0001514991-13-000025.txt : 20130808 0001514991-13-000025.hdr.sgml : 20130808 20130808161657 ACCESSION NUMBER: 0001514991-13-000025 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20130630 FILED AS OF DATE: 20130808 DATE AS OF CHANGE: 20130808 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMC Networks Inc. CENTRAL INDEX KEY: 0001514991 STANDARD INDUSTRIAL CLASSIFICATION: CABLE & OTHER PAY TELEVISION SERVICES [4841] IRS NUMBER: 275403694 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-35106 FILM NUMBER: 131022410 BUSINESS ADDRESS: STREET 1: 11 PENN PLAZA CITY: NEW YORK STATE: NY ZIP: 10001 BUSINESS PHONE: (212) 324-8500 MAIL ADDRESS: STREET 1: 11 PENN PLAZA CITY: NEW YORK STATE: NY ZIP: 10001 10-Q 1 amcx-6302013x10q.htm 10-Q AMCX - 6.30.2013 - 10Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
(Mark One)
þ
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2013
or
¨
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from              to             
Commission File Number: 1-35106
 
AMC Networks Inc.
(Exact name of registrant as specified in its charter)
 
Delaware
27-5403694
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
 
 
11 Penn Plaza,
New York, NY
10001
(Address of principal executive offices)
(Zip Code)
(212) 324-8500
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Exchange Act Rule 12b-2).
Large accelerated filer
þ
Accelerated filer
¨
 
 
 
 
Non-accelerated filer
¨
Smaller reporting company
¨
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 August 1, 2013:
Class A Common Stock par value $0.01 per share
60,790,553
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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
PART II.
OTHER INFORMATION
 
 
 
 
Item 1.
 
 
 
Item 6.
 
 




PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements.
AMC NETWORKS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
(unaudited) 
 
June 30, 2013
 
December 31, 2012
ASSETS
 
 
 
Current Assets:
 
 
 
Cash and cash equivalents
$
448,637

 
$
610,970

Accounts receivable, trade (less allowance for doubtful accounts of $1,389 and $1,378)
315,103

 
299,792

Amounts due from related parties, net
4,134

 
7,686

Current portion of program rights, net
320,634

 
289,644

Prepaid expenses and other current assets
42,262

 
17,032

Deferred tax asset, net
15,177

 
121,403

Total current assets
1,145,947

 
1,346,527

Property and equipment, net of accumulated depreciation of $158,570 and $147,084
69,487

 
70,890

Program rights, net
854,867

 
751,119

Amounts due from related parties, net
2,250

 
3,193

Deferred carriage fees, net
37,851

 
41,459

Intangible assets, net
216,139

 
241,183

Goodwill
78,016

 
79,305

Other assets
55,782

 
62,543

Total assets
$
2,460,339

 
$
2,596,219

LIABILITIES AND STOCKHOLDERS’ DEFICIENCY
 
 
 
Current Liabilities:
 
 
 
Accounts payable
$
63,726

 
$
59,077

Accrued liabilities:
 
 
 
Interest
28,183

 
28,250

Employee related costs
53,623

 
75,620

Income taxes payable
11

 
116,740

Other accrued expenses
13,633

 
11,852

Amounts due to related parties, net

 
1,110

Current portion of program rights obligations
207,868

 
157,584

Deferred litigation settlement proceeds

 
307,944

Deferred revenue
42,254

 
53,116

Current portion of capital lease obligations
1,636

 
1,558

Total current liabilities
410,934

 
812,851

Program rights obligations
435,587

 
390,715

Long-term debt
2,154,692

 
2,153,315

Capital lease obligations
13,266

 
14,104

Deferred tax liability, net
62,441

 
29,141

Other liabilities
63,501

 
78,445

Total liabilities
3,140,421

 
3,478,571

Commitments and contingencies


 


Stockholders’ deficiency:
 
 
 
Class A Common Stock, $0.01 par value, 360,000,000 shares authorized, 61,676,371 and 61,247,043 shares issued and 60,793,083 and 60,591,030 shares outstanding, respectively
617

 
612

Class B Common Stock, $0.01 par value, 90,000,000 shares authorized, 11,484,408 and 11,784,408 shares issued and outstanding, respectively
115

 
118

Preferred stock, $0.01 par value, 45,000,000 shares authorized; none issued

 

Paid-in capital
50,837

 
36,454

Accumulated deficit
(696,176
)
 
(893,424
)
Treasury stock, at cost (883,288 and 656,013 shares Class A Common Stock, respectively)
(29,616
)
 
(17,666
)
Accumulated other comprehensive loss
(5,859
)
 
(8,446
)
Total stockholders’ deficiency
(680,082
)
 
(882,352
)
Total liabilities and stockholders’ deficiency
$
2,460,339

 
$
2,596,219

See accompanying notes to consolidated financial statements.

1


AMC NETWORKS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three and Six Months Ended June 30, 2013 and 2012
(In thousands, except per share amounts)
(unaudited)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
Revenues, net (including revenues, net from related parties of $8,127, $8,102, $16,268, and $16,175, respectively)
$
379,322

 
$
327,570

 
$
761,283

 
$
653,809

Operating expenses:
 
 
 
 
 
 
 
Technical and operating (excluding depreciation and amortization shown below and including charges from related parties of $155, $310, $310 and $310, respectively)
137,656

 
114,349

 
274,335

 
219,279

Selling, general and administrative (including charges from related parties of $1,428, $1,108, $2,222 and $3,104, respectively)
108,978

 
90,878

 
208,431

 
190,100

Restructuring credit

 

 

 
(3
)
Depreciation and amortization
18,308

 
24,067

 
36,653

 
49,118

Litigation settlement gain
(132,944
)
 

 
(132,944
)
 

 
131,998

 
229,294

 
386,475

 
458,494

Operating income
247,324

 
98,276

 
374,808

 
195,315

Other income (expense):
 
 
 
 
 
 
 
Interest expense
(27,768
)
 
(29,431
)
 
(57,137
)
 
(59,228
)
Interest income
169

 
102

 
422

 
207

Write-off of deferred financing costs

 

 

 
(312
)
Miscellaneous, net
(144
)
 
(644
)
 
(346
)
 
(632
)
 
(27,743
)
 
(29,973
)
 
(57,061
)
 
(59,965
)
Income from continuing operations before income taxes
219,581

 
68,303

 
317,747

 
135,350

Income tax expense
(83,850
)
 
(26,898
)
 
(120,499
)
 
(50,868
)
Income from continuing operations
135,731

 
41,405

 
197,248

 
84,482

Income from discontinued operations, net of income taxes

 
105

 

 
209

Net income
$
135,731

 
$
41,510

 
$
197,248

 
$
84,691

 
 
 
 
 
 
 
 
Basic net income per share:
 
 
 
 
 
 
 
Income from continuing operations
$
1.90

 
$
0.59

 
$
2.76

 
$
1.20

Income from discontinued operations
$

 
$

 
$

 
$

Net income
$
1.90

 
$
0.59

 
$
2.76

 
$
1.21

 
 
 
 
 
 
 
 
Diluted net income per share:
 
 
 
 

 

Income from continuing operations
$
1.87

 
$
0.57

 
$
2.72

 
$
1.17

Income from discontinued operations
$

 
$

 
$

 
$

Net income
$
1.87

 
$
0.58

 
$
2.72

 
$
1.17

 
 
 
 
 
 
 
 
Weighted average common shares:
 
 
 
 
 
 
 
Basic weighted average common shares
71,568

 
70,479

 
71,430

 
70,175

Diluted weighted average common shares
72,643

 
72,183

 
72,613

 
72,157

See accompanying notes to consolidated financial statements.

2


AMC NETWORKS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three and Six Months Ended June 30, 2013 and 2012
(Dollars in thousands)
(unaudited)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
Net income
$
135,731

 
$
41,510

 
$
197,248

 
$
84,691

Other comprehensive income (loss):
 
 
 
 
 
 
 
Unrealized gain (loss) on interest rate swaps
2,260

 
(3,628
)
 
4,112

 
(4,448
)
Other comprehensive income (loss), before income taxes
2,260

 
(3,628
)
 
4,112

 
(4,448
)
Income tax (expense) benefit
(838
)
 
1,343

 
(1,525
)
 
1,646

Other comprehensive income (loss), net of income taxes
1,422

 
(2,285
)
 
2,587

 
(2,802
)
Comprehensive income
$
137,153

 
$
39,225

 
$
199,835

 
$
81,889

See accompanying notes to consolidated financial statements.

