Crown Media Holdings Announces Operating Results for Third Quarter of 2012

  Crown Media Holdings Announces Operating Results for Third Quarter of 2012

Business Wire

STUDIO CITY, Calif. -- November 01, 2012

Crown Media Holdings, Inc. (NASDAQ:CRWN) today reported its operating results
for the three and nine months ended September 30, 2012.

Operating Highlights

  *Strong Operating and Financial Results. Adjusted EBITDA increased 32% to
    $31.3 million for the quarter ended September 30, 2012 compared to the
    same period last year, due to a 4% increase in total revenues combined
    with an 8% decrease in programming costs and marketing reductions for the
    quarter.
  *Completed 2012/2013 Upfront Negotiations. We have concluded our 2012/2013
    Upfront negotiations (fourth quarter of 2012 through third quarter of
    2013), securing double digit increases in total Upfront sales versus a
    year ago. CPM (cost per thousand impressions) increases were locked in at
    mid-single digits, with first-time advertisers paying over 22% higher CPMs
    than the incumbent average.
  *Solid Scatter Pricing Increases for Hallmark Channel and Hallmark Movie
    Channel. Both Hallmark Channel and Hallmark Movie Channel secured scatter
    pricing above CPM increases previously secured in the 2011/2012 Upfront.
    Hallmark Channel’s scatter CPMs are up 53% while Hallmark Movie Channel’s
    scatter CPMs are up 51% compared to the 2011/2012 Upfront.
  *Hallmark Movie Channel Continues Growth in Key Demo. Hallmark Movie
    Channel’s October 13^th premiere of “The Seven Year Hitch” — the network’s
    final original movie of 2012 — reached a new high for the network as its
    most watched original premiere among women 25-54 to-date according to
    Nielsen.
  *Ratings Successes for Hallmark Channel. According to Nielsen, the
    September 8^th premiere of Hallmark Channel’s original movie, “Puppy
    Love”, was highest rated original premiere for 2012 to-date and the
    #1-rated ad-supported cable movie of the day and the week. That entire
    week, September 3^rd through 9^th, marked the network’s 2^nd highest week
    of the year among women 25–54 in primetime. This upward trend continued
    into the following week, September 10^th – 16^th, which became the
    network’s 2^nd highest week of the year among women 25-54 for total day
    delivery.

“Crown Media saw a positive third quarter with solid increases in EBITDA and
advertising revenue,” said Bill Abbott, President and CEO of Crown Media
Family Networks. “During the third quarter, our family-friendly programming
continued to be of high value to advertisers and viewers despite strong
competition from the Summer Olympics. The September 8th premiere of Hallmark
Channel original movie, “Puppy Love”, was the network’s highest rated original
premiere for 2012 to-date while Hallmark Movie Channel’s October 13th premiere
of “The Seven Year Hitch” was the most watched original premiere among women
25-54 in the network’s history. We are confident in our ability to capitalize
on the strength of our brand during the upcoming holiday season and look
forward to our holiday programming schedule, and to achieving our fourth
quarter revenue goals.”

Financial Results

Historical financial information is provided in tables at the end of this
release.

Operating Results

Crown Media reported revenue of $77.1 million for the third quarter of 2012, a
4% increase from $74.0 million for the third quarter of 2011. Advertising
revenue increased 3% to $57.7 million from $56.0 million in the third quarter
of 2011. Advertising revenue from the Hallmark Movie Channel increased 33%
from $7.8 million for the three months ended September 30, 2011, to $10.4
million for the three months ended September 30, 2012 due to audience growth.
Subscriber fee revenue increased 7% to $19.3 million from $18.0 million in the
third quarter of 2011 due to contractual rate increases.

Crown Media reported revenue of $247.6 million for the nine months ended
September 30, 2012, an 11% increase from $223.8 million for the nine months
ended September 30, 2011. Advertising revenue increased 11% to $188.1 million
during the nine months ended September 30, 2012, from $169.6 million during
the nine months ended September 30, 2011. Subscriber fee revenue increased 9%
to $59.0 million, from $53.9 million in the prior year’s period.

