Crown Media Holdings Announces Operating Results for Fourth Quarter of 2012
Strong Operating and Financial Results. Adjusted EBITDA for the year ended December 31, 2012 increased 18% over last year to $137.7 million on the strength of an 8% increase in total revenues and a 2% decrease in programming costs.
Hallmark Channel Holiday Programming Success. Over the course of its holiday schedule, from November 10 through December 30, Hallmark Channel ranked as the #1 cable network in weekend primetime (Sat-Sun, 8-11pm) among women 25-54, households, and total viewers according to Nielsen. With 1,100 hours of holiday programing, "Countdown to Christmas" reached more than 65.4 million unduplicated viewers overall, while the 12 new original movie premieres attracted more than 21.1 million unduplicated viewers and delivered the #1 rated ad-supported cable movie of the day for seven consecutive Saturdays. Five of those seven movies ranked as the #1 cable program of the day. The seasonal programming also brought Hallmark Channel its highest week of all time, from November 26 to December 2.
Hallmark Movie Channel Achieves Key Distribution Milestone. Hallmark Movie Channel recently marked the important distribution benchmark of 50 million homes, with the channel's February 2013 universe estimate at 49.8 million homes, an increase of 897,000 homes over the January 2013 universe estimate, according to Nielsen. Since becoming Nielsen measured in April 2010, Hallmark Movie Channel has added nearly 16 million new subscriber homes, representing the largest percentage increase of any cable network in that period.
Original Content Continues to Draw Viewers to Hallmark Channel. Kicking off the year, the January 12 premiere of "The Nearlyweds" was the #1 rated prime time ad-supported cable movie of the day, earning a 1.2 household rating and reaching 2.1 million unduplicated viewers. One week later, the debut of "The Sweeter Side of Life" on January 19 delivered a 1.8 household rating and reached 3.1 million unduplicated viewers. "Be My Valentine", the most recent original movie premiere, continued the trend with another 1.8 household rating and an audience of more than 3 million unduplicated viewers.
Upfront Negotiations Nearly Completed. 2013 calendar year Upfront negotiations are nearly completed for both Hallmark Channel and Hallmark Movie Channel, reflecting the maintenance of strong relationships with a diverse group of high-quality, stable advertisers.
"We implemented a number of strategic initiatives and reached some key milestones in 2012 that positioned our business for strong results in fourth quarter and for the full year," said Bill Abbott, President and CEO of Crown Media Family Networks. "Fourth quarter culminated in another highly successful run of Hallmark Channel's 'Countdown to Christmas' campaign, which garnered record ratings and positively impacted advertising sales revenue. On the Hallmark Movie Channel side, the network continues to show impressive growth, recently reaching the key distribution benchmark of 50 million subscriber homes. At the outset of 2013, we have a strong foundation from which to further develop our business and monetize the gains we are seeing in ratings and distribution."
Historical financial information is provided in tables at the end of this release.
For the fourth quarter of 2012 Crown Media reported revenue of $102.3 million, a 3% increase from $99.6 million in the fourth quarter of 2011. Advertising revenue increased 2% to $83.1 million from $81.7 million in the fourth quarter of 2011 due to Hallmark Movie Channel audience growth. Subscriber fee revenue increased 7% to $19.1 million from $17.8 million in the fourth quarter of 2011 due to contractual rate increases.
Crown Media reported revenue of $349.9 million for 2012, an 8% increase from $323.4 million for 2011. Advertising revenue increased 8% to $271.2 million during 2012 from $251.3 million during 2011. Subscriber fee revenue increased 9% to $78.0 million, from $71.7 million in the prior year.
For the fourth quarter of 2012, cost of services increased 1% to $39.8 million from $39.3 million during the same quarter of 2011.
For 2012 cost of services decreased 1% to $148.3 million from $149.0 million during 2011. Within cost of services, programming expenses decreased $2.2 million to $134.5 million due to the expiration of a number of programming license agreements. Other cost of services including amortization of capital leases increased 12% from $12.3 million in 2011 to $13.7 million for 2012 due to increases in residual expense of $2.0 million from increased usage of original programming.
