Quarterly Report



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
þ
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2017
or
¨
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 October 27, 2017
Class A Common Stock par value $0.01 per share
50,379,032
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.
AMC NETWORKS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
(unaudited)
 
September 30, 2017
 
December 31, 2016
ASSETS
 
 
 
Current Assets:
 
 
 
Cash and cash equivalents
$
552,289

 
$
481,389

Accounts receivable, trade (less allowance for doubtful accounts of $8,190  and $6,064)
712,176

 
700,655

Amounts due from related parties, net
478

 
508

Current portion of program rights, net
452,709

 
441,130

Prepaid expenses and other current assets
99,452

 
72,661

Total current assets
1,817,104

 
1,696,343

Property and equipment, net of accumulated depreciation of $267,740  and $272,148
172,621

 
166,636

Program rights, net
1,239,506

 
1,108,586

Deferred carriage fees, net
34,187

 
43,886

Intangible assets, net
473,699

 
485,809

Goodwill
690,854

 
657,708

Deferred tax assets, net
20,405

 
8,598

Other assets
442,388

 
313,029

Total assets
$
4,890,764

 
$
4,480,595

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIENCY)
 
 
 
Current Liabilities:
 
 
 
Accounts payable
$
78,904

 
$
88,677

Accrued liabilities
252,495

 
284,429

Current portion of program rights obligations
318,473

 
300,845

Deferred revenue
51,579

 
53,643

Current portion of long-term debt

 
222,000

Current portion of capital lease obligations
4,717

 
4,584

Total current liabilities
706,168

 
954,178

Program rights obligations
455,167

 
398,175

Long-term debt
3,097,350

 
2,597,263

Capital lease obligations
27,378

 
35,282

Deferred tax liabilities, net
173,363

 
145,791

Other liabilities
130,379

 
132,219

Total liabilities
4,589,805

 
4,262,908

Commitments and contingencies


 


Redeemable noncontrolling interests
217,697

 
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 51,229 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
179,289

 
142,798

Accumulated earnings
621,225

 
295,409

Treasury stock, at cost (11,474 and 5,330 shares Class A Common Stock, respectively)
(622,564
)
 
(275,230
)
Accumulated other comprehensive loss
(124,319
)
 
(193,798
)
Total AMC Networks stockholders’ equity (deficiency)
54,373

 
(30,082
)
Non-redeemable noncontrolling interests
28,889

 
28,438

Total stockholders’ equity (deficiency)
83,262

 
(1,644
)
Total liabilities and stockholders’ equity (deficiency)
$
4,890,764

 
$
4,480,595


See accompanying notes to condensed consolidated financial statements.

1


AMC NETWORKS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Revenues, net (including revenues, net from related parties of $1,515, $1,450, $4,594 and $14,356, respectively)
$
648,023

 
$
634,646

 
$
2,078,757

 
$
2,026,057

Operating expenses:
 
 
 
 
 
 
 
Technical and operating (excluding depreciation and amortization)
322,743

 
338,799

 
956,200

 
915,336

Selling, general and administrative (including charges from related parties of $216, $647, $1,205 and $2,537, respectively)
138,688

 
137,116

 
464,670

 
473,760

Depreciation and amortization
20,938

 
22,282

 
65,037

 
63,467

Impairment and related charges
11,036

 

 
28,148

 

Restructuring expense
1,264

 
19,312

 
3,887

 
19,666

Total operating expenses
494,669

 
517,509

 
1,517,942

 
1,472,229

Operating income
153,354

 
117,137

 
560,815

 
553,828

Other income (expense):
 
 
 
 
 
 
 
Interest expense
(35,392
)
 
(29,675
)
 
(96,609
)
 
(93,431
)
Interest income
3,582

 
471

 
10,841

 
2,865

Loss on extinguishment of debt
(3,004
)
 
(2,295
)
 
(3,004
)
 
(50,638
)
Miscellaneous, net
12,420

 
2,988

 
42,448

 
(22,610
)
Total other income (expense)
(22,394
)
 
(28,511
)
 
