Starz Reports Fourth Quarter And Year End 2012 Financial Results

Starz Reports Fourth Quarter And Year End 2012 Financial Results

ENGLEWOOD, Colo., Feb. 27, 2013 /PRNewswire/ -- Starz (NASDAQ: STRZA, STRZB) today reported fourth quarter and year end 2012 results. Highlights include ((1)):


-- Completed separation of Starz and Liberty Media on January 11, 2013
-- Increased STARZ subscriptions in 2012 by 8%, or 1.6 million subscribers,
to 21.2 million and ENCORE subscriptions in 2012 by 5%, or 1.6 million
subscribers, to 34.8 million subscribers
-- 56 million combined subscriptions; most-ever for Starz, leads U.S.
premium television category
-- Completed a new, multiyear agreement with Sony Pictures Entertainment
that extends exclusive first-run output premium pay TV deal for
theatrical releases through 2021
-- Premiered the final installment of the STARZ Original series,
"Spartacus," with "Spartacus: War of the Damned," on January 25, to 3.1
million viewers in its premiere weekend
-- Launched STARZ PLAY and ENCORE PLAY with DIRECTV, AT&T U-verse TV, and
Verizon FiOS, AT&T first to launch MOVIEPLEX PLAY
-- Raised $175 million of senior notes due 2019 as additional notes under
the indenture governing the existing $500 million 5% senior notes
-- Issue upsized by $25 million due to strong demand
(Logo: http://photos.prnewswire.com/prnh/20080522/LATH063LOGO-b)

Chris Albrecht, Starz Chief Executive Officer said, "2012 was a very strong year for Starz. Our lineup of quality original programming and theatrical films led to record subscribers at STARZ and ENCORE, bolstering their position as the largest pair of premium networks in the U.S. Importantly, we recently extended our first-run output relationship with Sony Pictures Entertainment through 2021 across all platforms, enabling us to offer world class theatrical movies from Sony into 2023, complementing the Disney films we will offer into 2017. In terms of our digital strategy, we are progressing rapidly with the launch of our TVEverywhere PLAY services. Cox, DIRECTV, AT&T U-verse TV, and Verizon FiOS have launched the service, and we anticipate additional distributor launches in the remainder of 2013."

Albrecht continued, "Looking ahead, in addition to our solid foundation of theatrical product, our pipeline of STARZ Original series including 'Da Vinci's Demons,' 'Magic City,' and 'The White Queen,' is setting the stage for our long-term growth as an independent public company. In addition, 'Spartacus' is wrapping its epic run to strong viewership and continued demand from distributors both domestic and abroad, while 'Black Sails' is a strong 2014 addition to the lineup. We also have a development slate of future projects that is the strongest ever for STARZ. We are confident that we have the right content strategy in place with a terrific complement of exclusive originals and quality first-run theatricals that will differentiate us among premium content providers and provide value to our distributors, subscribers and shareholders in the years to come."

Revenue decreased 2% to $422 million for the fourth quarter and increased 1% to $1,631 million for the year. The decrease in revenue for the fourth quarter was primarily a result of a decrease in Starz Distribution revenue due to fewer titles available from The Weinstein Company LLC ("TWC") and a decrease in revenue from Starz Networks primarily due to the non-renewal of the Netflix agreement.

Revenue for the year ended December 31, 2012 grew primarily as a result of an increase in revenue for Starz Distribution driven by the strong performance in ancillary markets of our original series "Spartacus," and AMC Networks' original series "The Walking Dead," as well as Starz Networks due to higher effective rates partially offset by the non-renewal of the Netflix agreement. These increases in revenue were partially offset by a decrease in revenue at Starz Animation as a result of fewer projects at our Film Roman studio.

Adjusted OIBDA((2)) increased 8% to $101 million for the fourth quarter and decreased 1% to $445 million for the year. Notwithstanding the decrease in revenue mentioned above, the increase in Adjusted OIBDA for the fourth quarter was primarily due to fewer exhibitions at Starz Networks of first-run (first window) films and higher utilization of second window films licensed under our output agreements with Disney and Sony and decreased advertising and marketing costs associated with original programming. Starz Networks did not have a new original series premiere during the fourth quarter of 2012, while the first season of the original series "Boss" premiered in October 2011. Starz Networks' increase was partially offset by increased production and acquisition costs at Starz Distribution due to revisions made to ultimate revenue estimates which resulted in impairments to capitalized production and acquisition costs for certain titles.

