Crown Media Holdings Announces Operating Results for Second Quarter of 2014

  Crown Media Holdings Announces Operating Results for Second Quarter of 2014  Business Wire  STUDIO CITY, Calif. -- August 1, 2014  Crown Media Holdings, Inc. (NASDAQ:CRWN) today reported its operating results for the three and six months ended June 30, 2014.  Operating Highlights    *Continuous advertising revenue growth. Advertising revenue increased 10%     for the quarter and 8% for the six months ended June 30, 2014, as compared     to the prior year periods, due to the strength of pricing across both     channels.   *The first season of Signed, Sealed, Delivered attracted over 10 million     viewers. Hallmark Channel’s third original scripted series, Signed,     Sealed, Delivered averaged a solid 1.4 household rating, propelling     Hallmark Channel to the fifth rated cable network on Sunday’s 8-9 p.m.     timeslot, reaching over ten million viewers and earning a 1.8 rating for     women 25-54.   *Hallmark Movie Channel premiered its highest-rated original movie, The     Color of Rain. The May 31^st premiere of The Color of Rain earned a 1.6     household rating, reaching more than 1.4 million unduplicated viewers and     marking the channel’s top-rated original premiere in key demos, including     women 25-54 (0.6 rating); adults 25-54 (0.4 rating); and total viewers     (0.7 rating).   *Hallmark Channel achieved its 2^nd highest premiere of the year with     Angels Sing as part of the Christmas in July weeklong event, Christmas     Keepsake. From July 4^th through July 13^th, Crown Media Family Networks     celebrated Christmas by featuring popular Christmas-themed original     movies. On July 12^th, Hallmark Channel presented Angels Sing, which     garnered a 1.9 household rating and was the #1 rated ad-supported cable     movie of the day and week among households.   *Hallmark Movies & Mysteries will captivate viewers on October 1^st. Crown     Media Family Networks will re-brand Hallmark Movie Channel to Hallmark     Movies and Mysteries. The channel will focus on the lighter side of the     mystery and suspense genres and will host several Mystery Wheel     franchises.  “During Second Quarter, we continued to showcase our commitment to quality, original scripted series by successfully launching our third series, Signed, Sealed, Delivered, fortifying our brand and establishing a strong foundation for the second half of the year,” said Bill Abbott, President and CEO of Crown Media Family Networks. “Moreover, we reported double-digit operating cash flow growth propelled by rising advertising revenue in recent quarters. Solid pricing combined with our second season of Cedar Cove and a robust slate of original movies should bolster earnings through the remainder of the year.”  Financial Results  Historical financial information is provided in tables at the end of this release.  Operating Results  For the second quarter of 2014 Crown Media reported revenue of $97.4 million, a 9% increase from $89.5 million in the second quarter of 2013. Advertising revenue increased 10% to $75.8 million from $68.7 million in the second calendar quarter of 2013. The increase in advertising revenue is due to rate increases on both channels, offset, in part, by decreases in ratings in our key demographics on Hallmark Movie Channel. Subscriber fee revenue increased 2% to $21.0 million from $20.6 million in the second quarter of 2013 due to contractual rate increases.  For the six months ended June 30, 2014 Crown Media reported revenue of $188.0 million, a 7% increase from $175.0 million for the six months ended June 30, 2013. Advertising revenue increased 8% to $145.2 million from $133.9 million for the six months ended June 30, 2013. The increase in advertising revenue is due to rate increases on both channels. Subscriber fee revenue increased 3% to $42.0 million from $40.7 million during the six months ended June 30, 2013 due to contractual rate increases.  For the second quarter of 2014, cost of services increased 15% to $41.7 million from $36.2 million during the same quarter of 2013. Programming costs increased 16% due to the amortization of costs related to our original series Signed, Sealed, Delivered. Operating costs increased $0.4 million quarter over quarter.  For the six months ended June 30, 2014, cost of services increased 20% to $85.4 million from $71.2 million during the same period of 2013. Programming costs increased 21% due to the amortization of costs related to our original series When Calls the Heart and Signed, Sealed, Delivered. Operating costs increased $0.6 million period over period.  Selling, general and administrative expense (including depreciation and amortization expense) increased 7% to $16.7 million for the second quarter of 2014 from $15.6 million during the same quarter of 2013 due to increases in employee costs, including contingent compensation, and increases in amortization, depreciation and rent expenses.  Selling, general and administrative expense (including depreciation and amortization expense) increased 7% to $33.2 million for the six months ended June 30, 2014 from $31.0 million during the same period of 2013 due to increases in employee costs, including contingent compensation and severance expense, and increases in amortization, depreciation and rent expense.  Marketing expense increased $2.6 million during the second quarter of 2014 compared to the second quarter of 2013 due to marketing to publicize the series Signed, Sealed, Delivered. Marketing expense increased $3.1 million during the six months ended June 30, 2014 compared to the six months ended June 30, 2013 due to the marketing to publicize the series Signed, Sealed, Delivered and When Calls the Heart.  