Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.3.1.900
Income Taxes
 12 Months Ended
Dec. 31, 2015
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes    

Starz is a holding company with no assets, liabilities or operations other than those of Starz, LLC. Starz, LLC is a single-member limited liability company (“LLC”), which is treated as a disregarded entity for U.S. federal income tax purposes.

As mentioned in Note 1, in October 2015, Starz, LLC acquired Weinstein’s 25% interest in Starz Media. As a result, Starz Media became a single-member LLC of Starz, LLC and 100% of its activity will be included in Starz’s federal and state income tax returns for periods subsequent to the acquisition.

Income tax expense consisted of the following (in millions):

 
Years ended December 31,
 
2015
 
2014
 
2013
Current:
 
 
 
 
 
Federal
$
111.3

 
$
110.6

 
$
119.2

State and local
10.4

 
7.6

 
9.3

Foreign
2.4

 
3.3

 
2.5

 
124.1

 
121.5

 
131.0

Deferred:
 
 
 
 
 
Federal
(14.8
)
 
14.9

 
0.5

State and local
2.2

 
4.4

 
7.9

 
(12.6
)
 
19.3

 
8.4

 
$
111.5

 
$
140.8

 
$
139.4



Income tax expense differed from the amounts computed by applying the U.S. federal income tax rate of 35% as a result of the following (in millions):

 
Years ended December 31,
 
2015
 
2014
 
2013
Computed expected tax expense
$
121.8

 
$
143.4

 
$
136.2

State and local income taxes, net of federal income taxes
7.4

 
8.0

 
11.5

Deduction for qualified production activity
(9.5
)
 
(10.4
)
 
(12.6
)
Uncertain tax positions
(8.4
)
 
—

 
—

Settlements with tax authorities
6.6

 
—

 
—

Change in subsidiary tax status
(4.7
)
 
—

 
0.8

Change in valuation allowance affecting tax expense
(0.8
)
 
1.2

 
3.0

Foreign taxes, net of foreign tax credit
(0.2
)
 
(0.7
)
 
0.9

Other, net
(0.7
)
 
(0.7
)
 
(0.4
)
 
$
111.5

 
$
140.8

 
$
139.4


    
Internal Revenue Code Section 199 (“Section 199”) allows U.S. taxpayers a deduction for qualified domestic production activities.  Generally, the deduction is equal to 9% of the net income from such activities (subject to certain limitations).  Starz recorded tax benefits of $9.5 million, $10.4 million and $12.6 million for the years ended December 31, 2015, 2014 and 2013, respectively, under Section 199.
During 2015, Starz remitted $6.6 million to the Internal Revenue Service with respect to a settlement of its Section 199 deduction for the year ended December 31, 2013. In addition, Starz recognized an income tax benefit of $8.4 million due to the expiration of the statute of limitations related to an uncertain tax position.
As a result of the acquisition of Weinstein’s 25% interest in Starz Media in October 2015, Starz Media converted from a partnership to a single-member LLC of Starz, LLC for income tax purposes. As a consequence, the deferred tax asset recorded for the difference between the book basis and tax basis of Starz, LLC’s investment in Starz Media was retired and a deferred tax asset for Starz Media’s net deductible temporary differences was recorded, which was primarily related to allowance for doubtful accounts and intangible assets. The income tax benefit of the conversion was $4.7 million.

The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2015 and 2014 were as follows (in millions):
 
December 31,
 
2015
 
2014
Deferred tax assets:
 
 
 
Accrued stock compensation
$
22.5

 
$
16.8

Intangible assets
14.5

 
—

Allowance for doubtful accounts
13.2

 
—

Tax loss and credit carryforwards
4.6

 
7.1

Investments
0.7

 
32.3

Other future deductible amounts
5.6

 
1.1

 
61.1

 
57.3

Valuation allowance
(1.8
)
 
(2.6
)
 
59.3

 
54.7

Deferred tax liabilities:
 
 
 
Property and equipment
(13.9
)
 
(15.0
)
Investment in films and television programs
(24.2
)
 
(32.6
)
Program rights
—

 
(7.3
)
 
(38.1
)
 
(54.9
)
Deferred income taxes, net
$
21.2

 
$
(0.2
)


The changes in uncertain tax positions were as follows:
 
December 31,
 
2015
 
2014
Balance at beginning of year
$
—

 
$
—

Additions
13.6

 
—

Settlements and lapses
(13.6
)
 
—

Balance at end of year
$
—

 
$
—


As of December 31, 2015, Starz had no accrued interest and penalties recorded related to uncertain tax positions.