Attached files
file | filename |
---|---|
8-K - 8-K - Starz Acquisition LLC | a13-2797_18k.htm |
EX-2.1 - EX-2.1 - Starz Acquisition LLC | a13-2797_1ex2d1.htm |
EX-3.1 - EX-3.1 - Starz Acquisition LLC | a13-2797_1ex3d1.htm |
EX-99.1 - EX-99.1 - Starz Acquisition LLC | a13-2797_1ex99d1.htm |
EX-10.3 - EX-10.3 - Starz Acquisition LLC | a13-2797_1ex10d3.htm |
EX-10.2 - EX-10.2 - Starz Acquisition LLC | a13-2797_1ex10d2.htm |
EX-23.1 - EX-23.1 - Starz Acquisition LLC | a13-2797_1ex23d1.htm |
EX-10.1 - EX-10.1 - Starz Acquisition LLC | a13-2797_1ex10d1.htm |
EX-10.5 - EX-10.5 - Starz Acquisition LLC | a13-2797_1ex10d5.htm |
EX-10.4 - EX-10.4 - Starz Acquisition LLC | a13-2797_1ex10d4.htm |
Exhibit 99.2
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Page |
UNAUDITED FINANCIAL STATEMENTS: |
|
|
|
|
|
Condensed Consolidated Balance Sheets as of September 30, 2012 and December 31, 2011 (Unaudited) |
|
F-2 |
|
|
|
Condensed Consolidated Statements of Operations for the Nine Months Ended September 30, 2012 and 2011 (Unaudited) |
|
F-3 |
|
|
|
Condensed Consolidated Statements of Comprehensive Income for the Nine Months Ended September 30, 2012 and 2011 (Unaudited) |
|
F-4 |
|
|
|
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2012 and 2011 (Unaudited) |
|
F-5 |
|
|
|
Condensed Consolidated Statement of Members Interest and Noncontrolling Interests for the Nine Months Ended September 30, 2012 (Unaudited) |
|
F-7 |
|
|
|
Notes to Condensed Consolidated Financial Statements (Unaudited) |
|
F-8 |
|
|
|
AUDITED FINANCIAL STATEMENTS: |
|
|
|
|
|
Report of Independent Registered Public Accounting Firm |
|
F-31 |
|
|
|
Consolidated Balance Sheets as of December 31, 2011 and 2010 |
|
F-32 |
|
|
|
Consolidated Statements of Operations for the Years Ended December 31, 2011, 2010 and 2009 |
|
F-33 |
|
|
|
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2011, 2010 and 2009 |
|
F-34 |
|
|
|
Consolidated Statements of Cash Flows for the Years Ended December 31, 2011, 2010 and 2009 |
|
F-35 |
|
|
|
Consolidated Statements of Members Interest and Noncontrolling Interests for the Years Ended December 31, 2011, 2010 and 2009 |
|
F-37 |
|
|
|
Notes to Consolidated Financial Statements |
|
F-38 |
|
|
|
FINANCIAL STATEMENT SCHEDULES: |
|
|
|
|
|
Report of Independent Registered Public Accounting Firm |
|
F-77 |
|
|
|
Schedule II. Valuation and Qualifying Accounts |
|
F-78 |
Starz, LLC and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands)
|
|
September 30, |
|
December 31, |
| ||
Assets |
|
|
|
|
| ||
Current assets: |
|
|
|
|
| ||
Cash and cash equivalents |
|
$ |
846,462 |
|
$ |
1,099,887 |
|
Restricted cash |
|
12,932 |
|
4,896 |
| ||
Trade accounts receivable, net of allowances of $32,350 and $38,335 |
|
240,228 |
|
241,026 |
| ||
Program rights |
|
459,449 |
|
441,854 |
| ||
Deferred income taxes (Note 6) |
|
841 |
|
10,114 |
| ||
Other current assets |
|
35,122 |
|
31,336 |
| ||
Total current assets |
|
1,595,034 |
|
1,829,113 |
| ||
Program rights |
|
285,226 |
|
319,996 |
| ||
Property and equipment, net of accumulated depreciation of $157,905 and $151,375 |
|
92,309 |
|
98,531 |
| ||
Investment in films and television programs, net |
|
159,472 |
|
183,942 |
| ||
Goodwill |
|
131,760 |
|
131,760 |
| ||
Other assets, net |
|
44,982 |
|
39,833 |
| ||
Total assets |
|
$ |
2,308,783 |
|
$ |
2,603,175 |
|
Liabilities and Members Interest and |
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
| ||
Current portion of debt (Note 3) |
|
$ |
4,070 |
|
$ |
4,129 |
|
Trade accounts payable |
|
7,409 |
|
8,690 |
| ||
Accrued liabilities (Notes 4 and 7) |
|
229,492 |
|
270,296 |
| ||
Accrued compensation related to long term incentive plan |
|
3,195 |
|
33,854 |
| ||
Due to affiliate (Note 4) |
|
35,690 |
|
53,836 |
| ||
Deferred revenue |
|
30,621 |
|
26,734 |
| ||
Total current liabilities |
|
310,477 |
|
397,539 |
| ||
Accrued long term incentive plan |
|
|
|
2,751 |
| ||
Debt (Note 3) |
|
536,728 |
|
540,915 |
| ||
Deferred income taxes (Note 6) |
|
108 |
|
10,308 |
| ||
Other liabilities (Note 7) |
|
9,360 |
|
8,561 |
| ||
Total liabilities |
|
856,673 |
|
960,074 |
| ||
Members interest |
|
1,457,529 |
|
1,651,484 |
| ||
Noncontrolling interests in subsidiaries |
|
(5,419 |
) |
(8,383 |
) | ||
Total members interest and noncontrolling interests |
|
1,452,110 |
|
1,643,101 |
| ||
Commitments and contingencies (Note 7) |
|
|
|
|
| ||
Total liabilities and members interest and noncontrolling interests |
|
$ |
2,308,783 |
|
$ |
2,603,175 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
Starz, LLC and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
(in thousands)
|
|
Nine Months Ended |
| ||||
|
|
2012 |
|
2011 |
| ||
Revenue: |
|
|
|
|
| ||
Programming networks and other services |
|
$ |
1,075,124 |
|
$ |
1,025,554 |
|
Home video net sales |
|
133,372 |
|
155,900 |
| ||
Total revenue |
|
1,208,496 |
|
1,181,454 |
| ||
Costs and expenses: |
|
|
|
|
| ||
Programming (including amortization) (Note 7) |
|
504,674 |
|
481,887 |
| ||
Production and acquisition (including amortization) (Note 4) |
|
117,617 |
|
85,379 |
| ||
Home video cost of sales |
|
40,261 |
|
43,130 |
| ||
Operating |
|
38,876 |
|
41,829 |
| ||
Advertising and marketing |
|
82,596 |
|
92,625 |
| ||
General and administrative (Note 4) |
|
81,015 |
|
80,609 |
| ||
Long term incentive plan and stock compensation (Note 5) |
|
9,888 |
|
5,168 |
| ||
Depreciation and amortization |
|
13,787 |
|
13,464 |
| ||
Total costs and expenses |
|
888,714 |
|
844,091 |
| ||
Operating income |
|
319,782 |
|
337,363 |
| ||
Other income (expense): |
|
|
|
|
| ||
Interest expense, net of amounts capitalized (Note 3) |
|
(18,805 |
) |
(2,862 |
) | ||
Other income (expense), net |
|
3,680 |
|
(4,821 |
) | ||
Income from continuing operations before income taxes |
|
304,657 |
|
329,680 |
| ||
Income tax expense (Note 6) |
|
(100,572 |
) |
(136,592 |
) | ||
Income from continuing operations |
|
204,085 |
|
193,088 |
| ||
Loss from discontinued operations (including loss on sale of none and $3,000), net of income taxes (Note 2) |
|
|
|
(3,491 |
) | ||
Net income |
|
204,085 |
|
189,597 |
| ||
Net income attributable to noncontrolling interests |
|
(1,154 |
) |
(98 |
) | ||
Net income attributable to member |
|
$ |
202,931 |
|
$ |
189,499 |
|
See accompanying notes to unaudited condensed consolidated financial statements
Starz, LLC and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
(in thousands)
|
|
Nine Months Ended |
| ||||
|
|
2012 |
|
2011 |
| ||
Net income |
|
$ |
204,085 |
|
$ |
189,597 |
|
Other comprehensive income (loss), net of taxes: |
|
|
|
|
| ||
Foreign currency translation adjustments from continuing operations |
|
322 |
|
2,472 |
| ||
Foreign currency translation adjustments from discontinued operations |
|
|
|
(5,946 |
) | ||
Other comprehensive income (loss) |
|
322 |
|
(3,474 |
) | ||
Comprehensive income |
|
204,407 |
|
186,123 |
| ||
Comprehensive income attributable to noncontrolling interests |
|
(1,908 |
) |
(80 |
) | ||
Comprehensive income attributable to member |
|
$ |
202,499 |
|
$ |
186,043 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
Starz, LLC and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
|
|
Nine Months Ended |
| ||||
|
|
2012 |
|
2011 |
| ||
Operating activities: |
|
|
|
|
| ||
Net income |
|
$ |
204,085 |
|
$ |
189,597 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
| ||
Loss from discontinued operations |
|
|
|
3,491 |
| ||
Long term incentive plan and stock compensation |
|
9,888 |
|
5,168 |
| ||
Payments for long term incentive plan and restricted stock |
|
(33,410 |
) |
(6,947 |
) | ||
Amortization of program rights |
|
473,251 |
|
454,215 |
| ||
Amortization of investment in films and television programs |
|
86,742 |
|
68,639 |
| ||
Depreciation and amortization |
|
13,787 |
|
13,464 |
| ||
Deferred income taxes |
|
(3,265 |
) |
38,477 |
| ||
Other non-cash items |
|
877 |
|
1,179 |
| ||
Changes in assets and liabilities: |
|
|
|
|
| ||
Restricted cash |
|
(8,036 |
) |
(12,561 |
) | ||
Trade accounts receivable |
|
6,782 |
|
(13,509 |
) | ||
Program rights |
|
(366,381 |
) |
(432,428 |
) | ||
Other current assets |
|
3,639 |
|
(6,839 |
) | ||
Investment in films and television programs |
|
(194,988 |
) |
(166,968 |
) | ||
Other assets |
|
(8,569 |
) |
7,029 |
| ||
Trade accounts payable |
|
(1,281 |
) |
(1,247 |
) | ||
Accrued liabilities |
|
(1,413 |
) |
(14,887 |
) | ||
Due to affiliate |
|
(15,556 |
) |
58,945 |
| ||
Deferred revenue |
|
4,528 |
|
17,451 |
| ||
Other liabilities |
|
412 |
|
1,368 |
| ||
Net cash provided by operating activities |
|
171,092 |
|
203,637 |
| ||
Investing activitiespurchases of property and equipment |
|
$ |
(7,870 |
) |
$ |
(3,492 |
) |
(Continued)
Starz, LLC and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Continued)
(Unaudited)
(in thousands)
|
|
Nine Months Ended |
| ||||
|
|
2012 |
|
2011 |
| ||
Financing activities: |
|
|
|
|
| ||
Borrowings of debt |
|
$ |
500,000 |
|
$ |
|
|
Payments of debt |
|
(503,035 |
) |
(58,173 |
) | ||
Debt issuance costs |
|
(8,007 |
) |
|
| ||
Distributions to parent |
|
(400,000 |
) |
|
| ||
Distributions to parent related to stock compensation |
|
(5,667 |
) |
|
| ||
Contribution from noncontrolling owner of subsidiary |
|
|
|
3,000 |
| ||
Settlement of derivative instruments |
|
3 |
|
(2,863 |
) | ||
Restricted cash |
|
|
|
8,226 |
| ||
Net cash used in financing activities |
|
(416,706 |
) |
(49,810 |
) | ||
Effect of exchange rate changes on cash and cash equivalents |
|
59 |
|
(22 |
) | ||
Discontinued operations: |
|
|
|
|
| ||
Net cash used in operating activities |
|
|
|
(2,283 |
) | ||
Net cash provided by financing activities |
|
|
|
3,569 |
| ||
Effect of exchange rate changes on cash and cash equivalents held by discontinued operations |
|
|
|
40 |
| ||
Cash held by discontinued operations upon sale |
|
|
|
(3,144 |
) | ||
Change in available cash held by discontinued operations |
|
|
|
1,818 |
| ||
Net cash provided by discontinued operations |
|
|
|
|
| ||
Net increase (decrease) in cash and cash equivalents |
|
(253,425 |
) |
150,313 |
| ||
Cash and cash equivalents: |
|
|
|
|
| ||
Beginning of period |
|
1,099,887 |
|
315,652 |
| ||
End of period |
|
$ |
846,462 |
|
$ |
465,965 |
|
Supplemental disclosure of cash flow information: |
|
|
|
|
| ||
Cash paid for interest, net of amounts capitalized |
|
$ |
12,525 |
|
$ |
2,874 |
|
Cash paid for income taxes |
|
$ |
126,582 |
|
$ |
44,160 |
|
Change in deferred tax assets due to sale of noncontrolling interest |
|
$ |
2,209 |
|
$ |
143,322 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
Starz, LLC and Subsidiaries
Condensed Consolidated Statement of Members Interest and Noncontrolling Interests
(Unaudited)
Nine Months Ended September 30, 2012
(in thousands)
|
|
Members |
|
Noncontrolling |
|
Total |
| |||
Balance at January 1, 2012 |
|
$ |
1,651,484 |
|
$ |
(8,383 |
) |
$ |
1,643,101 |
|
Net income |
|
202,931 |
|
1,154 |
|
204,085 |
| |||
Other comprehensive income (loss) |
|
(432 |
) |
754 |
|
322 |
| |||
Stock compensation |
|
11,422 |
|
1,056 |
|
12,478 |
| |||
Distributions to parent |
|
(400,000 |
) |
|
|
(400,000 |
) | |||
Distributions to parent related to stock compensation |
|
(5,667 |
) |
|
|
(5,667 |
) | |||
Change in deferred tax assets related to sale of noncontrolling interest |
|
(2,209 |
) |
|
|
(2,209 |
) | |||
Balance at September 30, 2012 |
|
$ |
1,457,529 |
|
$ |
(5,419 |
) |
$ |
1,452,110 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
Starz, LLC and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
September 30, 2012
Note 1Basis of Presentation and Description of Business
Presentation
Starz, LLC (the Company) is a wholly-owned subsidiary of Liberty Media Corporation (LMC). The accompanying condensed consolidated financial statements include the accounts of Starz, LLC and its majority-owned and controlled subsidiaries, which includes Starz Entertainment, LLC (Starz Entertainment) and Starz Media Group, LLC (Starz Media). In January 2011, the Company sold a 25% interest in Starz Media to The Weinstein Company LLC (TWC). All intercompany balances and transactions have been eliminated in consolidation.
During August 2012, LMCs board of directors authorized a plan to distribute to the stockholders of LMC shares of a wholly-owned subsidiary, Liberty Spinco, Inc. (Liberty Spinco), that will hold all of the businesses, assets and liabilities of LMC not associated with Starz, LLC (with the exception of the Starz, LLC office building) (the Spin-Off). The transaction will be effected as a pro-rata dividend of shares of Liberty Spinco to the stockholders of LMC. Liberty Spinco, which will become a separate public company, will be renamed Liberty Media Corporation. The businesses, assets and liabilities not included in Liberty Spinco will be part of a separate public company to be named Starz. In connection with the reorganization transaction, LMC currently contemplates that the Company will distribute approximately $1,800.0 million in cash to LMC (inclusive of distributions in the aggregate of $600.0 million already paid as follows: $100.0 million on July 9, 2012, $250.0 million on August 17, 2012, $50.0 million on September 4, 2012 and $200.0 million on November 16, 2012), funded by a combination of cash on hand and borrowings under the senior secured revolving credit facility (under which $995.0 million was available to be drawn as of September 30, 2012). The total amount of the distribution will depend on the Companys financial performance and the net cash provided by operating activities generated prior to the reorganization transaction, as well as the undrawn amount under the senior secured revolving credit facility at that time. The Spin-Off is subject to various conditions, any of which may be waived by the LMC board of directors in its sole discretion, but is expected to occur in early 2013. LMCs board of directors has reserved the right, in its sole discretion, to amend, modify, delay or abandon the Spin-Off at any time prior to the distribution date. Any such material amendment, modification or delay, or the abandonment, of the Spin-Off will be notified to the market by LMC in a Form 8-K filing. The distribution of a minimum amount of cash by Starz, LLC to LMC is not a condition to the Spin-Off. Following the Spin-Off, Liberty Spinco and Starz will operate independently, and neither will have any stock ownership, beneficial or otherwise, in the other. (See Note 10Subsequent Events.)
On September 13, 2012, the Company and Starz Finance Corp. co-issued $500.0 million of 5% Senior Notes due September 15, 2019 (the Senior Notes). Starz Finance Corp. is a wholly-owned subsidiary of the Company and was formed for the sole purpose of co-issuing the Senior Notes. Starz Finance Corp. does not have and will not have any operations, assets or subsidiaries of its own. The Senior Notes pay interest semi-annually on September 15 and March 15 of each year. The Senior Notes are guaranteed jointly and severally by Starz Entertainment and Starz Finance Corp. The Company used the net proceeds and cash on hand to repay the $500.0 million term loan under the Senior Secured Credit Facilities (as defined in Note 3).
The accompanying (a) condensed consolidated balance sheet as of December 31, 2011, which has been derived from audited financial statements and (b) the interim unaudited condensed consolidated
Starz, LLC and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
September 30, 2012
Note 1Basis of Presentation and Description of Business (Continued)
financial statements include all adjustments considered necessary by management for a fair presentation of the Companys financial condition, results of operations and cash flows for the periods presented. The results of operations for any interim period are not necessarily indicative of results for the full year. Such condensed consolidated financial statements do not include all of the footnote disclosures required by U.S. generally accepted accounting principles (GAAP) for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the Companys December 31, 2011 audited consolidated financial statements.
Business
The Company provides premium subscription video programming to United States multichannel video distributors, including cable operators, satellite television providers and telecommunications companies. The Company also develops, produces and acquires entertainment content and distributes this content to consumers in the United States and throughout the world.
The Company is managed by and organized around the following operating segments:
Starz Channels
Starz Channels flagship premium networks are Starz and Encore. Starz, a first-run movie service, exhibits contemporary hit movies, original series, and documentaries. Encore airs first-run movies and classic contemporary movies. The Companys third network, MoviePlex, offers a variety of library content, art house, independent films and classic movies. Starz and Encore, along with MoviePlex, air across 17 linear networks complemented by On Demand and Internet services. Starz Channels premium networks are offered by multichannel video distributors to their subscribers either on a fixed monthly price as part of a programming tier or package or on an à-la-carte basis.
Starz Distribution
Starz Distribution includes the Companys Home Video, Digital Media and Worldwide Distribution businesses.
Home Video
The Company, through its majority-owned subsidiary Anchor Bay Entertainment, LLC, sells or rents DVDs (standard definition and Blu-ray) under the Anchor Bay and Manga brands, in the United States, Canada, the United Kingdom, Australia and other international territories to the extent it has rights to such content in international territories. Anchor Bay develops and produces certain of its content and also acquires and licenses various titles from third parties. Anchor Bay also distributes other titles acquired or produced by the Company (including Overture Films, LLCs (Overture Films) titles and Starz Channels original programming content) and TWCs titles. These titles are sold to and distributed by regional and national retailers and other distributors, including Wal-Mart, Target, Best Buy, Ingram Entertainment, Amazon and Netflix.
Starz, LLC and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
September 30, 2012
Note 1Basis of Presentation and Description of Business (Continued)
Digital Media
Digital Media performs digital distribution, licensing, syndication, content and vendor partnerships for the Companys owned content and content for which it has licensed digital ancillary rights (including Overture Films titles) in the United States and throughout the world to the extent it has rights to such content in international territories. Digital Media receives fees for such services from a wide array of partners and distributors. These range from traditional multichannel video distributors, Internet/mobile distributors, game developers/publishers and consumer electronics companies. Digital Media also distributes Starz Channels original programming content and TWCs titles.
Worldwide Distribution
Worldwide Distribution (previously referred to as Television) exploits the Companys owned content and content for which it has licensed ancillary rights (including Overture Films titles) on free or pay television in the United States and throughout the world on free or pay television and other media to the extent it has rights to such content in international territories. Worldwide Distribution also distributes Starz Channels original programming content.
Starz Animation
The Company, through its wholly-owned subsidiary Film Roman, LLC, develops and produces two-dimensional animated content on a for-hire basis for distribution theatrically and on television for various third party entertainment companies. See also Note 2Discontinued Operations.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. The Company considers amortization of program rights, the fair value of goodwill and any related impairment, the development of ultimate revenue estimates associated with released films and television programs, the assessment of investment in films and television programs for impairment, valuation allowances associated with deferred income taxes and allowances for sales returns to be its most significant estimates. Actual results may differ from those estimates.
Note 2Discontinued Operations
On March 3, 2011, the Company completed the sale of 92.5% of Starz Media Canada Co. (Canada Co.), located in Toronto, Ontario, to a Canadian investor group and recognized a loss on the sale of $3.0 million during the nine months ended September 30, 2011, before tax expense of $1.2 million. Subsequent to the sale, the Company maintains a 7.5% ownership interest, but does not have significant involvement with the ongoing operations of Canada Co. Canada Co. develops and produces three-dimensional animated content on a for-hire basis.
Starz, LLC and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
September 30, 2012
Note 2Discontinued Operations (Continued)
The summarized statement of operations of Canada Co. for the nine months ended September 30, 2011 included in discontinued operations in the condensed consolidated statements of operations is as follows (in thousands):
|
|
Nine Months |
| |
Revenue |
|
$ |
1,354 |
|
Operating expense |
|
(1,513 |
) | |
Advertising and marketing expense |
|
(2 |
) | |
General and administrative expense |
|
(114 |
) | |
Depreciation expense |
|
(447 |
) | |
Operating loss |
|
(722 |
) | |
Other expense |
|
(61 |
) | |
Loss before income taxes |
|
(783 |
) | |
Income tax benefit |
|
1,500 |
| |
Net income |
|
$ |
717 |
|
Note 3Debt
Debt consists of the following (in thousands):
|
|
September 30, |
|
December 31, |
| ||
Senior Notes(a) |
|
$ |
500,000 |
|
$ |
|
|
Senior Secured Credit Facilities(b) |
|
5,000 |
|
505,000 |
| ||
Transponder capital leases(c) |
|
35,798 |
|
40,044 |
| ||
Total debt |
|
540,798 |
|
545,044 |
| ||
Less current portion of debt |
|
(4,070 |
) |
(4,129 |
) | ||
Debt |
|
$ |
536,728 |
|
$ |
540,915 |
|
(a) On September 13, 2012, the Company issued $500.0 million aggregate principal amount of Senior Notes. The notes bear interest at a rate of 5.00% per annum and will mature on September 15, 2019. The Company may redeem some or all of the notes on or after September 15, 2015. Interest is payable semi-annually in arrears on March 15 and September 15 of each year, commencing March 15, 2013. On September 18, 2012 the Company paid in full, with proceeds from the Senior Notes and cash on hand, the $500.0 million term loan under the Senior Secured Credit Facilities (as defined below).
(b) On November 16, 2011, the Company entered into a credit agreement that provides a $1,000.0 million revolving credit facility, with a $50.0 million sub-limit for standby letters of credit and $500.0 million of term loans (the Senior Secured Credit Facilities). At
Starz, LLC and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
September 30, 2012
Note 3Debt (Continued)
closing, the Company borrowed $500.0 million under the term loan facility and $5.0 million under the revolving credit facility. On September 18, 2012 the Company paid in full, with proceeds from the Senior Notes and cash on hand, the $500.0 million term loan under the Senior Secured Credit Facilities. The remaining $5.0 million borrowed under the $1,000.0 million revolving credit facility of the Senior Secured Credit Facilities is payable on November 16, 2016.
Interest on each loan under the Senior Secured Credit Facilities is payable at either an alternate base rate or LIBOR at the Companys election. Borrowings that are alternate base rate loans will bear interest at a per annum rate equal to the alternate base rate plus a margin that varies between 0.75% and 1.75% depending on the Companys consolidated leverage ratio, as defined in the Senior Secured Credit Facilities. The alternate base rate is the highest of (a) the Prime Rate, (b) the Federal Funds Effective Rate plus 1/2 of 1% or (c) LIBOR for a one-month interest period plus 1%. Borrowings that are LIBOR loans will bear interest at a per annum rate equal to the applicable LIBOR plus a margin that varies between 1.75% and 2.75% depending on the Companys consolidated leverage ratio.
As of September 30, 2012, the following borrowing and related LIBOR interest rate was outstanding under the Senior Secured Credit Facilities (dollars in thousands):
|
|
Interest Rate |
|
Loan Amount |
| |
LIBOR period: |
|
|
|
|
| |
September 2012 - October 2012 |
|
1.96550 |
% |
$ |
5,000 |
|
(c) The Company has entered into capital lease agreements for its transponder capacity. The agreements expire during 2018 to 2021 and have imputed annual interest rates ranging from 5.5% to 7.0%.
At September 30, 2012, the fair value of the Senior Notes was $508.8 million. Due to the variable rate nature of the Companys other debt, the Company believes that the carrying amount approximates fair value at September 30, 2012.