3


AMC NETWORKS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 2013 and 2012
(Dollars in thousands)
(unaudited)
 
Six Months Ended June 30,
 
2013
 
2012
Cash flows from operating activities:
 
 
 
Income from continuing operations
$
197,248

 
$
84,482

Adjustments to reconcile income from continuing operations to net cash (used in) provided by operating activities:
 
 
 
Depreciation and amortization
36,653

 
49,118

Share-based compensation expense related to equity classified awards
9,941

 
8,484

Amortization and write-off of program rights
202,076

 
145,044

Amortization of deferred carriage fees
5,158

 
4,369

Unrealized gain on derivative contracts, net
(2,796
)
 

Amortization and write-off of deferred financing costs and discounts on indebtedness
3,665

 
4,563

Recovery of provision for doubtful accounts
(32
)
 
(96
)
Deferred income taxes
138,479

 
39,401

Excess tax benefits from share-based compensation arrangements
(2,893
)
 
(1,492
)
Other, net
(657
)
 

Changes in assets and liabilities:
 
 
 
Accounts receivable, trade
(15,278
)
 
(7,024
)
Amounts due from/to related parties, net
2,519

 
(3,675
)
Prepaid expenses and other assets
(20,616
)
 
1,129

Program rights and obligations, net
(241,658
)
 
(166,935
)
Income taxes payable
(113,025
)
 

Deferred revenue and deferred litigation settlement proceeds
(318,806
)
 
8,978

Deferred carriage fees and deferred carriage fees payable, net
(406
)
 
(434
)
Accounts payable, accrued expenses and other liabilities
(20,094
)
 
(308
)
Net cash (used in) provided by operating activities
(140,522
)
 
165,604

Cash flows from investing activities:
 
 
 
Capital expenditures
(13,670
)
 
(6,619
)
Acquisition of investment securities

 
(750
)
Payment for acquisition of a business

 
(185
)
Proceeds from sale of equipment, net of costs of disposal

 
100

Proceeds from insurance settlements
657

 

Net cash used in investing activities
(13,013
)
 
(7,454
)
Cash flows from financing activities:
 
 
 
Repayment of long-term debt

 
(52,975
)
Payments for financing costs
(532
)
 
(211
)
Purchase of treasury stock
(11,950
)
 
(15,988
)
Proceeds from stock option exercises
1,551

 
1,997

Excess tax benefits from share-based compensation arrangements
2,893

 
1,492

Principal payments on capital lease obligations
(760
)
 
(690
)
Net cash used in financing activities
(8,798
)
 
(66,375
)
Net (decrease) increase in cash and cash equivalents from continuing operations
(162,333
)
 
91,775

Cash flows from discontinued operations:
 
 
 
Net cash provided by operating activities

 
192

Net increase in cash and cash equivalents from discontinued operations

 
192

Cash and cash equivalents at beginning of period
610,970

 
215,836

Cash and cash equivalents at end of period
$
448,637

 
$
307,803



See accompanying notes to consolidated financial statements.

4

AMC NETWORKS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(unaudited)


Note 1. Description of Business and Basis of Presentation
Description of Business
AMC Networks Inc. (“AMC Networks”) and collectively with its subsidiaries (the “Company”) own and operate entertainment businesses and assets. The Company is comprised of two reportable segments:
National Networks: Principally includes four nationally distributed programming networks: AMC, WE tv, IFC and Sundance Channel. These programming networks are distributed throughout the United States (“U.S.”) via cable and other multichannel video programming distribution platforms, including direct broadcast satellite (“DBS”) and platforms operated by telecommunications providers (we refer collectively to these cable and other multichannel video programming distributors as “multichannel video programming distributors” or “distributors”); and
International and Other: Principally includes AMC/Sundance Channel Global, the Company’s international programming business; IFC Films, the Company’s independent film distribution business; AMC Networks Broadcasting & Technology, the Company’s network technical services business, which primarily services the programming networks of the Company; and various developing online content distribution initiatives. AMC and Sundance Channel are distributed in Canada, Sundance Channel is also distributed in Europe and Asia and WE tv is distributed in Asia. The International and Other reportable segment also includes VOOM HD Holdings LLC (“VOOM HD”).
On June 30, 2011, Cablevision Systems Corporation (Cablevision Systems Corporation and its subsidiaries are referred to as “Cablevision”) spun-off the Company (the “Distribution”) and the Company became a separate public company. In connection with the Distribution, Cablevision contributed all of the membership interests of Rainbow Media Holdings LLC (“RMH”) to the Company. RMH owned, directly or indirectly, the businesses included in Cablevision’s Rainbow Media segment. On June 30, 2011, Cablevision effected the Distribution of all of AMC Networks’ outstanding common stock to its shareholders. Both Cablevision and the Company continue to be controlled by Charles F. Dolan, certain members of his immediate family and certain family related entities (collectively the “Dolan Family”).
Basis of Presentation
Principles of Consolidation
These unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and Article 10 of Regulation S-X of the Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, these unaudited consolidated financial statements do not include all the information and notes required for complete annual financial statements.
These unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2012 contained in the Company’s 2012 Annual Report on Form 10-K (“2012 Form 10-K”) filed with the SEC.
The consolidated financial statements as of June 30, 2013 and for the three and six months ended June 30, 2013 and 2012 are unaudited; however, in the opinion of management, such consolidated financial statements include all adjustments, consisting solely of normal recurring adjustments, necessary for a fair presentation of the results for the periods presented. All intercompany transactions and balances have been eliminated in consolidation.
The results of operations for the 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, 2013.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. Significant estimates and judgments inherent in the preparation of the consolidated financial statements include the determination of ultimate revenues as it relates to accounting for amortization and assessing recoverability of owned original program rights, valuation and recoverability of long-lived assets, income taxes and contingencies and litigation matters.

5

AMC NETWORKS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands, except per share amounts)
(unaudited)

Reclassifications
Certain reclassifications were made to the prior period amounts to conform to the current period presentation.
Discontinued Operations
Discontinued operations for the three and six months ended June 30, 2012 consists of receipts related to the sale of the Lifeskool and Sportskool video-on-demand services in September and October 2008, respectively, which were recorded under the installment sales method.
Recently Adopted Accounting Pronouncements
In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (ASU 2013-02). The amendments in ASU 2013-02 do not change the current requirements for reporting net income or other comprehensive income in financial statements. However, ASU 2013-02 requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under GAAP that provide additional detail about those amounts. The Company adopted ASU 2013-02 effective January 1, 2013 (see Note 12).
In July 2012, the FASB issued ASU No. 2012-02, Intangibles - Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment (ASU 2012-02), to allow entities to use a qualitative approach to test indefinite-lived intangible assets for impairment. ASU 2012-02 permits an entity to first perform a qualitative assessment to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible asset is impaired. If it is concluded that this is the case, an entity is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount in accordance with Subtopic 350-30. Otherwise, the quantitative impairment test is not required. The Company adopted ASU 2012-02 effective January 1, 2013. For the annual impairment test as of the end of February 2013, the Company decided to bypass the qualitative approach allowable under this guidance and performed a quantitative assessment of its indefinite-lived intangible assets (see Note 3).
Recently Issued Accounting Pronouncements
In July 2013, the FASB issued ASU No. 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (ASU 2013-11). ASU 2013-11 states the presentation of an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows: to the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. ASU 2013-11 is effective in the first quarter of 2014 and early adoption is permitted. The adoption of ASU 2013-11 is not expected to have a material effect on the Company's consolidated financial statements.
In July 2013, the FASB issued ASU 2013-10, Derivatives and Hedging (Topic 815): Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes. ASU 2013-10 permits the Fed Funds Effective Swap Rate to be used as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815, in addition to Treasury obligations of the U.S. government and London Interbank Offered Rate. ASU 2013-10 also removes the restriction on using different benchmark rates for similar hedges. ASU 2013-10 is effective prospectively for qualifying new or redesignated hedging relationships entered into on or after July 17, 2013 and is not expected to have a material effect on the Company's consolidated financial statements.

