Starz 10-Q 2014 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

_X_QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

OR

___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 333-184551

Starz, LLC

(Exact Name of Registrant as Specified in Its Charter)

Delaware(State or other jurisdiction ofincorporation or organization) 20-8988475(I.R.S. EmployerIdentification No.)

8900 Liberty Circle Englewood, Colorado (Address of principal executive offices) 80112(Zip Code)

Registrant’s telephone number, including area code: (720) 852-7700

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes__X__ No____

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ___ No__X__

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act

Large accelerated filer ____ Accelerated filer ____ Non-accelerated filer __X_ Smaller reporting company ____

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ____ No _X__

No common stock is held by non-affiliates of the Registrant. The Registrant is a wholly-owned subsidiary of Starz, which holds all of the issued and outstanding shares of the Registrant.

STARZ, LLC

FORM 10-Q

Table of Contents

	Part I	Page
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013 (Unaudited)	2
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2014 and 2013 (Unaudited)	3
	Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2014 and 2013 (Unaudited)	4
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2014 and 2013 (Unaudited)	5
	Condensed Consolidated Statement of Member’s Interest and Noncontrolling Interests for the Nine Months Ended September 30, 2014 (Unaudited)	6
	Notes to Condensed Consolidated Financial Statements (Unaudited)	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38
Item 4.	Controls and Procedures	38
	Part II
Item 1.	Legal Proceedings	39
Item 6.	Exhibits	39

1

PART I

Item 1. Financial Statements

Starz, LLC and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

(in millions)

	September 30, 2014			December 31, 2013
Assets
Current assets:
Cash and cash equivalents	$	45.6		$	25.7
Restricted cash	—			30.1
Trade accounts receivable, net of allowances of $29.5 and $32.8	236.7			247.1
Program rights, net	316.6			271.8
Deferred income taxes	0.5			0.5
Other current assets	43.4			63.8
Total current assets	642.8			639.0
Program rights	322.8			333.2
Investment in films and television programs, net	218.8			194.6
Property and equipment, net of accumulated depreciation of $119.3 and $106.4	88.6			95.7
Deferred income taxes	33.6			18.5
Goodwill	131.8			131.8
Other assets, net	61.5			37.2
Total assets	$	1,499.9		$	1,450.0
Liabilities and Member’s Interest
and Noncontrolling Interests
Current liabilities:
Current portion of debt (Note 2)	$	5.2		$	4.9
Trade accounts payable	5.6			7.3
Accrued liabilities (Notes 4, 6 and 7)	244.7			297.8
Deferred revenue	4.2			16.6
Total current liabilities	259.7			326.6
Debt (Note 2)	1,185.7			1,054.5
Other liabilities (Note 6)	8.0			14.2
Total liabilities	1,453.4			1,395.3
Member’s interest	53.4			61.9
Noncontrolling interests in subsidiaries	(6.9		)	(7.2		)
Total member’s interest and noncontrolling interests	46.5			54.7
Commitments and contingencies (Note 6)
Total liabilities and member’s interest and noncontrolling interests	$	1,499.9		$	1,450.0

See accompanying notes to condensed consolidated financial statements.

2

Starz, LLC and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

(in millions)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Revenue:
Programming networks and other services	$	364.8		$	380.3		$	1,100.1		$	1,120.9
Home video net sales	43.4			65.7			138.2			241.9
Total revenue	408.2			446.0			1,238.3			1,362.8
Costs and expenses:
Programming (including amortization) (Note 6)	155.5			166.1			470.1			477.4
Production and acquisition (including amortization) (Note 4)	36.0			67.9			126.8			221.0
Home video cost of sales	18.9			21.4			41.6			51.6
Operating	13.6			13.8			40.2			38.9
Selling, general and administrative	74.4			63.2			206.2			214.2
Stock compensation (Note 3)	7.6			8.8			22.9			25.1
Depreciation and amortization	4.9			4.1			14.9			12.9
Total costs and expenses	310.9			345.3			922.7			1,041.1
Operating income	97.3			100.7			315.6			321.7
Other income (expense):
Interest expense, net of amounts capitalized (Note 2)	(11.4		)	(11.6		)	(34.7		)	(33.2		)
Other income (expense), net (Note 7)	(1.5		)	0.2			10.0			(1.8		)
Income before income taxes	84.4			89.3			290.9			286.7
Income tax expense (Note 5)	(28.6		)	(36.2		)	(99.3		)	(109.4		)
Net income	55.8			53.1			191.6			177.3
Net loss (income) attributable to noncontrolling interests	0.5			(0.9		)	(0.3		)	(3.3		)
Net income attributable to member	$	56.3		$	52.2		$	191.3		$	174.0

See accompanying notes to condensed consolidated financial statements.

3

Starz, LLC and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

(in millions)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2014		2013			2014			2013
Net income	$	55.8	$	53.1		$	191.6		$	177.3
Other comprehensive income (loss), net of taxes -
Foreign currency translation adjustments from operations	—		0.2			(0.1)			0.1
Comprehensive income	55.8		53.3			191.5			177.4
Comprehensive loss (income) attributable to noncontrolling interests	0.5		(1.0		)	(0.3		)	(3.3		)
Comprehensive income attributable to member	$	56.3	$	52.3		$	191.2		$	174.1

See accompanying notes to condensed consolidated financial statements.

4

Starz, LLC and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in millions)

	Nine Months Ended September 30,
	2014			2013
Operating activities:
Net income	$	191.6		$	177.3
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	14.9			12.9
Amortization of program rights	438.4			442.8
Program rights payments	(348.0		)	(323.2		)
Amortization of investment in films and television programs	94.7			172.9
Investment in films and television programs	(267.4		)	(209.4		)
Stock compensation	22.9			25.1
Payments of long term incentive plan	—			(3.2		)
Deferred income taxes	(15.1		)	2.8
Other non-operating and non-cash items	(8.0		)	9.7
Changes in assets and liabilities:
Current and other assets	32.5			(67.4		)
Due to affiliate	—			(39.5		)
Payables and other liabilities	(49.3		)	(10.8		)
Net cash provided by operating activities	107.2			190.0
Investing activities:
Purchases of property and equipment	(5.9		)	(6.2		)
Cash received from equity investee	10.7			—
Net cash provided by (used in) investing activities	4.8			(6.2		)
Financing activities:
Borrowings of debt	366.5			1,081.0
Payments of debt	(234.6		)	(601.5		)
Debt issuance costs	—			(2.3		)
Contributions from parent related to exercise of stock options	4.5			—
Minimum withholding of taxes related to stock compensation	(10.9		)	(3.0		)
Excess tax benefit from stock compensation	9.0			2.1
Distributions to parent related to repurchases of common stock	(226.6		)	(179.2		)
Distributions to Old LMC	—			(1,200.0		)
Net cash used in financing activities	(92.1		)	(902.9		)
Effect of exchange rate changes on cash and cash equivalents	—			(0.1		)
Net increase (decrease) in cash and cash equivalents	19.9			(719.2		)
Cash and cash equivalents:
Beginning of period	25.7			749.8
End of period	$	45.6		$	30.6

See accompanying notes to condensed consolidated financial statements.

5

Starz, LLC and Subsidiaries

Condensed Consolidated Statement of Member’s Interest and Noncontrolling Interests

Nine Months Ended September 30,2014

(Unaudited)

(in millions)

	Member’s Interest			Noncontrolling Interests			Total
Balance at December 31, 2013	$	61.9		$	(7.2	)	$	54.7
Net income	191.3			0.3			191.6
Other comprehensive loss	(0.1		)	—			(0.1		)
Stock compensation	24.3			—			24.3
Contributions from parent related to exercise of stock options	4.5			—			4.5
Minimum withholding of taxes related to stock compensation	(10.9		)	—			(10.9		)
Excess tax benefit from stock compensation	9.0			—			9.0
Distributions to parent related to repurchases of common stock	(226.6		)	—			(226.6		)
Balance at September 30, 2014	$	53.4		$	(6.9	)	$	46.5

See accompanying notes to condensed consolidated financial statements.

6

Starz, LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2014

Note 1 - Basis of Presentation and Description of Business

Presentation

Starz, LLC provides premium subscription video programming to United States (“U.S.”) multichannel video programming distributors (“MVPDs”), including cable operators, satellite television providers and telecommunications companies. Starz, LLC also develops, produces and acquires entertainment content and distributes this content to consumers in the U.S. and throughout the world. The accompanying condensed 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.

The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the results for such periods have been included. The results of operations for any interim period are not necessarily indicative of results for the full year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in Starz, LLC’s Annual Report on Form 10-K for the year ended December 31, 2013.

LMC Spin-Off

In January 2013, the parent company of Starz, LLC, 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”)). Unless the context otherwise requires, Old LMC is used to refer to Starz, LLC’s parent company when events or circumstances being described occurred prior to the LMC Spin-Off and Starz is used to refer to Starz, LLC’s parent company when events or circumstances being described occurred following the LMC Spin-Off.

Business

Starz, LLC’s business operations are conducted by its wholly-owned subsidiaries Starz Entertainment, LLC (“Starz Entertainment”), Film Roman, LLC (“Film Roman”) and certain other immaterial subsidiaries, and its majority-owned (75%) subsidiary Starz Media Group, LLC (“Starz Media”). The Weinstein Company LLC (“Weinstein”) owns a 25% interest in Starz Media. Starz, LLC is managed by and organized around the following operating segments:

Starz Networks

Starz Networks’ 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. Starz Networks’ third network, MoviePlex, offers a variety of art house, independent films and classic movie library content. Starz and Encore, along with MoviePlex, air across 17 linear networks complemented by on-demand and Internet services. Starz Networks’ premium networks are offered by MVPDs to their subscribers either on a fixed monthly price as part of a programming tier or package or on an a-la-carte basis.

Starz Distribution

Starz Distribution includes Starz, LLC’s Home Video, Digital Media and Worldwide Distribution businesses.

7

Starz, LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2014

Home Video

Starz, LLC, through its majority-owned subsidiary Anchor Bay Entertainment, LLC (“Anchor Bay Entertainment”), sells or rents DVDs (standard definition and Blu-ray™) under the Anchor Bay and Manga brands, in the U.S., Canada, the United Kingdom, Australia and other international territories to the extent it has rights to such content in international territories. Anchor Bay Entertainment develops and produces certain of its content and also acquires and licenses various titles from third parties. Certain of the titles produced or acquired by Anchor Bay Entertainment air on Starz Networks’ Starz and Encore networks. Anchor Bay Entertainment also distributes Starz Networks’ original programming content and Weinstein’s titles. Each of these titles are sold to and distributed by regional and national retailers and other distributors, including Wal-Mart, Target, Best Buy, Ingram Entertainment, Amazon, Netflix and Redbox.