(46,324
)
 
(163,814
)
Income from operations before income taxes
130,960

 
88,626

 
514,491

 
390,014

Income tax expense
(40,124
)
 
(21,157
)
 
(173,399
)
 
(119,090
)
Net income including noncontrolling interests
90,836

 
67,469

 
341,092

 
270,924

Net income attributable to noncontrolling interests
(3,834
)
 
(2,076
)
 
(15,276
)
 
(14,908
)
Net income attributable to AMC Networks’ stockholders
$
87,002

 
$
65,393

 
$
325,816

 
$
256,016

 
 
 
 
 
 
 
 
Net income per share attributable to AMC Networks’ stockholders:
Basic
$
1.37

 
$
0.91

 
$
4.94

 
$
3.54

Diluted
$
1.35

 
$
0.91

 
$
4.89

 
$
3.51

 
 
 
 
 
 
 
 
Weighted average common shares:
 
 
 
 
 
 
 
Basic
63,683

 
71,507

 
65,960

 
72,269

Diluted
64,447

 
72,140

 
66,651

 
72,902

See accompanying notes to condensed consolidated financial statements.

2


AMC NETWORKS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Net income including noncontrolling interests
$
90,836

 
$
67,469

 
$
341,092

 
$
270,924

Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation adjustment
15,791

 
(763
)
 
63,475

 
(3,767
)
Unrealized (loss) gain on interest rate swaps
(174
)
 
896

 
(35
)
 
(1,447
)
Unrealized gain on available for sale securities
6,596

 

 
9,534

 

Other comprehensive income (loss), before income taxes
22,213

 
133

 
72,974

 
(5,214
)
Income tax expense
(2,363
)
 
(1,363
)
 
(3,495
)
 
(11,574
)
Other comprehensive income (loss), net of income taxes
19,850

 
(1,230
)
 
69,479

 
(16,788
)
Comprehensive income
110,686

 
66,239

 
410,571

 
254,136

Comprehensive income attributable to noncontrolling interests
(4,633
)
 
(2,108
)
 
(17,997
)
 
(13,564
)
Comprehensive income attributable to AMC Networks’ stockholders
$
106,053

 
$
64,131

 
$
392,574

 
$
240,572

See accompanying notes to condensed consolidated financial statements.

3


AMC NETWORKS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
Nine Months Ended September 30,
 
2017
 
2016
Cash flows from operating activities:
 
 
 
Net income including noncontrolling interests
$
341,092

 
$
270,924

Adjustments to reconcile income from operations to net cash from operating activities:
 
 
 
Depreciation and amortization
65,037

 
63,467

Impairment charges
17,112

 

Share-based compensation expense related to equity classified awards
41,412

 
28,869

Amortization and write-off of program rights
667,060

 
613,060

Amortization of deferred carriage fees
13,204

 
12,589

Unrealized foreign currency transaction (gain) loss
(14,658
)
 
28,800

Unrealized gain on derivative contracts, net
(27,598
)
 
(1,549
)
Amortization of deferred financing costs and discounts on indebtedness
6,530

 
6,997

Loss on extinguishment of debt
3,004

 
50,638

Bad debt expense
3,638

 
1,714

Deferred income taxes
9,325

 
15,080

Excess tax benefits from share-based compensation arrangements

 
(764
)
Other, net
(4,617
)
 
(4,433
)
Changes in assets and liabilities:
 
 
 
Accounts receivable, trade (including amounts due from related parties, net)
(13,316
)
 
32,747

Prepaid expenses and other assets
(69,463
)
 
(43,344
)
Program rights and obligations, net
(720,243
)
 
(687,888
)
Income taxes payable
(24,538
)
 
10,414

Deferred revenue
(6,529
)
 
30,726

Deferred carriage fees, net
(4,246
)
 
(10,411
)
Accounts payable, accrued expenses and other liabilities
(8,633
)
 
8,956

Net cash provided by operating activities
273,573

 
426,592

Cash flows from investing activities:
 
 
 
Capital expenditures
(61,794
)
 