6

AMC NETWORKS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands, except per share amounts)
(unaudited)

Note 2. Net Income per Share
The consolidated statements of income present basic and diluted net income per share (“EPS”). Basic EPS is based upon net income divided by the weighted-average number of common shares outstanding during the period. Diluted EPS reflects the dilutive effects of AMC Networks stock options (including those held by directors and employees of related parties of the Company) and AMC Networks restricted shares/units (including those held by employees of related parties of the Company).
The following is a reconciliation between basic and diluted weighted average shares outstanding:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
Basic weighted average shares outstanding
71,568,000

 
70,479,000

 
71,430,000

 
70,175,000

Effect of dilution:
 
 
 
 
 
 
 
Stock options
294,000

 
819,000

 
314,000

 
859,000

Restricted shares/units
781,000

 
885,000

 
869,000

 
1,123,000

Diluted weighted average shares outstanding
72,643,000

 
72,183,000

 
72,613,000

 
72,157,000

Approximately 80,000 restricted shares/units for the three and six months ended June 30, 2013 and approximately 231,000 restricted shares/units for the three and six months ended June 30, 2012 have been excluded from diluted weighted average common shares outstanding since the performance criteria on these awards have not yet been satisfied in each of the respective periods. As of June 30, 2012, approximately 334,000 restricted shares/units have been excluded from diluted weighted average common shares outstanding since they would have been anti-dilutive.
Note 3. Goodwill and Other Intangible Assets
The carrying amount of goodwill, by reporting unit and reportable segment is as follows:
 
June 30, 2013
 
December 31, 2012
Reporting Unit and Segment
 
 
 
AMC
$
34,251

 
$
34,251

WE tv
5,214

 
5,214

IFC
13,582

 
13,582

Sundance Channel
23,773

 
25,062

Total National Networks
76,820

 
78,109

AMC Networks Broadcasting & Technology
1,196

 
1,196

Total International and Other
1,196

 
1,196

 
$
78,016

 
$
79,305

The reduction of $1,289 in the carrying amount of goodwill for Sundance Channel is due to the realization of a tax benefit for the amortization of "second component" goodwill. 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 Sundance Channel 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.

7

AMC NETWORKS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands, except per share amounts)
(unaudited)

The following tables summarize information relating to the Company’s identifiable intangible assets:
 
June 30, 2013
 
Gross
 
Accumulated
Amortization
 
Net
Amortizable intangible assets:
 
 
 
 
 
Affiliation agreements and affiliate relationships
$
840,757

 
$
(644,889
)
 
$
195,868

Advertiser relationships
74,248

 
(73,939
)
 
309

Other amortizable intangible assets
644

 
(582
)
 
62

Total amortizable intangible assets
915,649

 
(719,410
)
 
196,239

Indefinite-lived intangible assets:
 
 
 
 
 
Trademarks
19,900

 

 
19,900

Total intangible assets
$
935,549

 
$
(719,410
)
 
$
216,139

 
December 31, 2012
 
Gross
 
Accumulated
Amortization
 
Net
Amortizable intangible assets:
 
 
 
 
 
Affiliation agreements and affiliate relationships
$
840,757

 
$
(623,621
)
 
$
217,136

Advertiser relationships
74,248

 
(70,226
)
 
4,022

Other amortizable intangible assets
644

 
(519
)
 
125

Total amortizable intangible assets
915,649

 
(694,366
)
 
221,283

Indefinite-lived intangible assets:
 
 
 
 
 
Trademarks
19,900

 

 
19,900

Total intangible assets
$
935,549

 
$
(694,366
)
 
$
241,183

 Aggregate amortization expense for amortizable intangible assets for the six months ended June 30, 2013 and 2012 was $25,044 and $38,950, respectively. Estimated future aggregate amortization expense for intangible assets subject to amortization for each of the next five years is as follows:
Years Ending December 31,
 
2013
$
31,631

2014
9,759

2015
9,746

2016
9,746

2017
9,746

Annual Impairment Test of Goodwill and Identifiable Indefinite-Lived Intangible Assets
Based on the Company’s annual impairment test for goodwill as of the end of February 2013, no impairment charge was required for any of the reporting units. The Company performed a qualitative assessment for the AMC, WE tv, IFC and AMC Networks Broadcasting and Technology reporting units, which included, but was not limited to, consideration of the historical significant excesses of the estimated fair value of each reporting unit over its respective carrying value (including allocated goodwill), macroeconomic conditions, industry and market considerations, cost factors and historical and projected cash flows. The Company performed a quantitative assessment for the Sundance Channel reporting unit. Based on the quantitative assessment, if the fair value of the Sundance Channel reporting unit decreased by 12%, the Company would be required to perform step-two of the quantitative assessment.

8

AMC NETWORKS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands, except per share amounts)
(unaudited)

In assessing the recoverability of goodwill and other long-lived assets, the Company must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets. These estimates and assumptions could have a significant impact on whether an impairment charge is recognized and also the magnitude of any such charge. Fair value estimates are made at a specific point in time, based on relevant information. 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. Estimates of fair value are primarily determined using discounted cash flows and comparable market transactions. These valuations are based on estimates and assumptions including projected future cash flows, discount rate and determination of appropriate market comparables and determination of whether a premium or discount should be applied to comparables. These valuations also include assumptions for renewals of affiliation agreements, the projected number of subscribers and the projected average rates per basic and viewing subscribers and growth in fixed price contractual arrangements used to determine affiliation fee revenue, access to program rights and the cost of such program rights, amount of programming time that is advertiser supported, number of advertising spots available and the sell through rates for those spots, average fee per advertising spot and operating margins, among other assumptions. If these estimates or material related assumptions change in the future, we may be required to record impairment charges related to our long-lived assets.
Based on the Company's annual impairment test for indefinite-lived intangible assets as of the end of February 2013, no impairment charge was required. The Company’s indefinite-lived intangible assets relate to Sundance Channel trademarks, which were valued using a relief-from-royalty method in which the expected benefits are valued by discounting estimated royalty revenue over projected revenues covered by the trademarks. In order to evaluate the sensitivity of the fair value calculations for the Company’s identifiable indefinite-lived intangible assets, the Company applied a hypothetical 20% decrease to the estimated fair value of the identifiable indefinite-lived intangible assets. This hypothetical decrease in estimated fair value would not result in an impairment.
Significant judgments inherent in a valuation include the selection of appropriate discount and royalty rates, estimating the amount and timing of estimated future cash flows and identification of appropriate continuing growth rate assumptions. The discount rates used in the analysis are intended to reflect the risk inherent in the projected future cash flows generated by the respective intangible assets.
Note 4. Debt
Long-term debt consists of:
 
June 30, 2013
 
December 31, 2012
Senior Secured Credit Facility: (a)
 
 
 
Term loan A facility
$
880,000

 
$
880,000

Senior Notes
 
 
 
7.75% Notes due July 2021
700,000

 
700,000

4.75% Notes due December 2022
600,000

 
600,000

Total long-term debt
2,180,000

 
2,180,000

Unamortized discount
(25,308
)
 
(26,685
)
Long-term debt, net
$
2,154,692

 
$
2,153,315

(a)
The Company’s $500,000 revolving credit facility remains undrawn at June 30, 2013. Total undrawn revolver commitments are available to be drawn for general corporate purposes of the Company.

9

AMC NETWORKS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands, except per share amounts)
(unaudited)

Note 5. Fair Value Measurement
The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity’s pricing based upon their own market assumptions. The fair value hierarchy consists of the following three levels:
Level I - Quoted prices for identical instruments in active markets.
Level II - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level III - Instruments whose significant value drivers are unobservable.
 The following table presents for each of these hierarchy levels, the Company’s financial assets and liabilities that are measured at fair value on a recurring basis:
 
 
Level I
 
Level II
 
Level III
 
Total
At June 30, 2013:
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
Cash equivalents
 
$
222,962

 
$

 
$

 
$
222,962

Liabilities:
 
 
 
 
 
 
 
 
Interest rate swap contracts
 
$

 
$
15,229

 
$

 
$
15,229

At December 31, 2012:
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
Cash equivalents
 
$
487,900

 
$

 
$

 
$
487,900

Liabilities:
 
 
 
 
 
 
 
 
Interest rate swap contracts
 
$

 
$
22,137

 
$

 
$
22,137

The Company’s cash equivalents represents investment in funds that invest primarily in money market securities and 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 (discussed in Note 6) are classified within Level II of the fair value hierarchy and their fair values are determined based on a market approach valuation technique that uses readily observable market parameters and the consideration of counterparty risk.