Digital Media

Digital Media distributes digital and on-demand content for Starz, LLC’s owned content and content for which it has licensed digital ancillary rights (i.e., pay-per-view, video-on-demand, subscription video-on-demand, electronic sell-through and other digital formats) in the U.S. 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 MVPDs, Internet/mobile distributors, game developers/publishers and consumer electronics companies. Digital Media also distributes Starz Networks’ original programming content and Weinstein’s titles.

Worldwide Distribution

Worldwide Distribution distributes movies, television series, documentaries, children’s programming and other video content. Worldwide Distribution exploits Starz, LLC’s owned content and content for which it has licensed ancillary rights on free or pay television in the U.S. 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 Networks’ original programming content.

Starz Animation

Starz, LLC, through its wholly-owned subsidiary Film Roman, develops and produces two-dimensional animated content on a for-hire basis for various third party entertainment companies.

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. Starz, LLC 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 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 2014 presentation.

8

Starz, LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2014

Note 2 - Debt

Debt consists of the following (in millions):

	September 30, 2014			December 31, 2013
Revolving Credit Facility (a)	$	442.0		$	306.5
Senior Notes, including premium of $2.6 and $3.0 (b)	677.6			678.0
Capital leases (c)	71.3			74.9
Total debt	1,190.9			1,059.4
Less current portion of debt	(5.2		)	(4.9		)
Debt	$	1,185.7		$	1,054.5

(a) Starz, LLC has entered into a credit agreement that provides for a $1,000.0 million senior secured revolving credit facility with a $50.0 million sub-limit for standby letters of credit (“Revolving Credit Facility”) which matures on November 16, 2016. As of September 30, 2014, $558.0 million of borrowing capacity was available under the Revolving Credit Facility.

Interest on each loan under the Revolving Credit Facility is payable at either an alternate base rate or LIBOR at Starz, LLC’s election. Borrowings that are alternate base rate loans bear interest at a per annum rate equal to the alternate base rate plus a margin that varies between 0.5% and 1.5% depending on the consolidated leverage ratio, as defined in the credit agreement. The alternate base rate is the highest of (a) the Prime Rate, (b) the Federal Funds Effective Rate plus ½ of 1.0% or (c) LIBOR for a one-month interest period plus 1.0%. Borrowings that are LIBOR loans bear interest at a per annum rate equal to the applicable LIBOR plus a margin that varies between 1.5% and 2.5% depending on the consolidated leverage ratio. The credit agreement requires Starz, LLC to pay a commitment fee on any unused portion under the Revolving Credit Facility. The commitment fee varies between 0.25% and 0.50%, depending on the consolidated leverage ratio.

As of September 30, 2014, the following borrowings and related LIBOR interest rates were outstanding under the Revolving Credit Facility (dollars in millions):

LIBOR period:	Interest Rate	Loan Amount
September 2014 to October 2014	1.9045%	$	35.0
September 2014 to October 2014	1.9061%	86.0
September 2014 to October 2014	1.9035%	312.0
September 2014 to October 2014	1.9015%	9.0
		$	442.0

The credit agreement contains certain covenants that include restrictions on, among others, incurring additional debt, paying dividends, entering into liens or guarantees, or making certain distributions, investments and other restricted payments. In addition, Starz, LLC must comply with certain financial covenants, including a consolidated leverage ratio, as defined in the agreement. As of September 30, 2014, Starz, LLC was in compliance with all covenants under the credit agreement.

(b) Starz, LLC and Starz Finance Corp., a wholly-owned subsidiary, co-issued $675.0 million aggregate principal amount of 5.0% senior notes due September 15, 2019 (the “Senior Notes”). The Senior Notes bear interest at a rate of 5.0% payable semi-annually on September 15 and March 15 of each year and are guaranteed by Starz Entertainment.

The Senior Notes contain certain covenants that include restrictions on, among others, incurring additional debt, paying dividends, entering into liens and guarantees, or making certain distributions, investments and other restricted payments. As of September 30, 2014, Starz, LLC was in compliance with all covenants under the Senior Notes.

9

Starz, LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2014

(c) On January 11, 2013, Starz, LLC entered into a commercial lease with a subsidiary of Liberty Media for its headquarters building. The term of the lease is ten years, with four successive five-year renewal periods at the option of Starz, LLC. Starz, LLC has recorded a $44.8 million capital lease in connection with this lease agreement with an imputed annual interest rate of 6.4%.

Starz Entertainment 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, 2014, the fair value of the Senior Notes was $683.4 million which was based upon quoted prices in active markets. Starz, LLC believes the fair value of the Revolving Credit Facility approximates its carrying value as of September 30, 2014 due to its variable rate nature and Starz, LLC’s stable credit spread.

Amounts totaling $1.2 million, $0.8 million, $3.0 million and $2.8 million of interest expense have been capitalized as investment in films and television programs during the three months ended September 30, 2014 and 2013 and the nine months endedSeptember 30, 2014 and 2013, respectively.

Note 3 – Stock Options and Restricted Stock

Starz has granted to certain of its employees and directors, stock options to purchase Series A common stock and restricted shares of Series A common stock pursuant to the Starz incentive plans. As of September 30, 2014, the total unrecognized compensation cost related to the unvested stock options and restricted stock was approximately $58.9 million. Such amount will be recognized in Starz, LLC’s condensed consolidated statements of operations over a weighted average period of approximately 2.32 years.

The following table presents the number and weighted average exercise price (“WAEP”) of stock options to purchase Starz common stock:

	Options		WAEP
Outstanding at December 31, 2013	15,479,560		$	15.94
Granted	45,983		$	30.39
Exercised	(1,688,043	)	$	12.26
Forfeited	(462,205	)	$	15.30
Expired/canceled	—		$	—
Outstanding at September 30, 2014	13,375,295		$	16.48
Exercisable at September 30, 2014	4,996,701		$	13.84

At September 30, 2014, the weighted-average remaining contractual term of outstanding options is 5.8 years and exercisable options is 4.8 years. At September 30, 2014, the aggregate intrinsic value of the outstanding options is $222.1 million and the exercisable options is $96.1 million.

The following table presents the number and weighted-average grant date fair value of restricted stock grants:

	Restricted Stock		Weighted Average Grant-Date Fair Value
Outstanding at December 31, 2013	579,135		$	22.86
Granted	17,044		$	30.75
Vested	(117,882	)	$	18.95
Forfeited	(15,467	)	$	18.93
Outstanding at September 30, 2014	462,830		$	24.27

10

Starz, LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2014

Note 4 – Related Party Transactions

In December 2010, Anchor Bay Entertainment entered into a five-year license agreement with Weinstein for the distribution, by the Home Video and Digital Media businesses, of certain of Weinstein’s theatrical releases. Starz, LLC recognized expense of $12.3 million, $35.0 million, $66.6 million and $140.6 million, which is included in production and acquisition costs in the accompanying condensed consolidated statements of operations, for Weinstein’s share of the net proceeds under the license agreement for the three months ended September 30, 2014 and 2013 and the nine months endedSeptember 30, 2014 and 2013, respectively. Amounts due to Weinstein totaled $31.3 million and $75.9 million, which are included in accrued liabilities in the accompanying condensed consolidated balance sheets, at September 30, 2014 and December 31, 2013, respectively. Starz Entertainment guarantees Anchor Bay Entertainment’s advance payments to Weinstein under this agreement up to $50.0 million.

Note 5 - Income Taxes

The income tax provision for the three and nine months endedSeptember 30, 2014 is calculated by estimating Starz, LLC’s annual effective tax rate and then applying the effective tax rate to income before income taxes for the period, plus or minus the tax effects of items that relate discretely to the period, if any. For the three and nine months endedSeptember 30, 2014, income tax expense differs from the amounts computed by applying the U.S. federal income tax rate of 35% primarily due to a benefit from Internal Revenue Code Section 199, which allows U.S. taxpayers a deduction for qualified domestic production activities.  In addition, income tax expense differs due to state and local taxes for both the three and nine months endedSeptember 30, 2014 and 2013 and due to an increase in a valuation allowance related to foreign tax credits during the three months ended September 30, 2013.    

Note 6 - Commitments and Contingencies

Programming Rights

Starz has an exclusive multi-year output licensing agreement for qualifying films that are released theatrically in the U.S. by Sony Pictures Entertainment Inc. (“Sony”) through 2021. The agreement provides Starz with exclusive pay TV rights to exhibit qualifying theatrically released films under the Sony, Columbia Pictures, Screen Gems, Sony Pictures Classics and TriStar labels. Theatrically released films produced by Sony Pictures Animation are not licensed to Starz under the Sony agreement. In addition, Starz has an exclusive licensing agreement for qualifying films that are released theatrically in the U.S. by Walt Disney Company (“Disney”) through 2015. The agreement provides Starz with exclusive pay TV rights to exhibit qualifying theatrically released live-action and animated feature films under the Disney, Touchstone, Pixar and Marvel labels. Theatrically released films produced by DreamWorks are not licensed to Starz under the Disney agreement. The programming fees to be paid to Sony and Disney are based on the quantity and domestic theatrical exhibition receipts of qualifying films. Starz 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 program rights related to films that were available for exhibition at September 30, 2014 is reflected in accrued liabilities and in other liabilities in the accompanying condensed consolidated balance sheets. As of September 30, 2014, such liabilities aggregated approximately $57.4 million and are payable as follows: $32.7 million in 2014, $23.6 million in 2015 and $1.1 million in 2016.

The estimated amounts payable under programming license agreements related to films that are not available for exhibition until some future date, including the rights to exhibit films that have been released theatrically under the Sony and Disney agreements, which have not been accrued as of September 30, 2014, are as follows: $8.4 million in 2014; $272.6 million in 2015; $103.1 million in 2016; $97.8 million in 2017; $91.3 million in 2018 and $210.9 million thereafter.

Starz, LLC is also obligated to pay fees for films that have not yet been released in theaters by Sony and Disney. Starz, LLC is unable to estimate the amounts to be paid under these agreements for films that have not yet been released; however, such amounts are expected to be significant.

Total amortization of program rights was $144.8 million, $154.4 million, $438.4 million and $442.8 million for the three months ended September 30, 2014 and 2013 and the nine months endedSeptember 30, 2014 and 2013, respectively. These amounts are included in programming costs in the accompanying condensed consolidated statements of operations.

11

Starz, LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2014

Legal Proceedings

In the normal course of business, Starz, LLC 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 will not have a material adverse impact on Starz, LLC’s consolidated financial position, results of operations or liquidity.