Note 4Related Party Transactions
Due to Affiliate
The Company participates in LMCs employee benefit plans (medical, dental, life insurance, 401(k), etc.). Charges from LMC related to these benefits and other miscellaneous charges are included in general and administrative expenses in the accompanying condensed consolidated statements of operations and aggregated $9.2 million and $9.5 million for the nine months ended September 30, 2012 and 2011, respectively. Such amounts are invoiced by LMC on a monthly basis and are due upon receipt of the invoice by the Company. Amounts due to affiliate for such charges total $1.1 million as of September 30, 2012 and $3.6 million as of December 31, 2011.
Starz, LLC and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
September 30, 2012
Note 4Related Party Transactions (Continued)
Due to affiliate at September 30, 2012 and December 31, 2011 also includes $34.6 million and $50.2 million, respectively, for amounts owed to LMC for income tax obligations.
Related Party
The Company recognized participation expense of $46.8 million and $38.1 million, for TWCs share of the net proceeds under Anchor Bays license agreement with TWC, for the nine months ended September 30, 2012 and 2011, respectively. Such amounts are included in production and acquisition costs in the accompanying condensed consolidated statements of operations. The Companys accrued advances payable to TWC totaled $23.7 million as of September 30, 2012 and $56.2 million as of December 31, 2011. Such amounts are included in accrued liabilities in the accompanying condensed consolidated balance sheets.
Note 5Stock Options
Pursuant to a LMC incentive plan, LMC has granted to certain of the Companys employees LMCs Liberty Capital stock options and restricted stock. As of September 30, 2012, the total unrecognized compensation cost related to the unvested stock options and restricted stock was approximately $37.1 million. Such amount will be recognized in the Companys condensed consolidated statements of operations over a weighted average period of approximately 3 years.
The awards granted in 2012 are summarized as follows:
|
|
Options |
|
Weighted |
| |
2012 Awards: |
|
|
|
|
| |
Stock options |
|
646,500 |
|
$ |
39.77 |
|
The stock option awards vest quarterly over a 4 year period and have a term of 7 years. The Company calculates the grant-date fair value for the stock options using the Black-Scholes Model. The expected term used in the Black-Scholes calculation is 4.50 years and the expected volatility is 54.16%. The expected volatility used in the calculation is based on the historical volatility of LMCs tracking stocks and the implied volatility of LMCs publicly traded options. The Company uses a zero dividend rate as the Company has not historically declared dividends and a risk-free rate of 0.72% which is derived from U.S. Treasury Bonds with a term similar to that of the subject options.
Starz, LLC and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
September 30, 2012
Note 5Stock Options (Continued)
The following table presents the number and weighted average exercise price (WAEP) of the stock options:
|
|
Options |
|
WAEP |
| |
Outstanding at December 31, 2011 |
|
1,201,647 |
|
$ |
65.99 |
|
Granted |
|
646,500 |
|
$ |
89.66 |
|
Exercised |
|
(112,116 |
) |
$ |
72.89 |
|
Forfeited |
|
(39,366 |
) |
$ |
82.79 |
|
Expired/cancelled |
|
|
|
$ |
|
|
Outstanding at September 30, 2012 |
|
1,696,665 |
|
$ |
79.20 |
|
Exercisable at September 30, 2012 |
|
231,693 |
|
$ |
79.11 |
|
At September 30, 2012, the weighted-average remaining contractual term of the outstanding options is 6.3 years and the exercisable options is 5.6 years.
Note 6Income Taxes
The Company is a single member LLC, which is treated as a disregarded entity for U.S. federal income tax purposes. As such, it is included in the consolidated federal and state income tax returns of LMC. The income tax accounts and provision included in these condensed consolidated financial statements have been prepared as if the Company was a stand-alone federal and state taxpayer.
Income tax expense consists of the following (in thousands):
|
|
Nine Months Ended |
| ||||
|
|
2012 |
|
2011 |
| ||
Current: |
|
|
|
|
| ||
Federal |
|
$ |
101,762 |
|
$ |
90,712 |
|
State and local |
|
1,006 |
|
6,820 |
| ||
Foreign |
|
1,069 |
|
583 |
| ||
|
|
103,837 |
|
98,115 |
| ||
Deferred: |
|
|
|
|
| ||
Federal |
|
(18,070 |
) |
36,872 |
| ||
State and local |
|
14,805 |
|
1,605 |
| ||
|
|
(3,265 |
) |
38,477 |
| ||
Income tax expense |
|
$ |
100,572 |
|
$ |
136,592 |
|
Starz, LLC and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
September 30, 2012
Note 6Income Taxes (Continued)
Income tax expense differs from the amounts computed by applying the U.S. federal income tax rate of 35% as a result of the following (in thousands):
|
|
Nine Months Ended |
| ||||
|
|
2012 |
|
2011 |
| ||
Computed expected tax expense |
|
$ |
106,791 |
|
$ |
114,111 |
|
State and local income taxes, net of federal income taxes |
|
8,607 |
|
5,590 |
| ||
Foreign taxes, net of foreign tax credit |
|
(395 |
) |
(814 |
) | ||
Change in valuation allowance affecting tax expense |
|
77,471 |
|
17,825 |
| ||
Taxable liquidation of subsidiary |
|
(101,299 |
) |
|
| ||
Change in subsidiary tax status |
|
9,792 |
|
|
| ||
Other, net |
|
(395 |
) |
(120 |
) | ||
Income tax expense |
|
$ |
100,572 |
|
$ |
136,592 |
|
Effective April 1, 2012, Starz Media filed an election to convert itself from a limited liability company (LLC) treated as a corporation to a partnership for U.S. federal and state income tax purposes. As a result of the conversion, the Company recognized a capital loss on the deemed liquidation of Starz Media. Based on the relevant accounting literature, the Company had not previously recorded a benefit for the tax basis in the stock of Starz Media. The capital loss of $101.3 million (as tax effected) is being carried forward and is recorded as a long term deferred tax asset. The Company does not believe that it is more likely than not that it would be able to generate any capital gains to utilize any of this capital loss carryforward as a stand-alone taxpayer and as such, has recorded a full valuation allowance against this capital loss.
In addition, under current U.S. federal and state tax law, LLCs treated as partnerships are not subject to income tax at the entity level. As such, the election to convert Starz Media to partnership treatment for income tax purposes resulted in the reversal of deferred tax assets related to Starz Medias deductible temporary differences of $16.9 million and the reversal of a valuation allowance offsetting these deferred tax assets of $16.9 million. Also, a deferred tax asset of $7.1 million was recorded for the difference between the book basis and the tax basis of the Companys investment in Starz Media as of April 1, 2012.
Starz, LLC and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
September 30, 2012
Note 6Income Taxes(Continued)
The tax effects of temporary differences and loss carryforwards that give rise to significant portions of the deferred tax assets and deferred tax liabilities at September 30, 2012 and December 31, 2011 are presented below (in thousands):
|
|
September 30, |
|
December 31, |
| ||
Deferred tax assets: |
|
|
|
|
| ||
Tax loss and credit carryforwards |
|
$ |
156,398 |
|
$ |
56,682 |
|
Allowance for doubtful accounts |
|
173 |
|
14,216 |
| ||
Accrued stock compensation |
|
7,359 |
|
19,301 |
| ||
Investments |
|
16,692 |
|
6,747 |
| ||
Other future deductible amounts |
|
7,503 |
|
12,124 |
| ||
Deferred tax assets |
|
188,125 |
|
109,070 |
| ||
Valuation allowance |
|
(156,398 |
) |
(78,141 |
) | ||
Deferred tax assets, net |
|
31,727 |
|
30,929 |
| ||
Deferred tax liability: |
|
|
|
|
| ||
Property and equipment |
|
(17,529 |
) |
(23,070 |
) | ||
Intangible assets |
|
(5,757 |
) |
(8,053 |
) | ||
Other future taxable amounts |
|
(7,708 |
) |
|
| ||
Deferred tax liabilities |
|
(30,994 |
) |
(31,123 |
) | ||
Net deferred tax assets (liabilities) |
|
$ |
733 |
|
$ |
(194 |
) |
Note 7Commitments and Contingencies
Programming Rights
The Company has entered into an exclusive long-term licensing agreement for theatrically released films in the United States from the Walt Disney Company (Disney) studios through 2015. The agreement provides the Company with exclusive pay TV rights to exhibit qualifying theatrically released live-action and animated feature films from Walt Disney Pictures, Walt Disney Animation Studios, Disney-Pixar, Touchstone Pictures, Marvel Entertainment and Hollywood Pictures labels. Theatrically released films from DreamWorks Studios and Miramax Films are not licensed to the Company under the agreement. In addition, the Company is obligated to pay programming fees for all qualifying films that are released theatrically in the United States by Sony Pictures Entertainment Inc.s Columbia Pictures, Screen Gems and Sony Pictures Classics (Sony) through 2016, subject to certain limitations. The programming fees to be paid by the Company to Disney and Sony are based on the quantity and domestic theatrical exhibition receipts of qualifying films. The Company has also entered into agreements with a number of other motion picture producers and is obligated to pay fees for the rights to exhibit certain films that are released by these producers.
The unpaid balance for film rights related to films that were available for exhibition at September 30, 2012 is reflected in accrued liabilities and in other liabilities in the accompanying
Starz, LLC and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
September 30, 2012
Note 7Commitments and Contingencies (Continued)
condensed consolidated balance sheets. As of September 30, 2012, such liabilities aggregated approximately $70.5 million and are payable as follows: $63.7 million in 2012 and $6.8 million in 2013.
Under the agreements with Disney and Sony, the Company is obligated to pay fees for the rights to exhibit films that have been released theatrically, but are not available for exhibition by the Company until some future date. In addition, the Company has agreed to pay Sony (i) a total of $95.0 million in two equal annual installments in 2013 and 2014, and (ii) a total of $120 million in three equal annual installments beginning in 2015. The estimated amounts payable under the Companys programming license agreements, including the Disney and Sony agreements, which have not been accrued as of September 30, 2012, are as follows: $30.2 million in 2012; $359.7 million in 2013; $73.7 million in 2014; $58.9 million in 2015; $51.5 million in 2016 and $58.2 million thereafter.
The Company is also obligated to pay fees for films that have not yet been released in theatres by Disney and Sony. The Company is unable to estimate the amounts to be paid for films that have not yet been released in theatres; however, such amounts are expected to be significant.
Total amortization of program rights was $473.3 million and $454.2 million for the nine months ended September 30, 2012 and 2011, respectively. These amounts are included in programming costs in the accompanying condensed consolidated statements of operations.
Guarantees
Canada Co. entered into an agreement with the Ontario government whereby Canada Co. is eligible to receive funds under the Canadian Next Generation of Jobs Fund Grant (NGOJF) through the termination date of March 31, 2014. Starz Entertainment entered into a guarantee for any amounts owed to the Ontario government under the grant if Canada Co. does not meet its obligations. The maximum amount of the grant available and the guarantee is $23.0 million. The Ontario government can demand payment from Starz Entertainment if Canada Co. does not perform any of its obligations. The maximum potential amount payable under the guarantee is $10.5 million at September 30, 2012 and the Company has accrued $8.4 million related to this guarantee in accrued liabilities in the accompanying condensed consolidated balance sheet as of September 30, 2012.
As discussed in Note 2, the Company sold its controlling interest in Canada Co. on March 3, 2011. The terms of the guarantee have not changed.
Starz Entertainment is the guarantor on two noncancelable operating leases in which an affiliate within each of the Starz Distribution and Starz Animation businesses is the tenant. The maximum potential amount payable under these guarantees is $14.1 million at September 30, 2012. Starz Entertainment does not currently expect to have to perform under these obligations. The leases expire in 2014 and 2016.
Legal Proceedings
On March 9, 2011, the Company notified DISH Network L.L.C. (DISH) that it breached its affiliation agreement with the Company by providing a free preview for one year of eight of the Starz and Encore channels to a substantial number of DISH customers without the Companys written
Starz, LLC and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
September 30, 2012
Note 7Commitments and Contingencies (Continued)
approval. On May 3, 2011, the Company filed a lawsuit against DISH in Douglas County, Colorado District Court, 18th Judicial District, alleging that DISH breached its affiliation agreement with the Company in connection with such free preview. On May 2, 2011, Disney Enterprises, Inc. filed a lawsuit against DISH in connection with the same free preview in U.S. District Court for the Southern District of New York. In addition, on July 19, 2011, FX Networks filed a separate lawsuit against DISH and the Company in connection with the same free preview in Los Angeles County, California Superior Court. DISH filed a counterclaim against the Company in the first lawsuit, seeking indemnification from the Company against Disney Enterprises, Inc. in the second lawsuit and against FX Networks in the third lawsuit. The first lawsuit by the Company against DISH is expected to go to trial in April 2013. The third lawsuit by FX Networks is presently stayed and is tentatively set for trial in April 2013. The resolution of these matters and its potential impact on the Company is uncertain at this time.
In the normal course of business, the Company is subject to lawsuits and other claims. While it is not possible to predict the outcome of these matters, it is the opinion of management, based upon consultation with legal counsel, that the ultimate disposition of known proceedings, other than as discussed above, will not have a material adverse impact on our consolidated financial position, results of operations or liquidity.
Note 8Information About Operating Segments
The Company is primarily engaged in video programming and development, production, acquisition and distribution of entertainment content. The Company evaluates performance and makes decisions about allocating resources to its operating segments based on financial measures such as Adjusted OIBDA. Adjusted OIBDA is defined as revenue less programming costs, production and acquisition costs, home video cost of sales, operating expenses, advertising and marketing costs and general and administrative expenses. Our chief operating decision maker uses this measure of performance in conjunction with other measures to evaluate the operating segments and make decisions about allocating resources among the operating segments. The Company believes adjusted OIBDA is an important indicator of the operational strength and performance of its operating segments, including each operating segments ability to service debt and fund investment in films and television programs. In addition, this measure allows management to view operating results and perform analytical comparisons and benchmarking between operating segments and identify strategies to improve performance. This measure of performance excludes long term incentive plan and stock compensation and depreciation and amortization that are included in the measurement of operating income pursuant to GAAP. Accordingly, Adjusted OIBDA should be considered in addition to, but not as a substitute for, operating income, income from continuing operations before income taxes, net income, net cash provided by operating activities and other measures of financial performance prepared in accordance with GAAP. The Company generally accounts for intersegment sales and transfers as if the sales or transfers were to third parties, that is, at current prices.
The Companys reportable segments are strategic business units that offer different services. They are managed separately because each segment requires different technologies, content delivery methods and marketing strategies. The Company identifies its reportable segments as those operating segments that represent 10% or more of its consolidated annual revenue, annual Adjusted OIBDA or total
Starz, LLC and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
September 30, 2012
Note 8Information About Operating Segments (Continued)
assets. Starz Channels and Starz Distribution have been identified as reportable segments; however as the Company has only three operating segments, Starz Animation is also reported separately below.
Performance Measures (in thousands):
|
|
Nine Months Ended |
| ||||
|
|
2012 |
|
2011 |
| ||
Revenue: |
|
|
|
|
| ||
Starz Channels |
|
$ |
960,994 |
|
$ |
950,178 |
|
Starz Distribution |
|
223,646 |
|
207,748 |
| ||
Starz Animation |
|
31,567 |
|
32,895 |
| ||
Inter-segment eliminations |
|
(7,711 |
) |
(9,367 |
) | ||
Total Revenue |
|
$ |
1,208,496 |
|
$ |
1,181,454 |
|
Adjusted OIBDA: |
|
|
|
|
| ||
Starz Channels |
|
$ |
326,292 |
|
$ |
327,847 |
|
Starz Distribution |
|
14,829 |
|
16,155 |
| ||
Starz Animation |
|
(507 |
) |
(928 |
) | ||
Inter-segment eliminations |
|
2,843 |
|
12,921 |
| ||
Total Adjusted OIBDA |
|
$ |
343,457 |
|
$ |
355,995 |
|
Capitalized production and development spend: |
|
|
|
|
| ||
Starz Channels |
|
$ |
106,005 |
|
$ |
109,958 |
|
Starz Distribution |
|
88,983 |
|
57,010 |
| ||
Starz Animation |
|
|
|
|
| ||
Inter-segment eliminations |
|
|
|
|
| ||
Total capitalized production and development spend |
|
$ |
194,988 |
|
$ |
166,968 |
|
Other Information (in thousands):
|
|
September 30, |
|
December 31, |
| ||
Total assets |
|
|
|
|
| ||
Starz Channels |
|
$ |
2,227,526 |
|
$ |
2,357,580 |
|
Starz Distribution |
|
141,343 |
|
162,659 |
| ||
Starz Animation |
|
2,546 |
|
5,320 |
| ||
Other unallocated assets (primarily cash, deferred taxes and other assets) |
|
17,268 |
|
136,753 |
| ||
Inter-segment eliminations |
|
(79,900 |
) |
(59,137 |
) | ||
Total assets |
|
$ |
2,308,783 |
|
$ |
2,603,175 |
|
Starz, LLC and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
September 30, 2012
Note 8Information About Operating Segments (Continued)
The following table provides a reconciliation of Adjusted OIBDA to income from continuing operations before income taxes (in thousands):
|
|
Nine Months Ended |
| ||||
|
|
2012 |
|
2011 |
| ||
Consolidated Adjusted OIBDA |
|
$ |
343,457 |
|
$ |
355,995 |
|
Long term incentive plan and stock compensation |
|
(9,888 |
) |
(5,168 |
) | ||
Depreciation and amortization |
|
(13,787 |
) |
(13,464 |
) | ||
Interest expense, net of amounts capitalized |
|
(18,805 |
) |
(2,862 |
) | ||
Other income (expense), net |
|
3,680 |
|
(4,821 |
) | ||
Income from continuing operations before income taxes |
|
$ |
304,657 |
|
$ |
329,680 |
|
Note 9Supplemental Guarantor Condensed Consolidating Financial Information
As discussed in Note 1, Starz, LLC and Starz Finance Corp. co-issued the Senior Notes which are fully and unconditionally guaranteed by Starz Entertainment. Starz Media, Film Roman, LLC and other immaterial subsidiaries of the Company (Starz Media and Other Businesses) are not guarantors of the Senior Notes.
Starz, LLC and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
September 30, 2012
Note 9Supplemental Guarantor Condensed Consolidating Financial Information (Continued)
The following tables set forth the consolidating financial information of the Company, which includes the financial information of Starz Entertainment, the guarantor:
Condensed Consolidating Balance Sheet InformationAs of September 30, 2012
(in thousands)
|
|
Starz |
|
Starz, LLC |
|
Starz Media |
|
Eliminations |
|
Consolidated |
| |||||
Assets |
|
|
|
|
|
|
|
|
|
|
| |||||
Current assets: |
|
|
|
|
|
|
|
|
|
|
| |||||
Cash and cash equivalents |
|
$ |
838,735 |
|
$ |
1,051 |
|
$ |
6,676 |
|
$ |
|
|
$ |
846,462 |
|
Restricted cash |
|
|
|
|
|
12,932 |
|
|
|
12,932 |
| |||||
Trade accounts receivable, net |
|
212,260 |
|
|
|
28,108 |
|
(140 |
) |
240,228 |
| |||||
Program rights |
|
461,211 |
|
|
|
|
|
(1,762 |
) |
459,449 |
| |||||
Deferred income taxes |
|
181 |
|
660 |
|
|
|
|
|
841 |
| |||||
Notes receivable from affiliates |
|
59,073 |
|
|
|
|
|
(59,073 |
) |
|
| |||||
Other current assets |
|
19,229 |
|
|
|
15,893 |
|
|
|
35,122 |
| |||||
Total current assets |
|
1,590,689 |
|
1,711 |
|
63,609 |
|
(60,975 |
) |
1,595,034 |
| |||||
Program rights |
|
290,612 |
|
|
|
|
|
(5,386 |
) |
285,226 |
| |||||
Property and equipment, net |
|
91,192 |
|
|
|
1,117 |
|
|
|
92,309 |
| |||||
Investment in films and television programs, net |
|
105,108 |
|
|
|
54,364 |
|
|
|
159,472 |
| |||||
Goodwill |
|
131,760 |
|
|
|
|
|
|
|
131,760 |
| |||||
Other assets, net |
|
18,165 |
|
13,539 |
|
26,817 |
|
(13,539 |
) |
44,982 |
| |||||
Investment in consolidated subsidiaries |
|
|
|
1,743,744 |
|
|
|
(1,743,744 |
) |
|
| |||||
Total assets |
|
$ |
2,227,526 |
|
$ |
1,758,994 |
|
$ |
145,907 |
|
$ |
(1,823,644 |
) |
$ |
2,308,783 |
|
Liabilities and Members Interest (Deficit) and Noncontrolling Interests |
|
|
|
|
|
|
|
|
|
|
| |||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Current portion of debt |
|
$ |
4,070 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
4,070 |
|
Trade accounts payable |
|
5,151 |
|
|
|
2,258 |
|
|
|
7,409 |
| |||||
Accrued liabilities |
|
141,264 |
|
2,247 |
|
96,419 |
|
(10,438 |
) |
229,492 |
| |||||
Accrued compensation related to long term incentive plan |
|
3,195 |
|
|
|
|
|
|
|
3,195 |
| |||||
Notes payable due to affiliate |
|
|
|
|
|
59,073 |
|
(59,073 |
) |
|
| |||||
Due to (from) affiliates |
|
225,165 |
|
(176,416 |
) |
(403 |
) |
(12,656 |
) |
35,690 |
| |||||
Deferred revenue |
|
19,932 |
|
|
|
10,963 |
|
(274 |
) |
30,621 |
| |||||
Total current liabilities |
|
398,777 |
|
(174,169 |
) |
168,310 |
|
(82,441 |
) |
310,477 |
| |||||
Debt |
|
536,728 |
|
505,000 |
|
|
