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STUDIO CITY, Calif.--(BUSINESS WIRE)--Nov. 8, 2007--Operating Highlights for the Quarter
-- Revenue growth. Crown Media's net revenue in the third quarter
of 2007 increased 17% to $55.3 million, from $47.3 million in
the prior year's third quarter. This increase was primarily
due to a 19% increase in advertising revenue and a 23%
increase in subscriber fee revenue. For the first nine months
of the year, revenue grew 15% to $164.8 million from $142.8
million in 2006, due to a 17% increase in advertising revenue
and a 15% increase in subscriber fee revenue.
-- Subscriber increase. Hallmark Channel subscribers increased
13% to 84.5 million as of September 30, 2007, from 74.7
million subscribers as of September 30, 2006. Since the
beginning of the year, Hallmark Channel has added nearly 10
million new subscribers.
-- Top ten cable channel. Hallmark Channel remains among the top
ten rated ad-supported cable networks in terms of household
delivery according to Nielsen, ranking an impressive eighth in
Prime Time, tied with HGTV and Court TV, and tenth in Total
Day. For the year-to-date, Hallmark Channel ranked ninth in
Prime Time, tied with A&E, Nickelodeon and Court TV and tenth
in Total Day, tied with A&E and ESPN.
-- Advertising revenue increase. Hallmark Channel experienced 19%
revenue increase in the third quarter of 2007 as compared to
2006. Strong demand in the scatter market in the fourth
quarter has supported sales to date of advertising time at a
75% increase in CPM's as compared to the average CPM's
obtained in the upfront 2007/2008 broadcast season.
-- Hallmark Movie Channel High Definition Launch. The Company has
announced the launch in March 2008 of Hallmark Movie Channel
HD, a simulcast feed of Hallmark Movie Channel, which is now
distributed to nearly 10 million subscribers, according to
Nielsen. Hallmark Movie Channel HD will showcase many of the
Hallmark Channel Original movies as well as over 50 of the
award-winning Hallmark Hall of Fame movies in high definition
form.
"The third quarter of 2007 was filled with more of the same consistent and positive growth we have experienced to date this year," remarked Henry Schleiff, President and CEO of Crown Media. "We are a top ten cable channel with wholesome and appealing family friendly programming which resonates with our viewers as evidenced by our record ratings this quarter, with our distributors as supported by their widespread participation in our affiliate advertising programs, and with our advertisers as demonstrated by the significant increases we experience every quarter in both volume and pricing. "
"We look forward to the fourth quarter as the highlight of our year where we showcase the best of our holiday themed original programming which typically provides us with our strongest quarter in terms of ratings and profitability, driving us to a strong finish for 2007. "
Financial Results
Historical financial information is provided in tables at the end of this release.
Operating Results
Crown Media reported revenue of $55.3 million for the third quarter of 2007, a 17% increase from $47.3 million for the third quarter of 2006. Subscriber fee revenue in the third quarter increased 23% to $7.4 million, from $6.0 million in the prior year's quarter, as a result of a net effective rate that was higher on average and an increase in the number of subscribers under certain new and existing agreements. A key aspect of the change in net subscriber rates was lower subscriber acquisition fees recorded as a reduction of revenues. Advertising revenue increased 19% to $47.8 million during the quarter, from $40.2 million in the third quarter of 2006, reflecting higher advertising rates, offset in part by lower than expected ratings. We did not have licensing fees from our film library during the quarter ended September 30, 2007, as we sold our film assets in December 2006. Licensing fees for our film library were $989,000 during the prior year's quarter.
Crown Media reported revenue of $164.8 million for the nine months ended September 30, 2007, a 15% increase from $142.8 million for the same period of 2006. Subscriber fee revenue for the nine months ended September 30, 2007, increased 15% to $21.4 million, from $18.6 million in the prior year's period, as a result of higher net effective rates on average, primarily due to a decrease in subscriber acquisition fees applied against revenue, and an increase in the number of subscribers. Advertising revenue increased 17% to $143.1 million during the nine months ended September 30, 2007, from $122.2 million for the same period of 2006, reflecting higher advertising rates. We did not have licensing fees from our film library during the nine months ended September 30, 2007, as we sold our film assets in December 2006. Licensing fees for our film library were $1.8 million during the prior year's period.