Note 7 – Other Information

Accrued Liabilities

Accrued liabilities consist of the following (in millions):

	September 30, 2014		December 31, 2013
Royalties, residuals and participations	$	70.5	$	81.4
Program rights payable	53.1		32.2
Advertising and marketing	39.6		41.6
Participations payable to Weinstein	31.3		75.9
Payroll and related costs	23.9		28.7
Other	26.3		38.0
	$	244.7	$	297.8

Supplemental Disclosure of Cash Flow Information

The following table presents the supplemental disclosure of cash flow information (in millions):

	Nine Months Ended September 30,
	2014		2013
Cash paid for interest, net of amounts capitalized	$	41.3	$	40.7
Cash paid for income taxes	$	76.9	$	135.5
Distribution of corporate office building to Old LMC	$	—	$	45.7
Capital lease related to commercial lease with subsidiary of Liberty Media	$	—	$	44.8
Tax attributes related to LMC Spin-Off	$	—	$	11.3

Other Income (Expense), Net

In June 2014, Starz received a distribution of $10.7 million from Revolution Studios Holding Company, LLC (“Revolution”), an equity investee in which Starz holds a 15% ownership interest, related to the sale of all of its assets. Starz accounts for its investment in Revolution using the equity method and previously reduced its investment to zero in 2006. Accordingly, the $10.7 million was treated as other income during the nine months ended September 30, 2014.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board issued the Accounting Standards Update (“ASU”) 2014-09 Revenue from Contracts with Customers (Topic 606). ASU 2014-09 replaces the majority of all U.S. GAAP guidance that currently exists on revenue recognition with a single model to be applied to all contracts with customers. The core principle of ASU 2014-09 is that “an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.”

For a public entity, ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. An entity must apply ASU

12

Starz, LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2014

2014-09 using either the full retrospective approach, by restating all years presented, or the cumulative effect at the date of adoption approach.

Starz, LLC is currently assessing the impact that these changes will have on its consolidated financial statements and therefore is unable to quantify such impact or determine the method of adoption.

Note 8 – Information about Operating Segments

Starz, LLC is primarily engaged in video programming and development, production, acquisition and distribution of entertainment content. Starz, LLC 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 and selling, general and administrative expenses. Starz, LLC’s chief operating decision maker uses this measure of performance in conjunction with other measures to evaluate the operating segments’ performance and make decisions about allocating resources among the operating segments. Starz, LLC believes Adjusted OIBDA is an important indicator of the operational strength and performance of its operating segments, including each operating segment’s ability to assist Starz, LLC in servicing its 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.

The following table provides a reconciliation of Adjusted OIBDA to income before income taxes (in millions):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2014			2013			2014			2013
Consolidated Adjusted OIBDA	$	109.8		$	113.6		$	353.4		$	359.7
Stock compensation	(7.6		)	(8.8		)	(22.9		)	(25.1		)
Depreciation and amortization	(4.9		)	(4.1		)	(14.9		)	(12.9		)
Interest expense, net of amounts capitalized	(11.4		)	(11.6		)	(34.7		)	(33.2		)
Other income (expense), net	(1.5		)	0.2			10.0			(1.8		)
Income before income taxes	$	84.4		$	89.3		$	290.9		$	286.7

Starz, LLC’s 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. Starz, LLC 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 Networks and Starz Distribution have been identified as reportable segments; however, as Starz, LLC has three operating segments, Starz Animation is also reported. Starz, LLC generally accounts for intersegment sales and transfers as if the sales or transfers were to third parties, that is, at current prices.

13

Starz, LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2014

Performance Measures (in millions):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2014			2013			2014			2013
Revenue:
Starz Networks	$	327.2		$	319.8		$	979.4		$	975.6
Starz Distribution	73.5			117.5			235.9			365.7
Starz Animation	7.9			8.7			24.0			22.8
Inter-segment eliminations	(0.4		)	—			(1.0		)	(1.3		)
Total revenue	$	408.2		$	446.0		$	1,238.3		$	1,362.8
Adjusted OIBDA:
Starz Networks	$	109.9		$	106.5		$	345.7		$	337.3
Starz Distribution	0.6			7.3			9.5			24.5
Starz Animation	(0.7		)	(0.5		)	(2.1		)	(1.8		)
Inter-segment eliminations	—			0.3			0.3			(0.3		)
Total Adjusted OIBDA	$	109.8		$	113.6		$	353.4		$	359.7

Other Information (in millions):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2014		2013		2014			2013
Cash paid for investment in films and television programs:
Starz Networks	$	57.5	$	43.1	$	173.1		$	94.1
Starz Distribution	29.4		64.7		94.3			115.3
Starz Animation	—		—		—			—
Inter-segment eliminations	—		—		—			—
Total cash paid for investment in films and television programs	$	86.9	$	107.8	$	267.4		$	209.4
					September 30, 2014			December 31, 2013
Total assets:
Starz Networks					$	1,336.0		$	1,197.7
Starz Distribution					116.6			188.8
Starz Animation					3.0			2.8
Other unallocated assets (primarily cash, deferred taxes and other assets, including a commercial lease with subsidiary of Liberty Media)					85.7			99.2
Inter-segment eliminations					(41.4		)	(38.5		)
Total assets					$	1,499.9		$	1,450.0

Note 9 – Supplemental Guarantor Condensed Consolidating Financial Information

As discussed in Note 2, Starz, LLC and Starz Finance Corp. co-issued the Senior Notes which are fully and unconditionally guaranteed by Starz Entertainment. Starz Media, Film Roman and other immaterial subsidiaries of Starz, LLC (“Starz Media and Other Businesses”) are not guarantors of the Senior Notes.

14

Starz, LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2014

The following tables set forth the consolidating financial information of Starz, LLC, which includes the financial information of Starz Entertainment, the guarantor:

Consolidating Balance Sheet Information – As of September 30, 2014
(in millions)
	Starz Entertainment, LLC (Guarantor)						Starz Media and Other Businesses (Non-Guarantors)
				Starz, LLC Parent Only (Co-Issuer)						Eliminations			Consolidated Starz, LLC
Assets
Current assets:
Cash and cash equivalents	$	36.6		$	0.4		$	8.6		$	—		$	45.6
Trade accounts receivable, net	211.7			—			25.0			—			236.7
Program rights, net	317.7			—			—			(1.1		)	316.6
Deferred income taxes	0.2			0.3			—			—			0.5
Notes receivable from affiliates	23.8			—			—			(23.8		)	—
Other current assets	25.4			3.0			15.0			—			43.4
Total current assets	615.4			3.7			48.6			(24.9		)	642.8
Program rights	328.7			—			—			(5.9		)	322.8
Investment in films and television programs, net	164.3			—			54.5			—			218.8
Property and equipment, net	45.8			42.2			0.6			—			88.6
Deferred income taxes	7.6			26.0			—			—			33.6
Goodwill	131.8			—			—			—			131.8
Other assets, net	42.4			10.6			19.1			(10.6		)	61.5
Investment in consolidated subsidiaries	—			1,724.6			—			(1,724.6		)	—
Total assets	$	1,336.0		$	1,807.1		$	122.8		$	(1,766.0	)	$	1,499.9
Liabilities and Member’s Interest (Deficit) and Noncontrolling Interests
Current liabilities:
Current portion of debt	$	4.6		$	0.6		$	—		$	—		$	5.2
Trade accounts payable	3.0			—			2.6			—			5.6
Accrued liabilities	126.3			12.1			108.8			(2.5		)	244.7
Notes payable due to affiliate	—			—			23.8			(23.8		)	—
Due to (from) affiliates	(587.6		)	591.5			(3.9		)	—			—
Deferred revenue	—			—			4.2			—			4.2
Total current liabilities	(453.7		)	604.2			135.5			(26.3		)	259.7
Debt	1,142.4			1,162.9			—			(1,119.6		)	1,185.7
Deferred income taxes	—			(6.5		)	—			6.5			—
Other liabilities	6.1			—			7.3			(5.4		)	8.0
Total liabilities	694.8			1,760.6			142.8			(1,144.8		)	1,453.4
Member’s interest (deficit)	641.2			53.4			(20.0		)	(621.2		)	53.4
Noncontrolling interests in subsidiaries	—			(6.9		)	—			—			(6.9		)
Total member’s interest (deficit) and noncontrolling interests	641.2			46.5			(20.0		)	(621.2		)	46.5
Total liabilities and member’s interest (deficit) and noncontrolling interests	$	1,336.0		$	1,807.1		$	122.8		$	(1,766.0	)	$	1,499.9

15

Starz, LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2014

Consolidating Balance Sheet Information – As of December 31, 2013
(in millions)
	Starz Entertainment, LLC (Guarantor)						Starz Media and Other Businesses (Non-Guarantors)
				Starz, LLC Parent Only (Co-Issuer)						Eliminations			Consolidated Starz, LLC
Assets
Current assets:
Cash and cash equivalents	$	20.8		$	0.4		$	4.5		$	—		$	25.7
Restricted cash	—			—			30.1			—			30.1
Trade accounts receivable, net	208.1			—			39.8			(0.8		)	247.1
Program rights, net	273.3			—			—			(1.5		)	271.8
Deferred income taxes	0.2			0.3			—			—			0.5
Notes receivable from affiliates	17.7			—			—			(17.7		)	—
Other current assets	24.0			23.8			16.0			—			63.8
Total current assets	544.1			24.5			90.4			(20.0		)	639.0
Program rights	338.9			—			—			(5.7		)	333.2
Investment in films and television programs, net	114.3			—			80.3			—			194.6
Property and equipment, net	51.6			43.3			0.8			—			95.7
Deferred income taxes	—			18.5			—			—			18.5
Goodwill	131.8			—			—			—			131.8
Other assets, net	17.0			12.9			20.2			(12.9		)	37.2
Investment in consolidated subsidiaries	—			1,471.6			—			(1,471.6		)	—
Total assets	$	1,197.7		$	1,570.8		$	191.7		$	(1,510.2	)	$	1,450.0
Liabilities and Member’s Interest (Deficit) and Noncontrolling Interests
Current liabilities:
Current portion of debt	$	4.4		$	0.5		$	—		$	—		$	4.9
Trade accounts payable	6.1			—			1.2			—			7.3
Accrued liabilities	113.6			19.2			176.5			(11.5		)	297.8
Notes payable due to affiliate	—			—			17.7			(17.7		)	—
Due to (from) affiliates	(491.3		)	490.1			1.2			—			—
Deferred revenue	0.6			—			16.0			—			16.6
Total current liabilities	(366.6		)	509.8			212.6			(29.2		)	326.6
Debt	1,010.8			1,028.3			—			(984.6		)	1,054.5
Deferred income taxes	14.9			(22.0		)	—			7.1			—
Other liabilities	11.0			—			8.6			(5.4		)	14.2
Total liabilities	670.1			1,516.1			221.2			(1,012.1		)	1,395.3
Member’s interest (deficit)	527.6			61.9			(29.4		)	(498.2		)	61.9
Noncontrolling interests in subsidiaries	—			(7.2		)	(0.1		)	0.1			(7.2		)
Total member’s interest (deficit) and noncontrolling interests	527.6			54.7			(29.5		)	(498.1		)	54.7
Total liabilities and member’s interest (deficit) and noncontrolling interests	$	1,197.7		$	1,570.8		$	191.7		$	(1,510.2	)	$	1,450.0

