UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
Amendment No. 3
CURRENT REPORT
PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
April 26, 2005
Date of Report (Date of earliest event reported)
CROWN MEDIA HOLDINGS, INC.
(Exact name of Registrant as Specified in Charter)
Delaware | | 000-30700 | | 84-1524410 |
(State or other Jurisdiction of
Incorporation) | | (Commission File Number) | | (IRS Employer Identification
No.) |
12700 Ventura Boulevard
Studio City, California 91604
(Address of Principal Executive Offices)
(818) 755-2400
Registrant’s telephone number, including area code
Check the appropriate box below if the Form 8-K is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 2.01. Completion of Acquisition or Disposal of Assets.
This amendment to the Form 8-K Report of Crown Media Holdings, Inc. is filed in order to revise the unaudited pro forma condensed consolidated statements of operations for the year ended December 31, 2004 and the three months ended March 31, 2005, along with the unaudited pro forma condensed consolidated balance sheet as of March 31, 2005. This revision, based upon a review of calculations, contains changes to certain amounts that are eliminated with the disposal of the international business. Captions on the pro forma statements of operations that are affected by this revision are (1) Other revenue, (2) Amortization of film assets, (3) Selling, general & administrative expenses and (4) Gain on sale of international business. Captions on the pro forma balance sheet that are affected by this revision are (1) the current portion of Accounts payable and accrued liabilities, (2) the non-current portion of Accrued liabilities and (3) Accumulated deficit. This revision also includes the reclassification of a certain amount, which previously was reported as subscriber acquisition fee amortization, as a component of subscriber fees revenue for the year ended December 31, 2004, in order to more fully comply with EITF No. 01-9. Such amount will not be eliminated with the disposal of the international business.
On April 26, 2005, Crown Media Holdings, Inc. (the “Company”) announced the completion of the sale of its international business pursuant to a Purchase and Sale Agreement (“Purchase Agreement”), dated as of February 23, 2005, by and among CM Intermediary, LLC (“CM Intermediary”), a wholly-owned subsidiary of the Company, Bagbridge Limited (“Bagbridge”) and, solely with respect to Section 10.14 of the Purchase Agreement, the Company, and an Asset Purchase and Sale Agreement (the “Asset Purchase Agreement” and, together with the Purchase Agreement, the “Transaction Agreements”), dated as of February 23, 2005, by and among Crown Media Distribution, LLC (“CM Distribution”), Bagbridge and, solely with respect to Section 10.14 of the Asset Purchase Agreement, the Company. The obligations of each of CM Intermediary and CM Distribution are supported by a guarantee by the Company. Other than in respect of or as contemplated by the Transaction Agreements, there are no material relationships between the Company and its affiliates, on the one hand, and Bagbridge and its affiliates, on the other hand. Subsequent to the sale, the Company has no significant continuing economic involvement with the international film assets or the operations of the international business.
Pursuant to the Purchase Agreement, the Company sold the outstanding capital stock of the two operating subsidiaries of the Company’s international business, Crown Media International, LLC and Crown Entertainment Limited, for $62.0 million, subject to a purchase price adjustment for working capital changes. Pursuant to the Asset Purchase Agreement, the Company sold certain international rights to a library of theatrical films, made for television movies, specials, mini-series, series and other television programming for $180.0 million, subject to purchase price adjustments relating to receivables acquired and working capital changes.
The Purchase Agreement and Asset Purchase Agreement are attached to the Company’s Current Report on Form 8-K, dated as of February 23, 2005, as Exhibits 2.1 and 2.2, respectively, and are hereby incorporated herein by reference. The description of the Transaction Agreements contained herein is qualified in its entirety by reference to such agreements. A description of the transaction and use of proceeds is also presented in Note 1 to the Unaudited Condensed
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Consolidated Financial Statements contained in the Company’s report on Form 10-Q for the quarter ended March 31, 2005.
Item 9.01. Financial Statements and Exhibits.
(b) Pro forma financial information
The unaudited pro forma condensed consolidated financial statements presented below are based on the historical financial statements of the Company and give effect to the disposition of Crown Media International and the international rights to the Company’s film assets. The pro forma condensed consolidated balance sheet gives effect to the sale as if it occurred on March 31, 2005. The pro forma condensed consolidated statements of operations eliminate the operations of the business sold in order to reflect the operations of the Company, as if the international business had been sold effective January 1, 2004, and January 1, 2005, for the year ended December 31, 2005, and the three months ended March 31, 2005, respectively. Crown Media International and the international rights to the film assets have been accounted for as assets held for sale in the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005, in accordance with Statement of Financial Accounting Standards No. 144 Accounting for an Impairment or Disposal of Long-Lived Assets.