The decrease in Adjusted OIBDA for the year was primarily due to increased production and acquisition costs at Starz Distribution resulting from the revisions made in the fourth quarter to the ultimate revenue estimates as mentioned above. This decrease in Adjusted OIBDA was partially offset by lower advertising and marketing costs at Starz Networks resulting from one fewer Starz original series premiere during 2012. Starz Networks had three new original series or new season premieres in 2012 as compared to four in 2011. Consolidated Eliminations also contributed to the decrease due to fewer exhibitions of Overture Films' titles on Starz Networks during 2012.

Operating income decreased 2% to $86 million for the fourth quarter and decreased 5% to $405 million for the year. The decrease in both periods was due to the fluctuations in Adjusted OIBDA discussed above combined with an increase in stock compensation expense for the quarter and the year.

Capitalized production and acquisition costs increased 91% to $89 million for the fourth quarter and increased 33% to $284 million for the year. The increase for the quarter was due primarily to increased investment in original programming. The increase for the year was due to increased investment in original programming and timing of payments for certain TWC titles. We plan to make additional investments in original programming in the future.

Share Repurchases


From January 14, 2013 through January 31, 2013, 69,800 shares of Series A Liberty Capital common stock (NASDAQ: STRZA) were purchased at an average cost per share of $15.38 for total cash consideration of $1.1 million. Starz has approximately $398.9 million remaining under its current repurchase authorization.

FOOTNOTES


(1) Starz CEO, Christopher Albrecht,
will discuss these highlights and
other matters during the Starz
earnings conference call which
will begin at 4:00 p.m. (ET) on
February 27, 2013. For
information regarding how to
access the call, please see
"Important Notice" later in this
document.
(2) For a definition of Adjusted OIBDA
and applicable reconciliation see
Schedule 1 below.
NOTES


-- Unless otherwise noted, the foregoing discussion compares financial
information for the three and twelve months ended December 31, 2012 to
the same periods in 2011.

-- During August 2012, the board of directors of Liberty Media Corporation
("Old LMC") authorized a plan to spin off wholly-owned subsidiary
Liberty Spinco, Inc. ("Liberty Spinco") (the "Spin-Off"), which, at the
time of the Spin-Off would hold all of the businesses, assets and
liabilities of Old LMC not associated with the businesses of Starz, LLC
(with the exception of Starz, LLC's Englewood, Colorado corporate office
building). On January 11, 2013, the Spin-Off was effected in a tax-free
manner through the distribution, by means of a pro-rata dividend, of
shares of Liberty Spinco to the stockholders of Old LMC. As a result,
Liberty Spinco became a separate public company on January 11, 2013 and
was renamed "Liberty Media Corporation" ("New LMC"). In connection with
the Spin-Off, the parent company of Starz, LLC was renamed "Starz".
Unless the context otherwise requires, Old LMC is used when events or
circumstances being described occurred prior to the Spin-Off, and Starz
is used when events or circumstances being described occurred following
the Spin-Off.
-- In connection with the Spin-Off, Starz, LLC distributed $1.8 billion in
cash to Old 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 $1.2 billion on January 10, 2013)
funded by a combination of cash on hand and borrowings under Starz,
LLC's senior secured revolving credit facility. Such distributed cash
was contributed to New LMC prior to the Spin-Off. Additionally, in
connection with the Spin-Off, Starz, LLC distributed its Englewood,
Colorado corporate office building and related building improvements to
Old LMC (and Old LMC transferred such building and related improvements
to a subsidiary of New LMC) and then leased back the use of such
facilities from this New LMC subsidiary. Following the Spin-Off, New LMC
and Starz operate independently, and neither have any stock ownership,
beneficial or otherwise, in the other.
SUPPLEMENTAL INFORMATION
As a supplement to Starz's consolidated statements of operations, to be included in its Form 10-K, the following is a presentation of quarterly financial information and operating metrics at December 31, 2012.

Please see definition of Adjusted OIBDA below and a discussion of why management believes the presentation of Adjusted OIBDA provides useful information for investors. Schedule 1 to this press release provides a reconciliation of Adjusted OIBDA to operating income for the same periods, as determined under generally accepted accounting principles ("GAAP").