For the third quarter of 2012, cost of services decreased 7% to $33.0 million
from $35.5 million during the same quarter of 2011. Within cost of services,
programming expenses decreased 8% quarter over quarter to $29.7 million due to
the expiration of a number of programming license agreements.

For the nine months ended September 30, 2012, cost of services decreased 1% to
$108.4 million from $109.7 million during the same period of 2011. Within cost
of services, programming expenses decreased $2.3 million to $98.4 million.
Other cost of services including amortization of capital leases increased 11%
from $9.0 million to $10.0 million for the nine months ended September 30,
2012. The Company’s residual expense increased $1.4 million due to the usage
of original programming.

Selling, general and administrative expense increased 2% to $13.7 million for
the third quarter of 2012 from $13.5 million during the same quarter of 2011
due to the increases in research expenses and performance-based employee
costs. Selling, general and administrative expense increased 1% for the nine
months ended September 30, 2012, to $42.3 million from $41.7 million during
the same period of 2011. Research costs increased $1.1 million and
performance-based employee costs increased $1.5 million. During 2011 the
Company recorded non-recurring banking fees of $2.5 million attributable to
its June 2010 recapitalization.

Marketing expense decreased to $0.4 million for the quarter ended September
30, 2012, from $2.6 million for the quarter ended September 30, 2011.
Marketing expenses of $1.7 million for the nine months ended September 30,
2012, decreased $1.8 million from $3.5 million for the nine months ended
September 30, 2011. The Company expects its marketing expenses to increase
during the fourth quarter of 2012 due to the promotion of its original holiday
programming.

Interest expense increased $0.9 million for the three months ended September
30, 2012 as compared to the three months ended September 30, 2011. Interest
expense on the Term A and Term B loans was $0.1 million for the three months
ended September 30, 2011. Interest expense on the Note was $6.8 million and
$8.0 million for the three months ended September 30, 2011 and 2012,
respectively. Interest expense on the Term Loan was $2.8 million and $3.0
million for the three months ended September 30, 2011 and 2012, respectively.

Interest expense increased $20.8 million for the nine months ended September
30, 2012 as compared to the nine months ended September 30, 2011, due to the
2010 Recapitalization and the treatment of this transaction under troubled
debt restructuring accounting. Interest expense on the Term A and Term B loans
was $1.5 million for the nine months ended September 30, 2011. Interest
expense on the Note was $6.8 million and $24.1 million for the nine months
ended September 30, 2011 and 2012, respectively. Interest expense on the Term
Loan was $2.8 million and $9.2 million for the nine months ended September 30,
2011 and 2012, respectively.

The Company recorded income tax provisions of $6.6 million and $22.2 million
for the three and nine months ended September 30, 2012. Income tax benefit was
$191.7 million and $235.1 million for the three and nine months ended
September 30, 2011. During the three and nine months ended September 30, 2011,
the Company released $191.8 million and $236.0 million of valuation allowance.

Adjusted EBITDA was $31.3 million for the third quarter of 2012 compared to
$23.7 million for the same period last year. Cash provided by operating
activities totaled $12.2 million for the third quarter of 2012 compared to
$11.9 million for the same period last year. The net income to common
shareholders for the quarter ended September 30, 2012, totaled $11.5 million,
or $0.03 per share, compared to $163.2 million, or $0.45 per share, in the
third quarter of 2011.

Adjusted EBITDA was $99.2 million for the nine months ended September 30,
2012, compared to $74.6 million for the same period last year. Cash provided
by operating activities totaled $20.2 million for the nine months ended
September 30, 2012, compared to $26.0 million for the same period last year.
Net income to common shareholders for the nine months ended September 30,
2012, totaled $37.2 million, or $0.10 per share, compared to $226.0 million,
or $0.63 per share, for the nine months ended September 30, 2011.