Interest expense decreased $0.7 million for the three months ended June 30, 2014, as compared to the three months ended June 30, 2013, due to the decrease of the principal balance of the Term Loan. Interest expense on the Term Loan was $2.0 million and $1.6 million for the three months ended June 30, 2013 and 2014, respectively.  Interest expense decreased $1.7 million for the six months ended June 30, 2014, as compared to the six months ended June 30, 2013. Interest expense on the Term Loan was $4.9 million and $3.4 million for the six months ended June 30, 2013 and 2014, respectively. Over the past eighteen months, the Company has reduced its principal balance under its Term Loan by $58.2 million.  Provisions for income tax of $9.7 million and $9.5 million reflect corresponding effective tax rates of 37.0% and 37.3% for the three months ended June 30, 2013 and 2014, respectively. Provisions for income tax of $18.3 million and $16.5 million reflect corresponding effective tax rates of 37.1% and 37.0% for the six months ended June 30, 2013 and 2014, respectively.  Adjusted EBITDA was $38.7 million for the second quarter of 2013 compared to $37.5 million for the second quarter of 2014. Cash provided by operating activities totaled $27.5 million for the second quarter of 2013 compared to $32.4 million for the second quarter of 2014. Net income to common shareholders for the quarter ended June 30, 2013, totaled $16.5 million, or $0.05 per share, compared to $16.0 million, or $0.04 per share, in the second quarter of 2014.  Adjusted EBITDA was $74.9 million for the six months ended June 30, 2013 compared to $68.7 million for the six months ended June 30, 2014. Cash provided by operating activities totaled $21.5 million for the six months ended June 30, 2013, compared to $37.0 million for the six months ended June 30, 2014. Net income to common shareholders for the six months ended June 30, 2013, totaled $31.0 million, or $0.09 per share, compared to $28.0 million, or $0.08 per share, for the six months ended June 30, 2014.  Conference Call and Webcast to be Held Friday, August 1^st, at 11:00 a.m. ET  Crown Media Holdings’ management will conduct a conference call on Friday, August 1^st, at 11:00 a.m., Eastern Time to discuss the results of the three and six months ended June 30, 2014. 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 65857209. 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, August 1^st, at (855) 859-2056 (Domestic) or (404) 537-3406 (International), using the conference number 65857209.  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 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, When Calls the Heart, and Signed, Sealed, Delivered; as well as some of television’s most beloved sitcoms and series. Hallmark Channel's sibling network, Hallmark Movie Channel, is available in 54 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 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 likely calculated differently than presentations of EBITDA by other entities as 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 June 30,       Six Months Ended June 30,                      2013         2014           2013         2014     Revenue: Advertising        $  67,647      $  74,956        $  131,836     $  143,482 Advertising by         1,059           870               2,112           1,725 Hallmark Cards Subscriber             20,597          20,957            40,746          41,971 fees Other revenue        172          570            341          850      Total revenue,         89,475          97,353            175,035         188,028 net Cost of services: Non-affiliate          31,411          36,553            62,260          75,866 programming Hallmark Cards affiliate              918             918               1,761           1,766 programming Amortization of capital             289             289               578             578 lease Other cost of        3,561        3,926          6,594        7,205    services Total cost of          36,179          41,686            71,193          85,415 services Selling, general and            15,131          16,111            30,138          32,112 administrative expense Marketing              1,054           3,693             1,693           4,842 expense Depreciation and                  431          595            844          1,103    amortization expense Income from operations before                 36,680          35,268            71,167          64,556 interest and income tax expense Interest             (10,450 )     (9,791  )       (21,798 )     (20,102 ) expense Income from operations             26,230          25,477            49,369          44,454 before income tax expense Income tax           (9,714  )     (9,515  )       (18,320 )     (16,454 ) expense Net income and comprehensive      $  16,516     $  15,962       $  31,049     $  28,000   income Net income per     $  0.05       $  0.04         $  0.09       $  0.08     share - basic Net income per share -            $  0.05       $  0.04         $  0.09       $  0.08     diluted Weighted average number of common              359,676         359,676           359,676         359,676 shares outstanding                                                                                     Crown Media Holdings, Inc. Unaudited Consolidated Balance Sheets (In thousands, except share and per share data)                                                                                                        As of December 31,   As of June 30,                                             2013             2014                                                                         ASSETS                                                                  Cash and cash equivalents                $   63,750             $ 73,778 Accounts receivable, less allowance for doubtful accounts of $834 and $191, respectively      104,613              91,436 Programming rights                           71,540               85,593 