For the third quarter of 2007, cost of services decreased to $51.9 million from $90.4 million during the same quarter of 2006. Within cost of services, programming expenses increased 32% quarter over quarter to $46.4 million in the third quarter of 2007, because of directly expensing (instead of amortizing over a window) certain programming and higher amortization for more original programs produced to air on the Hallmark Channel in the current period as compared to the prior period. During the third quarter of 2007, the Company recorded $4.7 million of negative amortization of film assets as a result of an internal analysis of its third party sales residual and participation liability during certain periods of its film asset ownership. The Company reduced its residual and participation accrual by $4.7 million based upon the outcome of this analysis. For the three months ended September 30, 2006, amortization of film assets was $4.6 million. We sold our film assets in December 2006. Additionally, the Company recorded a $40.9 million impairment to its film assets during the third quarter of 2006. Subscriber acquisition fee amortization expense was $7.0 million in third quarter of 2007 as compared to $7.7 million in the third quarter of 2006. Other cost of services increased 64% from $1.8 million to $2.9 million for the third quarter of 2007. The Company's bad debt expense was $108,000 for the three months ended September 30, 2007. The Company's negative bad debt expense was $1.0 million for the three months ended September 30, 2006. Selling, general and administrative expenses increased to $11.6 million for the three months ended September 30, 2007, from $10.7 million in the year earlier period primarily due to a $281,000 increase and a $358,000 increase in compensation expense related to the obligations of restricted stock units and stock appreciation rights, respectively, a $607,000 increase in commissions expense, and a $385,000 increase in salaries expense, offset in part by a $767,000 decrease in severance expense. There was also a decrease in depreciation and amortization expense of $258,000 primarily related to assets becoming fully depreciated. Marketing expenses increased to $3.6 million for the three months ended September 30, 2007, from $3.5 million in the year earlier period.
For the nine months ended September 30, 2007, cost of services decreased to $151.0 million from $383.1 million during the same period of 2006. Within cost of services, programming expenses increased 21% period over period to $124.5 million, because of directly expensing (instead of amortizing over a window) certain programming and higher amortization for more original programs produced to air on the Hallmark Channel in the current period as compared to the prior period. In the first quarter of 2007, we also had $1.7 million in write offs of certain programming. Additionally, in August 2007, the Company wrote off $5.5 million of prepaid programming assets and $1.4 million of long term other assets related to the December 2005 NICC agreement. During the nine months ended September 30, 2007, the Company reduced its estimate of a residual and participation liability by $5.2 million. Therefore, the Company recognized negative amortization of its film assets during this time period. For the nine months ended September 30, 2006, amortization of film assets was $21.7 million. We sold our film assets in December 2006. Additionally, the Company recorded a $225.8 million impairment to its film assets during the nine months ended September 30, 2006. Subscriber acquisition fee amortization expense was $22.7 million for the nine months ended September 30, 2007, as compared to $23.3 million in the same period of 2006. Other cost of services decreased 7% from $8.8 million to $8.2 million for the nine months ended September 30, 2007. The Company's bad debt expense for the nine months ended September 30, 2007 was $95.000 as compared to the Company's bad debt expense of $254,000 for the nine months ended September 30, 2006. There were also decreases in expenses associated with the library, such as outside sales commission and tape duplication. Selling, general and administrative expenses increased to $39.8 million for the nine months ended September 30, 2007, from $32.5 million in the year earlier period primarily due to a $7.4 million increase and a $1.4 million increase in compensation expense related to the obligations of restricted stock units and stock appreciation rights, respectively, a $939,000 increase in bonus expense, offset in part by a $3.7 million decrease in severance expense. There was also a decrease in depreciation and amortization expense of $1.0 million primarily related to assets becoming fully depreciated. Marketing expenses increased to $11.9 million for the nine months ended September 30, 2007, from $8.9 million in the year earlier period.