16

Starz, LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2014

Consolidating Statement of Operations Information – For the Three Months Ended September 30, 2014
(in millions)
	Starz Entertainment, LLC (Guarantor)						Starz Media and Other Businesses (Non-Guarantors)
				Starz, LLC Parent Only (Co-Issuer)						Eliminations			Consolidated Starz, LLC
Revenue:
Programming networks and other services	$	336.2		$	—		$	30.8		$	(2.2	)	$	364.8
Home video net sales	4.3			—			40.0			(0.9		)	43.4
Total revenue	340.5			—			70.8			(3.1		)	408.2
Costs and expenses:
Programming (including amortization)	156.0			—			—			(0.5		)	155.5
Production and acquisition (including amortization)	4.8			—			31.2			—			36.0
Home video cost of sales	4.1			—			15.7			(0.9		)	18.9
Operating	6.3			—			9.0			(1.7		)	13.6
Selling, general and administrative	57.7			1.3			15.4			—			74.4
Stock compensation	6.8			0.2			0.6			—			7.6
Depreciation and amortization	3.9			0.4			0.6			—			4.9
Total costs and expenses	239.6			1.9			72.5			(3.1		)	310.9
Operating income (loss)	100.9			(1.9		)	(1.7		)	—			97.3
Other income (expense):
Interest expense, net of amounts capitalized	(10.8		)	(12.2		)	—			11.6			(11.4		)
Interest income (expense), related party	0.7			—			(0.7		)	—			—
Other expense, net	(1.4		)	—			(0.1		)	—			(1.5		)
Income (loss) before income taxes and share of earnings of consolidated subsidiaries	89.4			(14.1		)	(2.5		)	11.6			84.4
Income tax benefit (expense)	(30.1		)	6.2			(0.7		)	(4.0		)	(28.6		)
Share of earnings of consolidated subsidiaries, net of taxes	—			63.7			—			(63.7		)	—
Net income (loss)	59.3			55.8			(3.2		)	(56.1		)	55.8
Net loss attributable to noncontrolling interests	—			0.5			(0.1		)	0.1			0.5
Net income (loss) attributable to member	$	59.3		$	56.3		$	(3.3	)	$	(56.0	)	$	56.3

17

Starz, LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2014

Consolidating Statement of Comprehensive Income (Loss) Information – For the Three Months Ended September 30, 2014
(in millions)
	Starz Entertainment, LLC (Guarantor)				Starz Media and Other Businesses (Non-Guarantors)
			Starz, LLC Parent Only (Co-Issuer)					Eliminations			Consolidated Starz, LLC
Net income (loss)	$	59.3	$	55.8	$	(3.2	)	$	(56.1	)	$	55.8
Other comprehensive income, net of taxes
Foreign currency translation adjustments	—		—		—			—			—
Comprehensive income (loss)	59.3		55.8		(3.2		)	(56.1		)	55.8
Comprehensive loss attributable to noncontrolling interests	—		0.5		(0.1		)	0.1			0.5
Comprehensive income (loss) attributable to member	$	59.3	$	56.3	$	(3.3	)	$	(56.0	)	$	56.3

18

Starz, LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2014

Consolidating Statement of Operations Information – For the Three Months Ended September 30, 2013
(in millions)
	Starz Entertainment, LLC (Guarantor)						Starz Media and Other Businesses (Non-Guarantors)
				Starz, LLC Parent Only (Co-Issuer)						Eliminations			Consolidated Starz, LLC
Revenue:
Programming networks and other services	$	328.7		$	—		$	53.5		$	(1.9	)	$	380.3
Home video net sales	15.0			—			53.7			(3.0		)	65.7
Total revenue	343.7			—			107.2			(4.9		)	446.0
Costs and expenses:
Programming (including amortization)	166.4			—			—			(0.3		)	166.1
Production and acquisition (including amortization)	8.7			—			59.2			—			67.9
Home video cost of sales	8.2			—			16.2			(3.0		)	21.4
Operating	6.1			—			9.6			(1.9		)	13.8
Selling, general and administrative	45.2			0.9			17.1			—			63.2
Stock compensation	8.3			—			0.5			—			8.8
Depreciation and amortization	3.0			0.4			0.7			—			4.1
Total costs and expenses	245.9			1.3			103.3			(5.2		)	345.3
Operating income (loss)	97.8			(1.3		)	3.9			0.3			100.7
Other income (expense):
Interest expense, net of amounts capitalized	(10.9		)	(11.8		)	—			11.1			(11.6		)
Interest income (expense), related party	0.6			—			(0.6		)	—			—
Other expense, net	(0.1		)	—			(0.1		)	0.4			0.2
Income (loss) before income taxes and share of earnings of consolidated subsidiaries	87.4			(13.1		)	3.2			11.8			89.3
Income tax benefit (expense)	(35.0		)	2.9			(0.5		)	(3.6		)	(36.2		)
Share of earnings of consolidated subsidiaries, net of taxes	—			63.3			—			(63.3		)	—
Net income	52.4			53.1			2.7			(55.1		)	53.1
Net income attributable to noncontrolling interests	—			(0.9		)	—			—			(0.9		)
Net income attributable to member	$	52.4		$	52.2		$	2.7		$	(55.1	)	$	52.2

19

Starz, LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2014

Consolidating Statement of Comprehensive Income Information – For the Three Months Ended September 30, 2013
(in millions)
	Starz Entertainment, LLC (Guarantor)					Starz Media and Other Businesses (Non-Guarantors)
			Starz, LLC Parent Only (Co-Issuer)					Eliminations			Consolidated Starz, LLC
Net income	$	52.4	$	53.1		$	2.7	$	(55.1	)	$	53.1
Other comprehensive income, net of taxes -
Foreign currency translation adjustments	—		0.2			0.1		(0.1		)	0.2
Comprehensive income	52.4		53.3			2.8		(55.2		)	53.3
Comprehensive income attributable to noncontrolling interests	—		(1.0		)	—		—			(1.0		)
Comprehensive income attributable to member	$	52.4	$	52.3		$	2.8	$	(55.2	)	$	52.3

20

Starz, LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2014

Consolidating Statement of Operations Information – For the Nine Months Ended September 30, 2014
(in millions)
	Starz Entertainment, LLC (Guarantor)						Starz Media and Other Businesses (Non-Guarantors)
				Starz, LLC Parent Only (Co-Issuer)						Eliminations			Consolidated Starz, LLC
Revenue:
Programming networks and other services	$	1,008.0		$	—		$	98.8		$	(6.7	)	$	1,100.1
Home video net sales	12.1			—			128.6			(2.5		)	138.2
Total revenue	1,020.1			—			227.4			(9.2		)	1,238.3
Costs and expenses:
Programming (including amortization)	471.4			—			—			(1.3		)	470.1
Production and acquisition (including amortization)	17.8			—			109.0			—			126.8
Home video cost of sales	9.7			—			34.4			(2.5		)	41.6
Operating	18.9			—			27.0			(5.7		)	40.2
Selling, general and administrative	151.6			4.1			50.5			—			206.2
Stock compensation	20.5			0.8			1.6			—			22.9
Depreciation and amortization	11.6			1.1			2.2			—			14.9
Total costs and expenses	701.5			6.0			224.7			(9.5		)	922.7
Operating income (loss)	318.6			(6.0		)	2.7			0.3			315.6
Other income (expense):
Interest expense, net of amounts capitalized	(32.6		)	(36.2		)	—			34.1			(34.7		)
Interest income (expense), related party	1.2			—			(1.2		)	—			—
Other income (expense), net	(1.0		)	(0.1		)	11.1			—			10.0
Income (loss) before income taxes and share of earnings of consolidated subsidiaries	286.2			(42.3		)	12.6			34.4			290.9
Income tax benefit (expense)	(97.5		)	13.5			(3.3		)	(12.0		)	(99.3		)
Share of earnings of consolidated subsidiaries, net of taxes	—			220.4			—			(220.4		)	—
Net income	188.7			191.6			9.3			(198.0		)	191.6
Net income attributable to noncontrolling interests	—			(0.3		)	(0.1		)	0.1			(0.3		)
Net income attributable to member	$	188.7		$	191.3		$	9.2		$	(197.9	)	$	191.3

21

Starz, LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2014

Consolidating Statement of Comprehensive Income Information – For the Nine Months Ended September 30, 2014
(in millions)
	Starz Entertainment, LLC (Guarantor)					Starz Media and Other Businesses (Non-Guarantors)
			Starz, LLC Parent Only (Co-Issuer)						Eliminations			Consolidated Starz, LLC
Net income	$	188.7	$	191.6		$	9.3		$	(198.0	)	$	191.6
Other comprehensive loss, net of taxes -
Foreign currency translation adjustments	—		(0.1		)	(0.1		)	0.1			(0.1		)
Comprehensive income	188.7		191.5			9.2			(197.9		)	191.5
Comprehensive income attributable to noncontrolling interests	—		(0.3		)	(0.1		)	0.1			(0.3		)
Comprehensive income attributable to member	$	188.7	$	191.2		$	9.1		$	(197.8	)	$	191.2

22

Starz, LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2014

Consolidating Statement of Operations Information – For the Nine Months Ended September 30, 2013
(in millions)
	Starz Entertainment, LLC (Guarantor)						Starz Media and Other Businesses (Non-Guarantors)
				Starz, LLC Parent Only (Co-Issuer)						Eliminations			Consolidated Starz, LLC
Revenue:
Programming networks and other services	$	1,003.5		$	—		$	124.3		$	(6.9	)	$	1,120.9
Home video net sales	27.1			—			220.2			(5.4		)	241.9
Total revenue	1,030.6			—			344.5			(12.3		)	1,362.8
Costs and expenses:
Programming (including amortization)	478.4			—			—			(1.0		)	477.4
Production and acquisition (including amortization)	20.6			—			200.4			—			221.0
Home video cost of sales	15.1			—			41.9			(5.4		)	51.6
Operating	18.3			—			26.2			(5.6		)	38.9
Selling, general and administrative	151.7			3.9			58.6			—			214.2
Stock compensation	22.9			0.8			1.4			—			25.1
Depreciation and amortization	9.5			1.1			2.3			—			12.9
Total costs and expenses	716.5			5.8			330.8			(12.0		)	1,041.1
Operating income (loss)	314.1			(5.8		)	13.7			(0.3		)	321.7
Other income (expense):
Interest expense, net of amounts capitalized	(31.1		)	(34.2		)	—			32.1			(33.2		)
Interest income (expense), related party	1.4			—			(1.4		)	—			—
Other expense, net	(2.2		)	—			(2.5		)	2.9			(1.8		)
Income (loss) before income taxes and share of earnings of consolidated subsidiaries	282.2			(40.0		)	9.8			34.7			286.7
Income tax benefit (expense)	(106.9		)	10.7			(1.1		)	(12.1		)	(109.4		)
Share of earnings of consolidated subsidiaries, net of taxes	—			206.6			—			(206.6		)	—
Net income	175.3			177.3			8.7			(184.0		)	177.3
Net income attributable to noncontrolling interests	—			(3.3		)	—			—			(3.3		)
Net income attributable to member	$	175.3		$	174.0		$	8.7		$	(184.0	)	$	174.0

