Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
þ
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2018
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 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 October 26, 2018:
Class A Common Stock par value $0.01 per share
45,045,190
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, 2018
 
December 31, 2017
ASSETS
 
 
 
Current Assets:
 
 
 
Cash and cash equivalents
$
564,717

 
$
558,783

Accounts receivable, trade (including amounts due from related parties, net, less allowance for doubtful accounts of $12,949 and $9,691)
777,950

 
775,891

Current portion of program rights, net
470,254

 
453,450

Prepaid expenses and other current assets
118,569

 
91,726

Total current assets
1,931,490

 
1,879,850

Property and equipment, net of accumulated depreciation of $290,229 and $259,919
225,468

 
183,514

Program rights, net
1,152,451

 
1,319,279

Deferred carriage fees, net
20,191

 
29,924

Intangible assets, net
469,757

 
457,242

Goodwill
705,382

 
695,158

Deferred tax asset, net
21,677

 
20,081

Other assets
635,541

 
447,937

Total assets
$
5,161,957

 
$
5,032,985

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Current Liabilities:
 
 
 
Accounts payable
$
97,508

 
$
102,197

Accrued liabilities
240,892

 
263,076

Current portion of program rights obligations
356,157

 
327,549

Deferred revenue
61,289

 
46,433

Current portion of long-term debt
9,375

 

Current portion of capital lease obligations
4,649

 
4,847

Total current liabilities
769,870

 
744,102

Program rights obligations
397,592

 
534,980

Long-term debt
3,095,628

 
3,099,257

Capital lease obligations
22,422

 
26,277

Deferred tax liability, net
154,110

 
109,698

Other liabilities
178,160

 
136,122

Total liabilities
4,617,782

 
4,650,436

Commitments and contingencies


 


Redeemable noncontrolling interests
252,536

 
218,604

Stockholders' equity:
 
 
 
Class A Common Stock, $0.01 par value, 360,000 shares authorized, 63,235 and 62,721 shares issued and 45,025 and 49,601 shares outstanding, respectively
632

 
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
232,882

 
191,303

Accumulated earnings
1,157,063

 
766,725

Treasury stock, at cost (18,210 and 13,120 shares Class A Common Stock, respectively)
(976,840
)
 
(709,440
)
Accumulated other comprehensive loss
(150,846
)
 
(114,386
)
Total AMC Networks stockholders' equity
263,006

 
134,944

Non-redeemable noncontrolling interests
28,633

 
29,001

Total stockholders' equity
291,639

 
163,945

Total liabilities and stockholders' equity
$
5,161,957

 
$
5,032,985

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,
 
2018
 
2017
 
2018
 
2017
Revenues, net (including revenues, net from related parties of $1,605, $1,515, $4,779 and $4,594, respectively)
$
696,875

 
$
648,023

 
$
2,199,083

 
$
2,078,757

Operating expenses:
 
 
 
 
 
 
 
Technical and operating (excluding depreciation and amortization)
346,398

 
322,743

 
1,043,572

 
956,200

Selling, general and administrative (including charges from related parties of $232, $216, $900 and $1,205, respectively)
156,242

 
138,688

 
494,067

 
464,670

Depreciation and amortization
22,011

 
20,938

 
64,034

 
65,037

Impairment and related charges
4,486

 
11,036

 
4,486

 
28,148

Restructuring expense
3,139

 
1,264

 
3,139

 
3,887

Total operating expenses
532,276

 
494,669

 
1,609,298

 
1,517,942

Operating income
164,599

 
153,354

 
589,785

 
560,815

Other income (expense):
 
 
 
 
 
 
 
Interest expense
(38,137
)
 
(35,392
)
 
(115,607
)
 
(96,609
)
Interest income
5,102

 
3,582

 
15,453

 
10,841

Loss on extinguishment of debt

 
(3,004
)
 

 
(3,004
)
Miscellaneous, net
28,762

 
12,420

 
30,989

 
42,448

Total other income (expense)
(4,273
)
 
(22,394
)
 
(69,165
)
 
(46,324
)
Income from operations before income taxes
160,326

 
130,960

 
520,620

 
514,491

Income tax expense
(43,666
)
 
(40,124
)
 
(133,092
)
 
(173,399
)
Net income including noncontrolling interests
116,660

 
90,836

 
387,528

 
341,092

Net income attributable to noncontrolling interests
(5,403
)
 
(3,834
)
 
(13,220
)
 
(15,276
)
Net income attributable to AMC Networks' stockholders
$
111,257

 
$
87,002

 
$
374,308

 
$
325,816

 
 
 
 
 
 
 
 
Net income per share attributable to AMC Networks' stockholders:
Basic
$
1.96

 
$
1.37

 
$
6.40

 
$
4.94

Diluted
$
1.93

 
$
1.35

 
$
6.31

 
$
4.89

 
 
 
 
 
 
 
 
Weighted average common shares:
 
 
 
 
 
 
 
Basic
56,875

 
63,683

 
58,519

 
65,960

Diluted
57,779

 
64,447

 
59,281

 
66,651

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,
 
2018
 
2017
 
2018
 
2017
Net income including noncontrolling interests
$
116,660

 
$
90,836

 
$
387,528

 
$
341,092

Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation adjustment
(6,094
)
 
15,791

 
(32,679
)
 