Prepaid programming rights                   26,839               28,996 Deferred tax asset, net                      39,100               39,100 Prepaid and other assets                    1,960            2,564       Total current assets                         307,802              321,467 Programming rights                           201,936              221,055 Prepaid programming rights                   9,805                6,976 Property and equipment, net                  9,799                10,363 Deferred tax asset, net                      181,164              165,700 Debt issuance costs, net                     10,047               9,229 Other assets                                 3,644                3,563 Goodwill                                    314,033          314,033     Total assets                             $   1,038,230       $ 1,052,386                                                                    LIABILITIES AND STOCKHOLDERS' EQUITY                                                                  LIABILITIES Accounts payable and accrued liabilities $   22,238             $ 18,121 Audience deficiency reserve liability        4,888                10,803 Programming rights payable                   85,560               77,403 Payables to Hallmark Cards affiliates        466                  543 Interest payable                             14,455               14,452 Current maturities of long-term debt        25,000           -           Total current liabilities                    152,607              121,322 Accrued liabilities                          13,838               19,731 Programming rights payable                   43,314               54,678 Long-term debt, net of current              429,330          429,514     maturities Total liabilities                            639,089              625,245                                                                  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 December 31, 2013 and June 30,       3,597                3,597 2014 Paid-in capital                              2,062,818            2,062,818 Accumulated deficit                         (1,667,274  )     (1,639,274 ) Total stockholders' equity                  399,141          427,141     Total liabilities and stockholders'      $   1,038,230       $ 1,052,386   equity                                                                    Crown Media Holdings, Inc. Selected Unaudited Financial Information (in thousands)                                                                                                                                                    Three Months Ended June 30,     Six Months Ended June 30,                       2013        2014          2013       2014                                                                         Net income          $  16,516       $ 15,962        $ 31,049      $ 28,000   Promotion and   placement            262            263             525           527   expense   Depreciation   and                  720            884             1,422         1,681   amortization   Interest             10,450         9,791           21,798        20,102   expense   Income tax           9,714          9,515           18,320        16,454   expense   Long term   incentive plan       966            1,044           1,703         1,928   expense   Restricted   stock unit          78          6             124        37          compensation   Adjusted   earnings before   interest,   taxes,            $  38,706       $ 37,465        $ 74,941      $ 68,729   depreciation   and   amortization                                                                      Programming and   other                32,784         37,962          64,870        78,634   amortization   Provision for   allowance for        245            108             290           113   doubtful   account   Changes in   operating   assets and   liabilities:   Change to   programming          (16,819  )     (31,312 )       (53,989 )     (110,803 )   rights   Change to   prepaid              (6,481   )     3,440           (13,656 )     672   programming   rights   Change in   programming          (16,521  )     (11,410 )       (24,186 )     3,207   rights payable   Interest paid        (2,022   )     (1,547  )       (20,797 )     (19,186  )   Changes in   other operating   assets and   liabilities,        (2,374   )   (2,325  )      (5,931  )   15,584      net of   adjustments   above Net cash provided by operating        $  27,518     $ 32,381       $ 21,542    $ 36,950    activities                                                                                 Crown Media Holdings, Inc. Selected Unaudited Cash Flow Statement Information (in thousands)                                                                                    Three Months Ended June 30,     Six Months Ended June 30,                        2013         2014         2013       2014                                                                         Net cash provided by operating         $  27,518        $ 32,381       $ 21,542      $ 36,950 activities Net cash used in investing               (605    )       (1,115 )       (856    )     (1,280  ) activities Net cash used in financing              (750    )     (322   )      (19,959 )   (25,642 ) activities Net increase in cash and cash           26,163          30,944         727           10,028 equivalents Cash and cash equivalents,           18,269       42,834       43,705     63,750   beginning of period Cash and cash equivalents, end     $  44,432      $ 73,778      $ 44,432    $ 73,778   of period                                                                      Contact:  Investors and Press: Crown Media Holdings, Inc. Mary Dzabic, 818-755-1261 marydzabic@crownmedia.com  
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