Crown Media Holdings (CRWN)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 8-K/A

Amendment No. 2

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)

(Exact name of Registrant as Specified in Charter)

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))

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 for the three months ended March 31, 2005, and to revise the unaudited pro forma condensed consolidated balance sheet as of March 31, 2005.  The revisions concern the gain on sale of the international business and reflect the accrual of an estimated liability to pay residual and participation costs that the buyer of the international business would otherwise pay for the buyer’s sales of film licenses to third parties and internal use of the library product through April 2015.  Accumulated deficit and accrued liabilities have been revised to give effect to the estimated liability referred to above and to revise the current and non-current classifications of amounts previously reported as prepaid and other assets.

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 Consolidated Financial Statements contained in the Company’s report on Form 10-Q for the quarter ended March 31, 2005.

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(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)

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Crown Media Holdings, Inc.

Unaudited Pro Forma Condensed Consolidated Statement of Operations

(Amounts in thousands, except per share data)

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Crown Media Holdings, Inc.

(In thousands, except share and per share amounts)

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Notes to Pro Forma Information

(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.

(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.

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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.

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