63,475

Unrealized loss on interest rate swaps

 
(174
)
 

 
(35
)
Unrealized gain on available for sale securities

 
6,596

 

 
9,534

Other comprehensive income, before income taxes
(6,094
)
 
22,213

 
(32,679
)
 
72,974

Income tax expense

 
(2,363
)
 

 
(3,495
)
Other comprehensive income, net of income taxes
(6,094
)
 
19,850

 
(32,679
)
 
69,479

Comprehensive income
110,566

 
110,686

 
354,849

 
410,571

Comprehensive income attributable to noncontrolling interests
(5,218
)
 
(4,633
)
 
(11,954
)
 
(17,997
)
Comprehensive income attributable to AMC Networks' stockholders
$
105,348

 
$
106,053

 
$
342,895

 
$
392,574

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,
 
2018
 
2017
Cash flows from operating activities:
 
 
 
Net income including noncontrolling interests
$
387,528

 
$
341,092

Adjustments to reconcile net income to net cash from operating activities:
 
 
 
Depreciation and amortization
64,034

 
65,037

Impairment and related charges
4,486

 
17,112

Share-based compensation expense related to equity classified awards
52,006

 
41,412

Amortization and write-off of program rights
684,289

 
667,060

Amortization of deferred carriage fees
13,107

 
13,204

Unrealized foreign currency transaction gain
(712
)
 
(14,658
)
Unrealized gain on derivative contracts, net
(40,848
)
 
(27,598
)
Amortization of deferred financing costs and discounts on indebtedness
5,746

 
6,530

Loss on extinguishment of debt

 
3,004

Bad debt expense
6,155

 
3,638

Deferred income taxes
39,404

 
9,325

Other, net
(887
)
 
(4,617
)
Changes in assets and liabilities:
 
 
 
Accounts receivable, trade (including amounts due from related parties, net)
(2,333
)
 
(13,316
)
Prepaid expenses and other assets
(27,769
)
 
(69,463
)
Program rights and obligations, net
(671,108
)
 
(720,243
)
Income taxes payable
(5,005
)
 
(24,538
)
Deferred revenue
3,531

 
(6,529
)
Deferred carriage fees, net
(3,200
)
 
(4,246
)
Accounts payable, accrued liabilities and other liabilities
(36,612
)
 
(8,633
)
Net cash provided by operating activities
471,812

 
273,573

Cash flows from investing activities:
 
 
 
Capital expenditures
(60,774
)
 
(61,794
)
Return of capital from investees
523

 

Investment in and loans to investees
(90,080
)
 
(43,000
)
Payments for acquisition of a business, net of cash acquired
(35,554
)
 

Net cash used in investing activities
(185,885
)
 
(104,794
)
Cash flows from financing activities:
 
 
 
Proceeds from the issuance of long-term debt

 
1,536,000

Principal payments on long-term debt

 
(1,257,965
)
Payments for financing costs

 
(10,405
)
Deemed repurchases of restricted stock units
(15,734
)
 
(13,373
)
Purchase of treasury stock
(267,400
)
 
(347,334
)
Proceeds from stock option exercises
4,317

 

Principal payments on capital lease obligations
(3,878
)
 
(3,428
)
Distributions to noncontrolling interests
(9,333
)
 
(16,110
)
Net cash used in financing activities
(292,028
)
 
(112,615
)
Net (decrease) increase in cash and cash equivalents from operations
(6,101
)
 
56,164

Effect of exchange rate changes on cash and cash equivalents
12,035

 
14,736

Cash and cash equivalents at beginning of period
558,783

 
481,389

Cash and cash equivalents at end of period
$
564,717

 
$
552,289


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 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; Levity Entertainment Group ("Levity") (acquired April 20, 2018), our production services and comedy venues company; 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 $11.4 million and $8.0 million for the three months ended September 30, 2018 and September 30, 2017, respectively. Program rights write-offs were $20.6 million and $9.7 million for the nine months ended September 30, 2018 and September 30, 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.

5

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

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 (excluding equity method investments) be measured at fair value with changes in fair value recognized in 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 and nine month periods ended September 30, 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 adoption will include updates provided under ASU 2018-10, Codification Improvements to Topic 842, Leases, as well as ASU 2018-11, Leases (Topic 842), Targeted Improvements. The Company is currently determining its implementation approach and assessing the impact the adoption will have on its consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820). ASU 2018-13 changes the disclosure requirements for fair value measurements and is effective for the first quarter of 2020, with early adoption permitted. ASU 2018-13 changes disclosure requirements related to transfers between Level I and II assets, as well as several aspects surrounding the valuation process and unrealized gains and losses related to Level III assets. The Company is currently evaluating the impact the adoption of the modified disclosure requirements 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

6

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

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.
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 on the later of (i) when the subsequent sale or usage occurs and (ii) when 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 obligation under affiliation agreements is a license of functional intellectual property that is 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.

7

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

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 a license to functional intellectual property that provides the distributor the right to use our programming as it exists at a point in time. The satisfaction of the Company’s performance obligation, and related recognition of revenue, occurs when the content is delivered to the licensee and the license period has begun.The Company’s performance obligation in a content license arrangement pertains to each distinct unit of content, which is generally each season of an episodic series. The Company typically delivers all episodes of a season for a series concurrently and the licensee’s rights to exploit the content is the same across all of the episodes.
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.
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.
For production services arrangements, the Company recognizes revenue based on the percentage of cost incurred to total estimated cost of the contract.
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 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 September 30, 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 September 30, 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 in the condensed consolidated balance sheet.