Conference Call and Webcast to be Held Thursday, November 1^st at 11:00 a.m.
ET

Crown Media Holdings’ management will conduct a conference call today at 11:00
a.m., Eastern Time to discuss the results of the third quarter of 2012.
Investors and interested parties may listen to the call via a live webcast
accessible on the Company's investor relations page,
http://ir.crownmedia.net/, or by dialing (877) 307-0246 (Domestic) or (224)
357-2394 (International) and using the conference number 43915280. For those
listeners accessing the call through the Company's website, please register
and download audio software at the site at least 15 minutes prior to the start
of the call. The webcast will be archived on the site, and a telephone replay
of the call will be available for 7 days following the call beginning at 1:00
p.m. Eastern Time on Thursday, November 1st at (855) 859-2056 (Domestic) or
(404) 537-3406 (International), using the conference number 43915280.

About Crown Media Holdings

Crown Media Holdings, Inc. is the corporate parent for the portfolio of cable
networks and related businesses under Crown Media Family Networks. The company
currently operates and distributes Hallmark Channel in both high definition
(HD) and standard definition (SD) to nearly 87 million subscribers in the U.S.
Hallmark Channel is the nation’s leading network in providing quality family
programming with an ambitious slate of original TV movies, general
entertainment, and an array of home and lifestyle content. Hallmark Channel's
sibling network, Hallmark Movie Channel, is available in 48 million homes in
HD and SD. One of America’s fastest-growing cable networks, Hallmark Movie
Channel provides family-friendly movies with a mix of classic theatrical
films, presentations from the acclaimed Hallmark Hall of Fame library,
original Hallmark Channel movies and special events. In addition, Crown Media
Family Networks includes the online offerings of HallmarkChannel.com and
HallmarkMovieChannel.com.

Forward-looking Statements

Statements contained in this press release may contain forward-looking
statements as contemplated by the 1995 Private Securities Litigation Reform
Act that are based on management’s current expectations, estimates and
projections. Words such as “expects,” “anticipates,” “intends,” “plans,”
“believes,” “estimates,” variations of such words and similar expressions are
intended to identify such forward-looking statements. Forward-looking
statements are subject to risks and uncertainties, which could cause actual
results to differ materially from those projected or implied in the
forward-looking statements. Such risks and uncertainties include: competition
for distribution of channels, viewers, advertisers, and the acquisition of
programming; fluctuations in the availability of programming; fluctuations in
demand for the programming Crown Media airs on its channels; our ability to
address our liquidity needs; our incurrence of losses; our substantial
indebtedness affecting our financial condition and results; and other risks
detailed in the Company’s filings with the Securities and Exchange Commission,
including the Risk Factors stated in the Company’s most recent 10-K and 10-Q
Reports. Crown Media Holdings is not undertaking any obligation to release
publicly any updates to any forward looking statements to reflect events or
circumstances after the date of this release or to reflect the occurrence of
unanticipated events.

Use of Adjusted EBITDA

Crown Media evaluates operating performance based on several factors,
including Adjusted EBITDA. Our calculation of Adjusted EBITDA adds back
non-cash expenses and other items mentioned below.

Our measure of Adjusted EBITDA differs from the normal definition of EBITDA
(earnings before interest, taxes, depreciation and amortization) used by most
companies. We define Adjusted EBITDA as earnings before interest, taxes,
depreciation, amortization, subscriber acquisition fee amortization, and other
non-cash expenses. For this purpose, restricted stock unit compensation and
long term incentive plan expense are treated as non-cash items, although they
may result in cash payments during subsequent periods. See “Selected Unaudited

Financial Information” below for a reconciliation to GAAP net income.
Management views Adjusted EBITDA as a critical measure of our operating
performance and monitors this measure closely. We disclose Adjusted EBITDA so
that our investors can have some of the same information available to our
management to evaluate their investment in our Company.