|
(505,000 |
) |
536,728 |
| |||||
Deferred income taxes |
|
16,977 |
|
(23,947 |
) |
|
|
7,078 |
|
108 |
| |||||
Other liabilities |
|
4,744 |
|
|
|
9,733 |
|
(5,117 |
) |
9,360 |
| |||||
Total liabilities |
|
957,226 |
|
306,884 |
|
178,043 |
|
(585,480 |
) |
856,673 |
| |||||
Members interest (deficit) |
|
1,270,300 |
|
1,457,529 |
|
(32,015 |
) |
(1,238,285 |
) |
1,457,529 |
| |||||
Noncontrolling interests in subsidiaries |
|
|
|
(5,419 |
) |
(121 |
) |
121 |
|
(5,419 |
) | |||||
Total members interest (deficit) and noncontrolling interests |
|
1,270,300 |
|
1,452,110 |
|
(32,136 |
) |
(1,238,164 |
) |
1,452,110 |
| |||||
Total liabilities and members interest (deficit) and noncontrolling interests |
|
$ |
2,227,526 |
|
$ |
1,758,994 |
|
$ |
145,907 |
|
$ |
(1,823,644 |
) |
$ |
2,308,783 |
|
Starz, LLC and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
September 30, 2012
Note 9Supplemental Guarantor Condensed Consolidating Financial Information (Continued)
Condensed Consolidating Balance Sheet InformationAs of December 31, 2011
(in thousands)
|
|
Starz |
|
Starz, LLC |
|
Starz Media |
|
Eliminations |
|
Consolidated |
| |||||
Assets |
|
|
|
|
|
|
|
|
|
|
| |||||
Current assets: |
|
|
|
|
|
|
|
|
|
|
| |||||
Cash and cash equivalents |
|
$ |
965,400 |
|
$ |
125,261 |
|
$ |
9,226 |
|
$ |
|
|
$ |
1,099,887 |
|
Restricted cash |
|
|
|
|
|
4,896 |
|
|
|
4,896 |
| |||||
Trade accounts receivable, net |
|
204,457 |
|
|
|
36,865 |
|
(296 |
) |
241,026 |
| |||||
Program rights |
|
446,995 |
|
|
|
|
|
(5,141 |
) |
441,854 |
| |||||
Deferred income taxes |
|
8,616 |
|
1,498 |
|
|
|
|
|
10,114 |
| |||||
Notes receivable from affiliates |
|
38,352 |
|
|
|
|
|
(38,352 |
) |
|
| |||||
Other current assets |
|
18,961 |
|
|
|
12,375 |
|
|
|
31,336 |
| |||||
Total current assets |
|
1,682,781 |
|
126,759 |
|
63,362 |
|
(43,789 |
) |
1,829,113 |
| |||||
Program rights |
|
325,473 |
|
|
|
|
|
(5,477 |
) |
319,996 |
| |||||
Property and equipment, net |
|
95,968 |
|
|
|
2,563 |
|
|
|
98,531 |
| |||||
Investment in films and television programs, net |
|
106,720 |
|
|
|
77,222 |
|
|
|
183,942 |
| |||||
Goodwill |
|
131,760 |
|
|
|
|
|
|
|
131,760 |
| |||||
Other assets, net |
|
14,878 |
|
9,938 |
|
24,888 |
|
(9,871 |
) |
39,833 |
| |||||
Investment in consolidated subsidiaries |
|
|
|
1,619,020 |
|
|
|
(1,619,020 |
) |
|
| |||||
Total assets |
|
$ |
2,357,580 |
|
$ |
1,755,717 |
|
$ |
168,035 |
|
$ |
(1,678,157 |
) |
$ |
2,603,175 |
|
Liabilities and Members Interest (Deficit) and Noncontrolling Interests |
|
|
|
|
|
|
|
|
|
|
| |||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Current portion of debt |
|
$ |
4,129 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
4,129 |
|
Trade accounts payable |
|
6,509 |
|
|
|
2,181 |
|
|
|
8,690 |
| |||||
Accrued liabilities |
|
137,085 |
|
938 |
|
140,433 |
|
(8,160 |
) |
270,296 |
| |||||
Accrued compensation related to long term incentive plan |
|
33,854 |
|
|
|
|
|
|
|
33,854 |
| |||||
Notes payable due to affiliate |
|
|
|
|
|
38,352 |
|
(38,352 |
) |
|
| |||||
Due to (from) affiliates |
|
427,650 |
|
(377,255 |
) |
|
|
3,441 |
|
53,836 |
| |||||
Deferred revenue |
|
16,888 |
|
|
|
9,846 |
|
|
|
26,734 |
| |||||
Total current liabilities |
|
626,115 |
|
(376,317 |
) |
190,812 |
|
(43,071 |
) |
397,539 |
| |||||
Accrued long term incentive plan |
|
2,751 |
|
|
|
|
|
|
|
2,751 |
| |||||
Debt |
|
540,915 |
|
505,000 |
|
|
|
(505,000 |
) |
540,915 |
| |||||
Deferred income taxes |
|
28,473 |
|
(16,067 |
) |
|
|
(2,098 |
) |
10,308 |
| |||||
Other liabilities |
|
4,510 |
|
|
|
9,443 |
|
(5,392 |
) |
8,561 |
| |||||
Total liabilities |
|
1,202,764 |
|
112,616 |
|
200,255 |
|
(555,561 |
) |
960,074 |
| |||||
Members interest (deficit) |
|
1,154,816 |
|
1,651,484 |
|
(32,195 |
) |
(1,122,621 |
) |
1,651,484 |
| |||||
Noncontrolling interests in subsidiaries |
|
|
|
(8,383 |
) |
(25 |
) |
25 |
|
(8,383 |
) | |||||
Total members interest (deficit) and noncontrolling interests |
|
1,154,816 |
|
1,643,101 |
|
(32,220 |
) |
(1,122,596 |
) |
1,643,101 |
| |||||
Total liabilities and members interest (deficit) and noncontrolling interests |
|
$ |
2,357,580 |
|
$ |
1,755,717 |
|
$ |
168,035 |
|
$ |
(1,678,157 |
) |
$ |
2,603,175 |
|
Starz, LLC and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
September 30, 2012
Note 9Supplemental Guarantor Condensed Consolidating Financial Information (Continued)
Condensed Consolidating Statement of Operations InformationFor the Nine Months Ended September 30, 2012
(in thousands)
|
|
Starz |
|
Starz, LLC |
|
Starz Media |
|
Eliminations |
|
Consolidated |
| |||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
| |||||
Programming networks and other services |
|
$ |
985,039 |
|
$ |
|
|
$ |
101,388 |
|
$ |
(11,303 |
) |
$ |
1,075,124 |
|
Home video net sales |
|
20,900 |
|
|
|
116,652 |
|
(4,180 |
) |
133,372 |
| |||||
Total revenue |
|
1,005,939 |
|
|
|
218,040 |
|
(15,483 |
) |
1,208,496 |
| |||||
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
| |||||
Programming (including amortization) |
|
509,524 |
|
|
|
|
|
(4,850 |
) |
504,674 |
| |||||
Production and acquisition (including amortization) |
|
18,831 |
|
|
|
98,641 |
|
145 |
|
117,617 |
| |||||
Home video cost of sales |
|
10,765 |
|
|
|
33,676 |
|
(4,180 |
) |
40,261 |
| |||||
Operating |
|
14,281 |
|
|
|
34,036 |
|
(9,441 |
) |
38,876 |
| |||||
Advertising and marketing |
|
65,018 |
|
|
|
17,578 |
|
|
|
82,596 |
| |||||
General and administrative |
|
54,278 |
|
94 |
|
26,643 |
|
|
|
81,015 |
| |||||
Stock compensation |
|
9,009 |
|
|
|
879 |
|
|
|
9,888 |
| |||||
Depreciation and amortization |
|
9,487 |
|
|
|
4,300 |
|
|
|
13,787 |
| |||||
Total costs and expenses |
|
691,193 |
|
94 |
|
215,753 |
|
(18,326 |
) |
888,714 |
| |||||
Operating income (loss) |
|
314,746 |
|
(94 |
) |
2,287 |
|
2,843 |
|
319,782 |
| |||||
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
| |||||
Interest expense, net of amounts capitalized |
|
(18,689 |
) |
(15,924 |
) |
(116 |
) |
15,924 |
|
(18,805 |
) | |||||
Interest income (expense), related party |
|
3,906 |
|
|
|
(3,906 |
) |
|
|
|
| |||||
Share of earnings of consolidated subsidiaries |
|
|
|
201,904 |
|
|
|
(201,904 |
) |
|
| |||||
Other income (expense), net |
|
2,735 |
|
974 |
|
(2,015 |
) |
1,986 |
|
3,680 |
| |||||
Income (loss) from continuing operations before income taxes |
|
302,698 |
|
186,860 |
|
(3,750 |
) |
(181,151 |
) |
304,657 |
| |||||
Income tax benefit (expense) |
|
(111,092 |
) |
17,225 |
|
600 |
|
(7,305 |
) |
(100,572 |
) | |||||
Net income (loss) |
|
191,606 |
|
204,085 |
|
(3,150 |
) |
(188,456 |
) |
204,085 |
| |||||
Net loss (income) attributable to noncontrolling interests |
|
|
|
(1,154 |
) |
96 |
|
(96 |
) |
(1,154 |
) | |||||
Net income (loss) attributable to member |
|
$ |
191,606 |
|
$ |
202,931 |
|
$ |
(3,054 |
) |
$ |
(188,552 |
) |
$ |
202,931 |
|
Starz, LLC and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
September 30, 2012
Note 9Supplemental Guarantor Condensed Consolidating Financial Information (Continued)
Condensed Consolidating Statement of Comprehensive Income (Loss) InformationFor the Nine Months Ended September 30, 2012
(in thousands)
|
|
Starz |
|
Starz, LLC |
|
Starz Media |
|
Eliminations |
|
Consolidated |
| |||||
Net income (loss) |
|
$ |
191,606 |
|
$ |
204,085 |
|
$ |
(3,150 |
) |
$ |
(188,456 |
) |
$ |
204,085 |
|
Other comprehensive income, net of taxes: |
|
|
|
|
|
|
|
|
|
|
| |||||
Foreign currency translation adjustments |
|
|
|
322 |
|
322 |
|
(322 |
) |
322 |
| |||||
Other comprehensive income |
|
|
|
322 |
|
322 |
|
(322 |
) |
322 |
| |||||
Comprehensive income (loss) |
|
191,606 |
|
204,407 |
|
(2,828 |
) |
(188,778 |
) |
204,407 |
| |||||
Comprehensive loss (income) attributable to noncontrolling interests |
|
|
|
(1,908 |
) |
96 |
|
(96 |
) |
(1,908 |
) | |||||
Comprehensive income (loss) attributable to member |
|
$ |
191,606 |
|
$ |
202,499 |
|
$ |
(2,732 |
) |
$ |
(188,874 |
) |
$ |
202,499 |
|
Starz, LLC and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
September 30, 2012
Note 9Supplemental Guarantor Condensed Consolidating Financial Information (Continued)
Condensed Consolidating Statement of Operations InformationFor the Nine Months Ended September 30, 2011
(in thousands)
|
|
Starz |
|
Starz, LLC |
|
Starz Media |
|
Eliminations |
|
Consolidated |
| |||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
| |||||
Programming networks and other services |
|
$ |
965,495 |
|
$ |
|
|
$ |
71,064 |
|
$ |
(11,005 |
) |
$ |
1,025,554 |
|
Home video net sales |
|
20,223 |
|
|
|
139,722 |
|
(4,045 |
) |
155,900 |
| |||||
Total revenue |
|
985,718 |
|
|
|
210,786 |
|
(15,050 |
) |
1,181,454 |
| |||||
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
| |||||
Programming (including amortization) |
|
498,431 |
|
|
|
|
|
(16,544 |
) |
481,887 |
| |||||
Production and acquisition (including amortization) |
|
12,839 |
|
|
|
72,540 |
|
|
|
85,379 |
| |||||
Home video cost of sales |
|
11,129 |
|
|
|
36,046 |
|
(4,045 |
) |
43,130 |
| |||||
Operating |
|
13,749 |
|
|
|
35,542 |
|
(7,462 |
) |
41,829 |
| |||||
Advertising and marketing |
|
65,486 |
|
|
|
27,139 |
|
|
|
92,625 |
| |||||
General and administrative |
|
53,452 |
|
185 |
|
26,972 |
|
|
|
80,609 |
| |||||
Long term incentive plan and stock compensation |
|
4,826 |
|
|
|
342 |
|
|
|
5,168 |
| |||||
Depreciation and amortization |
|
9,306 |
|
|
|
4,158 |
|
|
|
13,464 |
| |||||
Total costs and expenses |
|
669,218 |
|
185 |
|
202,739 |
|
(28,051 |
) |
844,091 |
| |||||
Operating income (loss) |
|
316,500 |
|
(185 |
) |
8,047 |
|
13,001 |
|
337,363 |
| |||||
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
| |||||
Interest expense, net of amounts capitalized |
|
(737 |
) |
|
|
(2,125 |
) |
|
|
(2,862 |
) | |||||
Interest income (expense), related party |
|
2,781 |
|
|
|
(2,781 |
) |
|
|
|
| |||||
Share of earnings of consolidated subsidiaries |
|
|
|
202,359 |
|
|
|
(202,359 |
) |
|
| |||||
Other income (expense), net |
|
(9,581 |
) |
7 |
|
705 |
|
4,048 |
|
(4,821 |
) | |||||
Income from continuing operations before income taxes |
|
308,963 |
|
202,181 |
|
3,846 |
|
(185,310 |
) |
329,680 |
| |||||
Income tax expense |
|
(115,671 |
) |
(13,512 |
) |
(1,101 |
) |
(6,308 |
) |
(136,592 |
) | |||||
Income from continuing operations |
|
193,292 |
|
188,669 |
|
2,745 |
|
(191,618 |
) |
193,088 |
| |||||
Income (loss) from discontinued operations, net of income taxes |
|
|
|
928 |
|
(4,419 |
) |
|
|
(3,491 |
) | |||||
Net income (loss) |
|
193,292 |
|
189,597 |
|
(1,674 |
) |
(191,618 |
) |
189,597 |
| |||||
Net loss (income) attributable to noncontrolling interests |
|
|
|
(98 |
) |
462 |
|
(462 |
) |
(98 |
) | |||||
Net income (loss) attributable to member |
|
$ |
193,292 |
|
$ |
189,499 |
|
$ |
(1,212 |
) |
$ |
(192,080 |
) |
$ |
189,499 |
|
Starz, LLC and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
September 30, 2012
Note 9Supplemental Guarantor Condensed Consolidating Financial Information (Continued)
Condensed Consolidating Statement of Comprehensive Income (Loss) InformationFor the Nine Months Ended September 30, 2011
(in thousands)
|
|
Starz |
|
Starz, LLC |
|
Starz Media |
|
Eliminations |
|
Consolidated |
| |||||
Net income (loss) |
|
$ |
193,292 |
|
$ |
189,597 |
|
$ |
(1,674 |
) |
$ |
(191,618 |
) |
$ |
189,597 |
|
Other comprehensive income (loss), net of taxes: |
|
|
|
|
|
|
|
|
|
|
| |||||
Foreign currency translation adjustments from continuing operations |
|
|
|
2,472 |
|
2,472 |
|
(2,472 |
) |
2,472 |
| |||||
Foreign currency translation adjustments from discontinued operations |
|
|
|
(5,946 |
) |
(5,946 |
) |
5,946 |
|
(5,946 |
) | |||||
Other comprehensive loss |
|
|
|
(3,474 |
) |
(3,474 |
) |
3,474 |
|
(3,474 |
) | |||||
Comprehensive income (loss) |
|
193,292 |
|
186,123 |
|
(5,148 |
) |
(188,144 |
) |
186,123 |
| |||||
Comprehensive loss (income) attributable to noncontrolling interests |
|
|
|
(80 |
) |
462 |
|
(462 |
) |
(80 |
) | |||||
Comprehensive income (loss) attributable to member |
|
$ |
193,292 |
|
$ |
186,043 |
|
$ |
(4,686 |
) |
$ |
(188,606 |
) |
$ |
186,043 |
|
Starz, LLC and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
September 30, 2012
Note 9Supplemental Guarantor Condensed Consolidating Financial Information (Continued)
Condensed Consolidating Statement of Cash Flows InformationFor the Nine Months Ended September 30, 2012
(in thousands)
|
|
Starz |
|
Starz, LLC |
|
Starz Media |
|
Eliminations |
|
Consolidated |
| |||||
Operating activities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Net income (loss) |
|
$ |
191,606 |
|
$ |
204,085 |
|
$ |
(3,150 |
) |
$ |
(188,456 |
) |
$ |
204,085 |
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Stock compensation |
|
9,009 |
|
|
|
879 |
|
|
|
9,888 |
| |||||
Payments for long term incentive plan and restricted stock |
|
(33,410 |
) |
|
|
|
|
|
|
(33,410 |
) | |||||
Amortization of program rights |
|
478,101 |
|
|
|
|
|
(4,850 |
) |
473,251 |
| |||||
Amortization of investment in films and television programs |
|
15,331 |
|
|
|
71,411 |
|
|
|
86,742 |
| |||||
Depreciation and amortization |
|
9,487 |
|
|
|
4,300 |
|
|
|
13,787 |
| |||||
Share of earnings of consolidated subsidiaries |
|
|
|
(201,904 |
) |
|
|
201,904 |
|
|
| |||||
Deferred income taxes |
|
(3,947 |
) |
(8,495 |
) |
|
|
9,177 |
|
(3,265 |
) | |||||
Other non-cash items |
|
13,315 |
|
4,406 |
|
(1,833 |
) |
(15,011 |
) |
877 |
| |||||
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Restricted cash |
|
|
|
|
|
(8,036 |
) |
|
|
(8,036 |
) | |||||
Trade accounts receivable |
|
(7,134 |
) |
|
|
14,072 |
|
(156 |
) |
6,782 |
| |||||
Program rights |
|
(367,901 |
) |
|
|
|
|
1,520 |
|
(366,381 |
) | |||||
Other current assets |
|
7,133 |
|
|
|
(3,494 |
) |
|
|
3,639 |
| |||||
Investment in films and television programs |
|
(106,005 |
) |
|
|
(88,983 |
) |
|
|
(194,988 |
) | |||||
Other assets |
|
(455 |
) |
|
|
(8,114 |
) |
|
|
(8,569 |
) | |||||
Trade accounts payable |
|
(1,358 |
) |
|
|
77 |
|
|
|
(1,281 |
) | |||||
Accrued liabilities |
|
2,913 |
|
1,309 |
|
(3,217 |
) |
(2,418 |
) |
(1,413 |
) | |||||
Due to / from affiliates |
|
(19,598 |
) |
3,859 |
|
1,893 |
|
(1,710 |
) |
(15,556 |
) | |||||
Deferred revenue |
|
3,044 |
|
|
|
1,484 |
|
|
|
4,528 |
| |||||
Other liabilities |
|
488 |
|
|
|
(76 |
) |
|
|
412 |
| |||||
Net cash provided by (used in) operating activities |
|
190,619 |
|
3,260 |
|
(22,787 |
) |
|
|
171,092 |
| |||||
Investing activitiespurchases of property and equipment |
|
$ |
(7,751 |
) |
$ |
|
|
$ |
(119 |
) |
$ |
|
|
$ |
(7,870 |
) |
(Continued)
Starz, LLC and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
September 30, 2012
Note 9Supplemental Guarantor Condensed Consolidating Financial Information (Continued)
Condensed Consolidating Statement of Cash Flows Information (Continued)For the Nine Months Ended September 30, 2012
(in thousands)
|
|
Starz |
|
Starz, LLC |
|
Starz Media |
|
Eliminations |
|
Consolidated |
| |||||
Financing activities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Borrowings of debt |
|
$ |
|
|
$ |
500,000 |
|
$ |
|
|
$ |
|
|
$ |
500,000 |
|
Payments of debt |
|
(3,035 |
) |
(500,000 |
) |
|
|
|
|
(503,035 |
) | |||||
Debt issuance costs |
|
|
|
(8,007 |
) |
|
|
|
|
(8,007 |
) | |||||
Distributions to parent |
|
(100,000 |
) |
(300,000 |
) |
|
|
|
|
(400,000 |
) | |||||
Distributions to parent related to stock compensation |
|
(5,489 |
) |
|
|
(178 |
) |
|
|
(5,667 |
) | |||||
Borrowings under notes payable to affiliate |
|
(39,779 |
) |
|
|
39,779 |
|
|
|
|
| |||||
Payments under notes payable to affiliate |
|
19,064 |
|
|
|
(19,064 |
) |
|
|
|
| |||||
Net advances to / from affiliates |
|
(180,297 |
) |
180,537 |
|
(240 |
) |
|
|
|
| |||||
Settlement of derivative instruments |
|
3 |
|
|
|
|
|
|
|
3 |
| |||||
Net cash provided by (used in) financing activities |
|
(309,533 |
) |
(127,470 |
) |
20,297 |
|
|
|
(416,706 |
) | |||||
Effect of exchange rate changes on cash and cash equivalents |
|
|
|
|
|
59 |
|
|
|
59 |
| |||||
Net decrease in cash and cash equivalents |
|
(126,665 |
) |
(124,210 |
) |
(2,550 |
) |
|
|
(253,425 |
) | |||||
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
|
|
| |||||
Beginning of period |
|
965,400 |
|
125,261 |
|
9,226 |
|
|
|
1,099,887 |
| |||||
End of period |
|
$ |
838,735 |
|
$ |
1,051 |
|
$ |
6,676 |
|
$ |
|
|
$ |
846,462 |
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
|
| |||||
Cash paid for interest, net of amounts capitalized |
|
$ |
1,820 |
|
$ |
10,596 |
|
$ |
109 |
|
$ |
|
|
$ |
12,525 |
|
Cash paid for income taxes |
|
$ |
122,150 |
|
$ |
|
|
$ |
4,432 |
|
$ |
|
|
$ |
126,582 |
|
Change in deferred tax assets due to sale of noncontrolling interest |
|
$ |
|
|
$ |
2,209 |
|
$ |
|
|
$ |
|
|
$ |
2,209 |
|
Starz, LLC and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
September 30, 2012
Note 9Supplemental Guarantor Condensed Consolidating Financial Information (Continued)
Condensed Consolidating Statement of Cash Flows InformationFor the Nine Months Ended September 30, 2011
(in thousands)
|
|
Starz |
|
Starz, LLC |
|
Starz Media |
|
Eliminations |
|
Consolidated |
| |||||
Operating activities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Net income (loss) |
|
$ |
193,292 |
|
$ |
189,597 |
|
$ |
(1,674 |
) |
$ |
(191,618 |
) |
$ |
189,597 |
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Loss from discontinued operations |
|
|
|
|
|
3,491 |
|
|
|
3,491 |
| |||||
Long term incentive plan and stock compensation |
|
4,826 |
|
|
|
342 |
|
|
|
5,168 |
| |||||
Payments for long term incentive plan |
|
(6,947 |
) |
|
|
|
|
|
|
(6,947 |
) | |||||
Amortization of program rights |
|
470,759 |
|
|
|
|
|
(16,544 |
) |
454,215 |
| |||||
Amortization of investment in films and television programs |
|
11,362 |
|
|
|
57,277 |
|
|
|
68,639 |
| |||||
Depreciation and amortization |
|
9,306 |
|
|
|
4,158 |
|
|
|
13,464 |
| |||||
Share of earnings of consolidated subsidiaries |
|
|
|
(202,359 |
) |
|
|
202,359 |
|
|
| |||||
Deferred income taxes |
|
22,416 |
|
19,682 |
|
|
|
(3,621 |
) |
38,477 |
| |||||
Other non-cash items |
|
(803 |
) |
|
|
1,982 |
|
|
|
1,179 |
| |||||
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Restricted cash |
|
|
|
|
|
(12,561 |
) |
|
|
(12,561 |
) | |||||
Trade accounts receivable |
|
9,368 |
|
|
|
(16,990 |
) |
(5,887 |
) |
(13,509 |
) | |||||
Program rights |
|
(441,544 |
) |
|
|
|
|
9,116 |
|
(432,428 |
) | |||||
Other current assets |
|
(8,555 |
) |
|
|
1,716 |
|
|
|
(6,839 |
) | |||||
Investment in films and television programs |
|
(109,958 |
) |
|
|
(57,010 |
) |
|
|
(166,968 |
) | |||||
Other assets |
|
5,580 |
|
|
|
1,449 |
|
|
|
7,029 |
| |||||
Trade accounts payable |
|
(589 |
) |
|
|
(658 |
) |
|
|
(1,247 |
) | |||||
Accrued liabilities |
|
(6,481 |
) |
276 |
|
(4,645 |
) |
(4,037 |
) |
(14,887 |
) | |||||
Due to / from affiliates |
|
45,322 |
|
(8,407 |
) |
11,815 |
|
10,215 |
|
58,945 |
| |||||
Deferred revenue |
|
13,930 |
|
|
|
3,504 |
|
17 |
|
17,451 |
| |||||
Other liabilities |
|
241 |
|
|
|
1,127 |
|
|
|
1,368 |
| |||||
Net cash provided by (used in) operating activities |
|
211,525 |
|
(1,211 |
) |
(6,677 |
) |
|
|
203,637 |
| |||||
Investing activitiespurchases of property and equipment |
|
$ |
(3,359 |
) |
$ |
|
|
$ |
(133 |
) |
$ |
|
|
$ |
(3,492 |
) |
(Continued)
Starz, LLC and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
September 30, 2012
Note 9Supplemental Guarantor Condensed Consolidating Financial Information (Continued)
Condensed Consolidating Statement of Cash Flows Information (Continued)For the Nine Months Ended September 30, 2011
(in thousands)
|
|
Starz |
|
Starz, LLC |
|
Starz Media |
|
Eliminations |
|
Consolidated |
| |||||
Financing activities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Payments of debt |
|
$ |
(2,911 |
) |
$ |
|
|
$ |
(55,262 |
) |
$ |
|
|
$ |
(58,173 |
) |
Borrowings under notes payable to affiliate |
|
(95,421 |
) |
|
|
95,421 |
|
|
|
|
| |||||
Payments under notes payable to affiliate |
|
21,556 |
|
|
|
(21,556 |
) |
|
|
|
| |||||
Net advances to / from affiliates |
|
906 |
|
|
|
(906 |
) |
|
|
|
| |||||
Contribution from noncontrolling owner of subsidiary |
|
|
|
3,000 |
|
|
|
|
|
3,000 |
| |||||
Settlement of derivative instruments |
|
|
|
|
|
(2,863 |
) |
|
|
(2,863 |
) | |||||
Restricted cash |
|
|
|
|
|
8,226 |
|
|
|
8,226 |
| |||||
Net cash provided by (used in) financing activities |
|
(75,870 |
) |
3,000 |
|
23,060 |
|
|
|
(49,810 |
) | |||||
Effect of exchange rate changes on cash and cash equivalents |
|
|
|
|
|
(22 |
) |
|
|
(22 |
) | |||||
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
| |||||
Net cash used in operating activities |
|
|
|
|
|
(2,283 |
) |
|
|
(2,283 |
) | |||||
Net cash provided by financing activities |
|
|
|
|
|
3,569 |
|
|
|
3,569 |
| |||||
Effect of exchange rate changes on cash and cash equivalents held by discontinued operations |
|
|
|
|
|
40 |
|
|
|
40 |
| |||||
Cash held by discontinued operations upon sale |
|
|
|
|
|
(3,144 |
) |
|
|
(3,144 |
) | |||||
Change in available cash held by discontinued operations |
|
|
|
|
|
1,818 |
|
|
|
1,818 |
| |||||
Net cash provided by discontinued operations |
|
|
|
|
|
|
|
|
|
|
| |||||
Net increase in cash and cash equivalents |
|
132,296 |
|
1,789 |
|
16,228 |
|
|
|
150,313 |
| |||||
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
|
|
| |||||
Beginning of period |
|
306,157 |
|
|
|
9,495 |
|
|
|
315,652 |
| |||||
End of period |
|
$ |
438,453 |
|
$ |
1,789 |
|
$ |
25,723 |
|
$ |
|
|
$ |
465,965 |
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
|
| |||||
Cash paid for interest, net of amounts capitalized |
|
$ |
737 |
|
$ |
|
|
$ |
2,137 |
|
$ |
|
|
$ |
2,874 |
|
Cash paid for income taxes |
|
$ |
41,561 |
|
$ |
|
|
$ |
2,599 |
|
$ |
|
|
$ |
44,160 |
|
Change in deferred tax assets due to sale of noncontrolling interest |
|
$ |
|
|
$ |
143,322 |
|
$ |
|
|
$ |
|
|
$ |
143,322 |
|
Note 10Subsequent Events
The Spin-Off, as described in Note 1, was completed on January 11, 2013. As contemplated by the Spin-Off, the Company distributed an additional $1,200.0 million to LMC on January 10, 2013, and such distributed cash was subsequently contributed to Liberty Spinco. The distribution was funded by a combination of cash on hand and borrowings under the senior secured revolving credit facility. Following the Spin-Off, Liberty Spinco and Starz operate independently, and neither have any stock ownership, beneficial or otherwise, in the other.