(44,505
)
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
(104,794
)
 
(44,859
)
Cash flows from financing activities:
 
 
 
Proceeds from the issuance of long-term debt
1,536,000

 
982,500

Principal payments on long-term debt
(1,257,965
)
 
(811,000
)
Premium and fees paid on extinguishment of debt

 
(40,953
)
Payments for financing costs
(10,405
)
 
(2,070
)
Deemed repurchases of restricted stock units
(13,373
)
 
(10,821
)
Purchase of treasury stock
(347,334
)
 
(109,997
)
Proceeds from stock option exercises

 
1,217

Excess tax benefits from share-based compensation arrangements

 
764

Principal payments on capital lease obligations
(3,428
)
 
(3,182
)
Distributions to noncontrolling interests
(16,110
)
 
(9,010
)
Net cash used in  financing activities
(112,615
)
 
(2,552
)
Net increase in cash and cash equivalents from operations
56,164

 
379,181

Effect of exchange rate changes on cash and cash equivalents
14,736

 
(12,738
)
Cash and cash equivalents at beginning of period
481,389

 
316,321

Cash and cash equivalents at end of period
$
552,289

 
$
682,764


See accompanying notes to condensed consolidated financial statements.

4

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 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 $8.0 million and $19.6 million were recorded for the three months ended September 30, 2017 and September 30, 2016 , respectively. Program rights write-offs included in technical and operating expense of $9.7 million and $20.7 million were recorded for the nine months ended September 30, 2017 and September 30, 2016 , respectively.
Impairment and Related Charges
On July 12, 2017, the Company completed the sale of its Amsterdam-based media logistics facility, AMCNI – DMC. In connection with the sale, the Company recognized a pre-tax loss of $11.0 million . In addition, the Company recognized an impairment charge in the second quarter of 2017 of $17.1 million to reflect the AMCNI – DMC assets held for sale at fair value less estimated sale costs.

5

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 condensed 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 in 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 the 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 in 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

6

AMC NETWORKS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(unaudited)

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 in 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. Based on our initial assessment, upon adoption the Company expects to record a contract asset associated with our distribution revenues primarily as a result of the accelerated revenue recognition under the variable consideration and licensing guidance in the new standard. We have not completed a quantification of the contract asset, however, the amount is not expected to be significant to our financial position. 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 continues to monitor and work with various non-authoritative groups to conclude on industry specific interpretative issues.
Our final evaluation of the impact of the standard is ongoing and will continue throughout 2017. We expect to implement the standard using the modified retrospective transition method.
Note 2. Net Income per Share
The following is a reconciliation between basic and diluted weighted average shares outstanding:
(In thousands)
Three Months Ended September 30,
 
Nine Months Ended September 30,
2017
 
2016
 
2017
 
2016
Basic weighted average common shares outstanding
63,683

 
71,507

 
65,960

 
72,269

Effect of dilution:
 
 
 
 
 
 
 
Stock options
4

 
1

 
1

 
17

Restricted stock units
760

 
632

 
690

 
616

Diluted weighted average common shares outstanding
64,447

 
72,140

 
66,651

 
72,902

For the three and nine months ended September 30, 2017 , there were approximately 170,000 restricted stock units that would have been anti-dilutive to the diluted weighted average common shares outstanding. For the three and nine months ended September 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 960,000 and 137,000 restricted stock units with performance conditions have been excluded from diluted weighted average common shares outstanding for the three and nine months ended September 30, 2017 and September 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

7

AMC NETWORKS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(unaudited)

Repurchase Program has no pre-established closing date and may be suspended or discontinued at any time. For the nine months ended September 30, 2017 , the Company repurchased 6.1 million shares of its Class A common stock at an average purchase price of approximately $56.37 per share. As of September 30, 2017 , the Company had $430.4 million available for repurchase under the Stock Repurchase Program.
Note 3. Restructuring
The Company incurred restructuring expense primarily related to severance charges and other exit costs associated with the elimination of certain positions across the Company and the termination of distribution in certain territories.
The following table summarizes the restructuring expense recognized by operating segment:
(In thousands)
Three Months Ended September 30,
 