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Starz, LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2014

Consolidating Statement of Comprehensive Income Information – For the Nine Months Ended September 30, 2013
(in millions)
	Starz Entertainment, LLC (Guarantor)					Starz Media and Other Businesses (Non-Guarantors)
			Starz, LLC Parent Only (Co-Issuer)					Eliminations			Consolidated Starz, LLC
Net income	$	175.3	$	177.3		$	8.7	$	(184.0	)	$	177.3
Other comprehensive income, net of taxes -
Foreign currency translation adjustments	—		0.1			—		—			0.1
Comprehensive income	175.3		177.4			8.7		(184.0		)	177.4
Comprehensive income attributable to noncontrolling interests	—		(3.3		)	—		—			(3.3		)
Comprehensive income attributable to member	$	175.3	$	174.1		$	8.7	$	(184.0	)	$	174.1

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Starz, LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2014

Consolidating Statement of Cash Flows’ Information – For the Nine Months Ended September 30, 2014
(in millions)
	Starz Entertainment, LLC (Guarantor)						Starz Media and Other Businesses (Non-Guarantors)
				Starz, LLC Parent Only (Co-Issuer)						Eliminations			Consolidated Starz, LLC
Operating activities:
Net income	$	188.7		$	191.6		$	9.3		$	(198.0	)	$	191.6
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	11.6			1.1			2.2			—			14.9
Amortization of program rights	439.7			—			—			(1.3		)	438.4
Program rights payments	(349.7		)	—			—			1.7			(348.0		)
Amortization of investment in films and television programs	18.7			—			76.0			—			94.7
Investment in films and television programs	(174.5		)	—			(92.9		)	—			(267.4		)
Stock compensation	20.5			0.8			1.6			—			22.9
Share of earnings of consolidated subsidiaries	—			(220.4		)	—			220.4			—
Deferred income taxes	(22.5		)	8.0			—			(0.6		)	(15.1		)
Other non-operating and non-cash items	3.6			1.8			(11.6		)	(1.8		)	(8.0		)
Changes in assets and liabilities:
Current and other assets	(33.6		)	20.9			45.9			(0.7		)	32.5
Due to / from affiliates	(9.7		)	14.8			(5.1		)	—			—
Payables and other liabilities	25.3			(18.2		)	(36.7		)	(19.7		)	(49.3		)
Net cash provided by (used in) operating activities	118.1			0.4			(11.3		)	—			107.2
Investing activities:
Purchases of property and equipment	(5.8		)	—			(0.1		)	—			(5.9		)
Cash received from equity investee	—			—			10.7			—			10.7
Net cash provided by (used in) investing activities	(5.8		)	—			10.6			—			4.8
Financing activities:
Borrowings of debt	—			366.5			—			—			366.5
Payments of debt	(3.2		)	(231.4		)	—			—			(234.6		)
Borrowings under notes payable to affiliate	(60.0		)	—			60.0			—			—
Payments under notes payable to affiliate	54.0			—			(54.0		)	—			—
Net advances to / from affiliate	(86.6		)	86.6			—			—			—
Contribution from parent related to exercise of stock options	—			4.5			—			—			4.5
Minimum withholding of taxes related to stock compensation	(9.7		)	—			(1.2		)	—			(10.9		)
Excess tax benefit from stock compensation	9.0			—			—			—			9.0
Distributions to parent for repurchase of common stock	—			(226.6		)	—			—			(226.6		)
Net cash provided by (used in) financing activities	(96.5		)	(0.4		)	4.8			—			(92.1		)
Net increase in cash and cash equivalents	15.8			—			4.1			—			19.9
Cash and cash equivalents:
Beginning of period	20.8			0.4			4.5			—			25.7
End of period	$	36.6		$	0.4		$	8.6		$	—		$	45.6
Supplemental disclosure of cash flow information:
Cash paid for interest, net of amounts capitalized	$	(2.6	)	$	42.8		$	1.1		$	—		$	41.3
Cash paid for income taxes	$	72.9		$	(24.4	)	$	28.4		$	—		$	76.9

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Starz, LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2014

Consolidating Statement of Cash Flows’ Information – For the Nine Months Ended September 30, 2013
(in millions)
	Starz Entertainment, LLC (Guarantor)						Starz Media and Other Businesses (Non-Guarantors)
				Starz, LLC Parent Only (Co-Issuer)						Eliminations			Consolidated Starz, LLC
Operating activities:
Net income	$	175.3		$	177.3		$	8.7		$	(184.0	)	$	177.3
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	9.5			1.1			2.3			—			12.9
Amortization of program rights	443.8			—			—			(1.0		)	442.8
Program rights payments	(324.5		)	—			—			1.3			(323.2		)
Amortization of investment in films and television programs	19.1			—			153.8			—			172.9
Investment in films and television programs	(94.1		)	—			(115.3		)	—			(209.4		)
Stock compensation	22.9			0.8			1.4			—			25.1
Payments of long term incentive plan	(3.2		)	—			—			—			(3.2		)
Share of earnings of consolidated subsidiaries	—			(206.6		)	—			206.6			—
Deferred income taxes	3.4			(0.6		)	—			—			2.8
Other non-operating and non-cash items	2.3			1.8			7.4			(1.8		)	9.7
Changes in assets and liabilities:
Current and other assets	1.4			(0.4		)	(68.4		)	—			(67.4		)
Due to / from affiliates	(79.3		)	43.5			(3.7		)	—			(39.5		)
Payables and other liabilities	22.1			(12.2		)	0.4			(21.1		)	(10.8		)
Net cash provided by (used in) operating activities	198.7			4.7			(13.4		)	—			190.0
Investing activities – purchases of property and equipment	(6.1		)	—			(0.1		)	—			(6.2		)
Financing activities:
Borrowings of debt	—			1,081.0			—			—			1,081.0
Payments of debt	(3.1		)	(598.4		)	—			—			(601.5		)
Debt issuance costs	—			(2.3		)	—			—			(2.3		)
Borrowings under notes payable to affiliate	(48.5		)	—			48.5			—			—
Payments under notes payable to affiliate	38.3			—			(38.3		)	—			—
Net advances to / from affiliate	(293.7		)	293.7			—			—			—
Minimum withholding of taxes related to stock compensation	(2.7		)	—			(0.3		)	—			(3.0		)
Excess tax benefit from stock compensation	2.1			—			—			—			2.1
Distributions to parent for repurchase of common stock	—			(179.2		)	—			—			(179.2		)
Distributions to parent	(600.0		)	600.0			—			—			—
Distributions to Old LMC	—			(1,200.0		)	—			—			(1,200.0		)
Net cash provided by (used in) financing activities	(907.6		)	(5.2		)	9.9			—			(902.9		)
Effect of exchange rate changes on cash and cash equivalents	—			—			(0.1		)	—			(0.1		)
Net decrease in cash and cash equivalents	(715.0		)	(0.5		)	(3.7		)	—			(719.2		)
Cash and cash equivalents:
Beginning of period	735.5			0.9			13.4			—			749.8
End of period	$	20.5		$	0.4		$	9.7		$	—		$	30.6
Supplemental disclosure of cash flow information:
Cash paid for interest, net of amounts capitalized	$	(2.5	)	$	41.7		$	1.5		$	—		$	40.7
Cash paid for income taxes	$	136.4		$	(0.8	)	$	(0.1	)	$	—		$	135.5
Distribution of corporate office building to Old LMC	$	45.7		$	—		$	—		$	—		$	45.7
Capital lease related to commercial lease with a subsidiary of Liberty Media	$	—		$	44.8		$	—		$	—		$	44.8
Tax attributes related to LMC Spin-Off	$	—		$	11.3		$	—		$	—		$	11.3

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q includes statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements included in this Quarterly Report on Form 10-Q other than statements of historical fact or current fact are forward-looking statements that address activities, events or developments that we or our management expect, believe or anticipate will or may occur in the future. These statements represent our reasonable judgment on the future based on various factors and using numerous assumptions and are subject to known and unknown risks, uncertainties and other factors, many of which are beyond our control and could cause our actual results and financial position to differ materially from those contemplated by the statements. You can identify these statements by the fact that they do not relate strictly to historical or current facts. They use words such as “anticipate,” “estimate,” “project,” “forecast,” “plan,” “may,” “will,” “should,” “could,” “expect,” or the negative thereof, or other words of similar meaning. In particular, these include, but are not limited to, statements of our current views and estimates of future economic circumstances, industry conditions in domestic and international markets, and our future performance and financial results. These forward-looking statements are subject to a number of factors and uncertainties that could cause our actual results to differ materially from the anticipated results and expectations expressed in such forward-looking statements.

Among the factors that may cause actual results and experiences to differ from the anticipated results and expectations expressed in such forward-looking statements are the following:

• changes in the nature of key strategic relationships with MVPDs and content providers and our ability to maintain and renew affiliation agreements with MVPDs and programming output agreements with content providers on terms acceptable to us;

• business combinations involving MVPDs or movie studios;

• distributor demand for our products and services, including the impact of higher rates paid by our distributors to other programmers, and our ability to adapt to changes in demand;

• consumer demand for our products and services, including changes in demand resulting from participation in and effectiveness of cooperative marketing campaigns with our distributors, and our ability to adapt to changes in demand;

• competitor responses to our products and services;

• the continued investment in, the cost of and our ability to acquire or produce desirable original programming;

• the cost of and our ability to acquire desirable theatrical movie content;

• disruption in the production of theatrical films or television programs due to strikes by unions representing writers, directors or actors;

• changes in distribution and viewing of television programming, including the expanded deployment of personal video recorders, video on-demand, and IP television and their impact on media content consumption;

• uncertainties inherent in the development and deployment of new business strategies;

• uncertainties associated with the development of products and services and market acceptance, including the development and provision of programming for new television and telecommunications technologies;

• our future financial performance, including availability, terms and deployment of capital;

• the ability of our suppliers and vendors to deliver products, equipment, software and services;

• the outcome of any pending or threatened litigation;

• availability of qualified personnel and artistic talent;

27

• the regulatory and competitive environment of the industry in which we operate;

• changes in, or failure or inability to comply with, government regulations, including, without limitation, regulations of the Federal Communications Commission, and/or adverse outcomes from regulatory proceedings;

• changes in tax requirements, including tax rate changes, new tax laws and revised tax law interpretations;

• general economic and business conditions and industry trends;

• consumer spending levels;

• rapid technological changes;

• our ability to distribute content internationally;

• fluctuation in foreign currency exchange rates; and

• threatened terrorist attacks or political unrest in domestic and international markets.

For a description of our risk factors, please see Part I, Item 1A. of our Annual Report on Form 10-K for the year ended December 31, 2013.