10

AMC NETWORKS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands, except per share amounts)
(unaudited)

Credit Facility Debt and Senior Notes
The fair values of each of the Company’s debt instruments are based on quoted market prices for the same or similar issues or on the current rates offered to the Company for instruments of the same remaining maturities.
The carrying values and estimated fair values of the Company’s financial instruments, excluding those that are carried at fair value in the consolidated balance sheets are summarized as follows:
 
June 30, 2013
 
Carrying
Amount
 
Estimated
Fair Value
Debt instruments:
 
 
 
Term loan A facility
$
876,797

 
$
879,270

7.75% Notes due July 2021
687,949

 
764,750

4.75% Notes due December 2022
589,946

 
579,000

 
$
2,154,692

 
$
2,223,020

 
 
 
 
 
December 31, 2012
 
Carrying
Amount
 
Estimated
Fair Value
Debt instruments:
 
 
 
Term loan A facility
$
876,358

 
$
876,154

7.75% Notes due July 2021
687,423

 
801,500

4.75% Notes due December 2022
589,534

 
603,000

 
$
2,153,315

 
$
2,280,654

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 6. Derivative Financial Instruments
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. Such contracts effectively fix the borrowing rates on floating rate debt to limit the exposure against the risk of rising interest rates. The Company does not enter into interest rate swap contracts for speculative or trading purposes and it has only entered into interest rate swap contracts with financial institutions that it believes are creditworthy counterparties. The Company monitors the financial institutions that are counterparties to its interest rate swap contracts and to the extent possible diversifies its swap contracts among various counterparties to mitigate exposure to any single financial institution.
The Company’s risk management objective and strategy with respect to interest rate swap contracts is to protect the Company against adverse fluctuations in interest rates by reducing its exposure to variability in cash flows relating to interest payments on a portion of its outstanding debt. The Company is meeting its objective by hedging the risk of changes in its cash flows (interest payments) attributable to changes in the LIBOR index rate, the designated benchmark interest rate being hedged (the “hedged risk”), on an amount of the Company’s debt principal equal to the then-outstanding swap notional. The forecasted interest payments are deemed to be probable of occurring.
As of June 30, 2013, the Company had interest rate swap contracts outstanding with notional amounts aggregating $817,625, which consists of interest rate swap contracts with notional amounts of $617,625 that are designated as cash flow hedges and interest rate swap contracts with notional amounts of $200,000 that are not designated as hedging instruments. The Company’s outstanding interest rate swap contracts have varying maturities ranging from September 2015 to July 2017. At June 30, 2013, the Company’s interest rate swap contracts designated as cash flow hedges were highly effective, in all material respects.

11

AMC NETWORKS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands, except per share amounts)
(unaudited)

The Company assesses, both at the hedge’s inception and on an ongoing basis, hedge effectiveness based on the overall changes in the fair value of the interest rate swap contracts. Hedge effectiveness of the interest rate swap contracts is based on a hypothetical derivative methodology. Any ineffective portion of the interest rate swap contracts is recorded in current-period earnings. Changes in fair value of interest rate swap contracts not designated as hedging instruments are recognized in earnings and included in interest expense.
The fair values of the Company’s derivative financial instruments included in the consolidated balance sheets are as follows:
 
Liability Derivatives
 
Balance Sheet Location
 
Fair Value
 
 
 
June 30, 2013
 
December 31, 2012
Derivatives designated as hedging instruments:
 
 
 
 
 
Interest rate swap contracts
Other liabilities
 
$
9,286

 
$
13,398

Derivatives not designated as hedging instruments:
 
 
 
 
 
Interest rate swap contracts
Other liabilities
 
5,943

 
8,739

Total derivatives
 
 
$
15,229

 
$
22,137

The amounts of the gains and losses related to the Company’s derivative financial instruments designated as hedging instruments are as follows:
 
Amount of Gain or (Loss) Recognized 
in Other Comprehensive  Income
(“OCI”) on Derivatives 
(Effective Portion)
 
Location of Gain or (Loss)
Reclassified from
Accumulated OCI into Earnings  (Effective Portion)
 
Amount of Gain or (Loss) Reclassified 
from Accumulated OCI into  Earnings
(Effective Portion)(a)
 
Three Months Ended June 30,
 
 
 
Three Months Ended June 30,
 
2013
 
2012
 
 
 
2013
 
2012
Derivatives in cash flow hedging relationships:
 
 
 
 
 
 
 
 
 
Interest rate swap contracts
$
348

 
$
(5,794
)
 
Interest expense
 
$
1,912

 
$
(2,166
)
(a)
There were no gains or losses recognized in earnings related to any ineffective portion of the hedging relationship or related to any amount excluded from the assessment of hedge effectiveness for the three months ended June 30, 2013 and 2012.
 
Amount of Gain or (Loss) Recognized 
in Other Comprehensive  Income (“OCI”) on Derivatives 
(Effective Portion)
 
Location of Gain or (Loss)
Reclassified from
Accumulated OCI into Earnings  (Effective Portion)
 
Amount of Gain or (Loss) Reclassified 
from Accumulated OCI into  Earnings
(Effective Portion)(a)
 
Six Months Ended June 30,
 
 
 
Six Months Ended June 30,
 
2013
 
2012
 
 
 
2013
 
2012
Derivatives in cash flow hedging relationships:
 
 
 
 
 
 
 
 
 
Interest rate swap contracts
$
289

 
$
(8,728
)
 
Interest expense
 
$
3,823

 
$
(4,280
)
(a)
There were no gains or losses recognized in earnings related to any ineffective portion of the hedging relationship or related to any amount excluded from the assessment of hedge effectiveness for the six months ended June 30, 2013 and 2012.

12

AMC NETWORKS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands, except per share amounts)
(unaudited)

The amount of the gains and losses related to the Company's derivative financial instruments not designated as hedging instruments are as follows:
 
Location of Gain or (Loss) Recognized in Earnings on Derivatives
 
Amount of Gain or (Loss)
Recognized in Earnings
 on Derivatives
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
 
2013
 
2012
 
2013
 
2012
Derivatives not designated as hedging relationships:
 
 
 
 
 
 
 
 
 
Interest rate swap contracts
Interest expense
 
$
1,431

 
$

 
$
1,510

 
$

Note 7. Income Taxes
For the three and six months ended June 30, 2013, income tax expense attributable to continuing operations was $83,850 and $120,499, respectively, representing an effective tax rate of 38% for both periods. The effective tax rate differs from the federal statutory rate of 35% due primarily to state income tax expense of $4,687 and $6,709, for the three and six months ended June 30, 2013, respectively, tax expense of $2,334 resulting from an increase in the valuation allowance with regard to foreign tax credit carry forwards for both the three and six months ended June 30, 2013, partially offset by a tax benefit of $1,027 relating to uncertain tax positions, including accrued interest, for the three months ended June 30, 2013.
For the three and six months ended June 30, 2012, income tax expense attributable to continuing operations was $26,898 and $50,868, respectively, representing an effective tax rate of 39% and 38%, respectively. The effective tax rate differs from the federal statutory rate of 35% due primarily to state income tax expense of $1,710 and $3,064, and tax expense of $866 and $1,630 related to uncertain tax positions, including accrued interest, for the three and six months ended June 30, 2012, respectively, partially offset by a tax benefit of $1,800 resulting from a decrease in the valuation allowance with regard to certain local income tax credit carry forwards, for the six months ended June 30, 2012.
At June 30, 2013, the Company had foreign tax credit carry forwards of approximately $20,000, expiring on various dates from 2014 through 2023. For the six months ended June 30, 2013, excess tax benefits of $2,893 relating to share-based compensation awards and $811 relating to amortization of tax deductible second component goodwill were realized as a reduction in tax liability (as determined on a 'with-and-without' approach).
Under the Company's Tax Disaffiliation Agreement with Cablevision, Cablevision is liable for all income taxes of the Company for periods prior to the Distribution except for New York City Unincorporated Business Tax. In June 2013, the Company settled a New York City Unincorporated Business tax audit for the years 2006 and 2007 for $447, including accrued interest. The City of New York is currently auditing the Company's Unincorporated Business Tax Return for 2008. The Internal Revenue Service is currently auditing the Company's U.S. Corporation Income Tax Return for 2011.
Note 8. Commitments
As of June 30, 2013, the Company’s contractual obligations not reflected on the Company’s consolidated balance sheet decreased approximately $76,300 to approximately $329,500 as compared to approximately $405,800 at December 31, 2012. The decrease relates primarily to future program rights obligations.
Note 9. Equity Plans
On March 12, 2013, AMC Networks granted 365,509 restricted share units to certain executive officers and employees under the AMC Networks Inc. Amended and Restated 2011 Employee Stock Plan that vest on the third anniversary of the grant date. The vesting criteria for 80,355 of those restricted share units include the achievement of certain performance targets by the Company.
On June 6, 2013, AMC Networks granted 20,064 restricted share units under the Amended and Restated 2011 Non-Employee Director Plan to non-employee directors that vested on the date of grant.