8

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

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.
The following table provides information about receivables, contract assets, and contract liabilities from contracts with customers.
(In thousands)
 
September 30, 2018
 
December 31, 2017 (a)
Balances from contracts with customers:
 
 
 
 
     Accounts receivable (including long-term, included in Other assets)
 
$
986,500

 
$
926,089

     Contract assets, short-term (included in Other current assets)
 
13,631

 

     Contract assets, long-term (included in Other assets)
 
5,351

 

     Contract liabilities (Deferred revenue)
 
61,289

 
46,433

(a)
As noted above, prior period amounts have not been adjusted under the modified retrospective method.
Revenue recognized for the nine months ended September 30, 2018 relating to the contract liability at December 31, 2017 was $38.7 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 September 30,
 
Nine Months Ended September 30,
2018
 
2017
 
2018
 
2017
Basic weighted average common shares outstanding
56,875

 
63,683

 
58,519

 
65,960

Effect of dilution:
 
 
 
 
 
 
 
Stock options
31

 
4

 
12

 
1

Restricted stock units
873

 
760

 
750

 
690

Diluted weighted average common shares outstanding
57,779

 
64,447

 
59,281

 
66,651

Approximately 1.5 million and 1.0 million restricted stock units outstanding as of September 30, 2018 and September 30, 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. As of September 30, 2017, there were approximately 0.4 million stock options that would have been anti-dilutive to the diluted weighted average common shares outstanding.
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 "Stock Repurchase Program"). On June 6, 2017, the Board of Directors approved an increase of $500 million and on June 13, 2018, the Board of Directors approved an additional increase of $500 million in the amount authorized for a total of $1.5 billion authorized under the Stock Repurchase Program. The Stock Repurchase Program has no pre-established closing date and may be suspended or discontinued at any time. For the nine months ended September 30, 2018, the Company repurchased 5.1 million shares of its Class A Common Stock at an average purchase price of approximately

9

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

$52.53 per share. As of September 30, 2018, the Company has $575.2 million available for repurchase under the Stock Repurchase Program.
Note 4. Restructuring
Restructuring expense of $3.1 million for the three and nine months ended September 30, 2018, respectively, due to severance charges incurred related to a management initiative which commenced in the third quarter of 2018, resulting in employee terminations at our corporate headquarters and AMCNI. We expect additional charges in the fourth quarter of 2018. All amounts remain outstanding at September 30, 2018.
Restructuring expense of $1.3 million and $3.9 million for the three and nine months ended September 30, 2017, respectively, related to corporate headquarter severance charges in connection with the restructuring initiative launched during the second half of 2016 and charges incurred at AMCNI related to costs associated with the termination of distribution in certain territories.
Note 5. Business Combinations
Levity Entertainment Group LLC
On April 20, 2018, the Company acquired a 57% controlling interest in Levity Entertainment Group LLC ("Levity"), a production services and comedy venues company, for a total purchase price of $48.4 million. The purchase price consisted of $35.0 million payment for the outstanding Class B Common Units of Levity and the acquisition of Series L Preferred Units for $13.4 million. The Company views this acquisition as complementary to its business and programming content strategy.
The Company accounted for the acquisition of Levity using the acquisition method of accounting. The acquisition method of accounting requires, among other things, that the assets acquired and liabilities assumed in a business combination be measured at their estimated respective fair values as of the closing date of the acquisition. Goodwill recognized in connection with this transaction represents primarily the potential economic benefits that the Company believes may arise from the acquisition. The goodwill associated with the Levity acquisition is generally deductible for tax purposes.
The acquisition accounting for Levity as reflected in these condensed consolidated financial statements is preliminary and based on current estimates and currently available information, and is subject to revision based on final determinations of fair value and final allocations of purchase price to the identifiable assets and liabilities acquired. The primary estimated fair values that are not yet finalized relate to the valuation of property and equipment, intangible assets, other assets, current and noncurrent liabilities, and redeemable noncontrolling interests.
The following table summarizes the preliminary valuation of the tangible and identifiable intangible assets acquired and liabilities assumed (in thousands).
Cash paid for controlling interest
$
48,350

Redeemable noncontrolling interest
30,573

 
$
78,923

Allocation to net assets acquired:
 
Cash
13,471

Other current assets
17,251

Property and equipment
20,663

Intangible assets
46,413

Other noncurrent assets
3,306

Current liabilities
(23,647
)
Noncurrent liabilities
(21,394
)
Noncontrolling interests acquired
(1,354
)
Fair value of net assets acquired
54,709

Goodwill
24,214

 
$
78,923

Unaudited Pro forma financial information
The following unaudited pro forma financial information is based on (i) the historical financial statements of AMC Networks and (ii) the historical financial statements of Levity and is intended to provide information about how the acquisition may have

10

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

affected the Company's historical consolidated financial statements if it had occurred as of January 1, 2017. The unaudited pro forma information has been prepared for comparative purposes only and includes adjustments for estimated additional depreciation and amortization expense as a result of tangible and identifiable intangible assets acquired. The pro forma information is not necessarily indicative of the results of operations that would have been achieved had the acquisition taken place on the date indicated or that may result in the future.
(In thousands)
Pro Forma Financial Information for the
Three months ended September 30, 2017
 
