Crown Media Holdings Announces Operating Results for First Quarter of 2014

  Crown Media Holdings Announces Operating Results for First Quarter of 2014

Business Wire

STUDIO CITY, Calif. -- May 2, 2014

Crown Media Holdings, Inc. (NASDAQ:CRWN) today reported its operating results
for the three months ended March 31, 2014.

Operating Highlights

  *Positive financial results. Both advertising revenue and subscriber
    license fees showed gains in the quarter, resulting in a 6% increase in
    total revenue as compared to the prior year period.
  *Hallmark Channel continues to succeed and grow with Original Scripted
    Series. When Calls the Heart averaged a solid 1.6 household rating
    throughout its twelve episode run propelling Hallmark Channel to become
    the third highest rated cable network on Saturday’s 9 o’clock hour. The
    season finale reached over 2.7 million unduplicated viewers. We also
    premiered our third scripted series, Signed, Sealed, Delivered, to a
    strong 1.6 household rating on April 20. Expanding on the success of our
    scripted series programming initiative, the network recently announced a
    partnership with ITV Studios America to turn one of Hallmark Channel’s
    most successful movie franchises, The Good Witch, into a ten episode
    scripted series to air during the first quarter of 2015.
  *Kitten Bowl Returns in 2015 along with its spin off special, Kitten
    Paw-Star Game. On February 2, 2014, Kitten Bowl, an inaugural three-hour
    special event, aired on Hallmark Channel. The show drew 3.2 million
    viewers outperforming the corresponding time period average from one year
    ago across key demographics. The program also featured the network’s most
    successful social media campaign to date with the hashtag #KittenBowl
    garnering 50,000 tweets, establishing it as a top Twitter trender during
    the show’s premiere broadcast. Kitten Bowl will return in February 2015
    with an all new feline championship match. Continuing its dedication to
    Hallmark Channel’s Pet Project, Hallmark Channel announced Kitten Paw-Star
    Game, a new summer tradition to feature kittens ready to hit a line drive
    and score home runs as they battle in the baseball competition of the
  *Hallmark Movies & Mysteries to Launch in Fourth Quarter 2014. Crown Media
    will realign Hallmark Movie Channel’s brand across platforms with a new
    name, tagline and logo. As part of the Hallmark Movie Channel’s new
    programming strategies, the network is developing three Original Mystery
    Wheel franchises in 2015 featuring three-part two-hour mystery movies
    franchises. The first Mystery Wheel will be Garage Sale Mystery starring
    Lori Loughlin and The Gourmet Detective starring Cedar Cove’s Dylan Neal.
  *Hallmark Channel releases a TV Everywhere app on iTunes and Google Play.
    The Hallmark Channel Everywhere mobile application allows viewers to tune
    in to the network’s original movies, the most recent episodes of our
    scripted series and our lifestyle program, Home & Family. Users can access
    all available content by logging in with their cable or satellite provider
    account information.

“Building on the success of our first original series Cedar Cove, we
introduced our second original series When Calls the Heart in January 2014 to
the delight of our loyal viewers. We snagged their hearts with the Kitten Bowl
in February 2014,” said Bill Abbott, President and CEO of Crown Media Family
Networks. “With a slate of 15 original movie premieres in 2014, the return of
Countdown to Christmas with 12 Original Movies and The Most Wonderful Movies
of Christmas, and the realignment of the Hallmark Movie Channel’s brand with a
new name, tagline and logo called Hallmark Movies & Mysteries; we have
positioned ourselves to meet our strategic goals.”

Financial Results

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

Operating Results

For the first quarter of 2014 Crown Media reported revenue of $90.7 million, a
6% increase from $85.6 million in the first quarter of 2013. Advertising
revenue increased 6% to $69.4 million from $65.2 million in the first calendar
quarter of 2013. The increase in advertising revenue is due to audience growth
for Hallmark Movie Channel and rate increases on both channels, offset, in
part, by decreases in ratings in our key demographics on Hallmark Channel.
Subscriber fee revenue increased 4% to $21.0 million from $20.1 million in the
first quarter of 2013 due to contractual rate increases.