13

AMC NETWORKS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands, except per share amounts)
(unaudited)

During the six months ended June 30, 2013, 495,558 shares of AMC Networks Class A common stock previously issued to employees of Cablevision and the Company vested. In connection with the employees’ satisfaction of the statutory minimum tax withholding obligations for the applicable income and other employment taxes, 201,622 of these shares, with an aggregate value of $11,950, were surrendered to the Company. These acquired shares, as well as 25,653 forfeited unvested restricted shares, have been classified as treasury stock.
Share-based compensation expense included in selling, general and administrative expense, for the three and six months ended June 30, 2013 was $5,604 and $9,941, respectively and $4,901 and $8,484 for the three and six months ended June 30, 2012, respectively.
As of June 30, 2013, there was $35,813 of total unrecognized share-based compensation cost related to Company employees who held unvested AMC Networks restricted shares/units. The unrecognized compensation cost is expected to be recognized over a weighted-average remaining period of approximately 2.1 years.
Note 10. 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 Company’s outstanding Class B Common Stock and own less than 2% of the Company’s outstanding Class A Common Stock. Such shares of the Company’s Class A Common Stock and Class B Common Stock, collectively, represent approximately 66% of the aggregate voting power of the Company’s outstanding common stock. Members of the Dolan Family are also the controlling stockholders of both Cablevision and The Madison Square Garden Company and its subsidiaries (“MSG”).
In connection with the Distribution, the Company entered into various agreements with Cablevision, such as a distribution agreement, a tax disaffiliation agreement, a transition services agreement, an employee matters agreement and certain related party arrangements. These agreements govern certain of the Company’s relationships with Cablevision subsequent to the Distribution and provide for the allocation of employee benefits, taxes and certain other liabilities and obligations attributable to periods prior to the Distribution. These agreements also include arrangements with respect to transition services and a number of on-going commercial relationships. The distribution agreement includes an agreement that the Company and Cablevision agree to provide each other with indemnities with respect to liabilities arising out of the businesses Cablevision transferred to the Company.
The Company records revenues, net from subsidiaries of Cablevision and MSG. Revenues, net from related parties amounted to $8,127 and $8,102 for the three months ended June 30, 2013 and 2012, respectively. Revenues, net from related parties amounted to $16,268 and $16,175 for the six months ended June 30, 2013 and 2012, respectively.
In addition, the Company and its related parties routinely enter into transactions with each other in the ordinary course of business. Amounts charged to the Company, included in technical and operating expenses, pursuant to transactions with its related parties amounted to $155 and $310 for the three and six months ended June 30, 2013, respectively and $310 for the three and six months ended June 30, 2012. Amounts charged to the Company, included in selling, general and administrative expenses, pursuant to the transition services agreement and for other transactions with its related parties amounted to $1,428 and $1,108 for the three months ended June 30, 2013 and 2012, respectively. Selling, general and administrative expenses with its related parties amounted to $2,222 and $3,104 for the six months ended June 30, 2013 and 2012, respectively.
As noted above, in connection with the Distribution, the Company entered into various agreements with Cablevision, including an agreement between AMC Networks and Rainbow Programming Holdings LLC, a wholly owned subsidiary of AMC Networks,(collectively, the “AMC Parties”) and CSC Holdings, LLC (“CSC Holdings”), a wholly owned subsidiary of Cablevision, with respect to the lawsuit entitled VOOM HD Holdings LLC against Echostar Satellite LLC, predecessor-in-interest to DISH Network L.L.C. (“DISH Network”) (the “VOOM Litigation Agreement”). Pursuant to the VOOM Litigation Agreement, CSC Holdings had full control over the litigation with DISH Network, the decision with respect to settlement of the litigation was to be made jointly by CSC Holdings and the AMC Parties, and CSC Holdings and the AMC Parties were to share equally in the proceeds (including in the value of any non-cash consideration) of any settlement of the litigation.
As previously disclosed in the Company's 2012 Form 10-K, CSC Holdings and the Company settled the lawsuit (the “Settlement”) on October 21, 2012. During the fourth quarter of 2012, the AMC Parties and CSC Holdings agreed that, pending a final determination of the allocation of the proceeds, the $700,000 cash proceeds of the Settlement (the “Settlement Funds”) would be distributed equally to each of the Company and Cablevision.

14

AMC NETWORKS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands, except per share amounts)
(unaudited)

On April 8, 2013, Cablevision and the Company entered into an agreement (the “DISH Network Proceeds Allocation Agreement”) in which a final allocation of the proceeds of the Settlement, including the Settlement Funds, was made. The principal terms of the DISH Network Proceeds Allocation Agreement were as follows: Cablevision received $525,000 of the Settlement Funds and the Company received $175,000 of the Settlement Funds representing the allocation of cash and non-cash proceeds (including the portion of the DISH Network affiliation agreement attributable to the Settlement). The DISH Network Proceeds Allocation Agreement was in full and final settlement of the allocation between Cablevision and the Company of the proceeds of the Settlement.
In accordance with the Company's Related Party Transaction Approval Policy, the final allocation of the proceeds from the Settlement was approved by an independent committee of the Company's Board of Directors, as well as an independent committee of Cablevision's Board of Directors.
The $350,000 of Settlement Funds previously disbursed to the Company is included in cash and cash equivalents in the consolidated balance sheet at December 31, 2012. Deferred litigation settlement proceeds at December 31, 2012 of approximately $308,000, is the result of the $350,000 of Settlement Funds, less $31,000 representing the excess of the fair value of the DISH Network affiliation agreement over the contractual affiliation fees recorded to deferred revenue on October 21, 2012 and less an $11,000 receivable related to VOOM HD's previous affiliation agreement with DISH Network.
On April 9, 2013, the Company paid to Cablevision $175,000 of the Settlement Funds. Additionally, during the second quarter of 2013, the Company recorded a litigation settlement gain of approximately $133,000, included in operating income within the International and Other segment, representing the deferred litigation settlement proceeds liability of approximately $308,000 recorded in the consolidated balance sheet at December 31, 2012 less the $175,000 paid to Cablevision on April 9, 2013.
Note 11. Cash Flows
The Company’s non-cash investing and financing activities and other supplemental data were as follows:
 
Six Months Ended June 30,
 
2013
 
2012
Non-Cash Investing and Financing Activities:
 
 
 
Continuing Operations:
 
 
 
Leasehold improvements paid by landlord

 
2,071

Increase in capital lease assets
865

 

Increase in capital lease obligations and related assets

 
1,399

Capital expenditures incurred but not yet paid
945

 

Supplemental Data:
 
 
 
Cash interest paid — continuing operations
56,320

 
57,564

Income taxes paid, net — continuing operations
111,889

 
13,535

Note 12. Accumulated Other Comprehensive Loss
The following table details the components of accumulated other comprehensive loss:
 
Six Months Ended June 30, 2013
Balance as of December 31, 2012
$
(8,446
)
Gains and Losses on Cash Flow Hedges:
 
Other comprehensive income before reclassifications
289

Amounts reclassified from accumulated other comprehensive loss to interest expense
3,823

Net current-period other comprehensive income, before income taxes
4,112

Income tax expense
(1,525
)
Net current-period other comprehensive income, net of income taxes
2,587

Balance as of June 30, 2013
$
(5,859
)

15

AMC NETWORKS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands, except per share amounts)
(unaudited)

Note 13. Segment Information
The Company classifies its operations into two reportable segments: National Networks and International and Other. These reportable segments represent strategic business units that are managed separately.
The Company generally allocates all corporate overhead costs to the Company’s two reportable segments based upon their proportionate estimated usage of services, including such costs as executive salaries and benefits, costs of maintaining corporate headquarters, facilities and common support functions (such as human resources, legal, finance, tax, accounting, audit, treasury, risk management, strategic planning and information technology) as well as sales support functions and creative and production services.
The Company evaluates segment performance based on several factors, of which the primary financial measure is business segment adjusted operating cash flow (defined as operating income (loss) before depreciation and amortization, share-based compensation expense or benefit, restructuring expense or credit and the litigation settlement gain recorded in connection with the settlement with DISH Network). The Company does not consider the one-time litigation settlement gain with DISH Network to be indicative of its ongoing operating performance. The Company has presented the components that reconcile adjusted operating cash flow to operating income, an accepted GAAP measure and other information as to the continuing operations of the Company’s reportable segments below.
 
Three Months Ended June 30, 2013
 
National
Networks
 
International
and Other
 
Inter-segment
eliminations
 
Consolidated
Revenues, net
 
 
 
 
 
 
 
Advertising
$
147,243

 
$

 
$

 
$
147,243

Distribution
206,325

 
29,919

 
(4,165
)
 
232,079

Consolidated revenues, net
$
353,568

 
$
29,919

 
$
(4,165
)
 
$
379,322

Adjusted operating cash flow (deficit)
$
146,225

 
$
(8,838
)
 
$
905

 
$
138,292

Depreciation and amortization
(14,153
)
 
(4,155
)
 

 
(18,308
)
Share-based compensation expense
(4,503
)
 
(1,101
)
 

 
(5,604
)
Litigation settlement gain

 
132,944

 

 
132,944

Operating income
$
127,569

 
$
118,850

 
$
905

 
$
247,324

 
 
 
 
 
 
 
 
 
Three Months Ended June 30, 2012
 
National
Networks
 
International
and Other
 
Inter-segment
eliminations
 
Consolidated
Revenues, net
 
 
 
 
 
 
 
Advertising
$
129,528

 
$
10

 
$

 
$
129,538

Distribution
175,656

 
26,259

 
(3,883
)
 
198,032

Consolidated revenues, net
$
305,184

 
$
26,269

 
$
(3,883
)
 
$
327,570

Adjusted operating cash flow (deficit)
$
135,623

 
$
(9,414
)
 
