condensed Consolidating Financial Statements

Debt of AMC Networks includes $600 million of 4.75% senior notes due December 2022, $1 billion of 5.00% senior notes due April 2024 and $800 million of 4.75% senior notes due August 2025. All outstanding senior notes issued by AMC Networks (for purposes of this Note 18, "Parent Company") 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.

AMC NETWORKS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(unaudited)

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
March 31, 2018
(In thousands)	Parent Company		Guarantor Subsidiaries		Non- Guarantor Subsidiaries			Eliminations			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	184	$	354,419	$	174,597		$	—		$	529,200
Accounts receivable, trade (including amounts due from related parties, net, less allowance for doubtful accounts)	—		588,633		204,642			—			793,275
Current portion of program rights, net	—		315,628		149,293			—			464,921
Prepaid expenses, other current assets and intercompany receivable	1,419		212,382		10,592			(122,335		)	102,058
Total current assets	1,603		1,471,062		539,124			(122,335		)	1,889,454
Property and equipment, net of accumulated depreciation	—		138,866		46,574			—			185,440
Investment in affiliates	3,616,931		1,013,078		—			(4,630,009		)	—
Program rights, net	—		1,092,691		186,898			—			1,279,589
Long-term intercompany notes receivable	—		490,380		343			(490,723		)	—
Deferred carriage fees, net	—		26,008		1,164			—			27,172
Intangible assets, net	—		168,117		284,278			—			452,395
Goodwill	—		66,282		641,372			—			707,654
Deferred tax asset, net	—		—		21,731			—			21,731
Other assets	—		173,988		375,944			—			549,932
Total assets	$	3,618,534	$	4,640,472	$	2,097,428		$	(5,243,067	)	$	5,113,367
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable	$	32	$	47,245	$	49,539		$	—		$	96,816
Accrued liabilities and intercompany payable	86,500		121,433		149,703			(122,335		)	235,301
Current portion of program rights obligations	—		255,744		71,118			—			326,862
Deferred revenue	—		34,738		17,178			—			51,916
Current portion of capital lease obligations	—		3,001		1,770			—			4,771
Total current liabilities	86,532		462,161		289,308			(122,335		)	715,666
Program rights obligations	—		470,626		20,901			—			491,527
Long-term debt, net	3,101,138		—		—			—			3,101,138
Capital lease obligations	—		2,963		22,270			—			25,233
Deferred tax liability, net	150,247		—		(5,088		)	—			145,159
Other liabilities and intercompany notes payable	49,873		87,791		506,226			(490,723		)	153,167
Total liabilities	3,387,790		1,023,541		833,617			(613,058		)	4,631,890
Commitments and contingencies
Redeemable noncontrolling interests	—		—		220,366			—			220,366
Stockholders' equity:
AMC Networks stockholders' equity	230,744		3,616,931		1,013,078			(4,630,009		)	230,744
Non-redeemable noncontrolling interests	—		—		30,367			—			30,367
Total stockholders' equity	230,744		3,616,931		1,043,445			(4,630,009		)	261,111
Total liabilities and stockholders' equity	$	3,618,534	$	4,640,472	$	2,097,428		$	(5,243,067	)	$	5,113,367

AMC NETWORKS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(unaudited)



