http://www.businesswire.com/news/home/20091105005554/en
STUDIO CITY, Calif.--(Business Wire)--
Crown Media Holdings, Inc. (NASDAQ:CRWN) today reported its operating results
for the three and nine months ended September 30, 2009.
Operating Highlights
* Popular original movies. Original programming continues to be a source of
ratings strength for Hallmark Channel, which has premiered eighteen new original
movies through the end of the third quarter of 2009, increasing the delivery of
women 25-54 by 21% for the premieres of original movies as compared to the same
period in 2008.
* Programming expansion. Hallmark Channel has licensed several new programs in
order to expand its family-friendly focus and holiday theme. During the third
quarter the network launched Jack Hanna`s Animal Adventures. In the fourth
quarter Hallmark Channel will introduce a series of holiday-themed skating
specials featuring Olympic skaters and has acquired the rights to air The 121st
Rose Parade on New Year`s Day. In addition, Hallmark Channel recently announced
Movie Nights withhoops&yoyo, hosted by two popular animated characters featured
on Hallmark greeting cards.
* Hallmark Movie Channel growth. Hallmark Movie Channel continues to achieve
significant growth, reaching nearly 25 million subscribers at the end of the
third quarter and is now in all top 30 markets in the United States. In the past
year, Hallmark Movie Channel has increased its subscribers by over 100%.
* Increase in Adjusted EBITDA. Adjusted EBITDA increased 88% to $16.3 million,
from $8.7 million in the third quarter of 2008, due primarily to management`s
successful efforts to control costs.
"Although we were faced with continued challenges in the third quarter, we were
able to leverage our stable and predictable subscriber fee revenues with
effective cost controls to generate record positive adjusted EBITDA," noted Bill
Abbott, President and CEO of Crown Media. "As we begin the winter holiday
season, typically our highest-rated time of year, we will present more holiday
programming than any other television network and look forward to a strong
finish for 2009."
"On a more fundamental level, we are extending our family-friendly appeal and
holiday theme throughout the year with innovative concepts and new original
programming, including an original series on Hallmark Channel and movie
premieres on Hallmark Movie Channel, as we provide two distinguishable services
in order to create increased value for our viewers, advertisers and our
distribution partners."
Financial Results
Historical financial information is provided in tables at the end of this
release.
Operating Results
Crown Media reported revenue of $62.8 million for the third quarter of 2009, a
3% decrease from $64.5 million for the third quarter of 2008. Subscriber fee
revenue increased 12% to $16.0 million, from $14.2 million in the prior year`s
quarter. Advertising revenue decreased 7% to $46.5 million during the quarter,
from $50.0 million in the third quarter of 2008, reflecting primarily ratings
declines in our demographics in the third quarter of 2009 compared to the third
quarter of 2008. A shift in scheduling strategy to more specifically target
W25-54 delivery was implemented in the 2nd quarter of 2009 in order to focus on
the primary demographic targeted by our advertisers. Further changes were made
during the 3rd quarter of 2009. The addition of Golden Girls in the morning, a
comedy block in late night, the expansion of M*A*S*H in early fringe and, most
recently, the addition of Touched by an Angel in prime time, are all part of the
schedule changes. This caused a disruption in our audience resulting in declines
in household ratingsas we seek to attract a younger audience base. As a result,
audience deficiency units increased for the third quarter of 2009, thereby
decreasing advertising revenues, when compared to the same period in 2008. The
decrease in advertising revenue also reflects lower scatter rates and lower
direct response advertising revenue, based on lower programming rates and lower
viewer responses in the third quarter of 2009 than in the third quarter of 2008.
Crown Media reported revenue of $202.0 million for the nine months ended
September 30, 2009, a 2% decrease from $206.6 million for the same period of
2008. Subscriber fee revenue for the nine months ended September 30, 2009,
increased 11% to $47.2 million, from $42.7 million in the prior year`s period.