$
1,035

 
$
127,244

Depreciation and amortization
(20,527
)
 
(3,540
)
 

 
(24,067
)
Share-based compensation expense
(3,799
)
 
(1,102
)
 

 
(4,901
)
Operating income (loss)
$
111,297

 
$
(14,056
)
 
$
1,035

 
$
98,276


16

AMC NETWORKS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands, except per share amounts)
(unaudited)

 
Six Months Ended June 30, 2013
 
National
Networks
 
International
and Other
 
Inter-segment
eliminations
 
Consolidated
Revenues, net
 
 
 
 
 
 
 
Advertising
$
311,203

 
$

 
$

 
$
311,203

Distribution
401,831

 
56,212

 
(7,963
)
 
450,080

Consolidated revenues, net
$
713,034

 
$
56,212

 
$
(7,963
)
 
$
761,283

Adjusted operating cash flow (deficit)
$
305,328

 
$
(18,739
)
 
$
1,869

 
$
288,458

Depreciation and amortization
(28,374
)
 
(8,279
)
 

 
(36,653
)
Share-based compensation expense
(7,951
)
 
(1,990
)
 

 
(9,941
)
Litigation settlement gain

 
132,944

 

 
132,944

Operating income
$
269,003

 
$
103,936

 
$
1,869

 
$
374,808

Capital expenditures
$
2,830

 
$
10,840

 
$

 
$
13,670

 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2012
 
National
Networks
 
International
and Other
 
Inter-segment
eliminations
 
Consolidated
Revenues, net
 
 
 
 
 
 
 
Advertising
$
258,765

 
$
10

 
$

 
$
258,775

Distribution
350,642

 
52,605

 
(8,213
)
 
395,034

Consolidated revenues, net
$
609,407

 
$
52,615

 
$
(8,213
)
 
$
653,809

Adjusted operating cash flow (deficit)
$
268,995

 
$
(17,621
)
 
$
1,540

 
$
252,914

Depreciation and amortization
(41,832
)
 
(7,286
)
 

 
(49,118
)
Share-based compensation expense
(6,648
)
 
(1,836
)
 

 
(8,484
)
Restructuring credit

 
3

 

 
3

Operating income (loss)
$
220,515

 
$
(26,740
)
 
$
1,540

 
$
195,315

Capital expenditures
$
860

 
$
5,759

 
$

 
$
6,619

Inter-segment eliminations are primarily revenues recognized by the International and Other segment for transmission revenues recognized by AMC Networks Broadcasting & Technology.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
Inter-segment revenues
 
 
 
 
 
 
 
National Networks
$
(61
)
 
$
(201
)
 
$
(184
)
 
$
(504
)
International and Other
(4,104
)
 
(3,682
)
 
(7,779
)
 
(7,709
)
 
$
(4,165
)
 
$
(3,883
)
 
$
(7,963
)
 
$
(8,213
)
Substantially all revenues and assets of the Company are attributed to or located in the U.S.

17


Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains statements that constitute forward-looking information within the meaning of the Private Securities Litigation Reform Act of 1995. In this Management’s Discussion and Analysis of Financial Condition and Results of Operations there are statements concerning our future operating results and future financial performance. Words such as “expects,” “anticipates,” “believes,” “estimates,” “may,” “will,” “should,” “could,” “potential,” “continue,” “intends,” “plans” and similar words and terms used in the discussion of future operating results and future financial performance identify forward-looking statements. You are cautioned that any such forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties and that actual results or developments may differ materially from the forward-looking statements as a result of various factors. Factors that may cause such differences to occur include, but are not limited to:
the level of our revenues;
market demand for programming services;
demand for advertising inventory;
the demand for our programming among cable and other multichannel video programming distributors and our ability to maintain and renew affiliation agreements with multichannel video programming distributors;
the cost of, and our ability to obtain or produce, desirable programming content for our networks and independent film distribution business;
market demand for our services internationally and for our independent film distribution business, and our ability to profitably provide those services;
the security of our program rights and other electronic data;
the loss of any of our key personnel and artistic talent;
the highly competitive nature of the cable programming industry;
changes in both domestic and foreign laws or regulations under which we operate;
the outcome of litigation and other proceedings;
general economic conditions in the areas in which we operate;
our substantial debt and high leverage;
reduced access to capital markets or significant increases in costs to borrow;
the level of our expenses;
the level of our capital expenditures;
future acquisitions and dispositions of assets;
whether pending uncompleted transactions, if any, are completed on the terms and at the times set forth (if at all);
other risks and uncertainties inherent in our programming businesses;
financial community and rating agency perceptions of our business, operations, financial condition and the industry in which we operate, and the additional factors described herein; and
the factors described under Item 1A, “Risk Factors” in our 2012 Annual Report on Form 10-K (the “2012 Form 10-K”), as filed with the Securities and Exchange Commission (“SEC”).
We disclaim any obligation to update or revise the forward-looking statements contained herein, except as otherwise required by applicable federal securities laws.
All dollar amounts and subscriber data included in the following Management’s Discussion and Analysis of Financial Condition and Results of Operations are presented in thousands.

18


Introduction
Management’s discussion and analysis, or MD&A, of our results of operations and financial condition is provided as a supplement to, and should be read in conjunction with, the unaudited consolidated financial statements and notes thereto included elsewhere herein and our 2012 Form 10-K to enhance the understanding of our financial condition, changes in financial condition and results of our operations. Unless the context otherwise requires, all references to “we,” “us,” “our,” “AMC Networks” or the “Company” refer to AMC Networks Inc., together with its direct and indirect subsidiaries. Our MD&A is organized as follows:
Business Overview. This section provides a general description of our business, as well as other matters that we believe are important in understanding our results of operations and financial condition and in anticipating future trends.
Results of Operations. This section provides an analysis of our results of operations for the three and six months ended June 30, 2013 compared to the three and six months ended June 30, 2012. Our discussion is presented on both a consolidated and segment basis. Our two segments are: (i) National Networks and (ii) International and Other.
Liquidity and Capital Resources. This section provides a discussion of our financial condition as of June 30, 2013, as well as an analysis of our cash flows for the six months ended June 30, 2013 and 2012. The discussion of our financial condition and liquidity includes summaries of (i) our primary sources of liquidity and (ii) our contractual obligations that existed at June 30, 2013 and December 31, 2012.
Critical Accounting Policies and Estimates. This section provides the results of our annual impairment test of goodwill and identifiable indefinite-lived intangible assets performed as of the end of February 2013 as well as a discussion of the critical estimates inherent in assessing the recoverability of goodwill and identifiable indefinite-lived intangible assets.
Business Overview
We manage our business through the following two reportable segments:
National Networks: Principally includes our four nationally distributed programming networks: AMC, WE tv, IFC and Sundance Channel. These programming networks are distributed throughout the United States via multichannel video programming distributors;
International and Other: Principally includes AMC/Sundance Channel Global, our international programming business; IFC Films, our independent film distribution business; AMC Networks Broadcasting & Technology, our network technical services business, which primarily services the programming networks of the Company; and various developing online content distribution initiatives. AMC and Sundance Channel are distributed in Canada, Sundance Channel is also distributed in Europe and Asia and WE tv is distributed in Asia. The International and Other reportable segment also includes VOOM HD.

19


The tables presented below set forth our consolidated revenues, net, operating income (loss) and adjusted operating cash flow (“AOCF”), defined below, for the periods indicated.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
Revenues, net
 
 
 
 
 
 
 
National Networks
$
353,568

 
$
305,184

 
$
713,034

 
$
609,407

International and Other
29,919

 
26,269

 
56,212

 
52,615

Inter-segment eliminations
(4,165
)
 
(3,883
)
 
(7,963
)
 
(8,213
)
Consolidated revenues, net
$
379,322

 
$
327,570

 
$
761,283

 
$
653,809

Operating income (loss)
 
 
 
 
 
 
 
National Networks
$
127,569

 
$
111,297

 
$
269,003

 
$
220,515

International and Other (a)
118,850

 
(14,056
)
 
103,936

 
(26,740
)
Inter-segment eliminations
905

 
1,035

 
1,869

 
1,540

Consolidated operating income
$
247,324

 
$
98,276

 
$
374,808

 
$
195,315

AOCF (deficit)
 
 
 
 
 
 
 
National Networks
$
146,225

 
$
135,623

 
$
305,328

 
$
268,995

International and Other
(8,838
)
 
(9,414
)
 
(18,739
)
 