Report of Independent Registered Public Accounting Firm
The Member
Starz, LLC
We have audited the accompanying consolidated balance sheets of Starz, LLC and subsidiaries (the Company) as of December 31, 2011 and 2010, and the related consolidated statements of operations, comprehensive income, cash flows, and members interest and noncontrolling interests for each of the years in the three-year period ended December 31, 2011. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Starz, LLC and subsidiaries as of December 31, 2011 and 2010, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2011, in conformity with U.S. generally accepted accounting principles.
|
/s/ KPMG LLP |
Denver, Colorado
April 27, 2012, except as to note 13, which is as of October 23, 2012,
and except as to note 15, which is as of January 16, 2013
Starz, LLC and Subsidiaries
Consolidated Balance Sheets
December 31, 2011 and 2010
(in thousands)
|
|
2011 |
|
2010 |
| ||
Assets |
|
|
|
|
| ||
Current assets: |
|
|
|
|
| ||
Cash and cash equivalents |
|
$ |
1,099,887 |
|
$ |
315,652 |
|
Restricted cash (Note 6) |
|
4,896 |
|
8,226 |
| ||
Trade accounts receivable, net of allowances of $38,335 and $30,690 |
|
241,026 |
|
224,341 |
| ||
Program rights |
|
441,854 |
|
411,166 |
| ||
Deferred income taxes (Note 10) |
|
10,114 |
|
7,479 |
| ||
Other current assets |
|
31,336 |
|
18,833 |
| ||
Assets of discontinued operations |
|
|
|
14,511 |
| ||
Total current assets |
|
1,829,113 |
|
1,000,208 |
| ||
Program rights |
|
319,996 |
|
322,911 |
| ||
Property and equipment, net (Note 4) |
|
98,531 |
|
104,717 |
| ||
Investment in films and television programs, net (Note 5) |
|
183,942 |
|
120,701 |
| ||
Deferred income taxes (Note 10) |
|
|
|
153,121 |
| ||
Goodwill (Note 12) |
|
131,760 |
|
131,760 |
| ||
Other assets, net |
|
39,833 |
|
30,617 |
| ||
Assets of discontinued operations |
|
|
|
28,967 |
| ||
Total assets |
|
$ |
2,603,175 |
|
$ |
1,893,002 |
|
Liabilities and Members Interest and Noncontrolling Interests |
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
| ||
Current portion of debt (Note 6) |
|
$ |
4,129 |
|
$ |
58,244 |
|
Trade accounts payable |
|
8,690 |
|
7,698 |
| ||
Accrued liabilities (Notes 7 and 11) |
|
270,296 |
|
183,716 |
| ||
Accrued compensation related to long term incentive plan (Note 9) |
|
33,854 |
|
6,655 |
| ||
Due to affiliates (Note 8) |
|
53,836 |
|
687 |
| ||
Deferred revenue |
|
26,734 |
|
25,733 |
| ||
Liabilities of discontinued operations |
|
|
|
13,248 |
| ||
Total current liabilities |
|
397,539 |
|
295,981 |
| ||
Accrued long term incentive plan (Note 9) |
|
2,751 |
|
37,458 |
| ||
Debt (Note 6) |
|
540,915 |
|
40,970 |
| ||
Deferred income taxes (Note 10) |
|
10,308 |
|
|
| ||
Other liabilities (Note 11) |
|
8,561 |
|
8,306 |
| ||
Liabilities of discontinued operations |
|
|
|
1,106 |
| ||
Total liabilities |
|
960,074 |
|
383,821 |
| ||
|
|
|
|
|
| ||
Members interest |
|
1,651,484 |
|
1,508,681 |
| ||
Noncontrolling interests in subsidiaries |
|
(8,383 |
) |
500 |
| ||
Total members interest and noncontrolling interests |
|
1,643,101 |
|
1,509,181 |
| ||
Commitments and contingencies (Note 11) |
|
|
|
|
| ||
Total liabilities and members interest and noncontrolling interests |
|
$ |
2,603,175 |
|
$ |
1,893,002 |
|
See accompanying notes to consolidated financial statements.
Starz, LLC and Subsidiaries
Consolidated Statements of Operations
Years Ended December 31, 2011, 2010 and 2009
(in thousands)
|
|
2011 |
|
2010 |
|
2009 |
| |||
Revenue: |
|
|
|
|
|
|
| |||
Programming networks and other services |
|
$ |
1,372,141 |
|
$ |
1,380,349 |
|
$ |
1,354,978 |
|
Home video net sales |
|
241,892 |
|
224,988 |
|
167,619 |
| |||
Total revenue |
|
1,614,033 |
|
1,605,337 |
|
1,522,597 |
| |||
|
|
|
|
|
|
|
| |||
Costs and expenses: |
|
|
|
|
|
|
| |||
Programming costs (including amortization) (Note 11) |
|
651,249 |
|
647,817 |
|
641,477 |
| |||
Production and acquisition costs (including amortization) |
|
158,789 |
|
177,954 |
|
107,122 |
| |||
Home video cost of sales |
|
62,440 |
|
69,815 |
|
63,296 |
| |||
Operating expenses |
|
53,703 |
|
73,260 |
|
79,963 |
| |||
Advertising and marketing (Note 12) |
|
132,183 |
|
175,417 |
|
229,335 |
| |||
General and administrative (Note 8) |
|
106,081 |
|
125,421 |
|
121,792 |
| |||
Phantom stock appreciation rights, long term incentive plan and stock compensation (Note 9) |
|
7,078 |
|
39,468 |
|
35,142 |
| |||
Depreciation and amortization |
|
17,907 |
|
20,468 |
|
23,470 |
| |||
Total costs and expenses |
|
1,189,430 |
|
1,329,620 |
|
1,301,597 |
| |||
Operating income |
|
424,603 |
|
275,717 |
|
221,000 |
| |||
|
|
|
|
|
|
|
| |||
Other expense: |
|
|
|
|
|
|
| |||
Interest expense, including amounts due to affiliate of none, $16,054 and $20,431, net of amounts capitalized (Notes 6 and 8) |
|
(5,012 |
) |
(20,932 |
) |
(27,188 |
) | |||
Other expense, net |
|
(3,505 |
) |
(542 |
) |
(4,719 |
) | |||
Income from continuing operations before income taxes |
|
416,086 |
|
254,243 |
|
189,093 |
| |||
Income tax expense (Note 10) |
|
(172,189 |
) |
(98,764 |
) |
(71,006 |
) | |||
Income from continuing operations |
|
243,897 |
|
155,479 |
|
118,087 |
| |||
Income (loss) from discontinued operations (including loss on sale of $12,114 in 2011), net of income taxes (Note 3) |
|
(7,486 |
) |
3,315 |
|
1,253 |
| |||
Net income |
|
236,411 |
|
158,794 |
|
119,340 |
| |||
Net loss attributable to noncontrolling interests |
|
3,273 |
|
|
|
|
| |||
Net income attributable to member |
|
$ |
239,684 |
|
$ |
158,794 |
|
$ |
119,340 |
|
See accompanying notes to consolidated financial statements.
Starz, LLC and Subsidiaries
Consolidated Statements of Comprehensive Income
Years Ended December 31, 2011, 2010 and 2009
(in thousands)
|
|
2011 |
|
2010 |
|
2009 |
| |||
Net income |
|
$ |
236,411 |
|
$ |
158,794 |
|
$ |
119,340 |
|
|
|
|
|
|
|
|
| |||
Other comprehensive income (loss), net of taxes: |
|
|
|
|
|
|
| |||
Foreign currency translation adjustments from continuing operations |
|
(529 |
) |
1,167 |
|
4,566 |
| |||
Foreign currency translation adjustments from discontinued operations |
|
(5,946 |
) |
(1,172 |
) |
(2,958 |
) | |||
Other comprehensive income (loss) |
|
(6,475 |
) |
(5 |
) |
1,608 |
| |||
Comprehensive income |
|
229,936 |
|
158,789 |
|
120,948 |
| |||
Comprehensive loss attributable to noncontrolling interests |
|
3,447 |
|
|
|
|
| |||
Comprehensive income attributable to member |
|
$ |
233,383 |
|
$ |
158,789 |
|
$ |
120,948 |
|
See accompanying notes to consolidated financial statements.
Starz, LLC and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended December 31, 2011, 2010 and 2009
(in thousands)
|
|
2011 |
|
2010 |
|
2009 |
| |||
Operating activities: |
|
|
|
|
|
|
| |||
Net income |
|
$ |
236,411 |
|
$ |
158,794 |
|
$ |
119,340 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
| |||
Loss (income) from discontinued operations |
|
7,486 |
|
(3,315 |
) |
(1,253 |
) | |||
Phantom stock appreciation rights, long term incentive plan and stock compensation |
|
7,078 |
|
39,468 |
|
35,142 |
| |||
Payments of phantom stock appreciation rights and long term incentive plan |
|
(7,696 |
) |
(196,232 |
) |
(2,565 |
) | |||
Amortization of program rights |
|
611,041 |
|
611,615 |
|
607,501 |
| |||
Amortization of investment in films and television programs |
|
126,102 |
|
116,928 |
|
75,321 |
| |||
Depreciation and amortization |
|
17,907 |
|
20,468 |
|
23,470 |
| |||
Noncash interest on debt due to affiliate |
|
|
|
16,313 |
|
13,498 |
| |||
Deferred income taxes |
|
37,023 |
|
52,954 |
|
18,999 |
| |||
Other non-cash items |
|
11,014 |
|
2,808 |
|
5,775 |
| |||
Changes in assets and liabilities: |
|
|
|
|
|
|
| |||
Restricted cash |
|
(4,896 |
) |
|
|
|
| |||
Trade accounts receivable |
|
(23,378 |
) |
4,338 |
|
32,052 |
| |||
Program rights |
|
(554,341 |
) |
(532,566 |
) |
(552,220 |
) | |||
Investment in films and television programs |
|
(213,655 |
) |
(117,035 |
) |
(140,792 |
) | |||
Other current assets |
|
3,734 |
|
8,633 |
|
5,806 |
| |||
Other assets |
|
(4,561 |
) |
(3,461 |
) |
1,527 |
| |||
Trade accounts payable |
|
992 |
|
183 |
|
(2,777 |
) | |||
Accrued liabilities |
|
2,610 |
|
12,066 |
|
(244 |
) | |||
Due to affiliates |
|
89,271 |
|
(1,554 |
) |
97 |
| |||
Deferred revenue |
|
6,716 |
|
5,675 |
|
(25,442 |
) | |||
Other liabilities |
|
(885 |
) |
(4,941 |
) |
(1,159 |
) | |||
Net cash provided by operating activities |
|
347,973 |
|
191,139 |
|
212,076 |
| |||
Investing activitiespurchases of property and equipment |
|
$ |
(7,723 |
) |
$ |
(7,099 |
) |
$ |
(10,018 |
) |
(Continued)
Starz, LLC and Subsidiaries
Consolidated Statements of Cash Flows (Continued)
Years Ended December 31, 2011, 2010 and 2009
(in thousands)
|
|
2011 |
|
2010 |
|
2009 |
| |||
Financing activities: |
|
|
|
|
|
|
| |||
Borrowings of debt |
|
$ |
505,000 |
|
$ |
129,343 |
|
$ |
115,800 |
|
Payments of debt |
|
(59,170 |
) |
(202,035 |
) |
(130,316 |
) | |||
Debt issuance costs |
|
(10,191 |
) |
|
|
|
| |||
Borrowings under note payable due to affiliate |
|
|
|
|
|
94,000 |
| |||
Payments of note payable due to affiliate |
|
|
|
|
|
(72,173 |
) | |||
Contribution from affiliate |
|
|
|
15,000 |
|
|
| |||
Contribution from noncontrolling owner of subsidiary |
|
3,000 |
|
500 |
|
|
| |||
Distributions to affiliate |
|
|
|
(75,221 |
) |
(65,993 |
) | |||
Settlement of derivative instruments |
|
(2,863 |
) |
(6,301 |
) |
(6,920 |
) | |||
Restricted cash |
|
8,226 |
|
10,300 |
|
(9,468 |
) | |||
Net cash provided by (used in) financing activities |
|
444,002 |
|
(128,414 |
) |
(75,070 |
) | |||
Effect of exchange rate changes on cash and cash equivalents |
|
(17 |
) |
59 |
|
243 |
| |||
Discontinued operations: |
|
|
|
|
|
|
| |||
Net cash provided by (used in) operating activities |
|
(2,283 |
) |
753 |
|
12,847 |
| |||
Net cash used in investing activities |
|
|
|
(1,836 |
) |
(1,213 |
) | |||
Net cash provided by (used in) financing activities |
|
3,569 |
|
(1,390 |
) |
6,664 |
| |||
Effect of exchange rate changes on cash and cash equivalents held by discontinued operations |
|
40 |
|
85 |
|
92 |
| |||
Cash held by discontinued operations upon sale |
|
(3,144 |
) |
|
|
|
| |||
Change in available cash held by discontinued operations |
|
1,818 |
|
3,460 |
|
(4,723 |
) | |||
Net cash provided by discontinued operations |
|
|
|
1,072 |
|
13,667 |
| |||
Net increase in cash and cash equivalents |
|
784,235 |
|
56,757 |
|
140,898 |
| |||
|
|
|
|
|
|
|
| |||
Cash and cash equivalents: |
|
|
|
|
|
|
| |||
Beginning of year |
|
315,652 |
|
258,895 |
|
117,997 |
| |||
End of year |
|
$ |
1,099,887 |
|
$ |
315,652 |
|
$ |
258,895 |
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
| |||
Cash paid for interest, net of amounts capitalized |
|
$ |
2,679 |
|
$ |
3,776 |
|
$ |
13,092 |
|
Cash paid for income taxes |
|
$ |
44,793 |
|
$ |
120,706 |
|
$ |
117,694 |
|
Change in deferred tax assets due to sale of noncontrolling interest (Note 10) |
|
$ |
141,135 |
|
$ |
|
|
$ |
|
|
Contribution of notes receivable from affiliate (Note 8) |
|
$ |
|
|
$ |
426,254 |
|
$ |
|
|
Distribution of notes receivable to affiliate (Note 8) |
|
$ |
|
|
$ |
489,134 |
|
$ |
|
|
See accompanying notes to consolidated financial statements.
Starz, LLC and Subsidiaries
Consolidated Statements of Members Interest and Noncontrolling Interests
Years Ended December 31, 2011, 2010 and 2009
(in thousands)
|
|
Members |
|
Notes Receivable |
|
Noncontrolling |
|
Total |
| ||||
Balance at January 1, 2009 |
|
$ |
1,414,943 |
|
$ |
(489,134 |
) |
$ |
|
|
$ |
925,809 |
|
|
|
|
|
|
|
|
|
|
| ||||
Net income |
|
119,340 |
|
|
|
|
|
119,340 |
| ||||
Other comprehensive income |
|
1,608 |
|
|
|
|
|
1,608 |
| ||||
Distributions to affiliate (Note 8) |
|
(65,993 |
) |
|
|
|
|
(65,993 |
) | ||||
Balance at December 31, 2009 |
|
1,469,898 |
|
(489,134 |
) |
|
|
980,764 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net income |
|
158,794 |
|
|
|
|
|
158,794 |
| ||||
Other comprehensive loss |
|
(5 |
) |
|
|
|
|
(5 |
) | ||||
Distributions to affiliate (Note 8) |
|
(75,221 |
) |
|
|
|
|
(75,221 |
) | ||||
Contribution of notes receivable from affiliate (Note 8) |
|
426,254 |
|
|
|
|
|
426,254 |
| ||||
Distribution of notes receivable to affiliate (Note 8) |
|
(489,134 |
) |
489,134 |
|
|
|
|
| ||||
Contribution from affiliate |
|
15,000 |
|
|
|
|
|
15,000 |
| ||||
Stock compensation |
|
3,095 |
|
|
|
|
|
3,095 |
| ||||
Contribution from noncontrolling owner of subsidiary |
|
|
|
|
|
500 |
|
500 |
| ||||
Balance at December 31, 2010 |
|
1,508,681 |
|
|
|
500 |
|
1,509,181 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net income (loss) |
|
239,684 |
|
|
|
(3,273 |
) |
236,411 |
| ||||
Other comprehensive loss |
|
(6,301 |
) |
|
|
(174 |
) |
(6,475 |
) | ||||
Contribution from affiliate (Note 8) |
|
36,617 |
|
|
|
|
|
36,617 |
| ||||
Change in deferred tax assets due to sale of noncontrolling interest (Note 10) |
|
(141,135 |
) |
|
|
|
|
(141,135 |
) | ||||
Stock compensation |
|
5,352 |
|
|
|
150 |
|
5,502 |
| ||||
Contribution from noncontrolling owner of subsidiary |
|
|
|
|
|
3,000 |
|
3,000 |
| ||||
Allocate members interest in deficit to noncontrolling interest |
|
8,586 |
|
|
|
(8,586 |
) |
|
| ||||
Balance at December 31, 2011 |
|
$ |
1,651,484 |
|
$ |
|
|
$ |
(8,383 |
) |
$ |
1,643,101 |
|
See accompanying notes to consolidated financial statements.
Starz, LLC and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
Note 1Basis of Presentation and Description of Business
Starz, LLC (the Company) is a wholly-owned subsidiary of Liberty Media Corporation (LMC) (see Note 15 for subsequent events). The Company provides premium subscription video programming to United States multichannel video distributors, including cable operators, satellite television providers and telecommunications companies. The Company also develops, produces and acquires entertainment content and distributes this content to consumers in the United States and throughout the world.
On January 28, 2011, the Company sold a 25% interest in Starz Media Group, LLC (Starz Media), a previously wholly-owned subsidiary, to The Weinstein Company LLC (TWC) for cash consideration of $3.0 million.
In July 2010, the Company elected to shut down its majority-owned subsidiary Overture Films, LLC (Overture Films). Prior to its shut down, Overture Films produced, acquired and distributed motion pictures in theatres in the United States. Overture Films used third party distributors to distribute its films outside the United States to the extent it held rights to such films in international territories. Overture Films final three films were released theatrically during the fourth quarter of 2010. The Overture Films library of films was retained by the Company and will continue to be exploited.
The Company is managed and organized as follows:
Starz Channels
Starz Channels flagship premium networks are Starz and Encore. Starz, a first-run movie service, exhibits contemporary hit movies, original series, and documentaries. Encore airs first-run movies and classic contemporary movies. The Companys third network, MoviePlex, offers a variety of library content, art house, independent films and classic movies. Starz and Encore, along with MoviePlex, air across 17 linear networks complemented by On Demand and Internet services. Starz Channels premium networks are offered by multichannel video distributors to their subscribers either on a fixed monthly price as part of a programming tier or package or on an à-la-carte basis.
Starz Distribution
Starz Distribution includes the Companys Home Video, Digital Media and Worldwide Distribution businesses.
Home Video
The Company, through its majority-owned subsidiary Anchor Bay Entertainment, sells or rents DVDs (standard definition and Blu-ray) under the Anchor Bay and Manga brands, in the United States, Canada, the United Kingdom, Australia and other international territories to the extent it has rights to such content in international territories. Anchor Bay develops and produces certain of its content and also acquires and licenses various titles from third parties. Anchor Bay also distributes other titles acquired or produced by the Company (including Overture Films titles and Starz Channels original programming content) and TWCs titles. These titles are sold to and distributed by regional and national retailers and other distributors, including Wal-Mart, Target, Best Buy, Ingram Entertainment, Amazon and Netflix.
Starz, LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010 and 2009
Note 1Basis of Presentation and Description of Business (Continued)
Digital Media
Digital Media performs digital distribution, licensing, syndication, content and vendor partnerships for the Companys owned content and content for which it has licensed digital ancillary rights (including Overture Films titles) in the United States and throughout the world to the extent it has rights to such content in international territories. Digital Media receives fees for such services from a wide array of partners and distributors. These range from traditional multichannel video distributors, Internet/mobile distributors, game developers/publishers and consumer electronics companies. Digital Media also distributes Starz Channels original programming content and TWCs titles.
Worldwide Distribution
Worldwide Distribution (previously referred to as Television) exploits the Companys owned content and content for which it has licensed ancillary rights (including Overture Films titles) on free or pay television in the United States and throughout the world on free or pay television and other media to the extent it has rights to such content in international territories. It also distributes Starz Channels original programming content.
Starz Animation
The Company, through its wholly-owned subsidiary Film Roman, develops and produces two-dimensional animated content on a for-hire basis for distribution theatrically and on television for various third party entertainment companies. See also Note 3Discontinued Operations.
Note 2Significant Accounting Policies
Basis of Consolidation
The accompanying consolidated financial statements include the accounts of Starz, LLC and its majority-owned and controlled subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The Company considers amortization of program rights, the fair value of goodwill and any related impairment, the development of ultimate revenue estimates (as defined below under Investment in Films and Television Programs) associated with released films, the assessment of investment in films and television programs for impairment, valuation allowances associated with deferred income taxes and allowances for sales returns to be its most significant estimates. Actual results may differ from those estimates.
Prior Period Reclassifications
Certain prior period amounts have been reclassified for comparability with the 2011 presentation.
Starz, LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010 and 2009
Note 2Significant Accounting Policies (Continued)
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investments with an original maturity of three months or less when purchased and are carried at cost, which approximates market value. Cash and cash equivalents are invested at high credit quality financial institutions. Deposits generally exceed the Federal Deposit Insurance Corporation insurance limit.
Restricted Cash
Restricted cash currently includes amounts owed under the distribution agreement entered into with TWC (see Note 8). For the year ended December 31, 2010, restricted cash included proceeds related to the exploitation of films which were required to be utilized to repay outstanding borrowings under the Overture Facility (as defined in Note 6) and cash held in escrow for the payment of certain fees owed to a third party.
Allowance for Trade Receivables
The allowance for trade receivables represents estimated losses which may result from the inability of customers to make required payments on trade accounts receivable and for sales returns. Allowances are based on determinations of the likelihood of recoverability of trade accounts receivable based on past experience and current trends that are expected to continue.
Program Rights
The cost of program rights for films and television programs exhibited by Starz Channels are generally amortized on a film-by-film basis over the anticipated number of exhibitions. Starz Channels estimates the number of exhibitions based on the number of exhibitions allowed in the agreement and the expected usage of the content. Certain other program rights are amortized to expense using the straight-line method over the respective lives of the agreements. Starz Channels generally has rights to two separate windows under its output agreements. For films with multiple windows, the license fee is allocated between the first and second window based upon the proportionate estimated fair value of each window with the majority of the cost allocated to the first window. Considerable management judgment is necessary to estimate the fair value of each window.
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which range from 2 to 15 years for support and distribution equipment, 4 to 10 years for furniture, fixtures and other assets and 40 years for the Companys corporate office building.
Property and equipment is reviewed for impairment when an event or change in circumstances indicates that the asset may be impaired. If the carrying value of the asset is determined to not be recoverable and is greater than its fair value, then an impairment charge is recognized. The charge consists of the amount by which the carrying value of the asset exceeds its fair value. Fair value is estimated by considering sale prices for similar assets or by discounting estimated future cash flows
Starz, LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010 and 2009
Note 2Significant Accounting Policies (Continued)
from such asset using an appropriate discount rate. Considerable management judgment is necessary to determine recoverability and to estimate the fair value of property and equipment.
Investment in Films and Television Programs
Investment in films and television programs generally includes the cost of completed films, television programs and original productions which have been produced by Starz or for which Starz has acquired distribution rights, as well as the cost of films, television programs or original productions in production, pre-production and development. Capitalized costs include production costs, including labor, goods and services, interest and allocable overhead, acquisition of distribution rights (including cash advances paid to TWC for TWCs theatrical releases under the terms of an Anchor Bay distribution agreementsee Note 8), acquisition of story rights and the development of stories less the license fee for original productions, which have aired on the Starz linear channels on demand or on the Internet. Starz allocates the cost of its original productions between the license fee for pay television and the ancillary revenue markets (e.g. home video, digital platforms, international television, etc.) based on the estimated relative fair values of these markets. The license fee associated with original productions is reclassified to program rights when the program is aired. Investment in films and television programs is amortized using the individual-film-forecast method, whereby the costs are charged to expense and royalty, participation and residual costs are accrued based on the proportion that current revenue from the films, television programs and original productions bears to an estimate of the remaining unrecognized ultimate revenue. Ultimate revenue estimates do not exceed ten years following the date of initial release or from the date of delivery of the first episode for episodic television series. Estimates of ultimate revenue involve uncertainty and it is therefore possible that reductions in the carrying value of investment in films and television programs may be required as a consequence of changes in managements future revenue estimates.
Investment in films and television programs in development or pre-production is periodically reviewed to determine whether they will ultimately be used in the production of a film or television program. Costs of films, television programs and original productions in development or pre-production are charged to expense when a project is abandoned, or generally if the film, television program or original production has not been set for production within three years from the time of the first capitalized transaction.
Investment in films and television programs is reviewed for impairment on a title-by-title basis when an event or change in circumstances indicates that a film, television program or original production may be impaired. The estimated fair value for each title is determined using the discounted estimated future cash flow of each title. If the estimated fair value of a film, television program or original production is less than its unamortized cost, the excess of unamortized cost over the estimated fair value is charged to expense. Considerable management judgment is necessary to estimate the fair value of investment in films and television programs.
Goodwill
Goodwill is recorded when the purchase price paid for an acquisition exceeds the estimated fair value of the net identified assets acquired. Goodwill is reviewed for impairment annually, at December 31, or more frequently if indicators of potential impairment exist. As discussed below, in
Starz, LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010 and 2009
Note 2Significant Accounting Policies (Continued)
Recent Accounting Pronouncements, the Company adopted the recent accounting guidance relating to annual assessments of recoverability of goodwill and utilized a qualitative assessment for determining whether step one of the goodwill impairment analysis was necessary. In evaluating goodwill on a qualitative basis, the Company considered whether there were any negative macroeconomic conditions, industry specific conditions, market changes, increased competition, increased costs in doing business, management challenges, the legal environment and how these factors might impact the company specific performance in future periods.