Condensed Consolidating Balance Sheet
December 31, 2017
(In thousands)	Parent Company		Guarantor Subsidiaries		Non- Guarantor Subsidiaries			Eliminations			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	320	$	391,248	$	167,215		$	—		$	558,783
Accounts receivable, trade (including amounts due from related parties, net, less allowance for doubtful accounts)	—		581,270		194,621			—			775,891
Current portion of program rights, net	—		304,149		149,301			—			453,450
Prepaid expenses, other current assets and intercompany receivable	3,760		183,815		8,540			(104,389		)	91,726
Total current assets	4,080		1,460,482		519,677			(104,389		)	1,879,850
Property and equipment, net of accumulated depreciation	—		136,032		47,482			—			183,514
Investment in affiliates	3,443,013		934,612		—			(4,377,625		)	—
Program rights, net	—		1,128,021		191,258			—			1,319,279
Long-term intercompany notes receivable	—		489,939		436			(490,375		)	—
Deferred carriage fees, net	—		29,346		578			—			29,924
Intangible assets, net	—		170,554		286,688			—			457,242
Goodwill	—		66,609		628,549			—			695,158
Deferred tax asset, net	—		—		20,081			—			20,081
Other assets	—		142,115		305,822						447,937
Total assets	$	3,447,093	$	4,557,710	$	2,000,571		$	(4,972,389	)	$	5,032,985
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable	$	350	$	50,282	$	51,565		$	—		$	102,197
Accrued liabilities and intercompany payable	51,692		179,003		136,770			(104,389		)	263,076
Current portion of program rights obligations	—		262,004		65,545			—			327,549
Deferred revenue	—		27,530		18,903			—			46,433
Current portion of long-term debt	—		—		—			—			—
Current portion of capital lease obligations	—		2,939		1,908			—			4,847
Total current liabilities	52,042		521,758		274,691			(104,389		)	744,102
Program rights obligations	—		511,996		22,984			—			534,980
Long-term debt, net	3,099,257		—		—			—			3,099,257
Capital lease obligations	—		3,745		22,532			—			26,277
Deferred tax liability, net	114,717		—		(5,019		)	—			109,698
Other liabilities and intercompany notes payable	46,133		77,198		503,166			(490,375		)	136,122
Total liabilities	3,312,149		1,114,697		818,354			(594,764		)	4,650,436
Commitments and contingencies
Redeemable noncontrolling interests	—		—		218,604			—			218,604
Stockholders' equity:
AMC Networks stockholders' equity	134,944		3,443,013		934,612			(4,377,625		)	134,944
Non-redeemable noncontrolling interests	—		—		29,001			—			29,001
Total stockholders' equity	134,944		3,443,013		963,613			(4,377,625		)	163,945
Total liabilities and stockholders' equity	$	3,447,093	$	4,557,710	$	2,000,571		$	(4,972,389	)	$	5,032,985

AMC NETWORKS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(unaudited)



Condensed Consolidating Statement of Income
Three Months Ended March 31, 2018
(In thousands)	Parent Company			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Revenues, net	$	—		$	574,917		$	170,386		$	(4,480	)	$	740,823
Operating expenses:
Technical and operating (excluding depreciation and amortization)	—			222,621			98,522			(778		)	320,365
Selling, general and administrative	—			122,059			48,089			(3,699		)	166,449
Depreciation and amortization	—			10,804			9,550			—			20,354
Total operating expenses	—			355,484			156,161			(4,477		)	507,168
Operating income	—			219,433			14,225			(3		)	233,655
Other income (expense):
Interest expense, net	(36,907		)	11,897			(8,176		)	—			(33,186		)
Share of affiliates' income	247,482			17,498			—			(264,980		)	—
Miscellaneous, net	(206		)	734			16,415			3			16,946
Total other income (expense)	210,369			30,129			8,239			(264,977		)	(16,240		)
Income from operations before income taxes	210,369			249,562			22,464			(264,980		)	217,415
Income tax expense	(53,499		)	(2,080		)	(1,300		)	—			(56,879		)
Net income including noncontrolling interests	156,870			247,482			21,164			(264,980		)	160,536
Net income attributable to noncontrolling interests	—			—			(3,666		)	—			(3,666		)
Net income attributable to Parent Company's stockholders	$	156,870		$	247,482		$	17,498		$	(264,980	)	$	156,870



Condensed Consolidating Statement of Income
Three Months Ended March 31, 2017
(In thousands)	Parent Company			Guarantor Subsidiaries		Non- Guarantor Subsidiaries			Eliminations			Consolidated
Revenues, net	$	—		$	579,382	$	143,132		$	(2,325	)	$	720,189
Operating expenses:
Technical and operating (excluding depreciation and amortization)	—			221,754		77,617			(759		)	298,612
Selling, general and administrative	—			119,681		45,479			(1,451		)	163,709
Depreciation and amortization	—			10,204		13,289			—			23,493
Restructuring expense	—			2,704		—			—			2,704
Total operating expenses	—			354,343		136,385			(2,210		)	488,518
Operating income	—			225,039		6,747			(115		)	231,671
Other income (expense):
Interest expense, net	(29,412		)	9,823		(7,418		)	—			(27,007		)
Share of affiliates' income	235,774			3,145		—			(238,919		)	—
Miscellaneous, net	(112		)	431		10,615