All forward-looking statements contained in this Quarterly Report on Form 10-Q are qualified in their entirety by this cautionary statement. We caution readers not to place undue reliance on any forward-looking statements, which speak only as of the date made. We undertake no obligation to publicly update any forward-looking statements whether as a result of new information, future events or otherwise.

The following discussion and analysis provides information concerning our results of operations and financial condition. This discussion should be read in conjunction with our accompanying condensed consolidated financial statements and the notes thereto and our Annual Report on Form 10-K for the year ended December 31, 2013.

OVERVIEW

Starz, LLC is a leading integrated global media and entertainment company. We provide premium subscription video programming to U.S. MVPDs, including cable operators, satellite television providers and telecommunications companies. We also develop, produce and acquire entertainment content and distribute this content to consumers in the U.S. and throughout the world. We are a wholly-owned subsidiary of Starz. Our business operations are conducted by our wholly-owned subsidiaries Starz Entertainment, Film Roman and certain other immaterial subsidiaries, and our majority-owned (75%) subsidiary Starz Media, which is owned 25% by Weinstein.

In January 2013, the LMC Spin-Off was completed. Unless the context otherwise requires, Old LMC is used to refer to Starz, LLC’s parent company when events or circumstances being described occurred prior to the LMC Spin-Off and Starz is used to refer to Starz, LLC’s parent company when events or circumstances being described occurred following the LMC Spin-Off.

We manage our operations through our Starz Networks, Starz Distribution and Starz Animation operating segments. Our integrated operating segments enable us to maintain control, and maximize the profitability of our original programming content and its marketing and distribution in the home video, digital (Internet) and television ancillary markets both domestically and internationally, and we are not reliant on other parties to distribute content on our behalf. Our expanding original programming line-up also provides downstream revenue opportunities for our Starz Distribution operating segment to the extent we retain rights to exploit such programming in these ancillary markets both in the U.S. and around the world.

Our 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. We identify our reportable segments as those operating segments that represent 10% or more of our consolidated annual revenue, annual Adjusted OIBDA or total assets. Starz Networks and Starz Distribution have been identified as reportable segments; however, as we have three operating segments, Starz Animation is also reported separately.

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RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

Our operating results are as follows (dollars in millions):

	Three Months Ended September 30,						$ Change			% Change
	2014			2013			‘14 vs ‘13			‘14 vs ‘13
Revenue:
Programming networks and other services	$	364.8		$	380.3		$	(15.5	)	(4	)%
Home video net sales	43.4			65.7			(22.3		)	(34	)%
Total revenue	408.2			446.0			(37.8		)	(8	)%
Costs and expenses:
Programming (including amortization)	155.5			166.1			(10.6		)	(6	)%
Production and acquisition (including amortization)	36.0			67.9			(31.9		)	(47	)%
Home video cost of sales	18.9			21.4			(2.5		)	(12	)%
Operating	13.6			13.8			(0.2		)	(1	)%
Selling, general and administrative	74.4			63.2			11.2			18	%
Stock compensation	7.6			8.8			(1.2		)	(14	)%
Depreciation and amortization	4.9			4.1			0.8			20	%
Total costs and expenses	310.9			345.3			(34.4		)	(10	)%
Operating income	97.3			100.7			(3.4		)	(3	)%
Other income (expense):
Interest expense, net of amounts capitalized	(11.4		)	(11.6		)	0.2			2	%
Other income (expense), net	(1.5		)	0.2			(1.7		)	(850	)%
Income before income taxes	84.4			89.3			(4.9		)	(5	)%
Income tax expense	(28.6		)	(36.2		)	7.6			21	%
Net income	$	55.8		$	53.1		$	2.7		5	%

COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 2014 TO THREE MONTHS ENDED SEPTEMBER 30, 2013

Revenue

Revenue by segment is as follows (dollars in millions):

	Three Months Ended September 30,					$ Change			% Change
	2014			2013		‘14 vs ‘13			‘14 vs ‘13
Revenue
Starz Networks	$	327.2		$	319.8	$	7.4		2	%
Starz Distribution	73.5			117.5		(44.0		)	(37	)%
Starz Animation	7.9			8.7		(0.8		)	(9	)%
Inter-segment eliminations	(0.4		)	—		(0.4		)	(100	)%
Total revenue	$	408.2		$	446.0	$	(37.8	)	(8	)%

Starz Networks’ revenue represented 80% and 72% of our total revenue for the three months ended September 30, 2014 and 2013, respectively.

29

The Starz and Encore networks are the primary drivers of Starz Networks’ revenue. Our networks are distributed pursuant to affiliation agreements with MVPDs. We earn revenue under these agreements either based solely on the total number of subscribers who receive our Starz and Encore networks multiplied by rates specified in the agreements (i.e., consignment), or amounts or rates which are not tied solely to the total number of subscribers who receive our Starz and Encore networks (i.e., non-consignment). The agreements generally provide for annual contractual rate increases of a fixed percentage or a fixed amount, or rate increases tied to annual increases in the consumer price index.

The table below sets forth, for the periods presented, subscriptions to our Starz and Encore networks (subscriptions in millions):

	As of September 30,		# Change		% Change
Period End Subscriptions:	2014	2013	‘14 vs ‘13		‘14 vs ‘13
Starz	22.5	22.0	0.5		2	%
Encore	33.7	35.0	(1.3	)	(4	)%
Total	56.2	57.0	(0.8	)	(1	)%

Revenue from Starz Networks increased $7.4 million or 2% for the three months ended September 30, 2014 as compared to the corresponding prior year period. The increase in revenue is a result of an $11.7 million increase due to higher effective rates, partially offset by a $4.3 million decrease due to lower average subscriptions. Subscriptions were negatively impacted at certain distributors by reduced promotional activity and/or programming package changes.

Starz Distribution earns revenue from its Home Video, Digital Media and Worldwide Distribution business units through the sale of its content in the U.S. and throughout the world on DVD’s, free and pay television, pay-per-view, video-on-demand, subscription video-on-demand, electronic sell-through and other digital formats. Starz Distribution’s content includes content we own and license, including Starz Network’s original programming, and for the Home Video and Digital Media business units, it also includes the Weinstein’s films.

Revenue from Starz Distribution decreased $44.0 million or 37% for the three months ended September 30, 2014 as compared to the corresponding prior year period. This decrease is primarily due to a decrease in revenue from the distribution of films for Weinstein. Revenue from Weinstein titles during the three months ended September 30, 2013 included the release of Scary Movie 5 and continued sales from the prior quarter releases of Django Unchained and Silver Linings Playbook. There were no significant new releases for Weinstein during the three months ended September 30, 2014. Lower revenue from AMC Networks’ The Walking Dead and no significant home video releases of our original series also impacted the decrease in revenue.

Programming

Programming costs are Starz Networks’ largest expense. Programming costs decreased $10.6 million or 6% for the three months ended September 30, 2014 as compared to the corresponding prior year period. Programming costs vary due to the number of airings and cost of our original programming, the number of films licensed and the cost per film paid under our output and library programming agreements. The decrease in programming costs is primarily due to an $8.5 million decrease in original series amortization expense and a $1.1 million decrease in output and library film amortization expense.

We expect programming costs related to original programming to increase in the future. In 2013, we began to see the impact of a lower cost per film that we pay under our output agreements with Sony and Disney. This lower cost per film was the result of favorable negotiations during recent output agreement renewals. The most significant portion of the savings takes place in the 2014 through 2017 timeframe at which time the first window license period under our Disney output agreement ends. We plan to utilize these savings to cost effectively increase our original programming volume by 2016 or 2017 so that our subscribers will have the opportunity to see a new Starz original program or a new season of an existing Starz original throughout the year.

Production and Acquisition

Production and acquisition costs are Starz Distribution’s largest expense and include amortization of our investment in films and television programs and participation costs. The portion of costs attributed to the pay television window for our original programming is included in programming costs. All remaining production and acquisition costs for original

30

programming as well as our other films and television programs that we own or license (not including films licensed under our output and library programming agreements which are included in programming costs) are amortized to production and acquisition costs based on the proportion that current revenue bears to an estimate of ultimate revenue for each film or television program. The amount of production and acquisition costs that we will incur for original programming is impacted by both the number of and cost of the productions and the various distribution rights that we acquire or retain for these productions. Participation costs represent amounts paid or due to participants under agreements we have whereby Starz Distribution distributes content in which a participant (e.g., Weinstein, producers or writers of our original programming, etc.) has an ownership interest.

Production and acquisition costs decreased $31.9 million or 47% for the three months ended September 30, 2014 as compared to the corresponding prior year period. The decrease is primarily due to lower Starz Distribution revenue, which resulted in lower participation costs, during the three months ended September 30, 2014.

Home Video Cost of Sales

Home video cost of sales represents the direct costs related to the production of DVDs in our Starz Distribution segment. Home video cost of sales decreased $2.5 million or 12% for the three months ended September 30, 2014 as compared to the corresponding prior year period. Home video cost of sales represented 44% and 33% of home video net sales for the three months ended September 30, 2014 and 2013, respectively. This increase in costs as a percentage of sales is due to lower revenue from Weinstein titles. Under our agreement with Weinstein, DVD replication and packaging costs are paid for by Weinstein.

Selling, General and Administrative

Selling, general and administrative expenses are as follows (dollars in millions):

	Three Months Ended September 30,						$ Change			% Change
	2014			2013			‘14 vs ‘13			‘14 vs ‘13
Advertising and marketing:
Starz Networks	$	36.8		$	23.5		$	13.3		57	%
Starz Distribution	7.3			10.7			(3.4		)	(32	)%
Starz Animation	—			—			—			—	%
Inter-segment eliminations	—			—			—			—	%
Total advertising and marketing	44.1			34.2			9.9			29	%
General and administrative
Starz Networks	20.5			19.9			0.6			3	%
Starz Distribution	9.7			9.0			0.7			8	%
Starz Animation	0.1			0.1			—			—	%
Inter-segment eliminations	—			—			—			—	%
Total general and administrative	30.3			29.0			1.3			4	%
Total selling, general and administrative	$	74.4		$	63.2		$	11.2		18	%
General and administrative expense as a percentage of revenue	7		%	7		%

Starz Networks’ advertising and marketing costs increased due to increased spend related to our original programming line-up, including the premiere of our original series Outlander in August 2014 and spend in advance of the October 2014 premiere of Survivor’s Remorse, and was partially offset by a decrease in distributor marketing support. Starz Distribution’s advertising and marketing costs decreased primarily as a result of no significant new films distributed for Weinstein during the three months ended September 30, 2014.

