Quarterly report pursuant to Section 13 or 15(d)

Income Taxes

v2.4.0.6
Income Taxes
 3 Months Ended
Mar. 31, 2013
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes

Prior to the LMC Spin-Off, Starz, LLC was included in the consolidated federal and state income tax returns of Old LMC. The income tax accounts and provisions included in these condensed consolidated financial statements prior to the LMC Spin-Off have been prepared as if Starz, LLC was a stand-alone federal and state taxpayer. Subsequent to the LMC Spin-Off, Starz will file its own consolidated tax return.

Income tax expense consists of the following (in thousands):

 
Three Months Ended March 31,
 
2013
 
2012
Current:
 
 
 
Federal
$
17,435

 
$
27,583

State and local
(650
)
 
2,378

Foreign
291

 
670

 
17,076

 
30,631

Deferred:
 
 
 
Federal
14,311

 
12,356

State and local
3,557

 
(2,795
)
 
17,868

 
9,561

Income tax expense
$
34,944

 
$
40,192



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):

 
Three Months Ended March 31,
 
2013
 
2012
Computed expected tax expense
$
32,601

 
$
41,785

State and local income taxes, net of federal income taxes
1,813

 
2,439

Foreign taxes, net of foreign tax credit
503

 
141

Change in valuation allowance affecting tax expense
(693
)
 
(4,212
)
Change in subsidiary tax status
791

 
—

Other, net
(71
)
 
39

Income tax expense
$
34,944

 
$
40,192


The tax effects of temporary differences that give rise to the deferred tax assets and deferred tax liabilities at March 31, 2013 and December 31, 2012 are presented below (in thousands):
 
March 31,
2013
 
December 31,
2012
Deferred tax assets:
 
 
 
Tax loss and credit carryforwards
$
10,777

 
$
155,861

Accrued stock compensation
6,376

 
5,575

Investments
26,439

 
25,516

Investment in films and television programs
—

 
1,163

Other future deductible amounts
3,613

 
219

Deferred tax assets
47,205

 
188,334

Valuation allowance
(935
)
 
(155,861
)
Deferred tax assets, net
46,270

 
32,473

 
 
 
 
Deferred tax liabilities:
 
 
 
Property and equipment
(18,200
)
 
(18,807
)
Investment in films and television programs
(20,095
)
 
—

Other future taxable amounts
—

 
(454
)
Deferred tax liabilities
(38,295
)
 
(19,261
)
 
 
 
 
Net deferred tax assets
$
7,975

 
$
13,212



In connection with the LMC Spin-Off, deferred tax assets of $154.2 million related to capital loss and foreign tax credit carryforwards were allocated to Liberty Media along with their corresponding valuation allowances of $154.2 million. In addition, state net operating losses, foreign tax credit carryforwards and other attributes of $11.6 million were allocated to Starz.

In April 2013, the Internal Revenue Service completed its review of the LMC Spin-Off and notified Starz that it agreed with the nontaxable characterization of the transaction.