Nine Months Ended September 30,
2017
 
2016
 
2017
 
2016
National Networks
$
(10
)
 
$
8,103

 
$
(53
)
 
$
8,170

International & Other
1,274

 
11,209

 
3,940

 
11,496

Total restructuring expense
$
1,264

 
$
19,312

 
$
3,887

 
$
19,666

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
2,626

 
1,261

 
3,887

Cash payments
(13,440
)
 
(151
)
 
(13,591
)
Non-cash adjustments
2

 
(1,260
)
 
(1,258
)
Currency translation
1

 
11

 
12

Balance at September 30, 2017
$
1,295

 
$
66

 
$
1,361

Accrued liabilities for restructuring costs are included in accrued liabilities in the condensed consolidated balance sheet at September 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 .

8

AMC NETWORKS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(unaudited)

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 and nine months ended September 30, 2017 , the Company recognized a gain of $0.5 million and $1.9 million , respectively, 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
(1,908
)
 

 
(1,908
)
Foreign currency translation

 
35,054

 
35,054

September 30, 2017
$
240,395

 
$
450,459

 
$
690,854

The reduction of $1.9 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.

9

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)
September 30, 2017
 
 
Gross
 
Accumulated
Amortization
 
Net
 
Estimated Useful Lives
Amortizable intangible assets:
 
 
 
 
 
 
 
Affiliate and customer relationships
$
525,499

 
$
(159,790
)
 
$
365,709

 
10 to 25 years
Advertiser relationships
46,282

 
(12,354
)
 
33,928

 
11 years
Trade names
53,078

 
(8,682
)
 
44,396

 
12 to 20 years
Other amortizable intangible assets
11,220

 
(1,454
)
 
9,766

 
15 years
Total amortizable intangible assets
636,079

 
(182,280
)
 
453,799

 
 
Indefinite-lived intangible assets:
 
 
 
 
 
 
 
Trademarks
19,900

 

 
19,900

 
 
Total intangible assets
$
655,979

 
$
(182,280
)
 
$
473,699

 
 
(In thousands)
December 31, 2016
 
 
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

 
 
Aggregate amortization expense for amortizable intangible assets for the nine months ended September 30, 2017 and 2016 was $28.5 million and $29.2 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
$
37,758

2018
37,001

2019
36,980

2020
36,974

2021
36,613

Note 6. Accrued Liabilities
Accrued liabilities consist of the following:
(In thousands)
September 30, 2017
 
December 31, 2016
Interest
$
40,240

 
$
15,770

Employee related costs
98,516

 
122,590

Income taxes payable
17,376

 
43,083

Other accrued expenses
96,363

 
102,986

Total accrued liabilities
$
252,495

 
$
284,429


10

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)
September 30, 2017
 
December 31, 2016
Senior Secured Credit Facility: (a)
 
 
 
Term Loan A Facility
$
750,000

 
$
1,258,000

Senior Notes:
 
 
 
4.75% Notes due August 2025
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

 
2,858,000

Unamortized discount
(34,898
)
 
(23,675
)
Unamortized deferred financing costs
(17,752
)
 
(15,062
)
Long-term debt, net
3,097,350

 
2,819,263

Current portion of long-term debt

 
222,000

Noncurrent portion of long-term debt
$
3,097,350

 
$
2,597,263

(a)
The Company’s $500 million revolving credit facility remains undrawn at September 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. The 4.75% Notes due 2025 were issued net of a $14.0 million underwriting discount. AMC Networks used approximately $400 million of the net proceeds to repay loans under AMC Networks’ Term Loan A 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.
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 amendment to the Credit Agreement, AMC Networks incurred a loss on extinguishment of debt of $3.0 million for the write-off of a portion of unamortized deferred financing costs, and incurred financing costs of $10.4 million , of which $9.4 million were deferred and are being amortized, using the effective interest method, to interest expense over the term of the related borrowing, and $1.0 million 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.