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Adjusted OIBDA

Adjusted OIBDA by segment is as follows (dollars in millions):

	Three Months Ended September 30,						$ Change			% Change
	2014			2013			‘14 vs ‘13			‘14 vs ‘13
Adjusted OIBDA (1)
Starz Networks	$	109.9		$	106.5		$	3.4		3	%
Starz Distribution	0.6			7.3			(6.7		)	(92	)%
Starz Animation	(0.7		)	(0.5		)	(0.2		)	(40	)%
Inter-segment eliminations	—			0.3			(0.3		)	100	%
Total Adjusted OIBDA	$	109.8		$	113.6		$	(3.8	)	(3	)%

___________________

(1)    See Note 8 to the unaudited condensed consolidated financial statements included in this Form 10-Q for a discussion of Adjusted OIBDA, which also includes a reconciliation of Adjusted OIBDA to the GAAP measure income before income taxes. We evaluate performance and make decisions about allocating resources to our operating segments based on financial measures such as Adjusted OIBDA. 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.

Adjusted OIBDA for Starz Networks increased $3.4 million for the three months ended September 30, 2014 as compared to the corresponding prior year period. Such increase was a result of the increase in revenue and lower programming costs, partially offset by an increase in original programming related advertising and marketing costs. Adjusted OIBDA for Starz Distribution decreased $6.7 million for the three months ended September 30, 2014 compared to the corresponding prior year period primarily due to lower revenue, which was partially offset by a corresponding decrease in production and acquisition costs.

Income Taxes

We had income before income taxes of $84.4 million and $89.3 million and income tax expense of $28.6 million and $36.2 million for the three months ended September 30, 2014 and 2013, respectively. Our effective tax rate was 34% and 41% for the three months ended September 30, 2014 and 2013, respectively. Our effective tax rate differs from the U.S. federal income tax rate of 35% for the three months ended September 30, 2014 primarily due to Internal Revenue Code Section 199, which allows U.S. taxpayers a deduction for qualified domestic production activities.  In addition, our effective tax rate differs due to state and local taxes for both the three months ended September 30, 2014 and 2013 and due to an increase in a valuation allowance on foreign tax credits during the three months ended September 30, 2013.

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RESULTS OF OPERATIONS - NINE MONTHS ENDEDSEPTEMBER 30, 2014 AND 2013

Our operating results are as follows (dollars in millions):

	Nine Months Ended September 30,						$ Change			% Change
	2014			2013			‘14 vs ‘13			‘14 vs ‘13
Revenue:
Programming networks and other services	$	1,100.1		$	1,120.9		$	(20.8	)	(2	)%
Home video net sales	138.2			241.9			(103.7		)	(43	)%
Total revenue	1,238.3			1,362.8			(124.5		)	(9	)%
Costs and expenses:
Programming (including amortization)	470.1			477.4			(7.3		)	(2	)%
Production and acquisition (including amortization)	126.8			221.0			(94.2		)	(43	)%
Home video cost of sales	41.6			51.6			(10.0		)	(19	)%
Operating	40.2			38.9			1.3			3	%
Selling, general and administrative	206.2			214.2			(8.0		)	(4	)%
Stock compensation	22.9			25.1			(2.2		)	(9	)%
Depreciation and amortization	14.9			12.9			2.0			16	%
Total costs and expenses	922.7			1,041.1			(118.4		)	(11	)%
Operating income	315.6			321.7			(6.1		)	(2	)%
Other income (expense):
Interest expense, net of amounts capitalized	(34.7		)	(33.2		)	(1.5		)	(5	)%
Other income (expense), net	10.0			(1.8		)	11.8			656	%
Income before income taxes	290.9			286.7			4.2			1	%
Income tax expense	(99.3		)	(109.4		)	10.1			9	%
Net income	$	191.6		$	177.3		$	14.3		8	%

COMPARISON OF NINE MONTHS ENDEDSEPTEMBER 30, 2014 TO NINE MONTHS ENDEDSEPTEMBER 30, 2013

Revenue

Revenue by segment is as follows (dollars in millions):

	Nine Months Ended September 30,						$ Change			% Change
	2014			2013			‘14 vs ‘13			‘14 vs ‘13
Revenue
Starz Networks	$	979.4		$	975.6		$	3.8		—	%
Starz Distribution	235.9			365.7			(129.8		)	(35	)%
Starz Animation	24.0			22.8			1.2			5	%
Inter-segment eliminations	(1.0		)	(1.3		)	0.3			23	%
Total revenue	$	1,238.3		$	1,362.8		$	(124.5	)	(9	)%

Starz Networks’ revenue represented 79% and 72% of our total revenue for the nine months endedSeptember 30, 2014 and 2013, respectively.

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The Starz and Encore networks are the primary drivers of Starz Networks’ revenue. Our networks are distributed pursuant to affiliation agreements with MVPDs. We earn revenue under these agreements based solely on the total number of subscribers who receive our Starz and Encore networks multiplied by rates specified in the agreements (i.e., consignment), or amounts or rates which are not tied solely to the total number of subscribers who receive our Starz and Encore networks (i.e., non-consignment). The agreements generally provide for annual contractual rate increases of a fixed percentage or a fixed amount, or rate increases tied to annual increases in the consumer price index.

The table below sets forth, for the periods presented, subscriptions to our Starz and Encore networks (subscriptions in millions):

	As of September 30,		# Change		% Change
Period End Subscriptions:	2014	2013	‘14 vs ‘13		‘14 vs ‘13
Starz	22.5	22.0	0.5		2	%
Encore	33.7	35.0	(1.3	)	(4	)%
Total	56.2	57.0	(0.8	)	(1	)%

Revenue from Starz Networks increased$3.8 million for the nine months endedSeptember 30, 2014 as compared to the corresponding prior year period. The overall increase is impacted by the one-time recognition during the second quarter of 2013 of $18.6 million of previously deferred revenue. Excluding this prior year one-time adjustment, revenue increased $22.4 million as a result of a $34.6 million increase due to higher effective rates, partially offset by a $12.2 million decrease due to lower average subscriptions. Subscriptions were negatively impacted at certain distributors by retail price increases, tighter credit policies, reduced promotional activity and/or programming package changes.

Starz Distribution earns revenue from its Home Video, Digital Media and Worldwide Distribution business units through the sale of its content in the U.S. and throughout the world on DVD’s, free and pay television, pay-per-view, video-on-demand, subscription video-on-demand, electronic sell-through and other digital formats. Starz Distribution’s content includes content we own and license, including Starz Network’s original programming, and for the Home Video and Digital Media business units, it also includes the Weinstein’s films.

Revenue from Starz Distribution decreased$129.8 million or 35% for the nine months endedSeptember 30, 2014 as compared to the corresponding prior year period. This decrease is primarily due to revenue from the distribution of films for Weinstein. Weinstein new releases during the nine months ended September 30, 2013 included two significant releases, Django Unchained and Silver Linings Playbook,while the nine months ended September 30, 2014 included only one significant new release, Lee Daniels’ The Butler. Lower revenue from AMC Networks’ The Walking Dead and no significant home video releases of our original series also impacted the decrease in revenue.

Programming

Programming costs are Starz Networks’ largest expense. Programming costs decreased$7.3 million or 2% for the nine months endedSeptember 30, 2014 as compared to the corresponding prior year period. Programming costs vary due to the number of airings and cost of our original programming, the number of films licensed and the cost per film paid under our output and library programming agreements. The decrease in programming costs is primarily due to a $7.3 million decrease in original series amortization expense partially offset by a $3.0 million increase in output and library film amortization expense.

We expect programming costs related to original programming to increase in the future. In 2013, we began to see the impact of a lower cost per film that we pay under our output agreements with Sony and Disney. This lower cost per film was the result of favorable negotiations during recent output agreement renewals. The most significant portion of the savings takes place in the 2014 through 2017 timeframe at which time the first window license period under our Disney output agreement ends. We plan to utilize these savings to cost effectively increase our original programming volume by 2016 or 2017 so that our subscribers will have the opportunity to see a new Starz original program or a new season of an existing Starz original throughout the year.

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Production and Acquisition

Production and acquisition costs are Starz Distribution’s largest expense and include amortization of our investment in films and television programs and participation costs. The portion of costs attributed to the pay television window for our original programming is included in programming costs. All remaining production and acquisition costs for original programming as well as our other films and television programs that we own or license (not including films licensed under our output and library programming agreements which are included in programming costs) are amortized to production and acquisition costs based on the proportion that current revenue bears to an estimate of ultimate revenue for each film or television program. The amount of production and acquisition costs that we will incur for original programming is impacted by both the number of and cost of the productions and the various distribution rights that we acquire or retain for these productions. Participation costs represent amounts paid or due to participants under agreements we have whereby Starz Distribution distributes content in which a participant (e.g., Weinstein, producers or writers of our original programming, etc.) has an ownership interest.

Production and acquisition costs decreased$94.2 million or 43% for the nine months endedSeptember 30, 2014 as compared to the corresponding prior year period. The decrease is primarily due to lower Starz Distribution revenue, which resulted in lower participation costs, during the nine months ended September 30, 2014.

Home Video Cost of Sales

Home video cost of sales represents the direct costs related to the production of DVDs in our Starz Distribution segment. Home video cost of sales decreased$10.0 million or 19% for the nine months endedSeptember 30, 2014 as compared to the corresponding prior year period. Home video cost of sales represented 30% and 21% of home video net sales for the nine months endedSeptember 30, 2014 and 2013, respectively. This increase in costs as a percentage of sales is due to lower revenue from Weinstein titles. Under our agreement with Weinstein, DVD replication and packaging costs are paid for by Weinstein.

Selling, General and Administrative

Selling, general and administrative expenses are as follows (dollars in millions):

	Nine Months Ended September 30,						$ Change			% Change
	2014			2013			‘14 vs ‘13			‘14 vs ‘13
Advertising and marketing:
Starz Networks	$	86.9		$	83.9		$	3.0		4	%
Starz Distribution	25.6			37.6			(12.0		)	(32	)%
Starz Animation	—			—			—			—	%
Inter-segment eliminations	—			—			—			—	%
Total advertising and marketing	112.5			121.5			(9.0		)	(7	)%
General and administrative
Starz Networks	63.4			65.3			(1.9		)	(3	)%
Starz Distribution	29.9			27.0			2.9			11	%
Starz Animation	0.4			0.4			—			—	%
Inter-segment eliminations	—			—			—			—	%
Total general and administrative	93.7			92.7			1.0			1	%
Total selling, general and administrative	$	206.2		$	214.2		$	(8.0	)	(4	)%
General and administrative expense as a percentage of revenue	8		%	7		%

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Starz Networks’ advertising and marketing costs increased due to increased spend related to our original programming line-up and was partially offset by a decrease in distributor marketing support. Starz Distribution’s advertising and marketing costs decreased primarily as a result of reduced spend due to fewer significant new films distributed for Weinstein. The decrease in Starz Networks’ general and administrative expense is primarily due to a decrease in legal costs. The increase in Starz Distribution’s general and administrative expense is primarily due to an increase in bad debt expense. The increase in consolidated general and administrative expense as a percentage of revenue was primarily due to the decrease in revenue during the nine months ended September 30, 2014.