Advertising revenue decreased 6% to $153.7 million during the nine months ended
September 30, 2009, from $163.0 million for the same period of 2008, reflecting
primarily declining ratings and also lower scatter rates and direct response
advertising revenue. An offsetting factor was an increase in the number of
available general/scatter rate advertising spots.
For the third quarter of 2009, cost of services decreased 10% to $35.1 million
from $39.1 million during the same quarter of 2008. Within cost of services,
programming expenses decreased 14% quarter over quarter to $31.7 million. In the
second and third quarters of 2008, the Company entered into amendments to
significant programming agreements which added programs and deferred certain
payments for programming content to periods beyond 2008. Some of the amendments
resulted in the extension of related program licenses to cover slightly longer
periods of availability, the deferral of expected delivery of certain
programming and the deferral of certain payments primarily from 2008 until 2009.
The Company prospectively changed the amortization of program license fees for
any changes in the period of expected usage and/or changes in license fee. The
effects of these amendments on 2008 amortization were not significant. During
the first quarter of 2009, we also entered into other amendments to some of the
Company`s original programming agreements which extended the current license
period to those titles and thus resulted in lower amortization in the third
quarter of 2009 compared to the third quarter of 2008. Other cost of services
and amortization of our capital lease increased 38% from $2.5 million to $3.4
million for the third quarter of 2009. During the third quarter of 2008, the
Company recorded $1.1 million negative amortization of film assets related to a
change in estimate of the Company`s residual and participation liability using
information that became available during the third quarter of 2008.
For the nine months ended September 30, 2009, cost of services decreased to
$107.1 million from $117.2 million during the same period of 2008. Within cost
of services, programming expenses decreased 12% period over period to $95.2
million. Other cost of services increased 25% from $9.5 million to $11.9 million
for the nine months ended September 30, 2009, due to the $912,000 of severance
expense recorded in May 2009 related to the resignation of one executive and the
Company`s bad debt expense of $1.1 million for the nine months ended September
30, 2009, as compared to $42,000 for the nine months ended September 30, 2008.
Selling, general and administrative expenses decreased to $12.7 million for the
quarter ended September 30, 2009, from $13.1 million in the year earlier period
primarily due to decreases in compensation related to our share-based
obligations and bonus expenses offset in part by $1.2 million of severance
expense and a $451,000 increase in legal expense. Marketing expenses of $339,000
for the quarter ended September 30, 2009, decreased from $4.6 million for the
quarter ended September 30, 2008. As part of our cost reduction efforts,
promotional and marketing efforts were reduced overall during the 2009 quarter
compared to the third quarter of 2008.
Selling, general and administrative expenses decreased to $36.5 million for the
nine months ended September 30, 2009, from $39.4 million in the year earlier
period. Marketing expenses decreased to $6.0 million for the nine months ended
September 30, 2009, from $13.1 million in the year earlier period. The Company
had three marketing promotions in the first three quarters of 2008 centered on
three original movies. The Company had one significant marketing promotion in
January 2009 centered on an original movie.
Adjusted EBITDA was $16.3 million for the third quarter of 2009 compared to $8.7
million for the same period last year. Cash provided by operating activities
totaled $20.0 million for the third quarter of 2009 compared to $24.6 million
for the same period last year. The net loss for the quarter ended September 30,
2009, totaled $10.2 million, or $0.10 per share, compared to $17.9 million, or
$0.17 per share, in the third quarter of 2008.
Adjusted EBITDA totaled $56.2 million for the nine months ended September 30,
2009, compared to $42.9 million for the same period last year. Cash provided by
operating activities totaled $33.4 million for the nine months ended September
30, 2009, compared to $41.6 million for the same period last year. The net loss
for the nine month period ended September 30, 2009, totaled $23.0 million, or
$0.22 per share, compared to $38.5 million, or $0.37 per share, in the same
period of 2008.
Conference Call and Webcast to be Held Thursday, November 5th at 11:00 a.m. ET
Crown Media Holdings` management will conduct a conference call this morning at
11:00 a.m., Eastern Time to discuss the results of the third quarter of 2009.
