Starz Reports Second Quarter 2013 Financial Results

Starz Reports Second Quarter 2013 Financial Results





ENGLEWOOD, Colo., Aug. 1, 2013 /PRNewswire/ -- Starz (NASDAQ: STRZA, STRZB) today reported second quarter 2013 results. Highlights include ((1)):


-- Achieved revenue increases of 29%, Adjusted OIBDA((2)) of 19% and
operating income of 16%
-- Increased STARZ subscriptions by 5% and ENCORE subscriptions by 3% to
21.8 million and 35.1 million, respectively since June 30, 2012
-- Since March 31, 2013, increased STARZ subscriptions by 1% while
ENCORE subscriptions were essentially flat
-- 56.9 million combined subscriptions; leads U.S. premium television
category
-- Entered into new long-term affiliation agreement with Time Warner Cable
-- Reached 52 million HHs with STARZ PLAY and ENCORE PLAY nationwide
-- Recent launches by Time Warner Cable, Bright House, and Cablevision
-- Greenlit new STARZ Original series "Outlander" with Sony Pictures
Television for air in 2014
-- Greenlit new STARZ Original series "Power" from executive producer
Curtis "50 Cent" Jackson for air in 2014
-- Repurchased 4.1 million shares from May 1 to July 31, 2013; since
trading began on January 14, 2013, Starz has repurchased 4.2% of its
outstanding shares
-- Entered into major movie library agreements with Twentieth Century Fox
and MGM
(Logo: http://photos.prnewswire.com/prnh/20080522/LATH063LOGO-b)

Chris Albrecht, Starz Chief Executive Officer said, "Starz delivered solid operational and financial performance in the second quarter. We achieved a new all-time subscriber high at STARZ with nearly 22 million subscribers. We are also very pleased with the new, multi-year multi-platform distribution agreement with Time Warner Cable. Opportunities exist to grow our premium business with Time Warner Cable, and the subsequent launch of STARZ PLAY and ENCORE PLAY will assist in those efforts. Our plan for original programming is increasing in both quality and scale thanks to the recent greenlight of both 'Outlander' and 'Power,' with both dramatic series expected to have their STARZ premieres in 2014. With 'The White Queen' debuting this month and drawing strong buzz domestically and abroad, we are well positioned to continue momentum with our original programming heading into 2014 where five series are now scheduled to air on our flagship network, led off by 'Black Sails' which we have already renewed for a second season."

Revenue increased 29% to $517.4 million and Adjusted OIBDA( )increased 19% to $129.5 million for the second quarter. Operating income increased 16% to $116.1 million.

At Starz Networks, certain contractual terms under affiliation agreements with two distributors resulted in a one-time recognition of $18.6 million of previously deferred revenue. Revenue at Starz Distribution increased as a result of an increase in the number and performance of titles distributed for The Weinstein Company ("TWC"). A decrease in inter-segment eliminations also contributed to the increase in revenue. Lower revenue at Starz Animation partially offset these increases due to fewer projects in production at the company's Film Roman studio.

The increase in Adjusted OIBDA for the quarter was primarily due to the recognition of deferred revenue by Starz Networks and the increase in the number and performance of TWC titles distributed by Starz Distribution as mentioned above. Such increases were partially offset by an increase in advertising and marketing costs due to the premiere of two original series during the 2013 quarter as compared to one series in the 2012 quarter, increased cooperative marketing efforts with our distributors and marketing costs associated with the TWC titles. Fewer projects in production at the company's Film Roman studio and lower inter-segment eliminations also offset the Starz Networks and Starz Distribution increases.

In addition to the changes in Adjusted OIBDA described above, operating income was impacted by an increase in stock compensation expense during the quarter.

Cash paid for investment in films and television programs decreased 26% to $49.3 million for the quarter. The decrease was due to timing of payments for certain TWC titles and timing of cash spend related to our original programming.


Share Repurchases
From May 1, 2013 through July 31, 2013, 4.1 million shares of Series A common stock (NASDAQ: STRZA) were purchased at an average cost per share of $22.75 for total cash consideration of $92.7 million. Since trading began on January 14, 2013, Starz has repurchased 4.2% of our outstanding shares.