Nine months ended September 30, 2017
Revenues, net
$
689,550

 
$
2,181,295

Income from operations, net of income taxes
$
87,728

 
$
326,854

Net income per share, basic
$
1.38

 
$
4.96

Net income per share, diluted
$
1.36

 
$
4.90

Revenues, net and operating income attributable to Levity of $68.1 million and $2.2 million, respectively are included in the condensed consolidated statement of income from the acquisition date, April 20, 2018, to September 30, 2018. For the nine months ended September 30, 2018, the Company incurred acquisition related costs of $1.3 million which are included in selling, general and administrative expense in the condensed consolidated statement of income.
Note 6. Investments
Equity Method Investments
The Company holds several investments and loans in non-consolidated entities. Equity method investments were $103.2 million at September 30, 2018 and $61.3 million at December 31, 2017. In September 2018, the Company recognized an impairment charge of $3.5 million related to the partial write-down of an equity method investment.
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.
On July 29, 2018, the Company, Digital Entertainment Holdings LLC, a wholly-owned subsidiary of the Company ("DEH"), and River Merger Sub Inc., a wholly-owned subsidiary of DEH ("Merger Sub"), and RLJE entered into an Agreement and Plan of Merger (the "Merger Agreement") pursuant to which the Company has agreed to acquire all of the outstanding shares of RLJE not currently owned by the Company or entities affiliated with Robert L. Johnson. The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, Merger Sub will merge with and into RLJE, with RLJE continuing as the surviving corporation and a subsidiary of DEH (the "Merger").
Pursuant to the Merger Agreement, at the effective time of the Merger (the "Effective Time"), each share of RLJE’s common stock, par value $0.001 per share (the "RLJE Common Stock"), issued and outstanding immediately prior to the Effective Time, except for certain excluded shares (which include shares beneficially owned by the Company, DEH and their affiliates), will be automatically converted into the right to receive $6.25 in cash without interest (the "Per Share Merger Consideration"). The Merger Agreement also includes provisions for the payment at the Effective Time of consideration, calculated based on the amount of the Per Share Merger Consideration, to the holders of outstanding RLJE preferred stock who elect to receive such cash consideration and holders of warrants to purchase RLJE Common Stock, except for certain excluded shares (which include shares beneficially owned by the Company, DEH and their affiliates). Such holders of outstanding RLJE preferred stock will be entitled to receive $7.86 per underlying share of RLJE Common Stock, in accordance with the terms of the RLJE preferred stock, if they elect cash as their consideration. Such holders of outstanding warrants will be paid the difference between $6.25 and the per share exercise price of their warrants.
RLJE - Subsequent Events
On October 31, 2018, the Company completed the acquisition of RLJE pursuant to the terms of the Merger Agreement. At the Effective Time, Merger Sub merged with and into RLJE, with RLJE continuing as the surviving corporation and a wholly owned subsidiary of DEH. The Merger Agreement was approved by the common stockholders of RLJE at a special meeting held