For the first quarter of 2014, cost of services increased 25% to $43.7 million
from $35.0 million during the same quarter of 2013. Programming costs
increased 27% due to the amortization of 100% of the costs related to our
original series When Calls the Heart and our special Kitten Bowl. Operating
costs increased $0.2 million quarter over quarter due to an increase in
employee costs.

Selling, general and administrative expense (including depreciation and
amortization expense) increased 7% to $16.5 million for the first quarter of
2014 from $15.4 million during the same quarter of 2013 due to a 16% increase
in employee costs, including contingent compensation and severance expense,
and increases in depreciation and amortization and research costs.

Interest expense decreased $1.0 million for the three months ended March 31,
2014, as compared to the three months ended March 31, 2013. Interest expense
on the Term Loan was $2.9 million and $1.8 million for the three months ended
March 31, 2013 and 2014, respectively. On March 31, 2014, the Company made a
$25.0 million payment under its term loan.

Provisions for income tax of $8.6 million and $6.9 million reflect
corresponding effective tax rates of 37.2% and 36.7% for the three months
ended March 31, 2013 and 2014, respectively.

Adjusted EBITDA was $36.2 million for the first quarter of 2013 compared to
$31.3 million for the first quarter of 2014. Cash used in operating activities
totaled $6.0 million for the first quarter of 2013 compared to cash provided
by operating activities of $4.6 million for the first quarter of 2014. Net
income to common shareholders for the quarter ended March 31, 2013, totaled
$14.5 million, or $0.04 per share, compared to $12.0 million, or $0.03 per
share, in the first quarter of 2014.

Conference Call and Webcast to be Held Friday, May 2^nd, at 11:00 a.m. ET

Crown Media Holdings’ management will conduct a conference call on Friday, May
2^nd, at 11:00 a.m., Eastern Time to discuss the results of the three months
ended March 31, 2014. Investors and interested parties may listen to the call
via a live webcast accessible on the Company's investor relations page,, or by dialing (877) 307-0246 (Domestic) or (224)
357-2394 (International) and using the conference number 22623596. 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 5 days following the call beginning at 2:00
p.m. Eastern Time on Friday, May 2^nd, at (855) 859-2056 (Domestic) or (404)
537-3406 (International), using the conference number 22623596.

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 over 86 million subscribers in the U.S.
Hallmark Channel is the nation’s leading destination for quality family
programming with an ambitious slate of TV movies and specials; original
scripted series, including Cedar Cove and When Calls the Heart; as well as
some of television’s most beloved sitcoms and series. Hallmark Channel's
sibling network, Hallmark Movie Channel, is available in 53 million homes in
HD and SD. One of America’s fastest-growing cable networks, Hallmark Movie
Channel provides family-friendly original movies with a mix of original films,
classic theatrical releases, and presentations from the acclaimed Hallmark
Hall of Fame library. In addition, Crown Media Family Networks includes the
online offerings of and

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

Crown Media Holdings, Inc.
Unaudited Consolidated Income Statement Information
(In thousands, except per share data)
                                                  Three Months Ended March 31,
                                                  2013           2014
Advertising                                      $  64,189        $ 68,526
Advertising by Hallmark Cards                       1,053           855
Subscriber fees                                     20,149          21,014
Other revenue                                      169         280     
Total revenue, net                                   85,560          90,675
Cost of services:
Non-affiliate programming                           30,849          39,313
Hallmark Cards affiliate programming                843             848
Amortization of capital lease                       289             289
Other cost of services                             3,033       3,279   
Total cost of services                               35,014          43,729
Selling, general and administrative expense          15,007          16,001
Marketing expense                                    639             1,149
Depreciation and amortization expense               413         508     
Income from operations before interest
and income tax expense                               34,487          29,288
Interest expense                                    (11,348 )    (10,311 )
Income from operations before income tax             23,139          18,977
Income tax expense                                  (8,606  )    (6,939  )
Net income                                        $  14,533     $ 12,038  
Net income per share - basic                      $  0.04       $ 0.03    
Net income per share - diluted                    $  0.04       $ 0.03    
Weighted average number of common shares             359,676         359,676