Investors and interested parties may listen to the call via a live webcast
accessible through the investor relations` section of the Company`s web site at
www.hallmarkchannel.com, or by dialing (800) 688-0796 (Domestic) or (617)
614-4070 (International) and requesting the "Third Quarter Earnings for Crown
Media" call. 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 time. The webcast will be archived on the site, while
a telephone replay of the call is available for 7 days beginning at 1:00 p.m.
Eastern Time, November 5th, at 888-286-8010 or 617-801-6888 (international
callers), using reservation number 66560091.
About Crown Media Holdings
Crown Media Holdings, Inc. (NASDAQ: CRWN) owns and operates cable television
channels dedicated to high quality, broad appeal, entertainment programming. The
Company currently operates and distributes the Hallmark Channel in the U.S. to
more than 88 million subscribers. Hallmark Channel is one of the nation`s
leading networks in providing quality family programming. Crown Media also
operates a second 24-hour linear channel, Hallmark Movie Channel, which is
distributed in both standard and high definition as Hallmark Movie Channel HD.
Significant investors in Crown Media include: Hallmark Entertainment Holdings,
Inc., a subsidiary of Hallmark Cards, Incorporated, Liberty Media Corp., and
J.P. Morgan Partners (BHCA), LP, each through their investments in Hallmark
Entertainment Investments Co.; VISN Management Corp., a for-profit subsidiary of
the National Interfaith Cable Coalition; and The DIRECTV Group, Inc.
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,
amortization of film assets, impairment charges, and other non-cash expenses.
For this purpose, restricted stock unit compensation is treated as a non-cash
item, although it may result in cash payments during subsequent periods.Our
credit facility contained a covenant that used this adjusted EBITDA measure. The
Company no longer has an EBITDA covenant in its bank credit agreement. See
"Selected Third Quarter 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, amortization, loss from discontinued
operations and impairment of film assets. 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.
Selected Third Quarter Unaudited Income Statement Information
(In thousands, except per share data)
Three Months Ended September 30, Nine Months Ended September 30,
2009 2008 2009 2008
Revenues:
Subscriber fees $ 15,998 $ 14,240 $ 47,153 $ 42,672
Advertising 46,296 49,950 153,177 162,836
Advertising by Hallmark Cards 191 - 525 157
Other revenue 334 292 1,098 901
Total revenue 62,819 64,482 201,953 206,566
Cost of services:
Affiliate programming 315 245 914 529
Non-affiliate programming 31,365 36,408 94,282 107,170
Amortization of capital lease 289 289 868 868
Other cost of services 3,116 2,170 11,037 8,654
Total cost of services 35,085 39,112 107,101 117,221
Selling, general & administrative expenses 12,208 12,640 35,000 37,966
Marketing expense 339 4,633 5,956 13,091
Depreciation and amortization 495 506 1,462 1,430
Income from operations before interest expense 14,692 7,591 52,434 36,858
Interest expense (24,884 ) (25,454 ) (75,399 ) (75,360 )
Net loss $ (10,192 ) $ (17,863 ) $ (22,965 ) $ (38,502 )
Net loss per share - basic and diluted $ (0.10 ) $ (0.17 ) $ (0.22 ) $ (0.37 )
Weighted average shares outstanding 104,788 104,788 104,788 104,772
Crown Media Holdings, Inc.