We also believe that an Adjusted EBITDA provides an indication of the
Company's ability to generate cash flows from operating activities since our
non-cash expenses are excluded from our calculation of Adjusted EBITDA. The
Adjusted EBITDA calculation allows the Company to assess how much is available
to pay debt service and gives a further indication of how much remains to fund
discretionary expenditures such as the acquisition of programming or
additional subscriber base. However, Adjusted EBITDA should be considered in
addition to, not as a substitute for, historical operating income or loss, net
loss, cash flow from operations and other measures of financial performance
reported in accordance with accounting principles generally accepted in the
United States.

Adjusted EBITDA differs significantly from cash flows from operating
activities reflected in the consolidated statement of cash flows. Cash flow
from operating activities is net of interest and taxes paid and is a more
comprehensive determination of periodic income on a cash basis, exclusive of
non-cash items of income and expenses such as depreciation and amortization.
In contrast, Adjusted EBITDA is derived from accrual basis income and is not
reduced for cash invested in working capital. Consequently, Adjusted EBITDA is
not affected by the timing of receivable collections or when accrued expenses
are paid. We are not aware of any uniform standards for determining EBITDA or
our Adjusted EBITDA and believe that our calculation of Adjusted EBITDA is
probably calculated differently than presentations of EBITDA by other entities
because our calculation was based upon the definition in a bank credit
agreement.

Crown Media Holdings, Inc.
Unaudited Consolidated Income Statement Information
(In thousands, except per share data)
                                                              
                  Three Months Ended September 30,   Nine Months Ended
                                                     September 30,
                  2012             2011            2012         2011
Revenues:
Advertising       $  57,739         $  55,953        $ 186,207     $ 169,243
Advertising by       -                 -               1,911         358
Hallmark Cards
Subscriber fees      19,294            18,013          58,952        53,894
Other revenue       22             82           499        298     
Total revenue        77,055            74,048          247,569       223,793
Cost of
services:
Non-affiliate        29,066            31,879          96,322        99,465
programming
Hallmark
affiliate            651               455             2,068         1,241
programming
Amortization of      289               289             868           868
capital lease
Other cost of       3,013          2,844        9,171      8,158   
services
Total cost of        33,019            35,467          108,429       109,732
services
Selling,
general and          13,718            13,469          42,342        41,740
administrative
expenses
Marketing            430               2,615           1,669         3,508
expense
Depreciation
and                 373            345          1,069      1,097   
amortization
Income from
operations
before interest
and income tax       29,515            22,152          94,060        67,716
expense
Interest            (11,451  )      (10,556  )    (34,655 )   (13,886 )
expense
Income from
operations           18,064            11,596          59,405        53,830
before income
tax expense
Income
(provision) tax     (6,566   )      191,685      (22,164 )   235,093 
benefit
Net income
before gain
from sale of         11,498            203,281         37,241        288,923
discontinued
operations
(Loss) gain
from sale of        -              (1       )    -          188     
discontinued
operations
Net income           11,498            203,280         37,241        289,111
Income to
Preferred           -              (40,076  )    -          (63,096 )
Stockholder
Net income to
common            $  11,498       $  163,204     $ 37,241    $ 226,015 
stockholders
Net income per    $  0.03         $  0.45        $ 0.10      $ 0.63    
share - basic
Net income per    $  0.03         $  0.45        $ 0.10      $ 0.63    
share - diluted
Weighted
average shares       359,676           359,676         359,676       359,676
outstanding


Crown Media Holdings, Inc.
Unaudited Consolidated Balance Sheets
(In thousands, except share and per share data)
                                                         
                                      As of September 30,  As of December 31,
                                      2012                 2011
ASSETS
                                                            
Cash and cash equivalents             $   34,436            $   35,181
Accounts receivable, less allowance
for doubtful
accounts of $262 and $181,                69,686                83,798
respectively
Programming rights                        80,227                98,158
Prepaid program license fees              37,591                11,533
Deferred tax assets                       12,000                14,200
Prepaid and other assets                 2,159              1,174       
Total current assets                      236,099               244,044
Programming rights                        151,464               154,428
Property and equipment, net               10,881                11,236
Deferred tax assets                       203,336               221,800
Debt issuance costs, net                  10,749                11,711
Other assets                              4,009                 1,217
Goodwill                                 314,033            314,033     
Total assets                          $   930,571         $   958,469     
                                                            