11

AMC NETWORKS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(unaudited)

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 September 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 September 30, 2017:
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
Cash equivalents  
 
$
100,311

 
$

 
$

 
$
100,311

Available for sale securities
 
14,845

 

 

 
14,845

Interest rate swap contracts
 

 
1,413

 

 
1,413

Investments
 
8,079

 

 

 
8,079

Foreign currency derivatives
 

 
3,970

 

 
3,970

Other derivatives
 

 
7,976

 
29,814

 
37,790

Liabilities:
 
 
 
 
 
 
 
 
Foreign currency derivatives
 
$

 
$
4,277

 
$

 
$
4,277

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

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 three and nine months ended September 30, 2017 , the Company recorded a gain of $2.0 million and $19.1 million , respectively, related to the RLJE Warrants which is included in Miscellaneous, net in the condensed consolidated statement of income.
At September 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.

12

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)
September 30, 2017
Carrying
Amount
 
Estimated
Fair Value
Debt instruments:
 
 
 
Term Loan A Facility
$
736,500

 
$
747,188

4.75% Notes due August 2025
784,334

 
810,000

5.00% Notes due April 2024
983,510

 
1,035,000

4.75% Notes due December 2022
593,006

 
618,000

 
$
3,097,350

 
$
3,210,188

(In thousands)
December 31, 2016
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.
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 September 30, 2017 , 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 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 nine months ended September 30, 2017 , the Company recorded a gain of $4.4 million and $26.8 million , respectively, related to these derivatives, which is included in Miscellaneous, net in the condensed consolidated statements of income.

13

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
 
September 30,
2017
 
December 31, 2016
Derivatives designated as hedging instruments:
 
 
 
 
 
Assets:
 
 
 
 
 
Interest rate swap contracts
Other assets
 
$

 
$
1,471

Derivatives not designated as hedging instruments:
 
 
 
 
 
Assets:
 
 
 
 
 
Foreign currency derivatives
Prepaid expenses and other current assets
 
$
1,003

 
$
1,684

Foreign currency derivatives
Other assets
 
2,967

 
4,412

Interest rate swap contracts
Other assets
 
1,413

 

Other derivatives
Other assets
 
37,790

 
12,308

Liabilities:
 
 
 
 
 
Interest rate swap contracts
Accrued liabilities
 
$

 
$
762

Foreign currency derivatives
Accrued liabilities
 
1,037

 
952

Foreign currency derivatives
Other liabilities
 
3,240

 
2,195


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 September 30,
 
 
 
Three Months Ended September 30,
2017
 
2016
 
 
 
2017
 
2016
Derivatives in cash flow hedging relationships:
 
 
 
 
 
 
 
 
 
Interest rate swap contracts
$
50

 
$
750

 
Interest expense
 
$
224

 
$
(146
)
(a)
There were no gains or losses recognized in earnings related to any ineffective portion of hedging relationships or related to any amount excluded from the assessment of hedge effectiveness for the three months ended September 30, 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)
Nine Months Ended September 30,
 
 
 
Nine Months Ended September 30,
2017
 
2016
 
 
 
2017
 
2016
Derivatives in cash flow hedging relationships:
 
 
 
 
 
 
 
 
 
Interest rate swap contracts
$
306

 
$
(1,925
)
 
Interest expense
 
$
341

 
$
(478
)
(a)
There were no gains or losses recognized in earnings related to any ineffective portion of hedging relationships or related to any amount excluded from the assessment of hedge effectiveness for the nine months ended September 30, 2017 and 2016 .