QUARTERLY SUMMARY


(amounts in millions) 4Q11 1Q12 2Q12 3Q12 4Q12
---- ---- ---- ---- ----
Revenue $432.6 $405.0 $402.5 $401.0 $422.2
Adjusted OIBDA $93.6 $126.8 $108.5 $108.1 $101.4
Operating income $87.2 $120.0 $100.3 $99.5 $85.6
Subscription units - Starz 19.6 20.1 20.7 20.8 21.2
Subscription units - Encore 33.2 33.6 34.2 34.3 34.8
--------------------------- ---- ---- ---- ---- ----
CASH AND DEBT
The following presentation is provided to separately identify cash and debt information.


(amounts in millions) 12/31/2012 12/31/2012
---------- ----------
Audited (GAAP) Proforma (1)
------------- -----------
Cash $749.8 $99.8
------ -----

Debt:
Bank facility 5.0 380.0
5% senior notes 500.0 675.0
Transponder capital lease 34.8 34.8
Building capital lease - 44.8
--- ----
Total debt $539.8 $1,134.6
====== ========
(1) Amounts reflect cash and borrowings outstanding following completion of
the Spin-Off and additional $175M notes offering
------------------------------------------------
Starz cash decreased $650 million and debt increased $595 million primarily as a result of the cash distribution to Old LMC and the capital lease resulting from the distribution of Starz, LLC's corporate office building to Old LMC in connection with the Spin-Off.

NON-GAAP FINANCIAL MEASURES

This press release includes a presentation of Adjusted OIBDA, which is a non-GAAP financial measure, together with a reconciliation to operating income, as determined under GAAP. We define Adjusted OIBDA 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 our operating segments and make decisions about allocating resources among our operating segments. We believe that Adjusted OIBDA is an important indicator of the operational strength and performance of our operating segments, including each operating segment's ability to assist in servicing our debt and fund investments 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 stock compensation, long-term incentive plan and phantom stock appreciation rights 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 primary material limitations associated with the use of Adjusted OIBDA as compared to GAAP results are (i) it may not be comparable to similarly titled measures used by other companies in our industry, and (ii) it excludes financial information that some may consider important in evaluating our performance. We compensate for these limitations by providing a reconciliation of Adjusted OIBDA to GAAP results to enable investors to perform their own analysis of our operating results. Please see Schedule 1 below for applicable reconciliation.

SCHEDULE 1

The following table provides a reconciliation of Adjusted OIBDA for Starz to its operating income calculated in accordance with GAAP for the three months ended December 31, 2011, March 31, 2012, June 30, 2012, September 30, 2012 and December 31, 2012, respectively.

QUARTERLY SUMMARY


(amounts in millions) 4Q11 1Q12 2Q12 3Q12 4Q12
---- ---- ---- ---- ----
Adjusted OIBDA $93.6 $126.8 $108.5 $108.1 $101.4
Stock compensation expense (2.0) (2.6) (3.6) (3.6) (10.2)
Depreciation and amortization (4.4) (4.2) (4.6) (5.0) (5.6)
---- ---- ---- ---- ----
Operating income $87.2 $120.0 $100.3 $99.5 $85.6
===== ====== ====== ===== =====







Starz
Consolidated Balance Sheets
December 31, 2012 and 2011
(Amounts in thousands)
(Unaudited)

2012 2011
---- ----
Assets
Current assets:
Cash and cash
equivalents $749,774 $1,099,887
Restricted cash - 4,896
Trade accounts
receivable, net of
allowances of $35,045
and $38,355 241,415 241,026
Program rights 340,005 388,298
Deferred income taxes 990 10,114
Other current assets 44,727 31,336
------ ------
Total current assets 1,376,911 1,775,557
Program rights 338,684 373,552
Investment in films and
television programs,
net 181,673 183,942
Property and equipment,
net 96,280 98,531
Deferred income taxes 12,222 -
Goodwill 131,760 131,760
Other assets, net 38,520 39,833
------ ------
Total assets $2,176,050 $2,603,175
========== ==========