Interest expense for the nine months ended September 30, 2007, includes $7.9 million of a $33.1 million note provided under the tax sharing agreement by us to Hallmark Cards because of the disallowance by the Internal Revenue Service of Hallmark Cards' use of our losses for 2003 and 2004 in Hallmark Cards' consolidated tax returns for fiscal years 2001 and 2002.
Adjusted EBITDA loss totaled $6.5 million for the third quarter of 2007, compared to an Adjusted EBITDA loss of $978,000 for the same period last year. Cash provided by operating activities totaled $5.4 million for the third quarter of 2007 compared to cash used in operating activities of $3.0 million for the same period last year. The net loss for the three month period ended September 30, 2007, totaled $37.9 million, or $0.36 per share, compared to $84.3 million, or $0.80 per share, in the third quarter of 2006.
Adjusted EBITDA loss totaled $10.5 million for the nine months ended September 30, 2007, compared to an Adjusted EBITDA loss of $6.8 million for the same period last year. Cash used in operating activities totaled $2.8 million for the nine months ended September 30, 2007, compared to $21.4 million for the same period last year. The net loss for the nine month period ended September 30, 2007, totaled $121.7 million, or $1.16 per share, compared to $359.0 million, or $3.43 per share, in the same period of 2006.
Conference Call and Webcast to be Held Thursday, November 8, 2007 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 three and nine months ended September 30, 2007. Investors and interested parties may listen to the call via a live webcast accessible on the investor relations page of the Company's web site, www.hallmarkchannel.com, or by dialing (800) 688-0796 (Domestic) or (617) 614-4070 (International) and requesting the "Third Quarter Earnings for Crown Media." 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 beginning at 1:00 p.m. Eastern Time, Thursday, November 8, 2007, at (888) 286-8010 (Domestic) or (617) 801-6888 (International), using passcode number 16557534.
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 Hallmark Channel in the U.S. to nearly 85 million subscribers. The program service is distributed through 5,300 cable systems and communities as well as direct-to-home satellite services across the country. Hallmark Channel consistently ranks among the top ten ad-supported cable networks in Prime Time and Total Day household ratings and is the nation's leading network in providing quality family programming. Crown Media also operates a second 24-hour linear channel, Hallmark Movie Channel and will launch Hallmark Movie Channel HD in the first quarter 2008. Significant investors in Crown Media Holdings 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; Crown Media's ability to address its liquidity needs; Crown Media's incurrence of losses; and Crown Media's substantial indebtedness affecting its 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 10-K Report for the year ended December 31, 2006. 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 to net loss impairment of film assets, other 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. See "Selected Third Quarter Unaudited Financial Information" below for a reconciliation to GAAP net loss. 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. A significant portion of the Company's cost structure relates to the amortization of film assets (for periods prior to the sale of those assets) and subscriber acquisition costs, which are significant non-cash charges. 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 flows 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 cash flow, exclusive of non-cash items of income and expenses such as depreciation, amortization, gain or loss from discontinued operations and impairment of film assets. In contrast, Adjusted EBITDA is derived from the net loss 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 our bank credit agreement.
Crown Media Holdings, Inc.