11

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

earlier on October 31, 2018. The total cash purchase price paid by the Company to acquire the RLJE securities not previously owned by the Company or entities affiliated with Mr. Johnson is approximately $58.9 million (assuming all preferred stock holders elect cash as their consideration).
Following the Effective Time, DEH was renamed “RLJ Entertainment Holdings LLC” (“RLJE Holdings”). RLJE Holdings is a majority owned subsidiary of the Company, with a minority stake of 17% held by affiliates of Mr. Johnson. The Company has entered into arrangements with Mr. Johnson related to the governance of RLJE Holdings and RLJE following the Merger.
DEH and RLJE were parties to a Credit and Guaranty Agreement entered into on October 14, 2016 pursuant to which DEH provided term loans to RLJE (the “RLJE Term Loans”). In connection with the RLJE Credit and Guaranty Agreement, DEH received Class A, Class B and Class C 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 October 1, 2018, DEH fully exercised the remainder of its Class A warrant at $3.00 per share and was issued 3.3 million shares of RLJE Common Stock in exchange for the cancellation of $10.0 million of Tranche B of the RLJE Term Loans. On October 1, 2018, DEH also partially exercised its Class B warrant at $3.00 per share and was issued 3.4 million shares of RLJE Common Stock in exchange for the cancellation of $10.1 million of Tranche B of the RLJE Term Loans. As a result of the warrant exercises, the Company obtained a 51% controlling interest in RLJE.
On October 30, 2018, DEH fully exercised the remainder of its Class B warrant at $3.00 per share and was issued 6.6 million shares of RLJE Common Stock in exchange for the cancellation of $19.9 million of Tranche B of the RLJE Term Loans. On October 30, 2018, DEH also fully exercised its Class C warrant at $3.00 per share and was issued 5.0 million shares of RLJE Common Stock in exchange for the cancellation of $15.0 million of Tranche B of the RLJE Term Loans. As a result of the warrant exercises, the full amount of Tranche B of the RLJE Term Loans was cancelled.
In connection with the acquisition of RLJE, on October 31, 2018, RLJE Holdings and RLJE amended and restated the existing Credit and Guaranty Agreement. Pursuant to the amended and restated Credit and Guaranty Agreement, the aggregate principal amount of the RLJE Term Loans were increased by $5 million (for a total of $28 million in outstanding RLJE Term Loans as of October 31, 2018) and the maturity date of the RLJE Term Loans was extended until October 31, 2021. In addition, the amended and restated Credit and Guaranty Agreement permits RLJE to borrow up to an additional $12 million in RLJE Term Loans at any point until October 31, 2021. Interest on the RLJE Term Loans will be payable to RLJE Holdings in cash at a rate of 7.00% per annum.
Marketable Equity Securities
The Company classifies publicly traded investments with readily determinable fair values that are not accounted for under the equity method as marketable equity securities. Marketable equity securities are recorded at cost and adjusted to fair value at each reporting period. The changes in fair value between measurement dates are recorded in realized and unrealized gains (losses) on equity securities, included in Miscellaneous, net in the condensed consolidated statement of income.
Investments in marketable equity securities were $5.3 million at September 30, 2018 and $10.7 million at December 31, 2017 and are included in Other assets in the condensed consolidated balance sheet.
Non-marketable Equity Securities
The Company classifies investments without readily determinable fair values that are not accounted for under the equity method as non-marketable equity securities. The accounting guidance requires non-marketable equity securities to be recorded at cost and adjusted to fair value at each reporting period. However, the guidance allows for a measurement alternative, which is to record the investments at cost, less impairment, if any, and subsequently adjust for observable price changes of identical or similar investments of the same issuer. The Company applies this measurement alternative to its non-marketable equity securities. When an observable event occurs, the Company estimates the fair values of its non-marketable equity securities based on Level 2 inputs that are derived from observable price changes of similar securities adjusted for insignificant differences in rights and obligations. The changes in value are recorded in realized and unrealized gains (losses) on equity securities, included in Miscellaneous, net in the condensed consolidated statement of income.
On March 5, 2018, the Company made an investment in fuboTV Inc. of $25.0 million, and on April 6, 2018, the Company provided a senior secured term loan to fuboTV Inc. of $25.0 million with a maturity date of April 6, 2023.
In June 2018, the Company recognized an impairment charge of $10.0 million related to the partial write-down of certain non-marketable equity securities.
Investments in non-marketable equity securities were $71.8 million at September 30, 2018 and $46.8 million at December 31, 2017 and are included in Other assets in the condensed consolidated balance sheet.

12

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

Note 7. 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

Additions

 
24,214

 
24,214

Amortization of "second component" goodwill
(984
)
 

 
(984
)
Foreign currency translation

 
(13,006
)
 
(13,006
)
September 30, 2018
$
238,775

 
$
466,607

 
$
705,382

The increase in the carrying amount of goodwill for the International and Other segment relates to the acquisition of Levity (see Note 5).
The reduction of $1.0 million in the carrying amount of goodwill for the National Networks is due to the realization of a tax benefit for the amortization of "second component" goodwill at SundanceTV. Second component goodwill is the amount of tax deductible goodwill in excess of goodwill for financial reporting purposes. In accordance with the authoritative guidance at the time of the SundanceTV acquisition, the tax benefits associated with this excess are applied to first reduce the amount of goodwill, and then other intangible assets for financial reporting purposes, if and when such tax benefits are realized in the Company's tax returns.
The following tables summarize information relating to the Company's identifiable intangible assets:
(In thousands)
September 30, 2018
 
 
Gross
 
Accumulated Amortization
 
Net
 
Estimated Useful Lives
Amortizable intangible assets:
 
 
 
 
 
 
 
Affiliate and customer relationships
$
543,570

 
$
(188,571
)
 
$
354,999

 
6 to 25 years
Advertiser relationships
46,282

 
(16,561
)
 
29,721

 
11 years
Trade names
73,973

 
(16,344
)
 
57,629

 
15 to 20 years
Other amortizable intangible assets
13,792

 
(6,284
)
 
7,508

 
2 to 15 years
Total amortizable intangible assets
677,617

 
(227,760
)
 
449,857

 
 
Indefinite-lived intangible assets:
 
 
 
 
 
 
 
Trademarks
19,900

 

 
19,900

 
 
Total intangible assets
$
697,517

 
$
(227,760
)
 
$
469,757

 
 
(In thousands)
December 31, 2017
 
 
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

 
 
The increase in amortizable intangible assets is a result of the acquisition of Levity (see Note 5).
Aggregate amortization expense for amortizable intangible assets for the nine months ended September 30, 2018 and 2017 was $29.1 million and $28.5 million, respectively. Estimated aggregate amortization expense for intangible assets subject to

13

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

amortization for each of the following five years is:
(In thousands)
 
Years Ending December 31,
 
2018
$
38,556

2019
39,389

2020
39,386

2021
39,028

2022
39,025

Note 8. Accrued Liabilities
Accrued liabilities consist of the following:
(In thousands)
September 30, 2018
 
December 31, 2017
Interest
$
40,048

 
$
30,262

Employee related costs
84,200

 
117,850

Income taxes payable
13,799

 
19,558

Other accrued expenses
102,845

 
95,406

Total accrued liabilities
$
240,892

 
$
263,076

Note 9. Long-term Debt
The Company's long-term debt consists of the following:
(In thousands)
September 30, 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
(30,360
)
 
(33,776
)
Unamortized deferred financing costs
(14,637
)
 
(16,967
)
Long-term debt, net
3,105,003

 
3,099,257

Current portion of long-term debt
9,375

 

Noncurrent portion of long-term debt
$
3,095,628

 
$
3,099,257

(a)
The Company's $500 million revolving credit facility remains undrawn at September 30, 2018. Total undrawn revolver commitments are available to be drawn for general corporate purposes of the Company.
As a result of the acquisition of Levity, the Company has two lines of credit totaling $5 million. The lines of credit bear interest at the greater of 3.5% or the prime rate and mature on August 25, 2019. There were no outstanding borrowings on either line of credit as of September 30, 2018.
Note 10. 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.