14

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 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 September 30,
 
Nine Months Ended September 30,
 
 
2017
 
2016
 
2017
 
2016
Derivatives not designated as hedging relationships:
 
 
 
 
 
 
 
 
 
Interest rate swap contracts
Interest expense
 
$
(24
)
 
$
(4
)
 
$
(29
)
 
$
(233
)
Foreign currency derivatives
Miscellaneous, net
 
(1,643
)
 
66

 
(4,487
)
 
2,276

Other derivatives
Miscellaneous, net
 
4,432

 

 
26,836

 

Total
 
 
$
2,765

 
$
62

 
$
22,320

 
$
2,043

Note 10. Income Taxes
For the three and nine months ended September 30, 2017 , income tax expense was $40.1 million and $173.4 million , respectively, representing an effective tax rate of 31% and 34% , respectively. The effective tax rate differs from the federal statutory rate of 35% due primarily to tax benefit from the domestic production activities deduction of $2.8 million and $13.1 million , tax expense of $5.5 million and tax benefit of $1.2 million from foreign subsidiary earnings indefinitely reinvested outside the U.S., tax benefit of $8.4 million and $0.9 million resulting from a decrease in the valuation allowances for foreign and local taxes, tax benefit of $0.6 million and tax expense of $2.0 million relating to uncertain tax positions (including accrued interest) and state and local income tax expense of $2.4 million and $8.4 million for the three and nine months ended September 30, 2017 , respectively.
For the three and nine months ended September 30, 2016 , income tax expense was $21.2 million and $119.1 million , respectively, representing an effective tax rate of 24% and 31% , respectively. The effective tax rate differs from the federal statutory rate of  35%  due primarily to tax benefit from the domestic production activities deduction of $2.8 million and $12.5 million , tax benefit of $3.4 million and $12.4 million from foreign subsidiary earnings indefinitely reinvested outside the U.S., tax benefit of $6.7 million and $4.0 million relating to uncertain tax positions (including accrued interest), state and local income tax expense of $0.8 million and $6.1 million and tax expense of $2.3 million and $7.0 million resulting from an increase in the valuation allowances for foreign and local taxes for the three and nine months ended September 30, 2016 , respectively. The tax benefit relating to a reduction in uncertain tax positions is primarily due to a lapse of the applicable statute of limitations.
At September 30, 2017 , the Company had foreign tax credit carry forwards of approximately $28 million , expiring on various dates from 2021 through 2025. For the nine months ended September 30, 2017 , $1.2 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 September 30, 2017 , the Company’s contractual obligations not reflected on the Company’s condensed consolidated balance sheet increased $57.2 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. Oral arguments of the summary judgment motions took place on September 15, 2017. The Court has not yet ruled on the summary judgment motions. The Company

15

AMC NETWORKS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(unaudited)

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.
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 Talking Dead , and the agreements between the parties related thereto (the “California Action”). The California Plaintiffs asserted 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. While answers and/or dispositive motions have yet to be filed, the Company 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 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 (“RSUs”) under the AMC Networks Inc. Amended and Restated 2011 Non-Employee Directors Plan to non-employee directors that vested on the date of grant.
On March 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 nine months ended September 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  nine months ended  September 30, 2017 .
Share-based compensation expense included in selling, general and administrative expense, for the three and nine months ended September 30, 2017 was $13.8 million and $41.4 million , respectively, and $9.4 million and $28.9 million for the three and nine months ended September 30, 2016 , respectively.
As of September 30, 2017 , there was $112.8 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 2.6 years.

16

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 nine months ended September 30, 2017 .
(In thousands)
Nine Months Ended September 30, 2017
December 31, 2016
$
219,331

Net earnings
14,476

Distributions
(16,110
)
September 30, 2017
$
217,697

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 70% 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 for the three months ended September 30, 2017 and 2016 , respectively, and $4.6 million and $14.4 million for the nine months ended September 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 $0.2 million and $0.6 million for the three months ended September 30, 2017 and 2016 , respectively, and $1.2 million and $2.5 million for the nine months ended September 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)
Nine Months Ended September 30,
2017
 
2016
Non-Cash Investing and Financing Activities:
 
 
 
Increase in capital lease obligations

 
11,040

Treasury stock not yet settled
2,000

 

Exercise of RLJE Warrants
5,001

 

Capital expenditures incurred but not yet paid
3,761

 
1,421

Supplemental Data:
 
 
 
Cash interest paid
65,442

 
79,951

Income taxes paid, net
181,129

 
98,997


17

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)
Nine Months Ended September 30, 2017
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
63,475