The unaudited pro forma condensed consolidated statements of operations for the year ended December 31, 2004, and the three months ended March 31, 2005, reflect the pro forma adjustments necessary to eliminate the results of the international operations, including revenue, cost of services and other costs and expenses related to Crown Media International, the international rights to the film assets and a reduction in interest expense related to the retirement of debt. The pro-forma financial information purports to represent what the Company’s results of operations would have been had the sale occurred on January 1, 2004, or January 1, 2005.
The unaudited pro forma condensed consolidated balance sheet is presented for illustrative purposes only and is not necessarily indicative of the financial position that would have been achieved had the pro forma events described in the notes to the pro forma condensed consolidated balance sheet described below been completed as of March 31, 2005.
The following unaudited pro forma condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and the accompanying notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004, and Quarterly Reports on Form 10-Q for the quarters ended March 31, 2005, and June 30, 2005.
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Crown Media Holdings, Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
(Amounts in thousands, except per share data)
| | Year Ended
December 31, 2004
Historical | | Disposal of
International
Operations | | Year Ended
December 31, 2004
Pro Forma | |
Subscriber fees | | $ | 81,220 | (J) | $ | (70,790 | ) | $ | 10,430 | |
Advertising | | 127,268 | | (22,707 | ) | 104,561 | |
Advertising by Hallmark Cards | | 1,846 | | | | 1,846 | |
Film asset license fees | | 29,348 | | (7,312 | ) | 22,036 | |
Other revenue | | 685 | | (1,323 | ) | (638 | ) |
Total revenue | | 240,367 | | (102,132 | ) | 138,235 | |
Cost of services: | | | | | | | |
Affiliate programming | | 52,137 | | (17,072 | ) | 35,065 | |
Non-affiliate programming | | 85,085 | | (30,273 | ) | 54,812 | |
Amortization of film assets | | 47,197 | | (18,292 | ) | 28,905 | |
Impairment of film assets and technical equipment | | 117,891 | | (95,888 | )(G) | 22,003 | |
Subscriber acquisition fee amortization | | 26,091 | (J) | | | 26,091 | |
Amortization of capital leases | | 4,825 | | (4,729 | ) | 96 | |
Other cost of services | | 44,412 | | (33,472 | ) | 10,940 | |
Total cost of services | | 377,566 | | (199,726 | ) | 177,840 | |
Selling, general & administrative expenses | | 78,003 | | (33,562 | ) | 44,441 | |
Marketing expense | | 23,865 | | (7,388 | ) | 16,477 | |
Reorganization recovery | | (483 | ) | 461 | | (22 | ) |
Depreciation and amortization | | 9,001 | | (2,695 | ) | 6,306 | |
Loss from operations before interest expense and income tax provision | | (247,585 | ) | 140,778 | | (106,807 | ) |
Gain on sale of international business | | — | | 1,382 | (H) | 1,382 | |
Interest expense | | (66,933 | ) | 6,753 | (I) | (60,180 | ) |
Loss from operations before income tax provision | | (314,518 | ) | 148,913 | | (165,605 | ) |
Income tax provision | | (2,288 | ) | 2,288 | | — | |
Net loss | | $ | (316,806 | ) | $ | 151,201 | | $ | (165,605 | ) |
Net loss per share | | $ | (3.03 | ) | $ | 1.45 | | $ | (1.58 | ) |
Weighted average shares outstanding | | 104,533 | | 104,533 | | 104,533 | |
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Crown Media Holdings, Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
(Amounts in thousands, except per share data)
| | Three Months Ended | | Disposal of | | Three Months Ended | |
| | March 31, 2005 | | International | | March 31, 2005 | |
| | Historical | | Operations | | Pro Forma | |
Subscriber fees | | $ | 4,610 | | $ | — | | $ | 4,610 | |
Advertising | | 33,333 | | | | 33,333 | |
Advertising by Hallmark Cards | | 543 | | | | 543 | |
Film asset license fees | | 2,083 | | | | 2,083 | |
Total revenue | | 40,569 | | — | | 40,569 | |
Cost of services: | | | | | | | |
Affiliate programming | | 9,891 | | | | 9,891 | |
Non-affiliate programming | | 18,131 | | | | 18,131 | |
Amortization of film assets | | 5,681 | | | | 5,681 | |
Subscriber acquisition fee amortization | | 9,508 | | | | 9,508 | |
Other cost of services | | 1,796 | | | | 1,796 | |
Total cost of services | | 45,007 | | — | | 45,007 | |
Selling, general & administrative expenses | | 12,152 | | | | 12,152 | |