If step one is necessary, the fair value of each reporting unit in which goodwill resides is compared to its carrying value. Fair value is estimated by considering sale prices for similar assets or by discounting estimated future cash flows from such asset using an appropriate discount rate. For reporting units whose carrying value exceeds the fair value, a second test is required to measure the impairment loss. In the second test, the fair value of the reporting unit is allocated to all of the assets and liabilities of the reporting unit with any residual value being allocated to goodwill. The difference between such allocated amount and the carrying value of the goodwill is recorded as an impairment charge. Considerable management judgment is necessary to estimate the fair value of each reporting unit.
Revenue Recognition
Programming revenue is recognized in the period during which programming is provided, pursuant to affiliation agreements. If an affiliation agreement has expired, revenue is recognized based on the terms of the expired agreement or the actual payment from the distributor, whichever is less. Payments to distributors for marketing support costs for which the Company does not receive a direct benefit are recorded as a reduction of the corresponding revenue. Certain sales incentives, including discounts and rebates, provided to distributors are accounted for as a reduction of revenue and are not significant.
Revenue generated from the sale of DVDs is recognized, net of an allowance for estimated sales returns, on the later of the estimated receipt of the product by the customer or after any restrictions on sale lapse. At the time of the initial sale, the Company also records a provision, based on historical trends and practices, to reduce revenue for discounts and rebates provided to customers related to the sale of DVDs.
Revenue from digital and television licensing is recognized when the film or program is complete in accordance with the terms of the arrangement, and is available for exploitation. In the event that a licensee pays the Company a nonrefundable minimum guarantee at or prior to the beginning of a license term, the Company records this amount as deferred revenue until all of the criteria for recognition are met.
The Company recognizes revenue and related production costs related to animation services provided to customers under contract generally based on the percentage that costs incurred-to-date bear to estimated total costs to complete based upon the most recent information. Revenue recognized is proportional to the work performed-to-date under the contracts.
Revenue from the theatrical release of feature films is recognized at the time of exhibition based on the Companys participation in box office receipts.
Starz, LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010 and 2009
Note 2Significant Accounting Policies (Continued)
Advertising and Marketing
Advertising and marketing costs are expensed as incurred. Certain of the Companys affiliation agreements require the Company to provide marketing support to the distributor based upon certain criteria, which are dependent on future events. Marketing support is mutually beneficial and generally cooperative advertising and marketing between the Company and its distributors. Marketing support is recorded as an expense and not a reduction of revenue when the Company has received a direct benefit and the fair value of such benefit is determinable.
Stock-Based and Other Long-term Compensation
The Company measures the cost of employee services received in exchange for an award of equity instruments (such as stock options and restricted stock) based on the grant-date fair value of the award, and recognizes that cost over the period during which the employee is required to provide service (usually the vesting period of the award). The Company measures the cost of employee services received in exchange for an award of liability instruments based on the current fair value of the award and re-measures the fair value of the award at each reporting date.
Certain current and former employees of the Company hold awards granted under the Overture Films, LLC 2006 Long-term Incentive Plan (the Overture LTIP). Because Overture is a privately held enterprise, the Company utilized a probability-weighted expected return method to determine the fair value of the awards and corresponding compensation expense under the Overture LTIP. The estimated value per unit was estimated based upon an analysis of probability- weighted net present values of future returns, considering each of the various future outcomes.
Income Taxes
The Company and the majority of its wholly-owned subsidiaries are limited liability companies that are classified for U.S. federal income tax purposes as entities which are disregarded as separate from LMC. The Company is included in LMCs consolidated federal and state income tax returns. As a result of the sale of 25% of Starz Media to TWC, Starz Media is no longer consolidated for federal income tax purposes and is no longer consolidated in certain states for state income tax purposes with LMC and is now a separate taxpayer for federal purposes and in certain states. Starz Media is treated as a corporation for federal and state income tax purposes.
The income tax provision included in these consolidated financial statements has been prepared as if the Company was a stand-alone federal and state taxpayer. Accordingly, the Company has applied the asset and liability method to account for income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying value amounts and income tax bases of assets and liabilities and the expected benefits of utilizing net operating loss and tax credit carryforwards. The deferred tax assets and liabilities are calculated using enacted tax rates in effect for each taxing jurisdiction in which the Company operates for the year in which those temporary differences are expected to be recovered or settled. Net deferred tax assets are then reduced by a valuation allowance if the Company believes it more likely than not that such net deferred tax assets will not be realized.
Starz, LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010 and 2009
Note 2Significant Accounting Policies (Continued)
Collaborative Arrangements
As part of its production and acquisition activities, the Company has entered into collaborative arrangements. A collaborative arrangement is a contractual arrangement that involves a joint operating activity. These arrangements involve two (or more) parties who are both (a) active participants in the activity and (b) exposed to significant risks and rewards dependent on the commercial success of the activity. A collaborative arrangement may provide that one participant has sole or primary responsibility for certain activities or that two or more participants have shared responsibility for certain activities. The Company records revenue and costs on a gross basis for activities for which it has been determined to be the principal and records revenue and costs on a net basis for activities for which it has been determined to be the agent. Payments made to other participants are recorded as participation expense within production and acquisition costs in the accompanying consolidated statements of operations.
Derivative Instruments and Hedging Activities
All derivatives, whether designated in hedging relationships or not, are recorded on the balance sheet at fair value. If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in earnings. If the derivative is designated as a cash flow hedge, the effective portions of changes in the fair value of the derivative are recorded in other comprehensive income (loss) and are recognized in the statement of operations when the hedged item affects earnings. Ineffective portions of changes in the fair value of cash flow hedges are recognized in earnings. If the derivative is not designated as a hedge, changes in the fair value of the derivative are recognized in earnings.
Fair Value of Financial Instruments
The carrying value of cash and cash equivalents, restricted cash, trade accounts receivable, trade accounts payable, accrued liabilities and due to affiliates approximates fair value, due to their short maturity. See Note 6 for information concerning the fair value of the Companys debt instruments.
Foreign Currency Translation
The functional currency of the Company is the United States (U.S.) dollar. The functional currency of the Companys foreign operations is the applicable local currency for each foreign subsidiary. Assets and liabilities of foreign subsidiaries are translated at the spot rate in effect at the applicable reporting date and the related statements of operations are translated at the average exchange rates in effect during the applicable period. The resulting unrealized cumulative translation adjustment, net of applicable income taxes, is the only component of accumulated other comprehensive income (loss) in members interest and noncontrolling interests and the consolidated statements of comprehensive income.
Transactions denominated in currencies other than the functional currency are recorded based on exchange rates at the time such transactions arise. Subsequent changes in exchange rates result in gains and losses which are reflected in the accompanying consolidated statements of operations as unrealized (based on the applicable period-end exchange rate) or realized upon settlement of the transactions.
Starz, LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010 and 2009
Note 2Significant Accounting Policies (Continued)
Recent Accounting Pronouncements
In September 2011, the Financial Accounting Standards Board amended the Accounting Standards Codification as summarized in Accounting Standards Update (ASU) 2011-08IntangiblesGoodwill and Other (Topic 350). ASU 2011-08 allows entities to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under these amendments, an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The amendments include a number of events and circumstances for an entity to consider in conducting the qualitative assessment. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permissible. The Company adopted ASU 2011-08 for the year ended December 31, 2011 and evaluated goodwill on a qualitative basis. The Company does not believe that the qualitative analysis versus immediately performing a step one test had any impact on its consolidated financial statements.
Note 3Discontinued Operations
On March 3, 2011, the Company completed the sale of 92.5% of Starz Media Canada Co. (Canada Co.), located in Toronto, Ontario, to a Canadian investor group and recognized a loss on the sale of $12.1 million, before a tax benefit of $3.9 million. Subsequent to the sale, the Company maintains a 7.5% ownership interest, but does not have significant involvement with the ongoing operations of Canada Co. Canada Co. develops and produces three- dimensional animated content on a for-hire basis.
The summarized statements of operations of Canada Co. for the years ended December 31, 2011, 2010 and 2009 included in discontinued operations in the consolidated statements of operations are as follows:
|
|
For the Years Ended December 31, |
| |||||||
|
|
2011 |
|
2010 |
|
2009 |
| |||
Revenue |
|
$ |
1,354 |
|
$ |
20,623 |
|
$ |
17,888 |
|
Operating expenses |
|
(1,513 |
) |
(12,182 |
) |
(13,422 |
) | |||
Advertising and marketing |
|
(2 |
) |
(103 |
) |
(89 |
) | |||
General and administrative |
|
(114 |
) |
(1,102 |
) |
|
| |||
Depreciation |
|
(447 |
) |
(1,773 |
) |
(2,144 |
) | |||
Operating income (loss) |
|
(722 |
) |
5,463 |
|
2,233 |
| |||
Other income (expense) |
|
(61 |
) |
(274 |
) |
(215 |
) | |||
Income (loss) before income taxes |
|
(783 |
) |
5,189 |
|
2,018 |
| |||
Income tax benefit (expense) |
|
1,500 |
|
(1,874 |
) |
(765 |
) | |||
Net income |
|
$ |
717 |
|
$ |
3,315 |
|
$ |
1,253 |
|
Starz, LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010 and 2009
Note 4Property and Equipment, Net
Property and equipment, net consists of the following (in thousands):
|
|
December 31, |
| ||||
|
|
2011 |
|
2010 |
| ||
Building and support equipment |
|
$ |
139,368 |
|
$ |
133,718 |
|
Distribution equipment |
|
95,423 |
|
94,802 |
| ||
Furniture, fixtures and other |
|
15,115 |
|
15,360 |
| ||
|
|
249,906 |
|
243,880 |
| ||
Less accumulated depreciation |
|
(151,375 |
) |
(139,163 |
) | ||
|
|
$ |
98,531 |
|
$ |
104,717 |
|
The cost of satellite transponders under capital leases included in distribution equipment was $60.5 million as of December 31, 2011, and 2010, respectively. Accumulated depreciation for these transponders was $27.7 million and $23.7 million at December 31, 2011 and 2010, respectively.
Note 5Investment in Films and Television Programs, Net
Investment in films and television programs, net consists of the following (in thousands):
|
|
December 31, |
| ||||
|
|
2011 |
|
2010 |
| ||
Film coststheatrical: |
|
|
|
|
| ||
Released, less amortization |
|
$ |
11,876 |
|
$ |
25,349 |
|
Film coststelevision and DVD: |
|
|
|
|
| ||
Released, less amortization |
|
67,912 |
|
32,564 |
| ||
Completed, but not released |
|
7,283 |
|
11,341 |
| ||
In production |
|
91,570 |
|
50,182 |
| ||
Development and pre-production |
|
5,301 |
|
1,265 |
| ||
|
|
$ |
183,942 |
|
$ |
120,701 |
|
Approximately 81% of the unamortized film costs (theatrical, television and DVD) for released films of $79.8 million at December 31, 2011 are expected to be amortized within three years. Approximately $44.8 million of the costs of Released and Completed, but not released films of $87.1 million at December 31, 2011 are expected to be amortized during the next twelve months. As a result of changes in ultimate revenue estimates, the Company recognized impairments of investment in films and television programs totaling $12.9 million, $46.6 million and $15.7 million for the years ended December 31, 2011, 2010 and 2009, respectively. Such impairments are included in production and acquisition costs in the consolidated statements of operations.
Starz, LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010 and 2009
Note 6Debt
Debt consists of the following (in thousands):
|
|
December 31, |
| ||||
|
|
2011 |
|
2010 |
| ||
Senior Secured Credit Facilities(a) |
|
$ |
505,000 |
|
$ |
|
|
Transponder capital leases(b) |
|
40,044 |
|
43,951 |
| ||
Overture Facility(c) |
|
|
|
54,171 |
| ||
Other(d) |
|
|
|
1,092 |
| ||
Total debt |
|
545,044 |
|
99,214 |
| ||
Less current portion of debt |
|
(4,129 |
) |
(58,244 |
) | ||
Debt |
|
$ |
540,915 |
|
$ |
40,970 |
|
(a) On November 16, 2011, the Company entered into a credit agreement that provides a $1,000 million revolving credit facility, with a $50 million sub-limit for standby letters of credit, and $500.0 million of term loans (the Senior Secured Credit Facilities). At closing, the Company borrowed $500 million under the term loan facility and $5 million under the revolving credit facility. The term loans are scheduled to mature $25 million in 2013, $25 million in 2014, $50 million in 2015 and the remainder on November 16, 2016.
Interest on each loan under the Senior Secured Credit Facilities is payable at either an alternate base rate or LIBOR at the Companys election. Borrowings that are alternate base rate loans will bear interest at a per annum rate equal to the alternate base rate plus a margin that varies between 0.75% and 1.75% depending on the Companys consolidated leverage ratio, as defined in the Senior Secured Credit Facilities. The alternate base rate is the highest of (a) the Prime Rate, (b) the Federal Funds Effective Rate plus 1/2 of 1% or (c) LIBOR for a one-month interest period plus 1%. Borrowings that are LIBOR loans will bear interest at a per annum rate equal to the applicable LIBOR plus a margin that varies between 1.75% and 2.75% depending on the Companys consolidated leverage ratio.
As of December 31, 2011, the following borrowings and related LIBOR interest rates were outstanding under the Senior Secured Credit Facilities (dollars in thousands):
|
|
Interest Rate |
|
Loan Amount |
| |
LIBOR period: |
|
|
|
|
| |
December 2011 - January 2012 |
|
2.5346 |
% |
$ |
500,000 |
|
December 2011 - January 2012 |
|
2.5346 |
% |
5,000 |
| |
|
|
|
|
$ |
505,000 |
|
(b) The Company has entered into capital lease agreements for its transponder capacity. The agreements expire during 2018 to 2021 and have an imputed annual interest rate of 5.5%.
(c) On January 2, 2008, Overture Films entered into a $225.0 million, five year and three month senior secured revolving credit facility (the Overture Facility). The Overture
Starz, LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010 and 2009
Note 6Debt (Continued)
Facility was amended effective September 15, 2010 and in April 2011, the Overture Facility was terminated and the principal and interest was paid in full.
Overture Films used the facility to fund a portion of production and distribution costs of qualifying feature-length, theatrical motion pictures and certain working capital requirements. Proceeds received by Overture Films related to the exploitation of the feature length films generally were required to be utilized to repay borrowings under the Overture Facility. As of December 31, 2010, $7.5 million of such proceeds are included in restricted cash.
Interest on each loan under the Overture Facility was payable at either an Alternate Base Rate plus 1.00% per annum or at LIBOR plus 2.00% per annum, at the option of Overture Films. As defined in the Overture Facility, the Alternate Base Rate was the greater of the Prime Rate, Base Certificate of Deposit Rate plus 1%, or the Federal Funds Effective Rate plus 0.5%.
Overture Films entered into an interest rate swap arrangement effective July 1, 2008 to mitigate the risk associated with future interest payments on the Overture Facility. This swap arrangement provided for Overture Films to make fixed monthly payments at an annual rate of 3.77% and to receive variable monthly payments at a one month USD-LIBOR rate, each on notional amounts that range from $25.0 million up to a maximum amount of $125.0 million. Such swap was not designated as a hedge. In connection with the termination of the Overture Facility, this interest rate swap arrangement was terminated in April 2011 at a cost of $1.2 million. The Company recognized a loss in other expense, net of $1.2 million, $1.7 million and $2.3 million for the years ended December 31, 2011, 2010 and 2009, respectively, related to this interest rate swap based on changes in the fair value of the swap.
(d) Other debt consisted of a leasehold improvement loan which was repaid in full in 2011.
Debt maturities for the next five years and thereafter are as follows (in thousands):
2012 |
|
$ |
6,228 |
|
2013 |
|
31,228 |
| |
2014 |
|
31,228 |
| |
2015 |
|
56,228 |
| |
2016 |
|
411,228 |
| |
Thereafter |
|
18,574 |
| |
Total minimum payments |
|
554,714 |
| |
Less: amounts representing interest |
|
(9,670 |
) | |
Present value of debt payments |
|
545,044 |
| |
Less: current portion of debt obligations |
|
(4,129 |
) | |
Long-term portion of debt obligations |
|
$ |
540,915 |
|
Starz, LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010 and 2009
Note 6Debt (Continued)
The Company believes the fair value of debt approximates its carrying value as of December 31, 2011 due to its variable rate nature and the Companys stable credit spread.
Amounts totaling $2.0 million, $2.0 million and $1.8 million in interest costs have been capitalized as investment in films and television programs during the years ended December 31, 2011, 2010 and 2009, respectively.
Note 7Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
|
|
December 31, |
| ||||
|
|
2011 |
|
2010 |
| ||
Royalties, residuals and participations |
|
$ |
46,692 |
|
$ |
51,238 |
|
Royalties, residuals and participations payable to TWC |
|
56,201 |
|
|
| ||
Program rights payable |
|
65,600 |
|
49,900 |
| ||
Advertising and marketing |
|
39,381 |
|
34,037 |
| ||
Payroll and related costs |
|
22,380 |
|
24,165 |
| ||
Other |
|
40,042 |
|
24,376 |
| ||
|
|
$ |
270,296 |
|
$ |
183,716 |
|
Approximately 70% of accrued royalties, participations and residuals of $46.7 million at December 31, 2011 are expected to be paid during the next twelve months.
Note 8Related Party Transactions
Due to Affiliates
The Company participates in LMCs employee benefit plans (medical, dental, life insurance, 401(k), etc.). Charges from LMC related to these benefits and other miscellaneous charges are included in general and administrative expenses in the accompanying consolidated statements of operations and aggregated $12.4 million, $12.8 million and $13.3 million for the years ended December 31, 2011, 2010 and 2009, respectively. Such amounts are invoiced by LMC on a monthly basis and are due upon receipt of the invoice by the Company. Amounts due to affiliate for such charges total $3.6 million and $0.7 million as of December 31, 2011 and 2010, respectively.
Due to affiliates at December 31, 2011 also includes $50.2 million for amounts owed to LMC for income tax obligations.
Contributions from (Distributions to) Affiliate
The Company is a single member LLC, which is treated as an entity that is disregarded as being separate from LMC for U.S.federal income tax purposes. As such, the Company is included in the consolidated federal and state income tax returns of LMC. Prior to 2011, the Companys subsidiary Starz Media was subject to a separate tax sharing agreement with LMC. As a result, the tax benefits of losses generated by Starz Media were not included in the calculation of the Companys tax obligation
Starz, LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010 and 2009
Note 8Related Party Transactions (Continued)
to LMC. Accordingly, the Companys tax payments to LMC prior to 2011 were in excess of what the Companys consolidated tax obligation would have been if Starz Media was included in the tax calculation and such excess payments are reflected as distributions to affiliate in the accompanying consolidated statements of cash flows and consolidated statements of members interest and noncontrolling interests.
As a result of the sale of the 25% interest to TWC in January 2011, Starz Media is now a separate taxpayer for federal purposes and in certain states. During the year ended December 31, 2011, the Companys tax liability to LMC was reduced by $36.6 million due to the overpayment of 2010 tax sharing obligations which were treated as a distribution to affiliate in 2010. Such reduction is reflected as a contribution from affiliate in the accompanying consolidated statement of members interest and noncontrolling interests.
During 2006, the Company entered into two notes receivable totaling $489.1 million with Liberty Media LLC, a wholly-owned subsidiary of LMC. Such notes were classified in members interest. The Company distributed the notes receivable to Liberty Media LLC on September 30, 2010 in connection with a corporate reorganization. The Company did not recognize interest on the notes receivable.
Note Payable due to Affiliate
On December 28, 2006, Starz Media, LLC, a wholly-owned subsidiary of Starz Media, entered into a note agreement with Liberty Media LLC, a wholly-owned subsidiary of LMC, to fund the operating needs of Starz Media, LLC. Such note bears interest at a rate of LIBOR plus 4.0%. On September 30, 2010, Liberty Media LLC contributed its receivable under the note agreement to the Company in connection with a corporate reorganization. As such, the note is eliminated in consolidation effective September 30, 2010. See Note 6 for interest capitalized as investment in films and television programs. Such note agreement was cancelled on October 1, 2011.
On March 30, 2009, Starz Entertainment, LLC (Starz Entertainment), a direct wholly-owned subsidiary of the Company paid in full all outstanding principal and interest under a subordinated note payable to LMC. The note charged interest at a 3 month LIBOR plus 2.75%, compounded quarterly. Interest expense related to the LMC note payable was none, none and $0.5 million for the years ended December 31, 2011, 2010 and 2009, respectively.
Mezzanine Debt due to Affiliate
On January 2, 2008, Overture Films entered into a $50.0 million, six year secured term credit facility (the Overture Mezzanine Debt) with Liberty Media LLC. The Overture Mezzanine Debt was used to fund certain costs and working capital associated with the production or acquisition of theatrical films. The Overture Mezzanine Debt, as amended, is subordinated to the Overture Facility. On September 30, 2010, Liberty Media LLC contributed its receivable under the Overture Mezzanine Debt to the Company in connection with a corporate restructuring. As such, the Overture Mezzanine Debt is eliminated in consolidation effective September 30, 2010. Interest on each loan under the Overture Mezzanine Debt is payable at LIBOR plus 10.00% per annum. See Note 6 for interest capitalized as investment in films and television programs.
Starz, LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010 and 2009
Note 8Related Party Transactions (Continued)
Related Party
As discussed previously, on January 28, 2011, the Company sold a 25% interest in Starz Media to TWC. In December 2010, Anchor Bay entered into a five-year license agreement with TWC for the distribution, by Home Video and Digital Media, of certain of TWCs theatrical releases. The Company recognized participation expense of $72.1 million, which is included in production and acquisition costs in the accompanying statement of operations, for TWCs share of the net proceeds under the license agreement, for the year ended December 31, 2011. The Companys accrued advances payable to TWC totaled $56.2 million, which is included in accrued liabilities in the accompanying consolidated balance sheet, at December 31, 2011.
Note 9Phantom Stock Appreciation Rights, Long Term Incentive Plan and Stock Options
PSARsThe Company had fully vested outstanding Phantom Stock Appreciations Rights (PSAR) held by its founder and former chief executive officer. Effective September 30, 2009, the founder and former chief executive officer elected to exercise all of his remaining PSARs. In December 2010, the Company paid $149.6 million in cash to settle the PSARs which was determined by a valuation process as described in the PSAR agreement. Prior to this valuation process, the value of the PSARs was based on the estimated fair value of Starz Entertainment, as adjusted for certain assets and liabilities as defined, utilizing a discounted cash flow model. The Company recognized none, $33.7 million and $4.7 million of compensation expense during the years ended December 31, 2011, 2010 and 2009, respectively, related to these PSARs.
Long Term Incentive PlanThe Company granted incentive units to certain officers and key employees (Plan Participants) under the 2006 long term incentive plan (2006 LTIP). Such grants vest over a period of four years. Compensation under the 2006 LTIP is computed based on the vested percentage of units granted and a formula based on a multiple of earnings before interest, taxes, depreciation and amortization, adjusted for certain net assets or liabilities of the Company, as defined. During 2010, the Company amended the LTIP to freeze the value of the 2006 LTIP units at the value calculated as of December 31, 2009. All amounts accrued under the 2006 LTIP are payable in cash, LMC common stock or a combination thereof at specified dates through 2013.
The Company recognized $0.2 million, $3.1 million and $32.5 million during the years ended December 31, 2011, 2010 and 2009, respectively of compensation expense related to the 2006 LTIP. During the years ended December 31, 2011 and 2010, the Company made payments of $7.7 million and $46.6 million, respectively, to certain Plan Participants under the 2006 LTIP. The Company has accrued $36.6 million as of December 31, 2011 related to the 2006 LTIP.
Stock OptionsPursuant to a LMC incentive plan, LMC has granted to certain of the Companys employees Liberty Starz stock options and Liberty Starz restricted stock. In November 2011, LMC exchanged each share of outstanding Liberty Starz common stock for 0.88129 shares of Liberty Media Corporations Liberty Capital common stock (LMCA). The outstanding Liberty Starz restricted stock was also exchanged for LMCA restricted stock using the same ratio, and an adjustment was made to the strike price, as applicable, using the same ratio. The exchange of stock options and restricted stock was considered a modification of the previous award, however, the impact to compensation expense was not significant.
Starz, LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010 and 2009
Note 9Phantom Stock Appreciation Rights, Long Term Incentive Plan and Stock Options (Continued)
The Company recognized $6.9 million, $4.3 million and none during the years ended December 31, 2011, 2010 and 2009, respectively of compensation expense related to vested stock options and restricted stock. As of December 31, 2011, the total unrecognized compensation cost related to the unvested stock options and restricted stock was approximately $21.3 million. Such amount will be recognized in the Companys consolidated statements of operations over a weighted average period of approximately three years.