Liabilities and Member's Interest
and Noncontrolling Interests
Current liabilities:
Current portion of debt $4,134 $4,129
Trade accounts payable 6,162 8,690
Accrued liabilities 256,062 304,150
Due to affiliates 39,519 53,836
Deferred revenue 24,574 26,734
------ ------
Total current
liabilities 330,451 397,539
Debt 535,671 540,915
Deferred income taxes - 10,308
Other liabilities 7,784 11,312
----- ------
Total liabilities 873,906 960,074

Member's interest 1,311,951 1,651,484
Noncontrolling
interests in
subsidiaries (9,807) (8,383)
------ ------
Total member's interest
and noncontrolling
interests 1,302,144 1,643,101
--------- ---------

Total liabilities and
member's interest and
noncontrolling
interests $2,176,050 $2,603,175
========== ==========










Starz
Consolidated Statements of Operations
Years Ended December 31, 2012, 2011 and 2010
(Amounts in thousands)
(Unaudited)

2012 2011 2010
---- ---- ----

Revenue:
Programming networks and other
services $1,419,074 $1,372,141 $1,380,349
Home video net sales 211,622 241,892 224,988
------- ------- -------
Total revenue 1,630,696 1,614,033 1,605,337

Costs and expenses:
Programming costs (including
amortization) 661,157 651,249 647,817
Production and acquisition costs
(including amortization) 192,340 158,789 177,954
Home video cost of sales 63,880 62,440 69,815
Operating expenses 53,410 53,703 73,260
Advertising and marketing 105,674 132,183 175,417
General and administrative 109,403 106,081 125,421
Stock compensation, long term
incentive plan and phantom stock
appreciation rights 20,022 7,078 39,468
Depreciation and amortization 19,406 17,907 20,468
------ ------ ------
Total costs and expenses 1,225,292 1,189,430 1,329,620
--------- --------- ---------

Operating income 405,404 424,603 275,717

Other income (expense):
Interest expense, including amounts
due to affiliate of none, none,
and $16,054, net of amounts
capitalized (25,688) (5,012) (20,932)
Other income (expense), net 3,023 (3,505) (542)
----- ------ ----
Income from continuing operations
before income taxes 382,739 416,086 254,243

Income tax expense (130,465) (172,189) (98,764)
-------- -------- -------

Income from continuing operations 252,274 243,897 155,479

Income (loss) from discontinued
operations (including loss on sale
of $12,114 in 2011), net of income
taxes - (7,486) 3,315
--- ------ -----

Net income 252,274 236,411 158,794

Net loss attributable to
noncontrolling interests 2,210 3,273 -
----- ----- ---

Net income attributable to member $254,484 $239,684 $158,794
======== ======== ========







Starz
Consolidated Statements of Cash Flows
Years Ended December 31, 2012, 2011 and 2010
(Amounts in thousands)
(Unaudited)

2012 2011 2010
---- ---- ----
Operating activities:
Net income $252,274 $236,411 $158,794
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss (income) from discontinued
operations - 7,486 (3,315)
Depreciation and amortization 19,406 17,907 20,468
Amortization of program rights 617,789 611,041 611,615
Program rights payments (456,558) (554,341) (532,566)
Amortization of investment in films and
television programs 141,553 126,102 116,928
Investment in films and television
programs (284,063) (213,655) (117,035)
Stock compensation, long term incentive
plan and phantom 20,022 7,078 39,468
stock appreciation rights
Payments of long term incentive plan and
phantom stock appreciation rights (33,410) (7,696) (196,232)
Noncash interest on debt due to
affiliate - - 16,313
Deferred income taxes (17,410) 37,023 52,954
Other non-cash items 4,533 11,014 2,808
Changes in assets and liabilities:
Current and other assets 1,759 (29,101) 9,510
Due to affiliates (5,637) 89,271 (1,554)
Payables and other liabilities 31,819 9,433 12,983
------ ----- ------
Net cash provided by operating
activities 292,077 347,973 191,139
------- ------- -------
Investing activities - purchases of
property and equipment (16,214) (7,723) (7,099)
------- ------ ------
Financing activities:
Borrowings of debt 500,000 505,000 129,343
Payments of debt (504,029) (59,170) (202,035)
Debt issuance costs (8,514) (10,191) -
Distributions to parent (600,000) - (75,221)
Distributions to parent related to stock
compensation (4,689) - -
Minimum withholding of taxes related to
stock compensation (13,273) - -
Excess tax benefit from stock
compensation 4,401 - -
Contribution from parent - - 15,000
Contribution from noncontrolling owner
of subsidiary - 3,000 500
Settlement of derivative instruments 3 (2,863) (6,301)
Restricted cash - 8,226 10,300
--- ----- ------
Net cash provided by (used in) financing
activities (626,101) 444,002 (128,414)
-------- ------- --------
Effect of exchange rate changes on cash
and cash equivalents 125 (17) 59
--- --- ---
Net cash provided by discontinued
operations - - 1,072
--- --- -----
Net increase (decrease) in cash and cash
equivalents (350,113) 784,235 56,757
Cash and cash equivalents:
Beginning of year 1,099,887 315,652 258,895
--------- ------- -------
End of year $749,774 $1,099,887 $315,652
======== ========== ========