Marketing expense | | 9,830 | | | | 9,830 | |
Depreciation and amortization | | 1,350 | | | | 1,350 | |
Loss from continuing operations before interest expense | | (27,770 | ) | — | | (27,770 | ) |
Interest expense | | (16,896 | ) | | | (16,896 | ) |
Loss from continuing operations | | (44,666 | ) | — | | (44,666 | ) |
Gain on sale of international business | | — | | 1,382 | (H) | 1,382 | |
Loss from discontinued operations | | (6,241 | ) | 6,241 | | — | |
Net loss | | $ | (50,907 | ) | 7,623 | | $ | (43,284 | ) |
Net loss per share | | $ | (0.49 | ) | $ | 0.08 | | $ | (0.41 | ) |
Weighted average shares outstanding | | 104,533 | | 104,533 | | 104,533 | |
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Crown Media Holdings, Inc.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
(In thousands, except share and per share amounts)
| | Historical | | Pro Forma Adjustments | | | |
| | As of | | Sale of | | | | Pro Forma | |
| | March 31, | | International | | Use of | | March 31, | |
| | 2005 | | Business | | Proceeds | | 2005 | |
| | | | | | | | | |
ASSETS | | | | | | | | | |
| | | | | | | | | |
Cash and cash equivalents | | $ | 14,746 | | $ | 222,000 | (A) | $ | (222,000 | ) | $ | 14,746 | |
Accounts receivable, less allowance for doubtful accounts of $1,281 | | 59,081 | | 49 | | | | 59,130 | |
Program license fees - affiliates | | 29,785 | | | | | | 29,785 | |
Program license fees - non-affiliates | | 63,407 | | | | | | 63,407 | |
Receivable from affiliate | | 18,468 | | | | | | 18,468 | |
| | | | | | | | | |
Prepaid and other assets | | 7,174 | | (507 | ) | 2,127 | (D) | 8,794 | |
| | | | | | | | | |
Current assets held for sale | | 54,919 | | (54,919 | ) | | | — | |
| | | | | | | | | |
Total current assets | | 247,580 | | 166,623 | | (219,873 | ) | 194,330 | |
Accounts receivable | | 7,616 | | | | | | 7,616 | |
Program license fees - affiliates | | 58,248 | | | | | | 58,248 | |
Program license fees - non-affiliates | | 160,536 | | | | | | 160,536 | |
Film assets, net | | 445,812 | | | | | | 445,812 | |
Subscriber acquisition fees, net | | 108,788 | | | | | | 108,788 | |
Property and equipment, net | | 20,877 | | | | | | 20,877 | |
Goodwill | | 314,033 | | | | | | 314,033 | |
| | | | | | | | | |
Prepaid and other assets | | 3,466 | | (30 | ) | 10,516 | (D) | 13,952 | |
| | | | | | | | | |
Non-current assets held for sale | | 168,064 | | (168,064 | ) | | | — | |
| | | | | | | | | |
Total assets | | $ | 1,535,020 | | $ | (1,471 | ) | $ | (209,357 | ) | $ | 1,324,192 | |
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LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | |
| | | | | | | | | |
LIABILITIES | | | | | | | | | |
Accounts payable and accrued liabilities | | $ | 24,171 | | $ | 14,257 | (B) | $ | (11,575 | )(F) | $ | 26,853 | |
| | | | | | | | | |
Accrued restricted stock units | | 11,825 | | 2,782 | (B) | (2,782 | )(F) | 11,825 | |
Subscriber acquisition fees payable | | 33,465 | | | | | | 33,465 | |
License fees payable to affiliates | | 15,128 | | | | | | 15,128 | |
License fees payable to non-affiliates | | 72,417 | | | | | | 72,417 | |
Payables to affiliates | | 14,125 | | | | | | 14,125 | |
Credit facility and interest payable | | 376 | | | | | | 376 | |
Capital lease obligations | | 571 | | | | | | 571 | |
Deferred revenue | | 968 | | | | | | 968 | |
| | | | | | | | | |
Current liabilities held for sale | | 23,433 | | (23,433 | ) | | | — | |
| | | | | | | | | |
Total current liabilities | | 196,479 | | (6,394 | ) | (14,357 | ) | 175,728 | |
| | | | | | | | | |
Accrued liabilities | | 14,036 | | 19,877 | (B) | | | 33,913 | |
License fees payable to affiliates | | 151,980 | | | | | | 151,980 | |
License fees payable to non-affiliates | | 140,845 | | | | | | 140,845 | |
Line of credit and interest payable to HC Crown | | 82,195 | | | | | | 82,195 | |
Payable to Hallmark Entertainment affiliates | | 100,000 | | | | | | 100,000 | |
Senior unsecured note to HC Crown including accrued interest | | 472,645 | | | | | | 472,645 | |
| | | | | | | | | |
Credit facility | | 310,000 | | | | (195,000 | )(E) | 115,000 | |
Capital lease obligations | | 16,635 | | | | | | 16,635 | |
Company obligated mandatorily redeemable preferred interest | | 12,167 | | | | | | 12,167 | |
| | | | | | | | | |
Non-current liabilities held for sale | | 13,397 | | (13,397 | ) | | | — | |
| | | | | | | | | |