Selected Third Quarter Unaudited Financial Information
(In thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
2007 2006 2007 2006
-----------------------------------------
Subscriber fees $ 7,389 $ 6,022 $ 21,391 $ 18,633
Advertising 47,819 40,229 142,750 121,228
Advertising by Hallmark
Cards - 2 390 945
Film asset license fees - 989 - 1,777
Sublicense fees and
other revenue 104 76 260 230
--------- --------- ---------- ----------
Total revenue 55,312 47,318 164,791 142,813
Cost of services:
Affiliate programming 11,247 3,652 21,149 9,154
Non-affiliate
programming 35,148 31,404 103,327 93,462
Amortization of film
assets (4,739) 4,560 (5,260) 21,703
Impairment of film
assets - 40,946 - 225,832
Subscriber acquisition
fee amortization 7,048 7,747 22,728 23,260
Amortization of capital
lease 289 289 868 868
Other cost of services 2,933 1,786 8,193 8,838
--------- --------- ---------- ----------
Total cost of services 51,926 90,384 151,005 383,117
Selling, general &
administrative expenses 11,578 10,682 39,828 32,489
Marketing expense 3,565 3,483 11,850 8,851
Depreciation and
amortization 377 635 1,270 2,317
--------- --------- ---------- ----------
Loss from continuing
operations before interest
expense (12,134) (57,866) (39,162) (283,961)
Interest expense (25,743) (26,461) (82,585) (73,077)
--------- --------- ---------- ----------
Loss from continuing
operations (37,877) (84,327) (121,747) (357,038)
(Loss) gain from sale of
discontinued operations - (1) - 153
--------- --------- ---------- ----------
Loss before cumulative
effect of change in
accounting principle (37,877) (84,328) (121,747) (356,885)
Cumulative effect of change
in accounting principle - - - (2,099)
--------- --------- ---------- ----------
Net loss $(37,877) $(84,328) $(121,747) $(358,984)
--------- --------- ---------- ----------
Net loss per share $ (0.36) $ (0.80) $ (1.16) $ (3.43)
--------- --------- ---------- ----------
Weighted average shares
outstanding 104,788 104,788 104,788 104,788
Crown Media Holdings, Inc.
Unaudited Consolidated Balance Sheet Data
(In thousands)
As of September 30, As of December 31,
--------------------------------------
2007 2006
--------------------------------------
ASSETS
Cash and cash equivalents $ 3 $ 13,965
Accounts receivable, less
allowance for doubtful
accounts of $299 and $246,
respectively 58,285 57,079
Program license fees -
affiliates 112 115
Program license fees - non-
affiliates 126,630 111,909
Receivable from buyer of
international business 0 24
Prepaid and other assets 4,545 4,202
Prepaid program license fee
assets 12,937 10,271
------------------- ------------------
Total current assets 202,512 197,565
Accounts receivable 443 850
Program license fees -
affiliates 190 274
Program license fees - non-
affiliates 148,085 185,620
Subscriber acquisition fees,
net 13,255 41,665
Property and equipment, net 15,775 16,313
Goodwill 314,033 314,033
Prepaid and other assets 8,439 11,463
------------------- ------------------
Total assets $ 702,732 $ 767,783
------------------- ------------------
Crown Media Holdings, Inc.
Unaudited Consolidated Balance Sheet Data
(In thousands)
As of As of
September December
30, 31,
--------------------------
2007 2006
--------------------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES
Accounts payable and accrued liabilities $ 29,492 $ 26,588
Accrued restricted stock units 4,216 1,513
Subscriber acquisition fees payable 865 2,071
License fees payable to affiliates 3,911 2,275
License fees payable to non-affiliates 94,838 96,085
Payables to RHI affiliates - 168
Payables to affiliates 15,499 13,777
Payable to buyer of international
business 4,566 5,098
Interest payable 90 59
Capital lease obligations 721 672
Deferred credit from transition services
agreement 662 1,213
------------ ------------
Total current liabilities 154,860 149,519
Accrued liabilities 18,699 25,291
License fees payable to non-affiliates 84,990 88,951
Payable to buyer of international
business 2,274 4,771
Credit facility 80,934 87,633
Line of credit and interest payable to HC
Crown 99,398 93,465
Line of credit and interest payable to
Hallmark Cards affiliate 56,745 53,364
Senior unsecured note to HC Crown,
including accrued interest 605,977 562,167
Note and interest payable to Hallmark
Cards affiliate 155,674 146,397
Note and interest payable to Hallmark
Cards 27,166 -
Capital lease obligations 14,951 15,498
Company obligated mandatorily redeemable
preferred interest 18,138 16,483
Deferred credit from transition services
agreement 2,299 3,188
------------ ------------
Total liabilities 1,322,105 1,246,727
Commitments and contingencies
REDEEMABLE COMMON STOCK, Class A common
stock, $.01 par value; 4,357,066 and 0
shares issued and and outstanding as of
September 30, 2007 and December 31, 2006 31,937
STOCKHOLDERS' DEFICIT
Class A common stock, $.01 par value;
200,000,000 shares authorized;
69,760,588 and 74,117,654 shares issued
and outstanding as of September 30, 2007
and December 31, 2006 698 741
Class B common stock, $.01 par value;
120,000,000 shares authorized;
30,670,422 shares issued and outstanding
as of both September 30, 2007 and
December 31, 2006 307 307
Paid-in capital 1,406,456 1,457,032
Accumulated deficit (2,058,771) (1,937,024)
------------ ------------
Total stockholders' deficit (651,310) (478,944)
------------ ------------
Total liabilities and stockholders'
deficit $ 702,732 $ 767,783
------------ ------------
Crown Media Holdings, Inc.