14

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, 2018 and December 31, 2017:
(In thousands)
 
Level I
 
Level II
 
Level III
 
Total
At September 30, 2018:
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
Cash equivalents 
 
$
35,709

 
$

 
$

 
$
35,709

Marketable securities
 
5,339

 

 

 
5,339

Investments
 
48,987

 

 

 
48,987

Interest rate swap contracts
 

 
60

 

 
60

Foreign currency derivatives
 

 
3,188

 

 
3,188

Other derivatives
 

 
78,586

 

 
78,586

Liabilities
 
 
 
 
 
 
 
 
Foreign currency derivatives
 
$

 
$
3,587

 
$

 
$
3,587

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 11) are classified within Level II of the fair value hierarchy as 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, DEH and RLJE entered into a Credit and Guaranty Agreement pursuant to which DEH provided to RLJE the RLJE Term Loans and received the RLJE Warrants. Prior to July 29, 2018, the RLJE Warrants held by the Company were classified within Level III of the fair value hierarchy. The Company determined the value of the RLJE Warrants using a Black Scholes option pricing model. Inputs to the model were 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 was 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. As a result of the Merger Agreement entered into on July 29, 2018 (see Note 6), the value of the RLJE Warrants was determined as the difference between the RLJE stock price and the per share exercise price of the RLJE Warrants. As a result of the change in valuation method, a value of $60.0 million was reclassified from Level III to Level II within the fair value hierarchy.
For the three and nine months ended September 30, 2018, the Company recorded a gain of $20.6 million and $30.2 million, respectively, related to the RLJE Warrants which is included in Miscellaneous, net in the condensed consolidated statement of

15

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

income. For the three and nine months ended September 30, 2017, the Company recorded a gain of $2.0 million and $19.1 million, respectively.
At September 30, 2018, the Company does not have any assets or liabilities measured at fair value on a recurring basis that would be considered Level III.
Fair value measurements are also used in nonrecurring valuations performed in connection with acquisition accounting. These nonrecurring valuations primarily include the valuation of affiliate and customer relationships intangible assets, advertiser relationship intangible assets and property and equipment. All of our nonrecurring valuations use significant unobservable inputs and therefore fall under Level III of the fair value hierarchy.
Credit Facility Debt and Senior Notes
The fair values of each of the Company's debt instruments are based on quoted market prices for the same or similar issues or on the current rates offered to the Company for instruments of the same remaining maturities.
The carrying values and estimated fair values of the Company's financial instruments, excluding those that are carried at fair value in the condensed consolidated balance sheets, are summarized as follows:
(In thousands)
September 30, 2018
Carrying
Amount
 
Estimated
Fair Value
Debt instruments:
 
 
 
Term Loan A Facility
$
739,061

 
$
748,125

4.75% Notes due August 2025
786,026

 
768,000

5.00% Notes due April 2024
985,700

 
985,000

4.75% Notes due December 2022
594,216

 
598,500

 
$
3,105,003

 
$
3,099,625

(In thousands)
December 31, 2017
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 11. 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, 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 matured 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

16

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

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 September 30, 2018 and 2017, the Company recorded a gain of $27.2 million and $4.4 million, respectively, and for the nine months ended September 30, 2018 and 2017, the Company recorded a gain of $39.5 million and $26.8 million, respectively, related to these derivatives, which is included in Miscellaneous, net in the condensed consolidated statement of income.
The fair values of the Company's derivative financial instruments not designated as hedging instruments included in the condensed consolidated balance sheets are as follows:
(In thousands)
Balance Sheet 
Location
 
September 30,
2018
 
December 31, 2017
Assets
 
 
 
 
 
Foreign currency derivatives
Prepaid expenses and other current assets
 
$
1,187

 
$
943

Foreign currency derivatives
Other assets
 
2,001

 
2,858

Interest rate swap contracts
Prepaid expenses and other current assets
 
60

 
1,444

Other derivatives
Other assets
 
78,586

 
37,065

Liabilities
 
 
 
 
 
Foreign currency derivatives
Accrued liabilities
 
788

 
1,223

Foreign currency derivatives
Other liabilities
 
2,799

 
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 September 30,
 
 
 
Three Months Ended September 30,
2018
 
2017
 
 
 
2018
 
2017
Derivatives in cash flow hedging relationships:
 
 
 
 
 
 
 
 
 
Interest rate swap contracts
$

 
$
50

 
Interest expense
 
$

 
$
224

(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, 2018 and 2017.
(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,
2018
 
2017
 
 
 
2018
 
2017
Derivatives in cash flow hedging relationships:
 
 
 
 
 
 
 
 
 
Interest rate swap contracts
$

 
$
306

 
Interest expense
 
$

 
$
341

(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, 2018 and 2017.