(17,621
)
Inter-segment eliminations
905

 
1,035

 
1,869

 
1,540

Consolidated AOCF
$
138,292

 
$
127,244

 
$
288,458

 
$
252,914

(a) Amounts for the three and six months ended June 30, 2013 include the litigation settlement gain recorded in connection with the settlement with DISH Network. See DISH Network discussion below.
We evaluate segment performance based on several factors, of which the primary financial measure is business segment AOCF. We define AOCF, which is a financial measure that is not calculated in accordance with generally accepted accounting principles (“GAAP”), as operating income (loss) before depreciation and amortization, share-based compensation expense or benefit, restructuring expense or credit and the litigation settlement gain recorded in connection with the settlement with DISH Network. We do not consider the one-time litigation settlement gain with DISH Network to be indicative of our ongoing operating performance.
We believe that AOCF is an appropriate measure for evaluating the operating performance on both a business segment and consolidated basis. AOCF and similar measures with similar titles are common performance measures used by investors, analysts and peers to compare performance in the industry.
Internally, we use revenues, net and AOCF measures as the most important indicators of our business performance, and evaluate management’s effectiveness with specific reference to these indicators. AOCF should be viewed as a supplement to and not a substitute for operating income (loss), net income (loss), cash flows from operating activities and other measures of performance and/or liquidity presented in accordance with GAAP. Since AOCF is not a measure of performance calculated in accordance with GAAP, this measure may not be comparable to similar measures with similar titles used by other companies.
The following is a reconciliation of consolidated operating income to AOCF for the periods indicated:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
Operating income
$
247,324

 
$
98,276

 
$
374,808

 
$
195,315

Share-based compensation expense
5,604

 
4,901

 
9,941

 
8,484

Depreciation and amortization
18,308

 
24,067

 
36,653

 
49,118

Litigation settlement gain
(132,944
)
 

 
(132,944
)
 

Restructuring credit

 

 

 
(3
)
AOCF
$
138,292

 
$
127,244

 
$
288,458

 
$
252,914


20


National Networks
In our National Networks segment, which accounted for 94% of our consolidated revenues for the six months ended June 30, 2013, we earn revenue principally from the distribution of our programming and the sale of advertising. Distribution revenue primarily includes affiliation fees paid by distributors to carry our programming networks and the licensing of original programming for digital, foreign and home video distribution. Affiliation fees paid by distributors represents the largest component of distribution revenue. Our affiliation fee revenues are generally based on a per subscriber fee under multi-year contracts, commonly referred to as “affiliation agreements,” which generally provide for annual affiliation rate increases. The specific affiliation fee revenues we earn vary from period to period, distributor to distributor and also vary among our networks, but are generally based upon the number of each distributor’s subscribers who receive our programming, referred to as “viewing subscribers.” The terms of certain other affiliation agreements provide that the affiliation fee revenues we earn are a fixed contractual monthly fee, which could be adjusted for acquisitions and dispositions of multichannel video programming systems by the distributor. Revenue from the licensing of original programming for digital and foreign distribution is recognized upon availability and distribution by the licensee.
Under affiliation agreements with our distributors, we have the right to sell a specified amount of national advertising time on certain of our programming networks. Our advertising revenues are more variable than affiliation fee revenues because the majority of our advertising is sold on a short-term basis, not under long-term contracts. Our advertising arrangements with advertisers provide for a set number of advertising units to air over a specific period of time at a negotiated price per unit. In certain advertising sales arrangements, our programming networks guarantee specified viewer ratings for their programming. If these guaranteed viewer ratings are not met, we are generally required to provide additional advertising units to the advertiser at no charge. For these types of arrangements, a portion of the related revenue is deferred if the guaranteed viewer ratings are not met and is subsequently recognized either when we provide the required additional advertising time, the guarantee obligation contractually expires or performance requirements become remote. Most of our advertising revenues vary based upon the popularity of our programming as measured by Nielsen Media Research (“Nielsen”). As of June 30, 2013, our national programming networks had approximately 1,000 advertisers representing companies in a broad range of sectors, including the health, insurance, food, automotive and retail industries. Our AMC, WE tv and IFC programming networks use a traditional advertising sales model, while Sundance Channel principally sells sponsorships. Beginning September 2013, we expect to transition Sundance Channel to a traditional advertising sales model.
Changes in revenue are primarily derived from changes in contractual affiliation rates charged for our services, changes in the number of subscribers, changes in the prices and level of advertising on our networks and changes in the timing of licensing fees earned from the distribution of our original programming. We seek to grow our revenues by increasing the number of viewing subscribers of the distributors that carry our services. We refer to this as our “penetration.” AMC, which is widely distributed, has a more limited ability to increase its penetration than WE tv, IFC and Sundance Channel. To the extent not already carried on more widely penetrated service tiers, WE tv, IFC and Sundance Channel, although carried by all of the larger distributors, have higher growth opportunities due to their current penetration levels with those distributors. WE tv and IFC are currently carried on either expanded basic or digital tiers, while Sundance Channel is currently carried primarily on digital tiers. Therefore, WE tv, IFC and Sundance Channel penetration rates may increase as and to the extent distributors are successful in converting their analog subscribers to digital tiers of service that include those networks. Our revenues may also increase over time through contractual rate increases stipulated in most of our affiliation agreements. In negotiating for increased or extended carriage, we have agreed in some instances to make upfront payments in exchange for additional subscribers or extended carriage, which we record as deferred carriage fees and which are amortized as a reduction to revenue over the period of the related affiliation agreements, or agreed to waive for a specified period or accept lower per subscriber fees if certain additional subscribers are provided. We also may help fund the distributors’ efforts to market our channels. We believe that these transactions generate a positive return on investment over the contract period. We seek to increase our advertising revenues by increasing the rates we charge for such advertising, which is directly related to the overall distribution of our programming, penetration of our services and the popularity (including within desirable demographic groups) of our services as measured by Nielsen. Distribution revenues in each quarter also vary based on the timing of availability of our programming to distributors.
Our principal goal is to increase our revenues by increasing distribution and penetration of our services, and increasing our ratings. To do this, we must continue to contract for and produce high-quality, attractive programming. As competition for programming increases and alternative distribution technologies continue to emerge and develop in the industry, costs for content acquisition and original programming may increase. There is a concentration of subscribers in the hands of a few distributors, which could create disparate bargaining power between the largest distributors and us by giving those distributors greater leverage in negotiating the price and other terms of affiliation agreements.


21


Programming expense, included in technical and operating expense, represents the largest expense of the National Networks segment and primarily consists of amortization and impairments or write-offs of programming rights, such as those for original programming, feature films and licensed series. The other components of technical and operating expense primarily include distribution and production related costs and program operating costs, such as origination, transmission, uplinking and encryption, and participation and residual costs.
To an increasing extent, the success of our business depends on original programming, both scripted and unscripted, across all of our networks. In recent years, we have introduced a number of scripted original series, primarily on AMC, the majority of which have been commercially successful. These successful series have resulted in higher audience ratings for our networks. Historically, in periods when we air original programming, our ratings have increased. Among other things, higher audience ratings drive increased revenues through higher advertising revenues. The timing of exhibition and distribution of original programming varies from period to period, which results in greater variability in our revenues, earnings and cash flows from operating activities. We will continue to increase our investment in programming and marketing across all of our channels. During 2012, AMC aired five scripted original series and during 2013, AMC expects to air six scripted original series. Additionally, in 2013 we have increased our investment in scripted original series at certain of our other National Networks.
Most original series require us to make up-front investments, which are often significant amounts. Not all of our programming efforts are commercially successful, which could result in a write-off of program rights. If it is determined that programming rights have no future programming usefulness based on actual demand or market conditions, a write-off of the unamortized cost is recorded in technical and operating expense. Program rights write-offs of $6,689 were recorded for the six months ended June 30, 2013. There were no program rights write-offs for the six months ended June 30, 2012.
International and Other
Our International and Other segment primarily includes the operations of AMC/Sundance Channel Global, IFC Films, and AMC Networks Broadcasting & Technology. This reportable segment also includes VOOM HD.
VOOM HD historically offered a suite of channels, produced exclusively in HD and marketed for distribution to DBS and other multichannel video programming distributors. Through 2008, VOOM was available in the U.S. only on the cable television systems of Cablevision Systems Corporation (“Cablevision”) and on the satellite delivered programming of DISH Network L.L.C. (“DISH Network”). VOOM HD, which we are winding down, continues to sell certain limited amounts of programming through program license agreements.
Although we view our international expansion as an important long-term strategy, our international operations are currently expected to represent only a small percentage of our projected consolidated financial results over the next five years. We may experience an adverse impact to the International and Other segment's operating results and cash flows in periods of increased international investment. Similar to our domestic businesses, the most significant business challenges we expect to encounter in our international business include programming competition (from both foreign and domestic programmers), limited channel capacity on distributors’ platforms, the growth of subscribers on those platforms and economic pressures on affiliation fees. Other significant business challenges unique to international expansion include increased programming costs for international rights and translation (i.e. dubbing and subtitling), a lack of availability of international rights for a portion of our domestic programming content, increased distribution costs for cable, satellite or fiber feeds and a limited physical presence in each territory.
DISH Network
As previously described in our 2012 Form 10-K, DISH Network, VOOM HD and Cablevision entered into a confidential settlement agreement on October 21, 2012 (the “Settlement Agreement”) to settle the litigation between VOOM HD and DISH Network. In connection with the Settlement Agreement, DISH Network entered into a long-term affiliation agreement with the Company that provided for the carriage of AMC, IFC, Sundance Channel and WE tv. In addition, DISH Network paid $700,000 to an account for the benefit of Cablevision and the Company (“Settlement Funds”). During the fourth quarter of 2012, AMC Networks and Rainbow Programming Holdings LLC, a wholly owned subsidiary of AMC Networks (collectively, the “AMC Parties”) and CSC Holdings, LLC (“CSC Holdings”), a wholly owned subsidiary of Cablevision, agreed that, pending a final determination of the allocation of the proceeds, the Settlement Funds would be distributed equally to each of the Company and Cablevision.
On April 8, 2013, Cablevision and the Company entered into an agreement (the “DISH Network Proceeds Allocation Agreement”) in which a final allocation of the proceeds of the Settlement, including the Settlement Funds, was made. The principal terms of the DISH Network Proceeds Allocation Agreement were as follows: Cablevision received $525,000 of the Settlement Funds and the Company received $175,000 of the Settlement Funds representing the allocation of cash and non-cash proceeds (including the portion of the DISH Network affiliation agreement attributable to the Settlement). The DISH Network Proceeds Allocation Agreement was in full and final settlement of the allocation between Cablevision and the Company of the proceeds of the Settlement.