 
306

 
9,534

 
73,315

Amounts reclassified from accumulated other comprehensive loss

 
(341
)
 

 
(341
)
Net current-period other comprehensive income (loss), before income taxes
63,475

 
(35
)
 
9,534

 
72,974

Income tax benefit (expense)

 
13

 
(3,508
)
 
(3,495
)
Net current-period other comprehensive income (loss), net of income taxes
63,475

 
(22
)
 
6,026

 
69,479

Ending balance
$
(130,714
)
 
$
369

 
$
6,026

 
$
(124,319
)
(In thousands)
Nine Months Ended September 30, 2016
Currency Translation Adjustment
 
Gains (Losses) on Cash Flow Hedges
 
Accumulated Other Comprehensive Income (Loss)
Beginning balance
$
(136,434
)
 
$
377

 
$
(136,057
)
Other comprehensive loss before reclassifications
(3,767
)
 
(1,925
)
 
(5,692
)
Amounts reclassified from accumulated other comprehensive loss

 
478

 
478

Net current-period other comprehensive loss, before income taxes
(3,767
)
 
(1,447
)
 
(5,214
)
Income tax (expense) benefit
(12,106
)
 
532

 
(11,574
)
Net current-period other comprehensive loss, net of income taxes
(15,873
)
 
(915
)
 
(16,788
)
Ending balance
$
(152,307
)
 
$
(538
)
 
$
(152,845
)
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 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.

18

AMC NETWORKS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(unaudited)

(In thousands)
Three Months Ended September 30, 2017
National
Networks
 
International
and Other
 
Inter-segment
eliminations
 
Consolidated
Revenues, net
 
 
 
 
 
 
 
Advertising
$
197,891

 
$
20,691

 
$

 
$
218,582

Distribution
343,551

 
92,069

 
(6,179
)
 
429,441

Consolidated revenues, net
$
541,442

 
$
112,760

 
$
(6,179
)
 
$
648,023

Operating income (loss)
$
179,624

 
$
(18,782
)
 
$
(7,488
)
 
$
153,354

Share-based compensation expense
11,598

 
2,219

 

 
13,817

Restructuring (credit) expense
(10
)
 
1,274

 

 
1,264

Impairment and related charges

 
11,036

 

 
11,036

Depreciation and amortization
8,482

 
12,456

 

 
20,938

Adjusted operating income
$
199,694

 
$
8,203

 
$
(7,488
)
 
$
200,409

(In thousands)
Three Months Ended September 30, 2016
National
Networks
 
International
and Other
 
Inter-segment
eliminations
 
Consolidated
Revenues, net
 
 
 
 
 
 
 
Advertising
$
189,300

 
$
21,424

 
$

 
$
210,724

Distribution
336,413

 
92,596

 
(5,087
)
 
423,922

Consolidated revenues, net
$
525,713

 
$
114,020

 
$
(5,087
)
 
$
634,646

Operating income (loss)
$
139,148

 
$
(16,668
)
 
$
(5,343
)
 
$
117,137

Share-based compensation expense
7,212

 
2,170

 

 
9,382

Restructuring expense
8,103

 
11,209

 

 
19,312

Depreciation and amortization
8,040

 
14,242

 

 
22,282

Adjusted operating income
$
162,503

 
$
10,953

 
$
(5,343
)
 
$
168,113

(In thousands)
Nine Months Ended September 30, 2017
National
Networks
 
International
and Other
 
Inter-segment
eliminations
 
Consolidated
Revenues, net
 
 
 
 
 
 
 
Advertising
$
690,906

 
$
62,134

 
$

 
$
753,040

Distribution
1,070,606

 
268,267

 
(13,156
)
 
1,325,717

Consolidated revenues, net
$
1,761,512

 
$
330,401

 
$
(13,156
)
 
$
2,078,757

Operating income (loss)
$
640,855

 
$
(69,222
)
 
$
(10,818
)
 
$
560,815

Share-based compensation expense
33,717

 
7,695

 