Adjusted OIBDA

Adjusted OIBDA by segment is as follows (dollars in millions):

	Nine Months Ended September 30,						$ Change			% Change
	2014			2013			‘14 vs ‘13			‘14 vs ‘13
Adjusted OIBDA (1)
Starz Networks	$	345.7		$	337.3		$	8.4		2	%
Starz Distribution	9.5			24.5			(15.0		)	(61	)%
Starz Animation	(2.1		)	(1.8		)	(0.3		)	(17	)%
Inter-segment eliminations	0.3			(0.3		)	0.6			200	%
Total Adjusted OIBDA	$	353.4		$	359.7		$	(6.3	)	(2	)%

___________________

(1)    See Note 8 to the unaudited condensed consolidated financial statements included in this Form 10-Q for a discussion of Adjusted OIBDA, which also includes a reconciliation of Adjusted OIBDA to the GAAP measure income before income taxes. We evaluate performance and make decisions about allocating resources to our operating segments based on financial measures such as Adjusted OIBDA. 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.

Adjusted OIBDA for Starz Networks increased $8.4 million for the nine months endedSeptember 30, 2014 as compared to the corresponding prior year period. Excluding the one-time recognition of $18.6 million of deferred revenue mentioned above in the second quarter of 2013, Adjusted OIBDA for Starz Networks increased $27.0 million or 8%. Such increase was a result of the increase in revenue and lower programming costs, both of which were slightly offset by the increase in advertising and marketing costs. Adjusted OIBDA for Starz Distribution decreased $15.0 million primarily due to lower revenue and an increase in bad debt expense, which was partially offset by a corresponding decrease in production and acquisition costs.

Other Income (Expense), Net

We recorded other income, net of $10.0 million for the nine months endedSeptember 30, 2014 as compared to other expense, net of $1.8 million for the nine months endedSeptember 30, 2013. The income for the nine months endedSeptember 30, 2014 is primarily comprised of $10.7 million of cash we received from Revolution, an equity investee in which we hold a 15% ownership interest, as a result of the sale of all of its assets. We account for our investment in Revolution using the equity method and reduced our investment to zero in 2006. The income is partially offset by losses on foreign currency hedging transactions and foreign currency exchange losses. The expense for the nine months endedSeptember 30, 2013 is primarily comprised of additional expense that we recorded in connection with our guarantee of the Canadian Next Generation of Jobs Fund Grant, which was released in December 2013, partially offset by foreign currency hedging transaction gains.

Income Taxes

We had income before income taxes of $290.9 million and $286.7 million and income tax expense of $99.3 million and $109.4 million for the nine months endedSeptember 30, 2014 and 2013, respectively. Our effective tax rate was 34% and 38% for the nine months endedSeptember 30, 2014 and 2013, respectively. Our effective tax rate differs from the U.S.

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federal income tax rate of 35% for the nine months endedSeptember 30, 2014 primarily due to Internal Revenue Code Section 199, which allows U.S. taxpayers a deduction for qualified domestic production activities.  In addition, our effective tax rate differs due to state and local taxes for both the nine months endedSeptember 30, 2014 and 2013.

MATERIAL CHANGES IN FINANCIAL CONDITION

As of September 30, 2014, our cash and cash equivalents totaled $45.6 million. Our cash and cash equivalents are, from time to time, invested in U.S. Treasury securities, other government securities or government guaranteed funds, AAA rated money market funds and other highly rated commercial paper.

We generated cash from operating activities of $107.2 million and $190.0 million for the nine months endedSeptember 30, 2014 and 2013, respectively. Our primary uses of cash are for payments under our programming output and library agreements and production and acquisition costs for our original programming, home video and other content (i.e., investment in films and television programs), which are included as a reduction of net cash provided by operating activities. Cash paid under our programming output and library agreements totaled $348.0 million and $323.2 million for the nine months endedSeptember 30, 2014 and 2013, respectively, and increased primarily due to a higher number of first-run films received in 2014 as compared to 2013. Cash paid for original programming, home video and other content totaled $267.4 million and $209.4 million for the nine months endedSeptember 30, 2014 and 2013, respectively, and increased primarily due to the increase in the number of original series in production. We plan to continue to increase our investments in original programming in future periods.

The timing of our tax payments positively impacted net cash provided by operating activities in 2014 due primarily to the Internal Revenue Code Section 199 deduction which we qualified for in the fourth quarter of 2013, resulting in tax payments during the nine months endedSeptember 30, 2014 of $76.9 million as compared to $135.5 million during the nine months endedSeptember 30, 2013.

We received $10.7 million of cash from Revolution, an equity investee in which we hold a 15% ownership interest, as a result of the sale of all of its assets during the nine months endedSeptember 30, 2014.

In connection with the LMC Spin-Off, Starz, LLC distributed $1.2 billion in cash to Old LMC in January 2013 funded by a combination of cash on hand and $550.0 million in borrowings under our Revolving Credit Facility. During the nine months endedSeptember 30, 2014, we had net borrowings of $131.9 million.

Additionally, we used $226.6 million of cash for Starz to buy back common stock, including fees, under its share repurchase program for the nine months endedSeptember 30, 2014 as compared to $179.2 million for the nine months endedSeptember 30, 2013. Starz has $284.0 million available under its share repurchase program as of September 30, 2014.

We are continually projecting our anticipated cash requirements for our operating, investing and financing needs as well as net cash provided by operating activities available to meet these needs. Our potential sources of liquidity are net cash provided by operating activities and borrowings under our Revolving Credit Facility and we expect that we will be able to utilize these sources to fund our cash commitments for investing and financing activities, which include debt repayments, our funding of the buybacks of Starz’s common stock and capital expenditures during 2014. Based upon our current operating plans, we believe that our net cash provided by operating activities and borrowings under our Revolving Credit Facility through its expiration on November 16, 2016 and borrowings under a replacement credit facility or other financing sources thereafter will be sufficient to fund our cash commitments for investing and financing activities, such as our capital expenditures and long term debt obligations from 2015 through 2018. As of September 30, 2014, we had $558.0 million of borrowing capacity available under our Revolving Credit Facility.

RECENT ACCOUNTING PRONOUNCEMENTS

In May 2014, the Financial Accounting Standards Board issued the Accounting Standards Update (“ASU”) 2014-09 Revenue from Contracts with Customers (Topic 606). ASU 2014-09 replaces the majority of all U.S. GAAP guidance that currently exists on revenue recognition with a single model to be applied to all contracts with customers. The core principle of ASU 2014-09 is that “an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.”

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For a public entity, ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. An entity must apply ASU 2014-09 using either the full retrospective approach, by restating all years presented, or the cumulative effect at the date of adoption approach.

We are currently assessing the impact that these changes will have on our consolidated financial statements and therefore are unable to quantify such impact or determine the method of adoption.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risk in the normal course of business due to our ongoing financial and operating activities. Market risk refers to the risk of loss arising from adverse changes in stock prices and interest rates. The risk of loss can be assessed from the perspective of adverse changes in fair values, cash flows and future earnings.

We are exposed to changes in interest rates as a result of borrowings used to maintain our liquidity and fund our operations. The nature and amount of our long-term and short-term debt are expected to vary as a result of future requirements, market conditions and other factors. We manage our exposure to interest rates by maintaining what we believe is an appropriate mix of fixed and variable rate debt and by entering into interest rate swap and collar arrangements when we deem appropriate.

As of September 30, 2014, our debt is comprised of the following amounts (in millions):

Variable rate debt		Fixed rate debt
Principal amount	Weighted avg. interest rate	Principal amount	Weighted avg. interest rate
$442.0	1.90%	$748.9	5.13%

As shown above, the majority of our outstanding debt at September 30, 2014 was fixed rate debt. We have borrowing capacity at September 30, 2014 of $558.0 million under our Revolving Credit Facility at variable rates.

At September 30, 2014, the fair value of our Senior Notes was $683.4 million. We believe the fair value of our Revolving Credit Facility approximates its carrying value as of September 30, 2014 due to its variable rate nature and our stable credit spread.

We are exposed to foreign exchange rate risk on certain of our original series that are produced in foreign countries. We mitigate this foreign exchange rate risk by entering into forward contracts and other types of derivative instruments as deemed appropriate. We are also exposed to foreign exchange rate risk on our foreign operations; however, this risk is not deemed significant to our overall business.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

In accordance with Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we carried out an evaluation, under the supervision and with the participation of management, including our chief executive officer and our principal financial and accounting officer (the “Executives”), of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Executives concluded that our disclosure controls and procedures were effective as of September 30, 2014 to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

There has been no change in our internal control over financial reporting that occurred during the three months ended September 30, 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II

Item 1. Legal Proceedings

In the normal course of business, we are 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 will not have a material adverse impact on our consolidated financial position, results of operations or liquidity.

Item 6. Exhibits

Listed below are the exhibits which are filed as part of this Report (according to the number assigned to them in Item 601 of Regulation S-K).

Exhibit No.		Description of Exhibit
31.1	Rule 13a-14(a)/15(d)-14(a) Certification*
31.2	Rule 13a-14(a)/15(d)-14(a) Certification*
32.1	Section 1350 Certifications*
101.INS	XBRL Instance Document**
101.SCH	XBRL Taxonomy Extension Schema Document**
101.CAL	XBRL Taxonomy Calculation Linkbase Document**
101.LAB	XBRL Taxonomy Label Linkbase Document**
101.PRE	XBRL Taxonomy Presentation Linkbase Document**
101.DEF	XBRL Taxonomy Definition Document**

______________________

* Filed herewith.

** Furnished herewith.

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Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Starz, LLC
	By:	/s/ Christopher P. Albrecht
Date: October 29, 2014		Name:	Christopher P. Albrecht
		Title:	Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.

Signature		Title	Date
/s/ Christopher P. Albrecht
Christopher P. Albrecht		Chief Executive Officer (Principal Executive Officer)	October 29, 2014
/s/ Scott D. Macdonald
Scott D. Macdonald		Chief Financial Officer, Executive Vice President and Treasurer (Principal Financial Officer and Principal Accounting Officer)	October 29, 2014
Starz		Sole Member-Manager of the Registrant	October 29, 2014
By:	/s/ David Weil
	David Weil	Executive Vice President, General Counsel

40

Exhibit List

Exhibits. Listed below are the exhibits which are filed as a part of this Report (according to the number assigned to them in Item 601 of Regulation S-K):

Exhibit No.		Description of Exhibit
31.1	Rule 13a-14(a)/15(d)-14(a) Certification*
31.2	Rule 13a-14(a)/15(d)-14(a) Certification*
32.1	Section 1350 Certifications*
101.INS	XBRL Instance Document**
101.SCH	XBRL Taxonomy Extension Schema Document**
101.CAL	XBRL Taxonomy Calculation Linkbase Document**
101.LAB	XBRL Taxonomy Label Linkbase Document**
101.PRE	XBRL Taxonomy Presentation Linkbase Document**
101.DEF	XBRL Taxonomy Definition Document**

_____________________

* Filed herewith.

** Furnished herewith.

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