The historical awards granted in 2011, 2010 and 2009 are summarized as follows:
|
|
Options |
|
Weighted |
| |
2011 Awards: |
|
|
|
|
| |
Stock optionsLMCA |
|
100,000 |
|
$ |
32.60 |
|
Stock optionsSeries A Liberty Starz Common Stock |
|
496,000 |
|
$ |
21.36 |
|
Restricted stockSeries A Liberty Starz Common Stock |
|
11,655 |
|
$ |
77.52 |
|
|
|
|
|
|
|
|
2010 Awards: |
|
|
|
|
| |
Stock optionsSeries A Liberty Starz Common Stock |
|
208,500 |
|
$ |
16.17 |
|
Restricted stockSeries A Liberty Starz Common Stock |
|
|
|
|
| |
|
|
|
|
|
| |
2009 Awards: |
|
|
|
|
| |
Stock optionsSeries A Liberty Starz Common Stock |
|
600,000 |
|
$ |
15.96 |
|
Restricted stockSeries A Liberty Starz Common Stock |
|
100,000 |
|
$ |
47.29 |
|
The 2011 and 2010 stock option awards vest quarterly over a 4 year period and have a term of 7 years. The 2009 stock option awards vest 50% on each of December 31, 2012 and 2013 and have a term of 10 years. The Company calculates the grant-date fair value for the stock options using the Black- Scholes Model. The expected term used in the Black-Scholes calculation was 4.40 years for the 2011 awards, 4.56 years for the 2010 awards and 6.75 years for the 2009 awards. The expected volatility was 31.9% for the Liberty Starz grants and 54.2% for the LMCA grants for the 2011 awards and 33.63% for the 2010 and 2009 awards. The expected volatility used in the calculation for the awards is based on the historical volatility of LMCs Starz and Capital tracking stocks and the implied volatility of LMCs publicly traded options. The Company uses a zero dividend rate as the Company has not historically declared dividends and a range of risk-free rates of 0.7% to 1.9% for the 2011 awards, 2.2% to 2.4% for the 2010 awards and 2.9% for the 2009 awards which are derived from U.S. Treasury Bonds with a term similar to that of the subject options. The grant-date fair value of the 2011 outstanding restricted shares of 11,655 was based on the market value of the Series A Liberty Starz common stock at the grant date of $77.52 per share. The grant-date fair value of the 2009 outstanding restricted shares of 100,000 was based on the market value of the Series A Liberty Starz common stock at the grant date of $47.29 per share. The 2011 grant of restricted shares vest annually over three years. The 2009 grant of restricted shares vest 50% on each of December 31, 2012 and 2013.
Starz, LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010 and 2009
Note 9Phantom Stock Appreciation Rights, Long Term Incentive Plan and Stock Options (Continued)
The following table presents the number and weighted average exercise price (WAEP) of the historical Liberty Starz stock options prior to the conversion in November 2011 to LMCA stock options:
|
|
Options |
|
WAEP |
| |
Outstanding at January 1, 2009 |
|
|
|
$ |
|
|
Granted |
|
600,000 |
|
$ |
61.53 |
|
Exercised |
|
|
|
$ |
|
|
Forfeited |
|
|
|
$ |
|
|
Expired/cancelled |
|
|
|
$ |
|
|
Outstanding at December 31, 2009 |
|
600,000 |
|
$ |
61.53 |
|
Granted |
|
208,500 |
|
$ |
51.04 |
|
Exercised |
|
(3,310 |
) |
$ |
51.03 |
|
Forfeited |
|
(10,439 |
) |
$ |
51.03 |
|
Expired/cancelled |
|
|
|
$ |
|
|
Outstanding at December 31, 2010 |
|
794,751 |
|
$ |
59.41 |
|
Granted |
|
496,000 |
|
$ |
72.92 |
|
Exercised |
|
(8,683 |
) |
$ |
52.63 |
|
Forfeited |
|
(31,626 |
) |
$ |
64.78 |
|
Expired/cancelled |
|
|
|
$ |
|
|
Liberty Starz conversion to LMCA |
|
(1,250,442 |
) |
$ |
57.56 |
|
Outstanding at December 31, 2011 |
|
|
|
$ |
|
|
The following table presents the number and WAEP of LMCA stock options after the conversion from Liberty Starz stock options in November 2011:
|
|
Options |
|
WAEP |
| |
Outstanding at December 31, 2010 |
|
|
|
$ |
|
|
Liberty Starz conversion to LMCA |
|
1,101,922 |
|
$ |
65.31 |
|
Granted |
|
100,000 |
|
$ |
73.45 |
|
Exercised |
|
(275 |
) |
$ |
57.90 |
|
Forfeited |
|
|
|
$ |
|
|
Expired/cancelled |
|
|
|
$ |
|
|
Outstanding at December 31, 2011 |
|
1,201,647 |
|
$ |
65.99 |
|
Exercisable at December 31, 2011 |
|
140,935 |
|
$ |
71.44 |
|
At December 31, 2011 the weighted-average remaining contractual term of the outstanding options is 6.9 years and the exercisable options is 5.7 years.
Overture Long Term Incentive PlanIn November 2006, the Company established the Overture LTIP to provide long term compensation to secure loyal and continued services and promote
Starz, LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010 and 2009
Note 9Phantom Stock Appreciation Rights, Long Term Incentive Plan and Stock Options (Continued)
profitability and efficiency within Overture Films. As previously noted, the Company ceased operations at Overture Films in July 2010. The Company has determined that the units have no value due to the valuation of Overture Films at the time it ceased operations and in the year ended December 31, 2010 eliminated the previously recorded liability of $1.6 million. The Company recognized credits to compensation expense related to the Overture LTIP of none, $1.6 million and $2.1 million during the years ended December 31, 2011, 2010 and 2009, respectively.
The awards granted under the Overture LTIP consist of units (percentage interests) that participate in the underlying value of Overture Films (if any) as of June 30, 2012 based on a calculation specified in the Overture LTIP. The awards qualify for liability treatment under GAAP as the awards may be settled, at the discretion of the Committee, in either cash or stock of Overture Films or stock of an affiliate of Overture Films as further defined in the Overture LTIP and the intention of the Company to settle these in cash. The value attributed to the awards was reviewed at each reporting date and the corresponding liability associated with the awards (if any) was adjusted.
The following table summarizes information about unit transactions of the Overture LTIP (dollars in thousands):
|
|
Units |
|
Fair Value |
| |
Outstanding at December 31, 2008 |
|
14.54 |
|
$ |
9,694 |
|
Granted |
|
|
|
$ |
|
|
Forfeited |
|
(0.30 |
) |
$ |
55 |
|
Expired/cancelled |
|
|
|
$ |
|
|
Outstanding at December 31, 2009 |
|
14.24 |
|
$ |
2,582 |
|
Granted |
|
|
|
$ |
|
|
Forfeited |
|
|
|
$ |
|
|
Expired/cancelled |
|
|
|
$ |
|
|
Outstanding at December 31, 2010 |
|
14.24 |
|
$ |
|
|
Granted |
|
|
|
$ |
|
|
Forfeited |
|
|
|
$ |
|
|
Expired/cancelled |
|
|
|
$ |
|
|
Outstanding at December 31, 2011 |
|
14.24 |
|
$ |
|
|
Exercisable at December 31, 2011 |
|
|
|
$ |
|
|
Note 10Income Taxes
The Company is a single member LLC, which is treated as a disregarded entity for U.S. federal income tax purposes. As such, it is included in the consolidated federal and state income tax returns of LMC. The income tax accounts and provision included in these consolidated financial statements have been prepared as if the Company was a stand-alone federal and state taxpayer.
Starz, LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010 and 2009
Note 10Income Taxes (Continued)
Income tax expense consists of the following (in thousands):
|
|
Years ended December 31, |
| |||||||
|
|
2011 |
|
2010 |
|
2009 |
| |||
Current: |
|
|
|
|
|
|
| |||
Federal |
|
$ |
122,505 |
|
$ |
38,117 |
|
$ |
43,184 |
|
State and local |
|
10,018 |
|
2,715 |
|
6,191 |
| |||
Foreign |
|
2,643 |
|
4,978 |
|
2,632 |
| |||
|
|
135,166 |
|
45,810 |
|
52,007 |
| |||
Deferred: |
|
|
|
|
|
|
| |||
Federal |
|
34,423 |
|
48,590 |
|
17,620 |
| |||
State and local |
|
2,600 |
|
4,364 |
|
1,379 |
| |||
|
|
37,023 |
|
52,954 |
|
18,999 |
| |||
Income tax expense |
|
$ |
172,189 |
|
$ |
98,764 |
|
$ |
71,006 |
|
Income tax expense differs from the amounts computed by applying the U.S. federal income tax rate of 35% as a result of the following (in thousands):
|
|
Years ended December 31, |
| |||||||
|
|
2011 |
|
2010 |
|
2009 |
| |||
Computed expected tax expense |
|
$ |
145,630 |
|
$ |
88,985 |
|
$ |
66,182 |
|
State and local income taxes, net of federal income taxes |
|
8,000 |
|
4,168 |
|
(1,059 |
) | |||
Foreign taxes, net of foreign tax credit |
|
1,024 |
|
(563 |
) |
(381 |
) | |||
Disposal of consolidated subsidiary |
|
|
|
|
|
(3,747 |
) | |||
Change in valuation allowance affecting tax expense |
|
(223,992 |
) |
5,974 |
|
98,413 |
| |||
Expiration of capital loss |
|
241,934 |
|
|
|
|
| |||
Reversal of tax contingency reserve |
|
|
|
|
|
(88,550 |
) | |||
Other, net |
|
(407 |
) |
200 |
|
148 |
| |||
Income tax expense |
|
$ |
172,189 |
|
$ |
98,764 |
|
$ |
71,006 |
|
Starz, LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010 and 2009
Note 10Income Taxes (Continued)
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2011 and 2010 are presented below (in thousands):
|
|
December 31, |
| ||||
|
|
2011 |
|
2010 |
| ||
Deferred tax assets: |
|
|
|
|
| ||
Tax loss and credit carryforwards |
|
$ |
56,682 |
|
$ |
267,581 |
|
Goodwill and other intangible assets |
|
|
|
137,713 |
| ||
Accrued stock compensation |
|
19,301 |
|
19,788 |
| ||
Investments |
|
6,747 |
|
8,989 |
| ||
Deferred revenue |
|
1,588 |
|
2,672 |
| ||
Other future deductible amounts |
|
24,752 |
|
10,946 |
| ||
Deferred tax assets |
|
109,070 |
|
447,689 |
| ||
Valuation allowance |
|
(78,141 |
) |
(267,581 |
) | ||
Deferred tax assets, net |
|
30,929 |
|
180,108 |
| ||
Deferred tax liability: |
|
|
|
|
| ||
Property and equipment |
|
(23,070 |
) |
(19,508 |
) | ||
Intangible assets |
|
(8,053 |
) |
|
| ||
Deferred tax liabilities |
|
(31,123 |
) |
(19,508 |
) | ||
Net deferred tax assets (liabilities) |
|
$ |
(194 |
) |
$ |
160,600 |
|
The Companys ability to utilize its foreign income tax credit carryforwards is dependent on the Company generating foreign-source taxable income. Based on managements assessment of projected foreign source taxable income and available tax planning strategies, the Company does not believe that it is more likely than not that it will utilize the foreign income tax credit carryforward deferred tax asset. As such, the Company has recorded a valuation allowance of $15.1 million and $17.8 million related to those credit carryforwards as of December 31, 2011 and 2010, respectively.
The Company has generated net operating losses in certain foreign and state jurisdictions in which the Company operates. Because the Companys ability to utilize these losses is dependent on it generating future taxable income in these jurisdictions, the Company does not believe that it is more likely than not that it will utilize these losses. As such, the Company has recorded a valuation allowance of $5.9 million and $7.0 million related to those foreign and state net operating losses as of December 31, 2011 and 2010, respectively.
The Company has a capital loss carryforward deferred tax asset of $35.7 million and $242.8 million as of December 31, 2011 and 2010, respectively, that the Company does not believe that it is more likely than not that it will utilize. During the year ended December 31, 2011, the capital loss carryforward totaling $241.9 million related to the sale of a certain investment expired as the Company was unable to utilize such capital loss. As such, the Company has recorded a valuation allowance of $35.7 million and $242.8 million related to these capital loss carryforwards as of December 31, 2011 and 2010, respectively.
Starz, LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010 and 2009
Note 10Income Taxes (Continued)
As a result of the sale of 25% of Starz Media to TWC, Starz Media is no longer consolidated for federal income tax purposes and is no longer consolidated in certain states for state income tax purposes with Starz, LLC and is now a separate taxpayer for federal purposes and in certain states. Starz Media is treated as a corporation for federal and state income tax purposes. Starz Media has a deferred tax asset related to deductible temporary differences. Because Starz Media is now a separate taxpayer for federal purposes and in certain states, the Company does not believe that it is more likely than not that Starz Media will realize this deferred tax asset. As such, the Company recorded a valuation allowance of $21.5 million related to these deductible temporary differences during the year ended December 31, 2011.
During 2011, the Company decreased its valuation allowance by $189.4 million, the components of which are as follows (in thousands):
|
|
Income |
|
Members |
|
Other |
|
Total |
| ||||
Foreign tax credits |
|
$ |
1,819 |
|
$ |
(4,536 |
) |
$ |
|
|
$ |
(2,717 |
) |
Net operating lossesforeign and state |
|
(1,122 |
) |
|
|
|
|
(1,122 |
) | ||||
Expiration of capital loss |
|
(241,934 |
) |
|
|
|
|
(241,934 |
) | ||||
Capital loss carryforward |
|
|
|
(870 |
) |
|
|
(870 |
) | ||||
Capital loss carryforward due to sale of 25% of Starz Media |
|
|
|
35,744 |
|
|
|
35,744 |
| ||||
Deductible temporary differences |
|
17,245 |
|
|
|
4,214 |
|
21,459 |
| ||||
Total |
|
$ |
(223,992 |
) |
$ |
30,338 |
|
$ |
4,214 |
|
$ |
(189,440 |
) |
The sale of the 25% interest in Starz Media resulted in net direct tax effects of $141.1 million which have been reflected as a reduction of members interest. These direct tax effects include a $141.1 million reduction to the net deferred tax assets of Starz Media, a $35.7 million increase to the capital loss carryforward deferred tax asset and a $35.7 million increase to the valuation allowance. The benefit of the tax basis in the remaining 75% interest in Starz Media has not been reflected in the Companys deferred taxes because the Company does not currently expect to realize this tax basis in the foreseeable future.
Note 11Commitments and Contingencies
Programming Rights
In March 2010, the Company entered into a new, exclusive long-term licensing agreement for theatrically released films from the Walt Disney Company (Disney) studios through 2015. The previous output agreement was set to run through 2012 releases. The new agreement provides the Company with exclusive pay TV rights to exhibit qualifying theatrically released live-action and animated feature films from Walt Disney Pictures, Walt Disney Animation Studios, Disney-Pixar, Touchstone Pictures, Marvel Entertainment and Hollywood Pictures labels. Theatrically released films from DreamWorks Studios and Miramax Films will not be licensed to the Company under the new agreement. In addition, the Company is obligated to pay programming fees for all qualifying films that
Starz, LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010 and 2009
Note 11Commitments and Contingencies (Continued)
are released theatrically in the United States by Sonys Columbia Pictures, Screen Gems and Sony Pictures Classics (Sony) through 2016, subject to certain limitations. The Company has also entered into agreements with a number of other motion picture producers and is obligated to pay fees for the rights to exhibit certain films that are released by these producers. The programming fees to be paid by the Company are based on the quantity and domestic theatrical exhibition receipts of qualifying films.
The unpaid balance for film rights related to films that were available at December 31, 2011 is reflected in accrued liabilities and in other liabilities in the accompanying consolidated balance sheets. As of December 31, 2011, such liabilities aggregated approximately $67.7 million and are payable as follows: $65.6 million in 2011 and $2.1 million in 2012.
Under the above output agreements, the Company is obligated to pay fees for the rights to exhibit films that have been released theatrically, but are not available for exhibition by the Company until some future date. In addition, the Company has agreed to pay Sony (i) $142.5 million in three remaining equal annual installments through 2014, and (ii) a total of $120 million in three equal annual installments beginning in 2015 for the new output agreement. The estimated amounts payable under these agreements, which have not been accrued as of December 31, 2011, are as follows: $377.5 million in 2012; $127.4 million in 2013; $72.9 million in 2014; $58.4 million in 2015; $51.3 million in 2016 and $58.5 million thereafter.
The Company is also obligated to pay fees for films that have not yet been released in theatres. The Company is unable to estimate the amounts to be paid under these output agreements for films that have not yet been released in theatres; however, such amounts are expected to be significant.
Total amortization of program rights was $611.0 million, $611.6 million and $607.5 million for the years ended December 31, 2011, 2010 and 2009, respectively. These amounts are included in programming costs in the accompanying consolidated statements of operations.
Operating Leases
The Company leases office facilities, back-up transponder capacity, and certain other equipment under operating lease arrangements. Rental expense under such arrangements amounted to $6.6 million, $7.9 million and $9.0 million for the years ended December 31, 2011, 2010 and 2009, respectively. Such amounts are included in operating expenses and general and administrative expenses in the accompanying consolidated statements of operations.
The future minimum payments under noncancelable operating leases, net of subleases, at December 31, 2011 are as follows (in thousands):
2012 |
|
$ |
5,487 |
|
2013 |
|
6,000 |
| |
2014 |
|
5,474 |
| |
2015 |
|
4,964 |
| |
2016 |
|
3,709 |
| |
Thereafter |
|
2,480 |
| |
|
|
$ |
28,114 |
|
Starz, LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010 and 2009
Note 11Commitments and Contingencies (Continued)
Foreign Currency Hedge Contracts
The Company has entered into foreign currency hedge contracts to manage its foreign currency risk in connection with certain original programming series produced in New Zealand. The Company has committed to pay US$48.6 million for NZD59.7 million during 2012.
Guarantees
Canada Co. entered into an agreement with the Ontario government whereby Canada Co. is eligible to receive funds under the Canadian Next Generation of Jobs Fund Grant (NGOJF) through the termination date of March 31, 2014. The maximum amount of the grant available and the guarantee is $23.0 million. Starz Entertainment entered into a guarantee for any amounts owed to the Ontario government under the grant if Canada Co. does not meet its obligations. The Ontario government can demand payment from the Company if Canada Co. does not perform any of its obligations. The maximum potential amount payable under the guarantee is $8.0 million at December 31, 2011 and the Company has accrued $6.4 million related to this guarantee in accrued liabilities in the accompanying consolidated balance sheet as of December 31, 2011.
As discussed in Note 3, the Company sold its controlling interest in Canada Co. on March 3, 2011. The terms of the guarantee have not changed.
Starz Entertainment is the guarantor on two noncancelable operating leases in which an affiliate within each of the Starz Distribution and Starz Animation businesses is the tenant. The maximum potential amount payable under these guarantees is $17.0 million at December 31, 2011. Starz Entertainment does not currently expect to have to perform under these obligations. The leases expire in 2014 and 2016.
Legal Proceedings
On March 9, 2011, the Company notified DISH Network L.L.C. (DISH) that it breached the affiliation agreement with the Company by providing a free preview for one year of eight of the Starz and Encore channels to a substantial number of DISH customers without Starzs written approval. On May 3, 2011, the Company filed a lawsuit against DISH alleging that DISH breached its affiliation agreement with the Company in connection with such free preview, and on May 20, 2011, Disney Enterprises, Inc. filed a lawsuit against DISH in connection with the same free preview. DISH filed a counterclaim against the Company in the first lawsuit, seeking indemnification from the Company against Disney in the second lawsuit. In addition, on July 29, 2011, FX Networks filed a separate lawsuit against DISH and the Company in connection with the same free preview. The resolution of these matters and its potential impact on the Company is uncertain at this time.
In the normal course of business, the Company is subject to lawsuits and other claims. While it is not possible to predict the outcome of these matters, it is the opinion of management, based upon consultation with legal counsel, that the ultimate disposition of known proceedings, other than as discussed above, will not have a material adverse impact on our consolidated financial position, results of operations or liquidity.
Starz, LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010 and 2009
Note 12Other Information
Goodwill
There were no changes in the carrying amount of goodwill, all of which relates to Starz Channels, during the years ended December 31, 2011 and 2010. As of December 31, 2011, the accumulated impairment loss was $1,722.1 million, of which $1,396.7 million relates to Starz Channels, $322.2 million to Starz Distribution and $3.2 million to Starz Animation.
Advertising and Marketing
The Companys total advertising costs were $109.2 million, $147.4 million and $199.7 million for the years ended December 31, 2011, 2010 and 2009, respectively. Total marketing costs were $23.0 million, $28.0 million and $29.6 million for the years ended December 31, 2011, 2010 and 2009, respectively.
Foreign Currency Translation
Accumulated foreign currency translation adjustments, net of income taxes, included in the consolidated statements of members interest and noncontrolling interests totaled $4.4 million and ($0.5) million as of December 31, 2011 and 2010, respectively.
Major Customers and Suppliers
Two Starz Channels customers accounted for 21% and 15% of the Companys total revenue for the year ended December 31, 2011. Two Starz Channels customers accounted for 20% and 15% of the Companys total revenue for the year ended December 31, 2010. Two Starz Channels customers accounted for 20% and 16% of the Companys total revenue for the year ended December 31, 2009. There were no other customers that accounted for more than 10% of revenue in any year. These customers accounted for 41% and 38% of trade accounts receivable as of December 31, 2011 and 2010, respectively. Services are provided to these customers pursuant to affiliation agreements with varying terms.
As discussed in Note 11, the Company has entered into agreements to license theatrically released films for our premium movie networks from studios owned by Disney (through 2015) and Sony (through 2016). Films are available to the Company for exhibition generally 8-12 months after their theatrical release.
In July 2010, Anchor Bay outsourced substantially all of its home video distribution services, including DVD manufacturing and distribution to Twentieth Century Fox Home Entertainment LLC. The term of the distribution agreement is from July 1, 2010 through June 30, 2015. Previously, Anchor Bay had outsourced substantially all of its home video distribution services, including DVD manufacturing and distribution, to Sony Pictures Home Entertainment, Inc.
Foreign Operations
Revenue generated outside of the United States represented 4%, 4% and 3% of consolidated revenue for each of the years ended December 31, 2011, 2010 and 2009, respectively. Net long-lived
Starz, LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010 and 2009
Note 12Other Information (Continued)
assets outside the United States were none and $4.3 million as of December 31, 2011 and 2010, respectively, and in 2010 related entirely to discontinued operations as discussed in Note 3.
Note 13Information about Operating Segments
The Company is primarily engaged in video programming and development, production, acquisition and distribution of entertainment content. The Company evaluates performance and makes decisions about allocating resources to its operating segments based on financial measures such as Adjusted OIBDA. Adjusted OIBDA is defined as revenue less programming costs, production and acquisition costs, home video cost of sales, operating expenses, advertising and marketing costs and general and administrative expenses. Our chief operating decision maker uses this measure of performance in conjunction with other measures to evaluate the operating segments and make decisions about allocating resources among the operating segments. The Company believes Adjusted OIBDA is an important indicator of the operational strength and performance of its operating segments, including each operating segments ability to service debt and fund investment in films and television programs. In addition, this measure allows management to view operating results and perform analytical comparisons and benchmarking between operating segments and identify strategies to improve performance. This measure of performance excludes phantom stock appreciation rights, long term incentive plan and stock compensation and depreciation and amortization that are included in the measurement of operating income pursuant to GAAP. Accordingly, Adjusted OIBDA should be considered in addition to, but not as a substitute for, operating income, income from continuing operations before income taxes, net income, net cash provided by operating activities and other measures of financial performance prepared in accordance with GAAP. The Company generally accounts for intersegment sales and transfers as if the sales or transfers were to third parties, that is, at current prices.
The Companys reportable segments are strategic business units that offer different services. They are managed separately because each segment requires different technologies, content delivery methods and marketing strategies. The Company identifies its reportable segments as those operating segments that represent 10% or more of its consolidated annual revenue, annual Adjusted OIBDA or total assets. Starz Channels and Starz Distribution have been identified as reportable segments; however as the Company has only three operating segments, Starz Animation is also reported.
Starz, LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010 and 2009
Note 13Information about Operating Segments (Continued)
Performance Measures (in thousands):
|
|
For the Years Ended December 31, |
| |||||||
|
|
2011 |
|
2010 |
|
2009 |
| |||
Revenue: |
|
|
|
|
|
|
| |||
Starz Channels |
|
$ |
1,269,924 |
|
$ |
1,224,136 |
|
$ |
1,188,901 |
|
Starz Distribution |
|
310,927 |
|
367,477 |
|
306,332 |
| |||
Starz Animation |
|
45,273 |
|
50,007 |
|
48,095 |
| |||
Inter-segment eliminations |
|
(12,091 |
) |
(36,283 |
) |
(20,731 |
) | |||
Total Revenue |
|
$ |
1,614,033 |
|
$ |
1,605,337 |
|
$ |
1,522,597 |
|
Adjusted OIBDA: |
|
|
|
|
|
|
| |||
Starz Channels |
|
$ |
427,689 |
|
$ |
416,390 |
|
$ |
396,499 |
|
Starz Distribution |
|
4,567 |
|
(66,182 |
) |
(107,533 |
) | |||
Starz Animation |
|
(850 |
) |
(2,419 |
) |
(744 |
) | |||
Inter-segment eliminations |
|
18,182 |
|
(12,136 |
) |
(8,610 |
) | |||
Total Adjusted OIBDA |
|
$ |
449,588 |
|
$ |
335,653 |
|
$ |
279,612 |
|
Other Information (in thousands):
|
|
For the Years Ended December 31, |
| |||||||
|
|
2011 |
|
2010 |
|
2009 |
| |||
Capitalized production and development spend: |
|
|
|
|
|
|
| |||
Starz Channels |
|
$ |
144,494 |
|
$ |
64,573 |
|
$ |
78,953 |
|
Starz Distribution |
|
69,161 |
|
52,462 |
|
61,839 |
| |||
Starz Animation |
|
|
|
|
|
|
| |||
Inter-segment eliminations |
|
|
|
|
|
|
| |||
Total capitalized production and development spend |
|
$ |
213,655 |
|
$ |
117,035 |
|
$ |
140,792 |
|
|
|
December 31, |
| ||||
|
|
2011 |
|
2010 |
| ||
Total assets |
|
|
|
|
| ||
Starz Channels |
|
$ |
2,357,580 |
|
$ |
1,616,653 |
|
Starz Distribution |
|
162,659 |
|
135,958 |
| ||
Starz Animation |
|
5,320 |
|
8,172 |
| ||
Other unallocated assets (primarily cash, deferred taxes and other assets) |
|
136,753 |
|
169,747 |
| ||
Inter-segment eliminations |
|
(59,137 |
) |
(37,528 |
) | ||
Total assets |
|
$ |
2,603,175 |
|
$ |
1,893,002 |
|
Starz, LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010 and 2009
Note 13Information about Operating Segments (Continued)
The following table provides a reconciliation of Adjusted OIBDA to income from continuing operations before income taxes (in thousands):
|
|
For the Years Ended December 31, |
| |||||||
|
|
2011 |
|
2010 |
|
2009 |
| |||
Consolidated Adjusted OIBDA |
|
$ |
449,588 |
|
$ |
335,653 |
|
$ |
279,612 |
|
Phantom stock appreciation rights, long term incentive plan and stock compensation |
|
(7,078 |
) |
(39,468 |
) |
(35,142 |
) | |||
Depreciation and amortization |
|
(17,907 |
) |
(20,468 |
) |
(23,470 |
) | |||
Interest expense, including amounts due to affiliate, net of amounts capitalized |
|
(5,012 |
) |
(20,932 |
) |
(27,188 |
) | |||
Other expense, net |
|
(3,505 |
) |
(542 |
) |
(4,719 |
) | |||
Income from continuing operations before income taxes |
|
$ |
416,086 |
|
$ |
254,243 |
|
$ |
189,093 |
|
Note 14Supplemental Guarantor Condensed Consolidating Financial Information
As discussed in Note 15Subsequent Events, Starz, LLC and Starz Finance Corp, a wholly-owned subsidiary of the Company which was incorporated in August of 2012, co-issued the Senior Notes (as defined in Note 15) which are fully and unconditionally guaranteed by Starz Entertainment. Starz Media, Film Roman and other immaterial subsidiaries of the Company (Starz Media and Other Businesses) are not guarantors of the Senior Notes.