 
41,412

Restructuring (credit) expense
(53
)
 
3,940

 

 
3,887

Impairment and related charges

 
28,148

 

 
28,148

Depreciation and amortization
25,315

 
39,722

 

 
65,037

Adjusted operating income
$
699,834

 
$
10,283

 
$
(10,818
)
 
$
699,299

Capital expenditures
$
20,311

 
$
41,483

 
$

 
$
61,794

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

19

AMC NETWORKS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(unaudited)

(In thousands)
Nine Months Ended September 30, 2016
National
Networks
 
International
and Other
 
Inter-segment
eliminations
 
Consolidated
Revenues, net
 
 
 
 
 
 
 
Advertising
$
692,483

 
$
69,837

 
$

 
$
762,320

Distribution
1,004,499

 
271,511

 
(12,273
)
 
1,263,737

Consolidated revenues, net
$
1,696,982

 
$
341,348

 
$
(12,273
)
 
$
2,026,057

Operating income (loss)
$
594,969

 
$
(33,071
)
 
$
(8,070
)
 
$
553,828

Share-based compensation expense
22,581

 
6,288

 

 
28,869

Restructuring expense
8,170

 
11,496

 

 
19,666

Depreciation and amortization
24,062

 
39,405

 

 
63,467

Adjusted operating income
$
649,782

 
$
24,118

 
$
(8,070
)
 
$
665,830

Capital expenditures
$
10,165

 
$
34,340

 
$

 
$
44,505

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 September 30,
 
Nine Months Ended September 30,
2017
 
2016
 
2017
 
2016
Inter-segment revenues
 
 
 
 
 
 
 
National Networks
$
(6,179
)
 
$
(5,079
)
 
$
(13,045
)
 
$
(12,015
)
International and Other

 
(8
)
 
(111
)
 
(258
)
 
$
(6,179
)
 
$
(5,087
)
 
$
(13,156
)
 
$
(12,273
)
The table below summarizes revenues based on customer location:
(In thousands)
Three Months Ended September 30,
 
Nine Months Ended September 30,
2017
 
2016
 
2017
 
2016
Revenues
 
 
 
 
 
 
 
United States
$
504,732

 
$
499,316

 
$
1,653,342

 
$
1,616,453

Europe
91,447

 
93,356

 
278,198

 
290,879

Other
51,844

 
41,974

 
147,217

 
118,725

 
$
648,023

 
$
634,646

 
$
2,078,757

 
$
2,026,057

The table below summarizes property and equipment based on asset location:
(In thousands)
September 30, 2017
 
December 31, 2016
Property and equipment, net
 
 
 
United States
$
126,050

 
$
104,939

Europe
27,001

 
39,976

Other
19,570

 
21,721

 
$
172,621

 
$
166,636


20

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, $1.0 billion of 5.00% senior notes due April 2024 and $800.0 million of 4.75% senior notes due August 2025. 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.

21

AMC NETWORKS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(unaudited)

Condensed Consolidating Balance Sheet
September 30, 2017
(In thousands)
 Parent Company
 
 Guarantor Subsidiaries
 
 Non- Guarantor Subsidiaries
 
 Eliminations
 
 Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
268

 
$
402,762

 
$
149,259

 
$

 
$
552,289

 Accounts receivable, trade (less allowance for doubtful accounts)

 
527,232

 
184,944

 

 
712,176

Amounts due from related parties, net

 
478

 

 

 
478

Current portion of program rights, net

 
301,362

 
151,347

 

 
452,709

Prepaid expenses, other current assets and intercompany receivable
748

 
199,921

 
12,484

 
(113,701
)
 
99,452

Total current assets
1,016

 
1,431,755

 
498,034

 
(113,701
)
 
1,817,104

Property and equipment, net of accumulated depreciation

 
125,657

 
46,964

 

 
172,621

Investment in affiliates
3,426,758

 
923,595

 

 
(4,350,353
)
 

Program rights, net

 
1,054,542

 
184,964

 

 
1,239,506

Long-term intercompany notes receivable