Total liabilities | | 1,510,379 | | 86 | | (209,357 | ) | 1,301,108 | |
Commitments and contingencies | | | | | | | | | |
STOCKHOLDERS’ EQUITY | | | | | | | | | |
Class A common stock, $.01 par value; 200,000,000 shares authorized; 73,863,037 shares issued and outstanding as of March 31, 2005 | | 739 | | | | | | 739 | |
Class B common stock, $.01 par value; 120,000,000 shares authorized; 30,670,422 shares issued and outstanding as of March 31, 2005 | | 307 | | | | | | 307 | |
Paid-in capital | | 1,386,857 | | | | | | 1,386,857 | |
| | | | | | | | | |
Accumulated other comprehensive income | | 2,939 | | (2,939 | )(C) | | | — | |
| | | | | | | | | |
Accumulated deficit | | (1,366,201 | ) | 1,382 | (C) | | | (1,364,819 | ) |
Total stockholders’ equity | | 24,641 | | (1,557 | ) | | | 23,084 | |
| | | | | | | | | |
Total liabilities and stockholders’ equity | | $ | 1,535,020 | | $ | (1,471 | ) | $ | (209,357 | ) | $ | 1,324,192 | |
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Notes to Pro Forma Information
Unaudited Pro Forma Condensed Consolidated Balance Sheet
(A) The unaudited pro forma condensed consolidated balance sheet reflects the receipt of cash proceeds of $222.0 million for the sale of Crown Media International and the international rights to the film assets, as if the sale occurred on March 31, 2005. At the closing on April 26, 2005, the Company received approximately $222.0 million, which is subject to subsequent adjustment in cash for the difference between actual working capital on April 26, 2005, and a specified amount, as defined in the Stock Purchase Agreement.
(B) The pro forma adjustments to accounts payable and accrued liabilities reflect (1) $28.3 million for future payments to, or on behalf of, the purchaser, (2) $5.2 million for accrued transaction costs, and (3) $2.8 million for the accelerated vesting of restricted stock units for certain executives of the international business who are no longer employed by the Company as a result of the sale.
(C) The pro forma adjustments to the accumulated deficit reflect an estimated gain on the sale of the international business and the international rights to the film assets of approximately $2.0 million, as if the transaction closed on March 31, 2005, and $2.9 million recognition of the accumulated foreign currency translation gain previously included as a component of other comprehensive income.
(D) Pro forma adjustments to reflect the use of cash proceeds have been made to reflect the prepayment of $12.6 million related to a seven-year agreement in which the purchaser will provide playback and other technical services to the Company under an agreement executed contemporaneously with the sale of the international business and the international rights to the film assets.
(E) Pro forma adjustments have been made to reflect the repayment of $195.0 million of indebtedness under the Company’s bank credit facility on the day following the closing.
(F) Pro forma adjustments to reflect the payment of transaction costs to investment bankers, lawyers and accountants and severance benefits and restricted stock unit payments to employees no longer employed by the Company as a result of the sale of the international businesses.
Unaudited Pro Forma Condensed Consolidated Statements of Operations
(G) The pro forma adjustments to the impairment charge reflect amounts recorded in 2004 related to the international rights to the film assets of $89.0 million and the international channel operations of $6.9 million.
(H) Pro forma adjustment for the estimated gain on the sale of the international businesses as if the sale transaction occurred at the beginning of each period presented.
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(I) Interest expense for the amount related to the $100.0 million in debt that was required to be repaid with the proceeds from the sale.
(J) Reclassification of $920,000, which amount previously was reported as subscriber acquisition fee amortization, as a component of subscriber fees revenue for the year ended December 31, 2004, in order to more fully comply with EITF No. 01-9.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| | CROWN MEDIA HOLDINGS, INC. |
| | (Registrant) |
| | |
| | |
Date | November 8, 2005 | | By | /s/ William J. Aliber | |
| | William J. Aliber |
| | Executive Vice President and Chief Financial
Officer |
| | | | | |
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