Starz, LLC and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2011, 2010 and 2009
Note 14Supplemental Guarantor Condensed Consolidating Financial Information (Continued)
The following tables set forth the consolidating financial information of the Company, which includes the financial information of Starz Entertainment, the guarantor:
Consolidating Balance Sheet InformationAs of December 31, 2011
(in thousands)
|
|
Starz |
|
Starz, LLC |
|
Starz Media |
|
Eliminations |
|
Consolidated |
| |||||
Assets |
|
|
|
|
|
|
|
|
|
|
| |||||
Current assets: |
|
|
|
|
|
|
|
|
|
|
| |||||
Cash and cash equivalents |
|
$ |
965,400 |
|
$ |
125,261 |
|
$ |
9,226 |
|
$ |
|
|
$ |
1,099,887 |
|
Restricted cash |
|
|
|
|
|
4,896 |
|
|
|
4,896 |
| |||||
Trade accounts receivable, net |
|
204,457 |
|
|
|
36,865 |
|
(296 |
) |
241,026 |
| |||||
Program rights |
|
446,995 |
|
|
|
|
|
(5,141 |
) |
441,854 |
| |||||
Deferred income taxes |
|
8,616 |
|
1,498 |
|
|
|
|
|
10,114 |
| |||||
Notes receivable from affiliates |
|
38,352 |
|
|
|
|
|
(38,352 |
) |
|
| |||||
Other current assets |
|
18,961 |
|
|
|
12,375 |
|
|
|
31,336 |
| |||||
Total current assets |
|
1,682,781 |
|
126,759 |
|
63,362 |
|
(43,789 |
) |
1,829,113 |
| |||||
Program rights |
|
325,473 |
|
|
|
|
|
(5,477 |
) |
319,996 |
| |||||
Property and equipment, net |
|
95,968 |
|
|
|
2,563 |
|
|
|
98,531 |
| |||||
Investment in films and television programs, net |
|
106,720 |
|
|
|
77,222 |
|
|
|
183,942 |
| |||||
Goodwill |
|
131,760 |
|
|
|
|
|
|
|
131,760 |
| |||||
Other assets, net |
|
14,878 |
|
9,938 |
|
24,888 |
|
(9,871 |
) |
39,833 |
| |||||
Investment in consolidated subsidiaries |
|
|
|
1,619,020 |
|
|
|
(1,619,020 |
) |
|
| |||||
Total assets |
|
$ |
2,357,580 |
|
$ |
1,755,717 |
|
$ |
168,035 |
|
$ |
(1,678,157 |
) |
$ |
2,603,175 |
|
Liabilities and Members Interest (Deficit) and Noncontrolling Interests |
|
|
|
|
|
|
|
|
|
|
| |||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Current portion of debt |
|
$ |
4,129 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
4,129 |
|
Trade accounts payable |
|
6,509 |
|
|
|
2,181 |
|
|
|
8,690 |
| |||||
Accrued liabilities |
|
137,085 |
|
938 |
|
140,433 |
|
(8,160 |
) |
270,296 |
| |||||
Accrued compensation related to long term incentive plan |
|
33,854 |
|
|
|
|
|
|
|
33,854 |
| |||||
Notes payable due to affiliate |
|
|
|
|
|
38,352 |
|
(38,352 |
) |
|
| |||||
Due to (from) affiliates |
|
427,650 |
|
(377,255 |
) |
|
|
3,441 |
|
53,836 |
| |||||
Deferred revenue |
|
16,888 |
|
|
|
9,846 |
|
|
|
26,734 |
| |||||
Total current liabilities |
|
626,115 |
|
(376,317 |
) |
190,812 |
|
(43,071 |
) |
397,539 |
| |||||
Accrued long term incentive plan |
|
2,751 |
|
|
|
|
|
|
|
2,751 |
| |||||
Debt |
|
540,915 |
|
505,000 |
|
|
|
(505,000 |
) |
540,915 |
| |||||
Deferred income taxes |
|
28,473 |
|
(16,067 |
) |
|
|
(2,098 |
) |
10,308 |
| |||||
Other liabilities |
|
4,510 |
|
|
|
9,443 |
|
(5,392 |
) |
8,561 |
| |||||
Total liabilities |
|
1,202,764 |
|
112,616 |
|
200,255 |
|
(555,561 |
) |
960,074 |
| |||||
Members interest (deficit) |
|
1,154,816 |
|
1,651,484 |
|
(32,195 |
) |
(1,122,621 |
) |
1,651,484 |
| |||||
Noncontrolling interests in subsidiaries |
|
|
|
(8,383 |
) |
(25 |
) |
25 |
|
(8,383 |
) | |||||
Total members interest (deficit) and noncontrolling interests |
|
1,154,816 |
|
1,643,101 |
|
(32,220 |
) |
(1,122,596 |
) |
1,643,101 |
| |||||
Total liabilities and members interest (deficit) and noncontrolling interests |
|
$ |
2,357,580 |
|
$ |
1,755,717 |
|
$ |
168,035 |
|
$ |
(1,678,157 |
) |
$ |
2,603,175 |
|
Starz, LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010 and 2009
Note 14Supplemental Guarantor Condensed Consolidating Financial Information (Continued)
Consolidating Balance Sheet InformationAs of December 31, 2010
(in thousands)
|
|
Starz |
|
Starz, LLC |
|
Starz Media |
|
Eliminations |
|
Consolidated |
| |||||
Assets |
|
|
|
|
|
|
|
|
|
|
| |||||
Current assets: |
|
|
|
|
|
|
|
|
|
|
| |||||
Cash and cash equivalents |
|
$ |
306,157 |
|
$ |
|
|
$ |
9,495 |
|
$ |
|
|
$ |
315,652 |
|
Restricted cash |
|
|
|
|
|
8,226 |
|
|
|
8,226 |
| |||||
Trade accounts receivable, net |
|
211,706 |
|
|
|
18,572 |
|
(5,937 |
) |
224,341 |
| |||||
Program rights |
|
433,963 |
|
|
|
|
|
(22,797 |
) |
411,166 |
| |||||
Deferred income taxes |
|
3,805 |
|
3,674 |
|
|
|
|
|
7,479 |
| |||||
Due from (to) affiliate |
|
25,999 |
|
(25,999 |
) |
|
|
|
|
|
| |||||
Notes receivable from affiliates |
|
7,475 |
|
|
|
|
|
(7,475 |
) |
|
| |||||
Other current assets |
|
4,849 |
|
|
|
13,984 |
|
|
|
18,833 |
| |||||
Assets of discontinued operations |
|
|
|
|
|
14,511 |
|
|
|
14,511 |
| |||||
Total current assets |
|
993,954 |
|
(22,325 |
) |
64,788 |
|
(36,209 |
) |
1,000,208 |
| |||||
Program rights |
|
327,625 |
|
|
|
|
|
(4,714 |
) |
322,911 |
| |||||
Property and equipment, net |
|
101,171 |
|
|
|
3,546 |
|
|
|
104,717 |
| |||||
Investment in films and television programs, net |
|
57,007 |
|
|
|
63,827 |
|
(133 |
) |
120,701 |
| |||||
Deferred income taxes |
|
4,488 |
|
145,105 |
|
|
|
3,528 |
|
153,121 |
| |||||
Goodwill |
|
131,760 |
|
|
|
|
|
|
|
131,760 |
| |||||
Other assets, net |
|
648 |
|
|
|
29,969 |
|
|
|
30,617 |
| |||||
Investment in consolidated subsidiaries |
|
3,528 |
|
1,395,683 |
|
|
|
(1,399,211 |
) |
|
| |||||
Assets of discontinued operations |
|
|
|
|
|
28,967 |
|
|
|
28,967 |
| |||||
Total assets |
|
$ |
1,620,181 |
|
$ |
1,518,463 |
|
$ |
191,097 |
|
$ |
(1,436,739 |
) |
$ |
1,893,002 |
|
Liabilities and Members Interest and Noncontrolling Interest |
|
|
|
|
|
|
|
|
|
|
| |||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Current portion of debt |
|
$ |
3,908 |
|
$ |
|
|
$ |
54,336 |
|
$ |
|
|
$ |
58,244 |
|
Trade accounts payable |
|
5,627 |
|
|
|
2,071 |
|
|
|
7,698 |
| |||||
Accrued liabilities |
|
106,713 |
|
(13 |
) |
82,388 |
|
(5,372 |
) |
183,716 |
| |||||
Accrued compensation related to long term incentive plan |
|
6,655 |
|
|
|
|
|
|
|
6,655 |
| |||||
Notes payable due to affiliate |
|
|
|
|
|
7,475 |
|
(7,475 |
) |
|
| |||||
Due to (from) affiliates |
|
|
|
9,295 |
|
(116 |
) |
(8,492 |
) |
687 |
| |||||
Deferred revenue |
|
16,127 |
|
|
|
15,015 |
|
(5,409 |
) |
25,733 |
| |||||
Liabilities of discontinued operations |
|
|
|
|
|
13,248 |
|
|
|
13,248 |
| |||||
Total current liabilities |
|
139,030 |
|
9,282 |
|
174,417 |
|
(26,748 |
) |
295,981 |
| |||||
Accrued long term incentive plan |
|
37,458 |
|
|
|
|
|
|
|
37,458 |
| |||||
Debt |
|
40,043 |
|
|
|
927 |
|
|
|
40,970 |
| |||||
Other liabilities |
|
5,065 |
|
|
|
3,241 |
|
|
|
8,306 |
| |||||
Liabilities of discontinued operations |
|
|
|
|
|
1,106 |
|
|
|
1,106 |
| |||||
Total liabilities |
|
221,596 |
|
9,282 |
|
179,691 |
|
(26,748 |
) |
383,821 |
| |||||
Members interest |
|
1,398,585 |
|
1,508,681 |
|
10,906 |
|
(1,409,491 |
) |
1,508,681 |
| |||||
Noncontrolling interest in subsidiary |
|
|
|
500 |
|
500 |
|
(500 |
) |
500 |
| |||||
Total members interest and noncontrolling interest |
|
1,398,585 |
|
1,509,181 |
|
11,406 |
|
(1,409,991 |
) |
1,509,181 |
| |||||
Total liabilities and members interest and noncontrolling interest |
|
$ |
1,620,181 |
|
$ |
1,518,463 |
|
$ |
191,097 |
|
$ |
(1,436,739 |
) |
$ |
1,893,002 |
|
Starz, LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010 and 2009
Note 14Supplemental Guarantor Condensed Consolidating Financial Information (Continued)
Consolidating Statement of Operations InformationFor the Year Ended December 31, 2011
(in thousands)
|
|
Starz |
|
Starz, LLC |
|
Starz Media |
|
Eliminations |
|
Consolidated |
| |||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
| |||||
Programming networks and other services |
|
$ |
1,287,826 |
|
$ |
|
|
$ |
98,416 |
|
$ |
(14,101 |
) |
$ |
1,372,141 |
|
Home video net sales |
|
27,389 |
|
|
|
219,981 |
|
(5,478 |
) |
241,892 |
| |||||
Total revenue |
|
1,315,215 |
|
|
|
318,397 |
|
(19,579 |
) |
1,614,033 |
| |||||
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
| |||||
Programming costs (including amortization) |
|
672,525 |
|
|
|
|
|
(21,276 |
) |
651,249 |
| |||||
Production and acquisition costs (including amortization) |
|
23,938 |
|
|
|
136,161 |
|
(1,310 |
) |
158,789 |
| |||||
Home video cost of sales |
|
14,296 |
|
|
|
53,622 |
|
(5,478 |
) |
62,440 |
| |||||
Operating expenses |
|
16,193 |
|
|
|
47,287 |
|
(9,777 |
) |
53,703 |
| |||||
Advertising and marketing |
|
91,314 |
|
|
|
40,869 |
|
|
|
132,183 |
| |||||
General and administrative |
|
71,399 |
|
338 |
|
34,344 |
|
|
|
106,081 |
| |||||
Long term incentive plan and stock compensation |
|
6,603 |
|
|
|
475 |
|
|
|
7,078 |
| |||||
Depreciation and amortization |
|
12,757 |
|
|
|
5,150 |
|
|
|
17,907 |
| |||||
Total costs and expenses |
|
909,025 |
|
338 |
|
317,908 |
|
(37,841 |
) |
1,189,430 |
| |||||
Operating income (loss) |
|
406,190 |
|
(338 |
) |
489 |
|
18,262 |
|
424,603 |
| |||||
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
| |||||
Interest expense, including amounts due to affiliate, net of amounts capitalized |
|
(2,849 |
) |
(2,282 |
) |
(2,163 |
) |
2,282 |
|
(5,012 |
) | |||||
Interest income (expense), related party |
|
4,395 |
|
|
|
(4,395 |
) |
|
|
|
| |||||
Share of earnings of consolidated subsidiaries |
|
|
|
241,759 |
|
|
|
(241,759 |
) |
|
| |||||
Other income (expense), net |
|
(10,575 |
) |
93 |
|
546 |
|
6,431 |
|
(3,505 |
) | |||||
Income (loss) from continuing operations before income taxes |
|
397,161 |
|
239,232 |
|
(5,523 |
) |
(214,784 |
) |
416,086 |
| |||||
Income tax expense |
|
(147,877 |
) |
(8,232 |
) |
(6,099 |
) |
(9,981 |
) |
(172,189 |
) | |||||
Income (loss) from continuing operations |
|
249,284 |
|
231,000 |
|
(11,622 |
) |
(224,765 |
) |
243,897 |
| |||||
Loss from discontinued operations (including loss on sale of $12,114), net of income taxes |
|
|
|
5,411 |
|
(12,897 |
) |
|
|
(7,486 |
) | |||||
Net income (loss) |
|
249,284 |
|
236,411 |
|
(24,519 |
) |
(224,765 |
) |
236,411 |
| |||||
Net loss attributable to noncontrolling interests |
|
|
|
3,273 |
|
525 |
|
(525 |
) |
3,273 |
| |||||
Net income (loss) attributable to member |
|
$ |
249,284 |
|
$ |
239,684 |
|
$ |
(23,994 |
) |
$ |
(225,290 |
) |
$ |
239,684 |
|
Starz, LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010 and 2009
Note 14Supplemental Guarantor Condensed Consolidating Financial Information (Continued)
Consolidating Statement of Comprehensive Income (Loss) InformationFor the Year Ended December 31, 2011
(in thousands)
|
|
Starz |
|
Starz, LLC |
|
Starz Media |
|
Eliminations |
|
Consolidated |
| |||||
Net income (loss) |
|
$ |
249,284 |
|
$ |
236,411 |
|
$ |
(24,519 |
) |
$ |
(224,765 |
) |
$ |
236,411 |
|
Other comprehensive loss, net of taxes: |
|
|
|
|
|
|
|
|
|
|
| |||||
Foreign currency translation adjustments from continuing operations |
|
|
|
(529 |
) |
(529 |
) |
529 |
|
(529 |
) | |||||
Foreign currency translation adjustments from discontinued operations |
|
|
|
(5,946 |
) |
(5,946 |
) |
5,946 |
|
(5,946 |
) | |||||
Other comprehensive loss |
|
|
|
(6,475 |
) |
(6,475 |
) |
6,475 |
|
(6,475 |
) | |||||
Comprehensive income (loss) |
|
249,284 |
|
229,936 |
|
(30,994 |
) |
(218,290 |
) |
229,936 |
| |||||
Comprehensive loss attributable to noncontrolling interests |
|
|
|
3,447 |
|
681 |
|
(681 |
) |
3,447 |
| |||||
Comprehensive income (loss) attributable to member |
|
$ |
249,284 |
|
$ |
233,383 |
|
$ |
(30,313 |
) |
$ |
(218,971 |
) |
$ |
233,383 |
|
Starz, LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010 and 2009
Note 14Supplemental Guarantor Condensed Consolidating Financial Information (Continued)
Consolidating Statement of Operations and Comprehensive Income (Loss) InformationFor the Year Ended December 31, 2010
(in thousands)
|
|
Starz |
|
Starz, LLC |
|
Starz Media |
|
Eliminations |
|
Consolidated |
| |||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
| |||||
Programming networks and other services |
|
$ |
1,234,712 |
|
$ |
|
|
$ |
176,667 |
|
$ |
(31,030 |
) |
$ |
1,380,349 |
|
Home video net sales |
|
12,766 |
|
|
|
214,775 |
|
(2,553 |
) |
224,988 |
| |||||
Total revenue |
|
1,247,478 |
|
|
|
391,442 |
|
(33,583 |
) |
1,605,337 |
| |||||
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
| |||||
Programming costs (including amortization) |
|
665,271 |
|
|
|
|
|
(17,454 |
) |
647,817 |
| |||||
Production and acquisition costs (including amortization) |
|
18,760 |
|
|
|
159,194 |
|
|
|
177,954 |
| |||||
Home video cost of sales |
|
7,279 |
|
|
|
65,089 |
|
(2,553 |
) |
69,815 |
| |||||
Operating expenses |
|
16,077 |
|
|
|
59,293 |
|
(2,110 |
) |
73,260 |
| |||||
Advertising and marketing |
|
66,682 |
|
|
|
108,735 |
|
|
|
175,417 |
| |||||
General and administrative |
|
66,308 |
|
|
|
59,113 |
|
|
|
125,421 |
| |||||
Phantom stock appreciation rights, long term incentive plan and stock compensation |
|
40,900 |
|
|
|
(1,432 |
) |
|
|
39,468 |
| |||||
Depreciation and amortization |
|
14,007 |
|
|
|
6,461 |
|
|
|
20,468 |
| |||||
Total costs and expenses |
|
895,284 |
|
|
|
456,453 |
|
(22,117 |
) |
1,329,620 |
| |||||
Operating income (loss) |
|
352,194 |
|
|
|
(65,011 |
) |
(11,466 |
) |
275,717 |
| |||||
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
| |||||
Interest expense, including amounts due to affiliate, net of amounts capitalized |
|
(1,202 |
) |
|
|
(19,730 |
) |
|
|
(20,932 |
) | |||||
Share of earnings of consolidated subsidiaries |
|
|
|
129,269 |
|
|
|
(129,269 |
) |
|
| |||||
Other income (expense), net |
|
1,310 |
|
|
|
(1,852 |
) |
|
|
(542 |
) | |||||
Income (loss) from continuing operations before income taxes |
|
352,302 |
|
129,269 |
|
(86,593 |
) |
(140,735 |
) |
254,243 |
| |||||
Income tax benefit (expense) |
|
(131,416 |
) |
31,399 |
|
(3,039 |
) |
4,292 |
|
(98,764 |
) | |||||
Income (loss) from continuing operations |
|
220,886 |
|
160,668 |
|
(89,632 |
) |
(136,443 |
) |
155,479 |
| |||||
Income (loss) from discontinued operations, net of income taxes |
|
|
|
(1,874 |
) |
5,322 |
|
(133 |
) |
3,315 |
| |||||
Net income (loss) |
|
220,886 |
|
158,794 |
|
(84,310 |
) |
(136,576 |
) |
158,794 |
| |||||
Other comprehensive income (loss), net of taxes: |
|
|
|
|
|
|
|
|
|
|
| |||||
Foreign currency translation adjustments from continuing operations |
|
|
|
1,167 |
|
1,167 |
|
(1,167 |
) |
1,167 |
| |||||
Foreign currency translation adjustments from discontinued operations |
|
|
|
(1,172 |
) |
(1,172 |
) |
1,172 |
|
(1,172 |
) | |||||
Comprehensive income (loss) |
|
$ |
220,886 |
|
$ |
158,789 |
|
$ |
(84,315 |
) |
$ |
(136,571 |
) |
$ |
158,789 |
|
Starz, LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010 and 2009
Note 14Supplemental Guarantor Condensed Consolidating Financial Information (Continued)
Consolidating Statement of Operations and Comprehensive Income (Loss) InformationFor the Year Ended December 31, 2009
(in thousands)
|
|
Starz |
|
Starz, LLC |
|
Starz Media |
|
Eliminations |
|
Consolidated |
| |||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
| |||||
Programming networks and other services |
|
$ |
1,191,037 |
|
$ |
|
|
$ |
180,420 |
|
$ |
(16,479 |
) |
$ |
1,354,978 |
|
Home video net sales |
|
1,791 |
|
|
|
166,150 |
|
(322 |
) |
167,619 |
| |||||
Total revenue |
|
1,192,828 |
|
|
|
346,570 |
|
(16,801 |
) |
1,522,597 |
| |||||
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
| |||||
Programming costs (including amortization) |
|
649,321 |
|
|
|
|
|
(7,844 |
) |
641,477 |
| |||||
Production and acquisition costs (including amortization) |
|
11,848 |
|
|
|
95,274 |
|
|
|
107,122 |
| |||||
Home video cost of sales |
|
1,724 |
|
|
|
61,894 |
|
(322 |
) |
63,296 |
| |||||
Operating expenses |
|
13,789 |
|
|
|
66,600 |
|
(426 |
) |
79,963 |
| |||||
Advertising and marketing |
|
65,242 |
|
|
|
164,093 |
|
|
|
229,335 |
| |||||
General and administrative |
|
67,033 |
|
|
|
54,759 |
|
|
|
121,792 |
| |||||
Phantom stock appreciation rights, long term incentive plan and stock compensation |
|
37,195 |
|
|
|
(2,053 |
) |
|
|
35,142 |
| |||||
Depreciation and amortization |
|
16,415 |
|
|
|
7,055 |
|
|
|
23,470 |
| |||||
Total costs and expenses |
|
862,567 |
|
|
|
447,622 |
|
(8,592 |
) |
1,301,597 |
| |||||
Operating income (loss) |
|
330,261 |
|
|
|
(101,052 |
) |
(8,209 |
) |
221,000 |
| |||||
Other expense: |
|
|
|
|
|
|
|
|
|
|
| |||||
Interest expense, including amounts due to affiliate, net of amounts capitalized |
|
(2,233 |
) |
|
|
(24,955 |
) |
|
|
(27,188 |
) | |||||
Share of earnings of consolidated subsidiaries |
|
|
|
70,449 |
|
|
|
(70,449 |
) |
|
| |||||
Other expense, net |
|
(594 |
) |
|
|
(4,125 |
) |
|
|
(4,719 |
) | |||||
Income (loss) from continuing operations before income taxes |
|
327,434 |
|
70,449 |
|
(130,132 |
) |
(78,658 |
) |
189,093 |
| |||||
Income tax benefit (expense) |
|
(122,560 |
) |
49,656 |
|
(1,180 |
) |
3,078 |
|
(71,006 |
) | |||||
Income (loss) from continuing operations |
|
204,874 |
|
120,105 |
|
(131,312 |
) |
(75,580 |
) |
118,087 |
| |||||
Income (loss) from discontinued operations, net of income taxes |
|
|
|
(765 |
) |
2,018 |
|
|
|
1,253 |
| |||||
Net income (loss) |
|
204,874 |
|
119,340 |
|
(129,294 |
) |
(75,580 |
) |
119,340 |
| |||||
Other comprehensive income (loss), net of taxes: |
|
|
|
|
|
|
|
|
|
|
| |||||
Foreign currency translation adjustments from continuing operations |
|
|
|
4,566 |
|
4,566 |
|
(4,566 |
) |
4,566 |
| |||||
Foreign currency translation adjustments from discontinued operations |
|
|
|
(2,958 |
) |
(2,958 |
) |
2,958 |
|
(2,958 |
) | |||||
Comprehensive income (loss) |
|
$ |
204,874 |
|
$ |
120,948 |
|
$ |
(127,686 |
) |
$ |
(77,188 |
) |
$ |
120,948 |
|
Starz, LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010 and 2009
Note 14Supplemental Guarantor Condensed Consolidating Financial Information (Continued)
Consolidating Statement of Cash Flows InformationFor the Year Ended December 31, 2011
(in thousands)
|
|
Starz |
|
Starz, LLC |
|
Starz Media |
|
Eliminations |
|
Consolidated |
| |||||
Operating activities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Net income (loss) |
|
$ |
249,284 |
|
$ |
236,411 |
|
$ |
(24,519 |
) |
$ |
(224,765 |
) |
$ |
236,411 |
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Loss from discontinued operations |
|
|
|
|
|
7,486 |
|
|
|
7,486 |
| |||||
Long term incentive plan and stock compensation |
|
6,603 |
|
|
|
475 |
|
|
|
7,078 |
| |||||
Payments of long term incentive plan |
|
(7,696 |
) |
|
|
|
|
|
|
(7,696 |
) | |||||
Amortization of program rights |
|
632,317 |
|
|
|
|
|
(21,276 |
) |
611,041 |
| |||||
Amortization of investment in films and television programs |
|
20,145 |
|
|
|
105,957 |
|
|
|
126,102 |
| |||||
Depreciation and amortization |
|
12,757 |
|
|
|
5,150 |
|
|
|
17,907 |
| |||||
Share of earnings of consolidated subsidiaries |
|
|
|
(241,759 |
) |
|
|
241,759 |
|
|
| |||||
Deferred income taxes |
|
25,758 |
|
13,363 |
|
|
|
(2,098 |
) |
37,023 |
| |||||
Other non-cash items |
|
1,382 |
|
253 |
|
(299 |
) |
9,678 |
|
11,014 |
| |||||
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Restricted cash |
|
|
|
|
|
(4,896 |
) |
|
|
(4,896 |
) | |||||
Trade accounts receivable |
|
7,711 |
|
|
|
(25,055 |
) |
(6,034 |
) |
(23,378 |
) | |||||
Program rights |
|
(564,375 |
) |
|
|
|
|
10,034 |
|
(554,341 |
) | |||||
Investment in films and television programs |