LIABILITIES AND STOCKHOLDERS'
EQUITY
                                                            
LIABILITIES
Accounts payable and accrued          $   13,073            $   15,391
liabilities
Audience deficiency reserve               7,073                 10,256
Programming rights payable                104,517               135,768
Payables to Hallmark Cards                12,369                4,051
affiliates
Interest payable                          6,654                 17,135
Current maturities of long-term          7,300              19,600      
debt
Total current liabilities                 150,986               202,201
Accrued liabilities                       20,093                16,667
Programming rights payable                15,953                8,737
Long-term debt, net of current           480,798            487,368     
maturities
Total liabilities                         667,830               714,973
                                                            
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Class A common stock, $.01 par
value; 500,000,000 shares
authorized; 359,675,936 shares
issued and outstanding as of
both September 30, 2012 and               3,597                 3,597
December 31, 2011
Paid-in capital                           2,064,245             2,082,241
Accumulated deficit                      (1,805,101   )      (1,842,342  )
Total stockholders' equity               262,741            243,496     
Total liabilities and stockholders'   $   930,571         $   958,469     
equity


Crown Media Holdings, Inc.
Selected Unaudited Financial Information
(in thousands)
                                                             
                Three Months Ended September 30,   Nine Months Ended September
                                                   30,
                2012             2011            2012          2011
                                                                  
Net income      $  11,498         $  203,280       $  37,241      $ 289,111
Loss (gain)
from sale of       -                 1                -             (188     )
discontinued
operations
Subscriber
acquisition
fee                243               298              894           894
amortization
expense
Depreciation
and                662               634              1,937         1,965
amortization
Interest           11,451            10,556           34,655        13,886
expense
Income tax
provision          6,566             (191,685  )      22,164        (235,093 )
(benefit)
Bank fees          -                 -                -             2,500
Long term
incentive          812               607              2,112         1,474
plan expense
Restricted
stock unit        43             (18       )    198        28       
compensation
Adjusted
earnings
before
interest,
taxes,
depreciation
and             $  31,275       $  23,673      $  99,201    $ 74,577   
amortization
                                                                  
Programming
and other          29,173            31,081           92,790        94,052
amortization
Provision for
allowance for      28                (40       )      56            261
doubtful
account
Changes in
operating
assets and
liabilities:
Change to
program            (24,598  )        (20,998   )      (69,525 )     (108,582 )
license fees
Change to
prepaid            (6,214   )        (2,777    )      (26,058 )     (14,306  )
program
license fees
Change in
license fees       (1,619   )        (3,444    )      (23,287 )     14,919
payable
Interest paid      (18,787  )        (385      )      (43,794 )     (2,572   )
Changes in
other
operating
assets and
liabilities,
net of            2,976          (15,233   )    (9,198  )   (32,342  )
adjustments
above
Net cash
provided by     $  12,234       $  11,877      $  20,185    $ 26,007   
operating
activities


Crown Media Holdings, Inc.
Selected Unaudited Cash Flow Statement Information
(in thousands)
                                                              
                 Three Months Ended September     Nine Months Ended September
                 30,                              30,
                 2012             2011            2012             2011
                                                                   
Net cash
provided by      $  12,234        $  11,877       $  20,185        $ 26,007
operating
activities
Net cash used
in investing        (653    )        (123    )       (981     )      (824    )
activities
Net cash (used
in) provided       (823    )      2,174        (19,949  )    (34,746 )
by financing
activities
Net increase
(decrease) in       10,758           13,928          (745     )      (9,563  )
cash and cash
equivalents
Cash and cash
equivalents,       23,678        7,074        35,181       30,565  
beginning of
period
Cash and cash
equivalents,     $  34,436      $  21,002     $  34,436      $ 21,002  
end of period

Contact:

Crown Media Family Networks
Annie Howell, 212-445-6690
anniehowell@crownmedia.com
 
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