Crown Media Holdings, Inc.
Unaudited Consolidated Balance Sheets
(In thousands, except share and per share data)
                                        As of December 31,   As of March 31,
                                        2013                 2014
Cash and cash equivalents               $   63,750             $  42,834
Accounts receivable, less allowance
for doubtful
accounts of $834 and $251,                  104,613               88,505
Programming rights                          71,540                83,219
Prepaid programming rights                  26,839                28,640
Deferred tax asset, net                     39,100                39,100
Prepaid and other assets                   1,960             2,208      
Total current assets                        307,802               284,506
Programming rights                          201,936               229,587
Prepaid programming rights                  9,805                 10,772
Property and equipment, net                 9,799                 9,012
Deferred tax asset, net                     181,164               174,643
Debt issuance costs, net                    10,047                9,631
Other assets                                3,644                 3,987
Goodwill                                   314,033           314,033    
Total assets                            $   1,038,230       $  1,036,171  
Accounts payable and accrued            $   22,238             $  16,201
Audience deficiency reserve                 4,888                 8,588
Programming rights payable                  85,560                78,308
Payables to Hallmark Cards                  466                   504
Interest payable                            14,455                6,577
Current maturities of long-term            25,000            -          
Total current liabilities                   152,607               110,178
Accrued liabilities                         13,838                20,204
Programming rights payable                  43,314                65,183
Long-term debt, net of current             429,330           429,427    
Total liabilities                           639,089               624,992
Class A common stock, $.01 par
value; 500,000,000 shares
authorized; 359,675,936 shares
issued and outstanding as of
both December 31, 2013 and March            3,597                 3,597
31, 2014
Paid-in capital                             2,062,818             2,062,818
Accumulated deficit                        (1,667,274  )      (1,655,236 )
Total stockholders' equity                 399,141           411,179    
Total liabilities and stockholders'     $   1,038,230       $  1,036,171  

Crown Media Holdings, Inc.
Selected Unaudited Financial Information
(in thousands)
                                                  Three Months Ended March 31,
                                                  2013           2014
Net income                                        $  14,533        $ 12,038
Promotion and placement expense                      263             264
Depreciation and amortization                        702             797
Interest expense                                     11,348          10,311
Income tax expense                                   8,606           6,939
Long term incentive plan expense                     737             884
Restricted stock unit compensation                  46          30      
Adjusted earnings before interest, taxes,
and amortization                                  $  36,235        $ 31,263
Programming and other amortization                   32,086          40,673
Provision for allowance for doubtful account         45              5
Changes in operating assets and liabilities:
Change to programming rights                         (37,170 )       (79,491 )
Change to prepaid programming rights                 (7,175  )       (2,768  )
Change in programming rights payable                 (7,665  )       14,617
Interest paid                                        (18,775 )       (17,639 )
Changes in other operating assets and
liabilities, net of adjustments above               (3,557  )    17,909  
Net cash (used in) provided by operating          $  (5,976  )   $ 4,569   

Crown Media Holdings, Inc.
Selected Unaudited Cash Flow Statement Information
(in thousands)
                                                  Three Months Ended March 31,
                                                  2013           2014
Net cash (used in) provided by operating          $  (5,976  )     $ 4,569
Net cash used in investing activities                (251    )       (165    )
Net cash used in financing activities               (19,209 )    (25,320 )
Net decrease in cash and cash equivalents            (25,436 )       (20,916 )
Cash and cash equivalents, beginning of             43,705      63,750  
Cash and cash equivalents, end of period          $  18,269     $ 42,834  


Investors and Press:
Crown Media Holdings, Inc.
Mary Dzabic, 818-755-1261
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