|
(144,494 |
) |
|
|
(69,028 |
) |
(133 |
) |
(213,655 |
) | |||||
Other current assets |
|
583 |
|
|
|
3,151 |
|
|
|
3,734 |
| |||||
Other assets |
|
(4,812 |
) |
|
|
251 |
|
|
|
(4,561 |
) | |||||
Trade accounts payable |
|
882 |
|
|
|
110 |
|
|
|
992 |
| |||||
Accrued liabilities |
|
13,558 |
|
951 |
|
(3,067 |
) |
(8,832 |
) |
2,610 |
| |||||
Due to / from affiliates |
|
80,081 |
|
(7,639 |
) |
14,877 |
|
1,952 |
|
89,271 |
| |||||
Deferred revenue |
|
138 |
|
|
|
6,863 |
|
(285 |
) |
6,716 |
| |||||
Other liabilities |
|
133 |
|
|
|
(1,018 |
) |
|
|
(885 |
) | |||||
Net cash provided by operating activities |
|
329,955 |
|
1,580 |
|
16,438 |
|
|
|
347,973 |
| |||||
Investing activitiespurchases of property and equipment |
|
$ |
(7,554 |
) |
$ |
|
|
$ |
(169 |
) |
$ |
|
|
$ |
(7,723 |
) |
(Continued)
Starz, LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010 and 2009
Note 14Supplemental Guarantor Condensed Consolidating Financial Information (Continued)
Consolidating Statement of Cash Flows Information (Continued)For the Year Ended December 31, 2011
(in thousands)
|
|
Starz |
|
Starz, LLC |
|
Starz Media |
|
Eliminations |
|
Consolidated |
| |||||
Financing activities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Borrowings of debt |
|
$ |
|
|
$ |
505,000 |
|
$ |
|
|
$ |
|
|
$ |
505,000 |
|
Payments of debt |
|
(3,907 |
) |
|
|
(55,263 |
) |
|
|
(59,170 |
) | |||||
Debt issuance costs |
|
|
|
(10,191 |
) |
|
|
|
|
(10,191 |
) | |||||
Cash advance to / from affiliate |
|
374,128 |
|
(374,128 |
) |
|
|
|
|
|
| |||||
Borrowings under notes payable to affiliate |
|
(103,236 |
) |
|
|
103,236 |
|
|
|
|
| |||||
Repayments under notes payable to affiliate |
|
72,359 |
|
|
|
(72,359 |
) |
|
|
|
| |||||
Net advances to / from affiliate |
|
(2,502 |
) |
|
|
2,502 |
|
|
|
|
| |||||
Contribution from noncontrolling owner of subsidiary |
|
|
|
3,000 |
|
|
|
|
|
3,000 |
| |||||
Settlement of derivative instruments |
|
|
|
|
|
(2,863 |
) |
|
|
(2,863 |
) | |||||
Restricted cash |
|
|
|
|
|
8,226 |
|
|
|
8,226 |
| |||||
Net cash provided by (used in) financing activities |
|
336,842 |
|
123,681 |
|
(16,521 |
) |
|
|
444,002 |
| |||||
Effect of exchange rate changes on cash and cash equivalents |
|
|
|
|
|
(17 |
) |
|
|
(17 |
) | |||||
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
| |||||
Net cash used in operating activities |
|
|
|
|
|
(2,283 |
) |
|
|
(2,283 |
) | |||||
Net cash provided by financing activities |
|
|
|
|
|
3,569 |
|
|
|
3,569 |
| |||||
Effect of exchange rate changes on cash and cash equivalents held by discontinued operations |
|
|
|
|
|
40 |
|
|
|
40 |
| |||||
Cash held by discontinued operations upon sale |
|
|
|
|
|
(3,144 |
) |
|
|
(3,144 |
) | |||||
Change in available cash held by discontinued operations |
|
|
|
|
|
1,818 |
|
|
|
1,818 |
| |||||
Net cash provided by discontinued operations |
|
|
|
|
|
|
|
|
|
|
| |||||
Net increase (decrease) in cash and cash equivalents |
|
659,243 |
|
125,261 |
|
(269 |
) |
|
|
784,235 |
| |||||
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
|
|
| |||||
Beginning of year |
|
306,157 |
|
|
|
9,495 |
|
|
|
315,652 |
| |||||
End of year |
|
$ |
965,400 |
|
$ |
125,261 |
|
$ |
9,226 |
|
$ |
|
|
$ |
1,099,887 |
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
|
| |||||
Cash paid for interest, net of amounts capitalized |
|
$ |
683 |
|
$ |
1,238 |
|
$ |
758 |
|
$ |
|
|
$ |
2,679 |
|
Cash paid for income taxes |
|
$ |
41,782 |
|
$ |
|
|
$ |
3,011 |
|
$ |
|
|
$ |
44,793 |
|
Change in deferred tax assets due to sale of noncontrolling interest |
|
$ |
|
|
$ |
141,135 |
|
$ |
|
|
$ |
|
|
$ |
141,135 |
|
Push down of debt from parent |
|
$ |
494,826 |
|
$ |
(494,826 |
) |
$ |
|
|
$ |
|
|
$ |
|
|
Starz, LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010 and 2009
Note 14Supplemental Guarantor Condensed Consolidating Financial Information (Continued)
Consolidating Statement of Cash Flows InformationFor the Year Ended December 31, 2010
(in thousands)
|
|
Starz |
|
Starz, LLC |
|
Starz Media |
|
Eliminations |
|
Consolidated |
| |||||
Operating activities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Net income (loss) |
|
$ |
220,886 |
|
$ |
158,794 |
|
$ |
(84,310 |
) |
$ |
(136,576 |
) |
$ |
158,794 |
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Income from discontinued operations |
|
|
|
|
|
(3,315 |
) |
|
|
(3,315 |
) | |||||
Phantom stock appreciation rights, long term incentive plan and stock compensation |
|
40,900 |
|
|
|
(1,432 |
) |
|
|
39,468 |
| |||||
Payments of phantom stock appreciation rights and long term incentive plan |
|
(196,232 |
) |
|
|
|
|
|
|
(196,232 |
) | |||||
Amortization of program rights |
|
629,069 |
|
|
|
|
|
(17,454 |
) |
611,615 |
| |||||
Amortization of investment in films and television programs |
|
15,688 |
|
|
|
101,240 |
|
|
|
116,928 |
| |||||
Depreciation and amortization |
|
14,007 |
|
|
|
6,461 |
|
|
|
20,468 |
| |||||
Noncash interest on debt due to affiliate |
|
|
|
|
|
16,313 |
|
|
|
16,313 |
| |||||
Share of earnings of consolidated subsidiaries |
|
|
|
(129,269 |
) |
|
|
129,269 |
|
|
| |||||
Deferred income taxes |
|
59,513 |
|
(6,559 |
) |
|
|
|
|
52,954 |
| |||||
Other non-cash items |
|
57 |
|
|
|
7,043 |
|
(4,292 |
) |
2,808 |
| |||||
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Trade accounts receivable |
|
(15,503 |
) |
|
|
16,370 |
|
3,471 |
|
4,338 |
| |||||
Program rights |
|
(561,276 |
) |
|
|
|
|
28,710 |
|
(532,566 |
) | |||||
Investment in films and television programs |
|
(64,573 |
) |
|
|
(52,595 |
) |
133 |
|
(117,035 |
) | |||||
Other current assets |
|
3,077 |
|
|
|
5,556 |
|
|
|
8,633 |
| |||||
Other assets |
|
(375 |
) |
|
|
(3,086 |
) |
|
|
(3,461 |
) | |||||
Trade accounts payable |
|
(1,000 |
) |
|
|
1,183 |
|
|
|
183 |
| |||||
Accrued liabilities |
|
8,850 |
|
|
|
3,216 |
|
|
|
12,066 |
| |||||
Due to / from affiliates |
|
(48,258 |
) |
52,255 |
|
(5,551 |
) |
|
|
(1,554 |
) | |||||
Deferred revenue |
|
873 |
|
|
|
8,063 |
|
(3,261 |
) |
5,675 |
| |||||
Other liabilities |
|
(4,600 |
) |
|
|
(341 |
) |
|
|
(4,941 |
) | |||||
Net cash provided by operating activities |
|
101,103 |
|
75,221 |
|
14,815 |
|
|
|
191,139 |
| |||||
Investing activitiespurchases of property and equipment |
|
$ |
(6,720 |
) |
$ |
|
|
$ |
(379 |
) |
$ |
|
|
$ |
(7,099 |
) |
(Continued)
Starz, LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010 and 2009
Note 14Supplemental Guarantor Condensed Consolidating Financial Information (Continued)
Consolidating Statement of Cash Flows Information (Continued)For the Year Ended December 31, 2010
(in thousands)
|
|
Starz |
|
Starz, LLC |
|
Starz Media |
|
Eliminations |
|
Consolidated |
| |||||
Financing activities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Borrowings of debt |
|
$ |
|
|
$ |
|
|
$ |
129,343 |
|
$ |
|
|
$ |
129,343 |
|
Payments of debt |
|
(3,700 |
) |
|
|
(198,335 |
) |
|
|
(202,035 |
) | |||||
Net advances to / from affiliate |
|
(35,812 |
) |
|
|
35,812 |
|
|
|
|
| |||||
Contribution from affiliate |
|
|
|
|
|
15,000 |
|
|
|
15,000 |
| |||||
Contribution from noncontrolling owner of subsidiary |
|
|
|
|
|
500 |
|
|
|
500 |
| |||||
Distributions to affiliate |
|
|
|
(75,221 |
) |
|
|
|
|
(75,221 |
) | |||||
Settlement of derivative instruments |
|
|
|
|
|
(6,301 |
) |
|
|
(6,301 |
) | |||||
Restricted cash |
|
|
|
|
|
10,300 |
|
|
|
10,300 |
| |||||
Net cash used in financing activities |
|
(39,512 |
) |
(75,221 |
) |
(13,681 |
) |
|
|
(128,414 |
) | |||||
Effect of exchange rate changes on cash and cash equivalents |
|
|
|
|
|
59 |
|
|
|
59 |
| |||||
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
| |||||
Net cash provided by operating activities |
|
|
|
|
|
753 |
|
|
|
753 |
| |||||
Net cash used in investing activities |
|
|
|
|
|
(1,836 |
) |
|
|
(1,836 |
) | |||||
Net cash used in financing activities |
|
|
|
|
|
(1,390 |
) |
|
|
(1,390 |
) | |||||
Effect of exchange rate changes on cash and cash equivalents held by discontinued operations |
|
|
|
|
|
85 |
|
|
|
85 |
| |||||
Change in available cash held by discontinued operations |
|
|
|
|
|
3,460 |
|
|
|
3,460 |
| |||||
Net cash provided by discontinued operations |
|
|
|
|
|
1,072 |
|
|
|
1,072 |
| |||||
Net increase in cash and cash equivalents |
|
54,871 |
|
|
|
1,886 |
|
|
|
56,757 |
| |||||
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
|
|
| |||||
Beginning of year |
|
251,286 |
|
|
|
7,609 |
|
|
|
258,895 |
| |||||
End of year |
|
$ |
306,157 |
|
$ |
|
|
$ |
9,495 |
|
$ |
|
|
$ |
315,652 |
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
|
| |||||
Cash paid for interest, net of amounts capitalized |
|
$ |
1,202 |
|
$ |
|
|
$ |
2,574 |
|
$ |
|
|
$ |
3,776 |
|
Cash paid for income taxes |
|
$ |
118,636 |
|
$ |
|
|
$ |
2,070 |
|
$ |
|
|
$ |
120,706 |
|
Contribution of notes receivable from affiliate |
|
$ |
|
|
$ |
|
|
$ |
426,254 |
|
$ |
|
|
$ |
426,254 |
|
Distribution of notes receivable to affiliate |
|
$ |
|
|
$ |
|
|
$ |
489,134 |
|
$ |
|
|
$ |
489,134 |
|
(Distribution)/contribution of due from affiliate |
|
$ |
(39,885 |
) |
$ |
|
|
$ |
39,885 |
|
$ |
|
|
$ |
|
|
Starz, LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010 and 2009
Note 14Supplemental Guarantor Condensed Consolidating Financial Information (Continued)
Consolidating Statement of Cash Flows InformationFor the Year Ended December 31, 2009
(in thousands)
|
|
Starz |
|
Starz, LLC |
|
Starz Media |
|
Eliminations |
|
Consolidated |
| |||||
Operating activities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Net income (loss) |
|
$ |
204,874 |
|
$ |
119,340 |
|
$ |
(129,294 |
) |
$ |
(75,580 |
) |
$ |
119,340 |
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Income from discontinued operations |
|
|
|
|
|
(1,253 |
) |
|
|
(1,253 |
) | |||||
Phantom stock appreciation rights and long term incentive plan |
|
37,195 |
|
|
|
(2,053 |
) |
|
|
35,142 |
| |||||
Payments of long term incentive plan |
|
(2,565 |
) |
|
|
|
|
|
|
(2,565 |
) | |||||
Amortization of program rights |
|
615,345 |
|
|
|
|
|
(7,844 |
) |
607,501 |
| |||||
Amortization of investment in films and television programs |
|
10,981 |
|
|
|
64,340 |
|
|
|
75,321 |
| |||||
Depreciation and amortization |
|
16,415 |
|
|
|
7,055 |
|
|
|
23,470 |
| |||||
Noncash interest on debt due to affiliate |
|
|
|
|
|
13,498 |
|
|
|
13,498 |
| |||||
Share of earnings of consolidated subsidiaries |
|
|
|
(70,449 |
) |
|
|
70,449 |
|
|
| |||||
Deferred income taxes |
|
1,739 |
|
17,260 |
|
|
|
|
|
18,999 |
| |||||
Other non-cash items |
|
(1,186 |
) |
|
|
10,039 |
|
(3,078 |
) |
5,775 |
| |||||
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Trade accounts receivable |
|
(6,654 |
) |
|
|
37,098 |
|
1,608 |
|
32,052 |
| |||||
Program rights |
|
(568,813 |
) |
|
|
|
|
16,593 |
|
(552,220 |
) | |||||
Investment in films and television programs |
|
(78,953 |
) |
|
|
(61,839 |
) |
|
|
(140,792 |
) | |||||
Other current assets |
|
(4,138 |
) |
|
|
9,944 |
|
|
|
5,806 |
| |||||
Other assets |
|
(254 |
) |
|
|
1,781 |
|
|
|
1,527 |
| |||||
Trade accounts payable |
|
5,625 |
|
|
|
(8,402 |
) |
|
|
(2,777 |
) | |||||
Accrued liabilities |
|
5,048 |
|
|
|
(5,292 |
) |
|
|
(244 |
) | |||||
Due to / from affiliates |
|
5,733 |
|
(158 |
) |
(5,478 |
) |
|
|
97 |
| |||||
Deferred revenue |
|
2,921 |
|
|
|
(26,215 |
) |
(2,148 |
) |
(25,442 |
) | |||||
Other liabilities |
|
104 |
|
|
|
(1,263 |
) |
|
|
(1,159 |
) | |||||
Net cash provided by (used in) operating activities |
|
243,417 |
|
65,993 |
|
(97,334 |
) |
|
|
212,076 |
| |||||
Investing activitiespurchases of property and equipment |
|
$ |
(9,664 |
) |
$ |
|
|
$ |
(354 |
) |
$ |
|
|
$ |
(10,018 |
) |
(Continued)
Starz, LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010 and 2009
Note 14Supplemental Guarantor Condensed Consolidating Financial Information (Continued)
Consolidating Statement of Cash Flows Information (Continued)For the Year Ended December 31, 2009
(in thousands)
|
|
Starz |
|
Starz, LLC |
|
Starz Media |
|
Eliminations |
|
Consolidated |
| |||||
Financing activities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Borrowings of debt |
|
$ |
|
|
$ |
|
|
$ |
115,800 |
|
$ |
|
|
$ |
115,800 |
|
Payments of debt |
|
(3,502 |
) |
|
|
(126,814 |
) |
|
|
(130,316 |
) | |||||
Borrowings under note payable due to affiliate |
|
|
|
|
|
94,000 |
|
|
|
94,000 |
| |||||
Payments of note payable due to affiliate |
|
(66,536 |
) |
|
|
(5,637 |
) |
|
|
(72,173 |
) | |||||
Net advances to / from affiliate |
|
(9,776 |
) |
|
|
9,776 |
|
|
|
|
| |||||
Distributions to affiliate |
|
|
|
(65,993 |
) |
|
|
|
|
(65,993 |
) | |||||
Settlement of derivative instruments |
|
|
|
|
|
(6,920 |
) |
|
|
(6,920 |
) | |||||
Restricted cash |
|
|
|
|
|
(9,468 |
) |
|
|
(9,468 |
) | |||||
Net cash provided by (used in) financing activities |
|
(79,814 |
) |
(65,993 |
) |
70,737 |
|
|
|
(75,070 |
) | |||||
Effect of exchange rate changes on cash and cash equivalents |
|
|
|
|
|
243 |
|
|
|
243 |
| |||||
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
| |||||
Net cash provided by operating activities |
|
|
|
|
|
12,847 |
|
|
|
12,847 |
| |||||
Net cash used in investing activities |
|
|
|
|
|
(1,213 |
) |
|
|
(1,213 |
) | |||||
Net cash provided by financing activities |
|
|
|
|
|
6,664 |
|
|
|
6,664 |
| |||||
Effect of exchange rate changes on cash and cash equivalents held by discontinued operations |
|
|
|
|
|
92 |
|
|
|
92 |
| |||||
Change in available cash held by discontinued operations |
|
|
|
|
|
(4,723 |
) |
|
|
(4,723 |
) | |||||
Net cash provided by discontinued operations |
|
|
|
|
|
13,667 |
|
|
|
13,667 |
| |||||
Net increase (decrease) in cash and cash equivalents |
|
153,939 |
|
|
|
(13,041 |
) |
|
|
140,898 |
| |||||
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
|
|
| |||||
Beginning of year |
|
97,347 |
|
|
|
20,650 |
|
|
|
117,997 |
| |||||
End of year |
|
$ |
251,286 |
|
$ |
|
|
$ |
7,609 |
|
$ |
|
|
$ |
258,895 |
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
|
| |||||
Cash paid for interest, net of amounts capitalized |
|
$ |
2,233 |
|
$ |
|
|
$ |
10,859 |
|
$ |
|
|
$ |
13,092 |
|
Cash paid for income taxes |
|
$ |
116,514 |
|
$ |
|
|
$ |
1,180 |
|
$ |
|
|
$ |
117,694 |
|
Starz, LLC and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010 and 2009
Note 15Subsequent Events
During August 2012, LMCs board of directors authorized a plan to distribute to the stockholders of LMC shares of a wholly-owned subsidiary, Liberty Spinco, Inc. (Liberty Spinco), that will hold all of the businesses, assets and liabilities of LMC not associated with Starz, LLC (with the exception of the Starz, LLC Englewood, Colorado corporate office building) (the Spin-Off). The Spin-Off was completed on January 11, 2013. The transaction was effected as a pro-rata dividend of shares of Liberty Spinco to the stockholders of LMC. Liberty Spinco, which became a separate public company, was renamed Liberty Media Corporation. The businesses, assets and liabilities not included in Liberty Spinco are part of a separate public company now named Starz. In connection with the reorganization transaction, the Company distributed $1,800.0 million to LMC (paid as follows: $100.0 million on July 9, 2012, $250.0 million on August 17, 2012, $50.0 million on September 4, 2012, $200.0 million on November 16, 2012 and $1,200.0 million on January 10, 2013), funded by a combination of cash on hand and borrowings under the senior secured revolving credit facility, and such distributed cash was subsequently contributed to Liberty Spinco. Additionally, in connection with the reorganization transaction, the Company distributed its Englewood, Colorado corporate office building and related building improvements to LMC (and LMC subsequently transferred such building and related improvements to a subsidiary of Liberty Spinco) and then leased back the use of such facilities from such Liberty Spinco subsidiary. Following the Spin-Off, Liberty Spinco and Starz operate independently, and neither have any stock ownership, beneficial or otherwise, in the other.
On September 13, 2012, the Company and Starz Finance Corp. co-issued $500.0 million of 5% Senior Notes due September 15, 2019 (the Senior Notes). Starz Finance Corp. is a wholly-owned subsidiary of the Company and was formed for the sole purpose of co-issuing the Senior Notes. Starz Finance Corp. does not have and will not have any operations, assets or subsidiaries of its own. The Senior Notes pay interest semi-annually on September 15 and March 15 of each year. The Senior Notes are guaranteed jointly and severally by Starz Entertainment and Starz Finance Corp. The Company used the net proceeds and cash on hand to repay the $500.0 million term loan under the Senior Secured Credit Facilities.
Report of Independent Registered Public Accounting Firm
The Member
Starz, LLC:
Under date of April 27, 2012, except as to note 13, which is as of October 23, 2012, and except as to note 15, which is as of January 16, 2013, we reported on the consolidated balance sheets of Starz, LLC and subsidiaries (the Company) as of December 31, 2011 and 2010, and the related consolidated statements of operations, comprehensive income, cash flows, and members interest and noncontrolling interests for each of the years in the three-year period ended December 31, 2011, which are included herein. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related financial statement schedule in the registration statement. This financial statement schedule is the responsibility of the Companys management. Our responsibility is to express an opinion on this financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
|
/s/ KPMG LLP |
|
|
Denver, Colorado |
|
October 23, 2012 |
|
Schedule II. Valuation and Qualifying Accounts
Starz, LLC and Subsidiaries
Years Ended December 31, 2011, 2010 and 2009
(in thousands)
Description |
|
Balance at |
|
Charged to |
|
Charged to |
|
Deductions(2) |
|
Balance at |
| |||||
Year ended December 31, 2011: |
|
|
|
|
|
|
|
|
|
|
| |||||
Reserves: |
|
|
|
|
|
|
|
|
|
|
| |||||
Allowance for doubtful accounts |
|
$ |
3,723 |
|
$ |
426 |
|
$ |
|
|
$ |
(1,976 |
) |
$ |
2,173 |
|
Allowance for sales returns |
|
26,967 |
|
101,628 |
|
|
|
(92,433 |
) |
36,162 |
| |||||
Total |
|
$ |
30,690 |
|
$ |
102,054 |
|
$ |
|
|
$ |
(94,409 |
) |
$ |
38,335 |
|
Year ended December 31, 2010: |
|
|
|
|
|
|
|
|
|
|
| |||||
Reserves: |
|
|
|
|
|
|
|
|
|
|
| |||||
Allowance for doubtful accounts |
|
$ |
5,094 |
|
$ |
1,954 |
|
$ |
|
|
$ |
(3,325 |
) |
$ |
3,723 |
|
Allowance for sales returns |
|
29,134 |
|
75,126 |
|
|
|
(77,293 |
) |
26,967 |
| |||||
Total |
|
$ |
34,228 |
|
$ |
77,080 |
|
$ |
|
|
$ |
(80,618 |
) |
$ |
30,690 |
|
Year ended December 31, 2009: |
|
|
|
|
|
|
|
|
|
|
| |||||
Reserves: |
|
|
|
|
|
|
|
|
|
|
| |||||
Allowance for doubtful accounts |
|
$ |
3,955 |
|
$ |
1,542 |
|
$ |
|
|
$ |
(403 |
) |
$ |
5,094 |
|
Allowance for sales returns |
|
24,171 |
|
72,008 |
|
|
|
(67,045 |
) |
29,134 |
| |||||
Total |
|
$ |
28,126 |
|
$ |
73,550 |
|
$ |
|
|
$ |
(67,448 |
) |
$ |
34,228 |
|
(1) Charges for doubtful accounts are included in general and administrative expense and charges for sales returns are recorded against revenue.
(2) Uncollectible accounts written off, foreign currency exchange rate and actual video returns.