Unaudited Consolidated Balance Sheets
(In thousands, except share and per share data)
As of September 30, As of December 31,
2009 2008
ASSETS
Cash and cash equivalents $ 8,359 $ 2,714
Accounts receivable, less allowance for doubtful
accounts of $322 and $294, respectively 57,488 66,510
Program license fees 110,051 105,936
Prepaid and other assets 6,821 11,722
Total current assets 182,719 186,882
Program license fees 194,726 214,207
Property and equipment, net 13,689 15,392
Goodwill 314,033 314,033
Prepaid and other assets 6,106 8,831
Total assets $ 711,273 $ 739,345
LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES
Accounts payable and accrued liabilities $ 18,455 $ 26,841
Audience deficiency reserve 17,281 11,505
License fees payable 113,108 128,638
Payables to Hallmark Cards affiliates 19,970 14,799
Credit facility and interest payable 2,516 29
Notes and interest payable to Hallmark Cards 340,727 3,987
Total current liabilities 512,057 185,799
Accrued liabilities 25,936 31,361
License fees payable 105,606 112,451
Credit facility - 28,570
Notes payable to Hallmark Cards affiliates - 340,697
Senior unsecured note to HC Crown, including accrued interest 740,083 686,578
Company obligated mandatorily redeemable preferred interest 22,382 20,822
Total liabilities 1,406,064 1,406,278
Commitments and contingencies
STOCKHOLDERS' DEFICIT
Class A common stock, $.01 par value; 200,000,000 shares
authorized; 74,117,654 shares issued and outstanding
as of both September 30, 2009 and December 31, 2008 741 741
Class B common stock, $.01 par value; 120,000,000 shares
authorized; 30,670,422 shares issued and outstanding
as of both September 30, 2009 and December 31, 2008 307 307
Paid-in capital 1,460,400 1,465,293
Accumulated deficit (2,156,239 ) (2,133,274 )
Total stockholders' deficit (694,791 ) (666,933 )
Total liabilities and stockholders' deficit $ 711,273 $ 739,345
Crown Media Holdings, Inc.
Selected Third Quarter Unaudited Financial Information
($ in thousands)
Three Months Ended September 30, Nine Months Ended September 30,
2009 2008 2009 2008
Net loss $ (10,192 ) $ (17,863 ) $ (22,965 ) $ (38,502 )
Subscriber acquisition fee amortization expense 651 702 1,953 2,042
Depreciation and amortization 784 795 2,330 2,298
Other film asset benefit - (1,068 ) - (649 )
Interest expense 24,884 25,454 75,399 75,360
Restricted stock unit compensation (benefit) 134 648 (550 ) 2,380
Adjusted earnings before interest, taxes, depreciation
and amortization $ 16,261 $ 8,668 $ 56,167 $ 42,929
Programming and other amortization 31,636 37,726 95,036 108,319
Provision for allowance for doubtful account 235 38 1,128 43
Changes in operating assets and liabilities:
Additions to program license fees (12,125 ) (67,800 ) (79,829 ) (135,893 )
Change to subscriber acquisition fees (250 ) (250 ) (1,000 ) (2,693 )
Change in subscriber acquisition fees payable - 250 (500 ) 1,183
Interest paid (10,639 ) (983 ) (22,022 ) (3,882 )
Changes in other operating assets and
liabilities, net of adjustments above (5,133 ) 46,931 (15,613 ) 31,573
Net cash provided by operating activities $ 19,985 $ 24,580 $ 33,367 $ 41,579
Crown Media Holdings, Inc.
Selected Third Quarter Unaudited Cash Flow Statement Information
($ in thousands)
Three Months Ended September 30, Nine Months Ended September 30,
2009 2008 2009 2008
Net cash provided by operating activities $ 19,985 $ 24,580 $ 33,367 $ 41,579
Net cash used in investing activities (414 ) (1,083 ) (1,062 ) (4,369 )
Net cash used in financing activities (18,016 ) (19,476 ) (26,660 ) (34,886 )
Net increase in cash and cash equivalents 1,555 4,021 5,645 2,324
Cash equivalents, beginning of period 6,804 277 2,714 1,974
Cash equivalents, end of period $ 8,359 $ 4,298 $ 8,359 $ 4,298
IR Focus
Mindy Tucker, 914-725-8128
mindy@irfocusllc.com
or
Crown Media
Mark Kern, 818-755-2626
markkern@hallmarkchannel.com
or
Nancy Carr, 818-755-2643
nancycarr@hallmarkchannel.com
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