Selling, general and administrative expense increased 35% to $16.8 million for the fourth quarter of 2012 from $12.5 million during the same quarter of 2011 due to the increases in performance-based employee costs and legal expenses of $2.5 million and $1.5 million, respectively. Selling, general and administrative expense increased 9% for 2012 to $59.2 million from $54.2 million during 2011. Research costs increased $0.9 million, legal costs increased $1.7 million, and performance-based employee costs increased $4.0 million. During 2011 the Company recorded non-recurring banking fees of $2.5 million attributable to its June 2010 recapitalization.
Marketing expense increased to $2.2 million for the quarter ended December 31, 2012, from $6.3 million for the quarter ended December 31, 2011 due to the promotion of original holiday programming. Marketing expenses of $10.2 million for 2012 increased $0.4 million from $9.8 million for 2011.
Interest expense decreased $0.6 million for the three months ended December 31, 2012 as compared to the three months ended December 31, 2011. Interest expense on the Note was $8.0 million and $8.1 million for the three months ended December 31, 2011 and 2012, respectively. Interest expense on the Term Loan was $3.3 million and $3.0 million for the three months ended December 31, 2011 and 2012, respectively.
Interest expense increased $20.2 million for 2012 as compared to 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 2011. Interest expense on the Note was $14.8 million and $32.2 million for 2011 and 2012, respectively. Interest expense on the Term Loan was $6.0 million and $12.2 million for 2011 and 2012, respectively.
The Company recorded income tax expense of $0.5 million for the three months ended December 31, 2011. The income tax benefits recorded for the three months and year ended December 31, 2012, were $44.8 million and $22.6 million, respectively. During 2011, the Company released $236.0 million of valuation allowance while the Company released $54.2 million of valuation allowance during 2012.
Adjusted EBITDA was $38.5 million for the fourth quarter of 2012 compared to $42.3 million for the same period last year. Cash provided by operating activities totaled $10.5 million for the fourth quarter of 2012 compared to $15.5 million for the same period last year. The net income to common shareholders for the quarter ended December 31, 2012, totaled $70.1 million, or $0.19 per share, compared to $29.9 million, or $0.08 per share, in the fourth quarter of 2011.
Adjusted EBITDA was $137.7 million for 2012 compared to $116.9 million for 2011. Cash provided by operating activities totaled $30.7 million for 2012 compared to $41.5 million for 2011. Net income to common shareholders for 2012 totaled $107.4 million, or $0.30 per share, compared to $249.0 million, or $0.69 per share, for 2011.
Conference Call and Webcast to be Held Friday, February 22nd, 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 fourth quarter and year ended December 31, 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 87608420. 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 Friday, February 22nd at (855) 859-2056 (Domestic) or (404) 537-3406 (International), using the conference number 87608420.
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 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 50 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 classic theatrical films, 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.
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 December 31,
Years Ended December 31,
Advertising by Hallmark Cards
Total revenue, net
Cost of services:
Hallmark Cards affiliate programming
Amortization of capital lease
Other cost of services
Total cost of services
Selling, general and administrative expense
Depreciation and amortization expense
Gain on extinguishment of indemnification
Income from operations before interest
and income tax expense
Income from operations before income tax expense
Income tax benefit (expense)
Income before gain from sale of discontinued operations
Gain from sale of discontinued operations, net of tax
Net income and comprehensive income
Income allocable to Preferred Stockholder
Net income attributable to common stockholders
Net income per share - basic
Net income per share - diluted
Weighted average number of common shares outstanding
Unaudited Consolidated Balance Sheets
(In thousands, except share and per share data)
As of December 31,
As of December 31,
Cash and cash equivalents
Accounts receivable, less allowance for doubtful
accounts of $245 and $181, respectively
Prepaid programming rights
Deferred tax asset, net
Prepaid and other assets
Total current assets
Prepaid programming rights
Property and equipment, net
Deferred tax asset, net
Debt issuance costs, net
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities
Audience deficiency reserve liability
Programming rights payable
Payables to Hallmark Cards affiliates
Current maturities of long-term debt
Total current liabilities
Programming rights payable
Long-term debt, net of current maturities
COMMITMENTS AND CONTINGENCIES
Class A common stock, $.01 par value; 500,000,000 shares
authorized; 359,675,936 shares issued and outstanding as of
both December 31, 2012 and 2011