FOOTNOTES



(1) Starz CEO, Christopher
Albrecht, will discuss
these highlights and
other matters during the
Starz earnings
conference call which
will begin at 12:00 p.m.
(ET) on August 1, 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 Non-
GAAP Financial Measures
and Schedule 1 below.
NOTES


-- Unless otherwise noted, the foregoing discussion compares financial
information for the three months ended June 30, 2013 to the same period
in 2012.
-- In January 2013, Starz (formerly known as Liberty Media Corporation
("Old LMC")) completed the spin off (the "LMC Spin-Off") of its
wholly-owned subsidiary Liberty Media Corporation (formerly known as
Liberty Spinco, Inc. ("Liberty Media")) in a tax-free manner through the
distribution, by means of a dividend, of shares of Liberty Media's
common stock to holders of Old LMC common stock. In this distribution,
each holder of a share of Old LMC common stock received one share of the
corresponding series of Liberty Media common stock. Following the LMC
Spin-Off, Starz retained the businesses of its wholly-owned subsidiary,
Starz, LLC, and all other businesses, assets and liabilities of Old LMC
are included in Liberty Media. Unless the context otherwise requires,
Old LMC is used when events or circumstances being described occurred
prior to the LMC Spin-Off and Starz is used when events or circumstances
being described occurred following the LMC Spin-Off.
-- In accordance with generally accepted accounting principles ("GAAP"),
Liberty Media was determined to be the accounting successor to Old LMC
for financial reporting purposes following the LMC Spin-Off due to the
relative significance of Liberty Media to Starz (which is the legal
spinnor) and the continued involvement of Old LMC's senior management
with Liberty Media following the LMC Spin-Off. Accordingly, the
historical financial statements of Old LMC prior to the LMC Spin-Off
will continue to be the historical financial statements of Liberty Media
and Starz's historical financial information is deemed to be the
financial information of Starz, LLC. The financial statements of Starz
reflect Starz, LLC on a historical cost basis. Starz, LLC is the only
directly owned subsidiary of Starz which in turn owns either directly or
indirectly various operating subsidiaries. Starz is a holding company
with no assets or liabilities of its own or operations other than those
of Starz, LLC. Accordingly, the financial position, results of
operations, comprehensive income and cash flows of Starz and Starz, LLC
are identical.

-- In connection with the LMC Spin-Off, Starz, LLC distributed $1.8 billion
in cash to Old LMC which was funded by a combination of cash on hand and
$550.0 million of borrowings under Starz, LLC's senior secured revolving
credit facility. The $1.8 billion was 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. Such distributed cash was contributed to Liberty
Media prior to the LMC Spin-Off. Additionally, in connection with the
LMC 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 Liberty
Property Holdings, Inc. ("LPH"), a subsidiary of Liberty Media) and then
leased back the use of such facilities from LPH. Following the LMC
Spin-Off, Liberty Media and Starz operate independently, and neither
have any stock ownership, beneficial or otherwise, in the other.
SUPPLEMENTAL INFORMATION
As a supplement to Starz's condensed consolidated statements of operations, to be included in its Form 10-Q, the following is a presentation of quarterly financial information and operating metrics for the periods indicated.

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 GAAP.

QUARTERLY SUMMARY



(amounts in millions) 2Q12 3Q12 4Q12 1Q13 2Q13
---- ---- ---- ---- ----

Starz Networks $318.9 $317.9 $315.8 $315.8 $340.0

Starz Distribution (1) 76.2 75.0 97.0 76.2 171.9

Starz Animation 10.1 10.1 10.9 7.5 6.6

Eliminations (2.6) (2.0) (1.5) (0.2) (1.1)
---- ---- ---- ---- ----

Revenue $402.6 $401.0 $422.2 $399.3 $517.4
====== ====== ====== ====== ======


Starz Networks $98.9 $111.6 $121.1 $114.4 $116.5

Starz Distribution 9.4 (3.7) (19.8) 2.6 14.5

Starz Animation (0.2) (0.4) (0.4) (0.6) (0.8)

Eliminations 0.4 0.6 0.5 0.1 (0.7)
--- --- --- --- ----

Adjusted OIBDA $108.5 $108.1 $101.4 $116.5 $129.5
====== ====== ====== ====== ======


Operating income $100.3 $99.5 $85.6 $104.9 $116.1


Starz Networks $30.9 $47.4 $69.1 $33.6 $23.1

Starz Distribution 35.6 18.5 20.0 24.4 26.2
---- ---- ---- ---- ----

Total IFT (2) $66.5 $65.9 $89.1 $58.0 $49.3
===== ===== ===== ===== =====


Subscription units -
STARZ 20.7 20.8 21.2 21.6 21.8

Subscription units -
ENCORE 34.2 34.3 34.8 35.1 35.1


(1) Includes the
following home video net
sales $40.9 $54.7 $78.3 $49.8 $126.3

(2) Cash paid for
investment in films and
television programs
------------------------


CASH AND DEBT
The following presentation is provided to separately identify cash and debt information.