22


In accordance with the Company's Related Party Transaction Approval Policy, the final allocation of the proceeds from the Settlement was approved by an independent committee of the Company's Board of Directors, as well as an independent committee of Cablevision's Board of Directors.
The $350,000 of Settlement Funds previously disbursed to the Company is included in cash and cash equivalents in the consolidated balance sheet at December 31, 2012. Deferred litigation settlement proceeds at December 31, 2012 of approximately $308,000, is the result of the $350,000 of Settlement Funds, less $31,000 representing the excess of the fair value of the DISH Network affiliation agreement over the contractual affiliation fees recorded to deferred revenue on October 21, 2012 and less an $11,000 receivable related to VOOM HD's previous affiliation agreement with DISH Network.
On April 9, 2013, the Company paid to Cablevision $175,000 of the Settlement Funds. Additionally, during the second quarter of 2013, the Company recorded a litigation settlement gain of approximately $133,000, included in operating income within the International and Other segment, representing the deferred litigation settlement proceeds liability of approximately $308,000 recorded in the consolidated balance sheet at December 31, 2012 less the $175,000 paid to Cablevision on April 9, 2013.
Corporate Expenses
We allocate corporate overhead to each segment based upon their proportionate estimated usage of services. The segment financial information set forth below, including the discussion related to individual line items, does not reflect inter-segment eliminations unless specifically indicated.
Impact of Economic Conditions
Our future performance is dependent, to a large extent, on general economic conditions including the impact of direct competition, our ability to manage our businesses effectively, and our relative strength and leverage in the marketplace, both with suppliers and customers.
Additional capital and credit market disruptions could cause economic downturns, which may lead to lower demand for our products, such as lower demand for television advertising and a decrease in the number of subscribers receiving our programming networks from our distributors. Events such as these may adversely impact our results of operations, cash flows and financial position.

23


Consolidated Results of Operations
Three Months Ended June 30, 2013 Compared to Three Months Ended June 30, 2012
The following table sets forth our consolidated results of operations for the periods indicated.
 
Three Months Ended June 30,
 
 
 
 
 
2013
 
2012
 
 
 
 
 
Amount
 
% of
Revenues,
net
 
Amount
 
% of
Revenues,
net
 
$ change
 
%
change
Revenues, net
$
379,322

 
100.0
 %
 
$
327,570

 
100.0
 %
 
$
51,752

 
15.8
 %
Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
Technical and operating (excluding depreciation and amortization)
137,656

 
36.3

 
114,349

 
34.9

 
23,307

 
20.4

Selling, general and administrative
108,978

 
28.7

 
90,878

 
27.7

 
18,100

 
19.9

Depreciation and amortization
18,308

 
4.8

 
24,067

 
7.3

 
(5,759
)
 
(23.9
)
Litigation settlement gain
(132,944
)
 
(35.0
)
 

 

 
(132,944
)
 
n/m

Total operating expenses
131,998

 
34.8

 
229,294

 
70.0

 
(97,296
)
 
(42.4
)
Operating income
247,324

 
65.2

 
98,276

 
30.0

 
149,048

 
151.7

Other income (expense):
 
 
 
 
 
 
 
 
 
 
 
Interest expense, net
(27,599
)
 
(7.3
)
 
(29,329
)
 
(9.0
)
 
1,730

 
(5.9
)
Miscellaneous, net
(144
)
 

 
(644
)
 
(0.2
)
 
500

 
(77.6
)
Total other income (expense)
(27,743
)
 
(7.3
)
 
(29,973
)
 
(9.2
)
 
2,230

 
(7.4
)
Income from continuing operations before income taxes
219,581

 
57.9

 
68,303

 
20.9

 
151,278

 
221.5

Income tax expense
(83,850
)
 
(22.1
)
 
(26,898
)
 
(8.2
)
 
(56,952
)
 
211.7

Income from continuing operations
135,731

 
35.8

 
41,405

 
12.6

 
94,326

 
227.8

Income from discontinued operations, net of income taxes

 

 
105

 

 
(105
)
 
(100.0
)
Net Income
$
135,731

 
35.8
 %
 
$
41,510

 
12.7
 %
 
$
94,221

 
227.0
 %
The following is a reconciliation of our consolidated operating income to AOCF:
 
Three Months Ended June 30,
 
 
 
 
 
2013
 
2012
 
$ change
 
% change
Operating income
$
247,324

 
$
98,276

 
$
149,048

 
151.7
 %
Share-based compensation expense
5,604

 
4,901

 
703

 
14.3

Depreciation and amortization
18,308

 
24,067

 
(5,759
)
 
(23.9
)
Litigation settlement gain
(132,944
)
 

 
(132,944
)
 
n/m

Consolidated AOCF
$
138,292

 
$
127,244

 
$
11,048

 
8.7
 %


24


National Networks Segment Results
The following table sets forth our National Networks segment results for the periods indicated.
 
Three Months Ended June 30,
 
 
 
 
 
2013
 
2012
 
 
 
 
 
Amount
 
% of
Revenues,
net
 
Amount
 
% of
Revenues,
net
 
$ change
 
%
change
Revenues, net
$
353,568

 
100.0
%
 
$
305,184

 
100.0
%
 
$
48,384

 
15.9
 %
Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
Technical and operating (excluding depreciation and amortization)
119,383

 
33.8

 
99,306

 
32.5

 
20,077

 
20.2

Selling, general and administrative
92,463

 
26.2

 
74,054

 
24.3

 
18,409

 
24.9

Depreciation and amortization
14,153

 
4.0

 
20,527

 
6.7

 
(6,374
)
 
(31.1
)
Operating income
$
127,569

 
36.1
%
 
$
111,297

 
36.5
%
 
$
16,272

 
14.6
 %
Share-based compensation expense
4,503

 
1.3
%
 
3,799

 
1.2
%
 
704

 
18.5
 %
Depreciation and amortization
14,153

 
4.0
%
 
20,527

 
6.7
%
 
(6,374
)
 
(31.1
)%
AOCF
$
146,225

 
41.4
%
 
$
135,623

 
44.4
%
 
$
10,602

 
7.8
 %
International and Other Segment Results
The following table sets forth our International and Other segment results for the periods indicated.
 
Three Months Ended June 30,
 
 
 
 
 
2013
 
2012
 
 
 
 
 
Amount
 
% of
Revenues,
net
 
Amount
 
% of
Revenues,
net
 
$ change
 
%
change
Revenues, net
$
29,919

 
100.0
 %
 
$
26,269

 
100.0
 %
 
$
3,650

 
13.9
 %
Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
Technical and operating (excluding depreciation and amortization)
23,248

 
77.7

 
19,842

 
75.5

 
3,406

 
17.2

Selling, general and administrative
16,610

 
55.5

 
16,943

 
64.5

 
(333
)
 
(2.0
)
Depreciation and amortization
4,155

 
13.9

 
3,540

 
13.5

 
615

 
17.4

Litigation settlement gain
(132,944
)
 
(444.3
)%
 

 
 %
 
(132,944
)
 
n/m

Operating income (loss)
$
118,850

 
397.2
 %
 
$
(14,056
)
 
(53.5
)%
 
$
132,906

 
(945.5
)%
Share-based compensation expense