IMPORTANT NOTICE


-- Starz (NASDAQ: STRZA, STRZB) CEO, Chris Albrecht will discuss Starz's
financial performance, and may discuss future opportunities in a
conference call which will begin at 4:00 p.m. (ET) on February 27, 2013.
The call can be accessed by dialing (888) 401-4674 or (719) 325-4766 at
least 10 minutes prior to the start time. Replays of the conference
call can be accessed through 6:00 p.m. (ET) on March 6, 2013, by dialing
(888) 203-1112 or (719) 457-0820 plus the pass code 3814585#. The call
will also be broadcast live via the Internet and archived on our
website. To access the webcast go to http://ir.starz.com/events.cfm.
Links to this press release will also be available on the Starz website.
-- This press release includes certain forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995,
including statements about business strategies, market potential, future
financial prospects, new service and product launches including original
content programming, new distribution platforms for our programming, the
continuation of our stock repurchase plans and other matters that are
not historical facts. These forward-looking statements involve many
risks and uncertainties that could cause actual results to differ
materially from those expressed or implied by such statements,
including, without limitation, possible changes in market acceptance of
new products or services, competitive issues, regulatory matters
affecting our businesses, continued access to capital on terms
acceptable to Starz, and changes in law and market conditions conducive
to stock repurchases. These forward-looking statements speak only as of
the date of this press release, and Starz expressly disclaims any
obligation or undertaking to disseminate any updates or revisions to any
forward-looking statement contained herein to reflect any change in
Starz's expectations with regard thereto or any change in events,
conditions or circumstances on which any such statement is based. Please
refer to the publicly filed documents of Starz, including the most
recent Forms 10-K and 8-K, for additional information about Starz and
about the risks and uncertainties related to Starz's business which may
affect the statements made in this press release.
About Starz
Starz (NASDAQ: STRZA, STRZB) is a leading integrated global media and entertainment company with operating units that provide premium subscription video programming on domestic U.S. pay television channels (Starz Networks), global content distribution (Starz Distribution) and animated television and movie production (Starz Animation), www.starz.com.

Starz Networks is a leading provider of premium subscription video programming through the flagship STARZ(®) and ENCORE(®) pay TV networks which showcase premium original programming and movies to U.S. multichannel video distributors, including cable operators, satellite television providers, and telecommunications companies. As of December 31, 2012, STARZ and ENCORE serve a combined 56 million subscribers, including 21 million at STARZ, and 35 million at ENCORE, making them the largest pair of premium flagship channels in the U.S. STARZ(®) and ENCORE(®), along with Starz Networks' third network MOVIEPLEX(®), air over 1,000 movies monthly across 17 linear networks, complemented by On Demand and authenticated online offerings through STARZ PLAY, ENCORE PLAY, and MOVIEPLEX PLAY. Starz Distribution develops, produces and acquires entertainment content, distributing it to consumers globally on DVD, digital formats and traditional television. Starz Distribution's home video, digital media and worldwide distribution business units distribute original programming content produced by Starz, as well as entertainment content for itself and third parties. Starz Animation produces animated TV and movie content for studios, networks, distributors and audiences worldwide.


Contacts:

Courtnee Ulrich Theano Apostolou
Investor Relations Corporate Communications
(720) 875-5420 (424) 204-4052
courtnee.ulrich@starz.com theano@starz.com


SOURCE Starz

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Starz

Web Site: http://www.starz.com


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