(amounts in millions) 3/31/2013 6/30/2013
--------- ---------

Cash $17.9 $30.9
===== =====


Debt:

Bank facility $235.0 $257.0

5% senior notes 678.4 678.3

Transponder capital lease 33.8 32.8

Building capital lease 44.7 44.5
---- ----

Total debt $991.9 $1,012.6
====== ========
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, and selling, general and administrative expenses. Our chief operating decision maker uses this measure of performance in conjunction with other measures to evaluate our operating segments' performance 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 to 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 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 before income taxes, net income, net cash provided by operating activities and other measures of financial performance prepared in accordance with GAAP. 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 June 30, 2012, September 30, 2012, December 31, 2012, March 31, 2013 and June 30, 2013, respectively.






(amounts in millions) 2Q12 3Q12 4Q12 1Q13 2Q13
---- ---- ---- ---- ----

Adjusted OIBDA $108.5 $108.1 $101.4 $116.5 $129.5

Stock compensation (3.6) (3.6) (10.2) (7.2) (9.0)

Depreciation and
amortization (4.6) (5.0) (5.6) (4.4) (4.4)
---- ---- ---- ---- ----

Operating income $100.3 $99.5 $85.6 $104.9 $116.1
====== ===== ===== ====== ======




Starz

Consolidated Balance Sheets

(Amounts in thousands, except share and per share amounts)

(Unaudited)


June 30, December
31, 2012
2013
----

Assets

Current assets:

Cash and cash
equivalents $30,854 $749,774

Restricted cash 63,817 -

Trade accounts
receivable, net of
allowances of $37,719
and $35,045 242,061 241,415

Program rights, net 377,690 340,005

Deferred income taxes 5,081 990

Other current assets 37,364 44,727
------ ------

Total current assets 756,867 1,376,911

Program rights 384,794 338,684

Investment in films and
television programs,
net 141,468 181,673

Property and equipment,
net of accumulated
depreciation of
$100,059 and $110,882 91,180 96,280

Deferred income taxes 7,969 12,222

Goodwill 131,760 131,760

Other assets, net 41,106 38,520

Total assets $1,555,144 $2,176,050
======== ==========


Liabilities and Equity

Current liabilities:

Current portion of debt $4,792 $4,134

Trade accounts payable 5,547 6,162

Accrued liabilities 391,139 256,062

Due to affiliate - 39,519

Deferred revenue 11,704 24,574
------ ------

Total current
liabilities 413,182 330,451

Debt 1,007,818 535,671

Other liabilities 9,171 7,784
----- -----

Total liabilities 1,430,171 873,906
--------- -------

Stockholders' equity:

Preferred stock, $.01
par value. Authorized
50,000,000 shares; no
shares issued - -

Series A common stock,
$.01 par value.
Authorized
2,000,000,000 shares;
issued and outstanding
108,456,436 and
111,722,828 shares at
June 30, 2013 and the
LMC Spin-Off,
respectively 1,084 -

Series B common stock,
$.01 par value.
Authorized 75,000,000
shares; issued and
outstanding 9,880,238
and 9,882,238 shares at
June 30, 2013 and the
LMC Spin-Off,
respectively 99 -

Additional paid-in
capital 506,652 -

Accumulated other
comprehensive loss, net
of taxes (4,507) -

Accumulated deficit (371,090) -

Member's interest - 1,311,951

Total stockholders'
equity 132,238 1,311,951

Noncontrolling interests
in subsidiaries (7,265) (9,807)

Total equity 124,973 1,302,144
------- ---------

Commitments and contingencies

Total liabilities and
equity $1,555,144 $2,176,050
======== ==========




Starz

Consolidated Statements of Operations

(Amounts in thousands, except per share amounts)

(Unaudited)


Three Months Six Months
Ended June 30, Ended June 30,
--------------- ---------------

2013 2012 2013 2012
---- ---- ---- ----

Revenue:

Programming
networks
and other
services $391,081 $361,627 $740,569 $728,878

Home video
net sales 126,340 40,935 176,169 78,648
------- ------ ------- ------

Total
revenue 517,421 402,562 916,738 807,526


Costs and expenses:

Programming
costs
(including
amortization) 165,353 179,304 311,324 340,253

Production
and
acquisition
costs
(including
amortization) 113,267 39,372 153,057 75,448

Home video
cost of
sales 15,095 10,668 30,216 21,228

Operating
expenses 12,437 12,953 25,122 26,375

Selling,
general and
administrative 81,762 51,789 150,982 108,906

Stock
compensation 9,058 3,653 16,312 6,235

Depreciation
and
amortization 4,353 4,552 8,769 8,807
----- ----- ----- -----

Total costs
and
expenses 401,325 302,291 695,782 587,252
------- ------- ------- -------


Operating
income 116,096 100,271 220,956 220,274


Other income
(expense):

Interest
expense,
net of
amounts
capitalized (11,331) (4,449) (21,559) (9,330)

Other income
(expense),
net (508) (98) (1,993) 4,167
---- --- ------ -----

Income
before
income
taxes 104,257 95,724 197,404 215,111


Income tax
expense (38,222) (26,116) (73,166) (66,308)
------- ------- ------- -------


Net income 66,035 69,608 124,238 148,803


Net income
attributable
to
noncontrolling
interests (2,148) (883) (2,486) (2,296)
------ ---- ------ ------


Net income
attributable
to
stockholders $63,887 $68,725 $121,752 $146,507
======= ======= ====== ======


Basic net
income per
common
share $0.54 $0.57 $1.02 $1.22
===== ===== ===== =====

Diluted net
income per
common
share $0.52 $0.57 $0.98 $1.22
===== ===== ===== =====

Weighted average
number of common
shares outstanding:

Basic 118,362 119,996 119,139 119,996
======= ======= ======= =======

Diluted 123,339 120,091 123,717 120,091
======= ======= ======= =======




Starz

Consolidated Statements of Cash Flows

(Amounts in thousands)

(Unaudited)


Six Months Ended
June 30,
-----------------

2013 2012
---- ----

Operating activities:

Net income $124,238 $148,803

Adjustments to reconcile net
income to net cash provided
by operating activities:

Depreciation and
amortization 8,769 8,807

Amortization of
program rights 288,377 319,083

Program rights
payments (227,514) (280,601)

Amortization of
investment in films
and television
programs 128,250 64,628

Investment in films
and television
programs (107,346) (129,122)

Stock compensation 16,312 6,235

Payments of long
term incentive plan (3,195) (27,707)

Deferred income
taxes 12,687 1,307

Other non-cash
items 6,504 (13,350)

Changes in assets and
liabilities:

Current and other
assets (59,944) 6,649

Due to affiliate (39,519) (15,231)

Payables and other
liabilities (6,545) (27,768)
------ -------

Net cash provided by
operating
activities 141,074 61,733
------- ------


Investing activities
- purchases of
property and
equipment (3,125) (2,255)
------ ------


Financing activities:

Borrowings of debt 988,500 -

Payments of debt (560,273) (2,036)

Debt issuance costs (2,344) (381)

Distributions to Old
LMC (1,200,000) -

Repurchases of
common stock (81,807) -

Minimum withholding
of taxes related to
stock compensation (1,581) -

Excess tax benefit
from stock
compensation 842 -

Settlement of
derivative
instruments - 3

Net cash used in
financing
activities (856,663) (2,414)
-------- ------


Effect of exchange
rate changes on
cash and cash
equivalents (206) 11
---- ---


Net increase
(decrease) in cash
and cash
equivalents (718,920) 57,075

Cash and cash equivalents:

Beginning of period 749,774 1,099,887

End of period $30,854 $1,156,962
======= ========


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 12:00 p.m. (ET) on August 1, 2013.
The call can be accessed by dialing (877) 591-4953 or (719) 325-4867 at
least 10 minutes prior to the start time. Replays of the conference
call can be accessed through 6:00 p.m. (ET) on August 8, 2013, by
dialing (888) 203-1112 or (719) 457-0820 plus the passcode 9956112#.
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, market acceptance of new products or
services, the timely launch of our original programming, the cooperation
of our distributors in marketing our 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 10-Q, 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 June 30, 2013, STARZ and ENCORE serve a combined 56.9 million subscribers, including 21.8 million at STARZ, and 35.1 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

Photo:http://photos.prnewswire.com/prnh/20080522/LATH063LOGO-b
http://photoarchive.ap.org/
Starz

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


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