17

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,
 
 
2018
 
2017
 
2018
 
2017
Interest rate swap contracts
Interest expense
 
$
(700
)
 
$
(24
)
 
$
(1,384
)
 
$
(29
)
Foreign currency derivatives
Miscellaneous, net
 
250

 
(1,643
)
 
430

 
(4,487
)
Other derivatives
Miscellaneous, net
 
27,175

 
4,432

 
39,464

 
26,836

Total
 
 
$
26,725

 
$
2,765

 
$
38,510

 
$
22,320

Note 12. Income Taxes
For the three and nine months ended September 30, 2018, income tax expense was $43.7 million and $133.1 million, respectively, representing an effective tax rate of 27% and 26%, respectively, as compared to the federal statutory rate of 21%. For the three months ended September 30, 2018, the effective tax rate differs from the federal statutory rate primarily due to tax expense from foreign subsidiary earnings indefinitely reinvested outside the U.S. of $5.6 million and state and local income tax expense of $3.4 million. For the nine months ended September 30, 2018, the effective tax rate differs from the federal statutory rate due primarily to tax expense of $15.8 million for an increase in valuation allowances for foreign taxes and U.S. foreign tax credits; state and local income tax expense of $9.5 million; a 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); and a tax benefit from foreign subsidiary earnings of $0.6 million.
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.
At September 30, 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 nine months ended September 30, 2018, $1.0 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 13. Commitments and Contingencies
Commitments
As of September 30, 2018, the Company's contractual obligations not reflected on the Company's condensed consolidated balance sheet decreased $244.9 million to $1.1 billion. The decrease relates to payments for program commitments and the expiration of Company guarantees 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, 2018, the Court

18

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

granted the Company’s motion for leave to submit supplemental summary judgment briefing. A hearing on the supplemental summary judgment submissions was held on June 13, 2018. 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. The Company filed an Answer to the Complaint on April 16, 2018. On August 30, 2018, Plaintiff's filed an Amended Compliant, and on September 19, 2018, the Company answered. 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 loan-out companies), along with Charles Eglee and his loan-out 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 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 14. 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 nine months ended September 30, 2018, 720,657 RSUs of AMC Networks Class A Common Stock previously issued to employees of the Company vested. On the vesting date, 295,973 RSUs were surrendered to the Company to cover the required statutory tax withholding obligations and 424,684 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 $15.7 million, which has been reflected as a financing activity in the condensed consolidated statement of cash flows for the nine months ended September 30, 2018.
Share-based compensation expense included in selling, general and administrative expense, for the three and nine months ended September 30, 2018 was $16.9 million and $52.0 million, respectively, and $13.8 million and $41.4 million, respectively, for the three and nine months ended September 30, 2017, respectively.

19

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

As of September 30, 2018, there was $105.4 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 2.3 years.
Note 15. Redeemable Noncontrolling Interests
The following table summarizes activity related to redeemable noncontrolling interest for the nine months ended September 30, 2018.
(In thousands)
Nine Months Ended September 30, 2018
December 31, 2017
$
218,604

Acquired
30,573

Net earnings
12,692

Distributions
(9,333
)
September 30, 2018
$
252,536

The redeemable noncontrolling interest acquired relates to acquisition of Levity. The terms of the agreement provide the noncontrolling interest holders with a right to put 50% of their interests to the Company on the fourth anniversary of the agreement and a right to put all of their interests to the Company on the sixth anniversary of the agreement. The put rights are at fair market value.
Note 16. 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 3% 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 73% 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 and $1.5 million for the three months ended September 30, 2018 and 2017, respectively, and $4.8 million and $4.6 million for the nine months ended September 30, 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 $0.2 million for the three months ended September 30, 2018 and 2017, respectively, and $0.9 million and $1.2 million for the nine months ended September 30, 2018 and 2017, 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 17. 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,
2018
 
2017
Non-Cash Investing and Financing Activities:
 
 
 
Treasury stock not yet settled
$

 
$
2,000

Exercise of RLJE Warrants

 
5,001

Capital expenditures incurred but not yet paid
2,835

 
3,761

Supplemental Data:
 
 
 
Cash interest paid
97,437

 
65,442

Income taxes paid, net
96,272

 
181,129


20

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

Note 18. 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 September 30, 2018
National
Networks
 
International
and Other
 
Inter-segment
eliminations
 
Consolidated
Revenues, net
 
 
 
 
 
 
 
Advertising
$
199,714

 
$
20,128

 
$

 
$
219,842

Distribution
360,607

 
131,644

 
(15,218
)
 
477,033

Consolidated revenues, net
$
560,321

 
$
151,772

 
$
(15,218
)
 
$
696,875

Operating income (loss)
$
188,107

 
$
(16,749
)
 
$
(6,759
)
 
$
164,599

Share-based compensation expense
13,860

 
3,074

 

 
16,934

Restructuring expense

 
3,139

 

 
3,139

Impairment and related charges

 
4,486

 

 
4,486

Depreciation and amortization
8,450

 
13,561

 