Selected Third Quarter Unaudited Financial Information
($ in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
2007 2006 2007 2006
-----------------------------------------
Net loss $(37,877) $(84,328) $(121,747) $(358,984)
(Gain) loss on sale of
discontinued operations - 1 - (153)
Cumulative effect of change
in accounting principle - - - 2,099
Amortization of film assets (4,739) 4,560 (5,260) 21,703
Impairment of film assets - 40,946 - 225,832
Subscriber acquisition fee
amortization expense 8,966 9,954 27,551 29,795
Depreciation and
amortization 666 924 2,138 3,185
Interest expense 25,743 26,461 82,585 73,077
Restricted stock unit
compensation (benefit) 784 504 4,245 (3,316)
--------- --------- ---------- ----------
Adjusted earnings before
interest, taxes,
depreciation amortization
and discontinued operations $ (6,457) $ (978) $ (10,488) $ (6,762)
--------- --------- ---------- ----------
Programming and other
amortization 46,089 34,728 123,506 101,801
Provision for allowance for
doubtful account 108 (1,017) 95 254
Changes in operating assets
and liabilities:
Additions to program
license fees (24,928) (2,508) (101,576) (52,264)
Change to subscriber
acquisition fees 738 107 858 (224)
Change in subscriber
acquisition fees payable (988) (92) (1,206) (10,071)
Interest paid (2,227) (4,987) (6,721) (14,221)
Changes in other
operating assets and
liabilities, net of
adjustments above (6,967) (28,282) (7,237) (39,932)
--------- --------- ---------- ----------
Net cash provided by (used
in)
operating activities from
continuing operations $ 5,368 $ (3,029) $ (2,769) $ (21,419)
--------- --------- ---------- ----------
Crown Media Holdings, Inc.
Selected Third Quarter Unaudited Financial Information
($ in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
2007 2006 2007 2006
--------------------------------------
Net cash (used in) provided by
operating activities from
continuing operations $ 5,368 $(3,029) $ (2,769) $(21,419)
Net cash used in investing
activities (1,428) (1,323) (3,995) (7,851)
Net cash (used in) provided by
financing activities (10,870) 3,327 (7,198) 23,142
--------- -------- --------- ---------
Net decrease in cash and cash
equivalents (6,930) (1,025) (13,962) (6,128)
Cash equivalents, beginning of
period 6,933 10,823 13,965 15,926
--------- -------- --------- ---------
Cash equivalents, end of period $ 3 $ 9,798 $ 3 $ 9,798
--------- -------- --------- ---------
CONTACT: Investors and Financial Press
IR Focus
Mindy Tucker, 914-725-8128
mindy@irfocusllc.com
or
Media
Crown Media
Nancy Carr, 818-755-2643
ncarr@hallmarkchannel.com
SOURCE: Crown Media Holdings, Inc.
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