 
22,011

Adjusted operating income
$
210,417

 
$
7,511

 
$
(6,759
)
 
$
211,169

(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


21

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

(In thousands)
Nine Months Ended September 30, 2018
National
Networks
 
International
and Other
 
Inter-segment
eliminations
 
Consolidated
Revenues, net
 
 
 
 
 
 
 
Advertising
$
672,273

 
$
66,071

 
$

 
$
738,344

Distribution
1,148,365

 
343,802

 
(31,428
)
 
1,460,739

Consolidated revenues, net
$
1,820,638

 
$
409,873

 
$
(31,428
)
 
$
2,199,083

Operating income (loss)
$
647,965

 
$
(44,899
)
 
$
(13,281
)
 
$
589,785

Share-based compensation expense
42,647

 
9,359

 

 
52,006

Restructuring expense

 
3,139

 

 
3,139

Impairment and related charges

 
4,486

 

 
4,486

Depreciation and amortization
25,358

 
38,676

 

 
64,034

Adjusted operating income
$
715,970

 
$
10,761

 
$
(13,281
)
 
$
713,450

Capital expenditures
$
9,511

 
$
51,263

 
$

 
$
60,774

(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

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,
2018
 
2017
 
2018
 
2017
Inter-segment revenues
 
 
 
 
 
 
 
National Networks
$
(10,304
)
 
$
(6,179
)
 
$
(25,454
)
 
$
(13,045
)
International and Other
(4,914
)
 

 
(5,974
)
 
(111
)
 
$
(15,218
)
 
$
(6,179
)
 
$
(31,428
)
 
$
(13,156
)

22

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

The table below summarizes revenues based on customer location:
(In thousands)
Three Months Ended September 30,
 
Nine Months Ended September 30,
2018
 
2017
 
2018
 
2017
Revenues
 
 
 
 
 
 
 
United States
$
550,573

 
$
504,732

 
$
1,737,336

 
$
1,653,342

Europe
108,607

 
91,447

 
311,294

 
278,198

Other
37,695

 
51,844

 
150,453

 
147,217

 
$
696,875

 
$
648,023

 
$
2,199,083

 
$
2,078,757

The table below summarizes property and equipment based on asset location:
(In thousands)
September 30, 2018
 
December 31, 2017
Property and equipment, net
 
 
 
United States
$
182,266

 
$
136,203

Europe
26,567

 
28,261

Other
16,635

 
19,050

 
$
225,468

 
$
183,514

Note 19. 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 19, "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.
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.

23

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

Condensed Consolidating Balance Sheet
September 30, 2018
(In thousands)
 Parent Company
 
 Guarantor Subsidiaries
 
 Non- Guarantor Subsidiaries
 
 Eliminations
 
 Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
25,127

 
$
360,124

 
$
179,466

 
$

 
$
564,717

Accounts receivable, trade (including amounts due from related parties, net,
less allowance for doubtful accounts)

 
544,083

 
233,867

 

 
777,950

Current portion of program rights, net

 
308,039

 
162,215

 

 
470,254

Prepaid expenses, other current assets and intercompany receivable
2,174

 
184,253

 
20,335

 
(88,193
)
 
118,569

Total current assets
27,301

 
1,396,499

 
595,883

 
(88,193
)
 
1,931,490

Property and equipment, net of accumulated depreciation

 
158,651

 
66,817

 

 
225,468

Investment in affiliates
3,590,449

 
1,584,454

 

 
(5,174,903
)
 

Program rights, net

 
980,299

 
172,152

 

 
1,152,451

Long-term intercompany notes receivable

 
45,986

 
303

 
(46,289
)
 

Deferred carriage fees, net

 
19,331

 
860

 

 
20,191

Intangible assets, net

 
163,886

 
305,871

 

 
469,757

Goodwill

 
65,626

 
639,756

 

 
705,382

Deferred tax asset, net

 

 
21,677

 

 
21,677

Other assets

 
167,548

 
467,993

 

 
635,541

Total assets
$
3,617,750

 
$
4,582,280

 
$
2,271,312

 
$
(5,309,385
)
 
$
5,161,957

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
 
 
 
 
 
Current Liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
$
6

 
$
33,716

 
$
63,786

 
$

 
$
97,508

Accrued liabilities and intercompany payable
56,373

 
153,174

 
119,538

 
(88,193
)
 
240,892

Current portion of program rights obligations

 
291,059

 
65,098

 

 
356,157

Deferred revenue

 
32,734

 
28,555

 

 
61,289

Current portion of long-term debt
9,375

 

 

 

 
9,375

Current portion of capital lease obligations

 
2,749

 
1,900

 

 
4,649

Total current liabilities
65,754

 
513,432

 
278,877

 
(88,193
)
 
769,870

Program rights obligations

 
385,640

 
11,952

 

 
397,592

Long-term debt, net
3,095,628

 

 

 

 
3,095,628

Capital lease obligations

 
1,751

 
20,671

 

 
22,422

Deferred tax liability, net
142,041

 

 
12,069

 

 
154,110

Other liabilities and intercompany notes payable
51,321

 
91,008

 
82,120

 
(46,289
)
 
178,160

Total liabilities
3,354,744

 
991,831

 
405,689

 
(134,482
)
 
4,617,782

Commitments and contingencies

 

 

 

 

Redeemable noncontrolling interests